UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the
fiscal year ended December 31, 2009
Commission
File Number 1-16499
SUNRISE
SENIOR LIVING,
INC.
(Exact name of registrant as specified in its charter)
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Delaware
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54-1746596
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(State or other jurisdiction
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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7900 Westpark Drive
McLean, VA
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22102
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(Address of principal
executive offices)
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(Zip Code)
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Registrants telephone number, including area code:
(703) 273-7500
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common stock, $.01 par value per share
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject
to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller
reporting company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No
þ
The aggregate market value of the Registrants Common Stock
held by non-affiliates based upon the closing price of $1.65 per
share on the New York Stock Exchange on June 30, 2009 was
$74.7 million. Solely for the purposes of this calculation,
all directors and executive officers of the registrant are
considered to be affiliates.
The number of shares of Registrants Common Stock
outstanding was 55,752,947 at February 17, 2010.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of our 2010 annual meeting proxy statement are
incorporated by reference into Part III of this report.
This Annual Report on
Form 10-K
contains forward-looking statements that involve risks and
uncertainties. Although we believe the expectations reflected in
such forward-looking statements are based on reasonable
assumptions, there can be no assurance that our expectations
will be realized. Our actual results could differ materially
from those anticipated in these forward-looking statements as a
result of various factors, including, but not limited to:
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our ability to maintain adequate liquidity to operate our
business and execute our restructuring;
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our ability to repay or extend our loans when they come due
in 2010 and obtain waivers or reach agreements with respect to
loans currently in default, including the loans for two of our
German communities not included in our German restructuring
agreement;
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our ability to obtain waivers, cure or reach agreements with
respect to defaults under loans to our ventures;
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our ability to execute the restructuring agreement with the
lenders to seven of our nine German communities;
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our ability to repay or extend our Bank Credit Facility when
it is due on December 2, 2010;
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risk of future obligations to fund guarantees and other
support arrangements to some of our ventures, lenders to the
ventures or third party owners;
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our ability to achieve anticipated savings from our cost
reduction program;
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our ability to raise funds from capital sources;
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business conditions and market factors that could affect the
value of our properties and therefore require further
impairments of our assets;
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risk of early termination or non-renewal of our management
agreements;
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risk of declining occupancies in existing communities or
slower than expected leasing of new communities;
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changes in interest rates;
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the outcome of the U.S. Securities and Exchange
Commissions (SEC) investigation;
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the outcome of the HCP, Inc. litigation;
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the outcome of the Internal Revenue Service (IRS)
audit of our tax returns for the tax years ended
December 31, 2005 through 2008;
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competition and our response to pricing and promotional
activities of our competitors;
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our ability to comply with government requirements and
regulations;
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risk of new legislation or regulatory developments;
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unanticipated expenses;
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further downturns in general economic conditions including,
but not limited to, financial market performance, consumer
credit availability, interest rates, inflation, energy prices,
unemployment and consumer sentiment about the economy in
general;
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risks associated with the ownership and operation of assisted
living and independent living communities; and
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other risk factors contained in this
Form 10-K.
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We assume no obligation to update or supplement
forward-looking statements that become untrue because of
subsequent events. Unless the context suggests otherwise,
references herein to Sunrise, the
Company, we, us and
our mean Sunrise Senior Living, Inc. and our
consolidated subsidiaries.
3
PART I
Overview
We are a provider of senior living services in the United
States, Canada, the United Kingdom and Germany. Founded in 1981
and incorporated in Delaware in 1994, Sunrise began with a
simple but innovative vision to create an
alternative senior living option that would emphasize quality of
life and quality of care. We offer a full range of personalized
senior living services, including independent living, assisted
living, care for individuals with Alzheimers and other
forms of memory loss, nursing and rehabilitative care. In the
past, we also developed senior living communities for ourselves,
for ventures in which we retained an ownership interest and for
third parties. Due to current economic conditions, we have
suspended all new development.
At December 31, 2009, we operated 384 communities,
including 335 communities in the United States, 15 communities
in Canada, 27 communities in the United Kingdom and seven
communities in Germany, with a total unit capacity of
approximately 40,400. Of the 384 communities that we operated at
December 31, 2009, 20 were wholly owned, 27 were under
operating leases, one was consolidated as a variable interest
entity, 201 were owned in unconsolidated ventures and 135 were
owned by third parties. During 2009, we opened 23 new
communities, with a combined unit capacity of approximately
2,100.
During 2009, we continued to reduce overhead costs; restructure,
repay and extend maturities of some of our debt; and sell assets
to generate liquidity (as more fully discussed in
Managements Discussion and Analysis of Financial Condition
and Results of Operations). Our focus in 2010 will be on:
(1) operating high-quality assisted living and memory care
communities in North America, Germany and the United Kingdom;
(2) increasing occupancy and improving the operating
efficiency of our communities; (3) improving the operating
efficiency of our corporate operations; (4) generating
liquidity; (5) divesting of non-core assets; and
(6) reducing our operational and financial risk.
We continue to reduce our financial obligations and reach
negotiated settlements with various creditors. We are unable to
borrow additional funds under our Bank Credit Facility. We are
seeking waivers with respect to existing defaults under many of
our debt obligations to avoid acceleration of these obligations.
We have been successful in reducing our exposure related to our
German communities, our Fountains portfolio and our Aston
Gardens venture, each discussed in more detail in
Managements Discussion and Analysis of Financial Condition
and Results of Operations. However, we continue to have
significant debt maturing in 2010 and 2011 and there can be no
assurance that we will be able to extend this debt or obtain
additional financing. The existence of these factors raise
substantial doubt about our ability to continue as a going
concern and our auditors have modified their report with respect
to the 2009 consolidated financial statements to include a going
concern reference.
The
Senior Living Industry
The senior living industry encompasses a broad spectrum of
senior living service and care options, which include
independent living, assisted living and skilled nursing care.
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Independent living is designed to meet the needs of
seniors who choose to live in an environment surrounded by their
peers where they receive services such as housekeeping, meals
and activities, but are not reliant on assistance with
activities of daily living (for example, bathing, eating and
dressing), although some residents may contract out for those
services.
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Assisted living meets the needs of seniors who seek
housing with supportive care and services including assistance
with activities of daily living, Alzheimers care and other
services (for example, housekeeping, meals and activities).
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Skilled nursing meets the needs of seniors whose care
needs require
24-hour
skilled nursing services or who are receiving rehabilitative
services following an adverse event (for example, a broken hip
or stroke).
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In all of these settings, seniors may elect to bring in
additional care and services as needed, such as home-health care
(except in a skilled nursing setting) and
end-of-life
or hospice care.
4
The senior living industry is highly fragmented and
characterized predominantly by numerous local and regional
senior living operators. Senior living providers may operate
freestanding independent living, assisted living or skilled
nursing residences, or communities that feature a combination of
senior living options such as continuing care retirement
communities (CCRCs), which typically consist of
large independent living campuses with assisted living and
skilled nursing sections. The level of care and services offered
by providers varies along with the size of communities, number
of residents served and design of communities (for example,
purpose-built communities or refurbished structures).
Senior
Living Services
Throughout our history, we have advocated a resident-centered
approach to senior living and offered a broad range of service
and care options to meet the needs of our residents. In select
communities, we offer independent living services, which include
housing, meals, transportation, activities and housekeeping, and
in some communities, we provide licensed skilled nursing
services for residents who require
24-hour
skilled nursing care. The majority of our communities currently
provide assisted living services, which offer basic care and
services for seniors who need assistance with some activities of
daily living.
Assisted
Living
Upon a residents move-in to an assisted living community,
we assess each resident, generally with input from a
residents family and physician, and develop an
individualized service plan for the resident. This individual
service plan includes the selection of resident accommodations
and a determination of the appropriate level of care and service
for such resident. The service plan is periodically reviewed and
updated by us and communicated to the resident and the
residents family or responsible party.
We offer a choice of care levels in our assisted living
communities based on the frequency and level of assistance and
care that a resident needs or prefers. Most of our assisted
living communities also offer a Reminiscence neighborhood, which
provides specially designed accommodations, service and care to
support cognitively impaired residents, including residents with
Alzheimers disease. By offering a full range of services,
we are better able to accommodate residents changing needs
as they age and develop further physical or cognitive frailties.
Daily resident fee schedules are generally revised annually.
Fees for additional care are revised when a change in care
arises.
Basic Assisted Living
Our basic assisted living program includes:
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assistance with activities of daily living, such as eating,
bathing, dressing, personal hygiene and grooming;
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three meals per day served in a common dining room;
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coordination of special diets;
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emergency call systems in each unit;
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transportation to stores and community services;
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assistance with coordination of physician care, physical therapy
and other medical services;
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health promotion and related programs;
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housekeeping services; and
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social and recreational activities.
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Medication Management
Many of our assisted living residents also require assistance
with their medication. To the extent permitted by state law, the
medication management program includes the storage of
medications, the distribution of medications as directed by the
residents physician and compliance monitoring. Generally,
we charge an additional daily fee for this service although some
communities bundle this service into their base rate.
5
Assisted Living Extended Levels of Care
We also offer various levels of care for assisted living
residents who require more frequent or intensive assistance or
increased care or supervision. We charge an additional daily fee
based on increased staff hours of care and services provided.
These extended levels of care allow us, through consultation
with the resident, the residents family and the
residents personal physician, to create an individualized
care and supervision program for residents who might otherwise
have to move to a more medically intensive community.
Reminiscence Care
We believe our Reminiscence neighborhoods distinguish us from
many other senior living providers. Our Reminiscence
neighborhoods provide a specialized environment, extra
attention, and care programs and services designed to meet the
special needs of people with Alzheimers disease and other
cognitive impairments. Specially trained staff members provide
basic care and other specifically designed care and services to
these residents in separate areas of our communities. Residents
pay a higher daily rate based on additional staff hours of care
and services provided. Approximately 23.3% of our residents
participated in the Reminiscence program on December 31,
2009.
Independent Living and Skilled Nursing
In some of our communities, we offer independent living for
residents, and in other communities, we offer skilled nursing
care. Independent living offers the privacy and freedom of home
combined with the convenience and security of on-call assistance
and a maintenance-free environment. Skilled nursing care offers
a range of rehabilitative therapies to promote our
residents emotional health and physical well-being. We
have team members specially trained to serve residents in these
communities in compliance with the appropriate state and federal
regulatory requirements.
Other
Services
While we serve the vast majority of a residents needs with
our own staff, some services, such as hospice care, physician
care, infusion therapy, physical and speech therapy and other
ancillary care services may be provided to residents in our
communities by third parties. Our staff members assist residents
in locating qualified providers for such health care services.
Managed
Communities
In addition to communities we manage for ourselves, we manage
201 communities in which we have a minority ownership interest
and 135 communities for third-party owners.
As of December 31, 2009, we managed 79 communities for
Ventas, Inc. (Ventas), 75 communities for HCP, Inc.
(HCP) and 52 communities for a privately owned
capital partner.
Our management agreements have initial terms generally ranging
from five to 30 years with various performance conditions
and have management fees generally ranging from five to eight
percent of community revenues. In addition, in certain
management contracts, we have the opportunity to earn incentive
management fees based on monthly or yearly operating results.
Certain of these management contracts may be terminated if we
are unable to achieve stated performance thresholds.
6
2009
Property Information
On December 31, 2009, we operated 384 senior living
communities with a unit capacity of approximately 40,400. No
communities were under construction on December 31, 2009.
We manage communities that we own or lease, communities in which
we have an ownership interest and communities owned by third
parties.
The following tables summarize our portfolio of operating
communities on December 31, 2009. Consolidated
communities consist of communities which we own or lease.
Variable Interest Entities consists of communities
in ventures of which we are the primary beneficiary and are
consolidated in our financial statements for 2009.
Unconsolidated Ventures consist of communities in
which we own an equity interest but that are not consolidated in
our financial statements for 2009, as applicable.
Managed communities consist of communities which are
wholly owned by third parties. Total Unit Capacity
means the number of units that can be occupied in a community.
While most of our units are single-occupancy, we do have a
number of semi-private rooms, particularly in our skilled
nursing and Reminiscence areas.
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Number of Communities
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Consolidated
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Variable Interest
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Unconsolidated
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Consolidated
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Entities
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Ventures
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Managed
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Total
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Beginning number December 31, 2008
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62
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10
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203
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160
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435
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Opened (developed by us)
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1
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22
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23
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Terminations/Sales/ Closures
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(23
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)
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(2
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(7
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(42
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(74
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)
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Expansion/Other adjustments
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7
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(7
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(17
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17
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Ending number December 31, 2009
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47
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1
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201
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135
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384
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Total Unit Capacity
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Consolidated
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Variable Interest
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Unconsolidated
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Consolidated
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Entities
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Ventures
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Managed
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Total
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Beginning number December 31, 2008
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8,205
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1,212
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20,225
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20,209
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49,851
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Opened (developed by us)
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99
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1,975
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2,074
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Terminations/Sales/ Closures
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(1,540
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(184
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(2,025
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(7,992
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(11,741
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Expansion/Other adjustments
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608
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(657
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(3,981
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4,199
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169
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Ending number December 31, 2009
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7,372
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371
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16,194
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16,416
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40,353
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7
2009
Operating Communities
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Number of Communities
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Total Unit Capacity
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Unconsolidated
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Unconsolidated
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Location
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Consolidated
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Ventures
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Managed
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Consolidated
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Ventures
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Managed
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Arizona
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2
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3
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2
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233
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298
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485
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Arkansas
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1
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163
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California
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8
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30
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15
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857
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2,194
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2,226
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Colorado
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8
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3
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728
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479
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Connecticut
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1
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1
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85
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114
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District of Columbia
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1
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1
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1
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100
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173
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172
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Delaware
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1
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69
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Florida
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5
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1
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3
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1,687
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80
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945
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Georgia
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1
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7
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5
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30
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721
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492
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Illinois
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1
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14
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12
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321
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1,105
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1,340
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Indiana
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1
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140
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Kansas
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3
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1
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223
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152
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Kentucky
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1
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1
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80
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104
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Louisiana
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3
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2
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209
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92
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Maryland
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3
|
|
|
|
10
|
|
|
|
|
|
|
|
289
|
|
|
|
1,308
|
|
Maine
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
491
|
|
|
|
180
|
|
|
|
|
|
Massachusetts
|
|
|
|
|
|
|
9
|
|
|
|
5
|
|
|
|
|
|
|
|
597
|
|
|
|
324
|
|
Michigan
|
|
|
|
|
|
|
11
|
|
|
|
5
|
|
|
|
|
|
|
|
732
|
|
|
|
848
|
|
Minnesota
|
|
|
|
|
|
|
4
|
|
|
|
6
|
|
|
|
|
|
|
|
306
|
|
|
|
444
|
|
Missouri
|
|
|
|
|
|
|
2
|
|
|
|
3
|
|
|
|
|
|
|
|
282
|
|
|
|
359
|
|
Nebraska
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
150
|
|
Nevada
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
79
|
|
|
|
|
|
New Jersey
|
|
|
2
|
|
|
|
15
|
|
|
|
9
|
|
|
|
495
|
|
|
|
1,091
|
|
|
|
1,014
|
|
New York
|
|
|
|
|
|
|
13
|
|
|
|
4
|
|
|
|
|
|
|
|
1,001
|
|
|
|
499
|
|
North Carolina
|
|
|
1
|
|
|
|
1
|
|
|
|
7
|
|
|
|
86
|
|
|
|
74
|
|
|
|
843
|
|
Ohio
|
|
|
6
|
|
|
|
4
|
|
|
|
4
|
|
|
|
345
|
|
|
|
206
|
|
|
|
360
|
|
Oklahoma
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
482
|
|
Pennsylvania
|
|
|
2
|
|
|
|
18
|
|
|
|
1
|
|
|
|
611
|
|
|
|
1,325
|
|
|
|
151
|
|
South Carolina
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
151
|
|
Tennessee
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
113
|
|
Texas
|
|
|
1
|
|
|
|
5
|
|
|
|
2
|
|
|
|
145
|
|
|
|
463
|
|
|
|
286
|
|
Utah
|
|
|
|
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
213
|
|
|
|
158
|
|
Virginia
|
|
|
6
|
|
|
|
7
|
|
|
|
10
|
|
|
|
1,439
|
|
|
|
539
|
|
|
|
901
|
|
Washington
|
|
|
|
|
|
|
1
|
|
|
|
6
|
|
|
|
|
|
|
|
70
|
|
|
|
514
|
|
United Kingdom
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
2,265
|
|
|
|
|
|
Germany
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
657
|
|
|
|
|
|
|
|
|
|
Canada
|
|
|
3
|
|
|
|
3
|
|
|
|
9
|
|
|
|
246
|
|
|
|
377
|
|
|
|
747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
48
|
|
|
|
201
|
|
|
|
135
|
|
|
|
7,743
|
|
|
|
16,194
|
|
|
|
16,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
Operations
Operating
Structure
We have six operating segments for which operating results are
separately and regularly reviewed by key decision makers: North
American Management, North American Development, Equity Method
Investments, Consolidated (Wholly Owned/Leased), United Kingdom
and Germany (part of which is included in discontinued
operations).
North American Management includes the results from the
management of third party, venture and wholly owned/leased
Sunrise senior living communities in the United States and
Canada.
North American Development includes the results from the
development of Sunrise senior living communities in the United
States and Canada.
8
Equity Method Investments includes the results from our
investment in domestic and international ventures.
Consolidated (Wholly Owned/Leased) includes the results
from the operation of wholly owned and leased Sunrise senior
living communities in the United States and Canada net of an
allocated management fee of $21.9 million,
$22.2 million and $22.2 million for 2009, 2008 and
2007, respectively.
United Kingdom includes the results from the development
and management of Sunrise senior living communities in the
United Kingdom.
Germany includes the results from the management of nine
(two of which have been closed) Sunrise senior living
communities in Germany through September 1, 2008. The
operation of nine Sunrise senior living communities after
September 1, 2008 when we began consolidating the
communities are included in discontinued operations.
Our international headquarters are in McLean, Virginia, with two
smaller regional offices located in the U.K. and Germany to
support local operations. Our North American international
headquarters provide centralized operational functions to
support our operating communities and company growth. As a
result, our community-based team members are able to focus on
delivering excellent care and service consistent with our
resident-centered operating philosophy.
Senior
Living Operations
For our senior living business, regional and community-based
team members are responsible for executing our strategy in local
markets. This includes overseeing all aspects of community
operations: local marketing and sales activities; resident care
and services; the hiring and training of community-based team
members; and compliance with applicable local and state
regulatory requirements.
Our North American operations are organized into four geographic
regions: Northeast, Southeast, Midwest and West. Senior team
members are based in each of these regions for close oversight
of community operations in these locations. A similar
organizational structure is in place in the United Kingdom.
Each region is headed by a vice president of operations with
extensive experience in the health care and senior living
industries, who oversees operations. Each region is supported by
sales/marketing specialists, resident care specialists, a human
resource specialist, a facilities specialist, a dining
specialist and a financial analyst.
The international headquarters functions include establishing
strategy, systems, policies and procedures related to: resident
care and services; team member recruitment, training,
development, benefits and compensation; facility services;
dining; sales and marketing strategy and support; corporate
communications; accounting and finance management, including
billing and collections, accounts payable, general finance and
accounting and tax planning and compliance; legal; asset
management; community design; and real estate development.
Community
Staffing
We believe that the quality and size of our communities, along
with our strong service-oriented culture, our competitive
compensation philosophy and our training and professional growth
opportunities, have enabled us to attract high-quality,
professional team members. Each of our communities has an
executive director responsible for the
day-to-day
operations of the community, including quality of care, resident
services, sales and marketing, financial performance and
regulatory compliance. The executive director is supported by
department heads, who oversee the care and services provided to
residents in the community by care managers, as well
as other specialists such as a nurse, who is responsible for
coordinating the services necessary to meet residents
health care needs, and a director of community relations, who is
responsible for selling and marketing our services. Other key
positions include the dining services coordinator, the
activities coordinator and the maintenance coordinator.
Care managers, who work on full-time, part-time and flex-time
schedules, provide most of the hands-on resident care, such as
bathing, dressing and other personalized care services. As
permitted by state law, care managers who complete a special
training program also supervise the storage and distribution of
medications. The use of care managers to provide substantially
all services to residents has the benefits of consistency and
continuity in resident care. As such, in most cases, the same
care manager assists the resident in dressing, dining and
9
coordinating daily activities to encourage seamless and
consistent care for residents. The number of care managers
working in a community varies according to the number of
residents and their needs.
We believe that our communities can be most efficiently managed
by maximizing direct resident and staff contact. Team members
involved in resident care, including the administrative staff,
are trained in the care manager duties and participate in
supporting the care needs of the residents.
Staff
Education and Training
All of our team members receive specialized and ongoing
training. We pride ourselves on attracting highly dedicated,
experienced personnel. To support this effort, we offer a full
schedule of educational programs, job aids and other learning
tools to equip every team member with the appropriate skills
that are required to ensure high-quality resident care. All
managers and direct-care staff must complete a comprehensive
orientation and the core curriculum, which consists of basic
resident-care procedures, Alzheimers care, communication
systems, and activities and dining programming. For the
supervisors of direct-care staff, additional training provides
education in medical awareness and management skills.
For executive directors and department managers, we have
developed the Getting Started 1-2-3 program, which
offers a structured curriculum to support those either newly
hired or promoted to these positions. This program provides them
with the tools, support and training necessary for the first
180 days on the job, including a self-study program,
one-to-one
training experience and a series of group trainings with
scenario-based opportunities to solve multiple business case
challenges. The program also includes three meetings with a
supervisor to review the individuals progress at
30 days, 60 days and 180 days into the position.
Quality
Improvement Processes
We coordinate quality assurance programs at each of our
communities through our corporate headquarters staff and through
our regional offices. Our commitment to quality assurance is
designed to achieve a high degree of resident and family member
satisfaction with the care and services we provide.
Sales and
Marketing
Our sales and marketing strategy supports the Sunrise brand and
is intended to create awareness of and preference for our unique
products and services among potential residents, family members
and key community referral sources such as hospital discharge
planners, physicians, clergy, area agencies for the elderly,
skilled nursing communities, home health agencies, social
workers, financial planners and consultants, and others. A
marketing team from headquarters supports the field and
communities by developing overall strategies, systems, processes
and programs for promoting Sunrise in local markets, and
monitors the success of the marketing efforts.
Each community has at least one dedicated sales person
responsible for community-specific sales efforts. The
community-based sales staff and executive director are supported
by an area sales manager who is responsible for coaching,
development, and performance management of community sales
staff, as well as supporting the development and implementation
of the local marketing strategy.
Competition
We are a large global provider of senior living services. We
compete with numerous organizations such as Brookdale Senior
Living, Inc., Assisted Living Concepts, Inc., Capital Senior
Living Corp., Emeritus Corp. and Five Star Quality Care, Inc.,
that provide similar senior living alternatives, such as other
senior living providers, home health care agencies,
community-based service programs, retirement communities and
convalescent centers. We have experienced and expect to continue
to experience competition in our efforts to develop and operate
senior living communities. This competition could limit our
ability to attract residents or expand our senior living
business, which could have a material adverse effect on our
revenues and earnings. Please see our risk factor sections
Risks Related to the Senior Living Industry under
Item 1A. Risk Factors for more details related
to the effects of competition on our business.
10
Government
Regulation
Senior Living. Senior living communities are
generally subject to regulation and licensing by federal, state
and local health and social service agencies, and other
regulatory authorities. Although requirements vary from state to
state and community to community, in general, these requirements
may include or address:
|
|
|
|
|
personnel hiring, education, training, and records;
|
|
|
administration and supervision of medication;
|
|
|
the provision of limited nursing services;
|
|
|
admission and discharge criteria;
|
|
|
documentation, reporting and disclosure requirements;
|
|
|
staffing requirements;
|
|
|
monitoring of resident wellness;
|
|
|
physical plant specifications;
|
|
|
furnishing of resident units;
|
|
|
food and housekeeping services;
|
|
|
emergency evacuation plans; and
|
|
|
resident rights and responsibilities.
|
In several of the states in which we operate or intend to
operate, laws may require a certificate of need before a senior
living community can be opened. In most states, senior living
communities are also subject to state or local building codes,
fire codes, and food service licensing or certification
requirements.
Independent living communities are unregulated and not subject
to state or federal inspection. However, communities that
feature a combination of senior living options such as CCRCs,
consisting of independent living campuses with a promise of
future assisted living
and/or
skilled nursing services and an entrance fee requirement, are
regulated by state government, usually the states
department of insurance. CCRCs are subject to state regulation
of minimum standards to ensure financial solvency and are
required to give annual disclosure regarding such things as the
communitys financial standing, the contractual obligations
of services to the residents, residents rights and costs
to residents to reside in the community.
Communities licensed to provide skilled nursing services
generally provide significantly higher levels of resident
assistance. Communities that are licensed, or will be licensed,
to provide skilled nursing services may participate in federal
health care programs, including the Medicare and Medicaid
programs. In addition, some licensed assisted living communities
may participate in state Medicaid-waiver programs. Such
communities must meet certain federal
and/or state
requirements regarding their operations, including requirements
related to physical environment, resident rights, and the
provision of health services. Communities that participate in
federal health care programs are entitled to receive
reimbursement from such programs for care furnished to program
beneficiaries and recipients.
Senior living communities that include assisted living
facilities, nursing facilities, or home health care agencies are
subject to periodic surveys or inspections by governmental
authorities to assess and assure compliance with regulatory
requirements. Such unannounced surveys may occur annually or
bi-annually, or can occur following a states receipt of a
complaint about the community. As a result of any such
inspection, authorities may allege that the senior living
community has not complied with all applicable regulatory
requirements. Typically, senior living communities then have the
opportunity to correct alleged deficiencies by implementing a
plan of correction. In other cases, the authorities may enforce
compliance through imposition of fines, imposition of a
provisional or conditional license, suspension or revocation of
a license, suspension or denial of admissions, loss of
certification as a provider under federal health care programs,
or imposition of other sanctions. Failure to comply with
applicable requirements could lead to enforcement action that
can materially and adversely affect business and revenues. Like
other senior living communities, we have received notice of
deficiencies from time to time in the ordinary course of
business. However, we have not, to date, faced enforcement
action that has had a material adverse effect on our revenues.
Regulation of the senior living industry is evolving. Future
regulatory developments, such as mandatory increases in the
scope of care given to residents, revisions to licensing and
certification standards, or a determination that the care
provided by one or more of our communities exceeds the level of
care for which the community is licensed, could adversely affect
or increase the cost of our operations. Increases in regulatory
requirements, whether
11
through enactment of new laws or regulations or changes in the
application of existing rules, could also adversely affect our
operations. Furthermore, there have been numerous initiatives on
the federal and state levels in recent years for reform
affecting payment of health care services. Some aspects of these
initiatives could adversely affect us, such as reductions in
Medicare or Medicaid program funding.
Other. We are also subject to certain federal and state
laws that regulate financial arrangements by health care
providers, such as the Federal Anti-Kickback Law. This law makes
it unlawful for any person to offer or pay (or to solicit or
receive) any remuneration...directly or indirectly,
overtly or covertly, in cash or in kind for referring or
recommending for purchase any item or service which is eligible
for payment under a federal health care program, including, for
example, the Medicare and Medicaid programs. Authorities have
interpreted this statute very broadly to apply to many practices
and relationships between health care providers and sources of
patient referral. If a health care provider were to violate the
Anti-Kickback Law, it may face criminal penalties and civil
sanctions, including fines and possible exclusion from
government programs such as Medicare and Medicaid. Similarly,
health care providers are subject to the False Claims Act with
respect to their participation in federal health care
reimbursement programs. Under the False Claims Act, the
government or private individuals acting on behalf of the
government may bring an action alleging that a health care
provider has defrauded the government and seek treble damages
for false claims and the payment of additional monetary civil
penalties. Many states have enacted similar anti-kickback and
false claims laws that may have a broad impact on health care
providers and their payor sources. Under provisions of the
Deficit Reduction Act of 2005, Congress has encouraged all
states to adopt false claims laws that are substantially similar
to the federal law. While we endeavor to comply with all laws
that regulate the licensure and operation of our senior living
communities, it is difficult to predict how our revenue could be
affected if it were subject to an action alleging such
violations.
We are also subject to federal and state laws designed to
protect the confidentiality of patient health information. The
U.S. Department of Health and Human Services has issued
rules pursuant to the Health Insurance Portability and
Accountability Act of 1996 (HIPAA) relating to the
privacy of such information. In addition, many states have
confidentiality laws, which in some cases may exceed the federal
standard. We have adopted procedures for the proper use and
disclosure of residents health information in compliance
with the relevant state and federal laws, including HIPAA.
Employees
At December 31, 2009, we had approximately
37,600 employees, also referred to as team members
throughout this 2009
Form 10-K,
of which approximately 500 were employed at our corporate
headquarters. We believe employee relations are good. A portion
of the employees at one Sunrise community in Canada voted to be
represented by a union in 2006. Currently approximately
90 employees are covered by a contract effective until
March 31, 2011.
Website
Our Internet website is
http://www.sunriseseniorliving.com.
The information contained on our website is not incorporated by
reference into this report and such information should not be
considered as part of this report. We make available free of
charge on or through our website our annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to those reports filed or furnished pursuant to
Section 13(a) of the Securities Exchange Act of 1934 as
soon as reasonably practicable after such material is
electronically filed with, or furnished to, the SEC.
We file annual, quarterly and current reports, proxy statements
and other information with the SEC. You may access and read our
SEC filings over the Internet at the SECs website at
http://www.sec.gov.
This uniform resource locator is an inactive textual reference
only and is not intended to incorporate the contents of the SEC
website into this
Form 10-K.
You may read and copy any document we file with the SEC at the
SECs Public Reference Room at 450 Fifth Street, NW,
Washington, DC 20549. You may also request copies of the
documents that we file with the SEC by writing to the SECs
Office of Public Reference at the above address, at prescribed
rates. Please call the SEC at
(800) 732-0330
for further information on the operations of the Public
Reference Room and copying charges.
12
In connection with the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, set forth below are
cautionary statements identifying important factors that could
cause actual events or results to differ materially from any
forward-looking statements made by or on behalf of us, whether
oral or written. We wish to ensure that any forward-looking
statements are accompanied by meaningful cautionary statements
in order to maximize to the fullest extent possible the
protections of the safe harbor established in the Private
Securities Litigation Reform Act of 1995. Accordingly, any such
statements are qualified in their entirety by reference to, and
are accompanied by, the following important factors that could
cause actual events or results to differ materially from our
forward-looking statements. If any of the following risks
actually occur, our business, financial condition or results of
operations could be negatively affected, and the trading price
of our common stock could decline.
These forward-looking statements are based on
managements present expectations and beliefs about future
events. As with any projection or forecast, these statements are
inherently susceptible to uncertainty and changes in
circumstances. There may be additional risks and uncertainties
not presently known to us or that we currently deem immaterial
that also may impair our business operations. You should not
consider this list to be a complete statement of all potential
risks or uncertainties.
We have separated the risks into the following categories:
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|
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Liquidity risks;
|
|
|
|
Risks related to our business operations;
|
|
|
|
Risks related to the pending SEC investigation and other
pending litigation;
|
|
|
|
Risks related to the senior living industry; and
|
|
|
|
Risks related to our organization and structure.
|
Liquidity
Risks
As described in Significant 2009 and 2010 Developments in
Managements Discussion and Analysis of Financial Condition
and Results of Operations, we are currently in discussions with
our lenders and venture partners to implement a restructuring of
our financial obligations. However, there can be no assurances
that these efforts will prove successful and we could be forced
to seek reorganization under the U.S. Bankruptcy
Code.
We are in default under a number of our financial obligations
with respect to our lenders and our venture partners. In
addition, we have significant indebtedness coming due in 2010
and 2011. We are seeking waivers with respect to all defaults
and are seeking to reach negotiated settlements with our various
creditors to preserve our liquidity and to enable us to continue
operating. However, there can be no assurance that waivers will
be received or such settlements will be reached. If the defaults
are not cured within applicable cure periods, if any, and if
waivers or other relief are not obtained, the defaults can cause
acceleration of our financial obligations under the agreements,
which we may not be in a position to satisfy. In the event of a
failure to obtain necessary waivers or otherwise achieve a
restructuring of our financial obligations, we could be forced
to seek reorganization under the U.S. Bankruptcy Code.
Our results of operations could be adversely affected if
we are required to perform under various financial guarantees or
support arrangements that we have entered into as part of our
operating strategy.
As part of our normal operations, we provide debt guarantees and
operating deficit guarantees to some of our ventures, lenders to
the ventures, or third party owners. The terms of some of these
obligations do not include a limitation on the maximum potential
future payments. If we are required to fund or perform under
these arrangements, the amounts funded either become loans to
the venture, or are recorded as a reduction in revenue or as an
expense. If we are required to fund any amounts related to these
arrangements, our results of operations and cash flows could be
adversely affected. In addition, we may not be able to
ultimately recover funded amounts.
We continue to be liable under certain operating deficit and
repayment guarantees for the Klein Flottbeck and Wiesbaden
communities. If we are unable to negotiate with the lenders to
amend these operating deficit and repayment guarantees, we may
be required to perform under these guarantees and may not have
sufficient operating cash to meet these obligations at the time
they become due.
13
Our failure to generate sufficient cash flow to cover
required interest, principal and operating lease payments could
result in defaults of the related debt or operating
leases.
At December 31, 2009, we had total indebtedness of
$440.2 million. We cannot give any assurance that we or our
ventures will generate sufficient cash flow from operations to
cover required interest, principal and operating lease payments.
Any payment or other default could cause the lender to foreclose
upon the facilities securing the indebtedness or, in the case of
an operating lease, could terminate the lease, with a consequent
loss of income and asset value to us. A payment or other default
with respect to venture indebtedness also could trigger our
obligations under support arrangements, as described in the risk
factor above entitled Our results of operations could
be adversely affected if we are required to perform under
various financial guarantees or support arrangements that we
have entered into as part of our operating strategy.
In some cases, the indebtedness is secured by the community and
a pledge of our interests in the community. In the event of a
default, the lender could avoid judicial procedures required to
foreclose on real property by foreclosing on the pledge instead,
thus accelerating the lenders acquisition of the
community. Further, because our mortgages generally contain
cross-default and cross-collateralization provisions, a
nonpayment or other default by us could affect a significant
number of communities.
Our failure to comply with financial obligations contained
in debt instruments could result in the acceleration of the debt
extended pursuant to such debt instruments, trigger other rights
and restrict our operating and acquisition activity, and in the
case of ventures, may cause acceleration of the ventures
debt repayment obligations and any of our correlated guarantee
obligations.
There are various financial covenants and other restrictions
applicable to us in our debt instruments, including provisions
that:
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|
|
require us to satisfy financial statement delivery requirements;
|
|
|
|
require us to meet certain financial tests;
|
|
|
|
restrict our ability to pay dividends or repurchase our common
stock;
|
|
|
|
require consent for a change in control; and
|
|
|
|
restrict our ability and our subsidiaries ability to
borrow additional funds, dispose of all or substantially all
assets, or engage in mergers or other business combinations in
which we are not the surviving entity without lender consent.
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These covenants could reduce our flexibility in conducting our
operations by limiting our ability to borrow money and may
create a risk of default on our debt if we cannot continue to
satisfy these covenants. If we default under our debt
instruments, the debt extended pursuant to such debt instruments
could become due and payable prior to its stated due date. We
cannot give any assurance that we could pay this debt if it
became due. Further, our Bank Credit Facility contains a
cross-default provision pursuant to which a default on other
indebtedness by us or by any of our consolidated subsidiaries
under the Bank Credit Facility could result in the ability of
the lenders to declare a default under and accelerate the
indebtedness due under the Bank Credit Facility.
There are various financial covenants, financial statement
delivery requirements, and other restrictions applicable to us
in the debt instruments relating to certain of our ventures.
Failure to comply with these covenants may trigger acceleration
of the ventures debt repayment obligations and any of our
correlated guarantee obligations or give rise to any of the
other remedies provided for in such debt instruments.
Additionally, certain of our venture agreements provide that an
event of default under the ventures debt instruments that
is caused by us may also be considered an event of default by us
under the venture agreement, giving our venture partner the
right to pursue the remedies provided for in the venture
agreement, potentially including a termination and winding up of
the venture.
Certain of our management agreements, both with ventures and
with entities owned by third parties, provide that an event of
default under the debt instruments applicable to the ventures or
the entities owned by third parties that is caused by us may
also be considered an event of default by us under the relevant
management agreement, giving the non-Sunrise party to the
management agreement the right to pursue the remedies provided
for in the management agreement, potentially including
termination of the management agreement.
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The failure of our 2009 cost reduction plan to achieve
sufficient expense savings.
In May 2009, we announced a plan to continue to reduce corporate
expenses through reorganization of our corporate cost structure,
including a reduction in spending related to, among other areas,
administrative processes, vendors, and consultants. The plan is
designed to reduce our annual recurring general and
administrative expenses (including expenses previously
classified as venture expense) to approximately
$100 million, and to reduce our centrally administered
services which are charged to the communities by approximately
$1.5 million. Under the plan, approximately 184 positions
will be eliminated. As of December 31, 2009, we had
eliminated 154 positions and will be eliminating an additional
30 positions by mid 2010. Although we believe we will be able to
reduce costs sufficiently, unforeseen events may affect our
ability to fully implement the expense reduction plan or if the
plan fails to achieve the anticipated results, we may not have
sufficient operating cash to meet our obligations.
Our ability to execute our plan to sell certain
assets.
In 2010, we intend to sell (i) our German communities,
(ii) unencumbered North American properties that are held
as collateral for the German electing lender (the
liquidating trust) and, at our discretion,
(iii) certain communities and land parcels, of which any
net sales proceeds would be split equally between us, the
mortgage holder and the lenders under the Bank Credit Facility.
If we are unable to sell certain assets as planned, we may not
have sufficient cash to meet our obligations.
Risks
Related to Our Business Operations
The current economic environment could affect our ability
to obtain financing for various purposes, including any
refinancing of our Bank Credit Facility or other debt due in
2010 and 2011, on reasonable terms and could have other adverse
effects on us and the market price of our common stock.
The United States stock and credit markets have continued to
experience price volatility, dislocations and liquidity
disruptions. These circumstances have materially impacted
liquidity in the financial markets, making the terms for certain
financings less attractive, and in some cases have resulted in
the unavailability of financing. Continued uncertainty in the
stock and credit markets may negatively impact our ability to
access additional financing for the continuation of our
operations and other purposes, including the refinancing of our
Bank Credit Facility or other debt due in 2010 and 2011, at
reasonable terms, which may negatively affect our business. We
have significant current maturities of long-term debt and a
significant amount is in default. The downturn in the financial
markets may cause us to seek alternative sources of potentially
less attractive financing, and may require us to further adjust
our business plan accordingly. These events also may make it
more difficult or costly for us to raise capital, including
through the issuance of common stock. The disruptions in the
financial markets have had and may continue to have a material
adverse effect on the market value of our common stock and other
adverse effects on us and our business.
Due to the dependency of our revenues on private pay
sources, events which adversely affect the ability of seniors to
afford our monthly resident fees or entrance fees (including
downturns in housing markets or the economy) could cause our
occupancy rates, revenues and results of operations to
decline.
Costs to seniors associated with independent and assisted living
services are not generally reimbursable under government
reimbursement programs such as Medicare and Medicaid. Only
seniors with income or assets meeting or exceeding the
comparable median in the regions where our communities are
located typically can afford to pay our monthly resident fees.
The length of the current economic downturn or future downturns
or changes in demographics could adversely affect the ability of
seniors to afford our resident fees. In addition, downturns in
the housing markets, such as the one we are currently
experiencing, could adversely affect the ability (or perceived
ability) of seniors to afford our resident fees as our customers
frequently use the proceeds from the sale of their homes to
cover the cost of our fees. If we are unable to retain
and/or
attract seniors with sufficient income, assets or other
resources required to pay the fees associated with independent
and assisted living services and other service offerings, our
occupancy rates, revenues and results of operations could
decline. In addition, if the recent volatility in the housing
market continues further, our results of operations and cash
flows could be negatively impacted.
If our venture communities experience poor performance, we also
may need to write down the value of our investment in the
venture, which would adversely affect our financial results.
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Termination of resident agreements and vacancies in
communities could adversely affect our revenues and
earnings.
State regulations governing assisted living communities
generally require written resident agreements with each
resident. Most of these regulations also require that each
resident have the right to terminate the resident agreement for
any reason on reasonable notice. Consistent with these
regulations, the resident agreements signed by us generally
allow residents to terminate their agreement on
30 days notice. Thus, we cannot contract with
residents to stay for longer periods of time, unlike typical
apartment leasing arrangements that involve lease agreements
with specified leasing periods of up to a year or longer. If a
large number of residents elected to terminate their resident
agreements at or around the same time, and if our units remained
unoccupied, then our revenues and earnings could be adversely
affected.
Our international operations are subject to a variety of
risks that could adversely affect those operations and thus our
profitability and operating results.
As of December 31, 2009, we operated 15 communities in
Canada, 27 communities in the United Kingdom and seven
communities in Germany with a total unit capacity of
approximately 4,300. Our international operations are subject to
numerous risks including: exposure to local economic conditions;
varying laws relating to, among other things, employment and
employment termination; changes in foreign regulatory
requirements; restrictions and taxes on the withdrawal of
foreign investment and earnings; government policies against
businesses owned by foreigners; investment restrictions or
requirements; diminished ability to legally enforce our
contractual rights in foreign countries; withholding and other
taxes on remittances and other payments by subsidiaries; and
changes in and application of foreign taxation structures
including value-added taxes. In addition, we have limited
experience developing and operating senior living facilities in
international markets. If we are not successful in operating in
international markets, our results of operations and financial
condition may be materially adversely affected.
Early termination or non-renewal of our management
agreements could cause a loss in revenues.
