<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, 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 November 8,
2000 - 2,099,926 (excludes Treasury Shares of 1,235,956)
================================================================================
<PAGE>
LTC HEALTHCARE, INC.
FORM 10-Q
SEPTEMBER 30, 2000
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets........................................... 3
Consolidated Statement of Operations ................................. 4
Consolidated Statement of Cash Flows ................................. 5
Notes to Consolidated Financial Statements ........................... 6
Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations ............ 10
PART II -- OTHER INFORMATION
Item 5. Market for Common Stock and Related Stockholder Matters............... 13
Item 6. Exhibits and Reports on Form 8-K ..................................... 13
</TABLE>
2
<PAGE>
LTC HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
September 30, 2000 December 31,1999
------------------ ----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 757 $ 424
Accounts receivable, net of allowance for doubtful
accounts: 2000 - $1,661; 1999 - $313 16,725 6,131
Prepaid expenses and other current assets 4,060 815
-------- --------
Total current assets 21,542 7,370
Property and Equipment:
Buildings, improvements and equipment 40,688 48,928
Land 1,669 2,246
Accumulated depreciation (4,238) (5,580)
-------- --------
Property and equipment, net 38,119 45,594
Other Assets:
Equity securities 699 1,703
Debt securities 11,656 11,013
Other assets 313 694
-------- --------
Total other assets 12,668 13,410
-------- --------
Total assets $ 72,329 $ 66,374
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,464 $ 1,549
Accrued salaries and benefits 3,195 1,272
Current portion of mortgage loans payable 435 626
Other accrued liabilities 5,513 3,775
-------- --------
Total current liabilities 13,607 7,222
Mortgage Loans Payable 32,948 46,898
Line of Credit from LTC Properties 19,557 6,337
-------- --------
Total liabilities 66,112 60,457
Minority Interest 3,518 3,518
Commitments and Contingencies -- --
Stockholders' Equity:
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 (2,184) (3,851)
Accumulated comprehensive loss (2,900) (1,895)
-------- --------
Total stockholders' equity 2,699 2,399
-------- --------
Total liabilities and stockholders' equity $ 72,329 $ 66,374
======== ========
</TABLE>
SEE ACCOMPANYING NOTES
3
<PAGE>
LTC HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Net patient revenues $ 22,782 $ 996 $ 66,303 $ 996
Rental income 1,211 1,826 3,778 5,395
Interest and other income 1,632 476 2,725 1,144
----------- ----------- ----------- -----------
Total revenues 25,625 3,298 72,806 7,535
Costs and Expenses:
Salaries and benefits 16,699 747 46,310 747
Supplies 2,909 -- 8,889 --
Rent - LTC Properties, Inc. 1,031 95 5,118 95
Interest expense 948 979 3,022 2,936
Interest expense on line of credit
from LTC Properties, Inc. 489 451 1,257 1,319
Depreciation 389 496 1,225 1,488
Minority interest 86 86 257 257
Other operating and administrative 5,924 586 15,541 1,245
----------- ----------- ----------- -----------
Total expenses 28,475 3,440 81,619 8,087
----------- ----------- ----------- -----------
Operating loss (2,850) (142) (8,813) (552)
Gain on sale of real estate properties 10,481 -- 10,481 --
----------- ----------- ----------- -----------
Income (loss) before provision for
income taxes 7,631 (142) 1,668 (552)
Provision for income taxes -- -- -- --
----------- ----------- ----------- -----------
Net income (loss) $ 7,631 $ (142) $ 1,668 $ (552)
=========== =========== =========== ===========
Weighted average shares outstanding 2,099,926 2,688,686 2,240,207 2,743,844
Net income (loss) Per Common Share:
Basic and diluted net loss per share $ 3.63 $ (0.05) $ 0.74 $ (0.20)
=========== =========== =========== ===========
Comprehensive income (loss):
Net income (loss) $ 7,631 $ (142) $ 1,668 $ (552)
Unrealized loss on available-for-sale
equity securities (458) (501) (1,005) (1,521)
----------- ----------- ----------- -----------
Total comprehensive income (loss) $ 7,173 $ (643) $ 663 $ (2,073)
=========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES
4
<PAGE>
LTC HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
-------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 1,668 $ (552)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 1,225 1,488
Other non-cash items (117) (86)
Gain on sale of real estate properties (10,481) --
Increase in accounts receivable, net (8,974) (724)
(Increase) Decrease in prepaid expenses and other assets 864 (170)
Increase in accounts payable 2,333 213
Increase in accrued salaries and benefits 1,923 385
Increase in accrued expenses and other liabilities 1,538 178
-------- --------
Net cash provided by (used in) operating activities (9,937) 732
INVESTING ACTIVITIES:
Purchase of LTC Properties bonds (521) --
Acquisition of business -- (450)
Property and equipment additions (2,461) --
Investment in notes receivable -- (2,011)
Payment of note receivable 500 --
Other 17 (586)
-------- --------
Net cash used in investing activities (2,465) (3,047)
-------- --------
FINANCING ACTIVITIES:
Advances under line of credit from LTC Properties 14,753 8,123
Payments on line of credit from LTC Properties (565) (4,674)
Principal payments on notes and mortgage loans payable (1,091) (423)
Repurchase of common stock (362) (1,336)
-------- --------
Net cash provided by (used in) financing activities 12,735 (1,690)
-------- --------
Increase (decrease) in cash and cash equivalents 333 (625)
Cash and cash equivalents, beginning of period 424 1,012
-------- --------
Cash and cash equivalents, end of period $ 757 $ 387
======== ========
Supplemental disclosure of cash flow information:
Interest paid $ 3,853 $ 3,753
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
Reduction of mortgage loan payables for sale of real estate properties 13,696 --
Reduction of line of credit from LTC properties for sale of real estate 5,347 --
properties
</TABLE>
SEE ACCOMPANYING NOTES
5
<PAGE>
LTC HEALTHCARE, INC.
