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, 2006
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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
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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
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(State
or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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14160 Dallas Parkway,
Suite 300
Dallas, Texas
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75254
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(Address of principal executive
offices)
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(Zip
Code)
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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
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Securities registered pursuant to Section 12(g) of
the Act:
None
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. o
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 22,518,891 shares of the
Registrants common stock, par value $0.01 per share
(Common Stock), held by nonaffiliates on
December 31, 2006, based upon the closing price of the
Registrants Common Stock as reported by the New York Stock
Exchange on June 30, 2006, was approximately
$231.5 million. As of March 6, 2007, the Registrant
had 26,430,051 shares of Common Stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
The Registrants definitive proxy statement pertaining to
the 2007 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, 2006, the Company operated 64 senior living
communities in 23 states with an aggregate capacity of
approximately 9,500 residents, including 37 senior living
communities which the Company either owned or in which the
Company had an ownership interest, 23 senior living communities
that the Company leased and four senior living communities it
managed for third parties. As of December 31, 2006, the
Company also operated one home care agency. During 2006,
approximately 95% of total revenues for the senior living
communities operated by the Company were derived from private
pay sources.
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.
During fiscal 2006, the Companys business plan included
four major initiatives which were to (i) maximize the value
of the Companys communities, (ii) pursue strategic
acquisitions through joint ventures and lease agreements,
(iii) execute strategic sale/leaseback transactions and
(iv) implement debt improvement initiatives. During fiscal
2006, the Companys highlights included:
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Overall occupancy at the Companys stabilized communities
(defined as communities not in
lease-up) of
91% at December 31, 2006.
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The Company formed two joint ventures with GE Healthcare
Financial Services (GE Healthcare).
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Midwest Portfolio Holdings, LP (Midwest I) acquired
five senior living communities in the first quarter of fiscal
2006 for approximately $46.9 million. The five communities
comprised 293 assisted living units with a resident capacity of
389.
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Midwest Portfolio Holdings II, LP
(Midwest II) acquired three senior living
communities in August 2006 for approximately $38.2 million.
The three senior living communities comprise 300 assisted living
and memory care units with a resident capacity of 319.
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The Company completed 12 lease transactions and four
sale/leaseback transactions.
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Effective April 1, 2006, the Company sold its Towne Centre
community to Ventas Healthcare Properties, Inc.
(Ventas) in a sale/leaseback transaction valued at
$29.0 million, resulting in a deferred gain on sale of
$14.3 million, cash proceeds of approximately
$12.7 million and the repayment of $16.2 million of
debt.
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Effective May 1, 2006, the Company sold three of its
communities, Crosswood Oaks, Tesson Heights and Veranda Club to
Healthcare Properties Investors, Inc. (together with affiliates,
HCPI) in a sale/leaseback transaction valued at
$54.0 million, resulting in a deferred gain on sale of
$12.8 million, cash proceeds of approximately
$23.0 million and the repayment of $29.3 million of
debt.
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Effective May 31, 2006, the Company leased six communities
acquired by HCPI that were previously owned by the Covenant
Group of Texas, Inc. (Covenant) in a lease
transaction valued at $43.0 million. The Company had
managed the communities under long-term management contracts
with Covenant prior to HCPIs acquisition.
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Effective June 8, 2006, the Company leased the Rose Arbor
community from Ventas in a lease transaction valued at
approximately $19.1 million. The Rose Arbor community is
comprised of 137 units with a resident capacity of 179.
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Effective December 1, 2006, the Company leased four
communities from HCPI in a lease transaction valued at
approximately $51.0 million. The four communities (the
Hunt Communities) comprise 327 units with a
resident capacity of 420.
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Effective December 14, 2006, the Company leased one senior
living community from HCPI in a lease transaction valued at
$18.0 million. Prior to HCPIs acquisition, the
Company managed the senior living community under a long-term
management agreement with Senior Housing Partners II LP
(SHP II), a fund managed by Prudential Real
Estate Investors (Prudential) .
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The Company refinanced the debt on 19 senior living communities.
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On June 9, 2006, the Company refinanced $110.0 million
of mortgage debt on 15 senior living communities with the
Federal Home Loan Mortgage Corporation (Freddie
Mac). As part of the refinancing, the Company repaid
approximately $14.8 million of mortgage debt on the 15
communities. The new mortgage loans have a ten year term with
interest rates fixed at 6.29% for the first nine years and with
principal amortized over a 25 year term. At the beginning
of the tenth year, the loans will convert to a floating interest
rate to provide flexibility regarding financing alternatives.
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On June 20, 2006, the Company refinanced $33.0 million
of mortgage debt on four senior living communities with Capmark
Finance Inc. (Capmark). The new mortgage loans have
a three year term plus options for two one year extensions with
variable interest rates tied to the
30-day LIBOR
plus a spread of 260 basis points and principal amortized
over a 25 year term. The Company has an interest rate cap
in place thru January 2008, which limits the maximum rate on
these loans to approximately 7.60%.
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As the Company enters fiscal 2007, its business plan includes
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 joint ventures or third parties.
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
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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 2006, 21% of senior housing
supply in the 75 largest metro areas of the United States are
assisted living communities, 23% are independent living
communities, and 56% are skilled nursing 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:
Consumer
Preference
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.
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.
Demographics
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 is expected to grow from approximately
4.9 million in 2005 to approximately 8.9 million by
2030 representing an increase of approximately 82%. 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.
Senior
Affluence
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.
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.
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 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.
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,
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including, housekeeping, maintenance, activities and
transportation, food service, security and management. In 2006
and 2005, the Company achieved 95% and 94%, respectively,
overall approval rating from the residents satisfaction
survey.
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.
Improve
Occupancy Rates
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.
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 supplies 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.
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
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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 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.
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, 2006, the Company had
ownership interests in 28 communities, leased 15 communities and
managed three communities that provide independent living
services, with an aggregate capacity for 7,042 residents.
Independent living services provided by the Company include
daily meals, transportation, social and recreational activities,
laundry, housekeeping and
24-hour
staffing. The Company also fosters the wellness of its residents
by offering access to 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 $1,290 to $4,880 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 either party, under
certain circumstances, upon 30 days notice.
Assisted
Living Services
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, 2006, the Company had ownership interests in
17 communities, leased 14 communities and managed one community
that provide assisted living services, which include communities
that have independent living and other services, with an
aggregate capacity for 2,332 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:
Personal Care Services. These services include
assistance with ADLs such as ambulation, bathing, dressing,
eating, grooming, personal hygiene, and monitoring or assistance
with medications.
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 extra charges.
The Companys assisted living residents pay a fee ranging
from $1,980 to $5,725 per month, in general, depending on
the specific community, the level of personal care services,
support service and supplemental services provided to the
resident, size of the unit and amenities offered.
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. Resident fees for these special units are
dependent on the size of the unit, the design type and the level
of services provided.
Skilled
Nursing Services
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. The
Companys residents receiving skilled nursing services pay
fees ranging from $4,800 to $10,080 per month, in general,
depending on the specific community and the level of care
provided. As of December 31, 2006, the Company had
ownership interests in one community and leased one community
providing a continuum of care that includes skilled nursing
services with an aggregate capacity for 170 residents.
Home
Care Services
As of December 31, 2006, 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 operated by the Company as of
December 31, 2006.
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Resident Capacity(1)
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Commencement
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Community
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Units
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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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canton Regency
|
|
Canton, OH
|
|
|
291
|
|
|
|
164
|
|
|
|
96
|
|
|
|
50
|
|
|
|
310
|
|
|
|
100
|
%
|
|
|
03/91
|
|
Gramercy Hill
|
|
Lincoln, NE
|
|
|
148
|
|
|
|
83
|
|
|
|
77
|
|
|
|
|
|
|
|
160
|
|
|
|
100
|
%
|
|
|
10/98
|
|
Heatherwood
|
|
Detroit, MI
|
|
|
158
|
|
|
|
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
|
|
Independence Village
|
|
Winston-Salem, NC
|
|
|
156
|
|
|
|
161
|
|
|
|
|
|
|
|
|
|
|
|
161
|
|
|
|
100
|
%
|
|
|
08/00
|
|
Sedgwick Plaza
|
|
Wichita, KS
|
|
|
144
|
|
|
|
134
|
|
|
|
35
|
|
|
|
|
|
|
|
169
|
|
|
|
100
|
%
|
|
|
08/00
|
|
Waterford at Columbia
|
|
Columbia, SC
|
|
|
120
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
136
|
|
|
|
100
|
%
|
|
|
11/00
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resident Capacity(1)
|
|
|
|
|
|
Commencement
|
|
Community
|
|
|
|
Units
|
|
|
IL
|
|
|
AL
|
|
|
SN
|
|
|
Total
|
|
|
Ownership(2)
|
|
|
of Operations(3)
|
|
|
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 Hills,
TX
|
|
North Richland
Hills, TX
|
|
|
119
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
136
|
|
|
|
100
|
%
|
|
|
01/02
|
|
Wellington at Oklahoma City
|
|
Oklahoma City, OK
|
|
|
120
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
136
|
|
|
|
100
|
%
|
|
|
11/00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,503
|
|
|
|
3,578
|
|
|
|
298
|
|
|
|
50
|
|
|
|
3,926
|
|
|
|
|
|
|
|
|
|
Leased:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ventas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Rose Arbor
|
|
Maple Grove, MN
|
|
|
137
|
|
|
|
107
|
|
|
|
72
|
|
|
|
|
|
|
|
179
|
|
|
|
N/A
|
|
|
|
06/06
|
|
Towne Centre
|
|
Merrillville, IN
|
|
|
327
|
|
|
|
165
|
|
|
|
60
|
|
|
|
120
|
|
|
|
345
|
|
|
|
N/A
|
|
|
|
03/91
|
|
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
|
|
HCPI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atrium of Carmichael
|
|
Sacramento, CA
|
|
|
152
|
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
|
156
|
|
|
|
N/A
|
|
|
|
01/92
|
|
Covenant Place of Abilene
|
|
Abilene, TX
|
|
|
50
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
55
|
|
|
|
N/A
|
|
|
|
08/04
|
|
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
|
|
Crescent Point
|
|
Cedar Hill, TX
|
|
|
112
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
134
|
|
|
|
N/A
|
|
|
|
08/04
|
|
Crosswood Oaks
|
|
Sacramento, CA
|
|
|
121
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
127
|
|
|
|
N/A
|
|
|
|
01/92
|
|
Good Place
|
|
North Richland
Hills, TX
|
|
|
72
|
|
|
|
|
|
|
|
80
|
|
|
|
|
|
|
|
80
|
|
|
|
N/A
|
|
|
|
08/04
|
|
Meadow Lakes
|
|
North Richland
Hills, TX
|
|
|
120
|
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
145
|
|
|
|
N/A
|
|
|
|
08/04
|
|
Tesson Heights
|
|
St. Louis, MO
|
|
|
184
|
|
|
|
140
|
|
|
|
58
|
|
|
|
|
|
|
|
198
|
|
|
|
N/A
|
|
|
|
10/98
|
|
Veranda Club
|
|
Boca Raton, FL
|
|
|
189
|
|
|
|
235
|
|
|
|
|
|
|
|
|
|
|
|
235
|
|
|
|
N/A
|
|
|
|
01/92
|
|
Charlotte Square
|
|
Charlotte, NC
|
|
|
73
|
|
|
|
|
|
|
|
109
|
|
|
|
|
|
|
|
109
|
|
|
|
N/A
|
|
|
|
12/06
|
|
Chesapeake Place
|
|
Chesapeake, VA
|
|
|
87
|
|
|
|
|
|
|
|
106
|
|
|
|
|
|
|
|
106
|
|
|
|
N/A
|
|
|
|
12/06
|
|
Greenville Place
|
|
Greenville, SC
|
|
|
87
|
|
|
|
|
|
|
|
107
|
|
|
|
|
|
|
|
107
|
|
|
|
N/A
|
|
|
|
12/06
|
|
Myrtle Beach Estates
|
|
Myrtle Beach, SC
|
|
|
80
|
|
|
|
|
|
|
|
98
|
|
|
|
|
|
|
|
98
|
|
|
|
N/A
|
|
|
|
12/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,025
|
|
|
|
2,508
|
|
|
|
997
|
|
|
|
120
|
|
|
|
3,625
|
|
|
|
|
|
|
|
|
|
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
|
|
Midwest I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ames
|
|
Ames, IA
|
|
|
59
|
|
|
|
|
|
|
|
116
|
|
|
|
|
|
|
|
116
|
|
|
|
11
|
%
|
|
|
02/06
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resident Capacity(1)
|
|
|
|
|
|
Commencement
|
|
Community
|
|
|
|
Units
|
|
|
IL
|
|
|
AL
|
|
|
SN
|
|
|
Total
|
|
|
Ownership(2)
|
|
|
of Operations(3)
|
|
|
Miracle Hills
|
|
Omaha, NE
|
|
|
64
|
|
|
|
|
|
|
|
74
|
|
|
|
|
|
|
|
74
|
|
|
|
11
|
%
|
|
|
03/06
|
|
Van Dorn
|
|
Lincoln, NE
|
|
|
68
|
|
|
|
|
|
|
|
84
|
|
|
|
|
|
|
|
84
|
|
|
|
11
|
%
|
|
|
02/06
|
|
Woodbridge
|
|
Plattsmouth, NE
|
|
|
40
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
45
|
|
|
|
11
|
%
|
|
|
02/06
|
|
108th &
Q
|
|
Omaha, NE
|
|
|
62
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
70
|
|
|
|
11
|
%
|
|
|
02/06
|
|
Midwest II
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keepsake Village
|
|
Columbus, IN
|
|
|
42
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
42
|
|
|
|
15
|
%
|
|
|
08/06
|
|
The Hearth at Prestwick
|
|
Avon, IN
|
|
|
132
|
|
|
|
|
|
|
|
144
|
|
|
|
|
|
|
|
144
|
|
|
|
15
|
%
|
|
|
08/06
|
|
The Hearth at Windermere
|
|
Fishers, IN
|
|
|
126
|
|
|
|
|
|
|
|
133
|
|
|
|
|
|
|
|
133
|
|
|
|
15
|
%
|
|
|
08/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,221
|
|
|
|
454
|
|
|
|
952
|
|
|
|
|
|
|
|
1,406
|
|
|
|
|
|
|
|
|
|
Managed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cresent Place
|
|
Cedar Hill, TX
|
|
|
80
|
|
|
|
|
|
|
|
85
|
|
|
|
|
|
|
|
85
|
|
|
|
N/A
|
|
|
|
11/05
|
|
Harding Place
|
|
Searcy, AR
|
|
|
115
|
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
148
|
|
|
|
N/A
|
|
|
|
08/04
|
|
Mountain Creek
|
|
Grand Prairie, TX
|
|
|
124
|
|
|
|
146
|
|
|
|
|
|
|
|
|
|
|
|
146
|
|
|
|
N/A
|
|
|
|
08/04
|
|
Tealridge Manor
|
|
Edmond, OK
|
|
|
169
|
|
|
|
208
|
|
|
|
|
|
|
|
|
|
|
|
208
|
|
|
|
N/A
|
|
|
|
08/04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
488
|
|
|
|
502
|
|
|
|
85
|
|
|
|
|
|
|
|
587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,237
|
|
|
|
7,042
|
|
|
|
2,332
|
|
|
|
170
|
|
|
|
9,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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). Those communities shown as 11%
owned consist of the Companys ownership of approximately
11% of the partnership interests in Midwest I. Those communities
shown as 15% owned consist of the Companys ownership of
15% of the partnership interests in Midwest II. |
|
(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 or leasing the communities. |
|
(4) |
|
The Companys home care agency is
on-site at
The Harrison at Eagle Valley community. |
Third-Party
Management Contracts
Effective February 1, 2006, the Company entered into a
series of property management agreements (the Midwest
I Agreements) to manage five communities acquired by
Midwest I, a joint venture owned approximately 89% by GE
Healthcare and approximately 11% by the Company. The Midwest I
Agreements are for an initial term of five years and the
agreements contain automatic one year renewals thereafter. The
Midwest I Agreements generally provide for a management fee of
5% of gross revenues.
Effective August 1, 2006, the Company entered into a series
of property management agreements
(the Midwest II Agreements) to manage
three communities acquired by Midwest II, a joint venture
owned approximately 85% by GE Healthcare and approximately 15%
by the Company. The Midwest II Agreements are for an
initial term of five years and the agreements contain automatic
one year renewals thereafter. The Midwest II Agreements
generally provide for a management fee of 5% of gross revenues.
Effective August 18, 2004, the Company acquired from
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, seven of which were owned by
Covenant, with a combined resident capacity of approximately
1,800 residents. The CGIM Management Agreements generally
provide for management fees of 5% to 5.5% of gross revenues,
subject to certain base management fees. HCPI acquired six of
the seven communities that were previously owned by Covenant
during fiscal 2006 and the Company leased the six communities
from HCPI under a ten year master lease agreement. The Company
acquired the other community that was owned by Covenant
(Meadow View) in June 2006 and classified the
community as held for sale at June 30, 2006 and at that
time estimated that the community had an aggregate fair value,
net of costs of disposal, of $2.4 million. In July 2006,
the Company sold Meadow View
10
to an unrelated third party for $2.6 million, resulting in
net proceeds to the Company of approximately $2.4 million.
Three other management agreements owned by CGIM were not renewed
upon the expiration of their initial term.
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.
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 property management agreement (the
SHPII Management Agreement) with SHPII, to manage
one senior living community. The SHPII Management Agreement
provided for management fees of 5% of gross revenue plus
reimbursement for costs and expenses related to the communities.
In December 2006, this community was sold to HCPI and leased by
the Company.
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. These six communities were sold in
September 2005 to Ventas and leased by the Company.
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:
Organic
Growth
The Company intends to continue to focus on the
lease-up of
its non-stabilized communities and to increase its occupancy,
rents 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.
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,
11
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
Joint Ventures and Third Parties
Since 1999 the Company has developed and opened 17 new senior
living communities and expanded two communities. 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 joint ventures and
third parties with development and marketing services.
Expand
Referral Networks
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
Centralized
Management
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 at 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 and
district managers who are accountable for the resident
satisfaction and financial performance of the communities in
their region.
12
Regional
Management
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 senior management at the Companys corporate
office. 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
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
residents and their family members. These surveys are sent
directly to a third party firm for tabulation then to the
Companys corporate headquarters for distribution to onsite
staff. For 2006 and 2005, the Company achieved a 95% and a 94%,
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.
13
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 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.
Marketing
Most communities are 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 for continued lead generation 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.
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
14
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
(ADA), 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. 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 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
15
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
Assisted Living Concepts, 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, 2006, the Company employed 3,681
persons, of which 1,914 were full-time employees (61 of whom are
located at the Companys corporate offices) and 1,767 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.
16
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, 2006:
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Name
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Age
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Position(s) with the Company
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Lawrence A. Cohen
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53
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Chief Executive Officer and Vice
Chairman of the Board
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James A. Stroud
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56
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Chairman and Secretary of the
Company and Chairman of the Board
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Keith N. Johannessen
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50
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President and Chief Operating
Officer
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Ralph A. Beattie
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57
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Executive Vice President and Chief
Financial Officer
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Rob L. Goodpaster
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53
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Vice
President National Marketing
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David W. Beathard, Sr.
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59
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Vice
President Operations
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David R. Brickman
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48
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Vice President and General Counsel
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Glen H. Campbell
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62
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Vice
President Development
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Gloria Holland
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39
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Vice
President Finance
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Jerry D. Lee
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46
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Corporate Controller
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Robert F. Hollister
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51
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Property Controller
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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 22 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 22 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 LLP. 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 28 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 years prior to that he was Executive Vice President
and Chief Financial Officer for Haggar Clothing Company, during
which
17
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 30 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 33 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 20 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 32 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.,
a company that 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.
New York
Stock Exchange Certification and SEC Certifications
In May 2006, 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
18
violations by the Company of New York Stock Exchange corporate
governance listing standards. 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
Our business involves various risks. When evaluating our
business the following information should be carefully
considered in conjunction with the other information contained
in our periodic filings with the SEC. Additional risks and
uncertainties not known to us currently or that currently we
deem to be immaterial also may impair our business operations.
If we are unable to prevent events that have a negative effect
from occurring, then our business may suffer. Negative events
are likely to decrease our revenue, increase our costs, make our
financial results poorer
and/or
decrease our financial strength, and may cause our stock price
to decline.
We
have significant debt. Our 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, 2006, we had mortgage and other
indebtedness totaling approximately $202.8 million. We also
have significant operating lease obligations as described below.
