<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _____________ TO _____________
Commission file number 1-13498
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 S.E. WASHINGTON, SUITE 201
PORTLAND, OR 97216
(503) 252-6233
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
COMMON STOCK, PAR VALUE $.01 AMERICAN STOCK EXCHANGE
7% CONVERTIBLE SUBORDINATE DEBENTURES DUE AUGUST 2005 AMERICAN STOCK EXCHANGE
Securities Registered Pursuant to Section 12(g) of the Act:
Indicate by check mark whether the registrant (1) have filed all reports
required 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 the
registrant was required to file such reports), and (2) have been subject to such
filing requirements for at least the past 90 days. YES [X] NO [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K: [ ]
As of February 28, 1997, 5,515,250 shares of the registrant's Common Stock, par
- - ----------------------------------
value $.01 per share, were outstanding. The aggregate market value of the
voting stock held by non-affiliates of the registrant on such date was
approximately $89.7 million.
--------------
Part III incorporates by reference the Company's definitive proxy
statement for the
Annual Meeting of Stockholders to be held on May 22, 1997
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<PAGE>
PART I
ITEM 1. BUSINESS
OVERVIEW
Assisted Living Concepts, Inc. (the "Company") develops, owns, leases and
operates assisted living residences, an increasingly popular form of housing for
senior citizens who, although generally ambulatory, need help with the
activities of daily living. In addition to housing, the Company provides
personal care and support services, and makes available routine nursing services
(as permitted by applicable government regulations) designed to meet the needs
of its residents. The Company believes that this combination of housing,
personal care and support services provides a cost-efficient alternative and
provides an independent lifestyle for individuals who do not require the broader
array of medical services that nursing facilities are required by law to
provide.
The Company was founded in July 1994 by Dr. Keren B. Wilson, the Company's
Chief Executive Officer and President, to develop, own, lease and operate
assisted living residences. The Company completed its initial public offering
in November 1994 and immediately began operating five assisted living residences
containing an aggregate of 137 units. As of December 31, 1996, the Company
licensed or had certificates of occupancy for sixty-seven assisted living
residences containing an aggregate of 2,382 units. As of February 28, 1997, the
Company had certificates of occupancy for seventy-nine assisted living
residences containing an aggregate of 2,845 units.
Currently, all the Company's residences are located in small communities in
Oregon, Washington, Texas, Idaho and New Jersey. Of the seventy-eight residences
that had certificates of occupancy as of February 28, 1997, 45 residences (1,653
units) were owned and 33 residences (1,153 units) were leased. The Company is
currently developing and, to a lesser extent, seeking to acquire additional
assisted living residences in small communities in Oregon, Washington, Texas,
Idaho, New Jersey, Ohio and other states with regulatory and reimbursement
climates that the Company believes are favorable. As of February 28, 1997, the
Company had purchased land or commenced construction on twenty-one residences
(approximately 820 units). In addition, the Company has entered into land
purchase option agreements for the development of thirty-one residences. The
Company generally does not acquire sites for development until it has completed
its feasibility analysis and appropriate zoning has been obtained. Capital
expenditures for 1996, which relate primarily to the development of new
residences, were $122 million.
The Company intends to add approximately 50 to 60 residences per year in each of
1997 and 1998. The principal elements of the Company's operating growth stage
are to: (i) develop additional residences thereby increasing its market
penetration in both existing and targeted markets, (ii) service higher acuity
residents and, (iii) pursue joint venture opportunities in ancillary services
and residence development. The Company anticipates that a majority of its
resident revenues will continue to come from private pay sources. However, the
Company believes that locating residences in states with favorable regulatory
and reimbursement climates should provide a stable source of residents eligible
for Medicaid reimbursement to the extent that private pay residents are not
available and, in addition, provide the Company's private pay residents with
alternative sources of income when their private funds are depleted and they
become Medicaid eligible.
The Company is a Nevada corporation and its principal executive
offices are located at 9955 S.E. Washington, Suite 201, Portland, Oregon 97216,
telephone number (503) 252-6233.
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INDUSTRY BACKGROUND
The long-term care industry encompasses a continuum of accommodations
and health care services that are provided primarily to the elderly. For those
among the elderly requiring limited services, home-based care in the elderly
person's home or in a retirement center offers a viable option for assistance on
an "as required" basis. Services provided by congregate and retirement centers
are often limited to meals, housekeeping and laundry. As an elderly person's
needs for assistance increase, care in an assisted living residence, where
assistance with personal care (such as dressing and bathing), support services
(such as housekeeping and laundry), and routine nursing services (such as
assistance with taking medication and health monitoring), are available, is
often preferable to home-based care. For those elderly people in need of
specialized support, rehabilitative, nutritional, respiratory, and other skilled
treatments, care in a nursing facility may be required. Generally, assisted
living residents have higher acuity levels than residents of congregate and
retirement living centers but lower acuity levels than patients in skilled
nursing facilities.
Assisted living is designed to enhance both the physical and
psychological well-being of the frail elderly by promoting their independence in
a home-like setting. The services and supervision provided are intended to
optimize the residents' abilities and foster their autonomy. Residents are
typically individuals who do not require the 24-hour skilled medical care
provided in nursing care facilities, but who are unable, for various reasons, to
live alone. The Company believes that the assisted living industry is among the
most rapidly expanding sectors of the senior care marketplace.
DEVELOPMENT
The Company is developing additional residences in Oregon, Washington,
Texas, Idaho, New Jersey, Ohio and other states. As of February 28, 1997, the
Company had commenced construction or had purchased land to begin development on
twenty-one residences.
The Company has also entered into land purchase option agreements in
connection with the acquisition of thirty-one sites which it may develop into
additional residences. The Company has made initial deposits relating to these
sites and has completed or is in the process of completing its demographic
analysis and initial architectural plans for purposes of building assisted
living residences.
The Company generally locates its residences in well-established
residential neighborhoods in smaller rural and suburban communities, where the
population typically ranges from 10,000 to 40,000 with a higher than average
percentage of middle aged or elderly individuals. To provide the appropriate
level of personal care efficiently and economically, and to ensure that
residents are not intimidated by residence size, the Company develops residences
ranging in size from 30 to 50 residential units and containing approximately
16,000 to 32,000 total square feet, with studio units comprising an average of
320 square feet and one bedrooms 450 square feet of private living space.
The Company either retains outside developers to construct residences,
or acquires newly-constructed residences from developers under "turn-key"
agreements. The Company approves all aspects of development including, among
other things, market feasibility, site selection, plans and specifications, the
proposed construction budget and selection of the architect and general
contractor. The Company estimates the average construction time for a typical
residence to be approximately five to nine months, depending upon the number of
units. The Company estimates that, once licensed, it takes approximately nine
months for each residence to achieve a stabilized occupancy level of 95% or
higher. 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 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.
3
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SERVICES
The Company's residences offer residents a supportive, "home-like"
setting and assistance with activities of daily living. Residents are
individuals who, for a variety of reasons, cannot live alone but do not
typically need the 24-hour skilled medical care provided in nursing facilities.
Services provided to these residents are designed to respond to their individual
needs and to improve their quality of life. This individualized assistance is
available 24 hours a day, to meet both anticipated and unanticipated needs.
General services in the Company's residences include the provision of three
meals per day, laundry, housekeeping and maintenance. Available support services
include personal care and routine nursing care, social and recreational
services, transportation and other special services needed by the resident.
Personal care includes services such as bathing, dressing, personal hygiene,
grooming, as well as eating and ambulating assistance. Routine nursing services,
which are made available and are provided according to the resident's individual
need and state regulatory requirements, include assistance with taking
medication, skin care and injections. Organized activities are available for
social interaction and entertainment. Special services available include
banking, grocery shopping and pet care. The Company also provides or arranges
access to additional services beyond its provision of basic housing and related
services, including physical therapy, pharmacy services and the sale or lease of
durable medical equipment.
Although a typical package of basic services provided to a resident
includes meals, housekeeping, laundry and personal care, the Company does not
have a standard service package for all residents. Instead, it is able to
accommodate the changing needs of its residents through the use of individual
service contracts and flexible staffing patterns. The Company's multi-tiered
rate structure for the services it provides is based upon the acuity of, or
level of services needed by, each resident. Supplemental and specialized health
care services for those residents requiring 24-hour supervision or more
extensive assistance with activities of daily living are provided by third-party
providers who are reimbursed directly by the resident or a third-party payor
(such as Medicaid or long term care insurance). The Company assesses the level
of need of each resident regularly.
OPERATIONS
The day-to-day operations of each residence are managed by an on-site
program director who is responsible for the overall operation of the residence,
including quality of care, marketing, social services and financial performance.
The program director is assisted by professional and non-professional personnel,
some of whom may be independent providers or part-time personnel, including
nurses, personal service assistants, maintenance and kitchen personnel. The
nursing hours vary depending on the residents' needs. The Company consults with
outside providers, such as registered nurses, pharmacists, and dietitians, for
purposes of medication review, menu planning and responding to any special
dietary needs of its residents. Personal care, dietary services, housekeeping
and laundry services are performed primarily by personal service assistants who
are full-time employees of the Company. Maintenance services are performed by
full and part-time employees, while landscaping services are typically performed
by third-party contractors.
The Company manages its residences, which includes the development of
operating standards and the provision of recruiting, training and accounting
services. The Company utilizes regional offices that include a team leader who
oversees four to six residences and works under the supervision of a regional
manager. The team leader is responsible for monitoring and supervising all
aspects of operations in the region, including reviewing and monitoring
compliance with corporate policies and procedures, and acting as a liaison
between the residences and corporate headquarters. The regional office team
leaders oversee the day-to-day operations of the residences. Financial
oversight, including all disbursements, are managed at the corporate office.
4
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Presently, the residence personnel are supported by a corporate staff
based at the Company's headquarters and three regional offices. Corporate and
regional personnel work with the program directors to establish residence goals
and strategies, quality assurance oversight, development of Company policies and
procedures, development and implementation of new programs, cash management and
treasury functions and human resource management.
COMPETITION
The long-term care industry generally is highly competitive and the
Company expects that the assisted living business in particular will become more
competitive in the future. The Company competes with numerous other companies
providing similar long-term care alternatives, such as home health agencies,
life care at home, community-based service programs, retirement communities and
convalescent centers. The Company expects that, as assisted living receives
increased attention and the number of states which include assisted living in
their Medicaid programs increases, competition will grow from new market
entrants, including publicly and privately held companies focusing primarily on
assisted living. Nursing facilities that provide long-term care services are
also a potential source of competition for the Company. Providers of assisted
living residences compete for residents primarily on the basis of quality of
care, price, reputation, physical appearance of the facilities, services
offered, family preferences, physician referrals, and location. Some of the
Company's competitors operate on a not-for-profit basis or as charitable
organizations. Some of the Company's competitors are significantly larger than
the Company and have, or may obtain, greater resources than those of the
Company. The Company believes that there is moderate competition for less
expensive segments of the private market and for Medicaid residents in small
communities. The Company's major competitors are other long-term care facilities
within the same geographic area as its' residences because management's
experience indicates that senior citizens who move into living communities
frequently choose communities near their homes.
FUNDING FOR ASSISTED LIVING CARE
Assisted living residents or their families generally pay the cost of
care from their own financial resources. Depending on the nature of an
individual's health insurance program or long-term care insurance policy, the
individual may receive reimbursement for costs of care under an "alternative
care benefit." Government payments for assisted living have been limited. Some
state and local governments offer subsidies for rent or services for low income
elders. Others may provide subsidies in the form of additional payments for
those who receive Supplemental Security Income (SSI). Medicaid provides
coverage for certain financially or medically needy persons, regardless of age,
and is funded jointly by federal, state and local governments. Medicaid
reimbursement varies from state to state. Although a majority of the Company's
revenues come from private payors, the cost structure of the residences has
historically been, and is expected to continue to be, sufficiently low so that
the residences are able to operate profitably if all of their revenues are
derived through Medicaid reimbursements.
In 1981, the federal government approved a Medicaid waiver program
called Home and Community Based Care which was designed to permit states to
develop programs specific to the healthcare and housing needs of the low-income
elderly eligible for nursing home placement (a "Medicaid Waiver Program"). In
1986, Oregon became the first state to use federal funding for licensed assisted
living services through a Medicaid Waiver Program authorized by the Health Care
Financing Administration ("HCFA"). Under a Medicaid Waiver Program, states
apply to HCFA for a waiver to use Medicaid funds to support community-based
options for the low-income elderly who need long-term care. These waivers
permit states to reallocate a portion of Medicaid funding for nursing facility
care to other forms of care such as assisted living. In 1994, the federal
government implemented new regulations which empowered states to further expand
their Medicaid Waiver Programs and eliminated restrictions on the amount of
Medicaid funding states could allocate to community-based care, such as assisted
living. A limited number of states including Oregon, New Jersey, Texas,
Washington and other states currently
5
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have operating Medicaid Waiver Programs that allow them to pay for assisted
living care. Without a Medicaid Waiver Program, states can only use federal
Medicaid funds for long-term care in nursing facilities.
During the year ended December 31, 1996 and 1995, direct payments
received from state Medicaid agencies accounted for approximately 13.8% and
21.4%, respectively of the Company's revenue while the tenant-paid portion of
Medicaid residents accounted for approximately 7.6% and 9.6%, of the Company's
revenue during these periods. The Company expects that state Medicaid
reimbursement programs will constitute a significant source of revenue for the
Company.
