e10vk
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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(Mark One) |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the Fiscal Year Ended December 31, 2005 |
Or |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
from to |
Commission file number: 1-13445
Capital Senior Living Corporation
(Exact name of registrant as specified in its charter)
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Delaware
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75-2678809 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
14160 Dallas Parkway, Suite 300
Dallas, Texas
(Address of principal executive offices) |
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75254
(Zip Code) |
Registrants telephone number, including area code:
(972) 770-5600
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class |
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Name of Each Exchange on Which Registered |
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Common Stock, $.01 par value |
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New York Stock Exchange |
Indicate by a check mark if the registrant is a well-known
seasoned issuer, as defined by Rule 405 of the Securities
Act. Yes o No þ
Indicate by a check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d)
of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K is
not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy statements
incorporated by reference in Part III of this
Form 10-K or any
amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2 of the
Exchange Act (Check One).
Large accelerated
filer o Accelerated
filer þ Non-accelerated
filer o
Indicate by a check mark whether the registrant is a shell
Company (as defined in
Rule 12b-2 of the
Exchange
Act). Yes o No þ
The aggregate market value of the 21,457,198 shares of the
Registrants Common Stock, par value $0.01 per share
(Common Stock), held by nonaffiliates on
December 31, 2005, based upon the closing price of the
Registrants Common Stock as reported by the New York Stock
Exchange on June 30, 2005, was approximately $152,131,534.
As of March 29, 2006, the Registrant had
26,313,883 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrants definitive proxy statement pertaining to
the 2005 Annual Meeting of Stockholders (the Proxy
Statement) and filed or to be filed not later than
120 days after the end of the fiscal year pursuant to
Regulation 14A is incorporated herein by reference into
Part III.
CAPITAL SENIOR LIVING CORPORATION
TABLE OF CONTENTS
1
PART I
Overview
Capital Senior Living Corporation, a Delaware corporation
(together with its subsidiaries, the Company), is
one of the largest operators of senior living communities in the
United States in terms of resident capacity. The Company and its
predecessors have provided senior living services since 1990. As
of December 31, 2005, the Company operated 55 senior living
communities in 20 states with an aggregate capacity of
approximately 8,900 residents, including 33 senior living
communities which the Company owned or in which the Company had
an ownership interest, seven senior living communities that the
Company leased and 15 senior living communities it managed for
third parties. As of December 31, 2005, the Company also
operated one home care agency. During 2005 approximately 95% of
total revenues for the senior living communities owned and
managed by the Company were derived from private pay sources. As
of December 31, 2005, the stabilized communities (defined
as communities not in lease-up) that the Company operated had an
average occupancy rate of approximately 92%.
The Companys operating strategy is to provide quality
senior living communities and services to its residents, while
achieving and sustaining a strong, competitive position within
its chosen markets, as well as to continue to enhance the
performance of its operations. The Company provides senior
living services to the elderly, including independent living,
assisted living, skilled nursing and home care services. Many of
the Companys communities offer a continuum of care to meet
its residents needs as they change over time. This
continuum of care, which integrates independent living and
assisted living and is bridged by home care through independent
home care agencies or the Companys home care agency,
sustains residents autonomy and independence based on
their physical and mental abilities.
Three major initiatives formed the Companys platform for
success in fiscal 2005 and will continue into fiscal 2006. These
three initiatives included maximizing the value of the
Companys communities, sale/ leaseback transactions and
debt improvement initiatives.
The Companys stabilized communities achieved an overall
occupancy of 92% at December 31, 2005, which has begun to
allow the Company to capitalize on its operating leverage. In
addition, during 2006 the Company intends to further enhance the
value of its communities through increasing assisted living
capacity at selected communities and through increasing
ancillary and supportive services offered at its communities.
In October 2005, the Company completed an $85 million sale/
leaseback transaction with Ventas Healthcare Properties, Inc.
(Ventas) of six communities previously owned by the
Companys joint venture with Blackstone Real Estate
Advisors (Blackstone). In fiscal 2006, the Company
has announced three sale/ leaseback transactions: one
transaction involving one community valued at $29 million
with Ventas, a second transaction involving three communities
valued at $54 million with Healthcare Property Investor,
Inc. (HCPI) and a third transaction involving six
communities valued at $43 million with HCPI. Through these
and similar transactions the Company expects to reduce its
overall borrowing and to fix the interest rates on nearly all of
its remaining debt.
During fiscal 2005, the Company completed the refinancing of
four communities with GMAC Commercial Mortgage Corporation
(GMAC) which increased available cash by
$4.6 million, reduced the interest rate on the new debt by
approximately 40 basis points and fixed the interest rate
for ten years. The Company plans to refinance 15 additional
communities in fiscal 2006 at fixed interest rates that are
expected to be 200 basis points below the current interest
rate on the related debt.
As the Company enters fiscal 2006, its business plan includes
pursuing of additional sale/ leaseback transactions, continuing
to maximize the value of its communities, pursuing additional
acquisitions through joint venture partners and REITs and
increasing revenues through management and development of
communities for third parties.
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In the first quarter of fiscal 2006, the Company through a joint
venture agreement with GE Healthcare Financial Services
(GE Healthcare) finalized the acquisition of four
senior living communities and expects to close on a fifth
community in the second quarter of fiscal 2006.
Website
The Companys internet website www.capitalsenior.com
contains an Investor Relations section, which provides links to
the Companys annual reports on
Form 10-K,
quarterly reports on
Form 10-Q, current
reports on
Form 8-K, proxy
statements, Section 16 filings and amendments to those
reports, which reports and filings are available through the
Companys internet website free of charge as soon as
reasonably practicable after such material is electronically
filed with or furnished to the Securities and Exchange
Commission (SEC).
Industry Background
The senior living industry encompasses a broad and diverse range
of living accommodations and supportive services that are
provided primarily to persons 75 years of age or older.
For the elderly who require limited services, independent living
residences supplemented at times by home health care, offers a
viable option. Most independent living communities typically
offer community living packaged with basic services consisting
of meals, housekeeping, laundry,
24-hour staffing,
transportation, social and recreational activities and health
care monitoring. Independent living residents typically are not
reliant on assistance with activities of daily living
(ADLs) although some residents may contract
out for those services.
As a seniors need for assistance increases, care in an
assisted living residence is often preferable and more
cost-effective than home-based care or nursing home care.
Typically, assisted living represents a combination of housing
and support services designed to aid elderly residents with
ADLs such as ambulation, bathing, dressing, eating,
grooming, personal hygiene, and monitoring or assistance with
medications. Certain assisted living residences may also provide
assistance to residents with low acuity medical needs, or may
offer higher levels of personal assistance for incontinent
residents or residents with Alzheimers disease or other
cognitive or physical frailties. Generally, assisted living
residents require higher levels of care than residents of
independent living residences and retirement living centers, but
require lower levels of care than patients in skilled nursing
facilities. For seniors who need the constant attention of a
skilled nurse or medical practitioner, a skilled nursing
facility may be required.
According to the American Senior Housing Association Senior
Housing Construction Report for 2005, 35% of senior housing
properties in the U.S. are assisted living communities, 30%
are independent living communities, 25% are senior apartments
and 10% are continuing care retirement communities.
The senior living industry is highly fragmented and
characterized by numerous small operators. Moreover, the scope
of senior living services varies substantially from one operator
to another. Many smaller senior living providers do not operate
purpose-built residences, do not have extensive professional
training for staff and provide only limited assistance with
ADLs. The Company believes that many senior living operators do
not provide the required comprehensive range of senior living
services designed to permit residents to age in
place within the community as residents develop further
physical or cognitive frailties.
The Company believes that a number of demographic, regulatory,
and other trends will contribute to the continued growth in the
senior living market including the following:
The Company believes that senior living communities are
increasingly becoming the setting preferred by prospective
residents and their families for the care of the elderly. Senior
living offers residents greater independence and allows them to
age in place in a residential setting, which the
Company believes results in a higher quality of life than that
experienced in more institutional or clinical settings.
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The likelihood of living alone increases with age. Most of this
increase is due to an aging population in which women outlive
men. In 1993, eight out of 10 noninstitutionalized elderly who
lived alone were women. According to the United States Bureau of
Census, based on 1993 data, the likelihood of women living alone
increases from 32% for 65 to
74-year-olds to 57% for
those women aged 85 and older. Men show similar trends with 13%
of the 65 to
74-year-olds living
alone, rising to 29% of the men aged 85 and older living alone.
Societal changes, such as high divorce rates and the growing
numbers of persons choosing not to marry, have further increased
the number of Americans living alone. This growth in the number
of elderly living alone has resulted in an increased demand for
services that historically have been provided by a spouse, other
family members or live-in caregivers.
The primary market for the Companys senior living services
is comprised of persons aged 75 and older. This age group is one
of the fastest growing segments of the United States population
and is expected to grow from 17.9 million in 2005 to
approximately 32.6 million in 2030. The population of
seniors aged 85 and over has increased from approximately
3.1 million in 1990 to over 4.9 million in 2005. This
age cohort is expected to grow to approximately 18% to
5.8 million by 2010 and by 82% to approximately
8.9 million by 2030. As the number of persons aged 75 and
over continues to grow, the Company believes that there will be
corresponding increases in the number of persons who need
assistance with ADLs. According to industry analyses,
approximately 19% of persons aged 75 to 79, approximately 24% of
persons aged 80 to 84 and approximately 45% of persons aged 85
and older need assistance with ADLs.
The average net worth of senior citizens is higher than
non-senior citizens, partially as a result of accumulated equity
through home ownership. The Company believes that a substantial
portion of the senior population thus has significant resources
available for their retirement and long-term care needs. The
Companys target population is comprised of moderate to
upper income seniors who have, either directly or indirectly
through familial support, the financial resources to pay for
senior living communities, including an assisted living
alternative to traditional long-term care.
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Reduced Reliance on Family Care |
Historically, the family has been the primary provider of care
for seniors. The Company believes that the increase in the
percentage of women in the work force, the reduction of average
family size, and overall increased mobility in society is
reducing the role of the family as the traditional caregiver for
aging parents. The Company believes that these factors will make
it necessary for many seniors to look outside the family for
assistance as they age.
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Restricted Supply of Nursing Beds |
Several states in the United States have adopted Certificate of
Need (CON) or similar statutes generally requiring
that, prior to the addition of new skilled nursing beds, the
addition of new services, or the making of certain capital
expenditures, a state agency must determine that a need exists
for the new beds or the proposed activities. The Company
believes that this CON process tends to restrict the supply and
availability of licensed nursing facility beds. High
construction costs, limitations on government reimbursement for
the full costs of construction, and
start-up expenses also
act to constrain growth in the supply of such facilities. At the
same time, nursing facility operators are continuing to focus on
improving occupancy and expanding services to subacute patients
generally of a younger age and requiring significantly higher
levels of nursing care. As a result, the Company believes that
there has been a decrease in the number of skilled nursing beds
available to patients with lower acuity levels and that this
trend should increase the demand for the Companys senior
living communities, including, particularly, the Companys
assisted living communities.
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Cost-Containment Pressures |
In response to rapidly rising health care costs, governmental
and private pay sources have adopted cost containment measures
that have reduced admissions and encouraged reduced lengths of
stays in hospitals and other acute care settings. The federal
government had previously acted to curtail increases in health
care costs under Medicare by limiting acute care hospital
reimbursement for specific services to pre-established fixed
amounts. Private insurers have begun to limit reimbursement for
medical services in general to predetermined charges, and
managed care organizations (such as health maintenance
organizations) are attempting to limit hospitalization costs by
negotiating for discounted rates for hospital and acute care
services and by monitoring and reducing hospital use. In
response, hospitals are discharging patients earlier and
referring elderly patients, who may be too sick or frail to
manage their lives without assistance, to nursing homes and
assisted living residences where the cost of providing care is
typically lower than hospital care. In addition, third-party
payors are increasingly becoming involved in determining the
appropriate health care settings for their insureds or clients,
based primarily on cost and quality of care. Based on industry
data, the typical day-rate in an assisted living facility is
two-thirds of the cost for comparable care in a nursing home.
Operating Strategy
The Companys operating strategy is to provide quality,
senior living services at an affordable price to its residents,
while achieving and sustaining a strong, competitive position
within its chosen markets, as well as continuing to enhance the
performance of its operations. The Company is implementing its
operating strategy principally through the following methods.
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Provide a Broad Range of Quality Personalized Care |
Central to the Companys operating strategy is its focus on
providing quality care and services that are personalized and
tailored to meet the individual needs of each community
resident. The Companys residences and services are
designed to provide a broad range of care that permits residents
to age in place as their needs change and as they
develop further physical or cognitive frailties. By creating an
environment that maximizes resident autonomy and provides
individualized service programs, the Company seeks to attract
seniors at an earlier stage, before they need the higher level
of care provided in a skilled nursing facility. The Company also
maintains a comprehensive quality assurance program designed to
ensure the satisfaction of its residents and their family
members. The Company conducts annual resident satisfaction
surveys that allow residents at each community to express
whether they are very satisfied,
satisfied or dissatisfied with all major
areas of a community, including, housekeeping, maintenance,
activities and transportation, food service, security and
management. In 2005 and 2004, the Company achieved 94% and 95%,
respectively, overall approval rating from the residents
satisfaction survey.
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Offer Services Across a Range of Pricing Options |
The Companys range of products and services is continually
expanding to meet the evolving needs of its residents. The
Company has developed a menu of products and service programs
that may be further customized to serve both the moderate and
upper income markets of a particular targeted geographic area.
By offering a range of pricing options that are customized for
each target market, the Company believes that it can develop
synergies, economies of scale and operating efficiencies in its
efforts to serve a larger percentage of the elderly population
within a particular geographic market.
The Company continually seeks to maintain and improve occupancy
rates by: (i) retaining residents as they age in
place by extending optional care and service programs;
(ii) attracting new residents through the
on-site marketing
programs focused on residents and family members;
(iii) selecting sites in underserved markets;
(iv) aggressively seeking referrals from professional
community outreach sources, including area religious
organizations, senior social service programs, civic and
business networks, as well as the medical community; and
(v) continually refurbishing and renovating its communities.
5
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Improve Operating Efficiencies |
The Company seeks to improve operating efficiencies at its
communities by actively monitoring and managing operating costs.
By having an established national portfolio of communities with
regional management in place, the Company believes it has
established a platform to achieve operating efficiencies through
economies of scale in the purchase of bulk items, such as food,
and in the spreading of fixed costs, such as corporate overhead,
over a larger revenue base, and to provide more effective
management supervision and financial controls. The
Companys growth strategy includes regional clustering of
new communities to achieve further efficiencies.
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Emphasize Employee Training and Retention |
The Company devotes special attention to the hiring, screening,
training, supervising and retention of its employees and
caregivers to ensure that quality standards are achieved. In
addition to normal
on-site training, the
Company conducts national management meetings and encourages
sharing of expertise among managers. The Companys
commitment to the total quality management concept is emphasized
throughout its training program. This commitment to the total
quality management concept means identification of the
best practices in the senior living market and
communication of those best practices to the
Companys executive directors and their staff. The
identification of best practices is realized by a number of
means, including: emphasis on regional and executive directors
keeping up with professional trade journals; interaction with
other professionals and consultants in the senior living
industry through seminars, conferences and consultations; visits
to other properties; leadership and participation at national
and local trade organization events; and information derived
from marketing studies and resident satisfaction surveys. This
information is continually processed by regional managers and
the executive directors and communicated to the Companys
employees as part of their training. The Company hires an
executive director for each of its communities and provides them
with autonomy, responsibility and accountability. The
Companys staffing of each community with an executive
director allows it to hire more professional employees at these
positions, while the Companys developed career path helps
it to retain the professionals it hires. The Company believes
its commitment to and emphasis on employee training and
retention differentiates the Company from many of its
competitors.
Senior Living Services
The Company provides senior living services to the elderly,
including independent living, assisted living, skilled nursing
and home care services. By offering a variety of services and
encouraging the active participation of the resident and the
residents family and medical consultants, the Company is
able to customize its service plan to meet the specific needs
and desires of each resident. As a result, the Company believes
that it is able to maximize customer satisfaction and avoid the
high cost of delivering unnecessary services to residents.
The Companys operating philosophy is to provide
affordable, quality living communities and services to senior
citizens and deliver a continuum of care for its residents as
their needs change over time. This continuum of care, which
integrates independent living and assisted living and is bridged
by home care, sustains residents autonomy and independence
based on their physical and mental abilities. As residents age,
in many of the Companys communities, they are able to
obtain the additional needed services within the same community,
avoiding the disruptive and often traumatic move to a different
facility.
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Independent Living Services |
The Company provides independent living services to seniors who
typically do not yet need assistance or support with ADLs, but
who prefer the physical and psychological comfort of a
residential community that offers health care and other
services. As of December 31, 2005, the Company had
ownership interests in 32 communities, leased seven
communities and managed 10 communities that provide independent
living services, with an aggregate capacity for 7,560 residents.
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Independent living services provided by the Company include
daily meals, transportation, social and recreational activities,
laundry, housekeeping,
24-hour staffing and
health care monitoring. The Company also fosters the wellness of
its residents by offering health screenings (such as blood
pressure checks), periodic special services (such as influenza
inoculations), dietary and similar programs, as well as ongoing
exercise and fitness classes. Classes are given by health care
professionals to keep residents informed about health and
disease management. Subject to applicable government regulation,
personal care and medical services are available to independent
living residents through either the community staff or through
the Companys agency or other independent home care
agencies. The Companys independent living residents pay a
fee ranging from $975 to $4,330 per month, in general,
depending on the specific community, program of services, size
of the unit and amenities offered. The Companys contracts
with its independent living residents are generally for a term
of one year and are typically terminable by the resident upon
30 days notice.
The Company offers a wide range of assisted living care and
services, including personal care services, 24 hour
staffing, support services, and supplemental services. As of
December 31, 2005, the Company had ownership interests in
11 communities, leased three communities and managed six
communities that provide assisted living services, which include
communities that have independent living and other services,
with an aggregate capacity for 1,185 residents. The residents of
the Companys assisted living residences generally need
help with some or all ADLs, but do not require the more acute
medical care traditionally given in nursing homes. Upon
admission to the Companys assisted living communities, and
in consultation with the resident, the residents family
and medical consultants, each resident is assessed to determine
his or her health status, including functional abilities and
need for personal care services. The resident also completes a
lifestyles assessment to determine the residents
preferences. From these assessments, a care plan is developed
for each resident to ensure that all staff members who render
care meet the specific needs and preferences of each resident
where possible. Each residents care plan is reviewed
periodically to determine when a change in care is needed.
The Company has adopted a philosophy of assisted living care
that allows a resident to maintain a dignified independent
lifestyle. Residents and their families are encouraged to be
partners in the residents care and to take as much
responsibility for their well being as possible. The basic types
of assisted living services offered by the Company include the
following:
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Personal Care Services. These services include assistance
with ADLs such as ambulation, bathing, dressing, eating,
grooming, personal hygiene, and monitoring or assistance with
medications. |
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Support Services. These services include meals,
assistance with social and recreational activities, laundry
services, general housekeeping, maintenance services and
transportation services. |
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Supplemental Services. These services include extra
transportation services, personal maintenance, extra laundry
services, and special care services, such as services for
residents with certain forms of dementia. Certain of these
services require an extra charge in addition to the pricing
levels described below. |
In pricing its services, the Company has developed the following
three levels or tiers of assisted living care:
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Level I typically provides for minimum levels of care and
service, for which the Company generally charges a monthly fee
per resident ranging from $1,495 to $5,390, depending upon unit
size and the project design type. Typically, Level I
residents need minimal assistance with ADLs. |
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Level II provides for relatively higher levels and
increased frequency of care, for which the Company generally
charges a monthly fee per resident ranging from $2,095 to
$5,690, depending upon the unit size and the project design
type. Typically, Level II residents require moderate
assistance with ADLs and may need additional personal care,
support and supplemental services. |
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Level III provides for the highest level of care and
service, for which the Company generally charges a monthly fee
per resident ranging from $2,395 to $6,390, depending upon the
unit size and the project design type. Typically, Level III
residents are either very frail or impaired and utilize many of
the Companys services on a regular basis. |
The Company maintains programs and special units at some of its
assisted living communities for residents with certain forms of
dementia, which provide the attention, care and services needed
to help those residents maintain a higher quality of life.
Specialized services include assistance with ADLs, behavior
management and life skills based activities programs, the goal
of which is to provide a normalized environment that supports
residents remaining functional abilities. Whenever
possible, residents assist with meals, laundry and housekeeping.
Special units for residents with certain forms of dementia are
located in a separate area of the community and have their own
dining facilities, resident lounge areas, and specially trained
staff. The special care areas are designed to allow residents
the freedom to ambulate as they wish, while keeping them safely
contained within a secure area with a minimum of disruption to
other residents. Special nutritional programs are used to help
ensure caloric intake is maintained by residents. Resident fees
for these special units are dependent on the size of the unit,
the design type and the level of services provided.
In its skilled nursing facilities, the Company provides
traditional long-term care through
24-hour-per-day skilled
nursing care by registered nurses, licensed practical nurses and
certified nursing assistants. The Company also offers a
comprehensive range of restorative nursing and rehabilitation
services in its communities including, but not limited to,
physical, occupational, speech and medical social services. As
of December 31, 2005, the Company had ownership interests
in two facilities providing a continuum of care that includes
nursing services with an aggregate capacity for 170 residents.
As of December 31, 2005, the Company provided home care
services to clients at one senior living community through the
Companys home care agency and made home care services
available to clients at a majority of its senior living
communities through third-party providers. The Company believes
that the provision of private pay, home care services is an
attractive adjunct to its independent living services because it
allows the Company to provide more services to its residents as
they age in place and increases the length of stay in the
Companys communities. In addition, the Company makes
available to residents certain customized physician, dentistry,
podiatry and other health-related services that may be offered
by third-party providers.
Operating Communities
The table below sets forth certain information with respect to
senior living communities owned and managed by the Company as of
December 31, 2005.
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Resident Capacity(1) |
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Commencement |
Community |
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Units |
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IL |
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AL |
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SN |
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Total |
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Ownership(2) |
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of Operations(3) |
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Owned:
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Canton Regency
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Canton, OH |
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291 |
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164 |
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96 |
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50 |
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310 |
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100 |
% |
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03/91 |
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Crosswood Oaks
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Sacramento, CA |
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121 |
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127 |
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127 |
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100 |
% |
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01/92 |
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Gramercy Hill
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Lincoln, NE |
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148 |
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83 |
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77 |
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160 |
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100 |
% |
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10/98 |
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Heatherwood
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Detroit, MI |
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158 |
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188 |
|
|
|
|
|
|
|
|
|
|
|
188 |
|
|
|
100 |
% |
|
|
01/92 |
|
|
Independence Village
|
|
|
East Lansing, MI |
|
|
|
151 |
|
|
|
162 |
|
|
|
|
|
|
|
|
|
|
|
162 |
|
|
|
100 |
% |
|
|
08/00 |
|
|
Independence Village
|
|
|
Peoria, IL |
|
|
|
158 |
|
|
|
173 |
|
|
|
|
|
|
|
|
|
|
|
173 |
|
|
|
100 |
% |
|
|
08/00 |
|
|
Independence Village
|
|
|
Raleigh, NC |
|
|
|
165 |
|
|
|
177 |
|
|
|
|
|
|
|
|
|
|
|
177 |
|
|
|
100 |
% |
|
|
08/00 |
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resident Capacity(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commencement |
Community |
|
|
|
Units |
|
IL |
|
AL |
|
SN |
|
Total |
|
Ownership(2) |
|
of Operations(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independence Village
|
|
|
Winston-Salem, NC |
|
|
|
156 |
|
|
|
161 |
|
|
|
|
|
|
|
|
|
|
|
161 |
|
|
|
100 |
% |
|
|
08/00 |
|
|
Sedgwick Plaza
|
|
|
Wichita, KS |
|
|
|
144 |
|
|
|
134 |
|
|
|
35 |
|
|
|
|
|
|
|
169 |
|
|
|
100 |
% |
|
|
08/00 |
|
|
Tesson Heights
|
|
|
St. Louis, MO |
|
|
|
184 |
|
|
|
140 |
|
|
|
58 |
|
|
|
|
|
|
|
198 |
|
|
|
100 |
% |
|
|
10/98 |
|
|
Towne Centre
|
|
|
Merrillville, IN |
|
|
|
327 |
|
|
|
165 |
|
|
|
60 |
|
|
|
120 |
|
|
|
345 |
|
|
|
100 |
% |
|
|
03/91 |
|
|
Veranda Club
|
|
|
Boca Raton, FL |
|
|
|
189 |
|
|
|
235 |
|
|
|
|
|
|
|
|
|
|
|
235 |
|
|
|
100 |
% |
|
|
01/92 |
|
|
Waterford at Columbia
|
|
|
Columbia, SC |
|
|
|
120 |
|
|
|
136 |
|
|
|
|
|
|
|
|
|
|
|
136 |
|
|
|
100 |
% |
|
|
11/00 |
|
|
Waterford at Deer Park
|
|
|
Deer Park, TX |
|
|
|
120 |
|
|
|
136 |
|
|
|
|
|
|
|
|
|
|
|
136 |
|
|
|
100 |
% |
|
|
11/00 |
|
|
Waterford at Edison Lakes
|
|
|
South Bend, IN |
|
|
|
120 |
|
|
|
136 |
|
|
|
|
|
|
|
|
|
|
|
136 |
|
|
|
100 |
% |
|
|
12/00 |
|
|
Waterford at Fairfield
|
|
|
Fairfield, OH |
|
|
|
120 |
|
|
|
136 |
|
|
|
|
|
|
|
|
|
|
|
136 |
|
|
|
100 |
% |
|
|
11/00 |
|
|
Waterford at Fort Worth
|
|
|
Fort Worth, TX |
|
|
|
151 |
|
|
|
174 |
|
|
|
|
|
|
|
|
|
|
|
174 |
|
|
|
100 |
% |
|
|
06/00 |
|
|
Waterford at Highland Colony
|
|
|
Jackson, MS |
|
|
|
120 |
|
|
|
136 |
|
|
|
|
|
|
|
|
|
|
|
136 |
|
|
|
100 |
% |
|
|
11/00 |
|
|
Waterford at Huebner
|
|
|
San Antonio, TX |
|
|
|
120 |
|
|
|
136 |
|
|
|
|
|
|
|
|
|
|
|
136 |
|
|
|
100 |
% |
|
|
04/99 |
|
|
Waterford at Ironbridge
|
|
|
Springfield, MO |
|
|
|
119 |
|
|
|
136 |
|
|
|
|
|
|
|
|
|
|
|
136 |
|
|
|
100 |
% |
|
|
06/01 |
|
|
Waterford at Mansfield
|
|
|
Mansfield, OH |
|
|
|
119 |
|
|
|
136 |
|
|
|
|
|
|
|
|
|
|
|
136 |
|
|
|
100 |
% |
|
|
10/00 |
|
|
Waterford at Mesquite
|
|
|
Mesquite, TX |
|
|
|
154 |
|
|
|
174 |
|
|
|
|
|
|
|
|
|
|
|
174 |
|
|
|
100 |
% |
|
|
09/99 |
|
|
Waterford at Pantego
|
|
|
Pantego, TX |
|
|
|
120 |
|
|
|
136 |
|
|
|
|
|
|
|
|
|
|
|
136 |
|
|
|
100 |
% |
|
|
12/00 |
|
|
Waterford at Plano
|
|
|
Plano, TX |
|
|
|
136 |
|
|
|
111 |
|
|
|
45 |
|
|
|
|
|
|
|
156 |
|
|
|
100 |
% |
|
|
12/00 |
|
|
Waterford at Shreveport
|
|
|
Shreveport, LA |
|
|
|
117 |
|
|
|
136 |
|
|
|
|
|
|
|
|
|
|
|
136 |
|
|
|
100 |
% |
|
|
03/99 |
|
|
Waterford at Thousand Oaks
|
|
|
San Antonio, TX |
|
|
|
120 |
|
|
|
136 |
|
|
|
|
|
|
|
|
|
|
|
136 |
|
|
|
100 |
% |
|
|
05/00 |
|
|
Wellington at Arapaho
|
|
|
Richardson, TX |
|
|
|
137 |
|
|
|
109 |
|
|
|
45 |
|
|
|
|
|
|
|
154 |
|
|
|
100 |
% |
|
|
05/02 |
|
|
Wellington at North Richland
|
|
|
North Richland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hills, TX
|
|
|
Hills, TX |
|
|
|
119 |
|
|
|
136 |
|
|
|
|
|
|
|
|
|
|
|
136 |
|
|
|
100 |
% |
|
|
01/02 |
|
|
Wellington at Oklahoma City
|
|
|
Oklahoma City, OK |
|
|
|
120 |
|
|
|
136 |
|
|
|
|
|
|
|
|
|
|
|
136 |
|
|
|
100 |
% |
|
|
11/00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,324 |
|
|
|
4,245 |
|
|
|
416 |
|
|
|
170 |
|
|
|
4,831 |
|
|
|
|
|
|
|
|
|
Leased:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amberleigh
|
|
|
Buffalo, NY |
|
|
|
267 |
|
|
|
394 |
|
|
|
|
|
|
|
|
|
|
|
394 |
|
|
|
N/A |
|
|
|
01/92 |
|
|
|
Cottonwood Village
|
|
|
Cottonwood, AZ |
|
|
|
163 |
|
|
|
135 |
|
|
|
47 |
|
|
|
|
|
|
|
182 |
|
|
|
N/A |
|
|
|
03/91 |
|
|
|
Crown Pointe
|
|
|
Omaha, NE |
|
|
|
132 |
|
|
|
163 |
|
|
|
|
|
|
|
|
|
|
|
163 |
|
|
|
N/A |
|
|
|
08/00 |
|
|
|
Georgetowne Place
|
|
|
Fort Wayne, IN |
|
|
|
162 |
|
|
|
247 |
|
|
|
|
|
|
|
|
|
|
|
247 |
|
|
|
N/A |
|
|
|
10/05 |
|
|
|
Harrison at Eagle Valley(4)
|
|
|
Indianapolis, IN |
|
|
|
124 |
|
|
|
138 |
|
|
|
|
|
|
|
|
|
|
|
138 |
|
|
|
N/A |
|
|
|
03/91 |
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resident Capacity(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commencement |
Community |
|
|
|
Units |
|
IL |
|
AL |
|
SN |
|
Total |
|
Ownership(2) |
|
of Operations(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Villa Santa Barbara
|
|
|
Santa Barbara, CA |
|
|
|
125 |
|
|
|
87 |
|
|
|
38 |
|
|
|
|
|
|
|
125 |
|
|
|
N/A |
|
|
|
08/00 |
|
|
|
West Shores
|
|
|
Hot Springs, AR |
|
|
|
137 |
|
|
|
135 |
|
|
|
32 |
|
|
|
|
|
|
|
167 |
|
|
|
N/A |
|
|
|
08/00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,110 |
|
|
|
1,299 |
|
|
|
117 |
|
|
|
|
|
|
|
1,416 |
|
|
|
|
|
|
|
|
|
Affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHPII/ CSL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Libertyville
|
|
|
Libertyville, IL |
|
|
|
197 |
|
|
|
171 |
|
|
|
50 |
|
|
|
|
|
|
|
221 |
|
|
|
5 |
% |
|
|
03/01 |
|
|
|
Naperville
|
|
|
Naperville, IL |
|
|
|
193 |
|
|
|
166 |
|
|
|
48 |
|
|
|
|
|
|
|
214 |
|
|
|
5 |
% |
|
|
01/01 |
|
|
|
Summit
|
|
|
Summit, NJ |
|
|
|
88 |
|
|
|
|
|
|
|
98 |
|
|
|
|
|
|
|
98 |
|
|
|
5 |
% |
|
|
11/00 |
|
|
|
Trumbull
|
|
|
Trumbull, CT |
|
|
|
150 |
|
|
|
117 |
|
|
|
48 |
|
|
|
|
|
|
|
165 |
|
|
|
5 |
% |
|
|
09/00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
628 |
|
|
|
454 |
|
|
|
244 |
|
|
|
|
|
|
|
698 |
|
|
|
|
|
|
|
|
|
Managed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atrium of Carmichael
|
|
|
Sacramento, CA |
|
|
|
152 |
|
|
|
156 |
|
|
|
|
|
|
|
|
|
|
|
156 |
|
|
|
N/A |
|
|
|
01/92 |
|
|
|
Covenant Place of Burleson
|
|
|
Burleson, TX |
|
|
|
74 |
|
|
|
|
|
|
|
80 |
|
|
|
|
|
|
|
80 |
|
|
|
N/A |
|
|
|
08/04 |
|
|
|
Covenant Place of Waxahachie
|
|
|
Waxahachie, TX |
|
|
|
50 |
|
|
|
|
|
|
|
55 |
|
|
|
|
|
|
|
55 |
|
|
|
N/A |
|
|
|
08/04 |
|
|
|
Covenant Place of Abilene
|
|
|
Abilene, TX |
|
|
|
50 |
|
|
|
|
|
|
|
55 |
|
|
|
|
|
|
|
55 |
|
|
|
N/A |
|
|
|
08/04 |
|
|
|
Crescent Point
|
|
|
Cedar Hill, TX |
|
|
|
112 |
|
|
|
134 |
|
|
|
|
|
|
|
|
|
|
|
134 |
|
|
|
N/A |
|
|
|
08/04 |
|
|
|
|
North Richland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Good Place
|
|
|
Hills, TX |
|
|
|
72 |
|
|
|
|
|
|
|
80 |
|
|
|
|
|
|
|
80 |
|
|
|
N/A |
|
|
|
08/04 |
|
|
|
Harding Place
|
|
|
Searcy, AR |
|
|
|
115 |
|
|
|
148 |
|
|
|
|
|
|
|
|
|
|
|
148 |
|
|
|
N/A |
|
|
|
08/04 |
|
|
|
|
North Richland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Meadow Lakes
|
|
|
Hills, TX |
|
|
|
120 |
|
|
|
145 |
|
|
|
|
|
|
|
|
|
|
|
145 |
|
|
|
N/A |
|
|
|
08/04 |
|
|
|
Meadow View
|
|
|
Arlington, TX |
|
|
|
80 |
|
|
|
|
|
|
|
80 |
|
|
|
|
|
|
|
80 |
|
|
|
N/A |
|
|
|
08/04 |
|
|
|
Mountain Creek
|
|
|
Grand Prairie, TX |
|
|
|
124 |
|
|
|
146 |
|
|
|
|
|
|
|
|
|
|
|
146 |
|
|
|
N/A |
|
|
|
08/04 |
|
|
|
Saint Ann
|
|
|
Oklahoma City, OK |
|
|
|
170 |
|
|
|
147 |
|
|
|
58 |
|
|
|
|
|
|
|
205 |
|
|
|
N/A |
|
|
|
08/04 |
|
|
|
Southern Plaza
|
|
|
Bethany, OK |
|
|
|
115 |
|
|
|
145 |
|
|
|
|
|
|
|
|
|
|
|
145 |
|
|
|
N/A |
|
|
|
08/04 |
|
|
|
Sunnybrook Estates
|
|
|
Madison, MS |
|
|
|
108 |
|
|
|
133 |
|
|
|
|
|
|
|
|
|
|
|
133 |
|
|
|
N/A |
|
|
|
08/04 |
|
|
|
Tealridge Manor
|
|
|
Edmond, OK |
|
|
|
169 |
|
|
|
208 |
|
|
|
|
|
|
|
|
|
|
|
208 |
|
|
|
N/A |
|
|
|
08/04 |
|
|
|
The Arbrook
|
|
|
Arlington, TX |
|
|
|
177 |
|
|
|
200 |
|
|
|
|
|
|
|
|
|
|
|
200 |
|
|
|
N/A |
|
|
|
08/04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,688 |
|
|
|
1,562 |
|
|
|
408 |
|
|
|
|
|
|
|
1,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,750 |
|
|
|
7,560 |
|
|
|
1,185 |
|
|
|
170 |
|
|
|
8,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Independent living (IL) residences, assisted living
(AL) residences and skilled nursing (SN) beds. |
|
(2) |
Those communities shown as 5% owned consist of the
Companys ownership of 5% of the member interests in the
SHPII/ CSL (as defined below). |
|
(3) |
Indicates the date on which the Company acquired or commenced
operating the community. The Company operated certain of its
communities pursuant to management agreements prior to acquiring
interests in the communities. |
|
(4) |
The Companys home care agency is
on-site at The Harrison
at Eagle Valley community. |
10
|
|
|
Third-Party Management Contracts |
Effective February 1, 2006, the Company entered into a
series of property management agreements (the Midwest
Agreements) to manage four communities acquired by Midwest
Portfolio Holding, Inc. (Midwest), a joint venture
owned approximately 89% by GE Healthcare and approximately 11%
by the Company. The Midwest Agreements are for an initial term
of five years and the agreements contain automatic one year
renewals thereafter. The Midwest Agreements generally provide
for a management fee of 5% of gross revenues.
Effective August 18, 2004, the Company acquired from the
Covenant Group of Texas (Covenant) all of the
outstanding stock of Covenants wholly owned subsidiary,
CGI Management, Inc. (CGIM). This acquisition
resulted in the Company assuming the management contracts (the
CGIM Management Agreements) on 14 senior living
communities with a combined resident capacity of approximately
1,800 residents. The CGIM Management Agreements expire on
various dates through August 2019. The CGIM Management
Agreements generally provide for management fees of 5% to 5.5%
of gross revenues, subject to certain base management fees. The
Company earned $1.4 million under the terms of the CGIM
Management Agreements for the year ended December 31, 2005.
In addition, the Company has the right to acquire seven of the
properties owned by Covenant (which are part of the 14
communities managed by CGIM) based on sales prices specified in
the stock purchase agreement. In the first quarter of fiscal
2006, the Company exercised its right to acquire the seven
communities owned by Covenant and the Company plans to sell six
of the communities to HCPI in a sale/ leaseback transaction. The
Company is marketing the seventh community and intends to
complete a sale as soon as possible.
