e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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þ
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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, 2007
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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
(Zip Code)
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(Address of principal executive
offices)
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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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Name of Each Exchange
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Title of Each Class
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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, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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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 24,351,098 shares of the
Registrants common stock, par value $0.01 per share
(Common Stock), held by nonaffiliates on
December 31, 2007, based upon the closing price of the
Registrants Common Stock as reported by the New York Stock
Exchange on June 30, 2007, was approximately
$229.4 million. As of March 5, 2008, the Registrant
had 26,601,809 shares of Common Stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
The Registrants definitive proxy statement pertaining to
the 2008 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, 2007, 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, 24 senior living communities
that the Company leased and three senior living communities it
managed for third parties. As of December 31, 2007, the
Company also operated one home care agency. During 2007,
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.
Website
The Companys internet website www.capitalsenior.com
contains an Investor Relations section, which provides links to
the Companys annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
proxy statements, Section 16 filings and amendments to
those reports, which reports and filings are available through
the Companys internet website free of charge as soon as
reasonably practicable after such material is electronically
filed with or furnished to the Securities and Exchange
Commission (SEC).
Industry
Background
The senior living industry encompasses a broad and diverse range
of living accommodations and supportive services that are
provided primarily to persons 75 years of age or older.
For the elderly who require limited services, independent living
residences supplemented at times by home health care, offers a
viable option. Most independent living communities typically
offer community living packaged with basic services consisting
of meals, housekeeping, laundry,
24-hour
staffing, transportation, social and recreational activities and
health care monitoring. Independent living residents typically
are not reliant on assistance with activities of daily living
(ADLs) although some residents may contract
out for those services.
As a seniors need for assistance increases, care in an
assisted living residence is often preferable and more
cost-effective than home-based care or nursing home care.
Typically, assisted living represents a combination of housing
and support services designed to aid elderly residents with
ADLs such as ambulation, bathing, dressing, eating,
grooming, personal hygiene and monitoring or assistance with
medications. Certain assisted living residences may also provide
assistance to residents with low acuity medical needs, or may
offer higher levels of personal assistance for incontinent
residents or residents with Alzheimers disease or other
cognitive or physical frailties. Generally, assisted living
residents require higher levels of care than residents of
independent living residences and retirement living centers, but
require lower levels of care than patients in skilled nursing
facilities. For seniors who need the constant attention of a
skilled nurse or medical practitioner, a skilled nursing
facility may be required.
According to the American Senior Housing Association Senior
Housing Construction Report for 2007, 12% of senior housing
supply in the 75 largest metro areas of the United States are
assisted living communities, 15% are
2
independent living communities, 36% are skilled nursing
facilities, 17% are continuing care retirement communities
(CCRC), 2% are dementia care and 18% relate to age
restricted senior apartments.
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. 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.
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.
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
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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, including, housekeeping, maintenance,
activities and transportation, food service, security and
management. In 2007 and 2006, the Company achieved 94% and 95%,
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.
4
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 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.
5
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, 2007, the Company had
ownership interests in 27 communities, leased 14 communities and
managed three communities that provide independent living
services, with an aggregate capacity for 6,713 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 $1,100 to $5,230 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, 2007, the Company had ownership interests in
16 communities and leased 14 communities that provide assisted
living services, which include communities that have independent
living and other services, with an aggregate capacity for 2,176
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.
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 $1,375 to $6,900 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
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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.
Continuing
Care Retirement Community Services
In its continuing care retirement communities, 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 as well as assisted
living and independent living care. 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 $4,560 to $10,584 per month, in general,
depending on the specific community and the level of care
provided. As of December 31, 2007, 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 655 residents at all
levels of care at those two communities.
Home
Care Services
As of December 31, 2007, 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, 2007.
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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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IL
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AL
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CCRS
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Total
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Ownership(2)
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of Operations(3)
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Owned:
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Canton Regency
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Canton, OH
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291
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310
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310
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100
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%
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03/91
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Gramercy Hill
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Lincoln, NE
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148
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83
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77
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160
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100
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%
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10/98
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Heatherwood
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Detroit, MI
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158
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188
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188
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100
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%
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01/92
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Independence Village
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East Lansing, MI
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151
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162
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162
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100
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%
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08/00
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Independence Village
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Peoria, IL
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158
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173
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173
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100
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%
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08/00
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Independence Village
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Raleigh, NC
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165
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177
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177
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100
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%
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08/00
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Independence Village
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Winston-Salem, NC
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156
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161
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161
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100
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%
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08/00
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Sedgwick Plaza
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Wichita, KS
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144
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134
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35
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169
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100
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%
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08/00
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Waterford at Columbia
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Columbia, SC
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120
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136
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136
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100
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%
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11/00
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Waterford at Deer Park
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Deer Park, TX
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120
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136
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136
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100
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%
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11/00
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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
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resident Capacity(1)
|
|
|
|
|
|
Commencement
|
|
Community
|
|
|
|
Units
|
|
|
IL
|
|
|
AL
|
|
|
CCRS
|
|
|
Total
|
|
|
Ownership(2)
|
|
|
of Operations(3)
|
|
|
Wellington at North Richland
|
|
North Richland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hills, TX
|
|
Hills, TX
|
|
|
119
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
136
|
|
|
|
100
|
%
|
|
|
01/02
|
|
Wellington at Oklahoma City
|
|
Oklahoma City, OK
|
|
|
120
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
136
|
|
|
|
100
|
%
|
|
|
11/00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,503
|
|
|
|
3,414
|
|
|
|
202
|
|
|
|
310
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
345
|
|
|
|
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
|
|
HCP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Place
|
|
Cedar Hill, TX
|
|
|
80
|
|
|
|
|
|
|
|
85
|
|
|
|
|
|
|
|
85
|
|
|
|
N/A
|
|
|
|
11/05
|
|
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
|
|
|
72
|
|
|
|
|
|
|
|
80
|
|
|
|
|
|
|
|
80
|
|
|
|
N/A
|
|
|
|
08/04
|
|
|
|
Hills, TX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Meadow Lakes
|
|
North Richland
|
|
|
120
|
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
145
|
|
|
|
N/A
|
|
|
|
08/04
|
|
|
|
Hills, TX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,105
|
|
|
|
2,343
|
|
|
|
1,022
|
|
|
|
345
|
|
|
|
3,710
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Waterford at Ames
|
|
Ames, IA
|
|
|
59
|
|
|
|
|
|
|
|
116
|
|
|
|
|
|
|
|
116
|
|
|
|
11
|
%
|
|
|
02/06
|
|
The Waterford at Miracle Hills
|
|
Omaha, NE
|
|
|
64
|
|
|
|
|
|
|
|
74
|
|
|
|
|
|
|
|
74
|
|
|
|
11
|
%
|
|
|
03/06
|
|
The Waterford at Roxbury Park
|
|
Omaha, NE
|
|
|
62
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
70
|
|
|
|
11
|
%
|
|
|
02/06
|
|
The Waterford at Van Dorn
|
|
Lincoln, NE
|
|
|
68
|
|
|
|
|
|
|
|
84
|
|
|
|
|
|
|
|
84
|
|
|
|
11
|
%
|
|
|
02/06
|
|
The Waterford at Woodbridge
|
|
Plattsmouth, NE
|
|
|
40
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
45
|
|
|
|
11
|
%
|
|
|
02/06
|
|
Midwest II
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keepsake Village of Columbus
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(5)
|
|
Edmond, OK
|
|
|
169
|
|
|
|
208
|
|
|
|
|
|
|
|
|
|
|
|
208
|
|
|
|
N/A
|
|
|
|
08/04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
408
|
|
|
|
502
|
|
|
|
|
|
|
|
|
|
|
|
502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,237
|
|
|
|
6,713
|
|
|
|
2,176
|
|
|
|
655
|
|
|
|
9,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Independent living (IL) residences, assisted living (AL)
residences and continuing care retirement community (CCRC) beds. |
|
(2) |
|
Those communities shown as 5% owned consist of the
Companys ownership of 5% of the member interests in
SHPII/CSL (as defined below). Those communities shown as 11%
owned consist of the Companys ownership |
8
|
|
|
|
|
of approximately 11% of the member interests in Midwest I. Those
communities shown as 15% owned consist of the Companys
ownership of 15% of the member 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. |
|
(5) |
|
The Tealridge Manor management contract terminated at the close
of business on December 31, 2007. |
Third-Party
Management Contracts
The Company is party to a series of property management
agreements (the Midwest I Agreements) to manage five
communities acquired by Midwest Portfolio Holdings, L.P.
(Midwest I) a joint venture owned approximately 89%
by GE Healthcare Financial Services (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.
The Company is party to a series of property management
agreements (the Midwest II Agreements) to
manage three communities acquired by Midwest Portfolio Holdings
II, L.P. (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.
The Company is party to a series of property management
agreements (the CGIM Agreements). During fiscal 2007 the
Company managed three communities under the CGIM Agreements. The
CGIM Agreements generally provide for management fees of 5% to
6.0% of gross revenues, subject to certain base management fees.
The Company is party to a series of property management
agreements (the SHPII/CSL Management Agreements)
with four joint ventures (collectively SHPII/CSL)
owned 95% by Senior Housing Partners II, L.P.
(SHPII), a fund managed by Prudential Real Estate
Investors (Prudential) and 5% by the Company, which
collectively own and operate four senior living communities
(collectively the Spring Meadows Communities). The
SHPII/CSL Management Agreements extend until various dates
through November 2014. The SHPII/CSL Management Agreements
provide for management fees of 5% of gross revenue plus
reimbursement for costs and expenses related to the communities.
The Company 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 HCP 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.
Third
Party Development Agreements
In May 2007, the Company and Senior Housing Partners III, L.P.
(SHPIII) entered into a joint venture agreement
(SHPIII/CSL Miami) to develop a senior housing
community in Miamisburg, Ohio. Under the joint venture and
related agreements, the Company will earn development and
management fees and may receive incentive distributions. The
senior housing community will consist of 101 independent living
units and 45 assisted living units and is expected to open in
the third quarter of 2008. As of December 31, 2007 the
Company had made capital contributions of $0.8 million to
SHPIII/CSL Miami. In addition, the Company earned
$0.7 million in development fees from SHPIII/CSL Miami
during fiscal 2007.
9
In November 2007, the Company and SHPIII entered into a joint
venture agreement (SHPIII/CSL Richmond Heights) to
develop a senior housing community in Richmond Heights, Ohio.
Under the joint venture and related agreements, the Company will
earn development and management fees and may receive incentive
distributions. The senior housing community will consist of 97
independent living units and 45 assisted living units and is
expected to open in the first quarter of fiscal 2009. As of
December 31, 2007 the Company had made capital
contributions of $0.3 million to SHPIII/CSL Richmond
Heights. In addition, the Company earned $0.1 million in
development fees from SHPIII/CSL Richmond Heights during fiscal
2007.
In December 2007, the Company and SHPIII entered into a joint
venture agreement (SHPIII/CSL Levis Commons) to
develop a senior housing community near Toledo, Ohio. Under the
joint venture and related agreements, the Company will earn
development and management fees and may receive incentive
distributions. The senior housing community will consist of 101
independent living units and 45 assisted living units and is
expected to open in the first quarter of fiscal 2009. As of
December 31, 2007 the Company had made capital
contributions of $0.2 million to SHPIII/CSL Levis Commons.
In addition, the Company earned $22,000 in development fees from
SHPIII/CSL Levis Commons during fiscal 2007.
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. Since 2003, our same community revenue has grown at
an average rate of 6.3% per annum and our same community net
operating income has grown at an average rate of 13.9% per annum.
Expansion
and Conversion of Existing Communities
The Company intends to increase levels of care and capacity at
certain of its existing communities through expansion
and / or conversion of certain units. Increasing the
levels of care is expected to increase revenue and operating
income while meeting the needs of our residents who have an
average age of 85 years old.
Pursue
Strategic Acquisitions
The Company intends to continue to pursue single or portfolio
acquisitions of senior living communities. Through strategic
acquisitions, joint venture investments, or facility leases, the
Company seeks to enter new markets or acquire communities in
existing markets as a means to increase market share, augment
existing clusters, strengthen its ability to provide a broad
range of care, and create operating efficiencies. As the
industry continues to consolidate, the Company believes that
opportunities will arise to acquire other senior living
companies. The Company believes that the current fragmented
nature of the senior living industry, combined with the
Companys financial resources, national presence, and
extensive contacts within the industry, can be expected to
provide it with the opportunity to evaluate a number of
potential acquisition opportunities in the future. In reviewing
acquisition opportunities, the Company will consider, among
other things, geographic location, competitive climate,
reputation and quality of management and communities, and the
need for renovation or improvement of the communities.
10
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, expanded two communities and has provided
pre-opening marketing services for six communities owned by
third parties. The Company is currently developing three
communities for three joint ventures. The Company will provide
pre-opening marketing services for each of the communities and
will manage the communities upon their opening. The Company
intends to continue to pursue opportunities to provide joint
ventures and third parties with development and marketing
services.
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.
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.
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.
11
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 2007 and 2006, the Company achieved a 94% and a 95%,
respectively, approval rating from its residents. For any
departmental area of service scoring below a 90%, a plan of
correction is developed jointly by
on-site,
regional and corporate staff for immediate implementation.
Regular Community Inspections. Each community
is inspected, on at least a quarterly basis, by regional and/or
corporate staff. Included, as part of this inspection is the
monitoring of the overall appearance and maintenance of the
community interiors and grounds. The inspection also includes
monitoring staff professionalism and departmental reviews of
maintenance, housekeeping, activities, transportation,
marketing, administration and food and health care services, if
applicable. The inspections also include observing residents in
their daily activities and the communitys compliance with
government regulations.
12
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
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.
13
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 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
14
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, 2007, the Company employed
3,711 persons, of which 1,930 were full-time employees (62
of whom are located at the Companys corporate offices) and
1,781 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.
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, 2007:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position(s) with the Company
|
|
Lawrence A. Cohen
|
|
|
54
|
|
|
Chief Executive Officer and Vice Chairman of the Board
|
James A. Stroud
|
|
|
57
|
|
|
Chairman of the Company and Chairman of the Board
|
Keith N. Johannessen
|
|
|
51
|
|
|
President and Chief Operating Officer
|
Ralph A. Beattie
|
|
|
58
|
|
|
Executive Vice President and Chief Financial Officer
|
Rob L. Goodpaster
|
|
|
54
|
|
|
Vice President National Marketing
|
David W. Beathard, Sr.
|
|
|
60
|
|
|
Vice President Operations
|
David R. Brickman
|
|
|
49
|
|
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Vice President Secretary and General Counsel
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Glen H. Campbell
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Vice President Development
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Gloria Holland
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Vice President Finance
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Jerry D. Lee
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Corporate Controller
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Robert F. Hollister
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Property Controller
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Lawrence A. Cohen has served as one of our directors and
as Vice Chairman of the Board since November 1996. He has served
as our Chief Executive Officer since May 1999 and was our 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
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$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
Directors 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 23 years.
James A. Stroud has served as one of our directors and
officers since January 1986. He currently serves as our Chairman
of the Board and Chairman of the Company. Mr. Stroud also
serves on the board of directors 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.
Mr. Stroud has served as a member of the Founders
Council and Leadership Counsel of the Assisted Living Federation
of America and as a Founding Sponsor of The Johns Hopkins
University Senior Housing and Care Program. Mr. Stroud was
the past President and a member of the Board of Directors of the
National Association for Senior Living Industry Executives. He
was also 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 23 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 29 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 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 31 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 34 years.
David R. Brickman has served as Vice President and
General Counsel of the Company and its predecessors since July
1992 and has served as Secretary of the Company since May 2007.
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 21 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 33 years.
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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 2007, as required in Section 303A.12(a) of the New
York Stock Exchange Listed Company Manual, the Chief Executive
Officer of the Company certified to the New York Stock Exchange
that he was not aware of any violations by the Company of New
York Stock Exchange corporate governance listing standards. 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.
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 and 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, 2007, we had mortgage and other
indebtedness totaling approximately $194.8 million. 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 and principal payments. Any payment or other default
could cause the applicable lender to foreclose upon the
communities securing the indebtedness with a consequent loss of
income and asset value to us. Further, because some of our
mortgages 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.
17
We
have significant operating lease obligations and our failure to
generate cash flows sufficient to cover these lease obligations
could result in defaults under the lease
agreements.
As of December 31, 2007, we leased 24 communities with
future lease obligations totaling approximately
$221.1 million, with minimum lease obligations of
$27.0 million in fiscal 2008. 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 any such lease could result in the
termination of the lease, with a consequent loss of income and
asset value to us. Further, because our leases contain
cross-default provisions, a payment or other default by us with
respect to one leased community could affect all of our other
leased communities with related lessors. 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.
Our
failure to comply with financial covenants and other
restrictions 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 subsidiary
company level, which include, but are not limited to, 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 lease 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 and may issue equity securities.
Our ability to obtain such financing or refinancing on terms
acceptable to us could have a material adverse effect on our
business, financial condition and results of operations. 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 financing or refinancings will be available or
that, if available, 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.
Any
future floating rate debt and lease obligations could expose us
to rising interest rates.
Future indebtedness and lease obligations, if applicable, may be
based on floating interest rates prevailing from time to time.
Therefore, increases in prevailing interest rates would increase
in the future our interest or lease payment obligations and
could in the future have a material adverse effect on our
business, financial condition and results of operations.