GOVERNMENT REGULATION
The Company's assisted living residences are subject to certain state
regulations and licensing requirements. In order to qualify as a state licensed
facility, the Company's residences must comply with regulations which address,
among other things, staffing, physical design, required services and resident
characteristics. As of February 28, 1997, the Company has obtained licenses in
Oregon, Washington, Texas, Idaho, Ohio and New Jersey and expects that it will
obtain licenses in other states as required. The Company's residences are also
subject to various local building codes and other ordinances, including fire
safety codes. These requirements vary from state to state and are monitored to
varying degrees by state agencies.
The Company believes that its residences are in substantial compliance
with all applicable regulatory requirements. However, in the ordinary course of
business, a residence can be cited for a deficiency. In such cases, the
appropriate corrective action is taken. No actions are currently pending on any
of the Company's residences.
As a provider of services under the Medicaid program in the United
States, the Company is subject to Medicaid fraud and abuse law, which prohibits
any bribe, kickback, rebate or remuneration of any kind in return for the
referral of Medicaid patients, or to induce the purchasing, leasing, ordering or
arranging of any goods or services to be paid for by Medicaid. Violations of
these laws may result in civil and criminal penalties and exclusions from
participation in the Medicaid program. The Inspector General of the Department
of Health and Human Services issued "safe harbor" regulations specifying certain
business practices which are exempt from sanctions under the fraud and abuse
law. Several states in which the Company operates or intends to operate have
laws that prohibit certain direct or indirect payments or fee-splitting
arrangements between health care providers if such arrangements are designed to
induce or encourage the referral of patients to a particular provider. The
Company at all times attempts to comply with all applicable fraud and abuse
laws. There can be no assurance that administrative or judicial interpretation
of existing laws or regulations or enactment's of new laws or regulations will
not have a material adverse effect on the Company's results of operations or
financial condition.
Currently, assisted living residences are not regulated as such by the
federal government. State standards required of assisted living providers are
less in comparison with those required of other licensed health care operators.
For instance, the states initially targeted for development/expansion by the
Company do not set staffing ratios. Current Medicaid regulations provide for
comparatively flexible state control over the licensure and regulation of
assisted living residences. There can be no assurance that federal regulations
governing the operation of assisted living residences will not be implemented in
the future or that existing state regulations will not be expanded.
6
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EMPLOYEES
As of February 28, 1997 the Company had approximately 1,395 employees,
of which approximately 487 were whom were employed in full-time employees and
1,084 were part-time employees. None of the Company's employees are represented
by any labor union. The Company believes that its labor relations are good.
7
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ITEM 2. PROPERTIES
The following chart sets forth, as of February 28, 1997, the location,
number of units and the date on which operations commenced for the Company's
owned and leased properties.
<TABLE>
<CAPTION>
Licensure
Residence Location Ownership Units Date
--------- -------- --------- ----- ----------
OREGON
<S> <C> <C> <C> <C>
Rackleff Canby Leased (1) 25 December 1990
Aspen Madras Owned 27 March 1991
Juniper Pendleton Leased (1) 26 April 1991
Huffman Newberg Leased (1) 26 October 1992
Hillside Lincoln City Owned 33 October 1994
Brookside Redmond Leased (1) 37 March 1995
Davenport Silverton Owned 30 July 1995
Carriage Prineville Owned 30 October 1995
Parkhurst Hood River Owned 30 October 1995
Awbrey Bend Owned 46 November 1995
Adams Myrtle Creek Leased (1) 34 March 1996
Spencer Newport Owned 36 June 1996
Macklyn Brookings Owned 36 July 1996
Astor Astoria Owned 28 August 1996
Jackson Talent Owned 36 October 1996
Linkville Klamath Falls Owned 35 October 1996
Josephine Grants Pass Leased (1) 45 November 1996
Douglas Sutherlin Leased 30 January 1997
Grace Estacada Owned 30 January 1997
IDAHO
Mallory Idaho Falls Owned 39 January 1997
Clearwater Nampa Owned 39 February 1997
Rosewind Garden City Owned 48 (2)
WASHINGTON
Chenoweth Kennewick Leased (1) 36 December 1995
Orchard Grandview Leased (1) 36 February 1996
Pioneer Walla Walla Leased (1) 36 February 1996
Mountainview Camas Leased (1) 36 March 1996
Lexington Vancouver Leased (1) 44 June 1996
Crawford Kelso Owned 40 August 1996
Colonial Battleground Owned 40 November 1996
Cascade Enumclaw Owned 40 (2)
Syndey Port Orchard Owned 39 (2)
TEXAS
Oakwood Marshall Leased (1) 30 July 1995
Alpine Longview Leased (1) 30 September 1995
Preston Sherman Leased (1) 30 October 1995
Cedarview Gun Barrel City Leased (1) 30 October 1995
Winkler Carthage Leased (1) 30 October 1995
Lakeland Athens Leased (1) 30 November 1995
Harrison Greenville Leased (1) 30 November 1995
Angelina Jacksonville Leased (1) 39 December 1995
</TABLE>
8
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<TABLE>
<S> <C> <C> <C> <C>
Wheeler Gainesville Leased (1) 30 January 1996
Hickory Levelland Leased (1) 30 January 1996
Hopkins Sulphur Springs Owned 30 January 1996
Katy Denison Owned 30 January 1996
Wren Cleburne Owned 36 January 1996
Hoyt Sweetwater Leased (1) 30 March 1996
Sabine Orange Leased (1) 36 March 1996
Potter Amarillo Leased (1) 50 March 1996
Lucas Beaumont Leased (1) 50 April 1996
Neches Lufkin Leased (1) 39 May 1996
Rose Port Arthur Owned 50 May 1996
Marcy Big Springs Owned 38 June 1996
Austin Nacogdoches Leased (1) 30 June 1996
Millican Bryan Leased (1) 30 June 1996
Mackenzie Lubbock Leased (1) 50 June 1996
Lakewell Mineral Wells Owned 30 June 1996
Bradfield Mesquite Leased (1) 50 June 1996
Strake Conroe Leased (1) 38 July 1996
Santa Fe Plainview Owned 36 July 1996
Conner Canyon Leased (1) 30 June 1996
Meredith Pampa Owned 36 August 1996
Azalea Hendersen Owned 30 6 September 199
Bluebonnet College Station Owned 39 October 1996
Arbor Wichita Falls Owned 50 October 1996
Chisolm Abilene Owned 38 October 1996
Mercer Rowlett Owned 36 October 1996
Cimarron Midland Owned 38 December 1996
Redbud McKinney Owned 39 January 1997
Wildflower Temple Owned 40 January 1997
OHIO
Carlisle Bucyrus Owned 35 January 1997
Kings Defiance Owned 39 February 1997
Oakley Greenville Owned 39 February 1997
Campbell Bellefontaine Owned 35 (2)
DeWolfe Marion Owned 39 (2)
Taylor Findlay Owned 39 (2)
Blanchard Kenton Owned 35 (2)
Amanda Lima Owned 39 (2)
ARIZONA
Jasmine Lake Havasa Owned 39 (2)
NEW JERSEY
Baker Vineland Owned 39 January 1997
</TABLE>
(1) The leases range from ten to twenty year terms with annual rentals of
approximately $6.8 million. The Company is responsible for all costs
including repairs to the residence, property taxes, and other direct
operating costs of the residences. Building rent is recorded as incurred
for those residences which have annual increases in the consumer price
index.
(2) The Company has received a certificate of occupancy on these residences and
is pending licensure from the prospective states.
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The Company also leases in total approximately 8,000 square feet of office space
for the Corporate and Regional offices in Portland, Oregon, Dallas, Texas and
Dublin, Ohio. The Company is developing additional residences in Oregon,
Washington, Texas, Idaho, New Jersey, Ohio and four other states. As of February
28, 1997, the Company had commenced construction on or had purchased land for
the development of twenty-one residences and entered into land purchase
agreements to develop thirty-one additional residences.
Due to the recent construction of the Company's owned and leased
residences, the Company believes such residences are suitable and adequate for
the conduct of its business and operations.
ITEM 3. LEGAL PROCEEDINGS
As of February 28, 1997, the Company was not a party to any legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
10
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock, par value $0.01 (the "Common Stock"), is listed
and traded on the American Stock Exchange under the symbol "ALF." The following
table sets forth the high and low closing sales prices of the common stock, as
reported by the AMEX, for the periods indicated.
<TABLE>
<CAPTION>
1996 PRICE RANGE 1995 PRICE RANGE OF
OF OF
COMMON STOCK COMMON STOCK
HIGH LOW HIGH LOW
------- ------ ------- ------
<S> <C> <C> <C> <C>
Fiscal year ended December 31:
1st Quarter $20.18 $13.25 $9.25 $7.50
2nd Quarter 22.25 17.75 11.88 8.00
3rd Quarter 20.25 17.25 16.50 10.00
4th Quarter 19.88 14.38 15.88 12.38
</TABLE>
On February 28, 1997, the closing price for the common stock, as reported
by AMEX, was $18.625 per share. As of such date, the Company had approximately
44 holders of record of its common stock. The Company is unable to estimate the
number of additional stockholders whose shares are held for them in street name
or nominee accounts.
The Company's current policy is to retain any earnings to finance the
operations and expansion of the Company's business. In addition, certain
outstanding indebtedness and certain lease agreements restrict the payment of
cash dividends. It is anticipated that the terms of future debt financing may
do so as well. Therefore, the payment of any cash dividends on the Common Stock
is unlikely in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected historical condensed financial data
for the Company and the Predecessor as of the dates and for the periods
indicated. The Predecessor consisted of Assisted Living Facilities, Inc., an S-
corporation; Madras Elder Care, a partnership; and Lincoln City Partners, a
partnership, which, prior to December 1, 1994, collectively owned the five
residences operated by the Company in December 1994. The selected financial
data below should be read in conjunction with the financial statements of the
Predecessor and the Company, including the notes thereto, and the information in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 13 to 20.
11
<PAGE>
<TABLE>
<CAPTION>
The Company Predecessor
--------------------------------------------------------------------------------
Eleven
One Month Months
Year ended Ended Ended
December 31, December 31, December 31, Year ended December 31,
1996 1995 1994(3) 1994(1) 1993 1992
---------------------------------------------------------------------------------
(in thousands except per share data
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues...................................... $ 18,949 $ 4,067 $ 212 $1,841 $1,884 $1,377
-------- ------- ------- ------ ------ ------
Operating expenses:
Residence operating expenses................. 12,116 2,779 125 1,127 1,090 908
Management fees.............................. - - - 93 92 69
Corporate general and administrative......... 1,649 1,252 152 - - -
Building rentals............................. 4,152 798 42 - - -
Depreciation and amortization................ 990 296 13 105 132 93
-------- ------- ------- ------ ------ -----
Total operating expenses.................. 18,907 5,125 332 1,325 1,314 1,070
-------- ------- ------- ------ ------ -----
Operating income (loss)....................... 42 (1,058) (120) 516 570 307
Interest and other expense (income), net...... (107) (483) (56) 285 309 242
-------- ------- ------- ------ ------ -----
Net income (loss)............................. $ 149 $ (575) $ (64) $ 231 $ 261 500
======== ======= ======= ====== ====== =====
UNAUDITED PRO FORMA DATA:
Net income (loss)............................. $ 231 $ 261 $60
Pro forma provision for income taxes (2)...... 85 67 -
------ ------ -----
Pro forma net income (loss)................... $ 146 $ 194 $60
====== ====== =====
Net income (loss) per share (primary)......... $.03 $ (0.19) $ (0.02)
Weighted average common shares outstanding
(primary)..................................... 4,500 3,000 3,000
Weighted average common shares outstanding
(fully-diluted0............................... 5,646
BALANCE SHEET DATA:
Working capital............................... $(26,372) $ (5,167) $13,122 $ 299 $ 351 $109
Total assets.................................. 130,507 53,546 17,903 5,699 4,110 3,965
Long-term debt, excluding current portion..... 32,683 24,553 1,101 5,266 3,700 3,703
Shareholders equity........................... 59,059 15,644 16,219 197 263 105
</TABLE>
- - --------------------
(1) Includes approximately one month of operations for Hillside House, which
opened in October 1994.
(2) The Predecessor was exempt from U.S. federal and state income taxes as a
result of its partnership and subchapter S status. The financial data
reflects the income tax expenses that would have been recorded had the
Predecessor not been exempt from paying such income taxes. The pro forma
financial data includes the effect of the Company adopting Statement of
financial Accounting Standards (SFAS) No. 109.
(3) The Company commenced operating the residences on December 1, 1994.
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QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1996 QUARTERLY FINANCIAL DATA 1995 QUARTERLY FINANCIAL DATA
-----------------------------------------------------------------------------------------------------
RESULTS OF OPERATION 1ST 2ND 3RD 4TH YEAR TO 1ST 2ND 3RD 4TH YEAR TO
QTR QTR QTR QTR DATE QTR QTR QTR QTR TO DATE
------ ------- ------- ------ -------- ------ ------- ------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $2,750 $3,742 $5,171 $7,286 $18,949 $ 682 $ 793 $ 977 $1,615 $ 4,067
Operating income (loss) (178) (93) (41) 354 42 (183) (149) (249) (477) (1,058)
Net income (loss) (187) 16 (238) 558 149 (27) (45) (160) (343) (575)
Weighted average
Common shares outstanding 3,005 3,013 5,265 5,585 4,500 3,000 3,000 3,000 3,000 3,000
Net income (loss) per share $(.06) $ .01 $(.05) $ .10 $.03 $(.01) $(.01) $(.05) $(.11) $(.19)
(1)
</TABLE>
(1) Quarter net loss per share amounts do not add to the full year total due to
rounding.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Revenue consists 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) predecessor costs incurred under
management agreements whereby a management fee equal to 5% of revenue was
charged by Concepts in Community Living, Inc. ("CCL Sub Inc.") for residence
management and administrative support, (iii) general and administrative expenses
consisting of corporate and support functions such as legal, accounting and
other administrative expenses, (iv) building rentals, (v) depreciation and
amortization.