The Company is party to a property management agreement (the
SHPII Management Agreement), effective
September 30, 2003, with Senior Housing Partners II,
LP (SHPII), a fund managed by Prudential Real Estate
Investors (Prudential), to manage one senior living
community. The SHPII Management Agreement extends until June
2008 and provides for management fees of 5% of gross revenue
plus reimbursement for costs and expenses related to the
communities. The Company earned $0.2 million under the
terms of the SHP Management Agreement for the year ended
December 31, 2005.
The Company entered into a series of property management
agreements (the SHPII/ CSL Management Agreements),
effective November 30, 2004, with four joint ventures
(collectively SHPII/ CSL) owned 95% by SHPII and 5%
by the Company, which collectively own and operate four senior
living communities (collectively the Spring Meadows
Communities). The SHPII/ CSL Management Agreements extend
until various dates through November 2014. The SHPII/ CSL
Management Agreements provide for management fees of 5% of gross
revenue plus reimbursement for costs and expenses related to the
communities. The Company earned $1.0 million under the
terms of the SHPII/ CSL Management Agreements for the year ended
December 31, 2005.
Prior to SHPII/ CSLs acquisition of the Spring Meadows
Communities on November 30, 2004, the Company was party to
a series of property management agreements (the Spring
Meadows Agreements) with affiliates of Lehman Brothers
(Lehman) to operate the Spring Meadows Communities,
which were owned by joint ventures in which Lehman and the
Company were members. Three Spring Meadows Agreements provided
for a base management fee of the greater of $15,000 per
month or 5% of gross revenues, plus an incentive fee equal to
25% of the excess cash flow over budgeted amounts. The remaining
Spring Meadows Agreement provided for a base management fee of
the greater of $13,321 per month or 5% of gross revenues,
plus an incentive fee equal to 25% of the excess cash flow over
budgeted amounts. In addition, the Company received an asset
management fee of 0.75% of annual revenues relating to each of
the four communities.
The Company was party to a series of property management
agreements (the BRE/ CSL Management Agreements) with
three joint ventures (collectively BRE/ CSL) owned
90% by an affiliate of Blackstone Real Estate Advisors
(Blackstone) and 10% by the Company, which
collectively owned and operated six senior living communities.
The BRE/ CSL Management Agreements provided for management fees
of 5% of gross revenue plus reimbursement for costs and expenses
related to the communities. The Company earned
11
$0.9 million under the terms of the BRE/ CSL Management
Agreements for the year ended December 31, 2005. These six
communities were sold in September 2005 and leased back by the
Company.
The Company was party to a series of property management
agreements (the Triad I Management Agreements)
pursuant to arrangements with Triad Senior Living I, LP
(Triad I), a partnership affiliated with Lehman,
which collectively owned and operated five senior living
communities and two expansions. The Company had an approximate
1% limited partnership interest in Triad I. The Triad I
Management Agreements provided for a base management fee of the
greater of $5,000 per month or 5% of gross revenue plus
reimbursement for costs and expenses related to the communities.
Under the provisions of FASB Interpretation No. 46, Triad I
operations were consolidated with the Companys operations
from January 1, 2004 through November 30, 2004.
Effective as of November 30, 2004, the Company acquired the
partnership interests of Triad I that it did not already own and
effective with these transactions the Company wholly owns Triad
I.
During the first six months of fiscal 2003, the Company was
party to a series of property management agreements (the
Triad Entities Agreements) with four partnerships
(Triad Senior Living II, L.P., Triad Senior
Living III, L.P., Triad Senior Living IV, L.P. and Triad
Senior Living V, L.P., collectively the Triad
Entities) affiliated with Triad Senior Living, Inc., which
collectively owned and operated 12 senior living communities.
The Company had an approximate 1% limited partnership interest
in each of the Triad Entities. The Triad Entities Management
Agreements provided for a base management fee of the greater of
$5,000 per month or 5% of gross revenue plus reimbursement
for costs and expenses related to the communities. Effective as
of July 1, 2003, the Company acquired the partnership
interests of the Triad Entities that it did not already own and
effective with these transactions the Company wholly owns each
of the Triad Entities.
The Company was party to a property management agreement (the
Buckner Agreement) with Buckner Retirement Services,
Inc. (Buckner), a not-for-profit corporation. The
Company and Buckner entered into a Management Termination,
Consulting, Licensing and Transfer Agreement (the
Calderwoods Termination Agreement) effective
September 30, 2001 whereby the Company and Buckner mutually
agreed to terminate the Management Agreement then in place
between the parties. Under the terms of the Calderwoods
Termination Agreement, the Company continued to provide certain
consulting services and earn a consulting/licensing fee of 3.5%
of the facilitys gross revenues through December 31,
2001 and 3.0% of the facilitys gross revenues beginning on
January 1, 2002 and continuing through May 31, 2005.
In the first quarter of fiscal 2003, the Company and Buckner
entered into an agreement whereby Buckner paid the Company
$0.3 million to terminate Buckners future
consulting/licensing fee obligations under the Calderwoods
Termination Agreement.
Growth Strategies
The Company believes that the fragmented nature of the senior
living industry and the limited capital resources available to
many small, private operators provide an attractive opportunity
for the Company to expand its existing base of senior living
operations. The Company believes that its current operations
throughout the United States serve as the foundation on which
the Company can build senior living networks in targeted
geographic markets and thereby provide a broad range of high
quality care in a cost-efficient manner.
The following are the principal elements of the Companys
growth strategy:
The Company intends to continue to focus on the
lease-up of its
non-stabilized communities and to improve its occupancy and
operating margins of its stabilized communities. The Company
continually seeks to maintain and improve occupancy rates by:
(i) retaining residents as they age in place by
extending optional care and service programs;
(ii) attracting new residents through the
on-site marketing
programs focused on residents and family members;
(iii) aggressively seeking referrals from professional
community outreach sources, including area religious
organizations, senior social service programs, civic and
business networks, as well as the medical community; and
(iv) continually refurbishing and renovating its
communities.
12
|
|
|
Pursue Strategic Acquisitions |
The Company intends to continue to pursue single or portfolio
acquisitions of senior living communities. Through strategic
acquisitions, joint venture investments, or facility leases, the
Company seeks to enter new markets or acquire communities in
existing markets as a means to increase market share, augment
existing clusters, strengthen its ability to provide a broad
range of care, and create operating efficiencies. As the
industry continues to consolidate, the Company believes that
opportunities will arise to acquire other senior living
companies. The Company believes that the current fragmented
nature of the senior living industry, combined with the
Companys financial resources, national presence, and
extensive contacts within the industry, can be expected to
provide it with the opportunity to evaluate a number of
potential acquisition opportunities in the future. In reviewing
acquisition opportunities, the Company will consider, among
other things, geographic location, competitive climate,
reputation and quality of management and communities, and the
need for renovation or improvement of the communities.
|
|
|
Pursue Management Agreements |
The Company intends to pursue single or portfolio management
opportunities for senior living communities. The Company
believes that its management infrastructure and proven operating
track record will allow the Company to take advantage of
increased opportunities in the senior living market for new
management contracts and other transactions.
|
|
|
Pursue Development Agreements for New Senior Living
Communities for Third Parties |
Since 1999 the Company has developed and opened 17 new senior
living communities and expanded two communities for third
parties. In addition, the Company has provided pre-opening
marketing services for six communities owned by third parties.
The Company intends to continue to pursue opportunities to
provide third parties development and marketing services.
The Company intends to continue to develop relationships with
local and regional hospital systems, managed care organizations
and other referral sources to attract new residents to the
Companys communities. In certain circumstances these
relationships may involve strategic alliances or joint ventures.
The Company believes that such arrangements or alliances, which
could range from joint marketing arrangements to priority
transfer agreements, will enable it to be strategically
positioned within the Companys markets if, as the Company
believes, senior living programs become an integral part of the
evolving health care delivery system.
Operations
The Company centralizes its corporate and other administrative
functions so that the community-based management and staff can
focus their efforts on resident care. The Company maintains
centralized accounting, finance, human resources, training and
other operational functions at its national corporate office in
Dallas, Texas. The Company also has a corporate office in New
York, New York. The Companys corporate offices are
generally responsible for: (i) establishing Company-wide
policies and procedures relating to, among other things,
resident care and operations; (ii) performing accounting
functions; (iii) developing employee training programs and
materials; (iv) coordinating human resources;
(v) coordinating marketing functions; and
(vi) providing strategic direction. In addition, financing,
development, construction and acquisition activities, including
feasibility and market studies, and community design,
development, and construction management are conducted by the
Companys corporate offices.
The Company seeks to control operational expenses for each of
its communities through standardized management reporting and
centralized controls of capital expenditures, asset replacement
tracking, and purchasing for larger and more frequently used
supplies. Community expenditures are monitored by regional
13
and district managers who are accountable for the resident
satisfaction and financial performance of the communities in
their region.
The Company provides oversight and support to each of its senior
living communities through experienced regional and district
managers. A district manager will oversee the marketing and
operations of three to six communities clustered in a small
geographic area. A regional manager will cover a larger
geographic area consisting of seven to twelve communities. In
most cases, the district and regional managers will office out
of the Companys senior living communities. Currently there
are regional managers based in the Northeast, Central Plains,
Midwest, Southwest and West regions.
The executive director at each community reports to a regional
or district manager. The regional and district managers report
directly to the President and Chief Operating Officer of the
Company. The district and regional managers make regular site
visits to each of their communities. The site visits involve a
physical plant inspection, quality assurance review, staff
training, financial and systems audits, regulatory compliance,
and team building.
|
|
|
Community-Based Management |
An executive director manages the
day-to-day operations
at each senior living community, including oversight of the
quality of care, delivery of resident services, and monitoring
of financial performance. The executive director is also
responsible for all personnel, including food service,
maintenance, activities, security, assisted living,
housekeeping, and, where applicable, nursing. In most cases,
each community also has department managers who direct the
environmental services, nursing or care services, business
management functions, dining services, activities,
transportation, housekeeping, and marketing functions.
The assisted living and skilled nursing components of the senior
living communities are managed by licensed professionals, such
as a nurse and/or a licensed administrator. These licensed
professionals have many of the same operational responsibilities
as the Companys executive directors, but their primary
responsibility is to oversee resident care. Many of the
Companys senior living communities and all of its skilled
nursing facilities are part of a campus setting, which include
independent living. This campus arrangement allows for
cross-utilization of certain support personnel and services,
including administrative functions that result in greater
operational efficiencies and lower costs than freestanding
facilities.
The Company actively recruits personnel to maintain adequate
staffing levels at its existing communities and hires new staff
for new or acquired communities prior to opening. The Company
has adopted comprehensive recruiting and screening programs for
management positions that utilize corporate office team
interviews and thorough background and reference checks. The
Company offers system-wide training and orientation for all of
its employees at the community level through a combination of
Company-sponsored seminars and conferences.
Quality assurance programs are coordinated and implemented by
the Companys corporate and regional staff. The
Companys quality assurance is targeted to achieve maximum
resident and resident family member satisfaction with the care
and services delivered by the Company. The Companys
primary focus in quality control monitoring includes routine
in-service training and performance evaluations of caregivers
and other support employees. Additional quality assurance
measures include:
Resident and Residents Family Input. On a routine
basis the Company provides residents and their family members
the opportunity to provide valuable input regarding the
day-to-day delivery of
services. On-site management at each community has fostered and
encouraged active resident councils and resident committees who
meet independently. These resident bodies meet with
on-site management on a
monthly basis to offer input and suggestions as to the quality
and delivery of services. Additionally, at each community the
Company conducts annual resident satisfaction surveys to further
monitor the satisfaction levels of both
14
residents and their family members. These surveys are sent
directly to the corporate headquarters for tabulation and
distribution to on-site
staff and residents. For 2005 and 2004, the Company achieved a
94% and a 95%, respectively, approval rating from its residents.
For any departmental area of service scoring below a 90%, a plan
of correction is developed jointly by
on-site, regional and
corporate staff for immediate implementation.
Regular Community Inspections. Each community is
inspected, on at least a quarterly basis, by regional and/or
corporate staff. Included as part of this inspection is the
monitoring of the overall appearance and maintenance of the
community interiors and grounds. The inspection also includes
monitoring staff professionalism and departmental reviews of
maintenance, housekeeping, activities, transportation,
marketing, administration and food and health care services, if
applicable. The inspections also include observing of residents
in their daily activities and the communitys compliance
with government regulations.
Independent Service Evaluations. The Company engages the
services of outside professional independent consulting firms to
evaluate various components of the community operations. These
services include mystery shops, competing community analysis,
pricing recommendations and product positioning. This provides
management with valuable unbiased product and service
information. A plan of action regarding any areas requiring
improvement or change is implemented based on information
received. At communities where health care is delivered, these
consulting service reviews include the
on-site handling of
medications, record keeping and general compliance with all
governmental regulations.
Each community is staffed by
on-site sales directors
and additional marketing/sales staff depending on the community
size and occupancy status. The primary focus of the
on-site marketing staff
is to create awareness of the Company and its services among
prospective residents and family members, professional referral
sources and other key decision makers. These efforts incorporate
an aggressive marketing plan to include monthly, quarterly and
annual goals for leasing, new lead generation, prospect follow
up, community outreach and resident and family referrals.
Additionally, the marketing plan includes a calendar of
promotional events and a comprehensive media program. On-site
marketing departments perform a competing community assessment
quarterly. Corporate and regional marketing directors monitor
the on-site marketing
departments effectiveness and productivity on a monthly
basis. Routine detailed marketing department audits are
performed on an annual basis or more frequently if deemed
necessary. Corporate and regional personnel assist in the
development of marketing strategies for each community and
produce creative media, assist in direct mail programs and
necessary marketing collateral. Ongoing sales training of
on-site marketing/sales
staff is implemented by corporate and regional marketing
directors.
In the case of new development, the corporate and regional staff
develops a comprehensive community outreach program that is
implemented at the start of construction. A marketing pre-lease
program is developed and
on-site marketing staff
are hired and trained to begin the program implementation six to
nine months prior to the community opening. Extensive use of
media, including radio, television, print, direct mail and
telemarketing, is implemented during this pre-lease phase.
After the community is opened and sustaining occupancy levels
are attained, the
on-site marketing staff
is more heavily focused on resident and resident family
referrals, as well as professional referrals. A maintenance
program of print media and direct mail is then implemented.
Government Regulation
Changes in existing laws and regulations, adoption of new laws
and regulations and new interpretations of existing laws and
regulations could have a material effect on the Companys
operations. Failure by the Company to comply with applicable
regulatory requirements could have a material adverse effect on
the Companys business, financial condition, and results of
operations. Accordingly, the Company monitors legal and
regulatory developments on local and national levels.
15
The health care industry is subject to extensive regulation and
frequent regulatory change. At this time, no federal laws or
regulations specifically regulate assisted or independent living
residences. While a number of states have not yet enacted
specific assisted living regulations, certain of the
Companys assisted living communities are subject to
regulation, licensing, CON and permitting by state and local
health care and social service agencies and other regulatory
authorities. While such requirements vary from state to state,
they typically relate to staffing, physical design, required
services and resident characteristics. The Company believes that
such regulation will increase in the future. In addition, health
care providers are receiving increased scrutiny under anti-trust
laws as integration and consolidation of health care delivery
increases and affects competition. The Companys
communities are also subject to various zoning restrictions,
local building codes, and other ordinances, such as fire safety
codes. Failure by the Company to comply with applicable
regulatory requirements could have a material adverse effect on
the Companys business, financial condition, and results of
operations. Regulation of the assisted living industry is
evolving. The Company is unable to predict the content of new
regulations and their effect on its business. There can be no
assurance that the Companys operations will not be
adversely affected by regulatory developments.
The Company believes that its communities are in substantial
compliance with applicable regulatory requirements. However, in
the ordinary course of business, one or more of the
Companys communities could be cited for deficiencies. In
such cases, the appropriate corrective action would be taken. To
the Companys knowledge, no material regulatory actions are
currently pending with respect to any of the Companys
communities.
Under the Americans with Disabilities Act of 1990, all places of
public accommodation are required to meet certain federal
requirements related to access and use by disabled persons. A
number of additional federal, state and local laws exist that
also may require modifications to existing and planned
properties to permit access to the properties by disabled
persons. While the Company believes that its communities are
substantially in compliance with present requirements or are
exempt therefrom, if required changes involve a greater
expenditure than anticipated or must be made on a more
accelerated basis than anticipated, additional costs would be
incurred by the Company. Further legislation may impose
additional burdens or restrictions with respect to access by
disabled persons, the costs of compliance with which could be
substantial.
The Health Insurance Portability and Accountability Act of 1996
(HIPAA), in conjunction with the federal regulations
promulgated thereunder by the Department of Health and Human
Services, has established, among other requirements, standards
governing the privacy of certain protected and individually
identifiable health information (PHI) that is
created, received or maintained by a range of covered entities.
HIPAA has also established standards governing uniform health
care transactions, the codes and identifiers to be used by the
covered entities and standards governing the security of certain
electronic transactions conducted by covered entities will go
into effect. Penalties for violations can range from civil money
penalties for errors and negligent acts to criminal fines and
imprisonment for knowing and intentional misconduct. HIPAA is a
complex set of regulations and many unanswered questions remain
with respect to the manner in which HIPAA applies to businesses
such as those operated by the Company.
In addition, the Company is subject to various federal, state
and local environmental laws and regulations. Such laws and
regulations often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of
hazardous or toxic substances. The costs of any required
remediation or removal of these substances could be substantial
and the liability of an owner or operator as to any property is
generally not limited under such laws and regulations and could
exceed the propertys value and the aggregate assets of the
owner or operator. The presence of these substances or failure
to remediate such contamination properly may also adversely
affect the owners ability to sell or rent the property, or
to borrow using the property as collateral. Under these laws and
regulations, an owner, operator or an entity that arranges for
the disposal of hazardous or toxic substances, such as
asbestos-containing materials, at a disposal site may also be
liable for the costs of any required remediation or removal of
the hazardous or toxic substances at the disposal site. In
connection with the ownership or operation of its properties,
the Company could be liable for these costs, as well as certain
other costs, including governmental fines and injuries to
persons or properties. The Company has completed Phase I
environmental audits of substantially all of the communities in
which the
16
Company owns interests, typically at the time of acquisition,
and such audits have not revealed any material environmental
liabilities that exist with respect to these communities.
Under various federal, state and local environmental laws,
ordinances and regulations, a current or previous owner or
operator of real estate may be required to investigate and clean
up hazardous or toxic substances or petroleum product releases
at such property, and may be held liable to a governmental
entity or to third parties for property damage and for
investigation and clean up costs. The Company is not aware of
any environmental liability with respect to any of its owned,
leased or managed communities that the Company believes would
have a material adverse effect on its business, financial
condition, or results of operations. The Company believes that
its communities are in compliance in all material respects with
all federal, state and local laws, ordinances and regulations
regarding hazardous or toxic substances or petroleum products.
The Company has not been notified by any governmental authority,
and is not otherwise aware of any material non-compliance,
liability, or claim relating to hazardous or toxic substances or
petroleum products in connection with any of the communities the
Company currently operates.
The Company believes that the structure and composition of
government and, specifically, health care regulations will
continue to change and, as a result, regularly monitors
developments in the law. The Company expects to modify its
agreements and operations from time to time as the business and
regulatory environments change. While the Company believes it
will be able to structure all its agreements and operations in
accordance with applicable law, there can be no assurance that
its arrangements will not be successfully challenged.
Competition
The senior living industry is highly competitive, and the
Company expects that all segments of the industry will become
increasingly competitive in the future. Although there are a
number of substantial companies active in the senior living
industry and in the markets in which the Company operates, the
industry continues to be very fragmented and characterized by
numerous small operators. The Company primarily competes with
American Retirement Corporation, Brookdale Senior Living Inc.,
Emeritus Corporation, Five Star Quality Care, Inc., Holiday
Retirement Corporation and Sunrise Senior Living, Inc. The
Company believes that the primary competitive factors in the
senior living industry are: (i) location;
(ii) reputation for and commitment to a high quality of
service; (iii) quality of support services offered (such as
food services); (iv) price of services; and
(v) physical appearance and amenities associated with the
communities. The Company competes with other companies providing
independent living, assisted living, skilled nursing, home
health care, and other similar service and care alternatives,
some of whom may have greater financial resources than the
Company. Because seniors tend to choose senior living
communities near their homes, the Companys principal
competitors are other senior living and long-term care
communities in the same geographic areas as the Companys
communities. The Company also competes with other health care
businesses with respect to attracting and retaining nurses,
technicians, aides and other high quality professional and
non-professional employees and managers.
Employees
As of December 31, 2005, the Company employed 2,867
persons, of which 1,491 were full-time employees (52 of whom are
located at the Companys corporate offices) and 1,376 were
part-time employees. None of the Companys employees are
currently represented by a labor union and the Company is not
aware of any union organizing activity among its employees. The
Company believes that its relationship with its employees is
good.
17
Executive Officers and Key Employees
The following table sets forth certain information concerning
each of the Companys executive officers and key employees
as of December 31, 2005:
|
|
|
|
|
|
|
Name |
|
Age | |
|
Position(s) with the Company |
|
|
| |
|
|
Lawrence A. Cohen
|
|
|
52 |
|
|
Chief Executive Officer and Vice Chairman of the Board |
James A. Stroud
|
|
|
55 |
|
|
Chairman and Secretary of the Company and Chairman of the Board |
Keith N. Johannessen
|
|
|
49 |
|
|
President and Chief Operating Officer |
Ralph A. Beattie
|
|
|
56 |
|
|
Executive Vice President and Chief Financial Officer |
Rob L. Goodpaster
|
|
|
52 |
|
|
Vice President National Marketing |
David W. Beathard, Sr.
|
|
|
58 |
|
|
Vice President Operations |
David R. Brickman
|
|
|
47 |
|
|
Vice President and General Counsel |
Glen H. Campbell
|
|
|
61 |
|
|
Vice President Development |
Gloria Holland
|
|
|
38 |
|
|
Vice President Finance |
Jerry D. Lee
|
|
|
45 |
|
|
Corporate Controller |
Robert F. Hollister
|
|
|
50 |
|
|
Property Controller |
Lawrence A. Cohen has served as a director and Vice
Chairman of the Board since November 1996. He has served as
Chief Executive Officer since May 1999 and was Chief Financial
Officer from November 1996 to May 1999. From 1991 to 1996,
Mr. Cohen served as President and Chief Executive Officer
of Paine Webber Properties Incorporated, which controlled a real
estate portfolio having a cost basis of approximately
$3.0 billion, including senior living facilities of
approximately $110.0 million. Mr. Cohen serves on the
boards of various charitable organizations, and was a founding
member and is on the executive committee of the Board of the
American Seniors Housing Association. Mr. Cohen has earned
a Masters in Law, is a licensed attorney and is also a Certified
Public Accountant. Mr. Cohen has had positions with
businesses involved in senior living for 21 years.
James A. Stroud has served as a director and officer of
the Company and its predecessors since January 1986. He
currently serves as Chairman and Secretary of the Company and
Chairman of the Board. Mr. Stroud also serves on the boards
of various educational and charitable organizations, and in
varying capacities with several trade organizations, including
as an Owner/ Operator Advisory Group member to the National
Investment Conference and as a Founding Sponsor of The Johns
Hopkins University Senior Housing and Care Program. Mr. Stroud
has served as a member of the Founders Council and
Leadership Council of the Assisted Living Federation of America.
Mr. Stroud was the past President and Member of the board
of directors of the National Association for Senior Living
Industry Executives. He also was a founder of the Texas Assisted
Living Association and served as a member of its board of
directors. Mr. Stroud has earned a Masters in Law, is a
licensed attorney and is also a Certified Public Accountant.
Mr. Stroud has had positions with businesses involved in
senior living for 21 years.
Keith N. Johannessen has served as President of the
Company and its predecessors since March 1994, and previously
served as Executive Vice President from May 1993 until February
1994. Mr. Johannessen has served as a director and Chief
Operating Officer since May 1999. From 1992 to 1993, Mr.
Johannessen served as Senior Manager in the health care practice
of Ernst & Young. From 1987 to 1992,
Mr. Johannessen was Executive Vice President of Oxford
Retirement Services, Inc. Mr. Johannessen has served on the
State of the Industry and Model Assisted Living Regulations
Committees of the American Seniors Housing Association.
Mr. Johannessen has been active in operational aspects of
senior housing for 27 years.
Ralph A. Beattie joined the Company as Executive Vice
President and Chief Financial Officer in May 1999. From 1997 to
1999, he served as Executive Vice President and the Chief
Financial Officer of Universal Sports America, Inc., which was
honored as the number one growth company in Dallas for 1998. For
the eight
18
years prior to that he was Executive Vice President and Chief
Financial Officer for Haggar Clothing Company, during which time
Haggar successfully completed its initial public offering.
Mr. Beattie has earned his Masters of Business
Administration and is both a Certified Management Accountant and
a Certified Financial Planner.
Rob L. Goodpaster has served as Vice
President National Marketing of the Company and its
predecessors since December 1992. From 1990 to 1992, Mr.
Goodpaster was National Director for Marketing for Autumn
America, an owner and operator of senior housing facilities.
Mr. Goodpaster has been active in professional industry
associations and formerly served on the Board of Directors for
the National Association for Senior Living Industries. Mr.
Goodpaster has been active in the operational, development and
marketing aspects of senior housing for 29 years.
David W. Beathard, Sr. has served as Vice
President Operations of the Company and its
predecessors since August 1996. From 1992 to 1996,
Mr. Beathard owned and operated a consulting firm, which
provided operational, marketing, and feasibility consulting
regarding senior housing facilities. Mr. Beathard has been
active in the operational, sales and marketing, and construction
oversight aspects of senior housing for 32 years.
David R. Brickman has served as Vice President and
General Counsel of the Company and its predecessors since July
1992. From 1989 to 1992, Mr. Brickman served as in-house
counsel with LifeCo Travel Management Company, a corporation
that provided travel services to U.S. corporations.
Mr. Brickman has also earned a Masters of Business
Administration and a Masters in Health Administration.
Mr. Brickman has either practiced law or performed in-house
counsel functions for 19 years.
Glen H. Campbell has served as Vice President
Development of the Company since September 1997. From 1990 to
1997 Mr. Campbell served as Vice President of Development
for Greenbrier Corporation, an assisted living development and
management company. From 1985 to 1990 Mr. Campbell served
as Director of Facility Management for Retirement Corporation of
America. Mr. Campbell has been active in the design and
development of retirement communities for 31 years.
Gloria M. Holland has served as Vice
President Finance since June 2004. From 2001 to
2004, Ms. Holland served as Assistant Treasurer and a
corporate officer for Aurum Technology, Inc., a privately held
company that provided technology and outsourcing to community
banks. From 1996 to 2001, Ms. Holland held positions in
Corporate Finance and Treasury at Brinker International, an
owner and operator of casual dining restaurants. From 1989 to
1996, Ms. Holland was a Vice President in the Corporate Banking
division of NationsBank and predecessor banks. Ms. Holland
received a BBA in Finance from the University of Mississippi in
1989.
Jerry D. Lee, a Certified Public Accountant, has served
as Corporate Controller since April 1999. Prior to joining the
Company, Mr. Lee served as the Senior Vice President of
Finance, from 1997 to 1999, for Universal Sports America, Inc.,
which produced sporting events and provided sports marketing
services for collegiate conferences and universities. From 1984
to 1997, Mr. Lee held various accounting management positions
with Haggar Clothing Company. Mr. Lee is a member of the
Financial Executives International, the American Institute of
Certified Public Accountants and is also a member of the Texas
Society of Certified Public Accountants.
Robert F. Hollister, a Certified Public Accountant, has
served as Property Controller for the Company and its
predecessors since April 1992. From 1985 to 1992,
Mr. Hollister was Chief Financial Officer and Controller of
Kavanaugh Securities, Inc., a National Association of Securities
Dealers broker dealer. Mr. Hollister is a member of the
American Institute of Certified Public Accountants.
Subsidiaries
Capital Senior Living Corporation is the parent company of
several direct and indirect subsidiaries. Although Capital
Senior Living Corporation and its subsidiaries are referred to
for ease of reference in this
Form 10-K as the
Company, these subsidiaries are separately incorporated and
maintain their legal existence separate and apart from the
parent, Capital Senior Living Corporation.
19
New York Stock Exchange Certification
In May 2005, as required in Section 303A.12(a) of the New
York Stock Exchange Listed Company Manual, the Chief Executive
Officer of the Company certified to the New York Stock Exchange
that he was not aware of any violations by the Company of New
York Stock Exchange corporate governance listing standards,
except for the inadvertent omission in the Companys proxy
statement last year of the procedure by which a presiding
director is chosen for each regularly scheduled executive
session of the Companys non-management directors, which
the Companys corporate governance guidelines provide that
the non-management directors shall choose at each executive
session a director to preside. The certifications of the Chief
Executive Officer and Chief Financial Officer required under
Section 302 of the Sarbanes-Oxley Act have been filed as
Exhibits 31.1 and 31.2 of this
Form 10-K annual
report.
ITEM 1A. RISK FACTORS
The Companys business involves various risks. When
evaluating the Companys business the following information
should be carefully considered in conjunction with the other
information contained in our periodic filings with the
Securities and Exchange Commission. Additional risks and
uncertainties not known to the Company currently or that
currently the Company deems to be immaterial also may impair the
Companys business operations. If the Company is unable to
prevent events that have a negative effect from occurring, then
the Companys business may suffer. Negative events are
likely to decrease the Companys revenue, increase its
costs, make its financial results poorer and/or decrease its
financial strength, and may cause its stock price to decline.
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The Company has significant debt. The Companys
failure to generate cash flow sufficient to cover required
interest and principal payments could result in defaults of the
related debt. |
As of December 31, 2005, the Company had mortgage and other
indebtedness totaling approximately $268.1 million. The
Company cannot assure you that it will generate cash flow from
operations or receive proceeds from refinancings, other
financings or the sales of assets sufficient to cover required
interest, principal and, if applicable, operating lease
payments. Any payment or other default could cause the
applicable lender to foreclose upon the communities securing the
indebtedness or, if applicable, in the case of an operating
lease, could terminate the lease, with a consequent loss of
income and asset value to the Company. Further, because some of
the Companys mortgages contain cross-default and
cross-collateralization provisions, a payment or other default
by the Company with respect to one community could affect a
significant number of the Companys other communities.
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The Companys failure to comply with financial
covenants contained in debt instruments could result in the
acceleration of the related debt. |
There are various financial covenants and other restrictions in
certain of the Companys debt instruments, including
provisions which:
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require the Company to meet specified financial tests at the
parent company level, which include, but are not limited to,
liquidity requirements, earnings before interest, taxes and
depreciation and amortization (EBITDA) requirements,
and tangible net worth requirements; |
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require the Company to meet specified financial tests at the
community level, which include, but are not limited to,
occupancy requirements, debt service coverage tests, cash flow
tests and net operating income requirements; and |
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require consent for changes in control of the Company. |
If the Company fails to comply with any of these requirements,
then the related indebtedness could become due and payable prior
to its stated maturity date. The Company cannot assure that it
could pay this debt if it became due.
20
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The Company will require additional financing and/or
refinancings in the future. |
The Companys ability to meet its long-term capital
requirements, including the repayment of certain long-term debt
obligations, will depend, in part, on its ability to obtain
additional financing or refinancings on acceptable terms from
available financing sources, including through the use of
mortgage financing, joint venture arrangements, by accessing the
debt and/or equity markets and possibly through operating leases
or other types of financing, such as lines of credit. There can
be no assurance that the financing or refinancings will be
available or that, if available, it will be on terms acceptable
to the Company. Moreover, raising additional funds through the
issuance of equity securities could cause existing stockholders
to experience dilution and could adversely affect the market
price of the Companys common stock. The Companys
inability to obtain additional financing or refinancings on
terms acceptable to the Company could delay or eliminate some or
all of the Companys growth plans, necessitate the sales of
assets at unfavorable prices or both, and would have a material
adverse effect on the Companys business, financial
condition and results of operations.
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The Companys current floating rate debt, and any
future floating rate debt, exposes it to rising interest
rates. |
The Company currently has indebtedness with floating interest
rates. Future indebtedness and, if applicable, lease obligations
may be based on floating interest rates prevailing from time to
time. Therefore, increases in prevailing interest rates would
increase the Companys interest or lease payment
obligations and could have a material adverse effect on the
Companys business, financial condition and results of
operations.
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The Company has significant operating lease obligations.
The Companys failure to generate cash flows sufficient to
cover these lease obligations could result in defaults under the
lease agreements. |
As of December 31, 2005, the Company leases seven
communities with lease obligations totaling approximately
$82.7 million over a 10 year period, with minimum
lease obligations of $8.9 million in fiscal 2006. The
Company cannot assure you that it will generate cash flow from
operations or receive proceeds from refinancings, other
financings or the sales of assets sufficient to cover these
required operating lease obligations. Any payment or other
default under the Companys leases could result in the
termination of the lease, with a consequent loss of income and
asset value to the Company. Further, because all of the
Companys leases contain cross-default provisions, a
payment or other default by the Company with respect to one
leased community could affect a significant number of the
Companys other leased communities. Certain of the
Companys leases contain various financial and other
restrictive covenants, which could limit the Companys
flexibility in operating its business. Failure to maintain
compliance with the lease obligations as set forth in the
Companys lease agreements could have a material adverse
impact on the Company.
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The Company cannot assure that it will be able to
effectively manage its growth. |
The Company intends to expand its operations, directly or
indirectly, through the acquisition of new senior living
communities, the expansion of some of its existing senior living
communities and through the increase in the number of
communities which it manages under management agreements. The
success of the Companys growth strategy will depend, in
large part, on its ability to implement these plans and to
effectively operate these communities. If the Company is unable
to manage its growth effectively, its business, results of
operations and financial condition may be adversely affected.
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The Company cannot assure that it will be able to acquire
additional senior living communities or expand existing senior
living communities. |
The acquisition of existing communities or other businesses
involves a number of risks. Existing communities available for
acquisition frequently serve or target different markets than
those presently served by the Company. The Company may also
determine that renovations of acquired communities and changes
in staff and operating management personnel are necessary to
successfully integrate those communities or businesses into its
existing operations. The costs incurred to reposition or
renovate newly acquired communi-
21
ties may not be recovered by the Company. In undertaking
acquisitions, the Company also may be adversely impacted by
unforeseen liabilities attributable to the prior operators of
those communities or businesses, against whom it may have little
or no recourse. The success of the Companys acquisition
strategy will be determined by numerous factors, including its
ability to identify suitable acquisition candidates; the
competition for those acquisitions; the purchase price; the
requirement to make operational or structural changes and
improvements; the financial performance of the communities or
businesses after acquisition; its ability to finance the
acquisitions; and its ability to integrate effectively any
acquired communities or businesses into its management,
information, and operating systems. The Company cannot assure
that its acquisition of senior living communities or other
businesses will be completed at the rate currently expected, if
at all, or if completed, that any acquired communities or
businesses will be successfully integrated into its operations.
The Companys ability to successfully expand existing
senior living communities will depend on a number of factors,
including, but not limited to, its ability to acquire suitable
sites for expansion at reasonable prices; its success in
obtaining necessary zoning, licensing, and other required
governmental permits and authorizations; and its ability to
control construction costs and accurately project completion
schedules. Additionally, the Company anticipates that the
expansion of existing senior living communities may involve a
substantial commitment of capital for a period of time of two
years or more until the expansions are operating and producing
revenue, the consequence of which could be an adverse impact on
its liquidity. The Company cannot assure that its expansion of
existing senior living communities will be completed at the rate
currently expected, if at all, or if completed, that such
expansions will be profitable.
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Termination of resident agreements and resident attrition
could affect adversely the Companys revenues and
earnings. |
State regulations governing assisted living facilities require
written resident agreements with each resident. Most of these
regulations also require that each resident have the right to
terminate the resident agreement for any reason on reasonable
notice. Consistent with these regulations, the resident
agreements signed by the Company allow residents to terminate
their agreement on 30 days notice. Thus, the Company
cannot contract with residents to stay for longer periods of
time, unlike typical apartment leasing arrangements that involve
lease agreements with specified leasing periods of up to a year
or longer. If a large number of residents elected to terminate
their resident agreements at or around the same time, then the
Companys revenues and earnings could be adversely
affected. In addition, the advanced age of the Companys
average resident means that the resident turnover rate in the
Companys senior living facilities may be difficult to
predict.
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The Company largely relies on private pay residents.
Circumstances that adversely effect the ability of the elderly
to pay for the Companys services could have a material
adverse effect on the Company. |
Approximately 95% of the Companys total revenues from
communities that it owned and managed for each of the years
ended December 31, 2005 and 2004 were attributable to
private pay sources. For each of the same periods, approximately
5% of the Companys revenues from these communities were
attributable to reimbursements from Medicare and Medicaid. The
Company expects to continue to rely primarily on the ability of
residents to pay for the Companys services from their own
or familial financial resources. Inflation or other
circumstances that adversely affect the ability of the elderly
to pay for the Companys services could have a material
adverse effect on the Companys business, financial
condition and results of operations.
