Item 1 - Business of the Company
The business of the Company is to provide asset management services and management advisory services, as well as equity and debt capital, to the healthcare industry, particularly residential healthcare services to the elderly. The Company has established financing activities in the United Kingdom, the Commonwealth of Australia and New Zealand. The Company also operates nursing homes under leasehold rights in the United Kingdom.
The Company has provided seed equity and debt capital to enable the establishment of operating or financing firms, identifying high quality management personnel and providing financial support to such companies. The objective of the Company is to invest in equity positions in such firms, to provide continuing support while such firms are not public, and to secure local capital as the major source of the growth capital for expansion and development of such firms. The result is to enable such firms to access capital markets in the locales in which services are provided.
The Company was established in November 1997 by Omega Healthcare Investors, Inc. (“Omega Healthcare”), a publicly traded REIT, which owns and finances healthcare operating facilities in the United States. The Company began initial operation as a separate entity on April 2, 1998, when Omega Healthcare distributed shares of the Company’s common stock to Omega Healthcare’s existing shareholders. At the same time, the Company undertook a primary offering and Omega Healthcare undertook a secondary offering of shares of the Company’s common stock. Omega Healthcare distributed 5.2 million shares, sold 2.8 million shares (of which 500,000 shares were sold for the account of the Company) and retained approximately 9.9% of the common shares then outstanding, together with 260,000 preferred shares, in exchange for the contribution to the Company of the following assets:
(a)
	33.375% of the ordinary shares in Principal Healthcare Finance 	Limited (“Principal-UK”), a Jersey corporation which 	is engaged in investing in long-term care facilities in the 	United Kingdom;
	(b) Warrants to purchase 10,556,361 shares of Principal-UK;
	(c) A subordinated debt note of Principal-UK in the amount 	of £15 million; and
	(d) Miscellaneous other net assets stated at a net carrying 	amount of $150,000.
Principal-UK is, as of the date of this report, the owner of 231 long-term care facilities, primarily nursing homes, subject to long-term, triple-net leases to 13 operating companies in the United Kingdom. Principal-UK’s revenues for the year ending August 31, 2001 totaled $67.8 million, assets totaled $532.0 million and net earnings totaled $4.4 million. Principal-UK has employed fixed-rate financing in which it attempts to match the term of assets and liabilities. Its rental agreements provide annual increases in rentals in 30-year terms, generally in accordance with the British consumer price index. Principal-UK has financed its activities through the issuance of long-term, fixed-rate securitized debt. Its initial securitization was issued in December 1997 in the amount of £150.0 million, repayable in the years 2025 and 2027. In March 1999, a second securitization was issued in the amount of £122.0 million, repayable in the years 2027 and 2029. Pursuant to a contract expiring on December 31, 2002 and asset management agreements continuing for the terms of the securitizations, the Company provides management services to Principal-UK for a fee equal to 0.9% of assets managed. Both securitizations have maturities that are consistent with the term of the leases with respect to the facilities financed.
As of August 31, 2001, Principal-UK has $69.1 million of mortgage, loan and subordinated notes payable past due, including $27.6 million due to the Company and an additional $11.8 million due by January 31, 2002. Principal-UK is currently in negotiations with its lenders, including the Company, to extend the maturity dates and terms of the notes. If Principal-UK is unable to extend the maturity dates and terms with these lenders, Principal-UK will look to (1) obtain alternative financing from other financial institutions, or (2) the potential sale of certain assets as sources of cash to repay the amounts outstanding under such
mortgage, loan and notes payable. Although Principal-UK continues to maintain its periodic payments requirements under the original terms of the above indebtedness, there can be no assurance that one or all of the affected lenders will not demand payment of such indebtedness immediately. This condition raises doubt about Principal-UK ’s ability to continue as a going concern. The Company’s financial statements do not include any adjustments to reflect the possible future effects on the recoverability of investments in and advances made to Principal-UK of $36.7 million at September 30, 2001 that may result from the outcome to the above uncertainty. The realization of the subordinated loans to and the Company’s investment in Principal-UK is dependent upon the resolution of this uncertainty. See Note 2 to the Company’s consolidated financial statements for further information.
In June 1998, the Company acquired 100% of the units of Assisted Living Unit Trust from FAI Insurances Limited, a life and health insurer in Australia, and its subsidiary, Premier Care Australia (Holdings) Pty Limited, and changed the name of the trust to Principal Healthcare Finance Trust (“Principal-Australia”). Principal-Australia is an Australian Unit Trust which owned, as of the date of acquisition by the Company, long-term nursing homes and assisted living units in New South Wales. Initial long-term financing of A$127.9 million was completed in October 1999. The amount is repayable in quarterly installments through 2027.
Principal-Australia triple-net leased its nursing homes and assisted living units to an affiliate of Moran Health Care Group Pty Limited (“Moran-Australia”), the largest operator of long-term care and assisted living facilities in Australia, for an initial term of 30 years. On November 12, 1998, Principal-Australia completed the first phase of a purchase and leaseback transaction, also with Moran-Australia, which encompassed 30 long-term care facilities in Victoria, New South Wales and Western Australia. In phase one of the transaction, an affiliate of Moran-Australia sold 25 homes to Principal-Australia for A$80.0 million and immediately leased them back for an initial 30-year term. Simultaneously, phase two of the agreement called for Principal-Australia to acquire, upon completion and rent-up to stabilized occupancy, five additional Victoria facilities from an affiliate of Moran-Australia for an aggregate purchase price of A$10.5 million. Phase two was completed in March 1999. As of September 30, 2001, Principal-Australia owns and leases 45 nursing facilities and 483 assisted living facilities in Australia and New Zealand. Pursuant to a contract expiring December 31, 2007 and an asset management agreement continuing for the term of the long-term financing referred to above, the Company provides management services to Principal-Australia for a fee equal to 0.9% of assets managed.
On October 31, 1999 the Company, through its wholly-owned subsidiary, Idun Health Care Limited (“Idun”), acquired the operating subsidiaries of Tamaris, plc, a nursing home operating company in the United Kingdom. The 48 subsidiaries acquired operated 119 nursing homes located throughout England, Scotland and Northern Ireland. The acquisition was accounted for under the purchase method of accounting. The fair market value of the net assets at the date of acquisition, in the opinion of management, was $7.2 million. Fixed assets included in the $7.2 million amount have been written down by $3.5 million as prescribed by accounting principles generally accepted in the United States, to report net assets equal to the purchase price.
The Company (until December 1, 2000) held approximately 47% of the outstanding common shares of Essex Healthcare Corporation (“Essex”) and an affiliate, Atrium Living Centers, Inc. an Atlanta-based private operator of skilled nursing facilities, which it acquired in connection with its initial establishment. Essex’s primary activities are in Ohio, where it operates 68 long-term care and assisted living facilities (approximately 4,200 beds). It also manages 55 facilities (approximately 2,800 beds) in Indiana, Wisconsin, Michigan and Texas. As of December 1, 2000, the Company’s investment in Essex, was sold to Essex for $325,000 in cash, which approximates its book value. The Company accounted for this investment using the equity method.
In August 1998, the Company acquired from a subsidiary of Principal-UK for £640,000 a 19.9% interest in Moran Health Care (UK) Limited (“Moran-UK”), the sole shareholder of Baneberry Healthcare (“Baneberry”), a United Kingdom operating company engaged in the business of providing healthcare services in Northern Ireland and leases its facilities from Principal-UK. Baneberry was previously financed by
Principal-UK. Moran-UK is an affiliate of Moran-Australia, the operator of most of the long-term care facilities in Australia that are owned by Principal-Australia. On June 30, 2001, the Company evaluated the recoverability of its 19.9% investment in Moran-UK, which is accounted for under the cost method. Based on an analysis of the future cash flow expected to be received from Moran-UK, the Company expensed the carrying value of its investment in Moran-UK of $2.7 million. In addition, the Company had various loans and related accrued interest to Moran-UK which were deemed to be unrecoverable for which the Company provided a bad debt provision of $399,000 (included in general, administrative and other expenses). On December 1, 2001, Principal-UK appointed Receivers to administer the operations of certain subsidiaries of Moran-UK, when Moran-Australia, the 80.1% shareholder, withdrew its financial support. Principal-UK expects to assign to another nursing home operator the leases on its facilities previously operated by Moran-UK.
Employees
At December 14, 2001, the Company employed eleven persons in its operating office in London, England, three persons in its operating office in Sydney, Australia, and two persons at the Company’s executive offices in Ann Arbor, Michigan. Idun employs approximately 7,800 employees in the nursing home operations throughout the United Kingdom. The Company believes that its relationship with its employees is satisfactory.
Services Agreements
Pursuant to the provisions of a services agreement between Omega Healthcare and the Company in the years 2000 and 1999, indirect costs incurred by Omega Healthcare, including compensation of shared executive officers and related support personnel, and costs incurred by Omega Healthcare for rent, insurance, telephone, utilities, supplies, maintenance and travel, were allocated to the Company based upon the relationship of assets under the Company’s management to the combined total of those assets and Omega Healthcare’s assets. Assets and costs in the formula were on a one-quarter lag basis. Such allocations were based on estimates and formulas that management believed to be reasonable. In July 2000, the Company and Omega Healthcare had negotiated a new arrangement for a quarterly fee of $37,500 which excludes previously provided services, most significantly, those of shared executives. This quarterly fee was amended again in November 2000 to $32,500 per quarter. Incurred expenses for the years ending September 30, 2001, 2000 and 1999 were approximately $132,000, $544,000 and $768,000 respectively.