PREDECESSOR
The historical financial statements for the eleven months ended November
30, 1994 and years ended December 31, 1993 and 1992 represent the combined
historical results of operations and financial condition of the Predecessor. The
Predecessor consists of the entities which, prior to December 1, 1994, owned and
operated residences now operated by the Company.
THE COMPANY
At the closing of the initial public offering in November, 1994, the
Company began operating five assisted living residences located in Oregon. As of
December 31, 1996, the Company was operating or had received a Certificate of
Occupancy on sixty-seven residences of which fifty-one had operating results.
In addition, the Company had purchased or had begun construction on twenty-one
parcels of land to develop assisted living residences and had also entered into
agreements pursuant to which, it may purchase, subject to completion of due
diligence and various other conditions, thirty-one other sites for development.
As of February 28, 1997, the Company had seventy-eight residences with
Certificates of Occupancy.
Operating results for the year ended December 31, 1996, including the
operating results of fifty-one residences and the Company's corporate overhead,
are not necessarily indicative of the Company's future operating financial
performance as the Company intends to significantly expand its operating base of
residences in 1997 and 1998. Based on the Company's development schedule, the
number of
13
<PAGE>
residences planned to open in 1997 ranges from 50 to 60. 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 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
estimates that the aggregate losses to be incurred during 1997 due to the
opening buildings will range from $.5 million to $2.4 million.
The following table sets forth, for periods presented, the number of total
residences and units operated, average occupancy rates and the sources of
revenue for the Company and the Predecessor. 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>
The Company Predecessor
-------------------------------------------------------- -------------------------------
One month Eleven months
Year ended Year ended ended ended Year ended
December 31, December 31, December 31, November 30, December 31,
1996 1995 1994 1994 1993
-------------- ----------------- ------------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Residences operated
(end of period) 51 19 5 5 4
Units operated (End of period) 1,768 595 137 137 104
Average occupancy rate 80.4% 82.3% 97.0% 96.4% 94.8%
Source of Revenue
Medicaid State Portion 13.8% 21.4% 27.0% 29.0% 27.0%
Medicaid Resident Portion 7.6% 9.6% 11.9% 13.0% 12.0%
Private 78.6% 69.0% 61.1% 58.0% 61.0%
-------------- ------------------ ------------------ -------------- -------------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
============== ================== ================== ============== =============
</TABLE>
The following table set forth, for the periods presented for Stabilized
Residences, the total number of residences and units operated, average occupancy
rates and the sources of revenue for the Company and the Predecessor.
Stabilized Residences are defined as those residences which were operating for
more than nine months prior to the beginning of the period or had achieved a 95%
occupancy rate as of the beginning of the reporting period.
<TABLE>
<CAPTION>
The Company Predecessor
--------------------------------------------------- -----------------------------
One month Eleven months
Year ended Year ended ended ended Year ended
December 31, December 31, December 31, November 30, December 31,
1996 1995 1994 1994 1993
--------------- ------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Residences operated
(end of period) 7 5 4 4 4
Units operated (End of period) 204 137 104 104 104
Average occupancy rate 96.5% 99.1% 100.0% 99.2% 94.8%
Source of Revenue:
Medicaid State Portion 19.9% 23.9% 28.4% 28.9% 27.0%
Medicaid Resident Portion 11.5% 11.3% 12.1% 13.2% 12.0%
Private 68.6% 64.8% 59.5% 57.9% 61.0%
--------------- ------------ --------------- ------------- -------------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
=============== ============ =============== ============= =============
</TABLE>
14
<PAGE>
The following table sets forth, for the periods presented for Start-up
Residences, the total number of residences and units operated, average occupancy
rates and the sources of revenue for the Company and the Predecessor. Start-up
Residences are defined as those residences which were operating for less than
nine months prior to the beginning of the period and had not achieved a 95%
occupancy rate as of the beginning of the reporting period.
<TABLE>
<CAPTION>
The Company Predecessor
----------------------------------------------------- ---------------------------------
One month Eleven months
Year ended Year ended ended ended Year ended
December 31, December 31, December 31, November 30, December 31,
Start-up Residences 1996 1995 1994 1994 1993
- - ------------------------------ ------------- ------------- --------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Residences operated
(end of period) 44 2 1 1 -
Units operated (End of period) 1,564 70 33 33 -
Average occupancy rate 76.9% 85.5% 87.5% 87.5% -
Source of Revenue:
Medicaid State Portion 11.2% 27.8% 21.3% 36.4% -
Medicaid Resident Portion 6.0% 11.7% 10.6% - -
Private 82.8% 60.5% 68.1% 63.6% -
-------------- ------------- ---------------- ---------------- --------------
Total 100.0% 100.0% 100.0% 100.0% -
============== ============= ================ ================ ==============
</TABLE>
The following table sets forth, for the periods presented, the results of
operations for Stabilized Residences (in thousands).
<TABLE>
<CAPTION>
The Company Predecessor
------------------------------------------------- -------------------------------
One month Eleven months
Year ended Year ended ended ended Year ended
December 31, December 31, December 31, November 30, December 31,
Stabilized Residences 1996 1995 1994 1994 1993
- - ------------------------------ ------------ --------------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Revenue $4,084 $2,699 $165 $1,819 $1,884
Residence operating expenses 2,412 1,667 96 1,073 1,090
------------ --------------- --------------- ------------- ------------
Residence operating income 1,672 1,032 69 746 794
Management fees - - - 90 92
Building rentals 780 500 42 - -
Depreciation and amortization 120 116 4 100 132
------------ --------------- --------------- ------------- ------------
Total other operating expenses 900 616 46 190 224
------------ --------------- --------------- ------------- --------------
Operating income 772 416 23 556 570
Other interest/income expense net 217 147 7 285 309
------------ --------------- --------------- ------------- ------------
Income before taxes $ 555 $ 269 $ 16 $ 271 $ 261
============ =============== =============== ============= =============
</TABLE>
The following tables sets forth, for the periods presented, the results of
operations for Start-up Residences (in thousands).
<TABLE>
<CAPTION>
The Company Predecessor
------------------------------------------------- -------------------------------
One month Eleven months
Year ended Year ended ended ended Year ended
December 31, December 31, December 31, November 30, December 31,
Start-up Residences 1996 1995 1994 1994 1993
- - --------------------------------- ------------ --------------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Revenue $14,865 $1,368 $47 $22 $-
Residence operating expenses 9,704 1,112 29 54 -
------------ --------------- --------------- ------------- ------------
Residence operating income 5,161 256 18 (32) -
Management fees - - - 3 -
Building rentals 3,372 298 - - -
Depreciation and amortization 809 180 9 5 -
------------ --------------- --------------- ------------- ------------
Total other operating expenses 4,181 478 9 8 -
------------ --------------- --------------- ------------- --------------
Operating income 980 (222) 9 (40) -
Other interest/income expense net 603 4 1 23 -
------------ --------------- --------------- ------------- ------------
Income before taxes $ 377 $ 266 $ 8 $(63) $-
============ =============== =============== ============= =============
</TABLE>
15
<PAGE>
The following table sets forth, for the periods presented, the results of
operations for the five residences which were operating for both periods in
their entirety (in thousands).
<TABLE>
<CAPTION>
Year ended Year ended
Same Store Residences December 31, 1996 December 31, 1995
- - ----------------------------------- --------------------------------------
<S> <C> <C>
Revenue $2,823 $2,669
Residence operating expenses 1,641 1,667
------ ------
Residence operating income 1,182 1,032
Management fees - -
Building rentals 533 500
Depreciation and amortization 115 116
------ ------
Total other operating expenses 648 616
------ ------
Operating income 534 416
Other interest/income expense net 217 147
------ ------
Income before taxes $ 317 $ 269
====== ======
</TABLE>
RESULTS OF OPERATIONS
THE COMPANY
Year ended December 31, 1996 to year ended December 31, 1995
The Company had net income of $149,000 or $.03 per share, on revenue of
$18.9 million for the year ended December 31, 1996, compared to a net loss of
$575,000 or $.19 per share, on revenues of $4.1 million for the year ended
December 31, 1995. The Company incurred a one-time charge of $426,000 during
1996 for the exchange of 405,666 shares of common stock on $6,085,000 of 7%
convertible debentures. The Company's net income prior to this one-time charge
is $574,000 or $.13 per share.
Revenue Revenue was $18.9 million for the year ended December 31, 1996 compared
to $4.1 million for the year ended December 31, 1995. The average rate per
resident per month for the five facilities which were open through both 1996 and
1995 was $1,735 for the year ended December 31, 1996, compared to $1,631 for the
year ended December 31, 1995. The increase in revenue and the decline in the
average rent was due primarily to the additional 32 residences open during the
year ended 1996. The payments from Medicaid programs comprised approximately
13.8% of the Company's revenue for the year ended December 31, 1996.
Residence Operating Expense Residence operating expenses were $12.1 million for
the year ended December 31, 1996 compared to $2.8 million for the year ended
December 31, 1995 which represents an increase of 332%. The increase is due to
the growth in the number of residences as discussed above along with the start-
up costs relating to the 32 additional residences which commenced operations
during 1996. At December 31, 1996 the Company had received certificates of
occupancy on sixty-seven residences with fifty-one experiencing operating
results compared to the twenty-five residences opened as of December 31, 1995
with nineteen residences experiencing operating results.
Corporate General and Administrative Corporate general and administrative
expenses for the year ended December 31, 1996 was $1.6 million compared to $1.3
million for 1995. This increase is a direct result of additional staffing to
cover the increase in corporate activity, travel associated with new residences
located in other states, and the establishment of the regional offices.
16
<PAGE>
BUILDING RENTALS Building rentals for the year ended December 1, 1996 was $4.2
million, compared to the year ended December 1, 1995 of $798,000 which
represents an increase of 426%. The increase in building rentals is directly
related to the additional twenty-two sale leaseback transactions completed
during 1996. The Company ended the year with thirty-one leases compared to the
nine leases at the end of 1995.
Depreciation and Amortization Deprecation and amortization for the year ended
December 31, 1996 was $990,000, compared to the depreciation for the year ended
December 31, 1995 of $296,000 which represents an increase of 234%. This
increase is the result of an additional fourteen facilities that were developed
by the Company in 1996 and were still owned as of December 31, 1996.
Interest and Other Expense (Income)-Net Interest cost incurred for the year
ended December 31, 1996 was $2.2 million compared to $673,000 for the year ended
December 31, 1995. The Company capitalized $2.2 million and $577,000 of
interest incurred during construction for the years ended December 31, 1996 and
1995, respectively. Interest income for the year ended December 31, 1996 was
$455,000 compared to $579,000 for the year ended December 31, 1995. In
September 1996, $6,085,000 of the $20,000,000 7% Convertible Subordinated
Debentures due August 15, 2005 were converted to 405,666 shares of the Company's
common stock. The Company incurred a one-time charge of $426,000 in connection
with the conversion. Interest and Other Expense (Income) - Net for the year
ended December 31, 1996 was ($107,000) compared to December 31, 1995 of
($483,000) which is mainly due to the one-time charge incurred in the conversion
of convertible subordinated debentures for common stock.
Net Income (Loss) The Company achieved net income of $149,000 or $.03 per share
for the year ended December 31, 1996, compared a net loss of $575,000, or $.19
per share for the year ended December 31, 1995. This is due to the number of
residences opened in 1996 and the stabilization of those residences opened in
1995.
Year ended December 31, 1995 to period ended December 31, 1994
The Company incurred a net loss of $575,000 or $.19 per share, on revenue
of $4,067,000 for the year ended December 31, 1995. These losses resulted
primarily from an increase in corporate overhead, including additional staffing
necessary to accommodate the Company's expansion plan to develop additional
residences in 1995 and 1996 and initial operating losses of residences which
commenced operations during the year. For the one month ended December 31,
1994, the Company incurred a net loss $64,000, or $(.02) per share, on revenues
of $212,000.
Revenue Revenue was $4,067,000 for the year ended December 31, 1995 compared to
$212,000 for the one month December 31, 1994 and $1,841,000 for the eleven
months ended November 31, 1994 for a combined total of $2,053,000, which
represents an increase of 98% which is the direct result of the additional
fourteen residences which commenced operations during 1995. The average rate
per month for the five facilities which were open for one year or more at
December 31, 1995 was $1,631, compared to $ 1,592 for the month ended December
31, 1994. The increase was due to a combination of increased service care
levels and approved rate increases. The average rate for all residences for the
year ended December 31, 1995 was $1,588, which reflects the effects of the
additional fourteen residences opened by the Company during 1995. The payments
from Medicaid programs comprised approximately 21.4% of the Company's
revenue for the year ended December 31, 1995.
17
<PAGE>
Residence Operating Expense Residences operating expenses were $2,779,000 for
the year ended December 31, 1995 compared to $125,000 for the one month ended
December 31, 1994 and $1,127,000 for the eleven months ended November 31, 1994
for a combined total of $1,252,000 which represents an increase of 122%. The
increase is due to the increase in revenues as discussed above along with the
start-up costs relating to the fourteen additional residences which commenced
operations during 1995. At December 31, 1995 the Company operated twenty-five
residences with nineteen experiencing operating results compared to the five
operating residences at December 31, 1994.
