-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DtRMXTjOfdTYNaXbj59kgiH7VRXhB43XApm0GaFXTvStEJs3L5Aox5enSbaAwfdP AuBhywyVW1caG5nibZBFmA== 0000898430-96-003867.txt : 19960816 0000898430-96-003867.hdr.sgml : 19960816 ACCESSION NUMBER: 0000898430-96-003867 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASSISTED LIVING CONCEPTS INC CENTRAL INDEX KEY: 0000929994 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SOCIAL SERVICES [8300] IRS NUMBER: 931148702 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13498 FILM NUMBER: 96614559 BUSINESS ADDRESS: STREET 1: 10570 SE WASHINGTON STREET 2: STE 213 CITY: PORTLAND STATE: OR ZIP: 97216 BUSINESS PHONE: 5032526233 MAIL ADDRESS: STREET 1: 9955 SE WASHINGTON, SUITE 201 CITY: PORTLAND STATE: OR ZIP: 97216 10-Q 1 QUARTERLY REPORT DATED 6/30/96 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20459 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 OR [_] TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from ___ to___ Commission file number 1-83938 ASSISTED LIVING CONCEPTS, INC. (Exact name of registrant as specified in its charter) NEVADA 93-1148702 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 9955 SE Washington, Suite 201 Portland, Oregon 97216 (Address of principal executive offices) (503) 252-6233 (Registrant's telephone number, including area code) Indicated by check mark whether Registrant (1) has filed all reports to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that Registrants was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Shares of Registrant's common stock, $.01 par value, outstanding at August 9 - 5,515,251. ================================================================================ 1 ASSISTED LIVING CONCEPTS, INC. FORM 10-Q JUNE 30, 1996 INDEX -----
PART I -- FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Balance Sheets of Assisted Living Concepts, Inc. and Subsidiary as of December 31, 1995 and June 30, 1996............ 3 Consolidated Statements of Operations of Assisted Living Concepts, Inc. and Subsidiary for the three and six months ended June 30, 1995 and June 30, 1996............................... 4 Consolidated Statements of Cash Flows of Assisted Living Concepts, Inc. and Subsidiary for the three and six months ended June 30, 1995 and June 30, 1996............................... 5 Notes to Consolidated Financial Statements.......................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................ 8
2 PART 1 ITEM 1 -- FINANCIAL INFORMATION ASSISTED LIVING CONCEPTS, INC. CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS) (UNAUDITED) DECEMBER 31, JUNE 30, 1995 1996 ------------ ----------- ASSETS Current assets: Cash and cash equivalents $ 7,335 $ 2,131 Accounts receivable 136 452 Other current assets 558 793 ------- ------- Total current assets 8,029 3,376 ------- ------- Property and equipment 28,446 30,704 Less accumulated depreciation 163 282 ------- ------- Property and equipment - net 28,283 30,422 ------- ------- Construction in process (Note 2) 13,075 18,164 Goodwill 393 376 Other assets 3,766 5,066 ------- ------- Total assets $53,546 $57,404 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $13,149 $11,081 Current portion of long-term debt 47 106 ------- ------- Total current liabilities 13,196 11,187 Other non-current liabilities 153 308 Mortgages payable 4,553 10,313 Convertible subordinated debt 20,000 20,000 ------- ------- Total liabilities 37,902 41,808 ------- ------- Shareholders' equity: Preferred Stock, $.01 par value; 1,000,000 shares authorized; none issued and outstanding 30 30 Common Stock, $.01 par value; 40,000,000 shares authorized; 3,000,000 and 3,013,334 shares issued and outstanding 16,492 16,615 Fair market value in excess of historical cost of acquired net assets attributable to related party transactions (239) (239) Accumulated deficit (639) (810) ------- ------- Shareholders' equity 15,644 15,596 ------- ------- Total liabilities and shareholders' equity $53,546 $57,404 ======= =======