We operate senior living communities for third parties and
unconsolidated ventures pursuant to management agreements. At
December 31, 2009, approximately 88% of our communities
were managed for third parties or unconsolidated ventures. The
initial terms of our third-party management agreements generally
ranges from five to 30 years. In most cases, either party
to the agreements may terminate upon the occurrence of an event
of default caused by the other party. In addition, in some
cases, subject to our rights, if any, to cure deficiencies,
community owners may terminate us as manager if any licenses or
certificates necessary for operation are revoked, if there is a
change in control of Sunrise or if we do not maintain a minimum
stabilized occupancy level in the community or certain
designated performance thresholds. In June 2009, we were
terminated as manager for a portfolio of 15 communities. We
managed these communities through October 1, 2009. The
management fees for the years 2009, 2008 and 2007 were
$2.3 million, $3.0 million and $2.9 million,
respectively.
In addition, our contract with Ventas has a combined performance
termination test that permits Ventas to terminate our contract
for all communities failing a specified targeted termination
threshold based on expected adjusted net operating income of the
community if there is a failure by more than 25% of all
communities we manage for Ventas. As of December 31, 2009,
we may have failed the specified termination thresholds on more
than 25% of these communities. The targeted termination
threshold increases each year based on CPI. We are in
discussions with our venture partner regarding these issues.
With respect to communities held in ventures, in some cases, the
management agreement can be terminated in connection with the
sale by the venture partner of its interest in the venture or
the sale of properties by the venture. Also, in some instances,
a community owner may terminate the management agreement
relating to a particular community if we are in default under
other management agreements relating to other communities owned
by the same owner or its affiliates. In some of our agreements,
the community owner may terminate the management agreement for
any reason or no reason provided it pays the termination fee
specified in the agreement. Early termination of our management
agreements or non-renewal or renewal on less-favorable terms
could cause a loss in revenues and could negatively impact
earnings.
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Our failure to attract partners for developing senior
living communities in the future could adversely affect our
revenues and results of operations, and harm our ability to
finance the construction of new communities.
Historically, we have developed senior living communities with
third-party partners and entered into long-term management
contracts to manage these communities. This strategy of
developing senior living communities with partners has enabled
us to re-deploy our capital into new development projects,
finance development and expand our portfolio of managed
communities. The development of new communities with third-party
partners is subject to various market conditions and the
attractiveness of other investment opportunities available to
our partners. Due to current market conditions, we have halted
development of communities.
Ownership of the communities we manage is heavily
concentrated with three of our business partners. We are in
material litigation with one of the three.
As of December 31, 2009, we managed 79 communities for
Ventas, 75 communities for HCP and 52 communities for a
privately owned capital partner.
In June 2009, various affiliates of HCP and their associated
tenant entities filed nine complaints in the Delaware Court of
Chancery naming the Company and several of its subsidiaries as
defendants. The complaints allege monetary and non-monetary
defaults under a series of owner and management agreements that
govern nine portfolios comprised of 64 properties with annual
management fees of approximately $25.9 million in 2009 and
$25.4 million in 2008. We have $18.3 million of
unamortized management contract intangibles relating to these
contracts. In each case, the plaintiffs include (a) the HCP
affiliates that own various assisted living community properties
that are managed by Sunrise, and (b) certain tenant
entities alleged to be independent from HCP that lease those
properties from HCP affiliates and have management agreements
with Sunrise. The complaints assert claims for
(1) declaratory judgment; (2) injunctive relief;
(3) breach of contract; (4) breach of fiduciary
duties; (5) aiding and abetting breach of fiduciary duty;
(6) equitable accounting; and (7) constructive trust.
The complaints seek equitable relief, including a declaration of
a right to terminate the agreements, disgorgement, unspecified
money damages, and attorneys fees. Plaintiffs filed a
motion to expedite the proceedings. Following briefing by the
parties, the Delaware Court of Chancery on July 9, 2009
denied the plaintiffs motion. In July 2009, various
affiliates of HCP and their associated tenant entities refiled a
complaint, which had been voluntarily withdrawn in the Delaware
actions, in the federal district court for the Eastern District
of Virginia (the Virginia action). On
August 17, 2009, Sunrise answered all of the complaints in
both jurisdictions and asserted counterclaims.
The communities that we manage for these business partners are
generally subject to long-term management agreements (up to
30 years) as well as other agreements related to
development, support and other guarantee arrangements. This
sizeable concentration could give these partners significant
influence over our operating strategies and could therefore
heighten the business risks disclosed above. A significant
concentration might also make us more susceptible to an adverse
impact from the financial distress that might be experienced by
a partner. Any inability or unwillingness by any of these
business partners to satisfy its obligations under their
agreements with us including the obligation to make capital
expenditures in the communities or to maintain Sunrises
brand standards, could adversely affect our business, financial
condition, results of operations and cash flows.
Our current and future investments in ventures could be
adversely affected by our lack of sole
decision-making
authority, our reliance on venture partners financial
condition, any disputes that may arise between us and our
venture partners and our exposure to potential losses from the
actions of our venture partners.
As of December 31, 2009, we had a minority equity interest
in ventures that we do not control which owned 201 senior living
communities. These ventures involve risks not present with
respect to our consolidated communities or the communities that
we manage only. These risks include the following:
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we share or have lesser decision-making authority with certain
of our venture partners regarding major decisions affecting the
ownership or operation of the venture and the community, such as
the sale of the community or the making of additional capital
contributions for the benefit of the community and the approval
of the annual operating and capital budgets, which may prevent
us from taking actions that are opposed by our venture partners;
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prior consent of our venture partners may be required for a sale
or transfer to a third party of our interests in the venture,
which restricts our ability to dispose of our interest in the
venture;
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our venture partners might become bankrupt or fail to fund their
share of required capital contributions, which may delay
construction or development of a community or increase our
financial commitment to the venture;
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our venture partners may have business interests or goals with
respect to the community that conflict with our business
interests and goals, which could increase the likelihood of
disputes regarding the ownership, management or disposition of
the community;
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disputes may develop with our venture partners over decisions
affecting the community or the venture, which may result in
litigation or arbitration that would increase our expenses and
distract our officers
and/or
directors from focusing their time and effort on our business,
and possibly disrupt the
day-to-day
operations of the community such as delaying the implementation
of important decisions until the conflict or dispute is
resolved; and
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we may suffer losses as a result of the actions of our venture
partners with respect to our venture investments.
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The refinancing or sale of communities held in ventures
may not result in future distributions to us.
When the majority equity partner in one of our ventures sells
its equity interest to a third party, the venture frequently
refinances its senior debt and distributes the net proceeds to
the equity partners. Distributions received by us are first
recorded as a reduction of our investment. Next, we record a
liability if there is a contractual obligation or implied
obligation to support the venture including through our role as
a general partner. Any remaining distributions are recorded as
income. We refer to these transactions as
recapitalizations. Additionally, most of our
ventures are structured to provide a distribution to us upon the
sale of the communities in the ventures. None of the agreements
governing our venture arrangements require refinancings of debt
in connection with the sale of equity interests by our venture
partners. If the venture does not refinance senior debt or the
property has not appreciated we would not receive any
distributions in connection with the sale of equity interests by
our venture partners. In addition, there can be no assurance
that future recapitalizations or asset sales will
result in distributions to us. In addition, if market conditions
deteriorate or our communities experience poor performance, the
amounts distributed to us upon recapitalizations or
assets sales could be materially reduced or we may not receive
distributions in some cases.
Liability claims against us in excess of insurance limits
could adversely affect our financial condition and results of
operations.
The senior living business entails an inherent risk of
liability. In recent years, we, as well as other participants in
our industry, have become subject to an increasing number of
lawsuits alleging negligence or similar claims. Many of these
lawsuits involve large claims and significant legal costs. We
maintain liability insurance policies in amounts we believe are
adequate based on the nature and risks of our business,
historical experience and industry standards.
We purchase insurance for property, casualty and other risks
from insurers based on published ratings by recognized rating
agencies, advice from national insurance brokers and consultants
and other industry-recognized insurance information sources.
Moreover, certain insurance policies cover events for which
payment obligations and the timing of payments are only
determined in the future. Any of these insurers could become
insolvent and unable to fulfill their obligation to defend, pay
or reimburse us for insured claims.
Certain liability risks, including general and professional
liability, workers compensation and automobile liability,
and employment practices liability are insured in insurance
policies with affiliated (i.e., wholly owned captive insurance
companies) and unaffiliated insurance companies. We are
responsible for the cost of claims up to a self-insured limit
determined by individual policies and subject to aggregate
limits in certain prior policy periods. Liabilities within these
self-insured limits are estimated annually by management after
considering all available information, including expected cash
flows and actuarial analysis. In the event these estimates are
inadequate, we may have to fund the shortfall and our operating
results could be negatively impacted.
18
Claims may arise that are in excess of the limits of our
insurance policies or that are not covered by our insurance
policies. If a successful claim is made against us and it is not
covered by our insurance or exceeds the policy limits, our
financial condition and results of operations could be
materially and adversely affected. Our obligations to pay the
cost of claims within our self-insured limits include the cost
of claims that arise today but are reported in the future. We
estimate an amount to reserve for these future claims. In the
event these estimates are inadequate, we may have to fund the
shortfall and our operating results could be negatively
affected. Claims against us, regardless of their merit or
eventual outcome, also could have a material adverse effect on
our ability to attract residents or expand our business and
could require our management to devote time to matters unrelated
to the operation of our business. We also have to renew our
policies periodically and negotiate acceptable terms for
coverage, exposing us to the volatility of the insurance
markets, including the possibility of rate increases, and we
cannot be sure that we will be able to obtain insurance in the
future at acceptable levels. We have established a liability for
outstanding losses and expenses at December 31, 2009, but
the liability may ultimately be settled for a greater or lesser
amount. Any subsequent changes are recorded in the period in
which they are determined and will be shared with the
communities participating in the insurance programs.
Interest rate increases could adversely affect our
earnings because a portion of our total debt is floating rate
debt.
At December 31, 2009, we had approximately
$438.9 million of floating-rate debt at a weighted average
interest rate of 2.85%. Debt incurred in the future also may
bear interest at floating rates. Therefore, increases in
prevailing interest rates could increase our interest payment
obligations, which would negatively impact earnings.
We may be adversely affected by fluctuations in currency
exchange rates.
We are subject to the impact of foreign exchange translation on
our financial statements. To date, we have not hedged against
foreign currency fluctuations; however, we may pursue hedging
alternatives in the future. There can be no assurance that
exchange rate fluctuations in the future will not have a
material adverse effect on our business, operating results, or
financial condition. At December 31, 2009, our wholly owned
subsidiaries have net U.S. dollar equivalent monetary
liabilities denominated in foreign currencies of
$60.7 million, $2.1 million and $18.7 million in
Canadian dollars, British pounds and Euros, respectively. We
recorded $6.7 million, net, in exchange gains in 2009
($8.0 million in gains related to the Canadian dollar and
$(1.3) million in losses related to the Euro and British
pound).
Our accounting policies and methods are fundamental to how
we report our financial condition and results of operations and
they may require management to make estimates about matters that
are inherently uncertain.
We have identified certain accounting estimates as being
critical to the presentation of our financial
condition and results of operations because they require our
management to make particularly subjective or complex judgments
about matters that are inherently uncertain and because the
likelihood that materially different amounts would be recorded
under different conditions or using different assumptions. The
risks related to our critical accounting estimates are described
under Critical Accounting Estimates in Item 7
of this
Form 10-K.
Because of the inherent uncertainty of the estimates associated
with these critical accounting estimates, we cannot provide any
assurance that we will not change our estimates, which could
cause us to make significant subsequent adjustments to the
related amounts recorded. These adjustments could have a
material adverse affect on our business, results of operations
and financial condition.
The discovery of environmental problems at any of the
communities we own or operate could result in substantial costs
to us, which would have an adverse effect on our earnings and
financial condition.
Under various federal, state and local environmental laws,
ordinances and regulations, as a current or previous owner or
operator of real property, we are subject to various federal,
state and local environmental laws and regulations, including
those relating to the handling, storage, transportation,
treatment and disposal of medical waste generated at our
facilities; identification and removal of the presence of
asbestos-containing materials in buildings; the presence of
other substances in the indoor environment, including mold; and
protection of the environment and natural resources in
connection with development or construction of our communities.
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Some of our facilities generate infectious or other hazardous
medical waste due to the illness or physical condition of the
residents. Each of our facilities has an agreement with a waste
management company for the proper disposal of all infectious
medical waste, but the use of such waste management companies
does not immunize us from alleged violations of such laws for
operations for which we are responsible even if carried out by
such waste management companies, nor does it immunize us from
third-party claims for the cost to
clean-up
disposal sites at which such wastes have been disposed.
If we fail to comply with such laws and regulations in the
future, we would face increased expenditures both in terms of
fines and remediation of the underlying problem(s), potential
litigation relating to exposure to such materials, and potential
decrease in value to our business and in the value of our
underlying assets, which would have an adverse effect on our
earnings, our financial condition and our ability to pursue our
growth strategy. In addition, we are unable to predict the
future course of federal, state and local environmental
regulation and legislation. Changes in the environmental
regulatory framework could result in significant increased costs
related to complying with such new regulations and result in a
material adverse effect on our earnings. In addition, because
environmental laws vary from state to state, expansion of our
operations to states where we do not currently operate may
subject us to additional restrictions on the manner in which we
operate our communities, further increasing our cost of
operations.
Unionization may impact wage rates and work rules.
At December 31, 2009, we had approximately
37,600 employees of which approximately 500 were employed
at our corporate headquarters. In 2006, employees at one
community in Canada voted to be represented by a union. There
are approximately 90 employees represented by the union. We
believe that a union free workplace is in the best interest of
our residents, our team members and us and accordingly, we plan
to expend significant organizational effort to maintain a union
free workplace.
Risks
Related to the Pending SEC Investigation and Pending Litigation
Arising Out of the Prior Announcement of Our Restatement of
Historical Financial Statements for 2005 and Prior Periods,
Other Pending Government Proceedings and Other Pending
Litigation
The SECs formal investigation has resulted in
significant costs and expenses, diverted resources and could
have a material adverse effect on our business, financial
condition and results of operations.
We previously announced on December 11, 2006 that we had
received a request from the SEC for information about insider
stock sales, timing of stock option grants and matters relating
to our historical accounting practices that had been raised in
media reports in the latter part of November 2006 following
receipt of a letter by us from the Service Employees
International Union. On May 25, 2007, we were advised by
the staff of the SEC that it had commenced a formal
investigation. We have fully cooperated, and intend to continue
to fully cooperate, with the SEC. We have commenced discussions
with the SEC staff concerning potential resolution of the matter
and conclusion of the investigation.
In addition, our management, Board of Directors and employees
have expended a substantial amount of time on the SEC formal
investigation and these other matters, diverting a significant
amount of resources and attention that would otherwise be
directed toward our operations and the implementation of our
business strategy, all of which could materially adversely
affect our business and results of operations. Further, if the
SEC were to conclude that enforcement action is appropriate, we
could be required to pay large civil penalties and fines. Any of
these events could have a material adverse effect on our
business, financial condition and results of operations.
We are involved in other litigation matters that will
continue to divert our resources and attention, and could result
in substantial monetary damages that could have a material
adverse effect on our financial condition and results of
operations if we do not prevail.
As described in Item 3, Legal Proceedings of
this
Form 10-K,
we are currently involved in a significant lawsuit. If we do not
prevail in this or other lawsuits, our management contracts
could be terminated
and/or we
may be required to pay substantial monetary damages, which could
have a material adverse effect on our financial condition and
results of operations.
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The IRS audit may result in substantial fines and
penalties, which could harm our financial condition, results of
operations and cash flow.
As more fully described in Item 3, Legal
Proceedings of this
Form 10-K,
the United States Internal Revenue Service is auditing our 2005
through 2008 federal income tax returns. The IRS audit may
result in payments of unpaid taxes, interest and penalties. Any
such reimbursements and payments could have a material adverse
effect on our financial condition and results of operations.
Our potential indemnification obligations and limitations
of our director and officer liability insurance may have a
material adverse effect on our financial condition and results
of operations.
Under Delaware law, our charter and bylaws and certain
indemnification agreements between us and certain of our current
and former directors and officers, we have an obligation to
indemnify our current and former directors and officers with
respect to the pending SEC investigation, including potentially
for any liability for securities violations resulting therefrom.
These indemnifiable obligations may not be reimbursable under
our directors and officers liability insurance. In
connection with some of the matters discussed in Item 3,
Legal Proceedings of this
Form 10-K,
we have advanced legal fees and related expenses to several of
our current and former directors and officers and expect to
continue to do so while these matters are pending.
We purchase directors and officers liability insurance from
insurers based on published ratings by recognized rating
agencies, advice from national insurance brokers and consultants
and other industry-related insurance information sources. Our
directors and officers liability insurance covers events for
which payment obligations and the timing of payments are only
determined in the future. The insurers could become insolvent
and unable to fulfill their obligation to defend, pay or
reimburse us for insured claims. In addition, the insurers
obligation to defend, pay, or reimburse us for insured claims
would cease with respect to an individual if that individual
were found to have committed a deliberate criminal or fraudulent
act or in the event we ultimately determine that the individual
is not entitled to indemnification.
Under our directors and officers liability insurance policy, we
are responsible for the cost of claims up to a self-insured
limit. In addition, we cannot be sure that claims will not arise
that are in excess of the limits of our insurance or that are
not covered by the terms of our insurance policy. Due to these
coverage limitations, we may incur significant unreimbursed
costs to satisfy our indemnification obligations, which may have
a material adverse effect on our financial condition and results
of operations.
Risks
Related to the Senior Living Industry
Competition in our industry is high and may increase,
which could impede our growth and have a material adverse effect
on our revenues and earnings.
The senior living industry is highly competitive. We compete
with numerous other companies that provide similar senior living
alternatives, such as home health care agencies, community-based
service programs, retirement communities, convalescent centers
and other senior living providers. In general, regulatory and
other barriers to competitive entry in the independent and
assisted living segments of the senior living industry are not
as substantial as in the skilled nursing segment of the senior
living industry. In pursuing our growth strategies, we have
experienced and expect to continue to experience competition in
our efforts to develop and operate senior living communities. We
expect that there will be competition from existing competitors
and new market entrants, some of whom may have greater financial
resources and lower costs of capital than we are able to obtain.
Consequently, we may encounter competition that could limit our
ability to attract new residents, increase resident fee rates,
attract and retain capital partners for our ventures or expand
our development activities or our business in general, which
could have a material adverse effect on our revenues and results
of operations. Similarly, overbuilding or oversupply in any of
the markets in which we operate could cause us to experience
decreased occupancy, reduced operating margins and lower
profitability. Increased competition for residents could also
require us to undertake unbudgeted capital improvements or to
lower our rates, which could adversely affect our results of
operations.
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Our success depends on attracting and retaining skilled
personnel and increased competition for or a shortage of skilled
personnel could increase our staffing and labor costs, which we
may not be able to offset by increasing the rates we charge to
our residents.
We compete with various health care services providers,
including other senior living providers, in attracting and
retaining qualified and skilled personnel. We depend on our
ability to attract and retain skilled management personnel who
are responsible for the
day-to-day
operations of each community. Turnover rates and the magnitude
of the shortage of nurses, therapists or other trained personnel
vary substantially from community to community. Increased
competition for or a shortage of nurses, therapists or other
trained personnel or general inflationary pressures may require
that we enhance our pay and benefits package to compete
effectively for such personnel. We may not be able to offset
such added costs by increasing the rates we charge to our
residents or our management fees. If there is an increase in
these costs or if we fail to attract and retain qualified and
skilled personnel, our business, including our ability to
implement our growth strategy, and operating results could be
harmed.
The need to comply with government regulation of senior
living communities may increase our costs of doing business and
increase our operating costs.
Senior living communities are generally subject to regulation
and licensing by federal, state and local health and social
service agencies and other regulatory authorities. Although
requirements vary from state to state and community to
community, in general, these requirements may include or address:
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personnel education, training, and records;
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administration and supervision of medication;
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the provision of limited nursing services;
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admission and discharge criteria;
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documentation, reporting and disclosure requirements;
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staffing requirements;
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monitoring of resident wellness;
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physical plant specifications;
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furnishing of resident units;
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food and housekeeping services;
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emergency evacuation plans; and
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resident rights and responsibilities.
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In several of the states in which we operate or intend to
operate, laws may require a certificate of need before a senior
living community can be opened. In most states, senior living
communities are also subject to state or local building codes,
fire codes, and food service licensing or certification
requirements.
Independent living communities are unregulated and not subject
to state or federal inspection. However, communities that
feature a combination of senior living options such as CCRCs,
consisting of independent living campuses with a promise of
future assisted living
and/or
skilled nursing services and an entrance fee requirement, are
regulated by state government, usually the states
department of insurance. CCRCs are subject to state regulation
of minimum standards to ensure financial solvency and are
required to give annual disclosure regarding such things as the
communitys financial standing, the contractual obligations
of services to the residents, residents rights and costs
to residents to reside in the community.
Communities licensed to provide skilled nursing services
generally provide significantly higher levels of resident
assistance. Communities that are licensed, or will be licensed,
to provide skilled nursing services may participate in federal
health care programs, including the Medicare and Medicaid
programs. In addition, some licensed assisted living communities
may participate in state Medicaid-waiver programs. Such
communities must meet certain federal
and/or state
requirements regarding their operations, including requirements
related to physical
22
environment, resident rights, and the provision of health
services. Communities that participate in federal health care
programs are entitled to receive reimbursement from such
programs for care furnished to program beneficiaries and
recipients.
Senior living communities that include assisted living
facilities, nursing facilities, or home health care agencies are
subject to periodic surveys or inspections by governmental
authorities to assess and assure compliance with regulatory
requirements. Such unannounced surveys may occur annually or
bi-annually, or can occur following a states receipt of a
complaint about the community. As a result of any such
inspection, authorities may allege that the senior living
community has not complied with all applicable regulatory
requirements. Typically, senior living communities then have the
opportunity to correct alleged deficiencies by implementing a
plan of correction. In other cases, the authorities may enforce
compliance through imposition of fines, imposition of a
provisional or conditional license, suspension or revocation of
a license, suspension or denial of admissions, loss of
certification as a provider under federal health care programs,
or imposition of other sanctions. Failure to comply with
applicable requirements could lead to enforcement action that
can materially and adversely affect business and revenues. Like
other senior living communities, we have received notice of
deficiencies from time to time in the ordinary course of
business.
Regulation of the senior living industry is evolving. Our
operations could suffer if future regulatory developments, such
as mandatory increases in scope of care given to residents,
licensing and certification standards are revised, or a
determination is made that the care provided by one or more of
our communities exceeds the level of care for which the
community is licensed. If regulatory requirements increase,
whether through enactment of new laws or regulations or changes
in the application of existing rules, our operations could be
adversely affected. Furthermore, there have been numerous
initiatives on the federal and state levels in recent years for
reform affecting payment of health care services. Some aspects
of these initiatives could adversely affect us, such as
reductions in Medicare or Medicaid program funding.
We are also subject to certain federal and state laws that
regulate financial arrangements by health care providers, such
as the Federal Anti-Kickback Law. This law makes it unlawful for
any person to offer or pay (or to solicit or receive) any
remuneration...directly or indirectly, overtly or covertly, in
cash or in kind for referring or recommending for purchase
of any item or service which is eligible for payment under the
Medicare or Medicaid programs. Authorities have interpreted this
statute very broadly to apply to many practices and
relationships between health care providers and sources of
patient referral. If a health care provider were to violate the
Anti-Kickback Law, it may face criminal penalties and civil
sanctions, including fines and possible exclusion from
government programs such as Medicare and Medicaid. Similarly,
health care providers are subject to the False Claims Act with
respect to their participation in federal health care
reimbursement programs. Under the False Claims Act, the
government or private individuals acting on behalf of the
government may bring an action alleging that a health care
provider has defrauded the government and seek treble damages
for false claims and the payment of additional monetary civil
penalties. Many states have enacted similar anti-kickback and
false claims laws that may have a broad impact on health care
providers and their payor sources. Recently other health care
providers have faced enforcement action under the False Claims
Act. It is difficult to predict how our revenue could be
affected if we were subject to an action alleging violations.
We are also subject to federal and state laws designed to
protect the confidentiality of patient health information. The
U.S. Department of Health and Human Services has issued
rules pursuant to HIPAA relating to the privacy of such
information. In addition, many states have confidentiality laws,
which in some cases may exceed the federal standard. We have
adopted procedures for the proper use and disclosure of
residents health information in compliance with the
relevant state and federal laws, including HIPAA.
Risks
Related to our Organization and Structure
Anti-takeover provisions in our governing documents and
under Delaware law could make it more difficult to effect a
change in control.
Our restated certificate of incorporation and amended and
restated bylaws and Delaware law contain provisions that could
make it more difficult for a third party to obtain control of us
or discourage an attempt
23
to do so. In addition, these provisions could limit the price
some investors are willing to pay for our common stock. These
provisions include:
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Board authority to issue preferred stock without stockholder
approval. Our Board of Directors is authorized to issue
preferred stock having a preference as to dividends or
liquidation over the common stock without stockholder approval.
The issuance of preferred stock could adversely affect the
voting power of the holders of our common stock and could be
used to discourage, delay or prevent a change in control of
Sunrise;
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Filling of Board vacancies; removal. Any vacancy
occurring in the Board of Directors, including any vacancy
created by an increase in the number of directors, shall be
filled for the unexpired term by the vote of a majority of the
directors then in office, and any director so chosen shall hold
office for a term expiring at the next annual meeting of
stockholders. Directors may be removed with or without cause by
the affirmative vote of the holders of at least a majority of
the outstanding shares of our capital stock then entitled to
vote at an election of directors, provided, that no special
meeting may be called at the request of the stockholders for the
purpose of removing any director without cause;
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Other constituency provision. Our Board of Directors
is required under our certificate of incorporation to consider
other constituencies, such as employees, residents, their
families and the communities in which we and our subsidiaries
operate, in evaluating any proposal to acquire the Company. This
provision may allow our Board of Directors to reject an
acquisition proposal even though the proposal was in the best
interests of our stockholders subject to any overriding
applicable law;
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Call of special meetings. A special meeting of our
stockholders may be called only by the chairman of the board,
the president, by a majority of the directors or by stockholders
possessing at least 25% of the voting power of the issued and
outstanding voting stock entitled to vote generally in the
election of directors, provided, that no special meeting may be
called at the request of the stockholders for the purpose of
removing any director without cause. This provision limits the
ability of stockholders to call special meetings;
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Stockholder action instead of meeting by unanimous written
consent. Any action required or permitted to be taken
by the stockholders must be affected at a duly called annual or
special meeting of such holders and may not be affected by any
consent in writing by such holders, unless such consent is
unanimous. This provision limits the ability of stockholders to
take action by written consent in lieu of a meeting;
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Supermajority vote of stockholders or the directors required
for bylaw amendments. A two-thirds vote of the
outstanding shares of common stock is required for stockholders
to amend the bylaws. Amendments to the bylaws by directors
require approval by at least a two-thirds vote of the directors.
These provisions may make more difficult bylaw amendments that
stockholders may believe are desirable;
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Two-thirds stockholder vote required to approve some
amendments to the certificate of incorporation. A
two-thirds vote of the outstanding shares of common stock is
required for approval of amendments to the foregoing provisions
that are contained in our certificate of incorporation. All
amendments to the certificate of incorporation must first be
proposed by a two-thirds vote of directors. These supermajority
vote requirements may make more difficult amendments to these
provisions of the certificate of incorporation that stockholders
may believe are desirable; and
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Advance notice bylaw. We have an advance notice
bylaw provision requiring stockholders intending to present
nominations for directors or other business for consideration at
a meeting of stockholders to notify us by a certain date
depending on whether the matters are to be considered at an
annual or special meeting. Stockholders proposing matters for
consideration at an annual meeting must provide notice not
earlier than 120 days and not later than 90 days prior
to the anniversary of the date on which we first mailed our
proxy materials for the immediately preceding annual meeting.
If, however, the date of the annual meeting is more than
30 days before or more than 60 days after such
anniversary date, stockholder notice must be delivered not
earlier than 120 days and not later than 90 days prior
to the date of such annual meeting, provided, however, that if
the first public announcement of the date is less than
100 days prior to the date of such annual meeting, then
stockholder notice must be delivered not later than the 10th day
following such public announcement. Stockholders proposing
matters for consideration at a special meeting must provide
notice not less than 120 calendar days prior to the date of the
special meeting, provided, however, that if the first public
announcement
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of the date of such special meeting is less than 130 days
prior to the date of such special meeting, stockholder notice
must be delivered not later than the 10th day following such
public announcement.
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In addition to the anti-takeover provisions described above, we
are subject to Section 203 of the Delaware General
Corporation Law. Section 203 generally prohibits a person
beneficially owning, directly or indirectly, 15% or more of our
outstanding common stock from engaging in a business combination
with us for three years after the person acquired the stock.
However, this prohibition does not apply if (A) our Board
of Directors approves in advance the persons ownership of
15% or more of the shares or the business combination or
(B) the business combination is approved by our
stockholders by a vote of at least two-thirds of the outstanding
shares not owned by the acquiring person. When we were formed,
the Klaassens and their respective affiliates and estates were
exempted from this provision.
Our Board of Directors has adopted a stockholder rights
agreement that could discourage a third party from making a
proposal to acquire us.
We have a stockholder rights agreement that was adopted in April
2006, as amended in November 2008 and January 2010. The
stockholder rights agreement may discourage a third party from
making an unsolicited proposal to acquire us. Under the
agreement, preferred stock purchase rights, which are attached
to our common stock, generally will be triggered upon the
acquisition, directly or indirectly through certain derivative
positions, of 10% or more of our outstanding common stock,
except that stockholders who beneficially owned more than 10% of
our stock as of November 19, 2008 were permitted to
maintain their existing ownership positions without triggering
the preferred stock purchase rights. In addition, we amended the
agreement in January 2010 to permit FMR LLC to acquire up to
14.9% of our stock under certain circumstances without
triggering the preferred stock purchase rights. If triggered,
these rights would entitle our stockholders, other than the
person triggering the rights, to purchase our common stock, and,
under certain circumstances, the common stock of an acquirer, at
a price equal to one-half the market value of our common stock.
Our management has influence over matters requiring the
approval of stockholders.
As of December 31, 2009, the Klaassens beneficially owned
approximately 10.5% of our outstanding common stock and our
executive officers and directors as a group, including the
Klaassens, beneficially owned approximately 12.7% of the
outstanding common stock. As a result, the Klaassens and our
other executive officers and directors have influence over
matters requiring the approval of our stockholders, including
business combinations and the election of directors.
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Item 1B.
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Unresolved
Staff Comments
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None.
We lease our corporate offices, regional operations and
warehouse space under various leases. The leases have remaining
terms of six months to 17 years.
Of the 384 communities we operated at December 31, 2009, 20
were wholly owned, 27 were under operating leases, one was a
consolidated variable interest entity, 201 were owned in
unconsolidated ventures and 135 were owned by third parties. See
the Properties section included in Item 1,
Business for a description of the properties. See
Note 10 to the consolidated financial statements for a
description of mortgages and notes payable related to certain of
our properties.
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Item 3.
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Legal
Proceedings
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HCP
In June 2009, various affiliates of HCP and their associated
tenant entities filed nine complaints in the Delaware Court of
Chancery naming the Company and several of its subsidiaries as
defendants. The complaints allege monetary and non-monetary
defaults under a series of owner and management agreements that
govern nine portfolios comprised of 64 properties with annual
management fees of approximately $25.4 million in 2008 and
25
$25.9 million in 2009. We have $18.3 million of
unamortized management contract intangibles relating to these
contracts. In each case, the plaintiffs include (a) the HCP
affiliates that own various assisted living community properties
that are managed by Sunrise, and (b) certain tenant
entities alleged to be independent from HCP that lease those
properties from HCP affiliates and have management agreements
with Sunrise. The complaints assert claims for
(1) declaratory judgment; (2) injunctive relief;
(3) breach of contract; (4) breach of fiduciary
duties; (5) aiding and abetting breach of fiduciary duty;
(6) equitable accounting; and (7) constructive trust.
The complaints seek equitable relief, including a declaration of
a right to terminate the agreements, disgorgement, unspecified
money damages, and attorneys fees. Plaintiffs filed a
motion to expedite the proceedings. Following briefing by the
parties, the Delaware Court of Chancery on July 9, 2009
denied the plaintiffs motion. In July 2009, various
affiliates of HCP and their associated tenant entities refiled a
complaint, which had been voluntarily withdrawn in the Delaware
actions, in the federal district court for the Eastern District
of Virginia (the Virginia action). On
August 17, 2009, Sunrise answered all of the complaints in
both jurisdictions and asserted counterclaims.
Trinity
OIG Investigation and Qui Tam Action
As previously disclosed, in 2006, we acquired all of the
outstanding stock of Trinity Hospice Inc. (Trinity).
As a result of this transaction, Trinity became an indirect,
wholly owned subsidiary of the Company. In 2007, Trinity and the
Company were served with a complaint which amended a complaint
filed under seal on November 21, 2005 by four former
employees of Trinity under the qui tam provisions of the
Federal False Claims Act. In 2008, an amended complaint was
revised in the form of a second amended complaint which replaced
the loss sustained range of $75 million to
$100 million with an alleged loss by the United States of
at least $100 million. The original complaint named KRG
Capital, LLC (an affiliate of former stockholders of Trinity)
and Trinity Hospice LLC (a subsidiary of Trinity) as defendants.
The second amended complaint named Sunrise Senior Living, Inc.,
KRG Capital, LLC, aka KRG Capital Partners, LLC, KRG Capital,
LLC, KRG Capital Fund II, L.P., KRG Capital Fund II
(PA), L.P., KRG Capital Fund II (FF), L.P., KRG
Co-Investment, L.L.C., American Capital Strategies, LTD, and
Trinity as defendants. In 2008, the United States, through the
Civil Division of the U.S. Department of Justice, and the
U.S. Attorneys Office for the District of Arizona,
filed a motion with the District Court to intervene in the
pending case, but only as the case relates to defendant Trinity
Hospice, Inc. In April of 2009, the United States later reversed
its decision to intervene. All parties entered into a
settlement agreement which was subsequently approved by the
District Court on June 3, 2009 and the lawsuit was
dismissed with prejudice on November 10, 2009.
IRS
Audit
The IRS is auditing our federal income tax returns for the years
ended December 31, 2005 through 2008. In July 2008, our
2005 federal income tax return audit was settled with the IRS,
resulting in a tax liability of approximately $0.2 million.
In January 2009, the IRS reopened the audit of our 2005 federal
income tax return as a result of a refund claim filed with our
2007 federal income tax return relating to the 2007 net
operating loss carryback for which we received reimbursement of
the federal income taxes we had paid in 2005. In August 2009,
the IRS concluded field work on the 2006 audit which resulted in
a refund claim of $0.6 million. The IRS will not close the
2006 audit until the audits are completed for the 2007 and 2008
tax years as a net operating loss carryback from these years was
applied to receive reimbursement for federal taxes we paid in
2006.
In February 2009, we settled with the IRS on our employment tax
audits and paid a penalty of $0.2 million in November 2008
for the years 2004, 2005, and 2006. The IRS determined that we
were liable for payroll tax deposit penalties on stock option
exercises during 2004, 2005, and 2006 for certain withholdings
that were made after the prescribed due dates.
SEC
Investigation
In 2006 we received a request from the SEC for information about
insider stock sales, timing of stock option grants and matters
relating to our historical accounting practices that had been
raised in media reports in the latter part of November 2006
following receipt of a letter by us from the Service Employees
International Union. In 2007, we were advised by the staff of
the SEC that it had commenced a formal investigation. We have
fully cooperated, and intend to continue to fully cooperate,
with the SEC. The Company has commenced discussions with the SEC
staff concerning potential resolution of the matter and
conclusion of the investigation.
26
Putative
Class Action Litigation
Two putative securities class actions, styled United
Food & Commercial Workers Union Local 880-Retail Food
Employers Joint Pension Fund, et al. v. Sunrise Senior
Living, Inc., et al., Case No. 1:07CV00102, and First New
York Securities, L.L.C. v. Sunrise Senior Living, Inc., et
al., Case No. 1:07CV000294, were filed in the
U.S. District Court for the District in 2007. Both
complaints alleged securities law violations by Sunrise and
certain of its current or former officers and directors based on
allegedly improper accounting practices and stock option
backdating, violations of generally accepted accounting
principles, false and misleading corporate disclosures, and
insider trading of Sunrise stock. Both sought to certify a class
for the period August 4, 2005 through June 15, 2006,
and both requested damages and equitable relief, including an
accounting and disgorgement.
In 2009, Sunrise and its current or former directors or officers
who were named individually as defendants entered into an
agreement which called for the certification by the court of a
class consisting of persons (with certain exceptions) who
purchased Sunrise common stock between February 26, 2004
and July 28, 2006, and payment of $13.5 million in
cash.
Concurrently with entering into the settlement agreement,
Sunrise and the individual defendants entered into agreements
and releases with two of its insurance carriers, which provided
primary and excess insurance coverage, respectively, under
certain directors and officers liability insurance
policies for the relevant periods. The two insurance carriers
combined to pay $13.4 million toward the settlement amount,
which exhausted the coverage limits under the primary policy
(after taking account of prior payments for related defense
costs), but did not exhaust coverage limits under the excess
policy. These payments pursuant to the settlement were made
under the then applicable policies and, therefore, do not reduce
the amount of insurance proceeds available under current
policies now in effect. Sunrise and the individual defendants
have provided releases to the carrier. Taking into account the
insurance contribution, the net cost of the settlement of the
putative securities class action lawsuit to Sunrise was
approximately $0.1 million. No amounts were paid by the
individual defendants.
In June 2009, the settlement agreement was approved and followed
the settlement agreement entered into by Sunrise and the
individuals named as defendants in two putative stockholder
derivative actions brought by certain alleged stockholders of
Sunrise for the benefit of the Company as discussed below.
Putative
Shareholder Derivative Litigation
In 2007, the first of two putative shareholder derivative
complaints was filed against certain of our current and former
directors and officers, and naming us as a nominal defendant.
The lead plaintiffs filed a Consolidated Shareholder Derivative
Complaint, again naming us as a nominal defendant, and naming as
individual defendants Paul J. Klaassen, Teresa M. Klaassen,
Ronald V. Aprahamian, Craig R. Callen, Thomas J. Donohue, J.
Douglas Holladay, William G. Little, David G. Bradley, Peter A.
Klisares, Scott F. Meadow, Robert R. Slager, Thomas B. Newell,
Tiffany L. Tomasso, John F. Gaul, Bradley G. Rush, Carl Adams,
David W. Faeder, Larry E. Hulse, Timothy S. Smick, Brian C.
Swinton and Christian B. A. Slavin. The consolidated complaint
alleged violations of federal securities laws and breaches of
fiduciary duty by the individual defendants, arising out of the
same matters as are raised in the purported class action
litigation described above. The plaintiffs sought damages and
equitable relief on behalf of Sunrise.
In 2007, a putative shareholder derivative complaint was filed
against Paul J. Klaassen, Teresa M. Klaassen, Ronald V.
Aprahamian, Craig R. Callen, Thomas J. Donohue, J. Douglas
Holladay, David G. Bradley, Robert R. Slager, Thomas B.
Newell, Tiffany L. Tomasso, Carl Adams, David W. Faeder, Larry
E. Hulse, Timothy S. Smick, Brian C. Swinton and Christian B. A.
Slavin, and naming us as a nominal defendant. The complaint
alleged breaches of fiduciary duty by the individual defendants
arising out of the grant of certain stock options that were the
subject of the purported class action and shareholder derivative
litigation described above. The plaintiffs sought damages and
equitable relief on behalf of Sunrise.
In 2009, the Company and the individual defendants entered into
an agreement to settle both actions. Under the terms of this
settlement, the Company, in addition to corporate governance
measures that it already has implemented or is in the process of
implementing, has agreed to (1) require independent
directors to certify that they are independent under the rules
of the New York Stock Exchange and to give prompt notification
of any changes in their status that would render them no longer
independent and (2) implement a minimum two-year vesting
period, with appropriate
27
exceptions, for stock option awards to employees. In addition,
Paul J. Klaassen, the Companys non-executive chairman, and
the Company have agreed that the 700,000 stock options granted
to Mr. Klaassen in conjunction with his previous employment
agreement executed in September 2000 will be repriced from
(a) $8.50 per share, the price set on September 11,
2000 by the Compensation Committee of the Companys Board
based on the prior days closing price, to (b) $13.09
per share, the closing price on the business day prior to
November 10, 2000, the date on which the Companys
full Board approved the terms of the employment agreement. The
agreement also provided that the Companys insurers pay
attorneys fees and expenses not to exceed $1 million. No
amounts were paid by the Company or by the individual
defendants. The settlement was approved and the action formally
dismissed.
Other
Pending Lawsuits and Claims
In addition to the lawsuits and litigation matters described
above, we are involved in various lawsuits and claims arising in
the normal course of business. In the opinion of management,
although the outcomes of these other suits and claims are
uncertain, in the aggregate they are not expected to have a
material adverse effect on our business, financial condition,
and results of operations.
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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On November 18, 2009, we held our 2009 annual meeting of
stockholders. The annual meeting was called for the following
purposes: (1) to elect six directors for terms of one year
each; (2) to approve and adopt the proposal to ratify the
appointment of Ernst & Young as our independent
registered public accounting firm for our fiscal year ending
December 31, 2009; and (3) to transact any other
business as may properly come before the annual meeting or any
adjournments or postponements.
Each of the six director nominees (Glyn F. Aeppel, Thomas J.
Donohue, David I. Fuente, Stephen D. Harlan, J. Douglas Holladay
and William G. Little) were re-elected to new one year terms.
