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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 1-13445
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CAPITAL SENIOR LIVING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-2678809
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14160 DALLAS PARKWAY, SUITE 300
DALLAS, TEXAS 75240
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 770-5600
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Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.01 par value New York Stock Exchange
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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 [X] No [ ]
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 registrant's knowledge, in definitive proxy statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the 9,423,684 shares of the Registrant's
Common Stock held by nonaffiliates, based upon the closing price of the
Registrant's Common Stock as reported by the New York Stock Exchange on March
16, 2001 was approximately $21,674,000. For purposes of this computation, all
officers, directors and 10% beneficial owners of the Registrant are deemed to be
affiliates. Such determination should not be deemed an admission that such
officers, directors or 10% beneficial owners are, in fact, affiliates of the
Registrant. As of March 16, 2001, 19,717,347 shares of Common Stock, $.01 par
value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive proxy statement pertaining to the 2001 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.
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CAPITAL SENIOR LIVING CORPORATION
TABLE OF CONTENTS
PAGE
NUMBER
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PART I
ITEM 1. BUSINESS.................................................... 1
ITEM 2. PROPERTIES.................................................. 18
ITEM 3. LEGAL PROCEEDINGS........................................... 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY; RELATED STOCKHOLDER
MATTERS................................................... 20
ITEM 6. SELECTED FINANCIAL DATA..................................... 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 23
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK...................................................... 30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................. 31
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 31
ITEM 11. EXECUTIVE COMPENSATION...................................... 31
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 31
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K....................................................... 32
SIGNATURES............................................................ 33
INDEX TO EXHIBITS..................................................... E-1
INDEX TO FINANCIAL STATEMENTS......................................... F-1
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PART I
ITEM 1. BUSINESS
OVERVIEW
Capital Senior Living 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. As of December 31, 2000, the
Company owned interests in and/or operated 50 communities in 21 states with a
capacity of approximately 8,200 residents, including 40 communities in which it
owned interests and 10 communities that it managed for third parties pursuant to
multi-year management contracts. As of December 31, 2000, the Company was
developing six new communities, which will have a capacity of approximately
1,000 residents, and was expanding one existing community to accommodate
approximately 25 additional residents. As of December 31, 2000, the Company also
operated one home care agency. Approximately 92% of the total revenues for the
senior living communities owned and managed by the Company as of December 31,
2000 are derived from private pay sources. During 2000, the communities that the
Company operated and in which it owned interests had an average occupancy rate
of approximately 93% and its managed communities had an average occupancy rate
of approximately 95%. The Company and its predecessors have provided senior
living services since 1990.
The Company was incorporated in Delaware in October 1996 in anticipation of
its initial public offering. Simultaneously with the consummation of its initial
public offering, the Company and the Company's founders engaged in a series of
transactions (the "Formation Transactions"), which resulted in the Company
acquiring certain assets, entities and partnership interests of its founders and
entities affiliated with its founders. The primary components of the Formation
Transactions were as follows:
- The stock of Capital Senior Living, Inc., Capital Senior Management 1,
Inc., Capital Senior Management 2, Inc., Capital Senior Development,
Inc., and Quality Home Care, Inc. was contributed by the Company's
founders in exchange for 7,687,347 shares of the Company's common stock
and notes aggregating approximately $18.1 million. The primary assets of
these entities consisted of third-party management contracts, development
contracts and a home health care agency. The notes were repaid with some
of the proceeds of the Company's initial public offering.
- The Company purchased substantially all of the assets of Capital Senior
Living Communities, L.P. ("CSLC") for the assumption of approximately $71
million in debt (the "LBHI Loan") and $5.8 million in cash. The LBHI Loan
was repaid with some of the proceeds of the Company's initial public
offering. The primary assets of CSLC were (i) four senior living
communities; (ii) approximately 56% of the limited partnership interests
in HealthCare Properties, L.P. ("HCP"); and (iii) approximately 31% of
certain notes (the "NHP Notes") issued by NHP Retirement Housing Partners
I Limited Partnership ("NHP"). The primary assets of NHP consisted of
five senior living communities. The Company currently owns 33% of the NHP
Notes.
The primary assets of HCP consisted of: (i) approximately $9.9 million in
cash and cash equivalents; (ii) four physical rehabilitation facilities; and
(iii) four skilled nursing facilities. The Company currently owns approximately
57% of the limited partnership interests of HCP. HCP has sold three of the
physical rehabilitation facilities.
On September 30, 1998, the Company acquired four of the five senior living
communities from NHP for cash consideration of $40.7 million. The purchase price
for the properties was determined by independent appraisal. The Company has
operated these communities under a long-term management contract since 1992 and
continues to manage NHP's remaining community, the Amberleigh in Buffalo, New
York.
On October 28, 1998, the Company acquired two senior living communities
from Gramercy Hill Enterprises ("Gramercy"), and Tesson Heights Enterprises
("Tesson"), for aggregate consideration of approximately $34 million.
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On August 15, 2000, the Company completed its merger (the "ILM Merger")
with ILM Senior Living, Inc. ("ILM") and the acquisition of the Villa Santa
Barbara property interest held by ILM II Senior Living, Inc. ("ILM II"). The
consummation of the ILM Merger and acquisition of the Villa Santa Barbara
property interest held by ILM II resulted in the Company acquiring ownership of
eight senior living communities with a capacity of approximately 1,300
residents. The Company had managed the ILM and ILM II communities since 1996
pursuant to management agreements with ILM and ILM II and continues to manage
the five remaining ILM II properties. The ILM Merger was accounted for as a
purchase and included total cash consideration for the eight communities of
approximately $97.6 million, consisting of $87.5 million to the ILM stockholders
and $10.1 million for ILM II's interest in the Villa Santa Barbara property. The
consideration was agreed upon as the result of arm's-length negotiations between
the parties to the ILM Merger and ILM II.
RECENT DEVELOPMENTS
On February 9, 2001, the Company announced that it was terminating its
merger agreement with ILM II. A tax issue disclosed in ILM II's Annual Report on
Form 10-K filed on January 31, 2001 could cause a material adverse change under
the merger agreement with ILM II, and therefore put the Company in the position
of having to terminate the merger agreement. The Company does not expect to
incur any additional costs related to the merger agreement. The Company
continues to manage the five remaining ILM II communities pursuant to the
existing management agreement.
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.
As a senior's 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 24-hour a day personal support services designed to aid elderly
residents with activities of daily living ("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 Alzheimer's 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.
The National Investment Conference estimates that as of 2000, 50% of senior
housing properties with supportive services in the U.S. are assisted living
communities, 34% are skilled nursing facilities, 7% are independent living
communities, 4% are continuing care retirement communities and 5% offer a
combination of property types.
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 professional training for
staff and provide only limited assistance with ADLs. The Company believes that
few senior living operators 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 the senior living industry will require large
capital infusions over the next 30 years to meet the growing demand for senior
living facilities. The National Investment Conference has estimated that gross
capital expenditures for the senior living marketplace will grow from $86
billion in 1996 to
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$126 billion in 2005 and to $490 billion in 2030, in order to accommodate
increasing demand. As a result, the Company believes there will continue to be
growth opportunities in the senior living market for providing services to the
elderly.
The Company believes that a number of demographic, regulatory, and other
trends will contribute to the continued growth in the senior living market, the
Company's targeted market for future development and expansion, including the
following:
Consumer Preference
The Company believes that senior living communities are increasingly
becoming the setting preferred by prospective residents and their families for
the care of the elderly. Senior living offers residents greater independence and
allows them to "age in place" in a residential setting, which the Company
believes results in a higher quality of life than that experienced in more
institutional or clinical settings.
The likelihood of living alone increases with age. Most of this increase is
due to an aging population in which women outlive men. In 1993, eight out of 10
noninstitutionalized elderly who lived alone were women. According to the United
States Bureau of Census, based on 1993 data, for women the likelihood of living
alone increases from 32% for 65- to 74-year-olds to 57% for those women aged 85
and older. Men show similar trends with 13% of the 65- to 74-year-olds living
alone rising to 29% of the men aged 85 and older living alone. Societal changes,
such as high divorce rates and the growing numbers of persons choosing not to
marry, have further increased the number of Americans living alone. This growth
in the number of elderly living alone has resulted in an increased demand for
services that historically have been provided by a spouse, other family members
or live-in caregivers.
Demographics
The primary market for the Company's 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 more than double by the year
2030. The population of seniors aged 85 and over has increased from
approximately 3.1 million in 1990 to over 4.3 million by 2000, an increase of
39%. This age cohort is expected to grow to approximately 6.0 million by 2010
and approximately 8.8 million by 2030. As the number of persons aged 75 and over
continues to grow, the Company believes that there will be corresponding
increases in the number of persons who need assistance with ADLs. According to
industry analyses, approximately 19% of persons aged 75 to 79, approximately 24%
of persons aged 80 to 84 and approximately 45% of persons aged 85 and older need
assistance with ADLs. According to the Alzheimer's Association the number of
persons afflicted with Alzheimer's disease is expected to grow from the current
4.0 million to 14.0 million by the year 2050, given current treatment options.
Restricted Supply of Nursing Beds
The majority of states in the United States have adopted Certificate of
Need or similar statutes generally requiring that, prior to the addition of new
skilled nursing beds, the addition of new services, or the making of certain
capital expenditures, a state agency must determine that a need exists for the
new beds or the proposed activities. The Company believes that this Certificate
of Need 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 Company's senior living communities, including particularly the
Company's assisted living communities and skilled nursing facilities.
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Cost-Containment Pressures
In response to rapidly rising health care costs, governmental and private
pay sources have adopted cost containment measures that have reduced admissions
and encouraged reduced lengths of stays in hospitals and other acute care
settings. The federal government had previously acted to curtail increases in
health care costs under Medicare by limiting acute care hospital reimbursement
for specific services to pre-established fixed amounts. Private insurers have
begun to limit reimbursement for medical services in general to predetermined
charges, and managed care organizations (such as health maintenance
organizations) are attempting to limit hospitalization costs by negotiating for
discounted rates for hospital and acute care services and by monitoring and
reducing hospital use. In response, hospitals are discharging patients earlier
and referring elderly patients, who may be too sick or frail to manage their
lives without assistance, to nursing homes and assisted living residences where
the cost of providing care is typically lower than hospital care. In addition,
third-party payors are increasingly becoming involved in determining the
appropriate health care settings for their insureds or clients, based primarily
on cost and quality of care. Based on industry data, the typical day-rate in an
assisted living facility is two-thirds of the cost for comparable care in a
nursing home.
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 Company's 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 the 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.
OPERATING STRATEGY
The Company's operating strategy is to provide high quality, senior living
services at an affordable price to its residents while achieving and sustaining
a strong, competitive position within its chosen markets, as well as continuing
to enhance the performance of its operations. The Company is implementing its
operating strategy principally through the following methods.
Provide a Broad Range of High-Quality Personalized Care
Central to the Company's operating strategy is its focus on providing
high-quality care and services that are personalized and tailored to meet the
individual needs of each community resident. The Company's 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, which 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 2000 and 1999, the Company achieved a
93% and 94% overall approval rating, respectively, from the residents'
satisfaction survey.
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Offer Services Across a Range of Pricing Options
The Company's 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 which 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.
Maintain and 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 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 Company's development 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 annual national management meetings and encourages sharing of
expertise among managers. The Company's 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 our 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 Company's employees as part of their training.
The Company's staffing each community with an executive director allows it to
hire more professional employees at these positions, while the Company's
developed career path helps it to retain the professionals it hires. The Company
hires an executive director for each of its communities and provides them with
autonomy, responsibility and accountability. The Company believes its commitment
to and emphasis on employee training and retention differentiates the Company
from many of its competitors.
Utilize Comprehensive Information Systems
The Company employs comprehensive proprietary information systems to manage
financial and operating data in connection with the management of its
communities. Utilizing the Company's PC-based network, the Company is able to
collect and monitor, on a regular basis key, operating data for its communities.
Reports are routinely prepared and distributed to on-site, district and regional
managers for use in managing the profitability of the Company's communities. The
Company's management information systems provide senior
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management with the ability to identify emerging trends, monitor and control
costs and develop current pricing strategies. The Company believes that its
proprietary information systems are scalable to support future growth.
SENIOR LIVING SERVICES
The Company provides a wide array of senior living services to the elderly
at its communities, including independent living, assisted living (with special
programs and living units at some of its communities for residents with
Alzheimer's and other forms of dementia), skilled nursing, and home care
services. By offering a variety of services and encouraging the active
participation of the resident and the resident's 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 Company's operating philosophy is to provide affordable, quality living
communities and services to senior citizens and deliver a continuum of care for
its residents as their needs change over time. This continuum of care, which
integrates independent living and assisted living and is bridged by home care,
sustains residents' autonomy and independence based on their physical and mental
abilities. As residents age, in many of the Company's communities, they are able
to obtain the additional needed services within the same community, avoiding the
disruptive and often traumatic move to a different facility.
Independent Living Services
The Company provides independent living services to seniors who 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, 2000, the Company had ownership interests in
33 communities and managed an additional eight communities that provide
independent living services, with an aggregate capacity for 5,145 and 1,285
residents, respectively.
Independent living services provided by the Company include daily meals,
transportation, social and recreational activities, laundry, housekeeping,
24-hour staffing and health care monitoring. The Company also fosters the
wellness of its residents by offering health screenings (such as blood pressure
checks), periodic special services (such as influenza inoculations), dietary and
similar programs, as well as ongoing exercise and fitness classes. Classes are
given by health care professionals to keep residents informed about health and
disease management. Subject to applicable government regulation, personal care
and medical services are available to independent living residents through
either the community staff or through the Company's or other independent home
care agencies. The Company's independent living residents pay a fee ranging from
$995 to $3,275 per month, in general, depending on the specific community,
program of services, size of the unit, and amenities offered. The Company's
contracts with its independent living residents are generally for a term of one
year and are typically terminable by the resident upon 30 days notice.
Assisted Living Services
The Company offers a wide range of assisted living care and services 24
hours per day, including personal care services, support services, and
supplemental services. As of December 31, 2000, the Company had ownership
interests in 12 communities, and managed an additional seven communities that
provide assisted living services, with an aggregate capacity for 559 and 412
residents, respectively. The residents of the Company's 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 Company's assisted living communities, and in consultation with the
resident, the resident's 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 resident's 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 resident's care plan is reviewed periodically to determine when a
change in care is needed.
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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 their 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, non-routine care
services, and special care services, such as services for residents with
Alzheimer's and other forms of dementia. Certain of these services require
an extra charge in addition to the pricing levels described below.
In pricing its services, the Company has developed the following three
levels or tiers of assisted living care:
- Level I typically provides for minimum levels of care and service, for
which the Company generally charges a monthly fee per resident ranging
from $1,375 to $3,275 depending upon unit size and the project design
type. Typically, Level I residents need minimal assistance with ADLs.
- Level II provides for relatively higher levels and increased frequency of
care, for which the Company generally charges a monthly fee per resident
ranging from $1,650 to $3,450, depending upon the unit size and the
project design type. Typically, Level II residents require moderate
assistance with ADLs and may need additional personal care, support, and
supplemental services.
- Level III provides for the highest level of care and service, for which
the Company generally charges a monthly fee per resident ranging from
$1,995 to $3,610, depending upon the unit size and the project design
type. Typically, Level III residents are either very frail or impaired
and utilize many of the Company's services on a regular basis.
The Company maintains programs and special units at some of its assisted
living communities for residents with Alzheimer's and other 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 a lifeskills based activities program, 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 Alzheimer's and other forms
of dementia are located in a separate area of the community and have their own
dining facilities, resident lounge areas, and specially trained staff. The
special care areas are designed to allow residents the freedom to ambulate as
they wish while keeping them safely contained within a secure area with a
minimum of disruption to other residents. Special nutritional programs are used
to help ensure caloric intake is maintained in residents. Resident fees for
these special units are dependent on the size of the unit, the design type and
the level of services provided.
Skilled Nursing Services
In its skilled nursing facilities, the Company provides traditional
long-term care through 24-hour-per-day skilled nursing care by registered
nurses, licensed practical nurses and certified nursing assistants. The Company
also offers a comprehensive range of restorative nursing and rehabilitation
services in its communities including, but not limited to, physical,
occupational, speech and medical social services. As of December 31, 2000, the
Company had ownership interests in six facilities and managed an additional
facility that provides nursing services, with an aggregate capacity for 710 and
60 residents, respectively.
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Home Care Services
As of December 31, 2000, the Company provided private pay, home care
services to clients at one of its senior living communities through the
Company's on-site, home care agency and made private pay, 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 Company's communities. In
addition, the Company makes available to residents certain customized physician,
dentistry, podiatry and other health-related services that may be offered by
third-party providers.
OPERATING COMMUNITIES
The table below sets forth certain information with respect to senior
living communities owned, leased, and managed by the Company as of December 31,
2000. The Company is expanding certain of these communities, primarily to add
assisted living units.
RESIDENT CAPACITY(1)
--------------------- COMMENCEMENT
COMMUNITY IL AL SN TOTAL OWNERSHIP(2) OF OPERATIONS(3)
- --------- ------- ----- ----- ----- ------------ ----------------
CONSOLIDATED:
Atrium of Carmichael.............. Sacramento, CA 156 -- -- 156 100% 01/92
Cambridge Nursing Home............ Cambridge, MA -- -- 120 120 57% 07/93
Canton Regency.................... Canton, OH 164 34 50 248 100% 03/91
Cottonwood Village................ Cottonwood, AZ 135 47 -- 182 100% 03/91
Crosswood Oaks.................... Sacramento, CA 127 -- -- 127 100% 01/92
Gramercy Hill..................... Lincoln, NE 101 59 -- 160 100% 10/98
The Harrison at Eagle Valley(4)... Indianapolis, IN 138 -- -- 138 100% 03/91
Heatherwood....................... Detroit, MI 188 -- -- 188 100% 01/92
Tesson Heights.................... St. Louis, MO 140 58 -- 198 100% 10/98
Towne Centre...................... Merrillville, IN 165 34 64 263 100% 03/91
Veranda Club...................... Boca Raton, FL 235 -- -- 235 100% 01/92
Crown Pointe...................... Omaha, NE 163 -- -- 163 100% 08/00
Independence Village.............. East Lansing, MI 162 -- -- 162 100% 08/00
Independence Village.............. Peoria, IL 173 -- -- 173 100% 08/00
Independence Village.............. Raleigh, NC 178 -- -- 178 100% 08/00
Independence Village.............. Winston-Salem, NC 161 -- -- 161 100% 08/00
Sedgwick Plaza.................... Wichita, KS 117 54 -- 171 100% 08/00
Villa Santa Barbara............... Santa Barbara, CA 87 38 -- 125 100% 08/00
West Shores....................... Hot Springs, AR 135 32 -- 167 100% 08/00
----- --- --- -----
2,725 356 234 3,315
AFFILIATES:
Amberleigh........................ Buffalo, NY 394 -- -- 394 33% 01/92
Canton Regency Expansion.......... Canton, OH -- 62 -- 62 1% 01/00
Towne Centre Expansion............ Merrillville, IN -- 60 -- 60 1% 01/00
Waterford at Mesquite............. Mesquite, TX 178 -- -- 178 1% 09/99
Waterford at San Antonio.......... San Antonio, TX 136 -- -- 136 1% 04/99
Waterford at Shreveport........... Shreveport, LA 136 -- -- 136 1% 03/99
Waterford at Fort Worth........... Fort Worth, TX 178 -- -- 178 1% 06/00
Waterford at San Antonio.......... San Antonio, TX 136 -- -- 136 1% 05/00
Waterford at Fairfield............ Fairfield, OH 144 -- -- 144 1% 11/00
Waterford at Oklahoma City........ Oklahoma City, OK 144 -- -- 144 1% 11/00
Waterford at Columbia............. Columbia, SC 144 -- -- 144 1% 11/00
Waterford at Deer Park............ Deer Park, TX 144 -- -- 144 1% 11/00
Waterford at Jackson.............. Jackson, MS 144 -- -- 144 1% 11/00
Waterford at Mansfield............ Mansfield, OH 144 -- -- 144 1% 10/00
Waterford at South Bend........... South Bend, IN 144 -- -- 144 1% 12/00
Waterford at Pantego.............. Pantego, TX 144 -- -- 144 1% 12/00
Waterford at Plano................ Plano, TX 110 45 -- 155 1% 12/00
----- --- --- -----
2,420 167 -- 2,587
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RESIDENT CAPACITY(1)
--------------------- COMMENCEMENT
COMMUNITY IL AL SN TOTAL OWNERSHIP(2) OF OPERATIONS(3)
- --------- ------- ----- ----- ----- ------------ ----------------
MANAGED:
Buckner Communities
Parkway Place..................... Houston, TX 243 82 60 385 N/A 01/98
Westminster Place................. Longview, TX 112 54 -- 166 N/A 04/96
Calderwoods....................... Beaumont, TX 124 -- -- 124 N/A 06/00
----- --- --- -----
479 136 60 675
ILM II Communities:
Crown Villa....................... Omaha, NE -- 73 -- 73 N/A 08/96
Overland Park Place............... Overland Park, KS 153 -- -- 153 N/A 08/97
The Palms......................... Fort Myers, FL 235 20 -- 255 N/A 08/98
Rio Las Palmas.................... Stockton, CA 142 50 -- 192 N/A 08/99
Villa at Riverwood................ Florissant, MO 140 -- -- 140 N/A 08/00
----- --- --- -----
670 143 -- 813
LCOR Communities:
Summit............................ Summit, NJ -- 89 -- 89 N/A 11/00
Trumbull.......................... Trumbull, CT 136 44 -- 180 N/A 09/00
----- --- --- -----
136 133 -- 269
OWNED AND LEASED TO OTHERS(5):
Crenshaw Creek.................... Lancaster, SC -- 36 -- 36 57% N/A
Hearthstone....................... Austin, TX -- -- 120 120 57% N/A
McCurdy........................... Evansville, IN -- -- 236 236 57% N/A
Trinity Hills..................... Fort Worth, TX -- -- 120 120 57% N/A
----- --- --- -----
Subtotal................... -- 36 476 512
6,430 971 770 8,171
===== === === =====
- ---------------
(1) Independent living (IL) residences, assisted living (AL) residences and
skilled nursing (SN) beds.