The accompanying notes are an integral part of these Financial Statements. 3 ASSISTED LIVING CONCEPTS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1995 1996 1995 1996 ------ ------ ------ ------ Revenues $ 793 $3,742 $1,475 $6,492 ------ ------ ------ ------ Operating expenses: Residence operating expenses 473 2,340 922 4,276 Corporate general and administrative 232 393 463 608 Building rentals - 687 - 1,051 Building rentals - related party 196 248 342 444 Depreciation and amortization 41 167 80 384 ------ ------ ------ ------ Total operating expenses 942 3,835 1,807 6,763 ------ ------ ------ ------ Operating loss (149) (93) (332) (271) ------ ------ ------ ------ Interest expense (23) (20) (47) (51) Interest income 127 47 307 69 Other income - 82 - 82 ------ ------ ------ ------ Other income - net 104 109 260 100 ------ ------ ------ ------ Net income (loss) $ (45) $ 16 $ (72) $ (171) ====== ====== ====== ====== Net income (loss) per common share $ (.01) $ .01 $ (.02) $ (.06) ====== ====== ====== ====== Weighted average common shares outstanding 3,000 3,013 3,000 3,009
The accompanying notes are an integral part of these Financial Statements. 4 ASSISTED LIVING CONCEPTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
(UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1995 1996 1995 1996 ------- --------- ------- --------- OPERATING ACTIVITIES: Net income (loss) $ (45) $ 16 $ (72) $ (171) Adjustment to reconcile net income (loss) to net cash provided by operating activities: Gain on sale of asset - (82) - (82) Depreciation and amortization 41 167 80 384 Changes in other non-cash items: Accounts receivable 1 (235) (12) (316) Other current assets 59 (142) 103 (235) Other assets (19) 328 (108) (1,283) Accounts payable and accrued expenses 1,937 (259) 2,872 (2,068) ------- -------- --------- -------- Net cash provided by operating activities 1,974 (207) 2,863 (3,771) ------- -------- --------- -------- INVESTING ACTIVITIES: Proceeds from sale of land and residences - 23,910 - 38,290 Purchases of property and equipment (7,430) (25,799) (10,592) (45,665) ------- -------- --------- -------- Net cash used for investing activities (7,430) (1,889) (10,592) (7,375) ------- -------- --------- -------- FINANCING ACTIVITIES: Proceeds from long-term debt - - - 5,865 Payments on long-term debt (3) (20) (7) (46) Proceeds from issuance of common stock - 77 - 123 ------- -------- --------- -------- Net cash provided by (used for) financing activities (3) 57 (7) 5,942 ------- -------- --------- -------- Net decrease in cash and cash equivalents (5,459) (2,039) (7,736) (5,204) Cash and cash equivalents, beginning of period 11,176 4,170 13,453 7,335 ------- -------- --------- -------- Cash and cash equivalents, end of period $ 5,717 $ 2,131 $ 5,717 2,131 ======= ======== ======== ======== Supplemental disclosure of cash flow information: Cash payments for interest $ 23 $ 221 $ 163 $ 1,005 ======= ======== ======== ========
The accompanying notes are an integral part of these Financial Statements. 5 ASSISTED LIVING CONCEPTS, INC. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company Assisted Living Concepts, Inc. ("the Company") owns, operates and develops assisted living residences which provide housing to senior citizens who need help with the activities of daily living such as bathing and dressing. The Company provides personal care and support services and makes available routine nursing services designed to meet the needs of its residents. The Company was organized in July 1994, initially capitalized through the sale of 500,000 shares of $0.01 par value common stock for $100,000. From July 19, 1994 to November 30, 1994, the date of its initial public offering, the Company began to put into place the management organization to commence operations and execute its strategy to expand the Company's business. On November 22, 1994, the Company sold 2,000,000 shares of common stock at $9.25 per share in a public offering realizing net proceeds of $16,422,000. On December 1, 1994, the Company purchased two and leased four assisted living residences from Assisted Living Concepts Group ("the Predecessor") and commenced operations. As of June 30, 1996, the Company had received certificates of occupancy for 46 residences of which 31 had commenced operations. Basis of Presentation These financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These condensed financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's annual report on Form 10- K for the year ended December 31, 1995. The financial information included herein reflects all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the results for interim periods. The result of operations for the three and six-month periods ended June 30, 1995 and 1996 are not necessarily indicative of the results to be expected for the full year. 2. PROPERTY AND EQUIPMENT Construction In Process As of June 30, 1996 the Company had begun construction or had purchased land to begin construction on 22 parcels of land. The Company has also entered into agreements pursuant to which it may purchase, subject to completion of due diligence and various other conditions, 29 additional sites. In addition, the Company has entered into agreements to manage and or lease two additional sites once construction has been completed. 