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The Company is subject to some particular risks related to
third-party management agreements. |
The Company currently manages 15 senior living communities
for third parties and eight senior living communities for joint
ventures in which it has a minority interest pursuant to
multi-year management agreements. The management agreements
generally have initial terms of between five and fifteen years,
subject to certain renewal rights. Under these agreements the
Company provides management services to third party and joint
venture owners to operate senior living communities and has
provided, and may in the future provide, management and
consulting services to third parties on market and site
selection, pre-opening
22
sales and marketing,
start-up training and
management services for facilities under development and
construction. In most cases, either party to the agreements may
terminate them upon the occurrence of an event of default caused
by the other party. In addition, subject to the Companys
rights to cure deficiencies, community owners may terminate the
Company as manager if any licenses or certificates necessary for
operation are revoked, or if the Company has a change of
control. Also, in some instances, a community owner may
terminate the management agreement relating to a particular
community if the Company is in default under other management
agreements relating to other communities owned by the same
community owner or its affiliates. In addition, in certain cases
the community owner may terminate the agreement upon
30 days notice to the Company in the event of a sale
of the community. In those agreements, which are terminable in
the event of a sale of the community, the Company has certain
rights to offer to purchase the community. The termination of a
significant portion of the Companys management agreements
could have a material adverse effect on its business, financial
condition and results of operations.
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Performance of the Companys obligations under its
joint venture arrangements could have a material adverse effect
on the Company. |
The Company holds minority interests ranging from approximately
5% to 11% in several joint ventures with affiliates of
Prudential and GE Healthcare. The Company also manages the
communities owned by these joint ventures. Under the terms of
the joint venture agreements with Prudential covering four
properties, the Company is obligated to meet certain cash flow
targets and failure to meet these cash flow targets could result
in termination of the management agreements. Under the terms of
the joint venture agreements with GE Healthcare covering
four properties, the Company is obligated to meet certain net
operating income targets and failure to meet these net operating
income targets could result in termination of the management
agreements. All of the management agreements with the joint
ventures contain termination and renewal provisions. The Company
does not control joint venture decisions covering termination or
renewal. Performance of the above obligations or termination or
non-renewal of the management agreements could have a material
adverse effect on the Companys business, financial
condition and results of operations.
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The senior living services industry is very competitive
and some competitors have substantially greater financial
resources than the Company. |
The senior living services industry is highly competitive, and
the Company expects that all segments of the industry will
become increasingly competitive in the future. The Company
competes with other companies providing independent living,
assisted living, skilled nursing, home health care and other
similar services and care alternatives. The Company also
competes with other health care businesses with respect to
attracting and retaining nurses, technicians, aides and other
high quality professional and non-professional employees and
managers. Although the Company believes there is a need for
senior living communities in the markets where it operates
residences, the Company expects that competition will increase
from existing competitors and new market entrants, some of whom
may have substantially greater financial resources than the
Company. In addition, some of the Companys competitors
operate on a not-for-profit basis or as charitable organizations
and have the ability to finance capital expenditures on a
tax-exempt basis or through the receipt of charitable
contributions, neither of which are available to the Company.
Furthermore, if the development of new senior living communities
outpaces the demand for those communities in the markets in
which the Company has senior living communities, those markets
may become saturated. Regulation in the independent and assisted
living industry, which represents a substantial portion of the
Companys senior living services, is not substantial.
Consequently, development of new senior living communities could
outpace demand. An oversupply of those communities in the
Companys markets could cause the Company to experience
decreased occupancy, reduced operating margins and lower
profitability.
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The Company relies on the services of key executive
officers and the loss of these officers or their services could
have a material adverse effect on the Company. |
The Company depends on the services of its executive officers
for its management. The loss of some of the Companys
executive officers and the inability to attract and retain
qualified management personnel could
23
affect its ability to manage its business and could adversely
effect its business, financial condition and results of
operations.
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A significant increase in the Companys labor costs
could have a material adverse effect on the Company. |
The Company competes with other providers of senior living
services with respect to attracting and retaining qualified
management personnel responsible for the
day-to-day operations
of each of its communities and skilled personnel responsible for
providing resident care. A shortage of nurses or trained
personnel may require the Company to enhance its wage and
benefits package in order to compete in the hiring and retention
of these personnel or to hire more expensive temporary
personnel. The Company also will be dependent on the available
labor pool of semi-skilled and unskilled employees in each of
the markets in which it operates. No assurance can be given that
the Companys labor costs will not increase, or that, if
they do increase, they can be matched by corresponding increases
in rates charged to residents. Any significant failure by the
Company to control its labor costs or to pass on any increased
labor costs to residents through rate increases could have a
material adverse effect on its business, financial condition and
results of operations.
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There is an inherent risk of liability in the provision of
personal and health care services, not all of which may be
covered by insurance. |
The provision of personal and health care services in the
long-term care industry entails an inherent risk of liability.
In recent years, participants in the long-term care industry
have become subject to an increasing number of lawsuits alleging
negligence or related legal theories, many of which involve
large claims and result in the incurrence of significant defense
costs. Moreover, senior living communities offer residents a
greater degree of independence in their daily living. This
increased level of independence may subject the resident and,
therefore, the Company to risks that would be reduced in more
institutionalized settings. The Company currently maintains
insurance in amounts it believes are comparable to that
maintained by other senior living companies based on the nature
of the risks, the Companys historical experience and
industry standards, and the Company believes that this insurance
coverage is adequate. However, the Company may become subject to
claims in excess of its insurance or claims not covered by its
insurance, such as claims for punitive damages, terrorism and
natural disasters. A claim against the Company not covered by,
or in excess of, its insurance could have a material adverse
effect upon the Company.
In addition, the Companys insurance policies must be
renewed annually. Based upon poor loss experience, insurers for
the long-term care industry have become increasingly wary of
liability exposure. A number of insurance carriers have stopped
writing coverage to this market, and those remaining have
increased premiums and deductibles substantially. Therefore, the
Company cannot assure that it will be able to obtain liability
insurance in the future or that, if that insurance is available,
it will be available on acceptable economic terms.
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The Company is subject to government regulations and
compliance, some of which are burdensome and some of which may
change to the Companys detriment in the future. |
Federal and state governments regulate various aspects of the
Companys business. The development and operation of senior
living communities and the provision of health care services are
subject to federal, state and local licensure, certification and
inspection laws that regulate, among other matters, the number
of licensed beds, the provision of services, the distribution of
pharmaceuticals, billing practices and policies, equipment,
staffing (including professional licensing), operating policies
and procedures, fire prevention measures, environmental matters
and compliance with building and safety codes. Failure to comply
with these laws and regulations could result in the denial of
reimbursement, the imposition of fines, temporary suspension of
admission of new residents, suspension or decertification from
the Medicare program, restrictions on the ability to acquire new
communities or expand existing communities and, in extreme
cases, the revocation of a communitys license or closure
of a community. The Company believes that such regulation will
increase in the future and the Company is unable to predict the
content of new regulations or their effect on its business, any
of which could materially adversely affect the Company.
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Various states, including several of the states in which the
Company currently operates, control the supply of licensed
skilled nursing beds, assisted living communities and home
health care agencies through (CON) or other programs. In
those states, approval is required for the construction of new
health care communities, the addition of licensed beds and some
capital expenditures at those communities, as well as the
opening of a home health care agency. To the extent that a CON
or other similar approval is required for the acquisition or
construction of new communities, the expansion of the number of
licensed beds, services, or existing communities, or the opening
of a home health care agency, the Company could be adversely
affected by its failure or inability to obtain that approval,
changes in the standards applicable for that approval, and
possible delays and expenses associated with obtaining that
approval. In addition, in most states, the reduction of the
number of licensed beds or the closure of a community requires
the approval of the appropriate state regulatory agency and, if
the Company were to seek to reduce the number of licensed beds
at, or to close, a community, the Company could be adversely
affected by a failure to obtain or a delay in obtaining that
approval.
Federal and state anti-remuneration laws, such as
anti-kickback laws, govern some financial
arrangements among health care providers and others who may be
in a position to refer or recommend patients to those providers.
These laws prohibit, among other things, some direct and
indirect payments that are intended to induce the referral of
patients to, the arranging for services by, or the recommending
of, a particular provider of health care items or services.
Federal anti-kickback laws have been broadly interpreted to
apply to some contractual relationships between health care
providers and sources of patient referral. Similar state laws
vary, are sometimes vague, and seldom have been interpreted by
courts or regulatory agencies. Violation of these laws can
result in loss of licensure, civil and criminal penalties, and
exclusion of health care providers or suppliers from
participation in Medicare and Medicaid programs. There can be no
assurance that those laws will be interpreted in a manner
consistent with the Companys practices.
Under the Americans with Disabilities Act of 1990, all places of
public accommodation are required to meet federal requirements
related to access and use by disabled persons. A number of
additional federal, state and local laws exist that also may
require modifications to existing and planned communities to
create access to the properties by disabled persons. Although
the Company believes that its communities are substantially in
compliance with present requirements or are exempt therefrom, if
required changes involve a greater expenditure than anticipated
or must be made on a more accelerated basis than anticipated,
additional costs would be incurred by the Company. Further
legislation may impose additional burdens or restrictions with
respect to access by disabled persons, the costs of compliance
with which could be substantial.
The Health Insurance Portability and Accountability Act of 1996,
in conjunction with the federal regulations promulgated
thereunder by the Department of Health and Human Services, has
established, among other requirements, standards governing the
privacy of certain protected and individually identifiable
health information that is created, received or maintained by a
range of covered entities. HIPAA has also established standards
governing uniform health care transactions, the codes and
identifiers to be used by the covered entities and standards
governing the security of certain electronic transactions
conducted by covered entities. Penalties for violations can
range from civil money penalties for errors and negligent acts
to criminal fines and imprisonment for knowing and intentional
misconduct. HIPAA is a complex set of regulations and many
unanswered questions remain with respect to the manner in which
HIPAA applies to businesses such as those operated by the
Company.
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The Company may be subject to liability for environmental
damages. |
Under various federal, state and local environmental laws,
ordinances and regulations, a current or previous owner or
operator of real estate may be required to investigate and clean
up hazardous or toxic substances or petroleum product releases
at the property, and may be held liable to a governmental entity
or to third parties for property damage and for investigation
and clean up costs incurred by those parties in connection with
the contamination. These laws typically impose
clean-up responsibility
and liability without regard to whether the owner knew of or
caused the presence of the contaminants, and liability under
these laws has been interpreted to be joint and several unless
the harm is divisible and there is a reasonable basis for
allocation of responsibility. The costs of investigation,
remediation or removal of the substances may be
25
substantial, and the presence of the substances, or the failure
to properly remediate the property, may adversely affect the
owners ability to sell or lease the property or to borrow
using the property as collateral. In addition, some
environmental laws create a lien on the contaminated site in
favor of the government for damages and costs it incurs in
connection with the contamination. Persons who arrange for the
disposal or treatment of hazardous or toxic substances also may
be liable for the costs of removal or remediation of the
substances at the disposal or treatment facility, whether or not
the facility is owned or operated by the person. Finally, the
owner of a site may be subject to common law claims by third
parties based on damages and costs resulting from environmental
contamination emanating from a site. If the Company becomes
subject to any of these claims the costs involved could be
significant and could have a material adverse effect on its
business, financial condition and results of operations.
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ITEM 1B. |
UNRESOLVED STAFF COMMENTS |
Not applicable.
The executive and administrative offices of the Company are
located at 14160 Dallas Parkway, Suite 300, Dallas, Texas
75254, and consist of approximately 22,000 square feet. The
lease on the premises extends through February 2008. The Company
believes that its corporate office facilities are adequate to
meet its requirements through at least fiscal 2006 and that
suitable additional space will be available, as needed, to
accommodate further physical expansion of corporate operations.
The Company also leases executive office space in New York, New
York pursuant to an annual lease agreement.
As of December 31, 2005, the Company owned, leased and/or
managed the senior living communities referred to in Item 1
above under the caption Operating Communities.
|
|
ITEM 3. |
LEGAL PROCEEDINGS |
In the fourth quarter of 2002, the Company (and two of its
management subsidiaries), Buckner and a related Buckner entity,
and other unrelated entities were named as defendants in a
lawsuit in district court in Fort Bend County, Texas
brought by the heir of a former resident who obtained nursing
home services at Parkway Place from September 1998 to March
2001. The Company managed Parkway Place for Buckner through
December 31, 2001. The Company and its subsidiaries denied
any wrongdoing. On March 16, 2004, the Court granted the
Companys Motion to Dismiss.
In February 2004, the Company and certain subsidiaries, along
with numerous other senior living companies in California, were
named as defendants in a lawsuit in the superior court in Los
Angeles, California. This lawsuit was brought by two public
interest groups on behalf of seniors in California residing at
the California facilities of the defendants. The plaintiffs
alleged that pre-admission fees charged by the defendants
facilities were actually security deposits that must be refunded
in accordance with California law. On November 30, 2004,
the court approved a settlement involving the Companys
independent living communities. Under the terms of the
settlement, (a) all non-refundable fees collected at the
independent living facilities since January 1, 2003 will be
treated as a refundable security deposits and (b) the
attorney for the plaintiffs received nominal attorney fees.
There were no other settlement costs to the Company or its
affiliates and the Companys assisted living community in
California was not named.
In April 2005, the Company filed a claim before the American
Arbitration Association in Dallas, Texas against a former
brokerage consultant and her company (collectively,
Respondents) for (1) a declaratory judgment
that it has fulfilled certain obligations to Respondents under
contracts the parties had signed related to the Covenant
transaction, (2) for damages resulting from alleged breach
of a confidentiality provision, and (3) for damages for
unpaid referral fees. Respondent has filed a counterclaim for
causes of action including breach of contract, duress, and undue
infliction of emotional distress. The counterclaim seeks damages
of up to $1,291,500 (or more). Respondent also seeks
to recover unspecified amounts of additional damages if the
Company acquires any of the Covenant owned properties on which
she claims to be entitled to recover
26
brokerage fees. The proceeding is in the discovery phase. The
Companys management believes strongly that its position
has merit and intends to vigorously defend the counterclaim.
On January 11, 2006, the Company received a demand letter
from the Texas Property and Casualty Insurance Guaranty
Association (TPCIGA) for repayment of $199,737.45 in
workers compensation payments allegedly made by TPCIGA on
behalf of Company employees. The Company has also received other
correspondence for repayment of $45,357.82. TPCIGAs letter
states that it has assumed responsibility for insureds of
Reliance Insurance Company (Reliance) which was
declared insolvent and ordered into liquidation in October of
2001 by the Commonwealth Court of Pennsylvania. Reliance had
been the Companys workers compensation carrier.
TPCIGAs demand letter states that under the Texas
Insurance Code, TPCIGA is entitled to seek reimbursement from an
insured for sums paid on its behalf if the insureds net
worth exceeds $50 million at the end of the year
immediately proceeding the impaired insurers insolvency.
TPCIGA states that it pursues reimbursement of these payments
from the Company pursuant to this net worth
provision. The Company has requested additional information from
TPCIGA to verify that the Company was indeed the employer of the
individuals on whose behalf the TPCIGA has paid claims. The
TPCIGA has not provided sufficient documentation at this time
for the Company to be able to fully evaluate all of these claims.
The Company has other pending claims not mentioned above
(Other Claims) incurred in the course of its
business. Most of these Other Claims are believed by management
to be covered by insurance, subject to normal reservations of
rights by the insurance companies and possibly subject to
certain exclusions in the applicable insurance policies. Whether
or not covered by insurance, these Other Claims, in the opinion
of management, based on advice of legal counsel, should not have
a material effect on the consolidated financial statements of
the Company if determined adversely to the Company.
|
|
ITEM 4. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
There were no matters submitted to a vote of the Companys
security holders during the fourth quarter ended
December 31, 2005.
PART II
|
|
ITEM 5. |
MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS |
(a) Market for Common Stock; Dividends; Equity
Compensation Plan Information.
Market for Common Stock
The Companys shares of common stock are listed for trading
on the New York Stock Exchange (NYSE) under the
symbol CSU. The following table sets forth, for the
periods indicated, the high and low sales prices for the
Companys common stock, as reported on the NYSE. At
March 10, 2006 there were approximately 114 stockholders of
record of the Companys common stock.
|
|
|
|
|
|
|
|
|
|
Year |
|
High | |
|
Low | |
|
|
| |
|
| |
2005
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
6.00 |
|
|
$ |
5.05 |
|
|
Second Quarter
|
|
|
7.25 |
|
|
|
5.40 |
|
|
Third Quarter
|
|
|
8.50 |
|
|
|
6.95 |
|
|
Fourth Quarter
|
|
|
10.88 |
|
|
|
7.50 |
|
|
2004
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
7.28 |
|
|
$ |
5.78 |
|
|
Second Quarter
|
|
|
6.65 |
|
|
|
4.55 |
|
|
Third Quarter
|
|
|
5.03 |
|
|
|
3.65 |
|
|
Fourth Quarter
|
|
|
5.75 |
|
|
|
4.75 |
|
27
Dividends
It is the policy of the Companys Board of Directors to
retain all future earnings to finance the operation and
expansion of the Companys business. Accordingly, the
Company has not and does not anticipate declaring or paying cash
dividends on the Common Stock in the foreseeable future. The
payment of cash dividends in the future will be at the sole
discretion of the Companys Board of Directors and will
depend on, among other things, the Companys earnings,
operations, capital requirements, financial condition,
restrictions in then existing financing agreements, and other
factors deemed relevant by the Board of Directors.
Equity Compensation Plan Information
The following table presents information relating to the
Companys equity compensation plans as of December 31,
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities | |
|
|
Number of Securities to | |
|
Weighted-Average | |
|
Remaining Available for | |
|
|
be Issued Upon | |
|
Exercise Price of the | |
|
Future Issuance Under | |
|
|
Exercise of Outstanding | |
|
Outstanding | |
|
Equity Compensation Plans | |
|
|
Options, Warrants and | |
|
Options, Warrants | |
|
(Excluding Securities | |
Plan Category |
|
Rights | |
|
and Rights | |
|
Reflected in First Column ) | |
|
|
| |
|
| |
|
| |
Equity compensation plans approved by security holders
|
|
|
1,109,225 |
|
|
$ |
4.69 |
|
|
|
642,974 |
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,109,225 |
|
|
$ |
4.69 |
|
|
|
642,974 |
|
|
|
|
|
|
|
|
|
|
|
(b) Recent Sales of Unregistered Securities; Use of
Proceeds from Registered Securities. Not Applicable.
(c) Issuer Purchases of Equity Securities.
Not Applicable.
28
|
|
ITEM 6. |
SELECTED FINANCIAL DATA |
The following table sets forth selected financial data of the
Company. The selected financial data for the years ended
December 31, 2005, 2004, 2003, 2002 and 2001 are derived
from the audited consolidated financial statements of the
Company except as noted in footnote 2 below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At and for the Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resident and health care revenue
|
|
$ |
101,770 |
|
|
$ |
90,544 |
|
|
$ |
62,564 |
|
|
$ |
57,574 |
|
|
$ |
62,807 |
|
|
|
Rental and lease income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37 |
|
|
|
3,619 |
|
|
|
Unaffiliated management services revenue
|
|
|
1,626 |
|
|
|
726 |
|
|
|
336 |
|
|
|
1,069 |
|
|
|
1,971 |
|
|
|
Affiliated management services revenue
|
|
|
1,834 |
|
|
|
1,992 |
|
|
|
3,236 |
|
|
|
2,062 |
|
|
|
1,743 |
|
|
|
Affiliated development fees
|
|
|
|
|
|
|
|
|
|
|
189 |
|
|
|
740 |
|
|
|
403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
105,230 |
|
|
|
93,262 |
|
|
|
66,325 |
|
|
|
61,482 |
|
|
|
70,543 |
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (exclusive of depreciation and amortization
shown below)(2)
|
|
|
68,707 |
|
|
|
64,772 |
|
|
|
44,637 |
|
|
|
37,179 |
|
|
|
41,985 |
|
|
|
General and administrative expenses(2)
|
|
|
10,187 |
|
|
|
9,552 |
|
|
|
7,914 |
|
|
|
7,229 |
|
|
|
7,231 |
|
|
|
Provision for bad debts
|
|
|
258 |
|
|
|
198 |
|
|
|
168 |
|
|
|
267 |
|
|
|
967 |
|
|
|
Facility lease expense
|
|
|
2,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
13,046 |
|
|
|
12,009 |
|
|
|
7,791 |
|
|
|
5,846 |
|
|
|
7,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
94,268 |
|
|
|
86,531 |
|
|
|
60,510 |
|
|
|
50,521 |
|
|
|
57,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
10,962 |
|
|
|
6,731 |
|
|
|
5,815 |
|
|
|
10,961 |
|
|
|
13,272 |
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
133 |
|
|
|
572 |
|
|
|
4,278 |
|
|
|
5,968 |
|
|
|
5,914 |
|
|
|
Interest expense
|
|
|
(18,595 |
) |
|
|
(15,769 |
) |
|
|
(12,481 |
) |
|
|
(10,749 |
) |
|
|
(14,888 |
) |
|
|
Gain (loss) on sale of properties
|
|
|
104 |
|
|
|
(37 |
) |
|
|
6,751 |
|
|
|
1,876 |
|
|
|
2,550 |
|
|
|
Debt restructuring/ derivative costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off of deferred loan cost
|
|
|
(25 |
) |
|
|
(824 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on interest rate swap agreement
|
|
|
|
|
|
|
1,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on interest rate lock agreement
|
|
|
(641 |
) |
|
|
(1,356 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)(1)
|
|
|
416 |
|
|
|
182 |
|
|
|
3,616 |
|
|
|
69 |
|
|
|
(885 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes, and minority interest in
consolidated partnership
|
|
|
(7,646 |
) |
|
|
(9,066 |
) |
|
|
7,979 |
|
|
|
8,125 |
|
|
|
5,963 |
|
|
Benefit (provision) for income taxes
|
|
|
2,273 |
|
|
|
2,270 |
|
|
|
(3,098 |
) |
|
|
(3,015 |
) |
|
|
(1,777 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before minority interest in consolidated
partnership
|
|
|
(5,373 |
) |
|
|
(6,796 |
) |
|
|
4,881 |
|
|
|
5,110 |
|
|
|
4,186 |
|
|
Minority interest in consolidated partnership
|
|
|
19 |
|
|
|
38 |
|
|
|
109 |
|
|
|
(428 |
) |
|
|
(1,430 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$ |
(5,354 |
) |
|
$ |
(6,758 |
) |
|
$ |
4,990 |
|
|
$ |
4,682 |
|
|
$ |
2,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share
|
|
$ |
(0.21 |
) |
|
$ |
(0.27 |
) |
|
$ |
0.25 |
|
|
$ |
0.24 |
|
|
$ |
0.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share
|
|
$ |
(0.21 |
) |
|
$ |
(0.27 |
) |
|
$ |
0.25 |
|
|
$ |
0.24 |
|
|
$ |
0.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
25,827 |
|
|
|
25,213 |
|
|
|
19,784 |
|
|
|
19,726 |
|
|
|
19,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
25,827 |
|
|
|
25,213 |
|
|
|
19,975 |
|
|
|
19,917 |
|
|
|
19,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At and for the Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
21,831 |
|
|
$ |
19,515 |
|
|
$ |
6,594 |
|
|
$ |
11,768 |
|
|
$ |
9,975 |
|
|
Working capital (deficit)
|
|
|
10,860 |
|
|
|
(22,289 |
) |
|
|
(12,835 |
) |
|
|
4,349 |
|
|
|
(6,441 |
) |
|
Total assets
|
|
|
434,051 |
|
|
|
431,175 |
|
|
|
421,333 |
|
|
|
278,251 |
|
|
|
308,082 |
|
|
Long-term debt, excluding current portion
|
|
|
252,733 |
|
|
|
219,526 |
|
|
|
255,549 |
|
|
|
140,385 |
|
|
|
156,755 |
|
|
Shareholders equity
|
|
|
145,415 |
|
|
|
149,547 |
|
|
|
124,367 |
|
|
|
118,281 |
|
|
|
113,544 |
|
|
|
(1) |
Other income in fiscal 2003 includes the recognition of deferred
income of $3.4 million related to the liquidation of the
HealthCare Properties, L.P. (HCP) partnership. In
fiscal 2001, the Company recognized a loss on foreclosure of
$0.4 million. The charge resulted from a loan foreclosure
on HCPs McCurdy property. |
|
(2) |
Certain community level expenses were reclassed from general and
administrative expense to operating expense in order to conform
to industry practices. The amounts reclassed were $6,971;
$4,429; $4,328; $4,771 for fiscal 2004, 2003, 2002 and 2001,
respectively. |
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |
Certain information contained in this report constitutes
Forward-Looking Statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended, which can be identified by the use of forward-looking
terminology such as may, will,
expect, anticipate, estimate
or continue or the negative thereof or other
variations thereon or comparable terminology. The Company
cautions readers that forward-looking statements, including,
without limitation, those relating to the Companys future
business prospects, revenues, working capital, liquidity,
capital needs, interest costs, and income, are subject to
certain risks and uncertainties that could cause actual results
to differ materially from those indicated in the forward-looking
statements, due to several important factors herein identified,
among others, and other risks and factors identified from time
to time in the Companys reports filed with the SEC.
Overview
The following discussion and analysis addresses the
Companys results of operations on a historical
consolidated basis for the years ended December 31, 2005,
2004 and 2003. The following should be read in conjunction with
the Companys historical consolidated financial statements
and the selected financial data contained elsewhere in this
report.
The Company is one of the largest operators of senior living
communities in the United States in terms of resident capacity.
The Companys operating strategy is to provide quality
senior living services at an affordable price to its residents,
while achieving and sustaining a strong, competitive position
within its chosen markets, as well as to continue to enhance the
performance of its operations. The Company provides senior
living services to the elderly, including independent living,
assisted living, skilled nursing and home care services.
As of December 31, 2005, the Company operated 55 senior
living communities in 20 states with an aggregate capacity
of approximately 8,900 residents, including 33 senior living
communities which the Company owned or in which the Company had
an ownership interest, seven senior living communities the
Company leased and 15 senior living communities it managed for
third parties. As of December 31, 2005, the Company also
operated one home care agency.
The Company generates revenue from a variety of sources. For the
year ended December 31, 2005, the Companys revenues
were derived as follows: 96.7% from the operation of 36 owned
and leased communities; 3.3% from management fees arising from
management services provided for 10 affiliate-owned senior living
30
communities (six of which the Company now operates under lease
arrangements with Ventas) and 15 third-party owned senior living
communities.
The Company managed and operated the 36 communities it wholly
owned or leased, four communities owned by joint ventures in
which the Company has a minority interest and 15 communities
owned by third parties as of December 31, 2005. For
communities owned by joint ventures and third parties the
Company typically receives a management fee of 5% of gross
revenues. In addition, certain of the contracts provide for
supplemental incentive fees that vary by contract based upon the
financial performance of the managed community.
The Company believes that the factors affecting the financial
performance of communities managed under contracts with third
parties do not vary substantially from the factors affecting the
performance of owned and leased communities, although there are
different business risks associated with these activities.
The Companys third-party management fees are primarily
based on a percentage of gross revenues. As a result, the cash
flow and profitability of such contracts to the Company are more
dependent on the revenues generated by such communities and less
dependent on net cash flow than for owned communities. Further,
the Company is not responsible for capital investments in
managed communities. The management contracts are generally
terminable only for cause and upon the sale of a community,
subject to the Companys rights to offer to purchase such
community.
Effective as of June 30, 2005, BRE/ CSL entered into a
Purchase and Sale Agreement (the Ventas Purchase
Agreement) with Ventas to sell the six communities owned
by BRE/ CSL to Ventas for $84.6 million. In addition,
Ventas and the Company entered into Master Lease Agreements (the
Ventas Lease Agreements) whereby the Company would
lease the six communities from Ventas. Effective
September 30, 2005, Ventas completed the purchase of the
six BRE/ CSL communities and the Company began consolidating the
operations of the six communities in its consolidated statement
of operations under the terms of the Ventas Lease Agreements.
The Ventas Lease Agreements each have an initial term of ten
years, with two five year renewal extensions available at the
Companys option. The initial lease rate under the Ventas
Lease Agreements is 8% and is subject to certain conditional
escalation clauses. The Company incurred $1.3 million in
lease acquisition costs related to the Ventas Lease Agreements.
These deferred lease acquisition costs are being amortized over
the initial 10 year lease term and are included in facility
lease expense in the Companys statement of operations. The
Company has accounted for each of the Ventas Lease Agreements as
operating leases. The sale of the six BRE/ CSL communities to
Ventas resulted in the Company recording a gain of approximately
$4.2 million, which has been deferred and is being
recognized in the Companys statement of operations over
the initial 10 year lease term.
On October 18, 2005, the Company entered into an agreement
with Ventas to lease a senior living community
(Georgetowne Place) which Ventas acquired for
approximately $19.5 million. Georgetowne Place is located
in Fort Wayne, Indiana and is a 162 unit senior living
community with a capacity of 247 residents. The lease which
the Company executed with Ventas has an initial term of ten
years, with two five year renewal extensions available at the
Companys option. The Company incurred $0.2 million in
lease acquisition costs related to the Georgetowne Place lease.
These deferred lease acquisition costs are being amortized over
the initial 10 year lease term and are included in facility
lease expense in the Companys statement of operations. The
initial lease rate is 8% and is subject to conditional
escalation provisions. The Company has accounted for the
Georgetowne Place lease as an operating lease.
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Triad Entities and Triad I Transactions |
Effective as of July 1, 2003, the Company acquired the
partnership interest of the general partners and the other third
party limited partners interests in the Triad Entities for
$1.3 million in cash, $0.4 million in notes payable
and the assumption of all outstanding debt and liabilities. The
total purchase price was
31
$194.4 million and the acquisition was treated as a
purchase of property. This acquisition resulted in the Company
acquiring the 12 senior living communities owned by the Triad
Entities with a combined resident capacity of approximately
1,670 residents. Subsequent to the end of the Companys
third quarter of 2003, the Company repaid the $0.4 million
in notes payable related to this acquisition. Prior to this
acquisition, the Company owned 1% of the limited partnership
interests and managed the Triad Entities under a series of
long-term management contracts.
Effective as of November 30, 2004, the Company acquired
Lehmans approximate 81% limited partnership interest in
Triad I for $4.0 million in cash and the issuance of a
note with a net present value of $2.8 million. The Lehman
note bears no interest and is deemed to be paid in full under
any of the following three conditions: 1) the Company makes
a payment of $3.5 million before November 29, 2008;
2) the Company makes a payment of $4.3 million before
November 29, 2009; or 3) the Company makes a payment
of $5.0 million before November 29, 2010. The Company
expects to repay the note on or before November 29,
2008 and therefore recorded the note at $2.8 million (face
amount $3.5 million discounted at 5.7%). In addition, the
Company acquired the general partners interest in
Triad I by assuming a $3.6 million note payable from
the general partner to a subsidiary of the Company. The
acquisition was recorded as a purchase of property. The purchase
price of $10.4 million was recorded as a
step-up in basis of
$9.3 million and in addition the Company recorded a
deferred tax asset of $1.1 million as Triad I had been
previously consolidated under FASB Interpretation No. 46,
revised December 2003, (FIN 46), as of
December 31, 2003. These transactions resulted in the
Company wholly owning Triad I. Triad I owned five
Waterford senior living communities and two expansions. The two
expansions were subsequently deeded to a subsidiary of the
Company in order for the two expansions to be consolidated with
their primary community. Prior to acquiring the remaining
interests of the general partner and the other third party
limited partner in Triad I, the Company had an approximate
1% limited partners interest in Triad I and has
accounted for these investments under the equity method of
accounting based on the provisions of the Triad I
partnership agreement until December 31, 2003.
In 2003, the Financial Accounting Standards Board
(FASB) issued FIN. 46, Consolidation of
Variable Interest Entities, an interpretation of ARB
No. 51, effective immediately for variable interest
entities created after January 31, 2003 and effective as of
December 31, 2003, for variable interest entities that
existed prior to February 1, 2003. The Company adopted the
provisions of this interpretation, as of December 31, 2003,
which resulted in the Company consolidating Triad Is
financial position as of December 31, 2003 and
consolidating Triad Is results of operations
beginning January 1, 2004. The consolidation of
Triad I under the provisions of FIN 46 as of
December 31, 2003 resulted in an increase in property and
equipment of $62.5 million.
Effective August 18, 2004, the Company acquired from
Covenant all of the outstanding stock of Covenants wholly
owned subsidiary, CGIM. The Company paid approximately
$2.3 million in cash (including closing costs of
approximately $0.1 million) and issued a non-interest
bearing note with a fair value of approximately
$1.1 million (face amount $1.4 million discounted at
5.7%), subject to various adjustments set forth in the purchase
agreement, to acquire all of the outstanding stock of CGIM. The
note is due in three installments of approximately
$0.3 million, $0.4 million and $0.7 million due
on the first, third and fifth anniversaries of the closing,
respectively, subject to reduction if the management fees earned
from the third party owned communities with various terms are
terminated and not replaced by substitute agreements during the
period, and certain other adjustments. This acquisition resulted
in the Company assuming the management contracts on 14 senior
living communities with a combined resident capacity of
approximately 1,800 residents. The acquisition was accounted for
as a purchase and the entire purchase price of $3.5 million
was allocated to management contract rights. In addition, the
Company recorded a deferred tax liability of $2.1 million
related to the acquisition of these management contract rights.
The Companys first installment payment under the Covenant
note was reduced by $0.2 million under the terms of the
stock purchase agreement and the $0.2 million installment
reduction was recorded as an adjustment to the purchase price.
In addition, the Company has the right to acquire seven of the
properties owned by Covenant (which are part of
32
the 14 communities managed by CGIM) based on sales prices
specified in the stock purchase agreement. In the first quarter
of fiscal 2006, the Company exercised its right to acquire the
seven communities owned by Covenant and the Company plans to
sell six of the communities to HCPI in a sale/leaseback
transaction. The Company is marketing the seventh community and
intends to complete a sale as soon as possible.
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SHPII/ CSL and SHPII Transactions |
Effective as of November 30, 2004, the Company acquired
Lehmans approximate 81% interest in the Spring Meadows
Communities and simultaneously sold the Spring Meadows
Communities to SHPII/ CSL, which is owned 95% by SHPII and 5% by
the Company. As a result these transactions, the Company paid
$1.1 million for Lehmans interest in the joint
ventures, received net current assets of $0.9 million and
wrote-off the remainder totaling $0.2 million. In addition,
the Company contributed $1.3 million to SHPII/ CSL for its
5% interest. The Company manages the communities for SHPII/ CSL
under long-term management contracts.
Prior to SHPII/ CSLs acquisition of the Spring Meadows
Communities, the Company, in December 2002, acquired from
affiliates of LCOR Incorporated (LCOR) its
approximate 19% member interests in the four joint ventures,
that owned the Spring Meadows Communities as well as loans made
by LCOR to the joint ventures for $0.9 million in addition
to funding $0.4 million to the venture for working capital
and anticipated negative cash requirements of the communities.
The Companys interests in the joint ventures that owned
the Spring Meadows Communities included interests in certain
loans to the ventures and an approximate 19% member interest in
each venture. The Company recorded its initial advances of
$1.3 million to the ventures as notes receivable as the
amount assigned for the 19% member interests was nominal. The
Company accounted for its investment in the Spring Meadows
Communities under the equity method of accounting based on the
provisions of the partnership agreements. The Company managed
the Spring Meadows Communities since the opening of each
community in late 2000 and early 2001 and continued to manage
the communities under long-term management contracts until
November 2004 when the joint ventures were sold. In addition,
the Company received an asset management fee relating to each of
the four communities. The Company had the obligation to fund
certain future operating deficits of the Spring Meadows
Communities to the extent of its 19% member interest. No amounts
were funded by the Company under this obligation.
In September 2003, the Company sold its Carmichael community to
SHPII for $11.7 million before closing costs of
$0.6 million. Carmichael is an independent living community
located in Sacramento, California with a resident capacity of
156. As a result of the sale the Company retired
$7.4 million in debt and received $3.6 million in cash
and recognized a gain of $3.1 million. The Company manages
the Carmichael community for SHPII under a long-term management
contract.
The Company formed BRE/ CSL with Blackstone in December 2001,
and the joint ventures are owned 90% by Blackstone and 10% by
the Company. Pursuant to the terms of the joint ventures, each
of the Company and Blackstone must approve any acquisitions made
by BRE/ CSL. Each party must also contribute its pro rata
portion of the costs of any acquisition.
In December 2001, BRE/ CSL acquired Amberleigh, a 394 resident
capacity independent living facility. In connection with the
acquisition of Amberleigh by BRE/ CSL, the Company contributed
$1.8 million to BRE/ CSL. During the second quarter of
2002, BRE/ CSL obtained permanent financing for the Amberleigh
community and the Company recovered $1.4 million of its
contribution to BRE/ CSL.
On June 13, 2002, the Company contributed to BRE/ CSL four
of its senior living communities with a capacity of
approximately 600 residents. As a result of the contribution,
the Company repaid $29.1 million of long-term debt to GMAC,
received $7.3 million in cash from BRE/ CSL, had a 10%
equity interest in the venture of $1.2 million and
wrote-off $0.5 million in deferred loan costs.
33
In addition, on June 30, 2003, the Company contributed to
BRE/ CSL one of its senior living communities with a capacity of
182 residents. As a result of the contribution the Company
repaid $7.4 million of long-term debt, received
$3.1 million in cash from BRE/ CSL, and had a 10% equity
interest in BRE/ CSL of $0.4 million resulting in the
recognition of a gain of $3.4 million.
The Company managed the six communities owned by BRE/ CSL under
long-term management contracts. The Company accounted for the
BRE/ CSL investment under the equity method of accounting. The
Company deferred management services revenue as a result of its
10% interest in the BRE/ CSL joint venture.
Effective September 30, 2005, the six BRE/ CSL communities
were sold to Ventas for approximately $84.6 million and the
Company subsequently leased the six communities from Ventas. The
Company had guaranteed 25%, or $1.9 million of the debt on
one community owned by BRE/ CSL. The Company made this guarantee
to induce Bank One to allow the debt to be assumed by BRE/ CSL.
The Company estimated the carrying value of its obligation under
this guarantee as nominal. The debt on this community was repaid
upon the sale of the six BRE/ CSL communities to Ventas and as a
result the Company was released from this debt guarantee.