Investment Objectives
The investment objectives of the Company continue to be:
	1. To extend its franchise value by providing and financing 	long-term care services to the elderly.
2.
	To expand its asset management business by establishing new 	financing entities and establishing relationships with strong 	operating companies to extend and expand assets under management.
3.
	To expand the Company’s ability to provide financial 	capital to develop, expand and consolidate nursing home 	operating companies, primarily outside the United States.
4.
	To grow the capital value of the Company through prudent use of 	leverage, extension of its franchise value and the application 	of the intellectual capital of the Company to investment 	opportunities in Europe and Australia.
As previously announced, the Company has undertaken a process of exploring strategic alternatives, and has initiated discussions with Principal-UK regarding a possible business combination between the two companies. There can be no assurance any such transaction will be arranged. There is no expectation or intent in the near-term to pay a dividend on common stock.
Financial information about foreign and domestic operations.
The information required by this item is incorporated herein by reference to Note 13 the “Business Segment Information” on page of the Company’s consolidated financial statements.
Regulation of the Healthcare Industry
The Company will invest in entities which own healthcare facilities principally outside of the United States. Accordingly, the Company does not intend to diversify its investments to reduce the risks associated with investment in the healthcare industry. Future investments by the Company may be on terms or conditions less favorable than the terms applicable to the Company’s current investments. The operation of healthcare facilities is subject to substantial regulation. In addition to other laws and regulations with which the Company will be required to comply, the Company will be subject to laws that govern financial arrangements between healthcare providers. Any failure to comply with these laws or regulations could have an adverse effect on the operations of the Company.
Healthcare is an area of extensive governmental regulation and frequent regulatory change. Operating companies in which the Company invests, as well as the lessees and mortgagors of Principal-UK, Principal-Australia and similar companies are and will continue to be subject to extensive regulation. Changes in laws or regulations or new interpretations of existing laws or regulations can have a dramatic effect on the healthcare industry with respect to methods of doing business, costs of doing business and revenues. Principal-UK and Principal-Australia are attempting to develop and market a method of financing for healthcare properties which is not, at present, widely accepted in the United Kingdom, Australia or elsewhere, and the business of the Company may not develop and grow as the Company anticipates.
The operating results of the healthcare facilities underlying the investments of Principal-UK, Principal-Australia and operating companies in which the Company invests will depend on various factors over which the Company will have no control and which may affect the present or future cash flows of the Company. Those factors include, without limitation, general economic conditions, changes in supply of, or demand for, competing long-term healthcare facilities, changes in occupancy levels, the ability of the lessees and mortgagors of Principal-UK, Principal-Australia and similar companies in which the Company invests through rate increases or otherwise to absorb increases in operating expenses, changes in governmental regulations and changes in planning (zoning) regulations.
A significant portion of the revenues of operating companies, including the lessees of Principal-UK, Principal-Australia and similar companies in which the Company invests, will be dependent upon payments from third party payors, including private insurers and local and national governments. The levels of revenues and profitability of such lessees, mortgagors and operating companies may be affected by the continuing efforts of third party payors to contain or reduce the cost of healthcare. Medical advances and changes in the method of providing long-term healthcare services may significantly change the healthcare needs of the elderly and thereby reduce the demand for long-term healthcare facilities. Likewise, such advances and changes may make obsolete the healthcare properties owned or financed by Principal-UK, Principal-Australia and similar companies in which the Company invests.
Although Principal-UK plans to increase the number of healthcare operators it finances, currently over 50% of Principal-UK’s rents are derived from rent payments received from four operators, including Idun and Moran-UK. Principal-Australia also plans to increase the number of healthcare operators it finances, but presently most of its assets are operated by and leased to affiliates of Moran-Australia. Thus, the results of operations and financial condition of Principal-UK and Principal-Australia will be dependent upon the ability of these tenants to meet their obligations under their agreements with Principal-UK and Principal-Australia.
Healthcare services, particularly those for the elderly outside the United States, often have been provided by government or by not-for-profit organizations, and the ability of the Company to extend its financing and investment activities is premised upon additional changes in the way in which healthcare services for the elderly will be provided in such countries as the Company may invest. While the United Kingdom and the Commonwealth of Australia have been advanced in permitting and encouraging the private for-profit sector to develop healthcare services, there is no assurance that such encouragement and permission will be available in other countries in which the Company may desire to invest.
No assurance can be given that a lessee will exercise any option to renew its lease upon the expiration of its term. In such an instance, the Company may not be able to locate a qualified purchaser or qualified
replacement tenant for the healthcare properties in question, and as a result it would lose a source of revenue while remaining responsible for payment of its obligations incurred in financing such properties.
Directors and Executive Officers of Omega Worldwide
Set forth below is information as of December 18, 2001 regarding (i) current Directors of the Company, who will serve until the term expires at the indicated annual meeting of shareholders or until their successors are elected, and (ii) the current executive officers of the Company, who are elected to serve at the discretion of the Board of Directors.
Mr. Bailey was the Chief Executive Officer and President of the Company from April 1998 to July 2000. Mr. Bailey has been a Director of the Company since its formation in November 1997. Mr. Bailey served as President and Chief Executive Officer of Omega Healthcare until June 2000, as well as a Director of Omega Healthcare since its formation in 1992, until June 2000, and he served as Chairman of the Board of Directors of Omega Healthcare from 1995 to June 2000. Prior to forming Omega Healthcare, he was a Managing Director of Omega Healthcare Capital, a healthcare investment partnership, from 1986 to 1992. Mr. Bailey was formerly a Director of Evergreen Healthcare, Inc., which was a NYSE listed company engaged in the operation of long-term healthcare facilities, and of Vitalink Pharmacy Services, Inc., a NYSE listed company, and the operator of institutional pharmacies serving the long-term care industry in the United States.
Mr. Eden has been a Director of the Company since April 1998. He was elected Chairman of the Board of the Company in July 2000. He is President and principal owner of Eden & Associates, Inc., which provides consulting services to the senior living and long-term care industries. He is also President and principal owner of Senior Living Properties, LLC, and serves as Chairman and Chief Executive Officer of Oakwood Living Centers, Inc., which owns and operates 7 nursing homes in Massachusetts and Virginia. From 1976 to 1992, he held various positions in healthcare at Marriott Corporation ultimately, as Executive Vice President and General Manager of its Senior Living Services Division. Mr. Eden is also a Director of Alliance for Aging Research and United Vanguard Homes. Mr. Eden was a Director Omega Healthcare until July 2000.
Mr. Flaherty joined Omega Healthcare in 1996 and was appointed Vice President-International of Omega Healthcare and Chief Executive of Omega (UK) Limited in January 1997. Mr. Flaherty was appointed Chief Operating Officer of the Company in April 1998 and President from July 2000, until September 2001, when he ceased to be an employee. He has been a Director of the Company since July 2000. Before he joined Omega Healthcare, Mr. Flaherty was Chairman of Black Rock Capital Corporation, a leasing and merchant banking firm he founded in 1994. From April 1991 until December 1993, Mr. Flaherty was Managing Partner of Pareto Partners, a London based investment management firm. Prior to 1991, he was employed by American Express Bank Ltd. in London and Geneva in a number of senior management capacities and by State National Bank of Connecticut and its successor, The Connecticut Bank & Trust Co.
Mr. Franke has been a Director of the Company since April 1998. He is Chairman and principal owner of Cambridge Partners, Inc., an owner, developer and manager of multifamily housing in Grand Rapids and Ann Arbor, Michigan. He is also the principal owner of private healthcare firms operating in the United States and the United Kingdom and a private hotel firm in the United Kingdom. Mr. Franke has been a Director of
Omega Healthcare since its formation in 1992, and since Principal-UK’s formation in 1995, Mr. Franke has been a Director of Principal-UK.
Dr. Anil K. Gupta has been a Director of the Company since July 7, 1998. He is Professor of Strategy, Organization and International Business at the Robert H. Smith School of Business, The University of Maryland. He holds a Doctor of Business Administration from Harvard Business School. Dr. Gupta served as a director of Vitalink Pharmacy Services, Inc. from 1992 to 1998. Recipient of numerous scholarly awards, he also provides consulting and executive training to a number of multinational companies.
Mr. Gosling joined the Company in June 1999 as Finance Director of Omega (UK) Limited. From 1999 to 2001 he was also was also Finance Director of Idun. He was appointed Vice President and Treasurer in April 2001. From 1995 to 1999 he was Group Corporate Finance Manager at Heron International, a large UK private property group. Previously he was with NM Rothschild & Sons, a UK investment bank, and Price Waterhouse.
Mr. Kloosterman has been a Director of the Company since April 1998. He also has been a Director of Omega Healthcare since its formation in 1992 and was a Managing Director of Omega Healthcare Capital from 1986 to 1992. Mr. Kloosterman has been involved in the acquisition, development and management of commercial and multi-family properties since 1978. He has been a senior officer of LaSalle Partners, Inc., and in 1985 he formed Cambridge Partners, Inc., where he serves as President. At Cambridge, he has been involved in the development and management of commercial, apartment and condominium projects in Grand Rapids and Ann Arbor, Michigan and in the Chicago area.
