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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1994
For the quarterly period ended March 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from ___ to___
Commission file number 1-83938
ASSISTED LIVING CONCEPTS, INC.
(Exact name of registrant as specified in its charter)
NEVADA 93-1148702
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
9955 S.E. Washington, Suite 201
Portland, Oregon 97216
(Address of principle executive offices)
(503) 252-6233
(Registrant's telephone number, including area code)
Indicated by check mark whether Registrant (1) has filed all reports
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that Registrants was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
Shares of Registrant's common stock, $.01 par value, outstanding at May 10, 1996
- 3,013,333.
Page 1 of 13
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ASSISTED LIVING CONCEPTS, INC.
FORM 10-Q
MARCH 31, 1996
INDEX
-----
PART I - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets of Assisted Living Concepts, Inc. and
Subsidiary as of March 31, 1996 and December 31, 1995..................... 3
Condensed Consolidated Statements of Operations of Assisted Living Concepts,
Inc. for the three months ended March 31, 1996 and March 31, 1995.......... 4
Condensed Consolidated Statements of Cash Flows of Assisted Living
Concepts, Inc. for three months ended March 31, 1996 and March 31, 1995.... 5
Notes to Condensed Financial Statements.................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 9
Page 2 of 13
PART 1
ITEM 1 - FINANCIAL INFORMATION
ASSISTED LIVING CONCEPTS, INC. AND SUBSIDIARY
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
(Unaudited)
DECEMBER 31, MARCH 31,
ASSETS 1995 1996
---------- ----------
Current assets:
Cash and cash equivalents $ 7,335 $ 4,170
Accounts receivable 136 217
Other current assets 558 651
---------- ---------
Total current assets 8,029 5,038
---------- ---------
Property and equipment 28,446 31,856
Less accumulated depreciation 163 267
---------- ---------
Property and equipment - net 28,283 31,589
---------- ---------
Construction in process (Note 2) 13,075 15,672
Goodwill 393 384
Other assets 3,766 4,711
---------- ---------
Total assets $53,546 $57,394
---------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $13,149 $11,340
Current portion of long-term debt 47 89
---------- ---------
Total current liabilities 13,196 11,429
Other non-current liabilities 153 112
Mortgages payable 4,553 10,350
Convertible subordinated debt 20,000 20,000
---------- ---------
Total liabilities 37,902 41,891
---------- ---------
Shareholders' equity:
Preferred Stock, $.01 par value; 1,000,000 shares authorized;
none issued and outstanding
Common Stock, $.01 par value; 40,000,000 shares authorized;
3,000,000 and 3,004,734 shares issued and outstanding 30 30
Additional paid-in-capital 16,492 16,538
Fair market value in excess of historical cost of acquired net assets
attributable to related party transactions (239) (239)
Accumulated deficit (639) (826)
---------- ---------
Total shareholders' equity 15,644 15,503
---------- ---------
Total liabilities and shareholders' equity $53,546 $57,394
========== =========
The accompanying notes are an integral part of these Financial Statements.
Page 3 of 13
ASSISTED LIVING CONCEPTS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(Unaudited)
Three Months ended Three Months ended
March 31, 1995 March 31, 1996
------------------ ------------------
Revenues $ 682 $2,750
------ ------
Operating expenses:
Residence operating expenses 449 1,936
Corporate general and administrative 231 215
Building rentals 146 560
Depreciation and amortization 39 217
------ ------
Total operating expenses 865 2,928
------ ------
Operating loss (183) (178)
------ ------
Interest expense 24 29
Interest (income) (180) (20)
------ ------
Interest expense (income) - net (156) 9
------ ------
Net loss $ (27) $ (187)
====== ======
Net loss per common share $ (.01) $ (.06)
====== ======
Weighted average common shares outstanding 3,000 3,005
The accompanying notes are an integral part of these Financial Statements.