6 ASSISTED LIVING CONCEPTS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. PROPERTY AND EQUIPMENT (CONTINUED) As of June 30, 1996 the Company had capitalized all costs incurred in connection with the development of these properties, and accordingly, construction in process consisted of the following (in thousands): Land purchased $ 3,229 Construction costs and architectural fees 11,638 Other costs, including legal fees, building permits and other development costs 3,297 ------- $18,164 =======
During the quarter ended June 30, 1996, the Company capitalized $583,000 of interest cost relative to financing of construction in process. Of the 46 residences the Company had opened or had received certificates of occupancy, 29 were leased (19 in Texas, 5 in Oregon and 5 in Washington) and 17 were owned (10 in Texas, 6 in Oregon and 1 in Washington). 3. LEASES During the quarter ended June 30, 1996, the Company completed the sale of 8 Texas residences and 3 Washington residences under sale and leaseback arrangements. The Company sold the residences for approximately $23,580,000, which approximates cost, and leased them back over initial terms ranging from 12 to 20 years. The residences were leased back at an initial annual lease rate of approximately $2,378,000. 4. SUBSEQUENT EVENTS On July 3, 1996 the Company completed the sale of 2,096,250 shares of common stock at $19.00 per share and received approximately $37.7 million of net proceeds after deducting underwriters discounts, commissions and other offering expenses. On July 26, 1996, the Company purchased back four Texas residences for $7.8 million which was the original sales price plus a 2% administration fee. The Company is pursuing permanent mortgage financing on these residences and anticipates retaining them as owned residences. The Company has entered into commitments to complete sale and leaseback transactions covering 34 residences with three real estate investment trust. The transactions, which are expected to be completed by the end of 1997, will generate proceeds of approximately $82 million. In August of 1996, a holder of $6,085,000 of the Company's 7% convertible subordinated debentures exchanged the debentures for a package of 405,667 shares of common stock and cash of $425,000. 7 ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW THE COMPANY The Company reported net income of $16,000, or $.01 per share, on revenue of $3,742,000 for the three months ended June 30, 1996. The Company has generated income for the first quarter due to the increase in the number of residences currently being operated. Operating results for the three and six month periods ended June 30, 1996 include the operating results of 31 residences and the Company's corporate overhead and are not necessarily indicative of future operating financial performance as the Company intends to significantly expand its operating base of residences in 1996 and 1997. RESULTS OF OPERATIONS Revenues consist of rentals of units in assisted living residences and fees associated with the provision of services to residents pursuant to contracts with the residents. Operating expenses include (i) residence operating expenses, such as staff payroll, food, property taxes, utilities, insurance and other direct residence operating expenses, (ii) general and administrative expenses consisting of corporate and support functions such as legal accounting and other administrative expenses, (iii) building rentals and (iv) depreciation and amortization expense. The following table sets forth, for the periods presented, the number of residences and units operated, average occupancy rate and sources of revenue for the three months ended June 30, 1996. The portion of revenues received from state Medicaid agencies are labeled as "Medicaid State Portion" while the portion of the Company's revenues that a Medicaid-eligible resident must pay out of his or her own resources is labeled "Medicaid Resident Portion".