Mr. Korman has been a Director of the Company since April 1998. He is Chairman of the Board of Trustees of Philadelphia Health Care Trust, a private foundation. He formerly was President, Chief Executive Officer and Director of MEDIQ Incorporated (health care services) from 1977 to 1995. Mr. Korman has been a Director of Omega Healthcare since 1993 and also is a Director of the following public companies: The New America High Income Fund (financial services), The Pep Boys, Inc. (auto supplies), and Kramont Realty Trust (real estate investment trust), and NutraMax Products, Inc. (consumer health care products).
Mr. Storey joined the Company in January 1998 as Director for Omega (UK) Limited. He was appointed Vice President and Secretary in April 2001. Previously he was a senior lawyer in the commercial property department of Simmons & Simmons, Principal-UK’s legal advisor and one of London’s largest law firms.
Todd P. Robinson was appointed Chief Executive Officer and Director on July 25, 2001 and resigned as Chief Executive Officer and Director on December 17, 2001. The Company is currently conducting a review of candidates for a new Chief Executive Officer.
The Company believes that all filings required to be made pursuant to Section 16(a) of the Securities Exchange Act of 1934 were timely made.
Item 2
Item 2 - Properties
At September 30, 2001, the Company’s owned property consists of two purchased nursing homes located in the United Kingdom, operated by subsidiaries of Idun. Subsidiaries of Idun are the tenants of 127 nursing homes located throughout the United Kingdom.
Item 3
Item 3 - Legal Proceedings
There were no legal proceedings pending as of September 30, 2001, or as of the date of this report, to which the Company is a party or to which the properties are subject, other than those incurred in the normal course of operating the Idun nursing homes. In the opinion of management, the resolution of these cases will not result in a material adverse impact to the Company.
Item 4
Item 4 - Submission of Matters to a Vote of Security Holders
No matters were submitted to shareholders during the last quarter of the year covered by this report.
PART II
Item 5
Item 5 - Market for Registrant’s Common Equity and Related Shareholder Matters
The Company’s shares of common stock are traded on the NASDAQ National Market System under the symbol OWWI. The following tables sets forth, for the periods shown, the high and low closing prices reported on the NASDAQ National Market System:
The closing price quoted on the NASDAQ National Market System on December 14, 2001 was $1.60 per share. As of December 14, 2001, there are 12,354,553 shares of common stock outstanding with 2,000 registered holders and approximately 12,000 beneficial owners. The Company did not pay any dividends on its common stock during fiscal year 2001 or fiscal year 2000. The Company does not expect to pay any dividends in the near term on its common stock.
Item 6
Item 6 - Selected Financial Data
The following selected financial data should be used in conjunction with the Company’s consolidated financial statements appearing elsewhere herein (In thousands, except per share data):
Item 7
Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
“Safe Harbor” Statement Under the United States Private Securities Litigation Reform Act of 1995. Statements that are not historical facts contained in Management’s Discussion and Analysis are forward-looking statements that involve risks and uncertainties that could cause actual results to differ from projected results. Some of the factors that could cause actual results to differ materially include: The financial strength of the operators of the facilities owned by the Company’s investees as it affects their continuing ability to meet their obligations under the terms of the lease agreements; changes in the operators or ownership of operators; government policy relating to the healthcare industry, including changes in the reimbursement levels; Idun’s and other operators’ continued eligibility to participate in the government-sponsored payment programs; changes in reimbursement by other third-party payors; occupancy levels at the facilities; the availability and cost of capital of the Company and its investees; the strength and financial resources of competitors of the Company and investees; the ability of investees to make additional real estate investments at attractive yields; and the ability of investees to obtain debt and equity capital at reasonable costs.
Following is a discussion and analysis of the Company’s consolidated results of operations, financial condition and liquidity and capital resources. The discussion should be read in conjunction with the audited consolidated financial statements and notes thereto.
Results of Operations
When the Company was formed, it generated revenues from three primary sources: (1) fee income from providing investment advisory and management services; (2) interest income from providing financing to companies in the healthcare and healthcare financing industries; and (3) equity in earnings of companies in the healthcare and healthcare financing industries. In the first quarter of fiscal year 2000, the Company added a fourth significant source of revenue when it acquired, through its wholly-owned subsidiary, Idun, then 119 nursing homes in the United Kingdom. Company results for the year ended September 30, 2001 include a full year of Idun’s operations, while results for the year ended September 30, 2000 include eleven months of Idun’s operations since the date of acquisition.
Prior to April 1, 1999, Principal-Australia was reported on a consolidated basis; currently Principal-Australia is 47% owned by the Company, and is reported under the equity method.
Revenues
Patient services revenue from Idun’s operations for the fiscal year 2001 was $140.2 million and $134.7 million for the eleven-months ending September 30, 2000. Occupancy grew to 90.7% at year-end compared to 90.5% last year-end. The improvement is the result of the continued improvement in the occupancy rate of the homes located in England, which have historically had lower occupancy than those homes in Scotland and Northern Ireland. Idun is committed to its marketing efforts and improving the operations of the homes under management in order to become profitable in the near future.
Fee income from Principal-UK was $4.2 million for the fiscal year 2001, compared to $5.0 million and $4.9 million, respectively, for the two prior fiscal years. The terms of the Company’s agreement with Principal-UK call for a fee equal to 90 basis points multiplied by the value of Principal-UK invested assets under management by the Company as computed using UK GAAP. Average assets under management at Principal-UK were £303.0 million, £305.0 million and £283.0 million for fiscal years 2001, 2000 and 1999, respectively. The decrease in fees in the current year is the result of the reduced value of the British pound sterling versus the US dollar. At year-end, assets under management stood at £282.0 million. The fee agreement with Principal-UK is scheduled to expire on December 31, 2002. The Company’s underlying asset management and advisory contracts with the Trustees of Principal-UK’s bonds continue on similar terms to the fee arrangement with Principal-UK until maturity of the bonds between 2025 and 2029.
Fee income from Principal-Australia was $1.2 million for the fiscal year 2001, compared to $1.0 million for the fiscal year 2000 and $405,000 for the fiscal year 1999. Prior to April 1, 1999, Principal-Australia fees were eliminated as a result of consolidation. The terms of Principal-Australia’s agreement call for a fee equal to 90 basis points multiplied by the value of Principal-Australia’s assets under management by the Company, as computed under Australian GAAP. Average assets under management in Australia increased to A$221.0 million, for the year, compared to A$180.0 million and A$119.0 million for the previous two years. Principal-Australia’s assets under management at year-end were A$225.0 million.
Interest income from Principal-UK was $3.7 million for fiscal year 2001, compared to $4.6 million and $4.8 million, respectively, for the two prior fiscal periods. Interest income is earned on £15.0 million of subordinated debt and temporary cash advances as required by Principal-UK. The subordinated debt with Principal-UK matured on June 29, 2001 and the Company is currently in negotiations to extend the maturity date and terms of the subordinated debt. Additionally since June 29, 2001, the interest rate for the subordinated debt has been 15.93%. Prior to June 29, 2001, the interest rate was at 12.93% from July 1, 2000 to June 29, 2001, and 12.55% from July 1, 1999 to June 30, 2000. Commencing March 5, 2001 the interest on temporary advances is at 9.00% on the first £4.3 million of advances (approximately $6.1 million) and 15% on the advances in excess of £4.3 million, with the maximum temporary advance limit of £7.0 million (approximately $10.0 million). Prior to March 5, 2001, interest on the temporary advances was fixed at 9.25%. Average balances outstanding were £5.1 million, £10.2 million and £11.0 million for the fiscal years 2001, 2000 and 1999, respectively.
During 2001, the Company terminated one of its currency hedges resulting in net gains of $528,000, while the underlying receivables and cash, which were no longer hedged, required a write-up adjustment of $179,000, resulting in a net foreign currency exchange gain of $707,000. There are no material amounts of exchange gains or losses during the fiscal years ended September 30, 2000 and 1999, respectively.
During 2001, the Company recognized a $438,000 gain as a result of recording the fair value of its foreign currency forward contracts, as of September 30, 2001. This gain is included in other income.
Rental income in fiscal year 1999 relates to the period when Principal-Australia was a consolidated entity. The rental income was a result of the consolidation of six-months’ of Principal-Australia activity in fiscal year 1999.
Expenses
Cost of patient services is incurred in running the Idun nursing homes in the United Kingdom. For the fiscal year 2001 it was $142.4 million and for the eleven-months ended September 30, 2000 was $139.7 million. Minimum wage increases and increased costs of temporary employee services and overtime have pushed costs up faster than government-determined fees. In addition, the long-term nature of the Company’s operating leases, with scheduled rent increases, results in significant ($3.4 million and $3.6 million for fiscal years 2001 and 2000, respectively) non-cash rent expense under accounting principles generally accepted in the United States (“US GAAP”). The Idun nursing homes were unprofitable under previous management. The Company has made progress during the last twenty-three months and expects to further streamline operations and improve management practices in the year ahead. Under accounting principles generally accepted in the United Kingdom (“UK GAAP”), Idun in fiscal year 2001 had an operating profit (before interest) of £979,000 (approximately $1.4 million).