We cannot assure you that we 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 us. Further, because some of our
mortgages and our operating leases contain cross-default and
cross- collateralization provisions, a payment or other default
by us with respect to one community could affect a significant
number of our other communities.
Our
failure to comply with financial covenants contained in debt
instruments and lease agreements could result in the
acceleration of the related debt or lease.
There are various financial covenants and other restrictions in
certain of our debt instruments and lease agreements, including
provisions which:
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require us 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 us to meet specified financial tests at the community
level, which include, but are not limited to, occupancy
requirements and debt service coverage tests; and
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require consent for changes in control of us.
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If we fail to comply with any of these requirements, then the
related indebtedness or lease obligations could become due and
payable prior to their stated dates. We cannot assure that we
could pay these debt or lease obligations if they became due.
We
will require additional financing
and/or
refinancings in the future.
Our ability to meet our long-term capital requirements,
including the repayment of certain long-term debt obligations,
will depend, in part, on our 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 us.
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 our common stock. Our inability to obtain additional
financing or refinancings on terms acceptable to us could delay
or eliminate some or all of our growth plans, necessitate the
sales of assets at unfavorable prices or both, and would have a
material adverse effect on our business, financial condition and
results of operations.
19
Our
current floating rate debt, and any future floating rate debt,
exposes us to rising interest rates.
We currently have 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
our interest or lease payment obligations and could have a
material adverse effect on our business, financial condition and
results of operations.
We
have significant operating lease obligations. Our failure to
generate cash flows sufficient to cover these lease obligations
could result in defaults under the lease
agreements.
As of December 31, 2006, we leased 23 communities with
future lease obligations totaling approximately
$238.3 million over an approximate
10-year
period, with minimum lease obligations of $25.9 million in
fiscal 2007. We cannot assure you that we 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 our leases could result in the termination of the
lease, with a consequent loss of income and asset value to us.
Further, because all of our leases contain cross-default
provisions, a payment or other default by us with respect to one
leased community could affect a significant number of our other
leased communities. Certain of our leases contain various
financial and other restrictive covenants, which could limit our
flexibility in operating our business. Failure to maintain
compliance with the lease obligations as set forth in our lease
agreements could have a material adverse impact us.
We
cannot assure that we will be able to effectively manage our
growth.
We intend to expand our operations, directly or indirectly,
through the acquisition of existing senior living communities,
the expansion of some of our existing senior living communities,
the development of new senior living communities and through the
increase in the number of communities which we manage under
management agreements. The success of our growth strategy will
depend, in large part, on our ability to implement these plans
and to effectively operate these communities. If we are unable
to manage our growth effectively, our business, results of
operations and financial condition may be adversely affected.
We
cannot assure that we will be able to acquire additional senior
living communities, develop new 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 us. We 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 our existing
operations. The costs incurred to reposition or renovate newly
acquired communities may not be recovered by us. In undertaking
acquisitions, we also may be adversely impacted by unforeseen
liabilities attributable to the prior operators of those
communities or businesses, against whom we may have little or no
recourse. The success of our acquisition strategy will be
determined by numerous factors, including our 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; our ability to finance the acquisitions; and our
ability to integrate effectively any acquired communities or
businesses into our management, information, and operating
systems. We cannot assure that our 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 our operations.
Our ability to successfully expand existing senior living
communities will depend on a number of factors, including, but
not limited to, our ability to acquire suitable sites for
expansion at reasonable prices; our success in obtaining
necessary zoning, licensing, and other required governmental
permits and authorizations; and our ability to control
construction costs and accurately project completion schedules.
Additionally, we anticipate 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 our liquidity. We cannot
assure that our expansion of existing senior living
20
communities will be completed at the rate currently expected, if
at all, or if completed, that such expansions will be profitable.
Termination
of resident agreements and resident attrition could affect
adversely our 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 us allow residents to terminate their
agreement on 30 days notice. Thus, we 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 our
revenues and earnings could be adversely affected. In addition,
the advanced age of our average resident means that the resident
turnover rate in our senior living facilities may be difficult
to predict.
We
largely rely on private pay residents. Circumstances that
adversely affect the ability of the elderly to pay for our
services could have a material adverse effect on
us.
Approximately 95% of our total revenues from communities that we
operated were attributable to private pay sources and
approximately 5% of our revenues from these communities were
attributable to reimbursements from Medicare and Medicaid during
fiscal 2006. We expect to continue to rely primarily on the
ability of residents to pay for our services from their own or
familial financial resources. Inflation or other circumstances
that adversely affect the ability of the elderly to pay for our
services could have a material adverse effect on our business,
financial condition and results of operations.
We are
subject to some particular risks related to third-party
management agreements.
We currently manage four senior living communities for third
parties and 12 senior living communities for joint ventures in
which we have a minority interest pursuant to multi-year
management agreements. The management agreements generally have
initial terms of five years, subject to certain renewal rights.
Under these agreements we provide management services to third
party and joint venture owners to operate senior living
communities and have provided, and may in the future provide,
management and consulting services to third parties on market
and site selection, pre-opening 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 our
rights to cure deficiencies, community owners may terminate us
as manager if any licenses or certificates necessary for
operation are revoked, or if we have a change of control. Also,
in some instances, a community owner may terminate the
management agreement relating to a particular community if we
are 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 us
in the event of a sale of the community. In those agreements,
which are terminable in the event of a sale of the community, we
have certain rights to offer to purchase the community. The
termination of a significant portion of our management
agreements could have a material adverse effect on our business,
financial condition and results of operations.
Performance
of our obligations under our joint venture arrangements could
have a material adverse effect on us.
We hold minority interests ranging from approximately 5% to 15%
in several joint ventures with affiliates of Prudential and GE
Healthcare. We also manage the communities owned by these joint
ventures. Under the terms of the joint venture agreements with
Prudential covering four properties, we are 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 eight properties, we are 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. We do not control joint venture decisions covering
termination or renewal.
21
Performance of the above obligations or termination or
non-renewal of the management agreements could have a material
adverse effect on our business, financial condition and results
of operations.
The
senior living services industry is very competitive and some
competitors may have substantially greater financial resources
than us.
The senior living services industry is highly competitive, and
we expect that all segments of the industry will become
increasingly competitive in the future. We compete with other
companies providing independent living, assisted living, skilled
nursing, home health care and other similar services and care
alternatives. We also compete 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 we believe there is a need for
senior living communities in the markets where we operate
residences, we expect that competition will increase from
existing competitors and new market entrants, some of whom may
have substantially greater financial resources than us. In
addition, some of our 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 us. Furthermore, if the development of new senior
living communities outpaces the demand for those communities in
the markets in which we have senior living communities, those
markets may become saturated. Regulation in the independent and
assisted living industry, which represents a substantial portion
of our senior living services, is not substantial. Consequently,
development of new senior living communities could outpace
demand. An oversupply of those communities in our markets could
cause us to experience decreased occupancy, reduced operating
margins and lower profitability.
We
rely on the services of key executive officers and the loss of
these officers or their services could have a material adverse
effect on us.
We depend on the services of our executive officers for our
management. The loss of some of our executive officers and the
inability to attract and retain qualified management personnel
could affect our ability to manage our business and could
adversely affect our business, financial condition and results
of operations.
A
significant increase in our labor costs could have a material
adverse effect on us.
We compete 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 our communities and skilled personnel
responsible for providing resident care. A shortage of nurses or
trained personnel may require us to enhance our wage and
benefits package in order to compete in the hiring and retention
of these personnel or to hire more expensive temporary
personnel. We also will be dependent on the available labor pool
of semi-skilled and unskilled employees in each of the markets
in which we operate. No assurance can be given that our 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 us to control our labor
costs or to pass on any increased labor costs to residents
through rate increases could have a material adverse effect on
our business, financial condition and results of operations.
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, us to risks that would be reduced in more
institutionalized settings. We currently maintain insurance in
amounts we believe are comparable to those maintained by other
senior living companies based on the nature of the risks, our
historical experience and industry standards, and we believe
that this insurance coverage is adequate. However, we may become
subject to claims in excess of our insurance or claims not
covered by our insurance, such as claims for punitive damages,
terrorism and natural disasters. A claim against us not covered
by, or in excess of, our insurance could have a material adverse
effect upon us.
22
In addition, our 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, we cannot assure that we
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.
We are
subject to government regulations and compliance, some of which
are burdensome and some of which may change to our detriment in
the future.
Federal and state governments regulate various aspects of our
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. We believe that such regulation will increase in
the future and we are unable to predict the content of new
regulations or their effect on our business, any of which could
materially adversely affect us.
Various states, including several of the states in which we
currently operate, 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, we could be adversely affected by our
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 we were to seek to
reduce the number of licensed beds at, or to close, a community,
we 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 our practices.
Under the ADA, 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 we believe that our 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 us. Further legislation may impose additional
burdens or restrictions with respect to access by disabled
persons, the costs of compliance with which could be substantial.
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 PHI that is created, received or maintained by a
range of covered entities. HIPAA has also established standards
governing uniform
23
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 us.
We 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
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 we become subject to any
of these claims the costs involved could be significant and
could have a material adverse effect on our business, financial
condition and results of operations.
|
|
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 24,000 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 2007 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, 2006, 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 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 acquisition by
the Company of all the outstanding stock of CGI Management, Inc.
(CGIM), a wholly owned subsidiary of Covenant,
(2) damages resulting from alleged breach of a
confidentiality provision, and (3) damages for unpaid
referral fees. Respondent filed a counterclaim for causes of
action including breach of contract, duress, and undue
infliction of emotional distress. The claim and counterclaim
have now been settled.
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 in
workers compensation payments allegedly made by TPCIGA on
behalf of Company employees. The Company has also received other
correspondence for repayment of $45,358 on the same basis.
TPCIGAs letter states that it has assumed responsibility
for insureds
24
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
previously 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.
In its demand letter, 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
TPCIGA has paid claims. TPCIGA has not provided sufficient
documentation at this time for the Company to fully evaluate
these claims. On July 19, 2006, TPCIGA filed a petition in
the 53rd Judicial District Court of Travis County, Texas
seeking repayment of approximately $50,000 in claims and
allocated loss adjustment expenses in connection with claims
payable under the Reliance policy issued to the Company as well
as future payments and attorneys fees. The Company is
vigorously defending this lawsuit. The parties are currently
discussing a settlement of all claims made by the TPCIGA against
the Company.
The Company has other pending claims not mentioned above
(Other Claims) incurred in the normal 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 the Companys 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, 2006.
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDERS
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
|
(a) Market Price of and Dividends on the
Registrants Common Equity and Related Stockholder
Matters.
Market
Information and Holders
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 6, 2007 there were approximately
131 stockholders of record of the Companys common
stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
Year
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
First Quarter
|
|
$
|
11.36
|
|
|
$
|
9.80
|
|
|
$
|
6.00
|
|
|
$
|
5.05
|
|
Second Quarter
|
|
|
11.44
|
|
|
|
9.90
|
|
|
|
7.25
|
|
|
|
5.40
|
|
Third Quarter
|
|
|
10.79
|
|
|
|
8.92
|
|
|
|
8.50
|
|
|
|
6.95
|
|
Fourth Quarter
|
|
|
10.90
|
|
|
|
8.50
|
|
|
|
10.88
|
|
|
|
7.50
|
|
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.
25
Securities
Authorized for Issuance under Equity Compensation
Plans.
The following table presents information relating to the
Companys equity compensation plans as of December 31,
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
1,026,682
|
|
|
$
|
4.80
|
|
|
|
591,974
|
|
Equity compensation plans not
approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,026,682
|
|
|
$
|
4.80
|
|
|
|
591,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
Performance
Graph
The following Performance Graph shows the changes for the five
year period ended December 31. 2006 in the value of $100
invested in: (1) the Companys common stock;
(2) the Standard & Poors Broad Market Index
(the S&P 500); (3) the common stock of
the New Peer Group (as defined below) and the Old Peer Group (as
defined below) of companies, whose returns represent the
arithmetic average of such companies. The values with each
investment as of the beginning of each year are based on share
price appreciation and the reinvestment with dividends on the
respective ex-dividend dates.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Capital Senior Living Corporation, The S & P 500
Index,
A New Peer Group And An Old Peer Group
|
|
* |
$100 invested on 12/31/01 in stock or index-including
reinvestment of dividends. Fiscal year ending December 31.
|
Copyright©
2007, Standard & Poors, a division of The McGraw-Hill
Companies, Inc. All rights reserved.
www.researchdatagroup.com/S&P.htm
The preceding graph assumes $100 invested at the beginning of
the measurement period, including reinvestment of dividends, in
the Companys common stock, the S&P 500, the New Peer
Group and the Old Peer Group and was plotted using the following
data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Total Returns
|
|
|
12/01
|
|
12/02
|
|
12/03
|
|
12/04
|
|
12/05
|
|
12/06
|
Capital Senior Living Corporation
|
|
|
100.00
|
|
|
|
85.86
|
|
|
|
197.98
|
|
|
|
190.57
|
|
|
|
348.15
|
|
|
|
358.25
|
|
New Peer Group
|
|
|
100.00
|
|
|
|
91.04
|
|
|
|
144.19
|
|
|
|
181.92
|
|
|
|
262.31
|
|
|
|
347.81
|
|
Old Peer Group
|
|
|
100.00
|
|
|
|
90.49
|
|
|
|
140.98
|
|
|
|
196.17
|
|
|
|
317.42
|
|
|
|
340.04
|
|
S & P 500
|
|
|
100.00
|
|
|
|
77.90
|
|
|
|
100.24
|
|
|
|
111.15
|
|
|
|
116.61
|
|
|
|
135.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys New Peer Group consists of Brookdale Senior
Living, Inc., Emeritus Corporation, Five Star Quality Care,
Inc., and Sunrise Senior Living, Inc. The New Peer Group differs
from the Old Peer Group as a result of Brookdale Senior
Livings acquisition of American Retirement Corporation,
which previously was part of the Company Old Peer Group. The
Companys Old Peer Group consisted of American Retirement
Corp., Emeritus Corporation, and Sunrise Senior Living, Inc.
(b) Recent Sales of Unregistered Securities; Use of
Proceeds from Registered Securities. Not Applicable.
(c) Purchases of Equity Securities by the Issuer and
Affiliated Purchasers. Not Applicable.
27
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA.
|
The following table presents selected financial data of the
Company which has been derived from the audited consolidated
financial statements of the Company. The selected financial data
should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and
related notes thereto included in this Annual Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At and for the Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
(In thousands, except per share data)
|
|
|
Statements of Operations
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues(1)
|
|
$
|
159,070
|
|
|
$
|
126,404
|
|
|
$
|
108,935
|
|
|
$
|
88,032
|
|
|
$
|
86,794
|
|
Income from operations
|
|
|
11,667
|
|
|
|
10,962
|
|
|
|
6,731
|
|
|
|
5,815
|
|
|
|
10,961
|
|
Net (loss) income(2)
|
|
|
(2,600
|
)
|
|
|
(5,354
|
)
|
|
|
(6,758
|
)
|
|
|
4,990
|
|
|
|
4,682
|
|
Net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) income per share
|
|
|
(0.10
|
)
|
|
|
(0.21
|
)
|
|
|
(0.27
|
)
|
|
|
0.25
|
|
|
|
0.24
|
|
Diluted (loss) income per share
|
|
$
|
(0.10
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
0.25
|
|
|
$
|
0.24
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
25,569
|
|
|
$
|
21,831
|
|
|
$
|
19,515
|
|
|
$
|
6,594
|
|
|
$
|
11,768
|
|
Working capital (deficit)
|
|
|
15,407
|
|
|
|
10,860
|
|
|
|
(22,289
|
)
|
|
|
(12,835
|
)
|
|
|
4,349
|
|
Total assets
|
|
|
394,488
|
|
|
|
434,051
|
|
|
|
431,175
|
|
|
|
421,333
|
|
|
|
278,251
|
|
Long-term debt, excluding current
portion
|
|
|
196,647
|
|
|
|
252,733
|
|
|
|
219,526
|
|
|
|
255,549
|
|
|
|
140,385
|
|
Shareholders equity
|
|
$
|
144,084
|
|
|
$
|
145,415
|
|
|
$
|
149,547
|
|
|
$
|
124,367
|
|
|
$
|
118,281
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communities (at end of period)
Owned or leased
|
|
|
48
|
|
|
|
36
|
|
|
|
29
|
|
|
|
24
|
|
|
|
14
|
|
Joint ventures & managed
|
|
|
16
|
|
|
|
19
|
|
|
|
25
|
|
|
|
18
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
64
|
|
|
|
55
|
|
|
|
54
|
|
|
|
42
|
|
|
|
42
|
|
Resident capacity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned or leased
|
|
|
7,551
|
|
|
|
6,247
|
|
|
|
4,831
|
|
|
|
3,953
|
|
|
|
2,621
|
|
Joint ventures & managed
|
|
|
1,993
|
|
|
|
2,668
|
|
|
|
3,837
|
|
|
|
2,901
|
|
|
|
4,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9,544
|
|
|
|
8,915
|
|
|
|
8,668
|
|
|
|
6,854
|
|
|
|
6,854
|
|
|
|
|
(1) |
|
Total revenues for 2002 - 2005 were revised to include
community reimbursement revenue. The amounts included as
community reimbursement revenue were $21,174, $15,673, $21,707
and $25,312 for fiscal 2005, 2004, 2003 and 2002, respectively. |
|
(2) |
|
Net income in fiscal 2003 includes the recognition of deferred
income of $3.4 million related to the liquidation of the
HealthCare Properties Liquidating Trust (HCP)
partnership. |
|
|
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,
would, intend, could,
believe, 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
28
factors herein identified. These factors include the
Companys ability to find suitable acquisition properties
at favorable terms, financing, licensing, business conditions,
risks of downturn in economic conditions generally, satisfaction
of closing conditions such as those pertaining to licensure,
availability of insurance at commercially reasonable rates, and
changes in accounting principles and interpretations, 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, 2006,
2005 and 2004. 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 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, 2006, the Company operated 64 senior
living communities in 23 states with an aggregate capacity
of approximately 9,500 residents, including 37 senior living
communities which the Company either owned or in which the
Company had an ownership interest, 23 senior living communities
that the Company leased and four senior living communities it
managed for third parties. As of December 31, 2006, the
Company also operated one home care agency.
Management
Agreements
As of December 31, 2006, the Company managed and operated
the 48 communities it wholly owned or leased, 12 communities
owned by joint ventures in which the Company has a minority
interest and four communities owned by third parties. 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.
Ventas
Transactions
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 leased
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 was 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
29
are included in facility lease expense in the Companys
statement of operations. The Company accounts 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 Georgetowne Place, which Ventas acquired
from a third party for approximately $19.5 million.
Georgetowne Place is a
162-unit
senior living community with a capacity of 247 residents. This
lease has an initial term of ten years, with two five-year
renewal extensions available at the Companys option. The
initial lease rate was 8% and is subject to conditional
escalation provisions. The Company incurred $0.2 million in
lease acquisition costs related to this 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 accounts for
this lease as an operating lease.
On March 31, 2006, the Company sold Towne Centre to Ventas
in a sale/leaseback transaction valued at $29.0 million.
This lease was effective as of April 1, 2006 and has an
initial term of nine and one-half years, with two five-year
renewal extensions available at the Companys option. The
initial lease rate was 8% and is subject to certain conditional
escalation clauses. The Company incurred $0.1 million in
lease acquisition costs. These deferred lease acquisition costs
are being amortized over the initial lease term and are included
in facility lease expense in the Companys statement of
operations. The Company accounts for this lease as an operating
lease. As a result of this sale/leaseback transaction the
Company received cash proceeds of approximately
$12.7 million, net of closing costs, retired debt of
approximately $16.2 million and recorded a gain of
approximately $14.3 million, which has been deferred and is
being recognized in the Companys statement of operations
over the initial lease term.
On June 8, 2006 the Company entered into an agreement with
Ventas to lease Rose Arbor, which Ventas acquired from a third
party for approximately $19.1 million. Rose Arbor is a
137-unit
senior living community with a capacity of 179 residents. This
lease has an initial term of approximately nine and one-half
years, with two five-year renewal extensions available at the
Companys option. The initial lease rate was 8% and is
subject to conditional escalation provisions. The Company
incurred $0.4 million in lease acquisition costs related to
this lease. These deferred lease acquisition costs are being
amortized over the initial lease term and are included in
facility lease expense in the Companys statement of
operations. The Company accounts for this lease as an operating
lease.