Three Months Ended June 30, 1996 Stabilized Start-up Residences (1) Residences (2) Total -------------- -------------- ------ Residences operated (end of period) 9 22 31 Units operated 264 745 1,009 Average occupancy rate 97.4% 76.3% 83.5% Sources of revenue: Private 70.9% 79.7% 76.6% Medicaid Resident Portion 10.5% 6.9% 8.2% Medicaid State Portion 18.6% 13.4% 15.2% ----- ----- ----- Total 100.0% 100.0% 100.0% ===== ===== =====
________________ (1) Stabilized residences are those residences that have been operating for nine months or have achieved a stabilized occupancy of 95% or more as of the beginning of the quarter. (2) Start-up residences are those residences that have not been operating for nine months and have not achieved a stabilized occupancy of 95% or more as of the beginning of the quarter. (3) The Company had received certificates of occupancy on 46 residences of which 39 had received licensure and 31 were fully operational. 8 COMPILATION OF STABILIZED AND START-UP RESIDENCES THREE MONTHS ENDED JUNE 30, 1996
Stabilized Start-up Combined Residences Residences Corporate Total ---------- ---------- --------- -------- Revenue $1,321 $2,421 $ - $3,742 Residence Operating Expense 762 1,578 - 2,340 ------ ------ ----- ------ Residence Operating Income 559 843 - 1,402 Corporate Overhead - - 393 393 Building Rentals 274 661 - 935 Depreciation and Amortization 46 102 19 167 ------ ------ ----- ------ Total Other Operating Expenses 320 763 412 1,495 ------ ------ ----- ------ Operating Income (Loss) 239 80 (412) (93) Interest (Income) Expense, Net 81 138 (246) (27) Other (Income) Expense - - (82) (82) ------ ------ ----- ------ Net Income (Loss) $ 158 $ (58) $ (84) $ 16 ====== ====== ===== ====== Residences Operated 9 22 31 Units Operated 264 745 1,009 Average Occupancy Rate 97.4% 76.3% 83.5%
RESULTS OF SAME RESIDENCES THREE AND SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 30, 1996
Three Three Six Six Months Ended Months Ended Months Ended Months Ended June 30, 1995 June 30, 1996 June 30, 1995 June 30, 1996 ---------------------------------------------------------------- Revenue $ 793 $ 898 $1,329 $1,427 Residence Operating Expense 473 510 810 797 ----- ----- ------ ------ Residence Operating Income 301 388 519 630 Building Rentals 196 196 250 250 Depreciation and Amortization 30 29 60 55 ----- ----- ------ ------ Other Operating Expenses 226 225 310 305 ----- ----- ------ ------ Operating Income 75 163 209 325 Interest (Income) Expense, Net 23 49 47 107 ----- ----- ------ ------ Net Income $ 52 $ 114 $ 162 $ 218 ===== ===== ====== ====== Residences Operating 6 6 5 5 Units Operating 174 174 137 137 Average Occupancy Rate 98.1% 98.6% 99.1% 99.3%
9 THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996. Revenues. For the three months ended June 30, 1996, revenues were $3,742,000 compared to $793,000 in the three months ended June 30, 1995, an increase of $2,949,000 or 372%. The Company had opened or received certificates of occupancy on 46 residences as of June 30, 1996, of which 31 had operating results for the quarterly period compared to six in the corresponding 1995 period. For the six residences which had operated for the entire quarter for both June 30, 1996 and June 30, 1995, revenue increased by $105,000, or 13.2% from the $793,000 in the second quarter of 1995. This increase was primarily attributable to increases in rental rates and change in service rates due to changes in tenant level of care as average occupancy was approximately 98% for both periods. The remaining $2,844,000 of the increase was due to the 25 new residences which began operating subsequent to April 1, 1995. Residence Operating Expenses. Residence operating expenses were $2,340,000 in the three months ended July 30, 1996 compared to $473,000 in the corresponding 1995 period, an increase of $1,867,000, or 394%. For the six residences that operated for the entire second quarter of 1995 and 1996, residence operating expenses were $510,000, and increase $18,000, or 3.7%, from the $492,000 of residence operating expenses in the second quarter of 1995. Expenses were relatively flat for these six residences because the residences operated at 98% occupancy for each of the periods. The remaining $1,849,000 of the increase was due to the 25 new residences which began operating subsequent to April 1, 1995. Corporate, General and Administrative. Corporate, general and administrative expenses were $393,000 in the three months ended June 30, 1996 compared to $232,000 in the corresponding 1995 period, an increase of $161,000, or 69.4%. Corporate, general and administrative expenses increased due to the expansion of the corporate offices and increased activity due to the number of operating residences. Building Rentals. Building rentals increased to $935,000 in the three months ended June 30, 1996 from $196,000 during the corresponding 1995 period. This increase was due to the increased number of sale and leaseback transactions completed by the Company from July of 1995 through June of 1996. The Company had 29 operating leases as of June 30, 1996 compared to four at June 30, 1995. The following schedule presents the timing of leases entered into by the Company.