The Company owned 57% of the HCP partnership and the assets,
liabilities, minority interest, and the results of operations of
HCP have been consolidated in the Companys financial
statements. During 2003, HCP sold its remaining community and
subsequently has been dissolved with its remaining assets
transferred to a liquidating trust. In connection therewith, the
Company recognized deferred revenue of $3.4 million in the
fourth quarter of 2003 due to the liquidation.
In July 2005, the Company refinanced the debt on four senior
housing communities with GMAC. The total loan facility of
$39.2 million refinanced $34.3 million of debt that
was scheduled to mature in September 2005. The new loans include
ten-year terms with the interest rates fixed at 5.46% and
amortization of principal and interest payments over
25 years. The Company incurred $0.7 million in
deferred financing costs related to these loans, which is being
amortized over ten years.
On January 13, 2006, the Company announced the formation of
a joint venture (Midwest) with GE Healthcare to
acquire five senior housing communities from a third party.
Midwest agreed to pay approximately $46.9 million for the
five communities. The five communities comprise 293 assisted
living units with a resident capacity of 389. Effective
February 1, 2006, Midwest acquired four of the five
communities and expects to close on the fifth community during
the second quarter of fiscal 2006. The Company has an
approximate 11% interest in Midwest and manages the four
communities already acquired under long-term management
agreements with Midwest.
On February 1, 2006, the Company announced that it had
entered into an agreement to sell the Companys Towne
Centre community to Ventas in a sale/ leaseback transaction
valued at approximately $29.0 million. The lease agreement
will have an initial term of ten years, with two five year
renewal extensions available at the Companys option. The
initial lease rate under the Towne Centre lease agreement will
be 8% and will be subject to certain conditional escalation
clauses. The Company expects to account for this lease as an
operating lease. The sale of the Towne Centre community to
Ventas is expected to result in the Company recording a gain of
approximately $14.5 million, which will be deferred and
recognized in the Companys statement of operations over
the initial 10 year lease term. The Towne Centre sale/
leaseback transaction is expected to close in the Companys
first quarter of fiscal 2006.
On March 8, 2006, the Company announced that it had entered
into an agreement to sale three communities owned by the Company
to HCPI in a sale/ leaseback transaction valued at approximately
34
$54.0 million. The lease agreements will have an initial
term of ten years. The initial lease rate under the lease
agreements will be 8% and will be subject to certain conditional
escalation clauses. The Company expects to account for this
lease as an operating lease. The sale of the three communities
to HCPI is expected to result in the Company recording a gain of
approximately $13.0 million, which will be deferred and
recognized in the Companys statement of operations over
the initial 10 year lease term.
On March 13, 2006, The Company announced that it had
exercised its option to acquire the seven communities owned by
Covenant and upon completion of the acquisitions, will
immediately sell six of the seven communities to HCPI in a sale/
leaseback transaction valued at approximately
$43.0 million. The Company is currently marketing the
seventh community and intends to complete a sale as soon as
possible. The Company expects the transaction to result in the
recognition of a gain between $3.0 and $4.0 million and the
gain will be recognized over the initial 10 year lease
term. The initial lease rate under the lease agreements will be
8% and will be subject to certain conditional escalation
clauses. The Company expects to account for this lease as an
operating lease.
Critical Accounting Policies
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the amounts reported in the accompanying financial
statements and related notes. Management bases its estimates and
assumptions on historical experience, observance of industry
trends and various other sources of information and factors, the
results of which form the basis for making judgments about the
carrying value of assets and liabilities that are not readily
apparent from other sources. Actual results could differ from
these estimates. Critical accounting policies are defined as
those that are reflective of significant judgments and
uncertainties, and potentially could result in materially
different results under different assumptions and conditions.
The Company believes the following critical accounting policies
require managements most difficult, subjective and complex
judgments.
Resident and health care revenue is recognized at estimated net
realizable amounts, based on historical experiences, due from
residents in the period to which the rental and other services
are provided.
Revenues from the Medicare and Medicaid programs accounted for
approximately 7%, 8% and 9% of the Companys net revenues
in fiscal 2005, 2004 and 2003, respectively. Under the Medicare
program, payments are determined based on established rates that
differ from private pay rates. Revenue from the Medicare program
is recorded at the reimbursement rates established by the
federal government. Under the Medicaid program, communities are
entitled to reimbursement at established rates that are lower
than private pay rates. Patient service revenue for Medicaid
patients is recorded at the reimbursement rates as the rates are
set prospectively by the state upon the filing of an annual cost
report.
Laws and regulations governing the Medicare and Medicaid
programs are complex and subject to interpretation. The Company
believes that it is in compliance with all applicable laws and
regulations. Regulatory inquiries occur in the ordinary course
of business and compliance with such laws and regulations can be
subject to future government review and interpretation as well
as significant regulatory action including fines, penalties, and
exclusion from the Medicare and Medicaid programs.
Management services revenue and development fees are recognized
when earned. Management services revenue relates to providing
certain management and administrative support services under
management contracts. The Companys management contracts
include contingent management services revenue, usually based on
exceeding certain gross revenue targets. These contingent
revenues are recognized based on actual results according to the
calculations specified in the various management agreements.
35
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Investments in Partnerships and Amounts Due from
Affiliates |
SHPII/ CSL: The Company has formed SHPII/ CSL with SHPII,
in November 2004, and the joint ventures are owned 95% by SHPII
and 5% by the Company. The Company accounts for its investment
in SHPII/ CSL under the equity method of accounting. The Company
recorded its investment at cost and will adjust its investment
for its share of earnings and losses of SHPII/ CSL. The Company
defers 5% of its management fee income earned from SHPII/ CSL.
Deferred management fee income is being amortized into income
over the term of the Companys management contracts. As of
December 31, 2005, the Company had deferred income of
approximately $48,000 relating to SHPII/ CSL.
Prior to SHPII/ CSLs acquisition of the Spring Meadows
Communities, the Company, in December 2002, acquired LCORs
approximate 19% member interests in the four joint ventures that
owned the Spring Meadows Communities from LCOR as well as loans
made by LCOR to the joint ventures for $0.9 million in
addition to funding $0.4 million to the venture for working
capital and anticipated negative cash requirements of the
communities. The Companys interests in the joint ventures
that owned the Spring Meadows Communities included interests in
certain loans to the ventures and an approximate 19% member
interest in each venture. The Company recorded its initial
advances of $1.3 million to the ventures as notes
receivable as the amount assigned for the 19% member interests
was nominal. The Company accounted for its investment in the
Spring Meadows Communities under the equity method of accounting
based on the provisions of the partnership agreements. The
Company managed the Spring Meadows Communities since the opening
of each community in late 2000 and early 2001 and continued to
manage the communities under long-term management contracts
until November 2004 when the joint ventures were sold. In
addition, the Company received an asset management fee relating
to each of the four communities. The Company had the obligation
to fund certain future operating deficits of the Spring Meadows
Communities to the extent of its 19% member interest. No amounts
were funded by the Company under this obligation.
BRE/ CSL: The Company formed BRE/ CSL with Blackstone,
and the joint ventures are owned 90% by Blackstone and 10% by
the Company. The Company accounted for its investment in BRE/
CSL under the equity method of accounting. The Company recorded
its investment at cost and adjusted its investment for its share
of earnings and losses of BRE/ CSL. The Company deferred 10% of
its management fee income earned from BRE/ CSL. Deferred
management fee income was amortized into income over the term of
the Companys management contract. Effective
September 30, 2005, Ventas acquired the six communities
owned by BRE/ CSL and the Company entered into the Ventas Lease
Agreements whereby the Company leases the six communities from
Ventas.
Triad Entities: Effective as of July 1, 2003, the
Company acquired the partnership interest of the general
partners and the other third party limited partners
interests in the Triad Entities for $1.3 million in cash,
$0.4 million in notes payable and the assumption of all
outstanding debt and liabilities. The total purchase price was
$194.4 million and the acquisition was treated as a
purchase of property. This acquisition resulted in the Company
acquiring 12 senior living communities owned by the Triad
Entities with a combined resident capacity of approximately
1,670 residents. Subsequent to the end of the Companys
third quarter of 2003, the Company repaid the $0.4 million
in notes payable related to this acquisition. Prior to this
acquisition, the Company owned 1% of the limited partnership
interests and managed the Triad Entities under a series of
long-term management contracts.
Triad I: Effective as of November 30, 2004, the
Company acquired Lehmans approximate 81% limited
partnership interest in Triad I for $4.0 million in
cash and the issuance of a note with a net present value of
$2.8 million. In addition, the Company acquired the general
partners interest in Triad I by assuming a
$3.6 million note payable from the general partner to a
subsidiary of the Company. The acquisition was recorded as a
purchase of property. The purchase price of $10.4 million
was recorded as a
step-up in basis of
$9.3 million and in addition the Company recorded a
deferred tax asset of $1.1 million as Triad I had been
previously consolidated under FIN 46 as of
December 31, 2003. These transactions resulted in the
Company wholly owning Triad I. Triad I owned five
Waterford senior living communities and two expansions. The two
expansions were subsequently deeded to a subsidiary of the
Company in order for the two expansions to be consolidated with
their primary community.
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Prior to acquiring the remaining interests of the general
partner and the other third party limited partner, the Company
had an approximate 1% limited partners interests in
Triad I and had accounted for this investment under the
equity method of accounting based on the provisions of the
Triad I partnership agreement until December 31, 2003.
In 2003, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation No. 46,
revised December 2003, (FIN 46)
Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51, effective immediately for
variable interest entities created after January 31, 2003
and effective as of December 31, 2003, for variable
interest entities that existed prior to February 1, 2003.
The Company adopted the provisions of this interpretation, as of
December 31, 2003, which resulted in the Company
consolidating Triad Is financial position as of
December 31, 2003 and consolidating Triad Is results
of operations beginning January 1, 2004. The consolidation
of Triad I under the provisions of FIN 46 as of
December 31, 2003 resulted in an increase in property and
equipment of $62.5 million.
The Company determines the fair value, net of costs of disposal,
of an asset on the date the asset is categorized as held for
sale, and the asset is recorded at the lower of its fair value,
net of cost of disposal, or carrying value on that date. The
Company periodically reevaluates assets held for sale to
determine if the assets are still recorded at the lower of fair
value, net of cost of disposal, or carrying value. The Company
has four parcels of land held for sale at December 31,
2005. The fair value of these properties is generally determined
based on market rates, industry trends and recent comparable
sales transactions. The actual sales price of these assets could
differ significantly from the Companys estimates.
The Company determines whether to account for its leases as
either operating, capital or financing leases depending on the
underlying terms of the lease agreement. This determination of
classification is complex and requires significant judgment
relating to certain information including the estimated fair
value and remaining economic life of the community, the
Companys cost of funds, minimum lease payments and other
lease terms. As of December 31, 2005, the Company leased
seven communities and classified each of these leases as an
operating lease. Facility lease expense in the Companys
statement of operations includes the actual rent paid plus
amortization expense relating to leasehold acquisition costs.
At December 31, 2005, the Company had $1.5 million in
deferred leasehold acquisition costs. These costs are being
amortized on a straight-line basis over the initial term of the
lease agreements. Accumulated amortization, at December 31,
2005, was $37,000.
Property and equipment are stated at cost and depreciated on a
straight-line basis over the estimated useful lives of the
assets. The estimated useful lives are 10 to 40 years for
buildings and building improvements, 3 to 10 years for
leasehold improvements, 5 to 20 years for land improvements
and 5 to 10 years for furniture, equipment and automobiles.
At each balance sheet date, the Company reviews the carrying
value of its property and equipment to determine if facts and
circumstances suggest that they may be impaired or that the
depreciation period may need to be changed. The Company
considers external factors relating to each asset, including
contract changes, local market developments, and other publicly
available information. The carrying value of a long-lived asset
is considered impaired when the anticipated undiscounted cash
flows from such asset is separately identifiable and is less
than its carrying value. In that event, a loss is recognized
based on the amount the carrying value exceeds the fair market
value, generally based on discounted cash flows, of the
long-lived asset. The Company analyzed certain long-lived assets
with operating losses, under the undiscounted cash flow method,
for impairment. The Company does not believe there are any
indicators that would require and the cash flow analysis did not
require an adjustment to the carrying value of the property and
equipment or their remaining useful lives as of
December 31, 2005 and 2004.
37
New Accounting Standards
On December 16, 2004, the Financial Accounting Standards
Board issued FASB Statement No. 123, revised 2004
(Statement 123(R)), Share-Based Payment, which
is a revision of FASB Statement 123, Accounting for
Stock-Based Compensation. Statement 123(R) supersedes APB
Opinion No. 25 Accounting for Stock Issued to Employees,
and amends FASB Statement No. 95, Statement of Cash Flows.
Generally the approach in Statement 123(R) is similar to
the approach described in Statement 123. However,
Statement 123(R) requires all share based payments to
employees, including grants of employee stock options, to be
recognized in the income statement based on their fair values.
Pro forma disclosure is no longer an alternative.
Statement 123(R) is effective for public entities in the
first annual reporting period beginning after June 15, 2005.
Statement 123(R) permits public companies to adopt its
requirements using one of two methods:
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1. A modified prospective method in which
compensation cost is recognized beginning with the effective
date (a) based on the requirements of Statement 123(R)
for all share-based payments granted after the effective date
and (b) based on the requirements of Statement 123 for
all awards granted to employees prior to the effective date of
Statement 123(R) that remain unvested on the effective date. |
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2. A modified retrospective method which
includes the requirements of the modified prospective method
described above, but also permits entities to restate based on
the amounts previously recognized under Statement 123 for
purposes of pro forma disclosures either (a) all prior
periods presented or (b) prior interim periods of the year
of adoption. |
Effective July 1, 2005, the Company early adopted
Statement 123(R). The Company adopted Statement 123(R)
using the modified prospective method. Under the modified
prospective method the Company recognized compensation expense
for new share-based awards and recognized compensation expense
for the remaining vesting period of awards that had been
included in pro-forma disclosures in prior periods. The Company
has not adjusted prior period financial statements under the
modified prospective method. The impact of expensing stock
awards resulted in stock compensation expense of
$0.2 million ($0.2 million after tax) in fiscal 2005.
Under APB No. 25, pro forma expense for stock awards with
pro-rata vesting was calculated on a straight line basis over
the awards vesting period which typically ranges from one to
five years. Upon the adoption of Statement 123(R), the
Company records stock compensation expense on a straight line
basis over the awards vesting period, which ranges from one to
five years.
In March 2005, the FASB issued FASB Interpretation No. 47
(FIN 47), Accounting for Conditional Asset
Retirement Obligations, to clarify the requirement to record
liabilities stemming from a legal obligation to perform an asset
retirement activity in which the timing or method of settlement
is conditional on a future event. The Company adopted
FIN 47 on December 31, 2005. No conditional retirement
obligations were recognized and, accordingly, the adoption of
FIN 47 had no effect on the Companys financial
statements.
38
Results of Operations
The following tables set forth, for the periods indicated,
selected historical consolidated statements of income data in
thousands of dollars and expressed as a percentage of total
revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
$ | |
|
% | |
|
$ | |
|
% | |
|
$ | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resident and healthcare revenue
|
|
$ |
101,770 |
|
|
|
96.7 |
% |
|
$ |
90,544 |
|
|
|
97.1 |
% |
|
$ |
62,564 |
|
|
|
94.3 |
% |
|
Unaffiliated management services revenue
|
|
|
1,626 |
|
|
|
1.6 |
% |
|
|
726 |
|
|
|
0.8 |
% |
|
|
336 |
|
|
|
0.5 |
% |
|
Affiliated management services revenue
|
|
|
1,834 |
|
|
|
1.7 |
% |
|
|
1,992 |
|
|
|
2.1 |
% |
|
|
3,236 |
|
|
|
4.9 |
% |
|
Affiliated development fees
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
189 |
|
|
|
0.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
105,230 |
|
|
|
100.0 |
% |
|
|
93,262 |
|
|
|
100.0 |
% |
|
|
66,325 |
|
|
|
100.0 |
% |
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (exclusive of depreciation and amortization
shown below)
|
|
|
68,707 |
|
|
|
65.3 |
% |
|
|
64,772 |
|
|
|
69.5 |
% |
|
|
44,637 |
|
|
|
67.3 |
% |
|
General and administrative expenses
|
|
|
10,187 |
|
|
|
9.7 |
% |
|
|
9,552 |
|
|
|
10.2 |
% |
|
|
7,914 |
|
|
|
11.9 |
% |
|
Provision for bad debts
|
|
|
258 |
|
|
|
0.2 |
% |
|
|
198 |
|
|
|
0.2 |
% |
|
|
168 |
|
|
|
0.3 |
% |
|
Facility lease expense
|
|
|
2,070 |
|
|
|
2.0 |
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
Depreciation and amortization
|
|
|
13,046 |
|
|
|
12.4 |
% |
|
|
12,009 |
|
|
|
12.9 |
% |
|
|
7,791 |
|
|
|
11.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
94,268 |
|
|
|
89.6 |
% |
|
|
86,531 |
|
|
|
92.8 |
% |
|
|
60,510 |
|
|
|
91.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
10,962 |
|
|
|
10.4 |
% |
|
|
6,731 |
|
|
|
7.2 |
% |
|
|
5,815 |
|
|
|
8.8 |
% |
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
133 |
|
|
|
0.1 |
% |
|
|
572 |
|
|
|
0.6 |
% |
|
|
4,278 |
|
|
|
6.5 |
% |
|
Interest expense
|
|
|
(18,595 |
) |
|
|
(17.6 |
)% |
|
|
(15,769 |
) |
|
|
(16.9 |
)% |
|
|
(12,481 |
) |
|
|
(18.8 |
)% |
|
Gain (loss) on sale of properties
|
|
|
104 |
|
|
|
0.1 |
% |
|
|
(37 |
) |
|
|
(0.0 |
)% |
|
|
6,751 |
|
|
|
10.2 |
% |
|
Debt restructuring/ derivative costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off of deferred loan cost
|
|
|
(25 |
) |
|
|
(0.0 |
)% |
|
|
(824 |
) |
|
|
(0.9 |
)% |
|
|
|
|
|
|
|
% |
|
|
Gain on interest rate swap agreement
|
|
|
|
|
|
|
|
% |
|
|
1,435 |
|
|
|
1.5 |
% |
|
|
|
|
|
|
|
% |
|
|
Loss on interest rate lock agreement
|
|
|
(641 |
) |
|
|
(0.6 |
)% |
|
|
(1,356 |
) |
|
|
(1.5 |
)% |
|
|
|
|
|
|
|
% |
|
Other income (expense)
|
|
|
416 |
|
|
|
0.4 |
% |
|
|
182 |
|
|
|
0.2 |
% |
|
|
3,616 |
|
|
|
5.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes and minority interest in
consolidated partnership
|
|
|
(7,646 |
) |
|
|
(7.3 |
)% |
|
|
(9,066 |
) |
|
|
(9.7 |
)% |
|
|
7,979 |
|
|
|
12.0 |
% |
Benefit (provision) for income taxes
|
|
|
2,273 |
|
|
|
2.2 |
% |
|
|
2,270 |
|
|
|
2.4 |
% |
|
|
(3,098 |
) |
|
|
(4.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income before minority interest in consolidated
partnership
|
|
|
(5,373 |
) |
|
|
(5.1 |
)% |
|
|
(6,796 |
) |
|
|
(7.3 |
)% |
|
|
4,881 |
|
|
|
7.4 |
% |
Minority interest in consolidated partnership
|
|
|
19 |
|
|
|
0.0 |
% |
|
|
38 |
|
|
|
0.0 |
% |
|
|
109 |
|
|
|
0.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$ |
(5,354 |
) |
|
|
(5.1 |
)% |
|
$ |
(6,758 |
) |
|
|
(7.2 |
)% |
|
$ |
4,990 |
|
|
|
7.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
Year Ended December 31, 2005 Compared to the Year
Ended December 31, 2004 |
Revenues. Total revenues increased $12.0 million or
12.8% to $105.2 million in 2005 compared to
$93.3 million in 2004. Resident and health care revenue
increased $11.2 million or 12.4% to $101.8 million in
2005 compared to $90.5 million in the prior year. The
increase in resident and healthcare revenue reflects an increase
of $5.4 million from the consolidation of the six
communities, previously owned by BRE/ CSL, that were sold to
Ventas and leased back by the Company on September 30,
2005, $0.8 million from the consolidation of Georgetowne
Place which the Company leased from Ventas on October 19,
2005 and an increase resident and healthcare revenue at the
Companys other communities of $5.0 million as a
result of higher occupancy and rental rates in the current
fiscal year. Unaffiliated management services revenue increased
$0.9 million in fiscal 2005 primarily due to a full year of
management fees earned on 15 third party senior living
communities compared to management fees earned on the same 15
senior living communities in fiscal 2004, 14 of which were
assumed on August 18, 2004 as a result of the
Companys acquisition of CGIM. Affiliated management
services revenue in both fiscal 2005 and 2004 results from the
management of 10 affiliate owned communities, six of which were
sold to Ventas and leased back by the Company on
September 30, 2005.
Expenses. Total expenses increased $7.7 million or
8.9% to $94.3 million in 2005 compared to
$86.5 million in 2004. This increase in expense primarily
results from a $3.9 million increase in operating expenses,
a $0.6 million increase in general and administrative
expenses, a $2.1 million increase in facility lease
expenses, a $0.1 million increase in bad debt expenses and
a $1.0 million increase in depreciation and amortization
expense. Operating expenses increased to $68.7 million
compared to $64.8 million in the prior year. This 6.1%
increase in operating expenses primarily results from
$3.4 million in operating expenses related to the six
communities leased from Ventas on September 30, 2005,
$0.6 million in operating expenses from the operations of
Georgetowne Place community which was leased from Ventas on
October 19, 2005, $0.3 million in costs associated
with hurricane damage at two of the Companys communities
offset by an overall decrease in operating expenses at the
Companys other communities of $0.4 million. General
and administrative expenses increased to $10.2 million in
2005 compared to $9.6 million in the prior year. This 6.6%
increase in general and administrative expenses primarily
results from a $0.6 million increase in employee
compensation and benefit costs, $0.2 million in stock
compensation expense, and an increase of $0.2 million in
insurance costs offset by a decrease in professional fees of
$0.3 million and a decrease in other corporate overhead
costs of $0.1 million. Bad debt expense increase to
$0.3 million in fiscal 2005 compared to $0.2 million
in fiscal 2004. Facility lease expense represents actual rent
paid plus amortization expense relating to lease acquisition
cost on the seven communities leased from Ventas. Depreciation
and amortization expense increased to $13.0 million in 2005
compared to $12.0 million in 2004, primarily from the
amortization of the CGIM management contracts and additional
depreciation expense resulting from the Companys
acquisition of Triad I.
Other income and expenses. Interest income decreased
$0.5 million to $0.1 million in fiscal 2005 compared
to $0.6 million in fiscal 2004. This 76.7% decrease in
interest income primarily results from the consolidation of
Triad I. Prior to consolidating Triad I the Company recognized
interest income on certain notes receivable from Triad I.
Interest expense increased $2.8 million to
$18.6 million in 2005 compared to $15.8 million in
2004. This 17.9% increase in interest expense is primarily the
result higher interest rates on the Companys variable rate
notes in the current fiscal year. Gain on sale of assets in
fiscal 2005 represents the recognition of deferred gains
associated with the sale/ leaseback of the six BRE/ CSL
communities. As a result of this sale/ leaseback transaction,
the Company deferred $4.2 million in gains that are being
recognized into income over the initial 10 year lease term.
In fiscal 2004, the Company sold one parcel of land, which
resulted in the recognition of a gain of $0.2 million and
net proceeds of $0.5 million. In addition, in 2004 the
Company acquired the four joint ventures that owned the Spring
Meadows Communities and simultaneously sold the Spring Meadows
Communities to SHPII/ CSL resulting in a net loss of
$0.2 million and net proceeds to the Company of
$0.8 million. The Company recognized a loss of
$0.6 million during fiscal 2005 relating to the interest
rate lock agreements. The loss represents the change in the fair
value of the interest rate lock agreements. As a result of
refinancing certain debt related to the Companys interest
rate lock agreements with Key Bank and settling the
Companys swap agreements with Key Bank, during fiscal
2004, the Company
40
recognized a loss on the interest rate interest rate lock
agreements of $1.4 million and a gain on the interest rate
swap agreements of $1.4 million. Subsequent to the end of
fiscal 2005, the Company settled its interest rate lock
liability with Key Bank by paying $1.8 million in cash and
converting the remaining balance of $5.7 million to a
five-year note. The note bears interest at LIBOR plus
250 basis points with principal amortized on a
straight-line basis over a seven year term. Due to refinancing
certain debt during fiscal 2005 and 2004, the Company wrote-off
unamortized deferred loan cost of $25,000 and $0.8 million,
respectively. Other income in fiscal 2005 relates to the
Companys equity in the earnings of affiliates, which
represents the Companys share of the earnings on its
investments in BRE/ CSL and SHPII/ CSL. Equity in the earnings
of affiliates in fiscal 2004 represents the Companys share
of the earnings and losses on its investments in BRE/ CSL,
SHPII/ CSL and the Spring Meadows Communities.
Provision for income taxes. Benefit for income taxes in
2005 was $2.3 million or 29.8% effective tax rate compared
to a provision for income taxes in 2004 of $2.3 million or
25.1% effective tax rate. The effective tax rates for 2005 and
2004 differ from the statutory tax rates because of state income
taxes and permanent tax differences. The permanent tax
differences in the fiscal 2004 include $2.7 million in net
losses incurred by Triad I, which was consolidated under
the provisions of FIN 46 for the first eleven months of
fiscal 2004 prior to the Companys acquisition of Triad I
on November 30, 2004.
Minority interest. Minority interest for both 2005 and
2004 represents the minority holders share of the losses
incurred by HCP.
Net income. As a result of the foregoing factors, net
loss decreased $1.4 million to a net loss of
$5.4 million for 2005, as compared to a net loss of
$6.8 million for 2004.
|
|
|
Year Ended December 31, 2004 Compared to the Year
Ended December 31, 2003 |
Revenues. Total revenues increased $27.0 million or
40.6% to $93.3 million in 2004 compared to
$66.3 million in 2003. Resident and health care revenue
increased $27.9 million or 44.7% to $90.5 million in
2004 compared to $62.6 million in the prior year. The
increase in resident and healthcare revenue reflects an increase
of $14.8 million from the acquisition of the Triad Entities
(12 communities), an increase of $15.0 million from the
consolidation of Triad I (five communities and two expansions),
and an increase at the Companys other communities of
$2.3 million offset by a decrease in resident and
healthcare revenue of $4.2 million relating to two
communities that were sold at the end of the second and third
quarters of fiscal 2003. Unaffiliated management services
revenue in fiscal 2004 was derived from the management of 15
third party communities, 14 of which were assumed during the
third quarter of 2004 as a result of the Companys
acquisition of CGIM. Unaffiliated management services revenue in
fiscal 2003 resulted primarily from the management of one
third-party community in the fourth quarter of 2003 and the
settlement of a management contract with Buckner. Affiliated
management services revenue decreased $1.2 million
primarily as a result of the Companys acquisition/
consolidation of the Triad Entities and Triad I. Affiliated
development fees in fiscal 2003 represent the recognition of
deferred development fees related to the Triad Entities and
Triad I.
Expenses. Total expenses increased $26.0 million or
43.0% to $86.5 million in 2004 compared to
$60.5 million in 2003. This increase in expense primarily
results from a $20.1 million increase in operating
expenses, a $1.6 million increase in general and
administrative expenses and a $4.2 million increase in
depreciation and amortization expense. Operating expenses
increased to $64.8 million compared to $44.6 million
in the prior year. This 45.3% increase in operating expenses
primarily results from $10.4 million related to the
Companys acquisition of the Triad Entities and
$12.5 million due to the acquisition/ consolidation of
Triad I, offset by a $0.5 million decrease in
operating expenses at the Companys other communities and a
decrease of $2.9 million relating to the two communities
that were sold during fiscal 2003. General and administrative
expenses increased to $9.6 million in 2004 compared to
$7.9 million in the prior year. This 21.5% increase in
general and administrative expenses primarily results from an
increase in salary and benefits of $0.7 million, an
increase in professional fees of $0.6 million, primarily
related to compliance with the Sarbanes-Oxley Act, an increase
in insurance expense of $0.1 million and an increase of
$0.3 million in other corporate overhead. Bad debt expense
in both fiscal 2004 and 2003 was $0.2 million. Depreciation
and amortization expense increased to $12.0 million in 2004
compared to $7.8 million in 2003. This 54.1% increase
41
primarily results from $2.5 million related to the
Companys acquisition of the Triad Entities,
$2.0 million due to the acquisition/ consolidation of Triad
I offset by a decrease of $0.3 million relating to the two
communities that were sold during 2003.
Other income and expenses. Interest income decreased
$3.7 million to $0.6 million in fiscal 2004 compared
to $4.3 million in fiscal 2003. This 86.6% decrease in
interest income primarily results from the acquisition/
consolidation of the Triad Entities and Triad I. Interest
expense increased $3.3 million to $15.8 million in
2004 compared to $12.5 million in 2003. This 26.3% increase
in interest expense is primarily the result of higher debt
outstanding in 2004 compared to the same period of fiscal 2003
due to the assumption of $109.6 million of debt related to
the acquisition of the Triad Entities in July 2003 and due to
$47.6 million of debt consolidated in December 2003 related
to Triad I offset by $14.9 million of debt repaid related
to the two communities sold during 2003 and $19.0 million
of debt retired during the fiscal 2004. Gain (loss) on sale of
assets decreased by $6.8 million to a net loss of $37,000
in fiscal 2004 compared to a net gain of $6.8 million in
fiscal 2003. In 2004, the Company sold one parcel of land, which
resulted in the recognition of a gain of $0.2 million and
net proceeds of $0.5 million. In addition, in 2004 the
Company acquired the four joint ventures that owned the Spring
Meadows Communities and simultaneously sold the Spring Meadows
Communities to SHPII/ CSL resulting in a net loss of
$0.2 million and net proceeds to the Company of
$0.8 million. In 2003, the Company sold two communities and
two parcels of land, which resulted in the recognition of a gain
of $3.4 million and net proceeds to the Company of
$5.6 million. In addition, in 2003 the Company contributed
a community to BRE/ CSL, and as a result, the Company repaid
$7.4 million of long-term debt, received $3.1 million
in cash and has a 10% equity interest in the venture, resulting
in the recognition of a gain of $3.4 million. Other income
decreased to $0.2 million in fiscal 2004 compared to
$3.6 million in the prior fiscal year. Other income in 2004
results from the Companys net equity in the earnings of
affiliates of $0.2 million. Other income in fiscal 2003
results from the Companys equity in the earnings of
affiliates of $0.2 million along with the recognition of
deferred income of $3.4 million related to the liquidation
of the HCP partnership. In December 2004, the Company refinanced
14 senior housing communities with GMAC. The total loan facility
of $128.4 million refinanced eight properties previously
financed by GMAC and six properties previously financed under
three separate loan agreements with Key Corporate Capital,
Compass Bank and Bank of America, which have been repaid. The
new loans with GMAC have a term of three years with two one-year
extension options. The loans have an initial interest rate of
LIBOR plus 350 basis point and the loan agreements provide
for reduced rates once certain debt service coverage ratios are
achieved. The Company incurred $1.1 million in deferred
financing costs related to these loans, which is being amortized
over the three year loan term. During fiscal 2004, the Company
wrote-off $0.8 million in deferred financing costs related
to the loans that were repaid. As a result of refinancing
certain debt related to the Companys interest rate lock
agreements with Key Bank and settling the Companys swap
agreements with Key Bank the Company recognized a loss on the
interest rate interest rate lock agreements of $1.4 million
and a gain on the interest rate swap agreements of
$1.4 million.
Provision for income taxes. Benefit for income taxes in
2004 was $2.3 million or 25.1% effective tax rate compared
to a provision for income taxes in 2003 of $3.1 million or
38.3% effective tax rate. The effective tax rates for 2004 and
2003 differ from the statutory tax rates because of state income
taxes and permanent tax differences. The permanent tax
differences in the fiscal 2004 include $2.7 million in net
losses incurred by Triad I, which was consolidated under
the provisions of FIN 46 for the first eleven months of
fiscal 2004 prior to the Companys acquisition of Triad I
on November 30, 2004.
Minority interest. Minority interest for both 2004 and
2003 represents the minority holders share of the losses
incurred by HCP. During 2003, HCP sold its remaining community
and transferred its remaining assets to a liquidating trust.
Net income. As a result of the foregoing factors, net
income decreased $11.8 million to a net loss of
$6.8 million for 2004, as compared to a net income of
$5.0 million for 2003.
42
Quarterly Results
The following table presents certain unaudited quarterly
financial information for the four quarters ended
December 31, 2005 and 2004. This information has been
prepared on the same basis as the audited Consolidated Financial
Statements of the Company appearing elsewhere in this report and
include, in the opinion of management, all adjustments
(consisting of normal recurring adjustments) necessary to
present fairly the quarterly results when read in conjunction
with the audited Consolidated Financial Statements of the
Company and the related notes thereto.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 Calendar Quarters | |
|
|
| |
|
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share amounts) | |
Total revenues
|
|
$ |
24,238 |
|
|
$ |
24,436 |
|
|
$ |
25,084 |
|
|
$ |
31,472 |
|
Income from operations
|
|
|
2,655 |
|
|
|
2,613 |
|
|
|
2,969 |
|
|
|
2,725 |
|
Net loss
|
|
|
(758 |
) |
|
|
(2,181 |
) |
|
|
(588 |
) |
|
|
(1,827 |
) |
Net loss per share, basic
|
|
$ |
(0.03 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.07 |
) |
Net loss per share, diluted
|
|
$ |
(0.03 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.07 |
) |
Weighted average shares outstanding, basic
|
|
|
25,754 |
|
|
|
25,776 |
|
|
|
25,858 |
|
|
|
25,917 |
|
Weighted average shares outstanding, fully diluted
|
|
|
25,754 |
|
|
|
25,776 |
|
|
|
25,858 |
|
|
|
25,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 Calendar Quarters | |
|
|
| |
|
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share amounts) | |
Total revenues
|
|
$ |
22,626 |
|
|
$ |
23,017 |
|
|
$ |
23,696 |
|
|
$ |
23,923 |
|
Income from operations
|
|
|
1,107 |
|
|
|
1,575 |
|
|
|
2,059 |
|
|
|
1,990 |
|
Net loss
|
|
|
(2,046 |
) |
|
|
(1,596 |
) |
|
|
(1,356 |
) |
|
|
(1,760 |
) |
Net loss per share, basic
|
|
$ |
(0.09 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.05 |
) |
|
$ |
(0.07 |
) |
Net loss per share, diluted
|
|
$ |
(0.09 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.05 |
) |
|
$ |
(0.07 |
) |
Weighted average shares outstanding, basic
|
|
|
23,698 |
|
|
|
25,668 |
|
|
|
25,733 |
|
|
|
25,744 |
|
Weighted average shares outstanding, fully diluted
|
|
|
23,698 |
|
|
|
25,668 |
|
|
|
25,733 |
|
|
|
25,744 |
|
Liquidity and Capital Resources
In addition to approximately $21.8 million of cash balances
on hand as of December 31, 2005, the Companys
principal sources of liquidity are expected to be cash flows
from operations, proceeds from the sale of assets and cash flows
from SHPII/ CSL and Midwest. Of the $21.8 million in cash
balances, $0.6 million relates to cash held by HCP. The
Company expects its available cash and cash flows from
operations, proceeds from the sale of assets and cash flows from
SHPII/ CSL and Midwest to be sufficient to fund its short-term
working capital requirements. The Companys ability to meet
its long-term capital requirements, including the repayment of
certain long-term debt obligations, will depend, in part, on its
ability to obtain additional financing or refinancings on
acceptable terms from available financing sources, including
mortgage financing, joint venture arrangements, by accessing the
debt and/or equity markets and possibly through operating leases
or other types of financing, such as lines of credit. There can
be no assurance that the financing or refinancings will be
available or that, if available, it will be on terms acceptable
to the Company.
The Company had net cash provided by operating activities of
$2.0 million in fiscal 2005 compared to $4.2 million
and $2.5 million in fiscal 2004 and 2003, respectively. In
fiscal 2005, net cash provided by operating activities was
primarily derived from net non-cash charges of
$12.4 million, a decrease in federal and state income tax
receivable of $0.7 million, an increase in accounts payable
and accrued expenses of $3.1 million and an increase in
customer deposit of $0.6 million offset by a net loss of
$5.4 million, an increase in property tax and insurance
deposits of $2.3 million, an increase in other assets of
$7.1 million. In fiscal 2004, net cash provided by
operating activities was primarily derived from net non-cash
charges of $13.6 million, a decrease in prepaid and other
expenses of $0.3 million, a decrease in other assets of
$0.5 million, a increase in
43
accounts payable and accrued expenses of $0.3 million and a
decrease in customer deposit of $0.1 million offset by a
net loss of $6.8 million, an increase in accounts
receivable of $1.5 million, an increase in property tax and
insurance deposits of $0.9 million and an increase in
income taxes receivable of $1.4 million. In fiscal 2003,
net cash provided by operating activities was primarily derived
from net income of $5.0 million, a decrease in other assets
of $1.1 million, and a decrease in income taxes payable of
$0.2 million offset by net non-cash benefit of
$0.1 million, an increase in account receivable of
$0.3 million, an increase in prepaid expenses and other
assets of $0.8 million, a decrease in accounts payable of
$0.9 million, a decrease in accrued liabilities of
$1.2 million, and a increase in deposits of
$0.5 million.