The vote totals for the election of directors were as follows:
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Directors
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For
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Withhold Authority to Vote
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Glyn F. Aeppel
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39,532,630
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4,034,866
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Thomas J. Donohue
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31,982,908
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11,584,588
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David I. Fuente
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35,032,038
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8,535,458
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Stephen D. Harlan
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37,909,369
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5,658,127
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J. Douglas Holladay
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31,255,369
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12,312,127
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William G. Little
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34,037,014
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9,530,482
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The other directors whose terms of office continue after the
2009 annual meeting are Paul J. Klaassen, Lynn Krominga and
Mark S. Ordan.
The proposal to ratify the appointment of Ernst &
Young as our independent registered public accounting firm for
our fiscal year ending December 31, 2009 was approved at
the meeting. The vote tabulation was as follows: 42,883,388
votes (98.43% of the shares present in person or represented by
proxy at the meeting and entitled to vote with respect to the
matter) were cast for approval of the proposal, 619,525 votes
(1.42% of shares present in person or represented by proxy at
the meeting and entitled to vote with respect to the matter)
were cast against such proposal and 64,583 votes (0.15% of the
shares present in person or represented by proxy at the meeting
and entitled to vote with respect to the matter) were
abstentions. Broker non-votes totaled zero. There was no other
business that was considered before the 2009 annual meeting.
28
PART II
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Item 5.
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Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
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Our common stock is traded on the New York Stock Exchange under
the symbol SRZ.
The following table sets forth, for the quarterly periods
indicated, the high and low sales prices of our common stock:
Quarterly
Market Price Range of Common Stock
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Quarter Ended
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High
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Low
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March 31, 2009
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$
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2.03
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$
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0.28
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June 30, 2009
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$
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3.06
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$
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0.59
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September 30, 2009
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$
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3.24
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$
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1.26
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December 31, 2009
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$
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5.89
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$
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2.26
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Quarter Ended
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High
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Low
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March 31, 2008
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$
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30.65
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$
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16.27
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June 30, 2008
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$
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27.21
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$
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20.19
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September 30, 2008
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$
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22.30
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$
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12.91
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December 31, 2008
|
|
$
|
14.67
|
|
|
$
|
0.27
|
|
Holders
There were 242 stockholders of record at December 31, 2009.
Dividends
No cash dividends have been paid in the past and we have no
intention to pay cash dividends in the foreseeable future.
Issuer
Purchases of Equity Securities
None.
Issuance
of Common Stock
In November 2009, we issued 4.2 million shares of the
5.0 million shares of common stock to three electing
lenders in connection with the German debt restructuring
discussed in Note 10. The common stock had a fair value at
the time of issuance of $11.1 million. This amount is
reflected as a deposit on our consolidated balance sheets until
such time as all consideration is exchanged upon the execution
of the definitive documentation.
29
|
|
Item 6.
|
Selected
Financial Data
|
The selected consolidated financial data set forth below should
be read in conjunction with Managements Discussion
and Analysis of Financial Condition and Results of
Operations and our consolidated financial statements and
notes thereto appearing elsewhere herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
(Dollars in thousands, except per share amounts)
|
|
2009(1)(2)
|
|
|
2008(1)(2)
|
|
|
2007(1)(2)
|
|
|
2006(1) (2)(3)(4)
|
|
|
2005 (1)(3)(5)
|
|
|
STATEMENTS OF OPERATIONS DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
1,464,144
|
|
|
$
|
1,570,974
|
|
|
$
|
1,482,020
|
|
|
$
|
1,537,263
|
|
|
$
|
1,439,248
|
|
Operating expenses
|
|
|
1,596,163
|
|
|
|
1,918,622
|
|
|
|
1,682,143
|
|
|
|
1,591,246
|
|
|
|
1,399,584
|
|
(Loss) income from operations
|
|
|
(132,019
|
)
|
|
|
(347,648
|
)
|
|
|
(200,123
|
)
|
|
|
(53,983
|
)
|
|
|
39,663
|
|
Gain on the sale and development of real estate and equity
interests
|
|
|
21,651
|
|
|
|
17,374
|
|
|
|
105,081
|
|
|
|
51,347
|
|
|
|
81,723
|
|
Sunrises share of earnings, return on investment in
unconsolidated communities and (loss) gain from investments
accounted for under profit-sharing method
|
|
|
(7,135
|
)
|
|
|
(15,175
|
)
|
|
|
107,369
|
|
|
|
42,845
|
|
|
|
12,615
|
|
(Loss) income from continuing operations
|
|
|
(113,244
|
)
|
|
|
(326,590
|
)
|
|
|
(2,475
|
)
|
|
|
31,287
|
|
|
|
92,985
|
|
Loss from discontinued operations, net of tax
|
|
|
(20,271
|
)
|
|
|
(117,516
|
)
|
|
|
(70,512
|
)
|
|
|
(9,087
|
)
|
|
|
(3,200
|
)
|
Net (loss) income
|
|
|
(133,915
|
)
|
|
|
(439,179
|
)
|
|
|
(70,275
|
)
|
|
|
15,284
|
|
|
|
83,064
|
|
Net (loss) income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(2.22
|
)
|
|
$
|
(6.48
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
0.43
|
|
|
$
|
2.08
|
|
Discontinued operations, net of tax
|
|
|
(0.39
|
)
|
|
|
(2.24
|
)
|
|
|
(1.36
|
)
|
|
|
(0.12
|
)
|
|
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(2.61
|
)
|
|
$
|
(8.72
|
)
|
|
$
|
(1.41
|
)
|
|
$
|
0.31
|
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(2.22
|
)
|
|
$
|
(6.48
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
0.42
|
|
|
$
|
1.82
|
|
Discontinued operations, net of tax
|
|
|
(0.39
|
)
|
|
|
(2.24
|
)
|
|
|
(1.36
|
)
|
|
|
(0.12
|
)
|
|
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(2.61
|
)
|
|
$
|
(8.72
|
)
|
|
$
|
(1.41
|
)
|
|
$
|
0.30
|
|
|
$
|
1.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
$
|
340,434
|
|
|
$
|
304,908
|
|
|
$
|
529,964
|
|
|
$
|
361,998
|
|
|
$
|
326,888
|
|
Total current liabilities
|
|
|
673,559
|
|
|
|
735,421
|
|
|
|
646,311
|
|
|
|
451,982
|
|
|
|
280,684
|
|
Property and equipment, net
|
|
|
288,056
|
|
|
|
681,352
|
|
|
|
656,211
|
|
|
|
609,385
|
|
|
|
494,069
|
|
Property and equipment subject to a sales contract, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
193,158
|
|
|
|
255,231
|
|
Property and equipment subject to financing, net
|
|
|
|
|
|
|
|
|
|
|
58,871
|
|
|
|
62,520
|
|
|
|
64,174
|
|
Goodwill
|
|
|
|
|
|
|
39,025
|
|
|
|
169,736
|
|
|
|
218,015
|
|
|
|
153,328
|
|
Total assets
|
|
|
910,589
|
|
|
|
1,381,557
|
|
|
|
1,798,597
|
|
|
|
1,848,301
|
|
|
|
1,587,785
|
|
Total debt
|
|
|
440,219
|
|
|
|
636,131
|
|
|
|
253,888
|
|
|
|
190,605
|
|
|
|
248,396
|
|
Deposits related to properties subject to a sale contract
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240,367
|
|
|
|
324,782
|
|
Liabilities related to properties accounted for under the
financing method
|
|
|
|
|
|
|
|
|
|
|
54,317
|
|
|
|
66,283
|
|
|
|
64,208
|
|
Deferred income tax liabilities
|
|
|
23,862
|
|
|
|
28,129
|
|
|
|
82,605
|
|
|
|
78,632
|
|
|
|
70,638
|
|
Total liabilities
|
|
|
884,355
|
|
|
|
1,233,643
|
|
|
|
1,214,826
|
|
|
|
1,201,078
|
|
|
|
1,094,209
|
|
Total stockholders equity
|
|
|
26,234
|
|
|
|
147,914
|
|
|
|
583,771
|
|
|
|
647,223
|
|
|
|
493,576
|
|
OPERATING AND OTHER DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per common share
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Communities (at end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated communities
|
|
|
48
|
|
|
|
72
|
|
|
|
62
|
|
|
|
61
|
|
|
|
58
|
|
Communities in unconsolidated ventures
|
|
|
201
|
|
|
|
203
|
|
|
|
199
|
|
|
|
180
|
|
|
|
153
|
|
Communities managed for third party owners
|
|
|
135
|
|
|
|
160
|
|
|
|
174
|
|
|
|
177
|
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
384
|
|
|
|
435
|
|
|
|
435
|
|
|
|
418
|
|
|
|
394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit capacity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated communities
|
|
|
7,743
|
|
|
|
9,417
|
|
|
|
8,348
|
|
|
|
8,423
|
|
|
|
8,141
|
|
Communities in unconsolidated ventures
|
|
|
16,194
|
|
|
|
20,225
|
|
|
|
19,765
|
|
|
|
18,178
|
|
|
|
14,507
|
|
Communities managed for third party owners
|
|
|
16,416
|
|
|
|
20,209
|
|
|
|
21,366
|
|
|
|
21,412
|
|
|
|
24,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
40,353
|
|
|
|
49,851
|
|
|
|
49,479
|
|
|
|
48,013
|
|
|
|
47,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
We recorded impairment charges related to owned communities and
land parcels of $31.7 million, $27.8 million,
$7.6 million, $15.7 million and $2.5 million in
2009, 2008, 2007, 2006 and 2005, respectively. We recorded
impairment of goodwill of $121.8 million in 2008. We
recorded restructuring charges of $33.3 million |
30
|
|
|
|
|
and $24.2 million in 2009 and 2008, respectively. We
wrote-off capitalized project costs of $14.9 million,
$95.8 million, $28.4 million, $1.3 million and
$1.0 million in 2009, 2008, 2007, 2006 and 2005,
respectively. |
|
(2) |
|
We incurred costs of $3.9 million, $30.2 million,
$51.7 million and $2.6 million in 2009, 2008, 2007 and
2006, respectively, related to Accounting Restatement, Special
Independent Committee inquiry, SEC investigation and stockholder
litigation. |
|
(3) |
|
In 2006, Five Star bought out 18 management contracts and we
received $134.7 million related to their buyout. We also
wrote off $25.4 in unamortized management contract intangible
assets. In 2005, Five Star bought out 12 management contracts
and we received $83 million related to their buyout. We
also wrote off $14.6 million in unamortized management
contract intangible assets. |
|
(4) |
|
In February 2006, we completed the redemption of our remaining
5.25% convertible subordinated notes due February 1, 2009
through the issuance of common stock. Prior to the redemption
date, substantially all of the approximately $120.0 million
principal amount of the notes outstanding at the time the
redemption was announced had been converted into approximately
6.7 million shares of common stock. The conversion price
was $17.92 per share in accordance with the terms of the
indenture governing the notes. |
|
(5) |
|
In October 2005, we completed a
two-for-one
stock split in the form of a 100% stock dividend. As a result of
the stock split, each stockholder received one additional share
of common stock for each share on that date. All per share
amounts have been adjusted to reflect the stock split for all
periods presented. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion should be read together with the
information contained in our consolidated financial statements,
including the related notes, and other financial information
appearing elsewhere herein.
Overview
We are a Delaware corporation and a provider of senior living
services in the United States, Canada, the United Kingdom and
Germany.
At December 31, 2009, we operated 384 communities,
including 335 communities in the United States, 15 communities
in Canada, 27 communities in the United Kingdom and seven
communities in Germany, with a total unit capacity of
approximately 40,400. Of the 384 communities we operated at
December 31, 2009, 20 were wholly owned, 27 were under
operating leases, one was consolidated as a variable interest
entity, 201 were owned in unconsolidated ventures and 135 were
owned by third parties. During 2009, we opened 23 new
communities, with a combined unit capacity of approximately
2,100, which were developed by us.
We have six operating segments for which operating results are
separately and regularly reviewed by key decision makers: North
American Management, North American Development, Equity Method
Investments, Consolidated (Wholly Owned/Leased), United Kingdom
and Germany (part of which is included in discontinued
operations).
North American Management includes the results from the
management of third party, venture and wholly owned/leased
Sunrise senior living communities in the United States and
Canada.
North American Development includes the results from the
development of Sunrise senior living communities in the United
States and Canada.
Equity Method Investments includes the results from our
investment in domestic and international ventures.
Consolidated (Wholly Owned/Leased) includes the results
from the operation of wholly owned and leased Sunrise senior
living communities in the United States and Canada net of an
allocated management fee of $21.9 million,
$22.2 million and $22.2 million for 2009, 2008 and
2007, respectively.
United Kingdom includes the results from the development
and management of Sunrise senior living communities in the
United Kingdom.
Germany includes the results from the management of nine
(two of which have been closed) Sunrise senior living
communities in Germany through September 1, 2008. The
operation of nine Sunrise senior living communities after
September 1, 2008 when we began consolidating the
communities are included in discontinued operations.
31
The stock markets and credit markets in the United States and
the rest of the world have been experiencing significant price
volatility, dislocations and liquidity disruptions. As a result
the market prices of many stocks, including ours, have
fluctuated substantially and these circumstances have materially
impacted liquidity in the financial markets, making terms for
certain financings less attractive, and in some cases have
resulted in the unavailability of financing. Continued
uncertainty in the credit markets has caused us to discontinue
our development business and may negatively impact our ability
to refinance our Bank Credit Facility and our maturities of
long-term debt due 2010 and 2011, of approximately $0.4 billion,
at reasonable terms. There are also current maturities of
venture debt due in 2010 of approximately $0.3 billion. A
prolonged downturn in the financial markets may cause us to seek
alternative sources of potentially less attractive financing,
and may require us to further adjust our business plan
accordingly. These events also may make it more difficult or
costly for us to raise capital, including through the issuance
of common stock. The disruptions in the financial markets have
had and may have a material adverse effect on the market value
of our common stock and other adverse effects on us and our
business.
Significant
2009 and 2010 Developments
Overview
During 2009, we continued to reduce overhead costs; restructure,
repay and extend maturities of some of our debt; and sell assets
to generate liquidity. Our focus in 2010 will be on:
(1) operating high-quality assisted living and memory care
communities in North America, Germany and the United Kingdom;
(2) increasing occupancy and improving the operating
efficiency of our communities; (3) improving the operating
efficiency of our corporate operations; (4) generating
liquidity; (5) divesting of non-core assets; and
(6) reducing our operational and financial risk.
We continue to reduce our financial obligations and reach
negotiated settlements with various creditors. We are unable to
borrow additional funds under our Bank Credit Facility. We are
seeking waivers with respect to existing defaults under many of
our debt obligations to avoid acceleration of these obligations.
We have been successful in reducing our exposure related to our
German communities, our Fountains portfolio and our Aston
Gardens venture, each discussed in more detail below. However,
we continue to have significant debt maturing in 2010 and 2011
and there can be no assurance that we will be able to extend
this debt or obtain additional financing. The existence of these
factors raise substantial doubt about our ability to continue as
a going concern and our auditors have modified their report with
respect to the 2009 consolidated financial statements to include
a going concern reference.
Asset
Sales
In 2009, we sold 21 non-core assisted living communities,
located in 11 states, to Brookdale Senior Living, Inc.
(Brookdale) for an aggregate purchase price of
$204 million. At closing, we received approximately
$59.6 million in net proceeds after we paid or the
purchaser assumed approximately $134.1 million of mortgage
loans, the posting of required escrows, various prorations and
adjustments, and payments of expenses by us, generating a gain
of $48.9 million.
In 2010, we intend to sell (i) our German communities,
(ii) the liquidating trust assets and, at our discretion,
(iii) certain communities and land parcels, of which any
net sales proceeds on the disposition of these assets would be
split equally between us, the mortgage holder and the lenders
under the Bank Credit Facility.
Fountains
Venture
In 2009, we entered into agreements with our venture partner and
the lender to the venture to release us from all claims that our
venture partner and the lender had against us prior to the date
of the agreements and from all of our future funding obligations
in connection with the Fountains portfolio in exchange for which
we have, among other things:
|
|
|
|
|
Transferred our 20-percent ownership interest in the Fountains
venture to our venture partner;
|
|
|
|
Contributed vacant land parcels adjacent to six of the Fountains
communities and owned by us to the Fountains venture;
|
32
|
|
|
|
|
Agreed to transfer management of the 16 Fountains communities as
soon as the transition closing conditions are met and the new
manager has obtained the regulatory approvals necessary to
assume control of the facilities; and
|
|
|
|
Repaid the venture the management fee we had earned to date in
2009 of $1.8 million.
|
We transferred management of eight of the 16 communities to the
new manager on February 1, 2010, and expect to transfer
management of the remaining eight communities by mid-2010.
Greystone
In 2009, we sold our Greystone subsidiary and our interests in
Greystone seed capital partnerships to an entity controlled by
Michael Lanahan and Paul Steinhoff, two senior executives of the
Greystone subsidiary. Total consideration was
(i) $2.0 million in cash at closing;
(ii) $5.7 million in short-term notes which have
subsequently been repaid, (iii) a $6.0 million
7-year note
(iv) a $2.5 million note payable, and (v) 35% of
the future net proceeds received by the seed capital investors
for each of the seed capital interests purchased from us. In
2009, we received $1.0 million in net proceeds for one of
our seed capital interests.
Aston
Gardens
In April 2009, we sold the equity interest in our Aston Gardens
venture and were released from all guarantee obligations. Our
management contracts for the six communities in the venture were
terminated on April 30, 2009. We received proceeds of
approximately $4.8 million for our equity interest and our
receivable from the venture for fundings under the operating
deficit guarantees.
Restructuring
Plan
In 2009, we announced a plan to continue to reduce corporate
expenses through reorganization of our corporate cost structure,
including a reduction in spending related to, among others,
administrative processes, vendors, and consultants. The plan is
designed to reduce our annual recurring general and
administrative expenses (including expenses previously
classified as venture expense) to approximately
$100 million, and to reduce our centrally administered
services which are charged to the communities by approximately
$1.5 million. Under the plan, approximately 184 positions
will be eliminated. As of December 31, 2009, we had
eliminated 154 positions and will be eliminating an additional
30 positions by mid 2010. We have recorded severance expense of
$8.3 million as a result of the plan through
December 31, 2009 and expect to record an additional
$1.6 million through mid 2010. The costs from the 2009
restructuring plan are in addition to the costs incurred in 2009
related to the 2008 restructuring plan, which provided for the
elimination of 182 positions and corresponding expense
reductions.
In May 2009, we entered into a separation agreement with our
chief financial officer, Richard Nadeau, in connection with this
plan. Pursuant to the separation agreement,
Mr. Nadeaus employment with us terminated effective
as of May 29, 2009. Pursuant to Mr. Nadeaus
employment agreement, Mr. Nadeau received severance
benefits that included a lump sum cash payment of
$1.4 million. In addition, Mr. Nadeau received a bonus
in the amount of $0.5 million and Mr. Nadeaus
outstanding and unvested stock options, restricted stock and
other long-term equity compensation awards were fully vested,
resulting in a non-cash compensation expense to us of
$0.8 million. Upon his termination, 70,859 shares of
restricted stock and 750,000 options vested. The options expire
12 months after the termination of his consulting term,
which can be up to nine months after his termination date of
May 29, 2009.
In January 2010, we terminated the employment of Daniel J.
Schwartz, our Senior Vice President, North American
Operations, in connection with this plan, effective as of
May 31, 2010. Mr. Schwartz will receive the severance
payments and benefits payable to him pursuant to his employment
agreement upon a termination of his employment, except that in
lieu of a lump sum cash severance payment equal to two
years base salary and 75% of his target bonus amount
(based on his base salary of $0.4 million and target bonus
of 100% of base salary), Mr. Schwartz will receive such
cash severance payment in the form of equal monthly installments
of
1/24th
of the total cash severance amount commencing July 2010 and
continuing until December 2010, and the remaining balance to be
paid in a lump sum on December 31, 2010.
33
In September 2009, we terminated our lease on a portion of our
corporate headquarters in McLean, Virginia. We recorded a charge
of $2.7 million which is reflected in restructuring expense
on our consolidated statement of operations. We expect to save
$5.6 million in cash over four years as a result of
terminating this portion of the lease.
Results
of Operations
Our results of operations for each of the three years in the
period ended December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
Year Ended December 31,
|
|
|
2009 vs.
|
|
|
2008 vs.
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Operating revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees
|
|
$
|
112,467
|
|
|
$
|
131,586
|
|
|
$
|
122,293
|
|
|
|
(14.5
|
)%
|
|
|
7.6
|
%
|
Resident fees for consolidated communities
|
|
|
350,278
|
|
|
|
340,975
|
|
|
|
323,007
|
|
|
|
2.7
|
%
|
|
|
5.6
|
%
|
Ancillary fees
|
|
|
45,397
|
|
|
|
42,535
|
|
|
|
51,127
|
|
|
|
6.7
|
%
|
|
|
(16.8
|
)%
|
Professional fees from development, marketing and other
|
|
|
13,193
|
|
|
|
44,447
|
|
|
|
29,546
|
|
|
|
(70.3
|
)%
|
|
|
50.4
|
%
|
Reimbursed costs incurred on behalf of managed communities
|
|
|
942,809
|
|
|
|
1,011,431
|
|
|
|
956,047
|
|
|
|
(6.8
|
)%
|
|
|
5.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenue
|
|
|
1,464,144
|
|
|
|
1,570,974
|
|
|
|
1,482,020
|
|
|
|
(6.8
|
)%
|
|
|
6.0
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community expense for consolidated communities
|
|
|
268,319
|
|
|
|
257,555
|
|
|
|
231,780
|
|
|
|
4.2
|
%
|
|
|
11.1
|
%
|
Community lease expense
|
|
|
59,344
|
|
|
|
59,843
|
|
|
|
62,307
|
|
|
|
(0.8
|
)%
|
|
|
(4.0
|
)%
|
Depreciation and amortization
|
|
|
46,629
|
|
|
|
39,497
|
|
|
|
42,601
|
|
|
|
18.1
|
%
|
|
|
(7.3
|
)%
|
Ancillary expense
|
|
|
42,457
|
|
|
|
40,202
|
|
|
|
53,294
|
|
|
|
5.6
|
%
|
|
|
(24.6
|
)%
|
General and administrative
|
|
|
119,905
|
|
|
|
157,509
|
|
|
|
183,546
|
|
|
|
(23.9
|
)%
|
|
|
(14.2
|
)%
|
Development expense
|
|
|
12,501
|
|
|
|
34,134
|
|
|
|
35,076
|
|
|
|
(63.4
|
)%
|
|
|
(2.7
|
)%
|
Write-off of capitalized project costs
|
|
|
14,879
|
|
|
|
95,763
|
|
|
|
28,430
|
|
|
|
(84.5
|
)%
|
|
|
236.8
|
%
|
Accounting Restatement and Special Independent Committee
inquiry, SEC investigation and pending stockholder litigation
|
|
|
3,887
|
|
|
|
30,224
|
|
|
|
51,707
|
|
|
|
(87.1
|
)%
|
|
|
(41.5
|
)%
|
Restructuring cost
|
|
|
33,313
|
|
|
|
24,178
|
|
|
|
|
|
|
|
37.8
|
%
|
|
|
N/A
|
|
Provision for doubtful accounts
|
|
|
13,625
|
|
|
|
20,077
|
|
|
|
7,709
|
|
|
|
(32.1
|
)%
|
|
|
160.4
|
%
|
Loss on financial guarantees and other contracts
|
|
|
2,053
|
|
|
|
5,022
|
|
|
|
22,005
|
|
|
|
(59.1
|
)%
|
|
|
(77.2
|
)%
|
Impairment of owned communities and land parcels
|
|
|
31,685
|
|
|
|
27,816
|
|
|
|
7,641
|
|
|
|
13.9
|
%
|
|
|
264.0
|
%
|
Impairment of goodwill and intangible assets
|
|
|
|
|
|
|
121,828
|
|
|
|
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Costs incurred on behalf of managed communities
|
|
|
947,566
|
|
|
|
1,004,974
|
|
|
|
956,047
|
|
|
|
(5.7
|
)%
|
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,596,163
|
|
|
|
1,918,622
|
|
|
|
1,682,143
|
|
|
|
(16.8
|
)%
|
|
|
14.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(132,019
|
)
|
|
|
(347,648
|
)
|
|
|
(200,123
|
)
|
|
|
(62.0
|
)%
|
|
|
73.7
|
%
|
Other non-operating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,351
|
|
|
|
6,267
|
|
|
|
9,492
|
|
|
|
(78.4
|
)%
|
|
|
(34.0
|
)%
|
Interest expense
|
|
|
(10,301
|
)
|
|
|
(6,709
|
)
|
|
|
(5,179
|
)
|
|
|
53.5
|
%
|
|
|
29.5
|
%
|
Loss on investments
|
|
|
3,556
|
|
|
|
(7,770
|
)
|
|
|
|
|
|
|
NM
|
|
|
|
N/A
|
|
Other income (expense)
|
|
|
5,773
|
|
|
|
(20,066
|
)
|
|
|
(5,792
|
)
|
|
|
NM
|
|
|
|
246.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other non-operating income (expense)
|
|
|
379
|
|
|
|
(28,278
|
)
|
|
|
(1,479
|
)
|
|
|
NM
|
|
|
|
1812.0
|
%
|
Gain on the sale and development of real estate and equity
interests
|
|
|
21,651
|
|
|
|
17,374
|
|
|
|
105,081
|
|
|
|
24.6
|
%
|
|
|
(83.5
|
)%
|
Sunrises share of earnings (loss) and return on investment
in unconsolidated communities
|
|
|
5,673
|
|
|
|
(13,846
|
)
|
|
|
107,347
|
|
|
|
NM
|
|
|
|
NM
|
|
(Loss) income from investments accounted for under the profit
sharing method
|
|
|
(12,808
|
)
|
|
|
(1,329
|
)
|
|
|
22
|
|
|
|
863.7
|
%
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before provision for income taxes and discontinued
operations
|
|
|
(117,124
|
)
|
|
|
(373,727
|
)
|
|
|
10,848
|
|
|
|
(68.7
|
)%
|
|
|
NM
|
|
Benefit from (provision for) income taxes
|
|
|
3,880
|
|
|
|
47,137
|
|
|
|
(13,323
|
)
|
|
|
(91.8
|
)%
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before discontinued operations
|
|
|
(113,244
|
)
|
|
|
(326,590
|
)
|
|
|
(2,475
|
)
|
|
|
(65.3
|
)%
|
|
|
13095.6
|
%
|
Discontinued operations, net of tax
|
|
|
(20,271
|
)
|
|
|
(117,516
|
)
|
|
|
(70,512
|
)
|
|
|
(82.8
|
)%
|
|
|
66.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(133,515
|
)
|
|
|
(444,106
|
)
|
|
|
(72,987
|
)
|
|
|
(69.9
|
)%
|
|
|
508.5
|
%
|
Less: (Income) loss attributable to noncontrolling interests,
net of tax
|
|
|
(400
|
)
|
|
|
4,927
|
|
|
|
2,712
|
|
|
|
NM
|
|
|
|
81.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(133,915
|
)
|
|
$
|
(439,179
|
)
|
|
$
|
(70,275
|
)
|
|
|
(69.5
|
)%
|
|
|
524.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
Segment results are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
(Wholly
|
|
|
|
|
|
Germany
|
|
|
Corporate
|
|
|
|
|
|
|
North American
|
|
|
North American
|
|
|
Method
|
|
|
Owned/
|
|
|
United
|
|
|
Management
|
|
|
and
|
|
|
|
|
|
|
Management
|
|
|
Development
|
|
|
Investments
|
|
|
Leased)
|
|
|
Kingdom
|
|
|
Company
|
|
|
Eliminations
|
|
|
Total
|
|
|
Revenues
|
|
$
|
1,105,974
|
|
|
$
|
6,637
|
|
|
$
|
2,151
|
|
|
$
|
350,165
|
|
|
$
|
27,597
|
|
|
$
|
1,717
|
|
|
$
|
(30,097
|
)
|
|
$
|
1,464,144
|
|
Community expense
|
|
|
2,170
|
|
|
|
214
|
|
|
|
42
|
|
|
|
287,719
|
|
|
|
|
|
|
|
158
|
|
|
|
(21,984
|
)
|
|
|
268,319
|
|
Development expense
|
|
|
25
|
|
|
|
9,347
|
|
|
|
606
|
|
|
|
312
|
|
|
|
1,682
|
|
|
|
128
|
|
|
|
401
|
|
|
|
12,501
|
|
Depreciation and amortization
|
|
|
11,925
|
|
|
|
1,927
|
|
|
|
|
|
|
|
17,550
|
|
|
|
382
|
|
|
|
114
|
|
|
|
14,731
|
|
|
|
46,629
|
|
Other operating expenses
|
|
|
1,058,795
|
|
|
|
25,285
|
|
|
|
6,306
|
|
|
|
61,198
|
|
|
|
25,009
|
|
|
|
4,672
|
|
|
|
55,764
|
|
|
|
1,237,029
|
|
Impairment of owned communities, land parcels, goodwill and
intangibles
|
|
|
|
|
|
|
28,897
|
|
|
|
|
|
|
|
2,953
|
|
|
|
|
|
|
|
|
|
|
|
(165
|
)
|
|
|
31,685
|
|
Income (loss) from operations
|
|
|
33,059
|
|
|
|
(59,033
|
)
|
|
|
(4,803
|
)
|
|
|
(19,567
|
)
|
|
|
524
|
|
|
|
(3,355
|
)
|
|
|
(78,844
|
)
|
|
|
(132,019
|
)
|
Interest income
|
|
|
413
|
|
|
|
869
|
|
|
|
7
|
|
|
|
225
|
|
|
|
(10
|
)
|
|
|
11
|
|
|
|
(164
|
)
|
|
|
1,351
|
|
Interest expense
|
|
|
(169
|
)
|
|
|
(926
|
)
|
|
|
|
|
|
|
(4,866
|
)
|
|
|
|
|
|
|
(29
|
)
|
|
|
(4,311
|
)
|
|
|
(10,301
|
)
|
Foreign exchange gain/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,989
|
|
|
|
(632
|
)
|
|
|
(645
|
)
|
|
|
|
|
|
|
6,712
|
|
Sunrises share of earnings (losses) and return on
investment in unconsolidated communities
|
|
|
|
|
|
|
|
|
|
|
5,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(199
|
)
|
|
|
5,673
|
|
Income (loss) before income taxes, discontinued operations, and
noncontrolling interests
|
|
|
37,080
|
|
|
|
(53,678
|
)
|
|
|
1,076
|
|
|
|
(16,707
|
)
|
|
|
(913
|
)
|
|
|
(4,146
|
)
|
|
|
(79,836
|
)
|
|
|
(117,124
|
)
|
Investments in unconsolidated communities
|
|
|
|
|
|
|
|
|
|
|
64,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,971
|
|
Segment assets
|
|
|
141,389
|
|
|
|
71,061
|
|
|
|
71,124
|
|
|
|
295,062
|
|
|
|
13,862
|
|
|
|
105,763
|
|
|
|
212,328
|
|
|
|
910,589
|
|
Expenditures for long-lived assets
|
|
|
|
|
|
|
9,794
|
|
|
|
|
|
|
|
10,111
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
19,950
|
|
Deferred gains on the sale of real estate and deferred revenue
|
|
|
|
|
|
|
16,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
21,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
(Wholly
|
|
|
|
|
|
Germany
|
|
|
Corporate
|
|
|
|
|
|
|
North American
|
|
|
North American
|
|
|
Method
|
|
|
Owned/
|
|
|
United
|
|
|
Management
|
|
|
and
|
|
|
|
|
|
|
Management
|
|
|
Development
|
|
|
Investments
|
|
|
Leased)
|
|
|
Kingdom
|
|
|
Company
|
|
|
Eliminations
|
|
|
Total
|
|
|
Revenues
|
|
$
|
1,189,971
|
|
|
$
|
27,425
|
|
|
$
|
2,303
|
|
|
$
|
340,834
|
|
|
$
|
32,803
|
|
|
$
|
11,104
|
|
|
$
|
(33,466
|
)
|
|
$
|
1,570,974
|
|
Community expense
|
|
|
(535
|
)
|
|
|
774
|
|
|
|
122
|
|
|
|
282,051
|
|
|
|
|
|
|
|
60
|
|
|
|
(24,917
|
)
|
|
|
257,555
|
|
Development expense
|
|
|
5,065
|
|
|
|
21,405
|
|
|
|
3,121
|
|
|
|
15
|
|
|
|
4,335
|
|
|
|
16
|
|
|
|
177
|
|
|
|
34,134
|
|
Depreciation and amortization
|
|
|
6,969
|
|
|
|
1,132
|
|
|
|
88
|
|
|
|
15,491
|
|
|
|
331
|
|
|
|
114
|
|
|
|
15,372
|
|
|
|
39,497
|
|
Other operating expenses
|
|
|
1,130,122
|
|
|
|
113,672
|
|
|
|
19,556
|
|
|
|
60,480
|
|
|
|
22,749
|
|
|
|
15,322
|
|
|
|
75,891
|
|
|
|
1,437,792
|
|
Impairment of owned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
communities, land parcels,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
goodwill and intangibles
|
|
|
121,553
|
|
|
|
5,870
|
|
|
|
6,350
|
|
|
|
15,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149,644
|
|
Income (loss) from operations
|
|
|
(73,203
|
)
|
|
|
(115,428
|
)
|
|
|
(26,934
|
)
|
|
|
(33,074
|
)
|
|
|
5,388
|
|
|
|
(4,408
|
)
|
|
|
(99,989
|
)
|
|
|
(347,648
|
)
|
Interest income
|
|
|
825
|
|
|
|
425
|
|
|
|
836
|
|
|
|
289
|
|
|
|
621
|
|
|
|
265
|
|
|
|
3,006
|
|
|
|
6,267
|
|
Interest expense
|
|
|
(287
|
)
|
|
|
(1,260
|
)
|
|
|
(366
|
)
|
|
|
(4,471
|
)
|
|
|
|
|
|
|
(94
|
)
|
|
|
(231
|
)
|
|
|
(6,709
|
)
|
Foreign exchange gain/(loss)
|
|
|
|
|
|
|
(9,796
|
)
|
|
|
|
|
|
|
(4,399
|
)
|
|
|
(3,075
|
)
|
|
|
2,620
|
|
|
|
|
|
|
|
(14,650
|
)
|
Sunrises share of losses and return on investment in
unconsolidated communities
|
|
|
|
|
|
|
|
|
|
|
(13,816
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30
|
)
|
|
|
(13,846
|
)
|
Income (loss) before income taxes, discontinued operations, and
noncontrolling interests
|
|
|
(72,282
|
)
|
|
|
(112,091
|
)
|
|
|
(39,996
|
)
|
|
|
(40,670
|
)
|
|
|
2,936
|
|
|
|
(2,218
|
)
|
|
|
(109,406
|
)
|
|
|
(373,727
|
)
|
Investments in unconsolidated communities
|
|
|
|
|
|
|
|
|
|
|
66,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,852
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,025
|
|
|
|
39,025
|
|
Segment assets
|
|
|
192,079
|
|
|
|
184,786
|
|
|
|
80,836
|
|
|
|
422,980
|
|
|
|
21,929
|
|
|
|
152,094
|
|
|
|
326,853
|
|
|
|
1,381,557
|
|
Expenditures for long-lived assets
|
|
|
|
|
|
|
137,449
|
|
|
|
|
|
|
|
16,723
|
|
|
|
19,270
|
|
|
|
103
|
|
|
|
|
|
|
|
173,545
|
|
Deferred gains on the sale of real estate and deferred revenue
|
|
|
|
|
|
|
26,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,415
|
|
|
|
88,706
|
|
35
The following table summarizes our portfolio of operating
communities at December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 vs.
|
|
|
2008 vs.
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Total communities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
47
|
|
|
|
62
|
|
|
|
61
|
|
|
|
(24.2
|
)%
|
|
|
1.6
|
%
|
Variable Interest Entities
|
|
|
1
|
|
|
|
10
|
|
|
|
1
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Unconsolidated
|
|
|
201
|
|
|
|
203
|
|
|
|
199
|
|
|
|
(1.0
|
)%
|
|
|
2.0
|
%
|
Managed
|
|
|
135
|
|
|
|
160
|
|
|
|
174
|
|
|
|
(15.6
|
)%
|
|
|
(8.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
384
|
|
|
|
435
|
|
|
|
435
|
|
|
|
(11.7
|
)%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit capacity
|
|
|
40,353
|
|
|
|
49,851
|
|
|
|
49,479
|
|
|
|
(19.1
|
)%
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
Income (Loss) from Ongoing Operations
Adjusted income (loss) from ongoing operations is a measure of
operating performance that is not calculated in accordance with
U.S. generally accepted accounting principles and should
not be considered as a substitute for income/loss from
operations or net income/loss. Adjusted income from ongoing
operations is used by management to focus on cash generated from
our ongoing operations and to help management assess if
adjustments to current spending decisions are needed.
The following table reconciles adjusted income (loss) from
ongoing operations to loss from operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Loss from operations
|
|
$
|
(132,019
|
)
|
|
$
|
(347,648
|
)
|
|
$
|
(200,123
|
)
|
Non-cash expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
46,629
|
|
|
|
39,497
|
|
|
|
42,601
|
|
Write-off of capitalized project costs
|
|
|
14,879
|
|
|
|
95,763
|
|
|
|
28,430
|
|
Provision for doubtful accounts
|
|
|
13,625
|
|
|
|
20,077
|
|
|
|
7,709
|
|
Stock compensation
|
|
|
2,979
|
|
|
|
3,176
|
|
|
|
7,020
|
|
Impairment of long-lived assets
|
|
|
31,685
|
|
|
|
149,644
|
|
|
|
7,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations after adjustment for non-cash expenses
|
|
|
(22,222
|
)
|
|
|
(39,491
|
)
|
|
|
(106,722
|
)
|
Accounting Restatement, Special Independent Committee inquiry,
SEC investigation and stockholder litigation
|
|
|
3,887
|
|
|
|
30,224
|
|
|
|
51,707
|
|
Restructuring costs
|
|
|
33,313
|
|
|
|
24,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted income (loss) from ongoing operations
|
|
$
|
14,978
|
|
|
$
|
14,911
|
|
|
$
|
(55,015
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Revenue
Management
fees and buyout fees
2009 Compared to 2008
Management fees were $112.5 million in 2009 compared to
$131.6 million in 2008, a decrease of $19.1 million,
or 14.5%. This decrease was primarily comprised of:
|
|
|
|
|
$7.7 million decrease related to management fees from the
Fountains venture;
|
|
|
|
$6.0 million decrease primarily due to lower occupancy;
|
36
|
|
|
|
|
$5.3 million decrease as a result of terminated management
contracts;
|
|
|
|
$2.0 million decrease in incentive management fees;
partially offset by
|
|
|
|
$1.0 million increase related to international communities;
|
|
|
|
$2.6 million increase from communities in the
lease-up
phase; and
|
|
|
|
$3.2 million increase from an increase in average daily
rates.
|
2008 Compared to 2007
Management fees were $131.6 million in 2008 compared to
$122.3 million in 2007, an increase of $9.3 million,
or 7.6%. This increase was primarily comprised of:
|
|
|
|
|
$6.8 million increase from fees associated with existing
communities of which $4.8 million is attributable to an
increase in average daily rates in North America,
$2.2 million is attributable to international communities
and a decrease of $0.2 million due to lower occupancy;
|
|
|
|
$2.6 million increase in management fees from 17
communities accounted for under the deposit method through July
2007 with no management fee recognition;
|
|
|
|
$4.0 million of expense in 2007 related to a one time
refund pursuant to an agreement with a venture partner;
|
|
|
|
$1.4 million increase of fees from communities in the
lease-up
phase; partially offset by
|
|
|
|
$2.4 million decrease from terminated management
contracts; and
|
|
|
|
$1.9 million decrease in incentive management fees.
|
Resident
fees for consolidated communities
2009 Compared to 2008
Resident fees for consolidated communities were
$350.3 million in 2009 compared to $341.0 million in
2008, an increase of $9.3 million, or 2.7%. This increase
was primarily comprised of:
|
|
|
|
|
$7.8 million from the addition of three consolidated
Canadian communities and one domestic community;
|
|
|
|
$5.1 million from increases in average daily rates;
partially offset by a
|
|
|
|
$3.6 million decrease due to lower occupancy.
|
2008 Compared to 2007
Resident fees for consolidated communities were
$341.0 million in 2008 compared to $323.0 million in
2007, an increase of $18.0 million, or 5.6%. This increase
was primarily comprised of:
|
|
|
|
|
$21.4 million from existing consolidated communities
primarily resulting from increases in average daily rates;
|
|
|
|
$1.8 million from the addition of three consolidated
Canadian communities that were opened during 2008; partially
offset by a
|
|
|
|
$5.2 million decrease from two communities previously
accounted for under the financing method of accounting in 2007.
|
37
Ancillary
fees
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
New York Health Care Services
|
|
$
|
38.5
|
|
|
$
|
35.3
|
|
|
$
|
30.6
|
|
Fountains Health Care Services
|
|
|
5.1
|
|
|
|
5.5
|
|
|
|
5.9
|
|
International Health Care Services
|
|
|
1.8
|
|
|
|
1.7
|
|
|
|
6.1
|
|
At Home
|
|
|
|
|
|
|
|
|
|
|
8.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
45.4
|
|
|
$
|
42.5
|
|
|
$
|
51.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
fees from development, marketing and other
Professional fees from development, marketing and other were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
North America
|
|
$
|
7.2
|
|
|
$
|
26.1
|
|
|
$
|
8.2
|
|
International
|
|
|
6.0
|
|
|
|
18.3
|
|
|
|
21.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13.2
|
|
|
$
|
44.4
|
|
|
$
|
29.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Compared to 2008
The $31.2 million decrease in professional fees in 2009
compared to 2008 was comprised primarily of a $16.3 million
decrease in North American development fees due to final
completion stages of projects for whom the majority of the
revenue had been recognized previously and $2.6 million in
design fees. Internationally, development fees decreased
$12.3 million due to two less projects in 2009 compared to
2008 and $1.1 million decrease in guarantee fees due to no
projects in 2009 earning guarantee fees.