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
18
living communities
and/or
through an 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 develop new senior living
communities or expand existing senior living communities will
depend on a number of factors, including, but not limited to,
our ability to acquire suitable sites 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
development of new senior living communities or 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 new senior living communities or expansions are
operating and producing revenue, the consequence of which could
be an adverse impact on our liquidity. We cannot assure that our
developments or expansion of existing senior living communities
will be completed at the rate currently expected, if at all, or
if completed, that such developments or 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 and 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 2007. 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.
19
We are
subject to risks related to third-party management
agreements.
At December 31, 2007, we managed three 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.
Failure
to perform 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.
We are currently developing three communities in three separate
joints ventures with affiliates of Prudential. As part of
development agreements, we are obligated to meet certain
completion and costs guarantees. We will provide pre-opening
marketing services for each of the communities and upon
completion we will manage the three communities owned by the
joint ventures. Under the terms of the joint venture agreements
with Prudential covering the three communities, 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.
All of the management agreements with the joint ventures contain
termination and renewal provisions. We do not control these
joint venture decisions covering termination or renewal.
Performance of the above obligations or termination or
non-renewal of the management agreements could have a material
adverse effect on 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
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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.
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
21
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 Americans with Disabilities Act of 1990, all places of
public accommodation are required to meet federal requirements
related to access and use by disabled persons. A number of
additional federal, state and local laws exist that also may
require modifications to existing and planned communities to
create access to the properties by disabled persons. Although 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.
The Health Insurance Portability and Accountability Act of 1996,
in conjunction with the federal regulations promulgated
thereunder by the Department of Health and Human Services, has
established, among other requirements, standards governing the
privacy of certain protected and individually identifiable
health information that is created, received or maintained by a
range of covered entities. HIPAA has also established standards
governing uniform health care transactions, the codes and
identifiers to be used by the covered entities and standards
governing the security of certain electronic transactions
conducted by covered entities. Penalties for violations can
range from civil money penalties for errors and negligent acts
to criminal fines and imprisonment for knowing and intentional
misconduct. HIPAA is a complex set of regulations and many
unanswered questions remain with respect to the manner in which
HIPAA applies to businesses such as those operated by 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
22
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.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS.
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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 25,000 square feet. The
lease on the premises extends through May 2013. The Company
believes that its corporate office facilities are adequate to
meet its requirements through at least fiscal 2008 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, 2007, the Company owned, leased
and/or
managed the senior living communities referred to in Item 1
above under the caption Operating Communities.
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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. In March 2006, the claim and
counterclaim were 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. The Company had requested
additional information from TPCIGA to verify that the Company
was indeed the employer of the individuals on whose behalf
TPCIGA had paid claims. TPCIGA had not provided sufficient
documentation at that time for the Company to fully evaluate
such 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. On March 1,
2007, the Company and TPCIGA settled all claims between the
parties.
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
23
insurance policies. Whether or not covered by insurance, these
Other Claims, in the opinion of management, based on advice of
legal counsel, should not have a material effect on the
consolidated financial statements of the Company if determined
adversely to the Company.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
There were no matters submitted to a vote of the Companys
security holders during the fourth quarter ended
December 31, 2007.
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 4, 2008 there were approximately 133 stockholders of
record of the Companys common stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
Year
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
First Quarter
|
|
$
|
11.78
|
|
|
$
|
9.65
|
|
|
$
|
11.36
|
|
|
$
|
9.80
|
|
Second Quarter
|
|
|
12.22
|
|
|
|
9.41
|
|
|
|
11.44
|
|
|
|
9.90
|
|
Third Quarter
|
|
|
10.10
|
|
|
|
7.61
|
|
|
|
10.79
|
|
|
|
8.92
|
|
Fourth Quarter
|
|
|
10.12
|
|
|
|
7.68
|
|
|
|
10.90
|
|
|
|
8.50
|
|
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.
Securities
Authorized for Issuance under Equity Compensation
Plans.
The following table presents information relating to the
Companys equity compensation plans as of December 31,
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
937,334
|
|
|
$
|
4.87
|
|
|
|
2,497,000
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
937,334
|
|
|
$
|
4.87
|
|
|
|
2,497,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
Performance
Graph
The following Performance Graph shows the changes for the five
year period ended December 31. 2007 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 12/31/02 in stock or index-including
reinvestment of dividends.
|
Fiscal year ending December 31.
Copyright©
2008, 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
|
|
|
12/02
|
|
12/03
|
|
12/04
|
|
12/05
|
|
12/06
|
|
12/07
|
Capital Senior Living Corporation
|
|
|
100.00
|
|
|
|
230.59
|
|
|
|
221.96
|
|
|
|
405.49
|
|
|
|
417.25
|
|
|
|
389.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S&P 500
|
|
|
100.00
|
|
|
|
128.68
|
|
|
|
142.69
|
|
|
|
149.70
|
|
|
|
173.34
|
|
|
|
182.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Peer Group
|
|
|
100.00
|
|
|
|
158.38
|
|
|
|
199.82
|
|
|
|
288.12
|
|
|
|
384.28
|
|
|
|
282.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Old Peer Group
|
|
|
100.00
|
|
|
|
158.38
|
|
|
|
199.82
|
|
|
|
288.12
|
|
|
|
384.28
|
|
|
|
281.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys New Peer Group consists of Assisted Living
Concepts, 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 the addition of Assisted Living Concepts to the peer group.
The Companys Old Peer Group consisted of Brookdale Senior
Living, Inc., Emeritus Corporation, Five Star Quality Care, Inc.
and Sunrise Senior Living, Inc.
25
|
|
(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.
|
|
|
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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands, except per share data)
|
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues(1)
|
|
$
|
189,052
|
|
|
$
|
159,070
|
|
|
$
|
126,404
|
|
|
$
|
108,935
|
|
|
$
|
88,032
|
|
Income from operations
|
|
|
16,763
|
|
|
|
11,667
|
|
|
|
10,962
|
|
|
|
6,731
|
|
|
|
5,815
|
|
Net income (loss)(2)
|
|
|
4,360
|
|
|
|
(2,600
|
)
|
|
|
(5,354
|
)
|
|
|
(6,758
|
)
|
|
|
4,990
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share
|
|
|
0.17
|
|
|
|
(0.10
|
)
|
|
|
(0.21
|
)
|
|
|
(0.27
|
)
|
|
|
0.25
|
|
Diluted income (loss) per share
|
|
$
|
0.16
|
|
|
$
|
(0.10
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
0.25
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
23,359
|
|
|
$
|
25,569
|
|
|
$
|
21,831
|
|
|
$
|
19,515
|
|
|
$
|
6,594
|
|
Working capital (deficit)
|
|
|
13,139
|
|
|
|
15,407
|
|
|
|
10,860
|
|
|
|
(22,289
|
)
|
|
|
(12,835
|
)
|
Total assets
|
|
|
390,053
|
|
|
|
394,488
|
|
|
|
434,051
|
|
|
|
431,175
|
|
|
|
421,333
|
|
Long-term debt, excluding current portion
|
|
|
185,733
|
|
|
|
196,647
|
|
|
|
252,733
|
|
|
|
219,526
|
|
|
|
255,549
|
|
Shareholders equity
|
|
$
|
150,157
|
|
|
$
|
144,084
|
|
|
$
|
145,415
|
|
|
$
|
149,547
|
|
|
$
|
124,367
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communities (at end of period)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned or leased
|
|
|
49
|
|
|
|
48
|
|
|
|
36
|
|
|
|
29
|
|
|
|
24
|
|
Joint ventures & managed
|
|
|
15
|
|
|
|
16
|
|
|
|
19
|
|
|
|
25
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
64
|
|
|
|
64
|
|
|
|
55
|
|
|
|
54
|
|
|
|
42
|
|
Resident capacity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned or leased
|
|
|
7,636
|
|
|
|
7,551
|
|
|
|
6,247
|
|
|
|
4,831
|
|
|
|
3,953
|
|
Joint ventures & managed
|
|
|
1,908
|
|
|
|
1,993
|
|
|
|
2,668
|
|
|
|
3,837
|
|
|
|
2,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9,544
|
|
|
|
9,544
|
|
|
|
8,915
|
|
|
|
8,668
|
|
|
|
6,854
|
|
|
|
|
(1) |
|
Total revenues for 2003 2005 were revised to include
community reimbursement revenue. The amounts included as
community reimbursement revenue were $21,174, $15,673, and
$21,707 for fiscal 2005, 2004 and 2003, respectively, which had
no impact on income from operations. |
|
(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 partnership. |
26
|
|
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 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, 2007,
2006 and 2005. 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, 2007, 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, 24 senior living communities
that the Company leased and three senior living communities it
managed for third parties. As of December 31, 2007, the
Company also operated one home care agency.
Management
Agreements
As of December 31, 2007, the Company managed and operated
the 49 communities it wholly owned or leased, 12 communities
owned by joint ventures in which the Company has a minority
interest and three 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.
27
Lease
Transactions
The Company currently leases 24 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.
As of December 31, 2007, the Company leased nine senior
living facilities (collectively the Ventas Lease
Agreements), from Ventas Healthcare Properties, Inc.
(Ventas). The Ventas Lease Agreements 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 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.
As of December 31, 2007, the Company leased 15 senior
living facilities (collectively the HCP Lease
Agreements), from HCP, Inc. (HCP). The HCP
Lease Agreements 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 HCP Lease Agreements
range from 7.25% to 8% and are subject to certain conditional
escalation clauses which will be recognized when estimatable or
incurred. The initial terms on the HCP Lease Agreements expire
on various dates through December 2017. The Company incurred
$1.5 million in lease acquisition costs related to the HCP
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
HCP Lease Agreements as operating leases.
In April 2007, HCP acquired a senior living community, located
in Cedar Hill, Texas (Crescent Place), which was
previously owned by Covenant and managed by the Company, in a
transaction valued at approximately $8.0 million and
immediately leased Crescent Place to the Company. In connection
with this transaction, the Companys previous management
agreement with Covenant was terminated.
The following table summarizes each of the Companys lease
agreements (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
|
|
|
Deferred
|
|
|
|
|
|
Number of
|
|
|
Value of
|
|
|
|
|
Initial
|
|
|
Acquisition
|
|
|
Gains/Lease
|
|
Landlord
|
|
Date of Lease
|
|
Communities
|
|
|
Transaction
|
|
|
Term
|
|
Lease Rate(1)
|
|
|
Costs(2)
|
|
|
Concessions(3)
|
|
|
Ventas
|
|
September 30, 2005
|
|
|
6
|
|
|
$
|
84.6
|
|
|
10 years
(Two five-year renewals)
|
|
|
8
|
%
|
|
$
|
1.3
|
|
|
$
|
4.6
|
|
Ventas
|
|
October 18, 2005
|
|
|
1
|
|
|
|
19.5
|
|
|
10 years
(Two five-year renewals)
|
|
|
8
|
%
|
|
|
0.2
|
|
|
|
|
|
Ventas
|
|
March 31,2006
|
|
|
1
|
|
|
|
29.0
|
|
|
10 years
(Two five-year renewals)
|
|
|
8
|
%
|
|
|
0.1
|
|
|
|
14.3
|
|
Ventas
|
|
June 8, 2006
|
|
|
1
|
|
|
|
19.1
|
|
|
9.5 years
(Two five-year renewals)
|
|
|
8
|
%
|
|
|
0.4
|
|
|
|
|
|
HCP
|
|
May 1, 2006
|
|
|
3
|
|
|
|
54.0
|
|
|
10 years
(Two ten-year renewals)
|
|
|
8
|
%
|
|
|
0.2
|
|
|
|
12.8
|
|
HCP
|
|
May 31, 2006
|
|
|
6
|
|
|
|
43.0
|
|
|
10 years
(Two ten-year renewals)
|
|
|
8
|
%
|
|
|
0.2
|
|
|
|
0.6
|
|
HCP
|
|
December 1, 2006
|
|
|
4
|
|
|
|
51.0
|
|
|
10 years
(Two ten-year renewals)
|
|
|
8
|
%
|
|
|
0.7
|
|
|
|
|
|
HCP
|
|
December 14, 2006
|
|
|
1
|
|
|
|
18.0
|
|
|
10 years
(Two ten-year renewals)
|
|
|
7.75
|
%
|
|
|
0.3
|
|
|
|
|
|
HCP
|
|
April 11, 2007
|
|
|
1
|
|
|
|
8.0
|
|
|
10 years
(Two ten-year renewals)
|
|
|
7.25
|
%
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
3.5
|
|
|
|
32.3
|
|
Accumulated amortization
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
Accumulated deferred gain recognized
|
|
|
|
|
|
|
|
|
|
|
5.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net lease acquisition costs/deferred gains as of
December 31, 2007
|
|
|
|
|
|
$
|
2.9
|
|
|
$
|
26.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
(1) |
|
Initial lease rates are subject to conditional lease escalation
provisions as set forth in each lease agreement. |
|
(2) |
|
Lease acquisition costs are being amortized over the
leases initial term. |
|
(3) |
|
Deferred gains of $31.7 million are being recognized in the
Companys statement of operations as gain on sale of assets
over the leases initial term. Lease concessions of
$0.6 million, which relates only to the HCP transaction
dated May 31, 2006, is being recognized in the
Companys statement of operations as facility rent expense
over the leases initial term. |
Joint
Venture Transactions
Midwest I
Transaction
In January 2006, the Company and GE Healthcare formed Midwest I
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. 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
earnings in the equity of Midwest I of $8,000 in fiscal 2007
compared to a loss in the equity of Midwest I of $9,000 for
fiscal 2006. The Company earned $0.5 million and
$0.4 million in management fees on the Midwest I
communities in fiscal 2007 and 2006, respectively.
Midwest II
Transaction
In August 2006, the Company and GE Healthcare formed
Midwest II 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 has contributed
$1.5 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.
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 $0.3 million and
$0.1 million for fiscal 2007 and 2006, respectively. The
Company earned $0.5 million and $0.2 million in
management fees on the Midwest II communities in fiscal 2007 and
2006, respectively.
SHPII/CSL
Transactions
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 manages the Spring Meadows 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 $0.3 million, $0.1 million and
$0.2 million in fiscal 2007, 2006 and 2005, respectively.
The Company earned $1.2 million, $1.1 million and
$1.0 million in management fees on the SHPII/CSL
communities in fiscal 2007, 2006 and 2005, respectively.
SHP II
Transactions
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 HCP and the Company subsequently leased the community from
HCP in a transaction valued at approximately $18.0 million.
SHP III
Transactions
In May 2007, the Company and SHPIII entered into SHPIII/CSL
Miami to develop a senior housing community in Miamisburg, Ohio.
Under the joint venture and related agreements, the Company will
earn development and management fees and may receive incentive
distributions. The senior housing community will
29
consist of 101 independent living units and 45 assisted living
units and is expected to open in the second or third quarter of
2008. As of December 31, 2007, the Company had made capital
contributions of $0.8 million to SHPIII/CSL Miami. In
addition, the Company earned $0.7 million in development
fees from SHPIII/CSL Miami during fiscal 2007.
In November 2007, the Company and SHPIII entered into SHPIII/CSL
Richmond Heights to develop a senior housing community in
Richmond Heights, Ohio. Under the joint venture and related
agreements, the Company will earn development and management
fees and may receive incentive distributions. The senior housing
community will consist of 97 independent living units and 45
assisted living units and is expected to open in the first
quarter of 2009. As of December 31, 2007, the Company had
made capital contributions of $0.3 million to SHPIII/CSL
Richmond Heights. In addition, the Company earned
$0.1 million in development fees from SHPIII/CSL Richmond
Heights during fiscal 2007.
In December 2007, the Company and SHPIII entered into SHPIII/CSL
Levis Commons to develop a senior housing community near Toledo,
Ohio. Under the joint venture and related agreements, the
Company will earn development and management fees and may
receive incentive distributions. The senior housing community
will consist of 101 independent living units and 45 assisted
living units and is expected to open in the first quarter of
2009. As of December 31, 2007, the Company had made capital
contributions of $0.2 million to SHPIII/CSL Levis Commons.
In addition, the Company earned $22,000 in development fees from
SHPIII/CSL Levis Commons during fiscal 2007.
CGIM
Transaction
In August 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 services
revenue 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. The second installment, which
was due on August 15, 2007, was reduced by
$0.4 million, resulting in no amount due to Covenant and a
reduction in the Companys note payable to Covenant of
approximately $0.3 million, which was reflected as
management services revenue in the Companys consolidated
statement of operations. In addition, under the terms of the
purchase agreement, the Company has the right to recapture
certain contingent payments made to Covenant if the Company did
not receive the required minimum management services revenue set
forth in the purchase agreement. As a result of these
provisions, the Company recorded a receivable and management
services revenue of approximately $0.4 million. During the
fourth quarter of fiscal 2007, Covenant paid this receivable and
executed an amendment to the stock purchase agreement releasing
the Company from any future obligations under the Companys
note payable to Covenant. As a result, the Company recognized
additional management services revenue of approximately
$0.6 million in the fourth quarter of fiscal 2007. As of
December 31, 2007, the Company managed three communities
under the management agreements with CGIM.
BRE/CSL
Transactions
The Company and Blackstone formed BRE/CSL 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
30
under long-term management contracts. The Company accounted for
the BRE/CSL investment under the equity method of accounting.
In September 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.
Triad I
Transaction
In November 2004, the Company acquired an approximate 81%
limited partnership interest in Triad Senior Living I, LP
(Triad I) from Lehman Brothers
(Lehman) 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
($3.5 million face amount discounted at 5.7%).