The Company had net cash provided by investing activities of
$3.1 million and $0.7 million in fiscal 2005 and 2003,
respectively, compared to net cash used in investing activities
of $7.6 million in fiscal 2004. In fiscal 2005, the Company
had net cash provided by investing activities primarily results
from distributions from limited partnerships of
$6.4 million offset by capital expenditures of
$3.2 million. In fiscal 2004, the Companys net cash
used in investing activities was primarily the result of capital
expenditures of $2.4 million, net cash paid for the
acquisition of Triad I of $4.0 million, net cash paid for
the acquisition of CGIM of $2.3 million and advances to
affiliates of $0.4 million offset by net cash acquired from
the acquisition of the four Spring Meadows joint ventures of
$0.8 million, proceeds from the sale of one parcel of land
of $0.5 million, net of selling costs, and distributions
from limited partnerships of $0.2 million. In fiscal 2003,
the Companys net cash provided by investing activities was
primarily the result of proceeds from the sale of two
communities and two parcels of land for $5.5 million net of
selling costs, proceeds from the contribution of one community
to BRE/ CSL of $3.1 million, net cash acquired from the
acquisition of the Triad Entities of $0.1 million, net cash
from the consolidation of Triad I of $0.8 million and
distributions from limited partnerships of $0.2 million
offset by advances to Triad I and the Triad Entities of
$7.4 million and capital expenditures of $1.6 million.
The Company had net cash used in financing activities of
$2.8 million and $8.4 million in fiscal 2005 and 2003,
respectively compared to net cash provided by financing
activities of $16.3 million in fiscal 2004. In fiscal 2005,
net cash used in financing activities primarily results from net
payments on notes payable of $1.0 million, cash restricted
under certain debt agreements of $1.0 million,
distributions to minority partners of $0.2 million and
deferred loan cost paid of $1.5 million offset by proceeds
from the exercise of stock options of $0.7 million and
excess tax benefits on stock options exercised of
$0.2 million. In fiscal 2004, net cash provided by
financing activities was primarily derived from proceeds from
the Companys common stock offering of $32.2 million,
proceeds from the exercise of stock options of
$0.3 million, the release of restricted cash of
$7.2 million offset by net note repayments of
$21.8 million, cash paid to settle interest rate swap
agreements of $0.5 million and cash used in financing
activities of $1.1 million. For fiscal 2003 the net cash
used in financing activities primarily results from repayments
of notes payable of $18.5 million, distributions to
minority partners of $0.3 million, deferred loan charges
paid of $0.2 million offset by proceeds from the issuance
of notes payable of $5.1 million, proceeds from the release
of restricted cash of $5.2 million and proceeds from the
exercise of common stock options of $0.3 million
The Company derives the benefits and bears the risks related to
the communities it owns. The cash flows and profitability of
owned communities depends on the operating results of such
communities and are subject to certain risks of ownership,
including the need for capital expenditures, financing and other
risks such as those relating to environmental matters.
The Companys third-party management fees are primarily
based on a percentage of gross revenues. As a result, the cash
flow and profitability of such contracts to the Company are more
dependent on the revenues generated by such communities and less
dependent on net cash flow than for owned communities. Further,
the Company is not responsible for capital investments in
managed communities. The management contracts are generally
terminable only for cause and upon the sale of a community,
subject to the Companys rights to offer to purchase such
community.
Effective as of November 30, 2004, the Company acquired
Lehmans approximate 81% interest in the Spring Meadows
Communities and simultaneously sold the Spring Meadows
Communities to SHPII/ CSL, which is owned 95% by SHPII and 5% by
the Company. As a result these transactions, the Company paid
44
$1.1 million for Lehmans interests in the joint
ventures, received net assets of $0.9 million and wrote-off
the remainder totaling $0.2 million. In addition, the
Company contributed $1.3 million to SHPII/ CSL for its 5%
interest. The Company manages the communities for SHPII/ CSL
under long-term management contracts.
Prior to SHPII/ CSLs acquisition of the Spring Meadows
Communities, the Company, in December 2002, acquired LCORs
approximate 19% member interests in the four joint ventures that
owned the Spring Meadows Communities from LCOR as well as loans
made by LCOR to the joint ventures for $0.9 million in
addition to funding $0.4 million to the venture for working
capital and anticipated negative cash requirements of the
communities. The Companys interests in the joint ventures
that owned the Spring Meadows Communities included interests in
certain loans to the ventures and an approximate 19% member
interest in each venture. The Company recorded its initial
advances of $1.3 million to the ventures as notes
receivable as the amount assigned for the 19% member interests
was nominal. The Company accounted for its investment in the
Spring Meadows Communities under the equity method of accounting
based on the provisions of the partnership agreements. The
Company managed the Spring Meadows Communities since the opening
of each community in late 2000 and early 2001 and continued to
manage the communities under long-term management contracts
until November 2004 when the joint ventures were sold. In
addition, the Company received an asset management fee relating
to each of the four communities. The Company had the obligation
to fund certain future operating deficits of the Spring Meadows
Communities to the extent of its 19% member interest. No amounts
were funded by the Company under this obligation.
In September 2003, the Company sold its Carmichael community to
SHPII, for $11.7 million before closing costs of
$0.6 million. Carmichael is an independent living community
located in Sacramento, California with a resident capacity of
156. As a result of the sale the Company retired
$7.4 million in debt and received $3.6 million in cash
and recognized a gain of $3.1 million. The Company manages
the Carmichael community for SHPII under a long-term management
contract.
The Company formed BRE/ CSL with Blackstone in December 2001,
and the joint ventures are owned 90% by Blackstone and 10% by
the Company. Pursuant to the terms of the joint ventures, each
of the Company and Blackstone must approve any acquisitions made
by BRE/ CSL. Each party must also contribute its pro rata
portion of the costs of any acquisition.
In December 2001, BRE/ CSL acquired Amberleigh, a 394 resident
capacity independent living facility. In connection with the
acquisition of Amberleigh by BRE/ CSL, the Company contributed
$1.8 million to BRE/ CSL. During the second quarter of
2002, BRE/ CSL obtained permanent financing for the Amberleigh
community and the Company recovered $1.4 million of its
contribution to BRE/ CSL.
On June 13, 2002, the Company contributed to BRE/ CSL four
of its senior living communities with a capacity of
approximately 600 residents. As a result of the contribution,
the Company repaid $29.1 million of long-term debt to GMAC,
received $7.3 million in cash from BRE/ CSL, has a 10%
equity interest in the venture of $1.2 million and
wrote-off $0.5 million in deferred loan costs.
In addition, on June 30, 2003, the Company contributed to
BRE/ CSL one of its senior living communities with a capacity of
182 residents. As a result of the contribution the Company
repaid $7.4 million of long-term debt, received
$3.1 million in cash from BRE/ CSL, and has a 10% equity
interest in BRE/ CSL of $0.4 million resulting in the
recognition of a gain of $3.4 million.
The Company managed the six communities owned by BRE/ CSL under
long-term management contracts. The Company accounted for the
BRE/ CSL investment under the equity method of accounting. The
Company deferred management services revenue as a result of its
10% interest in the BRE/ CSL joint venture.
Effective September 30, 2005, the six BRE/ CSL communities
were sold to Ventas for approximately $84.6 million.
Effective as of July 1, 2003, the Company acquired the
partnership interest of the general partners and the other third
party limited partners interests in the Triad Entities for
$1.3 million in cash, $0.4 million in notes payable
and the assumption of all outstanding debt and liabilities
($109.6 million bank debts,
45
$73.2 million debt due to the Company, and
$9.9 million net working capital liabilities). The total
purchase price was $194.4 million and the acquisition was
treated as a purchase of property and the Company wholly owns
each of the Triad Entities. This acquisition resulted in the
Company acquiring ownership of 12 senior living communities with
a combined resident capacity of approximately 1,670 residents.
Subsequent to the end of the Companys third quarter of
2003, the Company repaid the $0.4 million in notes payable
related to this acquisition.
The purchase price was allocated as follows (in thousands):
|
|
|
|
|
Net cash acquired
|
|
$ |
122 |
|
Fair value of tangible assets acquired, net
|
|
|
10,584 |
|
Property and equipment
|
|
|
183,737 |
|
|
|
|
|
Total purchase price
|
|
$ |
194,443 |
|
|
|
|
|
Set forth below is information relating to the
construction/permanent loan facilities the Company assumed as a
result of the acquisition of the Triad Entities at July 1,
2003 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Facilities to Triad Entities | |
|
|
|
|
| |
|
|
Number of | |
|
|
|
Amount | |
|
|
Entity |
|
Communities | |
|
Commitment | |
|
Outstanding | |
|
Type | |
|
Lender | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Triad II
|
|
|
3 |
|
|
$ |
26,900 |
|
|
$ |
26,003 |
|
|
|
mini-perm |
|
|
Key Corporate Capital, Inc. |
Triad III
|
|
|
6 |
|
|
$ |
56,300 |
|
|
$ |
56,270 |
|
|
|
mini-perm |
|
|
|
Guaranty Bank |
|
Triad IV
|
|
|
2 |
|
|
$ |
18,600 |
|
|
$ |
18,627 |
|
|
|
mini-perm |
|
|
|
Compass Bank |
|
Triad V
|
|
|
1 |
|
|
$ |
8,903 |
|
|
$ |
8,698 |
|
|
|
mini-perm |
|
|
|
Bank of America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$ |
109,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following unaudited pro forma financial information combines
the results of the Company and the Triad Entities as if the
transaction had taken place at the beginning of fiscal 2003. The
pro forma financial information is presented for informational
purposes only and does not reflect the results of operations of
the Company, which would have actually resulted if the purchase
occurred as of the dates indicated, or future results of
operations of the Company (in thousands).
|
|
|
|
|
|
|
Year Ended | |
|
|
December 31, | |
|
|
2003 | |
|
|
| |
Net revenues
|
|
$ |
75,449 |
|
Net income
|
|
$ |
778 |
|
Net income per share basic
|
|
$ |
0.04 |
|
Net income per share diluted
|
|
$ |
0.04 |
|
Effective as of November 30, 2004, the Company acquired
Lehmans approximate 81% limited partners interest in
Triad I for $4.0 million in cash and the issuance of a note
with a net present value of $2.8 million. In addition, the
Company acquired the general partners interest in Triad I
by assuming a $3.6 million note payable from the general
partner to a subsidiary of the Company. The acquisition was
recorded as a purchase of property. The entire purchase price of
$10.4 million was recorded as a
step-up in basis of
$9.3 million and in addition the Company recorded a
deferred tax asset of $1.1 million as Triad I had been
previously consolidated under FIN 46 as of
December 31, 2003. These transactions resulted in the
Company wholly owning Triad I. Triad I owned five Waterford
senior living communities and two expansions. The two expansions
were subsequently deeded to a subsidiary of the Company in order
for the two expansions to be consolidated with their primary
community.
In 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46 (Revised December 2003)
Consolidation of Variable Interest Entities an
interpretation of ARB No. 51, effective immediately for
variable interest entities created after January 31, 2003
and effective as of December 31, 2003
46
for variable interest entities that existed prior to
February 1, 2003. The Company adopted the provisions of
this interpretation at December 31, 2003, and its adoption
resulted in the Company consolidating the financial position of
Triad I at December 31, 2003 and consolidating the
operations of Triad I beginning in the Companys first
quarter of 2004. The consolidation of Triad I under the
provisions of FIN 46 as of December 31, 2003 resulted
in an increase in property and equipment of $62.5 million.
The following unaudited pro forma financial information combines
the results of the Company and Triad I as if the provisions of
FASB Interpretation No. 46 had been applied at the
beginning of fiscal 2003. The pro forma financial information is
presented for informational purposes only and does not reflect
the results of operations of the Company, which would have
actually resulted if Triad I had been consolidated as of the
dates indicated, or future results of operations of the Company
(in thousands):
|
|
|
|
|
|
|
Year Ended | |
|
|
December 31, | |
|
|
2003 | |
|
|
| |
Net revenue
|
|
$ |
80,320 |
|
Net income
|
|
$ |
1,601 |
|
Net income per share basic
|
|
$ |
0.08 |
|
Net income per share diluted
|
|
$ |
0.08 |
|
Prior to consolidation/ acquisition the Company had a 1% limited
partners interest in Triad I and the Triad Entities and
accounted for Triad I and the Triad Entities under the equity
method of accounting based on the provisions of the partnership
agreements. The Company recognized losses in Triad I and the
Triad Entities of $0.1 million as of December 31,
2003. The recognition of losses reduced the Companys
investments in Triad I and the Triad Entities to zero and
additional losses of $0.5 million were recorded as a
reduction to the Companys notes receivable from the Triad
Entities.
Deferred interest income was being amortized into income over
the life of the loan commitment that the Company had with Triad
I and the Triad Entities. Deferred development and management
fee income was being amortized into income over the expected
remaining life of Triad I and Triad Entities partnership.
All deferred items were eliminated upon consolidation/
acquisition.
Effective August 18, 2004, the Company acquired from
Covenant all of the outstanding stock of Covenants wholly
owned subsidiary, CGIM. The Company paid approximately
$2.3 million in cash (including closing cost of
approximately $0.1 million) and issued a note with a fair
value of approximately $1.1 million, subject to various
adjustments set forth in the purchase agreement, to acquire all
of the outstanding stock of CGIM. The note is due in three
installments of approximately $0.3 million,
$0.4 million and $0.7 million due on the first, third
and fifth anniversaries of the closing, respectively, subject to
reduction if the management fees earned from the third party
owned communities with various terms are terminated and not
replaced by substitute agreements during the period, and certain
other adjustments. The total purchase price was
$3.5 million and the acquisition was treated as a purchase
of property. The $3.5 million purchase price was allocated
to management contracts. In addition, the Company recorded a
deferred tax liability of $2.1 million related to the
acquisition of these management contract rights. The
Companys first installment payment under the Covenant note
was reduced by $0.2 million under the terms of the stock
purchase agreement and the $0.2 million installment
reduction was recorded as an adjustment to the purchase price.
This acquisition resulted in the Company assuming the management
contracts on 14 senior living communities with a combined
resident capacity of approximately 1,800 residents. In addition,
the Company has the right to acquire seven of the properties
owned by Covenant (which are part of the 14 communities managed
by CGIM) based on sales prices specified in the stock purchase
agreement.
The Company owned 57% of the HCP partnership and the assets,
liabilities, minority interest, and the results of operations of
HCP have been consolidated in the Companys financial
statements. In 2003, HCP sold its remaining community for
$1.1 million, which resulted in the recognition of a gain
of $48,000 and net proceeds of $1.0 million. Subsequent to
the sale of this community, HCP has been dissolved with its
remaining assets transferred to a liquidating trust. In
connection therewith, the Company recognized deferred revenue of
$3.4 million in the fourth quarter of 2003 due to the
liquidation.
47
Disclosures About Contractual Obligations
The following table provides the amounts due under specified
contractual obligations (including interest expense) for the
periods indicated as of December 31, 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than | |
|
One to | |
|
Four to | |
|
More Than | |
|
|
|
|
One Year | |
|
Three Years | |
|
Five Years | |
|
Five Years | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Long-term debt
|
|
$ |
26,326 |
|
|
$ |
203,602 |
|
|
$ |
42,334 |
|
|
$ |
42,982 |
|
|
$ |
315,244 |
|
Operating leases
|
|
|
8,924 |
|
|
|
17,278 |
|
|
|
16,731 |
|
|
|
39,768 |
|
|
|
82,701 |
|
Interest rate lock
|
|
|
2,912 |
|
|
|
2,218 |
|
|
|
1,991 |
|
|
|
1,716 |
|
|
|
8,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash Obligations
|
|
$ |
38,162 |
|
|
$ |
223,098 |
|
|
$ |
61,056 |
|
|
$ |
84,466 |
|
|
$ |
406,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt relates to the aggregate maturities of the
Companys notes payable. The Company leases its corporate
headquarters, an executive office in New York, seven senior
living communities and certain equipment used at the
Companys communities.
Impact of Inflation
To date, inflation has not had a significant impact on the
Company. However, inflation could affect the Companys
future revenues and results of operations because of, among
other things, the Companys dependence on senior residents,
many of whom rely primarily on fixed incomes to pay for the
Companys services. As a result, during inflationary
periods, the Company may not be able to increase resident
service fees to account fully for increased operating expenses.
In structuring its fees, the Company attempts to anticipate
inflation levels, but there can be no assurance that the Company
will be able to anticipate fully or otherwise respond to any
future inflationary pressures.
|
|
ITEM 7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISKS |
The Companys primary market risk is exposure to changes in
interest rates on debt instruments. As of December 31,
2005, the Company had $260.5 million in outstanding debt
comprised of various fixed and variable rate debt instruments of
$86.4 million and $174.1 million, respectively.
Changes in interest rates would affect the fair market value of
the Companys fixed rate debt instruments but would not
have an impact on the Companys earnings or cash flows.
Fluctuations in interest rates on the Companys variable
rate debt instruments, which are tied to either LIBOR or the
prime rate, would affect the Companys earnings and cash
flows but would not affect the fair market value of the variable
rate debt. Each percentage point change in interest rates would
increase the Companys annual interest expense by
approximately $1.7 million based on the Companys
outstanding variable debt as of December 31, 2005.
The following table summarizes information on the Companys
debt instruments outstanding as of December 31, 2005. The
table presents the principal due and weighted average interest
rates by expected
48
maturity date for the Companys various debt instruments by
fiscal year. Weighted average variable interest rates are based
on the Companys floating rate as of December 31, 2005.
Principal Amount and Average Interest Rate by Expected Maturity
Date at December 31, 2005 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
Thereafter | |
|
Total | |
|
Fair Value | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate debt
|
|
$ |
3,407 |
|
|
$ |
2,145 |
|
|
$ |
9,869 |
|
|
$ |
33,841 |
|
|
$ |
2,444 |
|
|
$ |
34,656 |
|
|
$ |
86,362 |
|
|
$ |
81,051 |
|
|
|
Average interest rate
|
|
|
5.4 |
% |
|
|
5.9 |
% |
|
|
6.9 |
% |
|
|
7.9 |
% |
|
|
6.5 |
% |
|
|
5.5 |
% |
|
|
|
|
|
|
|
|
|
Variable rate debt
|
|
|
4,394 |
|
|
|
47,056 |
|
|
|
122,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174,172 |
|
|
|
174,172 |
|
|
|
Average interest rate
|
|
|
7.0 |
% |
|
|
6.5 |
% |
|
|
7.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock
|
|
|
2,573 |
|
|
|
818 |
|
|
|
818 |
|
|
|
818 |
|
|
|
818 |
|
|
|
1,705 |
|
|
|
7,550 |
|
|
|
7,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
268,084 |
|
|
$ |
262,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective January 31, 2005, the Company entered into
interest rate cap agreements with two commercial banks to reduce
the impact of increases in interest rates on the Companys
variable rate loans. One interest rate cap agreement effectively
limited the interest rate exposure on a $50 million
notional amount to a maximum LIBOR rate of 5% and expired on
January 31, 2006. The second interest rate cap agreement
effectively limits the interest rate exposure on
$100 million notional amount to a maximum LIBOR rate of 5%,
as long as one-month LIBOR is less than 7%. If one-month LIBOR
is greater than 7%, the agreement effectively limits the
interest rate on the same $100 million notional amount to a
maximum LIBOR rate of 7%. This second agreement expires on
January 31, 2008. The Company paid $0.4 million for
the interest rate caps and the costs of these agreements are
being amortized to interest expense over the life of the
agreements.
The Company used interest rate lock and interest rate swap
agreements for purposes other than trading. The Company is party
to interest rate lock agreements, which were used to hedge the
risk that the costs of future issuance of debt may be adversely
affected by changes in interest rates. Under the interest rate
lock agreements, the Company agrees to pay or receive an amount
equal to the difference between the net present value of the
cash flows for a notional principal amount of indebtedness based
on the locked rate at the date when the agreement was
established and the yield of a United States Government
10-Year Treasury Note
on the settlement date of January 3, 2006. The notional
amounts of the agreements were not exchanged. These interest
rate lock agreements were entered into with a major financial
institution in order to minimize counterparty credit risk. The
locked rates range from 7.5% to 9.1%. On December 30, 2004,
the Company refinanced the underlying debt and this refinancing
resulted in the interest rate lock agreements no longer
qualifying as an interest rate hedge. The Company reflects the
interest rate lock agreements at fair value in the
Companys consolidated balance sheet (Other long-term
liabilities, net of current portion of $2.6 million) and
related gains and losses are recognized in the consolidated
statements of operations. The Company recognized a loss of
$0.6 million and $1.4 million during fiscal 2005 and
2004, respectively, relating to the interest rate lock
agreements. The Company settled the interest rate lock liability
on January 3, 2006 by paying $1.8 million in cash and
converting the remaining balance of $5.7 million to a
five-year note. The note bears interest at LIBOR plus 250 with
principal amortized over a seven year term. Prior to refinancing
the underlying debt, the interest rate lock agreements were
reflected at fair value in the Companys consolidated
balance sheets (Other long-term liabilities) and the related
gains or losses on these agreements were deferred in
stockholders equity (as a component of other comprehensive
income).
In addition, the Company was party to interest rate swap
agreements in fiscal 2004 and 2003 that were used to modify
variable rate obligations to fixed rate obligations, thereby
reducing the Companys exposure to market rate
fluctuations. On December 30, 2004, the Company settled its
interest rate swap agreements by paying its lender
$0.5 million. The differential paid or received as rates
changed was accounted for under the accrual method of accounting
and the amount payable to or receivable from counterparties was
included as an adjustment to accrued interest. The interest rate
swap agreements resulted in the recognition of an additional
$0.9 million and $1.0 million in interest expense
during fiscal 2004 and 2003, respectively.
49
|
|
ITEM 8. |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The financial statements are included under Item 15 of this
Annual Report.
|
|
ITEM 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES |
The Company had no disagreements on accounting or financial
disclosure matters with its independent accountants to report
under this Item 9.
|
|
ITEM 9A. |
CONTROLS AND PROCEDURES |
|
|
(a) |
Evaluation of Disclosure Controls and Procedures |
The Companys management, with the participation of the
Companys Chief Executive Officer (CEO) and
Chief Financial Officer (CFO), has evaluated the
effectiveness of the Companys disclosure controls and
procedures (as such term is defined in
Rules 13a-15(e)
and 15d-15(e) under the
Exchange Act) as of the end of the period covered by this
report. The Companys disclosure controls and procedures
are designed to ensure that information required to be disclosed
by the Company in the reports that it files or submits under the
Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions rules
and forms. Disclosure controls and procedures are also designed
to ensure that such information is accumulated and communicated
to the Companys management, including the CEO and CFO, as
appropriate to allow timely decisions regarding required
disclosure. Based upon the evaluation described above, the
Companys CEO and CFO concluded that the Companys
disclosure controls and procedures were ineffective as of
December 31, 2005 due to a material weakness in internal
control over financial reporting related to accounting for
income taxes as described below in Item 9A(b).
As a consequence of the material weakness noted above, the
Company has applied other procedures designed to improve the
reliability of its accounting for income taxes. Based on these
other procedures, management (i) believes that the
consolidated financial statements included in this report, as
well as the Companys consolidated financial statements for
each quarter in 2005, as previously reported, are fairly stated
in all material respects, and (ii) does not believe the
material weakness will result in any adjustments to previously
released financial statements.
(b) Managements Report on Internal Control Over
Financial Reporting
Management of the Company, including the CEO and the CFO, is
responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in
Rules 13a-15(f)
and 15a-15(f) under the
Securities Exchange Act of 1934. The Companys internal
control system is a process designed by, or under the
supervision of, the issuers principal executive and
principal financial officers, or persons performing similar
functions, and effected by the issuers board of directors,
management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting
principles (U.S. GAAP).
The Companys internal control over financial reporting
includes policies and procedures that: pertain to the
maintenance of records that, in reasonable detail, accurately
and fairly reflect transactions and dispositions of assets;
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with U.S. GAAP, and that receipts and
expenditures are being made only in accordance with the
authorization of its management and directors; and provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition use or disposition of the
Companys assets that could have a material effect on its
consolidated financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that
50
controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures
may deteriorate.
Management assessed the effectiveness of the Companys
internal control over financial reporting as of
December 31, 2005. In making this assessment, management
used the criteria framework set forth by the Committee of
Sponsoring Organizations of the Treadway Commission
(COSO) published in its report entitled Internal
Control Integrated Framework. As a result of its
assessment, management identified a material weakness in the
Companys internal control over financial reporting.
A material weakness is a control deficiency, or combination of
control deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected.
As a result of its assessment, the Company has identified the
following material weakness in internal control over financial
reporting relative to accounting for income taxes as of
December 31, 2005:
|
|
|
|
The Company each year retains tax consultants and third-party
income tax advisors to assist in the calculation of the income
tax provision and in the analysis of deferred tax assets and
liabilities, along with the impact of income taxes on purchase
accounting. The Companys policies and procedures, and
allocation of resources, did not provide for an effective review
of the Companys accounting for income taxes, which was
prepared by such consultants and advisors. As a result of this
deficiency, the Companys preliminary accounting for income
taxes included errors. The deficiency also results in more than
a remote likelihood that a material misstatement of the
Companys interim or annual consolidated financial
statements would not be prevented or detected. |
|
Based on the material weakness described above, management
concluded that the Companys internal control over
financial reporting was not effective as of December 31,
2005.
The independent registered public accounting firm that audited
the Companys consolidated financial statements has issued
an audit report on managements assessment of the
Companys internal control over financial reporting as of
December 31, 2005. This report appears in
Item 9A (d).
|
|
(c) |
Changes in internal control Over financial reporting |
There have not been any changes in the Companys internal
control over financial reporting (as such term is defined in
Rules 13a-15(f)
and 15d-15(f) under the
Exchange Act) during the fiscal quarter to which this report
relates that have materially affected, or are reasonably likely
to materially affect, the Companys internal control over
financial reporting.
Subsequent to December 31, 2005, the Company has taken and
will take various corrective actions to remediate the material
weakness noted above. These remedial actions are as follows:
|
|
|
|
|
the Company will replace its third-party income tax advisors and
tax consultants and will ensure that the third-party tax service
providers have the required expertise for the more complex areas
of the Companys income tax accounting; and |
|
|
|
the Company has increased the formality and rigor of controls
and procedures over accounting for income taxes, including the
allocation of additional internal resources to the income tax
accounting process. |
Notwithstanding the existence of the material weakness noted
above, management believes that the accompanying consolidated
financial statements fairly present, in all material respects,
the financial condition, results of operations and cash flows
for the fiscal years presented in this report on
Form 10-K.
51
|
|
(d) |
Report of Independent Registered Public Accounting Firm |
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders Capital Senior Living
Corporation:
We have audited managements assessment, included in the
accompanying Managements Report on Internal Control Over
Financial Reporting (Item 9A(b)), that Capital Senior
Living Corporation (the Company) did not maintain effective
internal control over financial reporting as of
December 31, 2005, because of the effect of the material
weakness identified in managements assessment, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). The Companys management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. Our responsibility
is to express an opinion on managements assessment and an
opinion on the effectiveness of Capital Senior Living
Corporations internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of
control deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. The
following material weakness has been identified and included in
managements assessment. The Companys policies and
procedures, and allocation of resources, did not provide for an
effective review of the Companys accounting for income
taxes, which was prepared by tax consultants and third party
advisors. As a result of this deficiency, the Companys
preliminary accounting for income taxes included errors. The
deficiency also results in more than a remote likelihood that a
material misstatement of the Companys interim or annual
consolidated financial statements would not be prevented or
detected.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheet of Capital Senior Living Corporation
as of December 31, 2005, and the related consolidated
statements of operations, shareholders equity, and cash
flows for the year then ended. This material weakness was
considered in determining the nature, timing, and extent of
52
audit tests applied in our audit of the 2005 consolidated
financial statements, and this report does not affect our report
dated March 31, 2006, which expressed an unqualified
opinion on those consolidated financial statements.
In our opinion, managements assessment that Capital Senior
Living Corporation did not maintain effective internal control
over financial reporting as of December 31, 2005, is fairly
stated, in all material respects, based on criteria established
in Internal Control Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Also, in our opinion, because of the effect
of the material weakness described above on the achievement of
the objectives of the control criteria, Capital Senior Living
Corporation has not maintained effective internal control over
financial reporting as of December 31, 2005, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO).
Dallas, Texas
March 31, 2006
53
ITEM 9B. OTHER INFORMATION.
Not Applicable.
PART III
|
|
ITEM 10. |
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT |
Information contained under the caption Election of
Directors in the Proxy Statement is incorporated herein by
reference in response to this Item 10. See also the
information in Item 1 under the heading Executive
Officers and Key Employees.
|
|
ITEM 11. |
EXECUTIVE COMPENSATION |
Information contained under the captions Executive
Compensation and Election of Directors in the
Proxy Statement is incorporated herein by reference in response
to this Item 11.
|
|
ITEM 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Information contained under the caption Principal
Stockholders and Stock Ownership of Management in the
Proxy Statement is incorporated herein by reference in response
to this Item 12.
|
|
ITEM 13. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
Information contained under the caption Certain
Relationships and Related Transactions in the Proxy
Statement is incorporated herein by reference in response to
this Item 13.
|
|
ITEM 14. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Information contained under the caption Fees Paid to
Independent Auditors in the Proxy Statement is
incorporated herein by reference in response to this
Item 14.
PART IV
|
|
ITEM 15. |
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
The following documents are filed as part of this Report:
(1) Financial Statements:
|
|
|
The response to this portion of Item 15 is submitted as a
separate section of this Report. See Index to Financial
Statements at page F-1. |
(2) Financial Statement Schedules:
|
|
|
All schedules have been omitted as the required information is
inapplicable or the information is presented in the financial
statements or related notes. |
(3) Exhibits:
The exhibits listed on the accompanying Index To Exhibits at
page E-1 are filed as
part of this Report.
54
SIGNATURES
Pursuant to the requirements of Section 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, on March 31, 2006.
|
|
|
CAPITAL SENIOR LIVING CORPORATION |
|
|
|
|
By: |
/s/ Lawrence A. Cohen
|
|
|
|
|
|
Lawrence A. Cohen |
|
Vice Chairman of the Board |
|
and Chief Executive Officer |
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 and on the dates
indicated. Each person whose signature to this report appears
below hereby appoints Lawrence A. Cohen and James A. Stroud and
each of them, any one of whom may act without the joinder of the
other, as his or her
attorney-in-fact to
sign on his behalf, individually and in each capacity stated
below, and to file all amendments to this report, which
amendment or amendments may make such changes in and additions
to the report as any such
attorney-in-fact may
deem necessary or appropriate.
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
/s/ Lawrence A. Cohen
Lawrence A. Cohen |
|
Chief Executive Officer and Vice Chairman of the Board
(Principal Executive Officer) |
|
March 31, 2006 |
|
/s/ James A. Stroud
James A. Stroud |
|
Chairman of the Company and Chairman of the Board |
|
March 31, 2006 |
|
/s/ Keith N.
Johannessen
Keith N. Johannessen |
|
President and Chief Operating Officer and Director |
|
March 31, 2006 |
|
/s/ Ralph A. Beattie
Ralph A. Beattie |
|
Executive Vice President and Chief Financial Officer (Principal
Financial and Accounting Officer) |
|
March 31, 2006 |
|
/s/ Craig F. Hartberg
Craig F. Hartberg |
|
Director |
|
March 31, 2006 |
|
/s/ Jill M. Krueger
Jill M. Krueger |
|
Director |
|
March 31, 2006 |
|
/s/ James A. Moore
James A. Moore |
|
Director |
|
March 31, 2006 |
|
/s/ Victor W. Nee
Dr. Victor W. Nee |
|
Director |
|
March 31, 2006 |
55
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page | |
|
|
| |
Consolidated Financial Statements of Capital Senior Living
Corporation
|
|
|
|
|
|
|
|
F-2 |
|
|
|
|
F-4 |
|
|
|
|
F-5 |
|
|
|
|
F-6 |
|
|
|
|
F-7 |
|
|
|
|
F-8 |
|
|
|
|
F-9 |
|
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Capital Senior Living Corporation:
We have audited the accompanying consolidated balance sheet of
Capital Senior Living Corporation as of December 31, 2005,
and the related consolidated statements of operations,
shareholders equity, and cash flows for the year then
ended. These consolidated financial statements are the
responsibility of Capital Senior Living Corporations
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (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, assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Capital Senior Living Corporation as of
December 31, 2005, and the results of its operations and
its cash flows for the year then ended, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Capital Senior Living Corporations
internal control over financial reporting as of
December 31, 2005, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated March, 31, 2006 expressed an
unqualified opinion on managements assessment of, and an
adverse opinion on the effective operation of, internal control
over financial reporting.
Dallas, TX
March 31, 2006
F-2
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Capital Senior Living Corporation
We have audited the accompanying consolidated balance sheet of
Capital Senior Living Corporation as of December 31, 2004
and the related consolidated statements of operations,
shareholders equity, and cash flows for each of the two
years in the period ended December 31, 2004. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits 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 financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Capital Senior Living Corporation at
December 31, 2004, and the consolidated results of their
operations and their cash flows for each of the two years in the
period ended December 31, 2004 in conformity with
U.S. generally accepted accounting principles.