(2) In the case of a community shown as 33% owned, this represents the Company's
ownership of approximately 33% of the outstanding NHP Notes that are secured
by the property. Those communities shown as approximately 57% owned
represent the Company's ownership of approximately 57% of the limited
partner interests in HCP. Those communities shown as approximately 1% owned,
represents the Company's ownership of approximately 1% of the limited
partnership interests in the Triad Entities.
(3) Indicates the date on which the Company acquired each of its owned
communities or commenced operating its managed communities. The Company
operated certain of its communities pursuant to management agreements prior
to acquiring the communities.
(4) The Company's home care agency is on-site at the The Harrison at Eagle
Valley community.
(5) Represents communities owned by the Company and leased to third parties
pursuant to master leases under which the Company receives rent regardless
of whether the units are occupied. These leases were in place at the time
the Company acquired its interest in these communities.
Third-Party Management Contracts
The Company is a party to a property management agreement (the "ILM II
Management Agreement") with ILM II Lease Corporation, a corporation formed by
ILM II, that operates five senior living communities. The ILM II Management
Agreement commenced on July 29, 1996. The ILM II Management Agreement with ILM
II Lease Corporation will expire on March 31, 2001, subject to extension. Under
the terms of the ILM II Management Agreement, the Company earns a base
management fee equal to 4% of the gross operating revenues of the communities
under management (as defined), and is also eligible to receive an incentive
management fee equal to 25% of the amount by which the average monthly net cash
flow of the communities (as defined) for the 12-month period ending on the last
day of each calendar month exceeds a specified base amount. The ILM II
Management Agreement is terminable upon the sale of the related communities. The
Company earned management fees of $0.6 million and incentive management fees of
$0.2 million under the ILM II Management Agreement for the year ended December
31, 2000. In addition, the Company earned management and incentive fees of $0.6
million and $0.1 million, respectively, prior to the acquisition of the eight
communities owned by ILM and ILM II. Prior to completion of the ILM Merger, the
Company had managed eight communities for ILM and ILM II under similar
management contracts.
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The Company is party to three separate property management agreements (the
"Buckner Agreements") with Buckner Retirement Services, Inc. ("Buckner"), a
not-for-profit corporation that operates three senior living communities. The
Buckner Agreements commenced in April 1996, January 1998 and June 2000 and
expire in March 2001, December 2002 and May 2005, respectively, except that
either party may terminate the agreements for cause under limited circumstances.
Under the terms of the Buckner Agreement for Buckner Parkway Place, the Company
earns a base management fee of $36,000 per month. Under the terms of the Buckner
Westminster Place Agreement, the Company earns a base management fee of $9,700
per month. Under the terms of the Buckner Calderwoods Agreement, the Company
earns a base management fee of $11,800 per month. Also, in the case of the
Buckner Agreements, the Company is also eligible to receive a productivity
reward equal to 5% of the gross revenues generated during the immediately
preceding month that exceed $721,000, $121,000 and $235,000, respectively. Both
agreements have a productivity reward limit of 20% of the base management fee
per month. The amounts that exceed the limit are deferred. Pursuant to the terms
of the Buckner Agreements, the Company has a right of first refusal with respect
to purchasing the communities subject to these agreements.
The Company is party to a property management and marketing agreement with
LCOR Incorporated ("LCOR") to market and manage four independent living and
assisted living communities being developed by LCOR. The locations covered by
the agreement are: Trumbull, Connecticut, Libertyville, Illinois, Summit, New
Jersey, and Naperville, Illinois. The Trumbull and Summit locations are
currently open and are being operated under the LCOR management agreement ("LCOR
Agreements"). The other properties are expected to open in the first quarter of
2001. The LCOR Agreements generally provide for a base management fee of the
greater of $15,000 per month or 5% of gross revenues plus an incentive fee equal
to 25% of the excess cash flow over budgeted amounts. The terms are for 10 years
with a five year renewal at the Company's option. The Company is also entitled
to a fee of $50,000 for development consulting services for each development and
a monthly marketing fee of approximately $10,000 per month for each community,
which generally covers the period prior to the expected opening of the
communities, usually six to nine months.
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 Company's growth strategy:
Develop New Senior Living Communities
General. The Company intends to continue to expand its operations through
the development, construction, marketing and management of new senior living
communities in selected markets which provide a quality lifestyle that is
affordable to a large segment of seniors
Triad Entities; Buckner; LCOR. The Company is currently developing new
senior living communities pursuant to arrangements with Triad Senior Living,
Inc., and its affiliates, which are unrelated third parties (the "Triad
Entities"). The communities currently under development are primarily Waterford
communities. The Waterford community model is designed to provide middle income
residents with a senior living community having amenities typical of
higher-priced communities. This is accomplished through more efficient space
design, emphasizing common areas and providing more efficient layouts of the
living areas.
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The Company believes that the Waterford designs meet the desire of many of
the Company's residents to move into a new residence that approximates, as
nearly as possible, the comfort of their prior home. The Company also believes
that its designs achieve several other objectives, including:
- lessening the trauma of change for residents and their families;
- facilitating resident mobility and caregiver access;
- enhancing operating efficiencies;
- enhancing the Company's ability to match its products to targeted
markets; and
- differentiating the Company from its competitors.
The Waterford communities being developed through the Triad Entities are as
set out below:
NUMBER OF ESTIMATED COST
WATERFORD APPROXIMATE OF COMPLETION COMPANY LOAN
ENTITY COMMUNITIES RESIDENT CAPACITY AND LEASE-UP COMMITMENT(1)
- ------ ----------- ----------------- ----------------- -------------
Triad IV................. 2 290 $22 - $24 million $10 million
Triad V.................. 1 136 $11 - $12 million $10 million
- ---------------
(1) The Company has operating deficit loan obligations in management agreements
in addition to the committed amounts shown relating to unsecured loans from
the Company.
The development agreements between each Triad Entity and the Company
generally provide for a development fee of 4% of project costs, plus
reimbursements for expenses and overhead not to exceed 4% of project costs. The
Triad Entities also enter into management agreements with the Company providing
for management fees to the Company in an amount equal to the greater of 5% of
gross revenues or $5,000 per month per community, plus overhead reimbursements
not to exceed 1% of gross revenues. The Company has the option to purchase the
partnership interests of the other partners in the Triad Entities for an amount
equal to the amount paid for the partnership interest by the other partners,
plus a noncompounded return of 12% per annum, except for Triad I. The property
management agreements also provide the Company with an option to purchase the
communities developed by the Triad Entities, other than Triad I, upon their
completion for an amount equal to the fair market value, based on a third-party
appraisal, but not less than hard and soft costs and lease-up costs. In December
1999, Triad I completed a recapitalization in which an affiliate of Lehman
Brothers purchased from a third party 80% of the limited partnership interests
in Triad I for an investment of $12,000,000. Lehman Brothers affiliate's
investment enabled Triad I to repay the Company approximately $9,000,000 in
loans. The Company increased its equity contribution in Triad I to $3,000,000
and owned a 19% limited partnership interest in Triad I until the fourth quarter
of fiscal 2000. On October 1, 2000, the Company reduced its ownership interest
in each of the Triad Entities to 1%. This reduction was accomplished by
converting a portion of the Company's investment in each of the Triad Entities
to notes receivable. The Company has the option to purchase the Triad I
communities for an amount specified in the partnership agreement. The Company
will continue to develop and manage the communities in Triad I. The Company has
made no determination as to whether it will exercise any of these purchase
options. The Company will evaluate the possible exercise of each purchase option
based upon the business and financial factors which may exist at the time those
options may be exercised.
The Company is party to an agreement with Buckner to develop, market and
manage senior living communities developed by Buckner. The management agreement
between Buckner and the Company generally provides for a base management fee
plus a productivity reward equal to 5% of the gross revenues generated during
the immediately preceding month that exceed a base figure. The productivity
reward has a limit of 20% of the base management fee per month. The amounts that
exceed the limit are deferred. The term is for five years commencing with the
certificate of occupancy. The development agreements generally provide for a
development fee of 7% of project costs.
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The Company is party to a property management agreement with LCOR to market
and manage four independent living and assisted living communities being
developed by LCOR. The management agreements between LCOR and the Company
generally provide for a base management fee of the greater of $15,000 per month
or 5% of gross revenues plus an incentive fee equal to 25% of the excess cash
flow over budgeted amounts. The terms are for 10 years with a five year renewal
at the Company's option. The Company is also entitled to a fee of $50,000 for
development consulting services for each development and a monthly marketing fee
of approximately $10,000 per month for each community, which generally covers
the period prior to the expected opening of the communities, usually six to nine
months.
As of December 31, 2000, there were six communities under development.
Three communities were being developed for LCOR and Buckner, where the Company
will manage these communities under management agreements and has no equity
interest, and three of these communities were being developed with the Triad
Entities where the Company will manage these communities under management
agreements and where the Company has a 1% limited partner interest in each of
the Triad Entities. The following table summarizes information regarding those
developments that the Company expects to be completed through 2001.
RESIDENT CAPACITY
SCHEDULED -----------------------
LOCATION OF DEVELOPMENT COMPLETION IL AL SN TOTAL STATUS(1)
- ----------------------- ------------- --- --- --- ----- ------------
Triad IV
North Richland Hills, TX..... 2nd Half 2001 144 -- -- 144 Construction
Richardson, TX............... 1st Half 2002 115 45 -- 160 Construction
Triad V
Springfield, MO.............. 1st Half 2001 144 -- -- 144 Construction
Buckner
Beaumont, TX................. 1st Half 2001 -- 46 30 76 Construction
LCOR
Libertyville, IL............. 1st Half 2001 208 45 -- 253 Construction
Naperville, IL............... 1st Half 2001 191 44 -- 235 Construction
--- --- -- -----
Total................ 802 180 30 1,012
=== === == =====
- ---------------
(1) "Construction" indicates that construction activities, such as
groundbreaking activities, exterior construction or interior build-out have
commenced.
Pursue Management Agreements
The Company intends to pursue single or portfolio management opportunities
for senior living communities. The Company believes that its management
infrastructure and proven operating track record will allow the Company to take
advantage of increased opportunities in the senior living market for new
management contracts and other transactions.
Pursue Strategic Acquisitions
The Company intends to continue to pursue single or portfolio acquisitions
of senior living communities and, to a lesser extent, other assisted living and
long-term care communities. Through strategic acquisitions, the Company plans 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
Company's financial resources, national presence, and extensive contacts within
the industry, should provide it with the opportunity to evaluate a number of
potential acquisition opportunities. 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.
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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 Company's 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 Company's 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's corporate office is generally responsible
for: (i) establishing Company-wide policies and procedures relating to, among
other things, resident care and operations; (ii) performing accounting
functions; (iii) developing employee training programs and materials; (iv)
coordinating human resources; (v) coordinating marketing functions; and (vi)
providing strategic direction. In addition, financing, development, construction
and acquisition activities, including feasibility and market studies, and
community design, development, and construction management, are conducted by the
Company's 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 two to four communities
clustered in a small geographic area. A regional manager will cover a larger
geographic area consisting of five to twelve communities. In most cases, the
district and regional managers will office out of the Company's senior living
communities. Currently there are regional managers based in the Northeast,
Southeast, Midwest, Southwest and West regions.
The executive director at each community reports to a regional or district
manager. The regional and district managers report directly to the President and
Chief Operating Officer of the Company. The district and regional managers make
regular site visits to each of their communities. The site visits involve a
physical plant inspection; quality assurance; 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 Company's executive directors, but their
primary
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responsibility is to oversee resident care. Many of the Company's senior living
communities and some of its skilled nursing facilities are part of a campus
setting, which includes independent living. This campus arrangement allows for
cross-utilization of certain support personnel and services, including
administrative functions, that results in greater operational efficiencies and
lower costs than free-standing 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 Company's
corporate and regional staff. The Company's quality assurance is targeted to
achieve maximum resident and resident family member satisfaction with the care
and services delivered by the Company. The Company's primary focus in quality
control monitoring includes routine in-service training and performance
evaluations of care givers and other support employees. Additional quality
assurance measures include:
Resident and Resident's 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 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
the corporate headquarters for tabulation and distribution to on-site staff and
residents. For 2000 and 1999, the Company achieved a 93% and 94% approval
rating, respectively, 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. On a monthly basis, a community inspection
is conducted 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 monthly inspection also includes observing of
residents in their daily activities and the community's compliance with
government regulations.
Independent Service Evaluations. The Company engages the services of
outside professional independent consulting firms to evaluate various components
of the community operations. These services include mystery shops, competing
community analysis, pricing recommendations and product positioning. This
provides management with valuable unbiased product and service information. A
plan of action regarding any areas requiring improvement or change is
implemented based on information received. At communities where health care is
delivered, these consulting service reviews include the on-site handling of
medications, record keeping, and general compliance with all governmental
regulations.
Marketing
Each community is staffed by on-site marketing directors and additional
marketing staff depending on the community size. 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. The marketing efforts incorporate an aggressive
marketing plan to include monthly 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 twice annually. Corporate and regional
marketing directors monitor the on-site marketing departments' effectiveness
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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 staff is implemented by corporate and regional marketing directors.
In the case of new development, the corporate and regional staff develops a
comprehensive community outreach program that is implemented at the start of
construction. A marketing pre-lease program is developed and on-site marketing
staff are hired and trained to begin the program implementation six to nine
months prior to the community opening. Extensive use of media including radio,
television, print, direct mail and telemarketing is implemented during this
pre-lease phase.
After the community is opened and sustaining occupancy levels are attained,
the on-site marketing staff is more heavily focused on resident and resident
family referrals, as well as professional referrals. A maintenance program of
print media and direct mail is then implemented.
GOVERNMENT REGULATION
Changes in existing laws and regulations, adoption of new laws and
regulations and new interpretations of existing laws and regulations could have
a material effect on the Company's operations. Failure by the Company to comply
with applicable regulatory requirements could have a material adverse effect on
the Company's 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
Company's assisted living communities are subject to regulation, licensing,
Certificate of Need 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
Company's 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 Company's 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 Company's operations will not be
adversely affected by regulatory developments.
The Company believes that its communities are in substantial compliance
with applicable regulatory requirements. However, in the ordinary course of
business, one or more of the Company's communities could be cited for
deficiencies. In such cases, the appropriate corrective action would be taken.
To the Company's knowledge, no material regulatory actions are currently pending
with respect to any of the Company's communities.
Under the Americans with Disabilities Act of 1990, all places of public
accommodation are required to meet certain federal requirements related to
access and use by disabled persons. A number of additional federal, state, and
local laws exist that also may require modifications to existing and planned
properties to permit access to the properties by disabled persons. While the
Company believes that its communities are substantially in compliance with
present requirements or are exempt therefrom, if required changes involve a
greater expenditure than anticipated or must be made on a more accelerated basis
than anticipated, additional costs would be incurred by the Company. Further
legislation may impose additional burdens or restrictions with respect to access
by disabled persons, the costs of compliance with which could be substantial.
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
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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 property's 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
owner's 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, and
such surveys have not revealed any material environmental liabilities that exist
with respect to these communities.
Under various federal, state, and local environmental laws, ordinances, and
regulations, a current or previous owner or operator of real estate may be
required to investigate and clean up hazardous or toxic substances or petroleum
product releases at such property, and may be held liable to a governmental
entity or to third parties for property damage and for investigation and clean
up costs. The Company is not aware of any environmental liability with respect
to any of its owned, leased, or managed communities that the Company believes
would have a material adverse effect on its business, financial condition, or
results of operations. The Company believes that its communities are in
compliance in all material respects with all federal, state, and local laws,
ordinances, and regulations regarding hazardous or toxic substances or petroleum
products. The Company has not been notified by any governmental authority, and
is not otherwise aware of any material non-compliance, liability, or claim
relating to hazardous or toxic substances or petroleum products in connection
with any of the communities the Company currently operates.
The Company believes that the structure and composition of government and,
specifically, health care regulations will continue to change and, as a result,
regularly monitors developments in the law. The Company expects to modify its
agreements and operations from time to time as the business and regulatory
environments change. While the Company believes it will be able to structure all
its agreements and operations in accordance with applicable law, there can be no
assurance that its arrangements will not be successfully challenged.
COMPETITION
The senior living industry is highly competitive, and the Company expects
that all segments of the industry will become increasingly competitive in the
future. Although there are a number of substantial companies active in the
senior living industry and in the markets in which the Company operates, the
industry continues to be very fragmented and characterized by numerous small
operators. The Company competes with American Retirement Corporation, Brookdale
Living Communities, CareMatrix Corp., Holiday Retirement Corporation, Marriott
Senior Living Services, and Sunrise Assisted Living, Inc. The Company believes
that the primary competitive factors in the senior living industry are: (i)
reputation for and commitment to a high quality of service; (ii) quality of
support services offered (such as food services); (iii) price of services; (iv)
physical appearance and amenities associated with the communities; and (v)
location. 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 Company's principal competitors are other senior living and
long-term care communities in the same geographic areas as the Company's
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.
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EMPLOYEES
As of December 31, 2000, the Company employed 2,517 persons, of which 1,359
were full-time employees (45 of whom are located at the Company's corporate
offices) and 1,158 are part-time employees. None of the Company's employees is
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
Company's executive officers and key employees as of December 31, 2000:
NAME AGE POSITION(S) WITH THE COMPANY
- ---- --- ----------------------------
James A. Stroud...................... 50 Chairman of the Board and Chairman and
Secretary of the Company
Lawrence A. Cohen.................... 47 Vice Chairman and Chief Executive Officer
Keith N. Johannessen................. 44 President and Chief Operating Officer
Ralph A. Beattie..................... 51 Executive Vice President and Chief Financial
Officer
Rob L. Goodpaster.................... 47 Vice President -- National Marketing
David W. Beathard, Sr. .............. 53 Vice President -- Operations
David R. Brickman.................... 42 Vice President and General Counsel
Paul T. Lee.......................... 35 Vice President -- Finance
Jerry D. Lee......................... 40 Corporate Controller
Robert F. Hollister.................. 45 Controller -- Property
James A. Stroud has served as a director and Chief Operating Officer of the
Company and its predecessors since January 1986. He currently serves as Chairman
of the Board, and Chairman and Secretary of the Company. Mr. Stroud also serves
on the boards of various educational and charitable organizations, and in
varying capacities with several trade organizations, including as a member of
the Founder's Council and Leadership Council of the Assisted Living Federation
of America. Mr. Stroud also serves as an Advisory Group member to the National
Investment Conference and a Founding Sponsor of The Johns Hopkins
University -- Senior Housing and Care Program. Mr. Stroud was the past President
and Member of the board of directors of the National Association for Senior
Living Industry Executives. He also was a founder of the Texas Assisted Living
Association and serves 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 16 years.
Lawrence A. Cohen has served as a director and Vice Chairman since November
1996. He served as Chief Financial Officer from November 1996 to May 1999 and
has served as Chief Executive Officer since May 1999. From 1991 to 1996, Mr.
Cohen served as President and Chief Executive Officer of Paine Webber Properties
Incorporated, which controlled a real estate portfolio having a cost basis of
approximately $3.0 billion, including senior living facilities of approximately
$110.0 million. From 1991 to 1998, Mr. Cohen was President and a member of the
board of directors of ILM and ILM II. Mr. Cohen serves on the boards of various
charitable organizations, and was a founding member of the executive committee
of the Board of the American Seniors Housing Association. Mr. Cohen has earned a
Masters in Law, is a licensed attorney and is also a Certified Public
Accountant. Mr. Cohen has had positions with businesses involved in senior
living for 16 years.
Keith N. Johannessen has served as President of the Company and its
predecessors since March 1994, and previously served as Executive Vice President
from May 1993 until February 1994. Mr. Johannessen has served as a director and
Chief Operating Officer since May 1999. From 1992 to 1993, Mr. Johannessen
served as Senior Manager in the health care practice of Ernst & Young. From 1987
to 1992, Mr. Johannessen was Executive Vice President of Oxford Retirement
Services, Inc. Mr. Johannessen has served on the State of the
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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 22 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 is a member of the Board
of Directors of the National Association For Senior Living Industries. Mr.
Goodpaster has been active in the operational, development and marketing aspects
of senior housing for 24 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 26 years.
David R. Brickman has served as Vice President and General Counsel of the
Company and its predecessors since July 1992. From 1989 to 1992, Mr. Brickman
served as in-house counsel with LifeCo Travel Management Company, a corporation
that provided travel services to U.S. corporations. Mr. Brickman has 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 14
years.