Community
Refinancings and Other Debt Transactions
The Companys second installment on its note payable to
Covenant, which was due on August 15, 2007, was reduced by
$0.4 million pursuant to the terms of the stock purchase
agreement, resulting in no amount due to Covenant and a
reduction in the Companys note payable to Covenant of
approximately $0.3 million, which was reflected as
management services revenue in the Companys consolidated
statement of operations. In addition, under the terms of the
purchase agreement, the Company had the right to recapture
certain contingent payments made to Covenant if the Company did
not receive the required minimum management services revenue set
forth in the stock purchase agreement. As a result of these
provisions, during the third quarter of fiscal 2007, the Company
recorded a receivable and management services revenue of
approximately $0.4 million. During the fourth quarter of
fiscal 2007, Covenant paid this receivable and executed an
amendment to the stock purchase agreement releasing the Company
from any future obligations under the Companys note
payable to Covenant. As a result the Company recognized
additional management services revenue of approximately
$0.6 million in the fourth quarter of fiscal 2007. The
total amount recognized in fiscal 2007 as management services
revenue was $1.3 million.
On October 31, 2007, the Company renewed certain insurance
policies and entered into a finance agreement totaling
$0.6 million. The finance agreement has a fixed interest
rate of 5.50% with principal being repaid over an
11-month
term.
On May 31, 2007, the Company renewed certain insurance
policies and entered into a finance agreement totaling
$4.5 million. The finance agreement has a fixed interest
rate of 5.60% with principal being repaid over a
10-month
term.
On May 3, 2007, the Company refinanced $30.0 million
of mortgage debt on four senior living communities with Federal
National Mortgage Association (Fannie Mae). As part
of the refinancing, the Company repaid approximately
$2.7 million of mortgage debt on the four communities. The
new mortgage loans have a ten-year term with interest fixed at
5.91% and principal amortized over a
30-year
term. The Company incurred $0.5 million in deferred
financing costs related to this loan, which is being amortized
over ten years. In addition, as part of this refinancing, the
Company wrote-off $0.4 million in deferred loan costs. The
new loans replaced $32.7 million of variable rate debt with
an effective interest rate of 7.6%.
On March 21, 2007, the Company refinanced $9.5 million
of mortgage debt on one of its senior living communities
(Gramercy Hill) with Federal Home Loan Mortgage
Corporation (Freddie Mac). As part of the
refinancing, the Company received approximately
$2.1 million in cash proceeds, net of closing costs. The
new mortgage loan has a ten-year term with a one-year extension
available at the Companys option, interest fixed at 5.75%
and requires interest only payments in the first two years with
principal amortized thereafter over a
25-year
31
term. The Company incurred $0.2 million in deferred
financing costs related to this loan, which is being amortized
over ten years. In addition, as part of this refinancing, the
Company wrote-off $13,000 in deferred loan costs and paid
$0.2 million in loan exit fees to the prior lender. The
loan exit fees are a component of write-off of deferred loan
costs in the accompanying statement of operations.
On March 15, 2007, the Company issued three standby letters
of credit, totaling $2.2 million, for the benefit of HCP on
certain leases between HCP and the Company. The fees on the
letters of credit are based on 2.0% of the issued amount.
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.
Recent
Events
In February 2008, Ventas acquired a senior living community
located in Keller, Texas (Whitley Place) in a
transaction valued at approximately $5.0 million and
immediately leased Whitley Place to the Company. Whitley Place
is comprised of 47 assisted living units with a resident
capacity of 65. The lease is for a ten-year term with two
five-year renewals options. The initial lease rate was
7.75 percent and is subject to conditional escalation
provisions.
In February 2008, the Company sold a parcel of land in
Carmichael, California for $1.2 million, resulting in net
proceeds of approximately $1.1 and a pretax gain on sale of
approximately $0.7 million. This land was classified as
held for sale at December 31, 2007.
In February 2008, the Company sold a parcel of land in Lincoln,
Nebraska for approximately $0.2 million, resulting in net
proceeds of $0.2 million and a nominal gain. While the
Company was not marketing this parcel of land for sale, the
Company received an offer on the parcel of land and subsequent
to year end sold the land parcel.
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%, 6% and 7% of the Companys revenue in
fiscal 2007, 2006 and 2005, 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
32
communities are providers of services under the Medicare program
and are entitled to payment under the foregoing programs in
amounts determined based on 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 four
other joint ventures. 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.
Assets
Held for Sale
Assets are classified as held for sale when the Company has
committed to selling the asset and believes that it will be
disposed of within one year. 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 two parcels of land
held for sale at December 31, 2007. 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 two parcels of land that were held for
sale at December 31, 2007, have an aggregate fair value,
net of costs of disposal, that exceeds the carrying value of
$1.0 million. One of the remaining parcels of land was sold
in the first quarter of fiscal 2008 at an amount that exceeded
its carrying value. The amount the Company will ultimately
realize on the remaining parcel of land 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, 2007, the Company leased 24
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
rent expense plus amortization expense relating to leasehold
acquisition costs.
33
Certain leases entered into by the Company qualified as
sale/leaseback transactions under the provisions of Financial
Accounting Standard No. 98 (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. Based on this analysis the Company does not believe
there are any indicators that would require an adjustment to the
carrying value of the property and equipment or their remaining
useful lives as of December 31, 2007 and 2006.
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. At
December 31, 2007, the Company has recorded on its
consolidated balance sheet deferred tax assets of
$13.8 million. Management regularly evaluates the future
realization of deferred tax assets and provides a valuation
allowance, if considered necessary, based on such evaluation.
While the Company currently has a cumulative three-year loss of
$3.7 million, it has evaluated future expectations of net
income, based upon the last six quarters of profitability,
including prospects to realize net gains on the Companys
appreciated assets. However, the benefits of the net deferred
tax asset might not be realized if there are future operating
losses that exceed the anticipated gains on the Companys
appreciated assets or if the value of the appreciated assets
decline in the future. The Company believes based upon this
analysis that the realization of the net deferred tax asset is
reasonably assured and therefore has not provided for a
valuation allowance.
The Company adopted Financial Accounting Standards Board
(FASB) Interpretation No. 48, Accounting
for Uncertainty in Income Taxes An Interpretation of
FASB Statement No. 109 (FIN 48) on
January 1, 2007. This standard clarifies the accounting for
income tax benefits that are uncertain in nature. Under
FIN 48, the Company is required to 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. FIN 48 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 was
required to be recorded to retained earnings as of
January 1, 2007. The Companys policy is to recognize
interest related to unrecognized tax benefits as interest
expense and penalties as income tax expense. The Company is not
subject to income tax examinations for tax years prior to 2003.
The adoption of FIN 48 did not have a material effect on
the Companys results of operations or financial position.
34
Recently
Issued Accounting Standards
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 adoption of
FAS 157 is not expected to have a material effect on the
Companys financial statements.
FASB Statement No. 159, Fair Value Option for
Financial Assets and Financial Liabilities Including
an amendment of FASB Statement 115
(FAS 159). In February 2007, FASB issued
FAS 159, which permits, but does not require, entities to
measure many financial instruments, including liabilities and
certain other items, at fair value with resulting changes in
fair value reported in earnings. The Company is required to
adopt FAS 159 on January 1, 2008 and the adoption of
FAS 159 is not expected to have a material effect on the
Companys financial statements.
FASB Statement No. 141(R) Business Combinations
(FAS 141(R)). In December 2007, FASB issued
FAS 141(R) which requires the acquiring entity in a
business combination to recognize the full fair value of assets
acquired and liabilities assumed in the transaction (whether a
full or partial acquisition); establishes the acquisition-date
fair value as the measurement objective for all assets acquired
and liabilities assumed; requires expensing of most transaction
and restructuring costs; and requires the acquirer to disclose
to investors and other users all of the information needed to
evaluate and understand the nature and financial effect of the
business combination. FAS 141(R) applies prospectively to
business combinations for which the acquisition date is on or
after January 1, 2009. The impact of FAS 141(R) on the
Companys consolidated financial statements will depend
upon the nature, terms and size of the acquisitions we
consummate after the effective date.
35
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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resident and healthcare revenue
|
|
$
|
167,563
|
|
|
|
88.6
|
%
|
|
$
|
139,456
|
|
|
|
87.7
|
%
|
|
$
|
101,770
|
|
|
|
80.5
|
%
|
Unaffiliated management services revenue
|
|
|
1,591
|
|
|
|
0.8
|
%
|
|
|
994
|
|
|
|
0.6
|
%
|
|
|
1,626
|
|
|
|
1.3
|
%
|
Affiliated management services revenue
|
|
|
3,117
|
|
|
|
1.7
|
%
|
|
|
1,767
|
|
|
|
1.1
|
%
|
|
|
1,834
|
|
|
|
1.5
|
%
|
Community reimbursement income
|
|
|
16,781
|
|
|
|
8.9
|
%
|
|
|
16,853
|
|
|
|
10.6
|
%
|
|
|
21,174
|
|
|
|
16.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
189,052
|
|
|
|
100.0
|
%
|
|
|
159,070
|
|
|
|
100.0
|
%
|
|
|
126,404
|
|
|
|
100.0
|
%
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (exclusive of facility lease expense and
depreciation and amortization shown below)
|
|
|
103,804
|
|
|
|
54.9
|
%
|
|
|
89,184
|
|
|
|
56.1
|
%
|
|
|
68,888
|
|
|
|
54.5
|
%
|
General and administrative expenses
|
|
|
12,046
|
|
|
|
6.4
|
%
|
|
|
11,420
|
|
|
|
7.2
|
%
|
|
|
9,761
|
|
|
|
7.7
|
%
|
Facility lease expense
|
|
|
27,054
|
|
|
|
14.3
|
%
|
|
|
16,610
|
|
|
|
10.4
|
%
|
|
|
2,070
|
|
|
|
1.6
|
%
|
Provision for bad debts
|
|
|
330
|
|
|
|
0.2
|
%
|
|
|
121
|
|
|
|
0.1
|
%
|
|
|
258
|
|
|
|
0.2
|
%
|
Stock-based compensation
|
|
|
979
|
|
|
|
0.5
|
%
|
|
|
870
|
|
|
|
0.5
|
%
|
|
|
245
|
|
|
|
0.2
|
%
|
Depreciation and amortization
|
|
|
11,295
|
|
|
|
6.0
|
%
|
|
|
12,345
|
|
|
|
7.8
|
%
|
|
|
13,046
|
|
|
|
10.3
|
%
|
Community reimbursement expense
|
|
|
16,781
|
|
|
|
8.9
|
%
|
|
|
16,853
|
|
|
|
10.6
|
%
|
|
|
21,174
|
|
|
|
16.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
172,289
|
|
|
|
91.1
|
%
|
|
|
147,403
|
|
|
|
92.7
|
%
|
|
|
115,442
|
|
|
|
91.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
16,763
|
|
|
|
8.9
|
%
|
|
|
11,667
|
|
|
|
7.3
|
%
|
|
|
10,962
|
|
|
|
8.7
|
%
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
674
|
|
|
|
0.4
|
%
|
|
|
843
|
|
|
|
0.5
|
%
|
|
|
133
|
|
|
|
0.1
|
%
|
Interest expense
|
|
|
(12,763
|
)
|
|
|
(6.8
|
)%
|
|
|
(16,610
|
)
|
|
|
(10.4
|
)%
|
|
|
(18,595
|
)
|
|
|
(14.7
|
)%
|
Gain on sale of properties
|
|
|
3,351
|
|
|
|
1.8
|
%
|
|
|
2,495
|
|
|
|
1.6
|
%
|
|
|
104
|
|
|
|
0.1
|
%
|
Debt restructuring / derivative costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off of deferred loan cost
|
|
|
(538
|
)
|
|
|
(0.3
|
)%
|
|
|
(1,867
|
)
|
|
|
(1.2
|
)%
|
|
|
(25
|
)
|
|
|
(0.0
|
)%
|
Loss on interest rate lock agreement
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
(641
|
)
|
|
|
(0.5
|
)%
|
Other (expense) income
|
|
|
(37
|
)
|
|
|
0.0
|
%
|
|
|
(37
|
)
|
|
|
0.0
|
%
|
|
|
416
|
|
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and minority interest in
consolidated partnership
|
|
|
7,450
|
|
|
|
3.9
|
%
|
|
|
(3,509
|
)
|
|
|
(2.2
|
)%
|
|
|
(7,646
|
)
|
|
|
(6.0
|
)%
|
(Provision) benefit for income taxes
|
|
|
(3,090
|
)
|
|
|
(1.6
|
)%
|
|
|
909
|
|
|
|
0.6
|
%
|
|
|
2,273
|
|
|
|
1.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority interest in consolidated
partnership
|
|
|
4,360
|
|
|
|
(2.3
|
)%
|
|
|
(2,600
|
)
|
|
|
(1.6
|
)%
|
|
|
(5,373
|
)
|
|
|
(4.3
|
)%
|
Minority interest in consolidated partnership
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
19
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,360
|
|
|
|
(2.3
|
)%
|
|
$
|
(2,600
|
)
|
|
|
(1.6
|
)%
|
|
$
|
(5,354
|
)
|
|
|
(4.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
Year
Ended December 31, 2007 Compared to the Year Ended
December 31, 2006
Revenues.
Total revenues were $189.1 million for the year ended
December 31, 2007 compared to $159.1 million for the
year ended December 31, 2006, representing an increase of
approximately $30.0 million or 18.8%. This increase in
revenue is primarily the result of a $28.1 million increase
in resident and healthcare revenue, an increase in unaffiliated
management services revenue of $0.6 million, an increase in
affiliated management services revenue of $1.4 million
offset by a decrease in community reimbursement revenue of
$0.1 million.
|
|
|
|
|
Resident and healthcare revenue increased 20.2% as a result of
an increase of $4.9 million from the addition of the
Covenant communities which the Company leased from HCP on
May 31, 2006, an increase of $1.9 million from the
addition of Rose Arbor which was leased from Ventas on
June 8, 2006, an increase of $12.2 million from the
addition of four senior living communities (the Hunt
Communities) which were leased from HCP on
December 1, 2006, an increase of $3.1 million from the
addition of the Atrium of Carmichael which was leased from HCP
on December 14, 2006, an increase of $1.4 million from
the addition of Crescent Place which was leased from HCP on
April 11, 2007 and an increase in resident and healthcare
revenue at the Companys other communities of
$4.6 million as a result of higher rental rates and
community fees in the current fiscal year.
|
|
|
|
The increase in unaffiliated management services revenue
primarily results from the recovery of management fees from
Covenant under the provisions of the CGIM purchase and sale
agreement offset by the expiration of third party management
agreements and the sale of the eight communities previously
owned by Covenant and managed by the Company, seven of which the
Company now leases from HCP.
|
|
|
|
Affiliated management services revenue increased due to an
increase in management fees earned on the communities owned by
SHPII/CSL, Midwest I and Midwest II along with development
fees of $0.9 million earned on the development of three
senior living communities. The Company earned affiliated
management fees on 12 communities and three development project
in fiscal 2007 compared to management fees on 12 communities in
fiscal 2006.
|
|
|
|
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 $172.3 million in fiscal 2007 compared
to $147.4 million in fiscal 2006, representing an increase
of $24.9 million or 16.9%. This increase is primarily the
result of a $14.6 million increase in operating expenses, a
$0.6 million increase in general and administrative
expenses, a $10.4 million increase in facility lease
expense, a $0.1 million increase in stock-based
compensation, an increase of $0.2 million in bad debt
expense offset by a $1.1 million decrease in depreciation
and amortization expense and a decrease in community
reimbursement expense of $0.1 million.
|
|
|
|
|
Operating expenses increased 16.4% primarily due to an increase
of $3.2 million from the addition of the Covenant
communities, an increase of $1.3 million from the addition
of Rose Arbor, an increase of $7.7 million from the
addition of the Hunt Communities, an increase of
$1.9 million from the addition of the Atrium of Carmichael,
and an increase of $1.0 million from the addition of
Crescent Place offset by a decrease in operating expenses at the
Companys other communities of $0.5 million.
|
|
|
|
General and administrative expenses increased $0.6 million
primarily due to an increase in health insurance costs of
$0.9 million and an increase in information systems costs
of $0.3 million relating to the implementation of the
Companys new accounting software offset by lower legal
fees of $0.3 million and a reduction in other general and
administrative costs of $0.3 million.
|
|
|
|
Facility lease expenses increased $10.4 million primarily
due to the Company leasing 24 senior living communities in
fiscal 2007 compared to 23 senior living communities in fiscal
2006 which include 12 leases that began during fiscal 2006.
|
37
|
|
|
|
|
Stock-based compensation increased $0.1 million in fiscal
2007 compared to fiscal 2006 primarily due to the award of
additional restricted shares to certain employees and directors
of the Company.
|
|
|
|
Depreciation and amortization expense decreased
$1.1 million primarily as a result of the write-off of
contract rights in fiscal 2006 along with 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 results from interest earned on investment of
cash balances and interest earned on escrowed funds.
|
|
|
|
Interest expense decreased $3.8 million to
$12.8 million in fiscal 2007 compared to $16.6 million
in fiscal 2006. This decrease in interest expense primarily
results from lower debt outstanding during fiscal 2007 compared
to fiscal 2006 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 2007 represents the recognition
of deferred gains associated with the Companys
sale/leaseback transactions of $3.2 million, net gains on
the sale of two parcels of land of $0.1 million along with
a gain of $28,000 on the sale of the Companys treasury
rate lock. The gain on a third parcel of land of
$0.3 million, sold to SHPIII/CSL Richmond Heights, has been
deferred and will be recognized into income over the period
required to construct and stabilize the senior living community.
