<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 June 30, 2000
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 August 5,
2000 - 2,099,926 (excludes Treasury Shares of 1,235,956)
===============================================================================
<PAGE>
LTC HEALTHCARE, INC.
FORM 10-Q
JUNE 30, 2000
INDEX
<TABLE>
<CAPTION>
PART I -- FINANCIAL INFORMATION PAGE
<S> <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 ...........................................10
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders..................................................14
Item 5. Market for Common Stock and Related Stockholder Matters..............................................14
Item 6. Exhibits and Reports on Form 8-K ....................................................................14
</TABLE>
2
<PAGE>
LTC HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------------ -------------------
<S> <C> <C>
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 98 $ 424
Accounts receivable, net of allowance for doubtful
accounts: 2000 - $1,162; 1999 - $313 15,779 6,131
Prepaid expenses and other current assets 3,114 815
------------------ -------------------
Total current assets 18,991 7,370
Property and Equipment:
Buildings, improvements and equipment 50,603 48,928
Land 2,246 2,246
Accumulated depreciation (6,403) (5,580)
------------------ -------------------
Property and equipment, net 46,446 45,594
Other Assets:
Equity securities 1,156 1,703
Debt securities 11,616 11,013
Other assets 809 694
------------------ -------------------
Total other assets 13,581 13,410
------------------ -------------------
Total assets $79,018 $66,374
------------------ -------------------
------------------ -------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $2,545 $1,549
Accrued salaries and benefits 3,371 1,272
Current portion of mortgage loans payable 656 626
Other accrued liabilities 7,343 3,775
------------------ -------------------
Total current liabilities 13,915 7,222
Mortgage Loans Payable 46,563 46,898
Line of Credit from LTC Properties 19,495 6,337
------------------ -------------------
Total liabilities 79,973 60,457
Minority Interest 3,518 3,518
Commitments and Contingencies
Stockholders' Equity (Deficit):
Preferred stock $0.01 par value; 10,000,000 shares authorized - -
Common stock $0.01 par value; 40,000,000 shares authorized;
shares issued: 2000 - 3,335,882; 1999 - 3,335,882 33 33
Capital in excess of par value 10,224 10,224
Treasury stock: shares 2000 - 1,235,956; 1999 - 881,556 (2,474) (2,112)
Accumulated deficit (9,814) (3,851)
Accumulated comprehensive loss (2,442) (1,895)
------------------ -------------------
Total stockholders' equity (deficit) (4,473) 2,399
------------------ -------------------
Total liabilities and stockholders' equity (deficit) $79,018 $66,374
------------------ -------------------
------------------ -------------------
</TABLE>
SEE ACCOMPANYING NOTES
3
<PAGE>
LTC HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Net patient revenues $22,324 $ - $43,521 $ -
Rental income 1,346 1,797 2,567 3,569
Interest and other income 611 681 1,093 1,385
-------- -------- -------- --------
Total revenues 24,281 2,478 47,181 4,954
Costs and Expenses:
Salaries and benefits 14,850 - 29,612 -
Supplies 3,052 - 5,980 -
Rent - LTC Properties, Inc. 2,045 - 4,087 -
Interest expense 1,018 1,334 2,075 2,674
Interest expense on line of credit from LTC Properties, Inc. 475 442 768 867
Depreciation 422 496 836 992
Minority interest 86 86 172 172
Other operating and administrative 5,333 388 9,614 659
-------- -------- -------- --------
Total expenses 27,281 2,746 53,144 5,364
Loss before provision for income taxes (3,000) (268) (5,963) (410)
Provision for income taxes - - - -
-------- -------- -------- --------
Net loss $(3,000) $ (268) $ (5,963) $ (410)
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average shares outstanding 2,311,510 2,696,269 2,099,926 2,771,879
Net Loss Per Common Share:
Basic and diluted net loss per share $ (1.30) $ (0.10) $(2.84) $ (0.15)
-------- -------- -------- --------
Comprehensive loss:
Net loss $(3,000) $ (268) $(5,963) $ (410)
Unrealized income (loss) on available-for-sale equity securities 67 148 (547) (1,020)
-------- -------- -------- --------
Total comprehensive loss $(2,933) $(120) $(6,510) $(1,430)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
SEE ACCOMPANYING NOTES
4
<PAGE>
LTC HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
2000 1999