Dallas, Texas
March 8, 2005
F-3
CAPITAL SENIOR LIVING CORPORATION
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands) | |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
21,831 |
|
|
$ |
19,515 |
|
|
Restricted cash
|
|
|
973 |
|
|
|
|
|
|
Accounts receivable, net
|
|
|
2,586 |
|
|
|
2,073 |
|
|
Accounts receivable from affiliates
|
|
|
432 |
|
|
|
1,220 |
|
|
Federal and state income taxes receivable
|
|
|
1,840 |
|
|
|
2,572 |
|
|
Deferred taxes
|
|
|
591 |
|
|
|
642 |
|
|
Assets held for sale
|
|
|
2,034 |
|
|
|
1,008 |
|
|
Property tax and insurance deposits
|
|
|
5,081 |
|
|
|
2,731 |
|
|
Prepaid expenses and other
|
|
|
2,729 |
|
|
|
2,766 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
38,097 |
|
|
|
32,527 |
|
Property and equipment, net
|
|
|
373,007 |
|
|
|
381,051 |
|
Deferred taxes
|
|
|
8,217 |
|
|
|
7,011 |
|
Investments in limited partnerships
|
|
|
1,401 |
|
|
|
3,202 |
|
Assets held for sale
|
|
|
|
|
|
|
1,026 |
|
Other assets, net
|
|
|
13,329 |
|
|
|
6,358 |
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
434,051 |
|
|
$ |
431,175 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
2,834 |
|
|
$ |
2,162 |
|
|
Accounts payable to affiliates
|
|
|
119 |
|
|
|
318 |
|
|
Accrued expenses
|
|
|
10,057 |
|
|
|
7,478 |
|
|
Current portion of notes payable
|
|
|
7,801 |
|
|
|
42,242 |
|
|
Current portion of interest rate lock
|
|
|
2,573 |
|
|
|
|
|
|
Current portion of deferred income
|
|
|
1,370 |
|
|
|
680 |
|
|
Customer deposits
|
|
|
2,483 |
|
|
|
1,936 |
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
27,237 |
|
|
|
54,816 |
|
Deferred income
|
|
|
3,641 |
|
|
|
|
|
Deferred income from affiliates
|
|
|
48 |
|
|
|
125 |
|
Other long-term liabilities
|
|
|
4,977 |
|
|
|
6,909 |
|
Notes payable, net of current portion
|
|
|
252,733 |
|
|
|
219,526 |
|
Minority interest in consolidated partnership
|
|
|
|
|
|
|
252 |
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value:
|
|
|
|
|
|
|
|
|
|
|
Authorized shares 15,000; no shares issued or
outstanding
|
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value:
|
|
|
|
|
|
|
|
|
|
|
Authorized shares 65,000 Issued and outstanding
shares 26,290 and 25,751 in 2005 and 2004,
respectively
|
|
|
263 |
|
|
|
258 |
|
|
Additional paid-in capital
|
|
|
126,180 |
|
|
|
124,963 |
|
|
Retained earnings
|
|
|
18,972 |
|
|
|
24,326 |
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
145,415 |
|
|
|
149,547 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
434,051 |
|
|
$ |
431,175 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
CAPITAL SENIOR LIVING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resident and health care revenue
|
|
$ |
101,770 |
|
|
$ |
90,544 |
|
|
$ |
62,564 |
|
|
Unaffiliated management services revenue
|
|
|
1,626 |
|
|
|
726 |
|
|
|
336 |
|
|
Affiliated management services revenue
|
|
|
1,834 |
|
|
|
1,992 |
|
|
|
3,236 |
|
|
Affiliated development fees
|
|
|
|
|
|
|
|
|
|
|
189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
105,230 |
|
|
|
93,262 |
|
|
|
66,325 |
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (exclusive of depreciation and amortization
shown below)
|
|
|
68,707 |
|
|
|
64,772 |
|
|
|
44,637 |
|
|
General and administrative expenses
|
|
|
10,187 |
|
|
|
9,552 |
|
|
|
7,914 |
|
|
Provision for bad debts
|
|
|
258 |
|
|
|
198 |
|
|
|
168 |
|
|
Facility lease expense
|
|
|
2,070 |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
13,046 |
|
|
|
12,009 |
|
|
|
7,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
94,268 |
|
|
|
86,531 |
|
|
|
60,510 |
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
10,962 |
|
|
|
6,731 |
|
|
|
5,815 |
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
133 |
|
|
|
572 |
|
|
|
4,278 |
|
|
Interest expense
|
|
|
(18,595 |
) |
|
|
(15,769 |
) |
|
|
(12,481 |
) |
|
Gain (loss) on sale of properties
|
|
|
104 |
|
|
|
(37 |
) |
|
|
6,751 |
|
|
Debt restructuring/ derivative costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off of deferred loan costs
|
|
|
(25 |
) |
|
|
(824 |
) |
|
|
|
|
|
|
Gain on interest rate swap agreement
|
|
|
|
|
|
|
1,435 |
|
|
|
|
|
|
|
Loss on interest rate lock agreement
|
|
|
(641 |
) |
|
|
(1,356 |
) |
|
|
|
|
|
Other income
|
|
|
416 |
|
|
|
182 |
|
|
|
3,616 |
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes and minority interest in
consolidated partnership
|
|
|
(7,646 |
) |
|
|
(9,066 |
) |
|
|
7,979 |
|
Benefit (provision) for income taxes
|
|
|
2,273 |
|
|
|
2,270 |
|
|
|
(3,098 |
) |
|
|
|
|
|
|
|
|
|
|
(Loss) income before minority interest in consolidated
partnership
|
|
|
(5,373 |
) |
|
|
(6,796 |
) |
|
|
4,881 |
|
Minority interest in consolidated partnership
|
|
|
19 |
|
|
|
38 |
|
|
|
109 |
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$ |
(5,354 |
) |
|
$ |
(6,758 |
) |
|
$ |
4,990 |
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share
|
|
$ |
(0.21 |
) |
|
$ |
(0.27 |
) |
|
$ |
0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share
|
|
$ |
(0.21 |
) |
|
$ |
(0.27 |
) |
|
$ |
0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
|
25,827 |
|
|
|
25,213 |
|
|
|
19,784 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
|
25,827 |
|
|
|
25,213 |
|
|
|
19,975 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
CAPITAL SENIOR LIVING CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock | |
|
|
|
|
|
|
|
|
| |
|
Additional | |
|
|
|
|
|
|
|
|
Paid-In | |
|
Retained | |
|
|
|
|
Shares | |
|
Amount | |
|
Capital | |
|
Earnings | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(In thousands) | |
Balance at January 1, 2003
|
|
|
19,737 |
|
|
$ |
197 |
|
|
$ |
91,990 |
|
|
$ |
26,094 |
|
|
$ |
118,281 |
|
|
Exercise of stock options
|
|
|
110 |
|
|
|
1 |
|
|
|
346 |
|
|
|
|
|
|
|
347 |
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,990 |
|
|
|
4,990 |
|
|
|
Unrealized gain on interest rate lock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
749 |
|
|
|
749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,739 |
|
|
|
5,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
19,847 |
|
|
$ |
198 |
|
|
$ |
92,336 |
|
|
$ |
31,833 |
|
|
$ |
124,367 |
|
|
Exercise of stock options
|
|
|
154 |
|
|
|
2 |
|
|
|
528 |
|
|
|
|
|
|
|
530 |
|
|
Secondary stock offering, net of offering costs of
$2.3 million
|
|
|
5,750 |
|
|
|
58 |
|
|
|
32,099 |
|
|
|
|
|
|
|
32,157 |
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,758 |
) |
|
|
(6,758 |
) |
|
|
Unrealized loss on interest rate lock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(749 |
) |
|
|
(749 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,507 |
) |
|
|
(7,507 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
25,751 |
|
|
$ |
258 |
|
|
$ |
124,963 |
|
|
$ |
24,326 |
|
|
$ |
149,547 |
|
|
Exercise of stock options
|
|
|
182 |
|
|
|
2 |
|
|
|
972 |
|
|
|
|
|
|
|
974 |
|
|
Restricted stock awards
|
|
|
357 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
245 |
|
|
|
|
|
|
|
245 |
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,354 |
) |
|
|
(5,354 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
26,290 |
|
|
$ |
263 |
|
|
$ |
126,180 |
|
|
$ |
18,972 |
|
|
$ |
145,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
CAPITAL SENIOR LIVING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$ |
(5,354 |
) |
|
$ |
(6,758 |
) |
|
$ |
4,990 |
|
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
12,338 |
|
|
|
11,865 |
|
|
|
7,791 |
|
|
Amortization
|
|
|
708 |
|
|
|
144 |
|
|
|
|
|
|
Amortization of deferred financing charges
|
|
|
747 |
|
|
|
903 |
|
|
|
1,080 |
|
|
Minority interest in consolidated partnership
|
|
|
(19 |
) |
|
|
(38 |
) |
|
|
(109 |
) |
|
Deferred income from affiliates
|
|
|
(77 |
) |
|
|
23 |
|
|
|
(340 |
) |
|
Deferred income
|
|
|
274 |
|
|
|
568 |
|
|
|
96 |
|
|
Deferred income from liquidation of HCP partnership
|
|
|
|
|
|
|
|
|
|
|
(3,406 |
) |
|
Deferred income taxes
|
|
|
(2,213 |
) |
|
|
(714 |
) |
|
|
1,605 |
|
|
Equity in the earnings of affiliates
|
|
|
(416 |
) |
|
|
(182 |
) |
|
|
(210 |
) |
|
(Gain) loss on sale of properties
|
|
|
(104 |
) |
|
|
37 |
|
|
|
(6,751 |
) |
|
(Gain) loss on interest rate swap and interest rate lock
agreements
|
|
|
641 |
|
|
|
(79 |
) |
|
|
|
|
|
Provision for bad debts
|
|
|
258 |
|
|
|
198 |
|
|
|
168 |
|
|
Write-off of deferred loan costs
|
|
|
25 |
|
|
|
824 |
|
|
|
|
|
|
Stock compensation expense
|
|
|
245 |
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(771 |
) |
|
|
(881 |
) |
|
|
(364 |
) |
|
|
Accounts receivable from affiliates
|
|
|
788 |
|
|
|
(616 |
) |
|
|
47 |
|
|
|
Property tax and insurance deposits
|
|
|
(2,350 |
) |
|
|
(876 |
) |
|
|
(380 |
) |
|
|
Prepaid expenses and other
|
|
|
37 |
|
|
|
312 |
|
|
|
(785 |
) |
|
|
Other assets
|
|
|
(7,110 |
) |
|
|
542 |
|
|
|
1,122 |
|
|
|
Accounts payable
|
|
|
473 |
|
|
|
116 |
|
|
|
(917 |
) |
|
|
Accrued expenses
|
|
|
2,579 |
|
|
|
170 |
|
|
|
(1,152 |
) |
|
|
Federal and state income taxes receivable/payable
|
|
|
732 |
|
|
|
(1,416 |
) |
|
|
170 |
|
|
|
Customer deposits
|
|
|
547 |
|
|
|
81 |
|
|
|
(114 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,978 |
|
|
|
4,223 |
|
|
|
2,541 |
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(3,236 |
) |
|
|
(2,391 |
) |
|
|
(1,591 |
) |
Net cash acquired in acquisition of Spring Meadows joint ventures
|
|
|
|
|
|
|
838 |
|
|
|
|
|
Net cash acquired in acquisition of the Triad Entities
|
|
|
|
|
|
|
|
|
|
|
122 |
|
Net cash upon the purchase in 2004/ consolidation in 2003 of
Triad I
|
|
|
|
|
|
|
(4,000 |
) |
|
|
832 |
|
Net cash paid in the acquisition of CGIM
|
|
|
|
|
|
|
(2,317 |
) |
|
|
|
|
Proceeds from sale of assets
|
|
|
|
|
|
|
516 |
|
|
|
5,458 |
|
Proceeds from sale of assets to BRE/ CSL
|
|
|
|
|
|
|
|
|
|
|
3,088 |
|
Distributions from (advances to) affiliates
|
|
|
|
|
|
|
(391 |
) |
|
|
(7,381 |
) |
Investments in limited partnerships
|
|
|
6,378 |
|
|
|
149 |
|
|
|
197 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
3,142 |
|
|
|
(7,596 |
) |
|
|
725 |
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from notes payable
|
|
|
43,417 |
|
|
|
132,005 |
|
|
|
5,114 |
|
Repayments of notes payable
|
|
|
(44,467 |
) |
|
|
(153,813 |
) |
|
|
(18,480 |
) |
Restricted cash
|
|
|
(973 |
) |
|
|
7,187 |
|
|
|
5,169 |
|
Cash proceeds from the exercise of stock options
|
|
|
718 |
|
|
|
368 |
|
|
|
256 |
|
Cash proceeds from the issuance of common stock
|
|
|
3 |
|
|
|
32,157 |
|
|
|
|
|
Excess tax benefits on stock options exercised
|
|
|
256 |
|
|
|
|
|
|
|
|
|
Cash paid to settle interest rate swap agreement
|
|
|
|
|
|
|
(497 |
) |
|
|
|
|
(Distributions to) refund from minority partners
|
|
|
(233 |
) |
|
|
9 |
|
|
|
(296 |
) |
Deferred financing charges paid
|
|
|
(1,525 |
) |
|
|
(1,122 |
) |
|
|
(203 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(2,804 |
) |
|
|
16,294 |
|
|
|
(8,440 |
) |
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
2,316 |
|
|
|
12,921 |
|
|
|
(5,174 |
) |
Cash and cash equivalents at beginning of year
|
|
|
19,515 |
|
|
|
6,594 |
|
|
|
11,768 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
21,831 |
|
|
$ |
19,515 |
|
|
$ |
6,594 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
16,666 |
|
|
$ |
15,223 |
|
|
$ |
11,503 |
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$ |
889 |
|
|
$ |
942 |
|
|
$ |
1,748 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-7
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
Capital Senior Living Corporation, a Delaware corporation
(together with its subsidiaries, the Company), is
one of the largest operators of senior living communities in the
United States in terms of resident capacity. The Company owns,
operates, develops and manages senior living communities
throughout the United States. As of December 31, 2005, the
Company operated 55 senior living communities in 20 states
with an aggregate capacity of approximately 8,900 residents,
including 33 senior living communities which the Company owned
or in which the Company had an ownership interest, seven senior
living communities that the Company leased and 15 senior living
communities it managed for third parties. As of
December 31, 2005, the Company also operated one home care
agency. The accompanying consolidated financial statements
include the financial statements of Capital Senior Living
Corporation and its subsidiaries. All material intercompany
balances and transactions have been eliminated in consolidation.
|
|
2. |
Summary of Significant Accounting Policies |
|
|
|
Cash and Cash Equivalents and Restricted Cash |
The Company considers all highly liquid investments with
original maturities of three months or less at the date of
acquisition to be cash equivalents. The Company has deposits in
banks that exceed Federal Deposit Insurance Corporation
insurance limits. Management believes that credit risk related
to these deposits is minimal. Cash and cash equivalents, at
December 31, 2005 and 2004, includes the cash and cash
equivalents of the HealthCare Properties, L.P. (HCP)
of $0.6 million in both fiscal years. Restricted cash
represented amounts held in deposits that were required as
collateral under the terms of certain loan agreements.
Property and equipment are stated at cost and depreciated on a
straight-line basis over the estimated useful lives of the
assets. The estimated useful lives are 10 to 40 years for
buildings and building improvements, 3 to 10 years for
leasehold improvements, 5 to 20 years for land improvements
and 5 to 10 years for furniture, equipment and automobiles.
At each balance sheet date, the Company reviews the carrying
value of its property and equipment to determine if facts and
circumstances suggest that they may be impaired or that the
depreciation period may need to be changed. The Company
considers external factors relating to each asset, including
contract changes, local market developments, and other publicly
available information. The carrying value of a long-lived asset
is considered impaired when the anticipated undiscounted cash
flows from such asset is separately identifiable and is less
than its carrying value. In that event, a loss is recognized
based on the amount the carrying value exceeds the fair market
value, generally based on discounted cash flows, of the
long-lived asset. The Company analyzed certain long-lived assets
with operating losses, under the undiscounted cash flow method,
for impairment. The Company does not believe there are any
indicators that would require and the cash flow analysis did not
require an adjustment to the carrying value of the property and
equipment or their remaining useful lives as of
December 31, 2005 and 2004.
The Company determines the fair value, net of costs of disposal,
of an asset on the date the asset is categorized as held for
sale, and the asset is recorded at the lower of its fair value,
net of cost of disposal, or carrying value on that date. The
Company periodically reevaluates assets held for sale to
determine if the assets are still recorded at the lower of fair
value, net of cost of disposal, or carrying value. The Company
has four parcels of land held for sale at December 31,
2005. The fair value of these properties is generally
F-8
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
determined based on market rates, industry trends and recent
comparable sales transactions. The actual sales price of these
assets could differ significantly from the Companys
estimates.
The Company estimates the four parcels of land that were held
for sale at December 31, 2005, have an aggregate fair
value, net of costs of disposal, that exceeds the carrying value
of $2.0 million. The amounts the Company will ultimately
realize could differ materially from this estimate.
During 2004, the Company sold one parcel of land that was held
for sale. During 2003, the Company sold one parcel of land and
one community that were held for sale.
|
|
|
Investments in Partnerships and Joint Ventures |
Spring Meadow Communities: The Company formed four joint
ventures (collectively SHPII/ CSL) with Senior
Housing Partners II, LP (SHPII), in November
2004, and the joint ventures are owned 95% by SHPII and 5% by
the Company. The Company accounts for its investment in SHPII/
CSL under the equity method of accounting. The Company recorded
its investment at cost and adjusts its investment for its share
of earnings and losses of SHPII/ CSL. The Company defers 5% of
its management fee income earned from SHPII/ CSL. Deferred
management fee income is being amortized into income over the
term of the Companys management contracts. As of
December 31, 2005, the Company had deferred income of
approximately $48,000 relating to SHPII/ CSL.
Prior to SHPII/ CSLs acquisition of the Spring Meadows
Communities, the Company, in December 2002, acquired from
affiliates of LCOR Incorporated (LCOR) its
approximate 19% member interests in the four joint ventures that
owned the Spring Meadows Communities as well as loans made by
LCOR to the joint ventures for $0.9 million in addition to
funding $0.4 million to the venture for working capital and
anticipated negative cash requirements of the communities. The
Companys interests in the joint ventures that owned the
Spring Meadows Communities included interests in certain loans
to the ventures and an approximate 19% member interest in each
venture. The Company recorded its initial advances of
$1.3 million to the ventures as notes receivable as the
amount assigned for the 19% member interests was nominal. The
Company accounted for its investment in the Spring Meadows
Communities under the equity method of accounting based on the
provisions of the partnership agreements. The Company managed
the Spring Meadows Communities since the opening of each
community in late 2000 and early 2001 and continued to manage
the communities under long-term management contracts until
November 2004 when the joint ventures were sold. In addition,
the Company received an asset management fee relating to each of
the four communities. The Company had the obligation to fund
certain future operating deficits of the Spring Meadows
Communities to the extent of its 19% member interest. No amounts
were funded by the Company under this obligation.
BRE/ CSL: The Company formed three joint ventures
(collectively BRE/ CSL) with an affiliate of
Blackstone Real Estate Advisors (Blackstone), and
the joint ventures are owned 90% by Blackstone and 10% by the
Company. The Company accounted for its investment in BRE/ CSL
under the equity method of accounting. The Company recorded its
investment at cost and adjusted its investment for its share of
earnings and losses of BRE/ CSL. The Company deferred 10% of its
management fee income earned from BRE/ CSL. Deferred management
fee income was amortized into income over the term of the
Companys management contract. Effective September 30,
2005, Ventas Healthcare Properties, Inc. (Ventas)
acquired the six communities owned by BRE/ CSL and the Company
entered into a series of lease agreements (the Ventas
Lease Agreements) whereby the Company leases the six
communities from Ventas.
Triad Entities: Effective as of July 1, 2003, the
Company acquired the partnership interest of the general
partners and the other third party limited partners
interests in four partnerships (Triad Senior Living II, LP,
Triad Senior Living III, LP, Triad Senior Living IV, LP and
Triad Senior Living V, LP, collectively the Triad
Entities) for $1.3 million in cash, $0.4 million
in notes payable and the assumption of
F-9
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
all outstanding debt and liabilities. The total purchase price
was $194.4 million and the acquisition was treated as a
purchase of property. This acquisition resulted in the Company
acquiring 12 senior living communities owned by the Triad
Entities with a combined resident capacity of approximately
1,670 residents. Subsequent to the end of the Companys
third quarter of 2003, the Company repaid the $0.4 million
in notes payable related to this acquisition. Prior to this
acquisition, the Company had an approximate 1% of the limited
partners interests in the Triad Entities and had accounted
for these investments under the equity method of accounting
based on the provisions of the Triad Entities partnership
agreements. In addition, prior to acquiring the Triad Entities,
the Company managed the communities owned by the Triad Entities
under a series of long-term management contracts.
Triad I: Effective as of November 30, 2004, the
Company acquired from affiliates of Lehman Brothers
(Lehman) its approximate 81% limited partnership
interest in Triad Senior Living I, LP (Triad I)
for $4.0 million in cash and the issuance of a note with a
net present value of $2.8 million. In addition, the Company
acquired the general partners interest in Triad I by
assuming a $3.6 million note payable from the general
partner to a subsidiary of the Company. The acquisition was
recorded as a purchase of property. The purchase price of
$10.4 million was recorded as a
step-up in basis of
$9.3 million and in addition the Company recorded a
deferred tax asset of $1.1 million as Triad I had been
previously consolidated under FASB Interpretation No. 46,
revised December 2003, (FIN 46), as of
December 31, 2003. These transactions resulted in the
Company wholly owning Triad I. Triad I owned five Waterford
senior living communities and two expansions. The two expansions
were subsequently deeded to a subsidiary of the Company in order
for the two expansions to be consolidated with their primary
community. Prior to acquiring the remaining interests of the
general partner and the other third party limited partner the
Company had an approximate 1% limited partners interests
in Triad I and had accounted for these investments under the
equity method of accounting based on the provisions of the Triad
I partnership agreement until December 31, 2003. In
addition, prior to acquiring the Triad I, the Company
managed the communities owned by the Triad I under a series of
long-term management contracts.
In 2003, the Financial Accounting Standards Board
(FASB) issued FIN 46 Consolidation of
Variable Interest Entities, an interpretation of ARB
No. 51, effective immediately for variable interest
entities created after January 31, 2003 and effective as of
December 31, 2003, for variable interest entities that
existed prior to February 1, 2003. The Company adopted the
provisions of this interpretation, as of December 31, 2003,
which resulted in the Company consolidating Triad Is
financial position as of December 31, 2003 and
consolidating Triad Is results of operations beginning
January 1, 2004. The consolidation of Triad I under the
provisions of FIN 46 as of December 31, 2003 resulted
in an increase in property and equipment of $62.5 million.
The Company accounts for income taxes under the liability
method. Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Management regularly evaluates the
future realization of deferred tax assets and provides a
valuation allowance, if considered necessary, based on such
evaluation.
Resident and health care revenue is recognized at estimated net
realizable amounts, based on historical experiences, due from
residents in the period to which the rental and other services
are provided.
Revenues from the Medicare and Medicaid programs accounted for
7%, 8%, and 9% in 2005, 2004 and 2003, respectively of the
Companys net revenues. One community is a provider of
services under the Medicaid program. Accordingly, the community
is entitled to reimbursement under the foregoing program at
F-10
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
established rates that are lower than private pay rates. Patient
service revenue for Medicaid patients is recorded at the
reimbursement rates as the rates are set prospectively by the
state upon the filing of an annual cost report. Two communities
are providers of services under the Medicare program and are
entitled to payment under the foregoing programs in amounts
determined based rates established by the federal government.
Laws and regulations governing the Medicare and Medicaid
programs are complex and subject to interpretation. The Company
believes that it is in compliance with all applicable laws and
regulations and is not aware of any pending or threatened
investigations involving allegations of potential wrongdoing.
While no such regulatory inquiries have been made, compliance
with such laws and regulations can be subject to future
government review and interpretation as well as significant
regulatory action including fines, penalties, and exclusion from
the Medicare and Medicaid programs.
Management services revenue, resident and healthcare revenue and
development fees are recognized when earned. Management services
revenue relates to providing certain management and
administrative support services under management contracts,
which have terms expiring through 2019. Management services
revenue is shown net of reimbursed expenses. The reimbursed
expenses from affiliates were $10.5 million,
$12.3 million and $21.5 million, for the years ended
December 31, 2005, 2004 and 2003, respectively. Reimbursed
expenses from unaffiliated parties were $9.9 million,
$3.4 million, and $0.3 million, for the years ended
December 31, 2005, 2004 and 2003, respectively.
The Companys management contracts include contingent
management services revenue, usually based on exceeding certain
gross revenue targets. These contingent revenues are recognized
based on actual results according to the calculations specified
in the various management agreements.
The Company determines whether to account for its leases as
either operating, capital or financing leases depending on the
underlying terms of the lease agreement. This determination of
classification is complex and requires significant judgment
relating to certain information including the estimated fair
value and remaining economic life of the community, the
Companys cost of funds, minimum lease payments and other
lease terms. As of December 31, 2005, the Company leased
seven communities and classified each of the leases as an
operating lease. Facility lease expense in the Companys
statement of operations includes the actual rent paid plus
amortization expense relating to leasehold acquisition costs.
At December 30, 2005, the Company had $1.5 million in
deferred leasehold acquisition costs. These costs are being
amortized on a straight-line basis over the initial term of the
lease agreements. Accumulated amortization, at December 30,
2005, was $37,000. Amortization expense for fiscal 2005 was
$37,000.
Effective January 31, 2005, the Company entered into
interest rate cap agreements with two commercial banks to reduce
the impact of increases in interest rates on the Companys
variable rate loans. One interest rate cap agreement effectively
limited the interest rate exposure on a $50 million
notional amount to a maximum LIBOR rate of 5% and expired on
January 31, 2006. The second interest rate cap agreement
effectively limits the interest rate exposure on
$100 million notional amount to a maximum LIBOR rate of 5%,
as long as one-month LIBOR is less than 7%. If one-month LIBOR
is greater than 7%, the agreement effectively limits the
interest rate on the same $100 million notional amount to a
maximum LIBOR rate of 7%. This second agreement expires on
January 31, 2008. The Company paid $0.4 million for
the interest rate caps and the costs of these agreements are
being amortized to interest expense over the life of the
agreements.
The Company is party to interest rate lock agreements, which
were used to hedge the risk that the costs of future issuance of
debt may be adversely affected by changes in interest rates.
Under the interest rate lock
F-11
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
agreements, the Company agrees to pay or receive an amount equal
to the difference between the net present value of the cash
flows for a notional principal amount of indebtedness based on
the locked rate at the date when the agreement was established
and the yield of a United States Government
10-Year Treasury Note
on the settlement date of January 3, 2006. The notional
amounts of the agreements were not exchanged. These interest
rate lock agreements were entered into with a major financial
institution in order to minimize counterparty credit risk. The
locked rates range from 7.5% to 9.1%. On December 30, 2004,
the Company refinanced the underlying debt and this refinancing
resulted in the interest rate lock agreements no longer
qualifying as an interest rate hedge. The Company reflects the
interest rate lock agreements at fair value in the
Companys consolidated balance sheet (Other long-term
liabilities, net of current portion of $2.6 million) and
related gains and losses are recognized in the consolidated
statements of operations. The Company recognized a loss of
$0.6 million and $1.4 million during fiscal 2005 and
2004, respectively, relating to the interest rate lock
agreements. The Company settled the interest rate lock liability
on January 3, 2006 by paying $1.8 million in cash and
converting the remaining balance of $5.7 million to a
five-year note. The note bears interest at LIBOR plus
250 basis points with principal amortized on a
straight-line basis over a seven year term. Prior to refinancing
the underlying debt, the interest rate lock agreements were
reflected at fair value in the Companys consolidated
balance sheets (Other long-term liabilities) and the related
gains or losses on these agreements were deferred in
stockholders equity (as a component of other comprehensive
income).
In addition, the Company was party to interest rate swap
agreements in fiscal 2004 and 2003 that were used to modify
variable rate obligations to fixed rate obligations, thereby
reducing the Companys exposure to market rate
fluctuations. On December 30, 2004, the Company settled its
interest rate swap agreements by paying its lender
$0.5 million. The differential paid or received as rates
changed was accounted for under the accrual method of accounting
and the amount payable to or receivable from counterparties was
included as an adjustment to accrued interest. The interest rate
swap agreements resulted in the recognition of an additional
$0.9 million and $1.0 million in interest expense
during fiscal 2004 and 2003, respectively.
The Companys resident receivables are generally due within
30 days. Credit losses on resident receivables have been
within managements expectations, and management believes
that the allowance for doubtful accounts adequately provides for
any expected losses.
Advertising is expensed as incurred. Advertising expenses for
the years ended December 31, 2005, 2004 and 2003 were
$4.8 million, $5.1 million and $3.6 million,
respectively.
|
|
|
Net (Loss) Income Per Share |
Basic net (loss) income per share is calculated by dividing net
(loss) income by the weighted average number of common shares
outstanding during the period. Diluted net (loss) income per
share considers the dilutive effect of outstanding options
calculated using the treasury stock method. The average daily
price of the stock during 2005, 2004 and 2003 was $7.20, $5.46
and $3.73, respectively, per share. Due to net losses in fiscal
2005 and 2004 no common stock equivalents were considered in the
calculation of diluted earnings per share. The diluted earnings
per share calculation for fiscal 2003 excluded 0.6 million
common stock equivalents from the calculation as their effect
would have been anti-dilutive.
F-12
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table set forth the computation of basic and
diluted net (loss) income per share (in thousands, except for
per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Net (loss) income
|
|
$ |
(5,354 |
) |
|
$ |
(6,758 |
) |
|
$ |
4,990 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
|
25,827 |
|
|
|
25,213 |
|
|
|
19,784 |
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
|
|
|
|
|
|
|
|
|
191 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
|
25,827 |
|
|
|
25,213 |
|
|
|
19,975 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share
|
|
$ |
(0.21 |
) |
|
$ |
(0.27 |
) |
|
$ |
0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share
|
|
$ |
(0.21 |
) |
|
$ |
(0.27 |
) |
|
$ |
0.25 |
|
|
|
|
|
|
|
|
|
|
|
On December 16, 2004, the Financial Accounting Standards
Board issued FASB Statement No. 123, revised 2004
(Statement 123(R)), Share-Based Payment, which
is a revision of FASB Statement 123, Accounting for
Stock-Based Compensation. Statement 123(R) supersedes APB
Opinion No. 25 Accounting for Stock Issued to Employees,
and amends FASB Statement No. 95, Statement of Cash Flows.
Generally the approach in Statement 123(R) is similar to
the approach described in Statement 123. However,
Statement 123(R) requires all share based payments to
employees, including grants of employee stock options, to be
recognized in the income statement based on their fair values.
Pro forma disclosure is no longer an alternative.
Statement 123(R) is effective for public entities in the
first interim or annual reporting period beginning after
June 15, 2005.
Statement 123(R) permits public companies to adopt its
requirements using one of two methods:
|
|
|
1. A modified prospective method in which
compensation cost is recognized beginning with the effective
date (a) based on the requirements of Statement 123(R)
for all share-based payments granted after the effective date
and (b) based on the requirements of Statement 123 for
all awards granted to employees prior to the effective date of
Statement 123(R) that remain unvested on the effective date. |
|
|
3. A modified retrospective method which
includes the requirements of the modified prospective method
described above, but also permits entities to restate based on
the amounts previously recognized under Statement 123 for
purposes of pro forma disclosures either (a) all prior
periods presented or (b) prior interim periods of the year
of adoption. |
Effective July 1, 2005, the Company early adopted
Statement 123(R). The Company adopted Statement 123(R)
using the modified prospective method. Under the modified
prospective method the Company recognized compensation expense
for new share-based awards and recognized compensation expense
for the remaining vesting period of awards that had been
included in pro-forma disclosures in prior periods. The Company
has not adjusted prior period financial statements under the
modified prospective method. The impact of expensing stock
awards resulted in stock compensation expense of
$0.2 million ($0.2 million net of tax) in fiscal 2005.
Under APB No. 25, pro forma expense for stock awards with
pro-rata vesting was calculated on a straight line basis over
the awards vesting period which typically ranges from one to
five years. Upon the adoption of Statement 123(R), the
Company records stock compensation expense on a straight line
basis over the awards vesting period, which ranges from one to
five years.
F-13
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table shows the effect on net income and earnings
per share as if the fair value method had been applied to all
outstanding awards in fiscal 2005, 2004 and 2003.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Net (loss) income as reported
|
|
$ |
(5,354 |
) |
|
$ |
(6,758 |
) |
|
$ |
4,990 |
|
Add: Stock-based employee compensation expense included in
reported net income, net of related tax effects
|
|
|
160 |
|
|
|
|
|
|
|
|
|
Deduct: Total stock-based employee compensation expense
determined under the fair value method for all awards, net of
related tax effects
|
|
|
(776 |
) |
|
|
(696 |
) |
|
|
(438 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
|
(5,970 |
) |
|
|
(7,454 |
) |
|
|
4,552 |
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
(0.21 |
) |
|
$ |
(0.27 |
) |
|
$ |
0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$ |
(0.23 |
) |
|
$ |
(0.30 |
) |
|
$ |
0.23 |
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
(0.21 |
) |
|
$ |
(0.27 |
) |
|
$ |
0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$ |
(0.23 |
) |
|
$ |
(0.30 |
) |
|
$ |
0.23 |
|
|
|
|
|
|
|
|
|
|
|
Prior to adopting Statement 123(R), the Company used the
Black-Scholes option pricing model to estimate the grant date
fair value of its stock awards and the Company elected to
continue to use the Black-Scholes option pricing model to
estimate the grant date fair value of its stock awards,
subsequent to the adoption of Statement 123(R).
The Black-Scholes model requires the input of certain
assumptions including expected volatility, expected dividend
yield, expected life of the option and the risk free interest
rate. The expected volatility used by the Company is based
primarily on an analysis of historical prices of the
Companys common stock. The expected term of options
granted is based primarily on historical exercise patterns on
the Companys outstanding stock options. The risk free rate
is based on zero-coupon U.S. Treasury yields in effect at
the date of grant with the same period as the expected option
life. The Company does not expect to pay dividends on its common
stock and therefore has used a dividend yield of zero in
determining the fair value of its awards. The option forfeiture
rate assumption used by the Company, which affects the expense
recognized as opposed to the fair value of the award, is based
on the Companys historical option forfeiture patterns.
The following table presents the Companys assumptions
utilized to estimate the grant date fair value of stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Expected volatility
|
|
|
53 |
% |
|
|
54 |
% |
|
|
58 |
% |
Expected dividend yield
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Expected term in years
|
|
|
7.5 |
|
|
|
7.5 |
|
|
|
7.5 |
|
Risk free rate
|
|
|
4.3 |
% |
|
|
4.6 |
% |
|
|
4.6 |
% |
Expected forfeiture rate
|
|
|
8.0 |
% |
|
|
|
|
|
|
|
|
On February 10, 2005, the Companys Compensation
Committee of the Board of Directors accelerated the vesting on
151,976 unvested stock options, with an option price of $6.30,
awarded to officers and
F-14
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
employees. These options were originally scheduled to vest in
December 2005. The market price of the Companys common
stock at the close of business on February 10, 2005 was
$5.61. The Compensation Committees decision to accelerate
the vesting of these options was in response to the FASBs
issuance of Statement 123(R). By accelerating the vesting
of these options, the Company was not required to recognize any
compensation expense related to these options in its statement
of operations.
|
|
|
Recently Issued Accounting Standards |
In March 2005, the FASB issued FASB Interpretation No. 47
(FIN 47), Accounting for Conditional Asset
Retirement Obligations, to clarify the requirement to record
liabilities stemming from a legal obligation to perform an asset
retirement activity in which the timing or method of settlement
is conditional on a future event. The Company adopted
FIN 47 on December 31, 2005. No conditional retirement
obligations were recognized and, accordingly, the adoption of
FIN 47 had no effect on the Companys financial
statements.
The Company evaluates the performance and allocates resources of
its senior living facilities based on current operations and
market assessments on a property-by-property basis. The Company
does not have a concentration of operations geographically or by
product or service as its management functions are integrated at
the property level. As such, the Company operates in one segment.
Certain reclassifications have been made to prior year amounts
to conform to current year presentation. During fiscal 2005, the
Company reclassified certain property level expenses from
general and administrative expense to operating expense. This
reclassification results in the Companys general and
administrative expenses being classified similar to other public
companies in the senior housing industry.
|
|
|
Use of Estimates and Critical Accounting Policies |
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in the accompanying financial statements and
related footnotes. Management bases its estimates and
assumptions on historical experience, observance of industry
trends and various other sources of information and factors, the
results of which form the basis for making judgments about the
carrying value of assets and liabilities that are not readily
apparent from other sources. Actual results could differ from
these estimates. Critical accounting policies are defined as
those that are reflective of significant judgments and
uncertainties, and potentially could result in materially
different results under different assumptions and conditions.
The Company believes revenue recognition, investments in limited
partnerships, leases, long-lived assets and assets held for sale
are its most critical accounting policies and require
managements most difficult, subjective and complex
judgments.
|
|
3. |
Transactions with Affiliates |
BRE/ CSL: The Company formed BRE/ CSL with Blackstone in
December 2001. BRE/ CSL is owned 90% by Blackstone and 10% by
the Company. Pursuant to the terms of the joint ventures, each
of the Company and Blackstone must approve any acquisitions made
by BRE/ CSL. Each party must also contribute its pro rata
portion of the costs of any acquisition.
In December 2001, BRE/ CSL acquired Amberleigh, a 394 resident
capacity independent living facility. In connection with the
acquisition of Amberleigh by BRE/ CSL, the Company contributed
$1.8 million to
F-15
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
BRE/ CSL. During the second quarter of 2002, BRE/ CSL obtained
permanent financing for the Amberleigh community and the Company
recovered $1.4 million of its contribution to BRE/ CSL.
On June 13, 2002, the Company contributed to BRE/ CSL four
of its senior living communities with a capacity of
approximately 600 residents. As a result of the contribution,
the Company repaid $29.1 million of long-term debt to GMAC
Commercial Mortgage Corporation (GMAC), received
$7.3 million in cash from BRE/ CSL, has a 10% equity
interest in the venture of $1.2 million and wrote-off
$0.5 million in deferred loan costs.
In addition, on June 30, 2003, the Company contributed to
BRE/ CSL one of its senior living communities with a capacity of
182 residents. As a result of the contribution the Company
repaid $7.4 million of long-term debt, received
$3.1 million in cash from BRE/ CSL, and has a 10% equity
interest in BRE/ CSL of $0.4 million resulting in the
recognition of a gain of $3.4 million. As part of the
contribution to BRE/ CSL, the Company guaranteed 25%, or
$1.9 million, of BRE/ CSLs debt with Bank One. The
Company made this guarantee to induce Bank One to allow the debt
to be assumed by BRE/ CSL. The Company estimated the carrying
value of its obligation under this guarantee as nominal.
The Company managed the six communities owned by BRE/ CSL under
long-term management contracts. The Company accounted for the
BRE/ CSL investment under the equity method of accounting and
the Company recognized earnings in the equity of BRE/ CSL of
$0.2 million, $0.3 million and $0.3 million for
the year ended December 31, 2005, 2004 and 2003,
respectively. Effective September 30, 2005, the six BRE/
CSL communities were sold to Ventas for approximately
$84.6 million.
Spring Meadows: In December 2002, the Company acquired
from affiliates of LCOR its approximate 19% member interests in
the four joint ventures, which owned the Spring Meadows
Communities as well as loans made by LCOR to the joint ventures
for $0.9 million in addition to funding $0.4 million
for working capital and anticipated negative cash requirements
of the communities. The Companys interests in the four
joint ventures that owned the Spring Meadows Communities
included interests in certain loans to the ventures and an
approximate 19% member interest in each venture. The Company
recorded its initial advances of $1.3 million to the
ventures as notes receivable as the amount assigned for the 19%
member interests was nominal. The Company accounted for its
investment in the Spring Meadows Communities under the equity
method of accounting based on the provisions of the partnership
agreements. The Company had the obligation to fund certain
future operating deficits of the Spring Meadows Communities to
the extent of its 19% member interest. No amount were funded by
the Company under this obligation.
In November 2004, the Company formed SHPII/ CSL with Prudential
Real Estate Investors (Prudential). Effective as of
November 30, 2004, the Company acquired Lehmans
interest in four joint ventures that owned the Spring Meadows
Communities and simultaneously sold the Spring Meadows
Communities to SHPII/ CSL, which is owned 95% by SHPII and 5% by
the Company. As a result these transactions, the Company paid
$1.1 million for Lehmans interest in the joint
ventures, received $0.9 million in net assets and wrote-off
the remainder totaling $0.2 million. In addition, the
Company contributed $1.3 million to SHPII/ CSL for its 5%
interest. The Company accounts for its investment in SHPII/ CSL
under the equity method of accounting and the Company recognized
earnings in the equity of SHPII/ CSL of $0.2 million and
$13,000 for the years ended December 31, 2005 and 2004,
respectively. The Company defers 5% of its management fee income
earned from SHPII/ CSL. Deferred management fee income is being
amortized into income over the term of the Companys
management contract. As of December 31, 2005, the Company
had deferred income of approximately $48,000 relating to SHPII/
CSL.
Triad I: Effective as of November 30, 2004, the
Company acquired Lehmans approximate 81% limited
partners interest in Triad I for $4.0 million in cash
and the issuance of a note with a net present value of
$2.8 million. In addition, the Company acquired the general
partners interest in Triad I by assuming a
$3.6 million note payable from the general partner to a
subsidiary of the Company. These transactions resulted
F-16
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
in the Company wholly owning Triad I. Triad I owned five
Waterford senior living communities and two expansions. The two
expansions were subsequently deeded to a subsidiary of the
Company in order for the two expansions to be consolidated with
their primary community. Prior to the acquisition of the Triad I
the Company accounted for its investments in the Triad I under
the equity method of accounting.
Triad Entities: Effective as of July 1, 2003, the
Company acquired the partnership interest of the general
partners and the other third party limited partners
interests in the Triad Entities for $1.3 million in cash,
$0.4 million in notes payable and the assumption of all
outstanding debt and liabilities. The total purchase price was
$194.4 million and the acquisition was treated as a
purchase of property. The Company wholly owns each of the Triad
Entities. This acquisition resulted in the Company acquiring the
12 senior living communities owned by the Triad Entities with a
combined resident capacity of approximately 1,670 residents.