As of December 31, 2007, the Company had deferred gains on
sale/leaseback transactions of $26.4 million that are being
recognized into income over their respective initial lease
terms. Gain on sale of assets in fiscal 2006 represents the
recognition of deferred gains of $2.4 million along with a
gain of $0.1 million on the sale of a portion of the
Companys treasury rate lock.
|
|
|
|
Other expense/income in fiscal 2007 and 2006 relates to the
Companys equity in the earnings/losses of unconsolidated
affiliates, which represents the Companys share of the
earnings/losses on its investments in SHPII/CSL, Midwest I and
Midwest II. During the second quarter of fiscal 2007, Midwest I
and Midwest II finalized their purchase price allocation on
the eight communities they acquired, resulting in a noncash
charge of $0.3 million being recognized by the Company. The
final purchase price allocation resulted in more of the purchase
price being allocated to assets with shorter economic lives
which resulted in additional depreciation and amortization
expense.
|
Benefit
for income taxes.
Provision for income taxes for fiscal 2007 was $3.1 million
or 41.5% of income before taxes compared to a benefit for income
taxes of $0.9 million, or 25.9% of loss before taxes, for
fiscal 2006. The effective tax rates for fiscal 2007 and 2006
differ from the statutory tax rates because of state income
taxes and permanent tax differences. At December 31, 2007,
the Company had recorded on its consolidated balance sheet
deferred tax assets of $13.8 million. Management regularly
evaluates the future realization of deferred tax assets and
provides a valuation allowance, if considered necessary, based
on such evaluation. While the Company currently has a cumulative
three-year loss of $3.7 million, it has evaluated future
expectations of net income, based upon the last six quarters of
profitability, including prospects to realize net gains on the
Companys appreciated assets. However, the benefits of the
net deferred tax asset might not be realized if there are future
operating losses that exceed the anticipated gains on the
Companys appreciated assets or if the value of the
appreciated assets decline in the future. The Company believes
based upon this analysis that the realization of the net
deferred tax asset is reasonably assured and therefore has not
provided for a valuation allowance.
Net
income/loss.
As a result of the foregoing factors, the Company reported net
income of $4.4 million for the year ended December 31,
2007 compared to a net loss of $2.6 million for the year
ended December 31, 2006.
38
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 HCP 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 HCP on December 1, 2006, an
increase of $0.2 million from the lease of the Atrium of
Carmichael, which the Company leased from HCP 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 HCP.
|
|
|
|
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 16.6% 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.
|
39
|
|
|
|
|
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 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 HCP.
|
|
|
|
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 HCP 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.
40
Quarterly
Results
The following table presents certain unaudited quarterly
financial information for each of the four quarters ended
December 31, 2007 and 2006, respectively. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Calendar Quarters
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Total revenues
|
|
$
|
46,226
|
|
|
$
|
46,881
|
|
|
$
|
47,758
|
|
|
$
|
48,187
|
|
Income from operations
|
|
|
3,891
|
|
|
|
3,814
|
|
|
|
4,360
|
|
|
|
4,698
|
|
Net income
|
|
|
920
|
|
|
|
770
|
|
|
|
1,367
|
|
|
|
1,303
|
|
Net income per share, basic
|
|
$
|
0.04
|
|
|
$
|
0.03
|
|
|
$
|
0.05
|
|
|
$
|
0.05
|
|
Net income per share, diluted
|
|
$
|
0.03
|
|
|
$
|
0.03
|
|
|
$
|
0.05
|
|
|
$
|
0.05
|
|
Weighted average shares outstanding, basic
|
|
|
26,149
|
|
|
|
26,182
|
|
|
|
26,201
|
|
|
|
26,286
|
|
Weighted average shares outstanding, fully diluted
|
|
|
26,636
|
|
|
|
26,680
|
|
|
|
26,593
|
|
|
|
26,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 Calendar Quarters
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Total revenues
|
|
$
|
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
|
|
Liquidity
and Capital Resources
In addition to approximately $23.4 million of cash balances
on hand as of December 31, 2007, 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 debt 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 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. In summary, the Companys cash flows were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
12,453
|
|
|
$
|
(4,647
|
)
|
|
$
|
2,202
|
|
Net cash (used in) provided by investing activities
|
|
|
(7,332
|
)
|
|
|
29,958
|
|
|
|
3,142
|
|
Net cash used in financing activities
|
|
|
(7,331
|
)
|
|
|
(21,573
|
)
|
|
|
(3,028
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
$
|
(2,210
|
)
|
|
$
|
3.738
|
|
|
$
|
2,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
Operating
Activities
The Company had net cash provided by operating activities of
$12.5 million and $2.2 million in fiscal 2007 and
2005, respectively, compared to net cash used in operating
activities of $4.6 million in fiscal 2006. The net cash
provided by operating activities for fiscal 2007 primarily
results from net income of $4.4 million, net non-cash
charges of $12.7 million, a decrease in accounts receivable
of $0.2 million and a decrease in other assets of
$0.2 million offset by an increase in property tax and
insurance deposits of $1.5 million, an increase in prepaid
and other assets of $1.2 million, an increase in income tax
receivable of $1.8 million and a decrease in customer
deposits of $0.5 million. In fiscal 2006, net cash used in
operating activities was primarily the result of 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, and an increase in other assets
of $7.1 million.
Investing
Activities
The Company had net cash used in investing activities of
$7.3 million in fiscal 2007 compared to net cash provided
by investing activities of $30.0 million and
$3.1 million in fiscal 2006 and 2005, respectively. The net
cash used in investing activities for fiscal 2007 primarily
results from capital expenditures of $8.6 million, net
investments in joint ventures of $1.0 million offset by
proceeds from the sale of three parcels of land for
$1.9 million and proceeds from a final distribution from
BRE/CSL of $0.4 million. 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.
Financing
Activities
The Company had net cash used in financing activities of
$7.3 million, $21.6 million and $3.0 million in
fiscal 2007, 2006 and 2005, respectively. The net cash used in
financing activities for fiscal 2007 primarily results from net
repayments of notes payable of $7.3 million, deferred loan
costs paid in connection with the refinancing of five
communities of $0.9 million offset by proceeds from the
issuance of common stock of $0.5 million, excess tax
benefits on the issuance of common stock of $0.2 million
and proceeds from the sale of the Companys treasury rate
lock of $0.1 million. For fiscal 2006, net cash used in
financing activities was primarily the result of 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.
Community
Refinancings and Other Debt Transactions
The Companys second installment on its note payable to
Covenant, which was due on August 15, 2007, was reduced by
$0.4 million, resulting in no amount due to Covenant and a
reduction in the Companys note payable to Covenant of
approximately $0.3 million, which was reflected as
management services revenue in the Companys consolidated
statement of operations. In addition, under the terms of the
purchase agreement, the Company had the right to recapture
certain contingent payments made to Covenant if the Company did
not receive the required minimum management services revenue set
forth in the purchase agreement. As a result of these
provisions, during the third quarter of fiscal 2007, the Company
recorded a receivable and management services revenue of
42
approximately $0.4 million. During the fourth quarter of
fiscal 2007, Covenant paid this receivable and executed an
amendment to the stock purchase agreement releasing the Company
from any future obligations under the Companys note
payable to Covenant. As a result the Company recognized
additional management services revenue of approximately
$0.6 million in the fourth quarter of fiscal 2007.
On October 31, 2007, the Company renewed certain insurance
policies and entered into a finance agreement totaling
$0.6 million. The finance agreement has a fixed interest
rate of 5.50% with principal being repaid over an
11-month
term.
On May 31, 2007, the Company renewed certain insurance
policies and entered into a finance agreement totaling
$4.5 million. The finance agreement has a fixed interest
rate of 5.60% with principal being repaid over a
10-month
term.
On May 3, 2007, the Company refinanced $30.0 million
of mortgage debt on four senior living communities with Fannie
Mae. As part of the refinancing, the Company repaid
approximately $2.7 million of mortgage debt on the four
communities. The new mortgage loans have a ten-year term with
interest fixed at 5.91% and principal amortized over a
30-year
term. The Company incurred $0.5 million in deferred
financing costs related to this loan, which is being amortized
over ten years. In addition, as part of this refinancing, the
Company wrote-off $0.4 million in deferred loan costs. The
new loans replaced $32.7 million of variable rate debt with
an effective interest rate of 7.6%.
On March 21, 2007, the Company refinanced $9.5 million
of mortgage debt on Gramercy Hill with Freddie Mac. As part of
the refinancing, the Company received approximately
$2.1 million in cash proceeds, net of closing costs. The
new mortgage loan has a ten-year term with a one-year extension
available at the Companys option, interest fixed at 5.75%
and requires interest only payments in the first two years with
principal amortized thereafter over a
25-year
term. The Company incurred $0.2 million in deferred
financing costs related to this loan, which is being amortized
over ten years. In addition, as part of this refinancing, the
Company wrote-off $13,000 in deferred loan costs and paid
$0.2 million in loan exit fees to the prior lender. The
loan exit fees are a component of write-off of deferred loan
costs in the accompanying statement of operations.
On March 15, 2007, the Company issued three standby letters
of credit, totaling $2.2 million, for the benefit of HCP on
certain leases between HCP and the Company. The fees on the
letters of credit are based on 2.0% of the issued amount.
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.
Lease
Transactions
The Company currently leases 24 senior living communities with
certain 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.
As of December 31, 2007, 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 Agreements. These deferred lease acquisition costs
are being amortized over the initial 10 year lease term and
are
43
included in facility lease expense in the Companys
statement of operations. The Company accounts for each of the
Ventas Lease Agreements as operating leases.
As of December 31, 2007, the HCP Lease Agreements, which
cover 15 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 HCP
Lease Agreements range from 7.25% to 8% and are subject to
certain conditional escalation clauses which will be recognized
when estimatable or incurred. The initial terms on the HCP Lease
Agreements expire on various dates through December 2017. The
Company incurred $1.5 million in lease acquisition costs
related to the HCP 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 HCP Lease Agreements as
operating leases.
In April 2007, HCP acquired Crescent Place, which was previously
owned by Covenant and managed by the Company, in a transaction
valued at approximately $8.0 million and immediately leased
Crescent Place to the Company. In connection with this
transaction, the Companys previous management agreement
with Covenant was terminated.
The following table summarizes each of the Companys lease
agreements (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
|
|
|
Deferred
|
|
|
|
|
|
Number of
|
|
|
Value of
|
|
|
|
|
Initial
|
|
|
Acquisition
|
|
|
Gains/Lease
|
|
Landlord
|
|
Date of Lease
|
|
Communities
|
|
|
Transaction
|
|
|
Term
|
|
Lease Rate(1)
|
|
|
Costs(2)
|
|
|
Concessions(3)
|
|
|
Ventas
|
|
September 30, 2005
|
|
|
6
|
|
|
$
|
84.6
|
|
|
10 years
(Two five-year renewals)
|
|
|
8
|
%
|
|
$
|
1.3
|
|
|
$
|
4.6
|
|
Ventas
|
|
October 18, 2005
|
|
|
1
|
|
|
|
19.5
|
|
|
10 years
(Two five-year renewals)
|
|
|
8
|
%
|
|
|
0.2
|
|
|
|
|
|
Ventas
|
|
March 31,2006
|
|
|
1
|
|
|
|
29.0
|
|
|
10 years
(Two five-year renewals)
|
|
|
8
|
%
|
|
|
0.1
|
|
|
|
14.3
|
|
Ventas
|
|
June 8, 2006
|
|
|
1
|
|
|
|
19.1
|
|
|
9.5 years
(Two five-year renewals)
|
|
|
8
|
%
|
|
|
0.4
|
|
|
|
|
|
HCP
|
|
May 1, 2006
|
|
|
3
|
|
|
|
54.0
|
|
|
10 years
(Two ten-year renewals)
|
|
|
8
|
%
|
|
|
0.2
|
|
|
|
12.8
|
|
HCP
|
|
May 31, 2006
|
|
|
6
|
|
|
|
43.0
|
|
|
10 years
(Two ten-year renewals)
|
|
|
8
|
%
|
|
|
0.2
|
|
|
|
0.6
|
|
HCP
|
|
December 1, 2006
|
|
|
4
|
|
|
|
51.0
|
|
|
10 years
(Two ten-year renewals)
|
|
|
8
|
%
|
|
|
0.7
|
|
|
|
|
|
HCP
|
|
December 14, 2006
|
|
|
1
|
|
|
|
18.0
|
|
|
10 years
(Two ten-year renewals)
|
|
|
7.75
|
%
|
|
|
0.3
|
|
|
|
|
|
HCP
|
|
April 11, 2007
|
|
|
1
|
|
|
|
8.0
|
|
|
10 years
(Two ten-year renewals)
|
|
|
7.25
|
%
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.5
|
|
|
|
32.3
|
|
Accumulated amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
Accumulated deferred gain recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net lease acquisition costs/deferred gains as of
December 31, 2007
|
|
|
|
|
|
$
|
2.9
|
|
|
$
|
26.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Initial lease rates are subject to conditional lease escalation
provisions as set forth in each lease agreement. |
|
(2) |
|
Lease acquisition costs are being amortized over the
leases initial term. |
|
(3) |
|
Deferred gains of $31.7 million are being recognized in the
Companys statement of operations as gain on sale of assets
over the leases initial term. Lease concessions of
$0.6 million, which only relates to the HCP transaction on
May 31, 2006, is being recognized in the Companys
statement of operations as facility rent expense over the
leases initial term. |
44
Joint
Ventures
Midwest I
Transaction
In January 2006, the Company and GE Healthcare formed Midwest I
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. 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
earnings in the equity of Midwest I of $8,000 in fiscal 2007
compared to a loss in the equity of Midwest I of $9,000 for
fiscal 2006.
Midwest II
Transaction
In August 2006, the Company and GE Healthcare formed
Midwest II 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
$1.5 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.
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 $0.3 million and
$0.1 million for fiscal 2007 and 2006, respectively.
SHP II
Transactions
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 the SHPII/CSL for its 5%
interest. The Company manages the Spring Meadows Communities
under long-term management contracts with SHPII/CSL. The Company
accounts for its investments in SHPII/CSL under the equity
method of accounting and the Company recognized earnings in the
equity of SHPII/CSL of $0.3 million, $0.1 million and
$0.2 million in fiscal 2007, 2006 and 2005, respectively.
SHP III
Transactions
In May 2007, the Company and SHPIII entered into SHPIII/CSL
Miami to develop a senior housing community in Miamisburg, Ohio.
Under the joint venture and related agreements, the Company will
earn development and management fees and may receive incentive
distributions. The senior housing community will consist of 101
independent living units and 45 assisted living units and is
expected to open in the second or third quarter of 2008. As of
December 31, 2007, the Company had made capital
contributions of $0.8 million to SHPIII/CSL Miami. In
addition, the Company earned $0.7 million in development
fees from SHPIII/CSL Miami during fiscal 2007.
In November 2007, the Company and SHPIII entered into SHPIII/CSL
Richmond Heights to develop a senior housing community in
Richmond Heights, Ohio. Under the joint venture and related
agreements, the Company will earn development and management
fees and may receive incentive distributions. The senior housing
community will consist of 97 independent living units and 45
assisted living units and is expected to open in the first
quarter of 2009. As of December 31, 2007, the Company had
made capital contributions of $0.3 million to SHPIII/CSL
Richmond Heights. In addition, the Company earned
$0.1 million in development fees from SHPIII/CSL Richmond
Heights during fiscal 2007.
In December 2007, the Company and SHPIII entered into SHPIII/CSL
Levis Commons to develop a senior housing community near Toledo,
Ohio. Under the joint venture and related agreements, the
Company will earn development and management fees and may
receive incentive distributions. The senior housing community
will consist of 101 independent living units and 45 assisted
living units and is expected to open in the first quarter of
2009. As of December 31, 2007, the Company had made capital
contributions of $0.2 million to SHPIII/CSL Levis Commons.
In addition, the Company earned $22,000 in development fees from
SHPIII/CSL Levis Commons during fiscal 2007.
45
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 for the periods indicated as of
December 31, 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
One to
|
|
|
Four to
|
|
|
More than
|
|
|
|
|
|
|
One Year
|
|
|
Three Years
|
|
|
Five Years
|
|
|
Five Years
|
|
|
Total
|
|
|
Long-term debt, including interest expense
|
|
$
|
20,854
|
|
|
$
|
34,153
|
|
|
$
|
29,172
|
|
|
$
|
194,370
|
|
|
$
|
278,549
|
|
Operating leases
|
|
|
27,516
|
|
|
|
55,110
|
|
|
|
55,016
|
|
|
|
86,321
|
|
|
|
223,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
48,370
|
|
|
$
|
89,263
|
|
|
$
|
84,188
|
|
|
$
|
280,691
|
|
|
$
|
502,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 24 senior living
communities and certain equipment used at the Companys
communities.
Impact of
Inflation
To date, inflation has not had a significant impact on the
Company. However, inflation could affect the Companys
future revenues and results of operations because of, among
other things, the Companys dependence on senior residents,
many of whom rely primarily on fixed incomes to pay for the
Companys services. As a result, during inflationary
periods, the Company may not be able to increase resident
service fees to account fully for increased operating expenses.
In structuring its fees, the Company attempts to anticipate
inflation levels, but there can be no assurance that the Company
will be able to anticipate fully or otherwise respond to any
future inflationary pressures.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
|
The Companys primary market risk is exposure to changes in
interest rates on debt instruments. As of December 31,
2007, the Company had $194.8 million in outstanding debt
comprised of various fixed rate debt instruments.
Changes in interest rates would affect the fair market value of
the Companys fixed rate debt instruments but would not
have an impact on the Companys earnings or cash flows.