HCPI
Transactions
Effective as of May 1, 2006, the Company sold three of its
communities, Crosswood Oaks, Tesson Heights and Veranda Club to
HCPI in sale/leaseback transactions valued at approximately
$54.0 million. These leases have an initial term of ten
years, with two ten-year renewal extensions available at the
Companys option. The initial lease rates were 8% and are
subject to certain conditional escalation clauses. The Company
incurred $0.2 million in lease acquisition costs. These
deferred lease acquisition costs are being amortized over the
initial lease terms and are included in facility lease expense
in the Companys statement of operations. The Company
accounts for these leases as operating leases. As a result of
these sale/leaseback transactions, the Company received cash
proceeds of approximately $23.0 million, net of closing
costs, retired debt of approximately $29.3 million and
recorded a gain of approximately $12.8 million, which has
been deferred and is being recognized in the Companys
statement of operations over the initial lease terms.
Effective May 31, 2006, HCPI acquired six senior living
communities previously owned by Covenant for $43.0 million
and leased the six senior living communities to the Company.
This six-property lease was effective as of May 31, 2006
and has an initial term of ten years, with two ten-year renewal
extensions available at the Companys option. The initial
lease rate was 8% and is subject to certain conditional
escalation clauses. The Company incurred $0.2 million in
lease acquisition costs. These deferred lease acquisition costs
are being amortized over the initial lease term and are included
in facility lease expense in the Companys statement of
operations. The Company accounts for this lease as an operating
lease. As a result of this lease transaction, the Company
received cash proceeds of approximately $3.3 million and
recorded deferred rent of approximately $0.6 million, which
is being recognized in the Companys statement of
operations over the initial lease term.
Effective December 1, 2006, HCPI acquired four senior
living communities previously owned by a third party and leased
the four senior living communities to the Company in a
transaction valued at approximately $51.0 million. This
four-property lease has an initial term of ten years, with two
ten-year renewal extensions available at the
30
Companys option. The initial lease rate was 8% and is
subject to certain conditional escalation clauses. The Company
incurred $0.6 million in lease acquisition costs. These
deferred lease acquisition costs are being amortized over the
initial lease term and are included in facility lease expense in
the Companys statement of operations. The Company accounts
for this lease as an operating lease.
Effective December 14, 2006, HCPI acquired one senior
living community previously owned by SHPII
(the Atrium of Carmichael) and leased the
Atrium of Carmichael to the Company in a transaction valued at
approximately $18.0 million. This lease has an initial term
of ten years, with two ten-year renewal extensions available at
the Companys option. The initial lease rate was 7.75% and
is subject to certain conditional escalation clauses. The
Company incurred $0.3 million in lease acquisition costs.
These deferred lease acquisition costs are being amortized over
the initial lease term and are included in facility lease
expense in the Companys statement of operations. The
Company accounts for this lease as an operating lease.
Midwest
I Transaction
In January 2006, the Company announced the formation of
Midwest I, a joint venture with GE Healthcare, to acquire
five senior housing communities from a third party. Midwest I is
owned approximately 89% by GE Healthcare and 11% by the
Company. The Company contributed $2.7 million for its
approximate 11% interest in Midwest I. Midwest I paid
approximately $46.9 million for the five communities. The
five communities comprise 293 assisted living units with a
resident capacity of 389. Effective as of February 1, 2006,
Midwest I acquired four of the five communities and on
March 31, 2006, Midwest I closed on the fifth community.
The Company manages the five acquired communities under
long-term management agreements with Midwest I. The Company
accounts for its investment in Midwest I under the equity method
of accounting and the Company recognized a loss in the equity of
Midwest I of $9,000 for fiscal 2006.
Midwest II
Transaction
In August 2006, the Company announced the formation of
Midwest II, a joint venture with GE Healthcare, to acquire
three senior housing communities from a third party.
Midwest II is owned approximately 85% by GE Healthcare
and 15% by the Company. The Company contributed
$1.3 million for its interest in Midwest II.
Midwest II paid approximately $38.2 million for the
three communities. The three communities comprise 300 assisted
living and memory care units with a resident capacity of 319. On
August 11, 2006, Midwest II acquired the three senior
living communities. The Company manages the three acquired
communities under long-term management agreements with
Midwest II. The Company accounts for its investment in
Midwest II under the equity method of accounting and the
Company recognized a loss in the equity of Midwest II of
$0.1 million for fiscal 2006.
Triad
I Transaction
Effective as of November 30, 2004, the Company acquired
Lehmans 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. 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 on November 29, 2009. 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 entire purchase price of
$10.4 million was recorded as a
step-up in
basis of the property as Triad I had been previously
consolidated under Financial Accounting Standards Board
(FASB) Interpretation No. 46
Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51, revised December 2003,
(FIN 46), as of December 31, 2003. These
transactions resulted in the Company wholly owning Triad I.
Triad I owned five senior living communities and two expansions.
The two expansions were subsequently transferred to a subsidiary
of the Company in order for the two expansions to be
consolidated with their primary community.
31
In 2003, FASB issued FIN 46, 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 FIN 46, 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.
CGIM
Transaction
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. 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. HCPI acquired
six of the seven communities that were previously owned by
Covenant, during fiscal 2006 and the Company leased the six
communities from HCPI under a ten year master lease agreement.
In June 2006, the Company acquired the other community that was
owned by Covenant, Meadow View and classified the community as
held for sale at June 30, 2006 and estimated at that time
that the community had an aggregate fair value, net of costs of
disposal, of $2.4 million. In July 2006, the Company sold
Meadow View to an unrelated third party for $2.6 million
resulting in net proceeds to the Company of approximately
$2.4 million.
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 of 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 joint venture 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.
32
From September 2003 to December 2006, the Company managed the
Atrium of Carmichael for SHPII under a long-term management
contract. In December 2006, SHPII sold the Atrium of Carmichael
to HCPI and the Company subsequently leased the community from
HCPI in a transaction valued at approximately $18.0 million.
BRE/CSL
Transactions
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.
BRE/CSL owned six communities and the Company managed the six
communities under long-term management contracts. The Company
accounted for the BRE/CSL investment under the equity method of
accounting.
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.
Community
Refinancing
On June 9, 2006, the Company refinanced $110.0 million
of mortgage debt on 15 senior living communities with Freddie
Mac. As part of the refinancing, the Company repaid
approximately $14.8 million of mortgage debt on the 15
communities. The new mortgage loans have a ten year term with
interest rates fixed at 6.29% for the first nine years and with
principal amortized over a 25 year term. At the beginning
of the tenth year, the loans will convert to a floating interest
rate to provide flexibility regarding financing alternatives.
Each of the loans are
cross-collateralized
and
cross-defaulted
with release provisions. The Company incurred $1.9 million
in deferred financing costs related to these loans, which is
being amortized over ten years. In addition, the Company
wrote-off $0.8 million in deferred loan costs on the loans
refinanced and paid $0.2 million in loan exit fees to the
prior lender. The loan exit fees are a component of the
write-off of deferred loan costs in the accompanying statement
of operations.
On June 20, 2006, the Company refinanced $33.0 million
of mortgage debt on four senior living communities with Capmark.
The new mortgage loans have a three year term plus options for
two one year extensions at the Companys option with
variable interest rates tied to the
30-day
London Interbank Offered Rate (LIBOR) plus a spread
of 260 basis points. Principal is being amortized over a
25 year term. The Company has an interest rate cap in place
thru January 2008, which limits the maximum rate on these loans
to approximately 7.60%. Each of the loans are
cross-collateralized and cross-defaulted with release
provisions. The Company incurred $0.5 million in deferred
financing costs related to these loans, which is being amortized
over three years. In addition, the Company wrote-off $14,000 in
deferred loan costs on the loans refinanced and paid
$0.5 million in loan exit fees to the prior lender. The
loan exit fees are a component of the write-off of deferred loan
costs in the accompanying statement of operations.
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.
Recent
Events
During the first quarter of fiscal 2007, the Company paid
$5.0 million to KeyBank National Association
(KeyBank) to retire the debt owed to KeyBank. This
repayment is expected to save the Company approximately
$0.3 million in interest expense in fiscal 2007.
In March 2007, the Company executed a term sheet to refinance
the debt on one of its senior living communities with Freddie
Mac. The loan facility will be for $9.5 million with a term
of ten years with a one year
33
extension available at the Companys options. The interest
rate will be fixed at 125 basis points over the ten-year
treasury for the first ten-years. The loan facility will require
interest only payments in the first two years with principal
amortized thereafter over a 25 year term.
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.
Revenue
Recognition
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 6%, 7% and 8% of the Companys revenue in
fiscal 2006, 2005 and 2004, respectively. Seven communities are
providers of services under Medicaid programs. Accordingly, the
communities are entitled to reimbursement under the foregoing
program 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. 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 is recognized when earned.
Management services revenue relates to providing certain
management and administrative support services under management
contracts, which have terms expiring through 2014. 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.
Community reimbursement revenue is comprised of reimbursable
expenses from non-consolidated communities that the Company
operates under long-term management agreements.
Investments
in Joint Ventures
The Company accounts for its investments in joint ventures under
the equity method of accounting. The Company is the general
partner in two partnerships and owns member interests in a third
joint venture. The Company has not consolidated these joint
venture interests because the Company has concluded that the
limited partners or the other members of each joint venture has
substantive kick-out rights or substantive participating rights
as defined in EITF Issue
04-05
Determining Whether a General Partner, or the General
Partners as a Group, Controls a Limited Partnership or Similar
Entity When the Limited Partners Have Certain Rights.
(EITF
04-05)
Under the equity method of accounting, the Company records its
investments in joint ventures at cost and adjusts such
investments for its share of earnings and losses of the joint
venture.
34
Assets
Held for Sale
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,
2006. 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 estimates the four parcels of land that were held
for sale at December 31, 2006, 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.
Lease
Accounting
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, 2006, the Company leased 23
communities and classified each of the leases as an operating
lease. The Company incurs lease acquisition costs and amortizes
these costs over the term of the lease agreement. Facility lease
expense in the Companys statement of operations includes
the actual rent paid plus amortization expense relating to
leasehold acquisition costs.
Certain leases entered into by the Company qualified as
sale/leaseback transactions under the provisions of FAS 98
and as such any related gains have been deferred and are being
amortized over the lease term. The amortization of the deferred
gains is included in gain on sale of assets in the statement of
operations.
Long-Lived
Assets
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 internal factors such as net operating losses along
with 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, 2006 and 2005.
Income
Taxes
The Company accounts for income taxes under the provision of
SFAS No. 109, Accounting for Income Taxes.
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 Company currently has a cumulative three year
loss and therefore has evaluated various tax planning strategies
that it believes are both prudent and feasible, including
various strategies
35
to utilize net built-in gains on the Companys appreciated
assets. The Company believes that based upon these tax planning
strategies, it will be able to realize the deferred tax asset.
Recently
Issued Accounting Standards
FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes An Interpretation of
FASB Statement No. 109 (FIN 48). In
July 2006, FASB issued FIN 48, which became effective for
the Company on January 1, 2007. This standard clarifies the
accounting for income tax benefits that are uncertain in nature.
Under FIN 48, a company will recognize a tax benefit in its
financial statements for an uncertain tax position only if
managements assessment is that its position is more
likely than not (i.e., a greater than 50 percent
likelihood) to be upheld on audit based only on the technical
merits of the tax position. This accounting standard also
provides guidance on thresholds, measurement, derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure, and transition that is intended to provide
better financial-statement comparability among different
companies. Under the transition guidance for implementing
FIN 48, any required cumulative-effect adjustment will be
recorded to retained earnings as of January 1, 2007. The
Company does not expect that implementation of FIN 48 will
have a material effect on its results of operations or financial
position.
FASB Statement No. 157, Fair Value Measurements
(FAS 157). In September 2006, FASB issued
FAS 157, which will become effective for the Company on
January 1, 2008. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands
disclosures about fair value measurements. FAS 157 does not
require any new fair value measurements but would apply to
assets and liabilities that are required to be recorded at fair
value under other accounting standards. The impact, if any, to
the Company from the adoption of FAS 157 in 2008 will
depend on the Companys assets and liabilities at that time
they are required to be measured at fair value.
In September 2006, the SEC staff also issued Staff Accounting
Bulletin No. 108, Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements
(SAB 108). While not an official rule or
interpretation of the SEC, SAB 108 was issued to address
the diversity in practice in quantifying misstatements from
prior years and assessing their effect on current year financial
statements. The implementation of SAB 108 did not have a
material effect on the Companys results of operations or
financial position.
In June 2005, FASB issued EITF
04-5,
Determining Whether a General Partner, or the General
Partners as a Group, Controls a Limited Partnership or Similar
Entity When the Limited Partners Have Certain Rights. EITF
04-5
provides guidance in determining whether a general partner
controls a limited partnership that is not a VIE and thus should
consolidate the limited partnership. The effective date of EITF
04-05 was
June 29, 2005 for all new limited partnerships and existing
limited partnerships for which the partnership agreements are
modified and no later than the beginning of the first reporting
period in fiscal years beginning after December 15, 2005
for all other limited partnerships. The Company adopted EITF
04-05
effective January 1, 2006, and its adoption did not have a
material affect on the Companys financial position or
results of operations.
36
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,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resident and healthcare revenue
|
|
$
|
139,456
|
|
|
|
87.7
|
%
|
|
$
|
101,770
|
|
|
|
80.5
|
%
|
|
$
|
90,544
|
|
|
|
83.1
|
%
|
Unaffiliated management services
revenue
|
|
|
994
|
|
|
|
0.6
|
%
|
|
|
1,626
|
|
|
|
1.3
|
%
|
|
|
726
|
|
|
|
0.7
|
%
|
Affiliated management services
revenue
|
|
|
1,767
|
|
|
|
1.1
|
%
|
|
|
1,834
|
|
|
|
1.5
|
%
|
|
|
1,992
|
|
|
|
1.8
|
%
|
Community reimbursement income
|
|
|
16,853
|
|
|
|
10.6
|
%
|
|
|
21,174
|
|
|
|
16.8
|
%
|
|
|
15,673
|
|
|
|
14.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
159,070
|
|
|
|
100.0
|
%
|
|
|
126,404
|
|
|
|
100.0
|
%
|
|
|
108,935
|
|
|
|
100.0
|
%
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (exclusive of
facility lease expense and depreciation and amortization shown
below)
|
|
|
89,184
|
|
|
|
56.1
|
%
|
|
|
68,888
|
|
|
|
54.5
|
%
|
|
|
64,916
|
|
|
|
59.6
|
%
|
General and administrative expenses
|
|
|
11,420
|
|
|
|
7.2
|
%
|
|
|
9,761
|
|
|
|
7.7
|
%
|
|
|
9,408
|
|
|
|
8.6
|
%
|
Facility lease expense
|
|
|
16,610
|
|
|
|
10.4
|
%
|
|
|
2,070
|
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
%
|
Provision for bad debts
|
|
|
121
|
|
|
|
0.1
|
%
|
|
|
258
|
|
|
|
0.2
|
%
|
|
|
198
|
|
|
|
0.2
|
%
|
Stock-based compensation
|
|
|
870
|
|
|
|
0.5
|
%
|
|
|
245
|
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
%
|
Depreciation and amortization
|
|
|
12,345
|
|
|
|
7.8
|
%
|
|
|
13,046
|
|
|
|
10.3
|
%
|
|
|
12,009
|
|
|
|
11.0
|
%
|
Community reimbursement expense
|
|
|
16,853
|
|
|
|
10.6
|
%
|
|
|
21,174
|
|
|
|
16.8
|
%
|
|
|
15,673
|
|
|
|
14.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
147,403
|
|
|
|
92.7
|
%
|
|
|
115,442
|
|
|
|
91.3
|
%
|
|
|
102,204
|
|
|
|
93.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
11,667
|
|
|
|
7.3
|
%
|
|
|
10,962
|
|
|
|
8.7
|
%
|
|
|
6,731
|
|
|
|
6.2
|
%
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
843
|
|
|
|
0.5
|
%
|
|
|
133
|
|
|
|
0.1
|
%
|
|
|
572
|
|
|
|
0.5
|
%
|
Interest expense
|
|
|
(16,610
|
)
|
|
|
(10.4
|
)%
|
|
|
(18,595
|
)
|
|
|
(14.7
|
)%
|
|
|
(15,769
|
)
|
|
|
(14.5
|
)%
|
Gain (loss) on sale of properties
|
|
|
2,495
|
|
|
|
1.6
|
%
|
|
|
104
|
|
|
|
0.1
|
%
|
|
|
(37
|
)
|
|
|
(0.0
|
)%
|
Debt restructuring/derivative
costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off of deferred loan cost
|
|
|
(1,867
|
)
|
|
|
(1.2
|
)%
|
|
|
(25
|
)
|
|
|
(0.0
|
)%
|
|
|
(824
|
)
|
|
|
(0.8
|
)%
|
Gain on interest rate swap
agreement
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
1,435
|
|
|
|
1.3
|
%
|
Loss on interest rate lock
agreement
|
|
|
|
|
|
|
|
%
|
|
|
(641
|
)
|
|
|
(0.5
|
)%
|
|
|
(1,356
|
)
|
|
|
(1.2
|
)%
|
Other (expense) income
|
|
|
(37
|
)
|
|
|
0.0
|
%
|
|
|
416
|
|
|
|
0.3
|
%
|
|
|
182
|
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and
minority interest in consolidated partnership
|
|
|
(3,509
|
)
|
|
|
(2.2
|
)%
|
|
|
(7,646
|
)
|
|
|
(6.0
|
)%
|
|
|
(9,066
|
)
|
|
|
(8.3
|
)%
|
Benefit for income taxes
|
|
|
909
|
|
|
|
0.6
|
%
|
|
|
2,273
|
|
|
|
1.8
|
%
|
|
|
2,270
|
|
|
|
(2.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before minority interest in
consolidated partnership
|
|
|
(2,600
|
)
|
|
|
(1.6
|
)%
|
|
|
(5,373
|
)
|
|
|
(4.3
|
)%
|
|
|
(6,796
|
)
|
|
|
(6.2
|
)%
|
Minority interest in consolidated
partnership
|
|
|
|
|
|
|
|
%
|
|
|
19
|
|
|
|
0.0
|
%
|
|
|
38
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,600
|
)
|
|
|
(1.6
|
)%
|
|
$
|
(5,354
|
)
|
|
|
(4.2
|
)%
|
|
$
|
(6,758
|
)
|
|
|
(6.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
Year
Ended December 31, 2006 Compared to the Year Ended
December 31, 2005
Revenues.
Total revenues were $159.1 million for the year ended
December 31, 2006 compared to $126.4 million for the
year ended December 31, 2005, representing an increase of
approximately $32.7 million or 25.8%. This increase in
revenue is primarily the result of a $37.7 million increase
in resident and healthcare revenue offset by a decrease in
unaffiliated management services revenue of $0.6 million, a
decrease in affiliated management services revenue of
$0.1 million and a decrease in community reimbursement
revenue of $4.3 million.
|
|
|
|
|
Resident and healthcare revenue increased 37.0% as the result of
an increase of $16.5 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, an increase of $3.3 million from the consolidation of
Georgetowne Place which the Company leased from Ventas on
October 18, 2005, an increase of $7.0 million from the
consolidation of the Covenant communities which the Company
leased from HCPI on May 31, 2006, an increase of
$2.7 million from the consolidation of Rose Arbor which was
leased from Ventas on June 8, 2006, an increase of
$1.0 million from the lease of the Hunt Communities, which
the Company leased from HCPI on December 1, 2006, an
increase of $0.2 million from the lease of the Atrium of
Carmichael, which the Company leased from HCPI on
December 14, 2006, along with an increase in resident and
healthcare revenue at the Companys other communities of
$7.0 million as a result of higher occupancy and rental
rates in the current fiscal year.
|
|
|
|
Unaffiliated management services revenue decreased 38.9% in
fiscal 2006 compared to the prior year primarily from the
expiration of third party management agreements and the sale of
the seven communities previously owned by Covenant and managed
by the Company, six of which the Company now leases from HCPI.
|
|
|
|
Affiliated management services revenue decreased 3.7% in fiscal
2006 compared to the prior year primarily from the sale of the
six communities owned by BRE/CSL and managed by the Company to
Ventas, partially offset by management fees earned on the eight
Midwest I and Midwest II communities.
|
|
|
|
Community reimbursement revenue is comprised of reimbursable
expenses from non-consolidated communities that the Company
operates under long-term management agreements.
|
Expenses.