The total direct cost of asset management, declined by $91,000 from the comparable period last year. The increase in general, administrative and other expenses in the current year is $1.4 million from the comparable period last year. This year’s increase was attributable to four areas: (1) Increase in legal expense of $643,000 was due to the legal expenses incurred in negotiations between the Company and Principal-UK and other potential purchasers of the Company’s assets; (2) Increase in consulting expenses of $494,000 as the Company hired an investment banker to provide financial advice in connection with the potential sale, merger, consolidation or other business combinations during the current year; (3) Increase in audit and tax expense of $244,000 due to their involvement in advising on the potential restructuring of the Company’s corporate and tax structure during the year; and (4) Increase in Director fees and director expenses of $315,000, due to the increased number of meetings during the year. These increases were partially offset by the decline of expenses allocated to the Company from Omega Healthcare in the current year of $412,000. This decline was the result of certain services previously provided by shared executives, legal counsel and personnel, which were eliminated or reduced significantly last July 1, 2000.
Interest expense in the current year decreased as the result of the Company paying off its $4.8 million bank credit agreement in June 2001.
Non-recurring expenses in the current year were $924,000, compared to $497,000 in the prior year. Non-recurring expenses represent costs incurred in pursuing strategic alternatives and analyzing issues associated with the previously announced offer of a third-party to purchase the Company’s investment in Principal-UK, which has subsequently been withdrawn.
Other
Equity earnings of Principal-UK decreased to $1.4 million in the current year from $1.5 million in the prior year. The Company’s ownership percentage in Principal-UK has remained constant at 33.375%. The decreased in income is due to the widening losses in Principal-UK’s care home operation subsidiary and the decline in value during fiscal year 2001 of the British pound sterling in relation to the U.S. dollar. Equity earnings of Principal-Australia decreased to $346,000 in the current year from $485,000 in the prior year. The Company’s ownership percentage in Principal-Australia has remained at 47% in fiscal year 2001 and 2000.
The decreased in income is due to increases in operating expenses of Principal-Australia and the decline in value during fiscal year 2001 of the Australian dollar in relation to the U.S. dollar.
During the current year, Idun disposed of two of its healthcare properties resulting in a loss of $408,000. Also in fiscal year 2001, the Company evaluated the recoverability of its 19.9% investment in Moran-UK, which is accounted for under the cost method. Moran-UK operated nursing home facilities leased from Principal-UK and located in the United Kingdom. Based on an analysis of the future cash flow expected to be received from Moran-UK, the Company expensed the carrying value of its investment in Moran-UK of $2.7 million.
The Company’s effective tax rate on a year-to-date basis varies from the federal statutory rate of 34% due to the benefit available from foreign tax credits on equity in earnings of Principal-UK which is reported after UK tax expense.
Liquidity and Capital Resources
All of the Company’s $4.1 million of outstanding debt at year-end is the obligation of Idun. The Company repaid in full its $4.8 million debt with Fleet Bank, NA, and Harris Trust and Savings Bank on June 29, 2001 and has no other debt outstanding as of September 30, 2001. The Company anticipates the need to invest approximately $1.6 million of additional capital in Idun in order to cover operations and fund required capital improvements over the next fiscal year. The Company has sufficient cash on hand and expects cash from fees and interest income net of expense to be approximately $4.1 million on an annual basis.
As of August 31, 2001, Principal-UK has $69.1 million of mortgage, loan and subordinated notes payable past due, including $27.6 million due to the Company and an additional $11.8 million due by January 31, 2002. Principal-UK is currently in negotiations with its lenders, including the Company, to extend the maturity dates and terms of the notes. If Principal-UK is unable to extend the maturity dates and terms with these lenders, Principal-UK will look to (1) obtain alternative financing from other financial institutions, or (2) the potential sale of certain assets as sources of cash to repay the amounts outstanding under such mortgage, loan and notes payable. Although Principal-UK continues to maintain its periodic payments requirements under the original terms of the above indebtedness, there can be no assurance that one or all of the affected lenders will not demand payment of such indebtedness immediately. This condition raises doubt about the Principal-UK’s ability to continue as a going concern. The Company’s financial statements do not include any adjustments to reflect the possible future effects on the recoverability of investment in advances made to Principal-UK of $36.7 million at September 30, 2001 that may result from the outcome to the above uncertainty. The realization of the subordinated loans to and the Company’s investment in Principal-UK is dependent upon the resolution of this uncertainty.
The Company does not anticipate any changes in the availability or terms of its financing in the near future. In addition, the Company does not anticipate any increase in costs or change in the availability in its insurance coverage.
Impact of Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statements of Financial Accounting Standards No. 141, Business Combinations (“FAS 141”), and No. 142, Goodwill and Other Intangible Assets (“FAS 142”). FAS 141 eliminated the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001 and is effective for any business combination accounted for by the purchase method that is completed after June 30, 2001. FAS 142, which includes the requirements to test goodwill and indefinite lived intangible assets for impairment rather than amortize them, will be effective for fiscal years beginning after December 15, 2001. The Company will adopt the FAS 142 effective October 1, 2001 and does not expect a material impact on the consolidated financial statements.
In October 2001, the FASB issued Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“FAS 144”). FAS 144 supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, however it retains the
fundamental provisions of that statement related to the recognition and measurement of the impairment of long-lived assets to be “held and used.” In addition, FAS 144 provides more guidance on estimating cash flows when performing a recoverability test, requires that a long-lived asset to be disposed of other than by sale (e.g. abandoned) be classified as “held and used” until it is disposed of, and establishes more restrictive criteria to classify an asset as “held for sale.” FAS 144 is effective for year-ends beginning after December 15, 2001, but the Company will adopt the FAS 144 effective October 1, 2001 and does not expect a material impact on the consolidated financial statements.
Item 7a.
Item 7a. Quantitative and Qualitative Disclosure about Market Risk
The Company is exposed to various market risks. Market risk is the potential loss arising from adverse changes in market interest rates and prices, such as short-term borrowing and foreign currency exchange rates. The Company does not enter into derivatives or other financial instruments for trading or speculative purposes. The Company enters into forward foreign currency contracts, principally to protect against currency fluctuations in its investments denominated in foreign currencies, thereby limiting the Company’s risk that would otherwise result from changes in exchange rates. At September 30, 2001, the Company had outstanding a British pound sterling forward currency contract to exchange £20.0 million for $31.8 million to mature on October 15, 2007, and an Australian dollar forward currency contract to exchange A$11.0 million for $6.7 million to mature on July 3, 2003. From time to time, the Company also may obtain forward currency contracts for its foreign currency exposure relative to temporary loans to Principal-UK and Idun, however at September 30, 2001, the Company had no such forward currency contracts. Because of the Company’s foreign exchange contracts, its sensitivity to foreign exchange currency exposure is considered partially mitigated. Most components of the Company’s income are earned in currencies other than the dollar and are subject to fluctuation.
Idun’s lease expense is subject to annual inflation adjustments, which would be partially offset by increased equity in earnings of Principal-UK as most of its leases have annual inflation adjustments and Idun leases a number of its facilities from Principal-UK.
The following table provides information about the Company’s notes payable and the sensitivity to changes in interest rates:
(1)
	The weighted average interest rates are based upon the rates in 	effect as of September 30, 2001. See Note 8 to the 	Company’s consolidated financial statements for additional 	information. If the interest rate increased on our variable rate 	debt by one percentage point, the annual interest expense would 	increase $410.
Item 8
Item 8 - Financial Statements and Supplementary Data
The consolidated financial statements and report of independent auditors are filed as part of this report on pages through.
Item 9
Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10
Item 10 - Directors and Executive Officers of the Registrant
Located in Part I as permitted by Instruction 3 to Item 401(b) of Regulation S-K.
Item 11
Item 11 - Executive Compensation
The information required by this item is incorporated by reference to the Company’s definitive proxy statement for the 2001 Annual Meeting of Shareholders, which is expected to be filed on or about January 27, 2002 with the Securities and Exchange Commission pursuant to Regulation 14A.
Item 12
Item 12 - Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference to the Company’s definitive proxy statement for the 2001 Annual Meeting of Shareholders, which is expected to be filed on or about January 27, 2002 with the Securities and Exchange Commission pursuant to Regulation 14A.
Item 13
Item 13 - Certain Relationships and Related Transactions
The information required by this item is incorporated by reference to the Company’s definitive proxy statement for the 2001 Annual Meeting of Shareholders which is expected to be filed on or about January 27, 2002 with the Securities and Exchange Commission pursuant to Regulation 14A.
PART IV
Item 14
Item 14 - Exhibits, Financial Statements, Financial Statement Schedules and Reports on Form 8-K.
(a)(1) Listing of Consolidated Financial Statements
(a)(2)
	Listing of Financial Statement Schedules. All schedules for 	which provision is made in the applicable accounting regulation 	of the Securities and Exchange Commission are not required under 	the related instructions or are inapplicable and, therefore, 	have been omitted.
(a)(3) Listing of Exhibits - See Index to Exhibits beginning on Page 15 of this report.
(b) Reports on Form 8-K - none filed in the quarter ended September 30, 2001.
(c) Exhibits - See Index to Exhibits beginning on Page 15 of this report.
(d)
	Financial Statement Schedules - The following 	consolidated financial statement schedule is included herein: 	None
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
	OMEGA WORLDWIDE, INC.
By:
	/s/ JAMES E. EDEN
	 _______________________________________
	 James E. Eden
Chairman of the Board
Dated: December 28, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities on the date indicated.