Subsequent to the end of the Companys third quarter of
2003, the Company repaid the $0.4 million in notes payable
related to this acquisition. Prior to the acquisition of the
Triad Entities the Company accounted for its investments in the
Triad Entities under the equity method of accounting.
Effective as of June 30, 2005, BRE/ CSL entered into a
Purchase and Sale Agreement (the Ventas Purchase
Agreement) with Ventas Healthcare Properties, Inc.
(Ventas) to sell the six communities owned by BRE/
CSL to Ventas for $84.6 million. In addition, Ventas and
the Company enter into Master Lease Agreements (the Ventas
Lease Agreements) whereby the Company would lease the six
communities from Ventas. Effective September 30, 2005,
Ventas completed the purchase of the six BRE/ CSL communities
and the Company began consolidating the operations of the six
communities in its consolidated statement of operations under
the terms of the Ventas Lease Agreements. The Ventas Lease
Agreements each have an initial term of ten years, with two five
year renewal extensions available at the Companys option.
The initial lease rate under the Ventas Lease Agreements is 8%
and is subject to certain conditional escalation clauses. The
Company incurred $1.3 million in lease acquisition costs
related to the Ventas Lease Agreements. These deferred lease
acquisition costs are being amortized over the initial
10 year lease term and are included in facility lease
expense in the Companys statement of operations. The
Company has accounted for each of the Ventas Lease Agreements as
operating leases. The sale of the six BRE/ CSL communities to
Ventas resulted in the Company recording a gain of approximately
$4.2 million, which has been deferred and is being
recognized in the Companys statement of operations over
the initial 10 year lease term.
On October 18, 2005, the Company entered into an agreement
with Ventas to lease a senior living community
(Georgetowne Place) which Ventas acquired for
approximately $19.5 million. Georgetowne Place is located
in Fort Wayne, Indiana and is a 162 unit senior living
community with a capacity of 247 residents. The lease which the
Company executed with Ventas has an initial term of ten years,
with two 5 year renewal extensions available at the
Companys option. The initial lease rate is 8% and is
subject to conditional escalation provisions. The Company
incurred $0.2 million in lease acquisition costs related to
the Georgetowne Place lease. These deferred lease acquisition
costs are being amortized over the initial 10 year lease
term and are included in facility lease expense in the
Companys statement of operations. The Company has
accounted for the Georgetowne Place lease as an operating lease.
Triad I: Effective as of November 30, 2004, the
Company acquired Lehmans approximate 81% limited
partners interest in Triad I for $4.0 million in cash
and the issuance of a note with a net present value of
$2.8 million. In addition, the Company acquired the general
partners interest in Triad I by assuming a
$3.6 million note payable from the general partner to a
subsidiary of the Company. The acquisition was recorded as a
purchase of property. The entire purchase price of
$10.4 million was recorded as a
step-up in basis of
$9.3 million and in addition the Company recorded a
deferred tax asset of $1.1 million as Triad I had
F-17
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
been previously consolidated under FIN 46 as of
December 31, 2003. These transactions resulted in the
Company wholly owning Triad I. Triad I owned five Waterford
senior living communities and two expansions. The two expansions
were subsequently deeded to a subsidiary of the Company in order
for the two expansions to be consolidated with their primary
community.
In 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46 revised December 2003
Consolidation of Variable Interest Entities an
interpretation of ARB No. 51, effective immediately for
variable interest entities created after January 31, 2003
and effective as of December 31, 2003 for variable interest
entities that existed prior to February 1, 2003. The
Company adopted the provisions of this interpretation at
December 31, 2003, and its adoption resulted in the Company
consolidating the financial position of Triad I at
December 31, 2003 and consolidating the operations of Triad
I beginning in the Company first quarter of 2004. The
consolidation of Triad I under the provisions of FIN 46 as
of December 31, 2003 resulted in an increase in property
and equipment of $62.5 million.
The following unaudited pro forma financial information combines
the results of the Company and Triad I as if the provisions of
FASB Interpretation No. 46 had been applied at the
beginning of fiscal 2003. The pro forma financial information is
presented for informational purposes only and does not reflect
the results of operations of the Company, which would have
actually resulted if Triad I had been consolidated as of the
dates indicated, or future results of operations of the Company
(in thousands):
|
|
|
|
|
|
|
Year Ended | |
|
|
December 31, | |
|
|
2003 | |
|
|
| |
Net revenue
|
|
$ |
80,320 |
|
Net income
|
|
$ |
1,601 |
|
Net income per share basic
|
|
$ |
0.08 |
|
Net income per share diluted
|
|
$ |
0.08 |
|
Triad Entities: Effective as of July 1, 2003, the
Company acquired the partnership interest of the general
partners and the other third party limited partners
interests in the Triad Entities for $1.3 million in cash,
$0.4 million in notes payable and the assumption of all
outstanding debt and liabilities ($109.6 million bank
debts, $73.2 million debt due to the Company, and
$9.9 million net working capital liabilities). The total
purchase price was $194.4 million and the acquisition was
treated as a purchase of property. The Company wholly owns each
of the Triad Entities. This acquisition resulted in the Company
acquiring ownership of 12 senior living communities with a
combined resident capacity of approximately 1,670 residents.
Subsequent to the end of the Companys third quarter of
2003, the Company repaid the $0.4 million in notes payable
related to this acquisition.
The purchase price was allocated as follows:
|
|
|
|
|
Net cash acquired
|
|
$ |
122 |
|
Fair value of tangible assets acquired, net
|
|
|
10,584 |
|
Property and equipment
|
|
|
183,737 |
|
|
|
|
|
Total purchase price
|
|
$ |
194,443 |
|
|
|
|
|
F-18
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Set forth below is information relating to the
construction/permanent loan facilities the Company assumed as a
result of the acquisition of the Triad Entities at July 1,
2003 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Facilities to Triad Entities | |
|
|
|
|
| |
|
|
Number of | |
|
|
|
Amount | |
|
|
Entity |
|
Communities | |
|
Commitment | |
|
Outstanding | |
|
Type | |
|
Lender | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Triad II
|
|
|
3 |
|
|
$ |
26,900 |
|
|
$ |
26,003 |
|
|
|
mini-perm |
|
|
Key Corporate Capital, Inc. |
Triad III
|
|
|
6 |
|
|
$ |
56,300 |
|
|
$ |
56,270 |
|
|
|
mini-perm |
|
|
|
Guaranty Bank |
|
Triad IV
|
|
|
2 |
|
|
$ |
18,600 |
|
|
$ |
18,627 |
|
|
|
mini-perm |
|
|
|
Compass Bank |
|
Triad V
|
|
|
1 |
|
|
$ |
8,903 |
|
|
$ |
8,698 |
|
|
|
mini-perm |
|
|
|
Bank of America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$ |
109,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following unaudited pro forma financial information combines
the results of the Company and the Triad Entities as if the
transaction had taken place at the beginning of fiscal 2003. The
pro forma financial information is presented for informational
purposes only and does not reflect the results of operations of
the Company, which would have actually resulted if the purchase
occurred as of the dates indicated, or future results of
operations of the Company (in thousands).
|
|
|
|
|
|
|
Year Ended | |
|
|
December 31, | |
|
|
2003 | |
|
|
| |
Net revenue
|
|
$ |
75,449 |
|
Net income
|
|
$ |
778 |
|
Net income per share basic
|
|
$ |
0.04 |
|
Net income per share diluted
|
|
$ |
0.04 |
|
Prior to consolidation/ acquisition the Company had a 1% limited
partners interest in Triad I and the Triad Entities and
accounted for Triad I and the Triad Entities under the equity
method of accounting based on the provisions of the partnership
agreements. The Company recognized losses in Triad I and the
Triad Entities of $0.1 million as of December 31,
2003. The recognition of losses reduced the Companys
investments in Triad I and the Triad Entities to zero and
additional losses of $0.5 million were recorded as a
reduction to the Companys notes receivable from the Triad
Entities.
Deferred interest income was being amortized into income over
the life of the loan commitment that the Company had with Triad
I and the Triad Entities. Deferred development and management
fee income was being amortized into income over the expected
remaining life of Triad I and Triad Entities partnership.
All deferred items were eliminated upon consolidation/
acquisition.
CGIM: Effective August 18, 2004, the Company
acquired from Covenant Group of Texas (Covenant) all
of the outstanding stock of Covenants wholly owned
subsidiary, CGI Management, Inc. (CGIM). The Company
paid approximately $2.3 million in cash (including closing
cost of approximately $0.1 million) and issued a note with
a fair value of approximately $1.1 million, subject to
various adjustments set forth in the purchase agreement, to
acquire all of the outstanding stock of CGIM. The note is due in
three installments of approximately $0.3 million,
$0.4 million and $0.7 million due on the first, third
and fifth anniversaries of the closing, respectively, subject to
reduction if the management fees earned from the third party
owned communities with various terms are terminated and not
replaced by substitute agreements during the period, and certain
other adjustments. The total purchase price was
$3.5 million and the acquisition was treated as a purchase.
The Companys first installment payment under the Covenant
note was reduced by $0.2 million under the terms of the
stock purchase agreement and the $0.2 million installment
reduction was recorded as an adjustment to the purchase price.
This acquisition resulted in the Company assuming the
F-19
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
management contracts on 14 senior living communities with a
combined resident capacity of approximately 1,800 residents. In
addition, the Company has the right to acquire seven of the
properties owned by Covenant (which are part of the 14
communities managed by CGIM) based on sales prices specified in
the stock purchase agreement.
The purchase price of $3.5 million was allocated to
management contracts. In addition, the Company recorded a
deferred tax liability of $2.1 million related to the
acquisition of these management contract rights. Management
contract rights are included in other assets on the consolidated
balance sheet. The Company is amortizing the management contract
rights over the remaining life of the management contracts
acquired and accumulated amortization was $0.9 million and
$0.1 million at December 31, 2005 and 2004,
respectively. Future amortization of contract rights for the
next fives years will be $0.6 million per year.
|
|
6. |
Property and Equipment |
Property and equipment consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Land
|
|
$ |
24,063 |
|
|
$ |
24,063 |
|
Land improvements
|
|
|
816 |
|
|
|
653 |
|
Buildings and building improvements
|
|
|
380,034 |
|
|
|
377,188 |
|
Furniture and equipment
|
|
|
13,267 |
|
|
|
12,448 |
|
Automobiles
|
|
|
485 |
|
|
|
451 |
|
Leasehold improvements
|
|
|
383 |
|
|
|
98 |
|
Construction in progress
|
|
|
147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
419,195 |
|
|
|
414,901 |
|
Less accumulated depreciation
|
|
|
46,188 |
|
|
|
33,850 |
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$ |
373,007 |
|
|
$ |
381,051 |
|
|
|
|
|
|
|
|
Effective as of November 30, 2004, the Company acquired the
partnership interest owned by non-Company parties in Triad I.
The acquisition was treated as a purchase of property. The
purchase price of $10.4 million was recorded as a step up
in basis of $9.3 million and in addition the Company
recorded a deferred tax asset of $1.1 million. Prior to
acquiring the remaining partnership interests the Company
consolidated Triad I under the provisions of FASB Interpretation
No. 46, effective December 31, 2003, which, resulted in an
increase in property and equipment of $62.5 million. During
2004, the Company sold one parcel of land for $0.5 million,
which resulted in the recognition of a gain of $0.2 million
and net proceeds of $0.5 million.
Accrued expenses consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Accrued salaries, bonuses and related expenses
|
|
$ |
2,953 |
|
|
$ |
2,009 |
|
Accrued property taxes
|
|
|
3,644 |
|
|
|
3,360 |
|
Accrued interest
|
|
|
1,598 |
|
|
|
628 |
|
Accrued health claims
|
|
|
921 |
|
|
|
882 |
|
Other
|
|
|
941 |
|
|
|
599 |
|
|
|
|
|
|
|
|
|
|
$ |
10,057 |
|
|
$ |
7,478 |
|
|
|
|
|
|
|
|
F-20
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Notes payable consists of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Prudential mortgage loans, bearing interest ranging from 7.08%
to 7.69%, payable in monthly installments of principal and
interest of $0.1 million, maturing on various dates thru
January 2010, secured by a certain property with a net book
value of $9.3 million at December 31, 2005
|
|
$ |
7,193 |
|
|
$ |
7,388 |
|
Lehman mortgage loan, bearing interest at 8.20%, payable in
monthly installments of principal and interest of
$0.3 million, maturing on September 2009, secured by
certain properties with a net book value of $47.6 million
at December 31, 2005
|
|
|
34,694 |
|
|
|
35,370 |
|
Insurance premium financings, bearing interest ranging from
4.9%, to 5.1% payable in monthly installments of principal and
interest of $0.4 million, maturing on various dates through
May 2006
|
|
|
1,700 |
|
|
|
1,894 |
|
GMAC mortgage loans, bearing interest at LIBOR plus 350 (7.79%
and 5.92% at December 31, 2005 and 2004, respectively),
payable in monthly installments of principal and interest of
$1.0 million, maturing in January 2008, secured by certain
properties with a net book value of $188.3 million at
December 31, 2005
|
|
|
126,544 |
|
|
|
128,409 |
|
GMAC mortgage loans, bearing interest at 5.46% at
December 31, 2005 payable in monthly installments of
principal and interest of $0.3 million, maturing in
August 2015 secured by certain properties with a net book
value of $47.6 million at December 31, 2005
|
|
|
38,915 |
|
|
|
|
|
GMAC mortgage loans, bearing interest at LIBOR plus 240 (4.69%)
at December 31, 2004
|
|
|
|
|
|
|
34,585 |
|
Guaranty mortgage loans, bearing interest at LIBOR, plus
225 basis points (6.47% and 4.64% at December 31, 2005
and 2004, respectively), payable in monthly installments of
principal and interest of $0.5 million, maturing in January
2007, secured by certain properties with a net book value of
$78.2 million at December 31, 2005
|
|
|
47,628 |
|
|
|
50,186 |
|
Covenant Group of Texas, Inc. acquisition financing bearing no
interest (face amount $1.4 million, discounted 5.7%) and
payable in three installment of $0.3 million,
$0.5 million and $0.7 million on August 18, 2005,
2007 and 2009, respectively
|
|
|
894 |
|
|
|
1,134 |
|
Lehman Brothers acquisition financing bearing no interest
(discounted 5.7%). The note will be deemed paid in full under
any of the following three conditions: 1) the Company makes
a payment of $3.5 million before November 29, 2008;
2) the Company makes a payment of $4.3 million before
November 29, 2009; or 3) the Company makes a payment
of $5.0 million before November 29, 2010
|
|
|
2,966 |
|
|
|
2,802 |
|
|
|
|
|
|
|
|
|
|
|
260,534 |
|
|
|
261,768 |
|
Less current portion
|
|
|
7,801 |
|
|
|
42,242 |
|
|
|
|
|
|
|
|
|
|
$ |
252,733 |
|
|
$ |
219,526 |
|
|
|
|
|
|
|
|
F-21
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The aggregate maturities of notes payable at December 31,
2005, are as follows (in thousands):
|
|
|
|
|
2006
|
|
$ |
7,801 |
|
2007
|
|
|
49,201 |
|
2008
|
|
|
132,591 |
|
2009
|
|
|
33,841 |
|
2010
|
|
|
2,444 |
|
Thereafter
|
|
|
34,656 |
|
|
|
|
|
|
|
$ |
260,534 |
|
|
|
|
|
In July 2005, the Company refinanced the debt on four senior
housing communities with GMAC. The total loan facility of
39.2 million refinanced $34.3 million of debt that was
schedule to mature in September 2005. The new loans include
ten-year terms with the interest rates fixed at 5.46% and
amortization of principal and interest payments over
25 years. The Company incurred $0.7 million in
deferred financing costs related to these loans, which is being
amortized over ten years.
Effective January 31, 2005, the Company entered into
interest rate cap agreements with two commercial banks to reduce
the impact of increases in interest rates on the Companys
variable rate loans. One interest cap agreement effectively
limits the interest rate exposure on a $50 million notional
amount to a maximum LIBOR rate of 5% and expired on
January 31, 2006. The second interest rate cap agreement
effectively limits the interest rate exposure on
$100 million notional amount to a maximum LIBOR rate of 5%,
as long as one-month LIBOR is less than 7%. If one-month LIBOR
is greater than 7%, the agreement effectively limits the
interest rate on the same $100 million notional amount to a
maximum LIBOR rate of 7%. This second agreement matures on
January 31, 2008.
Effective December 29, 2004, the Company refinanced the
debt of 14 senior housing communities with GMAC. The total loan
facility of $128.4 million refinanced eight properties
previously financed by GMAC and six properties previously
financed under three separate loan agreements with Key Corporate
Capital, Compass Bank and Bank of America, which have been
repaid. The new loans with GMAC have a term of three years with
two one-year extension options. The loans have an initial
interest rate of LIBOR plus 350 basis points and the loan
agreements provide for reduced rates once certain debt service
coverage ratios are achieved. The Company incurred
$1.1 million in deferred financing costs related to these
loans, which is being amortized over three years.
In connection with the Companys loan commitments above the
Company incurred $1.5 million and $1.1 million in
fiscal 2005 and 2004, respectively, in financing charges that
were deferred and amortized over the life of the notes.
Accumulated amortization was $1.0 million and
$1.3 million at December 31, 2005 and 2004,
respectively. In connection with the refinancings and the
repayment of notes, the Company wrote-off $25,000 and
$0.8 million in deferred loan cost in fiscal 2005 and 2004,
respectively.
The Company must maintain certain levels of tangible net worth
and comply with other restrictive covenants under the terms of
the notes. The Company was in compliance with or obtained
waivers for all of its debt covenants at December 31, 2005
and 2004.
The Company is authorized to issue preferred stock in series and
to fix and state the voting powers and such designations,
preferences and relative participating, optional or other
special rights of the shares of each such series and the
qualifications, limitations and restrictions thereof. Such
action may be taken by the Board without stockholder approval.
The rights, preferences and privileges of holders of common
stock are subject to the rights of the holders of preferred
stock.
F-22
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In December 2003, the Company filed a shelf registration
statement with the SEC to offer up to $50.0 million in the
aggregate of common stock. In the first quarter of fiscal 2004,
the Company sold 5,750,000 shares of common stock at a
price of $6.00 per share. The net proceeds to the Company
after commissions and expenses were approximately
$32.2 million. The Company used $13.7 million of the
net proceeds to retire debt that was scheduled to mature in
October 2004 and which had a current interest rate of 9.0% and
the remaining amount was used for general corporate purposes.
|
|
10. |
Stock-Based Compensation |
The Company adopted a stock incentive plan in 1997 (the
1997 Plan), providing for the grant of nonqualified
stock options, restricted stock and other stock-based awards to
employees and directors. The 1997 Plan, as amended, provides for
2.6 million shares and 1.8 million shares of common
stock are reserved for future issuance under the 1997 Plan.
Shares available for the granting of nonqualified stock options,
restricted stock and other stock-based awards at
December 31, 2005, 2004 and 2003, were 642,974; 985,124;
and 413,054, respectively.
During fiscal 2005, the Company expensed $0.2 million
($0.2 million after tax) in compensation expense related to
awards of restricted stock and stock options.
On July 1, 2005, the Company awarded 320,750 shares of
restricted stock to certain employees of the Company. The market
value of the common stock on the date of grant was $7.00. These
restricted shares vest ratably over a three and one half year
period for 298,750 shares and over a four year period for
22,000 shares.
On October 19, 2005, the Company awarded 26,000 shares
of restricted stock to certain employees of the Company. The
market value of the common stock on the date of grant was $7.75.
These restricted shares vest ratably over a four year period.
On December 15, 2005, the Company awarded
12,000 shares of restricted stock to certain employees of
the Company. The market value of the common stock on the date of
grant was $10.11. These restricted shares vest ratably over a
four year period.
The option exercise price and vesting provisions of options are
fixed when the options are granted. The options expire four to
ten years from the date of grant and vest from one to five
years. The option exercise price is the fair market value of a
share of common stock on the date the option is granted.
F-23
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of the Companys stock option activity and
related information for the years ended December 31, 2005,
2004 and 2003 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
Option Price per |
|
|
Shares |
|
Exercise Price |
|
Share |
|
|
|
|
|
|
|
Outstanding at January 1, 2003
|
|
|
1,602,312 |
|
|
|
4.83 |
|
|
$ |
1.80 to $13.50 |
|
|
Granted
|
|
|
529,030 |
|
|
|
5.90 |
|
|
$ |
2.73 to $6.30 |
|
|
Exercised
|
|
|
109,853 |
|
|
|
2.33 |
|
|
$ |
1.80 to $4.14 |
|
|
Forfeited
|
|
|
563,886 |
|
|
|
7.72 |
|
|
$ |
1.80 to $13.50 |
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2003
|
|
|
1,457,603 |
|
|
$ |
4.29 |
|
|
$ |
1.80 to $10.50 |
|
|
Granted
|
|
|
50,000 |
|
|
|
5.11 |
|
|
$ |
4.50 to $6.63 |
|
|
Exercised
|
|
|
154,257 |
|
|
|
2.26 |
|
|
$ |
1.80 to $4.14 |
|
|
Forfeited
|
|
|
47,070 |
|
|
|
3.78 |
|
|
$ |
1.80 to $6.30 |
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2004
|
|
|
1,306,276 |
|
|
$ |
4.57 |
|
|
$ |
1.80 to $10.50 |
|
|
Granted
|
|
|
12,000 |
|
|
|
5.90 |
|
|
$ |
5.90 |
|
|
Exercised
|
|
|
182,451 |
|
|
|
3.95 |
|
|
$ |
1.80 to $6.30 |
|
|
Forfeited
|
|
|
26,600 |
|
|
|
4.51 |
|
|
$ |
2.20 to $6.63 |
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
|
1,109,225 |
|
|
$ |
4.69 |
|
|
$ |
1.80 to $10.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2005
|
|
|
1,047,725 |
|
|
$ |
4.71 |
|
|
$ |
1.80 to $10.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2004
|
|
|
1,024,050 |
|
|
$ |
4.42 |
|
|
$ |
1.80 to $10.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2003
|
|
|
967,623 |
|
|
$ |
3.91 |
|
|
$ |
1.80 to $10.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average fair values of stock options granted during
the year ended 2005, 2004 and 2003 was $5.90, $5.11 and
$5.90 per option granted, respectively.
The following table summarizes information relating to the
Companys options outstanding and options exercisable as of
December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
Options Exercisable |
|
|
|
|
|
|
|
Number |
|
Weighted Average |
|
|
|
Number |
|
|
|
|
Outstanding at |
|
Remaining |
|
Weighted Average |
|
Exercisable at |
|
Weighted Average |
Range of Exercise Prices |
|
12/31/05 |
|
Contractual Life |
|
Exercise Price |
|
12/31/05 |
|
Exercise Price |
|
|
|
|
|
|
|
|
|
|
|
$1.80 to $2.73
|
|
|
265,199 |
|
|
|
5.79 |
|
|
$ |
1.86 |
|
|
|
251,199 |
|
|
$ |
1.83 |
|
$3.02 to $4.85
|
|
|
311,483 |
|
|
|
4.95 |
|
|
$ |
3.72 |
|
|
|
284,983 |
|
|
$ |
3.69 |
|
$5.30 to $10.50
|
|
|
532,543 |
|
|
|
6.77 |
|
|
$ |
6.66 |
|
|
|
511,543 |
|
|
$ |
6.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.80 to $10.50
|
|
|
1,109,225 |
|
|
|
6.02 |
|
|
$ |
4.69 |
|
|
|
1,047,725 |
|
|
$ |
4.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On February 10, 2005, the Companys Compensation
Committee of the Board of Directors accelerated the vesting on
151,976 unvested stock options, with an option price of $6.30,
awarded to certain officers and employees of the Company. These
options were originally scheduled to vest in December 2005. The
market price of the Companys common stock at the close of
business on February 10, 2005 was $5.61. The
Compensation Committees decision to accelerate the vesting
of these options was in response to the FASBs
F-24
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
issuance of Statement 123(R). By accelerating the vesting
of these options, the Company was not required to recognize any
compensation expense related to these options.
In May 2003, certain employees of the Company elected to forfeit
452,500 options originally priced at $7.06. These options were
added back to the pool of options available to grant in May 2003.
The (benefit) provision for income taxes consists of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
(178 |
) |
|
$ |
(2,720 |
) |
|
$ |
1,243 |
|
|
State
|
|
|
513 |
|
|
|
(264 |
) |
|
|
249 |
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(2,547 |
) |
|
|
561 |
|
|
|
1,341 |
|
|
State
|
|
|
(61 |
) |
|
|
153 |
|
|
|
265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(2,273 |
) |
|
$ |
(2,270 |
) |
|
$ |
3,098 |
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes differed from the amounts
computed by applying the U.S. federal income tax rate to
income before provision for income taxes as a result of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Tax expense at federal statutory rates
|
|
$ |
(2,593 |
) |
|
$ |
(3,069 |
) |
|
$ |
2,750 |
|
State income tax expense, net of federal benefit
|
|
|
(426 |
) |
|
|
(179 |
) |
|
|
336 |
|
Losses not deductible for federal income tax purposes
|
|
|
|
|
|
|
933 |
|
|
|
|
|
Prior period federal and state income tax true-ups
|
|
|
526 |
|
|
|
|
|
|
|
|
|
Other
|
|
|
220 |
|
|
|
45 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(2,273 |
) |
|
$ |
(2,270 |
) |
|
$ |
3,098 |
|
|
|
|
|
|
|
|
|
|
|
A summary of the Companys deferred tax assets and
liabilities, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Tax basis in excess of book basis on assets acquired
|
|
$ |
|
|
|
$ |
4,788 |
|
|
Net operating loss carryforward (expiring 2024)
|
|
|
4,273 |
|
|
|
1,638 |
|
|
Fair value of treasury interest rate locks
|
|
|
2,881 |
|
|
|
|
|
|
Deferred gain on sales/ leaseback transaction
|
|
|
1,548 |
|
|
|
|
|
|
Investment in Partnership
|
|
|
1,807 |
|
|
|
|
|
|
Other
|
|
|
3,296 |
|
|
|
3,166 |
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
13,805 |
|
|
|
9,592 |
|
Deferred tax liabilities
|
|
|
4,997 |
|
|
|
1,939 |
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net
|
|
$ |
8,808 |
|
|
$ |
7,653 |
|
|
|
|
|
|
|
|
F-25
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Management regularly evaluates the
future realization of deferred tax assets and provides a
valuation allowance, if considered necessary, based on such
evaluation. The ultimate realization of deferred tax assets is
dependent on the generation of future taxable income during the
periods in which those temporary differences become deductible.
Management has considered its possible sources of future taxable
income, including various tax planning strategies that it
believes are both prudent and feasible and that utilize net
built-in gains on the Companys appreciated assets. Based
on its overall evaluation, management believes that it is more
likely than not that it will generate sufficient taxable income
to realize the net deferred tax assets.
The Company has $11.2 million in net operating losses,
which are being carried forward and expire in 2024.
|
|
12. |
Employee Benefit Plans |
The Company has a 401(k) salary deferral plan (the
Plan) in which all employees of the Company meeting
minimum service and age requirements are eligible to
participate. Contributions to the Plan are in the form of
employee salary deferrals, which are subject to employer
matching contributions of up to 2% of the employees annual
salary. The Companys contributions are funded semi-monthly
to the Plan administrator. Matching contributions of
$0.3 million, $0.2 million and $0.2 million were
contributed to the Plan in 2005, 2004 and 2003, respectively.
The Company incurred administrative expenses related to the Plan
of $10,000, $21,000 and $17,000 in 2005, 2004 and 2003,
respectively.
In the fourth quarter of 2002, the Company (and two of its
management subsidiaries), Buckner Retirement Services, Inc.
(Buckner), and a related Buckner entity, and other
unrelated entities were named as defendants in a lawsuit in
district court in Fort Bend County, Texas brought by the
heir of a former resident who obtained nursing home services at
Parkway Place from September 1998 to March 2001. The Company
managed Parkway Place for Buckner through December 31,
2001. The Company and its subsidiaries denied any wrongdoing. On
March 16, 2004, the Court granted the Companys Motion
to Dismiss.
In February 2004, the Company and certain subsidiaries, along
with numerous other senior living companies in California, were
named as defendants in a lawsuit in the superior court in Los
Angeles, California. This lawsuit was brought by two public
interest groups on behalf of seniors in California residing at
the California facilities of the defendants. The plaintiffs
alleged that pre-admission fees charged by the defendants
facilities were actually security deposits that must be refunded
in accordance with California law. On November 30, 2004,
the court approved a settlement involving the Companys
independent living communities. Under the terms of the
settlement, (a) all non-refundable fees collected at the
independent living facilities since January 1, 2003 will be
treated as a refundable security deposits and (b) the
attorney for the plaintiffs received nominal attorney fees.
There were no other settlement costs to the Company or its
affiliates and the Companys assisted living community in
California was not named.
In April 2005, the Company filed a claim before the American
Arbitration Association in Dallas, Texas against a former
brokerage consultant and her company (collectively,
Respondents) for (1) a declaratory judgment
that it has fulfilled certain obligations to Respondents under
contracts the parties had signed related to the Covenant
transaction, (2) for damages resulting from alleged breach
of a confidentiality provision, and (3) for damages for
unpaid referral fees. Respondent has filed a counterclaim for
causes of action including breach of contract, duress, and undue
infliction of emotional distress. The counterclaim seeks damages
of up to $1,291,500 (or more). Respondent also seeks
to recover unspecified amounts of additional damages if the
Company acquires any of the Covenant owned properties on which
she claims to be entitled to recover
F-26
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
brokerage fees. The proceeding is in the discovery phase. The
Companys management believes strongly that its position
has merit and intends to vigorously defend the counterclaim.
On January 11, 2006, the Company received a demand letter
from the Texas Property and Casualty Insurance Guaranty
Association (TPCIGA) for repayment of $199,737.45 in
workers compensation payments allegedly made by TPCIGA on
behalf of Company employees. The Company has also received other
correspondence for repayment of $45,357.82. TPCIGAs letter
states that it has assumed responsibility for insureds of
Reliance Insurance Company (Reliance) which was
declared insolvent and ordered into liquidation in October of
2001 by the Commonwealth Court of Pennsylvania. Reliance had
been the Companys workers compensation carrier.
TPCIGAs demand letter states that under the Texas
Insurance Code, TPCIGA is entitled to seek reimbursement from an
insured for sums paid on its behalf if the insureds net
worth exceeds $50 million at the end of the year
immediately proceeding the impaired insurers insolvency.
TPCIGA states that it pursues reimbursement of these payments
from the Company pursuant to this net worth
provision. The Company has requested additional information from
TPCIGA to verify that the Company was indeed the employer of the
individuals on whose behalf the TPCIGA has paid claims. The
TPCIGA has not provided sufficient documentation at this time
for the Company to be able to fully evaluate all of these claims.
The Company has other pending claims not mentioned above
(Other Claims) incurred in the course of its
business. Most of these Other Claims are believed by management
to be covered by insurance, subject to normal reservations of
rights by the insurance companies and possibly subject to
certain exclusions in the applicable insurance policies. Whether
or not covered by insurance, these Other Claims, in the opinion
of management, based on advice of legal counsel, should not have
a material effect on the consolidated financial statements of
the Company if determined adversely to the Company.
|
|
14. |
Fair Value of Financial Instruments |
The carrying amounts and fair values of financial instruments at
December 31, 2005 and 2004 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Carrying | |
|
|
|
Carrying | |
|
|
|
|
Amount | |
|
Fair Value | |
|
Amount | |
|
Fair Value | |
|
|
| |
|
| |
|
| |
|
| |
Cash and cash equivalents
|
|
$ |
21,831 |
|
|
$ |
21,831 |
|
|
$ |
19,515 |
|
|
$ |
19,515 |
|
Restricted cash
|
|
|
973 |
|
|
|
973 |
|
|
|
|
|
|
|
|
|
Interest Rate Lock
|
|
|
7,550 |
|
|
|
7,550 |
|
|
|
6,909 |
|
|
|
6,909 |
|
Notes payable
|
|
|
260,534 |
|
|
|
255,223 |
|
|
|
261,768 |
|
|
|
264,591 |
|
The following methods and assumptions were used in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents and restricted cash: The
carrying amounts reported in the balance sheet for cash and cash
equivalents approximate fair value.
Interest Rate Lock: The interest rate lock is adjusted to
fair value with gains or losses recorded in the Companys
Statement of Operations.
Notes payable: The fair value of notes payable is
estimated using discounted cash flow analysis, based on current
incremental borrowing rates for similar types of borrowing
arrangements.
F-27
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
15. |
Investments in Limited Partnerships |
The investments in limited partnerships balance consists of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
BRE/ CSL limited partnership interest
|
|
|
|
|
|
|
1,892 |
|
SHPII/ CSL limited partnership interest
|
|
|
1,401 |
|
|
|
1,310 |
|
|
|
|
|
|
|
|
|
|
$ |
1,401 |
|
|
$ |
3,202 |
|
|
|
|
|
|
|
|
BRE/ CSL: The Company formed BRE/ CSL with an affiliate
of Blackstone in December 2001 and BRE/ CSL is owned 90% by
Blackstone and 10% by the Company. The Company accounted for its
investment in this joint venture under the equity method of
accounting. The Company recorded its investment at cost and
adjusted its investment for its share of earnings and losses of
BRE/ CSL. The Company deferred 10% of its management fee income
earned from BRE/ CSL. Deferred management fee income was being
amortized into income over the term of the Companys
management contract. On September 30, 2005, BRE/ CSL sold
its six communities to Ventas and the Company entered into the
Ventas Lease Agreements whereby the Company would lease the six
communities from Ventas for an initial term of 10 years. As
a result of this sale/ leaseback the Company received net
proceeds of $6.1 million and recorded a gain of
$4.2 million which has been deferred and is being amortized
into income over the initial 10 year lease term.
Spring Meadows/ SHPII/ CSL: In December 2002, the Company
acquired from affiliates of LCOR its approximate 19% member
interests in the four joint ventures which owned the Spring
Meadows Communities as well as loans made by LCOR to the joint
ventures for $0.9 million in addition to funding
$0.4 million for working capital and anticipated negative
cash requirements of the communities. The Companys
interests in the four joint ventures that owned the Spring
Meadows Communities included interests in certain loans to the
ventures and an approximate 19% member interest in each venture.
The Company recorded its initial advances of $1.3 million
to the ventures as notes receivable as the amount assigned for
the 19% member interests was nominal. The Company accounted for
its investment in the Spring Meadows Communities under the
equity method of accounting based on the provisions of the
partnership agreements and the Company recognized a loss in the
equity of the Spring Meadows Communities of $0.1 million
for the year ended December 31, 2004. The Company had the
obligation to fund certain future operating deficits of the
Spring Meadows Communities to the extent of its 19% member
interest. No amounts were funded by the Company under this
obligation.
In November 2004, the Company formed SHPII/ CSL with Prudential.
Effective as of November 30, 2004, SHPII/ CSL acquired the
Spring Meadows Communities which have a combined capacity of 698
residents. In connection with this acquisition the Company
contributed $1.3 million for to SHPII/ CSL for its 5%
interest. The Company has managed the Spring Meadows Communities
since the opening of each community in late 2000 and early 2001
and continues to manage the communities under long-term
management contracts with SHPII/ CSL. The Company accounts for
its investment in SHPII/ CSL under the equity method of
accounting and recorded its investment at cost and will adjust
its investment for its share of earnings and losses of SHPII/
CSL. The Company defers 5% of its management fee income earned
from SHPII/ CSL. Deferred management fee income is being
amortized into income over the term of the Companys
management contract. As of December 31, 2005, the Company
had deferred income of approximately $48,000 relating to SHPII/
CSL.
HCP: HCP is consolidated in the accompanying consolidated
financial statements. At December 31, 2005, 2004 and 2003,
the Company owned approximately 57% of HCPs limited
partner units. HCP was dissolved during 2003 and the net assets
of HCP have been transferred to a liquidating trust.
F-28
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
16. |
Allowance for Doubtful Accounts |
The components of the allowance for doubtful accounts and notes
receivable are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Balance at beginning of year
|
|
$ |
717 |
|
|
$ |
648 |
|
|
$ |
1,343 |
|
|
Provision for bad debts
|
|
|
258 |
|
|
|
198 |
|
|
|
168 |
|
|
Write-offs and other
|
|
|
(209 |
) |
|
|
(193 |
) |
|
|
(847 |
) |
|
Recoveries
|
|
|
3 |
|
|
|
64 |
|
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$ |
769 |
|
|
$ |
717 |
|
|
$ |
648 |
|
|
|
|
|
|
|
|
|
|
|
The Company leases its corporate headquarters, an office in New
York City and seven senior living facilities under operating
lease agreements. Additionally, the Companys senior living
communities have entered into various contracts for services for
duration of 5 years or less and are on a fee basis as
services are rendered. The lease on the Company headquarters
expires in February 2008. The Ventas Lease Agreements, which
cover the seven leased senior living facilities, each have an
initial term of ten years, with two five year renewal extensions
available at the Companys option. The initial lease rate
under the Ventas Lease Agreements is 8% and is subject to
certain conditional escalation clauses which will be recognized
when estimatable or incurred. The initial term on each of the
leases expires in October 2015. The Company incurred
$1.5 million in lease acquisition costs related to the
Ventas Lease Agreements. These deferred lease acquisition costs
are being amortized over the initial 10 year lease term and
are included in facility lease expense in the Companys
statement of operations. The Company has accounted for each of
the Ventas Lease Agreements as operating leases. Rent expense
under these leases was $2.6 million, $0.6 million and
$0.6 million for 2005, 2004 and 2003, respectively. Future
commitments are as follows (in thousands):
|
|
|
|
|
2006
|
|
$ |
8,924 |
|
2007
|
|
|
8,823 |
|
2008
|
|
|
8,455 |
|
2009
|
|
|
8,370 |
|
2010
|
|
|
8,361 |
|
Thereafter
|
|
|
39,768 |
|
|
|
|
|
|
|
$ |
82,701 |
|
|
|
|
|
On January 13, 2006, the Company announced the formation of
a joint venture, Midwest Portfolio Holdings, Inc.