Paul T. Lee has served as Vice President -- Finance since February 1999.
From 1992 to 1998, Mr. Lee served in various management positions of Chief Auto
Parts Inc. which was one of the nation's largest automotive aftermarket retail
chains. From 1995 to 1998, he held the position of Assistant Treasurer. Prior to
joining Chief Auto Parts, Mr. Lee held various positions in the finance
department of Brice Foods, Inc. from 1988 to 1992.
Jerry D. Lee, a Certified Public Accountant, has served as Corporate
Controller since April 1999. Prior to joining the Company, Mr. Lee served as the
Senior Vice President of Finance, from 1997 to 1999, for Universal Sports
America, Inc., which produced sporting events and provided sports marketing
services for collegiate conferences and universities. From 1984 to 1997, Mr. Lee
held various accounting management positions with Haggar Clothing Company. Mr.
Lee is a member of the 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 Certified Financial Planner. Mr. Hollister is a member of the
American Institute of Certified Public Accountants and is also a member of the
Texas Society of Certified Public Accountants.
ITEM 2. PROPERTIES
The executive and administrative offices of the Company are located at
14160 Dallas Parkway, Suite 300, Dallas, Texas 75240, and consist of
approximately 20,000 square feet. The lease on the premises extends through
August 31, 2002. The Company also leases an executive office space in New York,
New York pursuant to an annual lease agreement. The Company believes that its
corporate office facilities are adequate to meet its requirements through at
least fiscal 2001 and that suitable additional space will be available, as
needed, to accommodate further physical expansion of corporate operations.
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As of December 31, 2000, the Company owned, leased and/or managed the
senior living communities referred to in Item 1 above.
ITEM 3. LEGAL PROCEEDINGS
On or about October 23, 1998, Robert Lewis filed a putative class action
complaint on behalf of certain holders of assignee interests (the "Assignee
Interests") in NHP Retirement Housing Partners I Limited Partnership ("NHP") in
the Delaware Court of Chancery against NHP, the Company, Capital Senior Living
Properties 2-NHPCT, Inc. and Capital Realty Group Senior Housing, Inc.
(collectively, the "Defendants"). Mr. Lewis purchased 90 Assignee Interests in
NHP in February 1993 for $180. The complaint alleges, among other things, that
the Defendants breached, or aided and abetted a breach of, the express and
implied terms of the NHP Partnership Agreement in connection with the sale of
four properties by NHP to Capital Senior Living Properties 2-NHPCT, Inc. The
complaint seeks, among other relief, rescission of the sale of these properties
and unspecified damages. The Company believes the complaint is without merit and
is vigorously defending itself in this action. The Company has filed a Motion to
Dismiss in this case, which is currently pending. The Company is unable to
estimate any liability related to this claim, if any.
The Company has other pending claims incurred in the normal course of
business, which, in the opinion of management, based on the advice of legal
counsel, will not have a material effect on the financial statements of the
Company.
The provision of personal and health care services entails an inherent risk
of liability. In recent years, participants in the senior living and health care
services 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. The Company
currently maintains property, liability and professional medical malpractice
insurance policies for the Company's owned and managed communities under a
master insurance program in amounts and with such coverages and deductibles that
the Company believes are within normal industry standards based upon the nature
and risks of the Company's business, and the Company believes that such
insurance coverage is adequate. The Company also has an umbrella excess
liability protection policy. There can be no assurance that a claim in excess of
the Company's insurance will not arise. A claim against the Company not covered
by, or in excess of, the Company's insurance could have a material adverse
effect upon the Company. In addition, the Company's insurance policies must be
renewed annually. There can be no assurance that the Company will be able to
obtain liability insurance in the future or that, if such insurance is
available, it will be available on acceptable terms.
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 it believes would have
a material adverse effect on the Company's 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 it currently operates.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security holders
during the fourth quarter ended December 31, 2000.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY; RELATED STOCKHOLDER MATTERS
(a) The Company's 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
Company's common stock, as reported on the NYSE. At December 31, 2000 there were
approximately 3,700 stockholders of record of the Company's common stock.
YEAR HIGH LOW
- ---- ----------- -----------
1999
First Quarter............................................. $15 $6 3/4
Second Quarter............................................ 11 11/16 6 7/8
Third Quarter............................................. 11 3/16 7
Fourth Quarter............................................ 7 7/16 4 3/4
2000
First Quarter............................................. $ 5 7/16 $3 1/8
Second Quarter............................................ 3 3/8 2 1/8
Third Quarter............................................. 3 7/16 2 9/16
Fourth Quarter............................................ 3 2 1/8
It is the policy of the Company's Board of Directors to retain all future
earnings to finance the operation and expansion of the Company's 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 Company's
Board of Directors and will depend on, among other things, the Company's
earnings, operations, capital requirements, financial condition, restrictions in
then existing financing agreements, and other factors deemed relevant by the
Board of Directors.
(b) Recent Sales of Unregistered Securities. Information with respect to
this Item is set forth above under the caption Item 1. Business "Overview." The
issuance therein described of the Company's Common Stock to Messrs. Jeffrey L.
Beck, James A. Stroud (including a trust) and Lawrence A. Cohen in the Formation
Transactions in exchange for the capital stock of certain contributed entities
was carried out in reliance on the exemption from registration contained in
Section 4(2) of the Securities Act of 1933, as amended, pursuant to a binding
written agreement entered into prior to the filing of a registration statement
filed in connection with the Company's initial public offering.
(c) Use of Proceeds. Not Applicable.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company. The
selected financial data for the years ended December 31, 2000, 1999, 1998, 1997
and 1996 are derived from the audited consolidated financial statements of the
Company.
AT AND FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Statements of Income Data:
Revenues:
Resident and health care revenue................. $ 49,185 $ 41,071 $ 25,988 $ 22,159 $14,616
Rental and lease income.......................... 4,603 4,304 4,282 4,276 1,101
Unaffiliated management services revenue......... 2,271 2,695 2,465 1,920 801
Affiliated management services revenue........... 1,040 456 1,327 1,378 2,708
Unaffiliated development fees.................... 563 1,341 1,234 804 673
Affiliated development fees...................... 1,992 14,086 7,474 173
-------- -------- -------- -------- -------
Total revenues.............................. 59,654 63,953 42,768 30,710 19,899
-------- -------- -------- -------- -------
Expenses:
Operating expenses................................. 29,530 24,470 17,067 16,701 10,656
General and administrative expenses(1)............. 11,116 9,212 6,094 7,042 5,613
Provision for bad debts............................ 4,318 15,896 500 43 22
Depreciation and amortization...................... 5.186 4,671 2,734 2,118 1,481
-------- -------- -------- -------- -------
Total expenses.............................. 50,150 54,249 26,395 25,904 17,772
-------- -------- -------- -------- -------
Income from operations............................. 9,504 9,704 16,373 4,806 2,127
Other income (expense):
Interest income.................................... 5,981 5,822 4,939 3,186 432
Interest expense................................... (11,980) (7,089) (1,922) (2,022) (221)
Gain (loss) on sale of properties.................. (350) 748 422 -- 438
Equity in earnings on investments.................. -- -- -- -- 459
Other.............................................. -- -- -- 440 42
-------- -------- -------- -------- -------
Income before income taxes and minority interest in
consolidated partnerships.......................... 3,155 9,185 19,812 6,410 3,277
(Provision) benefit for income taxes(2).............. (763) (2,992) (7,476) (793) --
-------- -------- -------- -------- -------
Income before minority interest in consolidated
partnerships....................................... 2,392 6,193 12,336 5,617 3,277
Minority interest in consolidated partnerships....... (1,153) (1,355) (379) (1,936) (1,224)
-------- -------- -------- -------- -------
Net income........................................... $ 1,239 $ 4,838 $ 11,957 $ 3,681 $ 2,053
======== ======== ======== ======== =======
Net income per share:
Basic.............................................. $ 0.06 $ 0.25 $ 0.61 $ 0.33
======== ======== ======== ========
Diluted............................................ $ 0.06 $ 0.24 0.61 $ 0.33
======== ======== ======== ========
Weighted average shares outstanding:
Basic.............................................. 19,717 19,717 19,717 11,150
======== ======== ======== ========
Diluted............................................ 19,724 19,806 19,717 11,150
======== ======== ======== ========
Pro forma net income data (unaudited)(3):
Net income......................................... $ 3,681 $ 2,053
Pro forma income taxes............................. (965) (811)
-------- -------
Pro forma net income............................... $ 2,716 $ 1,242
======== =======
Balance Sheet Data:
Cash and cash equivalents.......................... $ 23,975 $ 32,988 $ 35,827 $ 48,125 $10,819
Working capital (deficit).......................... 27,022 46,973 (9,026)(4) 44,690 9,567
Total assets....................................... 318,544 221,876 205,267 117,371 33,203
Long-term debt, excluding current portion.......... 184,060 92,416 32,671 7,575 201
Shareholders' equity............................... 110,788 109,549 104,516 92,559 17,201
- ---------------
(1) General and administrative expenses include officers' salaries of $1.2
million, $0.9 million, $0.7 million, $3.3 million, and $3.4 million for the
years ended December 31, 2000, 1999, 1998, 1997, and 1996,
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respectively. Prior to November 1997, these amounts were primarily composed
of salaries and bonuses paid to the founders and were based in part on
federal income tax regulations regarding distributions of closely held
corporations and S corporations. Effective with the Company's initial public
offering, these federal income tax regulations no longer applied to the
Company. Compensation of the founders since October 1, 1997 has been based
on the founders' employment agreements.
(2) No provision for income taxes has been recorded from February 1, 1995
through completion of the Formation Transactions as the operating companies
included in the historical financial statements, prior to the Company's
initial public offering, were S corporations or partnerships and accordingly
were not subject to income taxes during the period.
(3) Pro forma income taxes have been calculated based on the assumption that the
S corporations and partnerships were subject to income taxes. Pro forma
income tax expense has been calculated using statutory federal and state tax
rates, estimated at 39.5%.
(4) The Company refinanced $47.7 million of mortgage loans reflected as short
term debt in fiscal 1998 to long term fixed rate mortgage loans in fiscal
1999.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion and analysis addresses the Company's results of
operations on a historical consolidated basis for the years ended December 31,
2000 and 1999. The following should be read in conjunction with the Company's
historical consolidated financial statements and the selected financial data
contained elsewhere in this report.
The Company is one of the largest operators and developers of senior living
communities in the United States in terms of resident capacity. The Company's
operating strategy is to provide high quality senior living services at an
affordable price to its residents, while achieving and sustaining a strong,
competitive position within its chosen markets, as well as to continue to
enhance the performance of its operations. The Company provides a wide array of
senior living services to the elderly at its communities, including independent
living, assisted living (with special programs and living units at some of its
communities for residents with Alzheimer's and other forms of dementia), skilled
nursing, and home care services.
The Company completed its initial public offering in November 1997 in
conjunction with a series of transactions that resulted in the Company acquiring
various companies, partnership interests and assets from the Company's founders
and entities affiliated with its founders. These transactions are collectively
called the "Formation Transactions." Because certain of the entities and assets
acquired in the Formation Transactions were subchapter S corporations,
partnership interests or other flow-through entities for tax purposes, and
because certain debt obligations were assumed in the Formation Transactions and
subsequently repaid with some of the proceeds from the Company's initial public
offering, the year-to-year changes in the Company's financial statements are not
directly comparable.
During the years 1990 through 2000, the Company acquired interests in and
continues to own 40 communities and expanded its senior living management
services by entering into management service contracts on 10 communities for
three independent third-party owners and commenced providing development and
construction management services for new residence properties in addition to
adding a home care service agency.
The Company generates revenue from a variety of sources. For the year ended
December 31, 2000, the Company's revenue was derived as follows: 82.5% from the
operation of 19 owned communities including eight properties acquired from ILM
in August 2000, that were previously operated by the Company under a management
contract; 7.7% from lease rentals from triple net leases; 5.6% from management
fees arising from management services provided for 17 affiliate-owned senior
living communities and 18 third-party owned senior living communities including
revenue from eight of the ILM communities prior to their acquisition; and 4.3%
from development fees earned for managing the development and construction of
new senior living communities for third parties.
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 Company's 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. While the management contracts are generally terminable only for
cause, in certain cases the contracts can be terminated upon the sale of a
community, subject to the Company's rights to offer to purchase such community.
The Company's triple net leases extend through the year 2000 for two of its
owned communities and through the year 2001 for four of its owned communities
(three of which were sold in fiscal 2000). The payments under these leases are
fixed and are not subject to change based upon the operating performance of
these communities. Following termination of the lease agreements, unless the
operators extend their leases,
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the Company may either convert and operate the communities as assisted living
and Alzheimer's care facilities, sell the facilities or evaluate other
alternatives.
The Company's current management contracts expire on various dates through
December 2010 and provide for management fees based generally upon rates that
vary by contract from 4% of net revenues to 7% of net 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's development fees are generally based upon a percentage of construction
cost and are earned over the period commencing with the initial development
activities and ending with the opening of the community. As of December 31,
2000, development fees have been earned for services performed for 18
communities under development or expansions for third parties.
During 1998, 1997, and 1996, the Company made various purchases of limited
partnership interests in HCP. HCP owns and operates a skilled nursing facility
and owns and leases to third-party operators (under triple net leases) three
skilled nursing facilities and four physical rehabilitation centers (three of
which have been sold). During 1998, 1997, and 1996, the Company paid
approximately $0.1 million, $5.6 million, and $3.2 million, respectively, for
partnership interests in HCP. As a result of additional purchases, the Company's
ownership interest in HCP exceeded 50% on June 26, 1997 and was 57% at December
31, 2000. Accordingly, this partial acquisition has been accounted for by the
purchase method of accounting, and the assets, liabilities, minority interest,
and the results of operations of HCP have been consolidated in the Company's
financial statements since January 1, 1997.
The Company acquired, on November 1, 1997, the NHP Notes owned by CSLC in
the Formation Transactions for $18.7 million. The NHP Notes bear simple interest
at 13% per annum and mature on December 31, 2001. Interest is currently paid
quarterly at a rate of 7%, with the remaining 6% interest deferred. From
November 1, 1997 through September 30, 1998, the Company recorded interest
income at 10.5% of the purchase price paid, which was determined based on the
discounted amount of principal and interest payments to be made following the
maturity date (December 31, 2001) of the NHP Notes (using a six-month lag
between maturity and full repayment), due to uncertainties regarding the
ultimate realization of the accrued interest. On September 30, 1998, the Company
purchased four properties from NHP. NHP in turn redeemed $7.5 million of the
Company's investment in the NHP Notes and distributed approximately $5.3 million
of deferred interest not previously paid on such notes. From October 1, 1998
through December 31, 1998, the Company reevaluated its investment in the NHP
Notes and began recording additional income after giving consideration to
current payment of interest, partial redemption of the NHP Notes with accrued
interest and the estimated residual value in NHP. This change in estimate
resulted in $0.6 million of additional income in 1998. In the fourth quarter of
fiscal 1999, the Company reevaluated the assumptions related to its investment
in the NHP Notes, and as a result reduced the income expected to be earned from
the NHP Notes. This change in estimate resulted in a $1.2 million reduction in
interest income in the fourth quarter of 1999.
The Company continues to develop and plans to acquire senior living
communities. The development of senior living communities typically involves a
substantial commitment of capital over an approximate 12-month construction
period during which time no revenues are generated, followed by a 18- to
24-month lease-up period. The Company anticipates that newly opened or expanded
communities will operate at a loss during a substantial portion of the lease-up
period. The Company's growth strategy may also include the acquisition of senior
living communities, home care agencies, and other properties or businesses that
are complementary to the Company's operations and growth strategy.
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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,
----------------------------------------------------
2000 1999 1998
---------------- --------------- ---------------
$ % $ % $ %
-------- ----- ------- ----- ------- -----
Revenues:
Resident and healthcare revenue........ $ 49,185 82.5% $41,071 64.2% $25,988 60.8%
Rental and lease income................ 4,603 7.7% 4,304 6.7% 4,282 10.0%
Unaffiliated management services
revenue............................. 2,271 3.8% 2,695 4.2% 2,465 5.8%
Affiliated management services
revenue............................. 1,040 1.7% 456 0.7% 1,327 3.1%
Unaffiliated development fees.......... 563 1.0% 1,341 2.1% 1,234 2.9%
Affiliated development fees............ 1,992 3.3% 14,086 22.0% 7,472 17.5%
-------- ----- ------- ----- ------- -----
Total revenues................. 59,654 100.0% 63,953 100.0% 42,768 100.0%
Expenses:
Operating expenses..................... 29,530 49.5% 24,470 38.3% 17,067 39.9%
General and administrative expenses.... 11,116 18.6% 9,212 14.4% 6,094 14.2%
Bad debt expense....................... 4,318 7.2% 15,896 24.9% 500 1.2%
Depreciation and amortization.......... 5,186 8.8% 4,671 7.3% 2,734 6.4%
-------- ----- ------- ----- ------- -----
Total expenses................. 50,150 84.1% 54,249 84.8% 26,395 61.7%
-------- ----- ------- ----- ------- -----
Income from operations................... 9,504 15.9% 9,704 15.2% 16,373 38.3%
Other income (expense):
Interest income........................ 5,981 10.0% 5,822 9.1% 4,939 11.5%
Interest expense....................... (11,980) (20.0)% (7,089) (11.1)% (1,922) (4.5)%
(Loss) gain on sale of properties...... (350) 0.6% 748 1.2% 422 1.0%
-------- ----- ------- ----- ------- -----
Income before income taxes and minority
interest in consolidated partnership... 3,155 5.3% 9,184 14.4% 19,812 46.3%
Provision for income taxes............... (763) (1.3)% (2,992) (4.7)% (7,476) (17.5)%
-------- ----- ------- ----- ------- -----
Income before minority interest in
consolidated partnership............... 2,392 4.0% 6,192 9.7% 12,336 28.8%
Minority interest in consolidated
partnership............................ (1,153) (1.9)% (1,354) (2.1)% (379) (0.9)%
-------- ----- ------- ----- ------- -----
Net income..................... $ 1,239 2.1% $ 4,838 7.6% $11,957 28.0%
======== ===== ======= ===== ======= =====
YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999
Revenues. Total revenues decreased $4.3 million or 6.7% to $59.7 million
in 2000 compared to $64.0 million in 1999. Resident and health care revenue
increased $8.1 million or 19.7% to $49.2 million in 2000 compared to $41.1
million in the prior year. This increase in resident and healthcare revenue is
primarily due to the acquisition of eight communities in August 2000 formerly
owned by ILM. These eight communities increased the Company's resident capacity
of owned communities by approximately 1,300 units. Unaffiliated management
services revenue decreased $0.4 million or 15.7%, due primarily due to the
acquisition of the eight communities from ILM and ILM II, which the Company
formerly managed. Affiliated management services revenue increased $0.6 million
or 128.1%, due to fees earned on the management of 14 Triad communities in 2000
compared to three Triad communities in 1999. Unaffiliated development fees
decreased to $0.6 million in 2000 compared to $1.3 million in 1999. This
decrease reflects the completion and opening of three communities for
unaffiliated third parties. Affiliated development fee revenue decreased $12.1
million to $2.0 million, reflecting the completion of 11 Triad communities in
2000. The Company reduced its ownership percentage to a 1% limited partnership
interest in each of the Triad Entities.
Expenses. Total expenses decreased $4.1 million or 7.9% to $50.1 million
in 2000 compared to $54.2 million in 1999. Operating expenses increased to $29.5
million in 2000 compared to $24.5 million in the
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prior year. This 20.7% increase primarily results from the acquisition of the
eight ILM communities in August 2000. General and administrative expenses
increased 20.7% or $1.9 million as a result of the ILM acquisition and the
write-off of other preacquisition costs on mergers that were not completed by
the Company. Bad debt expense decreased from $15.9 million in 1999 to $4.3
million in 2000. The bad debt expenses in 2000 relates to writing off or
reserving $1.2 in development fees receivable, $2.2 million in notes receivable
and $0.8 million in valuation adjustments on five parcels of land held for sale.
Depreciation and amortization expenses increased 11.0% to $5.2 million in 2000
compared to $4.7 million in 1999 as a result of the ILM acquisition.
Other income and expenses. Other income and expenses decreased $5.8
million to a net other expense of $6.3 million in 2000 compared to $0.5 million
net other expense in the prior year. This decrease is primarily the result of a
$4.9 million increase in interest expense. This increase in interest expense
reflects additional debt incurred of approximately $95.2 million as a result of
the Company acquiring the ILM assets and refinancing three of the Company's
owned communities. In addition, in the current fiscal year, the Company incurred
a net loss on sale of assets of $0.4 million compared to a net gain on sale of
assets in 1999 of $0.7 million.
Provision for income taxes. Provision for income taxes in 2000 was $0.8
million or 38.1% of income before taxes, compared to $3.0 million or 38.2% of
income before taxes in 1999. The effective tax rates for 2000 and 1999 differ
from the statutory tax rates because of state income taxes and permanent tax
differences.
Minority interest. Minority interest decreased $0.2 million to $1.2
million in 2000 compared to $1.4 million in 1999 primarily due to the losses on
sale of three HCP properties partially offset by an increase in operating income
at HCP.