Corporate General and Administrative Corporate general and administrative
expenses for the year ended December 31, 1995 was $1,252,000 compared to the one
month ended December 31, 1994 of $152,000. This increase is a direct result of
additional staffing to cover the increase in development activity, travel
associated with new residences located in other states, and the establishment of
the corporate office.
Building Rentals Building rentals were $798,000 for the year ended December 31,
1995 which represents rental on nine residences of which four were owned by the
Predecessor and now are leased by the Company. Five of the nine residences were
sold in sale and leaseback transactions during 1995.
Depreciation and Amortization Deprecation and amortization for the year ended
December 31, 1995 was $296,000, compared to the depreciation for the one month
ended December 31, 1994 of $13,000 and eleven months ended November 30, 1994 of
$105,000 for a combined total of $118,000 which represents an increase of 151%.
This increase is the result of an additional 16 facilities that were developed
by the Company in 1995 and were still owned as of December 31, 1995. In
addition, two residences which were leased in October of 1995 experienced two
months and one month of depreciation.
Interest Expense (Income)-Net Interest expense for the year ended December 31,
1995 was $96,000 which represents interest on the loans on two initial buildings
purchased from the Predecessor. Interest income of $579,000 was earned on
investment of corporate cash from the proceeds of the initial public offering in
1994 and the Company's private placement in August of 1995.
Net Income (Loss) The Company incurred a net loss of $575,000 or $.19 per share
for the year ended December 31, 1995. This is due to the number of residences
opened in 1995 and the level of development activity currently being experienced
by the Company. The Company anticipates an initial loss of $30,000 to $50,000
per residence to be incurred within the first three to four months of the
residence opening.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had negative working capital of $26.4
million. This is mainly due to construction draws of approximately $16 million
and interim construction financing of $18.9 million that the Company plans to
convert within six months to long-term financing.
Net cash used in investing activities for the year ended December 31, 1996,
totaled approximately $80 million which represents investments in new site
development in Oregon, Washington, Texas, Idaho, New Jersey and Ohio of
approximately $122 million. This amount is offset by $50 million received from
the sale of twenty-two residences in sale and leaseback transactions and funds
held in trust of $8.5 million pending licensure on five Washington residences.
18
<PAGE>
Net cash provided by financing activities totaled $70.2 million during the
year ended December 31, 1996. The Company completed $14.4 million in mortgage
financing on eight residences, three with the State of Oregon and five with the
State of Washington. In addition, the Company completed mortgage financing on
eight residences totaling $18.9 million. The Company completed in July of 1996 a
$39.8 million common stock offering (netting the Company approximately $37.2
million).
The Company intends to utilize additional financing to develop additional
residences in 1997. The Company intends to seek additional long-term financing
through low-cost state bond financing, temporary mortgage financing and sale and
leaseback transactions on properties in Washington, Texas, Idaho, New Jersey and
Ohio. As of February 28, 1997, the Company had obtained $36.4 million in
mortgage financing on sixteen additional residences in Ohio, Idaho and Oregon.
As of February 28, 1997, the Company had started construction or had
purchased land for development on twenty-one parcels of land in Washington, New
Jersey, Ohio, Arizona, and Idaho for a total of 820 units. In addition, the
Company has also entered into agreements pursuant to which, it may purchase,
subject to completion of due diligence and various other conditions, thirty-one
undeveloped sites for an aggregate purchase price of $4.6 million. The Company
has paid initial deposits relating to these sites and has completed or is in the
process of completing the demographic analyses and initial architectural plans
for purposes of building assisted living residences. In addition, the Company
has entered into agreements to lease three residences in Oregon, which are
currently under development, as well as a management agreement for one
residence.
Capital expenditures for 1997 are estimated to total approximately $140
million to $168 million, related primarily to the development of additional
residences. The Company has received a $98.7 million commitments from several
health care REITs, to finance 40 residences through sale and leaseback
transactions. The Company anticipates being able to continue to utilize tax-
exempt bond financing for approximately $49 million from the States of Oregon,
Ohio, Idaho and Washington. The Company has agreed in principle subject to
written confirmation for the sale leaseback of an additional $25 million. The
Company does not anticipate any significant capital expenditures within the
foreseeable future with respect to the residences acquired in 1994, 1995 and
those currently operating or those pending licensure as of December 31, 1996.
It is expected that cash generated from operations will be sufficient to fund
any expenditures the Company may be required to make with respect to these
residences.
As of December 31, 1996, the Company had invested excess cash balances in
short-term certificates of deposit. The Company intends to satisfy future
capital requirements for its development activities by various means, including
financing obtained from sale and leaseback transactions, construction financing
and long-term state bond financing with third parties and, to the extent
available, cash generated from operations.
INFLATION
Management believes that the Company's operations have not been materially
adversely affected by inflation. The Company expects salary and wage increases
for its skilled staff will continue to be higher than average salary and wage
increases, as is common in the health care industry. The Company expects that
it will be able to offset the effects of inflation on salaries and other
operating expenses by increases in rental and service rates, subject to
applicable restrictions with respect to services that are provided to residents
eligible for Medicaid reimbursement.
RISK FACTORS
Except for the historical information contained herein, the matters
discussed herein are forward-looking statements. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievements of the Company to be
materially differenct from any future results, performance or achievements
expressed or implied by such forward-looking statements. The following
discussion highlights some of these risks and others 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. The Company realized net income of $149,000 for the
year ended December 31, 1996, a loss of $575,000 for the year ended December 31,
1995 and a loss of $64,000 for the one month ended December 31, 1994. There
can be no assurance that losses will not be incurred in the future. The Company
19
<PAGE>
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 1997 of which eight had
received certificates of occupancy by February 28, 1997. The Company estimates
that the aggregate losses to be incurred during 1997 due to the of opening new
buildings will range from $.5 million to $2.4 million. The success of the
Company's future operations 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.
<PAGE>
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, a lesser extent, acquire additional assisted living
residences. While the Company currently plans to open 50 to 60 residences in
1997 and 1998, there can be no assurance that such residences will be completed
during this time frame, or, that they will be successful once completed. The
success of the Company's growth strategy will also depend upon, among other
factors, the Company's ability to obtain government licenses and approvals, the
Company's ability to obtain financing and the competitive environment for
development and acquisitions. The nature of such licenses and approvals and the
timing and likelihood of obtaining them vary widely from state to state,
depending upon the residence, or its operation, and the type of services to be
provided. The successful development of additional assisted living facilities
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
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 compete 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 change 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 residences 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 or results of operations.
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 fund its development, construction and acquisition
activities. The estimated cost to complete and fund start-up losses for the new
facilities that will be developed by December 31, 1998 is between $280 million
and $336 million; accordingly, the Company's future growth will depend on its
ability to obtain additional financing on acceptable terms. The Company will,
from time to time, seek additional funding through public and/or private
financing sources, including equity and/or debt financing. If additional funds
are raised by issuing equity securities, the Company's stockholders may
experience dilution. 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. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources".
21
<PAGE>
The Company's aggregate annual fixed debt and lease payment obligations
currently total approximately $11.9 million. These fixed payment obligations
will significantly increase as the Company pursues its development plan.
Failure to meet these obligations may result in the Company being in default of
its financing agreements and, as a consequence, the Company may lose its ability
to operate any individual residence or other residences which may be cross-
defaulted. There can no assurance that the Company will generate sufficient
cash flow to meet its current or future obligations. The Company has not
historically covered its fixed charges with earnings. In addition, The Company
anticipates that future development of residences may be financed with
construction loans, and, therefore, there is a risk that, upon completion of
construction, permanent financing for newly developed residences may not be
available or may be available only on terms that are unfavorable or unacceptable
to the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources".
GEOGRAPHIC CONCENTRATION; DEPENDENCE ON STATE MEDICAID WAIVER PROGRAMS
As of February 28, 1997, approximately 46.8% of the Company's properties are
located in the State of Texas and approximately 24.1% are located in the State
of Oregon; therefore, the Company is dependent on the economies of Texas and
Oregon and, to a certain extent, on the continued funding of state Medicaid
waiver programs. The Company has operated residences in Oregon since December
1994. In addition, the Company began operating residences in Texas and
Washington in July 1995 and December 1995, respectively. During the years ended
1996 and 1995, direct payments received from state Medicaid agencies accounted
for approximately 13.8% and 21.4%, respectively of the Company's revenue while
the tenant-paid portion of Medicaid residents accounted for approximately 8% and
10% of the Company's revenue during these periods. The Company expects that
State Medicaid reimbursement programs will constitute a significant source of
revenue for the Company. The Company intends to continue developing and
operating assisted living residences in other states. Adverse changes in general
economic factors affecting these states' respective health care industries or in
these states' laws and regulatory environment, including Medicaid reimbursement
rates, could have a material adverse effect on the Company's financial condition
and results of operations.
POSSIBLE VOLATILITY OF STOCK PRICE The market price of the Common Stock
could be subject to significant fluctuations in response to various factors and
events, including the liquidity of the market for the Common Stock, variations
in the Company's operating results, new statutes or regulations or changes in
the interpretation of existing statutes or regulations affecting the health care
industry generally or assisted living residence businesses in particular. In
addition, the stock market in recent years has experienced broad price and
volume fluctuations that often have been unrelated to the operating performance
of particular companies. These market fluctuation also may adversely affect the
market price of the Common Stock.
DEPENDENCE ON SENIOR MANAGEMENT AND SKILLED PERSONNEL The Company depends,
and will continue to depend, upon the services of Dr. Wilson, its Chief
Executive Officer and President, Connie Baldwin, its Director of Operations and
Stephen Gordon, its Chief Administrative Officer and Chief Financial Officer.
The Company has entered into an employment agreement with Dr. Wilson and has
obtained a $500,000 key employee insurance policy covering her life. Company is
also dependent upon its ability to attract and retain management personnel who
will be responsible for the day-to-day operations of each residence. The loss of
the services of any or all of such officers or the Company's inability to
attract additional management personnel in the future could have a material
adverse effect on the Company's financial condition or results of operations.
22
<PAGE>
DEPENDENCE ON REIMBURSEMENT BY THIRD-PARTY PAYORS A portion of the
Company's revenues will be dependent upon reimbursement from third-party payors,
including state Medicaid programs and private insurers. For the years ended
December 31, 1996, 1995 and the one month ended December 31, 1994, the Company
received, as a percentage of total revenue, under Medicaid programs 14%, 21% and
29%, respectively. Furthermore, there can be no assurance the Company's
proportionate percentage of revenue received from Medicaid programs will not
increase. The revenues and profitability of the Company will be affected by the
continuing efforts of governmental and private third-party payors to contain or
reduce the costs of health care by attempting to lower reimbursement rates,
increasing case management review of services and negotiating reduced contract
pricing. In an attempt to reduce the federal and certain state budget deficits,
there have been, and management expects that there will continue to be, a number
of proposals to limit Medicaid reimbursement in general. Adoption of any such
proposals at either the federal or the state level could have a material adverse
effect on the Company's business, financial condition, results of operations and
prospects.
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, cost of doing
business and amounts of reimbursement from governmental and other payors. The
Company is and will continue to be subject to varying degrees of regulation and
licensing by health or social service agencies and other regulatory authorities
in the various states and localities in which it operates or intends to operate.
As a provided of services under the Medicaid program in the United States, the
Company is subject to Medicaid fraud an abuse law, violations of which may
result in civil and criminal penalties and exclusions from participation in the
Medicaid program. The Company at all times attempts to comply with all
applicable fraud and abuse laws; however, there can be no assurance that
administrative 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 afford residents and revisions in licensing
and certification standards. Currently, no federal rules explicitly define or
regulate assisted living. In addition, federal and state laws currently exist
restricting health care providers from referring patients to affiliated
entities. The Company believes that its operations do not presently violate
these referral laws. However, 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.
STAFFING AND LABOR COSTS The Company will compete with other
providers of long-term care with respect to attracting and retaining qualified
personnel. The Company will also be dependent upon the available labor pool of
low-wage employees. A shortage of nurses and/or trained personnel may require
the Company to enhance its wage and benefits package in order to compete. No
assurance can be given that the Company's labor costs will not increase, or
that, if they do increase, they can be matched by corresponding increases in
revenues.
COMPETITION The long-term care industry is highly competitive and the
Company expects that the assisted living business, in particular, will become
more competitive in the future. The Company will be competing with numerous
other companies providing similar long-term care alternatives, such as home
health agencies, life care at home, community-based service programs, retirement
communities and convalescent centers. The Company expects that as assisted
living receives increased attention and the number of states which include
assisted living in their Medicaid waiver programs increases, competition will
grow from new markets entrants, including publicly and privately held companies
focusing
23
<PAGE>
primarily on assisted living. Nursing facilities that provide long-term care
services are also a source of competition to the Company. Moreover, in the
implementation of the Company's expansion program, the Company expects to face
competition for development and acquisitions of assisted living residences. Some
of the Company's present and potential competitors are significantly larger and
have, or may obtain, greater financial resources than those of the Company.
Consequently, there can be no assurance that the Company will not encounter
increased competition in the future which could limit its ability to attract
residents or expand its business and could have a material adverse effect on the
Company's financial condition, results of operations and prospects.
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.