Total expenses were $147.4 million in fiscal 2006 compared
to $115.4 million in fiscal 2005, representing an increase
of $32.0 million or 27.7%. This increase is primarily the
result of a $20.3 million increase in operating expenses, a
$1.6 million increase in general and administrative
expenses, a $14.5 million increase in facility lease
expense, a $0.6 million increase in stock-based
compensation offset by a decrease of $0.1 million in bad
debt expense, a $0.7 million decrease in depreciation and
amortization expense and a decrease in community reimbursement
expense of $4.3 million.
|
|
|
|
|
Operating expenses increased 29.5% primarily due to an increase
of $10.1 million from the consolidation of the six
communities previously owned by BRE/CSL, an increase of
$1.9 million from the consolidation of Georgetowne Place,
an increase of $4.4 million from the consolidation of the
Covenant communities, an increase of $1.8 million from the
consolidation of Rose Arbor, an increase of $0.7 million
from the lease of the Hunt Communities, an increase of
$0.1 million from the lease of the Atrium of Carmichael and
an increase in operating expenses at the Companys other
communities of $1.3 million.
|
|
|
|
General and administrative expenses increased 17.0% primarily
due to an increase in administrative labor costs of
$0.5 million, an increase in professional fees of
$0.8 million, an increase in insurance costs of
$0.1 million and an increase in other overhead costs of
$0.2 million.
|
|
|
|
Facility lease expenses increased $14.5 million in fiscal
2006 primarily due to 23 senior living communities leased in
fiscal 2006 compared to seven senior living communities leased
in fiscal 2005.
|
|
|
|
Bad debt expense decreased to $0.1 million in fiscal 2006
compared to $0.3 million in fiscal 2005.
|
|
|
|
Stock-based compensation increased $0.6 million in fiscal
2006 as a result of a full year of stock-based compensation
expense being recognized in fiscal 2006 compared to stock-based
compensation expense
|
38
|
|
|
|
|
recognition for six months in fiscal 2005. Effective
July 1, 2005, the Company early adopted Statement of
Financial Accounting Standards No. 123 (revised) Share
Based Payments (FAS 123R), using the
modified prospective method, which requires all share based
payments to employees, including grants of employee stock
options, to be recognized in the statement of operations based
on their fair values.
|
|
|
|
|
|
Depreciation and amortization expense decreased 5.4% primarily
as a result of the sale/leaseback of four communities previously
owned by the Company.
|
|
|
|
Community reimbursement expense represents payroll and
administrative costs paid by the Company for the benefit of
non-consolidated communities and joint ventures.
|
Other
income and expense.
|
|
|
|
|
Interest income increased $0.7 million in fiscal 2006
compared to fiscal 2005. This increase primarily results from
the investment of cash balances and interest earned on security
deposits with Ventas and HCPI.
|
|
|
|
Interest expense decreased $2.0 million to
$16.6 million in fiscal 2006 compared to $18.6 million
in 2005. This decrease in interest expense primarily results
from lower debt outstanding during fiscal 2006 compared to
fiscal 2005 primarily resulting from property sales, along with
a lower average interest rate in the current fiscal year
compared to the prior year as a result of the Companys
debt refinancings.
|
|
|
|
Gain on sale of assets in fiscal 2006 represents the recognition
of deferred gains associated with the sale/leaseback of four
communities of $2.4 million along with the recognition of a
gain of $0.1 million related to the sale of a portion of
the Companys interest rate cap. As of December 31,
2006, the Company had deferred gains of $29.3 million that
are being recognized into income over their respective initial
lease terms.
|
|
|
|
During fiscal 2006, the Company wrote-off deferred loan costs of
$1.6 million associated with the refinancing of the
mortgage debt related to 19 of the Companys communities
and $0.3 million as a result of the sale of three
communities to HCPI and one community to Ventas.
|
|
|
|
During fiscal 2005, the Company recognized a loss of
$0.6 million as a result of the change in fair value of its
treasury lock agreements.
|
|
|
|
Other income/expense in fiscal 2006 and 2005 relates to the
Companys equity in the earnings/losses of affiliates,
which represents the Companys share of the earnings/losses
on its investments in SHPII/CSL, Midwest, Midwest II and
BRE/CSL.
|
Benefit
for income taxes.
Benefit for income taxes in fiscal 2006 was $0.9 million or
25.9% of income before taxes compared to $2.3 million, or
29.8% of income before taxes, in fiscal 2005. The effective tax
rates for 2006 and 2005 differ from the statutory tax rates
because of state income taxes and permanent tax differences.
Management regularly evaluates the future realization of
deferred tax assets and provides a valuation allowance, if
considered necessary, based on such evaluation. At
December 31, 2006 no valuation allowance was considered
necessary based on this evaluation.
Net
loss.
As a result of the foregoing factors, the Company reported a net
loss of $2.6 million for fiscal 2006 compared to a net loss
of $5.4 million for fiscal 2005.
Year
Ended December 31, 2005 Compared to the Year Ended
December 31, 2004
Revenues.
Total revenues increased $17.5 million or 16.0% to
$126.4 million in 2005 compared to $108.9 million in
2004. This increase in revenues primarily results from an
increase in resident and healthcare revenue of
$11.2 million, an increase in unaffiliated management
services revenue of $0.9 million and an increase in
community reimbursement revenue of $5.5 million offset by a
decrease in affiliated management services revenue of
$0.2 million.
39
|
|
|
|
|
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 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.
|
|
|
|
Community reimbursement revenue is comprised of reimbursable
expenses from non-consolidated communities that the Company
operates under long-term management agreements.
|
Expenses.
Total expenses increased $13.2 million or 13.0% to
$115.4 million in 2005 compared to $102.2 million in
2004. This increase in expense primarily results from a
$3.9 million increase in operating expenses, a
$0.4 million increase in general and administrative
expenses, a $2.1 million increase in facility lease
expenses, a $0.2 million increase in stock-based
compensation expense, a $0.1 million increase in bad debt
expenses, a $5.5 million increase in community
reimbursement expenses and a $1.0 million increase in
depreciation and amortization expense.
|
|
|
|
|
Operating expenses increased to $68.9 million compared to
$64.9 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, $0.6 million in operating expenses from the
operations of Georgetowne Place, $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
$9.8 million in 2005 compared to $9.4 million in the
prior year. This 4.1% increase in general and administrative
expenses primarily results from a $0.6 million increase in
employee compensation and benefit costs 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.
|
|
|
|
Stock-based compensation reflects the adoption of FAS 123R
by the Company on July 1, 2005.
|
|
|
|
Bad debt expense increased 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.
|
|
|
|
Community reimbursement expense represents payroll and
administrative costs paid by the Company for the benefit of
non-consolidated communities and joint ventures.
|
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.
|
40
|
|
|
|
|
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 of higher interest rates on the Companys variable
rate notes in fiscal 2005.
|
|
|
|
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 KeyBank
and settling the Companys swap agreements with KeyBank,
during fiscal 2004, the Company recognized a loss on the
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 KeyBank 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/losses of affiliates, which represents the
Companys share of the earnings/losses 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/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 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.
41
Quarterly
Results
The following table presents certain unaudited quarterly
financial information for each of the four quarters ended
December 31, 2006 and 2005. 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 the Companys 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 Calendar Quarters
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Total revenues(1)
|
|
$
|
36,557
|
|
|
$
|
37,722
|
|
|
$
|
41,821
|
|
|
$
|
42,970
|
|
Income from operations
|
|
|
3,453
|
|
|
|
2,027
|
|
|
|
2,481
|
|
|
|
3,706
|
|
Net (loss) income
|
|
|
(999
|
)
|
|
|
(2,486
|
)
|
|
|
69
|
|
|
|
816
|
|
Net (loss) income per share, basic
|
|
$
|
(0.04
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
0.00
|
|
|
$
|
0.03
|
|
Net (loss) income per share,
diluted
|
|
$
|
(0.04
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
0.00
|
|
|
$
|
0.03
|
|
Weighted average shares
outstanding, basic
|
|
|
25,940
|
|
|
|
25,964
|
|
|
|
26,023
|
|
|
|
26,127
|
|
Weighted average shares
outstanding, fully diluted
|
|
|
25,940
|
|
|
|
25,964
|
|
|
|
26,470
|
|
|
|
26,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 Calendar Quarters
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Total revenues(2)
|
|
$
|
29,006
|
|
|
$
|
30,132
|
|
|
$
|
32,236
|
|
|
$
|
35,030
|
|
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
|
|
|
|
|
(1) |
|
Total revenues differ from the amounts reported in
Form 10-Qs
for fiscal 2006 as a result of the inclusion of community
reimbursement income of $4,442, $3,777, $4,732 and $3,902 in the
first, second, third and fourth quarters of fiscal 2006,
respectively. Community reimbursement revenue is comprised of
reimbursable expenses from non-consolidated communities that the
Company operates under long-term management agreements. |
|
(2) |
|
Total revenues differ from the amounts reported for each of the
four quarter of fiscal 2005 as a result of the inclusion of
community reimbursement income of $4,768, $5,696, $7,152 and
$3,558 in the first, second, third and fourth quarters of fiscal
2005, respectively. |
Liquidity
and Capital Resources
In addition to approximately $25.6 million of cash balances
on hand as of December 31, 2006, the Companys
principal sources of liquidity are expected to be cash flows
from operations, proceeds from the sale of assets, cash flows
from SHPII/CSL, Midwest I and Midwest II and/or additional
refinancing. The Company expects its available cash and cash
flows from operations, proceeds from the sale of assets, and
cash flows from SHPII/CSL, Midwest I and Midwest II to be
sufficient to fund its short-term working capital requirements.
The Companys long-term capital requirements, primarily for
acquisitions and other corporate initiatives, could be dependent
on its ability to access additional funds through joint
ventures, lease and sale/leaseback transactions and the debt
and/or
equity markets. The Company from time to time considers and
evaluates transactions related to its portfolio including
refinancings, purchases and sales, reorganizations and other
transactions. There can be no assurance that the Company will
continue to generate cash flows at or above current levels or
that the Company will be able to obtain the capital necessary to
meet the Companys short and long-term capital requirements.
42
On June 9, 2006, the Company refinanced $110.0 million
of mortgage debt on 15 senior living communities with Freddie
Mac. As part of the refinancing the Company repaid approximately
$14.8 million of mortgage debt on the 15 communities.
The new mortgage loans have a ten year term with interest rates
fixed at 6.29% for the first nine years and with principal
amortized over a
25-year
term. At the beginning of the tenth year, the loans will convert
to a floating interest rate to provide flexibility regarding
financing alternatives. Each of the loans are
cross-collateralized and
cross-defaulted
with release provisions. The Company incurred $1.9 million
in deferred financing costs related to these loans, which is
being amortized over ten years. In addition, the Company
wrote-off $0.9 million in deferred loan costs on the loans
refinanced and paid $0.2 million in loan exit fees to the
prior lender. The loan exit fees are a component of the
write-off of deferred loan costs in the accompanying statement
of operations.
On June 20, 2006, the Company refinanced $33.0 million
of mortgage debt on four senior living communities with Capmark.
The new mortgage loans have a three year term plus options for
two one-year extensions at the Companys option with
variable interest rates tied to the
30-day LIBOR
plus a spread of 260 basis points. Principal is being
amortized over a
25-year
term. The Company has an interest rate cap in place through
January 2008, which limits the maximum rate on these loans to
approximately 7.60%. Each of the loans are cross-collateralized
and cross-defaulted with release provisions. The Company
incurred $0.5 million in deferred financing costs related
to these loans, which is being amortized over three years. In
addition, the Company wrote-off $14,000 in deferred loan costs
on the loans refinanced and paid $0.5 million in loan exit
fees to the prior lender. The loan exit fees are a component of
the write-off of deferred loan costs in the accompanying
statement of operations.
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.
The Company had net cash used in operating activities of
$4.6 million in fiscal 2006 compared to net cash provided
by operating activities of $2.2 million and
$4.3 million in fiscal 2005 and 2004, respectively. In
fiscal 2006, net cash used in operating activities was primarily
derived from a net loss of $2.6 million, an increase in
accounts receivable of $1.7 million, an increase in
property and tax deposits of $1.4 million, an increase in
prepaid and other expenses of $0.8 million, an increase in
other assets of $7.8 million, offset by net noncash charges
of $6.5 million, an increase in accounts payable and
accrued expenses of $1.8 million and a decrease in federal
and state income taxes receivable of $1.4 million. In
fiscal 2005, net cash provided by operating activities was
primarily derived from net non-cash charges of
$12.7 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 $0.5 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 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.
The Company had net cash provided by investing activities of
$30.0 million and $3.1 million in fiscal 2006 and
2005, respectively compared to net cash used in investing
activities of $7.6 million in fiscal 2004. In fiscal 2006,
net cash provided by investing activities primarily results from
net proceeds from the sale of assets of $40.5 million
offset by capital expenditures of $6.7 million and
investments in limited partnerships of $3.9 million. In
fiscal 2005, the Company had net cash provided by investing
activities primarily resulting 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 $0.1 million.
43
The Company had net cash used in financing activities of
$21.6 million and $3.0 million in fiscal 2006 and
2005, respectively compared to net cash provided by financing
activities of $16.3 million in fiscal 2004. For fiscal
2006, net cash used in financing activities was primarily
derived from net repayments of notes payable of
$18.2 million, cash paid to settle interest rate lock
agreements of $1.8 million and deferred financing charges
paid in connection with the refinancing of 19 communities of
$3.1 million offset by the release of restricted cash of
$1.0 million, proceeds from the exercise of stock options
of $0.4 million and excess tax benefits on stock options
exercised of $0.2 million. In fiscal 2005, net cash used in
financing activities primarily results from net payments on
notes payable of $1.3 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 $0.3 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 $0.4 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 deferred financing charges
paid of $1.1 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.
Ventas
Transactions
Effective as of June 30, 2005, BRE/CSL entered into the
Ventas Purchase Agreement with Ventas to sell the six
communities owned by BRE/CSL to Ventas for approximately
$84.6 million. In addition, Ventas and the Company entered
into the Ventas Lease Agreements whereby the Company agreed to
lease the six communities from Ventas. Effective as of
September 30, 2005, Ventas completed the purchase of the
six communities from BRE/CSL 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 each of the Ventas Lease Agreements was 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 terms
and are included in facility lease expense in the Companys
statement of operations. The Company accounts for the Ventas
Lease Agreements as operating leases. The sale of the six
communities from BRE/CSL to Ventas resulted in the Company
receiving cash proceeds of $6.1 million and 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 Georgetowne Place which Ventas acquired
from a third party for approximately $19.5 million.
Georgetowne Place is a
162-unit
senior living community with a capacity of 247 residents. This
lease has an initial term of ten years, with two five-year
renewal extensions available at the Companys option. The
initial lease rate was 8% and is subject to conditional
escalation provisions. The Company incurred $0.2 million in
lease acquisition costs related to this 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 accounts for this lease as an operating lease.
On March 31, 2006, the Company sold Towne Centre to Ventas
in a sale/leaseback transaction valued at $29.0 million.
This lease was effective as of April 1, 2006 and has an
initial term of nine and one-half years, with two five-year
renewal extensions available at the Companys option. The
initial lease rate was 8% and is subject to certain conditional
escalation clauses. The Company incurred $0.1 million in
lease acquisition costs. These deferred lease acquisition costs
are being amortized over the initial lease term and are included
in facility lease expense in the Companys statement of
operations. The Company accounts for this lease as an operating
lease. As a result of this sale/leaseback transaction the
Company received cash proceeds of approximately
$12.7 million, net of closing costs, retired debt of
approximately $16.2 million and recorded a gain of
approximately $14.3 million, which has been deferred and is
being recognized in the Companys statement of operations
over the initial lease term.
44
On June 8, 2006 the Company entered into an agreement with
Ventas to lease Rose Arbor which Ventas acquired from a third
party for approximately $19.1 million. Rose Arbor is a
137-unit
senior living community with a capacity of 179 residents. This
lease has an initial term of approximately nine and one-half
years, with two
five-year
renewal extensions available at the Companys option. The
initial lease rate was 8% and is subject to conditional
escalation provisions. The Company incurred $0.4 million in
lease acquisition costs related to this lease. These deferred
lease acquisition costs are being amortized over the initial
lease term and are included in facility lease expense in the
Companys statement of operations. The Company accounts for
this lease as an operating lease.
HCPI
Transactions
Effective as of May 1, 2006, the Company sold three of its
communities, Crosswood Oaks, Tesson Heights and Veranda Club to
HCPI in sale/leaseback transactions valued at approximately
$54.0 million. These leases were effective as of
May 1, 2006 and have an initial term of ten years, with two
ten-year renewal extensions available at the Companys
option. The initial lease rates were 8% and are subject to
certain conditional escalation clauses. The Company incurred
$0.2 million in lease acquisition costs. These deferred
lease acquisition costs are being amortized over the initial
lease terms and are included in facility lease expense in the
Companys statement of operations. The Company accounts for
these leases as operating leases. As a result of these
sale/leaseback transactions, the Company received cash proceeds
of approximately $23.0 million, net of closing costs,
retired debt of approximately $29.3 million and recorded a
gain of approximately $12.8 million, which has been
deferred and is being recognized in the Companys statement
of operations over the initial lease terms.
Effective May 31, 2006, HCPI acquired six senior living
communities previously owned by Covenant for $43.0 million
and leased the six senior living communities to the Company.
This six-property lease was effective as of May 31, 2006
and has an initial term of ten years, with two ten-year renewal
extensions available at the Companys option. The initial
lease rate was 8% and is subject to certain conditional
escalation clauses. The Company incurred $0.2 million in
lease acquisition costs. These deferred lease acquisition costs
are being amortized over the initial lease term and are included
in facility lease expense in the Companys statement of
operations. The Company accounts for this lease as an operating
lease. As a result of this lease transaction, the Company
received cash proceeds of approximately $3.3 million and
recorded deferred rent of approximately $0.6 million, which
is being recognized in the Companys statement of
operations over the initial lease term.
Effective December 1, 2006, HCPI acquired four senior
living communities previously owned by a third party and leased
the four senior living communities to the Company in a
transaction valued at approximately $51.0 million. This
four-property lease has an initial term of ten years, with two
ten-year renewal extensions available at the Companys
option. The initial lease rate was 8% and is subject to certain
conditional escalation clauses. The Company incurred
$0.6 million in lease acquisition costs. These deferred
lease acquisition costs are being amortized over the initial
lease term and are included in facility lease expense in the
Companys statement of operations. The Company accounts for
this lease as an operating lease.
Effective December 14, 2006, HCPI acquired, the Atrium of
Carmichael, previously owned by SHPII and leased the Atrium of
Carmichael to the Company in a transaction valued at
approximately $18.0 million. This lease has an initial term
of ten years, with two ten-year renewal extensions available at
the Companys option. The initial lease rate was 7.75% and
is subject to certain conditional escalation clauses. The
Company incurred $0.3 million in lease acquisition costs.
These deferred lease acquisition costs are being amortized over
the initial lease term and are included in facility lease
expense in the Companys statement of operations. The
Company accounts for this lease as an operating lease.
Midwest
I Transaction
In January 2006, the Company announced the formation of
Midwest I, a joint venture with GE Healthcare, to acquire
five senior housing communities from a third party. Midwest I is
owned approximately 89% by GE Healthcare and 11% by the
Company. The Company contributed $2.7 million for its
approximate 11% interest in Midwest I. Midwest I paid
approximately $46.9 million for the five communities. The
five communities comprise 293 assisted living units with a
resident capacity of 389. Effective as of February 1, 2006,
Midwest I acquired four of the five communities and on
March 31, 2006, Midwest I closed on the fifth community.
The
45
Company manages the five acquired communities under long-term
management agreements with Midwest I. The Company accounts for
its investment in Midwest I under the equity method of
accounting and the Company recognized a loss in the equity of
Midwest I of $9,000 for fiscal 2006.
Midwest II
Transaction
In August 2006, the Company announced the formation of
Midwest II, a joint venture with GE Healthcare, to acquire
three senior housing communities from a third party.
Midwest II is owned approximately 85% by GE Healthcare
and 15% by the Company. The Company contributed
$1.3 million for its interest in Midwest II.
Midwest II paid approximately $38.2 million for the
three communities. The three communities comprise
300 assisted living and memory care units with a resident
capacity of 319. On August 11, 2006, Midwest II
acquired the three senior living communities. The Company
manages the three acquired communities under long-term
management agreements with Midwest II. The Company accounts
for its investment in Midwest II under the equity method of
accounting and the Company recognized a loss in the equity of
Midwest II of $0.1 million for fiscal 2006.