--------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (5,963) $ (410)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation 836 992
Other non-cash items (91) (57)
Increase in accounts receivable, net (8,028) -
Increase in prepaid expenses and other assets (2,337) -
Decrease in accounts payable 412 -
Increase in accrued salaries and benefits 2,099 -
Increase in accrued expenses and other liabilities 3,017 (49)
--------------- --------------
Net cash provided by (used in) operating activities (10,055) 476
INVESTING ACTIVITIES:
Purchase of LTC Properties' bonds (521) -
Property and equipment additions (1,675) -
Other 81 (759)
--------------- --------------
Net cash used in investing activities (2,115) (759)
FINANCING ACTIVITIES:
Advances under line of credit from LTC Properties 13,158 5,071
Payments on line of credit from LTC Properties - (3,084)
Principal payments on notes and mortgage loans payable (952) (916)
Repurchase of common stock (362) (1,314)
--------------- --------------
Net cash provided by (used in) financing activities 11,844 (243)
--------------- --------------
Increase (decrease) in cash and cash equivalents (326) (526)
Cash and cash equivalents, beginning of period 424 1,012
--------------- --------------
Cash and cash equivalents, end of period $ 98 $ 486
=============== ==============
Supplemental disclosure of cash flow information:
Interest paid $ 2,080 $ 1,963
Non-cash investing and financing activities:
Non-cash acquisition of working capital $ 581 $ -
Purchase of mortgage loans receivable with a non-recourse note payable $ - $13,691
</TABLE>
SEE ACCOMPANYING NOTES
5
<PAGE>
LTC HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. THE COMPANY
LTC Healthcare, Inc. (the "Company"), a Nevada corporation, was incorporated on
March 20, 1998 and began operations on March 25, 1998. The Company was
originally a preferred stock subsidiary of LTC Properties, Inc. ("LTC
Properties"), a real estate investment trust. On September 30, 1998,
concurrently with the conversion of all shares of Company non-voting common
stock held by LTC Properties into voting common stock of the Company, LTC
Properties completed the spin-off of Company stock through a taxable dividend to
holders of LTC Properties common stock, convertible subordinated debentures and
Series C Preferred Stock (the "Distribution"). Upon completion of the
Distribution, the Company began operating as a separate public company.
The principal business of the Company is providing long-term healthcare services
through the operation of nursing facilities. As of December 31, 1999, the
Company operated 18 nursing facilities. On January 1, 2000 the Company leased
five additional nursing facilities from LTC Properties and began operating the
facilities as of such date. In addition, on January 1, 2000 the Company began
operating eight facilities pursuant to a management agreement. In connection
with the commencement of operations at five nursing facilities on January 1,
2000, the Company purchased $1,620,000 of accounts receivable, $90,000 of
prepaid and other assets and $5,000 of cash. In addition, the Company assumed
$584,000 of accounts payable and $550,000 of accrued liabilities. In connection
with this purchase, the Company was obligated on a term loan of $581,000. On
February 1, 2000, the Company leased one additional facility and began
operations on such date. In April 2000, LTC Properties sold a facility in North
Carolina that has continued to be operated by the Company. The Company
anticipates that the lease with the new owner will be terminated and that it
will no longer operate the facility once the new owner receives a change of
ownership licensure from the governmental payors. As a result of this
transaction, the Company will no longer have operations in North Carolina. At
June 30, 2000, the Company operated 31 nursing facilities with 3,473 licensed
beds and a rehabilitation hospital with 84 beds. The facilities operated by the
Company are located in eight states (Florida, Georgia, Illinois, Iowa, Kansas,
North Carolina, Tennessee and Virginia) and are collectively referred to herein
as nursing facilities. In addition to the operation of nursing facilities, as of
June 30, 2000, the Company owned six nursing facilities and four assisted living
facilities that were leased to third party operators under triple net leases. On
August 9, 2000, LTC Properties sold one facility in Tennessee and the Company
ceased operating the facility on that date and no longer has operations in
Tennessee.