The following table summarizes information on the Companys
debt instruments outstanding as of December 31, 2007. The
table presents the principal due and weighted average interest
rates by expected maturity date for the Companys debt
instruments by fiscal year.
Principal Amount and Average Interest Rate by Expected Maturity
Date at December 31, 2007 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
Value
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate debt
|
|
$
|
9,035
|
|
|
$
|
8,304
|
|
|
$
|
3,843
|
|
|
$
|
4,084
|
|
|
$
|
4,311
|
|
|
$
|
165,191
|
|
|
$
|
194,768
|
|
|
$
|
192,932
|
|
Average interest rate
|
|
|
6.1
|
%
|
|
|
6.1
|
%
|
|
|
6.0
|
%
|
|
|
6.0
|
%
|
|
|
6.0
|
%
|
|
|
6.0
|
%
|
|
|
|
|
|
|
|
|
Effective January 31, 2005, the Company entered into
interest rate cap agreements with two commercial banks to reduce
the impact of increases in interest rates on the Companys
variable rate loans. One interest rate cap agreement effectively
limited the interest rate exposure on $100 million notional
amount to a maximum LIBOR of 5%, as long as one-month LIBOR was
less than 7%. If one-month LIBOR was greater than 7%, the
agreement effectively limited 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. The remaining balance of the interest rate
cap was sold in May 2007, resulting in net proceeds of
$0.1 million and a gain on sale of approximately $28,000.
During fiscal 2007 and 2006, the Company received $37,000 and
$0.1 million under the terms of this interest rate cap
46
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 were
being amortized to interest expense over the life of the
agreements.
The Company used interest rate lock and interest rate swap
agreements for purposes other than trading. The Company 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%. The Company
reflected the interest rate lock agreements at fair value in the
Companys consolidated balance sheet (Other long-term
liabilities) and related gains and losses were recognized in the
consolidated statements of operations. The Company recognized a
loss of $0.6 million during fiscal 2005 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 bore interest
at LIBOR plus 250 basis points with principal amortized
over a seven-year term. In January 2007, the Company paid
$5.0 million to KeyBank to repay the note.
|
|
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, 2007 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
47
assurance to the Companys management and board of
directors regarding the preparation and fair presentation of
published financial statements.
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, 2007. 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,
2007, the Companys internal control over financial
reporting is effective based on those criteria.
Ernst & Young LLP has issued an audit report on the
effectiveness of the companys internal control over
financial reporting. The Ernst & Young report is on
page F-30
of this report.
|
|
ITEM 9B.
|
OTHER
INFORMATION.
|
None.
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERANCE.*
|
|
|
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 2008 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.
48
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 10, 2008.
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 10, 2008
|
|
|
|
|
|
/s/ JAMES
A. STROUD
James
A. Stroud
|
|
Chairman of the Company and
Chairman of the Board
|
|
March 10, 2008
|
|
|
|
|
|
/s/ KEITH
N. JOHANNESSEN
Keith
N. Johannessen
|
|
President and Chief Operating
Officer and Director
|
|
March 10, 2008
|
|
|
|
|
|
/s/ RALPH
A. BEATTIE
Ralph
A. Beattie
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial and Accounting Officer)
|
|
March 10, 2008
|
|
|
|
|
|
/s/ CRAIG
F HARTBERG
Craig
F Hartberg
|
|
Director
|
|
March 10, 2008
|
|
|
|
|
|
/s/ JILL
M. KRUEGER
Jill
M. Krueger
|
|
Director
|
|
March 10, 2008
|
|
|
|
|
|
/s/ JAMES
A. MOORE
James
A. Moore
|
|
Director
|
|
March 10, 2008
|
|
|
|
|
|
/s/ VICTOR
W. NEE
Dr. Victor
W. Nee
|
|
Director
|
|
March 10, 2008
|
49
INDEX TO
FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
Consolidated Financial Statements of Capital Senior Living
Corporation
|
|
|
|
|
Report of Independent Registered Public Accounting Firm,
Ernst & Young LLP
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-8
|
|
|
|
|
F-30
|
|
F-1
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Capital Senior Living Corporation
We have audited the accompanying consolidated balance sheets of
Capital Senior Living Corporation as of December 31, 2007
and 2006, and the related consolidated statements of operations,
shareholders equity, and cash flows for the each of the
two years in the period ended December 31, 2007. 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, 2007 and 2006, and the consolidated results of
its operations and its cash flows for each of the two years in
the period ended December 31, 2007, 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),
Capital Senior Living Corporations internal control over
financial reporting as of December 31, 2007, 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 10, 2008,
expressed an unqualified opinion thereon.
Ernst & Young LLP
Dallas, Texas
March 10, 2008
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 statements of
operations, shareholders equity, and cash flows of Capital
Senior Living Corporation for the year ended December 31,
2005. These consolidated financial statements are the
responsibility of Capital Senior Living Corporations
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. 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 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 results
of operations, and cash flows of Capital Senior Living
Corporation for the year ended December 31, 2005, in
conformity with U.S. generally accepted accounting
principles.
KPMG LLP
Dallas, Texas
March 31, 2006
F-3
CAPITAL
SENIOR LIVING CORPORATION
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
23,359
|
|
|
$
|
25,569
|
|
Accounts receivable, net
|
|
|
3,232
|
|
|
|
3,838
|
|
Accounts receivable from affiliates
|
|
|
846
|
|
|
|
784
|
|
Federal and state income taxes receivable
|
|
|
2,084
|
|
|
|
241
|
|
Deferred taxes
|
|
|
996
|
|
|
|
672
|
|
Assets held for sale
|
|
|
1,011
|
|
|
|
2,034
|
|
Property tax and insurance deposits
|
|
|
7,954
|
|
|
|
6,460
|
|
Prepaid expenses and other
|
|
|
4,652
|
|
|
|
3,493
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
44,134
|
|
|
|
43,091
|
|
Property and equipment, net
|
|
|
310,442
|
|
|
|
313,569
|
|
Deferred taxes
|
|
|
12,824
|
|
|
|
15,448
|
|
Investments in limited partnerships
|
|
|
6,199
|
|
|
|
5,253
|
|
Other assets, net
|
|
|
16,454
|
|
|
|
17,127
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
390,053
|
|
|
$
|
394,488
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,980
|
|
|
$
|
3,566
|
|
Accrued expenses
|
|
|
12,782
|
|
|
|
11,224
|
|
Current portion of notes payable
|
|
|
9,035
|
|
|
|
6,110
|
|
Current portion of deferred income
|
|
|
5,174
|
|
|
|
4,306
|
|
Customer deposits
|
|
|
2,024
|
|
|
|
2,478
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
30,995
|
|
|
|
27,684
|
|
Deferred income
|
|
|
23,168
|
|
|
|
26,073
|
|
Notes payable, net of current portion
|
|
|
185,733
|
|
|
|
196,647
|
|
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 26,596 and 26,424 in 2007 and 2006, respectively
|
|
|
266
|
|
|
|
264
|
|
Additional paid-in capital
|
|
|
129,159
|
|
|
|
127,448
|
|
Retained earnings
|
|
|
20,732
|
|
|
|
16,372
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
150,157
|
|
|
|
144,084
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
390,053
|
|
|
$
|
394,488
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
CAPITAL
SENIOR LIVING CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Resident and health care revenue
|
|
$
|
167,563
|
|
|
$
|
139,456
|
|
|
$
|
101,770
|
|
Unaffiliated management services revenue
|
|
|
1,591
|
|
|
|
994
|
|
|
|
1,626
|
|
Affiliated management services revenue
|
|
|
3,117
|
|
|
|
1,767
|
|
|
|
1,834
|
|
Community reimbursement revenue
|
|
|
16,781
|
|
|
|
16,853
|
|
|
|
21,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
189,052
|
|
|
|
159,070
|
|
|
|
126,404
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (exclusive of facility lease expense and
depreciation and amortization expense shown below)
|
|
|
103,804
|
|
|
|
89,184
|
|
|
|
68,888
|
|
General and administrative expenses
|
|
|
12,046
|
|
|
|
11,420
|
|
|
|
9,761
|
|
Facility lease expense
|
|
|
27,054
|
|
|
|
16,610
|
|
|
|
2,070
|
|
Provision for bad debts
|
|
|
330
|
|
|
|
121
|
|
|
|
258
|
|
Stock-based compensation expense
|
|
|
979
|
|
|
|
870
|
|
|
|
245
|
|
Depreciation and amortization
|
|
|
11,295
|
|
|
|
12,345
|
|
|
|
13,046
|
|
Community reimbursement expense
|
|
|
16,781
|
|
|
|
16,853
|
|
|
|
21,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
172,289
|
|
|
|
147,403
|
|
|
|
115,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
16,763
|
|
|
|
11,667
|
|
|
|
10,962
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
674
|
|
|
|
843
|
|
|
|
133
|
|
Interest expense
|
|
|
(12,763
|
)
|
|
|
(16,610
|
)
|
|
|
(18,595
|
)
|
Gain on sale of properties
|
|
|
3,351
|
|
|
|
2,495
|
|
|
|
104
|
|
Debt restructuring / derivative costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off of deferred loan costs
|
|
|
(538
|
)
|
|
|
(1,867
|
)
|
|
|
(25
|
)
|
Loss on interest rate lock agreement
|
|
|
|
|
|
|
|
|
|
|
(641
|
)
|
Other (loss) income
|
|
|
(37
|
)
|
|
|
(37
|
)
|
|
|
416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and minority interest in
consolidated partnership
|
|
|
7,450
|
|
|
|
(3,509
|
)
|
|
|
(7,646
|
)
|
(Provision) benefit for income taxes
|
|
|
(3,090
|
)
|
|
|
909
|
|
|
|
2,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority interest in consolidated
partnership
|
|
|
4,360
|
|
|
|
(2,600
|
)
|
|
|
(5,373
|
)
|
Minority interest in consolidated partnership
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,360
|
|
|
$
|
(2,600
|
)
|
|
$
|
(5,354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share
|
|
$
|
0.17
|
|
|
$
|
(0.10
|
)
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share
|
|
$
|
0.16
|
|
|
$
|
(0.10
|
)
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
|
26,205
|
|
|
|
26,014
|
|
|
|
25,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
|
26,637
|
|
|
|
26,014
|
|
|
|
25,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
CAPITAL
SENIOR LIVING CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Balance at January 1, 2005
|
|
|
25,751
|
|
|
$
|
258
|
|
|
$
|
124,963
|
|
|
$
|
24,326
|
|
|
$
|
149,547
|
|
Exercise of stock options
|
|
|
182
|
|
|
|
2
|
|
|
|
716
|
|
|
|
|
|
|
|
718
|
|
Restricted stock awards
|
|
|
357
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
245
|
|
|
|
|
|
|
|
245
|
|
Excess tax benefits
|
|
|
|
|
|
|
|
|
|
|
256
|
|
|
|
|
|
|
|
256
|
|
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
|
|
Exercise of stock options
|
|
|
81
|
|
|
|
1
|
|
|
|
501
|
|
|
|
|
|
|
|
502
|
|
Restricted stock awards
|
|
|
91
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
979
|
|
|
|
|
|
|
|
979
|
|
Excess tax benefits
|
|
|
|
|
|
|
|
|
|
|
231
|
|
|
|
|
|
|
|
231
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,360
|
|
|
|
4,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
26,596
|
|
|
$
|
266
|
|
|
$
|
129,159
|
|
|
$
|
20,732
|
|
|
$
|
150,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
CAPITAL
SENIOR LIVING CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,360
|
|
|
$
|
(2,600
|
)
|
|
$
|
(5,354
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
(used in) by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
11,218
|
|
|
|
11,208
|
|
|
|
12,338
|
|
Amortization
|
|
|
77
|
|
|
|
1,137
|
|
|
|
708
|
|
Amortization of deferred financing charges
|
|
|
386
|
|
|
|
601
|
|
|
|
747
|
|
Amortization of deferred lease costs
|
|
|
350
|
|
|
|
183
|
|
|
|
37
|
|
Amortization of debt discount
|
|
|
184
|
|
|
|
200
|
|
|
|
224
|
|
Minority interest in consolidated partnership
|
|
|
|
|
|
|
|
|
|
|
(19
|
)
|
Deferred income from affiliates
|
|
|
|
|
|
|
(48
|
)
|
|
|
(77
|
)
|
Deferred income
|
|
|
567
|
|
|
|
89
|
|
|
|
274
|
|
Deferred income taxes
|
|
|
2,300
|
|
|
|
(7,312
|
)
|
|
|
(2,213
|
)
|
Equity in the earnings of affiliates
|
|
|
37
|
|
|
|
37
|
|
|
|
(416
|
)
|
(Gain) on sale of properties
|
|
|
(3,351
|
)
|
|
|
(2,495
|
)
|
|
|
(104
|
)
|
Loss on interest rate swap and interest rate lock agreements
|
|
|
|
|
|
|
|
|
|
|
641
|
|
Provision for bad debts
|
|
|
330
|
|
|
|
121
|
|
|
|
258
|
|
Write-off of deferred loan costs
|
|
|
538
|
|
|
|
1,867
|
|
|
|
25
|
|
Reduction of contingent note payable
|
|
|
(921
|
)
|
|
|
|
|
|
|
|
|
Stock compensation expense
|
|
|
979
|
|
|
|
870
|
|
|
|
245
|
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
276
|
|
|
|
(1,373
|
)
|
|
|
(771
|
)
|
Accounts receivable from affiliates
|
|
|
(62
|
)
|
|
|
(352
|
)
|
|
|
788
|
|
Property tax and insurance deposits
|
|
|
(1,494
|
)
|
|
|
(1,379
|
)
|
|
|
(2,350
|
)
|
Prepaid expenses and other
|
|
|
(1,159
|
)
|
|
|
(808
|
)
|
|
|
37
|
|
Other assets
|
|
|
163
|
|
|
|
(7,780
|
)
|
|
|
(7,147
|
)
|
Accounts payable
|
|
|
(1,586
|
)
|
|
|
613
|
|
|
|
473
|
|
Accrued expenses
|
|
|
1,558
|
|
|
|
1,167
|
|
|
|
2,579
|
|
Federal and state income taxes receivable/payable
|
|
|
(1,843
|
)
|
|
|
1,412
|
|
|
|
732
|
|
Customer deposits
|
|
|
(454
|
)
|
|
|
(5
|
)
|
|
|
547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
12,453
|
|
|
|
(4,647
|
)
|
|
|
2,202
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(8,637
|
)
|
|
|
(6,650
|
)
|
|
|
(3,236
|
)
|
Proceeds from sale of assets
|
|
|
2,319
|
|
|
|
40,497
|
|
|
|
|
|
(Investments in) distributions from limited partnerships
|
|
|
(1,014
|
)
|
|
|
(3,889
|
)
|
|
|
6,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(7,332
|
)
|
|
|
29,958
|
|
|
|
3,142
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from notes payable
|
|
|
44,617
|
|
|
|
146,590
|
|
|
|
43,193
|
|
Repayments of notes payable
|
|
|
(51,869
|
)
|
|
|
(164,759
|
)
|
|
|
(44,467
|
)
|
Restricted cash
|
|
|
|
|
|
|
973
|
|
|
|
(973
|
)
|
Cash proceeds from the issuance of common stock
|
|
|
503
|
|
|
|
399
|
|
|
|
721
|
|
Excess tax benefits on stock options exercised
|
|
|
231
|
|
|
|
187
|
|
|
|
256
|
|
Cash paid to settle interest rate lock agreement
|
|
|
60
|
|
|
|
(1,823
|
)
|
|
|
|
|
Distributions to minority partners
|
|
|
|
|
|
|
|
|
|
|
(233
|
)
|
Deferred financing charges paid
|
|
|
(873
|
)
|
|
|
(3,140
|
)
|
|
|
(1,525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(7,331
|
)
|
|
|
(21,573
|
)
|
|
|
(3,028
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
(2,210
|
)
|
|
|
3,738
|
|
|
|
2,316
|
|
Cash and cash equivalents at beginning of year
|
|
|
25,569
|
|
|
|
21,831
|
|
|
|
19,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
23,359
|
|
|
$
|
25,569
|
|
|
$
|
21,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
12,178
|
|
|
$
|
16,465
|
|
|
$
|
16,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
2,532
|
|
|
$
|
6,379
|
|
|
$
|
889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of interest rate cap agreement to notes payable
|
|
$
|
|
|
|
$
|
5,727
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt assumed by Ventas / HCP in sale/leaseback transactions
|
|
$
|
|
|
|
$
|
45,535
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-7
CAPITAL
SENIOR LIVING CORPORATION
December 31, 2007
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, 2007, 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, 24
senior living communities that the Company leased and three
senior living communities it managed for third parties. As of
December 31, 2007, 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. All material
intercompany balances and transactions have been eliminated in
consolidation. The Company accounts for significant investments
in unconsolidated companies, in which the Company has
significant influence, using the equity method of accounting.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Cash
and Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with
original maturities of three months or less at the date of
acquisition to be cash equivalents. The Company has deposits in
banks that exceed Federal Deposit Insurance Corporation
insurance limits. Management believes that credit risk related
to these deposits is minimal.
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. Based on this analysis the Company does not believe
there are any indicators that would require an adjustment to the
carrying value of the property and equipment or their remaining
useful lives as of December 31, 2007 and 2006.
Assets
Held for Sale
Assets are classified as held for sale when the Company has
committed to selling the asset and believes that it will be
disposed of within one year. 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 had two parcels of land
held for sale at December 31, 2007. 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.
