<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from ___ to___
Commission file number 1-83938
ASSISTED LIVING CONCEPTS, INC.
(Exact name of registrant as specified in its charter)
NEVADA 93-1148702
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
9955 SE Washington, Suite 201
Portland, Oregon 97216
(Address of principal executive offices)
(503) 252-6233
(Registrant's telephone number, including area code)
Indicated 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 Registrants 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
9 - 5,515,251.
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1
<PAGE>
ASSISTED LIVING CONCEPTS, INC.
FORM 10-Q
JUNE 30, 1996
INDEX
-----
<TABLE>
<CAPTION>
PART I -- FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets of Assisted Living Concepts, Inc.
and Subsidiary as of December 31, 1995 and June 30, 1996............ 3
Consolidated Statements of Operations of Assisted Living
Concepts, Inc. and Subsidiary for the three and six months
ended June 30, 1995 and June 30, 1996............................... 4
Consolidated Statements of Cash Flows of Assisted Living
Concepts, Inc. and Subsidiary for the three and six months
ended June 30, 1995 and June 30, 1996............................... 5
Notes to Consolidated Financial Statements.......................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 8
</TABLE>
2
<PAGE>
PART 1
ITEM 1 -- FINANCIAL INFORMATION
ASSISTED LIVING CONCEPTS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(IN THOUSANDS)
(UNAUDITED)
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,335 $ 2,131
Accounts receivable 136 452
Other current assets 558 793
------- -------
Total current assets 8,029 3,376
------- -------
Property and equipment 28,446 30,704
Less accumulated depreciation 163 282
------- -------
Property and equipment - net 28,283 30,422
------- -------
Construction in process (Note 2) 13,075 18,164
Goodwill 393 376
Other assets 3,766 5,066
------- -------
Total assets $53,546 $57,404
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $13,149 $11,081
Current portion of long-term debt 47 106
------- -------
Total current liabilities 13,196 11,187
Other non-current liabilities 153 308
Mortgages payable 4,553 10,313
Convertible subordinated debt 20,000 20,000
------- -------
Total liabilities 37,902 41,808
------- -------
Shareholders' equity:
Preferred Stock, $.01 par value; 1,000,000 shares authorized;
none issued and outstanding 30 30
Common Stock, $.01 par value; 40,000,000 shares authorized;
3,000,000 and 3,013,334 shares issued and outstanding 16,492 16,615
Fair market value in excess of historical cost of acquired net assets
attributable to related party transactions (239) (239)
Accumulated deficit (639) (810)
------- -------
Shareholders' equity 15,644 15,596
------- -------
Total liabilities and shareholders' equity $53,546 $57,404
======= =======
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
3
<PAGE>
ASSISTED LIVING CONCEPTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1995 1996 1995 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues $ 793 $3,742 $1,475 $6,492
------ ------ ------ ------
Operating expenses:
Residence operating expenses 473 2,340 922 4,276
Corporate general and administrative 232 393 463 608
Building rentals - 687 - 1,051
Building rentals - related party 196 248 342 444
Depreciation and amortization 41 167 80 384
------ ------ ------ ------
Total operating expenses 942 3,835 1,807 6,763
------ ------ ------ ------
Operating loss (149) (93) (332) (271)
------ ------ ------ ------
Interest expense (23) (20) (47) (51)
Interest income 127 47 307 69
Other income - 82 - 82
------ ------ ------ ------
Other income - net 104 109 260 100
------ ------ ------ ------
Net income (loss) $ (45) $ 16 $ (72) $ (171)
====== ====== ====== ======
Net income (loss) per common share $ (.01) $ .01 $ (.02) $ (.06)
====== ====== ====== ======
Weighted average common shares outstanding 3,000 3,013 3,000 3,009
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
4
<PAGE>
ASSISTED LIVING CONCEPTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1995 1996 1995 1996
------- --------- ------- ---------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (45) $ 16 $ (72) $ (171)
Adjustment to reconcile net income (loss) to net
cash provided by operating activities:
Gain on sale of asset - (82) - (82)
Depreciation and amortization 41 167 80 384
Changes in other non-cash items:
Accounts receivable 1 (235) (12) (316)
Other current assets 59 (142) 103 (235)
Other assets (19) 328 (108) (1,283)
Accounts payable and accrued expenses 1,937 (259) 2,872 (2,068)
------- -------- --------- --------
Net cash provided by operating activities 1,974 (207) 2,863 (3,771)
------- -------- --------- --------
INVESTING ACTIVITIES:
Proceeds from sale of land and residences - 23,910 - 38,290
Purchases of property and equipment (7,430) (25,799) (10,592) (45,665)
------- -------- --------- --------
Net cash used for investing activities (7,430) (1,889) (10,592) (7,375)
------- -------- --------- --------
FINANCING ACTIVITIES:
Proceeds from long-term debt - - - 5,865
Payments on long-term debt (3) (20) (7) (46)
Proceeds from issuance of common stock - 77 - 123
------- -------- --------- --------
Net cash provided by (used for) financing activities (3) 57 (7) 5,942
------- -------- --------- --------
Net decrease in cash and cash equivalents (5,459) (2,039) (7,736) (5,204)
Cash and cash equivalents, beginning of period 11,176 4,170 13,453 7,335
------- -------- --------- --------
Cash and cash equivalents, end of period $ 5,717 $ 2,131 $ 5,717 2,131
======= ======== ======== ========
Supplemental disclosure of cash flow information:
Cash payments for interest $ 23 $ 221 $ 163 $ 1,005
======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
5
<PAGE>
ASSISTED LIVING CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Assisted Living Concepts, Inc. ("the Company") owns, operates and develops
assisted living residences which provide housing to senior citizens who need
help with the activities of daily living such as bathing and dressing. The
Company provides personal care and support services and makes available routine
nursing services designed to meet the needs of its residents.
The Company was organized in July 1994, initially capitalized through the sale
of 500,000 shares of $0.01 par value common stock for $100,000. From July 19,
1994 to November 30, 1994, the date of its initial public offering, the Company
began to put into place the management organization to commence operations and
execute its strategy to expand the Company's business.
On November 22, 1994, the Company sold 2,000,000 shares of common stock at $9.25
per share in a public offering realizing net proceeds of $16,422,000. On
December 1, 1994, the Company purchased two and leased four assisted living
residences from Assisted Living Concepts Group ("the Predecessor") and commenced
operations. As of June 30, 1996, the Company had received certificates of
occupancy for 46 residences of which 31 had commenced operations.
Basis of Presentation
These financial statements have been prepared without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. The
accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary. 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. These condensed financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's annual report on Form 10-
K for the year ended December 31, 1995.
The financial information included herein reflects all adjustments (consisting
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the results for interim periods. The result
of operations for the three and six-month periods ended June 30, 1995 and 1996
are not necessarily indicative of the results to be expected for the full year.
2. PROPERTY AND EQUIPMENT
Construction In Process
As of June 30, 1996 the Company had begun construction or had purchased land to
begin construction on 22 parcels of land. The Company has also entered into
agreements pursuant to which it may purchase, subject to completion of due
diligence and various other conditions, 29 additional sites. In addition, the
Company has entered into agreements to manage and or lease two additional sites
once construction has been completed.
6
<PAGE>
ASSISTED LIVING CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. PROPERTY AND EQUIPMENT (CONTINUED)
As of June 30, 1996 the Company had capitalized all costs incurred in connection
with the development of these properties, and accordingly, construction in
process consisted of the following (in thousands):
<TABLE>
<S> <C>
Land purchased $ 3,229
Construction costs and architectural fees 11,638
Other costs, including legal fees, building
permits and other development costs 3,297
-------
$18,164
=======
</TABLE>
During the quarter ended June 30, 1996, the Company capitalized $583,000 of
interest cost relative to financing of construction in process. Of the 46
residences the Company had opened or had received certificates of occupancy, 29
were leased (19 in Texas, 5 in Oregon and 5 in Washington) and 17 were owned (10
in Texas, 6 in Oregon and 1 in Washington).
3. LEASES
During the quarter ended June 30, 1996, the Company completed the sale of 8
Texas residences and 3 Washington residences under sale and leaseback
arrangements. The Company sold the residences for approximately $23,580,000,
which approximates cost, and leased them back over initial terms ranging from 12
to 20 years. The residences were leased back at an initial annual lease rate of
approximately $2,378,000.