The condensed consolidated financial statements included herein have been
prepared by the Company without audit and in the opinion of management include
all adjustments (all of which were normal and re-occurring) necessary for a fair
presentation of the results of operations for the three and six months ended
June 30, 2000 and 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 inter-company accounts and
transactions have been eliminated in consolidation. Certain reclassifications in
the financial statements have been made to the prior periods, including the
period ended March 31, 2000, to conform with reporting for the six months ended
June 30, 2000. 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. These condensed consolidated financial statements should be read
along with the Company's 1999 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. The results of operations for the three and
six months ended June 30, 2000 are not necessarily indicative of the results for
a full year.
2. SEGMENT REPORTING
The Company has one operating segment, nursing operations. Nursing operations
include revenues generated by providing long-term healthcare services in nursing
facilities operated by the Company and rental income generated by leasing
long-term healthcare facilities owned by the Company to third party operators.
The Company commenced
6
<PAGE>
LTC HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONT
(UNAUDITED)
operating nursing facilities on September 1, 1999. Prior to September 1, 1999,
the Company's revenues consisted primarily of rental income from the ownership
of long-term care facilities leased to third party operators.
3. RELATED PARTIES
LTC Properties has provided the Company with a $20,000,000 unsecured line of
credit that bears interest at 10% and matures in March 2008. As of June 30, 2000
and December 31, 1999, $19,495,000 and $6,337,000, respectively, were
outstanding under the line of credit. As of July 6, 2000, the maximum borrowings
of $20,000,000 was outstanding under the line of credit. The Company has been
dependent upon LTC Properties for capital and financing. LTC Properties is
currently in discussions with its lenders to allow it to increase the line of
credit to the Company to $25,000,000. However, LTC Properties has advised the
Company that as of June 30, 2000, $143,500,000 was outstanding under LTC
Properties' $170,000,000 Senior Unsecured Revolving Line of Credit (the
"Revolving Credit Facility"), which provides for a maturity of October 2, 2000.
LTC Properties has been negotiating a renewal of the Revolving Credit Facility,
as well as a renewal of a $25,000,000 term loan (the "Term Loan"), which also
provides for a maturity of October 2, 2000. Bank of America N.T. & S.A., one of
the nine lenders/participants in the Revolving Credit Facility, has recently
indicated it would not agree to renew its participation in the Revolving Credit
Facility unless LTC Properties agrees to new terms which LTC Properties believes
are not commercially reasonable. Failure to renew the Revolving Credit Facility
and the Term Loan on commercially reasonable terms could have a material adverse
effect on LTC Properties and the Company. In the event that LTC Properties and
the lenders are unable to agree on a renewal of the Revolving Credit Facility,
as well as the Term Loan; the amounts outstanding thereunder would be due on
October 2, 2000, and LTC Properties does not have a source for repayment of such
amounts by such date. In addition, LTC Properties has $32,192,000 in principal
amounts of Convertible Subordinated Debentures and certain other debt, which
contain provisions permitting acceleration if there are certain defaults in LTC
Properties' indebtedness, which would include defaults under the Revolving
Credit Facility and the Term Loan. LTC Properties has consulted with legal
counsel and is considering various alternatives if the Revolving Credit Facility
and the Term Loan are not renewed, such as lender liability lawsuits, and
seeking the protections afforded under Chapter 11 of the federal bankruptcy
laws. As a result of these discussions with its lenders, there is considerable
uncertainty as to whether LTC Properties can increase the line of credit to the
Company.