Report of Independent Auditors
Board of Directors
Omega Worldwide, Inc.
We have audited the accompanying consolidated balance sheets of Omega Worldwide, Inc. as of September 30, 2001 and 2000, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended September 30, 2001. 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 auditing standards generally accepted in the United States. 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 consolidated financial position of Omega Worldwide, Inc. at September 30, 2001 and 2000, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 2001, in conformity with accounting principles generally accepted in the United States.
	/s/ ERNST & YOUNG LLP
Chicago, Illinois
December 18, 2001
OMEGA WORLDWIDE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par values)
See notes to consolidated financial statements.
OMEGA WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
See notes to consolidated financial statements.
OMEGA WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except per share amount)
See notes to consolidated financial statements.
OMEGA WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
See notes to consolidated financial statements.
OMEGA WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001 and 2000
(Dollars in thousands, except for per share amounts)
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Omega Worldwide, Inc. (the “Company”) was formed to provide investment advisory and management services as well as equity and debt capital to the healthcare industry, primarily in Europe and the Pacific Rim. On April 2, 1998, the Company’s registration statement became effective, and it offered 3,750,000 shares of common stock to the public at $7.50 per share. The Company received $27,375, net of issuance costs of $750. Shares offered included 500,000 shares in a primary offering and 3,250,000 shares in a rights offering. Operations commenced upon the effectiveness of the initial public offering. Except for $1 invested by Omega Healthcare Investors, Inc. (“Omega Healthcare”) at the date of formation (November 1997), there were no cash flow activities of the Company from the date of formation to the date operations commenced.
Immediately prior to the offering of shares by the Company, Omega Healthcare contributed substantially all of its investment in Principal Healthcare Finance Limited (“Principal-UK”) to the Company. Assets contributed by Omega Healthcare, which were recorded by the Company at Omega Healthcare’s accounting basis, included a $23,805 subordinated loan to Principal-UK, 33.375% of the common stock of Principal-UK with a carrying value of $5,297, 10,556,361 warrants and other net assets totaling $150. Omega Healthcare also assigned its interest in a management agreement with Principal-UK in which the Company receives an annual fee of 0.9% of Principal-UK’s assets (as defined) for providing certain advisory services, which expire December 31, 2002. The Company’s underlying asset management and advisory contracts in respect of Principal-UK’s securitized assets continues through 2029. In exchange, Omega Healthcare received 8,500,000 shares of common stock and 260,000 shares of Class B preferred stock. Of the common stock received by Omega Healthcare, approximately 5,200,000 shares were distributed pro rata to Omega Healthcare’s shareholders, and approximately 2,300,000 were sold pursuant to the Company’s registration statement. As of the date of the stock distribution, Omega Healthcare retained approximately 9.9% of the Company’s common stock then outstanding.
Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of all material inter-company accounts and transactions. As described in Note 4, the Company’s wholly-owned subsidiary, Idun began its operations on October 31, 1999 and its financial results have been included in the consolidated statements of the Company from that date.
Prior to April 1, 1999, the Company owned 100% of Principal Healthcare Finance Trust (“Principal-Australia”). As more fully explained in Note 3, newly issued shares of Principal-Australia were issued to independent investors in 1999 resulting in the dilution of the Company’s ownership to 47%. Principal-Australia’s financial results prior to April 1, 1999 are included in the Company’s results on a consolidated basis, while Principal-Australia’s results after April 1, 1999 are included in the Company’s results using the equity method of accounting.
The Company reports the results of it’s equity investments for which it has over 20% ownership, but in which it does not hold a majority interest, using the equity method of accounting, using a one-month lag. Investments in companies over which the Company does not exercise control are recorded on the cost method.
Certain prior year amounts have been reclassified to correspond with the current year’s presentation.
Cash and Short-Term Investments
Short-term investments consist of highly liquid investments with a maturity date of three months or less when purchased. These investments are stated at cost, which approximates fair value.
OMEGA WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Restricted Cash
The Company’s wholly-owned subsidiary Idun has restricted cash of $1,822 supporting its debt (See Note 8). In addition, the Company has $389 of other restricted cash.
Plant, Property and Equipment
Plant, property and equipment owned by Idun is stated at cost. Depreciation expense is calculated using the straight-line method for financial reporting purposes over the estimated useful lives of the depreciable asset. Estimated useful lives of depreciable assets range from 3 to 7 years for furniture, fixtures and equipment, and 40 years for buildings. Depreciation expense related to Idun amounted to approximately $1,125 and $1,476 for fiscal years 2001 and 2000, respectively, and is included in direct cost of patient services in the consolidated statements of operations. During 2001, Idun disposed of two of its healthcare properties resulting in a loss of $408.
Revenue Recognition
Patient services revenue of Idun is recorded as the services are provided. Fee income is recognized as earned and is based on assets under management. Rental income is recognized on a straight-line basis over the initial terms of the related master lease. Such income includes periodic increases based upon predetermined formulas as defined in the master lease.
Direct Cost of Patient Services
Direct cost of patient services directly supports patient service revenue and includes all operating expenses, including depreciation, of Idun.
Straight-Line Rent Expense
Certain of the Company’s subsidiaries are the lessees of several long-term leases. Rent expense differs from cash rental payments and is recognized as the total rent payable over the initial term of the related lease amortized on a straight-line basis. Such expense includes the adjustment in the rental payments based upon predetermined minimum formulas as defined in the master lease and is reported as a component of direct cost of patient services
Non-Recurring Expense
As previously announced, the Company is actively exploring ways to boost shareholder value. The cost of legal advice related to the process and analyzing the previously announced offer by a third party to purchase the Company’s investment in Principal Healthcare Finance Limited totaled $924 and $497 for fiscal years ended September 30, 2001 and 2000, respectively.
Translation
Translation of currencies for foreign subsidiary financial information is computed pursuant to the provisions of Financial Accounting Standards Board Statement No. 52, which provides that balance sheet amounts are translated at the year end exchange rate and income statement amounts are translated at the average-period exchange rate. Gains and losses from settled foreign currency transactions are included in the determination of net income. To offset the risk of future currency fluctuations on receivables due from foreign subsidiaries and investments, the Company may enter into foreign exchange contracts to sell or buy currencies at specific rates and specific dates. During 2001, the Company terminated one of its currency hedges resulting in net gains of $528, while the underlying receivables and cash, which were no longer hedged, required a write-
OMEGA WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
up adjustment of $179, resulting in a net foreign currency exchange gain of was $707. There are no material amounts of exchange gains or losses during the fiscal years ended September 30, 2000 and 1999, respectively.
Financial Instruments
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 137 and SFAS No. 138, which established new accounting and reporting standards for derivative instruments (“FAS 133”). These rules require that all derivative instruments be reported in the consolidated financial statements at fair value. The fair value for all derivative contracts is included in other assets or other liabilities and will be recorded each period in earnings or other comprehensive income, depending on whether the derivative is designated and effective as part of a hedged transaction, and on the type of hedge transaction. Gains or losses on derivative instruments reported in other comprehensive income must be reclassified as earnings in the period in which earnings are affected by the underlying hedged item, and the ineffective portion of all hedges is recognized in other income (expense) in the statements of earnings in the current period. These new standards may result in additional volatility in reported earnings, other comprehensive income (loss) and accumulated other comprehensive income (loss). These rules became effective for the Company on October 1, 2000 and did not have a significant effect on the Company’s consolidated results of operations or financial position upon adoption.
The Company is exposed to market risk from changes in foreign currency exchange rates. The Company manages its exposure to these market risks through its operating, financing and investing activities and, when deemed appropriate, through the use of forward foreign exchange contracts.
The Company enters into forward foreign exchange contracts with in order to manage exposure related to certain investments denominated in British pound sterling and Australian dollars. The Company records changes in fair value of its forward foreign exchange contracts in other income or expense. The Company’s forward foreign exchange contracts are marked-to-market and unrealized gains and losses are included in current period net income (loss) and a component of other income (expense).
Prior to the adoption of FAS 133, the Company reported any gains or losses, on the contracts as offsets to any losses or gains, respectively, on certain investments dominated in British pound sterling and Australian dollars.
Stock Based Compensation
The Company grants stock options to employees and directors with an exercise price equal to the value of the shares at the date of the grant. In accordance with the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, compensation expense is not recognized for these stock option grants, because the exercise price of the options equals the market price of the underlying shares at the date of grant.
Accounting Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of the revenues and expenses during the period. Actual results could differ from those estimates.
Risks and Uncertainties
The Company’s results of operations are significantly dependent on the overall health of the long-term care industry in the United Kingdom. The long-term care industry is subject to external factors such as
OMEGA WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
government regulation, inflation, death rates and other health related issues. A decline in the long-term care industry could reduce occupancy rates, revenues and cash flow, which could adversely affect the operating results of the Company.
Impact of Recently Issued Accounting Standards
In July 2001, FASB issued Statements of Financial Accounting Standards No. 141, Business Combinations (“FAS 141”), and No. 142, Goodwill and Other Intangible Assets (“FAS 142”). FAS 141 eliminated the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001 and is effective for any business combination accounted for by the purchase method that is completed after June 30, 2001. FAS 142, which includes the requirements to test goodwill and indefinite lived intangible assets for impairment rather than amortize them, will be effective for fiscal years beginning after December 15, 2001. The Company will adopt the FAS 142 effective October 1, 2001 and does not expect a material impact on the consolidated financial statements.