NOTES TO 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 through September 30,
2000 under a short-term management agreement with the new owner. The Company no
longer has operations in North Carolina. At September 30, 2000, the Company
operated 30 nursing facilities with 3,357 licensed beds and one rehabilitation
hospital with 84 beds. The facilities operated by the Company at September 30,
2000 are located in eight states (Florida, Georgia, Illinois, Iowa, Kansas,
Texas, North Carolina and Virginia) and are collectively referred to herein as
nursing facilities. The Company was operating a 100-bed nursing facility in
North Carolina under a short-term management contract. As of October 1, 2000,
the Company no longer operates this facility and no longer has operations in
North Carolina. In addition to the operation of nursing facilities, as of
September 30, 2000, the Company owned four nursing facilities and four assisted
living facilities that were leased to third party operators under triple net
leases.
The 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 nine months ended September 30, 2000
and 1999 pursuant to the rules and regulations of the Securities and Exchange
Commission. The accompanying 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. These 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 nine months
ended September 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
6
<PAGE>
LTC HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
generated by leasing long-term healthcare facilities owned by the Company to
third party operators. The Company commenced 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 September 30,
2000 and December 31, 1999, $19,557,000 and $6,337,000, respectively, were
outstanding under the line of credit. The Company has been dependant upon LTC
Properties for capital and financing. On October 31, 2000, LTC Properties signed
a new four year Senior Secured Revolving Credit Agreement (the "Secured
Revolving Credit"). The Secured Revolving Credit initially provides LTC
Properties with $185,000,000 of total commitments with periodic reductions of
these commitments to fully retire the commitments as of October 2, 2004. LTC
Properties is permitted under provisions of the Secured Revolving Credit to loan
the Company up to $25,000,000. The Company and LTC Properties have not increased
the unsecured line of credit between the companies. Should any such amendment be
proposed, it would need approval of the independent board members of each
company's board.
For the three months ended September 30, 2000 and 1999, the Company recorded
interest expense related to the unsecured line of credit of $489,000 and
$451,000, respectively. For the nine months ended September 30, 2000 and 1999,
the Company recorded interest expense related to the unsecured line of credit of
$1,257,000 and $1,319,000, 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 second quarter of Fiscal 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 nine months ended
September 30, 1999, the Company reimbursed LTC Properties $162,000 and $577,000,
respectively for administrative and management advisory services as provided for
under the administrative services agreement. 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 nine
months ended September 30, 2000, the Company received sales commissions of
approximately $1,354,000 and $1,600,000, respectively pursuant to the agreement.
The sales commission is included in interest and other income.
In April 2000, LTC Properties sold a facility that continued to be operated
by the Company through September 30, 2000. The Company no longer operates the
facility. For the nine months ended September 30, 2000, the facility
generated approximately $1,748,000 of net revenues. On August 9, 2000, LTC
Properties sold one facility in Tennessee and the Company ceased operating
the facility as of that date. For the nine months ended September 30, 2000,
the facility generated approximately $1,679,000 of net revenues. As of
September 30, 2000, the Company operated 27 nursing facilities that are owned
by LTC Properties. The Company recorded rental expense of approximately
$1,031,000 and $5,118,000 respectively for properties owned by LTC Properties
during the three and nine months ended September 30, 2000. These properties
are leased from LTC Properties, in general, on a short-term basis, and new
rental rates as of July 1, 2000 were approved by the independent members of
the Board of Directors of both LTC Properties and the Company. The new rates
are for one year, ending June 30, 2001, at which time all leases will be
reevaluated by LTC Properties and the Company. Annual rental to LTC
Properties under these new rates is approximately $4,100,000.