4. SUBSEQUENT EVENTS
On July 3, 1996 the Company completed the sale of 2,096,250 shares of common
stock at $19.00 per share and received approximately $37.7 million of net
proceeds after deducting underwriters discounts, commissions and other offering
expenses.
On July 26, 1996, the Company purchased back four Texas residences for $7.8
million which was the original sales price plus a 2% administration fee. The
Company is pursuing permanent mortgage financing on these residences and
anticipates retaining them as owned residences.
The Company has entered into commitments to complete sale and leaseback
transactions covering 34 residences with three real estate investment trust.
The transactions, which are expected to be completed by the end of 1997, will
generate proceeds of approximately $82 million.
In August of 1996, a holder of $6,085,000 of the Company's 7% convertible
subordinated debentures exchanged the debentures for a package of 405,667 shares
of common stock and cash of $425,000.
7
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
THE COMPANY
The Company reported net income of $16,000, or $.01 per share, on revenue of
$3,742,000 for the three months ended June 30, 1996. The Company has generated
income for the first quarter due to the increase in the number of residences
currently being operated.
Operating results for the three and six month periods ended June 30, 1996
include the operating results of 31 residences and the Company's corporate
overhead and are not necessarily indicative of future operating financial
performance as the Company intends to significantly expand its operating base of
residences in 1996 and 1997.
RESULTS OF OPERATIONS
Revenues consist of rentals of units in assisted living residences and fees
associated with the provision of services to residents pursuant to contracts
with the residents. Operating expenses include (i) residence operating
expenses, such as staff payroll, food, property taxes, utilities, insurance and
other direct residence operating expenses, (ii) general and administrative
expenses consisting of corporate and support functions such as legal accounting
and other administrative expenses, (iii) building rentals and (iv) depreciation
and amortization expense.
The following table sets forth, for the periods presented, the number of
residences and units operated, average occupancy rate and sources of revenue for
the three months ended June 30, 1996. The portion of revenues received from
state Medicaid agencies are labeled as "Medicaid State Portion" while the
portion of the Company's revenues that a Medicaid-eligible resident must pay out
of his or her own resources is labeled "Medicaid Resident Portion".
<TABLE>
<CAPTION>
Three Months Ended June 30, 1996
Stabilized Start-up
Residences (1) Residences (2) Total
-------------- -------------- ------
<S> <C> <C> <C>
Residences operated (end of period) 9 22 31
Units operated 264 745 1,009
Average occupancy rate 97.4% 76.3% 83.5%
Sources of revenue:
Private 70.9% 79.7% 76.6%
Medicaid Resident Portion 10.5% 6.9% 8.2%
Medicaid State Portion 18.6% 13.4% 15.2%
----- ----- -----
Total 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
________________
(1) Stabilized residences are those residences that have been operating for nine
months or have achieved a stabilized occupancy of 95% or more as of the
beginning of the quarter.
(2) Start-up residences are those residences that have not been operating for
nine months and have not achieved a stabilized occupancy of 95% or more as
of the beginning of the quarter.
(3) The Company had received certificates of occupancy on 46 residences of which
39 had received licensure and 31 were fully operational.