Covenant
Acquisitions
In June 2006, the Company acquired Meadow View from Covenant and
classified Meadow View as held for sale at June 30, 2006
and estimated at that time that the community had an aggregate
fair value, net of costs of disposal, of $2.4 million. In
July 2006, the Company sold Meadow View to an unrelated party
for $2.6 million, resulting in net proceeds to the Company
of approximately $2.4 million.
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, 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
One to
|
|
|
Four to
|
|
|
More Than
|
|
|
|
|
|
|
One Year
|
|
|
Three Years
|
|
|
Five Years
|
|
|
Five Years
|
|
|
Total
|
|
|
Long-term debt
|
|
$
|
19,132
|
|
|
$
|
77,120
|
|
|
$
|
27,643
|
|
|
$
|
159,978
|
|
|
$
|
283,873
|
|
Operating leases
|
|
|
26,571
|
|
|
|
52,217
|
|
|
|
51,954
|
|
|
|
108,677
|
|
|
|
239,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
45,703
|
|
|
$
|
129,337
|
|
|
$
|
79,597
|
|
|
$
|
268,655
|
|
|
$
|
523,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 23 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.
46
|
|
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,
2006, the Company had $202.8 million in outstanding debt
comprised of various fixed and variable rate debt instruments of
$165.0 million and $37.8 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 $0.4 million (subject to certain interest
rate caps) based on the Companys outstanding variable debt
as of December 31, 2006.
The following table summarizes information on the Companys
debt instruments outstanding as of December 31, 2006. The
table presents the principal due and weighted average interest
rates by expected maturity date for the Companys various
debt instruments by fiscal year. Weighted average variable
interest rates are based on the Companys floating rate as
of December 31, 2006.
Principal Amount and Average Interest Rate by Expected Maturity
Date at December 31, 2006 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Thereafter
|
|
|
Total
|
|
|
Value
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate debt
|
|
$
|
4,852
|
|
|
$
|
8,181
|
|
|
$
|
11,586
|
|
|
$
|
4,749
|
|
|
$
|
3,459
|
|
|
$
|
132,129
|
|
|
$
|
164,956
|
|
|
$
|
146,486
|
|
Average interest rate
|
|
|
6.2
|
%
|
|
|
6.1
|
%
|
|
|
6.1
|
%
|
|
|
6.1
|
%
|
|
|
6.1
|
%
|
|
|
6.1
|
%
|
|
|
|
|
|
|
|
|
Variable rate debt
|
|
|
1,258
|
|
|
|
1,288
|
|
|
|
32,732
|
|
|
|
818
|
|
|
|
1,705
|
|
|
|
|
|
|
|
37,801
|
|
|
|
36,638
|
|
Average interest rate
|
|
|
8.0
|
%
|
|
|
8.0
|
%
|
|
|
7.9
|
%
|
|
|
7.9
|
%
|
|
|
7.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
202,757
|
|
|
$
|
183,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
limits the interest rate exposure on $100 million notional
amount to a maximum LIBOR 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 of 7%. In
March 2006, the Company sold $67 million of the notional
amount of this interest rate cap and as a result received
$0.3 million in cash and recorded a gain on sale of
$0.1 million. This interest rate cap agreement is still in
effect to limit interest rate exposure on $33 million
notional amount and expires on January 31, 2008. During
fiscal 2006, the Company received $0.1 million under the
terms of this interest rate cap agreement and recorded the
amount received as a reduction in interest expense. The second
interest cap agreement effectively limited the interest rate
exposure on a $50 million notional amount to a maximum
LIBOR of 5% and expired on January 31, 2006. The Company
paid $0.4 million for the interest rate caps and the costs
of these agreements are being or were amortized to interest
expense over the life of the agreements except for amounts
written off when the notional amounts were sold.
The Company used interest rate lock and interest rate swap
agreements for purposes other than trading. The Company was
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 agreed 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 ranged 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 reflected the interest rate lock agreements at fair
value in the Companys consolidated balance sheet (Other
long-term
47
liabilities, net of current portion of $2.6 million) and
related gains and losses were 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. Subsequent to the
end of fiscal 2006, the Company paid $5.0 million to
KeyBank to repay the note. 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 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 in
interest expense during fiscal 2004.
|
|
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.
|
Effectiveness
of 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 Securities Exchange Act of 1934, as amended (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 Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
SECs 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 controls evaluation, the Companys CEO and
CFO have concluded that, as of the end of the period covered by
this report, the Companys disclosure controls and
procedures are effective.
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 Companys fiscal quarter
ended December 31, 2006 that have materially affected, or
are reasonably likely to materially affect, the Companys
internal control over financial reporting.
Internal
Controls Over Financial Reporting
Managements
Report On Internal Control Over Financial Reporting
Management of the Company, including the Chief Executive Officer
and the Chief Financial Officer, is responsible for establishing
and maintaining adequate internal control over financial
reporting, as defined in
Rules 13a-15(f)
under the Exchange Act. The Companys internal controls
were designed to provide reasonable assurance to the
Companys management and board of directors regarding the
preparation and fair presentation of published financial
statements.
48
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial
statement preparation and presentation.
Management assessed the effectiveness of the Companys
internal control over financial reporting as of
December 31, 2006. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in
Internal Control Integrated
Framework. Based on our assessment, we believe
that, as of December 31, 2006, the Companys internal
control over financial reporting is effective based on those
criteria.
Managements assessment of the effectiveness of internal
control over financial reporting as of December 31, 2006,
has been audited by Ernst & Young LLP
(Ernst & Young), an independent registered
public accounting firm who also audited the Companys
consolidated financial statements. Ernst & Youngs
attestation report on managements assessment of the
Companys internal control over financial reporting appears
in Item 15 of this Annual Report.
|
|
ITEM 9B.
|
OTHER
INFORMATION.
|
None.
PART III
|
|
ITEM 10.
|
DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT.*(
|
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION.*
|
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.*
|
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE.*
|
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES.*
|
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.
( * Information required by
Items 10, 11, 12, 13 and 14 is or will be set forth in
the definitive proxy statement relating to the 2007 Annual
Meeting of Stockholders of Capital Senior Living Corporation,
which is to be filed with SEC pursuant to Regulation 14A
under the Exchange Act. This definitive proxy statement relates
to a meeting of stockholders involving the election of directors
and the portions therefrom required to be set forth in this
10-K by
Items 10, 11, 12, 13 and 14 are incorporated herein by
reference pursuant to General Instruction G(3) to
Form 10-K.
49
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 15, 2007.
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 15, 2007
|
|
|
|
|
|
/s/ JAMES
A. STROUD
James
A. Stroud
|
|
Chairman of the Company and
Chairman of the Board
|
|
March 15, 2007
|
|
|
|
|
|
/s/ KEITH
N.
JOHANNESSEN
Keith
N. Johannessen
|
|
President and Chief Operating
Officer and Director
|
|
March 15, 2007
|
|
|
|
|
|
/s/ RALPH
A. BEATTIE
Ralph
A. Beattie
|
|
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
March 15, 2007
|
|
|
|
|
|
/s/ CRAIG
HARTBERG
Craig
Hartberg
|
|
Director
|
|
March 15, 2007
|
|
|
|
|
|
/s/ JILL
M. KRUEGER
Jill
M. Krueger
|
|
Director
|
|
March 15, 2007
|
|
|
|
|
|
/s/ JAMES
A. MOORE
James
A. Moore
|
|
Director
|
|
March 15, 2007
|
|
|
|
|
|
/s/ VICTOR
W. NEE
Dr.
Victor W. Nee
|
|
Director
|
|
March 15, 2007
|
50
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, 2006,
and the related consolidated statements of operations,
shareholders equity, and cash flows for the years ended
December 31, 2006 and 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 audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Capital Senior Living Corporation at
December 31, 2006, and the consolidated results of its
operations and its cash flows for the years ended
December 31, 2006 and 2004, 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, 2006, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our
report dated March 12, 2007 expressed an unqualified
opinion thereon.
Ernst & Young LLP
Dallas, Texas
March 12, 2007
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, 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.
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.
KPMG LLP
Dallas, TX
March 31, 2006
F-3
CAPITAL
SENIOR LIVING CORPORATION
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
25,569
|
|
|
$
|
21,831
|
|
Restricted cash
|
|
|
|
|
|
|
973
|
|
Accounts receivable, net
|
|
|
3,838
|
|
|
|
2,586
|
|
Accounts receivable from affiliates
|
|
|
784
|
|
|
|
432
|
|
Federal and state income taxes
receivable
|
|
|
241
|
|
|
|
1,840
|
|
Deferred taxes
|
|
|
672
|
|
|
|
591
|
|
Assets held for sale
|
|
|
2,034
|
|
|
|
2,034
|
|
Property tax and insurance deposits
|
|
|
6,460
|
|
|
|
5,081
|
|
Prepaid expenses and other
|
|
|
3,493
|
|
|
|
2,729
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
43,091
|
|
|
|
38,097
|
|
Property and equipment, net
|
|
|
313,569
|
|
|
|
373,007
|
|
Deferred taxes
|
|
|
15,448
|
|
|
|
8,217
|
|
Investments in limited partnerships
|
|
|
5,253
|
|
|
|
1,401
|
|
Other assets, net
|
|
|
17,127
|
|
|
|
13,329
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
394,488
|
|
|
$
|
434,051
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,566
|
|
|
$
|
2,834
|
|
Accounts payable to affiliates
|
|
|
|
|
|
|
119
|
|
Accrued expenses
|
|
|
11,224
|
|
|
|
10,057
|
|
Current portion of notes payable
|
|
|
6,110
|
|
|
|
7,801
|
|
Current portion of interest rate
lock
|
|
|
|
|
|
|
2,573
|
|
Current portion of deferred income
|
|
|
4,306
|
|
|
|
1,370
|
|
Customer deposits
|
|
|
2,478
|
|
|
|
2,483
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
27,684
|
|
|
|
27,237
|
|
Deferred income
|
|
|
26,073
|
|
|
|
3,641
|
|
Deferred income from affiliates
|
|
|
|
|
|
|
48
|
|
Other long-term liabilities
|
|
|
|
|
|
|
4,977
|
|
Notes payable, net of current
portion
|
|
|
196,647
|
|
|
|
252,733
|
|
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 26,424 and 26,290 in 2006
and 2005, respectively
|
|
|
264
|
|
|
|
263
|
|
Additional paid-in capital
|
|
|
127,448
|
|
|
|
126,180
|
|
Retained earnings
|
|
|
16,372
|
|
|
|
18,972
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
144,084
|
|
|
|
145,415
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity
|
|
$
|
394,488
|
|
|
$
|
434,051
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
CAPITAL
SENIOR LIVING CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Resident and health care revenue
|
|
$
|
139,456
|
|
|
$
|
101,770
|
|
|
$
|
90,544
|
|
Unaffiliated management services
revenue
|
|
|
994
|
|
|
|
1,626
|
|
|
|
726
|
|
Affiliated management services
revenue
|
|
|
1,767
|
|
|
|
1,834
|
|
|
|
1,992
|
|
Community reimbursement revenue
|
|
|
16,853
|
|
|
|
21,174
|
|
|
|
15,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
159,070
|
|
|
|
126,404
|
|
|
|
108,935
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (exclusive of
facility lease expense and depreciation and amortization expense
shown below)
|
|
|
89,184
|
|
|
|
68,888
|
|
|
|
64,916
|
|
General and administrative expenses
|
|
|
11,420
|
|
|
|
9,761
|
|
|
|
9,408
|
|
Facility lease expense
|
|
|
16,610
|
|
|
|
2,070
|
|
|
|
|
|
Provision for bad debts
|
|
|
121
|
|
|
|
258
|
|
|
|
198
|
|
Stock-based compensation expense
|
|
|
870
|
|
|
|
245
|
|
|
|
|
|
Depreciation and amortization
|
|
|
12,345
|
|
|
|
13,046
|
|
|
|
12,009
|
|
Community reimbursement expense
|
|
|
16,853
|
|
|
|
21,174
|
|
|
|
15,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
147,403
|
|
|
|
115,442
|
|
|
|
102,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
11,667
|
|
|
|
10,962
|
|
|
|
6,731
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
843
|
|
|
|
133
|
|
|
|
572
|
|
Interest expense
|
|
|
(16,610
|
)
|
|
|
(18,595
|
)
|
|
|
(15,769
|
)
|
Gain (loss) on sale of properties
|
|
|
2,495
|
|
|
|
104
|
|
|
|
(37
|
)
|
Debt restructuring/derivative
costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off of deferred loan costs
|
|
|
(1,867
|
)
|
|
|
(25
|
)
|
|
|
(824
|
)
|
Gain on interest rate swap
agreement
|
|
|
|
|
|
|
|
|
|
|
1,435
|
|
Loss on interest rate lock
agreement
|
|
|
|
|
|
|
(641
|
)
|
|
|
(1,356
|
)
|
Other (loss) income
|
|
|
(37
|
)
|
|
|
416
|
|
|
|
182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and
minority interest in consolidated partnership
|
|
|
(3,509
|
)
|
|
|
(7,646
|
)
|
|
|
(9,066
|
)
|
Benefit for income taxes
|
|
|
909
|
|
|
|
2,273
|
|
|
|
2,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before minority interest in
consolidated partnership
|
|
|
(2,600
|
)
|
|
|
(5,373
|
)
|
|
|
(6,796
|
)
|
Minority interest in consolidated
partnership
|
|
|
|
|
|
|
19
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,600
|
)
|
|
$
|
(5,354
|
)
|
|
$
|
(6,758
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(0.10
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding basic and diluted
|
|
|
26,014
|
|
|
|
25,827
|
|
|
|
25,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
CAPITAL
SENIOR LIVING CORPORATION
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Balance at January 1, 2004
|
|
|
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 income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Exercise of stock options
|
|
|
94
|
|
|
|
1
|
|
|
|
585
|
|
|
|
|
|
|
|
586
|
|
Restricted stock awards
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
870
|
|
|
|
|
|
|
|
870
|
|
Excess tax benefits
|
|
|
|
|
|
|
|
|
|
|
(187
|
)
|
|
|
|
|
|
|
(187
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,600
|
)
|
|
|
(2,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
26,424
|
|
|
$
|
264
|
|
|
$
|
127,448
|
|
|
$
|
16,372
|
|
|
$
|
144,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
CAPITAL
SENIOR LIVING CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,600
|
)
|
|
$
|
(5,354
|
)
|
|
$
|
(6,758
|
)
|
Adjustments to reconcile net loss
to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
11,208
|
|
|
|
12,338
|
|
|
|
11,865
|
|
Amortization
|
|
|
1,137
|
|
|
|
708
|
|
|
|
144
|
|
Amortization of deferred financing
charges
|
|
|
601
|
|
|
|
747
|
|
|
|
903
|
|
Amortization of deferred lease costs
|
|
|
183
|
|
|
|
37
|
|
|
|
|
|
Amortization of debt discount
|
|
|
200
|
|
|
|
224
|
|
|
|
38
|
|
Minority interest in consolidated
partnership
|
|
|
|
|
|
|
(19
|
)
|
|
|
(38
|
)
|
Deferred income from affiliates
|
|
|
(48
|
)
|
|
|
(77
|
)
|
|
|
23
|
|
Deferred income
|
|
|
89
|
|
|
|
274
|
|
|
|
568
|
|
Deferred income taxes
|
|
|
(7,312
|
)
|
|
|
(2,213
|
)
|
|
|
(714
|
)
|
Equity in the earnings of affiliates
|
|
|
37
|
|
|
|
(416
|
)
|
|
|
(182
|
)
|
(Gain) loss on sale of properties
|
|
|
(2,495
|
)
|
|
|
(104
|
)
|
|
|
37
|
|
Loss (gain) on interest rate swap
and interest rate lock agreements
|
|
|
|
|
|
|
641
|
|
|
|
(79
|
)
|
Provision for bad debts
|
|
|
121
|
|
|
|
258
|
|
|
|
198
|
|
Write-off of deferred loan costs
|
|
|
1,867
|
|
|
|
25
|
|
|
|
824
|
|
Stock compensation expense
|
|
|
870
|
|
|
|
245
|
|
|
|
|
|
Changes in operating assets and
liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,373
|
)
|
|
|
(771
|
)
|
|
|
(881
|
)
|
Accounts receivable from affiliates
|
|
|
(352
|
)
|
|
|
788
|
|
|
|
(616
|
)
|
Property tax and insurance deposits
|
|
|
(1,379
|
)
|
|
|
(2,350
|
)
|
|
|
(876
|
)
|
Prepaid expenses and other
|
|
|
(808
|
)
|
|
|
37
|
|
|
|
312
|
|
Other assets
|
|
|
(7,780
|
)
|
|
|
(7,147
|
)
|
|
|
542
|
|
Accounts payable
|
|
|
613
|
|
|
|
473
|
|
|
|
116
|
|
Accrued expenses
|
|
|
1,167
|
|
|
|
2,579
|
|
|
|
170
|
|
Federal and state income taxes
receivable/payable
|
|
|
1,412
|
|
|
|
732
|
|
|
|
(1,416
|
)
|
Customer deposits
|
|
|
(5
|
)
|
|
|
547
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
operating activities
|
|
|
(4,647
|
)
|
|
|
2,202
|
|
|
|
4,261
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(6,650
|
)
|
|
|
(3,236
|
)
|
|
|
(2,391
|
)
|
Net cash acquired in acquisition of
Spring Meadows joint ventures
|
|
|
|
|
|
|
|
|
|
|
838
|
|
Net cash paid on the purchase of
Triad I
|
|
|
|
|
|
|
|
|
|
|
(4,000
|
)
|
Net cash paid in the acquisition of
CGIM
|
|
|
|
|
|
|
|
|
|
|
(2,317
|
)
|
Proceeds from sale of assets
|
|
|
40,497
|
|
|
|
|
|
|
|
516
|
|
Advances to affiliates
|
|
|
|
|
|
|
|
|
|
|
(391
|
)
|
(Investments in) distributions from
limited partnerships
|
|
|
(3,889
|
)
|
|
|
6,378
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
|
29,958
|
|
|
|
3,142
|
|
|
|
(7,596
|
)
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from notes payable
|
|
|
146,590
|
|
|
|
43,193
|
|
|
|
131,967
|
|
Repayments of notes payable
|
|
|
(164,759
|
)
|
|
|
(44,467
|
)
|
|
|
(153,813
|
)
|
Restricted cash
|
|
|
973
|
|
|
|
(973
|
)
|
|
|
7,187
|
|
Cash proceeds from the exercise of
stock options
|
|
|
399
|
|
|
|
718
|
|
|
|
368
|
|
Cash proceeds from the issuance of
common stock
|
|
|
|
|
|
|
3
|
|
|
|
32,157
|
|
Excess tax benefits on stock
options exercised
|
|
|
187
|
|
|
|
256
|
|
|
|
|
|
Cash paid to settle interest rate
lock agreement
|
|
|
(1,823
|
)
|
|
|
|
|
|
|
|
|
Cash paid to settle interest rate
swap agreement
|
|
|
|
|
|
|
|
|
|
|
(497
|
)
|
(Distributions to) refund from
minority partners
|
|
|
|
|
|
|
(233
|
)
|
|
|
9
|
|
Deferred financing charges paid
|
|
|
(3,140
|
)
|
|
|
(1,525
|
)
|
|
|
(1,122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
financing activities
|
|
|
(21,573
|
)
|
|
|
(3,028
|
)
|
|
|
16,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash
equivalents
|
|
|
3,738
|
|
|
|
2,316
|
|
|
|
12,921
|
|
Cash and cash equivalents at
beginning of year
|
|
|
21,831
|
|
|
|
19,515
|
|
|
|
6,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
year
|
|
$
|
25,569
|
|
|
$
|
21,831
|
|
|
$
|
19,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
16,465
|
|
|
$
|
16,666
|
|
|
$
|
15,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
6,379
|
|
|
$
|
889
|
|
|
$
|
942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of interest rate cap
agreement to notes payable
|
|
$
|
5,727
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt assumed by Ventas / HCPI in
sale/leaseback transactions
|
|
$
|
45,535
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-7
December 31, 2006
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, 2006, the
Company operated 64 senior living communities in 23 states
with an aggregate capacity of approximately 9,500 residents,
including 37 senior living communities which the Company either
owned or in which the Company had an ownership interest, 23
senior living communities that the Company leased and four
senior living communities it managed for third parties. As of
December 31, 2006, the Company also operated one home care
agency. The accompanying consolidated financial statements
include the financial statements of Capital Senior Living
Corporation and its wholly owned subsidiaries. The Company
accounts for significant investments in affiliated companies
using the equity method of accounting. All material intercompany
balances and transactions have been eliminated in consolidation.