For the three months ended June 30, 2000 and 1999, the Company recorded interest
expense related to the unsecured line of credit of $475,000 and $442,000,
respectively. For the six months ended June 30, 2000 and 1999, the Company
recorded interest expense related to the unsecured line of credit of $768,000
and $867,000, respectively
The Company and LTC Properties had entered into an administrative services
agreement under which LTC Properties provided management and administrative
services to the Company. During the three months ended June 30, 2000, the
agreement was terminated with an effective date of January 1, 2000 since the
Company now has its own management and administrative staff. LTC Properties will
continue to provide advisory services to the Company. For the three and six
months ended June 30, 1999, the Company reimbursed LTC Properties $242,000 and
$415,000, respectively for administrative and management advisory services as
provided for under the administrative services agreement. The administrative
services fee is included in other operating and administrative expenses. On June
23, 2000, the LTC Properties' Board of Directors appointed the Company as its
exclusive sales agent for all skilled nursing facilities that are owned by LTC
Properties for a period of one year and approved a commission agreement with the
Company. During the three and six months ended June 30, 2000, the Company
received sales commissions of approximately $255,000 pursuant to the agreement.
The sales commission is included in interest and other income.
In April 2000, LTC Properties sold a facility that has continued to be operated
by the Company. The Company anticipates that the lease with the new owner will
be terminated and that it will no longer operate the facility once the new owner
receives a change of ownership licensure from the governmental payors. For the
six months ended June 30, 2000, the facility generated approximately $1,175,000
of net revenues. As of June 30, 2000, the Company operated 29 nursing facilities
that are owned by LTC Properties. The Company recorded rental expense of
approximately
7
<PAGE>
$4,087,000 for properties owned by LTC Properties during the six months ended
June 30, 2000. On August 9, 2000, LTC Properties sold one facility in Tennessee
and the Company ceased operating the facility as of that date. For the six
months ended June 30, 2000, the facility generated approximately $1,370,000 of
net revenues. These properties, which are leased from LTC Properties, in
general, are on a short-term basis, and once the properties are stabilized, new
rental rates may be approved by the independent members of the Board of
Directors of both LTC Properties and the Company. The Company believes that an
evaluation of the stabilized facilities may result in a decision by LTC
Properties to reduce rents on certain facilities or to close and sell certain
properties. Rent reductions in the range of $2,000,000 to $4,000,000 annually
have been preliminarily discussed with LTC Properties but no assurances can be
given that such reduction or any reductions will be granted.
As of June 30, 2000, the Company had mortgage loans secured by eight nursing
facilities with total outstanding principal of $30,236,000 and a weighted
average interest rate of 9.16% payable to LTC Properties' REMIC pools. One of
the nursing facilities securing the mortgage loans payable to LTC Properties'
REMIC pools is operated by the Company, one nursing facility was closed
during the periods presented and reopened on May 16, 2000 and was eligible to
participate in the Medicaid program as of July 20, 2000, and the remaining
six nursing facilities are leased to third party operators.
As of June 30, 2000, the Company owned 194,100 shares of LTC Properties common
stock. As of June 30, 2000, the Company owned $560,000 face amount of LTC
Properties 8.5% convertible subordinated debentures.
4. DEBT AND EQUITY SECURITIES
The Company has Regent Assisted Living, Inc. ("Regent") Debentures that mature
on March 31, 2008 and bear interest at 7.5% and are convertible at $6.75 per
share. As of June 30, 2000 and December 31, 1999, based on management's
estimates, the fair value of the Regent Debentures was approximately $5,100,000.
As of June 30, 2000 and December 31, 1999, the fair value of the Assisted Living
Concepts, Inc. ("ALC") convertible debentures which bear interest at 5.625%,
based on quoted market prices, was approximately $1,650,000 and $1,800,000,
respectively. As of June 30, 2000 and December 31, 1999 the Company owned 30,847
shares of ALC common stock, which was recorded at its fair value of $19,000 and
$66,000, respectively. Unrealized holding losses on changes in the fair value of
the Company's investment in ALC common stock of $47,000 and $316,000 are
included in comprehensive loss for the six months ended June 30, 2000 and June
30, 1999, respectively.
As of June 30, 2000, the fair value of the LTC Properties 8.5% convertible
subordinated debentures, based on quoted market prices, was approximately
$488,600.