LIABILITY AND INSURANCE The provision of health care services entails an
inherent risk of liability. In recent years, participants in the long-term care
industry have become subject to an increasing number of lawsuits alleging
malpractice or related legal theories, many of which involve large claims and
significant defense costs. The Company currently maintains liability insurance
intended to cover such claims and the Company believes that its insurance is in
keeping with industry standards. There can be no assurance, however, that claims
in excess of the Company's insurance coverage or claims not covered by the
Company insurance coverage (e.g., claims for punitive damages) will not arise. A
successful claim against the Company not covered by, or in excess of, the
Company's insurance coverage could have a material adverse effect upon the
Company's financial condition and results of operations. Claims against the
Company regardless of their merit or eventual outcome, may also have a material
adverse effect upon the Company's ability to attract residents or expand its
business and would require management to devote time to matters unrelated to the
operation of the Company's business. In addition, the Company's insurance
policies must be renewed annually. There can be no assurance that the Company
will be able to obtain liability insurance coverage in the future or that, if
such coverage is available, it will be available on acceptable terms.
ENVIRONMENTAL RISKS Under various federal, state and local environmental
laws, ordinances and regulations, a current or previous owner or operator of
real property may be held liable for the cost of removal or remediation of
certain hazardous or toxic substances, including, without limitation, asbestos-
containing materials, that could be located on, in or under such property. Such
laws and regulations often impose liability whether or not the owner or operator
knew of, or was responsible for, the presence of the hazardous or toxic
substances. The costs of any required remediation or removal of these substances
could be substantial and the liability of an owner or operator as the any
property is generally not limited under such laws and regulations and could
exceed the property's value and the aggregate assets of the owner or operator.
The presence of these substances or failure to remediate such substances
properly may also adversely affect the owner's ability to sell or rent the
property, or to borrow using the property as collateral. Under these laws and
regulations, an owner, operator or an entity that arranges for the disposal of
hazardous or toxic substances, such as asbestos-containing materials, at a
disposal site may also be liable for the costs of any required remediation or
removal of the hazardous or toxic substances at the disposal site. In connection
with the ownership or operation of its properties, the Company could be liable
for these costs, as well as certain other costs, including governmental fines
and injuries to persons or properties. As a result, the presence, with or
without the Company's knowledge, of hazardous or toxic substances at any
property held or operated by the Company, or acquired or operated by the Company
in the future, could have an adverse effect on the Company's business, financial
condition and results of operations. Environmental audits performed on the
Company's properties have
24
<PAGE>
not revealed any significant environmental liability that management believes
would have a material adverse effect on the Company's business, financial
condition or results of operations. No assurance can be given that existing
environmental audits with respect to any other Company's properties reveal all
environmental liabilities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data required by this Item 8 are set
forth as indicated in Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Changes in Accountants as required by this Item 9 is set forth as indicated
in Item 14(b).
25
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held May 22,1997, to
be filed pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held May 22,1997, to be
filed pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of the Stockholders to be held May 22, 1997,
to be filed pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of the Stockholders to be held May 22, 1997,
to be filed pursuant to Regulation 14A.
26
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1 and 2. Financial Statements and Financial Statement Schedules.
The financial statements and financial statement schedules listed in the
accompanying index to financial statements and financial statement schedules are
filed as part of this Annual Report.
3. Exhibits
The exhibits listed in the accompanying index to exhibits are filed as part
of this Annual Report.
(b) Reports on Form 8-K
None
27
<PAGE>
ASSISTED LIVING CONCEPTS, INC. ("THE COMPANY")
AND ASSISTED LIVING CONCEPTS GROUP ("PREDECESSOR")
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(Item 14(a))
<TABLE>
<CAPTION>
1. FINANCIAL STATEMENTS: PAGE
<S> <C>
Reports of Independent Auditors. 29 - 31
Consolidated Balance Sheets of Assisted Living Concepts, Inc. as of
December 31, 1996 and 1995. 32
Consolidated Statements of Operations of Assisted Living Concepts Inc. for the
years ended December 31, 1996 and 1995, and the one month ended
December 31, 1994 and Assisted Living Concepts, Group (Predecessor)
for the eleven months ended November 30, 1994. 33
Consolidated Statements of Shareholders' Equity of Assisted Living Concepts, Inc.
for the period July 19, 1994 to December 31, 1996. 34
Statements of Changes in Partners' and Shareholders' Equity for Assisted Living
Concepts, Group (Predecessor) for the period December 31, 1993 to
November 30, 1994. 35
Consolidated Statements of Cash Flows of Assisted Living Concepts, Inc. for the
years ended December 31, 1996 and 1995, and the one month ended
December 31, 1994 and Assisted Living Concepts, Group (Predecessor) for the
eleven months ended November 30, 1994. 36
Notes to Financial Statements. 37 - 50
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES:
All schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedules.
28
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
of Assisted Living Concepts, Inc.
We have audited the accompanying consolidated balance sheets of Assisted Living
Concepts, Inc. as of December 31, 1996 and 1995, and the related statements of
operations, changes in shareholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Assisted Living
Concepts, Inc. as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Portland, Oregon
February 28, 1997,
except for note 12,
as to which the date is
March 14, 1997
29
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
of Assisted Living Concepts, Inc.
In our opinion, the accompanying statements of operations, and of cash flows
present fairly, in all material respects, the results of operations and cash
flows of Assisted Living Concepts, Inc. (the "Company" (formerly Assisted Living
Concepts Group)) for the month ended December 31, 1994, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above. We have not audited the
financial statements of Assisted Living Concepts, Inc., for any period
subsequent to December 31, 1994.
PRICE WATERHOUSE LLP
Portland, Oregon
March 17, 1995
30
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
of Assisted Living Concepts, Inc.
In our opinion, the accompanying combined statements of operations, and of cash
flows of Assisted Living Concepts Group (the "Predecessor"), which is comprised
of Assisted Living Facilities, Inc., a subchapter S corporation, Madras Elder
Care (dba Aspen Court), a general partnership, and Lincoln City Partners, a
general partnership, for the eleven month period ended November 30, 1994 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Predecessor's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above. We have not audited the combined financial statements of Assisted Living
Concepts Group for any period subsequent to November 30, 1994.
PRICE WATERHOUSE LLP
Portland, Oregon
March 17, 1995
31
<PAGE>
ASSISTED LIVING CONCEPTS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, DECEMBER 31,
1996 1995
----------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,105 $ 7,335
Funds held in trust (Note 3) 8,515 -
Accounts receivable, net of allowance for doubtful accounts of
$ 33 at 1996 and $0 at 1995. 730 136
Other current assets (Note 6) 1,043 558
----------------- ------------------
Total current assets 12,393 8,029
----------------- ------------------
Property and equipment (Mptes 2, 5 and 7 59,574 28,446
Construction in progress 53,458 13,075
----------------- ------------------
Total property and equipment 113,032 41,521
Less accumulated depreciation 674 163
----------------- ------------------
Property and equipment - net 112,358 41,358
----------------- ------------------
Goodwill (Note 2) 362 393
Other assets (Note 6) 5,394 3,766
----------------- ------------------
Total assets $ 130,507 $ 53,546
================= ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,864 $ 998
Construction payable 16,002 7,250
Accrued expenses 1,395 4,706
Other current liabilities 544 348
Construction financing (Note 7) 18,850 -
Current portion of long-term debt (Note &) 110 47
----------------- ------------------
Total current liabilities 38,765 13,349
Long-term debt (Note 7) 18,768 4,553
Convertible subordinated debentures 13,915 20,000
----------------- ------------------
Total liabilities 71,448 37,902
----------------- ------------------
Commitments and contingencies
Shareholders' equity:
Preferred Stock, $.01 par value; 1,000,000 shares authorized;
none issued or outstanding
Common Stock, $.01 par value; 40,000,000 shares authorized;
5,515,250 and 3,000,000 shares issued and outstanding 55 30
Additional paid-in capital 59,733 16,492
Fair market value in excess of cost of acquired net assets
attributable to related party transactions (Note 2) (239) (239)
Accumulated deficit (490) (639)
----------------- ------------------
Total shareholders' equity 59,059 15,644
----------------- ------------------
Total liabilities and shareholers' equity $ 130,507 $ 53,546
================= ==================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
32
<PAGE>
ASSISTED LIVING CONCEPTS, INC. ("THE COMPANY")
AND ASSISTED LIVING CONCEPTS GROUP ("Predecessor")
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
<TABLE>
<CAPTION>
The Company Predecessor
-----------------------------------------------------------------
One Eleven Months
Month ended ended
Years ended December 31, December 31, December 31
1996 1995 1994 1994
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 18,949 $ 4,067 $ 212 $ 1,841
------------ ------------ -------------- -------------
Operating expenses:
Residence operating expenses 12,116 2,779 125 1,127
Management fees from related party (Note 9) 93
Corporate general and administrative 1,649 1,252 152
Building rentals 3,240 64 5
Building rentals from related party (Note 9) 912 734 37
Depreciation and amortization (Notes 3 and 5) 990 296 13 105
------------ ------------ -------------- --------------
Total operating expenses 18,907 5,125 332 1,325
Operating income (loss) 42 (1,058) (120) 516
------------ ------------ -------------- --------------
Interest expense (Note 7) -- 96 8 297
Other Interest (income) (107) (579) (64) (12)
------------ ------------ -------------- --------------
Interest expense and other interest (income) - net (107) (483) (56) 285
------------ ------------ -------------- --------------
Net income (loss) $ 149 $ (575) $ (64) $ 231
============ ============ ============== ==============
Unaudited pro forma data:
Net income $ 231
Provision for income taxes 85
---------------
Pro forma net income $ 146
===============
Net income per common share (primary) $ .03 $ (.19) $ (.02)
Weighted average common shares outstanding
(primary) 4,500 3,000 3,000
Weighted average common shares outstanding
(fully-diluted) 5,646
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
33
<PAGE>
ASSISTED LIVING CONCEPTS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the period July 19, 1994 to December 31, 1996
(amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Common Stock Total
------------------------ Additional Fari Market Accumulated Shareholders'
Shares Amount Paid-In Capital Value in Excess Deficit Equity
------------ --------- ---------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of shares to founders 1,000 $ 10 $ 90 $ 100
Net proceeds from public offering 2,000 20 16,402 16,422
Fair market value in excess of
historical cost of acquired net
assets attributable to related
party transaction $ (239) (239)
Net loss
$ (64) (64)
------------ --------- ---------------- ---------------- ----------- ------------
Shareholders' equity,
December 31, 1994 3,000 30 16,492 $ 239 $ (64) $ 16,219
Net loss (575) (575)
------------ --------- ---------------- --------------- ----------- ------------
Shareholders' equity,
December 31, 1995 3,000 $ 30 $ 16,492 $ (239) (639) 15,644
Net proceeds from secondary public
offering 2,096 21 37,320 37,341
Exercised of employee stock options 14 - 132 132
Conversion of subordinated
debentures 405 4 5,789 5,793
Net income 149 149
------------ --------- ---------------- --------------- ----------- -------------
December 31, 1996 5,515 $ $ 55 $ 59,733 (490) $ 59,059
============ ========= ================ =============== =========== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
34
<PAGE>
ASSISTED LIVING CONCEPTS GROUP ("The Predecessor")
STATEMENTS OF CHANGES IN PARTNERS' AND SHAREHOLDERS' EQUITY
For the period December 31, 1993 to November 30, 1994
(in thousands)
<TABLE>
<S> <C>
Partners' and shareholders' equity, December 31, 1993 263
Capital contributions --
Capital distributions (297)
Net income 231
-----
Partners' and shareholders' equity, November 30, 1994 $ 197
=====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
35
<PAGE>
ASSISTED LIVING CONCEPTS, INC. ("The Company")
AND ASSISTED LIVING CONCEPTS GROUP ("Predecessor")
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
The Company Predecessor
-------------------------------------------------------------------------------
Year ended Year ended One Month ended Eleven months ended
December 31, 1996 December 31, 1995 December 31, 1994 November 30, 1994
----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 149 $ (575) $ (64) $ 231
Adjustment to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation and amortization 990 296 13 105
Allowance for doubtful accounts 33 -- -- --
Gain on sale of property (82) -- -- --
Changes in other non-cash items:
Accounts receivable (627) (78) (58) (9)
Other current assets (485) (254) (307) (22)
Other assets (1,868) (2,828) (264) 31
Accounts payable 9,618 8,071 177 4
Accrued expenses (3,311) 4,350 356 96
Accounts payable to related party (7)
Other current liabilities 196 157 38 (5)
Net cash provided by (used in) operating ----------------- ---------------- ----------------- ----------------
activities 4,613 9,139 (109) 424
----------------- ---------------- ----------------- ----------------
Investing activities:
Purchase of investment securities (8,500) -- -- --
Proceeds from sale and leaseback transactions 50,045 8,067
Purchases of property and equipment (121,556) (45,901) (3,069) (1,688)
----------------- ---------------- ----------------- ----------------
Net cash used in investing activities (80,011) (37,834) (3,069) (1,688)
----------------- ---------------- ----------------- ----------------
Financing activities:
Proceeds from short-term construction
borrowings expected to be refinanced 18,850 1,600
Proceeds from long-term debt 14,365 3,505
Payments on long-term debt (88) (18) (1) (33)
Proceeds from issuance of common stock 37,473 16,522
Debt issuance costs (432)
Proceeds from convertible subordinated debentures 19,200
Capital distributions (297)
----------------- ---------------- ----------------- ----------------
Net cash -provided by (used in) financing
activities 70,168 22,687 16,521 1,270
---------------- ---------------- ----------------- -----------------
Net increase (decrease) in cash and cash (5,230) (6,008) 13,343 6
equivalents
Cash and cash equivalents, beginning of period 7,335 13,343 -- 357
Cash and cash equivalents, end of period $ 2,105 $ 7,335 $ 13,343 $ 363
Supplemental disclosure of cash flow information: ================= ================ ================= ===============
Cash payments for interest $ 2,201 $ 154 $ 8 $ 297
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
36
<PAGE>
ASSISTED LIVING CONCEPTS, INC. ("The Company")
AND ASSISTED LIVING CONCEPTS GROUP (Predecessor)
Note to Consolidated 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 and 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 22, 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 September 9, 1994, the Company merged with CCL Sub, Inc., a wholly owned
subsidiary of Concepts in Community Living, Inc. Pursuant to the merger
agreement (the "Merger"), the sole shareholder of CCL Sub, Inc. exchanged its
100% interest in CCL Sub, Inc., which consisted primarily of an operating
leasehold interest in its office premises; all management agreements and all
operating systems for six operating facilities known as Juniper House, Rackleff
House, Huffman House, Brookside House, Aspen Court and Hillside House; and all
intangible assets used in connection with these facilities, for 500,000 shares
of the Company's $0.01 par value common stock. The shares, which represented a
50% interest in the Company, were valued at $100,000. Due to their propriety
nature, the assets transferred had no historical basis. Since the Company's
president was the sole shareholder of CCL Sub, Inc., the recorded value of the
assets acquired has been reduced by $100,000 which represented the president's
proportional interest in the excess of the fair value over historical cost.