Net income. As a result of the foregoing factors, net income decreased
$3.6 million to $1.2 million for 2000, as compared to $4.8 million for 1999.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
Revenues. Total revenues were $64.0 million in 1999 compared to $42.8
million in 1998, representing an increase of $21.2 million, or 49.5%. Resident
and health care revenue increased $15.1 million, of which $14.4 million is
related to owning the six communities purchased in the third and fourth quarters
of fiscal 1998 for the full year in 1999, along with an increase in revenue at
the HCP properties. Affiliated management services revenue decreased $0.9
million due to the Company's acquisition of four NHP properties that the Company
managed in 1998. Affiliated development fee revenue increased $6.6 million,
reflecting the addition of 15 new development contracts for managing the
development and construction of new senior living communities for the Triad
Entities in which the Company owned interests of 10% to 19%.
Expenses. Total expenses were $54.2 million in 1999 compared to $26.4
million in 1998, representing an increase of $27.9 million or 105.5%. This
increase primarily results from $15.9 million in bad debt expenses along with
additional expenses related to the acquisition of six communities in 1998. The
bad debt expenses primarily relate to writing off or reserving $10.5 million in
development fees, $1.6 million in pursuit cost from affiliates, and $3.9 million
in notes receivable from joint ventures. These joint ventures were in various
stages of developing 19 Waterford communities and they were unable to secure
financing on attractive terms for completion of these communities. Operating
expenses increased $7.4 million primarily due to expenses associated with the
six properties acquired in 1998 and an expansion of one of the Company's
communities. General and administrative expenses increased $3.1 million due to
additional salary expenses, office rent, legal expenses and expenses relating to
the six communities that were acquired.
Other income and expenses. Other income and expense decreased $4.0 million
to a net other expense of $0.5 million in 1999 compared to net other income of
$3.4 million in 1998. Interest income increased $0.9 million primarily due to an
increase of $2.0 million in interest income on loans to the Triad Entities
offset by a decrease of $1.1 million in interest income from cash balances
available for investing. In the fourth quarter, the Company changed its estimate
relating to the value of its investment in the NHP Notes resulting in a write
down of approximately $1.2 million. Interest expense increased $5.2 million due
to financing of the acquisition of the six properties in the fourth quarter of
1998 along with funding of loans made to the Triad
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Entities. Gain on the sale of properties increased $0.3 million resulting from
the gain on the sale of one community owned by HCP of $0.8 million in 1999
compared to a gain of $0.4 million on the sale of two properties in the fourth
quarter of 1998.
Provision for income taxes. Provision for income taxes in 1999 was $3.0
million or 38.2% of income before taxes, compared to $7.5 million or 38.5% of
income before taxes in 1998. The effective tax rates for 1999 and 1998 differ
from the statutory tax rates because of state income taxes and permanent tax
differences.
Minority interest. Minority interest increased $1.0 million primarily due
to the sale of one of the HCP communities and an increase in net income at HCP.
The sale of the one HCP community increased minority interest by approximately
$0.3 million.
Net income. As a result of the foregoing factors, net income decreased
$7.1 million to $4.8 million for 1999, as compared to $12.0 million for 1998.
QUARTERLY RESULTS
The following table presents certain quarterly financial information for
the four quarters ended December 31, 2000 and 1999. This information has been
prepared on the same basis as the audited Consolidated Financial Statements of
the Company appearing elsewhere in this report and include, in the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary to present fairly the quarterly results when read in conjunction with
the audited Consolidated Financial Statements of the Company and the related
notes thereto.
2000 CALENDAR QUARTERS
-----------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Total revenues................................. $12,510 $12,331 $16,040 $18,773
Income (loss) from operations.................. 3,095 3,072 4,313 (976)
Net income (loss).............................. 1,472 1,312 1,073 (2,618)
Net income (loss) per share, basic............. $ 0.07 $ 0.07 $ 0.05 $ (0.13)
Net income (loss) per share, diluted........... $ 0.07 $ 0.07 $ 0.05 $ (0.13)
Weighted average shares outstanding, basic..... 19,717 19,717 19,717 19,717
Weighted average shares outstanding, fully
diluted...................................... 19,746 19,717 19,717 19,717
1999 CALENDAR QUARTERS
------------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Total revenues................................ $15,467 $15,957 $16,560 $ 15,967
Income (loss) from operations................. 6,273 6,551 7,017 (10,137)
Net (loss) income............................. 3,852 3,983 4,386 (7,384)
Net (loss) income per share, basic............ $ 0.20 $ 0.20 $ 0.22 $ (0.37)
Net (loss) income per share, diluted.......... $ 0.20 $ 0.20 $ 0.22 $ (0.37)
Weighted average shares outstanding, basic.... 19,717 19,717 19,717 19,717
Weighted average shares outstanding, fully
diluted..................................... 19,720 19,917 19,871 19,717
LIQUIDITY AND CAPITAL RESOURCES
In addition to approximately $24.0 million of cash balances on hand as of
December 31, 2000, the Company's principal source of liquidity is expected to be
cash flows from operations and proceeds from the sale of assets held for sale.
Of the $24.0 million in cash balances, $13.5 million relates to cash held by
HCP. The Company expects its available cash and cash flows from operations,
along with proceeds from the sale of assets, to be sufficient to fund its
short-term working capital requirements. The Company's long-term capital
requirements, primarily for acquisitions, development, and other corporate
initiatives, will be dependent on its ability to access additional funds through
the debt and/or equity markets. 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 Company's long-term
capital requirements.
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30
The Company had net cash provided by operating activities of $19.7 million
in fiscal 2000 compared to $3.1 million and $6.7 million in fiscal 1999 and
1998, respectively. In fiscal 2000, the net cash provided by operating
activities was primarily derived from net income of $1.2 million along with net
noncash charges of $12.3 million, decreases in accounts receivable of $4.3
million, increases in accounts payable and accrued expenses of $2.5 million, a
decrease in federal and state taxes receivable of $2.3 million offset by
increases in interest and notes receivable of $1.8 million and an increase in
prepaid and other assets of $1.1 million. In fiscal 1999, the net cash provided
by operating activities was primarily derived from net income of $4.8 million
along with net noncash charges of $22.7 million offset by increases in accounts
and interest receivables of $14.1 million, an increase in other assets of $1.5
million, and a reduction in federal and state income taxes of $7.7 million. In
fiscal 1998, the net cash provided by operating activities was primarily derived
from net income of $12.0 million, noncash charges of $3.1 million offset by
increases in accounts and interest receivable of $9.0 million.
The Company had net cash used in investing activities of $116.2 million,
$16.5 million and $86.5 million in fiscal 2000, 1999, and 1998, respectively. In
fiscal 2000, the Company's net cash used in investing activities was primarily
the result of acquisition costs of $102.0 million for the eight ILM communities,
advances to Triad Entities of $18.2 million and capital expenditures of $3.1
million offset by the proceeds of the sale of HCP assets of $4.5 million and a
distribution from a limited partnership of $2.6 million. In fiscal 1999, the
Company's net cash used in investing activities was primarily the result of
advances to Triad Entities of $22.8 million and capital expenditures of $1.9
million offset by the proceeds from the sale of the HCP property of $2.7 million
and a distribution from a limited partnership of $5.4 million. In fiscal 1998,
the Company's net cash used in investing activities was primarily from
acquisitions of $67.7 million, advances to Triad Entities of $11.7 million,
capital expenditures of $6.0 million and investments in a limited partnership of
$1.7 million.
The Company had net cash provided by financing activities of $87.5 million,
$10.6 million and $67.5 million in fiscal 2000, 1999, and 1998, respectively.
For fiscal 2000, the net cash provided by financing activities was primarily the
result of increase in debt outstanding as a result of the Company's acquisition
of the eight ILM communities and refinancing of three owned communities offset
by repayments on the Company's line of credit of $30.0 million, distributions of
$4.0 million to minority partners and $3.7 million in loan costs. For fiscal
1999, the net cash provided by financing activities was primarily the result of
increases in debt outstanding under the Company's line of credit and notes
payable. For fiscal 1998, the net cash provided by financing activities was
primarily the result of increases in debt used to finance the Company's
acquisitions.
The Company derives the benefits and bears the risks related to the
communities it owns. The cash flows and profitability of owned communities
depends on the operating results of such communities and are subject to certain
risks of ownership, including the need for capital expenditures, financing and
other risks such as those relating to environmental matters.
The cash flows and profitability of the Company's owned communities that
are leased to third parties depend on the ability of the lessee to make timely
lease payments. At December 31, 2000, HCP was operating one of its properties
and had leased seven of its owned properties to third parties under triple net
leases. Four of these properties are leased until the year 2001 to HealthSouth
Rehabilitation Corporation ("HealthSouth"), under a master lease agreement.
Three of the four properties were closed by the lessee. Effective August 25,
1999, HealthSouth agreed to transfer control of the closed communities to the
Company. The assets of one of the two communities, with the exception of two
houses, were sold on September 29, 1999. On January 11, 2000, the Company sold
the HCP community in Martin, Tennessee to HealthSouth for $2.4 million. On July
12, 2000, the Company sold the house owned by HCP in Gallatin, Tennessee for
$0.4 million. On August 4, 2000, the Company sold HCP's community in Mt. Dora,
Florida for $2.0 million. Notwithstanding the sales, HealthSouth continues to
make its full lease payments to HCP with no reduction in rent for its four
leases.
Two of the remaining three unaffiliated lessees are current in their lease
payments to HCP. One community has defaulted on its January and February 2001
rental payments, and HCP is working with the lessee to stabilize the census and
is also evaluating its alternatives with regard to this property. The two non-
defaulting lessees have filed under Chapter 11 in the United States Bankruptcy
Court for the District of
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Delaware. At this time, it is uncertain if bankruptcy protection will disrupt
future payments of lease obligations. Both lessees have requested extensions of
their leases, both of which expired in 2000, subject to the approval of the
bankruptcy court. HCP is evaluating its options for the properties which could
include extending the leases with current operators, leasing the facilities to
another third party, selling the facilities, or evaluating other alternatives.
The cash flows and profitability of the Company's third-party management
fees are dependent upon the revenues and profitability of the communities the
Company manages. While the management contracts are generally terminable only
for cause, in certain cases contracts can be terminated upon the sale of a
community, subject to the Company's rights to offer to purchase such community.
The Company continues to develop and plans to acquire senior living
communities. The development of senior living communities typically involves a
substantial commitment of capital over an approximate 12-month construction
period during which time no revenues are generated, followed by a 18 to 24 month
lease-up period.
The Company has entered into management agreements with the Triad Entities
set out below for the management of senior living communities. The Triad
Entities will own and finance the construction of the new communities. These
communities are primarily Waterford communities. The Company typically receives
a development fee of 4% of project costs, as well as reimbursement of expenses
and overhead not to exceed 4% of project costs. The Company typically receives
management fees in an amount equal to the greater of 5% of gross revenues or
$5,000 per month per community, plus overhead reimbursement not to exceed 1%.
The Company holds a 1% limited partnership interest in each of the Triad
Entities and has the option to purchase the partnership interests of the other
partners in each Triad Entity for an amount equal to the amount paid for the
partnership interest by the other partners, plus noncompounded interest of 12%
per annum, except Triad I. In addition, each management agreement entered into
with the Triad Entities, except Triad I, provides the Company with an option to
purchase the community developed by the applicable partnership upon its
completion for an amount equal to the fair market value (based on a third-party
appraisal but not less than hard and soft costs and lease-up costs) of the
community. In December 1999, Triad I completed a recapitalization in which an
affiliate of Lehman Brothers purchased from third parties 80% of the limited
partnership interest in Triad I for an investment of $12.0 million. Lehman
Brothers affiliate's investment enabled Triad I to repay the Company
approximately $9.0 million in loans. The Company increased its equity
contribution in Triad I to $3.0 million and continues to own a 1% limited
partnership interest in Triad I. The Company has the option to purchase the
Triad I communities for an amount specified on the partnership agreement. The
Company will continue to manage the communities in Triad I. During the fourth
quarter of fiscal 2000 the Company reduced its ownership interest in each of the
Triad entities to 1%, by converting a portion of its investment to notes
receivable. The Company has made no determination as to whether it will exercise
any of these purchase options. The Company will evaluate the possible exercise
of each purchase option based upon the business and financial factors which may
exist at the time those options may be exercised.
Each Triad Entity finances the development of new communities through a
combination of equity funding, traditional construction loans and permanent
financing with institutional lenders secured by first liens on the communities
and unsecured loans from the Company. The chart below sets forth information
about the financings from institutional lenders and the Company loans. The
Company loans may be prepaid without penalty. The financings from institutional
lenders are secured by first liens on the communities as well as by assignment
to the lenders of the construction contracts and the development and management
agreements with subsidiaries of the Company. Each development and management
agreement assigned to an institutional lender is also guaranteed by the Company
and those guarantees are also assigned to the lenders. In most cases, the
management agreements contain an obligation of the Company to make operating
deficit loans to the Triad Entities if the other financing sources of the Triad
Entities have been fully utilized. These operating deficit loan obligations,
which are guaranteed by the Company, include making loans to fund debt service
obligations to the lenders.
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32
Set forth below is information regarding the Company's loans to the Triad
Entities, as well as information on the construction loan facilities entered
into by each of the Triad Entities.
COMPANY LOANS TO TRIADS(1) LOAN FACILITIES TO TRIADS
--------------------------------------------------------- ----------------------------------
OUTSTANDING
COMMITTED ON INTEREST
ENTITY AMOUNT DEC. 31, 2000 MATURITY RATE AMOUNT TYPE LENDER
- ------ --------- ------------- ------------------ -------- ------- ------------- --------
Triad Senior Living I, $ (2) $ 9,205 (2) 8.0% $50,000 construction; Bank One
L.P. ...................... $50,000 take-out GMAC
("Triad I")
Triad Senior Living II, $15,000 $12,705 September 25, 2003 10.5% $26,800 construction; Key Bank
L.P. ...................... mini-perm
("Triad II")
Triad Senior Living III, $15,000 $11,303 February 8, 2004 10.5% $56,300 construction; Guaranty
L.P. ...................... mini-perm Federal
("Triad III")
Triad Senior Living IV, $10,000 $ 6,585 December 30, 2003 10.5% $18,600 construction; Compass
L.P. ...................... mini-perm Bank
("Triad IV")
Triad Senior Living V, $10,000 $ 3,590 June 30, 2004 12.0% $ 9,000 construction; Bank of
L.P. ...................... mini-perm America
("Triad V")
- ---------------
(1) The Company has operating deficit loan obligations in management agreements
in addition to the committed amounts shown relating to unsecured loans from
the Company.
(2) The amount shown was funded by the Company pursuant to operating deficit
loan obligations.
IMPACT OF INFLATION
To date, inflation has not had a significant impact on the Company.
However, inflation could affect the Company's future revenues and results of
operations because of, among other things, the Company's dependence on senior
residents, many of whom rely primarily on fixed incomes to pay for the Company's
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.
FORWARD-LOOKING STATEMENTS
Certain information contained in this report constitutes "Forward-Looking
Statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
which can be identified by the use of forward-looking terminology such as "may,"
"will," "expect," "anticipate," "estimate" or "continue" or the negative thereof
or other variations thereon or comparable terminology. The Company cautions
readers that forward-looking statements, including, without limitation, those
relating to the Company's future business prospects, revenues, working capital,
liquidity, capital needs, interest costs, and income, are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those indicated in the forward-looking statements, due to several important
factors herein identified, among others, and other risks and factors identified
from time to time in the Company's reports filed with the SEC.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk is exposure to changes in interest rates
on debt instruments. As of December 31, 2000, the Company had $188.8 million in
outstanding debt comprised of various fixed and variable rate debt instruments
of $67.2 million and $121.6 million, respectively.
Changes in interest rates would affect the fair market value of the
Company's fixed rate debt instruments but would not have an impact on the
Company's earnings or cash flows. Fluctuations in interest rates on the
Company's variable rate debt instruments, which are tied to either the LIBOR or
the prime rate, would affect the Company's earnings and cash flows but would not
affect the fair market value of the variable rate debt. For each percentage
point change in interest rates the Company's annual interest expense would
increase by approximately $1.2 million based on the Company's outstanding
variable debt as of December 31, 2000.
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33
The following table summarizes information on the Company's debt
instruments outstanding as of December 31, 2000. The table presents the
principal due and weighted average interest rates for the Company's various debt
instruments by fiscal year. Weighted average variable interest rates are based
on the Company's floating rate as of December 31, 2000.
INTEREST RATE RISK
Principal Amount and Average Interest Rate by Expected Maturity Date ($ in
thousands)
2001 2002 2003 2004 2005 THEREAFTER TOTAL FAIR VALUE
------ ------- ------ ------ ------ ---------- -------- ----------
Long-term debt:
Fixed rate debt.......... $3,635 $ 1,081 $1,095 $1,188 $1,288 $51,394 $ 59,681 $ 59,681
Average interest rate.... 8.3% 8.3% 8.2% 8.2% 8.2% 8.2%
Variable rate debt......... 1,135 21,243 1,363 1,494 1,637 94,724 121,596 121,596
Average interest rate...... 9.7% 9.2% 9.2% 9.2% 9.2% 9.2%
Line of credit:
Variable rate debt....... -- $ 7,553 -- -- -- -- 7,553 7,553
Average interest rate.... -- 8.9% -- -- -- --
Total Debt......... $188,830 $188,830
======== ========
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are included under Item 14 of this Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company had no disagreements on accounting or financial disclosure
matters with its independent accountants to report under this Item 9.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information contained under the caption "Election of Directors" in the
Proxy Statement is incorporated herein by reference in response to this Item 10.
See also Item 1.
ITEM 11. EXECUTIVE COMPENSATION
Information contained under the captions "Executive Compensation" and
"Election of Directors" in the Proxy Statement is incorporated herein by
reference in response to this Item 11.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information contained under the caption "Principal Stockholders and Stock
Ownership of Management" in the Proxy Statement is incorporated herein by
reference in response to this Item 12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information contained under the caption "Certain Relationships and Related
Transactions" in the Proxy Statement is incorporated herein by reference in
response to this Item 13.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(1) Financial Statements:
The response to this portion of Item 14 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.
(4) The Company filed the following reports on Form 8-K during the
quarterly period ended December 31, 2000:
(a) Current Report on Form 8-K/A, dated October 30, 2000
(b) Current Report on Form 8-K/A, dated November 9, 2000
(c) Current Report on Form 8-K, dated November 28, 2000
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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 20, 2001.
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/ JAMES A. STROUD Chairman of the Board and March 20, 2001
- ----------------------------------------------------- Chairman of the Company
James A. Stroud
/s/ LAWRENCE A. COHEN Vice Chairman of the Board and March 20, 2001
- ----------------------------------------------------- Chief Executive Officer
Lawrence A. Cohen (Principal Executive
Officer)
/s/ KEITH N. JOHANNESSEN President and Chief Operating March 20, 2001
- ----------------------------------------------------- Officer and Director
Keith N. Johannessen
/s/ RALPH A. BEATTIE Executive Vice President and March 20, 2001
- ----------------------------------------------------- Chief Financial Officer
Ralph A. Beattie (Principal Financial and
Accounting Officer)
/s/ GORDON I. GOLDSTEIN Director March 20, 2001
- -----------------------------------------------------
Dr. Gordon I. Goldstein
/s/ JAMES A. MOORE Director March 20, 2001
- -----------------------------------------------------
James A. Moore
/s/ VICTOR W. NEE Director March 20, 2001
- -----------------------------------------------------
Dr. Victor W. Nee
/s/ CRAIG F. HARTBERG Director March 20, 2001
- -----------------------------------------------------
Craig F. Hartberg
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INDEX TO EXHIBITS
The following documents are filed as a part of this report. Those exhibits
previously filed and incorporated herein by reference are identified below.
Exhibits not required for this report have been omitted.
EXHIBIT
NUMBER DESCRIPTION
------- -----------
*3.1 -- Amended and Restated Certificate of Incorporation of the
Registrant
(i)3.1.1 -- Amendment to Amended and Restated Certificate of
Incorporation of the Registrant (Exhibit 3.1)
*3.2 -- Amended and Restated Bylaws of the Registrant
(i)3.2.1 -- Amendments to Amended and Restated Bylaws of the
Registrant (Exhibit 3.2)
*10.1 -- Asset Purchase Agreement, dated as of July 8, 1997, by
and between Capital Senior Living Communities, L.P. and
Capital Senior Living Corporation
*10.2 -- Contribution Agreement, dated as of August 1, 1997, by
and among Capital Senior Living Corporation, Jeffrey L.
Beck, James A. Stroud, Senior Living Trust, and Lawrence
A. Cohen
*10.3 -- Stock Purchase and Stockholders' Agreement, dated as of
November 1, 1996, by and among Capital Senior Living
Corporation, Jeffrey L. Beck, Senior Living Trust, and
Lawrence Cohen
*10.4 -- Amended and Restated Exchange Agreement, dated as of June
30, 1997, by and between Lawrence A. Cohen and Jeffrey L.
Beck
*10.5 -- Amended and Restated Exchange Agreement, dated as of June
30, 1997, by and among Lawrence A. Cohen and James A.
Stroud
(m)10.6 -- 1997 Omnibus Stock and Incentive Plan for Capital Senior
Living Corporation, as amended (Exhibit 4.1)
(m)10.6.1 -- Form of Stock Option Agreement (Exhibit 4.2)
*10.7 -- Senior Living Agreement, by and between Capital Senior
Living, Inc. and New World Development (China) Limited
*10.8 -- Amended and Restated Loan Agreement, 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 Communities,
L.P.