In October 2001, the FASB issued Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“FAS 144”). FAS 144 supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, however it retains the fundamental provisions of that statement related to the recognition and measurement of the impairment of long-lived assets to be “held and used.” In addition, FAS 144 provides more guidance on estimating cash flows when performing a recoverability test, requires that a long-lived asset to be disposed of other than by sale (e.g. abandoned) be classified as “held and used” until it is disposed of, and establishes more restrictive criteria to classify an asset as “held for sale.” FAS 144 is effective for year-ends beginning after December 15, 2001, but the Company will adopt the FAS 144 effective October 1, 2001 and does not expect a material impact on the consolidated financial statements.
Comprehensive Income
Comprehensive income consists of the Company’s earnings before preferred stock dividends adjusted for the unrealized gains or losses on investments, net of tax and foreign currency translation adjustments.
NOTE 2 - PRINCIPAL HEALTHCARE FINANCE LIMITED (PRINCIPAL-UK)
As described in Note 1, the Company acquired 33.375% of Principal-UK’s voting ordinary shares in connection with the Omega Healthcare distribution/exchange. The Company accounts for its interest in Principal-UK using the equity method. Principal-UK has a fiscal year end of August 31; therefore, the equity in earnings of Principal-UK is recognized on a one-month lag. Principal-UK has real estate investments in long-term care facilities located in the United Kingdom that are operated by independent operators, subsidiaries of Principal-UK and Idun (see Note 4) and Moran Health Care (UK) Ltd. (“Moran-UK”) (see Note 5) through long-term leases.
The Company has a British pound sterling denominated subordinated loan receivable of $22.0 million and $23.8 million at September 30, 2001 and 2000, respectively from Principal-UK that were due June 29, 2001, and are now past due. The loan bears interest at a rate of 15.93% (12.93% through June 29, 2001) at September 30, 2001. In addition temporary unsecured advances to Principal-UK in the amount of $5,697, and $10,793, were outstanding at September 30, 2001 and 2000, respectively, with interest at 9.00% payable monthly. Included in interest income for the years ended September 30, 2001, 2000, and 1999 is $3,721, $4,628, and $4,761, respectively, related to advances to Principal-UK. The Company is currently in negotiations with Principal-UK to extend the maturity date and terms of the subordinated note receivable and temporary unsecured advances. The Company’s financial statements do not include any adjustments to reflect the possible future effects on the recoverability of investments in and advances made to Principal-UK of $36,689 at September 30, 2001 that may result from the outcome to the uncertainty of Principal-UK’s ability
OMEGA WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
to continue as a going concern described below. The realization of the subordinated loans to and the Company’s investment in Principal-UK is dependent upon the resolution of this uncertainty.
The following summarizes selected financial information of Principal-UK:
(1)
	Substantially all of Principal-UK’s real estate is pledged 	as collateral for Principal-UK’s debt agreements.
As of August 31, 2001, Principal-UK has $69,141 of mortgage, loan and subordinated notes payable past due, including $27,648 due to the Company and an additional $11,779 due by January 31, 2002. Principal-UK is currently in negotiations with its lenders, including the Company, to extend the maturity dates and terms of the notes. If Principal-UK is unable to extend the maturity dates and terms with these lenders, Principal-UK will look to (1) obtain alternative financing from other financial institutions, or (2) the potential sale of certain assets as sources of cash to repay the amounts outstanding under such mortgage, loan and notes payable. This condition raises doubt about the Principal-UK’s ability to continue as a going concern. Principal-UK’s financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classifications of assets or the amounts and classifications of liabilities that may result from the outcome to this uncertainty.
Although Principal-UK continues to maintain its periodic payments requirements under the original terms of the above indebtedness, there can be no assurance that one or all of the affected lenders will not demand payment of such indebtedness immediately. Additionally, there can be no assurance that Principal-UK will be in compliance with its financial debt covenants in future periods since Principal-UK’s future
OMEGA WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
financial performance is subject to various risks and uncertainties, including, but not limited to, the effects of increases in market interest rates from current levels; the risk of potential increases in vacancy rates and the resulting impact on Principal-UK’s revenue; and risks associated with refinancing Principal-UK’s current debt obligations or obtaining new financing under terms as favorable as Principal-UK has experienced in prior periods.
The effective tax rates are 35%, 37% and 44% for the years ended August 31, 2001, 2000 and 1999, respectively. These rates differ from the United Kingdom tax rate primarily because of the early recognition of straight-line rent income and the deduction of depreciation and amortization expense, which are not permitted for tax purposes in the United Kingdom. The Company’s proportionate share of Principal-UK’s earnings for the years ended August 31, 2001, 2000, and 1999 are approximately $1,485, $1,549 and $1,296, respectively. The Company has recorded a charge against its share of Principal-UK’s earnings of approximately $81, $81 and $73 for the years ended August 31, 2001, 2000 and 1999, respectively, representing amortization over a ten-year period of the excess of the Company’s investment in Principal-UK of approximately $771 over its proportionate share of Principal-UK’s underlying equity at the date of acquisition.
The Company has warrants to purchase 556,361 ordinary shares of Principal-UK expiring July 31, 2002 at an exercise price of £1.00 per share (approximately $1.46 per share at September 30, 2001) per share. These warrants have no value assigned at the date of issuance because the underlying securities were issued at their fair value at that date. However, the estimated fair value of these warrants at September 30, 2001 approximates $195. In determining the estimated fair value, the Company used a Black-Scholes pricing model with the following assumptions: risk free interest rate of 6%; a volatility factor of 10%; and an average life of six years from the date of grant.
NOTE 3 - PRINCIPAL HEALTHCARE FINANCE TRUST (PRINCIPAL-AUSTRALIA)
In June 1998 the Company acquired Assisted Living Unit Trust, an Australian property trust that owns nursing homes, for a cash investment of $3.0 million plus a loan of $6.2 million and a guarantee of the entity’s deferred purchase obligation of $30.0 million. Concurrent with the acquisition, the Assisted Living Unit Trust’s name was changed to Principal Healthcare Finance Trust (Principal-Australia). The investment in facilities approximated $30.0 million, which was paid in June 1999.
In April 1999, Principal-Australia sold 6,625,000 newly issued shares to Omega Healthcare and AMP Life Limited, as well as 875,000 additional shares to the Company. Prior to the issuance of these shares, the Company owned 100% of Principal-Australia. Issuance of the new shares reduced the Company’s ownership to 47% of shares outstanding. The transaction created a one-time gain on dilution of interest in Principal-Australia of $951, resulting in after tax earnings available to common shareholders of $628 or $0.05 per share.
As described in Note 1, the financial results of Principal-Australia prior to April 1, 1999 are included in the Company’s results on a consolidated basis, while Principal-Australia’s results after April 1, 1999 are included in the Company’s results using the equity method of accounting. Principal-Australia has a fiscal year end of August 31; accordingly, the equity in earnings of Principal-Australia is recognized on a one-month lag.
The Company provides management services to principal-Australia and receives an annual fee of 0.9% of Principal-Australia’s assets under management by the Company, as computed under Australian GAAP.
OMEGA WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following summarizes selected financial information of Principal-Australia:
NOTE 4 - IDUN HEALTH CARE LIMITED (IDUN)
On October 31, 1999 the Company, through its wholly-owned subsidiary, Idun, acquired the operating subsidiaries of Tamaris, plc. The 48 subsidiaries acquired operate 119 nursing homes located throughout England, Scotland and Northern Ireland. The acquisition was accounted for under the purchase method of accounting. Purchase consideration was approximately $1,933 (£1,075) in cash and Tamaris, plc. shares valued at $1,903. The fair market value of the net assets at the date of acquisition was, in the opinion of management, $7.2 million (gross assets of $45.1 million net of liabilities assumed of $37.9 million). Fixed assets included in the $7.2 million amount have been written down by $3.5 million as prescribed by GAAP to report net assets equal to the purchase price.
Public trading of the Tamaris stock was suspended on September 25, 1999, and trading did not resume prior to October 31, 1999 when shares were surrendered. Based on an interpretation of FASB Statement No. 115, management determined that the recording of the value of the Tamaris stock relinquished in the acquisition should be based on the last quoted price of the security rather than the fair value of the assets acquired. To meet this technical interpretation, a charge of $938 ($657, net of tax) was included in the Company’s income statement for the year ended September 30, 1999.
OMEGA WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Pro forma information for the Company, as if the Idun purchase had been made as of October 1, 1999, is as follows:
Pro forma operating results for the year ended:
Idun’s results are included in the Company’s consolidated results for the entire twelve-month period ended September 30, 2001. Idun has a fiscal year-end of August 31, 2001, therefore its results are recognized on a one-month lag.
The functional currency of Idun is British pound sterling. In accordance with FASB 52, the balance sheet amounts, are translated at the period end exchange rate and the income statement amounts are translated at the average exchange rate for the period.
NOTE 5 - OTHER INVESTMENTS
The Company (until December 1, 2000) held approximately 47% of the outstanding common shares of Essex, an Atlanta-based private operator of skilled nursing facilities. Essex’s primary activities are in Ohio. The Company accounted for this investment using the equity method. On December 1, 2000, the Company sold its interest in Essex for $325, which approximated book value. The Company’s proportionate share of Essex’s earnings for the years ended August 31, 2001 and 2000 are $26 and $10 respectively, and loss for the year ended August 31, 1999 of $282.