On September 6, 2000, the Company sold 100% of the common stock of Coronado
Corporation ("Coronado") and Park Villa Corporation ("Park Villa") to LTC
Properties for a total purchase price of $19,200,000, which was
7
<PAGE>
LTC HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
based on independent appraisals. Coronado and Park Villa were owned properties,
subject to mortgage debt, leased to other operators. As a result of the sales,
the Company eliminated approximately $13,700,000 of mortgage debt, satisfied
approximately $5,300,000 in obligations to LTC Properties and recognized a gain
on sale of assets of approximately $10,500,000. Income generated from Coronado
and Park Villa, net of debt obligations and depreciation, on the properties was
immaterial for the three and nine months ended September 30, 2000 and 1999.
As of September 30, 2000, the Company had mortgage loans secured by 6 nursing
facilities with total outstanding principle of $16,472,000 and a weighted
average interest rate of 9.24 % 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 four
nursing facilities are leased to third party operators.
As of September 30, 2000, the Company owned 194,100 shares of LTC Properties
common stock. As of September 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 September 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 September 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 $1,590,000 and
$1,800,000, respectively. As of September 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
$0 are included in comprehensive loss for the nine months ended September 30,
2000 and September 30, 1999, respectively.
As of September 30, 2000, the fair value of the LTC Properties 8.5% convertible
subordinated debentures, based on quoted market prices, was approximately
$505,000.
At September 30, 2000 and December 31, 1999, the Company's investment in LTC
Properties common stock was recorded at its fair value of $679,000 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 $959,000 are included as a comprehensive loss for the
nine months ended September 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 September 30,
2000 and December 31, 1999, $19,557,000 and $6,337,000, respectively was
outstanding under the line of credit.
At September 30, 2000 and December 31, 1999, the Company had total outstanding
mortgage loans of $33,383,000 and $47,524,000, respectively with a weighted
average interest rate of 8.25%.
8
<PAGE>
LTC HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
6. 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 nine months ended September 30, 2000 and 1999, the Company
repurchased 354,400 shares and 501,006 shares, respectively, of the Company's
common stock for an aggregate respective purchase price of approximately
$362,000 and $1,336,000. In addition, during the nine months ended September 30,
2000, the Company granted 118,000 stock options at an exercise price of $2.50.
The options vest over three to five years from original date of grant and expire
the earlier of seven years from the date of vesting and ten years from the date
of grant.
8. CONCENTRATION OF CREDIT RISKS
The Company has significant accounts receivable whose collectibility or
realizability is dependent upon the performance of certain government programs,
primarily Medicare and Medicaid.
As of September 30, 2000 and December 31, 1999, the Company's investment of
$8,500,000 in Regent's convertible subordinated debentures represented 12% and
13%, respectively, 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 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 June 30,
June 30, 2000 December 31, 1999 2000 1999
------------- ----------------- ---------------- --------------
(in thousands)
<S> <C> <C> <C> <C>
REGENT
Total assets $64,685 $62,686 N/A N/A
Total debt $47,637 $43,542 N/A N/A
Total stockholders' deficit $(7,942) $(5,311) N/A N/A
Total revenues N/A N/A $15,939 $13,034
Loss before taxes N/A N/A $(1,369) $(1,705)
Net loss N/A N/A $(1,369) $(1,705)
</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.
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
nine months ended September 30, 2000 are not comparable with the same period in
1999. At September 30, 2000, the Company operated 30 nursing facilities with a
total of 3,357 licensed beds and one rehabilitation hospital with 84 beds and
owned 4 nursing facilities and 4 assisted living facilities that were leased to
third party operators.
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
Total revenues for the three months ended September 30, 2000 increased to
$25,625,000 from $3,298,000 for the same period in 1999. Patient revenues of
$22,782,000 are attributable to the commencement of nursing operations in
September 1999. Rental income for the three months ended September 30, 2000
decreased $615,000 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 $16,699,000, supplies of $2,909,000 and other operating
and administrative costs of $5,925,000 for the three months ended September 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 September 30, 2000, 27 of the nursing
facilities operated by the Company were leased from LTC Properties and incurred
rent expense of $1,031,000 under the related operating leases.
Interest expense decreased by $31,000 for the three months September 30, 2000 as
compared to the same period in 1999 primarily as a result of a $111,000
reduction of interest expense related to reduction in mortgage debt as a result
of the sale of Coronado and Park Villa. This was offset by a $80,000 increase in
interest expense, primarily as a result of the acquisition of one nursing
facility, which was purchased subject to a mortgage loan payable and additional
interest expense related to financing of insurance premiums. Interest expense on
the line of credit with LTC Properties increased from $451,000 for the three
months ended September 30, 1999 to $489,000 for the three months ended September
30, 2000 due to the higher average outstanding balance of the line of credit for
the three months ended September 30, 2000 as compared to the same period in
1999.