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2.
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Summary
of Significant Accounting Policies
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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 includes the cash and cash equivalents of
the HealthCare Properties Liquidating Trust (HCP
Trust) of $0.6 million. Restricted cash represented
amounts held in deposits that were required as collateral under
the terms of certain loan agreements.
Long-Lived
Assets
Property and equipment are stated at cost and depreciated on a
straight-line basis over the estimated useful lives of the
assets. 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 internal factors such as net operating losses along
with 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, 2006 and 2005.
Assets
Held for Sale
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,
2006. 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.
F-8
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company estimates the four parcels of land that were held
for sale at December 31, 2006, 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.
Investments
in Joint Ventures
The Company accounts for its investments in joint ventures under
the equity method of accounting. The Company is the general
partner in two partnerships and owns member interests in a third
joint venture. The Company has not consolidated these joint
venture interests because the Company has concluded that the
limited partners or the other members of each joint venture has
substantive kick-out rights or substantive participating rights
as defined in EITF Issue
04-05
Determining Whether a General Partner, or the General
Partners as a Group, Controls a Limited Partnership or Similar
Entity When the Limited Partners Have Certain Rights.
(EITF
04-05)
Under the equity method of accounting the Company records its
investments in joint ventures at cost and adjusts such
investment for its share of earnings and losses of the joint
venture.
Income
Taxes
The Company accounts for income taxes under the provision of
SFAS No. 109, Accounting for Income Taxes
(FAS 109). 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 Company
currently has a cumulative three year loss and therefore has
evaluated various tax planning strategies that it believes are
both prudent and feasible, including various strategies to
utilize net built-in gains on the Companys appreciated
assets. The Company believes that based upon these tax planning
strategies, it will be able to realize the deferred tax asset.
Revenue
Recognition
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 6%, 7% and 8% of the Companys revenue in
fiscal 2006, 2005 and 2004, respectively. Seven communities are
providers of services under the Medicaid program. Accordingly,
the communities are entitled to reimbursement under the
foregoing program 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. 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 is recognized when earned.
Management services revenue relates to providing certain
management and administrative support services under management
contracts, which have terms expiring through 2014. 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.
F-9
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Community reimbursement revenue is comprised of reimbursable
expenses from non-consolidated communities that the Company
operates under long-term management agreements.
Leases
Accounting
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, 2006, the Company leased 23
communities and classified each of the leases as an operating
lease. The Company incurs lease acquisition costs and amortizes
these costs over the term of the lease agreement. Facility lease
expense in the Companys statement of operations includes
the actual rent paid plus amortization expense relating to
leasehold acquisition costs.
Certain leases entered into by the Company qualified as
sale/leaseback transactions under the provisions of FAS 98
and as such any related gains have been deferred and are being
amortized over the lease term. The amortization of the deferred
gains is included in gain on sale of assets in the statement of
operations.
Financial
Instruments
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
limits the interest rate exposure on $100 million notional
amount to a maximum London Interbank Offered Rate
(LIBOR) 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 of 7%. In
March 2006, the Company sold $67 million of the notional
amount of this interest rate cap and as a result received
$0.3 million in cash and recorded a gain on sale of
$0.1 million. This interest rate cap agreement is still in
effect to limit interest rate exposure on $33 million
notional amount and expires on January 31, 2008. During
fiscal 2006, the Company received $0.1 million under the
terms of this interest rate cap agreement and recorded the
amount received as a reduction in interest expense. The second
interest cap agreement effectively limited the interest rate
exposure on a $50 million notional amount to a maximum
LIBOR of 5% and expired on January 31, 2006. The Company
paid $0.4 million for the interest rate caps and the costs
of these agreements are being or were amortized to interest
expense over the life of the agreements except for amounts
written off when the notional amounts were sold.
The Company was 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 treasury lock agreements, the Company agreed 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
treasury lock agreements were entered into with a major
financial institution in order to minimize counterparty credit
risk. The locked rates ranged 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 reflected the interest rate lock agreements at fair
value in the Companys balance sheet (as a long-term
liability, net of current portion) and related gains and losses
were recognized in the statement of operations. On
January 3, 2006, the Company settled the treasury lock
liability 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 the
principal amortized on a straight-line basis over a seven year
term. Subsequent to the end of fiscal 2006, the Company paid
$5.0 million to KeyBank National Association
(KeyBank) to repay the note. Prior to refinancing
the underlying debt, the treasury lock agreements were reflected
at fair value in the Companys balance sheet (Other long
term liabilities) and the related
F-10
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
gains or losses on these agreements were deferred in
stockholders equity (as a component of Other comprehensive
income).
Credit
Risk
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
Advertising is expensed as incurred. Advertising expenses for
the years ended December 31, 2006, 2005 and 2004 were
$5.6 million, $4.8 million and $5.1 million,
respectively.
Net
Loss Per Share
Basic net loss per share is calculated by dividing net loss by
the weighted average number of common shares outstanding during
the period. Diluted net loss per share considers the dilutive
effect of outstanding options calculated using the treasury
stock method. The average daily price of the stock during 2006,
2005 and 2004 was $10.15, $7.20 and $5.46, respectively, per
share. Due to net losses in fiscal 2006, 2005 and 2004 no common
stock equivalents were considered in the calculation of diluted
earnings per share.
The following table set forth the computation of basic and
diluted net loss per share (in thousands, except for per share
amounts):
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Year Ended December 31,
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2006
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2005
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2004
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Net loss
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$
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(2,600
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$
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(5,354
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$
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(6,758
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Weighted average shares
outstanding basic
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26,014
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25,827
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25,213
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Effect of dilutive securities:
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Employee stock options
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Weighted average shares
outstanding diluted
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26,014
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25,827
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25,213
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Basic loss per share
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$
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(0.10
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$
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(0.21
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$
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(0.27
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Diluted loss per share
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$
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(0.10
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$
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(0.21
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)
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$
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(0.27
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Stock-Based
Compensation
Effective July 1, 2005, the Company early adopted Statement
of Financial Accounting Standards No. 123 (revised),
Share-based Payment (FAS 123R),
which requires all share based payments to employees, including
grants of employee stock options and awards of restricted stock
pursuant to the Companys 1997 Omnibus Stock and Incentive
Plan (as amended, the 1997 Plan), which is discussed
in greater detail in footnote 12 below, to be recognized in
the statement of operations based on their fair values. The
Company adopted FAS 123R 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.
Prior to July 1, 2005, the Company accounted for share
based payments under the principles of Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB No. 25) and related
Interpretations.
F-11
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Recently
Issued Accounting Standards
FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes An Interpretation of
FASB Statement No. 109 (FIN 48). In
July 2006, FASB issued FIN 48, which will become effective
for the Company on January 1, 2007. This standard clarifies
the accounting for income tax benefits that are uncertain in
nature. Under FIN 48, a company will recognize a tax
benefit in its financial statements for an uncertain tax
position only if managements assessment is that its
position is more likely than not (i.e., a greater
than 50 percent likelihood) to be upheld on audit based
only on the technical merits of the tax position. This
accounting standard also provides guidance on thresholds,
measurement, derecognition, classification, interest and
penalties, accounting in interim periods, disclosure, and
transition that is intended to provide better
financial-statement comparability among different companies.
Under the transition guidance for implementing FIN 48, any
required cumulative-effect adjustment will be recorded to
retained earnings as of January 1, 2007. The Company does
not expect that implementation of FIN 48 will have a
material effect on its results of operations or financial
position.
FASB Statement No. 157, Fair Value Measurements
(FAS 157). In September 2006, FASB issued
FAS 157, which will become effective for the Company on
January 1, 2008. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands
disclosures about fair value measurements. FAS 157 does not
require any new fair value measurements but would apply to
assets and liabilities that are required to be recorded at fair
value under other accounting standards. The impact, if any, to
the Company from the adoption of FAS 157 in 2008 will
depend on the Companys assets and liabilities at that time
they are required to be measured at fair value.
In September 2006, the SEC staff also issued Staff Accounting
Bulletin No. 108, Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements
(SAB 108). While not an official rule or
interpretation of the SEC, SAB 108 was issued to address
the diversity in practice in quantifying misstatements from
prior years and assessing their effect on current year financial
statements. The implementation of SAB 108 did not have a
material effect on the Companys results of operations or
financial position.
In June 2005, FASB issued EITF
04-5,
Determining Whether a General Partner, or the General
Partners as a Group, Controls a Limited Partnership or Similar
Entity When the Limited Partners Have Certain Rights.
EITF 04-5
provides guidance in determining whether a general partner
controls a limited partnership that is not a VIE and thus should
consolidate the limited partnership. The effective date of EITF
04-05 was
June 29, 2005, for all new limited partnerships and
existing limited partnerships for which the partnership
agreements are modified and no later than the beginning of the
first reporting period in fiscal years beginning after
December 15, 2005 for all other limited partnerships. The
Company adopted EITF
04-05
effective January 1, 2006, and its adoption did not have a
material affect on the Companys financial position or
results of operations.
Segment
Information
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.
Reclassifications
Certain reclassifications have been made to prior year amounts
to conform to current year presentation. For fiscal 2005 and
2004, 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.
In addition, the Companys income statements now separately
reflect community reimbursement revenue and expense. Pursuant to
Emerging Issues Task Force (EITF) Issue
No. 01-14,
Income Statement Characterization of
F-12
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Reimbursements Received for Out of Pocket Expenses
Incurred, and EITF Issue
No. 99-19,
Reporting Revenue Gross as a Principal versus Net as an
Agent, management has concluded that the accounting for
certain reimbursements (primarily salaries and related overhead
charges) related to joint venture and third party community
operations should be presented on a grossed up basis versus a
net expense basis. Accordingly, during the fourth quarter of
2006, the Company classified these expense reimbursements as
community reimbursement revenue and community reimbursement
expense in the consolidated statements of operations for the
years ended December 31, 2005 and 2004 to be consistent
with the presentation for the year ended December 31, 2006.
This classification resulted in an increase in total revenues
and total operating expenses from the amounts previously
reported by $21.2 million and $15.7 million in fiscal
2005 and 2004, respectively. This reclassification had no impact
on operating income, net income, earnings per share or
stockholders equity.
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, income taxes and assets
held for sale are its most critical accounting policies and
require managements most difficult, subjective and complex
judgments.
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3.
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Transactions
with Affiliates
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SHPII/CSL
In November 2004, the Company formed four joint ventures
(collectively, SHPII/CSL) with Senior Housing
Partners II, LP (SHPII). SHPII/CSL is owned 95%
by SHPII and 5% by the Company. Effective as of
November 30, 2004, the SHPII/CSL acquired four joint
ventures that owned the four communities (the Spring
Meadows Communities). 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 $0.1 million, $0.2 million and $13,000
in fiscal 2006, 2005 and 2004, respectively. In addition, the
Company earned $1.1 million, $1.0 million and
$0.1 million in management fees on the Spring Meadows
Communities in fiscal 2006, 2005, and 2004 respectively.
Prior to SHPII/CSL acquisition of the Spring Meadows
Communities, the communities were owned by four joint ventures
in which the Company and affiliates of Lehman Brothers
(Lehman) were members. The Companys interest
in the four joint ventures that owned the Spring Meadows
Communities included interest in certain loans to the joint
ventures and an approximate 19% member interest in each venture.
The Company recorded its initial investments of
$1.3 million to the joint ventures notes receivable, as the
amount assigned for the 19% member interests was nominal. The
Company accounted for its investment in the four joint ventures
under the equity method of accounting based on the provisions of
the joint venture agreements. During fiscal 2004, the Company
recognized a loss in the equity of the four joint ventures of
$0.1 million. The Company earned $1.0 million in
management fees on the Spring Meadows Communities in fiscal 2004
under the provisions of its management agreements with the four
joint ventures.
Midwest
I
In January 2006, the Company announced the formation of Midwest
Portofolio Holdings, LP, (Midwest I) with GE
Healthcare Financial Services (GE Healthcare) to
acquire five senior housing communities from a third
F-13
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
party. Midwest I is owned approximately 89% by GE Healthcare and
11% by the Company. The Company contributed $2.7 million
for its interests in Midwest I. Midwest I paid approximately
$46.9 million for the five communities. The five
communities comprise 293 assisted living units with a resident
capacity of 389. Effective as of February 1, 2006, Midwest
I acquired four of the five communities and on March 31,
2006, Midwest I closed on the fifth community. The Company
manages the five acquired communities under long-term management
agreements with Midwest I. The Company accounts for its
investment in Midwest I under the equity method of accounting
and the Company recognized a loss in the equity of Midwest I of
$9,000 in fiscal 2006. The Company earned $0.4 million in
management fees on the Midwest I communities in fiscal 2006.
Midwest II
In August 2006, the Company announced the formation of Midwest
Portofolio Holding II, LP (Midwest II),
with GE Healthcare to acquire three senior housing communities
from a third party. Midwest II is owned approximately 85%
by GE Healthcare and 15% by the Company. The Company contributed
$1.3 million for its interests in Midwest II.
Midwest II paid approximately $38.2 million for the
three communities. The three communities comprise 300 assisted
living units with a resident capacity of 319. On August 11,
2006, Midwest II acquired the three senior living
communities. The Company manages the three acquired communities
under long-term management agreements with Midwest II. The
Company accounts for its investment in Midwest II under the
equity method of accounting and the Company recognized a loss in
the equity of Midwest II of $0.1 million in fiscal
2006. The Company earned $0.2 million in management fees on
the Midwest II communities in fiscal 2006.
BRE/CSL
In December 2001, the Company formed three joint ventures
(collectively BRE/CSL) with Blackstone Real Estate
Advisors (Blackstone) and the joint ventures are
owned 90% by Blackstone and 10% by the Company. BRE/CSL
previously owned six senior living communities. The Company
managed the six communities owned by BRE/CSL under long-term
management contracts. The Company accounted for its investment
in BRE/CSL under the equity method of accounting and the Company
recognized earnings in the equity of BRE/CSL of
$0.2 million and $0.3 million in fiscal 2005 and 2004,
respectively. In addition, the Company earned $0.9 million
in management fees on the BRE/CSL communities in both fiscal
2005 and 2004. As described in greater detail in
footnote 5, effective as of September 30, 2005, Ventas
acquired the six communities owned by BRE/CSL for approximately
$84.6 million and the Company entered into a series of
lease agreements whereby the Company leases the six communities
from Ventas.
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5.
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Facility
Lease Transactions
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Ventas
Transactions
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 approximately $84.6 million. In
addition, Ventas and the Company entered into certain Master
Lease Agreements (the Ventas Lease Agreements)
whereby the Company leased the six communities from Ventas.
Effective as of September 30, 2005, Ventas completed the
purchase of the six communities from BRE/CSL 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 each of the Ventas Lease Agreements was 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 terms and are included in facility lease
expense in the Companys statement of operations. The
Company accounts for the Ventas Lease Agreements as operating
leases. The sale of the six communities from BRE/CSL to Ventas
resulted in the
F-14
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Company receiving cash proceeds of $6.1 million and
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 located in
Fort Wayne, Indiana (Georgetowne Place) which
Ventas acquired from a third party for approximately
$19.5 million. Georgetowne Place is a
162-unit
senior living community with a capacity of 247 residents. This
lease has an initial term of ten years, with two five-year
renewal extensions available at the Companys option. The
initial lease rate was 8% and is subject to conditional
escalation provisions. The Company incurred $0.2 million in
lease acquisition costs related to this 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 accounts for this lease as an operating lease.
On March 31, 2006, the Company sold its Towne Centre
community (Towne Centre) to Ventas in a
sale/leaseback transaction valued at $29.0 million. This
lease was effective as of April 1, 2006 and has an initial
term of nine and one-half years, with two five-year renewal
extensions available at the Companys option. The initial
lease rate was 8% and is subject to certain conditional
escalation clauses. The Company incurred $0.1 million in
lease acquisition costs. These deferred lease acquisition costs
are being amortized over the initial lease term and are included
in facility lease expense in the Companys statement of
operations. The Company accounts for this lease as an operating
lease. As a result of this sale/leaseback transaction the
Company received cash proceeds of approximately
$12.7 million, net of closing costs, retired debt of
approximately $16.2 million and recorded a gain of
approximately $14.3 million, which has been deferred and is
being recognized in the Companys statement of operations
over the initial lease term.
On June 8, 2006 the Company entered into an agreement with
Ventas to lease a senior living community located in Maple
Grove, Minnesota (Rose Arbor) which Ventas acquired
from a third party for approximately $19.1 million. Rose
Arbor is a
137-unit
senior living community with a capacity of 179 residents. This
lease has an initial term of approximately nine and one-half
years, with two five-year renewal extensions available at the
Companys option. The initial lease rate was 8% and is
subject to conditional escalation provisions. The Company
incurred $0.4 million in lease acquisition costs related to
this lease. These deferred lease acquisition costs are being
amortized over the initial lease term and are included in
facility lease expense in the Companys statement of
operations. The Company accounts for this lease as an operating
lease.
HCPI
Transactions
Effective as of May 1, 2006, the Company sold three of its
communities, Crosswood Oaks, Tesson Heights and Veranda Club, to
Healthcare Properties Investors, Inc. (together with affiliates,
HCPI) in sale/leaseback transactions valued at
approximately $54.0 million. These leases were effective as
of May 1, 2006 and have an initial term of ten years, with
two ten-year renewal extensions available at the Companys
option. The initial lease rates were 8% and are subject to
certain conditional escalation clauses. The Company incurred
$0.2 million in lease acquisition costs. These deferred
lease acquisition costs are being amortized over the initial
lease terms and are included in facility lease expense in the
Companys statement of operations. The Company accounts for
these leases as operating leases. As a result of these
sale/leaseback transactions, the Company received cash proceeds
of approximately $23.0 million, net of closing costs,
retired debt of approximately $29.3 million and recorded a
gain of approximately $12.8 million, which has been
deferred and is being recognized in the Companys statement
of operations over the initial lease terms.
Effective May 31, 2006, HCPI acquired six senior living
communities previously owned by Covenant for $43.0 million
and leased the six senior living communities to the Company.
This six-property lease was effective as of May 31, 2006
and has an initial term of ten years, with two ten-year renewal
extensions available at the Companys option. The initial
lease rate was 8% and is subject to certain conditional
escalation clauses. The Company incurred $0.2 million in
lease acquisition costs. These deferred lease acquisition costs
are being amortized over the initial lease term and are included
in facility lease expense in the Companys statement of
F-15
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
operations. The Company accounts for this lease as an operating
lease. As a result of this lease transaction, the Company
received cash proceeds of approximately $3.3 million and
recorded deferred rent of approximately $0.6 million, which
is being recognized in the Companys statement of
operations over the initial lease term.
Effective December 1, 2006, HCPI acquired four senior
living communities previously owned by a third party and leased
the four senior living communities to the Company in a
transaction valued at approximately $51.0 million. This
four-property lease has an initial term of ten years, with two
ten-year renewal extensions available at the Companys
option. The initial lease rate was 8% and is subject to certain
conditional escalation clauses. The Company incurred
$0.6 million in lease acquisition costs. These deferred
lease acquisition costs are being amortized over the initial
lease term and are included in facility lease expense in the
Companys statement of operations. The Company accounts for
this lease as an operating lease.
Effective December 14, 2006, HCPI acquired one senior
living community previously owned by SHPII
(the Atrium of Carmichael) and leased the
Atrium of Carmichael to the Company in a transaction valued at
approximately $18.0 million. This lease has an initial term
of ten years, with two ten-year renewal extensions available at
the Companys option. The initial lease rate was 7.75% and
is subject to certain conditional escalation clauses. The
Company incurred $0.3 million in lease acquisition costs.
These deferred lease acquisition costs are being amortized over
the initial lease term and are included in facility lease
expense in the Companys statement of operations. The
Company accounts for this lease as an operating lease.