On November 22, 1994, the Company sold 2,000,000 shares of common
stock at $9.25 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 (see Note 2) from Assisted Living Concepts Group ("the Predecessor")
and commenced operations. At December 31, 1996 and 1995, the Company had sixty-
seven and twenty-five residences, respectively with licenses or certificates of
occupancy. Residences owned and leased was thirty-six and thirty-one,
respectively as of December 31, 1996, and sixteen and nine, respectively as of
December 31, 1995.
On July 3, 1996, the Company sold 2,096,250 shares of common stock at
$19.00 in an underwritten public offering realizing net proceeds of $37,341,000,
after underwriter discounts and commission, of. The Company utilized the
proceeds to finance additional assisted living residences during 1996.
PREDECESSOR
The historical financial statements for the year ended December 31,
1993 and the eleven months ended November 30, 1994 represent the combined
historical results of operations and financial condition of the Predecessor.
The Predecessor consists of the entities which, prior to December 1, 1994, owned
and operated residences which are now owned and operated by the Company. The
Predecessor developed and owned assisted living residences for senior citizens
and disabled individuals. Pursuant to purchase
37
<PAGE>
ASSISTED LIVING CONCEPTS, INC. ("The Company")
AND ASSISTED LIVING CONCEPTS GROUP ("Predecessor")
Note to Consolidated Financial Statements
and lease agreements, the Company acquired the businesses of the Predecessor.
The president of the Company owned a 30% interest in Madras Elder Care, and the
president and her husband each owned a 20% interest in ALF and jointly owned a
50% interest in Redbud Associates which owns a 35% interest in Lincoln City
Partners ("LCP") (See Note 8- Related Party Transactions).
BASIS OF PRESENTATION
The financial statements as of and for the years ended December 31,
1996 and December 31, 1995 and the one month ended December 31, 1994, are those
of the Company. The financial statements for the eleven months ended November
30, 1994, are those of the Predecessor before its business and substantially all
of its assets were acquired by the Company.
The accompanying combined financial statements of the Predecessor
include the assets, liabilities and operations associated with the residences
listed above. Since the residences have ownership and management interest in
common, the assets and liabilities are reflected at historical cost. As
discussed in Note 2, the Predecessor has sold or leased the assets to the
Company. All significant inter-company accounts and transactions have been
eliminated.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Assisted
Living Concepts, Inc. and its wholly owned subsidiaries (the "Company"). All
material intercompany balances and transactions have been eliminated in
consolidation.
REVENUE
Revenue is recognized when services are rendered and consists of
residents' fees for basic housing and support services and fees associated with
additional services such as routine nursing, and personalized assistance on a
fee for service basis.
MANAGEMENT FEES - PREDECESSOR
Each residence of the Predecessor was operated under a management
agreement with Concepts in Community Living, Inc. (CCL), a related party,
whereby CCL charged a management fee of 5% of revenues in exchange for providing
each facility certain management and administrative support services (See Note 8
- - - Related Party Transactions).
REVENUE MALPRACTICE COSTS
The provision for estimated malpractice claims includes estimates of
the ultimate costs for both reported claims and claims incurred but not
reported. The Company currently has no claims pending and does not expect any
future claims to exceed the current insurance coverage, therefore no provision
has been recorded in the accompanying financial statements.
38
<PAGE>
ASSISTED LIVING CONCEPTS, INC. ("The Company")
AND ASSISTED LIVING CONCEPTS GROUP ("Predecessor")
Note to Consolidated Financial Statements
CLASSIFICATION OF EXPENSES
All expenses (except interest, depreciation, amortization, residence
operating expenses and management fees) associated with corporate or support
functions have been classified as corporate general and administrative expense.
All other expenses incurred by the Company have been classified as residence
operating expenses.
USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities, and the
disclosure of contingent assets and liabilities, and the reported amounts of
revenue and expenses during the reporting period to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made in the prior year's financial
statements to conform with the current year's presentation. Such
reclassifications had no effect on previously reported net income (loss) or
shareholders' and partners' equity.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at the lower of cost or net
realizable value with depreciation being provided over the assets' estimated
useful lives on the straight-line basis as follows:
Buildings 40 years
Furniture and equipment 7 years
Interest incurred during construction periods is capitalized as part
of the building costs. Capitalized interest was $2,188,000, $577,000 and
$11,000 for the years ended December 31, 1996 and 1995 and the eleven months
ended November 30, 1994. There was no interest capitalized during for the month
ended December 31, 1994.
Maintenance and repairs are charged to expense as incurred, and
significant betterments and improvements are capitalized.
Asset impairment is analyzed by the rental demand by geographical
region to determine if future cash flows (undiscounted and without interest
charge) is less than the carrying amount of the asset. If an impairment is
determined to have occurred, an impairment loss is recognized. For those assets
the Company intends to hold and use, the fair value of the asset issused in its
calculation of the impairment loss. There were no impairment losses for any of
the periods presented.
39
<PAGE>
ASSISTED LIVING CONCEPTS, INC. ("The Company")
AND ASSISTED LIVING CONCEPTS GROUP ("Predecessor")
Note to Consolidated Financial Statements
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on deposit and debt securities
held at financial institutions with maturities of three months or less at the
date of purchase.
DEFERRED FINANCING COSTS
Financing costs included in other assets are deferred and amortized to
interest expense over the term of the related debt using the effective interest
method.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents approximate fair
value because of the short-term nature of these accounts and because they are
invested in accounts earning market rates of interest. The carrying amount of
the Company's debt, construction financing and convertible subordinated
debentures approximates fair value because the interest rates approximate the
current rates available to the Company.
GOODWILL
Costs in excess of fair value of the net assets acquired at date of
acquisition have been recorded as goodwill and are being amortized over 15 years
on a straight-line basis. Management maintains an impairment review policy
whereby the future economic benefit of the recorded balance is substantiated at
the end of each reporting period based on the estimated undiscounted cash flows
from operating activities compared with the carrying value of the goodwill. If
the aggregate future cash flows are less than the carrying value, a write down
would be required, measured by the difference between the present value of the
anticipated future cash flows and the carrying value of the goodwill.
INCOME TAXES
The Company uses the asset and liability method of accounting for
income taxes under which deferred tax assets and liabilities are recognized for
the estimated future tax consequences attributable to the differences between
the financial statement carrying amounts of the existing assets and liabilities
and their respective tax bases. The Company is subject to federal and state
income taxes and deferred income taxes for the cumulative difference between the
financial statement amounts and the income tax bases of assets and liabilities.
The businesses comprising the Predecessor elected to be taxed as
either S-Corporations or as Partnerships pursuant to the provisions of the
Internal Revenue Code and, as such, were not individually subject to federal or
state income taxes because their taxable income or loss accrues to individual
shareholders or partners, respectively (See Note 7). The pro forma data
reflects the income tax expense that would have been recorded had the
Predecessor operated as a C-Corporation, subject to income taxes for these
periods.
40
<PAGE>
ASSISTED LIVING CONCEPTS, INC. ("The Company")
AND ASSISTED LIVING CONCEPTS GROUP ("Predecessor")
Note to Consolidated Financial Statements
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share has been calculated by dividing the
net income (loss) for the period by the weighted average common shares
outstanding and dilutive common equivalent shares assumed to be outstanding
using the treasury stock method. Common stock equivalent shares consist of
options to purchase common stock during the period. Fully diluted earnings per
share is not presented since it approximates income (loss) per share.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board (FASB)
Issued Statement of Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation," which provides an alternative to APB Opinion No. 25,
"Accounting for Stock Issued to Employee," in accounting for stock-based
compensation issued to employees. The Statement encourages, but does not require
financial reporting to reflect compensation expense for grants of stock, stock
options and other equity instruments to employees based on change in the fair
value of the underlying stock. The Company continues to apply the existing
accounting rules contained in APB Option No. 25, "Accounting for Stock Issued to
Employees." While recognition for employee stock-based compensation is not
mandatory, SFAS 123 requires companies that choose not to adopt the new fair
value accounting rules to disclose pro forma net income and earnings per share
under the new method. (See Note 11)
CONCENTRATION OF CREDIT RISK
State Medicaid reimbursement programs constitute a significant source
of revenue for the Company. The Company intends to continue developing and
operating assisted living residences in states other than Texas, Washington and
Oregon including Idaho, New Jersey and Ohio. Adverse changes in general
economic factors affecting these states' respective health care industries or in
these states' laws and regulatory environment, including Medicaid reimbursement
rates, could have a material adverse effect on the Company's financial condition
and results of operations.
2. ACQUISITION OF RESIDENCES
In December 1994, the Company purchased two assisted living residences
known as Aspen Court and Hillside House, from Madras and LCP for $1,705,000 and
$2,173,000, respectively (including closing costs of $20,000 and $9,000,
respectively). The Company paid $2,764,000 cash and assumed $1,114,000 of long-
term notes (see Note 6).
The acquisition has been accounted for as a purchase and, accordingly,
the purchase price was allocated to assets based on estimated fair value at date
of acquisition. Allocation of the cash purchase price is summarized as follows
(in thousands):
41
<PAGE>
ASSISTED LIVING CONCEPTS, INC. ("The Company")
AND ASSISTED LIVING CONCEPTS GROUP ("Predecessor")
Note to Consolidated Financial Statements
<TABLE>
<CAPTION>
ASPEN COURT HILLSIDE HOUSE TOTAL
----------- -------------- ------
<S> <C> <C> <C>
Property and equipment $ 1,328 $1,900 $ 3,228
Goodwill 186 225 411
Fair value in excess of historical cost 191 48 239
</TABLE>
<TABLE>
<S> <C> <C> <C>
Long-term debt (1,114) (1,114)
Total cash purchase price $ 591 $2,173 $ 2,764
</TABLE>
The Company's president beneficially owned 48% of the common stock of
the Company prior to the purchase of these residences and was the sole
shareholder of CCL Sub, Inc. who managed the day-to-day operations of Aspen
Court under a management agreement. The president also held a 30% interest in
Madras, and with her husband, together owned a 17.5% interest in LCP, the
predecessor entities which sold these residences to the Company. Because of the
controlling interest in Aspen Court, the recorded value of Aspen Court was
reduced by $112,000 representing the president's 30% interest in the excess of
Aspen Court's appraised value over its historical cost of $1,068,000. This
amount has been charged directly to shareholders' equity reflected under the
caption "Fair market value in excess of historical cost of acquired net assets
attributable to related party transactions " in the accompanying financial
statements.
Goodwill of $186,000 and $225,000 related to Aspen Court and
Hillside House, respectively, represents the excess of purchase price
($1,705,000 and $2,173,000, respectively) over appraised value ($1,440,000 and
$1,900,000, respectively). Goodwill related to Aspen Court and Hillside House
has been reduced by $79,000 and $48,000, respectively, in order to reflect a
reduction for the president's 30% interest in Madras and 17.5% interest in LCP.
The aggregate reduction of $127,000 has also been charged directly to
shareholders' equity reflected under the caption "Fair market value in excess of
historical cost of acquired net assets attributable to related party
transactions" in the accompanying financial statements. Amortization of
goodwill was $33,000, $28,000 and $2,000 for the years ended December 31, 1996
and 1995 and the month ended December 31, 1994, respectively.
FUND HELD IN TRUST
The Company issued $8,500,000 in tax-exempt bonds to provide
permanent financing on five Washington residences. These properties are
currently under construction and are estimated to be completed towards the end
of the second quarter of 1997. The funds are being held in trust by a national
bank on behalf of the Company and are invested in "GIC" (Guaranteed Investment
Certificates) that are 100% collaterilized. The funds are restricted for
construction and are expected to be released to the Company as the individual
residences are completed and licensed.
4. LEASES
During the last three years, the Company has entered into agreements to
lease six assisted living residences in Oregon one of which was completed in
1996. The leases, which have fixed terms of ten years, have been accounted for
as operating leases (the "Oregon Leases"). Aggregate deposits on these
residences as of December 31, 1996 and 1995 were $224,000 and $59,000,
respectively which is reflected in other assets in the accompanying financial
statements. In addition during 1996 and 1995, the Company completed the sale of
twenty-five and five residences under sale and leaseback arrangements,
respectively. The Company sold the residences for approximately $50 million in
1996 and $8.1 million in 1995 and leased them back over initial terms ranging
from twelve to twenty years.