The decrease of $107,000 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 September 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 September
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.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1999
Total revenues for the nine months ended September 30, 2000 increased to
$72,806,000 from $7,535,000 for the same period in 1999. Patient revenues of
$66,303,000 are attributable to the commencement of nursing operations in
September 1999. Rental income for the nine months ended September 30, 2000
decreased $1,617,000 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 $46,310,000, supplies of $8,889,000 and other operating
and administrative costs of $15,541,000 for the nine months ended September 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 September 30, 2000, 27 of the nursing
facilities operated by the Company were leased from LTC Properties and incurred
rent expense of $5,118,000 under the related operating leases.
Interest expense increased by $86,000 for the nine months September 30, 2000 as
compared to the same period in 1999 primarily as a result of $205,000 of
additional interest related to financing of insurance premiums and an increase
in interest expense associated with the Company's acquisition of one nursing
facility, which was purchased subjected to a mortgage loan. This was offset by a
$121,000 reduction in interest expense related to a reduction in mortgage debt
as a result of the sale of Coronado and Park Villa. Interest expense on the line
of credit with LTC Properties decreased from $1,319,000 for the nine months
ended September 30, 1999 to $1,257,000 for the nine months ended September 30,
2000 due to the reduction in the average outstanding balance of the line of
credit for the nine months ended September 30, 2000 as compared to the same
period in 1999.
The decrease of $263,000 in depreciation expense is primarily due to the sale of
two assisted living facilities to LTC Properties during the fourth quarter of
1999.
No benefit for income taxes was recorded for the nine months ended September 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
September 30, 2000 the Company had borrowings outstanding under the unsecured
line of credit of $19,557,000. LTC Properties' Secured Revolving Credit permits
LTC Properties to loan the Company up to $25,000,000. The Company and LTC
Properties have not increased the unsecured line of credit between the
companies. Should such amendment be proposed, it would need approval of the
independent board members of each company's board. No assurances can be given
that such approval would be granted.
Net cash used in operating activities for the nine months ended September 30,
2000 was $9,937,000. 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 September 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 nine months ended September 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 one
facility that has not received all necessary licensure and certifications under
the Medicare program. For the nine months ended September 30, 2000, Medicare
revenue for this facility was approximately $106,000. The Company anticipates
receiving all necessary certifications during the fourth quarter. The Company
has experienced increases in cash receipts as facilities previously awaiting
governmental approval receive approval to bill the governmental programs. 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.
Net cash used in investing activities for the nine months ended September 30,
2000 was $2,465,000. The Company purchased in the open market $560,000 face
amount of LTC Properties 8.5% convertible subordinated debentures due January 1,
2001 for $521,000. The purchase of $2,461,000 of equipment for the
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three months ended September 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 nine months ended September
30, 2000 was $12,735,000. During 2000, the Company utilized borrowings under the
line of credit of approximately $14,753,000 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
$1,091,000 and $565,000 were made on notes and mortgage loans and the LTC
Properties line of credit during the nine months ended September 30, 2000
respectively.
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, LTC
Properties and the Company have agreed to reduce rents for one year, ending June
30, 2001, on facilities leased from LTC Properties. The result of the reduced
rents will reduce expenses by approximately $3,475,000 annually to a total
annual rent of approximately $4,100,000.
The ability of the Company to satisfy its short and 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.
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
Company's facilities as it affects the Company's continuing ability to meet the
obligations under the terms of the Company's agreements with its lenders.
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 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
share bid price being below the $1.00 PCS minimum. The Company has until
November 25, 2000 to cure the deficiency. The letter states, "If the deficiency
remains outstanding on November 25, 2000, the Equity Qualification Department
will proceed to delist the issue by filing to strike the Company's security from
listing and registration on the Exchange with the SEC pursuant to SEC Rule
12d-2." Should PCX proceed with a delisting action, 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
On September 21, 2000, the Company filed a Current Report on Form
8-K dated September 6, 2000 reporting that the Company sold 100%
of the stock of Coronado Corporation and Park Villa Corporation
to LTC Properties, Inc. for a total purchase price of $19,200,000
which was based on independent appraisals. LTC Properties assumed
approximately $13,700,000 in mortgage debt and net proceeds of
approximately $5,300,000 was used to pay outstanding obligations
to LTC Properties.
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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: November 14, 2000 By: /s/ WENDY L. SIMPSON
-----------------------
Wendy L. Simpson
Chief Financial Officer
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