In June 2006, the Company acquired Meadow View from Covenant and
classified Meadow View as held for sale at June 30, 2006
and estimated at that time that the community had an aggregate
fair value, net of costs of disposal, of $2.4 million. In
July 2006, the Company sold Meadow View to an unrelated third
party for $2.6 million, resulting in net proceeds to the
Company of approximately $2.4 million.
|
|
7.
|
Property
and Equipment
|
Property and equipment consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Asset Lives
|
|
2006
|
|
|
2005
|
|
|
Land
|
|
|
|
$
|
18,504
|
|
|
$
|
24,063
|
|
Land improvements
|
|
5 to 20 years
|
|
|
782
|
|
|
|
816
|
|
Buildings and building improvements
|
|
10 to 40 years
|
|
|
322,064
|
|
|
|
380,034
|
|
Furniture and equipment
|
|
5 to 10 years
|
|
|
11,219
|
|
|
|
13,267
|
|
Automobiles
|
|
5 to 7 years
|
|
|
397
|
|
|
|
485
|
|
Leasehold improvements
|
|
(1)
|
|
|
3,217
|
|
|
|
383
|
|
Construction in progress
|
|
|
|
|
790
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
356,973
|
|
|
|
419,195
|
|
Less accumulated depreciation
|
|
|
|
|
43,404
|
|
|
|
46,188
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
$
|
313,569
|
|
|
$
|
373,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Leasehold improvements are amortized over the shorter of the
useful life of the asset or the remaining lease term. |
F-16
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Deferred loan costs
|
|
$
|
2,884
|
|
|
$
|
2,350
|
|
Deferred lease costs
|
|
|
3,055
|
|
|
|
1,466
|
|
Security and other deposits
|
|
|
10,980
|
|
|
|
4,380
|
|
Other
|
|
|
208
|
|
|
|
5,133
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,127
|
|
|
$
|
13,329
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Accrued salaries, bonuses and
related expenses
|
|
$
|
3,715
|
|
|
$
|
2,953
|
|
Accrued property taxes
|
|
|
4,609
|
|
|
|
3,644
|
|
Accrued interest
|
|
|
1,015
|
|
|
|
1,598
|
|
Accrued health claims
|
|
|
744
|
|
|
|
921
|
|
Other
|
|
|
1,141
|
|
|
|
941
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,224
|
|
|
$
|
10,057
|
|
|
|
|
|
|
|
|
|
|
F-17
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Notes payable consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes Payable
|
|
|
|
Monthly
|
|
|
Net Book Value
|
|
|
Interest
|
|
|
Maturity
|
|
December 31,
|
|
Lender
|
|
Payment
|
|
|
of Collateral(3)
|
|
|
Rate
|
|
|
Date
|
|
2006
|
|
|
2005
|
|
|
Freddie Mac
|
|
$
|
735
|
|
|
$
|
142,290
|
|
|
|
6.29
|
%
|
|
July 2015
|
|
$
|
109,291
|
|
|
$
|
|
|
Capmark
|
|
|
242
|
|
|
|
47,500
|
|
|
|
5.46
|
|
|
August 2015
|
|
|
38,177
|
|
|
|
38,915
|
|
Capmark
|
|
|
257
|
|
|
|
36,373
|
|
|
|
8.00
|
|
|
June 2009
|
|
|
32,824
|
|
|
|
|
|
Fannie Mae
|
|
|
14
|
|
|
|
9,047
|
|
|
|
7.08
|
|
|
January 2010
|
|
|
1,665
|
|
|
|
1,715
|
|
Fannie Mae
|
|
|
48
|
|
|
|
9,047
|
|
|
|
7.69
|
|
|
January 2008
|
|
|
5,317
|
|
|
|
5,478
|
|
Lehman
|
|
|
44
|
|
|
|
7,199
|
|
|
|
8.20
|
|
|
September 2009
|
|
|
4,989
|
|
|
|
34,694
|
|
KeyBank
|
|
|
98
|
|
|
|
|
|
|
|
7.88
|
|
|
January 2011
|
|
|
4,977
|
|
|
|
|
|
Lehman(1)
|
|
|
|
|
|
|
|
|
|
|
5.70
|
|
|
November 2010
|
|
|
3,139
|
|
|
|
2,966
|
|
Insurance Financing
|
|
|
368
|
|
|
|
|
|
|
|
5.60
|
|
|
April 2007
|
|
|
1,457
|
|
|
|
1,700
|
|
Covenant Group of Texas, Inc.(2)
|
|
|
|
|
|
|
|
|
|
|
5.70
|
|
|
August 2009
|
|
|
921
|
|
|
|
894
|
|
Capmark
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126,544
|
|
Guaranty
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,806
|
|
|
|
|
|
|
|
6.50
|
%(4)
|
|
|
|
|
202,757
|
|
|
|
260,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,110
|
|
|
|
7,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
196,647
|
|
|
$
|
252,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Acquisition financing bearing no interest (discounted at 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 on November 29, 2009. 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%). |
|
(2) |
|
Acquisition financing bearing no interest (discounted 5.7%) and
payable in two installment of $0.5 million and
$0.7 million on August 18, 2007 and 2009, respectively. |
|
(3) |
|
The 25 facilities owned by the Company and encumbered by
mortgage debt are provided as collateral under their respective
loan agreements. |
|
(4) |
|
Weighted average interest rate. |
The aggregate maturities of notes payable at December 31,
2006, are as follows (in thousands):
|
|
|
|
|
2007
|
|
$
|
6,110
|
|
2008
|
|
|
9,469
|
|
2009
|
|
|
44,318
|
|
2010
|
|
|
5,567
|
|
2011
|
|
|
5,164
|
|
Thereafter
|
|
|
132,129
|
|
|
|
|
|
|
|
|
$
|
202,757
|
|
|
|
|
|
|
F-18
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On June 9, 2006, the Company refinanced $110.0 million
of mortgage debt on 15 senior living communities with Freddie
Mac. As part of the refinancing, the Company repaid
approximately $14.8 million of mortgage debt on the
15 communities. The new mortgage loans have a ten year term
with interest rates fixed at 6.29% for the first nine years and
with principal amortized over a 25 year term. At the
beginning of the tenth year, the loans will convert to a
floating interest rate to provide flexibility regarding
financing alternatives. Each of the loans are
cross-collateralized and
cross-defaulted
with release provisions. The Company incurred $1.9 million
in deferred financing costs related to these loans, which is
being amortized over ten years. In addition, the Company
wrote-off $0.8 million in deferred loan costs on the loans
refinanced and paid $0.2 million in loan exit fees to the
prior lender. The loan exit fees are a component of the
write-off of deferred loan costs in the accompanying statement
of operations.
On June 20, 2006, the Company refinanced $33.0 million
of mortgage debt on four senior living communities with Capmark.
The new mortgage loans have a three year term plus options for
two one year extensions at the Companys option with
variable interest rates tied to the
30-day LIBOR
plus a spread of 260 basis points. Principal is being
amortized over a 25 year term. The Company has an interest
rate cap in place thru January 2008, which limits the maximum
rate on these loans to approximately 7.60%. Each of the loans
are cross-collateralized and cross-defaulted with release
provisions. The Company incurred $0.5 million in deferred
financing costs related to these loans, which is being amortized
over three years. In addition, the Company wrote-off $14,000 in
deferred loan costs on the loans refinanced and paid
$0.5 million in loan exit fees to the prior lender. The
loan exit fees are a component of the write-off of deferred loan
costs in the accompanying statement of operations.
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 rate cap agreement effectively
limits the interest rate exposure on $100 million notional
amount to a maximum LIBOR 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 of 7%. In
March 2006, the Company sold $67 million of the notional
amount of this interest rate cap and as a result received
$0.3 million in cash and recorded a gain on sale of
$0.1 million. This interest rate cap agreement is still in
effect to limit interest rate exposure on $33 million
notional amount and expires on January 31, 2008. During
fiscal 2006, the Company received $0.1 million under the
terms of this interest rate cap agreement and recorded the
amount received as a reduction in interest expense. The second
interest cap agreement effectively limited the interest rate
exposure on a $50 million notional amount to a maximum
LIBOR of 5% and expired on January 31, 2006. The Company
paid $0.4 million for the interest rate caps and the costs
of these agreements are being or were amortized to interest
expense over the life of the agreements except for amounts
written off when the notional amounts were sold.
The Company used interest rate lock and interest rate swap
agreements for purposes other than trading. The Company was
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 agreed 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 ranged 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 reflected
F-19
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 were 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. Subsequent to the
end of fiscal 2006, the Company paid $5.0 million to
KeyBank to repay the note. 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 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 in
interest expense during fiscal 2004.
In connection with the Companys loan commitments described
above, the Company incurred $3.1 million and
$1.5 million in fiscal 2006 and 2005, respectively, in
financing charges that were deferred and amortized over the life
of the notes. At December 31, 2006 and 2005, the Company
had gross deferred loan cost of $3.4 million. Accumulated
amortization was $0.5 million and $1.0 million at
December 31, 2006 and 2005, respectively. Amortization
expense is expected to be $0.5 million in fiscal 2007,
$0.4 million in fiscal 2008 and $0.3 million in each
of fiscal 2009, 2010 and 2011. In connection with the
refinancings and the repayment of notes, the Company wrote-off
$1.9 million and $25,000 in deferred loan cost in fiscal
2006 and 2005, 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 all of its debt
covenants at December 31, 2006 and 2005.
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. No preferred stock was outstanding as of
December 31, 2006 and 2005.
|
|
12.
|
Stock-Based
Compensation
|
The 1997 Plan, the Companys stock-based compensation plan,
provides for the grant of restricted stock awards and stock
options to purchase the Companys common stock. The 1997
Plan authorizes the Company to issue 2.6 million shares of
common stock and the Company has reserved 1.6 million
shares of common stock for future issuance under the 1997 Plan.
Stock
Options
The Companys stock option program is a long-term retention
program that is intended to attract, retain and provide
incentives for employees, officers and directors and to align
stockholder and employee interest. The Companys options
generally vest over one to five years and the related expense is
amortized on a straight-line basis over the vesting period.
F-20
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, 2006,
2005 and 2004 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Options
|
|
|
|
Year
|
|
|
Granted
|
|
|
Exercised
|
|
|
Forfeited
|
|
|
End of Year
|
|
|
Exercisable
|
|
|
December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
1,109,225
|
|
|
|
12,000
|
|
|
|
93,543
|
|
|
|
1,000
|
|
|
|
1,026,682
|
|
|
|
995,182
|
|
Weighted average price
|
|
$
|
4.69
|
|
|
$
|
10.97
|
|
|
$
|
4.27
|
|
|
$
|
2.73
|
|
|
$
|
4.80
|
|
|
$
|
4.73
|
|
December 31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
1,306,276
|
|
|
|
12,000
|
|
|
|
182,451
|
|
|
|
26,600
|
|
|
|
1,109,225
|
|
|
|
1,047,725
|
|
Weighted average price
|
|
$
|
4.57
|
|
|
$
|
5.90
|
|
|
$
|
3.95
|
|
|
$
|
4.51
|
|
|
$
|
4.69
|
|
|
$
|
4.71
|
|
December 31,
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
1,457,603
|
|
|
|
50,000
|
|
|
|
154,257
|
|
|
|
47,070
|
|
|
|
1,306,276
|
|
|
|
1,024,050
|
|
Weighted average price
|
|
$
|
4.29
|
|
|
$
|
5.11
|
|
|
$
|
2.26
|
|
|
$
|
3.78
|
|
|
$
|
4.57
|
|
|
$
|
4.42
|
|
The options outstanding and the options exercisable at
December 31, 2006 had an intrinsic value of
$6.0 million and $5.9 million, respectively. The fair
value of the 41,000 shares, 206,126 shares and
210,684 shares that vested in fiscal 2006, 2005 and 2004
was $0.2 million, $1.1 million and $1.1 million,
respectively.
On May 9, 2006, the Company granted options to certain
directors of the Company to purchase a total of
12,000 shares of the Companys common stock at an
exercise price of $10.97, the fair value of the Companys
common stock on the date of grant. These options vest in one
year.
The following table summarizes information relating to the
Companys options outstanding and options exercisable as of
December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
Number
|
|
|
Weighted Average
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
Outstanding at
|
|
|
Remaining
|
|
|
Weighted Average
|
|
|
Exercisable at
|
|
|
Weighted Average
|
|
Range of Exercise Prices
|
|
12/31/06
|
|
|
Contractual Life
|
|
|
Exercise Price
|
|
|
12/31/06
|
|
|
Exercise Price
|
|
|
$1.80 to $ 2.73
|
|
|
237,224
|
|
|
|
4.77
|
|
|
$
|
1.84
|
|
|
|
233,724
|
|
|
$
|
1.83
|
|
$3.02 to $ 4.85
|
|
|
281,312
|
|
|
|
3.73
|
|
|
$
|
3.70
|
|
|
|
271,312
|
|
|
$
|
3.68
|
|
$5.30 to $10.97
|
|
|
508,146
|
|
|
|
5.76
|
|
|
$
|
6.79
|
|
|
|
490,146
|
|
|
$
|
6.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.80 to $10.97
|
|
|
1,026,682
|
|
|
|
4.98
|
|
|
$
|
4.80
|
|
|
|
995,182
|
|
|
$
|
4.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Stock
The Company grants restricted stock under the 1997 Plan and the
1997 Plan provides for the restricted stock to be awarded to
employees and officers. Restricted stock granted generally vest
over a period of three and one half to four years but are
considered outstanding at the time of grant, as the stockholders
are entitled to dividends and voting rights.
F-21
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of the Companys restricted common stock awards
activity and related information for the year ended
December 31, 2006, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
|
Year
|
|
|
Issued
|
|
|
Vested
|
|
|
Forfeited
|
|
|
End of Year
|
|
|
December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
356,750
|
|
|
|
54,000
|
|
|
|
113,305
|
|
|
|
14,000
|
|
|
|
283,445
|
|
December 31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
358,750
|
|
|
|
|
|
|
|
2,000
|
|
|
|
356,750
|
|
The restricted stock outstanding at December 31, 2006 had
an intrinsic value of $2.9 million.
During fiscal 2006, the Company awarded 54,000 shares of
restricted common stock to certain employees of the Company. The
average market value of the common stock on the date of grant
was $10.47. These awards of restricted shares vest over a
four-year period and had an intrinsic value of $0.6 million
on the date of issue.
Stock
Based Compensation
Effective July 1, 2005, the Company early adopted
FAS 123R, which requires all share based payments to
employees, including grants of employee stock options and awards
of restricted stock pursuant to the Companys 1997 Plan, to
be recognized in the statement of operations based on their fair
values. The Company adopted FAS 123R 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. Prior to July 1, 2005, the Company accounted for
share based payments under the principles of APB No. 25 and
related Interpretations.
The following table shows the effect on net loss and loss per
share as if the fair value method had been applied to all
outstanding awards in fiscal 2006, 2005 and 2004. The
information for fiscal 2006 is provided in the table for
purposes of comparability.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Net loss as reported
|
|
$
|
(2,600
|
)
|
|
$
|
(5,354
|
)
|
|
$
|
(6,758
|
)
|
Add: Stock-based employee
compensation expense included in reported net loss, net of
related tax effects
|
|
|
645
|
|
|
|
160
|
|
|
|
|
|
Deduct: Total stock-based employee
compensation expense determined under the fair value method for
all awards, net of related tax effects
|
|
|
(645
|
)
|
|
|
(776
|
)
|
|
|
(696
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
$
|
(2,600
|
)
|
|
$
|
(5,970
|
)
|
|
$
|
(7,454
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
basic
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
(0.10
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$
|
(0.10
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(0.30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
(0.10
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$
|
(0.10
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(0.30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Prior to adopting FAS 123R, 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 FAS 123R.
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
primarily 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,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Expected volatility
|
|
|
51-58
|
%
|
|
|
52-63
|
%
|
|
|
54-63
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected term in years
|
|
|
7.5
|
|
|
|
7.5
|
|
|
|
7.5
|
|
Risk free rate
|
|
|
4.3-5.1
|
%
|
|
|
4.3-6.5
|
%
|
|
|
4.6-6.5
|
%
|
Expected forfeiture rate
|
|
|
2.0
|
%
|
|
|
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 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 FASBs issuance of
FAS 123R. 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.
The Company has total stock-based compensation expense of
$2.0 million not recognized as of December 31, 2006
and expects this expense to be recognized over approximately a
four year period.
The benefit for income taxes consists of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
5,099
|
|
|
$
|
(178
|
)
|
|
$
|
(1,382
|
)
|
State
|
|
|
1,304
|
|
|
|
513
|
|
|
|
(174
|
)
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(6,171
|
)
|
|
|
(2,547
|
)
|
|
|
(561
|
)
|
State
|
|
|
(1,141
|
)
|
|
|
(61
|
)
|
|
|
(153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(909
|
)
|
|
$
|
(2,273
|
)
|
|
$
|
(2,270
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The benefit for income taxes differed from the amounts of income
tax benefit determined by applying the U.S. federal
statutory income tax rate to loss before benefit for income
taxes as a result of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Tax benefit at federal statutory
rates
|
|
$
|
(1,193
|
)
|
|
$
|
(2,593
|
)
|
|
$
|
(3,069
|
)
|
State income tax expense
(benefit), net of federal effects
|
|
|
107
|
|
|
|
(426
|
)
|
|
|
(179
|
)
|
Losses not deductible for federal
income tax purposes
|
|
|
|
|
|
|
|
|
|
|
933
|
|
Federal and state income tax
return true up
|
|
|
178
|
|
|
|
526
|
|
|
|
|
|
Other
|
|
|
(1
|
)
|
|
|
220
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(909
|
)
|
|
$
|
(2,273
|
)
|
|
$
|
(2,270
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the Companys deferred tax assets and
liabilities, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Deferred gain on sale/leaseback
transaction
|
|
|
11,025
|
|
|
|
1,548
|
|
Depreciation and amortization
|
|
|
5,529
|
|
|
|
2,263
|
|
Net operating loss carryforward
(expiring up to 2025)
|
|
|
634
|
|
|
|
4,273
|
|
Fair value of treasury interest
rate locks
|
|
|
|
|
|
|
2,881
|
|
Compensation accruals
|
|
|
644
|
|
|
|
558
|
|
Investment in partnerships
|
|
|
1,752
|
|
|
|
1,807
|
|
Other
|
|
|
1,470
|
|
|
|
475
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
21,054
|
|
|
|
13,805
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Triad partnership interest
|
|
|
4,887
|
|
|
|
4,455
|
|
Other
|
|
|
47
|
|
|
|
542
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
4,934
|
|
|
|
4,977
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net
|
|
$
|
16,120
|
|
|
$
|
8,808
|
|
|
|
|
|
|
|
|
|
|
Current deferred tax assets, net
|
|
$
|
672
|
|
|
$
|
591
|
|
Long-term deferred tax assets, net
|
|
|
15,448
|
|
|
|
8,217
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net
|
|
$
|
16,120
|
|
|
$
|
8,808
|
|
|
|
|
|
|
|
|
|
|
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 Company currently has a cumulative three year
loss and therefore has evaluated various tax planning strategies
that it believes are both prudent and feasible, including
various strategies to utilize net built-in gains on the
Companys appreciated assets. The Company believes based on
these tax planning strategies and anticipated future results,
that it will be able to realize the deferred tax asset.
During fiscal 2006, the Company utilized federal net operating
loss carryforwards of $5.5 million and state net operating
loss carryforwards of $1.0 million. The Company has
$15.2 million in state net operating losses, which are
being carried forward and expire up to 2025.
F-24
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
14.
|
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, $0.3 million and $0.2 million were
contributed to the Plan in 2006, 2005 and 2004, respectively.
The Company incurred administrative expenses related to the Plan
of $10,250, $10,000 and $21,000 in 2006, 2005 and 2004,
respectively.
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 acquisition by
the Company of all the outstanding stock of CGI Management, Inc.
(CGIM), a wholly owned subsidiary of Covenant,
(2) damages resulting from alleged breach of a
confidentiality provision, and (3) damages for unpaid
referral fees. Respondent filed a counterclaim for causes of
action including breach of contract, duress, and undue
infliction of emotional distress. The claim and counterclaim
have now been settled.
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 in
workers compensation payments allegedly made by TPCIGA on
behalf of Company employees. The Company has also received other
correspondence for repayment of $45,358 on the same basis.
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 previously 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. In its demand letter, 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 TPCIGA has paid claims. TPCIGA has not provided
sufficient documentation at this time for the Company to fully
evaluate these claims. On July 19, 2006, TPCIGA filed a
petition in the 53rd Judicial District Court of Travis
County, Texas seeking repayment of approximately $50,000 in
claims and allocated loss adjustment expenses in connection with
claims payable under the Reliance policy issued to the Company
as well as future payments and attorneys fees. The Company
is vigorously defending this lawsuit. The parties are currently
discussing a settlement of all claims made by the TPCIGA against
the Company.
The Company has other pending claims not mentioned above
(Other Claims) incurred in the normal 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.