At June 30, 2000 and December 31, 1999, the Company's investment in LTC
Properties common stock was recorded at its fair value of $1,138,000 and
$1,638,000, respectively, in the accompanying balance sheets. Unrealized holding
losses on changes in the fair value of the Company's investment in LTC
Properties common stock of $500,000 are included as a comprehensive loss for the
six months ended June 30, 2000.
5. LONG-TERM DEBT
LTC Properties has provided the Company with a $20,000,000 unsecured line of
credit that bears interest at 10% and matures in March 2008. As of June 30, 2000
and December 31, 1999, $19,495,000 and $6,337,000, respectively was outstanding
under the line of credit. As of July 6, 2000, the maximum borrowings of
$20,000,000 was outstanding under the line of credit. Refer to "Note 3. -
Related Parties".
At June 30, 2000 and December 31, 1999, the Company had total outstanding
mortgage loans of $47,219,000 and $47,524,000, respectively with a weighted
average interest rate of 8.5%.
8
<PAGE>
CONTINGENCIES
The Company is not party to any legal proceedings, which in the opinion of
management, would have a material adverse affect on the Company's financial
position, results of operations or liquidity.
7. STOCKHOLDERS' EQUITY
During the six months ended June 30, 2000 and 1999, the Company repurchased
354,400 shares and 489,904 shares, respectively of the Company's common stock
for an aggregate respective purchase price of approximately $362,000 and
$1,314,000.
8. CONCENTRATION OF CREDIT RISKS
As of June 30, 2000 and December 31, 1999, the Company's investment of
$8,500,000 in Regent's convertible subordinated debentures represented 11% and
13%, respectively, of the Company's total assets.
The Company has significant accounts receivable whose collectibility or
realizability is dependent upon the performance of certain government programs,
primarily Medicare and Medicaid.
The Company's financial position, results of operations and liquidity could be
adversely affected by financial difficulties experienced by Regent, including
bankruptcy, insolvency or general downturn in business. The Company does not
believe there are significant credit risks associated with the government
programs. The Company believes that an adequate provision has been made for the
possibility of accounts receivable proving uncollectible and continually
monitors and adjusts these reserves as necessary.
The following table contains summary information for Regent that was extracted
from public reports on file with the Securities and Exchange Commission. Regent
is a publicly traded company, and as such is subject to the filing requirements
of the Securities and Exchange Commission.
<TABLE>
<CAPTION>
(Unaudited)
(Unaudited) Three Months Ended March 31,
March 31, 2000 December 31, 1999 2000 1999
----------------- -------------------- ---------------- --------------
REGENT (in thousands)
<S> <C> <C>
Total assets $63,064 $62,686 N/A N/A
Total debt $44,589 $43,542 N/A N/A
Total stockholders' deficit $(6,397) $(5,311) N/A N/A
Total revenues N/A N/A $ 15,523 $ 11,927
Loss before taxes N/A N/A $ (937) $ (2,001)
Net loss N/A N/A $ (937) $ (2,001)
</TABLE>
9. INCOME TAXES
SFAS No. 109 requires the reduction of the deferred tax assets by a valuation
allowance if, based on the weight of available evidence, it is more likely than
not that a portion or all of the deferred tax asset will not be realized.
Sufficient taxable income must be generated in future years to realize the tax
benefit associated with the net deferred tax asset. The Company believes that
sufficient doubt exists as to whether future taxable income will be sufficient
to realize such tax benefits and, accordingly, a valuation allowance was
established against the deferred tax asset and no tax benefit was recorded.
10. SUBSEQUENT EVENTS
On August 9, 2000, LTC Properties sold one facility in Tennessee and the Company
ceased operating the facility as of that date and no longer has operations in
Tennessee.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING RESULTS
The Company was formed in March 1998 and was spun off by LTC Properties, Inc.
("LTC Properties") on September 30, 1998. The Company commenced operating
nursing facilities on September 1, 1999; therefore, operating results for the
six months ended June 30, 2000 are not comparable with the same period in 1999.