(Midwest) with GE Healthcare Financial Services
(GE Healthcare) to acquire five senior housing
communities from a third party. Midwest agreed to pay
approximately $46.9 million for the five communities. The
five communities comprise 293 assisted living units with a
resident capacity of 389. Effective February 1, 2006,
Midwest acquired four of the five communities and expects to
close on the fifth community during the second quarter of fiscal
2006. The Company has an approximate 11% interest in Midwest and
manages the four communities already acquired under long-term
management agreements with Midwest.
F-29
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On February 1, 2006, the Company announced that it had
entered into an agreement to sell the Companys Towne
Centre community to Ventas in a sale/ leaseback transaction
valued at approximately $29.0 million. The lease agreement
will have an initial term of ten years, with two five year
renewal extensions available at the Companys option. The
initial lease rate under the Towne Centre lease agreement will
be 8% and will be subject to certain conditional escalation
clauses. The Company expects to account for this lease as an
operating lease. The sale of the Towne Centre community to
Ventas is expected to result in the Company recording a gain of
approximately $14.5 million, which will be deferred and
recognized in the Companys statement of operations over
the initial 10 year lease term. The Towne Centre sale/
leaseback transaction is expected to close in the Companys
first quarter of fiscal 2006.
On March 6, 2005, the Company awarded 18,000 shares of
restricted stock to certain employees of the Company. The market
value of the common stock on the date of grant was $10.40. These
restricted shares vest ratably over a four year period.
On March 8, 2006, the Company announced that it had entered
into an agreement to sale three communities owned by the Company
to Healthcare Property Investor, Inc. (HCPI) in a
sale/ leaseback transaction valued at approximately
$54.0 million. The lease agreements will have an initial
term of ten years. The initial lease rate under the lease
agreements will be 8% and will be subject to certain conditional
escalation clauses. The Company expects to account for this
lease as an operating lease. The sale of the three communities
to HCPI is expected to result in the Company recording a gain of
approximately $13.0 million, which will be deferred and
recognized in the Companys statement of operations over
the initial 10 year lease term.
On March 13, 2006, The Company announced that it had
exercised its option to acquire the seven communities owned by
Covenant and upon completion of the acquisitions, will
immediately sell six of the seven communities to HCPI in a sale/
leaseback transaction valued at approximately
$43.0 million. The Company is currently marketing the
seventh community and intends to complete a sale as soon as
possible. The Company expects the transaction to result in the
recognition of a gain between $3.0 and $4.0 million and the
gain will be recognized over the initial 10 year lease
term. The initial lease rate under the lease agreements will be
8% and will be subject to certain conditional escalation
clauses. The Company expects to account for this lease as an
operating lease.
F-30
INDEX TO EXHIBITS
The following documents are filed as a part of this report.
Those exhibits previously filed and incorporated herein by
reference are identified below. Exhibits not required for this
report have been omitted.
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
Description |
|
|
|
|
|
|
*3 |
.1 |
|
|
|
Amended and Restated Certificate of Incorporation of the
Registrant (Exhibit 3.1) |
|
|
(i)3 |
.1.1 |
|
|
|
Amendment to Amended and Restated Certificate of Incorporation
of the Registrant (Exhibit 3.1) |
|
|
*3 |
.2 |
|
|
|
Amended and Restated Bylaws of the Registrant |
|
|
(i)3 |
.2.1 |
|
|
|
Amendments to Amended and Restated Bylaws of the Registrant
(Exhibit 3.2) |
|
|
(v)3 |
.2.2 |
|
|
|
Amendment No. 2 to Amended and Restated Bylaws of the
Registrant (Exhibit 3.2.2) |
|
|
(aa)4 |
.1 |
|
|
|
Rights Agreement, dated as of March 9, 2000, between
Capital Senior Living Corporation and ChaseMellon Shareholder
Services, L.L.C., which includes the form of Certificate of
Designation of Series A Junior Participating Preferred
Stock, $.01 par value, as Exhibit A, the form of Right
Certificate as Exhibit B, and the Summary of Rights as
Exhibit C (Exhibit 4.1) |
|
|
4 |
.2 |
|
|
|
Form of Certificate of Designation of Series A Junior
Participating Preferred Stock, $.01 par value (included as
Exhibit A to the Rights Agreement, which is
Exhibit 4.1 hereto) |
|
|
4 |
.3 |
|
|
|
Form of Right Certificate (included as Exhibit B to the
Rights Agreement, which is Exhibit 4.1 hereto) |
|
|
4 |
.4 |
|
|
|
Form of Summary of Rights (included as Exhibit C to the
Rights Agreement, which is Exhibit 4.1 hereto) |
|
|
4 |
.5 |
|
|
|
Specimen of legend to be placed, pursuant to Section 3(c)
of the Rights Agreement, on all new Common Stock certificates
issued after March 20, 2000 and prior to the Distribution
Date upon transfer, exchange or new issuance (included in
Section 3(c) of the Rights Agreement, which is
Exhibit 4.1 hereto) |
|
|
(m)10 |
.1 |
|
|
|
1997 Omnibus Stock and Incentive Plan for Capital Senior Living
Corporation, as amended (Exhibit 4.1) |
|
|
(m)10 |
.1.1 |
|
|
|
Form of Stock Option Agreement (Exhibit 4.2) |
|
|
*10 |
.2 |
|
|
|
Amended and Restated Employment Agreement, dated as of
May 7, 1997, by and between Capital Senior Living, Inc. and
James A. Stroud (Exhibit 10.10) |
|
|
*10 |
.3 |
|
|
|
Employment Agreement, dated as of November 1, 1996, by and
between Capital Senior Living Corporation and Lawrence A. Cohen
(Exhibit 10.11) |
|
|
*10 |
.4 |
|
|
|
Employment Agreement, dated as of November 26, 1996, by and
between Capital Senior Living, Inc. and David R. Brickman
(Exhibit 10.12) |
|
|
*10 |
.5 |
|
|
|
Employment Agreement, dated as of November 26, 1996, by and
between Capital Senior Living, Inc. and Keith N. Johannessen
(Exhibit 10.13) |
|
|
*10 |
.6 |
|
|
|
Engagement Letter, dated as of June 30, 1997, by and
between Lehman Brothers Holdings Inc. d/b/a Lehman Capital, A
Division of Lehman Brothers Holdings Inc. and Capital Senior
Living Corporation (Exhibit 10.14) |
|
|
*10 |
.7 |
|
|
|
Lease Agreement, dated as of June 1, 1997, by and between
G&L Gardens, LLC, as lessor, and Capital Senior
Management 1, Inc., as lessee (Exhibit 10.15) |
|
|
(a)10 |
.8 |
|
|
|
Amended and Restated Loan Agreement, dated as of
December 10, 1997, by and between Bank One, Texas, N.A. and
Capital Senior Living Properties, Inc. (Exhibit 10.33) |
|
|
(a)10 |
.9 |
|
|
|
Alliance Agreement, dated as of December 10, 1997, by and
between LCOR Incorporated and Capital Senior Living Corporation
(Exhibit 10.34) |
|
|
(b)10 |
.10 |
|
|
|
Draw Promissory Note, dated April 1, 1998, of Triad Senior
Living I, L.P. in favor of Capital Senior Living
Properties, Inc. (Exhibit 10.39) |
E-1
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
Description |
|
|
|
|
|
|
(c)10 |
.11 |
|
|
|
Draw Promissory Note, dated September 24, 1998, of Triad
Senior Living II, L.P., in favor of Capital Senior Living
Properties, Inc. (Exhibit 10.1) |
|
|
(d)10 |
.12 |
|
|
|
Loan Agreement, dated as of September 30, 1998, by and
between Capital Senior Living Properties 2-NHPCT, Inc. and
Lehman Brothers Holdings Inc. d/b/a Lehman Capital, a division
of Lehman Brothers Holdings Inc. (Exhibit 2.3) |
|
|
(e)10 |
.13 |
|
|
|
Multifamily Note, dated December 4, 1997, of Gramercy Hill
Enterprises in favor of Washington Mortgage Financial Group,
Ltd. (Exhibit 2.5) |
|
|
(e)10 |
.14 |
|
|
|
Multifamily Deed of Trust, dated December 4, 1997, among
Gramercy Hill Enterprises, Ticor Title Insurance Company and
Washington Mortgage Financial Group, Inc. (Exhibit 2.5) |
|
|
(e)10 |
.15 |
|
|
|
Multifamily Note, dated October 28, 1998, of Capital Senior
Living Properties 2-Gramercy, Inc. in favor of WMF Washington
Mortgage Corp. (Exhibit 2.7) |
|
|
(e)10 |
.16 |
|
|
|
Multifamily Deed of Trust, Assignment of Rents and Security
Agreement, dated October 28, 1998, among Capital Senior
Living Properties 2-Gramercy, Inc., Chicago Title Insurance
Company and WMF Washington Mortgage Corp. (Exhibit 2.8) |
|
|
(f)10 |
.17 |
|
|
|
Employment Agreement, dated as of December 10, 1996, by and
between Capital Senior Living, Inc. and Rob L. Goodpaster
(Exhibit 10.50) |
|
|
(f)10 |
.18 |
|
|
|
Draw Promissory Note dated November 1, 1998 of Triad Senior
Living III, L.P., in favor of Capital Senior Living
Properties, Inc. (Exhibit 10.51) |
|
|
(f)10 |
.19 |
|
|
|
Draw Promissory Note dated December 30, 1998 of Triad
Senior Living IV, L.P., in favor of Capital Senior Living
Properties, Inc. (Exhibit 10.52) |
|
|
(f)10 |
.20 |
|
|
|
Form of Development and Turnkey Services Agreement by and
between Capital Senior Development, Inc. and applicable Triad
Entity (Exhibit 10.53) |
|
|
(f)10 |
.21 |
|
|
|
Form of Development Agreement by and between Capital Senior
Development, Inc. and applicable Triad Entity
(Exhibit 10.54) |
|
|
(f)10 |
.22 |
|
|
|
Form of Management Agreement by and between Capital Senior
Living, Inc. and applicable Triad Entity (Exhibit 10.55) |
|
|
(f)10 |
.23 |
|
|
|
Agreement of Limited Partnership of Triad Senior Living I,
L.P. dated April 1, 1998 (Exhibit 10.56) |
|
|
(f)10 |
.24 |
|
|
|
Agreement of Limited Partnership of Triad Senior Living II,
L.P. dated September 23, 1998 (Exhibit 10.57) |
|
|
(f)10 |
.25 |
|
|
|
Agreement of Limited Partnership of Triad Senior
Living III, L.P. dated November 10, 1998
(Exhibit 10.58 |
|
|
(f)10 |
.26 |
|
|
|
Agreement of Limited Partnership of Triad Senior Living IV, L.P.
dated December 22, 1998 (Exhibit 10.59) |
|
|
(g)10 |
.27 |
|
|
|
1999 Amended and Restated Loan Agreement, dated as of
April 8, 1999, by and among Capital Senior Living
Properties, Inc., Bank One, Texas, N.A. and the other Lenders
signatory thereto. (Exhibit 10.11) |
|
|
(g)10 |
.28 |
|
|
|
Amended and Restated Draw Promissory note, dated March 31,
1999, of Triad Senior Living I, L.P., in favor of Capital
Senior Living Properties, Inc. (Exhibit 10.21) |
|
|
(g)10 |
.29 |
|
|
|
Amended and Restated Draw Promissory Note (Fairfield), dated
January 15, 1999, of Triad Senior Living II, L.P., in
favor of Capital Senior Living Properties, Inc.
(Exhibit 10.3) |
|
|
(g)10 |
.30 |
|
|
|
Amended and Restated Draw Promissory Note (Baton Rouge), dated
January 15, 1999, of Triad Senior Living II, L.P., in
favor of Capital Senior Living Properties, Inc.
(Exhibit 10.1) |
|
|
(g)10 |
.31 |
|
|
|
Amended and Restated Draw Promissory Note (Oklahoma City), dated
January 15, 1999, of Triad Senior Living II, L.P., in
favor of Capital Senior Living Properties, Inc.
(Exhibit 10.51) |
|
|
(h)10 |
.32 |
|
|
|
Amended and Restated Draw Promissory Note dated June 30,
1999 of Triad Senior Living I, L.P. in favor of Capital
Senior Living Properties, Inc. (Exhibit 10.1) |
E-2
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
Description |
|
|
|
|
|
|
(h)10 |
.33 |
|
|
|
Amended and Restated Draw Promissory Note (Plano, Texas) dated
January 15, 1999 of Triad Senior Living II, L.P. in
favor of Capital Senior Living Properties, Inc.
(Exhibit 10.2) |
|
|
(h)10 |
.34 |
|
|
|
Letter Agreement dated July 28, 1999 among the Company and
ILM Senior Living, Inc. and ILM II Senior Living, Inc.
(Exhibit 10.3) |
|
|
(i)10 |
.35 |
|
|
|
Draw Promissory Note dated July 1, 1999 of Triad Senior
Living V, L.P. in favor of Capital Senior Living
Properties, Inc. (Exhibit 10.1) |
|
|
(i)10 |
.36 |
|
|
|
First Amendment to Amended and Restated Employment Agreement of
James A. Stroud, dated March 22, 1999, by and between James
A. Stroud and Capital Senior Living Corporation
(Exhibit 10.2) |
|
|
(i)10 |
.37 |
|
|
|
Second Amendment to Amended and Restated Employment Agreement of
James A. Stroud, dated May 31, 1999, by and between James
A. Stroud and Capital Senior Living Corporation
(Exhibit 10.3) |
|
|
(i)10 |
.38 |
|
|
|
Employment Agreement, dated May 26, 1999, by and between
Lawrence A. Cohen and Capital Senior Living Corporation
(Exhibit 10.4) |
|
|
(j)10 |
.39 |
|
|
|
Agreement and Plan of Merger, dated February 7, 1999, by
and among Capital Senior Living Corporation, Capital Senior
Living Acquisition, LLC, Capital Senior Living Trust I and
ILM Senior Living, Inc. (Exhibit 10.1) |
|
|
(k)10 |
.40 |
|
|
|
Agreement and Plan of Merger, dated February 7, 1999, by
and among Capital Senior Living Corporation, Capital Senior
Living Acquisition, LLC, Capital Senior Living Trust I and
ILM II Senior Living, Inc. (Exhibit 10.1) |
|
|
(l)10 |
.41 |
|
|
|
Amended and Restated Agreement and Plan of Merger, dated
October 19, 1999, by and among Capital Senior Living
Corporation, Capital Senior Living Acquisition, LLC and ILM
Senior Living, Inc. (Exhibit 10.1) |
|
|
(m)10 |
.42 |
|
|
|
Amended and Restated Agreement and Plan of Merger, dated
October 19, 1999, by and among Capital Senior Living
Corporation, Capital Senior Living Acquisition, LLC and ILM II
Senior Living, Inc. (Exhibit 10.1) |
|
|
(o)10 |
.43 |
|
|
|
Employment Agreement, dated May 25, 1999, by and between
Ralph A. Beattie and Capital Senior Living Corporation
(Exhibit 10.76) |
|
|
(o)10 |
.44 |
|
|
|
Consulting/Severance Agreement, dated May 20, 1999, by and
between Jeffrey L. Beck and Capital Senior Living Corporation
(Exhibit 10.77) |
|
|
(o)10 |
.45 |
|
|
|
Second Amended and Restated Agreement of Limited Partnership of
Triad Senior Living I, L.P. (Exhibit 10.78) |
|
|
(u)10 |
.45.1 |
|
|
|
Amendment No. 1 to Second Amended and Restated Agreement of
Limited Partnership of Triad Senior Living I, LP.
(Exhibit 10.105) |
|
|
(p)10 |
.46 |
|
|
|
Form of GMAC Loan Agreement, Promissory Note and Exceptions to
Nonrecourse Guaranty (Exhibit 10.1) |
|
|
(p)10 |
.47 |
|
|
|
Newman Pool B Loan Agreement, Promissory Note and Guaranty
(Exhibit 10.2) |
|
|
(p)10 |
.48 |
|
|
|
Newman Pool C Loan Agreement, Promissory Note and Guaranty
(Exhibit 10.3) |
|
|
(p)10 |
.49 |
|
|
|
First Amendment to Triad II Partnership Agreement
(Exhibit 10.4) |
|
|
(p)10 |
.50 |
|
|
|
Second Modification Agreement to the Bank One Loan Agreement
(Exhibit 10.5) |
|
|
(p)10 |
.51 |
|
|
|
Assignment of Note, Liens and Other Loan Documents between Fleet
National Bank and CSLI (Exhibit 10.6) |
|
|
(q)10 |
.52 |
|
|
|
Second Amendment to Amended and Restated Agreement and Plan of
Merger, dated November 28, 2000 (Exhibit 10.1) |
|
|
(q)10 |
.53 |
|
|
|
First Amendment to Agreement, dated November 28, 2000
(Exhibit 10.2) |
E-3
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
Description |
|
|
|
|
|
|
(r)10 |
.54 |
|
|
|
Assignment of Partnership Interest, dated as of
October 1, 2000, by and between Capital Senior Living
Properties, Inc., a Texas corporation, and Triad Senior Living,
Inc., a Texas limited partnership (Exhibit 82) |
|
|
(r)10 |
.55 |
|
|
|
Assignment of Partnership Interest, dated as of
October 1, 2000, by and between Capital Senior Living
Properties, Inc., a Texas corporation, and Triad Senior
Living II, L.P., a Texas limited partnership
(Exhibit 88) |
|
|
(r)10 |
.56 |
|
|
|
Assignment of Partnership Interest, dated as of
October 1, 2000, by and between Capital Senior Living
Properties, Inc., a Texas corporation, and Triad Senior
Living III, L.P., a Texas limited partnership
(Exhibit 89) |
|
|
(r)10 |
.57 |
|
|
|
Assignment of Partnership Interest, dated as of
October 1, 2000, by and between Capital Senior Living
Properties, Inc., a Texas corporation, and Triad Senior Living
IV, L.P., a Texas limited partnership (Exhibit 90) |
|
|
(r)10 |
.58 |
|
|
|
Assignment of Partnership Interest, dated as of
October 1, 2000, by and between Capital Senior Living
Properties, Inc., a Texas corporation, and Triad Senior
Living V, L.P., a Texas limited partnership
(Exhibit 91) |
|
|
(s)10 |
.59 |
|
|
|
BRE/CSL LLC Agreement (Exhibit 92) |
|
|
(s)10 |
.60 |
|
|
|
BRE/CSL Management Agreement (Amberleigh) (Exhibit 93) |
|
|
(s)10 |
.61 |
|
|
|
Third Modification Agreement to the Bank One Loan Agreement
(Exhibit 94) |
|
|
(s)10 |
.62 |
|
|
|
Fourth Modification Agreement to the Bank One Loan Agreement
(Exhibit 95) |
|
|
(s)10 |
.63 |
|
|
|
Third Amendment to Amended and Restated Employment Agreement of
James A. Stroud, dated May 31, 1999, by and between James
A. Stroud and Capital Senior Living Corporation (Exhibit 96) |
|
|
(t)10 |
.64 |
|
|
|
Amendment to Amended and Restated Limited Liability Company
Agreement of BRE/CSL Portfolio L.L.C., dated as of June 13,
2002 among BRE/CSL Holdings L.L.C., Capital Senior Living A,
Inc. and Capital Senior Living Properties, Inc.
(Exhibit 10.97) |
|
|
(t)10 |
.65 |
|
|
|
Contribution Agreement dated December 31, 2001 between
Capital Senior Living A, Inc. and BRE/CSL Holdings L.L.C.
(Exhibit 10.98) |
|
|
(u)10 |
.66 |
|
|
|
Third Amendment to Promissory Note and Loan Agreement dated
October 15, 2002 by and between Capital Senior Living
ILM B, Inc. and Newman Financial Services, Inc.
(Newman Pool B loan) (Exhibit 10.99) |
|
|
(u)10 |
.67 |
|
|
|
Third Amendment to Promissory Note and Loan Agreement dated
October 15, 2002 by and between Capital Senior Living
ILM C, Inc. and Newman Financial Services, Inc.
(Newman Pool C loan) (Exhibit 10.100) |
|
|
(u)10 |
.68 |
|
|
|
Omnibus Modification Agreement dated September 25, 2002 by
and between Capital Senior Living Properties, Inc. and Bank One
N.A. (Exhibit 10.101) |
|
|
(u)10 |
.69 |
|
|
|
Support Agreement dated as of September 11, 2002 by and
between Capital Senior Living, Inc., Triad I,
Triad II, Triad III, Triad IV and Triad V.
(Exhibit 10.102) |
|
|
(u)10 |
.70 |
|
|
|
Form of Amendments to Loan Agreement, Promissory Note, Mortgage
and Guaranty between GMAC and Capital entities owning Sedgwick,
Canton Regency, and Towne Centre property. (Exhibit 10.103) |
|
|
(u)10 |
.71 |
|
|
|
Amended and Restated Account Control Agreement with GMAC
Relating to the Sedgwick property. (Exhibit 10.104) |
|
|
(v)10 |
.72 |
|
|
|
Fourth Amendment to Amended and Restated Employment Agreement of
James A. Stroud, dated January 17, 2003 by and between
James A. Stroud and Capital Senior Living Corporation
(Exhibit 10.105) |
|
|
(v)10 |
.73 |
|
|
|
Second Amendment to the Employment Agreement of Lawrence A.
Cohen, dated January 27, 2003 by and between Lawrence A.
Cohen and Capital Senior Living Corporation (Exhibit 10.106) |
E-4
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
Description |
|
|
|
|
|
|
(v)10 |
.74 |
|
|
|
First Amendment to the Employment Agreement of Keith N.
Johannessen, dated January 17, 2003 by and between Keith N.
Johannessen and Capital Senior Living Corporation
(Exhibit 10.107) |
|
|
(v)10 |
.75 |
|
|
|
First Amendment to the Employment Agreement of Ralph A. Beattie,
dated January 21, 2003 by and between Ralph A. Beattie and
Capital Senior Living Corporation (Exhibit 10.108) |
|
|
(v)10 |
.76 |
|
|
|
Second Amendment to the Employment Agreement of David R.
Brickman, dated January 27, 2003 by and between David R.
Brickman and Capital Senior Living Corporation
(Exhibit 10.109) |
|
|
(v)10 |
.77 |
|
|
|
Amended and Restated Draw Promissory Note, dated
February 1, 2003, of Triad Senior Living I, L.P. in
favor of Capital Senior Living Properties, Inc.
(Exhibit 10.110) |
|
|
(v)10 |
.78.1 |
|
|
|
Amended and Restated Draw Promissory Note (Fairfield), dated
February 1, 2003, of Triad Senior Living II, L.P. in
favor of Capital Senior Living Properties, Inc.
(Exhibit 10.111.1) |
|
|
(v)10 |
.78.2 |
|
|
|
Amended and Restated Draw Promissory Note (Oklahoma City), dated
February 1, 2003, of Triad Senior Living II, L.P. in
favor of Capital Senior Living Properties, Inc.
(Exhibit 10.111.2) |
|
|
(v)10 |
.78.3 |
|
|
|
Amended and Restated Draw Promissory Note (Plano), dated
February 1, 2003, of Triad Senior Living II, L.P. in
favor of Capital Senior Living Properties, Inc.
(Exhibit 10.111.3) |
|
|
(v)10 |
.79 |
|
|
|
Amended and Restated Draw Promissory Note, dated
February 1, 2003, of Triad Senior Living III, L.P. in
favor of Capital Senior Living Properties, Inc.
(Exhibit 10.112) |
|
|
(v)10 |
.80 |
|
|
|
Amended and Restated Draw Promissory Note, dated
February 1, 2003, of Triad Senior Living IV, L.P. in favor
of Capital Senior Living Properties, Inc. (Exhibit 10.113) |
|
|
(v)10 |
.81 |
|
|
|
Amended and Restated Draw Promissory Note, dated
February 1, 2003, of Triad Senior Living V, L.P. in
favor of Capital Senior Living Properties, Inc.
(Exhibit 10.114) |
|
|
(v)10 |
.82 |
|
|
|
Form of Partnership Interest Purchase Agreements, dated as
of March 25, 2003, between Capital Senior Living
Properties, Inc. and the Triad Entities (with the exception of
Triad I), regarding the exercise of the Companys
options to purchase the partnership interests in the Triad
Entities (with the exception of Triad I) owned by non-Company
parties. (Exhibit 10.115) |
|
|
(v)10 |
.83 |
|
|
|
Assignment and Assumption Agreement, dated as of
December 20, 2002, among LCOR entities, Capital Senior
Living Properties 4, Inc. and owners, regarding 4 Spring
Meadows Properties (Exhibit 10.116) |
|
|
(v)10 |
.84 |
|
|
|
Form of Fourth Amended and Restated Limited Liability Company
Agreement, dated as of December 20, 2002, between Capital
Senior Living Properties 4, Inc. and PAMI Senior Living
Inc. for each of the 4 Spring Meadows properties.
(Exhibit 10.117) |
|
|
(v)10 |
.85 |
|
|
|
Form of First Amended and Restated Management and Marketing
Agreement, dated as of December 20, 2002, between Capital
Senior Living Inc. and owner for each of the 4 Spring Meadows
properties. (Exhibit 10.118) |
|
|
(w)10 |
.86 |
|
|
|
Contribution Agreement dated June 30, 2003 between Capital
Senior Living Properties, Inc. and BRE/CSL Holdings II,
L.L.C. (Exhibit 10.11) |
|
|
(w)10 |
.87 |
|
|
|
BRE/CSL II L.L.C. Limited Liability Company Agreement.
(Exhibit 10.2) |
|
|
(y)10 |
.88 |
|
|
|
Third Amendment to the Employment Agreement of Lawrence A.
Cohen. (Exhibit 10.1) |
|
|
(z)10 |
.89 |
|
|
|
Stock Purchase Agreement dated July 30, 2004, by and
between Capital Senior Management 1, Inc. and the Covenant
Group of Texas, Inc. (Exhibit 10.1) |
|
|
(bb)10 |
.90 |
|
|
|
Amendment to Stock Purchase Agreement, dated August 17,
2004, by and between Covenant Group of Texas, Inc. and Capital
Senior Management 1, Inc. (Exhibit 10.1) |
|
|
(bb)10 |
.91 |
|
|
|
Promissory Note, dated August 18, 2004, by Capital Senior
Management 1, Inc. in favor of Covenant Group of Texas,
Inc. (Exhibit 10.2) |
E-5
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
Description |
|
|
|
|
|
|
(bb)10 |
.92 |
|
|
|
Security Agreement, dated as of August 18, 2004, by and
between Covenant Group of Texas, Inc. and Capital Senior
Management 1, Inc. (Exhibit 10.3) |
|
|
(bb)10 |
.93.1 |
|
|
|
Right of First Refusal Agreement, dated August 18, 2004, by
and between Covenant Place of Abilene, Inc. and Capital Senior
Living Acquisition, LLC (Exhibit 10.4.1) |
|
|
(bb)10 |
.93.2 |
|
|
|
Schedule identifying substantially identical agreements to
Exhibit 10.93.1 (Exhibit 10.4.2) |
|
|
(bb)10 |
.94.1 |
|
|
|
Option to Purchase, dated as of August 18, 2004, by and
between Covenant Place of Abilene, Inc. and Capital Senior
Living Acquisition, LLC (Exhibit 10.5.1) |
|
|
(bb)10 |
.94.2 |
|
|
|
Schedule identifying substantially identical agreements to
Exhibit 10.94.1 (Exhibit 10.5.2) |
|
|
(cc)10 |
.95 |
|
|
|
Form of Restricted Stock Award Under the 1997 Omnibus Stock and
Incentive Plan for Capital Senior Living Corporation
(Exhibit 10.1) |
|
|
(dd)10 |
.96 |
|
|
|
Loan Agreement, dated as of December 29, 2004, by and
between Triad Senior Living I, L.P., Triad Senior
Living II, L.P., Triad Senior Living IV, L.P., Triad Senior
Living V, L.P., Capital Senior Living A, Inc., Capital
Senior Living ILM-B, Inc., and GMAC Commercial Mortgage
Corporation (Exhibit 10.96) |
|
|
(dd)10 |
.97 |
|
|
|
Assignment, dated November 30, 2004, by and between LB
Triad Inc. and Capital Senior Living Properties, Inc.
(Exhibit 10.97) |
|
|
(dd)10 |
.98 |
|
|
|
Assignment of Partnership Interest, dated November 30,
2004, by Triad Senior Living, Inc. in favor of Capital Senior
Living Properties 5, Inc. (Exhibit 10.98) |
|
|
(dd)10 |
.99 |
|
|
|
Termination and Mutual Release Agreement, dated as of
November 30, 2004, by and between Lehman Brothers Holdings
Inc., d/b/a Lehman Capital, a division of Lehman Brothers
Holdings Inc., LB Triad Inc. and Capital Senior Living
Corporation, Capital Senior Living Properties, Inc. and Triad
Senior Living I, L.P. (Exhibit 10.99) |
|
|
(ee)10 |
.100 |
|
|
|
Master Lease Agreement, dated June 30, 2005, between Ventas
Amberleigh, LLC and Capital Senior Management 2, Inc.
(Exhibit 10.1) |
|
|
(ee)10 |
.101 |
|
|
|
Schedule identifying substantially identical agreements to
Exhibit 10.100 (Exhibit 10.2) |
|
|
(ff)10 |
.102 |
|
|
|
Loan Agreement, dated July 18, 2005, by Capital Senior
Living Peoria, LLC and GMAC Commercial Mortgage Bank
(Exhibit 10.1) |
|
|
(ff)10 |
.103 |
|
|
|
Schedule identifying substantially identical agreements to
Exhibit 10.102 (Exhibit 10.2) |
|
|
(gg)10 |
.104 |
|
|
|
Master Lease Agreement, dated October 18, 2005, between
Ventas Georgetowne, LLC and Capital Senior Management 2,
Inc. (Exhibit 10.1) |
|
|
(hh)10 |
.105 |
|
|
|
Contract of Acquisition, dated as of March 7, 2006, between
Health Care Property Investors, Inc. and Capital Senior Living
Properties 2 Crosswood Oaks, Inc., Capital Senior
Living Properties 2 Tesson Heights, Inc. and Capital
Senior Living Properties 2 Veranda Club, Inc.
(Exhibit 10.1) |
|
|
(hh)10 |
.106 |
|
|
|
Contract of Acquisition, dated as of March 7, 2006, between
Texas HCP Holding, L.P. and Capital Senior Living Acquisition,
LLC (Exhibit 10.2) |
|
|
(hh)10 |
.107 |
|
|
|
Agreement of Purchase and Sale of Real Property, dated March 10,
2006, by and between Covenant Place of Abilene, Inc. and Capital
Senior Living Acquisition, LLC (Exhibit 10.3) |
|
|
(hh)10 |
.108 |
|
|
|
Schedule identifying substantially identical agreements to
Exhibit 10.107 (Exhibit 10.4) |
|
|
(ii)21 |
.1 |
|
|
|
Subsidiaries of the Company |
|
|
(ii)23 |
.1 |
|
|
|
Consent of KPMG LLP |
|
|
(ii)23 |
.2 |
|
|
|
Consent of Ernst & Young LLP |
|
|
(ii)31 |
.1 |
|
|
|
Certification of Chief Executive Officer required by Rule
13a-14(a) or Rule 15d-14(a) |
|
|
(ii)31 |
.2 |
|
|
|
Certification of Chief Financial Officer required by Rule
13a-14(a) or Rule 15d-14(a) |
|
|
(ii)32 |
.1 |
|
|
|
Certification of Lawrence A. Cohen pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. |
E-6
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
Description |
|
|
|
|
|
|
(ii)32 |
.2 |
|
|
|
Certification of Ralph A. Beattie pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
* |
|
Incorporated by reference to exhibit from the Registration
Statement
No. 333-33379 on
Form S-1 filed by
the Company with the Securities and Exchange Commission. |
|
(a) |
|
Incorporated by reference to exhibit from the Companys
Annual Report on
Form 10-K for the
year ended December 31, 1997, filed by the Company with the
Securities and Exchange Commission. |
|
(b) |
|
Incorporated by reference to the exhibit from the Companys
Quarterly Report on
Form 10-Q for the
quarterly period ended March 31, 1998, filed by the Company
with the Securities and Exchange Commission. |
|
(c) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Quarterly Report on
Form 10-Q for the
quarterly period ended September 30, 1998, filed by the
Company with the Securities and Exchange Commission. |
|
(d) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Current Report on
Form 8-K, dated
September 30, 1998, filed by the Company with the
Securities and Exchange Commission. |
|
(e) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Current Report on
Form 8-K, dated
October 28, 1998, filed by the Company with the Securities
and Exchange Commission. |
|
(f) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Annual Report on
Form 10-K for the
year ended December 31, 1998, filed by the Company with the
Securities and Exchange Commission. |
|
(g) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Quarterly Report on
Form 10-Q for the
quarterly period ended March 31, 1999, filed by the Company
with the Securities and Exchange Commission. |
|
(h) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Quarterly Report on
Form 10-Q for the
quarterly period ended June 30, 1999, filed by the Company
with the Securities and Exchange Commission. |
|
(i) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Quarterly Report on
Form 10-Q for the
quarterly period ended September 30, 1999, filed by the
Company with the Securities and Exchange Commission. |
|
(j) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Current Report on
Form 8-K, dated
February 7, 1999, filed by the Company with the Securities
and Exchange Commission. |
|
(k) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Current Report on
Form 8-K, dated
February 7, 1999, filed by the Company with the Securities
and Exchange Commission. |
|
(l) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Current Report on
Form 8-K, dated
October 19, 1999, filed by the Company with the Securities
and Exchange Commission. |
|
(m) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Current Report on
Form 8-K, dated
October 19, 1999, filed by the Company with the Securities
and Exchange Commission. |
|
(n) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Registration Statement on
Form S-8, filed on
December 3, 1999, by the Company with Securities and
Exchange Commission. |
E-7
|
|
|
(o) |
|
Incorporated by reference to the exhibit shown in parenthesis
from the Companys Annual Report on
Form 10-K, dated
March 30, 2000, filed by the Company with the Securities
and Exchange Commission. |
|
(p) |
|
Incorporated by reference to the exhibit shown in parenthesis
from the Companys Current Report on
Form 8-K, dated
August 15, 2000, filed by the Company with the Securities
and Exchange Commission. |
|
(q) |
|
Incorporated by reference to the exhibit shown in parenthesis
from the Companys Current Report on
Form 8-K, dated
November 28, 2000, filed by the Company with the Securities
and Exchange Commission. |
|
(r) |
|
Incorporated by reference to the exhibit shown in parenthesis
from the Companys Annual Report on
Form 10-K, dated
March 20, 2001, filed by the Company with the Securities
and Exchange Commission. |
|
(s) |
|
Incorporated by reference to the exhibit shown in parenthesis
from the Companys Annual Report on
Form 10-K, dated
March 26, 2002, filed by the Company with the Securities
and Exchange Commission. |
|
(t) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Quarterly Report on
Form 10-Q for the
quarterly period ended June 30, 2002, filed by the Company
with the Securities and Exchange Commission. |
|
(u) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Quarterly Report on
Form 10-Q for the
quarterly period ended September 30, 2002, filed by the
Company with the Securities and Exchange Commission. |
|
(v) |
|
Incorporated by reference to the exhibit shown in parenthesis
from the Companys Annual Report on
Form 10-K, dated
March 26, 2003, filed by the Company with the Securities
and Exchange Commission. |
|
(w) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Quarterly Report on
Form 10-Q for the
quarterly period ended June 30, 2003, filed by the Company
with the Securities and Exchange Commission. |
|
(x) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Quarterly Report on
Form 10-Q for the
quarterly period ended September 30, 2003, filed by the
Company with the Securities and Exchange Commission. |
|
(y) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Quarterly Report on
Form 10-Q for the
quarterly period ended March 31, 2004, filed by the Company
with the Securities and Exchange Commission. |
|
(z) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Quarterly Report on
Form 10-Q for the
quarterly period ended June 30, 2004, filed by the Company
with the Securities and Exchange Commission. |
|
(aa) |
|
Incorporated by reference to the exhibit of corresponding number
from the Companys Current Report on
Form 8-K, dated
March 9, 2000, filed by the Company with the Securities and
Exchange Commission |
|
(bb) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Current Report on
Form 8-K, dated
August 23, 2004, filed by the Company with the Securities
and Exchange Commission |
|
(cc) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Current Report on
Form 8-K, dated
February 10, 2005, filed by the Company with the Securities
and Exchange Commission |
|
(dd) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Annual Report on
Form 10-K for the
year ended December 31, 2004, filed with the Securities and
Exchange Commission. |
|
(ee) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Current Report on
Form 8-K/ A, dated
June 30, 2005, filed by the Company with the Securities and
Exchange Commission on July 11, 2005. |
E-8
|
|
|
(ff) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Current Report on
Form 8-K/ A, dated
July 18, 2005, filed by the Company with the Securities and
Exchange Commission. |
|
(gg) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Current Report on
Form 8-K/ A, dated
October 18, 2005, filed by the Company with the Securities
and Exchange Commission. |
|
(hh) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Current Report on Form 8-K, dated
March 7, 2006, filed by the Company with the Securities and
Exchange Commission. |
|
(ii) |
|
Filed herewith. |
E-9