Page 4 of 13
ASSISTED LIVING CONCEPTS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
Three Months ended Three Months ended
March 31, 1995 March 31, 1996
------------------ ------------------
OPERATING ACTIVITIES:
Net loss $ (27) $ (187)
Adjustment to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 39 217
Changes in other non-cash items:
Accounts receivable (13) (81)
Other current assets 44 (93)
Other assets (46) (936)
Accounts payable and accrued expenses 893 (1,809)
-------- --------
Net cash provided by (used for) operating activities 890 (2,889)
-------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment (3,162) (20,541)
-------- --------
Net cash used for investing activities (3,162) (20,541)
-------- --------
FINANCING ACTIVITIES:
Proceeds from long-term debt 5,865
Proceeds from sale leasebacks 14,380
Payments on long-term debt (4) (26)
Proceeds from exercise of stock options 46
-------- --------
Net cash provided by (used for) financing activities (4) 20,265
-------- --------
Net decrease in cash and cash equivalents (2,276) (3,165)
Cash and cash equivalents, beginning of period 13,453 7,335
-------- --------
Cash and cash equivalents, end of period $ 11,177 $ 4,170
========= ========
Supplemental disclosure of cash flow information:
Cash payments for interest $ 24 $ 784
========= ========
The accompanying notes are an integral part of these Financial Statements.
Page 5 of 13
ASSISTED LIVING CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Assisted Living Concepts, Inc. ("the Company") owns, operates and develops
assisted living residences which provide housing to senior citizens who need
help with the activities of daily living such as bathing and dressing. The
Company provides personal care and support services and makes available routine
nursing services designed to meet the needs of its tenants.
The Company was organized in July 1994, initially capitalized through the sale
of 500,000 shares of $0.01 par value common stock for $100,000. From July 19,
1994 to November 30, 1994, the date of its initial public offering, the Company
began to put into place the management organization to commence operations and
execute its strategy to expand the Company's business.
On November 22, 1994, the Company sold 2,000,000 shares of common stock at $9.25
per share in a public offering realizing net proceeds of $16,422,000. On
December 1, 1994, the Company purchased two and leased four assisted living
residences from Assisted Living Concepts Group ("the Predecessor") and commenced
operations. As of March 31, 1996, the Company had received certificates of
occupancy for 35 residences of which 26 had commenced operations.
Basis of Presentation
These financial statements have been prepared without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. The
accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary. All significant intercompany accounts
and transactions have been eliminated in consolidation. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These condensed financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's annual report on
Form 10-K for the year ended December 31, 1995.
The financial information included herein reflects all adjustments (consisting
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the results for interim periods. The result
of operations for the three-month period ended March 31, 1995 and 1996 are not
necessarily indicative of the results to be expected for the full year.
2. PROPERTY AND EQUIPMENT
Construction In Process
As of March 31, 1996, the Company had begun construction or had purchased land
to begin construction on 22 parcels of land. The Company has also entered into
agreements pursuant to which it may purchase, subject to completion of due
diligence and various other conditions, 28 additional sites for approximately
$3.1 million. In addition, the Company has entered into agreements to manage and
or lease 3 additional sites once development has been completed by outside
developers
Page 6 of 13
2. PROPERTY AND EQUIPMENT (CONTINUED)
As of March 31, 1996, the Company had capitalized all costs incurred in
connection with the development of properties, and accordingly, construction in
process consisted of the following (in thousands):
March 31, 1996
--------------
Land purchased $ 2,728
Construction costs and architectural fees 10,504
Other costs, including legal fees,
building permits and other development costs 2,440
--------------
$15,672
==============
During the quarter ended March 31, 1996, the Company capitalized $447,000 of
interest costs relative to financing of construction in process. Of the 35
residences the Company had opened or had received certificates of occupancy, 18
were leased, 15 were owned (8 in Texas, 6 in Oregon and 1 in Washington) and 2
Washington residences were under agreements to purchase.