At June 30, 2000, the Company operated 31 nursing facilities with a total of
3,473 licensed beds and a rehabilitation hospital with 84 beds and owned six
nursing facilities and four assisted living facilities that were leased to third
party operators.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1999
Total revenues for the three months ended June 30, 2000 increased to
$24,281,000 from $2,478,000 for the same period in 1999. Patient revenues of
$22,324,000 are attributable to the commencement of nursing operations in
September 1999. Rental income for the three months ended June 30, 2000 decreased
$451,000 due to the sale of two assisted living facilities to LTC Properties and
the termination of a lease with one nursing facility offset by the rental
increases as provided for in the lease agreements.
Salaries and benefits of $14,850,000, supplies of $3,052,000 and other operating
and administrative costs of $5,333,000 for the three months ended June 30, 2000
relate to the commencement of operating nursing facilities and the start-up of
the Company's management of nursing operations previously managed by third-party
management companies. As of June 30, 2000, 29 of the nursing facilities operated
by the Company were leased from LTC Properties and incurred rent expense of
$2,045,000 under the related operating leases.
Interest expense decreased by $316,000 for the three months June 30, 2000 as
compared to the same period in 1999 primarily as a result of a $346,000
reduction of interest expense related to obtaining a right of offset on a
mortgage note the Company purchased in which the interest costs on the related
note payable now offset the interest income. This was offset by a $30,000
increase in interest expense, primarily as a result of the acquisition of one
nursing facility, which was purchased subject to a mortgage loan payable.
Interest expense on the line of credit with LTC Properties increased from
$442,000 for the three months ended June 30, 1999 to $475,000 for the three
months ended June 30, 2000 due to the higher average outstanding balance of the
line of credit for the three months ended June 30, 2000 as compared to the same
period in 1999.
The decrease of $74,000 in depreciation expense is primarily due to the sale of
two assisted living facilities to LTC Properties during the fourth quarter of
1999. The increase in other operating and administrative costs for the three
months ended June 30, 2000 is the result of the commencement of nursing
operations in September 1999.
No benefit for income taxes was recorded for the three months ended June 30,
2000 or 1999 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 carry-forwards.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999
Total revenues for the six months ended June 30, 2000 increased to $47,181,000
from $4,954,000 for the same period in 1999. Patient revenues of $43,521,000 are
attributable to the commencement of nursing operations in September 1999. Rental
income for the six months ended June 30, 2000 decreased $1,002,000 due to the
sale of two assisted living facilities to LTC Properties and the termination of
a lease with one nursing facility offset by the rental increases as provided for
in the lease agreements.
10
<PAGE>
Salaries and benefits of $29,612,000, supplies of $5,980,000 and other operating
and administrative costs of $9,614,000 for the six months ended June 30, 2000
relate to the commencement of operating nursing facilities and the start-up of
the Company's management of nursing operations previously managed by third-party
management companies. As of June 30, 2000, 29 of the nursing facilities operated
by the Company were leased from LTC Properties and incurred rent expense of
$4,087,000 under the related operating leases.
Interest expense decreased by $599,000 for the six months June 30, 2000 as
compared to the same period in 1999 primarily as a result of a $697,000
reduction of interest expense related to obtaining a right of offset on a
mortgage note the Company purchased in which the interest costs on the related
note payable now offset the interest income. This was offset by a $98,000
increase in interest expense, primarily as a result of the Company's acquisition
of one nursing facility, which was purchased subject to a mortgage loan payable.
Interest expense on the line of credit with LTC Properties decreased from
$867,000 for the six months ended June 30, 1999 to $768,000 for the six months
ended June 30, 2000 due to the reduction in the average outstanding balance of
the line of credit for the six months ended June 30, 2000 as compared to the
same period in 1999.
The decrease of $156,000 in depreciation expense is primarily due to the sale of
two assisted living facilities to LTC Properties during the fourth quarter of
1999. The increase in other operating and administrative costs for the six
months ended June 30, 2000 is the result of the commencement of nursing
operations in September 1999.
No benefit for income taxes was recorded for the six months ended June 30, 2000
or 1999 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 carry-forwards.