On June 30, 2001, the Company evaluated the recoverability of its 19.9% investment in Moran-UK, which is accounted for under the cost method. Moran-UK operates nursing home facilities leased from Principal-UK and located in the United Kingdom. Based on an analysis of the future cash flow expected to be received from Moran-UK, the Company expensed the carrying value of its investment in Moran-UK of $2,665. In addition, the Company had various loans and related accrued interest to Moran-UK which were deemed to be unrecoverable for which the Company provided a bad debt provision of $399 (included in general, administrative and other expenses). On December 1, 2001, Principal-UK appointed Receivers to administer the operations of certain subsidiaries of Moran-UK, when Moran-Australia, the 80.1% shareholder, withdrew its financial support. Principal-UK expects to assign to another nursing home operator the leases on its facilities previously operated by Moran-UK.
OMEGA WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 6 - FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company’s financial instruments are as follows:
Fair value estimates are subjective in nature and are dependent on a number of important assumptions, including estimates of future cash flows, risks, discount rates and relevant comparable market information associated with each financial instrument. The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts. Accordingly, the estimates presented above are not necessarily indicative of the amounts the Company would realize in a current market exchange.
The Company has forward foreign exchange contracts to manage currency risks associated with investments in Principal-UK and Principal-Australia. Pursuant to a ten-year British pound sterling currency swap agreement, the Company is obligated to exchange £20,000 for $31,740 on October 15, 2007. The Company is obligated to exchange A$11,000 at an average rate of US$ 0.6135 on July 3, 2003.
OMEGA WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 7 - INCOME TAXES
The components of pre-tax income and income tax provision (benefit) were as follows:
Income tax expense (benefit) differs from the amounts computed by applying the U.S. Federal income tax rate of 34% to earnings before taxes as follows for the years ended September 30, 2001, 2000 and 1999:
The tax basis of assets transferred from Omega Healthcare to the Company exceeded the book basis by approximately $36.0 million, resulting in a deferred tax asset of approximately $12.0 million. Due to the uncertainties in realizing this benefit, management has provided a valuation reserve against the full amount. As of September 30, 2001 net operating losses of $2,874 are available to offset future taxable income of Idun subject to UK taxes. The Company has recorded a deferred tax asset of $1,000 and $1,555 as of September 2001 and 2000, respectively related to the above net operating losses. During 2001, the Company recorded a valuation reserve provision of $579 against the above tax asset because the Company believes that they are not likely to be realized. The Company believes that is more likely than not that the remaining benefit of this loss carry over will be realized in future years.
OMEGA WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 8 - CREDIT FACILITIES
At September 30, 2001 and 2000, the Company’s outstanding indebtedness consists of the following:
1)
	The Company’s bank credit agreement has been repaid in 	full. Interest on borrowings under the agreement was at LIBOR 	plus 3.25% (9.91% interest at September 30, 2000). Omega 	Healthcare provided a guarantee to the banks in consideration of 	a fee of 1%, plus an annual 25 basis point facility fee. No 	further borrowings were made under this agreement.
2)
	Idun has a loan with a bank that is secured by the business and 	assets of a nursing home subsidiary and bears an interest rate 	of 2.5% above the bank’s base lending rate (8.37% and 8.50% 	interest at September 30, 2001 and 2000, respectively).
3)
	Idun has a loan with a bank that is secured by the business and 	assets of a nursing home company and bears a floating interest 	rate of LIBOR plus 2% (7.33% and 8.34% interest at 	September 30, 2001 and 2000 respectively). The loan 	requires quarterly principal and interest payments of 	approximately $160 through maturity.
4)
	Idun has a loan with a bank that is secured by the business and 	assets of a nursing home company and carries floating interest 	rate of LIBOR plus 2% (7.33% and 8.34% interest at 	September 30, 2001 and 2000, respectively). The loan 	requires quarterly principal and interest payments of 	approximately $25 through maturity.
5)
	Idun unsecured bank loan has been repaid in full. The interest 	on this loan is at the bank’s base rate less .5% (5.50% 	interest at September 30, 2000).
The Company guarantees none of the loans of Idun. Substantially all of the Company’s plant, property and equipment and restricted cash are collateral for the above loans. Cash of $1,822 included in Restricted Cash will be used for partial payment of an as yet undetermined combination of loans 2, 3 and 4 above.
The principal payments of each of the five years following September 30, 2001 is set forth below:
OMEGA WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 9 - STOCK OPTIONS
Under the terms of the 1998 Stock Option and Restricted Plan (the “Plan”), the Company reserved 750,000 shares of common stock for grants to be issued during a period of up to 10 years. Directors, officers and key employees are eligible in the Plan. Options for 280,000, 339,500, and 107,000 shares have been granted to eligible participants during the years ended September 30, 2001, 2000 and 1999, respectively. Additionally, during the years ended September 30, 2001, 2000 and 1999, restricted shares of 14,000, 67,500, 8,000, respectively, have been granted under the provisions of the Plan. The vesting period on restricted stock varies from six months to eighteen months. Expense related to the restricted stock grants are $26, $271, and $33, for the years ended September 30, 2001, 2000 and 1999, respectively.
The following is a summary of activity under the Plan.
In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (SFAS) No. 123, “Accounting for Stock-Based Compensation.” This standard prescribes a fair value based method of accounting for employee stock options or similar equity instruments and requires certain pro forma disclosures. For purpose of the pro forma disclosures required under Statement 123, the estimated fair value of the options is amortized to expense over the option’s vesting period. The estimated weighted average fair value of options granted approximates $256, $609, and $204, during the years ended September 30, 2001, 2000, and 1999, respectively. In determining the estimated fair value of the Company’s stock options as of the date of grant, a Black-Scholes option pricing model was used with the following weighted-average assumptions: risk-free interest rates of 6.0%; volatility factors of the expected market price of the Company’s common stock at 30%; and a weighted-average expected life of the options of 7 years.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
Pro forma information regarding net income and earnings per share is required by Statement 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. The Company’s pro forma net earnings (loss) would be ($1,089),
OMEGA WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
$1,531, and $5,084, and pro forma earnings (loss) per common share, basic and diluted, would be ($0.11), $0.11, and $0.47, for the years ended September 30, 2001, 2000, and 1999, respectively.
NOTE 10 - PREFERRED STOCK
Effective April 2, 1998, the Company issued 260,000 shares of 8% Series B Cumulative Preferred Stock (“Preferred Stock”) at $1 par value per share to Omega Healthcare. Each share of Series B Preferred converts to one share of the Company’s Common Stock immediately after Omega Healthcare makes a distribution of the Series B Preferred to its shareholders or otherwise transfers the shares to any unaffiliated third party. Dividends on the Preferred Stock are payable annually based on liquidation value of $10 per share. Cumulative undeclared dividends at September 30, 2001 are $728.
NOTE 11 - NET EARNINGS PER SHARE
Net earnings per share are computed based on the weighted average number of common shares outstanding during the period. Average common shares outstanding for the basic earnings per share were 12,343,000, 12,297,000, and 12,261,000 and for diluted earnings per share were 12,343,000, 12,345,000 and 12,262,000 for the periods ended September 30, 2001, 2000, and 1999, respectively. The difference between average basic and diluted common shares is due to the effect of dilutive employee stock options. The assumed conversion of shares of preferred stock is currently antidilutive.
NOTE 12 - RELATED PARTY TRANSACTIONS
The Company, through it’s subsidiary Idun, leases nursing homes throughout the United Kingdom under operating leases from Principal-UK which expire at various dates through the year 2035. Idun’s rent expense on leases with Principal-UK was approximately $17.1 million for the fiscal year ended September 30, 2001 and $17.7 million for the eleven-month period that Idun is included in the year ended September 30, 2000 results, respectively and is included in cost of patient services. No lease expense for the consolidated company was incurred during the year ended September 30, 1999.
Future minimum lease expense accounted for under US GAAP under operating leases from Principal-UK as of September 30, 2001 are as follows:
Pursuant to the provision of a Services Agreement between Omega Healthcare and the Company that expired June 30, 2000, indirect costs incurred by Omega Healthcare, including compensation of shared executive officers and relations support personnel, and costs incurred by Omega Healthcare for rent, insurance, telephone, utilities, supplies, maintenance and travel, were allocated to the Company based upon the relationship of assets under the Company’s management to the combined total of those assets and Omega Healthcare’s assets. Such allocations are based on estimates and formulas that management believes to be reasonable. In July 2000, the Company and Omega Healthcare negotiated a new arrangement for a quarterly fee of $38 which excludes certain previously provided services, most significantly, those of shared executives. This quarterly fee was amended again in November 2000 to $33 per quarter. Incurred expenses for the years ended September 30, 2001, 2000 and 1999 were approximately $132, $544, $768, respectively.
OMEGA WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Fees from services provided to Principal-UK for the years-ended September 30, 2001, 2000 and 1999, are $4,246, $5,040, and $4,918, respectively.
Fees from services provided to Principal-Australia for the year’s ended September 30, 2001 and 2000 and the period April 1, 1999 through September 30, 1999 are $1,211, $1,013, and $405, respectively.
Interest expense relating to a bridge loan from Omega Healthcare totaled $226 for the year ended September 30, 1999. This loan was repaid in December 1998.