42
<PAGE>
ASSISTED LIVING CONCEPTS, INC. ("The Company")
AND ASSISTED LIVING CONCEPTS GROUP ("Predecessor")
Note to Consolidated Financial Statements
Four of the twenty-five properties were repurchased for $7.6 million, in
connection with a $50.2 million sale and leaseback commitment with LTC,
Properties, Inc. The properties were repurchased at cost. The twenty-one
remaining residences completed during 1996 have initial annual rent payments of
$4.3 million. Nine of the twenty-one residences were sold and leased back from
LTC, Properties, Inc. for $18.5 million with annual rentals of approximately
$2.0 million. The residences were sold at approximately cost and any nominal
difference is being amortized over the life of the lease. Building rent is
recorded as incurred for the residences which have annual increases based on
increases in the consumer price index.
In connection with the Oregon Leases, the Company entered into a
"Lease Approval Agreement" with the State of Oregon, Housing and Community
Services Department (OHCS) and the lessor of the residences, pursuant to which
the Company is obligated to comply with the terms and conditions of certain
regulatory agreements (see Notes 6 and 7) to which the lessor is a party.
As of December 31, 1996, future minimum lease payments under operating
leases are as follows (in thousands):
<TABLE>
<S> <C>
1997 $ 6,131
1998 6,131
1999 6,135
2000 6,138
2001 6,138
Thereafter 55,060
-------------
$85,733
=============
</TABLE>
5. PROPERTY AND EQUIPMENT
Company's property and equipment are stated at cost and consist of the
following (in thousands):
<TABLE>
1996 1995
-------- -------
<S> <C> <C>
Land $ 3,850 $ 1,747
Buildings 53,839 25,804
Equipment 613 214
Furniture 1,272 681
Construction in progress 53,458 13,075
-------- -------
Sub-total 113,032 41,521
Less accumulated depreciation 674 163
-------- -------
Total $112,358 $41,358
======== =======
</TABLE>
Land and buildings and certain furniture and equipment relating to six Oregon
residences serve as collateral for long-term debt (see Note 7). Depreciation
expense was $598,000, $200,000, $8,000 and $105,000 for the years ended December
31, 1996 and 1995, the one month ended December 31, 1994 and the eleven months
ended November 30, 1994.
Construction In Progress
43
<PAGE>
ASSISTED LIVING CONCEPTS, INC. ("The Company")
AND ASSISTED LIVING CONCEPTS GROUP ("Predecessor")
Note to Consolidated Financial Statements
As of December 31, 1996, the Company has entered into agreements
pursuant to which it may purchase, subject to completion of due diligence and
various other conditions, twenty-one undeveloped sites in Idaho, New Jersey,
Ohio and other states for an aggregate purchase price of approximately $3.3
million. The Company has paid initial deposits relating to these sites and/or
has entered into agreements to purchase and has completed or is in the process
of completing demographic analyses and initial architectural plans for these
sites for purposes of building assisted living residences. In addition, the
Company has thirty-one other sites identified and has either purchased the land
or begun construction to develop assisted living residences.
As of December 31, 1996 and 1995, the Company had capitalized all costs incurred
in connection with the development of these properties, consisting of the
following (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- --------
<S> <C> <C>
Land purchased $ 5,644 $ 2,402
Earnest money deposits 119 61
Construction and other costs including legal fees, building
permits and other development costs 47,695 10,612
------- -------
Total $53,458 $13,075
======= =======
</TABLE>
6. OTHER ASSETS
Pursuant to lease agreements, residents are required to provide
security deposits, and in certain cases, the last month's rent. Such deposits
have been recorded as other current assets which are restricted as to use
by the Company. The Company has recorded a liability for these deposits, which
is reflected in other current liabilities in the financial statements.
Under the terms of the debt agreements with the OHCS, the Company is
required to maintain escrow deposits for insurance, taxes and building
replacements. Such escrow deposits totaled $61,000 and $42,000 as of December
31, 1996 and 1995, respectively and have been classified as other assets and are
restricted as to use by the Company (Note 7). In addition, the Company is
required to maintain a contingency escrow reserve for a three year period or
such longer period as determined by the State of Oregon. As of December 31,
1996 and 1995, the contingency escrow reserve for the State of Oregon loans held
in the Company's name was $373,000 and $100,000.
7. INDEBTEDNESS
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Trust Deed Notes, payable to the State of Oregon
Housing and Community Services Department $ 10,378 $ 4,600
Multifamily Revenue Bonds, payable to the
Washington State Housing Finance Commission
Department 8,500 -
-------- -------
Total long-term debt $18,878 $ 4,600
-------- -------
Less current portion (110) (47)
-------- -------
$ 18,768 $ 4,553
======== =======
</TABLE>
44
<PAGE>
ASSISTED LIVING CONCEPTS, INC. ("The Company")
AND ASSISTED LIVING CONCEPTS GROUP ("Predecessor")
Note to Consolidated Financial Statements
The Trust Deed Notes payable to the State of Oregon Housing and
Community Services Department are secured by buildings, land, furniture and
fixtures of six Oregon residences, payable in monthly installments including
interest at effective rates ranging from 7.375% to 11.80%. These notes have
scheduled maturity dates ranging between January 2021 and October 2028. The
Multifamily Revenue Bonds are payable to the Washington State Housing Finance
Commission Department and are currently secured by a letter of credit for
$8,500,000. The bonds were issued to provide permanent financing for five
Washington residences which are still under development. The Bonds are variable
rate bonds maturing on January 1, 2017. As of December 31, 1996, the following
annual principal payments are scheduled (in thousands):
<TABLE>
<S> <C>
1997 $ 110
1998 382
1999 401
2000 429
2001 454
Thereafter 17,102
-------
Total $18,878
=======
</TABLE>
Indebtedness of the Predecessor used to finance Huffman House, Juniper
House, Rackleff House, and Brookside remained an obligation of previous owners
and was not assumed by the Company. The Company has entered into a lease
approval agreement with OHCS and the lessor of the Oregon Leases which obligates
the Company to comply with the terms and conditions of the underlying trust deed
and regulatory agreements relating to the leased buildings. In addition during
1996, the Company entered a lease agreement with ALF for another Oregon
residence with the same terms as the previous four agreements. Under the terms
of the OHCS debt agreements, the Company is required to maintain a capital
replacement escrow account to cover expected capital expenditure requirements
for the Oregon Leases, which as of December 31, 1996 and 1995, was $61,000 and
$42,000, respectively and is reflected in other assets in the accompanying
financial statements. In addition, for the loans in the Company's name, a
contingency escrow account in the amount of 3% of the original loan balance is
required. This account had a balance of $373,000 and $100,000 as of December
31, 1996 and 1995 and is reflected in other assets in the accompanying financial
statements (See Note 6). Distribution of any assets or income of any kind to
the Company is limited to once per year after all reserve and loan payments have
been made, and only after receipt of written authorization from OHCS.
As of December 31, 1996 and 1995, the Company was restricted from
paying dividends on $401,000 and $17,000 of income and retained earnings,
respectively, in accordance with the terms of the regulatory agreements with
OHCS. As a further condition of the debt agreements, the Company is required to
comply with the terms of certain Regulatory Agreements which provide, among
other things, that in order to preserve the federal income tax exempt status of
the bonds, the Company is required to lease at least 20% of the units of the
projects to low or moderate income persons as defined in Section 142(d) of the
Internal Revenue Code.
There are additional requirements as to the age and physical condition
of the residents with which the Company must also comply. Non-compliance with
these restrictions may result in an event of default and cause acceleration of
the scheduled repayment.
45
<PAGE>
ASSISTED LIVING CONCEPTS, INC. ("The Company")
AND ASSISTED LIVING CONCEPTS GROUP ("Predecessor")
Note to Consolidated Financial Statements
During 1996 the Company received $18,850,000 of mortgage financing on
eight residences to be converted to sale leaseback transactions by June of 1997
from LTC Properties, Inc. Interest is paid on a monthly basis ranging from 9.9%
to 10.4% per annum with all principal and interest due on June 30, 1997. These
mortgage financing agreements are in connection with a $50.2 million commitment
with LTC Properties Inc. to provide financing through sale and leaseback
arrangements
In September 1996, $6,085,000 of the $20,000,000 7% Convertible
Subordinated Debentures due August 15, 2005 were converted to 405,666 shares of
the Company's common stock. The debentures are convertible at any time at or
prior to maturity, unless previously redeemed, at a conversion price of $15.00
per share, subject to adjustments under certain circumstances. The Company
incurred a one-time charge of $426,000 in connection with the conversion.
8. INCOME TAXES
At December 31, 1996, the Company had net operating loss carryforwards
of approximately $2.1 million, for income tax purposes. This loss will be
carried forward and expires in the years 2009 through 2011. As such, no
provision for income taxes has been recorded.
The provision for income taxes for the Predecessor is based on the
historical combined financial data of Madras Elder Care, LCP and ALF, as if the
combined companies operated as a C-Corporation, and adopted the provisions of
SFAS 109 on January 1, 1993. Had the Predecessor been taxed as a regular
corporation during the years ended December 31, 1990 and 1991, no income tax
provision would have been recorded because of the operating losses of $83,000
and $51,000, respectively, that were generated during those years. The tax
benefit from those losses would have been available for use in subsequent years
to offset taxable income. The provision for income taxes for the year ended
December 31, 1992 takes this net operating loss carryover into effect,
effectively eliminating any tax liability for 1992. The 1993 tax provision was
also reduced due to the remaining net operating loss carryforward utilized in
1993.
The provision for income taxes differs from the amount of income
determined by applying the applicable U.S. statutory federal rate to pretax
income as a result of the following differences:
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
-------------------------------------------------------------------------------------------------------
Eleven months
Year ended Year ended Month ended ended Year ended
December 31, 1996 December 31, 1995 December 31, 1994 December 31, 1994 December 31, 1993
----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Statutory federal
tax rate
Increase (decrease) 34.0% 34.0% 34.0% 34.0% 34.0%
in rate from:
State taxes, net of
federal tax
benefits - - - 6.9 5.0
Benefit of
operating loss
carryforwards - - - - (10.3)
Change in
valuation reserve (34.0%) (34.0%) (34.0%) -
Other - - - (4.1) (3.0)
----------------- ----------------- ----------------- ----------------- -----------------
Effective tax rate - - - 36.8% 25.7%
================= ================= ================= ================= =================
</TABLE>
46
<PAGE>
ASSISTED LIVING CONCEPTS, INC. ("The Company")
AND ASSISTED LIVING CONCEPTS GROUP ("Predecessor")
Note to Consolidated Financial Statements
An analysis of the significant components at December 31, 1996, 1995 and 1994
for deferred tax assets and liabilities, consists of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
----- ----- ----
Deferred tax assets:
Net operating loss $ 837 $ 231 $ 55
Deferred revenue - 59 -
Other 45 43 -
Deferred tax liabilities:
Depreciation (195) (92) -
Deferred loss on sale leaseback (304)
Prepaid expenses (140)
Other (149)
Net deferred asset valuation allowance (95) (241) (55)
----- ----- ----
Deferred tax asset (liability) $ - $ - $ -
----- ----- ----
</TABLE>
The valuation allowance for deferred tax assets as of December 31, 1996 and 1995
was $95 and $241, respectively. The net change in the total valuation allowance
for the years ended December 31, 1996 and 1995 was ($146) and $186,
respectively.
9. RELATED PARTY TRANSACTIONS
THE COMPANY
The Company leases five residences from Assisted Living Facilities,
Inc. (ALF), a related party (see Note 2). The Company's president's spouse owns
a 25% interest in ALF. During the years ended December 31, 1996 and 1995 and
the month ended December 31, 1994, the Company paid ALF aggregate lease deposits
of $35,700, $0 and $75,000, respectively and aggregate rentals of 912,000,
$734,000 and, $37,000, respectively.
In December 1994, the Company purchased Aspen Court and Hillside Manor
from Madras and LCP for $1,685,000 and $2,164,000 (including the assumption of
$1,114,000 in debt, but excluding closing costs), respectively (See Note 2).
Prior to the purchase, the president of the Company owned a 30% interest in
Madras and, together with her spouse, owned a 50% partnership interest in Redbud
Associates which held a 35% partnership interest in LCP.
Concepts in Community Living, Inc. (CCL) is a company that is owned
100% by the president's spouse. CCL provided services to several of the
developers that contracted with the Company to build and develop assisted living
facilities. CCL performed feasibility studies and pre-development consulting
services for the developers on the Company's behalf. For the year ended December
31, 1995, CCL performed these services on 36 sites collecting fees of $605,000of
which 100% was capitalized in construction in process on the balance sheet. The
direct costs incurred by CCL in performing these services was approximately
$510,000.
47
<PAGE>
ASSISTED LIVING CONCEPTS, INC. ("The Company")
AND ASSISTED LIVING CONCEPTS GROUP ("Predecessor")
Note to Consolidated Financial Statements
PREDECESSOR
The Predecessor residences operated under management agreements with
CCL (the CCL Management Agreements). Under the terms of the CCL Management
Agreements, CCL provided management and administrative support to the
Predecessor and, as such, was entitled to reimbursement for accounting,
marketing and other expenses incurred on behalf of the Predecessor. Fees paid
to CCL under the CCL Management Agreements are reflected as management fees in
the accompanying Statements of Operations.