In March 2007, the Company sold one parcel of land located in
Baton Rouge, Louisiana that had been classified as held for
sale. The land parcel sold for $0.5 million, net of closing
costs, resulting in a gain on sale of approximately
$0.1 million.
F-8
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In May 2007, the Company sold one parcel of land located in
Miami Township, Ohio that had been classified as held for sale
to a joint venture (SHP III/CSL Miami), which is
owned 90% by Senior Housing Partners III LP (SHP
III), a fund owned by Prudential Real Estate Investors
(Prudential), and 10% by the Company, for
$0.6 million resulting in a loss on sale of approximately
$3,000. In addition, during the second quarter of fiscal 2007,
management reclassified a parcel of land in Carmichael,
California to held for sale. The Company estimated on the date
of reclassification that the fair value of the land parcel
exceeded its carrying value of $0.5 million.
In November 2007, the Company sold one parcel of land located in
Richmond Heights, Ohio that had been classified as held for sale
to a joint venture (SHP III/CSL Richmond Heights)
which is owned 90% by SHP III and 10% by the Company, for
$0.8 million resulting in a gain on sale of approximately
$0.3 million, which has been deferred and will be
recognized into income over the period required to construct and
stabilize the senior living community.
The Company estimates the two parcels of land that were held for
sale at December 31, 2007 had an aggregate fair value, net
of costs of disposal, that exceeds the carrying value of
$1.0 million. One of the remaining parcels of land was sold
during the first quarter of fiscal 2008 at an amount that
exceeded its carrying value. The amount that the Company will
ultimately realize on the remaining parcel of land 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 four
other joint ventures. 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.
Development
Guarantees
The Company, on three joint venture developments, has guarantees
that the communities will be completed at the budgeted costs
approved by the joint venture members. These costs include the
hard and soft construction costs and operating costs until each
community reaches stabilization. The budgeted costs include
contingency reserves for potential costs overruns and other
unforeseen costs. In addition, each of these joint ventures has
entered into a guaranteed fixed price construction contract with
the general contractor on each of the developments. The Company
would be required to fund these guarantees if the actual
development costs incurred by the joint venture exceed the
budgeted costs for the development. The terms of these
guarantees generally do not provide for a limitation on the
maximum potential future payments. The Company has not made any
payments under these guarantees and currently does not expect to
be required to make any payments under these guarantees.
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. At
December 31, 2007, the Company had recorded on its
consolidated balance sheet deferred tax assets of
$13.8 million. Management regularly evaluates the future
realization of deferred tax assets and provides a valuation
allowance, if considered necessary, based on such evaluation. As
part of that evaluation, management has evaluated future
expecations of net income. However, the benefits of the net
deferred tax asset might not be realized if actual results
differ from expectations. The Company believes that based upon
this analysis that the realization of the net deferred tax asset
is reasonably assured and therefore has not provided for a
valuation allowance.
F-9
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company adopted Financial Accounting Standards Board
(FASB) Interpretation No. 48, Accounting
for Uncertainty in Income Taxes An Interpretation of
FASB Statement No. 109 (FIN 48) on
January 1, 2007. This standard clarifies the accounting for
income tax benefits that are uncertain in nature. Under
FIN 48, the Company is required to 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. FIN 48 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 was
required to be recorded to retained earnings as of
January 1, 2007. The Companys policy is to recognize
interest related to unrecognized tax benefits as interest
expense and penalties as income tax expense. The Company is not
subject to income tax examinations for tax years prior to 2003.
The adoption of FIN 48 did not have a material effect on
the Companys results of operations or financial position.
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%, 6% and 7% of the Companys revenue in
fiscal 2007, 2006 and 2005, 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 upon 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.
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, 2007, the Company leased 24
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
F-10
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
lease expense in the Companys statement of operations
includes rent expense plus amortization expense relating to
leasehold acquisition costs.
Certain leases entered into by the Company qualified as
sale/leaseback transactions under the provisions of Financial
Accounting Standard No. 98 (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
limited 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 was less
than 7%. If one-month LIBOR was greater than 7%, the agreement
effectively limited 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. The remaining balance of the interest rate
cap was sold in May 2007, resulting in net proceeds of
$0.1 million and a gain on sale of approximately $28,000.
During fiscal 2007 and 2006, the Company received 37,000 and
$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 were
being amortized to interest expense over the life of the
agreements.
The Company used interest rate lock and interest rate swap
agreements for purposes other than trading. The Company 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%. The Company
reflected the interest rate lock agreements at fair value in the
Companys consolidated balance sheet (Other long-term
liabilities) and related gains and losses were recognized in the
consolidated statements of operations. The Company recognized a
loss of $0.6 million during fiscal 2005 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 bore interest
at LIBOR plus 250 with principal amortized over a seven year
term. In January 2007, the Company paid $5.0 million to
KeyBank to repay the note.
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, 2007, 2006 and 2005 were
$6.0 million, $5.6 million and $4.8 million,
respectively.
F-11
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Net
Income (Loss) Per Share
Basic net income (loss) per share is calculated by dividing net
income (loss) by the weighted average number of common shares
outstanding during the period. Diluted net income (loss) per
share considers the dilutive effect of outstanding options
calculated using the treasury stock method. The average daily
price of the stock during 2007, 2006 and 2005 was $9.79, $10.15
and $7.20, respectively, per share. Options to purchase
39,000 shares of common stock were outstanding during
fiscal 2007 but were not included in the computation of diluted
earnings per share as the effect would have been antidilutive.
In addition, due to net losses in fiscal 2006 and 2005 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 income (loss) per share (in thousands, except for
per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net income (loss)
|
|
$
|
4,360
|
|
|
$
|
(2,600
|
)
|
|
$
|
(5,354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
|
26,205
|
|
|
|
26,014
|
|
|
|
25,827
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
|
432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
|
26,637
|
|
|
|
26,014
|
|
|
|
25,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share
|
|
$
|
0.17
|
|
|
$
|
(0.10
|
)
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share
|
|
$
|
0.16
|
|
|
$
|
(0.10
|
)
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
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.
On May 8, 2007, the Companys shareholders approved
the 2007 Omnibus Stock and Incentive Plan for Capital Senior
Living Corporation (the 2007 Plan) which provides
for, among other things, the grant of restricted stock awards
and stock options to purchase shares of the Companys
common stock. The 2007 Plan authorizes the Company to issue up
to 2.6 million shares of common stock and the Company has
reserved 2.5 million shares of common stock for future
issuance pursuant to awards under the 2007 Plan. Effective
May 8, 2007, the 1997 Omnibus Stock and Incentive Plan (as
amended, the 1997 Plan) was terminated and no
additional shares will be granted under the 1997 Plan. The
Company has reserved 0.9 million shares of common stock for
future issuance upon the exercise of outstanding stock options
pursuant to the 1997 Plan.
Recently
Issued Accounting Standards
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
F-12
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 adoption of FAS 157 is not
expected to have a material effect on the Companys
financial statements.
FASB Statement No. 159, Fair Value Option for
Financial Assets and Financial Liabilities Including
an amendment of FASB Statement 115
(FAS 159). In February 2007, FASB issued
FAS 159, which permits, but does not require, entities to
measure many financial instruments, including liabilities and
certain other items, at fair value with resulting changes in
fair value reported in earnings. The Company is required to
adopt FAS 159 on January 1, 2008 and the adoption of
FAS 159 is not expected to have a material effect on the
Companys financial statements.
FASB Statement No. 141(R) Business Combinations
(FAS 141(R)). In December 2007 FASB issued
FAS 141(R) requires the acquiring entity in a business
combination to recognize the full fair value of assets acquired
and liabilities assumed in the transaction (whether a full or
partial acquisition); establishes the acquisition-date fair
value as the measurement objective for all assets acquired and
liabilities assumed; requires expensing of most transaction and
restructuring costs; and requires the acquirer to disclose to
investors and other users all of the information needed to
evaluate and understand the nature and financial effect of the
business combination. FAS 141(R) applies prospectively to
business combinations for which the acquisition date is on or
after January 1, 2009. The impact of FAS 141(R) on the
Companys consolidated financial statements will depend
upon the nature, terms and size of the acquisitions we
consummate after the effective date.
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. The Companys
income statements separately reflect community reimbursement
revenue and expense. Pursuant to Emerging Issues Task Force
(EITF) Issue
No. 01-14,
Income Statement Characterization of 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 statement of operations for the year
ended December 31, 2005 to be consistent with the
presentation for the years ended December 31, 2007 and
2006. This classification resulted in an increase in total
revenues and total operating expenses from the amounts
previously reported by $21.2 million in fiscal 2005. 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
F-13
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
|
|
3.
|
Transactions
with Affiliates
|
Midwest
I
In January 2006, the Company announced the formation of Midwest
Portfolio Holdings, L.P., (Midwest I) with GE
Healthcare Financial Services (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. 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
earnings in the equity of Midwest I of $8,000 in fiscal 2007
compared to a loss in the equity of Midwest I of $9,000 in
fiscal 2006. The Company earned $0.5 million and
$0.4 million in management fees on the Midwest I
communities in fiscal 2007 and 2006, respectively. During the
second quarter of fiscal 2007, Midwest I finalized its purchase
price allocation on the five communities it acquired in fiscal
2006, resulting in a noncash charge of $0.1 million being
recognized by the Company. The final purchase price allocation
resulted in more of the purchase price being allocated to assets
with shorter economic lives, which resulted in additional
depreciation and amortization expense.
Midwest
II
In August 2006, the Company announced the formation of Midwest
Portfolio Holding II, L.P. (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 has contributed
$1.5 million for its interests in Midwest II. 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 $0.3 million and $0.1 million in
fiscal 2007 and 2006, respectively. The Company earned
$0.5 million and $0.2 million in management fees on
the Midwest II communities in fiscal 2007 and 2006,
respectively. During the second quarter of fiscal 2007,
Midwest II finalized its purchase price allocation on the
three communities it acquired in fiscal 2006, resulting in a
noncash charge of $0.2 million being recognized by the
Company. The final purchase price allocation resulted in more of
the purchase price being allocated to assets with shorter
economic lives, which resulted in additional depreciation and
amortization expense.
SHPII/CSL
In November 2004, the Company and Senior Housing Partners II, LP
(SHPII) formed four joint ventures (collectively,
SHPII/CSL) that own four senior living communities
(the Spring Meadows Communities). SHPII/CSL is owned
95% by SHPII and 5% by the Company. 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 $0.3 million, $0.1 million and
$0.2 million in fiscal 2007, 2006 and 2005, respectively.
In addition, the Company earned $1.2 million,
$1.1 million and $1.0 million in management fees on
the Spring Meadows Communities in fiscal 2007, 2006 and 2005,
respectively.
SHPIII/CSL
Miami
In May 2007, the Company and SHPIII entered into SHPIII/CSL
Miami to develop a senior housing community in Miamisburg, Ohio.
Under the joint venture and related agreements, the Company will
earn
F-14
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
development and management fees and may receive incentive
distributions. The senior housing community will consist of 101
independent living units and 45 assisted living units and is
expected to open in the second or third quarter of 2008. As of
December 31, 2007 the Company had made capital
contributions of $0.8 million to the joint venture. In addition,
the Company earned $0.7 million in development fees from
SHPIII/CSL Miami during fiscal 2007.
SHPIII/CSL
Richmond Heights
In November 2007, the Company and SHPIII entered into SHPIII/CSL
Richmond Heights to develop a senior housing community in
Richmond Heights, Ohio. Under the joint venture and related
agreements, the Company will earn development and management
fees and may receive incentive distributions. The senior housing
community will consist of 97 independent living units and 45
assisted living units and is expected to open in the first
quarter of 2009. As of December 31, 2007 the Company had
made capital contributions of $0.3 million to the joint
venture. In addition, the Company earned $0.1 million in
development fees from SHPIII/CSL Richmond Heights during fiscal
2007.
SHPIII/CSL
Levis Commons
In December 2007, the Company and SHPIII entered into a joint
venture agreement (SHPIII/CSL Levis Commons) to
develop a senior housing community near Toledo, Ohio. Under the
joint venture and related agreements, the Company will earn
development and management fees and may receive incentive
distributions. The senior housing community will consist of 101
independent living units and 45 assisted living units and is
expected to open in the first quarter of 2009. As of
December 31, 2007 the Company had made capital
contributions of $0.2 million to the joint venture. In
addition, the Company earned $22,000 in development fees from
SHPIII/CSL Levis Commons during fiscal 2007.
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. In September 2005, Ventas acquired the six
communities owned by BRE/CSL and the Company entered into a
series of lease agreements whereby the Company leases the six
communities from Ventas. In March 2007, the Company received a
final distribution from BRE/CSL of $0.4 million relating to
the sale of six communities owned by BRE/CSL to Ventas. This
distribution resulted in the recognition of an additional gain
of $0.4 million, which has been deferred and is being
amortized in the Companys statement of operations over the
remaining initial lease term.
F-15
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
Facility
Lease Transactions
|
The Company currently leases 24 communities with certain real
estate investment trusts (REITs) and accounts for
each of the leases as an operating lease. The lease terms are
generally for ten years with renewal options for
10-20 years
at the Companys option. Under these agreements the Company
is responsible for all operating costs, maintenance and repairs,
insurance and property taxes. The following table further
describes each of the lease agreements (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
|
|
|
Deferred
|
|
|
|
|
|
Number of
|
|
|
Value of
|
|
|
|
|
Initial
|
|
Acquisition
|
|
|
Gains/Lease
|
|
Landlord
|
|
Date of Lease
|
|
Communities
|
|
|
Transaction
|
|
|
Term
|
|
Lease Rate(1)
|
|
Costs(2)
|
|
|
Concession(3)
|
|
|
Ventas
|
|
September 30, 2005
|
|
|
6
|
|
|
$
|
84.6
|
|
|
10 years
(Two five-year renewals)
|
|
8%
|
|
$
|
1.3
|
|
|
$
|
4.6
|
|
Ventas
|
|
October 18, 2005
|
|
|
1
|
|
|
|
19.5
|
|
|
10 years
(Two five-year renewals)
|
|
8%
|
|
|
0.2
|
|
|
|
|
|
Ventas
|
|
March 31,2006
|
|
|
1
|
|
|
|
29.0
|
|
|
10 years
(Two five-year renewals)
|
|
8%
|
|
|
0.1
|
|
|
|
14.3
|
|
Ventas
|
|
June 8, 2006
|
|
|
1
|
|
|
|
19.1
|
|
|
9.5 years
(Two five-year renewals)
|
|
8%
|
|
|
0.4
|
|
|
|
|
|
HCP
|
|
May 1, 2006
|
|
|
3
|
|
|
|
54.0
|
|
|
10 years
(Two ten-year renewals)
|
|
8%
|
|
|
0.2
|
|
|
|
12.8
|
|
HCP
|
|
May 31, 2006
|
|
|
6
|
|
|
|
43.0
|
|
|
10 years
(Two ten-year renewals)
|
|
8%
|
|
|
0.2
|
|
|
|
0.6
|
|
HCP
|
|
December 1, 2006
|
|
|
4
|
|
|
|
51.0
|
|
|
10 years
(Two ten-year renewals)
|
|
8%
|
|
|
0.7
|
|
|
|
|
|
HCP
|
|
December 14, 2006
|
|
|
1
|
|
|
|
18.0
|
|
|
10 years
(Two ten-year renewals)
|
|
7.75%
|
|
|
0.3
|
|
|
|
|
|
HCP
|
|
April 11, 2007
|
|
|
1
|
|
|
|
8.0
|
|
|
10 years
(Two ten-year renewals)
|
|
7.25%
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.5
|
|
|
|
32.3
|
|
Accumulated amortization
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
Accumulated deferred gain recognized
|
|
|
|
|
|
|
|
|
5.9
|
|
|
|
|
|
|
|
|
|
|
|
|
Net lease acquisition costs/deferred gains as of
December 31, 2007
|
|
|
|
$
|
2.9
|
|
|
$
|
26.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Initial lease rates are subject to conditional lease escalation
provisions as set forth in each lease agreement. |
|
(2) |
|
Lease acquisition costs are being amortized over the
leases initial term. |
|
(3) |
|
Deferred gains of $31.7 million are being recognized in the
Companys statement of operations as gain on sale of assets
over the leases initial term. Lease concessions of
$0.6 million, which relates only to the HCP transaction on
May 31, 2007, is being recognized in the Companys
statement of operations as facility rent expense over the
leases initial term. |
In April 2007, HCP, Inc. (HCP) acquired a senior
living community in Cedar Hill, Texas (Crescent
Place), which was previously owned by the Covenant Group
of Texas, Inc. (Covenant) and managed by the
Company, in a transaction valued at approximately
$8.0 million and immediately leased Crescent Place to the
Company. In connection with this transaction, the Companys
previous management agreement with Covenant was terminated.
|
|
6.