3. LEASES
During the quarter ended March 31, 1996, the Company completed the sale of six
Texas residences under sale and leaseback arrangements. The Company sold the
residences for approximately $10,300,000, which approximates cost, and leased
them back over initial terms of twelve years. The residences were leased back at
an initial annual lease rate of approximately $1,047,000. In addition the
Company completed the sale of two Washington residences under sale and leaseback
arrangements. The Company sold the residences for approximately $4,080,000,
which approximate costs, and leased them back over an initial term of twenty
years. The residences were leased back at an initial annual lease rate of
approximately $343,000. The above transactions were completed with LTC
Properties, Inc., the Chairman and President of which are members of the Board
of Directors and Shareholders of the Company.
In addition, the Company completed a lease agreement for one Oregon residence
with an initial term of fifteen years at an initial annual rate of $208,200.
4. LONG-TERM DEBT
During the quarter ended March 31, 1996, the Company closed three loans with the
State of Oregon Housing and Community Service Department for $5,865,000. The
loans, which bear interest at a rate of 7.375%, have terms of 30 years and
monthly principal and interest payments of $40,510. The Company is also required
to make deposits into an interest bearing account of $10,990 per month for
insurance, real estate taxes and replacement reserves.
5. SUBSEQUENT EVENTS AND COMMITMENTS
The Company has entered into agreements to sell and leaseback, once development
has been completed, an additional three residences located in Washington for
approximately $7.1 million. The leases will have fixed terms of twenty years
with initial annual lease payments of $596,400. The Company anticipates these
transactions will close by June 30, 1996.
The Company completed the sale of eight Texas residences under sale and
leaseback arrangements. The Company sold the residences for approximately $16.4
million, which approximates cost, and leased them back over terms ranging from
twelve to fifteen years. The residences were leased back at an annual lease rate
of approximately $1,773,700.
Page 7 of 13
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
THE COMPANY
The Company reported a net loss of $187,000, or $.06 per share, on revenue of
$2,750,000 for the three months ended March 31, 1996. These losses have resulted
primarily from an increase in corporate overhead, including additional staffing,
necessary to accommodate the Company's expansion to develop additional
residences in 1996 and 1997 and initial operating losses of residences which
commenced operations during the quarter.
Operating results for the three months ended March 31, 1996 include the
operating results of twenty-six residences and the Company's corporate overhead
and are not necessarily indicative of future operating financial performance as
the Company intends to significantly expand its operating base of residences in
1996 and 1997.
RESULTS OF OPERATIONS
Revenues consist of rentals of units in assisted living residences and fees
associated with the provision of services to residents pursuant to contracts
with the residents. Operating expenses include (i) residence operating expenses,
such as staff payroll, food, property taxes, utilities, insurance and other
direct residence operating expenses, (ii) general and administrative expenses
consisting of corporate and support functions such as legal accounting and other
administrative expenses, (iii) building rentals and (iv) depreciation and
amortization expense.
The following table sets forth, for the period presented, the number of
residences and units operated, average occupancy percentages and payor mixes for
the Company.
Three Months Ended March 31, 1996
Stabilized Start-up
Residences /(1)/ Residences /(2)/ Total/(3)/
---------------- ---------------- ----------
Residences operated (End of period) 9 17 26
Units operated 264 553 817
Average occupancy percentage 99% 68% 78%
Total sources of revenue:
Medicaid State Paid 17.6% 11.5% 14.5%
Medicaid Tenant - Private Paid 10.1% 5.5% 7.7%
Private 72.3% 83.0% 77.8%
---------------- ---------------- ----------
Total 100.0% 100.0% 100.0%
================ ================ ==========
- - - --------------------
(1) Stabilized residences are those residences that have been operating for
nine months or have achieved stabilized occupancy of 95%.
(2) Start-up residences are those residences that have not been operating for
nine months and have not achieved a stabilized occupancy of 95% or more.
(3) The Company had 35 residences opened or had received certificates of
occupancy of which 26 had commenced operations.