*10.9 -- Amended and Restated Employment Agreement, dated as of
May 7, 1997, by and between Capital Senior Living, Inc.
and Jeffrey L. Beck
*10.10 -- Amended and Restated Employment Agreement, dated as of
May 7, 1997, by and between Capital Senior Living, Inc.
and James A. Stroud
*10.11 -- Employment Agreement, dated as of November 1, 1996, by
and between Capital Senior Living Corporation and
Lawrence A. Cohen
*10.12 -- Employment Agreement, dated as of November 26, 1996, by
and between Capital Senior Living, Inc. and David R.
Brickman
*10.13 -- Employment Agreement, dated as of November 26, 1996, by
and between Capital Senior Living, Inc. and Keith N.
Johannessen
*10.14 -- 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
*10.15 -- Lease Agreement, dated as of June 1, 1997, by and between
G&L Gardens, LLC, as lessor, and Capital Senior
Management 1, Inc., as lessee
E-1
37
EXHIBIT
NUMBER DESCRIPTION
------- -----------
*10.16 -- Pre-Opening Consulting Agreement, dated as of June 16,
1997, by and between The Emmaus Calling, Inc., as owner,
and Capital Senior Management 1, Inc., as consultant
*10.17 -- Management Agreement, dated as of February 1, 1995, by
and between Capital Senior Living Communities, L.P., as
owner, and Capital Senior Living, Inc., as manager,
regarding Canton Regency Retirement Community, in Canton,
Ohio
*10.18 -- Management Agreement, dated as of February 1, 1995, by
and between Capital Senior Living Communities, L.P., as
owner, and Capital Senior Living, Inc., as manager,
regarding Cottonwood Village, in Cottonwood, Arizona
*10.19 -- Management Agreement, dated as of February 1, 1995, by
and between Capital Senior Living Communities, L.P., as
owner, and Capital Senior Living, Inc., as manager,
regarding The Harrison At Eagle Valley, in Indianapolis,
Indiana
*10.20 -- Management Agreement, dated as of February 1, 1995, by
and between Capital Senior Living Communities, L.P., as
owner and Capital Senior Living, Inc., as manager,
regarding Towne Centre, in Merrillville, Indiana
*10.21 -- Management Agreement, dated as of August 1, 1996, by and
between Capital Senior Living, Inc., as manager, and
Cambridge Nursing Home Limited Liability Company, as
lessee
*10.22 -- Management Agreement, dated as of April 1, 1996, by and
between Buckner Retirement Services, Inc. and Capital
Senior Management 1, Inc.
*10.23 -- Management Agreement, dated as of May 23, 1997, by and
between The Emmaus Calling, Inc., as owner, and Capital
Senior Management 1, Inc., as manager
*10.24 -- Property Management Agreement, dated as of February 1,
1995, by and between NHP Retirement Housing Partners I
Limited Partnership, as owner, and Capital Senior Living,
Inc., as agent
*10.25 -- Management Agreement, dated as of April 1, 1997, by and
between Buckner Retirement Services, Inc. and Capital
Senior Management 1, Inc.
*10.26 -- Management Agreement, dated as of November 30, 1992, by
and between Capital Realty Group Senior Housing, Inc.
d/b/a Capital Senior Living, Inc., as manager, and
Jacques-Miller Healthcare Properties, L.P., as owner
*10.27 -- Management Agreement, dated as of July 29, 1996, by and
between ILM I Lease Corporation, as owner, and Capital
Senior Management 2, Inc., as manager, and Capital Senior
Living, Inc., as guarantor
*10.28 -- Management Agreement, dated as of July 29, 1996, by and
between ILM II Lease Corporation, as owner, and Capital
Senior Management 2, Inc., as manager, and Capital Senior
Living, Inc., as guarantor
*10.29 -- Development Agreement, by and between Capital Senior
Development, Inc., as developer, and Tri Point
Communities, L.P., as owner
*10.30 -- Development and Turnkey Services Agreement, dated as of
September 1, 1997, by and between Capital Senior
Development Corporation and Tri-Point Communities, L.P.
*10.31 -- Management Agreement, by and between Tri Point
Communities, L.P., as owner, and Capital Senior Living,
Inc.
(a)10.32 -- Amended and Restated Loan Agreement, dated as of December
10, 1997, by and between Bank One, Texas, N.A. and
Capital Senior Living Properties, Inc.
E-2
38
EXHIBIT
NUMBER DESCRIPTION
------- -----------
(a)10.33 -- Alliance Agreement, dated as of December 10, 1997, by and
between LCOR Incorporated and Capital Senior Living
Corporation
(a)10.34 -- Development Agreement, dated as of December 10, 1997, by
and between Capital Senior Development, Inc. and Tri
Point Communities, L.P., regarding senior living
community in San Antonio, Texas
(a)10.35 -- Development Agreement, dated as of February 3, 1998, by
and between Capital Senior Development, Inc. and Tri
Point Communities, L.P., regarding senior living
community in Shreveport, Louisiana
(a)10.36 -- Management Agreement, dated as of December 23, 1997, by
and between Tri Point Communities, L.P. and Capital
Senior Living, Inc., regarding senior living community in
San Antonio, Texas
(a)10.37 -- Management Agreement, dated as of February 3, 1998, by
and between Tri Point Communities, L.P. and Capital
Senior Living, Inc., regarding senior living community in
Shreveport, Louisiana
(b)10.38 -- Draw Promissory Note, dated April 1, 1998, of Triad
Senior Living I, L.P. in favor of Capital Senior Living
Properties, Inc.
(c)10.39 -- Draw Promissory Note, dated September 24, 1998, of Triad
Senior Living II, L.P., in favor of Capital Senior Living
Properties, Inc. (Exhibit 10.1)
(d)10.40 -- Asset Purchase Agreement, dated as of July 24, 1998, by
and between Capital Senior Living Properties, Inc. and
NHP Retirement Housing Partners I Limited Partnership
(Exhibit 2.1)
(d)10.41 -- Assignment and Amendment to Asset Purchase Agreement,
effective as of September 29, 1998, by and among NHP
Retirement Housing Partners I Limited Partnership,
Capital Senior Living Properties, Inc., and Capital
Senior Living Properties 2-NHPCT, Inc. (Exhibit 2.2)
(d)10.42 -- Loan Agreement, dated as of September 30, 1998, by and
between Capital Senior Living Properties 2-NHPCT, Inc.
and Lehman Brothers Holdings Inc. d/b/a Lehman Capital, a
division of Lehman Brothers Holdings Inc. (Exhibit 2.3)
(e)10.43 -- Asset Purchase Agreement, dated as of July 28, 1998, by
and between Capital Senior Living Properties, Inc. and
Gramercy Hill Enterprises (Exhibit 2.1)
(e)10.44 -- Asset Purchase Agreement, dated as of July 28, 1998, by
and between Capital Senior Living Properties, Inc. and
Tesson Heights Enterprises (Exhibit 2.2)
(e)10.45 -- Assumption and Release Agreement, effective as of October
28, 1998, among Gramercy Hill Enterprises, Andrew C.
Jacobs, Capital Senior Living Properties 2-Gramercy,
Inc., Capital Senior Living Corporation and Fannie Mae
(Exhibit 2.4)
(e)10.46 -- Multifamily Note, dated December 4, 1997, of Gramercy
Hill Enterprises in favor of Washington Mortgage
Financial Group, Ltd. (Exhibit 2.5)
(e)10.47 -- 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)
(e)10.48 -- Multifamily Note, dated October 28, 1998, of Capital
Senior Living Properties 2-Gramercy, Inc. in favor of WMF
Washington Mortgage Corp. (Exhibit 2.7)
(e)10.49 -- 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)
E-3
39
EXHIBIT
NUMBER DESCRIPTION
------- -----------
(f)10.50 -- Employment Agreement, dated as of December 10, 1996, by
and between Capital Senior Living, Inc. and Rob L.
Goodpaster (Exhibit 10.50)
(f)10.51 -- Draw Promissory Note dated November 1, 1998 of Triad
Senior Living III, L.P., in favor of Capital Senior
Living Properties, Inc. (Exhibit 10.51)
(f)10.52 -- Draw Promissory Note dated December 30, 1998 of Triad
Senior Living IV, L.P., in favor of Capital Senior Living
Properties, Inc. (Exhibit 10.52)
(f)10.53 -- Form of Development and Turnkey Services Agreement by and
between Capital Senior Development, Inc. and applicable
Triad Entity (Exhibit 10.53)
(f)10.54 -- Form of Development Agreement by and between Capital
Senior Development, Inc. and applicable Triad Entity
(Exhibit 10.54)
(f)10.55 -- Form of Management Agreement by and between Capital
Senior Living, Inc. and applicable Triad Entity ( Exhibit
10.55)
(f)10.56 -- Agreement of Limited Partnership of Triad Senior Living
I, L.P. dated April 1, 1998 (Exhibit 10.56)
(f)10.57 -- Agreement of Limited Partnership of Triad Senior Living
II, L.P. dated September 23, 1998 (Exhibit 10.57)
(f)10.58 -- Agreement of Limited Partnership of Triad Senior Living
III, L.P. dated November 10, 1998 (Exhibit 10.58)
(f)10.59 -- Agreement of Limited Partnership of Triad Senior Living
IV, L.P. dated December 22, 1998 (Exhibit 10.59)
(g)10.60 -- 1999 Amended and Restated Loan Agreement, dated as of
April 8, 1999, by and among Capital Senior Living
Properties, Inc., Bank One, Texas, N.A. and the other
Lenders signatory thereto (Exhibit 10.1)
(g)10.61 -- Amended and Restated Draw Promissory note, dated March
31, 1999, of Triad Senior Living I, L.P., in favor of
Capital Senior Living Properties, Inc. (Exhibit 10.2)
(g)10.62 -- Amended and Restated Draw Promissory Note (Fairfield),
dated January 15, 1999, of Triad Senior Living II, L.P.,
in favor of Capital Senior Living Properties, Inc.
(Exhibit 10.3)
(g)10.63 -- Amended and Restated Draw Promissory Note (Baton Rouge),
dated January 15, 1999, of Triad Senior Living II, L.P.,
in favor of Capital Senior Living Properties, Inc.
(Exhibit 10.4)
(g)10.64 -- Amended and Restated Draw Promissory Note (Oklahoma
City), dated January 15, 1999, of Triad Senior Living II,
L.P., in favor of Capital Senior Living Properties, Inc.
(Exhibit 10.5)
(h)10.65 -- Amended and Restated Draw Promissory Note dated June 30,
1999 of Triad Senior Living I, L.P. in favor of Capital
Senior Living Properties, Inc. (Exhibit 10.1)
(h)10.66 -- Amended and Restated Draw Promissory Note (Plano, Texas)
dated January 15, 1999 of Triad Senior Living II, L.P. in
favor of Capital Senior Living Properties, Inc. (Exhibit
10.2)
(h)10.67 -- Letter Agreement dated July 28, 1999 among the Company
and ILM Senior Living, Inc. and ILM II Senior Living,
Inc. (Exhibit 10.3)
(i)10.68 -- Draw Promissory Note dated July 1, 1999 of Triad Senior
Living V, L.P. in favor of Capital Senior Living
Properties, Inc. (Exhibit 10.1)
E-4
40
EXHIBIT
NUMBER DESCRIPTION
------- -----------
(i)10.69 -- First Amendment to Amended and Restated Employment
Agreement of James A. Stroud, dated March 22, 1999, by
and between James A. Stroud and Capital Senior Living
Corporation (Exhibit 10.2)
(i)10.70 -- Second Amendment to Amended and Restated Employment
Agreement of James A. Stroud, dated May 31, 1999, by and
between James A. Stroud and Capital Senior Living
Corporation (Exhibit 10.3)
(i)10.71 -- Employment Agreement, dated May 26, 1999, by and between
Lawrence A. Cohen and Capital Senior Living Corporation
(Exhibit 10.4)
(j)10.72 -- 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 1)
(k)10.73 -- 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 1)
(l)10.74 -- 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)
(m)10.75 -- 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)
(o)10.76 -- Employment Agreement, dated May 25, 1999, by and between
Ralph A. Beattie and Capital Senior Living Corporation
(Exhibit 10.76)
(o)10.77 -- Consulting/Severance Agreement, dated May 20, 1999, by
and between Jeffrey L. Beck and Capital Senior Living
Corporation (Exhibit 10.77)
(o)10.78 -- Second Amended and Restated Agreement of Limited
Partnership of Triad Senior Living I, L.P. (Exhibit
10.78)
(p)10.79 -- Form of GMAC Loan Agreement, Promissory Note and
Exceptions to Nonrecourse Guaranty (Exhibit 10.1)
(p)10.80 -- Newman Pool B Loan Agreement, Promissory Note and
Guaranty (Exhibit 10.2)
(p)10.81 -- Newman Pool C Loan Agreement, Promissory Note and
Guaranty (Exhibit 10.3)
(p)10.82 -- First Amendment to Triad II Partnership Agreement
(Exhibit 10.4)
(p)10.83 -- Second Modification to the Bank One Loan Agreement
(Exhibit 10.5)
(p)10.84 -- Assignment of Note, Liens and Other Loan Documents
between Fleet National Bank and CSLI (Exhibit 10.6)
(q)10.85 -- Second Amendment to Amended and Restated Agreement and
Plan of Merger, dated November 28, 2000 (Exhibit 10.1)
(q)10.86 -- First Amendment to Agreement, dated November 28, 2000
(Exhibit 10.2)
(r)10.87 -- 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.
(r)10.88 -- 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.
(r)10.89 -- 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.
E-5
41
EXHIBIT
NUMBER DESCRIPTION
------- -----------
(r)10.90 -- 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.
(r)10.91 -- 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.
(r)21.1 -- Subsidiaries of the Company
(r)23.1 -- Consent of Ernst & Young LLP
(r)23.2 -- Consent of KPMG LLP
- ---------------
* Incorporated by reference to exhibit of corresponding number included in
Registration Statement No. 333-33379 on Form S-1 filed by the Company with
the Securities and Exchange Commission. Compensation plan, benefit plan or
employment contract or arrangement.
(a) Incorporated by reference to exhibit of corresponding number from the
Company's Annual Report on Form 10-K for the year ended December 31, 1997,
filed by the Company with the Securities and Exchange Commission.
(b) Incorporated by reference to the exhibit of corresponding number from the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1998, filed by the Company with the Securities and Exchange
Commission.
(c) Incorporated by reference to the exhibit shown in parentheses from the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1998, filed by the Company with the Securities and Exchange
Commission.
(d) Incorporated by reference to the exhibit shown in parentheses from the
Company's Current Report on Form 8-K, dated September 30, 1998, filed by
the Company with the Securities and Exchange Commission.
(e) Incorporated by reference to the exhibit shown in parentheses from the
Company's Current Report on Form 8-K, dated October 29, 1998, filed by the
Company with the Securities and Exchange Commission.
(f) Incorporated by reference to the exhibit shown in parentheses from the
Company's Annual Report on Form 10-K for the year ended December 31, 1998,
filed by the Company with the Securities and Exchange Commission.
(g) Incorporated by reference to the exhibit shown in parentheses from the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1999, filed by the Company with the Securities and Exchange
Commission.
(h) Incorporated by reference to the exhibit shown in parentheses from the
Company's Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1999, filed by the Company with the Securities and Exchange Commission.
(i) Incorporated by reference to the exhibit shown in parentheses from the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1999, filed by the Company with the Securities and Exchange
Commission.
(j) Incorporated by reference to the exhibit shown in parentheses from the
Company's Current Report on Form 8-K, dated February 7, 1999, filed by the
Company with the Securities and Exchange Commission.
(k) Incorporated by reference to the exhibit shown in parentheses from the
Company's Current Report on Form 8-K, dated February 7, 1999, filed by the
Company with the Securities and Exchange Commission.
(l) Incorporated by reference to the exhibit shown in parentheses from the
Company's Current Report on Form 8-K, dated October 19, 1999, filed by the
Company with the Securities and Exchange Commission.
(m) Incorporated by reference to the exhibit shown in parentheses from the
Company's Current Report on Form 8-K, dated October 19, 1999, filed by the
Company with the Securities and Exchange Commission.
E-6
42
(n) Incorporated by reference to the exhibit shown in parentheses from the
Company's Registration Statement on Form S-8, filed on December 3, 1999, by
the Company with Securities and Exchange Commission.
(o) Incorporated by reference to the exhibit shown in parenthesis from the
Company's Annual Report on Form 10-K, dated March 30, 2000, filed by the
Company with the Securities and Exchange Commission.
(p) Incorporated by reference to the exhibit shown in parenthesis from the
Company's Current Report on Form 8-K, dated August 15, 2000, filed by the
Company with the Securities and Exchange Commission.
(q) Incorporated by reference to the exhibit shown in parenthesis from the
Company's Current Report on Form 8-K, dated November 28, 2000, filed by the
Company with the Securities and Exchange Commission.
(r) Filed herewith.
E-7
43
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Consolidated Financial Statements of Capital Senior Living
Corporation
Report of Ernst & Young LLP, Independent Auditors......... F-2
KPMG LLP Independent Auditors' Report..................... F-3
Consolidated Balance Sheets -- December 31, 2000 and F-4
1999...................................................
Consolidated Statements of Income -- December 31, 2000, F-5
1999 and 1998..........................................
Consolidated Statements of Shareholders' Equity --December F-6
31, 2000, 1999 and 1998................................
Consolidated Statements of Cash Flows -- December 31, F-7
2000, 1999 and 1998....................................
Notes to Consolidated Financial Statements.................. F-8
F-1
44
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Shareholders
Capital Senior Living Corporation
We have audited the accompanying consolidated balance sheets of Capital
Senior Living Corporation as of December 31, 2000 and 1999, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the consolidated financial statements of HealthCare
Properties, L.P. and subsidiaries, a 57% owned subsidiary, as of December 31,
1999 and for each of the two years in the period ended December 31, 1999, which
statements reflect total assets of $32.1 million as of December 31, 1999, and
total revenues of $9.5 million and $8.8 million for the years ended December 31,
1999 and 1998, respectively. Those statements were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates to
data included for HealthCare Properties, L.P., as of December 31, 1999 and for
each of the two years in the period ended December 31, 1999 is based solely on
the report of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors for
1999 and each of the two years in the period ended December 31, 1999, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Capital Senior Living Corporation as of
December 31, 2000 and 1999, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31,
2000, in conformity with accounting principles generally accepted in the United
States.
ERNST & YOUNG LLP
Dallas, Texas
February 9, 2001
F-2
45
INDEPENDENT AUDITORS' REPORT
The Partners
HealthCare Properties, L.P.:
We have audited the consolidated balance sheet of HealthCare Properties,
L.P. and subsidiaries (a Delaware limited partnership) as of December 31, 1999,
and the related consolidated statements of income, partnership equity and cash
flows for each of the years in the two-year period ended December 31, 1999.
These consolidated financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of HealthCare
Properties, L.P. and subsidiaries as of December 31, 1999 and the results of
their operations and their cash flows for each of the years in the two-year
period ended December 31, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
Dallas, Texas
February 4, 2000,
except as to the
third paragraph of
Note 13 which is
as of March 1, 2000
F-3
46
CAPITAL SENIOR LIVING CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
-------------------
2000 1999
-------- --------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 23,975 $ 32,988
Accounts receivable, net.................................. 3,221 3,392
Accounts receivable from affiliates....................... 3,764 9,055
Interest receivable from affiliates....................... 2,074 834
Federal and state income taxes receivable................. 3,728 6,035
Deferred taxes............................................ 1,208 910
Prepaid expenses and other................................ 1,935 508
-------- --------
Total current assets.............................. 39,905 53,722
Property and equipment, net................................. 204,764 104,723
Deferred taxes.............................................. 8,872 9,516
Note receivable............................................. 570 --
Notes receivable from affiliates............................ 43,388 30,596
Investments in limited partnerships......................... 6,526 9,123
Assets held for sale........................................ 6,920 9,549
Other assets, net........................................... 7,599 4,647
-------- --------
Total assets...................................... $318,544 $221,876
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 3,907 $ 2,512
Accrued expenses.......................................... 3,194 2,127
Current portion of notes payable.......................... 4,770 1,199
Customer deposits......................................... 1,012 911
-------- --------
Total current liabilities......................... 12,883 6,749
Deferred income from affiliates............................. 2,241 1,785
Notes payable, net of current portion....................... 176,507 58,416
Line of credit.............................................. 7,553 34,000
Minority interest in consolidated partnership............... 8,572 11,377
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value:
Authorized shares -- 15,000,000; no shares issued or
outstanding........................................... -- --
Common stock, $.01 par value:
Authorized shares -- 65,000,000
Issued and outstanding shares -- 19,717,347 in 2000 and
1999.................................................. 197 197
Additional paid-in capital................................ 91,935 91,935
Retained earnings......................................... 18,656 17,417
-------- --------
Total shareholders' equity........................ 110,788 109,549
-------- --------
Total liabilities and shareholders' equity........ $318,544 $221,876
======== ========
See accompanying notes.