|
Acquisitions/Disposition
|
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
F-16
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
|
|
2007
|
|
|
2006
|
|
|
Land
|
|
|
|
$
|
17,981
|
|
|
$
|
18,504
|
|
Land improvements
|
|
5 to 20 years
|
|
|
936
|
|
|
|
782
|
|
Buildings and building improvements
|
|
10 to 40 years
|
|
|
324,435
|
|
|
|
322,064
|
|
Furniture and equipment
|
|
5 to 10 years
|
|
|
11,767
|
|
|
|
11,219
|
|
Automobiles
|
|
5 to 7 years
|
|
|
553
|
|
|
|
397
|
|
Leasehold improvements
|
|
(1)
|
|
|
7,752
|
|
|
|
3,217
|
|
Construction in progress
|
|
(2)
|
|
|
1,606
|
|
|
|
790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
365,030
|
|
|
|
356,973
|
|
Less accumulated depreciation
|
|
|
|
|
54,588
|
|
|
|
43,404
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
$
|
310,442
|
|
|
$
|
313,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Leasehold improvements are amortized over the shorter of the
useful life of the asset or the remaining lease term. |
|
(2) |
|
Construction in progress in fiscal 2007 includes
$1.6 million of capitalized computer software development
costs. |
Other assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Deferred loan costs
|
|
$
|
2,801
|
|
|
$
|
2,884
|
|
Deferred lease costs
|
|
|
2,887
|
|
|
|
3,055
|
|
Security and other deposits
|
|
|
10,137
|
|
|
|
10,980
|
|
Other
|
|
|
629
|
|
|
|
208
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,454
|
|
|
$
|
17,127
|
|
|
|
|
|
|
|
|
|
|
F-17
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accrued expenses consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Accrued salaries, bonuses and related expenses
|
|
$
|
3,957
|
|
|
$
|
3,715
|
|
Accrued property taxes
|
|
|
5,436
|
|
|
|
4,609
|
|
Accrued interest
|
|
|
1,002
|
|
|
|
1,015
|
|
Accrued health claims
|
|
|
946
|
|
|
|
744
|
|
Other
|
|
|
1,441
|
|
|
|
1,141
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,782
|
|
|
$
|
11,224
|
|
|
|
|
|
|
|
|
|
|
Notes payable consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes Payable
|
|
|
|
Monthly
|
|
|
Net Book Value
|
|
|
Interest
|
|
|
|
|
December 31,
|
|
Lender
|
|
Payment
|
|
|
of Collateral(3)
|
|
|
Rate
|
|
|
Maturity Date
|
|
2007
|
|
|
2006
|
|
|
Freddie Mac
|
|
$
|
735
|
|
|
$
|
139,144
|
|
|
|
6.29
|
%
|
|
July 2015
|
|
$
|
107,468
|
|
|
$
|
109,291
|
|
Capmark
|
|
|
242
|
|
|
|
46,274
|
|
|
|
5.46
|
|
|
August 2015
|
|
|
37,397
|
|
|
|
38,177
|
|
Fannie Mae
|
|
|
178
|
|
|
|
35,479
|
|
|
|
5.91
|
|
|
May 2017
|
|
|
29,835
|
|
|
|
|
|
Freddie Mac
|
|
|
46
|
|
|
|
8,804
|
|
|
|
5.75
|
|
|
March 2017
|
|
|
9,500
|
|
|
|
|
|
Lehman
|
|
|
44
|
|
|
|
7,135
|
|
|
|
8.20
|
|
|
September 2009
|
|
|
4,872
|
|
|
|
4,989
|
|
Lehman(1)
|
|
|
|
|
|
|
|
|
|
|
5.70
|
|
|
November 2008
|
|
|
3,323
|
|
|
|
3,139
|
|
Insurance Financing
|
|
|
464
|
|
|
|
|
|
|
|
5.60
|
|
|
April 2008
|
|
|
1,833
|
|
|
|
1,457
|
|
Insurance Financing
|
|
|
55
|
|
|
|
|
|
|
|
5.50
|
|
|
October 2008
|
|
|
540
|
|
|
|
|
|
Capmark
|
|
|
|
|
|
|
|
|
|
|
8.00
|
|
|
June 2009
|
|
|
|
|
|
|
32,824
|
|
Fannie Mae
|
|
|
|
|
|
|
|
|
|
|
7.08
|
|
|
January 2010
|
|
|
|
|
|
|
1,665
|
|
Fannie Mae
|
|
|
|
|
|
|
|
|
|
|
7.69
|
|
|
January 2008
|
|
|
|
|
|
|
5,317
|
|
KeyBank
|
|
|
|
|
|
|
|
|
|
|
7.88
|
|
|
January 2011
|
|
|
|
|
|
|
4,977
|
|
Covenant Group of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas, Inc.(2)
|
|
|
|
|
|
|
|
|
|
|
5.70
|
|
|
August 2009
|
|
|
|
|
|
|
921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,764
|
|
|
|
|
|
|
|
6.07
|
%(4)
|
|
|
|
|
194,768
|
|
|
|
202,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,035
|
|
|
|
6,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
185,733
|
|
|
$
|
196,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 before November 29, 2010. The Company
expects to repay the note on or before November 29, 2008
and therefore recorded the note at $2.8 million (face
amount $3.5 million discounted at 5.7%). |
|
(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. During fiscal 2007, Covenant executed an amendment |
F-18
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
to the stock purchase agreement releasing the Company from any
future obligations under the Companys note payable to
Covenant. As a result the Company recognized management services
revenue of approximately $0.9 million during fiscal 2007. |
|
(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 on current debt outstanding. |
The aggregate maturities of notes payable at December 31,
2007, are as follows (in thousands):
|
|
|
|
|
2007
|
|
$
|
9,035
|
|
2008
|
|
|
8,304
|
|
2009
|
|
|
3,843
|
|
2010
|
|
|
4,084
|
|
2011
|
|
|
4,311
|
|
Thereafter
|
|
|
165,191
|
|
|
|
|
|
|
|
|
$
|
194,768
|
|
|
|
|
|
|
The Companys second installment on its note payable to
Covenant, which was due on August 15, 2007, was reduced by
$0.4 million pursuant to the terms of the stock purchase
agreement, resulting in no amount due to Covenant and a
reduction in the Companys note payable to Covenant of
approximately $0.3 million, which was reflected as
management services revenue in the Companys consolidated
statement of operations. In addition, under the terms of the
purchase agreement, the Company had the right to recapture
certain contingent payments made to Covenant if the Company did
not receive the required minimum management services revenue set
forth in the stock purchase agreement. As a result of these
provisions, during the third quarter of fiscal 2007, the Company
recorded a receivable and management services revenue of
approximately $0.4 million. During the fourth quarter of
fiscal 2007, Covenant paid this receivable and executed an
amendment to the stock purchase agreement releasing the Company
from any future obligations under the Companys note
payable to Covenant. As a result the Company recognized
additional management services revenue of approximately
$0.6 million in the fourth quarter of fiscal 2007. The
total amount recognized in fiscal 2007 as management services
revenue was $1.3 million.
On October 31, 2007, the Company renewed certain insurance
policies and entered into a finance agreement totaling
$0.6 million. The finance agreement has a fixed interest
rate of 5.50% with principal being repaid over an
11-month
term.
On May 31, 2007, the Company renewed certain insurance
policies and entered into a finance agreement totaling
$4.5 million. The finance agreement has a fixed interest
rate of 5.60% with principal being repaid over a
10-month
term.
On May 3, 2007, the Company refinanced $30.0 million
of mortgage debt on four senior living communities with Federal
National Mortgage Association (Fannie Mae). As part
of the refinancing, the Company repaid approximately
$2.7 million of mortgage debt on the four communities. The
new mortgage loans have a ten-year term with interest fixed at
5.91% and principal amortized over a
30-year
term. The Company incurred $0.5 million in deferred
financing costs related to this loan, which is being amortized
over ten years. In addition, as part of this refinancing, the
Company wrote-off $0.4 million in deferred loan costs. The
new loans replaced $32.7 million of variable rate debt with
an effective interest rate of 7.6%.
On March 21, 2007, the Company refinanced $9.5 million
of mortgage debt on one of its senior living communities
(Gramercy Hill) with Federal Home Loan Mortgage
Corporation (Freddie Mac). As part of the
refinancing, the Company received approximately
$2.1 million in cash proceeds, net of closing costs. The
new mortgage loan has a ten-year term with a one-year extension
available at the Companys option, interest fixed at 5.75%
and requires interest only payments in the first two years with
principal amortized thereafter over a
25-year
F-19
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
term. The Company incurred $0.2 million in deferred
financing costs related to this loan, which is being amortized
over ten years. In addition, as part of this refinancing, the
Company wrote-off $13,000 in deferred loan costs and paid
$0.2 million in loan exit fees to the prior lender. The
loan exit fees are a component of write-off of deferred loan
costs in the accompanying statement of operations.
On March 15, 2007, the Company issued three standby letters
of credit, totaling $2.2 million, for the benefit of HCP on
certain leases between HCP and the Company. The fees on the
letters of credit are based on 2.0% of the issued amount.
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 each 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. 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.
Effective January 31, 2005, the Company entered into
interest rate cap agreements with two commercial banks to reduce
the impact of increases in interest rates on the Companys
variable rate loans. One interest rate cap agreement effectively
limited the interest rate exposure on $100 million notional
amount to a maximum LIBOR of 5%, as long as one-month LIBOR was
less than 7%. If one-month LIBOR was greater than 7%, the
agreement effectively limited 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. The remaining balance of the interest rate
cap was sold in May 2007, resulting in net proceeds of
$0.1 million and a gain on sale of approximately $28,000.
During fiscal 2007 and 2006, the Company received $37,000 and
$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 were
being amortized to interest expense over the life of the
agreements.
The Company used interest rate lock and interest rate swap
agreements for purposes other than trading. The Company 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%. The Company
reflected the interest rate lock agreements at fair value in the
Companys consolidated balance sheet (Other long-term
liabilities) and related gains and losses were recognized in the
consolidated statements of operations. The Company recognized a
loss of $0.6 million during fiscal 2005 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 bore interest
at LIBOR plus 250 with principal amortized over a seven year
term. In January 2007, the Company paid $5.0 million to
KeyBank to repay the note.
In connection with the Companys loan commitments described
above, the Company incurred $0.9 million and
$3.1 million in fiscal 2007 and 2006, respectively, in
financing charges that were deferred and amortized over the life
of the notes. At December 31, 2007 and 2006, the Company
had gross deferred loan cost of $3.4 million.
F-20
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accumulated amortization was $0.6 million and
$0.5 million at December 31, 2007 and 2006,
respectively. Amortization expense is expected to be
$0.3 million in each of fiscal 2008, 2009, 2010 2011 and
2012. In connection with the refinancings and the repayment of
notes, the Company wrote-off $0.5 million and
$1.9 million in deferred loan cost in fiscal 2007 and 2006,
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, 2007 and 2006.
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, 2007 and 2006.
|
|
12.
|
Stock-Based
Compensation
|
On May 8, 2007, the Companys shareholders approved
the 2007 Omnibus Stock and Incentive Plan for Capital Senior
Living Corporation which provides for, among other things, the
grant of restricted stock awards and stock options to purchase
shares of the Companys common stock. The 2007 Plan
authorizes the Company to issue up to 2.6 million shares of
common stock and the Company has reserved 2.5 million
shares of common stock for future issuance pursuant to awards
under the 2007 Plan. Effective May 8, 2007, the 1997
Omnibus Stock and Incentive Plan was terminated and no
additional shares will be granted under the 1997 Plan. The
Company has reserved 0.9 million shares of common stock for
future issuance upon the exercise of outstanding stock options
pursuant to 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.
A summary of the Companys stock option activity and
related information for the years ended December 31, 2007,
2006 and 2005 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Options
|
|
|
|
Year
|
|
|
Granted
|
|
|
Exercised
|
|
|
Forfeited
|
|
|
End of Year
|
|
|
Exercisable
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
1,026,682
|
|
|
|
|
|
|
|
81,348
|
|
|
|
8,000
|
|
|
|
937,334
|
|
|
|
932,334
|
|
Weighted average price
|
|
$
|
4.80
|
|
|
$
|
|
|
|
$
|
4.07
|
|
|
$
|
3.40
|
|
|
$
|
4.87
|
|
|
$
|
4.87
|
|
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
|
|
F-21
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The options outstanding and the options exercisable at
December 31, 2007 had an intrinsic value of
$4.8 million and $4.7 million, respectively. The fair
value of the 18,500 shares, 41,000 shares and
206,126 shares that vested in fiscal 2007, 2006 and 2005
was $0.2 million, $0.2 million and $1.1 million,
respectively.
The following table summarizes information relating to the
Companys options outstanding and options exercisable as of
December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
Number
|
|
|
Weighted Average
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
Outstanding at
|
|
|
Remaining
|
|
|
Weighted Average
|
|
|
Exercisable at
|
|
|
Weighted Average
|
|
Range of Exercise Prices
|
|
12/31/07
|
|
|
Contractual Life
|
|
|
Exercise Price
|
|
|
12/31/07
|
|
|
Exercise Price
|
|
|
$1.80 to $2.73
|
|
|
216,224
|
|
|
|
3.72
|
|
|
$
|
1.81
|
|
|
|
216,224
|
|
|
$
|
1.81
|
|
$3.02 to $4.85
|
|
|
235,230
|
|
|
|
2.63
|
|
|
$
|
3.68
|
|
|
|
233,230
|
|
|
$
|
3.68
|
|
$5.30 to $10.97
|
|
|
485,880
|
|
|
|
4.70
|
|
|
$
|
6.81
|
|
|
|
482,880
|
|
|
$
|
6.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.80 to $10.97
|
|
|
937,334
|
|
|
|
3.95
|
|
|
$
|
4.87
|
|
|
|
932,334
|
|
|
$
|
4.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Stock
The Company can grant restricted stock to its employees and
directors under its incentive stock plan. 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.
A summary of the Companys restricted common stock awards
activity and related information for the year ended
December 31, 2007, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
|
Year
|
|
|
Issued
|
|
|
Vested
|
|
|
Forfeited
|
|
|
End of Year
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
283,445
|
|
|
|
113,000
|
|
|
|
117,857
|
|
|
|
21,730
|
|
|
|
256,858
|
|
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, 2007 and
2006 had an intrinsic value of $2.6 million and
$2.9 million, respectively.
During fiscal 2007, the Company awarded 113,000 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 $10.21. These awards of restricted shares vest over a
four-year period and had an intrinsic value of $1.2 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 2007 Plan and
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.
F-22
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table shows the effect on net income (loss) and
income (loss) per share as if the fair value method had been
applied to all outstanding awards in fiscal 2007, 2006 and 2005.
The information for fiscal 2007 and 2006 is provided in the
table for purposes of comparability (in thousands, except per
share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net income (loss) as reported
|
|
$
|
4,360
|
|
|
$
|
(2,600
|
)
|
|
$
|
(5,354
|
)
|
Add: Stock-based employee compensation expense included in
reported net income (loss), net of related tax effects
|
|
|
585
|
|
|
|
645
|
|
|
|
160
|
|
Deduct: Total stock-based employee compensation expense
determined under the fair value method for all awards, net of
related tax effects
|
|
|
(585
|
)
|
|
|
(645
|
)
|
|
|
(776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss)
|
|
$
|
4,360
|
|
|
$
|
(2,600
|
)
|
|
$
|
(5,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share basic
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
0.17
|
|
|
$
|
(0.10
|
)
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$
|
0.17
|
|
|
$
|
(0.10
|
)
|
|
$
|
(0.23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
0.16
|
|
|
$
|
(0.10
|
)
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$
|
0.16
|
|
|
$
|
(0.10
|
)
|
|
$
|
(0.23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
(no stock options have been granted during fiscal 2007):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Expected volatility
|
|
|
|
|
|
|
50.8
|
%
|
|
|
52.4
|
%
|
Expected dividend yield
|
|
|
|
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected term in years
|
|
|
|
|
|
|
7.5
|
|
|
|
7.5
|
|
Risk free rate
|
|
|
|
|
|
|
5.1
|
%
|
|
|
4.3
|
%
|
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
F-23
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
$1.8 million not recognized as of December 31, 2007
and expects this expense to be recognized over approximately a
four-year period.
The provision (benefit) for income taxes consists of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(81
|
)
|
|
$
|
5,099
|
|
|
$
|
(178
|
)
|
State
|
|
|
871
|
|
|
|
1,304
|
|
|
|
513
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
3,351
|
|
|
|
(6,171
|
)
|
|
|
(2,547
|
)
|
State
|
|
|
(1,051
|
)
|
|
|
(1,141
|
)
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,090
|
|
|
$
|
(909
|
)
|
|
$
|
(2,273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision (benefit) for income taxes differed from the
amounts of income tax provision (benefit) determined by applying
the U.S. federal statutory income tax rate to income (loss)
before provision (benefit) for income taxes as a result of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Tax provision (benefit) at federal statutory rates
|
|
$
|
2,533
|
|
|
$
|
(1,193
|
)
|
|
$
|
(2,593
|
)
|
State income tax (benefit) expense, net of federal effects
|
|
|
(119
|
)
|
|
|
107
|
|
|
|
(426
|
)
|
Federal and state income tax return true up
|
|
|
667
|
|
|
|
178
|
|
|
|
526
|
|
Other
|
|
|
9
|
|
|
|
(1
|
)
|
|
|
220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,090
|
|
|
$
|
(909
|
)
|
|
$
|
(2,273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of the Companys deferred tax assets and
liabilities, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Deferred gain on sale/leaseback transaction
|
|
$
|
10,442
|
|
|
$
|
11,025
|
|
Depreciation and amortization
|
|
|
2,660
|
|
|
|
5,529
|
|
Net operating loss carryforward (expiring up to 2026)
|
|
|
923
|
|
|
|
634
|
|
Compensation costs
|
|
|
1,393
|
|
|
|
644
|
|
Investment in partnerships
|
|
|
2,178
|
|
|
|
1,752
|
|
Other
|
|
|
553
|
|
|
|
1,470
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
18,149
|
|
|
|
21,054
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Triad partnership interest
|
|
|
4,311
|
|
|
|
4,887
|
|
Other
|
|
|
18
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
4,329
|
|
|
|
4,934
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net
|
|
$
|
13,820
|
|
|
$
|
16,120
|
|
|
|
|
|
|
|
|
|
|
Current deferred tax assets, net
|
|
$
|
996
|
|
|
$
|
672
|
|
Long-term deferred tax assets, net
|
|
|
12,824
|
|
|
|
15,448
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net
|
|
$
|
13,820
|
|
|
$
|
16,120
|
|
|
|
|
|
|
|
|
|
|
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 evaluated the future
realization of deferred tax assets. Based on such evaluation,
the Company believes that the realization of the net deferred
tax asset is reasonably assured and therefore has not provided
for a valuation allowance.