8
<PAGE>
COMPILATION OF STABILIZED AND START-UP RESIDENCES
THREE MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Stabilized Start-up Combined
Residences Residences Corporate Total
---------- ---------- --------- --------
<S> <C> <C> <C> <C>
Revenue $1,321 $2,421 $ - $3,742
Residence Operating Expense 762 1,578 - 2,340
------ ------ ----- ------
Residence Operating Income 559 843 - 1,402
Corporate Overhead - - 393 393
Building Rentals 274 661 - 935
Depreciation and Amortization 46 102 19 167
------ ------ ----- ------
Total Other Operating Expenses 320 763 412 1,495
------ ------ ----- ------
Operating Income (Loss) 239 80 (412) (93)
Interest (Income) Expense, Net 81 138 (246) (27)
Other (Income) Expense - - (82) (82)
------ ------ ----- ------
Net Income (Loss) $ 158 $ (58) $ (84) $ 16
====== ====== ===== ======
Residences Operated 9 22 31
Units Operated 264 745 1,009
Average Occupancy Rate 97.4% 76.3% 83.5%
</TABLE>
RESULTS OF SAME RESIDENCES
THREE AND SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 30, 1996
<TABLE>
<CAPTION>
Three Three Six Six
Months Ended Months Ended Months Ended Months Ended
June 30, 1995 June 30, 1996 June 30, 1995 June 30, 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 793 $ 898 $1,329 $1,427
Residence Operating Expense 473 510 810 797
----- ----- ------ ------
Residence Operating Income 301 388 519 630
Building Rentals 196 196 250 250
Depreciation and Amortization 30 29 60 55
----- ----- ------ ------
Other Operating Expenses 226 225 310 305
----- ----- ------ ------
Operating Income 75 163 209 325
Interest (Income) Expense, Net 23 49 47 107
----- ----- ------ ------
Net Income $ 52 $ 114 $ 162 $ 218
===== ===== ====== ======
Residences Operating 6 6 5 5
Units Operating 174 174 137 137
Average Occupancy Rate 98.1% 98.6% 99.1% 99.3%
</TABLE>
9
<PAGE>
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996.
Revenues. For the three months ended June 30, 1996, revenues were $3,742,000
compared to $793,000 in the three months ended June 30, 1995, an increase of
$2,949,000 or 372%. The Company had opened or received certificates of
occupancy on 46 residences as of June 30, 1996, of which 31 had operating
results for the quarterly period compared to six in the corresponding 1995
period. For the six residences which had operated for the entire quarter for
both June 30, 1996 and June 30, 1995, revenue increased by $105,000, or 13.2%
from the $793,000 in the second quarter of 1995. This increase was primarily
attributable to increases in rental rates and change in service rates due to
changes in tenant level of care as average occupancy was approximately 98% for
both periods. The remaining $2,844,000 of the increase was due to the 25 new
residences which began operating subsequent to April 1, 1995.
Residence Operating Expenses. Residence operating expenses were $2,340,000 in
the three months ended July 30, 1996 compared to $473,000 in the corresponding
1995 period, an increase of $1,867,000, or 394%. For the six residences that
operated for the entire second quarter of 1995 and 1996, residence operating
expenses were $510,000, and increase $18,000, or 3.7%, from the $492,000 of
residence operating expenses in the second quarter of 1995. Expenses were
relatively flat for these six residences because the residences operated at 98%
occupancy for each of the periods. The remaining $1,849,000 of the increase was
due to the 25 new residences which began operating subsequent to April 1, 1995.
Corporate, General and Administrative. Corporate, general and administrative
expenses were $393,000 in the three months ended June 30, 1996 compared to
$232,000 in the corresponding 1995 period, an increase of $161,000, or 69.4%.
Corporate, general and administrative expenses increased due to the expansion of
the corporate offices and increased activity due to the number of operating
residences.
Building Rentals. Building rentals increased to $935,000 in the three months
ended June 30, 1996 from $196,000 during the corresponding 1995 period. This
increase was due to the increased number of sale and leaseback transactions
completed by the Company from July of 1995 through June of 1996. The Company
had 29 operating leases as of June 30, 1996 compared to four at June 30, 1995.
The following schedule presents the timing of leases entered into by the
Company.
<TABLE>
<CAPTION>
Number of Leases Completed Date
----------------------------- --------------------
<C> <S>
3 Fourth Quarter, 1994
1 First Quarter, 1995
5 Fourth Quarter, 1995
9 First Quarter, 1996
11 Second Quarter, 1996
</TABLE>
Depreciation and Amortization. Depreciation and amortization expense was
$167,000 in the three month period ended June 30, 1996 compared to $41,000 in
1995, an increase of $126,000, or 307%. This increase in depreciation and
amortization was directly related to the 25 new residences that opened
subsequent to April 1, 1995. Depreciation and amortization expense for the six
residences, (two of which were owned) which operated for the entire second
quarter of 1995 and 1996, were essentially flat.
10
<PAGE>
Interest and Other(income)/expense - net. Interest and Other (income) expense -
net was ($27,000) for the three month period ended June 30, 1996 compared to
($104,000) in the corresponding 1995 period, a change of $77,000. Interest
income decreased $80,000 in the 1996 period due to the Company's utilization of
cash arising from the initial public offering for development activities.