2008 Compared to 2007
The $14.9 million increase in professional fees in 2008
compared to 2007 was comprised primarily of a $17.9 million
increase in North American development fees due to the net
increase of nine communities under development in North America
for which we were earning professional fees, from five
communities in 2007 to 14 communities in 2008. For
International, development fees decreased $1.8 million due
to four less projects in 2008 compared to 2007 and a
$1.2 million decrease in guarantee fees due to earning fees
on two less projects in 2007 compared to 2008.
Reimbursed
costs incurred on behalf of managed communities
2009 Compared to 2008
Reimbursed costs incurred on behalf of managed communities were
$942.8 million in 2009 compared to $1,011.4 million in
2008. The decrease of 6.8% was due primarily to 47 fewer
communities in 2009 than 2008.
2008 Compared to 2007
Reimbursed costs incurred on behalf of managed communities were
$1,011.4 million in 2008 compared to $956.0 million in
2007. The change of 5.8% was due primarily to more communities
managed in 2008 than 2007 (before the consolidation of Germany
and the termination of 11 communities at the end of November
2008).
Operating
Expenses
Community
expense for consolidated communities
2009 Compared to 2008
38
Community expense for consolidated communities was
$268.3 million in 2009 compared to $257.6 million in
2008, an increase of $10.7 million, or 4.2%. This increase
was primarily comprised of:
|
|
|
|
|
$7.2 million from the addition of three Canadian
communities and one domestic community;
|
|
|
|
$2.1 million from existing communities due to increased
labor costs partially offset by reductions in food and repairs
and maintenance; and
|
|
|
|
$2.6 million from an insurance credit in 2008.
|
2008 Compared to 2007
Community expense for consolidated communities was
$257.6 million in 2008 compared to $231.8 million in
2007, an increase of $25.8 million, or 11.1%. This increase
was primarily comprised of:
|
|
|
|
|
$19.6 million from existing communities resulting primarily
from increased labor, utility, and repairs and maintenance
costs; and
|
|
|
|
$4.0 million from the addition of three Canadian
communities that were opened during 2008.
|
Community
lease expense
2009 Compared to 2008
Community lease expense decreased $0.5 million primarily
related to a decrease in contingent rent for two communities.
2008 Compared to 2007
Community lease expense decreased $2.5 million or 4.0%
primarily due to a decrease in contingent rent of
$2.9 million partially offset by a $0.6 million
increase in base rent in one community. In 2008, contingent rent
was $5.3 million compared to $8.2 million in 2007.
Depreciation
and amortization
Depreciation and amortization expense by segment was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
North America
|
|
$
|
44,586
|
|
|
$
|
38,201
|
|
|
$
|
41,715
|
|
International
|
|
|
2,043
|
|
|
|
1,296
|
|
|
|
886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
46,629
|
|
|
$
|
39,497
|
|
|
$
|
42,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Compared to 2008
The increase in depreciation and amortization expense of
$7.1 million was primarily comprised of $5.2 million
additional amortization expense related to the change in the
estimated lives of management contracts and $1.2 million of
incremental depreciation related to four new communities.
2008 Compared to 2007
The decrease in depreciation and amortization expense of
$3.1 million was primarily comprised of decreases related
to $6.1 million of depreciation recorded in 2007 relating
to assets accounted for under the deposit method and
$1.2 million related to the termination and write-off of
certain development and management contracts in 2007 partially
offset by an increase in depreciation expense of
$3.7 million for assets placed in service and consolidated
in 2008.
39
Ancillary
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
New York Health Care Services
|
|
$
|
35.8
|
|
|
$
|
33.3
|
|
|
$
|
32.7
|
|
Fountains Health Care Services
|
|
|
4.8
|
|
|
|
5.1
|
|
|
|
5.7
|
|
International Health Care Services
|
|
|
1.9
|
|
|
|
1.8
|
|
|
|
6.1
|
|
At Home
|
|
|
|
|
|
|
|
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
42.5
|
|
|
$
|
40.2
|
|
|
$
|
53.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
2009 Compared to 2008
General and administrative expense was $119.9 million in
2009 compared to $157.5 million in 2008, a decrease of
$37.6 million, or 23.9%. This decrease is primarily due to:
|
|
|
|
|
$11.6 million decrease in salaries and bonus as a result of
our cost reduction program;
|
|
|
|
$17.0 million decrease in general corporate expenses
including information technology costs, training and education
and temporary help;
|
|
|
|
$4.4 million decrease in travel;
|
|
|
|
$7.2 million decrease in bonus expense related to one of
our ventures;
|
|
|
|
$1.5 million decrease related to an employee litigation
settlement in 2008;
|
|
|
|
$1.2 million decrease due to a 2008 penalty related to one
of our communities; partially offset by
|
|
|
|
$5.1 million increase in executive deferred compensation
costs.
|
2008 Compared to 2007
General and administrative expense was $157.5 million in
2008 compared to $183.5 million in 2007, a decrease of
$26.0 million, or 14.2%. This decrease was primarily the
result of a $19.2 million decrease in bonus expense related
to our first U.K. venture.
Development
expense
2009 Compared to 2008
Development expense was $12.5 million in 2009 compared to
$34.1 million in 2008, a decrease of $21.6 million, or
63.4%. This decrease, related to the reduction of development
activity, was primarily comprised of:
|
|
|
|
|
$11.2 million decrease in development labor costs; and
|
|
|
|
$10.5 million decrease in development related expenses
including travel, insurance, professional fees, legal,
telecommunication, and other costs.
|
2008 Compared to 2007
Development expense was $34.1 million in 2008 compared to
$35.1 million in 2007, a decrease of $1.0 million, or
2.7%. This decrease was primarily comprised of:
|
|
|
|
|
$7.1 million increase in development labor costs and other
expenses; offset by
|
|
|
|
$8.1 million decrease in project costs that were not
capitalized as the projects were not considered probable.
|
40
Write-off
of capitalized project costs
The write-off of capitalized project costs was
$14.9 million in 2009, $95.8 million in 2008 and
$28.4 million in 2007. In 2009, we had one significant
project write-off of $11.0 million. In 2008, we suspended
the development of three condominium projects and we wrote off
$27.7 million of development costs. Also, based on our
decision to decrease our development pipeline, we wrote off
approximately $68.1 million of costs related to 215
development projects we discontinued during 2008. The
development project write-offs in 2007 primarily relate to the
$21.0 million write-off of capitalized development costs
for four senior living condominium projects we discontinued due
to adverse economic conditions.
Accounting
Restatement, Special Independent Committee Inquiry, SEC
investigation and pending stockholder litigation
We incurred legal and accounting fees of approximately
$3.9 million in 2009, $30.2 million in 2008 and
$51.7 million in 2007 related to the accounting review, the
Special Independent Committee Inquiry, the SEC investigation and
responding to various shareholder actions. The Special
Independent Committee activities and the accounting restatement
were completed during the first quarter of 2008; however, we
continue to incur legal fees and related expenses in connection
with the SEC investigation and stockholder litigation.
Restructuring
cost
Costs associated with our 2009 and 2008 restructuring plans were
$33.3 million in 2009 and $24.2 million in 2008.
During 2009 and 2008, we initiated a plan to reduce our general
and administrative expense, development and venture support head
count and certain non-payroll costs. We have eliminated 336
positions in overhead and development, primarily in our McLean,
Virginia headquarters. It is our intention to continue to reduce
costs in 2010.
Provision
for doubtful accounts
2009 Compared to 2008
The provision for doubtful accounts decreased $6.5 million
during 2009 compared to 2008 primarily due to a reserve of
$6.4 million for advances to a venture and a
$1.6 million reserve write-off of the remaining Aston
Gardens operating deficit guarantee in 2009 compared to a
reserve of $14.2 million for the Fountains operating
deficit guarantee loan in 2008.
2008 Compared to 2007
The provision for doubtful accounts was $20.1 million in
2008 compared to $7.7 million in 2007, an increase of
$12.4 million. The increase is due primarily to reserving
$14.2 million for the Fountains operating deficit guarantee
loan and $0.5 million for the Aston Gardens operating
deficit loan.
Loss on
financial guarantees and other contracts
We recorded a loss on our financial guarantees of
$2.1 million during 2009 related to construction cost
overrun guarantees on a condominium project, a completion
guarantee on an operating property and a settlement of operating
deficit guarantees on a venture.
Loss on financial guarantees and other contracts was
$5.0 million in 2008 which was comprised of approximately
$2.6 million in construction cost overrun guarantees on the
condominium project discussed below and $2.4 million for
income support.
Loss on financial guarantees and other contracts was
$22.0 million in 2007. We recorded an additional
$16.0 million loss related to operating deficit shortfalls
in Germany due to changes in expected cash flows due to slower
than projected lease up and an additional $6.0 million loss
related to construction cost overrun guarantees on a condominium
project.
41
Impairment
of owned communities, land parcels, goodwill and intangible
assets
During 2009, we recorded impairment charges of
$31.7 million related to 11 land parcels, two ceased
developments, one community and one condominium project.
During 2008, we recorded an impairment charge of
$121.8 million related to all the goodwill for our North
American business segment which resulted from our acquisition of
Marriott Senior Living, Inc. in 2003 and Karrington Health, Inc.
in 1999. In addition, we recorded impairment charges of
$15.8 million related to two communities in the
U.S. and $12.0 million related to land parcels that
are no longer expected to be developed.
During 2007, we recorded an impairment charges of
$7.6 million related to two communities in the U.S.
Costs
incurred on behalf of managed communities
Costs incurred on behalf of managed communities were
$947.6 million in 2009 compared to $1,005.0 million in
2008. Costs incurred on behalf of managed communities were
$956.0 million in 2007. The decrease in 2009 from 2008 of
5.7% was due primarily to 47 fewer managed communities in 2009
than 2008 and higher insurance charges in 2008. The increase in
2008 compared to 2007 was due to an increase in the number of
communities managed during 2008 (before the consolidation of
Germany and the termination of 11 communities at the end of
November 2008) and higher costs primarily due to inflation
for items such as labor, food and utilities.
Other
Non-operating Income (Expense)
2009 Compared to 2008
Total other non-operating income (expense) was $0.4 million
and $(28.3) million for 2009 and 2008, respectively. The
decrease of $28.7 million in other non-operating expense
was primarily due to:
|
|
|
|
|
$4.9 million decrease in interest income;
|
|
|
|
$3.6 million increase in interest expense due to a decrease
in interest capitalized as a result of communities under
construction being put into operation;
|
|
|
|
$11.3 million decrease in net losses on our investments in
auction rate securities which are classified as trading
securities and carried at fair value; and
|
|
|
|
$6.7 million for net foreign exchange gains in 2009
comprised of the $8.0 million of gain related to the
Canadian dollar, $(0.6) million and $(0.7) million of
loss related to the British pound and Euro, respectively,
compared to $(14.6) million of net foreign exchange losses
in 2008 comprised of $(14.2) million and
$(3.1) million of loss related to the Canadian dollar and
British pound, respectively, and $2.7 million of gain
related to the Euro.
|
2008 Compared to 2007
Total other non-operating expense was $(28.3) million and
$(1.5) million for 2008 and 2007, respectively. The
increase in other non-operating expense of $26.8 million
was primarily due to:
|
|
|
|
|
$1.5 million increase in interest expense due to increased
borrowings;
|
|
|
|
$7.8 million unrealized loss on our investments in auction
rate securities which are classified as trading securities and
carried at fair value. The unrealized loss on our investments
was based on an analysis of sales discounts achieved in the
secondary market and managements judgment and resulted in
an estimated discount of 20% from the face amount of the
securities. Due to the uncertainty in the market for auction
rate securities, it is reasonably likely that this assumption
could change in the future. If the discount used was 10%, the
unrealized loss would have been $3.9 million. If the
discount used was 30%, the unrealized loss would have been
$11.7 million; and
|
|
|
|
$(14.6) million of foreign exchange losses in 2008 compared
to $(2.3) million of foreign exchange losses in 2007. In
2008, the exchange loss was comprised of $(14.2) million
and $(3.1) million in losses related to the Canadian dollar
and to the British pound, respectively, and $2.7 million in
gain related to the Euro. In 2007,
|
42
|
|
|
|
|
exchange gains of $7.2 million related to the Canadian
dollar and losses of $(3.2) million and $(6.3) million
related to the British pound and Euro, respectively.
|
Gain
on the Sale and Development of Real Estate and Equity
Interests
Gain on the sale and development of real estate and equity
interests fluctuates depending on the timing of dispositions of
communities and the satisfaction of certain operating
contingencies and guarantees. Gains in 2009, 2008 and 2007 are
as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Properties accounted for under basis of performance of services
|
|
$
|
10.5
|
|
|
$
|
9.6
|
|
|
$
|
3.6
|
|
Properties accounted for previously under financing method
|
|
|
|
|
|
|
0.5
|
|
|
|
32.8
|
|
Properties accounted for previously under deposit method
|
|
|
3.4
|
|
|
|
0.9
|
|
|
|
52.4
|
|
Properties accounted for under the profit-sharing method
|
|
|
8.9
|
|
|
|
6.7
|
|
|
|
|
|
Land and community sales
|
|
|
(0.4
|
)
|
|
|
(0.9
|
)
|
|
|
5.7
|
|
Condominium sales
|
|
|
(1.0
|
)
|
|
|
1.0
|
|
|
|
|
|
Sales of equity interests and other sales
|
|
|
0.3
|
|
|
|
(0.4
|
)
|
|
|
10.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains on the sale and development of real estate and
equity interests
|
|
$
|
21.7
|
|
|
$
|
17.4
|
|
|
$
|
105.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2009, 2008 and 2007, we recognized pre-tax gains of
approximately $12.3 million, $8.1 million and
$85.2 million, respectively, related to previous sales of
real estate where sale accounting was not initially achieved due
to guarantees and other forms of continuing involvement. The
gain was recognized in the year those guarantees were released.
At December 31, 2009, there was no remaining deferred gain
from previous sales of real estate where sale accounting was not
achieved.
Sunrises
Share of Earnings (Losses) and Return on Investment in
Unconsolidated Communities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Sunrises share of earnings (losses) in
|
|
|
|
|
|
|
|
|
|
|
|
|
unconsolidated communities
|
|
$
|
3.7
|
|
|
$
|
(31.0
|
)
|
|
$
|
60.7
|
|
Return on investment in unconsolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
communities
|
|
|
10.6
|
|
|
|
33.4
|
|
|
|
71.1
|
|
Impairment of equity investments
|
|
|
(8.6
|
)
|
|
|
(16.2
|
)
|
|
|
(24.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sunrises share of earnings (losses) on
|
|
|
|
|
|
|
|
|
|
|
|
|
investment in unconsolidated communities
|
|
$
|
5.7
|
|
|
$
|
(13.8
|
)
|
|
$
|
107.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in our share of income (losses) in unconsolidated
communities of $34.7 million was primarily due to our UK
venture, in which we have a 20% interest, selling four
communities to a venture in which we have a 10% interest. As a
result of sales, the venture recorded a gain of which we
recognized $19.5 million for our equity interest in the
earnings. In addition, there were non-recurring losses in 2008
of $6.2 million and $4.7 million from our Fountains
and Aston Gardens ventures, respectively, and operating losses
from joint ventures were smaller in 2009 compared to 2008.
Our share of equity in (losses) earnings in unconsolidated
communities decreased $91.7 million in 2008 from 2007
primarily due to one venture in the U.K. which had a significant
transaction in 2007 whereby a venture in which we have a 20%
interest sold six communities to a different U.K. venture in
which we have a 10% interest. As a result of the gains on these
asset sales recorded in the ventures, we recorded earnings in
unconsolidated communities of approximately $75.5 million
during the third quarter of 2007. The remaining difference in
our share of equity in earnings is primarily the result of an
increase between 2008 and 2007 of pre-opening expenses and
operating losses during initial
lease-up
periods.
43
In 2009, our return on investment in unconsolidated communities
was the result of operating distributions of $10.6 million
from investments where the book value was zero and we had no
contractual obligation or implied obligations to support the
venture.
In 2008, our return on investment in unconsolidated communities
was the result of the following: (1) the expiration of
three contractual obligations which resulted in the recognition
of $9.2 million of income from the recapitalization of
three ventures; (2) receipt of $8.3 million of
proceeds resulting from the refinancing of the debt of one of
our ventures with eight communities; (3) the
recapitalization and refinancing of debt of one venture with two
communities which resulted in a return on investment of
$3.3 million; and (4) distributions of
$12.7 million from operations from investments where the
book value is zero and we have no contractual or implied
obligations to support the venture.
In 2007, our return on investment in unconsolidated communities
was primarily the result of three venture recapitalizations. In
one transaction, the majority owner of a venture sold their
majority interest to a new third party, the debt was refinanced,
and the total cash we received and the gain recognized was
$53.0 million. In another transaction, in conjunction with
a sale by us of a 15% equity interest which gain is recorded in
Gain on the sale and development of real estate and equity
interests and the sale of the majority equity owners
interest to a new third party, the debt was refinanced, and we
received total proceeds of $4.1 million relating to our
retained 20% equity interest in two ventures, which we recorded
as a return on investment in unconsolidated communities.
In 2009, based on the receipt of a notice of default from the
lender to a venture in which we own a 20% interest and the poor
rental experience in the venture, we considered our investment
to be other than temporarily impaired and wrote off the
remaining equity balance of $1.1 million. We also
determined the fair value of our investment in a venture in
which we had a 1% interest had decreased to zero and was other
than temporarily impaired, resulting in an impairment charge of
$0.1 million. In addition, we wrote-down our equity
investments in two of our development ventures by
$7.4 million based on poor performance and defaults under
the ventures construction loan agreements.
In 2008, we wrote-down our equity investments in our Fountains
and Aston Gardens ventures by $10.7 million and
$4.8 million, respectively.
In 2007, we wrote-down equity investments in four unconsolidated
ventures. The majority of the charge related to our investment
in Aston Gardens, a venture which acquired six senior living
communities in Florida in September 2006. In 2007 and into 2008,
the operating results of the Aston Garden communities suffered
due to adverse economic conditions in Florida for independent
living communities including a decline in the real estate
market. These operating results were insufficient to achieve
compliance with the debt covenants for the mortgage debt for the
properties. In July 2008, the venture received notice of default
from the lender of $170.0 million of debt obtained by the
venture at the time of the acquisition in September 2006. Later
in July 2008, we received notice from our equity partner
alleging a default under our management agreement as a result of
receiving the notice from the lender. This debt was non-recourse
to us, except for monthly principal payments during the term of
the debt. Based on our assessment, we determined that our
investment was impaired and as a result, we recorded a pre-tax
impairment charge of approximately $21.6 million in the
fourth quarter of 2007.
44
(Loss)
Income from Investments Accounted for Under the Profit Sharing
Method
(Loss) income from investments accounted for under the profit
sharing method was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenue
|
|
$
|
14,219
|
|
|
$
|
16,635
|
|
|
$
|
23,791
|
|
Operating expenses
|
|
|
(18,849
|
)
|
|
|
(11,459
|
)
|
|
|
(15,301
|
)
|
Interest expense
|
|
|
(6,195
|
)
|
|
|
(597
|
)
|
|
|
(2,149
|
)
|
Impairment loss
|
|
|
(1,146
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations before depreciation
|
|
|
(11,971
|
)
|
|
|
4,579
|
|
|
|
6,341
|
|
Depreciation expense
|
|
|
1,489
|
|
|
|
|
|
|
|
|
|
Distributions to other investors
|
|
|
(2,326
|
)
|
|
|
(5,908
|
)
|
|
|
(6,319
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from investments accounted for
|
|
|
|
|
|
|
|
|
|
|
|
|
under the profit-sharing method
|
|
$
|
(12,808
|
)
|
|
$
|
(1,329
|
)
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We currently apply the profit-sharing method to two transactions
that occurred in 2006 where we sold a majority interest in two
separate entities related to a partially developed condominium
project as we provided guarantees to support the operations of
the entities for an extended period of time.
Benefit
from (Provision for) Income Taxes
The benefit from (provision for) income taxes was
$3.9 million, $47.1 million and $(13.3) million
in 2009, 2008 and 2007, respectively. Our effective tax benefit
(provision) rate was 3.3%, 12.6% and (122.8)% in 2009, 2008 and
2007, respectively. At December 31, 2009 and 2008, our net
deferred tax liabilities were zero and $2.8 million,
respectively, and at December 31, 2009 and 2008, we had a
total valuation allowance against deferred tax assets of
$167.2 million and $138.8 million, respectively. The
effective tax rate in 2008 is significantly impacted by the
increase in the valuation allowance as of December 31, 2008
as we determined that as of the end of 2008, we are no longer
able to conclude that it is more likely than not that net
deferred tax assets will be realized. In 2009 and 2008, the
effective tax rate was significantly impacted by the write-off
of goodwill that was partially non-deductible for tax purposes.
Discontinued
Operations
Discontinued operations consists of our German communities which
we are marketing for sale, our Greystone subsidiary sold in
2009, 22 communities sold in 2009, one community closed in 2009,
our Trinity subsidiary which ceased operations in 2008 and two
communities which were sold in 2008, and for which we have no
continuing involvement.
The following amounts related to those communities and
businesses have been segregated from continuing operations and
reported as discontinued operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenue
|
|
$
|
107,644
|
|
|
$
|
170,430
|
|
|
$
|
170,530
|
|
Expenses
|
|
|
(113,644
|
)
|
|
|
(231,834
|
)
|
|
|
(208,884
|
)
|
Impairments
|
|
|
(72,524
|
)
|
|
|
(18,748
|
)
|
|
|
(56,729
|
)
|
Other (expense) income
|
|
|
(15,871
|
)
|
|
|
(15,900
|
)
|
|
|
231
|
|
Gain on sale of real estate
|
|
|
74,124
|
|
|
|
1,094
|
|
|
|
|
|
Income taxes
|
|
|
|
|
|
|
(427
|
)
|
|
|
24,340
|
|
Extraordinary loss, net of tax
|
|
|
|
|
|
|
(22,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
$
|
(20,271
|
)
|
|
$
|
(117,516
|
)
|
|
$
|
(70,512
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
Due to the valuation allowance on net deferred tax assets, no
benefit for income taxes was allocated to discontinued
operations for 2009.
Germanys loss, included in discontinued operations, was
$81.1 million for 2009 which included an impairment charge
of $49.9 million. Greystones income includes
$23.7 million of gain related to its sale.
In addition, in 2009, we sold 21 non-core assisted living
communities, located in 11 states, to Brookdale Senior
Living, Inc. for an aggregate purchase price of
$204 million. At closing, we received approximately
$59.6 million in net proceeds after we paid or the
purchaser assumed approximately $134.1 million of mortgage
loans, the posting of required escrows, various prorations and
adjustments, and payments of expenses by us, generating a gain
of $48.9 million. This gain was after a reduction of
$5.0 million related to potential future indemnification
obligations which expire in November 2010.
In order to resolve and settle the claims among us and
Trinitys prior owners, in June 2009, we entered into a
settlement agreement with the former majority stockholders of
Trinity, which, among other matters, provides for the release
and discharge of all claims and causes of action between the
parties to the settlement agreement. In consideration of the
settlement agreement, the former majority stockholders of
Trinity paid us an aggregate amount of approximately
$9.8 million. The parties to the settlement agreement also
agreed to cooperate to achieve voluntary dismissal of certain
litigation matters. In exchange for the consideration, we and
the former majority stockholders of Trinity have reciprocally
released each other from any and all claims that each such
parties had against other such parties relating to any matters
through the date of the settlement agreement.
We had previously recorded a receivable of $2.7 million
from the former stockholders of Trinity for various liabilities
relating to events occurring prior to our purchase of Trinity.
Accordingly, $2.7 million of the proceeds were applied
against the receivable and the remaining amount of
$7.1 million has been recorded as income from discontinued
operations.
Segment
Analysis 2009 Compared to 2008
Overview
Effective in 2009, we changed our operating segments. In 2008,
we reported four operating segments: domestic operations,
international operations (Canada and the United Kingdom),
Germany and Greystone. We now have six operating segments for
which operating results are regularly reviewed by our chief
operating decision makers. We continue to evaluate our business
and our presentation of the various segments that comprise our
business. Accordingly, in the future we may change
and/or
refine our operating segments to present meaningful information
to our chief operating decision makers.
The following analysis compares the 2009 operating results of
our segments to the 2008 operating results. Due to the changes
to our segments in 2009, a comparison to 2007 results by segment
was not practical. Refer to Note 18 for additional
information on our segments.
North
American Management
Revenue within the North American Management segment is
comprised of management fees, resident fees from our New York
Dignity and Fountains Home Health operations and reimbursed
costs incurred on behalf of managed communities. Revenue was
$1,106.0 million in 2009 compared to $1,190.0 million
in 2008, a decrease of $84.0 million or 7.1%. Management
fees decreased $22.0 million due to the termination of
management contracts, lower occupancy and management fees
related to the Fountains venture. Reimbursed costs incurred on
behalf of the managed communities decreased $64.5 million
due to significantly fewer communities in 2009 than 2008.
Operating expense within the North American Management segment
is comprised of costs to operate the management company,
community expense to operate the New York Dignity and Fountains
Home Health operations and costs incurred on behalf of managed
communities. Operating expense was $1,072.9 million in 2009
compared to $1,263.2 million in 2008, a decrease of
$190.3 million or 15.1%. The decrease was primarily due to
the impairment charge of $121.6 million related to all the
goodwill from the acquisition of Marriott Senior Living, Inc. in
2003 and Karrington Health, Inc. in 1999. In addition, general
and administrative costs decreased
46
$20.9 million and costs incurred on behalf of managed
communities decreased $57.2 million from 2008 due to
significantly fewer communities in 2009 than 2008.
Overall, income before benefit from income taxes and
discontinued operations in 2009 was $37.1 million, an
increase of $109.4 million from the prior year. However,
although favorable, the 2009 income from operations does not
reflect unallocated expenses that reside in our unallocated
corporate and eliminations segment, which reported a loss from
operations of $79.8 million in 2009.
North
American Development
Revenue within the North American Development segment is
comprised of professional fees from development, marketing and
other. Revenue was $6.6 million in 2009 compared to
$27.4 million in 2008, a decrease of $20.8 million or
75.9%. The decrease was due to the wind down of development
activity in North America during 2009.
Operating expense within the North American Development segment
is comprised of costs to develop Sunrise communities. Operating
expense was $65.7 million in 2009 compared to
$142.9 million in 2008, a decrease of $77.2 million or
54.0%. The decrease was primarily due to write-off of
capitalized projects costs. The write-off of North American
capitalized projects was $15.4 million in 2009 compared to
$97.6 million in 2008 resulting in an $82.2 million
decrease. Our development expense decreased $12.1 million
in 2009 due to decreased development activity. These decreases
were offset by an increase of $23.0 million in impairment
of land parcels.
Loss before benefit from income taxes and discontinued
operations in 2009 was $53.7 million, a decrease of
$58.4 million from the prior year for reasons described
above.
Equity
Method Investments
Equity Method Investments revenue consists primarily of
transaction fees earned in the United Kingdom related to joint
venture capital transactions. Revenue was $2.2 million in
2009 compared to $2.3 million in 2008, a decrease of
$0.1 million or 4.3%. Revenue remained relatively unchanged.
Equity Method Investments expenses consists primarily of
operating expenses associated with our ventures. Operating
expense was $7.0 million in 2009 compared to
$29.2 million in 2008, a decrease of $22.2 million or
76.0%. Other operating expenses were $6.3 million in 2009
compared to $19.6 million in 2008. The primary reasons for
the decrease of $13.3 million were a decrease of
$7.2 million in bonus expense related to our UK venture and
a $3.3 million decrease in salaries and restructuring costs
related to our cost reduction program. Impairment expense
decreased $6.4 million due the impairment of land in 2008.
Sunrises share of earnings (losses) and return on
investment in unconsolidated communities was
($13.8) million in 2008 and $5.7 million in 2009, an
increase of $19.5 million. Refer to Sunrises Share
of Earnings (Losses) and Return on Investment in Unconsolidated
Communities for a detailed discussion of this increase.
Income before benefit from income taxes and discontinued
operations in 2009 was $1.1 million, an increase of
$41.1 million for reasons discussed above.
Consolidated
(Wholly Owned/Leased)
Revenue within the Consolidated (Wholly Owned/Leased) segment is
comprised of resident fees. Revenue was $350.1 million in
2009 compared to $340.8 million in 2008, an increase of
$9.3 million or 2.7%. The increase was due to the addition
of three Canadian communities and one domestic community during
2008 and an increase in the average daily rate. The increase was
partially offset by a decrease due to lower occupancy.
Operating expense within the Consolidated (Wholly Owned/Leased)
segment is comprised of costs to operate our communities.
Operating expense was $369.7 million in 2009 compared to
$373.9 million in 2008, a decrease of $4.2 million or
1.1%. Community expense increased $5.7 million in 2009 due
to the opening of four additional communities during 2008 and
increased labor costs partially offset by reductions in food and
repairs and maintenance. The increase was offset by a decrease
in impairment expense of $12.9 million.
47
Loss before benefit from income taxes and discontinued
operations in 2009 was ($16.7) million, a decrease of
$24.0 million from the prior year. The change was primarily
due to a decrease of $13.5 million in the income from
operations discussed above and a decrease of $12.4 million
in foreign exchange gains related to our Canadian communities.
United
Kingdom
United Kingdom operating revenue consists of management fees,
professional fees from development, marketing and other and
reimbursed costs incurred on behalf of managed communities.
Operating revenue was $27.6 million in 2009 compared to
$32.8 million in 2008. The decrease of $5.2 million
was primarily due to a $12.1 million decrease in
professional fees from development, marketing and other as we
wound down development in the United Kingdom during 2009. This
decrease was offset by an increase in management fees and
reimbursed costs incurred on behalf of managed communities of
$6.8 million due to the opening of seven communities in
2009 and the continued lease up of communities that opened in
2008.
United Kingdom operating expenses consist primarily of
development expense and other operating expenses. Development
expense was $1.7 million in 2009 compared to
$4.3 million in 2008. This decrease of $2.6 million
was due to the winding down of development activity during 2009.
Other operating expenses increased $2.3 million to
$25.0 million in 2009 from $22.7 million in 2008
primarily due to an increase in costs incurred on behalf of
managed communities due to the opening of seven communities in
2009 and the continued lease up of communities that opened in
2008.
Overall, loss before benefit from income taxes and discontinued
operations in 2009 was ($0.9) million, a decrease of
$3.8 million from the prior year for reasons discussed
above.
German
Management Company
German Management Company operating revenue consists of
management fees in 2009 and management fees and reimbursed costs
incurred on behalf of managed communities in 2008. Operating
revenue was $1.7 million in 2009 compared to
$11.1 million in 2008. The decrease in revenues of
$9.4 million was primarily the result of consolidating the
German communities in 2009 and no longer recognizing reimbursed
costs incurred on behalf of managed communities in this line
item.
German Management Company operating expenses consist primarily
of other operating expenses. Operating expenses were
$5.1 million in 2009 compared to $15.5 million in
2008. The decrease of $10.4 million was primarily the
result of consolidating the German communities in 2009 and no
longer recognizing costs incurred on behalf of managed
communities and downsizing the German Management Company due to
the decision to discontinue operations in Germany.
Loss before benefit from income taxes and discontinued
operations in 2009 was ($4.1) million, an increase of
$1.9 million from the prior year. The change was primarily
due to an increase of $1.0 million in the income from
operations discussed above and a decrease of $3.2 million
in foreign exchange gains.
Unallocated
Corporate and Eliminations
Revenue within the Unallocated Corporate and Eliminations
segment is comprised of the elimination of the Wholly
Owned/Leased management and design fees. Revenue was
($30.1) million in 2009 compared to ($33.5) million in
2008, a decrease of $3.4 million or 10.1%. The decrease is
due to lower occupancy and minimal design fees in 2009.
Operating expense within the Unallocated Corporate and
Eliminations segment is comprised of overhead costs not directly
attributable to an operating segment, elimination of the Wholly
Owned/Leased management fee expense and the costs from our
insurance entities. Operating expense was $48.7 million in
2009 compared to $66.5 million in 2008, a decrease of
$17.8 million or 26.8%. General and administrative
decreased $32.1 million in 2009 primarily due to a
reduction in salaries, professional and legal fees. The decrease
was partially offset by an increase of $19.0 million in
restructuring costs associated with our plan to reduce overhead
costs.
48
Overall, the loss before benefit from income taxes and
discontinued operations in 2009 was ($79.8) million, a
decrease of $29.6 million from the prior year due to the
changes in income from operations discussed above.
Liquidity
and Capital Resources
Overview
We had $39.3 million and $29.5 million of unrestricted
cash and cash equivalents at December 31, 2009 and
December 31, 2008, respectively. Since January 1,
2009, we have had no borrowing availability under the Bank
Credit Facility. As a result, during 2009, we have financed our
operations primarily with cash generated from operations and
sales of assets, including the sale of our Greystone subsidiary,
the sale of our Aston Gardens equity interest and the sale of 21
communities.
In 2010, we intend to sell (i) our German communities,
(ii) the liquidating trust assets and, at our discretion,
(iii) certain communities and land parcels, of which any
net sales proceeds on the disposition of these assets would be
split equally between us, the mortgage holder and the lenders
under the Bank Credit Facility.
Additional financing resources will be required to refinance
existing indebtedness that comes due within the next
12 months. We have undertaken efforts to reduce expenses
and preserve liquidity including; (i) significantly
reducing operating costs; (ii) seeking to restructure the
terms of our indebtedness including extension of scheduled
maturity dates; and (iii) pursuing sales of selected
assets. No assurance can be given that we will be successful in
achieving any of these efforts.
As of December 31, 2009, we have no projects under
development and we do not currently have plans to commence any
new projects. We will reconsider future development when market
conditions stabilize and the cost of capital for development
projects is in line with projected returns.
Debt
and Bank Credit Facility
Debt
At December 31, 2009, we had $440.2 million of
outstanding debt as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Community mortgages
|
|
$
|
112,660
|
|
|
$
|
241,851
|
|
German communities(1)
|
|
|
198,680
|
|
|
|
185,901
|
|
Bank Credit Facility
|
|
|
33,728
|
|
|
|
95,000
|
|
Land loans
|
|
|
33,327
|
|
|
|
37,407
|
|
Other
|
|
|
25,557
|
|
|
|
30,655
|
|
Variable interest entity
|
|
|
23,225
|
|
|
|
23,905
|
|
Margin loan (auction rate securities)
|
|
|
13,042
|
|
|
|
21,412
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
440,219
|
|
|
$
|
636,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The face amount of the debt related to the German communities
was $215.2 million at December 31, 2009. Excludes
$10.5 million of accrued interest on the German debt as of
December 31, 2009 which is reflected in Liabilities
associated with German assets held for sale on our consolidated
balance sheet. |
49
Principal maturities of debt at December 31, 2009 are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages,
|
|
|
|
|
|
Variable
|
|
|
Germany
|
|
|
|
|
|
|
|
|
|
Bank Credit
|
|
|
Wholly-Owned
|
|
|
Land
|
|
|
Interest
|
|
|
Venture
|
|
|
|
|
|
|
|
|
|
Facility
|
|
|
Properties
|
|
|
Loans
|
|
|
Entity Debt
|
|
|
Debt(1)
|
|
|
Other
|
|
|
Total
|
|
|
Past due
|
|
$
|
|
|
|
$
|
1,398
|
|
|
$
|
27,107
|
|
|
$
|
1,365
|
|
|
$
|
1,723
|
|
|
$
|
|
|
|
$
|
31,593
|
|
2010
|
|
|
33,728
|
|
|
|
76,278
|
|
|
|
6,220
|
|
|
|
715
|
|
|
|
71,655
|
|
|
|
38,599
|
|
|
|
227,195
|
|
2011
|
|
|
|
|
|
|
34,984
|
|
|
|
|
|
|
|
740
|
|
|
|
95,590
|
|
|
|
|
|
|
|
131,314
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
775
|
|
|
|
29,712
|
|
|
|
|
|
|
|
30,487
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
810
|
|
|
|
|
|
|
|
|
|
|
|
810
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
840
|
|
|
|
|
|
|
|
|
|
|
|
840
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,980
|
|
|
|
|
|
|
|
|
|
|
|
17,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33,728
|
|
|
$
|
112,660
|
|
|
$
|
33,327
|
|
|
$
|
23,225
|
|
|
$
|
198,680
|
|
|
$
|
38,599
|
|
|
$
|
440,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Along with contractual maturities due in 2010, debt that is in
default is also reflected in current portion of long term debt.
Debt that is in default at December 31, 2009 consists of
the following (in thousands):
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
German communities
|
|
$
|
198,680
|
|
Community mortgages
|
|
|
36,382
|
|
Variable interest entity
|
|
|
23,225
|
|
Land loans
|
|
|
33,327
|
|
Other
|
|
|
25,557
|
|
|
|
|
|
|
|
|
$
|
317,171
|
|
|
|
|
|
|
The German debt is in default as we stopped making principal and
interest payments in 2009. The remaining debt is in default as
we have failed to comply with various financial covenants. On
February 12, 2010, we extended $56.9 million of debt
that was either past due or in default at December 31,
2009. The debt is associated with an operating community and two
land parcels. In connection with the extension we (i) made
a $5.0 million principal payment at closing;
(ii) extended the terms of the debt to no earlier than
December 2, 2010; (iii) provided for an additional
$5.0 million principal payment on or before July 31,
2010; and, among other items, (iv) defaults under the loan
agreements were waived by the lenders. We are working with our
lenders to either re-schedule certain of these obligations or
obtain waivers.
For debt that is not in default, we have scheduled debt
maturities as of December 31, 2009 as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Qtr.
|
|
|
2nd Qtr.
|
|
|
3rd Qtr.
|
|
|
4th Qtr.
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
Thereafter
|
|
|
Total
|
|
|
Bank Credit Facility
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
33,728
|
|
|
$
|
|
|
|
$
|
33,728
|
|
Community mortgages
|
|
|
|
|
|
|
41,773
|
|
|
|
|
|
|
|
34,505
|
|
|
|
|
|
|
|
76,278
|
|
Margin loan (auction rate securities)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,042
|
|
|
|
|
|
|
|
13,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
41,773
|
|
|
$
|
|
|
|
$
|
81,275
|
|
|
$
|
|
|
|
$
|
123,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany
Venture
We own nine communities (two of which have been closed) in
Germany. The debt related to these communities has partial
recourse to us as the debt for four of the communities of
50.0 million ($72.0 million at December 31,
2009), has a stipulated release price for each community. With
respect to the remaining five communities, we have provided
guarantees to the lenders for the payment of the monthly
interest payments and principal amortization and operating
shortfalls until the maturity dates of the loans. As a result of
the violation of a covenant in one of the loan
50
documents, one of the lenders has asserted that we are
effectively obligated to repay a portion of the principal at
this time. However, in connection with the German debt
restructuring, we have settled with this lender. The face amount
of the total debt related to the German communities, excluding
accrued but unpaid interest, at December 31, 2009 is
$215.2 million. We also had accrued interest of
$10.5 million and $0.6 million at December 31,
2009 and 2008, respectively, related to this debt.
At the beginning of 2009, we informed the lenders to our German
communities and the Hoesel land, an undeveloped land parcel,
that our German subsidiary was suspending payment of principal
and interest on all loans for our German communities and that we
would seek a comprehensive restructuring of the loans and our
operating deficit guarantees. As a result of the failure to make
payments of principal and interest on the loans for our German
communities, we are in default of the loan agreements. We have
entered into standstill agreements with the lenders pursuant to
which the lenders have agreed not to foreclose on the
communities that are collateral for their loans. The standstill
agreements stipulate that neither party will commence or
prosecute any action or proceeding to enforce their demand for
payment by us pursuant to our operating deficit agreements until
the earliest of the occurrence of certain other events relating
to the loans.
In late 2009, we entered into a restructuring agreement, in the
form of a binding term sheet, with three of our lenders
(electing lenders) to seven of the nine communities,
to settle and compromise their claims against us, including
under operating deficit and principal repayment guarantees
provided by us in support of our German subsidiaries. These
three lenders contended that these claims had an aggregate value
of approximately $131.1 million. The binding term sheet
contemplates that, on or before the first anniversary of the
execution of definitive documentation for the restructuring,
certain other of our identified lenders may elect to participate
in the restructuring with respect to their asserted claims. The
claims being settled by the three lenders represent
approximately 83.5 percent of the aggregate amount of
claims asserted by the lenders that may elect to participate in
the restructuring transaction.
The restructuring agreement provides that the electing lenders
will release and discharge us from certain claims they may have
against us. We have issued to the electing lenders
4.2 million shares of our common stock, their pro rata
share of up to 5 million shares of our common stock. The
fair value of the 4.2 million shares at the time of
issuance was $11.1 million. This amount is reflected as a
deposit on our consolidated balance sheets until such time as
all consideration is exchanged upon the execution of the
definitive documentation. In addition, we will grant mortgages
for the benefit of all electing lenders on the liquidating
trust. Following the first execution of the definitive
documentation for the restructuring, we will continue to pursue
the sale of the mortgaged properties and distribute the net sale
proceeds to the electing lenders.
We have guaranteed that, within 30 months of the first
execution of the definitive documentation for the restructuring,
the electing lenders will receive a minimum of
$58.3 million from the net proceeds of the sale of the
liquidating trust, which equals 80 percent of the most
recent aggregate appraised value of these properties. If the
electing lenders do not receive at least $58.3 million by
such date, we will make payment to cover any shortfall or, at
such lenders option, convey to them the remaining unsold
properties in satisfaction of our remaining obligation to the
minimum payments.