F-4
47
CAPITAL SENIOR LIVING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
----------------------------
2000 1999 1998
-------- ------- -------
Revenues:
Resident and health care revenue.......................... $ 49,185 $41,071 $25,988
Rental and lease income................................... 4,603 4,304 4,282
Unaffiliated management services revenue.................. 2,271 2,695 2,465
Affiliated management services revenue.................... 1,040 456 1,327
Unaffiliated development fees............................. 563 1,341 1,234
Affiliated development fees............................... 1,992 14,086 7,472
-------- ------- -------
Total revenues.................................... 59,654 63,953 42,768
Expenses:
Operating expenses........................................ 29,530 24,470 17,067
General and administrative expenses....................... 11,116 9,212 6,094
Provision for bad debts................................... 4,318 15,896 500
Depreciation and amortization............................. 5,186 4,671 2,734
-------- ------- -------
Total expenses.................................... 50,150 54,249 26,395
-------- ------- -------
Income from operations...................................... 9,504 9,704 16,373
Other income (expense):
Interest income........................................... 5,981 5,822 4,939
Interest expense.......................................... (11,980) (7,089) (1,922)
(Loss) gain on sale of properties......................... (350) 748 422
-------- ------- -------
Income before income taxes and minority interest in
consolidated partnership.................................. 3,155 9,185 19,812
Provision for income taxes.................................. (763) (2,992) (7,476)
-------- ------- -------
Income before minority interest in consolidated
partnership............................................... 2,392 6,193 12,336
Minority interest in consolidated partnership............... (1,153) (1,355) (379)
-------- ------- -------
Net income.................................................. $ 1,239 $ 4,838 $11,957
======== ======= =======
Net income per share:
Basic..................................................... $ 0.06 $ 0.25 $ 0.61
======== ======= =======
Diluted................................................... $ 0.06 $ 0.24 $ 0.61
======== ======= =======
Weighted average shares outstanding -- basic.............. 19,717 19,717 19,717
======== ======= =======
Weighted average shares outstanding -- diluted............ 19,724 19,806 19,717
======== ======= =======
See accompanying notes.
F-5
48
CAPITAL SENIOR LIVING CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
COMMON STOCK ADDITIONAL
--------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- -------- --------
Balance at January 1, 1998.................... 19,717 $197 $91,740 $ 622 $ 92,559
Net income.................................. -- -- -- 11,957 11,957
------ ---- ------- ------- --------
Balance at December 31, 1998.................. 19,717 197 91,740 12,579 104,516
Non cash compensation....................... -- -- 195 -- 195
Net income.................................. -- -- -- 4,838 4,838
------ ---- ------- ------- --------
Balance at December 31, 1999.................. 19,717 197 91,935 17,417 109,549
Net income.................................. -- -- -- 1,239 1,239
------ ---- ------- ------- --------
Balance at December 31, 2000.................. 19,717 $197 $91,935 $18,656 $110,788
====== ==== ======= ======= ========
See accompanying notes.
F-6
49
CAPITAL SENIOR LIVING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-------------------------------
2000 1999 1998
--------- -------- --------
OPERATING ACTIVITIES
Net income.................................................. $ 1,239 $ 4,838 $ 11,957
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 5,094 4,567 2,640
Amortization.............................................. 92 104 94
Amortization of deferred financing charges................ 495 519 164
Minority interest in consolidated partnership............. 1,153 1,355 379
Deferred interest......................................... -- -- (680)
Deferred income from affiliates........................... 456 992 792
Deferred income........................................... -- (115) (116)
Deferred income taxes (benefit)........................... 346 (30) (297)
Loss (gain) on sale of properties......................... 350 (748) (422)
Non cash compensation..................................... -- 195 --
Provision for bad debts................................... 4,318 15,896 500
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable..................................... (955) (1,012) (1,482)
Accounts receivable from affiliates..................... 5,291 (12,464) (7,191)
Interest receivable from affiliates..................... (1,240) (645) (306)
Notes receivable........................................ (570) -- --
Prepaid expenses and other.............................. (1,427) (60) 4
Other assets............................................ 191 (1,504) (1,059)
Accounts payable........................................ 1,395 (268) 312
Accrued expenses........................................ 1,067 (872) 526
Federal and state income taxes receivable/payable....... 2,307 (7,704) 837
Customer deposits....................................... 101 59 37
--------- -------- --------
Net cash provided by operating activities.......... 19,703 3,103 6,689
INVESTING ACTIVITIES
Capital expenditures........................................ (3,121) (1,887) (6,027)
Cash paid for acquisitions, net of cash acquired of $2,060
in 2000 and
$0 in 1998................................................ (102,014) -- (67,729)
Proceeds from sale of properties............................ 4,504 2,740 676
Advances to affiliates...................................... (18,209) (22,794) (11,728)
Proceeds from (investments in) limited partnerships......... 2,597 5,414 (1,694)
--------- -------- --------
Net cash used in investing activities....................... (116,243) (16,527) (86,502)
FINANCING ACTIVITIES
Proceeds from notes payable and line of credit.............. 125,248 61,506 67,039
Repayments of notes payable and line of credit.............. (30,033) (48,981) (791)
Distributions to minority partners.......................... (3,958) (1,198) --
Cash received for redemption of NHP limited partnership
interest.................................................. -- -- 1,997
Repurchase of HCP limited partnership interests by HCP...... -- -- (144)
Deferred financing charges paid............................. (3,730) (742) (586)
--------- -------- --------
Net cash provided by financing activities................... 87,527 10,585 67,515
--------- -------- --------
Decrease in cash and cash equivalents....................... (9,013) (2,839) (12,298)
Cash and cash equivalents at beginning of year.............. 32,988 35,827 48,125
--------- -------- --------
Cash and cash equivalents at end of year.................... $ 23,975 $ 32,988 $ 35,827
========= ======== ========
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest.................................................. $ 10,609 $ 6,476 $ 1,957
========= ======== ========
Income taxes.............................................. $ 619 $ 10,276 $ 6,935
========= ======== ========
See accompanying notes.
F-7
50
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. ORGANIZATION AND FORMATION
Capital Senior Living 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. The
accompanying consolidated financial statements include the financial statements
of Capital Senior Living Corporation and its subsidiaries. All material
intercompany balances and transactions have been eliminated in consolidation.
The Company was incorporated in Delaware in October 1996 in anticipation of
its initial public offering. Simultaneously with the consummation of its initial
public offering, the Company and the Company's founders engaged in a series of
transactions (the "Formation Transactions"), which resulted in the Company
acquiring certain assets, entities and partnership interests of its founders and
entities affiliated with its founders. In connection with the Formation
Transactions, the stock of Capital Senior Living, Inc., Capital Senior
Management 1, Inc., Capital Senior Management 2, Inc., Capital Senior
Development, Inc., and Quality Home Care, Inc. was contributed by the Company's
founders in exchange for 7,687,347 shares of the Company's common stock and
notes aggregating approximately $18.1 million. The primary assets of these
entities consisted of third-party management contracts, development contracts
and a home health care agency. The notes were repaid with some of the proceeds
of the Company's initial public offering.
The Company purchased substantially all of the assets of Capital Senior
Living Communities, L.P. ("CSLC") for the assumption of approximately $71
million in debt (the "LBHI Loan") and $5.8 million in cash. The LBHI Loan was
repaid with some of the proceeds of the Company's initial public offering. The
primary assets of CSLC were (i) four senior living communities; (ii)
approximately 56% of the limited partnership interests in HealthCare Properties,
L.P. ("HCP"); and (iii) approximately 31% of certain notes (the "NHP Notes")
issued by NHP Retirement Housing Partners I Limited Partnership ("NHP"). The
Company currently owns approximately 57% of the limited partnership interests of
HCP and 33% of the NHP Notes.
The primary assets of HCP consisted of: (i) cash and cash equivalents; (ii)
four physical rehabilitation facilities and (iii) four skilled nursing
facilities. Until June 10, 1998, an entity controlled by a related party was the
general partner of HCP. Since 1998, HCP has sold three of the physical
rehabilitation facilities.
In the accompanying consolidated financial statements, HCP is consolidated
as the Company had acquired a controlling financial interest in HCP. At December
31, 2000, 1999 and 1998, the Company owned approximately 57% of HCP's limited
partner units.
HCP and NHP are subject to the reporting obligations of the Securities and
Exchange Commission.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Investments with original maturities of three months or less are considered
to be cash equivalents. The Company has deposits in banks that exceed Federal
Deposit Insurance Corporation insurance limits. Management believes that credit
risk related to these deposits is minimal. Cash and cash equivalents, at
December 31, 2000 and 1999, includes the cash and cash equivalents of the HCP
partnership of $13.5 million and $13.7 million, respectively.
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 30 to 40 years for buildings and building improvements, 20
years for land improvements and 5 to 10 years for furniture, equipment and
automobiles.
F-8
51
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Management contract rights of $0.5 million, included in other assets, are
stated at cost and amortized on a straight-line basis over their respective
contract lives. Accumulated amortization for management contract rights at
December 31, 2000 and 1999 was $0.4 million and $0.4 million, respectively.
Goodwill of $1.3 million, included in other assets, is the excess purchase price
over the fair value of the assets acquired in the Formation Transaction to the
extent of the minority interest and is amortized over 30 years on a straight-
line basis. Accumulated amortization for goodwill at December 31, 2000 and 1999
was $0.1 million and $0.1 million, respectively.
At each balance sheet date, the Company reviews the carrying value of its
management contract rights, goodwill, and property and equipment to determine if
facts and circumstances suggest that they may be impaired or that the
amortization or depreciation period may need to be changed. The Company
considers external factors relating to each asset, including contract changes,
local market developments, and other publicly available information. The
carrying value of a long-lived asset is considered impaired when the anticipated
undiscounted cash flows from such asset is separately identifiable and is less
than its carrying value. In that event, a loss is recognized based on the amount
the carrying value exceeds the fair market value, generally based on discounted
cash flows, of the long-lived asset. The Company does not believe there are any
indicators that would require an adjustment to the carrying value of the
management contract rights, goodwill or property and equipment or their
remaining useful lives as of December 31, 2000 and 1999.
Assets Held for Sale
During 1999, the Company reclassified four of its properties in HCP to
assets held for sale. Three of the properties had been leased to Rebound Inc., a
subsidiary of HealthSouth Corporation ("HealthSouth"), under a master lease
agreement. These properties were closed by the lessee. Effective August 25,
1999, HealthSouth agreed to transfer control of the closed communities to the
Company. The assets of one of the three communities, with the exception of two
houses, were sold on September 20, 1999. The assets of the two remaining
communities and one house were sold during 2000. During 2000, the Company
forgave $3.2 million of notes receivable with other partnerships in exchange for
five parcels of land, which the Company classified as held for sale. During the
fourth quarter of 2000, the Company recorded a write-down on the remaining house
and five parcels of land of $1.0 million to record these assets at their
estimated net realizable value. This write-down is reflected as provision for
bad debts in the statements of income. The Company estimates the five parcels of
land, the one remaining community and a house that were held for sale at
December 31, 2000, have an aggregate fair value, net of costs of disposal, of
$6.9 million. The amounts the Company will ultimately realize could differ
materially from this estimate.
Income Taxes
The Company accounts for income taxes under the liability method. Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Management regularly evaluates the
realizability of deferred tax assets and provides a valuation allowance, if
considered necessary, based on such evaluation.
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 12%, 11% and
16% in 2000, 1999 and 1998, respectively of the Company's net revenues. Two
communities are providers of services under the Medicaid program. Accordingly,
these communities are entitled to reimbursement under the foregoing program at
established rates that are lower than private pay rates. Patient service revenue
for Medicaid
F-9
52
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
patients is recorded at the reimbursement rates as the rates are set
prospectively by the state upon the filing of an annual cost report. Three
communities are providers of services under the Medicare program and are
entitled to payment under the foregoing programs in amounts determined based on
established rates that differ from private pay rates. In 1998 and prior years,
payments were based on the filing of an annual cost report prepared in
accordance with federal regulations, which are subject to audit and retroactive
adjustments in future periods. Revenue from the Medicare program is recorded at
established rates and adjusted for differences between such rates and estimated
amounts payable from the program. Any differences between estimated and actual
reimbursements are included in operations in the year of settlement, which have
not been material.
Laws and regulations governing the Medicare and Medicaid programs are
complex and subject to interpretation. The Company believes that it is in
compliance with all applicable laws and regulations and is not aware of any
pending or threatened investigations involving allegations of potential
wrongdoing. While no such regulatory inquiries have been made, compliance with
such laws and regulations can be subject to future government review and
interpretation as well as significant regulatory action including fines,
penalties, and exclusion from the Medicare and Medicaid programs.
Management services revenue, resident and healthcare revenue and
development fees are recognized when earned. Management services revenue relates
to providing certain management and administrative support services under
management contracts, which have terms expiring through 2010. Management
services revenue is shown net of reimbursed expenses. The reimbursed expenses
from affiliates were $5.1 million, $1.7 million and $3.5 million, for the years
ended December 31, 2000, 1999, and 1998, respectively. Reimbursed expenses from
unaffiliated parties were $11.4 million, $12.5 million and $11.2 million, for
the years ended December 31, 2000, 1999 and 1998, respectively.
The Company's 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.
Affiliated development fees in the accompanying statements of income
represent development fees earned from the Triad Entities (see Note 3).
Credit Risk
The Company's resident receivables are generally due within 30 days and
development fee receivables are due through completion of construction, which is
generally one year. The Company does not require collateral. Credit losses, on
resident receivables, have been within management's 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, 2000, 1999 and 1998 were $0.4 million, $0.4 million and $0.2
million, respectively.
Net Income Per Share
Basic net income per share is calculated by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
net income per share considers the dilutive effect of outstanding options
calculated using the treasury stock method.
F-10
53
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table set forth the computation of basic and diluted net
income per share (in thousands, except for per share amounts):
YEAR ENDED DECEMBER 31,
---------------------------
2000 1999 1998
------- ------- -------
Net income.............................................. $ 1,239 $ 4,838 $11,957
======= ======= =======
Weighted average shares outstanding -- basic............ 19,717 19,717 19,717
Effect of dilutive securities:
Employee stock options................................ 7 89 --
------- ------- -------
Weighted average shares outstanding -- dilutive......... 19,724 19,806 19,717
======= ======= =======
Basic net income per share............................ $ 0.06 $ 0.25 $ 0.61
======= ======= =======
Diluted net income per share.......................... $ 0.06 $ 0.24 $ 0.61
======= ======= =======
Stock-Based Compensation
The Company has elected to follow the intrinsic value method in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and related interpretations in accounting for its employee and
director stock options. In accordance with APB 25, since the exercise price of
the Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized. The Company
has adopted the disclosure-only provisions for the fair value method of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FASB 123"). Stock option grants to non-employees are accounted
for in accordance with the fair value method of FASB 123.
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.
Use of Estimates
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 financial
statements and accompanying notes. Actual results could differ from those
estimates.
3. TRANSACTIONS WITH AFFILIATES
The Company has entered into development and management agreements with the
partnerships set out below (the "Triad Entities") for the development and
management of new senior living communities. The Triad Entities own and finance
the construction of new senior living communities. These communities are
primarily Waterford communities. The development of senior living communities
typically involves a substantial commitment of capital over an approximate
12-month construction period, during which time no revenues are generated
followed by an 18 to 24 month lease up period.
The Company is accounting for these investments under the equity method of
accounting based on the provisions of the Triad Entities partnership agreements.
F-11
54
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth the percentage ownership the Company has in
each of the Triad Entities, the capital invested, information related to loans
made by the Company to each Triad Entity and information on deferred income
related to each Triad Entity (dollars in thousands):
NOTES RECEIVABLE
LP --------------------------------------------------
OWNERSHIP CAPITAL COMMITTED BALANCE INTEREST
ENTITY INTEREST INVESTMENT AMOUNT DECEMBER 31, MATURITY RATE
- ------ --------- ---------- --------- ------------ ------------ --------
Triad Senior Living
I, L.P.
(Triad I)
2000............. 1.0% $ 158 $ -- $ 9,205 -- 8.0%
1999............. 19.0 3,000 30 8.0
Triad Senior Living
II, L.P.
(Triad II)
September
2000............. 1.0 4 15,000 12,705 25, 10.5
1999............. 19.0 74 15,000 11,510 2003 10.5
Triad Senior
Living III, L.P.
(Triad III)
2000............. 1.0 8 15,000 11,303 February 8, 10.5
1999............. 19.0 143 10,000 9,810 2004 10.5
Triad Senior
Living IV, L.P.
(Triad IV)
2000............. 1.0 8 10,000 6,585 December 30, 10.5
1999............. 19.0 143 10,000 5,178 2003 10.5
Triad Senior Living
V, L.P.
(Triad V)
2000............. 1.0 -- 10,000 3,590 June 30, 12.0
1999............. 10.0 -- 10,000 3,467 2004 12.0
Triad Senior
Living VI, L.P.
(Triad VI)
2000............. -- -- -- -- October 1, --
1999............. 5.0 -- 3,000 600 2004 12.0
DEFERRED INCOME
-----------------------------------
DEVELOPMENT MANAGEMENT
ENTITY INTEREST FEES FEES
- ------ -------- ----------- ----------
Triad Senior Living
I, L.P.
(Triad I)
2000............. $189 $359 $108
1999............. 230 426 33
Triad Senior Living
II, L.P.
(Triad II)
2000............. 290 230 --
1999............. 130 197 --
Triad Senior
Living III, L.P.
(Triad III)
2000............. 251 428 --
1999............. 111 377 --
Triad Senior
Living IV, L.P.
(Triad IV)
2000............. 176 120 --
1999............. 73 106 --
Triad Senior Living
V, L.P.
(Triad V)
2000............. 60 30 --
1999............. 17 80 --
Triad Senior
Living VI, L.P.
(Triad VI)
2000............. -- -- --
1999............. 2 -- --
The Company typically receives a development fee of 4% of project costs, as
well as reimbursement of expenses and overhead not to exceed 4% of project
costs. These fees are recorded over the term of the development project on a
basis approximating the percentage of completion method. In addition, when the
properties become operational, the Company typically receives management fees in
an amount equal to the greater of 5% of gross revenues or $5,000 per month per
community, plus overhead not to exceed 1% of gross revenue.
The Company has the option to purchase the partnership interests of the
other parties in Triad Entities for an amount equal to the amount paid for the
partnership interest by the other partners, plus a noncompounded return of 12%
per annum except for Triad I. In addition, each Triad Entity except Triad I
provides the Company with an option to purchase the community developed by the
applicable partnership upon their completion for an amount equal to the fair
market value (based on a third-party appraisal but not less than hard and soft
costs and lease-up costs) of the community.
In December 1999, Triad I completed a recapitalization in which Lehman
Brothers purchased from third parties 80% of the limited partnership interest in
Triad I for an investment of $12.0 million. The investment enabled Triad I to
repay the Company approximately $9.0 million in loans. The Company increased its
equity
F-12
55
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
contribution in Triad I to $3.0 million and continued to own a 19% limited
partnership interest. The Company has the option to purchase the Triad I
communities for an amount specified in the partnership agreement. The Company
continues to manage the communities in the Triad I partnership.
During the fourth quarter of fiscal 2000, the Company reduced its ownership
interest in each of the Triad Entities to 1%. This reduction was accomplished by
converting a portion of the Company's investments in each of the Triad Entities
to notes receivable.
The Company has made no determination as to whether it will exercise any of
these purchase options.
Each of the Triad Entities finances the development of the new communities
though the combination of equity funding, traditional construction loans and
permanent financing with institutional lenders secured by first liens on the
communities and unsecured loans from the Company. The Company loans may be
prepaid without penalty. The financings from institutional lenders are secured
by first liens on the communities as well as assignment to the lenders of the
construction contracts and the development and management agreements with the
Company. Each development and management agreement assigned to an institutional
lender is also guaranteed by the Company and those guarantees are also assigned
to the lenders. In certain cases, the management agreements contain an
obligation of the Company to fund operating deficits to the Triad Entities if
the other financing sources of the Triad Entities have been fully utilized.
These operating deficit funding obligations are guaranteed by the Company.
Deferred interest income is being amortized into income over the life of
the loan commitment that the Company has with each of the Triad Entities.
Deferred development and management fee income are being amortized into income
over the expected remaining life of the Triad partnerships.
4. ACQUISITIONS
On August 15, 2000, the Company completed its merger with ILM Senior
Living, Inc. ("ILM") and the acquisition of the Villa Santa Barbara property
interest held by ILM II Senior Living, Inc. ("ILM II"). This transaction
resulted in the Company acquiring ownership of eight senior living communities
with a capacity of approximately 1,300 residents. The Company had managed the
ILM communities since 1996 pursuant to a management agreement with ILM. The
merger was accounted for as a purchase and included total cash consideration for
the eight communities of approximately $97.6 million, net of closing costs of
$4.4 million, consisting of $87.5 million to the ILM shareholders and $10.1
million for ILM II's interest in the Villa Santa Barbara property. The
consideration was agreed upon as the result of arm's-length negotiations between
the parties to the merger and with ILM II. The Company also refinanced three of
its existing communities in conjunction with the merger and repaid approximately
$25.8 million of a $34.0 million line of credit with Bank One Texas, N.A., as
agent, resulting in an amended loan facility of up to $9.0 million. GMAC
Commercial Mortgage Corporation ("GMAC") provided approximately $102.0 million
and Newman Financial Services, Inc. ("Newman") provided approximately $20.0
million of financing for the merger and the refinancing. The balance of the
merger consideration and amounts necessary for the refinancing came from the
Company's existing cash resources. The allocation of the purchase price of the
ILM acquisition is tentative pending the resolution of certain tax issues that
existed at the time of acquisition. The allocation may change with the
resolution of these tax issues.