As of December 31, 2007, the Company had no federal net
operating loss carryforwards. The Company has state operating
loss carryforwards of $22.2 million, and a related deferred
tax asset of $0.9 million.
The Company adopted the provisions of FIN 48 on
January 1, 2007 and its adoption did not have a material
effect on the Companys operations or financial position.
The Company is generally no longer subject to federal and state
tax audits for years before 2003.
|
|
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
$0.4 million, $0.3 million and $0.3 million were
contributed to the Plan in 2007, 2006 and 2005, respectively.
The Company incurred administrative expenses related to the Plan
of $10,800, $10,250 and $10,000 in 2007, 2006 and 2005,
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
F-25
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. In March 2006, the claim and
counterclaim were 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. The Company had requested
additional information from TPCIGA to verify that the Company
was indeed the employer of the individuals on whose behalf
TPCIGA had paid claims. TPCIGA had not provided sufficient
documentation at that time for the Company to fully evaluate
such 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. On March 1,
2007, the Company and TPCIGA settled all claims between the
parties.
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.
|
|
16.
|
Fair
Value of Financial Instruments
|
The carrying amounts and fair values of financial instruments at
December 31, 2007 and 2006 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Carrying
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Cash and cash equivalents
|
|
$
|
23,359
|
|
|
$
|
23,359
|
|
|
$
|
25,569
|
|
|
$
|
25,569
|
|
Notes payable
|
|
|
194,768
|
|
|
|
192,932
|
|
|
|
202,757
|
|
|
|
183,124
|
|
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.
Notes payable: The fair value of notes payable
is estimated using discounted cash flow analysis, based on
current incremental borrowing rates for similar types of
borrowing arrangements.
F-26
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
17.
|
Investments
in Joint Ventures
|
The investments in joint ventures consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Midwest I member interest
|
|
$
|
2,656
|
|
|
$
|
2,784
|
|
Midwest II member interest
|
|
|
1,083
|
|
|
|
1,249
|
|
SHPII/CSL member interests
|
|
|
1,211
|
|
|
|
1,220
|
|
SHPIII/CSL Miami member interest
|
|
|
758
|
|
|
|
|
|
SHPIII/CSL Richmond Heights member interest
|
|
|
250
|
|
|
|
|
|
SHPIII/CSL Levis Commons member interest
|
|
|
241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,199
|
|
|
$
|
5,253
|
|
|
|
|
|
|
|
|
|
|
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 earnings in the
equity of Midwest I of $8,000 compared to a loss in the equity
of Midwest I of $9,000 in fiscal 2006. The Company earned
$0.5 million and $0.4 million in management fees on
the Midwest I communities in fiscal 2007 and 2006, respectively.
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 has contributed
$1.5 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 $0.3 million and
$0.1 million in fiscal 2007 and 2006, respectively. The
Company earned $0.5 million and $0.2 million in
management fees on the Midwest II communities in fiscal
2007 and 2006, respectively.
SHPII/CSL: 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 to
SHPII/CSL for its 5% interest. The Company manages the Spring
Meadows 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 $0.3 million,
$0.1 million and $0.2 million in fiscal 2007, 2006 and
2005, respectively. The Company earned $1.2 million,
$1.1 million and $1.0 million in management fees on
the SHPII/CSL communities in fiscal 2007, 2006 and 2005,
respectively.
SHPIII/CSL Miami: In May 2007, the Company and
SHPIII entered into SHPIII/CSL Miami to develop a senior housing
community in Miamisburg, Ohio. Under the joint venture and
related agreements, the Company will earn development and
management fees and may receive incentive distributions. The
senior housing community will consist of 101 independent living
units and 45 assisted living units and is expected to open in
the second or third quarter of 2008. As of December 31,
2007 the Company had made capital contributions of
$0.8 million to SHPIII/
F-27
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CSL Miami. In addition, the Company earned $0.7 million in
development fees from SHPIII/CSL Miami during fiscal 2007.
SHPIII/CSL Richmond Heights: In November 2007,
the Company and SHPIII entered into SHPIII/CSL Richmond Heights
to develop a senior housing community in Richmond Heights, Ohio.
Under the joint venture and related agreements, the Company will
earn development and management fees and may receive incentive
distributions. The senior housing community will consist of 97
independent living units and 45 assisted living units and is
expected to open in the first quarter of 2009. As of
December 31, 2007 the Company had made capital
contributions of $0.3 million to SHPIII/CSL Richmond
Heights. In addition, the Company earned $0.1 million in
development fees from SHPIII/CSL Richmond Heights during fiscal
2007.
SHPIII/CSL Levis Commons: In December 2007,
the Company and SHPIII entered into SHPIII/CSL Levis Commons
to develop a senior housing community near Toledo, Ohio. Under
the joint venture and related agreements, the Company will earn
development and management fees and may receive incentive
distributions. The senior housing community will consist of 101
independent living units and 45 assisted living units and is
expected to open in the first quarter of 2009. As of
December 31, 2007 the Company had made capital
contributions of $0.2 million to SHPIII/CSL Levis Commons.
In addition, the Company earned $22,000 in development fees from
SHPIII/CSL Levis Commons during fiscal 2007.
|
|
18.
|
Allowance
for Doubtful Accounts
|
The components of the allowance for doubtful accounts and notes
receivable are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Balance at beginning of year
|
|
$
|
807
|
|
|
$
|
769
|
|
|
$
|
717
|
|
Provision for bad debts
|
|
|
330
|
|
|
|
121
|
|
|
|
258
|
|
Write-offs and other
|
|
|
(94
|
)
|
|
|
(84
|
)
|
|
|
(209
|
)
|
Recoveries
|
|
|
|
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
1,043
|
|
|
$
|
807
|
|
|
$
|
769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company currently leases 24 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
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 HCP Lease Agreements, which cover 15 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 HCP Lease Agreements range from
7.25% to 8% and are subject to certain conditional escalation
clauses which will be recognized when estimatable or incurred.
The initial terms on the HCP Lease Agreements expire on various
dates through December 2017. The Company incurred
$1.5 million in lease acquisition costs related to the HCP
Lease
F-28
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 terms and are
included in facility lease expense in the Companys
statement of operations. The Company accounts for each of the
HCP Lease Agreements as operating leases.
At December 31, 2007 and 2006, the Company had gross
deferred lease costs of $3.5 million and $3.3 million,
respectively. Accumulated amortization at December 31, 2007
and 2006 was $0.6 million and $0.3 million,
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 2013. The Company incurred
$27.5 million, $17.1 million and $2.6 million in
lease expense during fiscal 2007, 2006 and 2005, respectively.
Future commitments as of December 31, 2007 are as follows
(in thousands):
|
|
|
|
|
2008
|
|
$
|
27,516
|
|
2009
|
|
|
27,582
|
|
2010
|
|
|
27,528
|
|
2011
|
|
|
27,514
|
|
2012
|
|
|
27,502
|
|
Thereafter
|
|
|
86,321
|
|
|
|
|
|
|
|
|
$
|
223,963
|
|
|
|
|
|
|
In February 2008, Ventas acquired a senior living community
located in Keller, Texas (Whitley Place) in a
transaction valued at approximately $5.0 million and
immediately leased Whitley Place to the Company. Whitley Place
is comprised of 47 assisted living units with a resident
capacity of 65. The lease is for a ten-year term with two
five-year renewals options. The initial lease rate was
7.75 percent and is subject to conditional escalation
provisions.
In February 2008, the Company sold a parcel of land in
Carmichael, California for $1.2 million, resulting in net
proceeds of approximately $1.1 and a gain on sale of
approximately $0.7 million. This land was classified as
held for sale at December 31, 2007.
In February 2008, the Company sold a parcel of land in Lincoln,
Nebraska for approximately $0.2 million, resulting in net
proceeds of $0.2 million and a nominal gain. While the
Company was not marketing this parcel of land for sale, the
Company received an offer on the parcel of land and subsequent
to year end sold the land parcel.
F-29
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Capital Senior Living Corporation
We have audited Capital Senior Living Corporations
internal control over financial reporting as of
December 31, 2007, 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
included in the accompanying Managements Report on
Internal Control Over Financial Reporting. Our responsibility is
to express an opinion on 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, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, 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, Capital Senior Living Corporation maintained, in
all material respects, effective internal control over financial
reporting as of December 31, 2007, 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 sheets of Capital Senior Living Corporation
as of December 31, 2007 and 2006, and the related
consolidated statements of operations, shareholders
equity, and cash flows for each of the two years in the period
ended December 31, 2007, and our report dated
March 10, 2008, expressed an unqualified opinion thereon.
Dallas, Texas
March 10, 2008
F-30
INDEX TO
EXHIBITS
The following documents are filed as a part of this report.
Those exhibits previously filed and incorporated herein by
reference are identified below. Exhibits not required for this
report have been omitted.
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Exhibit
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|
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|
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Number
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|
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|
Description
|
|
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*3
|
.1
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|
|
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Amended and Restated Certificate of Incorporation of the
Registrant (Exhibit 3.1)
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(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)
|
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(c)3
|
.2.1
|
|
|
|
Amendments to Amended and Restated Bylaws of the Registrant
(Exhibit 3.2)
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(p)3
|
.2.2
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|
|
|
Amendment No. 2 to Amended and Restated Bylaws of the
Registrant (Exhibit 3.2.2)
|
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(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)
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4
|
.2
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|
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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)
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4
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.3
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|
|
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Form of Right Certificate (included as Exhibit B to the
Rights Agreement, which is Exhibit 4.1 hereto)
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4
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.4
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|
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Form of Summary of Rights (included as Exhibit C to the
Rights Agreement, which is Exhibit 4.1 hereto)
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4
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.5
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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)
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(h)10
|
.1
|
|
|
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1997 Omnibus Stock and Incentive Plan for Capital Senior Living
Corporation, as amended (Exhibit 4.1)
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(h)10
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.1.1
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|
|
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Form of Stock Option Agreement (Exhibit 4.2)
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*10
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.2
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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)
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*10
|
.3
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|
|
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Employment Agreement, dated as of November 1, 1996, by and
between Capital Senior Living Corporation and Lawrence A. Cohen
(Exhibit 10.11)
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*10
|
.4
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|
|
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Employment Agreement, dated as of November 26, 1996, by and
between Capital Senior Living, Inc. and David R. Brickman
(Exhibit 10.12)
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*10
|
.5
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|
|
|
Employment Agreement, dated as of November 26, 1996, by and
between Capital Senior Living, Inc. and Keith N. Johannessen
(Exhibit 10.13)
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*10
|
.6
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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)
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(a)10
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.7
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Multifamily Note, dated December 4, 1997, of Gramercy Hill
Enterprises in favor of Washington Mortgage Financial Group,
Ltd. (Exhibit 2.5)
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(a)10
|
.8
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|
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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)
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(a)10
|
.9
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Multifamily Note, dated October 28, 1998, of Capital Senior
Living Properties 2-Gramercy, Inc. in favor of WMF Washington
Mortgage Corp. (Exhibit 2.7)
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(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)
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|
(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)
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(b)10
|
.12
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|
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Form of Management Agreement by and between Capital Senior
Living, Inc. and applicable Triad Entity (Exhibit 10.55)
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Exhibit
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Number
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Description
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(b)10
|
.13
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Agreement of Limited Partnership of Triad Senior Living II, L.P.
dated September 23, 1998 (Exhibit 10.57)
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(b)10
|
.14
|
|
|
|
Agreement of Limited Partnership of Triad Senior Living III,
L.P. dated November 10, 1998 (Exhibit 10.58)
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|
(b)10
|
.15
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|
|
|
Agreement of Limited Partnership of Triad Senior Living IV, L.P.
dated December 22, 1998 (Exhibit 10.59)
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(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)
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|
(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)
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(c)10
|
.18
|
|
|
|
Employment Agreement, dated May 26, 1999, by and between
Lawrence A. Cohen and Capital Senior Living Corporation
(Exhibit 10.4)
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|
(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)
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|
(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)
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(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)
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|
(g)10
|
.22
|
|
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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)
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|
(i)10
|
.23
|
|
|
|
Employment Agreement, dated May 25, 1999, by and between
Ralph A. Beattie and Capital Senior Living Corporation
(Exhibit 10.76)
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|
(i)10
|
.24
|
|
|
|
Consulting/Severance Agreement, dated May 20, 1999, by and
between Jeffrey L. Beck and Capital Senior Living Corporation
(Exhibit 10.77)
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(i)10
|
.25
|
|
|
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Second Amended and Restated Agreement of Limited Partnership of
Triad Senior Living I, L.P. (Exhibit 10.78)
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|
(o)10
|
.25.1
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|
|
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Amendment No. 1 to Second Amended and Restated Agreement of
Limited Partnership of Triad Senior Living I, LP.
(Exhibit 10.105)
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(j)10
|
.26
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|
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First Amendment to Triad II Partnership Agreement
(Exhibit 10.4)
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(j)10
|
.27
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|
|
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Assignment of Note, Liens and Other Loan Documents between Fleet
National Bank and CSLI (Exhibit 10.6)
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|
(k)10
|
.28
|
|
|
|
Second Amendment to Amended and Restated Agreement and Plan of
Merger, dated November 28, 2000 (Exhibit 10.1)
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|
(k)10
|
.29
|
|
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|
First Amendment to Agreement, dated November 28, 2000
(Exhibit 10.2)
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|
(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)
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|
(l)10
|
.31
|
|
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|
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)
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|
(l)10
|
.32
|
|
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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)
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|
(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)
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Exhibit
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Number
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|
|
Description
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|
|
(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)
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|
(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 November 8, 2000, 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)
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|
(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 16, 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)
|
|
(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)
|
|
|
|
|
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|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
(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)
|
|
(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)
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
(dd)10
|
.79
|
|
|
|
Loan Agreement, dated June 20, 2006, by and between Triad
Senior Living III, L.P. and Capmark Bank. (Exhibit 10.1)
|
|
(ff)10
|
.80
|
|
|
|
2007 Omnibus Stock and Incentive Plan for Capital Senior Living
Corporation (Exhibit 4.6)
|
|
(ff)10
|
.81
|
|
|
|
First Amendment to 2007 Omnibus Stock and Incentive Plan for
Capital Senior Living Corporation (Exhibit 4.7)
|
|
(gg)10
|
.82
|
|
|
|
Multifamily Note dated May 3, 2007 executed by Triad Senior
Living III, L.P. in favor of Capmark Bank (Exhibit 10.1)
|
|
(gg)10
|
.83
|
|
|
|
Schedule identifying substantially identical agreements to
Exhibit 10.3 (Exhibit 10.2)
|
|
(gg)10
|
.84
|
|
|
|
Multifamily Deed of Trust, Assignment of Rents and Security
Agreement and Fixture Filing dated May 3, 2007 by Triad
Senior Living III, L.P. in favor of Chicago Title Insurance
Company, as trustee for the benefit of Capmark Bank.
(Exhibit 10.3)
|
|
(gg)10
|
.85
|
|
|
|
Schedule identifying substantially identical agreements to
Exhibit 10.5. (Exhibit 10.4)
|
|
(hh)10
|
.86
|
|
|
|
Asset Purchase Agreement, dated December 21, 2007, by and
among the sellers identified therein, Capital Senior Living
Acquisition, LLC and Hearthstone Senior Services, L.P.
(Exhibit 2.1)
|
|
(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)
|
|
(ii)21
|
.1
|
|
|
|
Subsidiaries of the Company
|
|
(ii)23
|
.1
|
|
|
|
Consent of Ernst & Young LLP
|
|
(ii)23
|
.2
|
|
|
|
Consent of KPMG LLP
|
|
(ii)31
|
.1
|
|
|
|
Certification of Chief Executive Officer required by
Rule 13a-14(a)
or
Rule 15d-14(a)
|
|
(ii)31
|
.2
|
|
|
|
Certification of Chief Financial Officer required by
Rule 13a-14(a)
or
Rule 15d-14(a)
|
|
(ii)32
|
.1
|
|
|
|
Certification of Lawrence A. Cohen pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
|
(ii)32
|
.2
|
|
|
|
Certification of Ralph A. Beattie pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
|
|
|
* |
|
Incorporated by reference to exhibit from the Registration
Statement
No. 333-33379
on
Form S-1
filed by the Company with the Securities and Exchange Commission. |
|
(a) |
|
Incorporated by reference to 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. |
|
|
|
(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) |
|
Incorporated by reference to the exhibit shown in parenthesis
from the Registration Statement on
Form S-8,
dated May 31, 2007, filed by the Company with the
Securities and Exchange Commission. |
|
(gg) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Current Report on
Form 8-K,
dated March 3, 2007, filed by the Company with the
Securities and Exchange Commission. |
|
(hh) |
|
Incorporated by reference to the exhibit shown in parentheses
from the Companys Current Report on
Form 8-K,
dated (hh) December 28, 2007, filed by the Company with the
Securities and Exchange Commission. |
|
(ii) |
|
Filed herewith. |