In addition, we have been marketing for sale the German assisted
living communities subject to loan agreements with the electing
lenders and will remain responsible for all costs of operating,
preserving and maintaining these communities until the earlier
of either their sale or December 31, 2010. In 2009, we
engaged a broker to assist in the sale of the nine German
communities and at that time, classified the German assets as
held for sale. As the book value of the majority of the assets
was in excess of their fair value less estimated costs to sell,
we recorded a charge of $49.9 million in 2009 which is
included in discontinued operations.
The closing of the transaction, including the execution of the
definitive documentation, the release of claims and the issuance
of Sunrise common stock, was conditioned upon receipt of consent
for the transaction from Bank of America, N.A., as the
administrative agent under our Bank Credit Facility, which
consent was received. In accordance with the binding term sheet,
definitive documentation was to be executed as soon as
reasonably possible (but no later than 40 days) after the
receipt of such required consent. In December 2009, we extended
the execution of the definitive documentation to allow the
parties additional time to complete the definitive
documentation. We expect to complete this process by the end of
February 2010.
51
At December 31, 2009, we continue to be liable under
operating deficit and repayment guarantees for two communities
which are not part of the restructuring. In addition, we were
liable for a principal repayment guarantee for the Hoesel land
parcel which was not part of the restructuring agreement. The
Hoesel land parcel was sold and the liability was released in
early 2010. We expect to recognize a gain of $0.7 million
on the sale in 2010.
Mortgage
Financing
In 2008, 16 of our wholly owned subsidiaries incurred mortgage
indebtedness in the aggregate principal amount of approximately
$106.7 million from Capmark Bank (Capmark) as
lender and servicer pursuant to 16 separate
cross-collateralized, cross-defaulted mortgage loans. Shortly
after the closing, Capmark assigned the mortgage loans to Fannie
Mae. Variable monthly interest payments were in an amount equal
to (i) one third (1/3) of the Discount (which
was the difference between the loan amount and the price at
which Fannie Mae was able to sell its three-month, rolling
discount mortgage backed securities) plus
(ii) 227 basis points (2.27%) times the outstanding
loan amount divided by twelve (12).
In connection with the mortgage loans, we entered into interest
rate protection agreements that provided for payments to us in
the event the LIBOR rate exceeded 5.6145%. These loans and
interest rate protection agreements were either assigned to the
buyer of 15 of the 16 communities in 2009 or paid off in
connection with that closing.
Also in 2009, mortgage loans of $32.2 million were either
assigned to the purchaser or repaid in conjunction with the sale
of the underlying assets.
Bank
Credit Facility
In 2009, we entered into various amendments to our Bank Credit
Facility. These amendments, among other things:
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extended the maturity date to December 2, 2010;
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removed all existing financial covenants other than the minimum
liquidity covenant;
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renewed existing letters of credit;
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modified the minimum liquidity covenant to not less than
$10.0 million of unrestricted cash on hand the last day of
the month;
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modified the restriction on the disposal of assets to include
disposition of certain assets as long as 50% of the net sale
proceeds are allocated to the lenders; and
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permanently reduced the commitment after future principal
repayments or cancellation of letters of credit.
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Total amendment fees paid were $1.4 million. Principal
payments of $61.3 million were made during 2009 in
accordance with these amendments. In addition,
$20.0 million was placed into a collateral account for the
benefit of other creditors from the proceeds of the sale of 21
communities. $6.2 million of cash was used to satisfy the
obligations of other creditors and $13.8 million remains in
the collateral account at December 31, 2009. This amount is
included in restricted cash in the consolidated balance sheets.
We have no borrowing availability under the Bank Credit
Facility. We have $19.4 million of letters of credit
outstanding under the Bank Credit Facility at December 31,
2009.
Other
Debt
Sunrise ventures have total debt of $3.7 billion with
near-term scheduled debt maturities of $0.3 billion in
2010. Of this $3.7 billion of debt, there is long-term debt
that is in default of $0.7 billion. The debt in the
ventures is non-recourse to us with respect to principal payment
guarantees and we and our venture partners are working with the
venture lenders to obtain covenant waivers and to extend the
maturity dates. In certain cases, we have provided operating
deficit and completion guarantees to the lenders or ventures. We
have operating deficit or completion guarantee agreements with
respect to ventures in which we are obligated for total debt of
$1.1 billion or 30% of the total venture debt. Under the
operating deficit agreements, we are obligated to pay operating
shortfalls, if any, with
52
respect to these ventures. Any such payments could include
amounts arising in part from the ventures obligations for
monthly principal and interest on the venture debt. We do not
believe that these operating deficit agreements would obligate
us to make payments of principal and interest on such venture
debt that might become due as a result of acceleration of such
indebtedness. We have minority non-controlling interests in
these ventures.
Certain of these ventures have financial covenants that are
based on the consolidated results of Sunrise. In all such
instances, the construction loans or permanent financing
provided by financial institutions is secured by a mortgage or
deed of trust on the financed community. These events of default
could allow the financial institutions who have extended credit
to seek acceleration of the loans.
Guarantees
We have provided project completion guarantees to venture
lenders and the venture itself, operating deficit guarantees to
the venture lenders whereby after depletion of established
reserves we guarantee the payment of the lenders monthly
principal and interest during the term of the guarantee and
guarantees to ventures to fund operating shortfalls. The terms
of the guarantees match the term of the underlying venture debt
and generally range from three to five years, to the extent we
are able to refinance the venture debt. Fundings under the
operating deficit guarantees and debt repayment guarantees are
generally recoverable either out of future cash flows of the
venture or from proceeds of the sale of communities. We have no
projects under construction at December 31, 2009.
The maximum potential amount of future fundings for outstanding
guarantees, the carrying amount of the liability for expected
future fundings at December 31, 2009 and fundings during
2009 are as follows (in thousands):
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ASC
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ASC
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Fundings
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Guarantee
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Contingencies
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Total
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From
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Topic Liability
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Topic Liability
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Liability
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January 1,
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for Future
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for Future
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for Future
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2009
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Maximum Potential
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Fundings at
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Fundings at
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Fundings at
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Through
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Amount of Future
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December 31,
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December 31,
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December 31,
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December 31,
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Guarantee Type
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Fundings
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2009
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2009
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2009
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2009
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Operating deficit
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Uncapped
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$
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323
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$
|
500
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$
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823
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$
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Other
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|
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|
|
|
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|
125
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Total
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$
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323
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$
|
500
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$
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823
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$
|
125
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Senior
Living Condominium Project
In conjunction with the sale of a majority interest in one
condominium venture and one assisted living venture discussed in
Note 6, we are obligated to fund operating shortfalls. The
weak economy in the Washington, D.C. area has resulted in
lower condominium sales than forecasted and we have funded
$3.5 million under the guarantees through December 31,
2009. In addition, we are required to fund marketing costs
associated with the sale of the condominiums which we estimate
will total approximately $7.5 million by the time the
remaining inventory of condominiums are sold.
In July 2009, the lender alleged that an event of default had
occurred. The event of default was related to providing certain
financial information for the venture that the lender had
previously requested. In October 2009, we received a notice of
default related to the nonpayment of interest. We are in
discussions with the lender on these matters.
Agreements
with Marriott International, Inc.
Our agreements with Marriott International, Inc.
(Marriott), which related to our purchase of
Marriott Senior Living Services, Inc. in 2003, provide that
Marriott has the right to demand that we provide cash collateral
security for Assignee Reimbursement Obligations, as defined in
the agreements, in the event that our implied debt rating is not
at least B- by Standard and Poors or B1 by Moodys Investor
Services. Assignee Reimbursement Obligations relate to possible
liability with respect to leases assigned to us in 2003 and
entrance fee obligations assumed by us in 2003 that remain
outstanding (approximately $8.1 million at
December 31, 2009). Marriott has informed us that
53
they reserve all of their rights to issue a Notice of Collateral
Event under the Assignment and Reimbursement Agreement.
Other
Generally, the financing obtained by our ventures is
non-recourse to the venture members, with the exception of the
debt repayment guarantees discussed above. However, we have
entered into guarantees with the lenders with respect to acts
which we believe are in our control, such as fraud or voluntary
bankruptcy of the venture, that create exceptions to the
non-recourse nature of debt. If such acts were to occur, the
full amount of the venture debt could become recourse to us. The
combined amount of venture debt underlying these guarantees is
approximately $2.2 billion at December 31, 2009. We
have not funded under these guarantees, and do not expect to
fund under such guarantees in the future.
To the extent that a third party fails to satisfy an obligation
with respect to two continuing care retirement communities we
manage, we would be required to repay this obligation, the
majority of which is expected to be refinanced with proceeds
from the issuance of entrance fees as new residents enter the
communities. At December 31, 2009, the remaining liability
under this obligation is $44.3 million. We have not funded
under these guarantees, and do not expect to fund under such
guarantees in the future.
Contractual
Obligations
Our current contractual obligations include long-term debt,
operating leases for our corporate and regional offices,
operating leases for our communities, and building and land
lease commitments. In addition, we have commitments to fund
ventures in which we are a partner. See Note 14 to our
Consolidated Financial Statements for a discussion of our
commitments.
Principal maturities of debt, equity investments in
unconsolidated entities and future minimum lease payments at
December 31, 2009 are as follows (in thousands):
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Payments due by period
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More
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Less Than
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Than
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Contractual Obligations
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Total
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1 Year
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1-3 Years
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4-5 Years
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5 Years
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Long-Term Debt Obligations
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Debt
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$
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406,491
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$
|
225,060
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$
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161,801
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$
|
1,650
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$
|
17,980
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|
Bank Credit Facility
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33,728
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33,728
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Capital Lease Obligations
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Operating Lease Obligations
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398,504
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61,196
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115,031
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74,757
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147,520
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Purchase Obligations(1)
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Other Long-Term Liabilities(2)
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Equity investments in unconsolidated entities
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3,724
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3,724
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Total
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$
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842,447
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$
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323,708
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$
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276,832
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$
|
76,407
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$
|
165,500
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(1) |
|
We have various standing or renewable contracts with vendors.
These contracts are all cancellable with minimal or no
cancellation penalties. Contract terms are generally one year or
less. |
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(2) |
|
In addition to the obligations in the table above, approximately
$19 million of unrecognized tax benefits have been recorded
as liabilities and we are uncertain as to if or when such
amounts may be settled. |
Cash
Flows
Our primary sources of cash from operating activities are from
management fees, from monthly fees and other billings from
services provided to residents of our consolidated communities
and distributions of operating earnings from unconsolidated
ventures. The primary uses of cash for our ongoing operations
include the payment of community operating and ancillary
expenses for our consolidated and managed communities, general
and
54
administrative expenses and restructuring expenses. Changes in
operating assets and liabilities such as accounts receivable,
prepaids and other current assets, and accounts payable and
accrued expenses will fluctuate based on the timing of payment
to vendors. Reimbursement of these costs from our managed
communities will vary as some costs are pre-funded, such as
payroll, while others are reimbursed after they are incurred.
Therefore, there will not always be a correlation between
increases and decreases of accounts payable and receivables for
our managed communities.
Net cash provided by (used in) operating activities was
$33.4 million and $(123.9) million in 2009 and 2008,
respectively. During 2009, net working capital provided cash of
$32.5 million as opposed to using cash of
$63.2 million in 2008. Discontinued operations provided
cash of $2.1 million in 2009 as compared to using cash of
$39.9 million in 2008.
Net cash (used in) provided by operating activities was
$(123.9) million and $128.5 million in 2008 and 2007,
respectively. During 2008, net working capital used cash of
$63.2 million as opposed to providing cash of
$5.0 million in 2007. In 2008, the use of cash primarily
relates to the payment of accounts payable and other accrued
expenses. In addition, distributions of earnings from
unconsolidated subsidiaries were $134.0 million less in
2008 as compared to 2007. Discontinued operations used cash of
$39.9 million in 2008 as compared to providing cash of
$64.1 million in 2007.
Net cash provided by (used in) investing activities was
$84.4 million and $(172.5) million in 2009 and 2008,
respectively, an increase of $256.9 million. The increase
in cash provided by investing activities was primarily due to a
decrease of $206.6 million in capital expenditures and
condominium fundings, an increase in cash provided by
discontinued operations of $140.9 million as the result of
asset sale proceeds and a decrease in investments in
unconsolidated communities of $16.0 million. These
increases in cash were partially offset by a decrease of
$52.1 million of proceeds from the disposition of assets
and increase in restricted cash of $71.2 million.
Net cash used in investing activities was $172.5 million
and $248.5 million in 2008 and 2007, respectively, a
decrease of $76.0 million. In 2008, we slowed our
development pace resulting in a decrease in capital expenditures
from $237.6 million in 2007 to $173.5 million in 2008.
During 2008, we funded $57.9 million for our senior living
condominium project, with no corresponding outflow in 2007. In
2008, we had no asset acquisitions, compared to
$49.9 million in 2007. Restricted cash decreased by
approximately $41.0 million in 2008 compared to 2007 due in
part to the net purchase of $38.9 million of auction rate
securities using restricted cash in our insurance captive and
due to refunds made to our venture partners from changes to our
self insurance liabilities from reassessment of the actuarial
liabilities.
Net cash (used in) provided by financing activities was
$(108.0) million and $187.7 million for 2009 and 2008,
respectively, a decrease of $295.7 million. This decrease
was primarily due to a decrease in net borrowings of long-term
debt of $93.4 million, a decrease in net borrowings of debt
related to discontinued operation of $144.8 million and
repayments of $61.3 million under our Bank Credit Facility as
compared to repayments of $5.0 million in 2008.
Net cash provided by financing activities was
$187.7 million and $176.3 million in 2008 and 2007,
respectively, resulting primarily from $9.9 million in net
increased borrowings. The significant sources of new financing
in 2008 were new mortgage debt related to 16 of our wholly-owned
subsidiaries ($106.7 million), 15 of which were sold in
2009 and the mortgage proceeds from 2008 are included in
discontinued operations, construction debt for one community
under development ($31.2 million), and a margin loan
collateralized by auction rate securities ($21.4 million).
Market
Risk
We are exposed to market risk from changes in interest rates
primarily through variable rate debt. The fair market value
estimates for debt securities are based on discounting future
cash flows utilizing current rates offered
55
to us for debt of the same type and remaining maturity. The
following table details by category the principal amount, the
average interest rate and the estimated fair market value of our
debt (in thousands):
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Maturity Date
|
|
Fixed Rate
|
|
|
Variable Rate
|
|
Through December 31,
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Debt
|
|
|
Debt
|
|
|
2010
|
|
$
|
1,365
|
|
|
$
|
257,423
|
|
2011
|
|
|
|
|
|
|
131,314
|
|
2012
|
|
|
|
|
|
|
30,487
|
|
2013
|
|
|
|
|
|
|
810
|
|
2014
|
|
|
|
|
|
|
840
|
|
Thereafter
|
|
|
|
|
|
|
17,980
|
|
|
|
|
|
|
|
|
|
|
Total Carrying Value
|
|
$
|
1,365
|
|
|
$
|
438,854
|
|
|
|
|
|
|
|
|
|
|
Average Interest Rate
|
|
|
6.7
|
%
|
|
|
2.9
|
%
|
|
|
|
|
|
|
|
|
|
Estimated Fair Market Value
|
|
$
|
1,365
|
|
|
$
|
375,614
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, we had approximately
$438.9 million of floating-rate debt at a weighted average
interest rate of 2.85%. Debt incurred in the future also may
bear interest at floating rates. Therefore, increases in
prevailing interest rates could increase our interest payment
obligations, which would negatively impact earnings. A
one-percent change in interest rates would increase or decrease
annual interest expense by approximately $4.4 million based
on the amount of floating-rate debt at December 31, 2009. A
five-percent change in interest rates would increase or decrease
annual interest expense by approximately $21.9 million
based on the amount of floating-rate debt at December 31,
2009.
We are subject to the impact of foreign exchange translation on
our financial statements. To date, we have not hedged against
foreign currency fluctuation; however, we may pursue hedging
alternatives in the future. At December 31, 2009, our
wholly owned subsidiaries have net U.S. dollar equivalent
monetary liabilities denominated in foreign currency of
$60.7 million, $2.1 million and $18.7 million in
Canadian dollars, British pounds and Euros, respectively. We
recorded $6.7 million, net, in exchange gains in 2009
($8.0 million in gains related to the Canadian dollar and
$(0.6) million and $(0.7) million in losses related to
the Euro and British pound, respectively).
Critical
Accounting Estimates
We consider an accounting estimate to be critical if:
1) the accounting estimate requires us to make assumptions
about matters that were highly uncertain at the time the
accounting estimate was made, and 2) changes in the
estimate that are reasonably likely to occur from period to
period, or use of different estimates than we reasonably could
have used in the current period, would have a material impact on
our financial condition or results of operations.
Management has discussed the development and selection of these
critical accounting estimates with the Audit Committee of our
Board of Directors. In addition, there are other items within
our financial statements that require estimation, but are not
deemed critical as defined above. Changes in estimates used in
these and other items could have a material impact on our
financial statements.
Impairment
of Intangible Assets, Long-Lived Assets and Investments in
Ventures
Intangibles and long-lived asset groups are tested for
recoverability when changes in circumstances indicate the
carrying value may not be recoverable. Events that trigger a
test for recoverability include material adverse changes in the
projected revenues and expenses, significant underperformance
relative to historical or projected future operating results,
and significant negative industry or economic trends. A test for
recoverability also is performed when management has committed
to a plan to sell or otherwise dispose of an asset group and the
plan is expected to be completed within a year. Recoverability
of an asset group is evaluated by comparing its carrying value
to the future net undiscounted cash flows expected to be
generated by the asset group. If the comparison indicates that
the carrying value of an asset group is not recoverable, an
impairment loss is recognized. The
56
impairment loss is measured at the lowest level of cash flows
which is typically at the community or land parcel level, by the
amount by which the carrying amount of the asset group exceeds
the estimated fair value. When an impairment loss is recognized
for assets to be held and used, the adjusted carrying amount of
those assets is depreciated over its remaining useful life.
Assumptions and Approach Used. We estimate the
fair value of an intangible asset, or asset group based on
market prices (i.e., the amount for which the intangible asset
or asset group could be bought by or sold to a third party),
when available. When market prices are not available, we
estimate the fair value using the income approach
and/or the
market approach. The income approach uses cash flow projections.
Inherent in our development of cash flow projections are
assumptions and estimates derived from a review of our operating
results, approved business plans, expected growth rates, cost of
capital, and tax rates. We also make certain assumptions about
future economic conditions, interest rates, and other market
data. Many of the factors used in assessing fair value are
outside the control of management, and these assumptions and
estimates can change in future periods.
Changes in assumptions or estimates could materially affect the
determination of fair value of a reporting unit, intangible
asset or asset group and therefore could affect the amount of
potential impairment of the asset. The following key assumptions
to our income approach include:
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Business Projections We make assumptions
regarding the levels of revenue from communities and services.
We also make assumptions about our cost levels (e.g., capacity
utilization, labor costs, etc.). Finally, we make assumptions
about the amount of cash flows that we will receive upon a
future sale of the communities using estimated cap rates. These
assumptions are key inputs for developing our cash flow
projections. These projections are derived using our internal
business plans and budgets;
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Growth Rate A growth rate is used to
calculate the terminal value of the business, and is added to
budgeted earnings before interest, taxes, depreciation and
amortization. The growth rate is the expected rate at which
earnings are projected to grow beyond the planning period;
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Economic Projections Assumptions regarding
general economic conditions are included in and affect our
assumptions regarding pricing estimates for our communities and
services. These macro-economic assumptions include, but are not
limited to, industry projections, inflation, interest rates,
price of labor, and foreign currency exchange rates; and
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Discount Rates When measuring a possible
impairment, future cash flows are discounted at a rate that is
consistent with a weighted average cost of capital for a
potential market participant. The weighted average cost of
capital is an estimate of the overall after-tax rate of return
required by equity and debt holders of a business enterprise.
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The market approach is one of the other primary methods used for
estimating fair value of a reporting unit, asset, or asset
group. This assumption relies on the market value (market
capitalization) of companies that are engaged in the same or
similar line of business.
In 2009, we recorded certain land parcels held for sale at the
lower of their carrying value or fair value less estimated costs
to sell. We used appraisals, market knowledge and broker
opinions of value to determine fair value. As the carrying value
of some of the assets was in excess of the fair value less
estimated costs to sell, we recorded a charge of
$4.5 million which is included in operating expenses under
impairment of long-lived assets.
In 2009, we recorded impairment charges of $24.9 million
related to certain operating communities that are held and used
as the carrying value of these assets was in excess of the fair
value. We also recorded impairment charges of $24.9 million
for certain land parcels held and used as the carrying value of
these assets was in excess of the fair value. We used
appraisals, recent sale and a cost of capital rate to the
communities average net income to estimate fair value of
all of these assets. The charges are included in operating
expenses under impairment of long-lived assets.
In 2009, upon designation of the German assets as held for sale,
we recorded the assets at the lower of their carrying value or
their fair value less estimated costs to sell. We used the bids
received to date in the determination of fair value. As the
carrying value of a majority of the assets was in excess of the
fair value less estimated costs to sell, during 2009 we recorded
a charge of $49.9 million which is included in discontinued
operations.
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Nature of Estimates Required Investments in
Ventures. We hold a minority equity interest in
ventures established to develop or acquire and own senior living
communities. Those ventures are generally limited liability
companies or limited partnerships. The equity interest in these
ventures generally ranges from 10% to 50%.
Our investments in ventures accounted for using the equity and
cost methods of accounting are impaired when it is determined
that there is other than a temporary decline in the
fair value as compared to the carrying value of the venture or
for equity method investments when individual long-lived assets
inside the venture meet the criteria specified above. A
commitment to a plan to sell some or all of the assets in a
venture would cause a recoverability evaluation for the
individual long-lived assets in the venture and possibly the
venture itself. Our evaluation of the investment in the venture
would be triggered when circumstances indicate that the carrying
value may not be recoverable due to loan defaults, significant
under performance relative to historical or projected future
operating performance and significant industry or economic
trends.
Assumptions and Approach Used. The assumptions
and approach for the evaluation of the individual long-lived
assets inside the venture are described above. Our approach for
evaluation of an investment in a venture would be based on
market prices, when available, or an estimate of the fair value
using the market approach. The assumptions and related risks are
identical to those used for goodwill, intangible assets and
long-lived assets described above.
In 2009, based on the receipt of a notice of default from the
lender to a venture in which we own a 20% interest and the poor
rental experience in the venture, we considered our equity to be
other than temporarily impaired and wrote off the remaining
equity balance of $1.1 million. We determined the fair
value of our investment in a venture in which we had a 1%
interest had decreased to zero and was other than temporarily
impaired, resulting in an impairment charge of
$0.1 million. In addition, we wrote-down our equity
investments in two of our development ventures by
$7.4 million based on poor performance and defaults under
the ventures construction loan agreements.
In 2008, we wrote-down our equity investments in our Fountains
and Aston Gardens ventures by $10.7 million and
$4.8 million, respectively.
In 2007, we wrote-down equity investments in four unconsolidated
ventures. The majority of the charge related to our investment
in Aston Gardens, a venture which acquired six senior living
communities in Florida in September 2006. In 2007 and into 2008,
the operating results of the Aston Garden communities suffered
due to adverse economic conditions in Florida for independent
living communities including a decline in the real estate
market. These operating results were insufficient to achieve
compliance with the debt covenants for the mortgage debt for the
properties. In July 2008, the venture received notice of default
from the lender of $170.0 million of debt obtained by the
venture at the time of the acquisition in September 2006. Later
in July 2008, we received notice from our equity partner
alleging a default under our management agreement as a result of
receiving the notice from the lender. This debt is non-recourse
to us, except for monthly principal payments during the term of
the debt. Based on our assessment, we determined that our
investment was impaired and as a result, we recorded a pre-tax
impairment charge of approximately $21.6 million in the
fourth quarter of 2007.
Loss
Reserves for Self-Insured Programs
Nature of Estimates Required. We utilize large
deductible blanket insurance programs in order to contain costs
for certain lines of insurance risks including workers
compensation and employers liability risks, automobile
liability risk, employment practices liability risk and general
and professional liability risks (Self-Insured
Risks). The design and purpose of a large deductible
insurance program is to reduce the overall premium and claims
costs by internally financing lower cost claims that are more
predictable from year to year, while buying insurance only for
higher-cost, less predictable claims.
We have self-insured a portion of the Self-Insured Risks through
a wholly owned captive insurance subsidiary, Sunrise Senior
Living Insurance, Inc. (Sunrise Captive). Sunrise
Captive issues policies of insurance to and receives premiums
from Sunrise that are reimbursed through expense allocation to
each operated community and us. Sunrise Captive pays the costs
for each claim above a deductible up to a per claim limit.
Third-party insurers are responsible for claim costs above this
limit. These third-party insurers carry an A.M. Best rating
of A-/VII or better.
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We also offer our employees an option to participate in
self-insured health and dental plans. The cost of our employee
health and dental benefits, net of employee contributions, is
shared by us and the communities based on the respective number
of participants working directly either at our corporate
headquarters or at the communities. Funds collected are used to
pay the actual program costs which include estimated annual
claims, third-party administrative fees, network provider fees,
communication costs, and other related administrative costs
incurred by us. Claims are paid as they are submitted to the
plan administrator.
Assumptions and Approach Used for Self-Insured
Risks. We record outstanding losses and expenses
for the Self-Insured Risks and for our health and dental plans
based on the recommendations of an independent actuary and
managements judgment. We believe that the allowance for
outstanding losses and expenses is appropriate to cover the
ultimate cost of losses incurred at December 31, 2009, but
the allowance may ultimately be settled for a greater or lesser
amount. Any subsequent changes in estimates are recorded in the
period in which they are determined. While a single value is
recorded on Sunrises balance sheet, loss reserves are
based on estimates of future contingent events and as such
contain inherent uncertainty. A quantification of this
uncertainty would reflect a range of reasonable favorable and
unfavorable scenarios. Sunrises annual estimated cost for
Self-Insured Risks is determined using management judgment
including actuarial analyses at various confidence levels. The
confidence level is the likelihood that the recorded expense
will exceed the ultimate incurred cost.
Sensitivity Analysis for Self-Insured
Risks. The recorded liability for Self-Insured
Risks was approximately $100 million at December 31,
2009. The expected liability is based on a 50% confidence level.
If we had used a 75% confidence level, the recorded liability
would be approximately $17 million higher. If we had used a
90% confidence level, the recorded liability would be
approximately $35 million higher.
We share any revisions to prior estimates with the communities
participating in the insurance programs based on their
proportionate share of any changes in estimates. Accordingly,
the impact of changes in estimates on Sunrises income from
operations would be much less sensitive than the difference
above.
Assumptions and Approach Used for Health and Dental
Plans. For our self-insured health and dental
plans, we record a liability for outstanding claims and claims
that have been incurred but not yet reported. This liability is
based on the historical claim reporting lag and payment trends
of health insurance claims and is based on the recommendations
of an independent actuary. The variability in the liability for
unpaid claims including incurred but not yet reported claims is
much less significant than the self insured risks discussed
above because the claims are more predictable as they generally
are known within 90 days and the high and the low end of
the range of estimated cost of individual claims is much closer
than the workers compensation and employers
liability risks, automobile liability risk, employment practices
liability risk and general and professional liability risks
discussed above.
Sensitivity Analysis for Self-Insured Health and Dental Plan
Costs. The liability for self insured incurred
but not yet reported claims for the self insured health and
dental plan is included in Accrued expenses in the
consolidated balance sheets and was $13.0 million and
$12.9 million at December 31, 2009 and 2008,
respectively. We believe that the liability for outstanding
losses and expenses is appropriate to cover the ultimate cost of
losses incurred at December 31, 2009, but actual claims may
differ. We record any subsequent changes in estimates in the
period in which they are determined and will share with the
communities participating in the insurance programs based on
their proportionate share of any changes in estimates.
Variable
Interest Entities
Nature of Estimates Required. We hold a
minority equity interest in ventures established to develop or
acquire and own senior living communities. Those ventures are
generally limited liability companies or limited partnerships.
Our equity interest in these ventures generally ranges from 10%
to 50%.
We review all of our ventures to determine if they are variable
interest entities (VIEs). If a venture meets the
requirements and is a VIE, we must then determine if we are the
primary beneficiary of the VIE. Estimates are required for the
computation and probability of estimated cash flows, expected
losses and expected residual returns of the VIE to determine if
we are the primary beneficiary of the VIE and therefore required
to consolidate the venture.
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Assumptions. In determining whether we are the
primary beneficiary of a VIE, we must make assumptions regarding
cash flows of the entity, expected loss levels and expected
residual return levels. The probability of various cash flow
possibilities is determined from business plans, budgets and
entity history if available. These cash flows are discounted at
the risk-free interest rate. Computations are then made based on
the estimated cash flows of the expected losses and residual
returns to determine if the entity is a variable interest entity
and, if so, to determine the primary beneficiary. Changes in
estimated cash flows and the probability factors could change
the determination of the primary beneficiary and whether there
is a requirement to consolidate a VIE.
Effective January 1, 2010, the Financial Accounting
Standards Board (FASB) Accounting Standards
Codification (ASC) issued Accounting Standards
Update (ASU)
2009-17 (ASU
2009-17)
Consolidations (Topic 810) Improvements to Financial
Reporting by Enterprises Involved with Variable Interest
Entities. ASU
2009-17
establishes a qualitative approach to the determination of the
primary beneficiary of a VIE based on controlling financial
interest in a variable interest entity that replaces the
previous quantitative approach. However, ASU
2009-17 does
not eliminate the need to perform a quantitative analysis in
applying other provisions of the ASC Consolidations topic,
including the determination of VIE status. Upon adoption of ASU
2009-17, we
must reconsider our consolidation conclusions for all entities
with which we are involved. Additionally, ASU
2009-17
eliminates the primary beneficiary reconsideration concept and
effectively requires continuous evaluation as to the
determination of the primary beneficiary as facts and
circumstances change. We do not believe ASU
2009-17 will
have a material impact on our consolidated financial position,
results of operations or cash flows. Considering that we will
need to perform quantitative analysis for VIE determination
under ASU
2009-17, we
will continue to make estimates and assumptions referred to
above.
Valuation
of Deferred Tax Assets
Nature of Estimates Required. Deferred tax
assets and liabilities are recognized based on the future tax
consequences attributable to temporary differences that exist
between the financial statement carrying value of assets and
liabilities and their respective tax bases, and operating loss
and tax credit carryforwards on a taxing jurisdiction basis. We
measure deferred tax assets and liabilities using enacted tax
rates that will apply in the years in which we expect the
temporary differences to be recovered or paid.
ASC Income Tax Topic requires a reduction of the carrying
amounts of deferred tax assets by recording a valuation
allowance if, based on the available evidence, it is more likely
than not (defined by as a likelihood of more than
50 percent) such assets will not be realized. The valuation
of deferred tax assets requires judgment in assessing the likely
future tax consequences of events that have been recognized in
our financial statements or tax returns and future
profitability. Our accounting for deferred tax consequences
represents our best estimate of those future events. Changes in
our current estimates, due to unanticipated events or otherwise,
could have a material impact on our financial condition and
results of operations.
Assumptions and Approach Used. In assessing
the need for a valuation allowance, we consider both positive
and negative evidence related to the likelihood of realization
of the deferred tax assets. If, based on the weight of available
evidence, it is more likely than not the deferred
tax assets will not be realized, we would be required to
establish a valuation allowance. The weight given to the
positive and negative evidence is commensurate with the extent
to which the evidence may be objectively verified. As such, it
is generally difficult for positive evidence regarding projected
future taxable income exclusive of reversing taxable temporary
differences to outweigh objective negative evidence of recent
financial reporting losses. ASC Income Tax Topic states that a
cumulative loss in recent years is a significant piece of
negative evidence that is difficult to overcome in determining
that a valuation allowance is not needed against deferred tax
assets.
This assessment, which is completed on a taxing jurisdiction
basis, takes into account a number of types of evidence,
including the following:
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Nature, frequency, and severity of current and cumulative
financial reporting losses A pattern of
objectively measured recent financial reporting losses is a
source of negative evidence. In certain circumstances,
historical information may not be as relevant due to changed
circumstances;
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Sources of future taxable income Future
reversals of existing temporary differences are verifiable
positive evidence. Projections of future taxable income
exclusive of reversing temporary differences are a source of
positive evidence but such projections are more subjective and
when such projections are combined with a history of recent
losses it is difficult to reach verifiable conclusions and,
accordingly, we give little or no weight to such projections
when combined recent financial reporting losses; and
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Tax planning strategies If necessary and
available, tax planning strategies would be implemented to
accelerate taxable amounts to utilize expiring carryforwards.
These strategies would be a source of additional positive
evidence and, depending on their nature, could be heavily
weighted.
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We have experienced significant losses in the last three years.
As indicated above, in making our assessment of the
realizability of tax assets we assess reversing temporary
differences, available tax planning strategies and estimates of
future taxable income. We more heavily weight recent financial
reporting losses and, accordingly, as of December 31, 2009
have given little or no weight to subjectively determined
projections of future taxable income exclusive of reversing
temporary differences. Tax planning strategies have been
considered historically but due to the significant net operating
loss carryforwards as of December 31, 2009 we have not
considered such strategies to be reasonably viable. As a result
of changes in judgment on the realizability of future tax
benefits, a valuation allowance was established on all deferred
tax assets net of reversing deferred tax liabilities.
At December 31, 2009 and 2008, our deferred tax assets, net
of the valuation allowances of $167.2 million and
$138.8 million, respectively, were $117.2 million and
$112.9 million, respectively. At December 31, 2009 and
2008, our deferred tax liabilities were $117.2 million and
$115.7 million, respectively, and therefore the net
deferred tax liabilities recorded were zero and
$2.8 million as of December 31, 2009 and 2008,
respectively.
A return to profitability by us in future periods may result in
a reversal of the valuation allowance relating to certain
recorded deferred tax assets.
Liability
for Possible Tax Contingencies
Liabilities for tax contingencies are recognized based on the
requirements of ASC Income Tax Topic. This topic requires us to
analyze the technical merits of our tax positions and determine
the likelihood that these positions will be sustained if they
were ever examined by the taxing authorities. If we determine
that it is unlikely that our tax positions will be sustained, a
corresponding liability is created and the tax benefit of such
position is reduced for financial reporting purposes.
Evaluation and Nature of Estimates
Required. The evaluation of a tax position is a
two-step process. The first step in the evaluation process is
recognition. The enterprise determines whether it is more likely
than not that a tax position will be sustained upon examination,
including resolution of any related appeals or litigation
processes, based on the technical merits of the position. In
evaluating whether a tax position has met the
more-likely-than-not recognition threshold, the enterprise
should presume that the position will be examined by the
appropriate taxing authority that has full knowledge of all
relevant information.
The second step in the evaluation process is measurement. A tax
position that meets the more-likely-than-not recognition
threshold is measured to determine the amount of benefit to
recognize in the financial statements. The tax position is
measured as the largest amount of tax benefit that is greater
than 50 percent likely of being realized upon ultimate
settlement. Tax positions that previously failed to meet the
more-likely-than-not recognition threshold should be recognized
in the first subsequent financial reporting period in which:
(a) the threshold is met (for example, by virtue of another
taxpayers favorable court decision);
(b) the position is effectively settled where
the likelihood of the taxing authority reopening the examination
of that position is remote; or
(c) the relevant statute of limitations expires.
Previously recognized tax positions that no longer meet the
more-likely-than-not recognition threshold are derecognized in
the first subsequent financial reporting period in which that
threshold is no longer met.
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Interest and Penalties. We are also required
to accrue interest and penalties that, under relevant tax law,
we would incur if the uncertain tax positions ultimately were
not sustained. Accordingly, interest would start to accrue for
financial statement purposes in the period in which it would
begin accruing under relevant tax law, and the amount of
interest expense to be recognized would be computed by applying
the applicable statutory rate of interest to the difference
between the tax position recognized and the amount previously
taken or expected to be taken in a tax return. Penalties would
be accrued in the first period in which the position was taken
on a tax return that would give rise to the penalty.
Assumptions. In determining whether a tax
benefit can be recorded, we must make assessments of a
positions sustainability and the likelihood of ultimate
settlement with a taxing authority. Changes in our assessments
would cause a change in our recorded position and changes could
be significant. As of December 31, 2009 and 2008, we had
recorded liabilities for possible losses on uncertain tax
positions including related interest and penalties of
$6.4 million and $4.6 million, respectively.
Accounting
for Financial Guarantees
When we historically entered into guarantees in connection with
the sale of real estate, we were prevented from initially either
accounting for the transaction as a sale of an asset or
recognizing in earnings the profit from the sale transaction.
For guarantees that are not entered into in conjunction with the
sale of real estate, we recognize at the inception of a
guarantee or the date of modification, a liability for the fair
value of the obligation undertaken in issuing a guarantee which
require us to make various assumptions to determine the fair
value. On a quarterly basis, we review and evaluate the
estimated liability based upon operating results and the terms
of the guarantee. If it is probable that we will be required to
fund additional amounts than previously estimated, a loss is
recorded. Fundings that are recoverable as a loan from a venture
are considered in the determination of the loss recorded. Loan
amounts are evaluated for impairment at inception and then
quarterly.
Assumptions and Approach Used. We calculate
the estimated loss based on projected cash flows during the
remaining term of the guarantee. Inherent in our development of
cash flow projections are assumptions and estimates derived from
a review of our operating results, approved business plans,
expected growth rates, cost of capital, and tax rates. We also
make certain assumptions about future economic conditions,
interest rates, and other market data. Many of the factors used
in assessing fair value are outside the control of management,
and these assumptions and estimates can change in future periods.
Changes in assumptions or estimates could materially affect the
determination of fair value of an asset. The following key
assumptions to our income approach include:
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Business Projections We make assumptions
regarding the levels of revenue from communities and services.
We also make assumptions about our cost levels (e.g., capacity
utilization, labor costs, etc.). Finally, we make assumptions
about the amount of cash flows that we will receive upon a
future sale of the communities using estimated cap rates. These
assumptions are key inputs for developing our cash flow
projections. These projections are derived using our internal
business plans and budgets;
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Growth Rate A growth rate is used to
calculate the terminal value of the business, and is added to
budgeted earnings before interest, taxes, depreciation and
amortization. The growth rate is the expected rate at which
earnings is projected to grow beyond the planning period;
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Economic Projections Assumptions regarding
general economic conditions are included in and affect our
assumptions regarding pricing estimates for our communities and
services. These macro-economic assumptions include, but are not
limited to, industry projections, inflation, interest rates,
price of labor, and foreign currency exchange rates; and
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Discount Rates When measuring a possible
loss, future cash flows are discounted at a rate that is
consistent with a weighted average cost of capital for a
potential market participant. The weighted average cost of
capital is an estimate of the overall after-tax rate of return
required by equity and debt holders of a business enterprise.
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Litigation
Litigation is subject to uncertainties and the outcome of
individual litigated matters is not fully predictable. Various
legal actions, claims and proceedings are pending against us,
some for specific matters described in Note 14 to the
financial statements and others arising in the ordinary course
of business. We have established loss provisions for matters in
which losses are probable and can be reasonably estimated. In
other instances, we are not able to make a reasonable estimate
of any liability because of uncertainties related to the outcome
and/or the
amount or range of losses.
New
Accounting Standards
We adopted the following provisions of the ASC at the beginning
of 2009:
We adopted new provisions of ASC Fair Value Measurements Topic
for non-financial assets and liabilities. We had previously
adopted the other provisions of fair value measurement for
financial assets and liabilities beginning in 2008. The
provisions are required to be applied prospectively as of the
beginning of the first fiscal year in which the provisions are
applied. Adoption of these provisions of the ASC did not have a
material impact on our reported consolidated financial position,
results of operations or cash flows.
We adopted new provisions of the ASC Business Combination Topic
beginning in 2009. These provisions require most identifiable
assets, liabilities, non-controlling interests and goodwill
acquired in business combinations to be recorded at full
fair value. Transaction costs are no longer to be included
in the measurement of the business acquired and instead should
be expensed as incurred. These provisions apply prospectively to
business combinations occurring in or after January 2009.
We adopted new provisions of the ASC Consolidation Topic. These
provisions establish new accounting and reporting requirements
for a non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. Specifically, these provisions
require the recognition of a non-controlling interest (minority
interest) as equity in the consolidated financial statements
separate from the parents equity. The amount of net income
attributable to the non-controlling interest is now included in
consolidated net income on the face of the income statement. The
provisions also clarify that changes in a parents
ownership interest in a subsidiary that do not result in
deconsolidation are equity transactions. In addition, the
provisions require that a parent recognize a gain or loss in net
income when a subsidiary is deconsolidated. Such gain or loss
will be measured using the fair value of the non-controlling
equity investment on the deconsolidation date. The provisions
also include expanded disclosure requirements regarding the
interests of the parent and its non-controlling interest.
Adoption of the provisions under the Consolidation Topic
regarding non-controlling interests on January 1, 2009 did
not have a material impact on our reported consolidated
financial position, results of operations or cash flows.
We adopted provisions of the ASC Derivative and Hedging Topic
which provides guidance on certain disclosures about credit
derivatives and certain guarantees. Adoption of these provisions
did not have a material impact on our reported consolidated
financial position, results of operations or cash flows.
We adopted provisions of the ASC Investments Equity
Method and Joint Venture Topic. The intent of these provisions
is to clarify the accounting for certain transactions and
impairment considerations related to equity method investments.
The adoption of these provisions did not have a material impact
on our reported consolidated financial position, results of
operations or cash flows.
In the second quarter of 2009, we adopted the following
provisions of the ASC, none of which had a material impact on
our reported consolidated financial position, results of
operations or cash flows:
ASC Investments Debt and Equity Securities Topic
modifies the
other-than-temporary
impairment guidance for debt securities through increased
consistency in the timing of impairment recognition and enhanced
disclosures related to the credit and non-credit components of
impaired debt securities that are not expected to be sold. In
addition, increased disclosures are required for both debt and
equity securities regarding expected cash flows, credit losses,
and an aging of securities with unrealized losses.