NOTE 13 - BUSINESS SEGMENT INFORMATION
The Company provides investment advisory and management services, as well as equity and debt capital to the healthcare industry, primarily in the United Kingdom and the Pacific Rim. The Company emphasizes investments in firms, which provide residential services to the elderly. The Company has established subsidiary businesses, Omega (UK) Ltd. in London and Omega (Australia) Pty Ltd., in Sydney, to manage, finance, and monitor investments in the United Kingdom and Australia/ New Zealand, respectively. Accordingly, the Company presently operates in three geographic regions, the United States, United Kingdom and Australia/ New Zealand.
The following is a summary of operations by geographic region for the years ended September 30:
The following is a summary of assets by geographic region at September 30, 2001 and 2000:
Total assets attributable to the United States include approximately $47.0 million represented by cash, loans and investments denominated in currencies other than the U.S. dollar.
OMEGA WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 14 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Following are details of changes in operating assets, liabilities and other non-cash transactions for the years ended September 30, 2001, 2000 and 1999:
Increase (decrease) in cash from changes in operating assets and liabilities:
In addition, a portion of the purchase consideration for Idun’s purchase of the operating subsidiaries of Tamaris, plc October 31, 1999, was non-cash (see Note 4).
NOTE 15 - CONTINGENCY
On September 26, 2001 Mr. James Flaherty, former President of the Company, ceased to be an employee of the Company. The Company is presently in discussions with Mr. Flaherty to determine the amount, if any, of compensation due to him.
OMEGA WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 16 - QUARTERLY DATA (UNAUDITED)
The following is an unaudited summary of quarterly results of operations for the years ended September 30, 2001, 2000 and 1999.
INDEX TO EXHIBITS
	Exhibit 3.1
	Articles of Amendment and Restatement - Incorporated 	by reference to Exhibit 3.1 to Form S-1 Registration 	Statement.
	Exhibit 3.2
	Amended and Restated Bylaws Incorporated by reference to 	Exhibit 3.2 to Form S-1 Registration Statement.
	Exhibit 3.3
	Articles Supplementary for Series B Preferred 	Stock - Incorporated by reference to Exhibit 3.3 	to Form S-1 Registration Statement,
	Exhibit 3.4
	Articles Supplementary for Series A Preferred 	Stock - Incorporated by reference to Exhibit 3.4 	to Form S-1 Registration Statement.
	Exhibit 3.5
	Amendment No. 1 to Amended and Restated Bylaws dated as of 	March 25, 2000 - Incorporated by reference to 	Exhibit 3.2 to the Company’s report on Form 10-Q 	for the quarterly period dated March 31, 2000.
	Exhibit 10.1
	Omega Worldwide, Inc. 1997 Stock Option and Restricted Stock 	Plan - Incorporated by reference to Exhibit 10.1 	to Form S-1 Registration Statement.
	Exhibit 10.2
	Form of Rights Agreement, dated as of April 1, 1998, 	between the Company and First Chicago Trust Company of New 	York - Incorporated by reference to Exhibit 10.6 	to Form S-1 Registration Statement.
	Exhibit 10.3
	Amended and Restated Advisory Agreement dated as of 	July 21, 1995 between the Company (as successor by 	assignment from Omega Healthcare) and Principal - 	Incorporated by reference to Exhibit 10.5 to Form S-1 	Registration Statement.
	Exhibit 10.4
	Indemnification Agreements between the Company and its Directors 	and Executive Officers - Incorporated by reference to 	Exhibit 10.7 to Form S-1 Registration Statement.
	Exhibit 10.5
	Advisory Agreement between Omega Healthcare (Australia) Pty 	Limited and Principal Healthcare Finance Trust - 	Incorporated by reference to Exhibit 10.6 to Form 10-K 	for the fiscal year ended September 30, 1998.
	Exhibit 10.6
	Form of Loan Agreement dated as of November 20, 1998 among 	the Company, Fleet Bank, N.A., as Agent, and other financial 	institutions named therein - Incorporated by reference 	to Exhibit 10.7 to Form 10-K for the fiscal year ended 	September 30, 1998.
	Exhibit 10.7
	Amendment to Loan agreement dated as of November 20, 1998 	among the Company, Fleet Bank, N.A. as agent - 	Incorporated by reference to Exhibit 10.12 to 	Form 10-K for the fiscal year ended September 30, 1999.
	Exhibit 10.8
	Amendment #2 to Loan Agreement dated as of January 10, 	2000, among the Company, Fleet Bank, N.A. as agent and a bank 	and Harris Trust and Savings Bank - Incorporated by 	reference to Exhibit 10.5 to Form 10-Q for the quarter 	ended March 31, 2000.
	Exhibit 10.9
	Amendment #3 to Loan Agreement dated as of March 17,2000, 	among the Company, Fleet Bank, N.A. as agent and a bank and 	Harris Trust and Savings Bank - Incorporated by 	reference to Exhibit 10.6 to Form 10-Q for the quarter 	ended March 31, 2000.
	Exhibit 10.10
	Amendment #4 to Loan Agreement dated June 29, 2000, among 	the Company, Fleet Bank, N.A. as agent and a bank and Harris 	Trust and Savings Bank - Incorporated by reference to 	Exhibit 10.7 to Form 10-Q for the quarter ended 	June 30, 2000.
	Exhibit 10.11
	Transaction documents dated June 19, 1998 - 	Incorporated by reference to Exhibit 10.1 to the 	Company’s report on Form 8-K filed on July 2, 	1998:
	(a) Mortgage of Deposit between the Company and ABN AMRO 	Facilities Australia Limited (“ABN Facilities”)
	(b) Bill Facility Agreement between Principal Pty and ABN 	AMRO Australia Limited (“ABN Australia”)
	(c) Deed of Guarantee and Indemnity between the Company and 	ABN Facilities
	(d) Redemption and Subscription Agreement among Premier 	Care Australia (Holdings) Pty Limited, FAI Insurances Limited 	(“FAI”), PHF No. 1 Pty Limited (“PHF 	No. 1”), Tanoa Pty Limited (“Tanoa”), and 	Premier Care Australia Pty Limited (now known as Principal 	Healthcare Finance Pty Limited (“Principal Pty”)
	(e) Relationship Agreement among the Company, PHF 	No. 1 Pty Limited, PHF No. 2 Pty Limited, Tanoa, 	Mindra Pty Limited, Beheer-en Beleggingsmaatschappij Dilava BV, 	Beheer-en Beleggingsmaatschappij Rocla BV, Moran Health Care 	(“Australia”) Pty Limited (“Moran 	Australia”) and Moran Health Care Group Pty Limited 	(“Moran”)
	(f) Deed of Mortgage and Annexure B to Mortgage between 	Principal Pty and ABN Facilities
	(g) Capital Contribution Agreement among Moran Australia, 	Moran and Principal Pty
	(h) NSW Lease between Principal Pty, as lessor, and Moran 	Australia, as lessee
	(i) Lease Guarantee between Moran and Principal Pty
	(j) Indemnity Deed
	(k) Procurement Agreement among Moran Australia, FAI, 	Moran, Douglas John Moran, Greta Richmond Moran, Peter Godfrey 	Moran and Shane Moran
	(l) Mortgage of Shares between Moran and Principal Pty
	Exhibit 10.12
	Transaction documents dated April 16, 1999 with the 	following exhibits. Incorporated by reference to 	Exhibit 10.10 to the Company’s report on Form 8-K 	filed on April 16, 1999.
	(a) Form of Transaction Documents
	(b) Subscription Deed, Principal Healthcare Finance Unit 	Trust No. 1
	(c) Subscription Deed, Principal Healthcare Finance Unit 	Trust No. 2
	(d) Deed of Loan, PHF No. 1 Pty Limited, AMP Life 	Limited, Omega Healthcare Worldwide, Inc.
	(e) Principal Healthcare Finance Unit Trust No. 1, 	Term of 2004 Options
	(f) Principal Healthcare Finance Unit Trust No. 2, 	Term of 2004 Options
	(g) Advisory Agreement
	Exhibit 10.13
	Share Acquisition Agreement between Tamaris plc and the 	Company - Incorporated by reference to 	Exhibit 10.1 to the Company’s report on Form 8-K 	filed on November 1, 1999.
	Exhibit 10.14
	Asset Administration deed between Principal Healthcare Finance 	Pty Limited and Omega (Australia) Pty Limited dated as of 	November 1, 1999 - Incorporated by reference to 	Exhibit 10.13 to Form 10-K for the fiscal year ended 	September 30, 1999.
	Exhibit 11
	Computation of Per Share Earnings - Filed herewith
	Exhibit 12
	Statement re: Computation of Ratio of Earnings to Combined Fixed 	Charges and Preferred Stock Dividends - Filed herewith
	Exhibit 21
	Subsidiaries of Registrant - Filed herewith
	Exhibit 99(a)
	Financial Statements of Principal Healthcare Finance 	Limited - Filed herewith:
	- Report of Auditors
	- Consolidated Statement of operations for the years 	ended August 31, 2001, 2000 and 1999
	- Consolidated Balance Sheets as of August 31, 	2001 and 2000
	- Consolidated Statements of Shareholders’ Equity 	for the years ended August 31, 2001, 2000, and 1999
	- Consolidated Statements of Cash Flows for the years 	ended August 31, 2001, 2000 and 1999
	- Notes to Consolidated Financial Statements