10. TRANSACTIONS WITH LTC PROPERTIES, INC.
During 1995, the Company sold and leased back from LTC Properties,
Inc. two Texas residences for $3.2 million with annual lease payments of
$328,000. The residences were sold at approximately cost with any nominal
difference being amortized over the life of the lease. In July 1996, in
connection with a commitment of $50.2 million to sell and leaseback 20
residences, LTC Properties, Inc. agreed to sell back to the Company four Texas
properties for approximately $7.6 million. The four residences were purchased at
cost. In addition, LTC Properties, Inc. provided $18.9 million in mortgage
financing on eight residences which will be converted to sale and leaseback
arrangements under the $50.2 million commitment. During 1996, the Company sold
and leaseback thirteen residences for $26.2 million with a combined total of 472
units. As of December 31, 1996, the Company sold and leaseback from LTC
Properties, Inc. eleven residences with 386 units for $24.3 million with annual
rental payments of $2.3 million ($1.3 million in rent was paid in 1996). The
residences were sold at approximately cost with any nominal difference being
amortized over the life of the lease. Currently, two of the Company's Board of
Directors serve as executive officers of LTC Properties, Inc. and three
executive officers of LTC Properties, Inc. own approximately 5.5% of the
Company's common stock.
11. STOCK OPTION PLAN
The Company has a Stock Option Plan (the "Plan") in which options may
be granted as either incentive or non-qualified stock options. The Plan is
administered by the Compensation Committee of the Board of Directors which sets
the terms and provisions of options granted under the Plan. Incentive options
may be granted only to officers or other full-time employees of the Company,
while non-qualified options may be granted to directors, officers or other
employees of the Company, or consultants who provide services to the Company.
Under the 1994 Stock Option Plan, the Company may grant options to its
employees for up to 600,000 shares of common stock. The exercise price of each
option equals the market price of the Company's stock on the date of grant.
Each option shall expire on the date specified in the option agreement, but not
later than the tenth anniversary of the date on which the option was granted.
Such options vest three years from the date of issuance and are exercisable
within seven to ten years from the date of vesting. Each option is exercisable
in equal installments as designated by the Compensation Committee at the option
price designated by the Compensation Committee; however, incentive options
cannot be less than the fair market value of the common stock on the date of
grant. All options are nontransferable and subject to adjustment by the
Compensation Committee upon changes in the Company's capitalization. The Board
of Directors, at its option, may discontinue the Plan or amend the Plan at any
time.
48
<PAGE>
ASSISTED LIVING CONCEPTS, INC. ("The Company")
AND ASSISTED LIVING CONCEPTS GROUP ("Predecessor")
Note to Consolidated Financial Statements
The per share weighted-average fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for grants in 1996 and 1995,
respectively: dividend yield of zero percent, expected volatility of 36.61%,
risk-free interest rate has been fixed at 6.69% based on the 10-year treasury
rate on March 11, 1997 and term of 10 years.
The Company applies APB Opinion No. 25 in accounting for its Plan, and
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS 123, the
Company's net income would have been reduced to the proforma amounts indicated
below:
<TABLE>
<CAPTION>
1996 1995
----- ------
<S> <C> <C>
Net income(loss) as reported $ 149 $ (575)
Net income (loss) pro forma 50 (575)
Net income (loss) per common share as reported $ .03 $ (.19)
Net income (loss) per common share as pro forma .01 (.19)
</TABLE>
Pro forma net income reflects only options granted in 1996 and 1995. Therefore,
the full impact of calculating compensation costs for stock options under SFAS
123 is not reflected in the pro forma net income amounts presented above because
compensation cost is reflected over the option's vesting period of three years
and compensation cost for options prior to January 1, 1995 is not considered.
A summary of the status of the Company's stock option plan as of
December 31, 1996 and 1995 and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1996 1995
------------------------------ ------------------------------
Shares Weighted-Average Shares Weighted-Average
(000) Exercise Price (000) Exercise Price
-------- ----------------- ------- ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of the year 403,034 $10.862 220,000 $ 9.250
Granted 281,700 16.428 215,250 12.343
Exercised (14,085) 9.362 - -
Canceled (118,047) 17.571 (32,217) 9.754
------- -------
Outstanding at end of the
year 552,602 $12.304 403,034 $10.862
======= =======
Options exercisable at end of year 191,022 73,335
Weighted-average fair
value of options granted
during the year $9.978 $7.387
</TABLE>
49
<PAGE>
ASSISTED LIVING CONCEPTS, INC. ("The Company")
AND ASSISTED LIVING CONCEPTS GROUP ("Predecessor")
Note to Consolidated Financial Statements
The following table summarized information about fixed stock options outstanding
at December 31, 1996.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
NUMBER WEIGHTED-AVERAGE NUMBER
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICES AT 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/96 EXERCISE PRICE
----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 9.250 197,750 7.02 $ 9.250 132,588 $ 9.25
$9.875 to 12.750 45,968 8.53 11.516 15,605 11.487
$13.000 to 13.000 122,734 8.66 13.000 41,308 13.000
$13.375 to 14.625 6,750 9.08 13.766 1,252 13.511
$14.750 to 14.750 143,100 9.62 14.750 - -
$14.875 to 19.625 30,300 9.71 17.047 269 15.256
$19.750 to 19.750 2,000 9.63 19.750 - -
$20.125 to 20.125 1,000 9.61 20.125 - -
$21.500 to 21.500 1,000 9.45 21.500 - -
$22.000 to 22.000 2,000 9.44 22.000 - -
------- ---- ------- ------- -------
$9.250 to $22.000 552,602 8.38 $12.304 191,022 $10.280
======= ==== ======= ======= =======
</TABLE>
12. SUBSEQUENT EVENTS
The Company received mortgage financing on an additional sixteen
residences for $36.4 million dollars from LTC Properties, Inc. with interest
payable on a monthly basis at 9.9% per annum. These loans are to be repaid or
converted to sale leaseback transactions by June 30, 1997.
13. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth the pro forma statement of operations of the
Company for the years ended December 31, 1994, as if the acquisition of the
Predecessor's assets and the initial public offering had occurred at January 1,
1994 (in thousands except per share amounts):
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
1994
------------
<S> <C>
Revenues $ 2,053
Operating income (402)
Interest expense - net 84
Net loss (486)
Loss per common share $ (.16)
Weighted average common shares 3,000
</TABLE>
50
<PAGE>
ASSISTED LIVING CONCEPTS, INC.
INDEX TO EXHIBITS
-----------------
Exhibit No. Description
- - --------------------------------------------------------------------------------
2.1 Merger Agreement between the Company and CCL Sub, Inc.
(incorporated by reference to the same titled exhibit to the
Company's Registration Statement on Form S-1, File No. 33-83938).
2.2 Agreement and Plan of Corporate Separation and Reorganization
between Concepts In Community Living, Inc. and Keren Wilson
(Incorporated by reference to the same titled exhibit to the
Company's Registration Statement on Form S-1, File No. 33-83938).
2.3 Assignment, Bill of Sale, License, and Assumption Agreement between
Concepts In Community Living, Inc., and CCL Sub, Inc. (Incorporated
by reference to the same titled exhibit to the Company's
Registration Statement on Form S-1, File No. 33-83938.)
2.4 Purchase Agreement between the Company and Lincoln City Limited
Partnership Letter Purchase Agreement between the Company
and Madras Senior Residence, LRW partners, Keren Brown Wilson and
Joseph Hughes (Incorporated by reference to the same titled exhibit
to the Company's Registration S-1, File No. 33-83938).
3.1 Articles of Incorporation of the Company (Incorporated by reference
to the same titled exhibit to the Company's Registration Statement
on Form S-1, File No. 33-83938).
3.2 By laws of the Company (Incorporated by reference to the same
titled exhibit to the Company's Registration Statement on Form S-1,
File No. 33-83938).
4.1 Indenture, dated as of August 15, 1995, between the Company and
Harris Trust and Savings Bank, as Trustee, in respect of the
Company's 7.0% Convertible Subordinated as Debentures due 2005.
(Incorporated by reference to the same titled exhibit to the
Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1995, File No. 1-83938).
4.2 Form of 7.0% Convertible Subordinated Debentures due 2005
(Incorporated by reference to the same titled exhibit to the
Company Quarterly Report on Form 10-Q for the period ended
September 30, 1995, File No. 1-83938).
4.3 Registration Rights Agreement dated August 2, 1995 between the
Company and the Purchasers of its 7% Convertible Subordinated
Debentures due 2005 (Incorporated by reference to the same titled
exhibit to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 1995, File No. 1-83938).
10.1 Stock Option Plan of the Company (Incorporated by referenced
exhibit to the Company's Registration Statement on Form S-1, File
No. 33-83938.
10.2 Employment Agreement between the Company and Keren B. Wilson
(Incorporated by referenced exhibit to the Company's Registration
Statement on Form S-1, File No. 33-83938.
10.3 Amendment to 1994 Stock Option Plan (Incorporated by reference to
the same titled exhibit to the Company's Registration Statesmen ton
Form S-8, File No. 333-2352).
12.1 Computation of Ratio of Earnings to Fixed Charges
23.3 Consent of Price Waterhouse LLP
23.4 Consent of KPMG Peat Marwick LLP
27.0 Financial Data Schedule Article 5 of Regulation S-X
51
<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
March 27, 1997 By: STEPHEN GORDON
----------------------------------
Name: Stephen Gordon
Title: Chief Administrative Officer & CFO
March 27, 1997 By RHONDA S. MARSH
----------------------------------
Name: Rhonda S. Marsh
Title: Controller
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
KEREN BROWN WILSON Chief Executive Officer, March 27, 1997
- - -------------------- President and Director
Keren Brown Wilson (Principal Executive Officer)
STEPHEN GORDON Chief Administrative Officer March 27, 1997
- - ---------------- & CFO
Stephen Gordon (Principal Financial Officer and
Principal Accounting Officer)
RHONDA S. MARSH Controller March 27, 1997
- - -----------------
Rhonda S. Marsh
WILLIAM MCBRIDE III Chairman of the Board March 27, 1997
- - ---------------------
William McBride III
ANDRE C. DIMITRIADIS Director March 27, 1997
- - ----------------------
Andre C. Dimitriadis
RICHARD C. LADD Director March 27, 1997
- - -----------------
Richard C. Ladd
BRADLEY RAZOOK Director March 27, 1997
- - ----------------
Bradley Razook
</TABLE>
52
<PAGE>
EXHIBIT 12.1
Computation of Ratio of Earnings to Fixed Charges
(Dollars in thousands)
<TABLE>
<CAPTION>
The Company Predecessor
----------------------------------------------- -------------------
Year ended Year ended Month ended Eleven Months
December 31, December 31, December 31, ended November 31,
----------------------------------------------- -------------------
1996 1995/(2)/ 1994 1994
----------------------------------------------- -------------------
<S> <C> <C> <C> <C>
Income before provision for income taxes $ 149 $ (575) $ (64) $ 231
Add fixed charges
Interest expense including amortization of debt
issuance costs - 133 8 297
----------------------------------------------- -------------------
Earnings 149 (442) (56) 528
=============================================== ===================
Fixed Charges
Interest expense including amortization of debt
issuance costs - 133 8 297
Capitalized interest 2,188 577 - 11
----------------------------------------------- -------------------
Total fixed charges $ 2,188 $ 710 $ 8 $ 308
=============================================== ===================
Ratio of earnings to fixed charges 0.07 (0.62) (7.00) 1.71
Deficiency of Earning to cover fixed charges (2,039) (1,152) (64) 220
</TABLE>
(1) December 31, 1991 is unaudited
(2) Amortization of debt issuance costs is $37,000 for year ended December 31,
1995.
<PAGE>
Exhibit 23.3
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-2352) of our reports dated March 17, 1995
appearing on pages 30 and 31 of Assisted Living Concepts, Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1996 relating to the financial
statements of Assisted Living Concepts Group (which is comprised of Assisted
Living Facilities, Inc., a subchapter S corporation, Madras Elder Care (d.b.a.
Aspen Court), a general partnership, and Lincoln City Partners, a general
partnership) for the eleven months ended November 30, 1994 and of Assisted
Living Concepts, Inc. for the one month period ended December 31, 1994,
respectively.
PRICE WATERHOUSE LLP
Portland, Oregon
March 25, 1997
<PAGE>
EXHIBIT 23.4
LETTERHEAD OF PEAT MARWICK LLP
Consent of Independent Accountants
----------------------------------
The Board of Directors and Shareholders
Assisted Living Concepts, Inc.:
We consent to incorporation by reference in the Registration Statement (No.
333-2352) on Form S-8 of Assisted Living Concepts, Inc. of our report dated
February 28, 1997, relating to the consolidated balance sheets of Assisted
Living Concepts, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related statements of operations, changes in shareholders' equity, and cash
flows for the years then ended, which report appears in the December 31, 1996
annual report on Form 10-K of Assisted Living Concepts, Inc.
/s/ KPMG Peat Marwick LLP
March 26, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 2,105 7,335
<SECURITIES> 0 0
<RECEIVABLES> 730 136
<ALLOWANCES> (33) 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,043 558
<PP&E> 113,032 41,521
<DEPRECIATION> 674 163
<TOTAL-ASSETS> 130,507 53,546
<CURRENT-LIABILITIES> 38,765 13,349
<BONDS> 32,683 24,553
0 0
0 0
<COMMON> 55 30
<OTHER-SE> 59,004 15,614
<TOTAL-LIABILITY-AND-EQUITY> 130,507 53,546
<SALES> 18,949 4,067
<TOTAL-REVENUES> 18,949 4,067
<CGS> 18,907 5,125
<TOTAL-COSTS> 18,907 5,125
<OTHER-EXPENSES> (107) (483)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 96
<INCOME-PRETAX> 149 (575)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 149 (575)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 149 (575)
<EPS-PRIMARY> .03 (.19)
<EPS-DILUTED> .03 0
</TABLE>