Interest expense decreased $3,000 in the 1996 period, due to regularly schedule
principal payments on loans the Company has with the State of Oregon. Total
interest expense for the Company for the three months period ended June 30, 1996
is $603,000, of which $583,000 has been capitalized due to the Company's
development schedule and construction in process. The Company had an increase of
$82,000 in other income due to a gain on sale at a parcel of land in Washington.
Net Income (Loss). The net income during the second quarter of 1996 was $16,000
compared to a net loss of $45,000 during the corresponding period in 1995. The
Company has generated income due to the increased number of residences operating
as compared to the corresponding period in 1995. This has been partially offset
by the increase in corporate overhead, including additional staffing, necessary
to accommodate the company's expansion plan.
SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996.
Revenues. For the six months ended June 30, 1996, revenues were $6,492,000
compared to $1,475,000 in the six months ended June 30, 1995, an increase of
$5,017,000 or 340%. The Company operated 31 residences in the 1996 period
compared to 5 in the corresponding 1995 period. The additional residences
increased revenue by $4,919,000. The 5 residences in operation in both the
1995 and 1996 periods reported an aggregate increase in revenues of $98,000 or
7.4%. This increase was primarily attributable to increases in rental rates as
average occupancy in both 1995 and 1996 was approximately 99%.
Residence Operating Expenses. Residence operating expenses were $4,276,000 in
the six months ended June 30, 1996 compared to $922,000 in the corresponding
1995 period, an increase of $3,354,000 or 364%. The change in operating costs
corresponds with the increased revenues relating to the buildings operating in
1996 but not operating in the 1995 period. For the five residences that
operated for 1995 and 1996, residence operating expenses were $797,000, a
decrease $13,000, or 1.6% from the $810,000 of residence operating expenses in
the corresponding period in 1995. Expenses were relatively flat for the five
residences because the residences operated at 99% occupancy for each of the
periods. The remaining $3,367,000 of the increase was due to the 25 new
residences that opened subsequent to March 1, 1995.
Building Rentals. Building rentals increased to $1,495,000 in the six months
ended June 30, 1996 from $342,000 in 1995. The increase in building rentals is
directly related to the increase in the number of leases entered into by the
Company between July 1, 1995 and June 30, 1996. The Company had 29 operating
leases at June 30, 1996 compared to four at June 30, 1995. Building rentals for
the five residences which operated for the entire period of 1995 and 1996 were
unchanged.
11
<PAGE>
Depreciation and Amortization. Depreciation and amortization expense was
$384,000 in the six month period ended June 30, 1996 compared to $80,000 in
1995, an increase of $304,000, or 380%. The increase in depreciation and
amortization is directly related to the 25 new residences that opened subsequent
to March 1, 1995. Depreciation and amortization expense for the five residences,
(two of which were owned) which operated for the entire six month period in 1995
and 1996, was essentially flat.
Interest and Other(income)/expense - net. Interest and Other(income)/expense -
net was ($18,000) in the six months ended June 30, 1996 compared to ($260,000)
in the corresponding 1995 period, a decrease of $242,000, or 93%. Interest
income decreased $238,000 to $69,000 in the 1996 period. The primary reason for
the decrease is due to the Company's utilization of cash arising from the
initial public offering for development activities. Interest expense increased
to $51,000 in 1996 from $47,000 in 1995, an increase of $4,000, or 8.5%. The
increase is due to the additional loans with the State of Oregon and the
interest on the $20 million convertible subordinated debentures. Total interest
expense for the Company for the six months ended June 30, 1996 is $1,082,000, of
which $1,031,000 has been capitalized due to the Company's development schedule
and construction in process. The Company had an increase of $82,000 in other
income due to a gain on sale of a parcel of land in Washington.
Net Loss. Net loss was $171,000 in 1996 compared to $72,000 in 1995. The
Company has decreased the net loss from prior year due to the increase in the
number of stabilized operating facilities and on-going management of start-up
costs on new residences.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had a negative working capital of $7.8 million.
Included in this amount was approximately $6 million of draw requests that the
Company received for the June development activity which was not payable until
July 10. The Company completed a public offering of 2,096,250 shares of common
stock at $19.00 per share and netted approximately $37.7 million in proceeds
after deduction of underwriting discounts, commissions and other offering
expenses on July 3, 1996.