LIQUIDITY AND CAPITAL RESOURCES
LTC Properties has provided the Company with a $20,000,000 unsecured line of
credit that bears interest at an annual rate of 10% and matures in 2008. As of
June 30, 2000 the Company had borrowings outstanding under the unsecured line of
credit of $19,495,000. As of July 6, 2000, the maximum borrowings of $20,000,000
was outstanding under the line of credit. As of June 30, 2000, cash and cash
equivalents were $98,000 and the Company had total net working capital of
$5,076,000.
Net cash used in operating activities for the six months ended June 30, 2000 was
$10,055,000. The use of cash in operating activities is largely attributable to
the Company's commencement of operations at 14 facilities beginning January 1,
2000, which resulted in an increased investment in net working capital at June
30, 2000. In addition, in connection with the transition of these facilities to
the Company, government payments for services performed continued to be paid to
the prior owners and therefore, the Company has receivables due from prior
owners. For the six months ended June 30, 2000, the Company assumed operations
of nursing facilities over various periods of time. State and federal
regulations require various licensure and certifications to approve a new
operator to receive reimbursement under Medicare and Medicaid programs. During
the period between assuming operations and obtaining all required licensure and
certifications, the Company needs to utilize working capital to fund operations.
Currently the Company has only five locations that have not received all
necessary licensure and certifications under the Medicare program. For the six
months ended June 30, 2000, Medicare revenue for these facilities represented 2%
of total net patient revenue. The Company anticipates receiving all necessary
certifications during the third quarter and as a result, the Company anticipates
that accounts receivable will be reduced through the receipt of payment for
services performed in prior periods thus generating available cash for
operations. The Company has recently received rate increase letters from five
states granting rate increases for Medicaid qualified patients. At current
census levels, the Company estimates these rate increases will provide
approximately $3,000,000 of additional annual revenue.
Net cash used in investing activities for the six months ended June 30, 2000 was
$2,115,000. The Company purchased in the open market $560,000 face amount of LTC
Properties 8.5% convertible subordinated
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debentures due January 1, 2001 for $521,000. The purchase of $1,675,000 of
equipment for the three months ended June 30, 2000 was related primarily to the
purchase of equipment and computer software associated with the start-up of the
Company's management of the nursing operations previously managed by third party
management companies.
Net cash provided by financing activities for the six months ended June 30, 2000
was $11,844,000. During 2000, the Company utilized borrowings under the line of
credit of approximately $13,158,000 to fund the working capital requirements of
the nursing facilities operated by the Company, to repurchase shares of its
common stock and purchase the bonds of LTC Properties. Payments of $952,000 were
made on notes and mortgage loans during the six months ended June 30, 2000.
The Company believes that through its management there will be improvement in
stabilizing the operations of the nursing facilities and therefore, the Company
anticipates that available cash and cash flow from future operations will be
adequate to meet its short-term liquidity requirements. Additionally, events
that may provide improved cash flow from operations include discussions between
LTC Properties and the Company regarding evaluating the current rents on its
properties. The results of the review may be to reduce certain rents or to close
and sell certain facilities. Rent reductions in the range of $2,000,000 to
$4,000,000 annually have been preliminarily discussed with LTC Properties but no
assurances can be given such reductions or any reductions will be granted. In
addition, the Company is pursuing an effort to sell select properties. The
Company owns six nursing facilities and four assisted living facilities that are
leased to third party operators under triple net leases. The Company has
obtained new appraisals on two of these facilities which indicate values
significantly in excess of the Company's net investment in these facilities. No
assurances can be given that the Company will complete any sale of these
properties.
The ability of the Company to satisfy its long term liquidity requirements
will be dependant upon additional financing and the result of the measures
being taken to increase capital as discussed above. In addition, the Company
is dependant upon its future performance, which will be subject to prevailing
economic conditions and to financial, business, economic and other factors
beyond the Company's control. There can be no assurance that future
healthcare legislation or other efforts by governmental and private payors to
reduce healthcare costs will not have a material adverse effect on the
Company's results of operations, liquidity and financial position. LTC
Properties has provided the Company with $20,000,000 unsecured line of credit
that bears interest at 10% and matures in March 2008. As of July 6, 2000 the
maximum borrowings of $20,000,000, was outstanding under the line of credit.