Number of Leases Completed Date ----------------------------- -------------------- 3 Fourth Quarter, 1994 1 First Quarter, 1995 5 Fourth Quarter, 1995 9 First Quarter, 1996 11 Second Quarter, 1996
Depreciation and Amortization. Depreciation and amortization expense was $167,000 in the three month period ended June 30, 1996 compared to $41,000 in 1995, an increase of $126,000, or 307%. This increase in depreciation and amortization was directly related to the 25 new residences that opened subsequent to April 1, 1995. Depreciation and amortization expense for the six residences, (two of which were owned) which operated for the entire second quarter of 1995 and 1996, were essentially flat. 10 Interest and Other(income)/expense - net. Interest and Other (income) expense - net was ($27,000) for the three month period ended June 30, 1996 compared to ($104,000) in the corresponding 1995 period, a change of $77,000. Interest income decreased $80,000 in the 1996 period due to the Company's utilization of cash arising from the initial public offering for development activities. Interest expense decreased $3,000 in the 1996 period, due to regularly schedule principal payments on loans the Company has with the State of Oregon. Total interest expense for the Company for the three months period ended June 30, 1996 is $603,000, of which $583,000 has been capitalized due to the Company's development schedule and construction in process. The Company had an increase of $82,000 in other income due to a gain on sale at a parcel of land in Washington. Net Income (Loss). The net income during the second quarter of 1996 was $16,000 compared to a net loss of $45,000 during the corresponding period in 1995. The Company has generated income due to the increased number of residences operating as compared to the corresponding period in 1995. This has been partially offset by the increase in corporate overhead, including additional staffing, necessary to accommodate the company's expansion plan. SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996. Revenues. For the six months ended June 30, 1996, revenues were $6,492,000 compared to $1,475,000 in the six months ended June 30, 1995, an increase of $5,017,000 or 340%. The Company operated 31 residences in the 1996 period compared to 5 in the corresponding 1995 period. The additional residences increased revenue by $4,919,000. The 5 residences in operation in both the 1995 and 1996 periods reported an aggregate increase in revenues of $98,000 or 7.4%. This increase was primarily attributable to increases in rental rates as average occupancy in both 1995 and 1996 was approximately 99%. Residence Operating Expenses. Residence operating expenses were $4,276,000 in the six months ended June 30, 1996 compared to $922,000 in the corresponding 1995 period, an increase of $3,354,000 or 364%. The change in operating costs corresponds with the increased revenues relating to the buildings operating in 1996 but not operating in the 1995 period. For the five residences that operated for 1995 and 1996, residence operating expenses were $797,000, a decrease $13,000, or 1.6% from the $810,000 of residence operating expenses in the corresponding period in 1995. Expenses were relatively flat for the five residences because the residences operated at 99% occupancy for each of the periods. The remaining $3,367,000 of the increase was due to the 25 new residences that opened subsequent to March 1, 1995. Building Rentals. Building rentals increased to $1,495,000 in the six months ended June 30, 1996 from $342,000 in 1995. The increase in building rentals is directly related to the increase in the number of leases entered into by the Company between July 1, 1995 and June 30, 1996. The Company had 29 operating leases at June 30, 1996 compared to four at June 30, 1995. Building rentals for the five residences which operated for the entire period of 1995 and 1996 were unchanged. 11 Depreciation and Amortization. Depreciation and amortization expense was $384,000 in the six month period ended June 30, 1996 compared to $80,000 in 1995, an increase of $304,000, or 380%. The increase in depreciation and amortization is directly related to the 25 new residences that opened subsequent to March 1, 1995. Depreciation and amortization expense for the five residences, (two of which were owned) which operated for the entire six month period in 1995 and 1996, was essentially flat. Interest and Other(income)/expense - net. Interest and Other(income)/expense - net was ($18,000) in the six months ended June 30, 1996 compared to ($260,000) in the corresponding 1995 period, a decrease of $242,000, or 93%. Interest income decreased $238,000 to $69,000 in the 1996 period. The primary reason for the decrease is due to the Company's utilization of cash arising from the initial public offering for development activities. Interest expense increased to $51,000 in 1996 from $47,000 in 1995, an increase of $4,000, or 8.5%. The increase is due to the additional loans with the State of Oregon and the interest on the $20 million convertible subordinated debentures. Total interest expense for the Company for the six months ended June 30, 1996 is $1,082,000, of which $1,031,000 has been capitalized due to the Company's development schedule and construction in process. The Company had an increase of $82,000 in other income due to a gain on sale of a parcel of land in Washington. Net Loss. Net loss was $171,000 in 1996 compared to $72,000 in 1995. The Company has decreased the net loss from prior year due to the increase in the number of stabilized operating facilities and on-going management of start-up costs on new residences. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1996, the Company had a negative working capital of $7.8 million. Included in this amount was approximately $6 million of draw requests that the Company received for the June development activity which was not payable until July 10. The Company completed a public offering of 2,096,250 shares of common stock at $19.00 per share and netted approximately $37.7 million in proceeds after deduction of underwriting discounts, commissions and other offering expenses on July 3, 1996. Net cash used for operating activities was approximately $3.7 million during the six month period ended June 30, 1996. The primary use of cash was $2.1 million which was used to reduce accounts payable and accrued expenses, $1.3 million in an increase in other assets related primarily to pre-opening costs on residences, $.2 million in other current assets primarily related to the posting of deposits for leaseback transactions. Net cash used in investing activities totaled $8.05 million during the six month period ended June 30, 1996. The primary use of cash was $45.7 million related to the development of new assisted living residences in Oregon, Washington and Texas. This was offset by proceeds of $38.3 million related to the sale and leaseback of 14 residences in Texas and 5 residences in Washington. Net cash provided by financing activities totaled $5.9 million during the six month period ended June 30, 1996 representing the proceeds from three loans with the State of Oregon Housing and Community Services Department. The Company intends to utilize current working capital resources to develop additional residences in 1996 and 1997. The Company intends to seek additional long-term financing through the Oregon Housing and Community Services Department (the "OHCS") and to the extent available, additional low-cost bond financing and sale and leaseback transactions in Washington, Texas, New Jersey and Ohio. As of June 30, 1996, the Company has started construction or had purchased land for development on 22 parcels of land in Oregon, Washington, Texas, Ohio and Idaho. The Company has also entered into agreements pursuant to which, it may purchase, subject to completion of due diligence and various other conditions, 29 undeveloped sites. In addition, the Company has entered into agreements to manage and or lease two 12 additional sites once construction has been completed. The Company expects these developments to open through the third and fourth quarter of 1996 and the first quarter of 1997. Capital expenditures for 1996 are estimated to approximate $72 million to $88 million, related primarily to the development of additional residences, of which approximately $46 million had been spent through June 30, 1996. The Company has entered into agreements with three real estate investment trusts for the sale and leaseback of 34 additional residences. The Company expects these sales to generate approximately $82 million in proceeds. Moreover, the Company anticipates being able to continue to utilize the State of Oregon tax-exempt bond program for its Oregon residences under development. The Company currently has an outstanding commitment from the Oregon tax-exempt bond program to provide approximately $1 million of financing for one residence and it has three applications under review which, if approved, will generate approximately $6.6 million in proceeds. As of June 30, 1996, the Company had invested excess cash balances in short- term certificates of deposit and U.S. Treasury securities. The Company intends to satisfy future capital requirements for its development activities by various means, including financing obtained from sale/leaseback transactions, permanent mortgage financing and long-term state bond financing and to the extent available, cash generated from operations. FACTORS THAT MAY AFFECT FUTURE RESULTS The Company operates in a rapidly changing environment that involves a number of risks, some of which are beyond the Company's control. The following discussion highlights some of these risks and other are discussed elsewhere herein or in other documents filed by the Company with the Securities and Exchange Commission. LIMITED OPERATING HISTORY; ANTICIPATED OPERATING LOSSES The Company has a limited operating history and prior to the quarter ended June 30, 1996 had reported substantial losses. There can be no assurance that losses will not occur in the future. The Company anticipates that each residence will have an operating loss (prior to depreciation, rent or interest, if any) of $10,000 during the first three to four months of operation. To the extent the Company sells a residence and leases it back or otherwise finances it within four months of the commencement of operations, the aggregate loss may increase by up to an additional $40,000. The Company currently plans to open 50 to 60 residences in 1996, of which 21 were opened during the first and second quarter of 1996. The Company estimates that the losses to be incurred during 1996 due to opening residences could range from $1.5 million to $3.0 million. The success of the Company's future operation is directly tied to the expansion of its operational base. There can be no assurance that the Company will not experience unforeseen expenses, difficulties, complications and delays in connection with the expansion of its operational base which could have a material adverse effect