On October 28, 1998, the Company acquired a senior living community from
Tesson Heights Enterprises, a Texas limited partnership, for $23.1 million by
borrowing $15.4 million pursuant to an existing mortgage loan agreement with
Lehman and $7.4 million under an existing line of credit and assuming $0.3
million of net liabilities. The Company also acquired a senior living community
from Gramercy Hill Enterprises, a Texas limited partnership, for $11.0 million
by assuming a $6.3 million note, borrowing $2.0 million from WMF Washington
Mortgage Corp. ("WMF") on a second lien basis and $2.4 million under an existing
line of credit
F-13
56
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and assuming net liabilities of $0.3 million. The acquisitions were accounted
for as a purchase. The Company's preliminary purchase price allocations were
based on independent valuations from third-party valuation firms.
On September 30, 1998, the Company acquired four senior living communities
from NHP for $40.7 million by entering into a $32.3 million mortgage loan
agreement with Lehman Brothers Holdings, Inc. ("Lehman"), a cash payment of $8.2
million and assuming net liabilities of $0.1 million. The acquisition was
accounted for as a purchase. The Company's preliminary purchase price allocation
was based on independent valuations from third party valuation firms.
The results of operations for the above acquisitions are included in the
Company's statement of income from the date of acquisition.
The following pro forma consolidated results of operations, have been
prepared as if the above-mentioned acquisitions had occurred on January 1 of the
year preceding the acquisition, and are as follows (in thousands, except per
share amounts):
YEAR ENDED DECEMBER 31,
---------------------------
2000 1999 1998
------- ------- -------
Total revenues.......................................... $72,535 $85,173 $56,560
Net (loss) income....................................... (393) 2,165 11,518
Net (loss) income per share -- basic and diluted........ $ (0.02) $ 0.11 $ 0.58
Shares used in computing pro forma net income -- per
share................................................. 19,717 19,717 19,717
The unaudited pro forma consolidated amounts are presented for
informational purposes only and do not necessarily reflect the financial
position or results of operations of the Company that would have actually
resulted had the acquisitions occurred on January 1 of the year preceding the
acquisition.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
DECEMBER 31,
-------------------
2000 1999
-------- --------
Land........................................................ $ 16,245 $ 9,173
Land improvements........................................... 187 107
Buildings and building improvements......................... 195,931 101,825
Furniture and equipment..................................... 8,810 5,047
Automobiles................................................. 286 170
Construction in process..................................... 54 54
-------- --------
221,513 116,376
Less accumulated depreciation............................... 16,749 11,653
-------- --------
Property and equipment, net....................... $204,764 $1104,723
======== ========
In fiscal 2000, the Company sold two communities and a house for $4.8
million, which resulted in the recognition of a net loss of $0.4 million and net
cash proceeds of $4.5 million. These assets were held for sale at December 31,
1999. During fiscal 1999, the Company sold one of its properties for $2.7
million, net of sales commission, which resulted in the recognition of a gain of
$0.7 million. In fiscal 1998, the Company sold two parcels of land for $0.7
million, which resulted in the recognition of a $0.4 million gain and net cash
proceeds of $0.7 million.
F-14
57
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. ACCRUED EXPENSES
Accrued expenses consists of the following (in thousands):
DECEMBER 31,
---------------
2000 1999
------ ------
Accrued salaries, bonuses and related expenses.............. $1,309 $ 936
Accrued property taxes...................................... 1,302 666
Other....................................................... 583 525
------ ------
$3,194 $2,127
====== ======
7. NOTES PAYABLE AND LINE OF CREDIT
Notes payable consists of the following:
DECEMBER 31,
------------------
2000 1999
-------- -------
(IN THOUSANDS)
WMF mortgage loan, bearing interest at 7.69%, payable in
monthly installments of principal and interest of $48,089,
maturing on January 2008, secured by a certain property
with a net book value of $10.6 million at December 31,
2000...................................................... $ 6,114 $ 6,217
WMF second mortgage loans, bearing interest at 7.08%,
payable in monthly installments of principal and interest
of $14,095, maturing on January 2010, secured by a certain
property with a net book value of $10.6 million at
December 31, 2000......................................... 1,912 1,945
Lehman mortgage loan, bearing interest at 8.20%, payable in
monthly installments of principal and interest of $0.4
million, maturing on September 2009, secured by certain
properties with a net book value of $61.3 million at
December 31, 2000......................................... 45,269 45,802
Insurance premium financings, bearing interest ranging from
7.09% to 7.50%,payable in monthly installments of
principal and interest of $3.0 million, maturing on
various dates thru April 2002............................. 1,613 478
GMAC mortgage loan, bearing interest at LIBOR plus 240 basis
points (9.2% at December 31, 2000), payable in monthly
installments of principal and interest of $1.1 million,
maturing on August 2005, secured by the certain properties
with a net book value of $120.0 million at December 31,
2000...................................................... 101,596 --
Newman mortgage loan, bearing interest at LIBOR plus 550
basis points (12.3% at December 31, 2000), principal
maturing in August 2002, secured by the certain properties
with a net book value of $71.2 million at December 31,
2000...................................................... 20,000 --
HCP mortgage loans, bearing interest ranging from 10.5% to
10.75%, payable in monthly installments of $0.1 million
including interest, maturing from 2001 to 2012 secured by
certain properties of HCP with a net book value of $6.3
million at December 31, 2000.............................. 4,773 5,173
-------- -------
181,277 59,615
Less current portion........................................ 4,770 1,199
-------- -------
$176,507 $58,416
======== =======
F-15
58
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The aggregate maturities of notes payable at December 31, 2000, are as
follows (in thousands):
2001...................................................... $ 4,770
2002...................................................... 22,325
2003...................................................... 2,457
2004...................................................... 2,682
2005...................................................... 2,926
Thereafter................................................ 146,117
--------
$181,277
========
In August 2000, in connection with the Company's merger with ILM I and the
acquisition of ILM II's interest in the Villa Santa Barbara property the Company
borrowed $102.0 million from GMAC and $20.0 million from Newman. The Company
also refinanced three of its existing communities in conjunction with the merger
and repaid approximately $25.8 million of a $34.0 million line of credit with
Bank One Texas, N.A., as agent, resulting in an amended loan facility of up to
$9.0 million.
In August 1999, the Company repaid $47.7 million in outstanding short-term
variable rate debt and replaced it with $46.0 million of long-term fixed rate
loans. The fixed rate loans are non-recourse loans secured by certain properties
owned by the Company. These loans are for 10-year terms, bear interest at 8.2%
with the principal being amortized over a 25-year period.
On December 10, 1997, the Company entered into a $20 million revolving line
of credit with a bank that was to expire December 10, 2000. In April 1999, the
line of credit was amended to increase the availability under the credit
facility to $34.0 million and extend the maturity date to April 2002. In August
2000, the Company, in connection with the ILM acquisition repaid approximately
$25.8 million of a $34.0 million line of credit, resulting in an amended loan
facility of up to $9.0 million. Under the terms of the line of credit, interest
is due monthly and the principal is due at the end of the term of the credit
agreement. Borrowings under the line of credit are secured by one senior living
community with a net book value of $8.0 million at December 31, 2000, and bear
interest at the prime rate or LIBOR plus 1.7% (8.96% and 8.18% at December 31,
2000 and 1999, respectively). The line of credit may be used for the acquisition
of additional properties, development of expansions to existing properties,
acquisition of additional interests in HCP and NHP, and general working capital
purposes. Amounts outstanding under the line of credit at December 31, 2000 and
1999 were $7.6 million and $34.0 million, respectively.
In connection with obtaining these notes and line of credit, the Company
incurred $3.7 million, $0.7 million, and $0.6 million in 2000, 1999 and 1998,
respectively, in financing charges that were deferred and amortized over the
life of the line of credit. Accumulated amortization was $0.7 million, $0.7
million, and $0.2 million at December 31, 2000, 1999, and 1998, respectively.
Under the line of credit, the Company must maintain certain levels of
tangible net worth and comply with other restrictive covenants. The Company is
in compliance with its debt covenants at December 31, 2000 and 1999.
HCP leased four of its properties under a master lease to HealthSouth (see
Note 17). HealthSouth has closed all of these communities. HealthSouth agreed to
transfer control of the three closed communities to HCP. HealthSouth also agreed
to continue making its full lease payments on all four communities. The rentals
under the master lease provide additional security for one note payable used to
finance one of the master lease properties. The note is due December 1, 2001.
HCP is in default on one of its notes payable for $1.2 million as a result of
the third party operator of the property not making all of its property tax
payment. As a result of this default this note payable has been reclassified as
a current liability.
F-16
59
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EQUITY
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.
Net income (loss) of HCP is generally allocated 98% to the limited partners
and 2% to the general partner. The net income of HCP from the disposition of a
property is allocated: (i) to partners with deficit capital accounts on a pro
rata basis; (ii) to limited partners until they have been paid an amount equal
to the amount of their adjusted investment (as defined); (iii) to the limited
partners until they have been allocated income equal to their 12% Liquidation
Preference; and (iv) thereafter, 80% to the limited partners and 20% to the
general partner. The net loss of HCP from the disposition of a property is
allocated: (i) to partners with positive capital accounts on a pro rata basis
and (ii) thereafter, 98% to the limited partners and 2% to the general partner.
Distributions of available cash flow are generally distributed 98% to the
limited partners and 2% to the general partner, until the limited partners have
received an annual preferential distribution, as defined. Thereafter, available
cash flow is distributed 90% to the limited partners and 10% to the general
partner. During 1998, HCP repurchased $0.1 million of its limited partnership
interests. HCP made distributions of $4.0 million and $1.2 million to minority
partners in 2000 and 1999, respectively.
9. STOCK OPTIONS
The Company adopted a stock option plan during 1997, providing for the
grant of incentive and nonqualified stock options to employees and directors.
This plan was amended during the year to increase the number of options
available for grant under the plan from 1.6 million to 2.0 million shares and
2.0 million shares of common stock are reserved for future issuance. The option
exercise price and vesting provisions of such options are fixed when the option
is granted. The options expire four to ten years from the date of grant and vest
from zero to five years. The option exercise price is the fair market value of a
share of common stock on the date the option is granted.
F-17
60
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the Company's stock option activity, and related information
for the years ended December 31, 2000 and 1999 is presented below:
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
--------- --------------
Outstanding at January 1, 1998.............................. 776,250 $13.50
Granted................................................... -- --
Exercised................................................. -- --
Forfeited................................................. 76,750 --
Expired................................................... -- --
--------- ------
Outstanding at December 31, 1998............................ 699,500 13.50
Granted................................................... 874,500 7.54
Exercised................................................. -- --
Forfeited................................................. 76,000 11.62
Expired................................................... -- --
--------- ------
Outstanding at December 31, 1999............................ 1,498,000 10.13
Granted................................................... 358,997 3.63
Exercised................................................. -- --
Forfeited................................................. 132,462 7.81
Expired................................................... -- --
--------- ------
Outstanding at December 31, 2000............................ 1,724,535 $ 8.95
========= ======
Exercisable at December 31, 2000............................ 796,212 $10.83
========= ======
Exercisable at December 31, 1999............................ 421,780 $13.42
========= ======
Exercisable at December 31, 1998............................ 258,010 $13.50
========= ======
The weighted average remaining contractual life of the options at December
31, 2000, 1999 and 1998, is approximately 9.0, 8.4 and 8.8 years, respectively.
Options outstanding, as of December 31, 2000, are exercisable at prices ranging
from $3.63 to $13.50. Unoptioned shares available for the granting of options at
December 31, 2000, 1999 and 1998 were 275,000, 502,000 and 865,500,
respectively.
During 1999, the Company recorded compensation expense of $0.2 million
relating to 52,500 options held by a former officer of the Company that became
vested in conjunction with his change in employee status. These options are
included in the table above.
The average daily price of the stock during 2000, 1999 and 1998 subsequent
to the Offering was $3.09, $8.94 and $11.73 respectively, per share. For 1998,
the options were anti-dilutive and therefore were not used in the calculation of
diluted net income per share.
Pro forma information regarding net income per share has been determined as
if the Company had accounted for its employee stock options under the fair value
method. The fair value for these options was estimated at the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions for 2000, 1999, and 1998, respectively: risk free interest rate of
6.5, 6.5 and 5.7 percent; dividend yields of zero percent for all years;
expected lives of seven and one-half years for all years; and volatility factors
of the expected market price of the Company's common stock of 60.6, 58.4, and
70.1 percent. The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because
F-18
61
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
changes in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods.
YEAR ENDED DECEMBER 31,
-------------------------
2000 1999 1998
------ ------ -------
(IN THOUSANDS)
Net income
As reported............................................. $1,239 $4,838 $11,957
Pro forma............................................... 45 3,428 10,848
Net income per share -- basic
As reported............................................. $ 0.06 $ 0.25 $ 0.61
Pro forma............................................... 0.00 0.17 0.55
Net income per share -- diluted
As reported............................................. 0.06 0.24 0.61
Pro forma............................................... 0.00 0.17 0.55
In January 2001, certain employees of the Company elected to forfeit
670,500 options originally priced between $10.19 and $13.50. These options were
added back to the pool of options available to grant in January 2001.
10. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
YEAR ENDED DECEMBER 31,
-------------------------
2000 1999 1998
----- ------- -------
Current:
Federal................................................... $347 $2,523 $6,308
State..................................................... 70 499 1,464
Deferred:
Federal................................................... 289 (174) (240)
State..................................................... 57 144 (56)
---- ------ ------
$763 $2,992 $7,476
==== ====== ======
The provision for income taxes differed from the amounts computed by
applying the U.S. federal income tax rate to income before provision for income
taxes as a result of the following (in thousands):
YEAR ENDED DECEMBER 31,
-------------------------
2000 1999 1998
----- ------- -------
Tax expense at federal statutory rates...................... $681 $2,662 $6,607
State income tax expense, net of federal benefit............ 83 326 938
Other....................................................... (1) 4 (69)
---- ------ ------
$763 $2,992 $7,476
==== ====== ======
F-19
62
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the Company's deferred tax assets and liabilities, are as
follows (in thousands):
DECEMBER 31,
-----------------
2000 1999
------- -------
Deferred tax assets:
Tax basis in excess of book basis arising from the
Formation Transaction.................................. $ 9,177 $ 9,378
Other..................................................... 2,874 2,098
------- -------
Total deferred tax assets......................... 12,051 11,476
Deferred tax liabilities.................................... 1,971 1,050
------- -------
Total deferred tax assets, net.................... $10,080 $10,426
======= =======
11. EMPLOYEE BENEFIT PLANS
Effective January 1, 1999, the Company adopted a 401(k) salary deferral
plan (the "Plan"). 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 employee's annual salary. All employees of the Company meeting minimum
service and age requirements are eligible to participate in the Plan. The
Company incurred administrative expenses related to the Plan of $13,000 and $0
in 2000 and 1999, respectively. Matching contributions of $0.2 million and $0.1
million were contributed to the Plan in 2000 and 1999, respectively.
12. RELATED PARTY TRANSACTIONS
The Company manages properties for a third party, in which an officer of
the Company was also a director of the third-party companies until July 1, 1998.
Management fees received for the period ended June 30, 1998 were $1.0 million.
Upon sale of the four NHP properties on September 30, 1998, an affiliate
received a $1.2 million brokerage fee.
A former officer, director and significant shareholder of the Company is
chairman of the board of a bank where the Company holds the majority of its
operating cash accounts.
13. CONTINGENCIES
On or about October 23, 1998, Robert Lewis filed a putative class action
complaint on behalf of certain holders of assignee interests (the "Assignee
Interests") in NHP in the Delaware Court of Chancery against NHP, the Company,
Capital Senior Living Properties 2-NHPCT, Inc. and Capital Realty Group Senior
Housing, Inc. (collectively, the "Defendants"). Mr. Lewis purchased ninety
Assignee Interests in NHP in February 1993 for $180. The complaint alleges,
among other things, that the Defendants breached, or aided and abetted a breach
of, the express and implied terms of the NHP Partnership Agreement in connection
with the sale of four properties by NHP to Capital Senior Living Properties
2-NHPCT, Inc. The complaint seeks, among other relief, rescission of the sale of
those properties and unspecified damages. The Company believes the complaint is
without merit and is vigorously defending itself in this action. The Company has
filed a Motion to Dismiss in this case, which is currently pending. The Company
is unable to estimate any liability related to this claim, if any.
The Company has other pending claims incurred in the normal course of
business, that, in the opinion of management, based on the advice of legal
counsel, will not have a material effect on the financial statements of the
Company.
F-20
63
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of financial instruments at December
31, 2000 and 1999 are as follows (in thousands):
2000 1999
--------------------- ---------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
Cash and cash equivalents................... $ 23,975 $ 23,975 $32,988 $32,988
Line of credit.............................. 7,553 7,553 34,000 34,000
Notes payable............................... 181,277 181,277 59,615 59,615
The following methods and assumptions were used in estimating its fair
value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and cash equivalents approximate fair value.
Line of credit and 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.
15. INVESTMENTS IN LIMITED PARTNERSHIPS
The investments in limited partnerships balance consists of the following
(in thousands):
DECEMBER 31,
---------------
2000 1999
------ ------
NHP pension notes........................................... $6,348 $5,761
NHP limited partnership interests........................... 2 2
Triad I limited partner interest............................ 158 3,000
Triad II limited partner interest........................... 4 74
Triad III limited partner interest.......................... 7 143
Triad IV limited partner interest........................... 7 143
------ ------
$6,526 $9,123
====== ======
HCP:
During 1998, the Company paid $0.1 million for partnership interests in HCP
and as of December 31, 2000, 1999 and 1998, the Company had a 57% ownership in
HCP.
NHP:
The NHP Notes bear simple interest at 13% per annum and mature on December
31, 2001. Interest is currently paid quarterly at a rate of 7%, with the
remaining 6% interest deferred. In fiscal 1998 through September 30, 1998, the
Company recorded interest income at 10.5% of the purchase price paid, which was
determined based on the discounted amount of principal and interest payments to
be made following the maturity date (December 31, 2001) of the NHP Notes (using
a six-month lag between maturity and full repayment), due to uncertainties
regarding the ultimate realization of the accrued interest. On September 30,
1998, the Company purchased four properties from NHP. NHP in turn redeemed $7.5
million of the Company's investment in the NHP Notes and distributed
approximately $5.3 million of deferred interest on such notes. From October 1,
1998 through December 31, 1998, the Company began recording additional income,
after giving consideration to current payment of interest, partial redemption of
the NHP Notes with accrued interest and the estimated residual value in NHP.
This change in estimate resulted in $0.6 million of
F-21
64
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
additional income in 1998. In the fourth quarter of fiscal 1999, the Company
reevaluated the assumptions related to its investment in the NHP Notes, and as a
result reduced the income expected to be earned from the NHP Notes. This change
in estimate resulted in a $1.2 million reduction in interest income in the
fourth quarter of 1999. At December 31, 2000 the effective interest rate on the
NHP Notes was 24.6%.
During 2000, 1999 and 1998, the Company paid $0, $378 and $344,
respectively, increasing the ownership of limited partnership units in NHP to
4.8% from 3.9%. In addition, the Company invested $13,500 in NHP Notes, during
1999, bring the Company's ownership of NHP Notes to 33.1%. The Company
classifies its investment in NHP Notes as held to maturity.
Summary financial information regarding the financial position and results
of operations of NHP as of December 31 and for the years then ended is as
follows (in thousands):
DECEMBER 31,
-------------------
2000 1999
-------- --------
Cash........................................................ $ 5,493 $ 5,553
Property and equipment, net................................. 17,968 18,393
Other assets................................................ 293 388
-------- --------
Total assets...................................... $ 23,754 $ 24,334
======== ========
Pension notes............................................... $ 20,158 $ 20,158
Interest payable............................................ 16,780 14,879
Other liabilities........................................... 494 472
Partnership deficit......................................... (13,678) (11,175)
-------- --------
Total liabilities and partnership deficit......... $ 23,754 $ 24,334
======== ========
YEAR ENDED DECEMBER 31,
---------------------------
2000 1999 1998
------- ------- -------
Net revenue............................................. $ 5,275 $ 5,323 $13,746
Net income (loss)....................................... (2,474) (2,474) 3,409
16. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The components of the allowance for doubtful accounts are as follows (in
thousands):
DECEMBER 31,
-------------------------
2000 1999 1998
------- -------- ----
Balance at beginning of year.............................. $ 3,044 $ 801 $301
Provision for bad debts................................. 4,318 15,896 500
Write-offs and other.................................... (4,271) (14,353) --
Recoveries.............................................. 418 700
------- -------- ----
Balance at end of year.................................... $ 3,509 $ 3,044 $801
======= ======== ====
In the fourth quarter of fiscal 2000 the Company wrote off $1.6 million in
notes receivable and $1.4 million in development fees receivable relating to
certain communities that were under development for the Triad Entities. In
addition, during the fourth quarter of 2000, the Company recorded a write-down
on a house and five parcels of land of $1.0 million to record these assets at
their estimated net realizable value.