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ASC Financial Instruments Topic requires fair value disclosures
for financial instruments that are not reflected in the
consolidated balance sheets at fair value. Prior to these
provisions, the fair values of those assets and liabilities were
disclosed only once each year. With the adoption of these
provisions, we are now required to disclose this information on
a quarterly basis, providing quantitative and qualitative
information about fair value estimates for all financial
instruments not measured in the consolidated balance sheets at
fair value.
ASC Fair Value Measurements Topic clarifies the methodology used
to determine fair value when there is no active market or where
the price inputs being used represent distressed sales. These
provisions also reaffirm the objective of fair value
measurement, which is to reflect how much an asset would be sold
for in an orderly transaction. They also reaffirm the need to
use judgment to determine if a formerly active market has become
inactive, as well as to determine fair values when markets have
become inactive.
ASC Subsequent Events Topic establishes general standards of
accounting for and disclosure of events that occur after the
balance sheet date but before the financial statements are
issued or available to be issued.
In the third quarter of 2009, we adopted the ASC as the single
source of authoritative nongovernmental generally accepted
accounting principles. The adoption of the ASC did not have a
material impact on our consolidated financial position, results
of operations or cash flows.
In the third quarter of 2009, the FASB issued ASU
2009-05,
Fair Value Measurements and Disclosures (Topic
820) Measuring Liabilities at Fair Value
(ASU
2009-05).
ASU 2009-05
amends the Fair Value Measurement Topic by providing additional
guidance clarifying the measurement of liabilities at fair value
including how the price of a traded debt security should be
considered in estimating the fair value of the issuers
liability. ASU
2009-05 is
effective for us for the fourth quarter of 2009. ASU
2009-05 did
not have a material impact on our consolidated financial
position, results of operations or cash flows.
Future
Adoption of Accounting Standards
In the second quarter 2009, the FASB issued ASU
2009-17,
Consolidations (Topic 810) Improvements to Financial
Reporting by Enterprises Involved with Variable Interest
Entities. ASU
2009-17
requires an analysis to be performed to determine whether a
variable interest entity gives an enterprise a controlling
financial interest in a variable interest entity. The analysis
identifies the primary beneficiary of a variable interest
entity. Additionally, ASU
2009-17
requires ongoing assessments as to whether an enterprise is the
primary beneficiary and eliminates the quantitative approach in
determining the primary beneficiary. ASU
2009-17 is
effective for us January 1, 2010. We do not believe that
ASU 2009-17
will have a material impact on our consolidated financial
position, results of operations or cash flows.
In the fourth quarter of 2009, the FASB issued ASU
2009-13,
Revenue Recognition (Topic 605)
Multiple-Deliverable Revenue Arrangements (ASU
2009-13).
It requires an entity to allocate arrangement consideration at
the inception of an arrangement to all of its deliverables based
on their relative selling prices. It eliminated the use of the
residual method of allocation and requires the
relative-selling-price method in all circumstances in which an
entity recognized revenue for an arrangement with multiple
deliverables subject to ASU
605-25. It
no longer requires third party evidence. ASU
2009-13 is
effective for us for the year beginning January 1, 2011. We
are currently evaluating whether ASU
2009-13 will
have a material impact on our consolidated financial position,
results of operations or cash flows.
Impact of
Inflation
Management fees from communities operated by us for third
parties and resident and ancillary fees from owned senior living
communities are significant sources of our revenue. These
revenues are affected by daily resident fee rates and community
occupancy rates. The rates charged for the delivery of senior
living services are highly dependent upon local market
conditions and the competitive environment in which the
communities operate. In addition, employee compensation expense
is the principal cost element of community operations. Employee
compensation, including salary and benefit increases and the
hiring of additional staff to support our growth initiatives,
have previously had a negative impact on operating margins and
may again do so in the foreseeable future.
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Substantially all of our resident agreements are for terms of
one year, but are terminable by the resident at any time upon
30 days notice, and allow, at the time of renewal, for
adjustments in the daily fees payable, and thus may enable us to
seek increases in daily fees due to inflation or other factors.
Any increase would be subject to market and competitive
conditions and could result in a decrease in occupancy of our
communities. We believe, however, that the short-term nature of
our resident agreements generally serves to reduce the risk to
us of the adverse effect of inflation. There can be no assurance
that resident and ancillary fees will increase or that costs
will not increase due to inflation or other causes.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosure About Market Risk
|
Quantitative and qualitative disclosure about market risk
appears in the Market Risk section of
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
65
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
The following information is included on the pages indicated:
|
|
|
|
|
|
|
Page
|
|
Sunrise Senior Living, Inc.
|
|
|
|
|
|
|
|
67
|
|
|
|
|
68
|
|
|
|
|
69
|
|
|
|
|
70
|
|
|
|
|
71
|
|
|
|
|
72
|
|
PS UK Investment (Jersey) LP*
|
|
|
|
|
PS Germany Investment (Jersey) LP*
|
|
|
|
|
AL US Development Venture, LLC*
|
|
|
|
|
Sunrise Aston Gardens Venture, LLC*
|
|
|
|
|
|
|
|
* |
|
To be filed by amendment as soon as these financial statements
become available. |
66
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and Board of Directors
Sunrise Senior Living, Inc.
We have audited the accompanying consolidated balance sheets of
Sunrise Senior Living, Inc. as of December 31, 2009 and
2008, and the related consolidated statements of operations,
changes in stockholders equity, and cash flows for each of
the three years in the period ended December 31, 2009.
These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Sunrise Senior Living, Inc. as of
December 31, 2009 and 2008, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2009, in conformity with
U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 and Note 10 to the
accompanying consolidated financial statements, the
Companys Bank Credit Facility expires on December 2,
2010, unless further extended. The Company cannot borrow under
the Bank Credit Facility and the Company has significant debt
maturing in 2010 which it does not have the ability to repay.
These conditions raise substantial doubt about the
Companys ability to continue as a going concern.
Managements plans in regard to these matters are also
described in Note 1 and Note 10. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Sunrise Senior Living, Inc.s internal control over
financial reporting as of December 31, 2009, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated February 24,
2010 expressed an unqualified opinion thereon.
McLean, Virginia
February 24, 2010
67
SUNRISE
SENIOR LIVING, INC.
|
|
|
|
|
|
|
|
|
(In thousands, except per share and share amounts)
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
39,283
|
|
|
$
|
29,513
|
|
Accounts receivable, net
|
|
|
37,304
|
|
|
|
54,842
|
|
Income taxes receivable
|
|
|
5,371
|
|
|
|
30,351
|
|
Due from unconsolidated communities
|
|
|
19,673
|
|
|
|
45,255
|
|
Deferred income taxes, net
|
|
|
23,862
|
|
|
|
25,341
|
|
Restricted cash
|
|
|
39,365
|
|
|
|
37,392
|
|
Assets held for sale
|
|
|
40,658
|
|
|
|
49,076
|
|
German assets held for sale
|
|
|
104,720
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
30,198
|
|
|
|
33,138
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
340,434
|
|
|
|
304,908
|
|
Property and equipment, net
|
|
|
288,056
|
|
|
|
681,352
|
|
Due from unconsolidated communities
|
|
|
13,178
|
|
|
|
31,693
|
|
Intangible assets, net
|
|
|
53,024
|
|
|
|
70,642
|
|
Goodwill
|
|
|
|
|
|
|
39,025
|
|
Investments in unconsolidated communities
|
|
|
64,971
|
|
|
|
66,852
|
|
Investments accounted for under the profit-sharing method
|
|
|
11,031
|
|
|
|
22,005
|
|
Restricted cash
|
|
|
110,402
|
|
|
|
123,772
|
|
Restricted investments in marketable securities
|
|
|
20,997
|
|
|
|
31,080
|
|
Other assets, net
|
|
|
8,496
|
|
|
|
10,228
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
910,589
|
|
|
$
|
1,381,557
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Current maturities of debt
|
|
$
|
207,811
|
|
|
$
|
377,449
|
|
Outstanding draws on bank credit facility
|
|
|
33,728
|
|
|
|
95,000
|
|
Debt relating to German assets held for sale
|
|
|
198,680
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
138,032
|
|
|
|
184,144
|
|
Liabilities associated with German assets held for sale
|
|
|
12,632
|
|
|
|
|
|
Due to unconsolidated communities
|
|
|
2,180
|
|
|
|
914
|
|
Deferred revenue
|
|
|
5,364
|
|
|
|
7,327
|
|
Entrance fees
|
|
|
33,157
|
|
|
|
35,270
|
|
Self-insurance liabilities
|
|
|
41,975
|
|
|
|
35,317
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
673,559
|
|
|
|
735,421
|
|
Debt, less current maturities
|
|
|
|
|
|
|
163,682
|
|
Investment accounted for under the profit-sharing method
|
|
|
|
|
|
|
8,332
|
|
Guarantee liabilities
|
|
|
823
|
|
|
|
13,972
|
|
Self-insurance liabilities
|
|
|
58,225
|
|
|
|
68,858
|
|
Deferred gains on the sale of real estate and deferred revenues
|
|
|
21,865
|
|
|
|
88,706
|
|
Deferred income tax liabilities
|
|
|
23,862
|
|
|
|
28,129
|
|
Other long-term liabilities, net
|
|
|
106,021
|
|
|
|
126,543
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
884,355
|
|
|
|
1,233,643
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 10,000,000 shares
authorized, no shares issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 120,000,000 shares
authorized, 55,752,217 and
|
|
|
|
|
|
|
|
|
50,872,711 shares issued and outstanding, net of 401,353
and 342,525 treasury shares, at December 31, 2009 and 2008,
respectively
|
|
|
558
|
|
|
|
509
|
|
Additional paid-in capital
|
|
|
474,158
|
|
|
|
458,404
|
|
Retained loss
|
|
|
(460,971
|
)
|
|
|
(327,056
|
)
|
Accumulated other comprehensive income
|
|
|
8,302
|
|
|
|
6,671
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
22,047
|
|
|
|
138,528
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests
|
|
|
4,187
|
|
|
|
9,386
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
26,234
|
|
|
|
147,914
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
910,589
|
|
|
$
|
1,381,557
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
68
SUNRISE
SENIOR LIVING, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
(In thousands, except per share amounts)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Operating revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees
|
|
$
|
112,467
|
|
|
$
|
131,586
|
|
|
$
|
122,293
|
|
Resident fees for consolidated communities
|
|
|
350,278
|
|
|
|
340,975
|
|
|
|
323,007
|
|
Ancillary fees
|
|
|
45,397
|
|
|
|
42,535
|
|
|
|
51,127
|
|
Professional fees from development, marketing and other
|
|
|
13,193
|
|
|
|
44,447
|
|
|
|
29,546
|
|
Reimbursed costs incurred on behalf of managed communities
|
|
|
942,809
|
|
|
|
1,011,431
|
|
|
|
956,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
1,464,144
|
|
|
|
1,570,974
|
|
|
|
1,482,020
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Community expense for consolidated communities
|
|
|
268,319
|
|
|
|
257,555
|
|
|
|
231,780
|
|
Community lease expense
|
|
|
59,344
|
|
|
|
59,843
|
|
|
|
62,307
|
|
Depreciation and amortization
|
|
|
46,629
|
|
|
|
39,497
|
|
|
|
42,601
|
|
Ancillary expenses
|
|
|
42,457
|
|
|
|
40,202
|
|
|
|
53,294
|
|
General and administrative
|
|
|
119,905
|
|
|
|
157,509
|
|
|
|
183,546
|
|
Development expense
|
|
|
12,501
|
|
|
|
34,134
|
|
|
|
35,076
|
|
Write-off of capitalized project costs
|
|
|
14,879
|
|
|
|
95,763
|
|
|
|
28,430
|
|
Accounting Restatement, Special Independent Committee inquiry,
|
|
|
|
|
|
|
|
|
|
|
|
|
SEC investigation and stockholder litigation
|
|
|
3,887
|
|
|
|
30,224
|
|
|
|
51,707
|
|
Restructuring costs
|
|
|
33,313
|
|
|
|
24,178
|
|
|
|
|
|
Provision for doubtful accounts
|
|
|
13,625
|
|
|
|
20,077
|
|
|
|
7,709
|
|
Loss on financial guarantees and other contracts
|
|
|
2,053
|
|
|
|
5,022
|
|
|
|
22,005
|
|
Impairment of owned communities and land parcels
|
|
|
31,685
|
|
|
|
27,816
|
|
|
|
7,641
|
|
Impairment of goodwill and intangible assets
|
|
|
|
|
|
|
121,828
|
|
|
|
|
|
Costs incurred on behalf of managed communities
|
|
|
947,566
|
|
|
|
1,004,974
|
|
|
|
956,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,596,163
|
|
|
|
1,918,622
|
|
|
|
1,682,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(132,019
|
)
|
|
|
(347,648
|
)
|
|
|
(200,123
|
)
|
Other non-operating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,351
|
|
|
|
6,267
|
|
|
|
9,492
|
|
Interest expense
|
|
|
(10,301
|
)
|
|
|
(6,709
|
)
|
|
|
(5,179
|
)
|
Gain (loss) on investments
|
|
|
3,556
|
|
|
|
(7,770
|
)
|
|
|
|
|
Other income (expense)
|
|
|
5,773
|
|
|
|
(20,066
|
)
|
|
|
(5,792
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other non-operating income (expense)
|
|
|
379
|
|
|
|
(28,278
|
)
|
|
|
(1,479
|
)
|
Gain on the sale and development of real estate and equity
interests
|
|
|
21,651
|
|
|
|
17,374
|
|
|
|
105,081
|
|
Sunrises share of earnings (loss) and return on investment
|
|
|
|
|
|
|
|
|
|
|
|
|
in unconsolidated communities
|
|
|
5,673
|
|
|
|
(13,846
|
)
|
|
|
107,347
|
|
(Loss) income from investments accounted for under the
profit-sharing method
|
|
|
(12,808
|
)
|
|
|
(1,329
|
)
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before benefit from (provision for) income
|
|
|
|
|
|
|
|
|
|
|
|
|
taxes and discontinued operations
|
|
|
(117,124
|
)
|
|
|
(373,727
|
)
|
|
|
10,848
|
|
Benefit from (provision for) income taxes
|
|
|
3,880
|
|
|
|
47,137
|
|
|
|
(13,323
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before discontinued operations
|
|
|
(113,244
|
)
|
|
|
(326,590
|
)
|
|
|
(2,475
|
)
|
Discontinued operations, net of tax
|
|
|
(20,271
|
)
|
|
|
(117,516
|
)
|
|
|
(70,512
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(133,515
|
)
|
|
|
(444,106
|
)
|
|
|
(72,987
|
)
|
Less: (Income) loss attributable to noncontrolling interests,
net of tax
|
|
|
(400
|
)
|
|
|
4,927
|
|
|
|
2,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders
|
|
$
|
(133,915
|
)
|
|
$
|
(439,179
|
)
|
|
$
|
(70,275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net loss per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before discontinued operations
|
|
$
|
(2.22
|
)
|
|
$
|
(6.48
|
)
|
|
$
|
(0.05
|
)
|
Discontinued operations, net of tax
|
|
|
(0.39
|
)
|
|
|
(2.24
|
)
|
|
|
(1.36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2.61
|
)
|
|
$
|
(8.72
|
)
|
|
$
|
(1.41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net loss per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before discontinued operations
|
|
$
|
(2.22
|
)
|
|
$
|
(6.48
|
)
|
|
$
|
(0.05
|
)
|
Discontinued operations, net of tax
|
|
|
(0.39
|
)
|
|
|
(2.24
|
)
|
|
|
(1.36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2.61
|
)
|
|
$
|
(8.72
|
)
|
|
$
|
(1.41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
69
SUNRISE
SENIOR LIVING, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Equity
|
|
|
|
Shares of
|
|
|
Common
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Attributable
|
|
|
|
Common
|
|
|
Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
to Noncontrolling
|
|
(In thousands)
|
|
Stock
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings/(Loss)
|
|
|
Income (Loss)
|
|
|
Interests
|
|
|
Balance at January 1, 2007
|
|
|
50,572
|
|
|
$
|
506
|
|
|
$
|
445,275
|
|
|
$
|
182,398
|
|
|
$
|
2,529
|
|
|
$
|
16,515
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70,275
|
)
|
|
|
|
|
|
|
(4,470
|
)
|
Foreign currency translation income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,865
|
|
|
|
|
|
Sunrises share of investees other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,825
|
)
|
Investment in noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,210
|
|
Deconsolidation of noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
778
|
|
Issuance of restricted stock
|
|
|
88
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture or surrender of restricted stock
|
|
|
(103
|
)
|
|
|
(1
|
)
|
|
|
(1,818
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
7,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax effect from stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
2,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
50,557
|
|
|
|
506
|
|
|
|
452,640
|
|
|
|
112,123
|
|
|
|
8,294
|
|
|
|
10,208
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(439,179
|
)
|
|
|
|
|
|
|
(8,154
|
)
|
Foreign currency translation income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,583
|
|
|
|
|
|
Sunrises share of investees other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,206
|
)
|
|
|
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,343
|
)
|
Investment in noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,675
|
|
Issuance of restricted stock
|
|
|
165
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture or surrender of restricted or common stock
|
|
|
(211
|
)
|
|
|
(1
|
)
|
|
|
(1,025
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option exercises
|
|
|
361
|
|
|
|
4
|
|
|
|
4,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
4,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax effect from stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(1,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
50,872
|
|
|
|
509
|
|
|
|
458,404
|
|
|
|
(327,056
|
)
|
|
|
6,671
|
|
|
|
9,386
|
|
Net (loss) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(133,915
|
)
|
|
|
|
|
|
|
662
|
|
Foreign currency translation loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,813
|
)
|
|
|
|
|
Sunrises share of investees other comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,324
|
|
|
|
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,341
|
)
|
Sale of Greystone
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,633
|
)
|
Consolidation of a controlled entity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120
|
|
|
|
2,113
|
|
Issuance of common stock
|
|
|
4,175
|
|
|
|
42
|
|
|
|
11,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture or surrender of restricted or common stock
|
|
|
(59
|
)
|
|
|
(1
|
)
|
|
|
(116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option exercises
|
|
|
764
|
|
|
|
8
|
|
|
|
1,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
3,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
55,752
|
|
|
$
|
558
|
|
|
$
|
474,158
|
|
|
$
|
(460,971
|
)
|
|
$
|
8,302
|
|
|
$
|
4,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
70
SUNRISE
SENIOR LIVING, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(133,515
|
)
|
|
$
|
(444,106
|
)
|
|
$
|
(72,987
|
)
|
Less: Net loss from discontinued operations
|
|
|
20,271
|
|
|
|
117,516
|
|
|
|
70,512
|
|
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on the sale and development of real estate and equity
interests
|
|
|
(21,651
|
)
|
|
|
(17,374
|
)
|
|
|
(105,081
|
)
|
Loss (income) from investments accounted for under the
profit-sharing method
|
|
|
12,808
|
|
|
|
1,329
|
|
|
|
(22
|
)
|
(Gain) loss on investments
|
|
|
(3,556
|
)
|
|
|
7,770
|
|
|
|
|
|
Impairment of long-lived assets, goodwill and intangibles
|
|
|
31,685
|
|
|
|
149,644
|
|
|
|
7,641
|
|
Write-off of capitalized project costs
|
|
|
14,879
|
|
|
|
95,763
|
|
|
|
28,430
|
|
Provision for doubtful accounts
|
|
|
13,625
|
|
|
|
20,077
|
|
|
|
7,709
|
|
Benefit from deferred income taxes
|
|
|
(2,790
|
)
|
|
|
(46,250
|
)
|
|
|
(8,854
|
)
|
Loss on financial guarantees and other contracts
|
|
|
2,053
|
|
|
|
5,022
|
|
|
|
22,005
|
|
Sunrises share of (earnings) loss and return on investment
in unconsolidated communities
|
|
|
(5,673
|
)
|
|
|
13,846
|
|
|
|
(107,347
|
)
|
Distributions of earnings from unconsolidated communities
|
|
|
18,998
|
|
|
|
32,736
|
|
|
|
166,722
|
|
Depreciation and amortization
|
|
|
46,629
|
|
|
|
39,497
|
|
|
|
42,601
|
|
Amortization of financing costs and debt discount
|
|
|
1,261
|
|
|
|
575
|
|
|
|
1,051
|
|
Stock-based compensation
|
|
|
3,812
|
|
|
|
3,176
|
|
|
|
7,020
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
13,268
|
|
|
|
12,599
|
|
|
|
(10,365
|
)
|
Due from unconsolidated senior living communities
|
|
|
23,997
|
|
|
|
(18,873
|
)
|
|
|
24,237
|
|
Prepaid expenses and other current assets
|
|
|
11,868
|
|
|
|
40,014
|
|
|
|
(60,387
|
)
|
Captive insurance restricted cash
|
|
|
(722
|
)
|
|
|
2,728
|
|
|
|
(32,930
|
)
|
Other assets
|
|
|
23,922
|
|
|
|
32,962
|
|
|
|
(35,589
|
)
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other liabilities
|
|
|
(35,608
|
)
|
|
|
(88,004
|
)
|
|
|
114,977
|
|
Entrance fees
|
|
|
(2,113
|
)
|
|
|
758
|
|
|
|
(3,586
|
)
|
Self-insurance liabilities
|
|
|
(3,714
|
)
|
|
|
(22,935
|
)
|
|
|
12,866
|
|
Guarantee liabilities
|
|
|
(125
|
)
|
|
|
(21,625
|
)
|
|
|
(5,829
|
)
|
Deferred revenue and gains on the sale of real estate
|
|
|
1,703
|
|
|
|
(850
|
)
|
|
|
1,613
|
|
Net cash provided by (used in) discontinued operations
|
|
|
2,107
|
|
|
|
(39,929
|
)
|
|
|
64,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
33,419
|
|
|
|
(123,934
|
)
|
|
|
128,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(19,950
|
)
|
|
|
(173,545
|
)
|
|
|
(237,556
|
)
|
Acquisitions of business assets
|
|
|
|
|
|
|
|
|
|
|
(49,917
|
)
|
Net funding for condominium projects
|
|
|
(4,963
|
)
|
|
|
(57,935
|
)
|
|
|
|
|
Dispositions of property
|
|
|
10,758
|
|
|
|
62,853
|
|
|
|
60,387
|
|
Change in restricted cash
|
|
|
(14,549
|
)
|
|
|
56,661
|
|
|
|
(23,202
|
)
|
Purchases of short-term investments
|
|
|
|
|
|
|
(102,800
|
)
|
|
|
(448,900
|
)
|
Proceeds from short-term investments
|
|
|
15,950
|
|
|
|
63,950
|
|
|
|
448,900
|
|
Increase in investments and notes receivable
|
|
|
(89,473
|
)
|
|
|
(205,344
|
)
|
|
|
(183,314
|
)
|
Proceeds from investments and notes receivable
|
|
|
94,968
|
|
|
|
223,424
|
|
|
|
220,312
|
|
Investments in unconsolidated communities
|
|
|
(6,902
|
)
|
|
|
(22,929
|
)
|
|
|
(29,297
|
)
|
Distributions of capital from unconsolidated communities
|
|
|
|
|
|
|
|
|
|
|
601
|
|
Consolidation of German venture
|
|
|
|
|
|
|
25,557
|
|
|
|
|
|
Net cash provided by (used in) discontinued operations
|
|
|
98,534
|
|
|
|
(42,345
|
)
|
|
|
(6,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
84,373
|
|
|
|
(172,453
|
)
|
|
|
(248,543
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from exercised options
|
|
|
1,028
|
|
|
|
4,162
|
|
|
|
|
|
Additional borrowings of long-term debt
|
|
|
4,969
|
|
|
|
101,952
|
|
|
|
129,231
|
|
Repayment of long-term debt
|
|
|
(13,561
|
)
|
|
|
(17,131
|
)
|
|
|
(10,515
|
)
|
Net (repayments) borrowings on Bank Credit Facility
|
|
|
(61,272
|
)
|
|
|
(5,000
|
)
|
|
|
50,000
|
|
Distributions to minority interests
|
|
|
(1,341
|
)
|
|
|
(1,344
|
)
|
|
|
(1,180
|
)
|
Financing costs paid
|
|
|
(590
|
)
|
|
|
(2,467
|
)
|
|
|
|
|
Net cash (used in) provided by discontinued operations
|
|
|
(37,255
|
)
|
|
|
107,516
|
|
|
|
8,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(108,022
|
)
|
|
|
187,688
|
|
|
|
176,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
9,770
|
|
|
|
(108,699
|
)
|
|
|
56,222
|
|
Cash and cash equivalents at beginning of period
|
|
|
29,513
|
|
|
|
138,212
|
|
|
|
81,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
39,283
|
|
|
$
|
29,513
|
|
|
$
|
138,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
71
Sunrise
Senior Living, Inc.
|
|
1.
|
Organization
and Presentation
|
Organization
We are a provider of senior living services in the United
States, Canada, the United Kingdom and Germany. Founded in 1981
and incorporated in Delaware in 1994, we began with a simple but
innovative vision to create an alternative senior
living option that would emphasize quality of life and quality
of care. We offer a full range of personalized senior living
services, including independent living, assisted living, care
for individuals with Alzheimers and other forms of memory
loss, nursing and rehabilitative care. In the past, we also
developed senior living communities for ourselves, for ventures
in which we retained an ownership interest and for third
parties. Due to current economic conditions, we have suspended
all new development.
At December 31, 2009, we operated 384 communities,
including 335 communities in the United States, 15 communities
in Canada, 27 communities in the United Kingdom and seven
communities in Germany, with a total unit capacity of
approximately 40,400. Of the 384 communities that we operated at
December 31, 2009, 20 were wholly owned, 27 were under
operating leases, one was consolidated as a variable interest
entity, 201 were owned in unconsolidated ventures and 135 were
owned by third parties. During 2009, we opened 23 new
communities, with a combined unit capacity of approximately
2,100.
Basis
of Presentation
The consolidated financial statements which are prepared in
accordance with U.S. generally accepted accounting
principles (GAAP) include our wholly owned and
controlled subsidiaries. Variable interest entities
(VIEs) in which we have an interest have been
consolidated when we have been identified as the primary
beneficiary. Entities in which we hold the managing member or
general partner interest are consolidated unless the other
members or partners have either (1) the substantive ability
to dissolve the entity or otherwise remove us as managing member
or general partner without cause or (2) substantive
participating rights, which provide the other partner or member
with the ability to effectively participate in the significant
decisions that would be expected to be made in the ordinary
course of business. Investments in ventures in which we have the
ability to exercise significant influence but do not have
control over are accounted for using the equity method. All
intercompany transactions and balances have been eliminated in
consolidation.
Discontinued operations consists of our German communities which
we are marketing for sale, 22 communities which were sold in
2009 and for which we have no continuing involvement, one
community which was closed in 2009, our Greystone subsidiary
which was sold in 2009, our Trinity subsidiary which ceased
operations in 2008, and two communities which were sold in 2008
and for which we have no continuing involvement.
The accompanying consolidated financial statements have been
prepared on the basis of us continuing as a going concern. As
discussed in more detail in Note 10, our Bank Credit
Facility expires on December 2, 2010. At this time, we
cannot borrow under the Bank Credit Facility and we have
significant debt maturing in 2010. We are seeking waivers with
respect to all defaults and are seeking to reach negotiated
settlements with our various creditors to preserve our liquidity
and to enable us to continue operating. However, these
conditions raise substantial doubt about our ability to continue
as a going concern.
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2.
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Significant
Accounting Policies
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The preparation of financial statements in conformity with GAAP
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.
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Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Cash
and Cash Equivalents
We consider cash and cash equivalents to include currency on
hand, demand deposits, and all highly liquid investments with a
maturity of three months or less at the date of purchase.
Restricted
Cash
We utilize large deductible blanket insurance programs in order
to contain costs for certain lines of insurance risks including
workers compensation and employers liability risks,
automobile liability risk, employment practices liability risk
and general and professional liability risks (Self-Insured
Risks). We have self-insured a portion of the Self-Insured
Risks through our wholly owned captive insurance subsidiary,
Sunrise Senior Living Insurance, Inc. (the Sunrise
Captive). The Sunrise Captive issues policies of insurance
to and receives premiums from us that are reimbursed through
expense allocations to each operated community and us. The
Sunrise Captive pays the costs for each claim above a deductible
up to a per claim limit. Cash held by the Sunrise Captive of
$93.5 million and $94.4 million at December 31,
2009 and 2008, respectively, is available to pay claims. The
earnings from the investment of the cash of Sunrise Captive are
used to reduce future costs of and pay the liabilities of the
Sunrise Captive. Interest income in the Sunrise Captive was
$0.7 million, $3.4 million and $3.5 million for
2009, 2008 and 2007, respectively.
Allowance
for Doubtful Accounts
We provide an allowance for doubtful accounts on our outstanding
receivables based on an analysis of collectability, including
our collection history and generally do not require collateral
to support outstanding balances.
Due
from Unconsolidated Communities
Due from unconsolidated communities represents amounts due from
unconsolidated ventures for development and management costs,
including development fees, operating costs such as payroll and
insurance costs, and management fees. Development costs are
reimbursed when third-party financing is obtained by the
venture. Operating costs are generally reimbursed within thirty
days.
Property
and Equipment
Property and equipment is recorded at cost. Depreciation is
computed using the straight-line method over the lesser of the
estimated useful lives of the related assets or the remaining
lease term. Repairs and maintenance are charged to expense as
incurred.
In conjunction with our historical acquisition of land and the
development and construction of communities, pre-acquisition
costs were expensed as incurred until we determined that the
costs were directly identifiable with a specific property. The
costs were then capitalized if the property was already acquired
or the acquisition of the property was probable. Upon
acquisition of the land, we commenced capitalization of all
direct and indirect project costs clearly associated with the
development and construction of the community. We expensed
indirect costs as incurred that were not clearly related to
projects. We charged direct costs to the projects to which they
related. If a project was abandoned, we expensed any costs
previously capitalized. We capitalized the cost of the corporate
development department based on the time employees devoted to
each project. We capitalized interest as described in
Capitalization of Interest Related to Development
Projects and other carrying costs to the project and the
capitalization period continued until the asset was ready for
its intended use or was abandoned.
We capitalized the cost of tangible assets used throughout the
selling process and other direct costs, provided that their
recovery was reasonably expected from future sales.
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Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
We ceased all development activities for owned assets at the end
of 2008. Therefore, no development costs were capitalized for
owned assets in 2009.
We review the carrying amounts of long-lived assets for
impairment when indicators of impairment are identified. If the
carrying amount of the long-lived asset (group) exceeds the
undiscounted expected cash flows that are directly associated
with the use and eventual disposition of the asset (group) we
record an impairment charge to the extent the carrying amount of
the asset exceeds the fair value of the assets. We determine the
fair value of long-lived assets based upon valuation techniques
that include prices for similar assets (group).
Assets
Held for Sale
At December 31, 2009 and 2008, approximately
$40.7 million and $49.1 million of assets,
respectively, were held for sale. The majority of these assets
are undeveloped land parcels and certain condominium units that
were acquired through an acquisition. We classify an asset as
held for sale when all of the following criteria are met:
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executive management has committed to a plan to sell the asset;
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the asset is available for immediate sale in its present
condition;
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an active program to locate a buyer and other actions required
to complete the sale have been initiated;
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the asset is actively being marketed; and
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the sale of the asset is probable and it is unlikely that
significant changes to the sale plan will be made.
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We classify land as held for sale when it is being actively
marketed. For wholly owned operating communities, binding
purchase and sale agreements are generally subject to
substantial due diligence and historically these sales have not
always been consummated. As a result, we generally do not
believe that the probable criteria is met until the
community is sold. Upon designation as an asset held for sale,
we record the asset at the lower of its carrying value or its
estimated fair value, less estimated costs to sell, and we cease
depreciation.
Real
Estate Sales
We account for sales of real estate in accordance with Financial
Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) Property, Plant and
Equipment Topic. For sales transactions meeting the requirements
of the Topic for full accrual profit recognition, the related
assets and liabilities are removed from the balance sheet and
the gain or loss is recorded in the period the transaction
closes. For sales transactions that do not meet the criteria for
full accrual profit recognition, we account for the transactions
in accordance with the methods specified in the ASC Property,
Plant and Equipment Topic. For sales transactions that do not
contain continuing involvement following the sale or if the
continuing involvement with the property is contractually
limited by the terms of the sales contract, profit is recognized
at the time of sale. This profit is then reduced by the maximum
exposure to loss related to the contractually limited continuing
involvement. Sales to ventures in which we have an equity
interest are accounted for in accordance with the partial sale
accounting provisions as set forth in the Property, Plant and
Equipment Topic.
For sales transactions that do not meet the full accrual sale
criteria, we evaluate the nature of the continuing involvement
and account for the transaction under an alternate method of
accounting rather than full accrual sale, based on the nature
and extent of the continuing involvement. Some transactions may
have numerous forms of continuing involvement. In those cases,
we determine which method is most appropriate based on the
substance of the transaction.
In transactions accounted for as partial sales, we determine if
the buyer of the majority equity interest in the venture was
provided a preference as to cash flows in either an operating or
a capital waterfall. If a cash flow preference has been
provided, profit, including our development fee, is only
recognizable to the extent that proceeds from the sale of the
majority equity interest exceeds costs related to the entire
property.
74
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
We also may provide guarantees to support the operations of the
properties. If the guarantees are for an extended period of
time, we apply the profit-sharing method and the property
remains on the books, net of any cash proceeds received from the
buyer. If support is required for a limited period of time, sale
accounting is achieved and profit on the sale may begin to be
recognized on the basis of performance of the services required
when there is reasonable assurance that future operating
revenues will cover operating expenses and debt service.
Under the profit-sharing method, the property portion of our net
investment is amortized over the life of the property. Results
of operations of the communities before depreciation, interest
and fees paid to us is recorded as (Loss) income from
investments accounted for under the profit-sharing method
in the consolidated statements of operations. The net income
from operations as adjusted is added to the investment account
and losses are reflected as a reduction of the net investment.
Distributions of operating cash flows to other venture partners
are reflected as an additional expense. All cash paid or
received by us is recorded as an adjustment to the net
investment. The net investment is reflected in Investments
accounted for under the profit-sharing method in the
consolidated balance sheets. At December 31, 2009, we have
two transactions accounted for under the profit-sharing method.
Capitalization
of Interest Related to Development Projects
Interest is capitalized on real estate under development,
including investments in ventures in accordance with ASC
Interest Topic. The capitalization period commences when
development begins and continues until the asset is ready for
its intended use or the enterprise substantially suspends all
activities related to the acquisition of the asset. We
capitalize interest on our investment in ventures for which the
equity therein is utilized to construct buildings and cease
capitalizing interest on our equity investment when the first
property in the portfolio commences operations. The amount of
interest capitalized is based on the stated interest rates,
including amortization of deferred financing costs. The
calculation includes interest costs that theoretically could
have been avoided, based on specific borrowings to the extent
there are specific borrowings. When project specific borrowings
do not exist or are less than the amount of qualifying assets,
the calculation for such excess uses a weighted average of all
other debt outstanding. We had no real estate under development
at the end of 2009. Interest capitalized in 2009 was
$0.5 million.
Intangible
Assets
We capitalize costs incurred to acquire management, development
and other contracts. In determining the allocation of the
purchase price to net tangible and intangible assets acquired,
we make estimates of the fair value of the tangible and
intangible assets using information obtained as a result of
pre-acquisition due diligence, marketing, leasing activities and
independent appraisals.
Intangible assets are valued using expected discounted cash
flows and are amortized using the straight-line method over the
remaining contract term, generally ranging from one to
30 years. The carrying amounts of intangible assets are
reviewed for impairment when indicators of impairment are
identified. If the carrying amount of the asset (group) exceeds
the undiscounted expected cash flows that are directly
associated with the use and eventual disposition of the asset
(group), an impairment charge is recognized to the extent the
carrying amount of the asset exceeds the fair value.
Investments
in Unconsolidated Communities
We hold a minority equity interest in ventures established to
develop or acquire and own senior living communities. Those
ventures are generally limited liability companies or limited
partnerships. Our equity interest in these ventures generally
ranges from 10% to 50%.
In accordance with ASC Consolidation Topic, we review all of our
ventures to determine if they are variable interest entities
(VIEs) and require consolidation. If a venture is a
VIE, it is consolidated by the primary beneficiary, which is the
variable interest holder that absorbs the majority of the
ventures expected losses, receives
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Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
a majority of the ventures expected residual returns, or
both. At December 31, 2009, we consolidated one VIE where
we are the primary beneficiary.
In accordance with ASC Consolidation Topic, the general
partner or managing member of a venture consolidates the venture
unless the limited partners or other members have either
(1) the substantive ability to dissolve the venture or
otherwise remove the general partner or managing member without
cause or (2) substantive participating rights in
significant decisions of the venture, including authorizing
operating and capital decisions of the venture, including
budgets, in the ordinary course of business. We have reviewed
all ventures that are not VIEs where we are the general partner
or managing member and have determined that in all cases the
limited partners or other members have substantive participating
rights such as those set forth above and, therefore, no ventures
are consolidated.
For ventures not consolidated, we apply the equity method of
accounting in accordance with ASC Investments Equity
Method and Joint Ventures Topic. Equity method investments are
initially recorded at cost and subsequently are adjusted for our
share of the ventures earnings or losses and cash
distributions. In accordance with this Topic, the allocation of
profit and losses should be analyzed to determine how an
increase or decrease in net assets of the venture (determined in
conformity with GAAP) will affect cash payments to the investor
over the life of the venture and on its liquidation. Because
certain venture agreements contain preferences with regard to
cash flows from operations, capital events
and/or
liquidation, we reflect our share of profits and losses by
determining the difference between our claim on the
investees book value at the end and the beginning of
the period. This claim is calculated as the amount that we would
receive (or be obligated to pay) if the investee were to
liquidate all of its assets at recorded amounts determined in
accordance with GAAP and distribute the resulting cash to
creditors and investors in accordance with their respective
priorities. This method is commonly referred to as the
hypothetical liquidation at book value method.
Our reported share of earnings is adjusted for the impact, if
any, of basis differences between our carrying value of the
equity investment and our share of the ventures underlying
assets. We generally do not have future requirements to
contribute additional capital over and above the original
capital commitments, and therefore, we discontinue applying the
equity method of accounting when our investment is reduced to
zero barring an expectation of an imminent return to
profitability. If the venture subsequently reports net income,
the equity method of accounting is resumed only after our share
of that net income equals the share of net losses not recognized
during the period the equity method was suspended.
When the majority equity partner in one of our ventures sells
its equity interest to a third party, the venture frequently
refinances its senior debt and distributes the net proceeds to
the equity partners. All distributions received by us are first
recorded as a reduction of our investment. Next, we record a
liability for any contractual or implied future financial
support to the venture including obligations in our role as a
general partner. Any remaining distributions are recorded as
Sunrises share of earnings and return on investment
in unconsolidated communities in the consolidated
statements of operations.
We evaluate realization of our investment in ventures accounted
for using the equity method if circumstances indicate that our
investment is other than temporarily impaired.
Deferred
Financing Costs
Costs incurred in connection with obtaining permanent financing
for our consolidated communities are deferred and amortized over
the term of the financing using the effective interest method.
Deferred financing costs are included in Other
assets in the consolidated balance sheets.
Loss
Reserves For Certain Self-Insured Programs
We offer a variety of insurance programs to the communities we
operate. These programs include property insurance, general and
professional liability insurance, excess/umbrella liability
insurance, crime insurance,
76
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
automobile liability and physical damage insurance,
workers compensation and employers liability
insurance and employment practices liability insurance (the
Insurance Program). Substantially all of the
communities we operate participate in the Insurance Program are
charged their proportionate share of the cost of the Insurance
Program.
We utilize large deductible blanket insurance programs in order
to contain costs for certain of the lines of insurance risks in
the Insurance Program including workers compensation and
employers liability risks, automobile liability risk,
employment practices liability risk and general and professional
liability risks (Self-Insured Risks). The design and
purpose of a large deductible insurance program is to reduce
overall premium and claim costs by internally financing lower
cost claims that are more predictable from year to year, while
buying insurance only for higher-cost, less predictable claims.
We have self-insured a portion of the Self-Insured Risks through
the Sunrise Captive. The Sunrise Captive issues policies of
insurance to and receives premiums from us that are reimbursed
through expense allocation to each operated community. The
Sunrise Captive pays the costs for each claim above a deductible
up to a per claim limit. Third-party insurers are responsible
for claim costs above this limit. These third-party insurers
carry an A.M. Best rating of A-/VII or better.
We record outstanding losses and expenses for all Self-Insured
Risks and for claims under insurance policies based on
managements best estimate of the ultimate liability after
considering all available information, including expected future
cash flows and actuarial analyses. We believe that the allowance
for outstanding losses and expenses is appropriate to cover the
ultimate cost of losses incurred at December 31, 2009, but
the allowance may ultimately be settled for a greater or lesser
amount. Any subsequent changes in estimates are recorded in the
period in which they are determined and will be shared with the
communities participating in the insurance programs based on the
proportionate share of any changes.
Employee
Health and Dental Benefits
We offer employees an option to participate in our self-insured
health and dental plans. The cost of our employee health and
dental benefits, net of employee contributions, is shared
between us and the communities based on the respective number of
participants working either at our corporate headquarters or at
the communities. Funds collected are used to pay the actual
program costs including estimated annual claims, third-party
administrative fees, network provider fees, communication costs,
and other related administrative costs incurred by us. Claims
are paid as they are submitted to the plan administrator. We
also record a liability for outstanding claims and claims that
have been incurred but not yet reported. This liability is based
on the historical claim reporting lag and payment trends of
health insurance claims. We believe that the liability for
outstanding losses and expenses is adequate to cover the
ultimate cost of losses incurred at December 31, 2009, but
actual claims may differ. Any subsequent changes in estimates
are recorded in the period in which they are determined and will
be shared with the communities participating in the program
based on their proportionate share of any changes.