Net cash used for operating activities was approximately $3.7 million during the
six month period ended June 30, 1996. The primary use of cash was $2.1 million
which was used to reduce accounts payable and accrued expenses, $1.3 million in
an increase in other assets related primarily to pre-opening costs on
residences, $.2 million in other current assets primarily related to the posting
of deposits for leaseback transactions.
Net cash used in investing activities totaled $8.05 million during the six month
period ended June 30, 1996. The primary use of cash was $45.7 million related to
the development of new assisted living residences in Oregon, Washington and
Texas. This was offset by proceeds of $38.3 million related to the sale and
leaseback of 14 residences in Texas and 5 residences in Washington.
Net cash provided by financing activities totaled $5.9 million during the six
month period ended June 30, 1996 representing the proceeds from three loans with
the State of Oregon Housing and Community Services Department.
The Company intends to utilize current working capital resources to develop
additional residences in 1996 and 1997. The Company intends to seek additional
long-term financing through the Oregon Housing and Community Services Department
(the "OHCS") and to the extent available, additional low-cost bond financing and
sale and leaseback transactions in Washington, Texas, New Jersey and Ohio. As of
June 30, 1996, the Company has started construction or had purchased land for
development on 22 parcels of land in Oregon, Washington, Texas, Ohio and Idaho.
The Company has also entered into agreements pursuant to which, it may purchase,
subject to completion of due diligence and various other conditions, 29
undeveloped sites. In addition, the Company has entered into agreements to
manage and or lease two
12
<PAGE>
additional sites once construction has been completed. The Company expects
these developments to open through the third and fourth quarter of 1996 and the
first quarter of 1997.
Capital expenditures for 1996 are estimated to approximate $72 million to $88
million, related primarily to the development of additional residences, of which
approximately $46 million had been spent through June 30, 1996. The Company
has entered into agreements with three real estate investment trusts for the
sale and leaseback of 34 additional residences. The Company expects these sales
to generate approximately $82 million in proceeds. Moreover, the Company
anticipates being able to continue to utilize the State of Oregon tax-exempt
bond program for its Oregon residences under development. The Company currently
has an outstanding commitment from the Oregon tax-exempt bond program to provide
approximately $1 million of financing for one residence and it has three
applications under review which, if approved, will generate approximately $6.6
million in proceeds.
As of June 30, 1996, the Company had invested excess cash balances in short-
term certificates of deposit and U.S. Treasury securities. The Company intends
to satisfy future capital requirements for its development activities by various
means, including financing obtained from sale/leaseback transactions, permanent
mortgage financing and long-term state bond financing and to the extent
available, cash generated from operations.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company operates in a rapidly changing environment that involves a number of
risks, some of which are beyond the Company's control. The following discussion
highlights some of these risks and other are discussed elsewhere herein or in
other documents filed by the Company with the Securities and Exchange
Commission.
LIMITED OPERATING HISTORY; ANTICIPATED OPERATING LOSSES
The Company has a limited operating history and prior to the quarter ended June
30, 1996 had reported substantial losses. There can be no assurance that losses
will not occur in the future. The Company anticipates that each residence will
have an operating loss (prior to depreciation, rent or interest, if any) of
$10,000 during the first three to four months of operation. To the extent the
Company sells a residence and leases it back or otherwise finances it within
four months of the commencement of operations, the aggregate loss may increase
by up to an additional $40,000. The Company currently plans to open 50 to 60
residences in 1996, of which 21 were opened during the first and second quarter
of 1996. The Company estimates that the losses to be incurred during 1996 due to
opening residences could range from $1.5 million to $3.0 million. The success of
the Company's future operation is directly tied to the expansion of its
operational base. There can be no assurance that the Company will not experience
unforeseen expenses, difficulties, complications and delays in connection with
the expansion of its operational base which could have a material adverse effect
on the Company's financial condition and results of operations.
NO ASSURANCE AS TO ABILITY TO DEVELOP OR ACQUIRE ADDITIONAL ASSISTED LIVING
RESIDENCES.
The Company's prospects for growth are directly affected by its ability to
develop and to a lesser extent, acquire additional assisted living residences.