F-25
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
16.
|
Fair
Value of Financial Instruments
|
The carrying amounts and fair values of financial instruments at
December 31, 2006 and 2005 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
Carrying
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Cash and cash equivalents
|
|
$
|
25,569
|
|
|
$
|
25,569
|
|
|
$
|
21,831
|
|
|
$
|
21,831
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
973
|
|
|
|
973
|
|
Interest rate lock
|
|
|
|
|
|
|
|
|
|
|
7,550
|
|
|
|
7,550
|
|
Notes payable
|
|
|
202,757
|
|
|
|
183,124
|
|
|
|
260,534
|
|
|
|
255,223
|
|
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.
|
|
17.
|
Investments
in Joint Ventures
|
The investments in joint ventures consists of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
SHPII/CSL member interest
|
|
$
|
1,220
|
|
|
$
|
1,401
|
|
Midwest I partnership interest
|
|
|
2,784
|
|
|
|
|
|
Midwest II partnership
interest
|
|
|
1,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,253
|
|
|
$
|
1,401
|
|
|
|
|
|
|
|
|
|
|
SHPII/CSL: In December 2002, the Company
acquired from affiliates of LCOR, Inc. (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 joint venture 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 SHPII.
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
F-26
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 the Company recognized earnings in the equity
of SHPII/CSL of $0.1 million, $0.2 million and $13,000
in fiscal 2006, 2005 and 2004, respectively. The Company earned
$1.1 million, $1.0 million and $0.1 million in
management fees on the SHPII/CSL communities in fiscal 2006,
2005 and 2004, respectively.
Midwest I: In January 2006, the Company
announced the formation of a joint venture, Midwest I with
GE Healthcare to acquire five senior housing communities
from a third party. Midwest I is owned approximately 89% by GE
Healthcare and 11% by the Company. The Company contributed
$2.7 million for its interests in Midwest I. Midwest I paid
approximately $46.9 million for the five communities. The
five communities comprise 293 assisted living units with a
resident capacity of 389. Effective as of February 1, 2006,
Midwest I acquired four of the five communities and on
March 31, 2006, Midwest I closed on the fifth community.
The Company manages the five acquired communities under
long-term management agreements with Midwest I. The Company
accounts for its investment in Midwest I under the equity method
of accounting and the Company recognized a loss in the equity of
Midwest I of $9,000 in fiscal 2006. The Company earned
$0.4 million in management fees on the Midwest I
communities in fiscal 2006.
Midwest II: In August 2006, the Company
announced the formation of a joint venture, Midwest II,
with GE Healthcare to acquire three senior housing
communities from a third party. Midwest II is owned
approximately 85% by GE Healthcare and 15% by the Company. The
Company contributed $1.3 million for its interests in
Midwest II. Midwest II paid approximately
$38.2 million for the three communities. The three
communities comprise 300 assisted living units with a resident
capacity of 319. On August 11, 2006, Midwest II
acquired the three senior living communities. The Company
manages the three acquired communities under long-term
management agreements with Midwest II. The Company accounts
for its investment in Midwest II under the equity method of
accounting and the Company recognized a loss in the equity of
Midwest II of $0.1 million in fiscal 2006. The Company
earned $0.2 million in management fees on the
Midwest II communities in fiscal 2006.
|
|
18.
|
Allowance
for Doubtful Accounts
|
The components of the allowance for doubtful accounts and notes
receivable are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Balance at beginning of year
|
|
$
|
769
|
|
|
$
|
717
|
|
|
$
|
648
|
|
Provision for bad debts
|
|
|
121
|
|
|
|
258
|
|
|
|
198
|
|
Write-offs and other
|
|
|
(84
|
)
|
|
|
(209
|
)
|
|
|
(193
|
)
|
Recoveries
|
|
|
1
|
|
|
|
3
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
807
|
|
|
$
|
769
|
|
|
$
|
717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company currently leases 23 senior living communities with
certain real estate investment trusts (REITs). The
lease terms are generally for ten years with renewal options for
10-20 years
at the Companys option. Under these lease agreements the
Company is responsible for all operating costs, maintenance and
repairs, insurance and property taxes.
The Ventas Lease Agreements, which cover nine senior living
facilities, each have an initial term of approximately ten
years, with two five year renewal extensions available at the
Companys option. The initial lease rate under each of the
Ventas Lease Agreements was 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 $2.0 million
in lease acquisition costs related to the Ventas Lease
F-27
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 accounts for each of the
Ventas Lease Agreements as operating leases.
The HCPI lease agreements, which cover 14 senior living
facilities, each have an initial term of ten years, with two ten
year renewal extensions available at the Companys option.
The initial lease rate under the HCPI Lease Agreements range
from 7.75% to 8% and are subject to certain conditional
escalation clauses which will be recognized when estimatable or
incurred. The initial terms on the HCPI lease agreements expire
on various dates through December 2016. The Company incurred
$1.3 million in lease acquisition costs related to the HCPI
lease agreements. These deferred lease acquisition costs are
being amortized over the initial 10 year lease terms and
are included in facility lease expense in the Companys
statement of operations. The Company accounts for each of the
HCPI Lease Agreements as operating leases.
At December 31, 2006 and 2005, the Company had gross
deferred lease costs of $3.3 million and $1.5 million,
respectively. Accumulative amortization at December 31,
2006 and 2006 was $0.3 million and $37,000, respectively.
Amortization expense is expected to be $0.3 million in each
of the next five fiscal years.
In addition, the Company leases its corporate headquarters in
Dallas, Texas, an office in New York City and various lease
contracts for a duration of 5 years or less on autos, buses
and office equipment. The lease on the Company headquarters
expires in February 2008. The Company incurred
$17.1 million, $2.6 million and $0.6 million in
lease expense during fiscal 2006, 2005 and 2004, respectively.
Future commitments as of December 31, 2006 are as follows
(in thousands):
|
|
|
|
|
2007
|
|
$
|
26,571
|
|
2008
|
|
|
26,165
|
|
2009
|
|
|
26,052
|
|
2010
|
|
|
25,990
|
|
2011
|
|
|
25,964
|
|
Thereafter
|
|
|
108,677
|
|
|
|
|
|
|
|
|
$
|
239,419
|
|
|
|
|
|
|
During the first quarter of fiscal 2007, the Company paid
$5.0 million to KeyBank to retire the debt owed to KeyBank.
In March 2007, the Company executed a term sheet to refinance
the debt on one of its senior living communities with Freddie
Mac. The loan facility will be for $9.5 million with a term
of ten years with a one year extension available at the
Companys options. The interest rate will be fixed at 125
basis points over the ten-year treasury for the first ten-years.
The loan facility will require interest only payments in the
first two years with principal amortized thereafter over a
25 year term.
F-28
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, that Capital Senior Living Corporation
maintained effective internal control over financial reporting
as of December 31, 2006, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). Capital Senior Living Corporations
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 the
companys 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.
In our opinion, managements assessment that Capital Senior
Living Corporation maintained effective internal control over
financial reporting as of December 31, 2006, is fairly
stated, in all material respects, based on the COSO criteria.
Also, in our opinion, Capital Senior Living Corporation
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2006, based on
the COSO criteria.
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, 2006, and the related consolidated
statements of operations, shareholders equity, and cash
flows for the years ended December 31, 2006 and 2004, and
our report dated March 12, 2007 expressed an unqualified
opinion thereon.
Ernst & Young LLP
Dallas, Texas
March 12, 2007
F-29
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)
|
|
(c)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 (Exhibit 3.2)
|
|
(c)3
|
.2.1
|
|
|
|
Amendments to Amended and Restated
Bylaws of the Registrant (Exhibit 3.2)
|
|
(p)3
|
.2.2
|
|
|
|
Amendment No. 2 to Amended
and Restated Bylaws of the Registrant (Exhibit 3.2.2)
|
|
(t)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)
|
|
(h)10
|
.1
|
|
|
|
1997 Omnibus Stock and Incentive
Plan for Capital Senior Living Corporation, as amended
(Exhibit 4.1)
|
|
(h)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)
|
|
(a)10
|
.7
|
|
|
|
Multifamily Note, dated
December 4, 1997, of Gramercy Hill Enterprises in favor of
Washington Mortgage Financial Group, Ltd. (Exhibit 2.5)
|
|
(a)10
|
.8
|
|
|
|
Multifamily Deed of Trust, dated
December 4, 1997, among Gramercy Hill Enterprises, Ticor
Title Insurance Company and Washington Mortgage Financial
Group, Inc. (Exhibit 2.6)
|
|
(a)10
|
.9
|
|
|
|
Multifamily Note, dated
October 28, 1998, of Capital Senior Living Properties
2-Gramercy, Inc. in favor of WMF Washington Mortgage Corp.
(Exhibit 2.7)
|
|
(a)10
|
.10
|
|
|
|
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)
|
|
(b)10
|
.11
|
|
|
|
Employment Agreement, dated as of
December 10, 1996, by and between Capital Senior Living,
Inc. and Rob L. Goodpaster (Exhibit 10.50)
|
E-1
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
(b)10
|
.12
|
|
|
|
Form of Management Agreement by
and between Capital Senior Living, Inc. and applicable Triad
Entity (Exhibit 10.55)
|
|
(b)10
|
.13
|
|
|
|
Agreement of Limited Partnership
of Triad Senior Living II, L.P. dated September 23,
1998 (Exhibit 10.57)
|
|
(b)10
|
.14
|
|
|
|
Agreement of Limited Partnership
of Triad Senior Living III, L.P. dated November 10,
1998 (Exhibit 10.58)
|
|
(b)10
|
.15
|
|
|
|
Agreement of Limited Partnership
of Triad Senior Living IV, L.P. dated December 22, 1998
(Exhibit 10.59)
|
|
(c)10
|
.16
|
|
|
|
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)
|
|
(c)10
|
.17
|
|
|
|
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)
|
|
(c)10
|
.18
|
|
|
|
Employment Agreement, dated
May 26, 1999, by and between Lawrence A. Cohen and Capital
Senior Living Corporation (Exhibit 10.4)
|
|
(d)10
|
.19
|
|
|
|
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 99.1)
|
|
(e)10
|
.20
|
|
|
|
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 99.1)
|
|
(f)10
|
.21
|
|
|
|
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 1)
|
|
(g)10
|
.22
|
|
|
|
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 1)
|
|
(i)10
|
.23
|
|
|
|
Employment Agreement, dated
May 25, 1999, by and between Ralph A. Beattie and Capital
Senior Living Corporation (Exhibit 10.76)
|
|
(i)10
|
.24
|
|
|
|
Consulting/Severance Agreement,
dated May 20, 1999, by and between Jeffrey L. Beck and
Capital Senior Living Corporation (Exhibit 10.77)
|
|
(i)10
|
.25
|
|
|
|
Second Amended and Restated
Agreement of Limited Partnership of Triad Senior Living I,
L.P. (Exhibit 10.78)
|
|
(o)10
|
.25.1
|
|
|
|
Amendment No. 1 to Second
Amended and Restated Agreement of Limited Partnership of Triad
Senior Living I, LP. (Exhibit 10.105)
|
|
(j)10
|
.26
|
|
|
|
First Amendment to Triad II
Partnership Agreement (Exhibit 10.4)
|
|
(j)10
|
.27
|
|
|
|
Assignment of Note, Liens and
Other Loan Documents between Fleet National Bank and CSLI
(Exhibit 10.6)
|
|
(k)10
|
.28
|
|
|
|
Second Amendment to Amended and
Restated Agreement and Plan of Merger, dated November 28,
2000 (Exhibit 10.1)
|
|
(k)10
|
.29
|
|
|
|
First Amendment to Agreement,
dated November 28, 2000 (Exhibit 10.2)
|
|
(l)10
|
.30
|
|
|
|
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 10.87)
|
|
(l)10
|
.31
|
|
|
|
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 10.88)
|
E-2
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
(l)10
|
.32
|
|
|
|
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 10.89)
|
|
(l)10
|
.33
|
|
|
|
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 10.90)
|
|
(l)10
|
.34
|
|
|
|
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 10.91)
|
|
(m)10
|
.35
|
|
|
|
BRE/CSL LLC Agreement
(Exhibit 10.92)
|
|
(m)10
|
.36
|
|
|
|
BRE/CSL Management Agreement
(Amberleigh) (Exhibit 10.93)
|
|
(m)10
|
.37
|
|
|
|
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 10.96)
|
|
(n)10
|
.38
|
|
|
|
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)
|
|
(o)10
|
.39
|
|
|
|
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)
|
|
(p)10
|
.40
|
|
|
|
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)
|
|
(p)10
|
.41
|
|
|
|
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)
|
|
(p)10
|
.42
|
|
|
|
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)
|
|
(p)10
|
.43
|
|
|
|
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)
|
|
(p)10
|
.44
|
|
|
|
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)
|
|
(p)10
|
.45
|
|
|
|
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)
|
|
(p)10
|
.45.1
|
|
|
|
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)
|
|
(p)10
|
.45.2
|
|
|
|
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)
|
|
(p)10
|
.45.3
|
|
|
|
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)
|
|
(p)10
|
.46
|
|
|
|
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)
|
|
(p)10
|
.47
|
|
|
|
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)
|
|
(p)10
|
.48
|
|
|
|
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)
|
|
(p)10
|
.49
|
|
|
|
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)
|
E-3
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
(p)10
|
.50
|
|
|
|
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)
|
|
(q)10
|
.51
|
|
|
|
BRE/CSL II L.L.C. Limited
Liability Company Agreement. (Exhibit 10.2)
|
|
(r)10
|
.52
|
|
|
|
Third Amendment to the Employment
Agreement of Lawrence A. Cohen. (Exhibit 10.1)
|
|
(s)10
|
.53
|
|
|
|
Stock Purchase Agreement dated
July 30, 2004, by and between Capital Senior
Management 1, Inc. and Covenant Group of Texas, Inc.
(Exhibit 10.1)
|
|
(u)10
|
.54
|
|
|
|
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)
|
|
(u)10
|
.55
|
|
|
|
Promissory Note, dated
August 18, 2004, by Capital Senior Management 1, Inc.
in favor of Covenant Group of Texas, Inc. (Exhibit 10.2)
|
|
(u)10
|
.56
|
|
|
|
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)
|
|
(u)10
|
.57.1
|
|
|
|
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)
|
|
(u)10
|
.57.2
|
|
|
|
Schedule identifying substantially
identical agreements to Exhibit 10.57.1
(Exhibit 10.4.2)
|
|
(u)10
|
.58.1
|
|
|
|
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)
|
|
(u)10
|
.58.2
|
|
|
|
Schedule identifying substantially
identical agreements to Exhibit 10.58.1
(Exhibit 10.5.2)
|
|
(v)10
|
.59
|
|
|
|
Form of Restricted Stock Award
Under the 1997 Omnibus Stock and Incentive Plan for Capital
Senior Living Corporation (Exhibit 10.1)
|
|
(w)10
|
.60
|
|
|
|
Assignment, dated
November 30, 2004, by and between LB Triad Inc. and Capital
Senior Living Properties, Inc. (Exhibit 10.97)
|
|
(w)10
|
.61
|
|
|
|
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)
|
|
(w)10
|
.62
|
|
|
|
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)
|
|
(x)10
|
.63
|
|
|
|
Master Lease Agreement, dated
June 30, 2005, between Ventas Amberleigh, LLC and Capital
Senior Management 2, Inc. (Exhibit 10.1)
|
|
(x)10
|
.64
|
|
|
|
Schedule identifying substantially
identical agreements to Exhibit 10.63 (Exhibit 10.2)
|
|
(y)10
|
.65
|
|
|
|
Loan Agreement, dated
July 18, 2005, by Capital Senior Living Peoria, LLC and
GMAC Commercial Mortgage Bank (Exhibit 10.1)
|
|
(y)10
|
.66
|
|
|
|
Schedule identifying substantially
identical agreements to Exhibit 10.65 (Exhibit 10.2)
|
|
(z)10
|
.67
|
|
|
|
Master Lease Agreement, dated
October 18, 2005, between Ventas Georgetowne, LLC and
Capital Senior Management 2, Inc. (Exhibit 10.1)
|
|
(aa)10
|
.68
|
|
|
|
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)
|
|
(aa)10
|
.69
|
|
|
|
Contract of Acquisition, dated as
of March 7, 2006, between Texas HCP Holding, L.P. and
Capital Senior Living Acquisition, LLC (Exhibit 10.2)
|
|
(aa)10
|
.70
|
|
|
|
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)
|
|
(aa)10
|
.71
|
|
|
|
Schedule identifying substantially
identical agreements to Exhibit 10.70 (Exhibit 10.4)
|
|
(bb)10
|
.72
|
|
|
|
Master Lease Agreement, dated
May 31, 2006, between subsidiaries of the Company and HCP
(Exhibit 10.1)
|
E-4
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
(bb)10
|
.73
|
|
|
|
Lease, dated May 31, 2006,
between subsidiaries of the Company and HCP regarding the
Crosswood Oaks Facility in Citrus Heights, California
(Exhibit 10.2)
|
|
(bb)10
|
.74
|
|
|
|
Schedule identifying substantially
identical agreements to Exhibit 10.73 (Exhibit 10.3)
|
|
(cc)10
|
.75
|
|
|
|
Multifamily Note, dated
June 9, 2006, executed by Triad Senior Living II, L.P. in
favor of Capmark. (Exhibit 10.1)
|
|
(cc)10
|
.76
|
|
|
|
Schedule identifying substantially
identical agreements to Exhibit 10.75 (Exhibit 10.2)
|
|
(cc)10
|
.77
|
|
|
|
Multifamily Deed of Trust,
Assignment of Rents and Security Agreement and Fixture Filing,
dated June 9, 2006, by Triad Senior Living II, L.P. to
Ed Stout, as trustee, for the benefit of Capmark.
(Exhibit 10.3)
|
|
(cc)10
|
.78
|
|
|
|
Schedule identifying substantially
identical agreements to Exhibit 10.77. (Exhibit 10.4)
|
|
(dd)10
|
.79
|
|
|
|
Loan Agreement, dated
June 20, 2006, by and between Triad Senior Living III,
L.P. and Capmark Bank. (Exhibit 10.1)
|
|
(ee)16
|
.1
|
|
|
|
Letter from KPMG LLP, dated
October 9, 2006, to the Securities and Exchange Commission
relating to the change in certifying accountants.
(Exhibit 16.1)
|
|
(ff)21
|
.1
|
|
|
|
Subsidiaries of the Company
|
|
(ff)23
|
.1
|
|
|
|
Consent of KPMG LLP
|
|
(ff)23
|
.2
|
|
|
|
Consent of Ernst & Young
LLP
|
|
(ff)31
|
.1
|
|
|
|
Certification of Chief Executive
Officer required by
Rule 13a-14(a)
or
Rule 15d-14(a)
|
|
(ff)31
|
.2
|
|
|
|
Certification of Chief Financial
Officer required by
Rule 13a-14(a)
or
Rule 15d-14(a)
|
|
(ff)32
|
.1
|
|
|
|
Certification of Lawrence A. Cohen
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
(ff)32
|
.2
|
|
|
|
Certification of Lawrence A. Cohen
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 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. |
|
(b) |
|
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. |
|
(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, 1999, 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 February 7, 1999, 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 February 7, 1999, filed by the Company with the
Securities and Exchange Commission. |
|
(f) |
|
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. |
|
(g) |
|
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. |
|
(h) |
|
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. |
|
(i) |
|
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. |
|
(j) |
|
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. |
E-5
|
|
|
(k) |
|
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. |
|
(l) |
|
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. |
|
(m) |
|
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. |
|
(n) |
|
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. |
|
(o) |
|
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. |
|
(p) |
|
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. |
|
(q) |
|
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. |
|
(r) |
|
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. |
|
(s) |
|
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. |
|
(t) |
|
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 |
|
(u) |
|
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. |
|
(v) |
|
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. |
|
(w) |
|
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. |
|
(x) |
|
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. |
|
(y) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Current Report on
Form 8-K,
dated July 18, 2005, filed by the Company with the
Securities and Exchange Commission. |
|
(z) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Current Report on
Form 8-K,
dated October 18, 2005, filed by the Company with the
Securities and Exchange Commission. |
|
(aa) |
|
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. |
|
(bb) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Current Report on
Form 8-K,
dated May 31, 2006, 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 June 9, 2006, filed by the Company with the
Securities and Exchange Commission. |
|
(dd) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Current Report on
Form 8-K,
dated June 20, 2006, filed by the Company 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,
dated October 3, 2006, filed by the Company with the
Securities and Exchange Commission. |
|
(ff) |
|
Filed herewith. |
E-6