In the fourth quarter of fiscal 1999, the Company wrote off $3.9 million in
notes receivable and $10.5 million in development fees receivable from Triad
Entities that were unable to secure financing on favorable terms for the
development of their senior living communities. These joint ventures were in
various
F-22
65
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
stages of developing 19 Waterford communities. In addition, the Company acquired
five sites currently owned by these joint ventures and the contractual rights to
the remaining thirteen sites that were being developed by these joint ventures.
Recoveries in 1999 relate to a settlement with the Bankruptcy Trustee for NCA
Cambridge on rental income written off prior to August 1996.
17. LEASES
The Company leases its corporate headquarters under an operating lease
expiring in 2002. Additionally, the senior living communities have entered into
various contracts for services for duration of 5 years or less and are on a fee
basis as services are rendered. Rent expense under these leases was $0.6
million, $0.3 million and $0.3 million for 2000, 1999 and 1998, respectively.
Future commitments are as follows (in thousands):
2001....................................................... $ 533
2002....................................................... 365
2003....................................................... 72
2004....................................................... 52
2005....................................................... 19
Thereafter................................................. 1
------
$1,042
======
HCP leases its property and equipment to tenants under noncancelable
operating leases. The lease terms expire in 2001 with options to renew for
additional five-year terms and options to purchase the leased property at the
current fair market value at the end of the initial lease term. The leases
generally provide for contingent rentals based on the performance of the
property. Contingent rentals aggregated $0.1 million, $0.3 million and $0.3
million in 2000, 1999 and 1998, respectively.
Minimum rentals for the HCP leases are $2.9 million in 2001, subject to
change based on changes in interest rates. There are no minimum rentals
thereafter. Property and improvements less accumulated depreciation attributable
to such rentals amounted to $6.5 million and $15.4 million at December 31, 2000
and 1999, respectively.
One of HCP's senior living communities is subject to a master lease with a
single operator, HealthSouth. This master lease, as amended, contains a
nine-year renewal option and provides for contingent rentals equal to 4% of the
revenue differential, as defined, effective January 30, 1997. As of December 31,
2000 and 1999, no contingent rentals have been accrued on the master lease.
Although HealthSouth has transferred its rights to three of the four properties
under the master lease, HealthSouth has agreed to continue making its full lease
payments under the master lease through the end of the lease term of November
30, 2001.
18. SUBSEQUENT EVENT
On February 9, 2001, the Company announced that it was terminating its
merger agreement with ILM II. A tax issue disclosed in ILM II's Form 10-K filed
on January 31, 2001 could cause a material adverse change under the merger
agreement with ILM II, and therefore put the Company in the position of having
to terminate the merger agreement. The Company does not expect to incur any
additional costs related to this terminated merger agreement. The Company
continues to manage the five ILM II communities pursuant to the existing
management agreement.
F-23
66
INDEX TO EXHIBITS
The following documents are filed as a part of this report. Those exhibits
previously filed and incorporated herein by reference are identified below.
Exhibits not required for this report have been omitted.
EXHIBIT
NUMBER DESCRIPTION
------- -----------
*3.1 -- Amended and Restated Certificate of Incorporation of the
Registrant
(i)3.1.1 -- Amendment to Amended and Restated Certificate of
Incorporation of the Registrant (Exhibit 3.1)
*3.2 -- Amended and Restated Bylaws of the Registrant
(i)3.2.1 -- Amendments to Amended and Restated Bylaws of the
Registrant (Exhibit 3.2)
*10.1 -- Asset Purchase Agreement, dated as of July 8, 1997, by
and between Capital Senior Living Communities, L.P. and
Capital Senior Living Corporation
*10.2 -- Contribution Agreement, dated as of August 1, 1997, by
and among Capital Senior Living Corporation, Jeffrey L.
Beck, James A. Stroud, Senior Living Trust, and Lawrence
A. Cohen
*10.3 -- Stock Purchase and Stockholders' Agreement, dated as of
November 1, 1996, by and among Capital Senior Living
Corporation, Jeffrey L. Beck, Senior Living Trust, and
Lawrence Cohen
*10.4 -- Amended and Restated Exchange Agreement, dated as of June
30, 1997, by and between Lawrence A. Cohen and Jeffrey L.
Beck
*10.5 -- Amended and Restated Exchange Agreement, dated as of June
30, 1997, by and among Lawrence A. Cohen and James A.
Stroud
(m)10.6 -- 1997 Omnibus Stock and Incentive Plan for Capital Senior
Living Corporation, as amended (Exhibit 4.1)
(m)10.6.1 -- Form of Stock Option Agreement (Exhibit 4.2)
*10.7 -- Senior Living Agreement, by and between Capital Senior
Living, Inc. and New World Development (China) Limited
*10.8 -- Amended and Restated Loan Agreement, 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 Communities,
L.P.
*10.9 -- Amended and Restated Employment Agreement, dated as of
May 7, 1997, by and between Capital Senior Living, Inc.
and Jeffrey L. Beck
*10.10 -- Amended and Restated Employment Agreement, dated as of
May 7, 1997, by and between Capital Senior Living, Inc.
and James A. Stroud
*10.11 -- Employment Agreement, dated as of November 1, 1996, by
and between Capital Senior Living Corporation and
Lawrence A. Cohen
*10.12 -- Employment Agreement, dated as of November 26, 1996, by
and between Capital Senior Living, Inc. and David R.
Brickman
*10.13 -- Employment Agreement, dated as of November 26, 1996, by
and between Capital Senior Living, Inc. and Keith N.
Johannessen
*10.14 -- 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
*10.15 -- Lease Agreement, dated as of June 1, 1997, by and between
G&L Gardens, LLC, as lessor, and Capital Senior
Management 1, Inc., as lessee
67
EXHIBIT
NUMBER DESCRIPTION
------- -----------
*10.16 -- Pre-Opening Consulting Agreement, dated as of June 16,
1997, by and between The Emmaus Calling, Inc., as owner,
and Capital Senior Management 1, Inc., as consultant
*10.17 -- Management Agreement, dated as of February 1, 1995, by
and between Capital Senior Living Communities, L.P., as
owner, and Capital Senior Living, Inc., as manager,
regarding Canton Regency Retirement Community, in Canton,
Ohio
*10.18 -- Management Agreement, dated as of February 1, 1995, by
and between Capital Senior Living Communities, L.P., as
owner, and Capital Senior Living, Inc., as manager,
regarding Cottonwood Village, in Cottonwood, Arizona
*10.19 -- Management Agreement, dated as of February 1, 1995, by
and between Capital Senior Living Communities, L.P., as
owner, and Capital Senior Living, Inc., as manager,
regarding The Harrison At Eagle Valley, in Indianapolis,
Indiana
*10.20 -- Management Agreement, dated as of February 1, 1995, by
and between Capital Senior Living Communities, L.P., as
owner and Capital Senior Living, Inc., as manager,
regarding Towne Centre, in Merrillville, Indiana
*10.21 -- Management Agreement, dated as of August 1, 1996, by and
between Capital Senior Living, Inc., as manager, and
Cambridge Nursing Home Limited Liability Company, as
lessee
*10.22 -- Management Agreement, dated as of April 1, 1996, by and
between Buckner Retirement Services, Inc. and Capital
Senior Management 1, Inc.
*10.23 -- Management Agreement, dated as of May 23, 1997, by and
between The Emmaus Calling, Inc., as owner, and Capital
Senior Management 1, Inc., as manager
*10.24 -- Property Management Agreement, dated as of February 1,
1995, by and between NHP Retirement Housing Partners I
Limited Partnership, as owner, and Capital Senior Living,
Inc., as agent
*10.25 -- Management Agreement, dated as of April 1, 1997, by and
between Buckner Retirement Services, Inc. and Capital
Senior Management 1, Inc.
*10.26 -- Management Agreement, dated as of November 30, 1992, by
and between Capital Realty Group Senior Housing, Inc.
d/b/a Capital Senior Living, Inc., as manager, and
Jacques-Miller Healthcare Properties, L.P., as owner
*10.27 -- Management Agreement, dated as of July 29, 1996, by and
between ILM I Lease Corporation, as owner, and Capital
Senior Management 2, Inc., as manager, and Capital Senior
Living, Inc., as guarantor
*10.28 -- Management Agreement, dated as of July 29, 1996, by and
between ILM II Lease Corporation, as owner, and Capital
Senior Management 2, Inc., as manager, and Capital Senior
Living, Inc., as guarantor
*10.29 -- Development Agreement, by and between Capital Senior
Development, Inc., as developer, and Tri Point
Communities, L.P., as owner
*10.30 -- Development and Turnkey Services Agreement, dated as of
September 1, 1997, by and between Capital Senior
Development Corporation and Tri-Point Communities, L.P.
*10.31 -- Management Agreement, by and between Tri Point
Communities, L.P., as owner, and Capital Senior Living,
Inc.
(a)10.32 -- Amended and Restated Loan Agreement, dated as of December
10, 1997, by and between Bank One, Texas, N.A. and
Capital Senior Living Properties, Inc.
68
EXHIBIT
NUMBER DESCRIPTION
------- -----------
(a)10.33 -- Alliance Agreement, dated as of December 10, 1997, by and
between LCOR Incorporated and Capital Senior Living
Corporation
(a)10.34 -- Development Agreement, dated as of December 10, 1997, by
and between Capital Senior Development, Inc. and Tri
Point Communities, L.P., regarding senior living
community in San Antonio, Texas
(a)10.35 -- Development Agreement, dated as of February 3, 1998, by
and between Capital Senior Development, Inc. and Tri
Point Communities, L.P., regarding senior living
community in Shreveport, Louisiana
(a)10.36 -- Management Agreement, dated as of December 23, 1997, by
and between Tri Point Communities, L.P. and Capital
Senior Living, Inc., regarding senior living community in
San Antonio, Texas
(a)10.37 -- Management Agreement, dated as of February 3, 1998, by
and between Tri Point Communities, L.P. and Capital
Senior Living, Inc., regarding senior living community in
Shreveport, Louisiana
(b)10.38 -- Draw Promissory Note, dated April 1, 1998, of Triad
Senior Living I, L.P. in favor of Capital Senior Living
Properties, Inc.
(c)10.39 -- Draw Promissory Note, dated September 24, 1998, of Triad
Senior Living II, L.P., in favor of Capital Senior Living
Properties, Inc. (Exhibit 10.1)
(d)10.40 -- Asset Purchase Agreement, dated as of July 24, 1998, by
and between Capital Senior Living Properties, Inc. and
NHP Retirement Housing Partners I Limited Partnership
(Exhibit 2.1)
(d)10.41 -- Assignment and Amendment to Asset Purchase Agreement,
effective as of September 29, 1998, by and among NHP
Retirement Housing Partners I Limited Partnership,
Capital Senior Living Properties, Inc., and Capital
Senior Living Properties 2-NHPCT, Inc. (Exhibit 2.2)
(d)10.42 -- Loan Agreement, dated as of September 30, 1998, by and
between Capital Senior Living Properties 2-NHPCT, Inc.
and Lehman Brothers Holdings Inc. d/b/a Lehman Capital, a
division of Lehman Brothers Holdings Inc. (Exhibit 2.3)
(e)10.43 -- Asset Purchase Agreement, dated as of July 28, 1998, by
and between Capital Senior Living Properties, Inc. and
Gramercy Hill Enterprises (Exhibit 2.1)
(e)10.44 -- Asset Purchase Agreement, dated as of July 28, 1998, by
and between Capital Senior Living Properties, Inc. and
Tesson Heights Enterprises (Exhibit 2.2)
(e)10.45 -- Assumption and Release Agreement, effective as of October
28, 1998, among Gramercy Hill Enterprises, Andrew C.
Jacobs, Capital Senior Living Properties 2-Gramercy,
Inc., Capital Senior Living Corporation and Fannie Mae
(Exhibit 2.4)
(e)10.46 -- Multifamily Note, dated December 4, 1997, of Gramercy
Hill Enterprises in favor of Washington Mortgage
Financial Group, Ltd. (Exhibit 2.5)
(e)10.47 -- 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)
(e)10.48 -- Multifamily Note, dated October 28, 1998, of Capital
Senior Living Properties 2-Gramercy, Inc. in favor of WMF
Washington Mortgage Corp. (Exhibit 2.7)
(e)10.49 -- 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)
69
EXHIBIT
NUMBER DESCRIPTION
------- -----------
(f)10.50 -- Employment Agreement, dated as of December 10, 1996, by
and between Capital Senior Living, Inc. and Rob L.
Goodpaster (Exhibit 10.50)
(f)10.51 -- Draw Promissory Note dated November 1, 1998 of Triad
Senior Living III, L.P., in favor of Capital Senior
Living Properties, Inc. (Exhibit 10.51)
(f)10.52 -- Draw Promissory Note dated December 30, 1998 of Triad
Senior Living IV, L.P., in favor of Capital Senior Living
Properties, Inc. (Exhibit 10.52)
(f)10.53 -- Form of Development and Turnkey Services Agreement by and
between Capital Senior Development, Inc. and applicable
Triad Entity (Exhibit 10.53)
(f)10.54 -- Form of Development Agreement by and between Capital
Senior Development, Inc. and applicable Triad Entity
(Exhibit 10.54)
(f)10.55 -- Form of Management Agreement by and between Capital
Senior Living, Inc. and applicable Triad Entity ( Exhibit
10.55)
(f)10.56 -- Agreement of Limited Partnership of Triad Senior Living
I, L.P. dated April 1, 1998 (Exhibit 10.56)
(f)10.57 -- Agreement of Limited Partnership of Triad Senior Living
II, L.P. dated September 23, 1998 (Exhibit 10.57)
(f)10.58 -- Agreement of Limited Partnership of Triad Senior Living
III, L.P. dated November 10, 1998 (Exhibit 10.58)
(f)10.59 -- Agreement of Limited Partnership of Triad Senior Living
IV, L.P. dated December 22, 1998 (Exhibit 10.59)
(g)10.60 -- 1999 Amended and Restated Loan Agreement, dated as of
April 8, 1999, by and among Capital Senior Living
Properties, Inc., Bank One, Texas, N.A. and the other
Lenders signatory thereto (Exhibit 10.1)
(g)10.61 -- Amended and Restated Draw Promissory note, dated March
31, 1999, of Triad Senior Living I, L.P., in favor of
Capital Senior Living Properties, Inc. (Exhibit 10.2)
(g)10.62 -- Amended and Restated Draw Promissory Note (Fairfield),
dated January 15, 1999, of Triad Senior Living II, L.P.,
in favor of Capital Senior Living Properties, Inc.
(Exhibit 10.3)
(g)10.63 -- Amended and Restated Draw Promissory Note (Baton Rouge),
dated January 15, 1999, of Triad Senior Living II, L.P.,
in favor of Capital Senior Living Properties, Inc.
(Exhibit 10.4)
(g)10.64 -- Amended and Restated Draw Promissory Note (Oklahoma
City), dated January 15, 1999, of Triad Senior Living II,
L.P., in favor of Capital Senior Living Properties, Inc.
(Exhibit 10.5)
(h)10.65 -- Amended and Restated Draw Promissory Note dated June 30,
1999 of Triad Senior Living I, L.P. in favor of Capital
Senior Living Properties, Inc. (Exhibit 10.1)
(h)10.66 -- Amended and Restated Draw Promissory Note (Plano, Texas)
dated January 15, 1999 of Triad Senior Living II, L.P. in
favor of Capital Senior Living Properties, Inc. (Exhibit
10.2)
(h)10.67 -- Letter Agreement dated July 28, 1999 among the Company
and ILM Senior Living, Inc. and ILM II Senior Living,
Inc. (Exhibit 10.3)
(i)10.68 -- Draw Promissory Note dated July 1, 1999 of Triad Senior
Living V, L.P. in favor of Capital Senior Living
Properties, Inc. (Exhibit 10.1)
70
EXHIBIT
NUMBER DESCRIPTION
------- -----------
(i)10.69 -- First Amendment to Amended and Restated Employment
Agreement of James A. Stroud, dated March 22, 1999, by
and between James A. Stroud and Capital Senior Living
Corporation (Exhibit 10.2)
(i)10.70 -- Second Amendment to Amended and Restated Employment
Agreement of James A. Stroud, dated May 31, 1999, by and
between James A. Stroud and Capital Senior Living
Corporation (Exhibit 10.3)
(i)10.71 -- Employment Agreement, dated May 26, 1999, by and between
Lawrence A. Cohen and Capital Senior Living Corporation
(Exhibit 10.4)
(j)10.72 -- 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 1)
(k)10.73 -- 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 1)
(l)10.74 -- 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)
(m)10.75 -- 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)
(o)10.76 -- Employment Agreement, dated May 25, 1999, by and between
Ralph A. Beattie and Capital Senior Living Corporation
(Exhibit 10.76)
(o)10.77 -- Consulting/Severance Agreement, dated May 20, 1999, by
and between Jeffrey L. Beck and Capital Senior Living
Corporation (Exhibit 10.77)
(o)10.78 -- Second Amended and Restated Agreement of Limited
Partnership of Triad Senior Living I, L.P. (Exhibit
10.78)
(p)10.79 -- Form of GMAC Loan Agreement, Promissory Note and
Exceptions to Nonrecourse Guaranty (Exhibit 10.1)
(p)10.80 -- Newman Pool B Loan Agreement, Promissory Note and
Guaranty (Exhibit 10.2)
(p)10.81 -- Newman Pool C Loan Agreement, Promissory Note and
Guaranty (Exhibit 10.3)
(p)10.82 -- First Amendment to Triad II Partnership Agreement
(Exhibit 10.4)
(p)10.83 -- Second Modification to the Bank One Loan Agreement
(Exhibit 10.5)
(p)10.84 -- Assignment of Note, Liens and Other Loan Documents
between Fleet National Bank and CSLI (Exhibit 10.6)
(q)10.85 -- Second Amendment to Amended and Restated Agreement and
Plan of Merger, dated November 28, 2000 (Exhibit 10.1)
(q)10.86 -- First Amendment to Agreement, dated November 28, 2000
(Exhibit 10.2)
(r)10.87 -- 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.
(r)10.88 -- 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.
(r)10.89 -- 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.
71
EXHIBIT
NUMBER DESCRIPTION
------- -----------
(r)10.90 -- 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.
(r)10.91 -- 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.
(r)21.1 -- Subsidiaries of the Company
(r)23.1 -- Consent of Ernst & Young LLP
(r)23.2 -- Consent of KPMG LLP
- ---------------
* Incorporated by reference to exhibit of corresponding number included in
Registration Statement No. 333-33379 on Form S-1 filed by the Company with
the Securities and Exchange Commission. Compensation plan, benefit plan or
employment contract or arrangement.
(a) Incorporated by reference to exhibit of corresponding number from the
Company's Annual Report on Form 10-K for the year ended December 31, 1997,
filed by the Company with the Securities and Exchange Commission.
(b) Incorporated by reference to the exhibit of corresponding number from the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1998, filed by the Company with the Securities and Exchange
Commission.
(c) Incorporated by reference to the exhibit shown in parentheses from the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1998, filed by the Company with the Securities and Exchange
Commission.
(d) Incorporated by reference to the exhibit shown in parentheses from the
Company's Current Report on Form 8-K, dated September 30, 1998, filed by
the Company with the Securities and Exchange Commission.
(e) Incorporated by reference to the exhibit shown in parentheses from the
Company's Current Report on Form 8-K, dated October 29, 1998, filed by the
Company with the Securities and Exchange Commission.
(f) Incorporated by reference to the exhibit shown in parentheses from the
Company's Annual Report on Form 10-K for the year ended December 31, 1998,
filed by the Company with the Securities and Exchange Commission.
(g) Incorporated by reference to the exhibit shown in parentheses from the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1999, filed by the Company with the Securities and Exchange
Commission.
(h) Incorporated by reference to the exhibit shown in parentheses from the
Company's Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1999, filed by the Company with the Securities and Exchange Commission.
(i) Incorporated by reference to the exhibit shown in parentheses from the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1999, filed by the Company with the Securities and Exchange
Commission.
(j) Incorporated by reference to the exhibit shown in parentheses from the
Company's Current Report on Form 8-K, dated February 7, 1999, filed by the
Company with the Securities and Exchange Commission.
(k) Incorporated by reference to the exhibit shown in parentheses from the
Company's Current Report on Form 8-K, dated February 7, 1999, filed by the
Company with the Securities and Exchange Commission.
(l) Incorporated by reference to the exhibit shown in parentheses from the
Company's Current Report on Form 8-K, dated October 19, 1999, filed by the
Company with the Securities and Exchange Commission.
(m) Incorporated by reference to the exhibit shown in parentheses from the
Company's Current Report on Form 8-K, dated October 19, 1999, filed by the
Company with the Securities and Exchange Commission.
72
(n) Incorporated by reference to the exhibit shown in parentheses from the
Company's Registration Statement on Form S-8, filed on December 3, 1999, by
the Company with Securities and Exchange Commission.
(o) Incorporated by reference to the exhibit shown in parenthesis from the
Company's Annual Report on Form 10-K, dated March 30, 2000, filed by the
Company with the Securities and Exchange Commission.
(p) Incorporated by reference to the exhibit shown in parenthesis from the
Company's Current Report on Form 8-K, dated August 15, 2000, filed by the
Company with the Securities and Exchange Commission.
(q) Incorporated by reference to the exhibit shown in parenthesis from the
Company's Current Report on Form 8-K, dated November 28, 2000, filed by the
Company with the Securities and Exchange Commission.
(r) Filed herewith.