on the Company's financial condition and results of operations. NO ASSURANCE AS TO ABILITY TO DEVELOP OR ACQUIRE ADDITIONAL ASSISTED LIVING RESIDENCES. The Company's prospects for growth are directly affected by its ability to develop and to a lesser extent, acquire additional assisted living residences. The successful development of additional assisted living residences will involve a number of risks, including the possibility that the Company may be unable to locate suitable sites at acceptable prices or may be unable to obtain, or may experience delays in obtaining, necessary zoning, land use, building, occupancy, and other required governmental permits and authorizations. The Company is dependent upon these permits and authorizations to construct and 13 operate its residences and any delay or inability to obtain such permits could adversely affect the results of operations. The Company may also incur construction costs that exceed original estimates, may not complete construction projects on schedule and may experience competition in the search for suitable development sites. The Company relies on third-party general contractors to construct its new assisted living facilities. There can be no assurance that the Company will not experience difficulties in working with general contractors and subcontractors, which could result in increased construction costs and delays. Further, facility development is subject to a number of contingencies over which the Company will have little control and that may adversely affect project cost and completion time, including shortages of, or the inability to obtain, labor or materials, the inability of the general contractor or subcontractors to perform under their contracts, strikes, adverse weather conditions and changes in applicable laws or regulations or in the method of applying such laws and regulations. Accordingly, if the Company is unable to achieve its development plans, its business, financial condition and results of operations could be adversely affected. There can be no assurance that the Company will be successful in developing or acquiring any particular residence, that the Company's rapid expansion will not adversely affect its operations or that any residence developed or acquired by the Company will be successful. The various risks associated with the Company's development or acquisition of assisted living residences and uncertainties regarding the profitability of such operations could have a material adverse effect on the Company's financial condition and results of operation. NEED FOR ADDITIONAL FINANCING TO FUND FUTURE DEVELOPMENT AND ACQUISITIONS. To achieve its growth objectives, the Company will need to obtain sufficient financial resources to funds its development, construction and acquisition activities. There can be no assurance that adequate funding will be available as needed or on terms acceptable to the Company. A lack of available funds may require the Company to delay or eliminate all or some of its development projects and acquisition plans. GOVERNMENT REGULATION Health care is an area of extensive and frequent regulatory change. Changes in the laws or new interpretations of existing laws can have a significant effect on methods of doing business, costs of doing business and amounts of reimbursement from governmental and other payors. The Company at all times attempts to comply with all applicable fraud and abuse laws; however, there can be no assurance that administration or judicial interpretation of existing laws or regulations will not have a material adverse effect on the Company's operations or financial condition. The success of the Company will be dependent in part upon its ability to satisfy the applicable regulations and requirements and to procure and maintain required licenses. The Company's operations could also be adversely affected by, among other things, regulatory developments such as mandatory increases in the scope and quality of care to be afforded residences and revision in licensing and certification standards. There can be no assurance that federal, state or local laws or regulatory procedures which might adversely affect the Company's business, financial condition, results of operations or prospects will not be expanded or imposed. DIFFICULTIES OF MANAGING RAPID GROWTH The Company expects that the number of residences which it owns, leases or otherwise operates will increase substantially as it pursues its growth strategy. This rapid growth will place significant demands on the Company's management resources. The Company's ability to manage its growth effectively will require it to continue to expand its operational, financial and management information systems and to continue to attract, train, motivate, manage and retain key employees. If the Company is unable to manage its growth effectively, its business, financial condition and results of operations could be adversely affected. 14 SIGNATURES Pursuant to the requirements of Sections 13 or 15(d) the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ASSISTED LIVING CONCEPTS, INC. Registrant August 9, 1996 By: /s/ STEPHEN GORDON -------------------------- Name: Stephen Gordon Title: Chief Financial Officer 15 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30, 1996 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1996 APR-01-1996 JUN-30-1996 2,131 0 793 0 0 3,376 30,704 282 30,422 11,187 30,313 0 0 30 15,566 57,404 3,742 3,742 3,835 3,835 0 0 20 16 0 0 0 0 0 16 .06 .06
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