LTC Properties is in discussions with its lenders to allow the line of credit
to the Company to be increased to $25,000,000. However, LTC Properties has
advised the Company that as of June 30, 2000, $143,500,000 was outstanding
under LTC Properties' $170,000,000 Senior Unsecured Revolving Line of Credit
(the "Revolving Credit Facility"), which provides for a maturity of October
2, 2000. LTC Properties has been negotiating a renewal of the Revolving
Credit Facility, as well as a renewal of a $25,000,000 term loan (the "Term
Loan"), which also provides for a maturity of October 2, 2000. Bank of
America Corporation, one of the nine lenders/participants in the Revolving
Credit Facility, has recently indicated it would not agree to renew its
participation in the Revolving Credit Facility unless LTC Properties agrees
to new terms which LTC Properties believes are not commercially reasonable.
Failure to renew the Revolving Credit Facility and the Term Loan on
commercially reasonable terms could have a material adverse effect on LTC
Properties and the Company. In the event that LTC Properties and the lenders
are unable to agree on a renewal of the Revolving Credit Facility, as well as
the Term Loan; the amounts outstanding thereunder would be due on October 2,
2000, and LTC Properties does not have a source for repayment of such amounts
by such date. In addition, LTC Properties has $32,192,000 in principal
amounts of Convertible Subordinated Debentures and certain other debt, which
contain provisions permitting acceleration if there are certain defaults in
LTC Properties' indebtedness, which would include defaults under the
Revolving Credit Facility and the Term Loan. LTC Properties has consulted
with legal counsel and is considering various alternatives if the Revolving
Credit Facility and the Term Loan are not renewed, such as lender liability
lawsuits, and seeking the protections afforded under Chapter 11 of the
federal bankruptcy laws. Therefore,
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there are no assurances that LTC Properties will be able to increase the
Company's line of credit to $25,000,000.
INSURANCE
In the past, there have been several insurance companies that have written
coverage for general and professional liability of nursing facilities. However,
many of these companies no longer provide such coverage, making it difficult for
nursing facilities to obtain coverage. Further, when coverage is available, the
premium has increased significantly. Thus far, the Company has been able to
obtain coverage, however, the Company has had to pay increased premiums.
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.
Currently, the Company has no other external sources 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.
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PART II
LTC HEALTHCARE, INC.
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
LTC Healthcare, Inc. held its Annual Meeting of Stockholders (the "Meeting") on
May 22, 2000, 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, 2000 were entitled to vote at the Meeting. As of the close of
business on March 31, 2000, there were 2,448,326 shares of common stock
outstanding and entitled to vote and 2,041,804 of such shares were
represented at the Meeting. Each of the directors received 91% of the shares
cast in favor of his election.
The shares cast for each director were as follows: Andre C. Dimitriadis:
1,864,997 for and 176,807 withheld; James J. Pieczynski: 1,865,042 for and
176,762 withheld; Christopher T. Ishikawa: 1,865,065 for and 176,739 withheld;
Bary G. Bailey: 1,865,167 for and 176,637 withheld; Steven Stuart: 1,865,174 for
and 176,630 withheld.
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company has received a letter from the Pacific Exchange (PCX) advising that
the Company may be subject to delisting proceedings based upon the Company's
negative Net Worth and Net Tangible Assets. The Company has until August 17,
2000 to submit a letter to the PCX outlining a plan of remediation. The Company
is in the process of preparing this plan and letter but there can be no
assurances that the plan will be accepted and approved by PCX. If PCX does not
accept and approve the Company's plan, the Company would apply to be traded on
the OTC Bulletin Board.
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
three months ended June 30, 2000.
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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 11, 2000 By: /s/ Wendy L. Simpson
--------------------------------
WENDY L. SIMPSON
Chief Financial Officer
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