Page 8 of 13
COMPILATION OF STABILIZED AND START-UP RESIDENCES
THREE MONTHS ENDED MARCH 31, 1996
Stabilized Start-up Combined
Residences /(1)/ Residences /(2)/ Corporate Total
---------------- ---------------- --------- --------
Revenue $1,308 $1,442 $ - $2,750
Residence Operating Expense 732 1,204 - 1,936
---------------- ---------------- --------- --------
Residence Operating Income 576 238 - 814
Corporate Overhead - - 215 215
Building Rentals 274 286 - 560
Depreciation and Amortization 46 138 33 217
---------------- ---------------- --------- --------
Total Other Operating Expenses 320 424 248 992
---------------- ---------------- --------- --------
Operating Income 256 (186) (248) (178)
Interest (Income) Expense, Net 76 26 (93) 9
---------------- ---------------- --------- --------
Net Income (Loss) $ 180 $ (212) $(155) $ (187)
================ ================ ========= ========
- - - ---------------
(1) Stabilized residences are those residences that have been operating for
nine months or have achieved stabilized occupancy of 95%.
(2) Start-up residences are those residences that have not been operating for
nine months and have not achieved a stabilized occupancy of 95% or more.
COMPILATION OF SAME RESIDENCES OPERATING FOR FULL QUARTER AT
MARCH 31, 1996 AND MARCH 31, 1995
Three Months Three Months
Ended Ended
March 31, 1996 March 31, 1995
-------------- --------------
Revenue $712 $658
Residence Operating Expense 408 401
-------------- --------------
Residence Operating Income 304 257
Building Rentals 125 125
Depreciation and Amortization 28 29
-------------- --------------
Other Operating Expenses 153 154
-------------- --------------
Operating Income 151 103
Interest (Income) Expense, Net 48 23
-------------- --------------
Net Income (Loss) $103 $ 80
============== ==============
Page 9 of 13
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995.
Revenues. For the three months ended March 31, 1996, revenues were $2,750,000
compared to $682,000 in the three months ended March 31, 1995, an increase of
$2,068,000, or 303%. The Company had opened or had received certificates of
occupancy on 35 residences as of March 31, 1996, of which 26 had operating
results for the quarterly period compared to six operating residences in the
corresponding 1995 period. The Company had five residences which had operated
for the entire quarter for both March 31, 1995 and March 31, 1996. For those
residences, revenue increased by $54,000 or 8.2% from the $658,000 in the first
quarter of 1995. This increase was primarily attributable to increases in rental
rates and changes in service rates due to changes in tenant level of care as
average occupancy was approximately 99%. The remaining $2,014,000 of the
increase was due to the 21 new residences which began operating subsequent to
January 1, 1995.
Residence Operating Expenses. Residence operating expenses were $1,936,000 in
the three months ended March 31, 1996 compared to $449,000 in the corresponding
1995 period, an increase of $1,487,000, or 331%. For the five residences that
operated for the entire first quarter of 1995 and 1996, residence operating
expenses were $408,000, an increase of $7,000, or 1.8% from the $401,000 of
residence operating expenses in the first quarter of 1995. Expenses were
relatively flat for these 5 residences because the residences were at full
occupancy for each of the periods; therefore, the increase was primarily related
to inflation. The remaining $1,480,000 of the increase was due to the 21 new
residences which began operating subsequently to January 1, 1995.
Corporate General and Administrative. Corporate general and administrative
expenses were $215,000 in the three months ended March 31, 1996 compared to
$231,000 in the corresponding 1995 period, a decrease of $16,000, or 6.9%.
Corporate, general and administrative expense stayed relatively flat due to the
associated costs in conjunction with the development schedule of residences has
been primarily related to specific projects.
Building Rentals. Building rentals increased to $560,000 in the three months
ended March 31, 1996 from $146,000 during the corresponding 1995 period. The
increase was due to the increased number of sale and leaseback transactions
completed by the Company from March of 1995 through March of 1996. The Company
had eighteen operating leases at March 31, 1996 compared to four at March 31,
1995. The following schedule presents the timing of leases entered into by the
Company.
Number of Leases Completed Date
- - - -------------------------- --------------------
3 Fourth Quarter, 1994
1 First Quarter, 1995
5 Fourth Quarter, 1995
9 First Quarter, 1996
Depreciation and Amortization. Depreciation and amortization expense was
$217,000 in the three month period ended March 31, 1996 compared to $39,000 in
1995, an increase of $178,000, or 456%. This increase in depreciation and
amortization was related to the 21 new residences that opened subsequent to
January 1, 1995.