Continuing
Care Agreements
We lease communities under operating leases and own communities
that provide life care services under various types of entrance
fee agreements with residents (Entrance Fee
Communities or Continuing Care Retirement
Communities). Residents of Entrance Fee Communities are
required to sign a continuing care agreement with us. The care
agreement stipulates, among other things, the amount of all
entrance and monthly fees, the type of residential unit being
provided, and our obligation to provide both health care and
non-health care services. In addition, the care agreement
provides us with the right to increase future monthly fees. The
care agreement is terminated upon the receipt of a written
termination notice from the resident or the death of the
resident. Refundable entrance fees are returned to the resident
or the residents estate depending on the form of the
agreement either upon re-occupancy or termination of the care
agreement.
77
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
When the present value of estimated costs to be incurred under
care agreements exceeds the present value of estimated revenues,
the present value of such excess costs is accrued. The
calculation assumes a future increase in the monthly revenue
commensurate with the monthly costs. The calculation currently
results in an expected positive net present value cash flow and,
as such, no liability was recorded as of December 31, 2009
or December 31, 2008.
Refundable entrance fees are primarily non-interest bearing and,
depending on the type of plan, can range from between 30% to
100% of the total entrance fee less any additional occupant
entrance fees. As these obligations are considered security
deposits, interest is not imputed on these obligations. Deferred
entrance fees were $33.2 million and $35.3 million at
December 31, 2009 and 2008, respectively.
Non-refundable portions of entrance fees are deferred and
recognized as revenue using the straight-line method over the
actuarially determined expected term of each residents
contract.
Accounting
for Guarantees
Guarantees entered into in connection with the sale of real
estate often prevent us from either accounting for the
transaction as a sale of an asset or recognizing in earnings the
profit from the sale transaction. Guarantees not entered into in
connection with the sale of real estate are considered financial
instruments. For guarantees considered financial instruments we
recognize at the inception of a guarantee or the date of
modification, a liability for the fair value of the obligation
undertaken in issuing a guarantee. On a quarterly basis, we
evaluate the estimated liability based on the operating results
and the terms of the guarantee. If it is probable that we will
be required to fund additional amounts than previously estimated
a loss is recorded. Fundings that are recoverable as a loan from
a venture are considered in the determination of the contingent
loss recorded. Loan amounts are evaluated for impairment at
inception and then quarterly.
Asset
Retirement Obligations
In accordance with ASC Asset Retirement and Environmental
Obligations Topic we record a liability for a conditional asset
retirement obligation if the fair value of the obligation can be
reasonably estimated.
Certain of our operating real estate assets contain asbestos.
The asbestos is appropriately contained, in accordance with
current environmental regulations, and we have no current plans
to remove the asbestos. When, and if, these properties are
demolished, certain environmental regulations are in place which
specify the manner in which the asbestos must be handled and
disposed of. Because the obligation to remove the asbestos has
an indeterminable settlement date, we are not able to reasonably
estimate the fair value of this asset retirement obligation.
In addition, certain of our long-term ground leases include
clauses that may require us to dispose of the leasehold
improvements constructed on the premises at the end of the lease
term. These costs, however, are not estimable due to the range
of potential settlement dates and variability among properties.
Further, the present value of the expected costs is
insignificant as the remaining term of each of the leases is
fifty years or more.
Income
Taxes
Deferred income taxes reflect the impact of temporary
differences between the amounts of assets and liabilities
recognized for financial reporting purposes and such amounts
recognized for tax purposes. We record the current year amounts
payable or refundable, as well as the consequences of events
that give rise to deferred tax assets and liabilities based on
differences in how these events are treated for tax purposes. We
base our estimate of deferred tax assets and liabilities on
current tax laws and rates and, in certain cases, business plans
and other expectations about future outcomes. We provide a
valuation allowance against the net deferred tax assets when it
is more likely than not that sufficient taxable income will not
be generated to utilize the net deferred tax assets.
78
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Revenue
Recognition
Management fees is comprised of fees from management
contracts for operating communities owned by unconsolidated
ventures and third parties, which consist of base management
fees and incentive management fees. The management fees are
generally between five and eight percent of a managed
communitys total operating revenue. Fees are recognized in
the month they are earned in accordance with the terms of the
management contract.
Resident fees from consolidated communities are
recognized monthly as services are provided. Agreements with
residents are generally for a term of one year and are
cancelable by residents with 30 days notice.
Ancillary services is comprised of fees for
providing care services to residents of certain communities
owned by ventures and fees for providing home health assisted
living services.
Professional fees from development, marketing and
other is comprised of fees received for services provided
prior to the opening of an unconsolidated community. Our
development fees related to building design and construction
oversight are recognized using the
percentage-of-completion
method and the portion related to marketing services is
recognized on a straight-line basis over the estimated period
the services are provided. The
cost-to-cost
method is used to measure the extent of progress toward
completion for purposes of calculating the
percentage-of-completion portion of the revenues.
Reimbursed costs incurred on behalf of managed
communities is comprised of reimbursements for expenses
incurred by us, as the primary obligor, on behalf of communities
operated by us under long-term management agreements. Revenue is
recognized when we incur the related costs. If we are not the
primary obligor, certain costs, such as interest expense, real
estate taxes, depreciation, ground lease expense, bad debt
expense and cost incurred under local area contracts, are not
included. The related costs are included in Costs incurred
on behalf of managed communities.
We considered the indicators in ASC Revenue Recognition
Topic, in making our determination that revenues should
be reported gross versus net. Specifically, we are the primary
obligor for certain expenses incurred at the communities,
including payroll costs, insurance and items such as food and
medical supplies purchased under national contracts entered into
by us. We, as manager, are responsible for setting prices paid
for the items underlying the reimbursed expenses, including
setting pay-scales for our employees. We select the supplier of
goods and services to the communities for the national contracts
that we enter into on behalf of the communities. We are
responsible for the scope, quality and extent of the items for
which we are reimbursed. Based on these indicators, we have
determined that it is appropriate to record revenues gross
versus net.
Stock-Based
Compensation
We record compensation expense for our employee stock options,
restricted stock awards, and employee stock purchase plan in
accordance with ASC Equity Topic. This Topic requires that all
share-based payments to employees be recognized in the
consolidated statements of operations based on their grant date
fair values with the expense being recognized over the requisite
service period. We use the Black-Scholes model to determine the
fair value of our awards at the time of grant.
Foreign
Currency Translation
Our reporting currency is the U.S. dollar. Certain of our
subsidiaries functional currencies are the local currency
of their respective country. In accordance with ASC Foreign
Currency Matters Topic, balance sheets prepared in their
functional currencies are translated to the reporting currency
at exchange rates in effect at the end of the accounting period
except for stockholders equity accounts and intercompany
accounts with consolidated subsidiaries that are considered to
be of a long-term nature, which are translated at rates in
effect when these balances were originally recorded. Revenue and
expense accounts are translated at a weighted average of
exchange rates during the period. The cumulative effect of the
translation is included in Accumulated other comprehensive
79
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
income in the consolidated balance sheets. Monetary assets
and liabilities denominated in foreign currencies are
retranslated at the functional currency rate of exchange at the
balance sheet date. All differences are recorded to the
statement of operations.
Advertising
Costs
We expense advertising as incurred. Total advertising expense
for the years ended December 31, 2009, 2008 and 2007 was
$4.1 million, $4.3 million and $4.2 million,
respectively.
Legal
Contingencies
We are subject to various legal proceedings and claims, the
outcomes of which are subject to significant uncertainty. We
record an accrual for loss contingencies when a loss is probable
and the amount of the loss can be reasonably estimated. We
review these accruals quarterly and make revisions based on
changes in facts and circumstances.
Reclassifications
Certain amounts have been reclassified to conform to the current
year presentation. The majority of the reclassification are to
discontinued operations which includes our German communities
which we began marketing for sale in 2009, our Greystone
subsidiary sold in 2009, 24 sold communities of which 22 were
sold in 2009 and two in 2008, one community closed in 2009 and
our Trinity subsidiary which ceased operations in 2008 and for
which we have no continuing involvement.
New
Accounting Standards
We adopted the following provisions of the ASC at the beginning
of 2009:
We adopted new provisions of ASC Fair Value Measurements Topic
for non-financial assets and liabilities. We had previously
adopted the other provisions of fair value measurement for
financial assets and liabilities beginning in 2008. The
provisions are required to be applied prospectively as of the
beginning of the first fiscal year in which the provisions are
applied. Adoption of these provisions of the ASC did not have a
material impact on our reported consolidated financial position,
results of operations or cash flows.
We adopted new provisions of the ASC Business Combination Topic
beginning in 2009. These provisions require most identifiable
assets, liabilities, non-controlling interests and goodwill
acquired in business combinations to be recorded at full
fair value. Transaction costs are no longer to be included
in the measurement of the business acquired and instead should
be expensed as incurred. These provisions apply prospectively to
business combinations occurring on or after January 2009.
We adopted new provisions of the ASC Consolidation Topic. These
provisions establish new accounting and reporting requirements
for a non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. Specifically, these provisions
require the recognition of a non-controlling interest (minority
interest) as equity in the consolidated financial statements
separate from the parents equity. The amount of net income
attributable to the non-controlling interest is now included in
consolidated net income on the face of the income statement. The
provisions also clarify that changes in a parents
ownership interest in a subsidiary that do not result in
deconsolidation are equity transactions. In addition, the
provisions require that a parent recognize a gain or loss in net
income when a subsidiary is deconsolidated. Such gain or loss
will be measured using the fair value of the non-controlling
equity investment on the deconsolidation date. The provisions
also include expanded disclosure requirements regarding the
interests of the parent and its non-controlling interest.
Adoption of the provisions under the Consolidation Topic
regarding non-controlling interests on January 1, 2009 did
not have a material impact on our reported consolidated
financial position, results of operations or cash flows.
80
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
We adopted provisions of the ASC Derivative and Hedging Topic
which provides guidance on certain disclosures about credit
derivatives and certain guarantees. Adoption of these provisions
did not have a material impact on our reported consolidated
financial position, results of operations or cash flows.
We adopted provisions of the ASC Investments Equity
Method and Joint Venture Topic. The intent of these provisions
is to clarify the accounting for certain transactions and
impairment considerations related to equity method investments.
The adoption of these provisions did not have a material impact
on our reported consolidated financial position, results of
operations or cash flows.
In the second quarter of 2009, we adopted the following
provisions of the ASC, none of which had a material impact on
our reported consolidated financial position, results of
operations or cash flows:
ASC Investments Debt and Equity Securities Topic
modifies the
other-than-temporary
impairment guidance for debt securities through increased
consistency in the timing of impairment recognition and enhanced
disclosures related to the credit and non-credit components of
impaired debt securities that are not expected to be sold. In
addition, increased disclosures are required for both debt and
equity securities regarding expected cash flows, credit losses,
and an aging of securities with unrealized losses.
ASC Financial Instruments Topic requires fair value disclosures
for financial instruments that are not reflected in the
consolidated balance sheets at fair value. Prior to these
provisions, the fair values of those assets and liabilities were
disclosed only once each year. With the adoption of these
provisions, we are now required to disclose this information on
a quarterly basis, providing quantitative and qualitative
information about fair value estimates for all financial
instruments not measured in the consolidated balance sheets at
fair value.
ASC Fair Value Measurements Topic clarifies the methodology used
to determine fair value when there is no active market or where
the price inputs being used represent distressed sales. These
provisions also reaffirm the objective of fair value
measurement, which is to reflect how much an asset would be sold
for in an orderly transaction. They also reaffirm the need to
use judgment to determine if a formerly active market has become
inactive, as well as to determine fair values when markets have
become inactive.
ASC Subsequent Events Topic establishes general standards of
accounting for and disclosure of events that occur after the
balance sheet date but before the financial statements are
issued or available to be issued.
In the third quarter of 2009, we adopted the ASC as the single
source of authoritative nongovernmental generally accepted
accounting principles. The adoption of the ASC did not have a
material impact on our consolidated financial position, results
of operations or cash flows.
In the third quarter of 2009, the FASB issued Accounting
Standards Update (ASU)
2009-05,
Fair Value Measurements and Disclosures (Topic
820) Measuring Liabilities at Fair Value
(ASU
2009-05).
ASU 2009-05
amends the Fair Value Measurement Topic by providing additional
guidance clarifying the measurement of liabilities at fair value
including how the price of a traded debt security should be
considered in estimating the fair value of the issuers
liability. ASU
2009-05 is
effective for us for the fourth quarter of 2009. ASU
2009-05 did
not have a material impact on our consolidated financial
position, results of operations or cash flows.
Future
Adoption of Accounting Standards
In the second quarter 2009, the FASB issued ASU
2009-17,
Consolidations (Topic 810) Improvements to Financial
Reporting by Enterprises Involved with Variable Interest
Entities. ASU
2009-17
requires an analysis to be performed to determine whether a
variable interest entity gives an enterprise a controlling
financial interest in a variable interest entity. The analysis
identifies the primary beneficiary of a variable interest
entity. Additionally, ASU
2009-17
requires ongoing assessments as to whether an enterprise is the
primary beneficiary and eliminates the quantitative approach in
determining the primary beneficiary. ASU
2009-17 is
effective for us January 1, 2010. We do not believe that
ASU 2009-17
will have a material impact on our consolidated financial
position, results of operations or cash flows.
81
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
In the fourth quarter of 2009, the FASB issued ASU
2009-13,
Revenue Recognition (Topic 605)
Multiple-Deliverable Revenue Arrangements (ASU
2009-13).
It requires an entity to allocate arrangement consideration at
the inception of an arrangement to all of its deliverables based
on their relative selling prices. It eliminated the use of the
residual method of allocation and requires the
relative-selling-price method in all circumstances in which an
entity recognized revenue for an arrangement with multiple
deliverables subject to ASU
605-25. It
no longer requires third party evidence. ASU
2009-13 is
effective for us for the year beginning January 1, 2011. We
are currently evaluating whether ASU
2009-13 will
have a material impact on our consolidated financial position,
results of operations or cash flows.
|
|
3.
|
Fair
Value Measurements
|
Fair value is based on the price that would be received to sell
an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
The ASC Fair Value Measurements Topic established a fair value
hierarchy that prioritizes observable and unobservable inputs
used to measure fair value into three broad levels. These
levels, in order of highest priority to lowest priority, are
described below:
Level 1: Quoted prices (unadjusted) in active markets that
are accessible at the measurement date for assets or liabilities.
Level 2: Observable prices that are based on inputs not
quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs that are used when little or
no market data is available.
Auction
Rate Securities, Marketable Securities and Interest Rate
Caps
The following table details the auction rate securities and
marketable securities measured at fair value as of
December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
Asset
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Auction rate securities
|
|
$
|
18,686
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
18,686
|
|
Marketable securities
|
|
|
2,311
|
|
|
|
2,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,997
|
|
|
$
|
2,311
|
|
|
$
|
|
|
|
$
|
18,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, we held investments in three Student
Loan Auction-Rate Securities (SLARS), two with a
face amount of $8.0 million each and one with a face amount
of $6.1 million, for a total of $22.1 million. These
SLARS are issued by non-profit corporations and their proceeds
are used to purchase portfolios of student loans. The SLARS
holders are repaid from cash flows resulting from the student
loans in a trust estate. The student loans are 98% guaranteed by
the Federal government against default. The interest rates for
these SLARS are reset every 7 to 35 days. The interest
rates at December 31, 2009 ranged from 0.26% to 0.50%.
Uncertainties in the credit markets have prevented us and other
investors from liquidating auction rate securities. We classify
our investments in auction rate securities as trading securities
and carry them at fair value. The fair value of the securities
at December 31, 2009 was determined to be
$18.7 million and we recorded unrealized and realized gains
(losses) of $3.6 million and $(7.8) million in 2009
and 2008, respectively.
Due to the lack of actively traded market data, the valuation of
these securities was based on Level 3 unobservable inputs.
These inputs include an analysis of sales discounts realized in
the secondary market, as well as assumptions about risk after
considering recent events in the market for auction rate
securities. The discount range
82
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
of SLARS in the secondary market ranged from 16% to 43% at
December 31, 2009 with an average SLARS discount on closed
deals of 20% at December 31, 2009.
During 2009, $8.8 million of our auction rate securities
were called and redeemed at par and $8.0 million were sold
at a discount of 10% of par. As a result, we recognized a gain
on the redemption and sale of those securities of
$2.6 million. Approximately $8.4 million of the
proceeds were used to repay the margin loan related to the
SLARS, refer to Note 10.
The following table reconciles the beginning and ending balances
for the auction rates securities using fair value measurements
based on significant unobservable inputs for 2009 (in thousands):
|
|
|
|
|
|
|
Auction
|
|
|
|
Rate Securities
|
|
|
Beginning balance 1/1/09
|
|
$
|
31,080
|
|
Total gains
|
|
|
3,556
|
|
Sales
|
|
|
(7,200
|
)
|
Redemptions
|
|
|
(8,750
|
)
|
|
|
|
|
|
Ending balance 12/31/09
|
|
$
|
18,686
|
|
|
|
|
|
|
At December 31, 2009, we had an investment in marketable
securities related to a consolidated entity in which we have
control but no ownership interest. The fair value of the
investment was approximately $2.3 million at
December 31, 2009. The valuation was based on Level 1
inputs.
German
Assets Held for Sale, Assets Held for Sale and Assets Held and
Used
German
Assets Held for Sale
The German assets held for sale at December 31, 2009
consists of the following (in thousands):
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
Cash and cash equivalents
|
|
$
|
542
|
|
Accounts receivable, net
|
|
|
3,112
|
|
Property and equipment, net
|
|
|
100,937
|
|
Prepaid and other assets
|
|
|
129
|
|
|
|
|
|
|
German assets held for sale
|
|
$
|
104,720
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
12,632
|
|
|
|
|
|
|
Assets
Held for Sale
Other assets held for sale with a lower of carrying value or
fair value less estimated costs to sell consists of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Land
|
|
$
|
33,801
|
|
|
$
|
46,018
|
|
Closed community
|
|
|
2,514
|
|
|
|
|
|
Condominium units
|
|
|
4,343
|
|
|
|
3,058
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale
|
|
$
|
40,658
|
|
|
$
|
49,076
|
|
|
|
|
|
|
|
|
|
|
83
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
In 2009, we recorded certain land parcels (including two closed
construction sites), a condominium project and a closed property
as held for sale at the lower of their carrying value or fair
value less estimated costs to sell. We used appraisals, bona
fide offers, market knowledge and broker opinions of value to
determine fair value. As the carrying value of some of the
assets was in excess of the fair value less estimated costs to
sell, we recorded a charge of $4.5 million which is
included in operating expenses under impairment of long-lived
assets. At the end of 2009, seven land parcels classified as
assets held for sale had been held for sale for over a year.
Therefore, the requirements to be classified as held for sale
are not being met and the assets have been re-classified to held
and used as of December 31, 2009. However, we continue to
market these land parcels for sale.
Assets
Held and Used
In 2009, we recorded impairment charges of $24.9 million
related to certain operating communities that are held and used
as the carrying value of these assets was in excess of the fair
value. We used appraisals, recent sale and a cost of capital
rate to the communities average net income to estimate
fair value of all of these assets. We subsequently sold 21
operating communities that were classified as assets held and
used and the $22.6 million impairment charge related to
certain of these communities is included in discontinued
operations. The remaining $2.3 million impairment charges
are included in operating expenses under impairment of owned
communities and land parcels.
In 2009, we also recorded impairment charges of
$24.9 million for certain land parcels held and used as the
carrying value of these assets was in excess of the fair value.
We used appraisals, bona fide offers, market knowledge and
brokers opinions of value to determine fair value. The
charges are included in operating expenses under impairment of
owned communities and land parcels.
Fair
Value Measurements of German Assets Held for Sale, Assets Held
for Sale and Assets Held and Used
Upon designation as assets held for sale, we recorded the assets
at the lower of carrying value or their fair value less
estimated costs to sell. The following table details only assets
held for sale and assets held and used where fair value was
lower than the carrying value and an impairment loss was
recorded (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
Total
|
|
|
|
December 31,
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Impairment
|
|
Asset
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Losses
|
|
|
German assets held for sale
|
|
$
|
83,309
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
83,309
|
|
|
$
|
(49,885
|
)
|
Other assets held for sale
|
|
|
33,000
|
|
|
|
|
|
|
|
|
|
|
|
33,000
|
|
|
|
(4,462
|
)
|
Assets held and used
|
|
|
29,587
|
|
|
|
|
|
|
|
|
|
|
|
29,587
|
|
|
|
(49,862
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
145,896
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
145,896
|
|
|
$
|
(104,209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Fair Value Information
Cash equivalents, accounts receivable, notes receivable,
accounts payable and accrued expenses, equity investments and
other current assets and liabilities are carried at amounts
which reasonably approximate their fair values. At
December 31, 2009, the carrying amount of our cost method
investment is $5.5 million. The fair value of the cost
method investment was not estimated as there were no events or
changes in circumstances that may have a significant adverse
effect on the fair value of the investment, and we determined
that it is not practicable to estimate the fair value of the
investment.
The fair value of our debt has been estimated based on current
rates offered for debt with the same remaining maturities and
comparable collateralizing assets. Changes in assumptions or
methodologies used to make estimates may have a material effect
on the estimated fair value. We have applied Level 2 and
Level 3 type inputs to determine
84
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
the estimated fair value of our debt. Note that debt is
reflected on the face of our consolidated balance sheets at the
stated value, except for the German debt which was initially
recorded at fair value at September 1, 2008. The following
table details by category the principal amount, the average
interest rate and the estimated fair market value of our debt
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate
|
|
|
Variable Rate
|
|
|
|
Debt
|
|
|
Debt
|
|
|
Total Carrying Value
|
|
$
|
1,365
|
|
|
$
|
438,854
|
|
|
|
|
|
|
|
|
|
|
Average Interest Rate
|
|
|
6.67
|
%
|
|
|
2.85
|
%
|
|
|
|
|
|
|
|
|
|
Estimated Fair Market Value
|
|
$
|
1,365
|
|
|
$
|
375,614
|
|
|
|
|
|
|
|
|
|
|
Disclosure about fair value of financial instruments is based on
pertinent information available to us at December 31, 2009.
|
|
4.
|
Allowance
for Doubtful Accounts
|
Allowance for doubtful accounts consists of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
|
|
|
Other
|
|
|
|
|
|
|
Receivable
|
|
|
Assets
|
|
|
Total
|
|
|
Balance January 1, 2006
|
|
$
|
7,504
|
|
|
$
|
8,000
|
|
|
$
|
15,504
|
|
Provision for doubtful accounts(1)
|
|
|
9,564
|
|
|
|
|
|
|
|
9,564
|
|
Write-offs
|
|
|
(4,708
|
)
|
|
|
|
|
|
|
(4,708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2007
|
|
|
12,360
|
|
|
|
8,000
|
|
|
|
20,360
|
|
Provision for doubtful accounts(1)
|
|
|
24,164
|
|
|
|
|
|
|
|
24,164
|
|
Write-offs
|
|
|
(1,491
|
)
|
|
|
|
|
|
|
(1,491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2008
|
|
|
35,033
|
|
|
|
8,000
|
|
|
|
43,033
|
|
Provision for doubtful accounts(1)
|
|
|
14,931
|
|
|
|
|
|
|
|
14,931
|
|
Write-offs
|
|
|
(25,900
|
)
|
|
|
(8,000
|
)
|
|
|
(33,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2009(1)
|
|
$
|
24,064
|
|
|
$
|
|
|
|
$
|
24,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes provision associated with discontinued operations. |
|
|
5.
|
Property
and Equipment
|
Property and equipment consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Asset Lives
|
|
2009
|
|
|
2008
|
|
|
Land and land improvements
|
|
15 years
|
|
$
|
75,595
|
|
|
$
|
130,806
|
|
Building and building improvements
|
|
40 years
|
|
|
217,764
|
|
|
|
473,732
|
|
Furniture and equipment
|
|
3-10 years
|
|
|
140,024
|
|
|
|
179,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
433,383
|
|
|
|
784,173
|
|
Less: Accumulated depreciation
|
|
|
|
|
(146,638
|
)
|
|
|
(191,718
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
286,745
|
|
|
|
592,455
|
|
Capitalized project costs
|
|
|
|
|
1,311
|
|
|
|
88,897
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
$
|
288,056
|
|
|
$
|
681,352
|
|
|
|
|
|
|
|
|
|
|
|
|
85
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Depreciation expense was $31.8 million, $30.5 million
and $27.2 million in 2009, 2008 and 2007, respectively.
In 2009, we sold 21 non-core communities with a net book value
of $142.5 million for an aggregate purchase price of
$204 million. We recorded a gain of approximately
$48.9 million after a deduction of $5.0 million
related to potential future indemnification obligations which
expire in November 2010. We reclassed $100.9 million of
property and equipment, net to German Assets Held for Sale. We
recorded impairment charges of $49.9 million related to the
German assets, another $49.9 million related to assets held
and used and $4.5 million related to assets held for sale.
Refer to Note 3.
During 2008, we recorded impairment charges of
$19.3 million related to five communities in the U.S.,
$5.2 million related to two communities in Germany and
$12.0 million related to land parcels that were no longer
expected to be developed. During 2007, we recorded an impairment
charge of $7.6 million related to two communities in the
U.S.
Total gains (losses) on sale recognized are as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Properties accounted for under basis of performance of services
|
|
$
|
10.5
|
|
|
$
|
9.6
|
|
|
$
|
3.6
|
|
Properties accounted for previously under financing method
|
|
|
|
|
|
|
0.5
|
|
|
|
32.8
|
|
Properties accounted for previously under deposit method
|
|
|
3.4
|
|
|
|
0.9
|
|
|
|
52.4
|
|
Properties accounted for under the profit-sharing method
|
|
|
8.9
|
|
|
|
6.7
|
|
|
|
|
|
Land and community sales
|
|
|
(0.4
|
)
|
|
|
(0.9
|
)
|
|
|
5.7
|
|
Condominium sales
|
|
|
(1.0
|
)
|
|
|
1.0
|
|
|
|
|
|
Sales of equity interests and other sales
|
|
|
0.3
|
|
|
|
(0.4
|
)
|
|
|
10.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains on the sale and development of real estate and
equity interests
|
|
$
|
21.7
|
|
|
$
|
17.4
|
|
|
$
|
105.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis
of Performance of Services
During the years ended December 31, 2009, 2008 and 2007, we
sold majority membership interests in entities owning partially
developed land or sold partially developed land to ventures with
none, four and three underlying communities, respectively, for
zero, $78.7 million and $13.9 million, net of
transaction costs, respectively. In connection with the
transactions, we provided guarantees to support the operations
of the underlying communities for a limited period of time. In
addition, we operate the communities under long-term management
agreements upon opening. Due to our continuing involvement, all
gains on the sale and fees received after the sale are initially
deferred. Any fundings under the cost overrun guarantees and the
operating deficit guarantees are recorded as a reduction of the
deferred gain. Gains and development fees are recognized on the
basis of performance of the services required. As the result of
the deferral of gains on sale and fees received after the sale,
additional deferred gains of $2.3 million,
$8.5 million and $5.3 million were recorded in 2009,
2008 and 2007, respectively. Gains of $7.6 million,
$4.9 million and $3.6 million were recognized in 2009,
2008 and 2007, respectively.
In 2008, in connection with the sale of a majority membership
interest in an entity which owned an operating community, we
provided a guarantee to support the operations of the property
for a limited period of time. Due to this continuing
involvement, the gain on sale totaling approximately
$8.7 million was initially deferred and is being recognized
using the basis of performance of services method. We recorded
gains of $2.9 million and $4.7 million in 2009 and
2008, respectively.
86
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Financing
Method
In 2004, we sold majority membership interests in two entities
which owned partially developed land to two separate ventures.
In conjunction with these two sales, we had an option to
repurchase the communities from the venture at an amount that
was higher than the sales price. At the date of sale, it was
likely that we would repurchase the properties, and as a result
the financing method of accounting was applied. In 2007, the two
separate ventures were recapitalized and merged into one new
venture. Per the terms of the transaction, we no longer had an
option to repurchase the communities. Thus, there were no longer
any forms of continuing involvement that would preclude sale
accounting and a gain on sale of $32.8 million was
recognized in 2007. Also, as part of the 2007 transaction, we
indemnified the buyer for a period of 12 months against any
losses up to $1 million. An additional gain of
$0.5 million was recognized in 2008 when the
indemnification period expired.
Deposit
Method
During 2003, we sold a portfolio of 13 operating communities and
five communities under development for approximately
$158.9 million in cash, after transaction costs, which was
approximately $21.5 million in excess of our capitalized
costs. In connection with the transaction, we agreed to provide
support to the buyer if the cash flows from the communities were
below a stated target. The guarantee expired at the end of the
18th full calendar month from the date on which all permits and
licenses necessary for the admittance of residents had been
obtained for the last development property. The last permits
were obtained in January 2006 and the guarantee expired in July
2007. We recorded a gain of $52.5 million upon the
expiration of the guarantee in 2007. In 2009 and 2008, the buyer
reimbursed us for some of the income support payments previously
made. We recorded additional gains of $3.4 million and
$0.9 million in 2009 and 2008, respectively, relating to
these reimbursements.
Relevant details are as follows (in thousands):
|
|
|
|
|
|
|
December 31,
|
|
|
2007
|
|
Properties subject to sales contract, net
|
|
$
|
|
|
Deposits related to properties
|
|
|
|
|
subject to a sales contract
|
|
|
|
|
Depreciation expense
|
|
|
4,876
|
|
Development fees received, net of costs
|
|
|
|
|
Management fees received
|
|
|
2,331
|
|
Installment
Method
In 2009, we sold a wholly owned community to an unrelated third
party for approximately $2.0 million. We received
$0.3 million in cash and a note receivable for
$1.7 million when the transaction closed. The cash received
did not meet the minimum initial investment required to
adequately demonstrate the buyers commitment to purchase
this type of asset. Therefore, we have applied the installment
method of accounting to this transaction. Under the installment
method, the seller recognizes a sale of real estate. However,
profit is recognized on a reduced basis. As of December 31,
2009, we have received $0.2 million of the amount
outstanding on the note receivable, recognizing a total gain of
$0.5 million in 2009. This community sale is included in
discontinued operations as we have no continuing involvement.
Investments
Accounted for Under the Profit-Sharing Method,
net
During 2009, a guarantee we provided in conjunction with the
sale of three communities in 2004 expired. The guarantee stated
that we would make monthly payments to the buyer equal to the
amount by which a net operating income target exceeded actual
net operating income for the communities until a certain
coverage ratio was reached.
87
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
In 2004, we had concluded that the guarantee would be for an
extended period of time and applied the profit-sharing method of
accounting. Upon the expiration of the guarantee, we recorded a
gain of approximately $8.9 million.
During 2008, we completed the recapitalization of a venture with
two underlying properties that was initially sold in 2004. As a
result of this recapitalization, the guarantees that required us
to use the profit-sharing method of accounting for our previous
sale of real estate in 2004 were released and we recorded a gain
on sale of approximately $6.7 million.
We currently apply the profit-sharing method to two transactions
that occurred in 2006 where we sold a majority interest in two
separate entities related to a partially developed condominium
project as we provided guarantees to support the operations of
the entities for an extended period of time. In conjunction with
the development agreement for this project, we agreed to be
responsible for actual project costs in excess of budgeted
project costs of more than $10.0 million (subject to
certain limited exceptions). The $10.0 million is
recoverable as a loan from the ventures. Through
December 31, 2009, we have paid $51.2 million in cost
overruns. Construction of this project is now complete. Our
investment carrying value at December 31, 2009 is
$11.0 million for the two ventures, which includes our
$10.0 million recoverable loan and advances we have made to
the ventures. We recorded a loss of $13.6 million from the
two ventures in 2009. The pace of sales of condominium units and
prices could impact the recovery of our investment carrying
value. The weak economy in the Washington, D.C. area will
require us to implement more aggressive marketing and sales
plans. No assurance can be given that additional pre-tax charges
will not be required in subsequent periods with respect to this
condominium venture.
Relevant details are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenue
|
|
$
|
14,219
|
|
|
$
|
16,635
|
|
|
$
|
23,791
|
|
Operating expenses
|
|
|
(18,849
|
)
|
|
|
(11,459
|
)
|
|
|
(15,301
|
)
|
Interest expense
|
|
|
(6,195
|
)
|
|
|
(597
|
)
|
|
|
(2,149
|
)
|
Impairment loss
|
|
|
(1,146
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations before depreciation
|
|
|
(11,971
|
)
|
|
|
4,579
|
|
|
|
6,341
|
|
Depreciation expense
|
|
|
1,489
|
|
|
|
|
|
|
|
|
|
Distributions to other investors
|
|
|
(2,326
|
)
|
|
|
(5,908
|
)
|
|
|
(6,319
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from investments accounted for
|
|
|
|
|
|
|
|
|
|
|
|
|
under the profit-sharing method
|
|
$
|
(12,808
|
)
|
|
$
|
(1,329
|
)
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments accounted for under the
|
|
|
|
|
|
|
|
|
|
|
|
|
profit-sharing method, net
|
|
$
|
11,031
|
|
|
$
|
13,673
|
|
|
$
|
(51,377
|
)
|
Amortization expense on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
accounted for under the profit-sharing method
|
|
$
|
363
|
|
|
$
|
987
|
|
|
$
|
1,800
|
|
Land
and Community Sales
During 2009, 2008 and 2007, we sold one, four and three pieces
of undeveloped land, respectively. We recognized (losses) gains
of $(0.4) million, $(0.9) million and
$5.7 million, in 2009, 2008 and 2007, respectively, related
to these land sales.
In addition, in 2009, we sold 21 non-core assisted living
communities, located in 11 states, to Brookdale Senior
Living, Inc. for an aggregate purchase price of
$204 million. At closing, we received approximately
$59.6 million in net proceeds after we paid or the
purchaser assumed approximately $134.1 million of mortgage
loans, the posting of required escrows, various prorations and
adjustments, and payments of expenses by us, recognizing a gain
of
88
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
$48.9 million. This gain was after a reduction of
$5.0 million related to potential future indemnification
obligations which expire in November 2010. In 2008, we sold two
communities for approximately $3.3 million in cash after
transaction costs. There were no forms of continuing involvement
that precluded sale accounting or gain recognition for all these
sales. These community sales are included in discontinued
operations as we have no continuing involvement.
Condominium
Sales
In 2006, we acquired the long-term management contracts of two
San Francisco Bay area continuing care retirement
communities (CCRC) and the ownership of one
community. As part of the acquisition, we also received ten
vacant condominium units from the seller that we could renovate
and sell. In 2007, we purchased an additional 37 units. Of
the 47 units acquired, three were converted into a fitness
center for the community, 14 were converted into seven double
units and three were converted into a triple unit. In 2009 and
2008, we sold nine and nine, respectively, of the 35 renovated
units and recognized (losses) gains on those sales totaling
$(1.0) million and $1.0 million, respectively.
Sales
of Equity Interests
During 2009, 2008 and 2007, we sold our equity interest in one,
one and four ventures, respectively, whose underlying asset is
real estate. In accordance with ASC Property, Plant and
Equipment Topic, the sale of an investment in the form of
a financial asset that is in substance real estate should be
accounted for in accordance with this Topic. For all of the
transactions, we did not provide any forms of continuing
involvement that would preclude sale accounting or gain
recognition. We recognized losses or gains on sale of zero,
$(0.4) million and $10.6 million, respectively,
related to these sales.
|
|
7.
|
Variable
Interest Entities
|
Generally accepted accounting principles requires that a VIE,
defined as an entity subject to consolidation according to the
provisions of the ASC Consolidation Topic, must be consolidated
by the primary beneficiary. The primary beneficiary is the party
that absorbs a majority of the entitys expected losses,
receives a majority of the entitys expected residual
returns or both. We perform a qualitative and quantitative
analysis using the methodology as described under the ASC
Consolidation Topic to calculate expected losses to determine if
the entity is a VIE. If the entity is a VIE, we determine which
party has the greater variability and is the primary
beneficiary. At December 31, 2009, we are the primary
beneficiary of one VIE and therefore consolidate that entity.
VIEs
where Sunrise is the Primary Beneficiary
We have a management agreement with a
not-for-profit
corporation established to own and operate a continuing care
retirement community (CCRC) in New Jersey. This
entity is a VIE. The CCRC contains a 60-bed skilled nursing
unit, a 32-bed assisted living unit, a 27-bed Alzheimers
care unit and 252 independent living apartments. We have
included $18.1 million and $19.2 million,
respectively, of net property and equipment and debt of
$23.2 million and $23.9 million, respectively, in our
2009 and 2008 consolidated balance sheets for this entity. The
majority of the debt is bonds that are secured by a pledge of
and lien on revenues, a letter of credit with Bank of New York
and by a leasehold mortgage and security agreement. We guarantee
the letter of credit. Proceeds from the bonds issuance
were used to acquire and renovate the CCRC. In 2009 and 2008, we
guaranteed $21.9 million and $22.5 million,
respectively, of the bonds. The entity has incurred losses and
has experienced negative working capital for several years and
has failed the debt service coverage ratio related to the bonds.
Management fees earned by us were $0.6 million,
$0.5 million and $0.5 million in 2009, 2008 and 2007,
respectively. The management agreement also provides for
reimbursement to us for all direct cost of operations. Payments
to us for direct operating expenses and management fees were
$11.1 million, $7.5 million and $4.2 million in
2009, 2008 and 2007, respectively. The entity obtains
professional and general liability coverage through our
affiliate, Sunrise Senior
89
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Living Insurance, Inc. The entity incurred $0.2 million per
year for 2009, 2008 and 2007, related to the professional and
general liability coverage. The entity also has a ground lease
with us. Rent expense is recognized on a straight-line basis at
$0.7 million per year. Deferred rent relating to this
agreement is $6.1 million and $5.6 million at
December 31, 2009 and 2008, respectively. These amounts are
eliminated in our consolidated financial statements.
Beginning in September 2008, we consolidated the German
communities as the venture was a VIE. In January 2009, we
exercised our option and acquired a controlling interest of
94.9% in the German communities. In June 2009, we exercised our
option and acquired the remaining 5.1% interest in our German
communities therefore wholly owning those communities.
We previously consolidated six VIEs that were investment
partnerships formed with third-party partners to invest capital
in the pre-financing stage of Greystone projects. Five of these
investment partnerships were sold as part of the Greystone
transaction in March 2009 and we retained ownership in one which
we deconsolidated as we are no longer affiliated with the
general partner and do not control the entity. This entity was
dissolved as of January 22, 2010. We owned 49.5% of the
investment partnership with 50.5% owned by third parties. The
purpose of the venture had been to develop a senior living
community owned by a nonprofit entity.
VIEs
Where We Are Not the Primary Beneficiary but Hold a Significant
Variable Interest in the VIEs
In July 2007, we formed a venture with a third party to purchase
six communities from our first U.K. development venture. The
entity was financed with £187.6 million of debt. The
venture also entered into a firm commitment to purchase 11
additional communities from our first U.K. development venture.
As of December 31, 2009, the venture has 15 operating
communities in the U.K. Our equity investment in the venture is
zero at December 31, 2009. The line item Due from
unconsolidated communities on our consolidated balance
sheet contains $1.1 million due from the venture. Our
maximum exposure to loss is our equity investment of zero. We
calculated the maximum exposure to loss as the maximum loss
(regardless of probability of being incurred) that we could be
required to record in our statement of operations as a result of
our involvement with the VIE.
In September 2006, a venture was formed to acquire and operate
six senior living facilities located in Florida. We owned a 25%
interest in the venture as managing member and our venture
partner owned the remaining 75% interest. The venture was
financed with $156 million of equity and $304 million
of debt. In December 2008, the ventures debt was
restructured and we entered into an agreement with our venture
partner under which we agreed to resign as managing member of
the venture and manager of the communities when we are released
from various guarantees provided to the ventures lender.
On April 30, 2009, we sold our equity interest in the
venture and were released from all guarantee obligations. Our
management contract was terminated on April 30, 2009. We
received proceeds of approximately $4.8 million for our
equity interest and our receivable from the venture for fundings
under the operating deficit guarantees.
|
|
8.
|
Intangible
Assets and Goodwill
|
Intangible assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
December 31,
|
|
|
|
Useful Life
|
|
|
2009
|
|
|
2008
|
|
|
Management contracts less accumulated amortization of $33,007
and $32,433
|
|
|
1-30 years
|
|
|
$
|
48,464
|
|
|
$
|
65,532
|
|
Leaseholds less accumulated amortization of $4,407 and $3,992
|
|
|
10-29 years
|
|
|
|
3,477
|
|
|
|
3,892
|
|
Other intangibles less accumulated amoritization of $898 and $763
|
|
|
1-40 years
|
|
|
|
1,083
|
|
|
|
1,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
53,024
|
|
|
$
|
70,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Amortization was $13.1 million, $11.3 million and
$14.4 million in 2009, 2008 and 2007, respectively.
Amortization is expected to be approximately $2.9 million,
$2.9 million, $2.9 million, $2.8 million and
$2.8 million in 2010, 2011, 2012, 2013 and 2014,
respectively.
Goodwill was $39.0 million at December 31, 2008 and
related to the acquisition of Greystone. Greystone was sold in
2009. Refer to Note 7.
In 2008 and 2007, we recorded an impairment charge of
$9.8 million and $56.7 million related to our Trinity
goodwill and related intangible assets. Trinity ceased
operations in December 2008. This impairment charge is recorded
in discontinued operations. In 2008, we also recorded an
impairment charge of $121.8 million related to all the
goodwill for our North American business segment which resulted
from our acquisitions of Marriott Senior Living, Inc. in 2003
and Karrington Health, Inc. in 1999. The impairment was recorded
as the fair value of the North American business and was
determined to be less than the fair value of the net tangible
assets and identifiable intangible assets.