The successful development of additional assisted living residences will involve
a number of risks, including the possibility that the Company may be unable to
locate suitable sites at acceptable prices or may be unable to obtain, or may
experience delays in obtaining, necessary zoning, land use, building, occupancy,
and other required governmental permits and authorizations. The Company is
dependent upon these permits and authorizations to construct and
13
<PAGE>
operate its residences and any delay or inability to obtain such permits could
adversely affect the results of operations. The Company may also incur
construction costs that exceed original estimates, may not complete construction
projects on schedule and may experience competition in the search for suitable
development sites. The Company relies on third-party general contractors to
construct its new assisted living facilities. There can be no assurance that the
Company will not experience difficulties in working with general contractors and
subcontractors, which could result in increased construction costs and delays.
Further, facility development is subject to a number of contingencies over which
the Company will have little control and that may adversely affect project cost
and completion time, including shortages of, or the inability to obtain, labor
or materials, the inability of the general contractor or subcontractors to
perform under their contracts, strikes, adverse weather conditions and changes
in applicable laws or regulations or in the method of applying such laws and
regulations. Accordingly, if the Company is unable to achieve its development
plans, its business, financial condition and results of operations could be
adversely affected. There can be no assurance that the Company will be
successful in developing or acquiring any particular residence, that the
Company's rapid expansion will not adversely affect its operations or that any
residence developed or acquired by the Company will be successful. The various
risks associated with the Company's development or acquisition of assisted
living residences and uncertainties regarding the profitability of such
operations could have a material adverse effect on the Company's financial
condition and results of operation.
NEED FOR ADDITIONAL FINANCING TO FUND FUTURE DEVELOPMENT AND ACQUISITIONS.
To achieve its growth objectives, the Company will need to obtain sufficient
financial resources to funds its development, construction and acquisition
activities. There can be no assurance that adequate funding will be available
as needed or on terms acceptable to the Company. A lack of available funds may
require the Company to delay or eliminate all or some of its development
projects and acquisition plans.
GOVERNMENT REGULATION
Health care is an area of extensive and frequent regulatory change. Changes in
the laws or new interpretations of existing laws can have a significant effect
on methods of doing business, costs of doing business and amounts of
reimbursement from governmental and other payors. The Company at all times
attempts to comply with all applicable fraud and abuse laws; however, there can
be no assurance that administration or judicial interpretation of existing laws
or regulations will not have a material adverse effect on the Company's
operations or financial condition. The success of the Company will be dependent
in part upon its ability to satisfy the applicable regulations and requirements
and to procure and maintain required licenses. The Company's operations could
also be adversely affected by, among other things, regulatory developments such
as mandatory increases in the scope and quality of care to be afforded
residences and revision in licensing and certification standards. There can be
no assurance that federal, state or local laws or regulatory procedures which
might adversely affect the Company's business, financial condition, results of
operations or prospects will not be expanded or imposed.
DIFFICULTIES OF MANAGING RAPID GROWTH
The Company expects that the number of residences which it owns, leases or
otherwise operates will increase substantially as it pursues its growth
strategy. This rapid growth will place significant demands on the Company's
management resources. The Company's ability to manage its growth effectively
will require it to continue to expand its operational, financial and management
information systems and to continue to attract, train, motivate, manage and
retain key employees. If the Company is unable to manage its growth
effectively, its business, financial condition and results of operations could
be adversely affected.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) the Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ASSISTED LIVING CONCEPTS, INC.
Registrant
August 9, 1996 By: /s/ STEPHEN GORDON
--------------------------
Name: Stephen Gordon
Title: Chief Financial Officer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1996 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,131
<SECURITIES> 0
<RECEIVABLES> 793
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,376
<PP&E> 30,704
<DEPRECIATION> 282
<TOTAL-ASSETS> 30,422
<CURRENT-LIABILITIES> 11,187
<BONDS> 30,313
0
0
<COMMON> 30
<OTHER-SE> 15,566
<TOTAL-LIABILITY-AND-EQUITY> 57,404
<SALES> 3,742
<TOTAL-REVENUES> 3,742
<CGS> 3,835
<TOTAL-COSTS> 3,835
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20
<INCOME-PRETAX> 16
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