Page 10 of 13
Interest Expense-Net. Interest expense (income) - net was $9,000 in the three
months ended March 31, 1996 compared to ($156,000) in the corresponding 1995
period, a change of $165,000. Interest income decreased $160,000 in the 1996
period due to the Company's utilization of its cash and investments arising from
the IPO for development activities. Interest expense increased $5,000 due to the
additional loans with the State of Oregon and the interest on the $20 million
convertible subordinated debentures. The increase was due to $373,000 of
interest and amortization related to the convertible subordinated debentures
that were issued in August, 1995, and an additional $79,000 on State of Oregon
loans that were issued in March 1995 and first quarter 1996. This was offset by
capitalized interest of $447,000.
Net Loss. The net loss during the first quarter of 1996 was $187,000 compared to
$27,000 during the corresponding period. These losses have resulted primarily
from an increase in corporate overhead, including additional staffing, necessary
to accommodate the Company's expansion to develop additional residences in 1996
and 1997 and initial operating losses of residences which commenced operations
and have not yet achieved stabilized occupancy.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had approximately $4.2 million of cash compared
to approximately $7.3 million at December 31, 1995, a decrease of $3.2 million.
Net cash used in investing activities totaled $20.5 million, relating to the
development of assisted living residences in Oregon, Washington and Texas.
Net cash provided by financing activities totaled $20.3 million during the three
month period ended March 31, 1996. This amount includes $14.4 million on six
sale and leaseback transactions for residences in Texas and two residences in
Washington as well as $5.9 million from the proceeds on three separate residence
loans in Oregon.
The Company intends to utilize additional financing to develop additional
residences in 1996. The Company intends to seek additional long-term financing
through the Oregon Housing and Community Services Department (the "OHCS") and,
to the extent available, additional low-cost bond financing, and sale and
leaseback transactions in Washington, Texas and New Jersey. As of March 31,
1996, the Company had started construction or had purchased land for development
on 22 parcels of land in Oregon, Washington and Texas for a total of 795 units.
The Company expects 12 of these developments to open in the second quarter and
10 to open in the third quarter. 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, 28 undeveloped sites for an aggregate
purchase price of $3.1 million. The Company has paid initial deposits relating
to these sites and has completed or is in the process of completing the
demographic analysis and initial architectural plans for purposes of building
assisted living residences and anticipates 8 of these residences to open in the
third quarter and 20 to open in the fourth quarter. In addition, the Company has
entered into agreements to lease 2 residences in Oregon, which are currently
under development, as well as a management agreement for one residence. The
Company anticipates 1 to open in the second quarter and 2 to open in the third
quarter.
Capital expenditures for 1996 are currently estimated to total approximately $72
million to $88 million, related primarily to the development of additional
residences. The Company has agreed in principle, subject to written
confirmation, to sell an additional eight residences to two REITs, which the
Company expects will generate approximately $19 million in proceeds. The
Company anticipates being able to continue to utilize the State of Oregon tax-
exempt bond program for its Oregon residences under development. The Company
currently has an outstanding commitment from the Oregon tax-exempt bond programs
to provide approximately $1 million of financing for one residence and three
applications under review which if approved, will generate approximately $6.6
million in proceeds.
Page 11 of 13
As of March 31, 1996, the Company had invested excess cash balances in short-
term certificates of deposit and U.S. Treasury securities. The Company intends
to satisfy future capital requirements for its development activities by various
means, including financing obtained from sale/leaseback transactions,
construction financing, long-term state bond financing, debt or equity offerings
and, to the extent available, cash generated from operations.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
Exhibit
Number
-------
27 Financial Data Schedule
(b) Reports on Form 8-K. There were no reports on Form 8-K filed during
the quarter ended March 31, 1996.
Page 12 of 13
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of 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
May 10, 1996 By: /s/ STEPHEN GORDON
-------------------------
Name: Stephen Gordon
Title: Chief Administrative Officer and
Chief Financial Officer
Page 13 of 13