91
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
|
|
9.
|
Investments
in Unconsolidated Communities
|
The following are our investments in unconsolidated communities
as of December 31, 2009:
|
|
|
|
|
|
|
Sunrise
|
Venture
|
|
Ownership
|
|
Karrington of Findlay Ltd.
|
|
|
50.00
|
%
|
MorSun Tenant LP
|
|
|
50.00
|
%
|
Sunrise/Inova McLean Assisted Living, LLC
|
|
|
40.00
|
%
|
AU-HCU Holdings, LLC(1)
|
|
|
30.00
|
%
|
RCU Holdings, LLC(1)
|
|
|
30.00
|
%
|
SunVest, LLC
|
|
|
30.00
|
%
|
AL One Investments, LLC
|
|
|
25.36
|
%
|
Metropolitan Senior Housing, LLC
|
|
|
25.00
|
%
|
Sunrise at Gardner Park, LP
|
|
|
25.00
|
%
|
Sunrise Floral Vale Senior Living, LP
|
|
|
25.00
|
%
|
Cheswick & Cranberry, LLC
|
|
|
25.00
|
%
|
BG Loan Acquisition LP
|
|
|
25.00
|
%
|
Master MorSun, LP
|
|
|
20.00
|
%
|
Master MetSun, LP
|
|
|
20.00
|
%
|
Master MetSun Two, LP
|
|
|
20.00
|
%
|
Master MetSun Three, LP
|
|
|
20.00
|
%
|
Sunrise First Assisted Living Holdings, LLC
|
|
|
20.00
|
%
|
Sunrise Second Assisted Living Holdings, LLC
|
|
|
20.00
|
%
|
Sunrise Beach Cities Assisted Living, LP
|
|
|
20.00
|
%
|
AL U.S. Development Venture, LLC
|
|
|
20.00
|
%
|
Sunrise HBLR, LLC
|
|
|
20.00
|
%
|
COPSUN Clayton MO, LLC
|
|
|
20.00
|
%
|
Sunrise of Aurora, LP
|
|
|
20.00
|
%
|
Sunrise of Erin Mills, LP
|
|
|
20.00
|
%
|
Sunrise of North York, LP
|
|
|
20.00
|
%
|
PS UK Investment (Jersey) LP
|
|
|
20.00
|
%
|
PS UK Investment II (Jersey) LP
|
|
|
20.00
|
%
|
Sunrise First Euro Properties LP
|
|
|
20.00
|
%
|
Master CNL Sun Dev I, LLC
|
|
|
20.00
|
%
|
Sunrise Bloomfield Senior Living, LLC
|
|
|
20.00
|
%
|
Sunrise Hillcrest Senior Living, LLC
|
|
|
20.00
|
%
|
Sunrise New Seasons Venture, LLC
|
|
|
20.00
|
%
|
Sunrise Rocklin Senior Living LLC
|
|
|
20.00
|
%
|
Sunrise Sandy Senior Living LLC
|
|
|
20.00
|
%
|
Sunrise Staten Island SL LLC
|
|
|
20.00
|
%
|
Sunrise US UPREIT, LLC
|
|
|
15.40
|
%
|
Santa Monica AL, LLC
|
|
|
15.00
|
%
|
Sunrise Third Senior Living Holdings, LLC
|
|
|
10.00
|
%
|
Cortland House, LP
|
|
|
10.00
|
%
|
Dawn Limited Partnership
|
|
|
10.00
|
%
|
|
|
|
(1) |
|
Investments are accounted for under the profit-sharing method of
accounting. See Note 6. |
Included in Due from unconsolidated communities are
net receivables and advances from unconsolidated ventures of
$34.0 million and $76.9 million at December 31,
2009 and 2008, respectively. Net receivables from these ventures
relate primarily to development and management activities.
92
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Summary financial information for unconsolidated ventures
accounted for by the equity method is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Assets, principally property and equipment
|
|
$
|
3,989,387
|
|
|
$
|
4,704,052
|
|
|
$
|
5,183,922
|
|
Long-term debt
|
|
|
3,569,246
|
|
|
|
3,933,188
|
|
|
|
4,075,993
|
|
Liabilities excluding long-term debt
|
|
|
226,678
|
|
|
|
378,988
|
|
|
|
549,628
|
|
Equity
|
|
|
193,463
|
|
|
|
391,876
|
|
|
|
558,301
|
|
Revenue
|
|
|
854,552
|
|
|
|
1,120,877
|
|
|
|
1,021,112
|
|
Net loss
|
|
|
(25,084
|
)
|
|
|
(94,327
|
)
|
|
|
(15,487
|
)
|
Accounting policies used by the unconsolidated ventures are the
same as those used by us.
Total management fees and reimbursed contract services from
related unconsolidated ventures was $521.8 million,
$534.2 million and $489.1 million in 2009, 2008 and
2007, respectively.
Our share of earnings and return on investment in unconsolidated
communities consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Sunrises share of earnings (loss) in unconsolidated
communities
|
|
$
|
3,708
|
|
|
$
|
(31,133
|
)
|
|
$
|
60,700
|
|
Return on investment in unconsolidated communities
|
|
|
10,612
|
|
|
|
33,483
|
|
|
|
71,110
|
|
Impairment of equity investments
|
|
|
(8,647
|
)
|
|
|
(16,196
|
)
|
|
|
(24,463
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sunrises share of earning (losses) and return on
investment in unconsolidated communities
|
|
$
|
5,673
|
|
|
$
|
(13,846
|
)
|
|
$
|
107,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our investment in unconsolidated communities was greater than
our portion of the underlying equity in the venture by
$47.8 million and $3.9 million as of December 31,
2009 and 2008, respectively.
Return
on Investment in Unconsolidated Communities
Sunrises return on investment in unconsolidated
communities includes cash distributions from ventures arising
from a refinancing of debt within ventures. We first record all
equity distributions as a reduction of our investment. Next, we
record a liability if there is a contractual obligation or
implied obligation to support the venture including in our role
as general partner. Any remaining distribution is recorded in
income.
In 2009, our return on investment in unconsolidated communities
was primarily the result of distributions of $10.6 million
from operations from investments where the book value is zero
and we have no contractual or implied obligation to support the
venture.
In 2008, our return on investment in unconsolidated communities
was the result of the following: (1) the expiration of
three contractual obligations which resulted in the recognition
of $9.2 million of income from the recapitalization of
three ventures; (2) receipt of $8.3 million of
proceeds resulting from the refinancing of the debt of one of
our ventures with eight communities; (3) the
recapitalization and refinancing of debt of one venture with two
communities which resulted in a return on investment of
$3.3 million; and (4) distributions of
$12.7 million from operations from investments where the
book value is zero and we have no contractual or implied
obligations to support the venture.
In 2007, our return on investment in unconsolidated communities
was primarily the result of three venture recapitalizations. In
one transaction, the majority owner of a venture sold their
majority interest to a new third party,
93
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
the debt was refinanced, and the total cash we received and the
gain recognized was $53.0 million. In another transaction,
in conjunction with a sale by us of a 15% equity interest which
gain is recorded in Gain on the sale and development of
real estate and equity interests and the sale of the
majority equity owners interest to a new third party, the
debt was refinanced, and we received total proceeds of
$4.1 million relating to our retained 20% equity interest
in two ventures, which we recorded as a return on investment in
unconsolidated communities.
Transactions
In 2007, we entered into a venture to develop 18 assisted living
communities in the U.K. over the next four years with us serving
as the developer and then as the manager of the communities.
This is our second venture in the U.K. We own 20% of the
venture. Property development will be funded through
contributions of up to approximately $200.0 million by the
partners, based upon their pro rata percentage, with the balance
funded by loans provided by third-party lenders, giving the
venture a total potential investment capacity of approximately
$1.0 billion.
In 2009, 2008 and 2007, our first U.K. development venture in
which we have a 20% equity interest sold four, four and seven
communities, respectively, to a venture in which we have a 10%
interest. Primarily as a result of the gains on these asset
sales recorded in the ventures, we recorded equity in (loss)
earnings in 2009, 2008 and 2007 of approximately
$19.5 million, $(3.6) million and $75.5 million,
respectively. When our U.K. and Germany ventures were formed, we
established a bonus pool in respect to each venture for the
benefit of employees and others responsible for the success of
these ventures. At that time, we agreed with our partner that
after certain return thresholds were met, we would each reduce
our percentage interests in venture distributions with such
excess to be used to fund this bonus pool. During 2009, 2008 and
2007, we recorded bonus expense of $0.7 million,
$7.9 million and $27.8 million, respectively, in
respect of the bonus pool relating to the U.K. venture. These
bonus amounts are funded from capital events and the cash is
retained by us in restricted cash accounts until payment of
bonuses. As of December 31, 2009, approximately
$0.2 million of this amount was included in restricted
cash. Under this bonus arrangement, no bonuses were payable
until we receive distributions at least equal to certain capital
contributions and loans made by us to the U.K. and Germany
ventures. This bonus distribution limitation was satisfied in
2008.
In 2007, we contributed $4.4 million for a 20% interest in
an unconsolidated venture which purchased an existing building
for approximately $22.0 million and renovated the building
into a senior independent living facility. During 2008 and 2009,
we also made advances to the venture aggregating
$6.4 million while it was under construction. In 2009, the
venture received a notice of default from its lender for alleged
violation of financial covenants and other matters and the
lender stopped funding under the loan. In the third quarter of
2009, the residents were relocated to other senior living
facilities and the facility was shut down due to poor rental
experience in the venture. The lender is in the process of
foreclosing on the asset. Based on this, we determined our
equity to be other than temporarily impaired and wrote off the
balance of $1.1 million. In addition, we do not believe
that collectability of our receivable is reasonably assured and
we wrote-down the carrying value of our receivable to zero.
In 2008, the lease between a venture in which we hold a 25%
ownership interest and the landlord was terminated. The venture
received a $4.0 million termination fee of which we are
entitled to our proportionate share of $1.0 million. As a
result of this transaction, the venture was liquidated. As of
December 31, 2008, our carrying value for our investment in
the venture was $1.7 million. Thus, under the ASC Property,
Plant and Equipment Topic, we recorded a $0.7 million
impairment charge in 2008.
In 2007, we entered into two development ventures to develop and
build 28 senior living communities in the United States during
2007 and 2008, with us serving as the developer and then as the
manager of the communities. We own 20% of the ventures. Property
development was funded through contributions of up to
approximately $208.0 million by the partners, based upon
their pro rata percentage, with the balance funded by loans
provided by third party lenders, giving the ventures a total
potential investment capacity of approximately
$788.0 million.
94
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
In 2000, we formed Sunrise At Home, a venture offering home
health assisted living services in several East Coast markets
and Chicago. In June 2007, Sunrise At Home was merged into
AllianceCare. AllianceCare provides services to seniors,
including physician house calls and mobile diagnostics, home
care and private duty services through 24 local offices located
in seven states. Additionally, AllianceCare operates more than
125 Healthy Lifestyle Centers providing therapeutic
rehabilitation and wellness programs in senior living
facilities. In the merger, Sunrise received approximately an 8%
preferred ownership interest in AllianceCare and Tiffany
Tomasso, our executive vice president of European operations,
was appointed to the Board of Directors. Our investment in
AllianceCare is accounted for under the cost method.
In 2007, we decided to withdraw from ventures that owned two
pieces of undeveloped land in Florida. We wrote off our
remaining investment balance of approximately $1.1 million
in the two projects.
Aston
Gardens
In 2008, we received notice of default from our equity partner
alleging a default under our management agreement for six
communities as a result of the ventures receipt of a
notice of default from a lender. In December 2008, the
ventures debt was restructured and we entered into an
agreement with our venture partner under which we agreed to sell
our 25% equity interest and to resign as managing member of the
venture and manager of the communities when we were released
from various guarantees provided to the ventures lender.
In 2009, we sold our 25% equity interest in the venture and were
released from all guarantee obligations. Our management contract
was terminated on April 30, 2009. We received proceeds of
approximately $4.8 million for our equity interest and our
receivable from the venture for fundings under the operating
deficit guarantees. We had previously written down our equity
interest and our receivable to these expected amounts in 2008 so
there was no gain or loss on the transaction in 2009.
Fountains
Venture
In 2008, the Fountains venture, in which we hold a 20% interest,
failed to comply with the financial covenants in the
ventures loan agreement. The lender had been charging a
default rate of interest since April 2008. At loan inception, we
provided the lender a guarantee of operating deficits including
payments of monthly principal and interest payments, and in 2008
we funded payments under this guarantee as the venture did not
have enough available cash flow to cover the full amount of the
interest payments at the default rate. Advances under this
guarantee were recoverable in the form of a loan to the venture,
which were to be repaid prior to the repayment of equity capital
to the partners, but were subordinate to the repayment of other
venture debt. We funded $14.2 million under this operating
deficit guarantee which had been written-down to zero as of
December 31, 2008. These advances under the operating
deficit guarantee were in addition to the $12.8 million we
funded under our income support guarantee to our venture
partner, which was written-down to zero as of December 31,
2008.
In January 2009, we informed the ventures lenders and our
venture partner that we were suspending payment of default
interest and payments under the income support guarantee, and
that we would seek a comprehensive restructuring of the loan,
our operating deficit guarantees and our income support
guarantee. Our failure to pay default interest on the loan was
an additional default of the loan agreement. In October 2009, we
entered into agreements with our venture partner, as well as
with the lender to release us from all claims that our venture
partner and the lender had against us prior to the date of the
agreements and from all of our future funding obligations in
connection with the Fountains portfolio.
Pursuant to these agreements, the lender and our venture partner
released us from all past and future funding commitments in
connection with the Fountains portfolio, as well as from all
other liabilities prior to the date of the agreements arising
under the Fountains venture, loan and management agreements,
including obligations under operating deficit and income support
obligations. We retain certain management and operating
obligations going forward during a temporary transition period.
95
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
In exchange for these releases, we have, among other things:
|
|
|
|
|
Transferred our 20-percent ownership interest in the Fountains
joint venture to our joint venture partner;
|
|
|
|
Contributed vacant land parcels adjacent to six of the Fountains
communities and owned by us to the Fountains venture;
|
|
|
|
Agreed to transfer management of the 16 Fountains communities as
soon as the transition closing conditions are met and the new
manager has obtained the regulatory approvals necessary to
assume control of the facilities; and
|
|
|
|
Repaid the venture the management fee we had earned to date in
2009 of $1.8 million.
|
The contributed vacant land parcels were carried on our
consolidated balance sheet at a book value of
$12.9 million, in addition to a guarantee liability of
$12.9 million both of which was written off upon closing of
the transaction resulting in no gain or loss.
We transferred management of eight of the 16 communities to the
new manager on February 1, 2010, and expect to transfer
management for the remaining eight communities by mid-2010.
|
|
10.
|
Debt and
Bank Credit Facility
|
Debt
At December 31, 2009, we had $440.2 million of
outstanding debt with a weighted average interest rate of 2.87%
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Community mortgages
|
|
$
|
112,660
|
|
|
$
|
241,851
|
|
German communities(1)
|
|
|
198,680
|
|
|
|
185,901
|
|
Bank Credit Facility
|
|
|
33,728
|
|
|
|
95,000
|
|
Land loans
|
|
|
33,327
|
|
|
|
37,407
|
|
Other
|
|
|
25,557
|
|
|
|
30,655
|
|
Variable interest entity
|
|
|
23,225
|
|
|
|
23,905
|
|
Margin loan (auction rate securities)
|
|
|
13,042
|
|
|
|
21,412
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
440,219
|
|
|
$
|
636,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The face amount of the debt related to the German communities
was $215.2 million at December 31, 2009. Excludes
$10.5 million of accrued interest on the German debt as of
December 31, 2009 which is reflected in Liabilities
associated with German assets held for sale on our consolidated
balance sheet. |
Of the outstanding debt we had $1.4 million of fixed-rate
debt with a weighted average interest rate of 6.7% and
$438.9 million of variable rate debt with a weighted
average interest rate of 2.85%.
96
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Principal maturities of debt at December 31, 2009 are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages,
|
|
|
|
|
|
Variable
|
|
|
Germany
|
|
|
|
|
|
|
|
|
|
Bank Credit
|
|
|
Wholly-Owned
|
|
|
Land
|
|
|
Interest
|
|
|
Venture
|
|
|
|
|
|
|
|
|
|
Facility
|
|
|
Properties
|
|
|
Loans
|
|
|
Entity Debt
|
|
|
Debt(1)
|
|
|
Other
|
|
|
Total
|
|
|
Past due
|
|
$
|
|
|
|
$
|
1,398
|
|
|
$
|
27,107
|
|
|
$
|
1,365
|
|
|
$
|
1,723
|
|
|
$
|
|
|
|
$
|
31,593
|
|
2010
|
|
|
33,728
|
|
|
|
76,278
|
|
|
|
6,220
|
|
|
|
715
|
|
|
|
71,655
|
|
|
|
38,599
|
|
|
|
227,195
|
|
2011
|
|
|
|
|
|
|
34,984
|
|
|
|
|
|
|
|
740
|
|
|
|
95,590
|
|
|
|
|
|
|
|
131,314
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
775
|
|
|
|
29,712
|
|
|
|
|
|
|
|
30,487
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
810
|
|
|
|
|
|
|
|
|
|
|
|
810
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
840
|
|
|
|
|
|
|
|
|
|
|
|
840
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,980
|
|
|
|
|
|
|
|
|
|
|
|
17,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33,728
|
|
|
$
|
112,660
|
|
|
$
|
33,327
|
|
|
$
|
23,225
|
|
|
$
|
198,680
|
|
|
$
|
38,599
|
|
|
$
|
440,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Along with contractual maturities due in 2010, debt that is in
default is also reflected in current portion of long term debt.
Debt that is in default at December 31, 2009 consists of
the following (in thousands):
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
German communities
|
|
$
|
198,680
|
|
Community mortgages
|
|
|
36,382
|
|
Variable interest entity
|
|
|
23,225
|
|
Land loans
|
|
|
33,327
|
|
Other
|
|
|
25,557
|
|
|
|
|
|
|
|
|
$
|
317,171
|
|
|
|
|
|
|
The German debt is in default as we stopped paying monthly
principal and interest payments in 2009. The remaining debt is
in default as we have failed to comply with various financial
covenants. On February 12, 2010, we extended
$56.9 million of debt that was either past due or in
default at December 31, 2009. The debt is associated with
an operating community and two land parcels. In connection with
the extension we (i) made a $5.0 million principal
payment at closing; (ii) extended the terms of the debt to
no earlier than December 2, 2010; (iii) provided for
an additional $5.0 million principal payment on or before
July 31, 2010; and, among other items, (iv) defaults
under the loan agreements were waived by the lenders. We are
working with our lenders to either re-schedule certain of these
obligations or obtain waivers.
For debt that is not in default, we have scheduled debt
maturities as of December 31, 2009 as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Qtr.
|
|
|
2nd Qtr.
|
|
|
3rd Qtr.
|
|
|
4th Qtr.
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
Thereafter
|
|
|
Total
|
|
|
Bank Credit Facility
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
33,728
|
|
|
$
|
|
|
|
$
|
33,728
|
|
Community mortgages
|
|
|
|
|
|
|
41,773
|
|
|
|
|
|
|
|
34,505
|
|
|
|
|
|
|
|
76,278
|
|
Margin loan (auction rate securities)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,042
|
|
|
|
|
|
|
|
13,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
41,773
|
|
|
$
|
|
|
|
$
|
81,275
|
|
|
$
|
|
|
|
$
|
123,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany
Venture
We own nine communities (two of which have been closed) in
Germany. The debt related to these communities has partial
recourse to us as the debt for four of the communities of
50.0 million ($72.0 million at December 31,
97
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
2009), has a stipulated release price for each community. With
respect to the remaining five communities, we have provided
guarantees to the lenders for the payment of the monthly
interest payments and principal amortization and operating
shortfalls until the maturity dates of the loans. As a result of
the violation of a covenant in one of the loan documents, one of
the lenders has asserted that we are effectively obligated to
repay a portion of the principal at this time. However, in
connection with the German debt restructuring, we have settled
with this lender. The face amount of the total debt related to
the German communities, excluding accrued but unpaid interest,
at December 31, 2009 is $215.2 million. We also had
accrued interest of $10.5 million and $0.6 million at
December 31, 2009 and 2008, respectively, related to this
debt.
At the beginning of 2009, we informed the lenders to our German
communities and the Hoesel land, an undeveloped land parcel,
that our German subsidiary was suspending payment of principal
and interest on all loans for our German communities and that we
would seek a comprehensive restructuring of the loans and our
operating deficit guarantees. As a result of the failure to make
payments of principal and interest on the loans for our German
communities, we are in default of the loan agreements. We have
entered into standstill agreements with the lenders pursuant to
which the lenders have agreed not to foreclose on the
communities that are collateral for their loans. The standstill
agreements stipulate that neither party will commence or
prosecute any action or proceeding to enforce their demand for
payment by us pursuant to our operating deficit agreements until
the earliest of the occurrence of certain other events relating
to the loans.
In late 2009, we entered into a restructuring agreement, in the
form of a binding term sheet, with three of our lenders
(electing lenders) to seven of the nine communities,
to settle and compromise their claims against us, including
under operating deficit and principal repayment guarantees
provided by us in support of our German subsidiaries. These
three lenders contended that these claims had an aggregate value
of approximately $131.1 million. The binding term sheet
contemplates that, on or before the first anniversary of the
execution of definitive documentation for the restructuring,
certain other of our identified lenders may elect to participate
in the restructuring with respect to their asserted claims. The
claims being settled by the three lenders represent
approximately 83.5 percent of the aggregate amount of
claims asserted by the lenders that may elect to participate in
the restructuring transaction.
The restructuring agreement provides that the electing lenders
will release and discharge us from certain claims they may have
against us. We have issued to the electing lenders
4.2 million shares of our common stock, their pro rata
share of up to 5 million shares of our common stock. The
fair value of the 4.2 million shares at the time of
issuance was $11.1 million. This amount is reflected as a
deposit on our consolidated balance sheets until such time as
all consideration is exchanged upon the execution of the
definitive documentation. In addition, we will grant mortgages
for the benefit of all electing lenders on certain of our
unencumbered North American properties (the liquidating
trust). Following the first execution of the definitive
documentation for the restructuring, we will continue to pursue
the sale of the mortgaged properties and distribute the net sale
proceeds to the electing lenders.
We have guaranteed that, within 30 months of the first
execution of the definitive documentation for the restructuring,
the electing lenders will receive a minimum of
$58.3 million from the net proceeds of the sale of the
liquidating trust, which equals 80 percent of the most
recent aggregate appraised value of these properties. If the
electing lenders do not receive at least $58.3 million by
such date, we will make payment to cover any shortfall or, at
such lenders option, convey to them the remaining unsold
properties in satisfaction of our remaining obligation to the
minimum payments.
In addition, we have been marketing for sale the German assisted
living communities subject to loan agreements with the electing
lenders and will remain responsible for all costs of operating,
preserving and maintaining these communities until the earlier
of either their sale or December 31, 2010. In 2009, we
engaged a broker to assist in the sale of the nine German
communities and at that time, classified the German assets as
held for sale. As the book value of the majority of the assets
was in excess of their fair value less estimated costs to sell,
we recorded a charge of $49.9 million in 2009 which is
included in discontinued operations.
98
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
The closing of the transaction, including the execution of the
definitive documentation, the release of claims and the issuance
of Sunrise common stock, was conditioned upon receipt of consent
for the transaction from Bank of America, N.A., as the
administrative agent under our Bank Credit Facility, which
consent was received. In accordance with the binding term sheet,
definitive documentation was to be executed as soon as
reasonably possible (but no later than 40 days) after the
receipt of such required consent. In December 2009, we extended
the execution of the definitive documentation to allow the
parties additional time to complete the definitive
documentation. We expect to complete this process by the end of
February 2010.
At December 31, 2009, we continue to be liable under
operating deficit and repayment guarantees for two communities
which are not part of the restructuring. In addition, we were
liable for a principal repayment guarantee for the Hoesel land
parcel which was not part of the restructuring agreement. The
Hoesel land parcel was sold and the liability was released in
early 2010. We expect to recognize a gain of $0.7 million
on the sale in 2010.
Mortgage
Financing
In 2008, 16 of our wholly owned subsidiaries incurred mortgage
indebtedness in the aggregate principal amount of approximately
$106.7 million from Capmark Bank (Capmark) as
lender and servicer pursuant to 16 separate
cross-collateralized, cross-defaulted mortgage loans. Shortly
after the closing, Capmark assigned the mortgage loans to Fannie
Mae. Variable monthly interest payments were in an amount equal
to (i) one third (1/3) of the Discount (which
was the difference between the loan amount and the price at
which Fannie Mae was able to sell its three-month, rolling
discount mortgage backed securities) plus
(ii) 227 basis points (2.27%) times the outstanding
loan amount divided by twelve (12).
In connection with the mortgage loans, we entered into interest
rate protection agreements that provided for payments to us in
the event the LIBOR rate exceeded 5.6145%. These loans and
interest rate protection agreements were assigned to the buyer
of 15 of the 16 communities in 2009.
Also in 2009, mortgage loans of $32.2 million were either
assigned to the purchaser or repaid in conjunction with the sale
of the underlying assets.
Bank
Credit Facility
In 2009, we entered into various amendments to our Bank Credit
Facility. These amendments, among other things:
|
|
|
|
|
extended the maturity date to December 2, 2010;
|
|
|
|
removed all existing financial covenants other than the minimum
liquidity covenant;
|
|
|
|
renewed existing letters of credit;
|
|
|
|
modified the minimum liquidity covenant to not less than
$10.0 million of unrestricted cash on hand the last day of
the month;
|
|
|
|
modified the restriction on the disposal of assets to include
disposition of certain assets as long as 50% of the net sale
proceeds are allocated to the lenders; and
|
|
|
|
permanently reduced the commitment after future principal
repayments or cancellation of letters of credit.
|
Total amendment fees paid were $1.4 million. Principal
payments of $61.3 million were made during 2009 in
accordance with these amendments. In addition,
$20.0 million was placed into a collateral account for the
benefit of other creditors from the proceeds of the sale of 21
communities. $6.2 million of cash was used to satisfy the
obligations of other creditors and $13.8 million remains in
the collateral account at December 31, 2009. This amount is
included in restricted cash in the consolidated balance sheets.
99
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
We have no borrowing availability under the Bank Credit
Facility. We have $19.4 million of letters of credit
outstanding under the Bank Credit Facility at December 31,
2009.
Other
Sunrise ventures have total debt of $3.7 billion with
near-term scheduled debt maturities of $0.3 billion in
2010. Of this $3.7 billion of debt, there is long-term debt
that is in default of $0.7 billion. The debt in the
ventures is non-recourse to us with respect to principal payment
guarantees and we and our venture partners are working with the
venture lenders to obtain covenant waivers and to extend the
maturity dates. In certain cases, we have provided operating
deficit and completion guarantees to the lenders or ventures. We
have operating deficit or completion guarantee agreements with
respect to ventures in which we are obligated for total debt of
$1.1 billion or 30% of the total venture debt. Under the
operating deficit agreements, we are obligated to pay operating
shortfalls, if any, with respect to these ventures. Any such
payments could include amounts arising in part from the
ventures obligations for monthly principal and interest on
the venture debt. We do not believe that these operating deficit
agreements would obligate us to make payments of principal and
interest on such venture debt that might become due as a result
of acceleration of such indebtedness. We have minority
non-controlling interests in these ventures.
Certain of these ventures have financial covenants that are
based on the consolidated results of Sunrise. In all such
instances, the construction loans or permanent financing
provided by financial institutions is secured by a mortgage or
deed of trust on the financed community. These events of default
could allow the financial institutions who have extended credit
to seek acceleration of the loans.
Value
of Collateral and Interest Paid
At December 31, 2009 and 2008, the net book value of
properties pledged as collateral for mortgages payable was
$291.2 million and $530.7 million, respectively.
Interest paid totaled $12.6 million, $27.1 million and
$14.1 million in 2009, 2008 and 2007, respectively.
Interest capitalized was $0.5 million, $6.4 million
and $9.3 million in 2009, 2008 and 2007, respectively.
100
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amount
recognized for income tax purposes. The significant components
of our deferred tax assets and liabilities are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Sunrise operating loss carryforwards federal
|
|
$
|
93,591
|
|
|
$
|
54,006
|
|
Sunrise operating loss carryforwards state
|
|
|
23,474
|
|
|
|
25,827
|
|
Sunrise operating loss carryforwards foreign
|
|
|
14,684
|
|
|
|
19,657
|
|
Financial guarantees
|
|
|
28,490
|
|
|
|
30,226
|
|
Accrued health insurance
|
|
|
10,186
|
|
|
|
8,203
|
|
Self-insurance liabilities
|
|
|
9,027
|
|
|
|
8,123
|
|
Stock-based compensation
|
|
|
5,153
|
|
|
|
6,672
|
|
Deferred development fees
|
|
|
6,638
|
|
|
|
35,085
|
|
Allowance for doubtful accounts
|
|
|
5,236
|
|
|
|
9,007
|
|
Tax credits
|
|
|
2,812
|
|
|
|
7,562
|
|
Accrued expenses and reserves
|
|
|
38,838
|
|
|
|
28,442
|
|
Basis difference in property and equipment and intangibles
|
|
|
25,470
|
|
|
|
|
|
Entrance fees
|
|
|
16,604
|
|
|
|
15,939
|
|
Other
|
|
|
4,176
|
|
|
|
3,034
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
284,379
|
|
|
|
251,783
|
|
U.S. federal and state valuation allowance
|
|
|
(128,441
|
)
|
|
|
(110,297
|
)
|
German valuation allowance
|
|
|
(26,649
|
)
|
|
|
(19,322
|
)
|
Canadian valuation allowance
|
|
|
(10,994
|
)
|
|
|
(8,332
|
)
|
U.K. valuation allowance
|
|
|
(1,114
|
)
|
|
|
(889
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
117,181
|
|
|
|
112,943
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Investments in ventures
|
|
|
(114,058
|
)
|
|
|
(105,573
|
)
|
Basis difference in property and equipment and intangibles
|
|
|
|
|
|
|
(1,264
|
)
|
Prepaid expenses
|
|
|
|
|
|
|
(2,519
|
)
|
Other
|
|
|
(3,123
|
)
|
|
|
(6,375
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(117,181
|
)
|
|
|
(115,731
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
|
|
|
$
|
(2,788
|
)
|
|
|
|
|
|
|
|
|
|
Our worldwide taxable loss for 2009 and 2008 was estimated to be
$176.1 million and $243.1 million. We have recognized
significant losses for 2009, 2008 and 2007. As a result, all
available sources of positive and negative evidence were
evaluated. In 2008, a determination was made that deferred tax
assets in excess of reversing deferred tax liabilities were not
likely to be realized. Therefore, a valuation allowance on net
deferred tax assets was established as of December 31,
2008. At December 31, 2009 and 2008, our total valuation
allowance on deferred tax assets were $167.2 million and
$138.8 million, respectively.
101
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
At December 31, 2009, we have estimated U.S. federal
net operating loss carryforwards of $253.4 million which
are carried forward to offset future taxable income in the
U.S. for up to 20 years. At December 31, 2009 and
2008, we had state net operating loss carryforwards, after prior
year provision to return adjustments, valued at
$23.5 million and $25.8 million, respectively, which
are expected to expire from 2011 through 2025. At
December 31, 2009 and 2008, we had German net operating
loss carryforwards to offset future foreign taxable income of
$93.0 million and $43.3 million, respectively, which
have an unlimited carryforward period to offset future taxable
income in Germany. At December 31, 2009 and 2008, we had
Canadian net operating loss carryforwards of $35.8 million
and $18.0 million, respectively, to offset future foreign
taxable income, which are carried forward to offset future
taxable income in Canada for up to 20 years. At
December 31, 2009 and 2008, we had U.K. net operating loss
carryforwards to offset future foreign taxable income of
$3.3 million and $3.0 million, respectively, which
have an unlimited carryforward period to offset future taxable
income in the U.K. As of December 31, 2009 and 2008, we
have fully reserved deferred tax assets with respect to all
foreign subsidiaries. During 2009 and 2008, we provided income
taxes for unremitted earnings of our foreign subsidiaries that
are not considered permanently reinvested.
In 2009, we recognized for tax purposes a worthless stock
deduction related to our Trinity investment of which
$28.4 million was permanent goodwill. In 2008, we recorded
an impairment charge in continuing operations of
$121.8 million related to goodwill for our North American
business segment. Of the total, $39.2 million was permanent
goodwill and therefore impacted the effective tax rate.
At December 31, 2008, we had Alternative Minimum Tax
credits of $4.7 million. During 2009, we elected to
carryback the 2008 Alternative Minimum Tax losses and received a
refund related to the credits. Thus at December 31, 2009,
we have no remaining Alternative Minimum Tax credits. At
December 31, 2009 and 2008, we had $1.3 million and
$1.3 million of foreign tax credit carryforwards as of
each reporting date which expire in 2013. In addition we have
general business credits carryforwards of $1.5 million and
$1.5 million at December 31, 2009 and 2008,
respectively. The major components of the provision for income
taxes attributable to continuing operations are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(952
|
)
|
|
$
|
(679
|
)
|
|
$
|
18,934
|
|
State
|
|
|
799
|
|
|
|
3,019
|
|
|
|
2,903
|
|
Foreign
|
|
|
(1,201
|
)
|
|
|
|
|
|
|
2,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current expense
|
|
|
(1,354
|
)
|
|
|
2,340
|
|
|
|
23,935
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(5,350
|
)
|
|
|
(49,555
|
)
|
|
|
(12,927
|
)
|
State
|
|
|
2,824
|
|
|
|
1,240
|
|
|
|
1,089
|
|
Foreign
|
|
|
|
|
|
|
(1,162
|
)
|
|
|
1,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred benefit
|
|
|
(2,526
|
)
|
|
|
(49,477
|
)
|
|
|
(10,612
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Benefit from) provision for income taxes
|
|
$
|
(3,880
|
)
|
|
$
|
(47,137
|
)
|
|
$
|
13,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current taxes payable for 2007 has been reduced by approximately
$2.2 million, reflecting the tax benefit to us of
stock-based compensation during the year. The tax impact of
stock-based compensation has been recognized as an increase or
decrease to additional paid-in capital.
102
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
The differences between the amount that would have resulted from
applying the domestic federal statutory tax rate (35%) to
pre-tax income from continuing operations and the reported
income tax expense from continuing operations recorded for each
year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
(Loss) income before tax benefit (expense) taxed in the
U.S.
|
|
$
|
(105,637
|
)
|
|
$
|
(341,339
|
)
|
|
$
|
2,673
|
|
(Loss) income before tax benefit (expense) taxed in foreign
jurisdictions
|
|
|
(11,487
|
)
|
|
|
(32,388
|
)
|
|
|
8,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before tax benefit
(expense)
|
|
$
|
(117,124
|
)
|
|
$
|
(373,727
|
)
|
|
$
|
10,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax at US federal statutory rate
|
|
|
(35.0
|
)%
|
|
|
(35.0
|
)%
|
|
|
35.0
|
%
|
State taxes, net
|
|
|
2.7
|
%
|
|
|
(5.8
|
)%
|
|
|
4.3
|
%
|
Work opportunity credits
|
|
|
0.0
|
%
|
|
|
(0.3
|
)%
|
|
|
(4.2
|
%)
|
Change in valuation allowance
|
|
|
40.4
|
%
|
|
|
34.7
|
%
|
|
|
28.8
|
%
|
Tax exempt interest
|
|
|
(0.2
|
)%
|
|
|
(0.3
|
)%
|
|
|
(16.2
|
)%
|
Tax contingencies
|
|
|
(1.7
|
)%
|
|
|
0.4
|
%
|
|
|
17.0
|
%
|
Write-off of non-deductible goodwill
|
|
|
(8.5
|
)%
|
|
|
4.2
|
%
|
|
|
0.0
|
%
|
Foreign rate differential
|
|
|
0.2
|
%
|
|
|
1.0
|
%
|
|
|
(3.1
|
)%
|
Unremitted foreign earnings
|
|
|
0.3
|
%
|
|
|
(0.5
|
)%
|
|
|
31.9
|
%
|
Transfer pricing
|
|
|
1.9
|
%
|
|
|
0.6
|
%
|
|
|
24.9
|
%
|
Income tax refunds received
|
|
|
(4.3
|
)%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Other
|
|
|
0.9
|
%
|
|
|
(11.6
|
)%
|
|
|
4.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.3
|
)%
|
|
|
(12.6
|
)%
|
|
|
122.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Gross unrecognized tax benefit at beginning of year
|
|
$
|
17,817
|
|
|
$
|
31,343
|
|
|
$
|
30,158
|
|
Additions based on tax positions taken during a prior period
|
|
|
1,439
|
|
|
|
|
|
|
|
|
|
Reductions based on tax positions taken during a prior period
|
|
|
(3,897
|
)
|
|
|
(14,196
|
)
|
|
|
|
|
Additions based on tax positions taken during the current period
|
|
|
|
|
|
|
670
|
|
|
|
1,545
|
|
Reductions based on tax positions taken during the current period
|
|
|
|
|
|
|
|
|
|
|
|
|
Reductions related to settlement of tax matters
|
|
|
|
|
|
|
|
|
|
|
|
|
Reductions related to a lapse of applicable statute of
limitations
|
|
|
|
|
|
|
|
|
|
|
(360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross unrecognized tax benefit at end of year
|
|
$
|
15,359
|
|
|
$
|
17,817
|
|
|
$
|
31,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the balances of unrecognized tax benefits at
December 31, 2009 and 2008 were approximately
$13.9 million and $17.8 million, respectively, of tax
positions that, if recognized, would decrease our effective tax
rate.
We reflect interest and penalties, if any, on unrecognized tax
benefits in the consolidated statements of operations as income
tax expense. The amount of interest recognized in the
consolidated statements of operations for 2009 and 2008 related
to unrecognized tax benefits was a pre-tax expense of
$1.2 million and $0.4 million,
103
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
respectively. The amount of penalties recognized in the
consolidated statements of operations for 2009 and 2008 related
to unrecognized tax benefits was a pre-tax expense of
$0.1 million and $0.5 million, respectively.
The total amount of accrued liabilities for interest recognized
in the consolidated balance sheets related to unrecognized tax
benefits as of December 31, 2009 and 2008 was
$4.6 million and $3.4 million, respectively. The total
amount of accrued liabilities for penalties recognized in the
consolidated balance sheets related to unrecognized tax benefits
as of December 31, 2009 and 2008 was $1.8 million and
$1.9 million, respectively. To the extent that uncertain
matters are settled favorably, this amount could reverse and
decrease our effective tax.
The Internal Revenue Service (IRS) is currently
examining our U.S. federal income tax returns for 2005
through 2008. There are no income tax returns under audit by the
Canadian government with the years after 2004 remaining open and
subject to audit. The German government is currently auditing
income tax returns for the years 2006 through 2008. During the
third quarter, the
2003-2005
German audits were closed resulting in no significant
adjustments. There are no returns under audit by the U.K.
government with years after 2005 remaining open and subject to
audit. At this time, we do not expect the results from any
income tax audit to have a material impact on our financial
statements. We do not believe that it is reasonably possible
that the amount for unrecognized tax benefits will significantly
change during the next twelve months.
Issuance
of Common Stock
In November 2009, we issued 4.2 million shares of the
5.0 million shares of common stock to three electing
lenders in connection with the German debt restructuring
discussed in Note 10. The common stock had a fair value at
the time of issuance of $11.1 million. This amount is
reflected as a deposit on our consolidated balance sheets until
such time as all consideration is exchanged upon the execution
of the definitive documentation.
Stock
Options
We have equity award plans providing for the grant of incentive
and nonqualified stock options to employees, directors,
consultants and advisors. At December 31, 2009, these plans
provided for the grant of options to purchase up to
24,596,189 shares of common stock. Under the terms of the
plans, the option exercise price and vesting provisions are
fixed when the option is granted. The options typically expire
ten years from the date of grant and vest over a three to
four-year period. The option exercise price is not less than the
fair market value of a share of common stock on the date the
option is granted.
In 1996, our Board of Directors approved a plan which provided
for the potential grant of options to any director who is not an
officer or employee of us or any of our subsidiaries (the
Directors Plan). Under the terms of the
Directors Plan, the option exercise price was not less
than the fair market value of a share of common stock on the
date the option was granted. The period for exercising an option
began upon grant and generally ended ten years from the date the
option was granted. All options granted under the
Directors Plan were non-incentive stock options. There
were no options outstanding under the plan at December 31,
2009. The Directors Plan has now expired and no new
options can be granted under it. Our directors are considered
employees under the provisions of ASC Equity Topic.
The fair value of stock options is estimated as of the date of
grant using a Black-Scholes option valuation model that uses the
assumptions noted in the following table. The risk-free rate is
based on the U.S. Treasury yield curve in effect at the
time of grant. The expected term (estimated period of time
outstanding) is estimated using the historical exercise behavior
of employees and directors. Expected volatility is based on
historical volatility for a period equal
104
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
to the stock options expected term, ending on the day of
grant, and calculated on a monthly basis. Compensation expense
is recognized ratably using the straight-line method for options
with graded vesting.
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
Risk free interest rate
|
|
3.0% - 3.7%
|
|
0.4% - 3.8%
|
|
3.6%
|
Expected dividend yield
|
|
|
|
|
|
|
Expected term (years)
|
|
6.5
|
|
0.1 - 8.1
|
|
1.0
|
Expected volatility
|
|
81.8% - 92.0%
|
|
27.8% - 79.3%
|
|
25.5%
|
A summary of our stock option activity and related information
for the year ended December 31, 2009 is presented below
(share amounts are shown in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Term
|
|
|
Outstanding beginning of year
|
|
|
7,807
|
|
|
$
|
6.72
|
|
|
|
|
|
Granted
|
|
|
890
|
|
|
|
2.58
|
|
|
|
|
|
Exercised
|
|
|
(763
|
)
|
|
|
1.37
|
|
|
|
|
|
Forfeited
|
|
|
(397
|
)
|
|
|
1.25
|
|
|
|
|
|
Expired
|
|
|
(865
|
)
|
|
|
15.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding end of year
|
|
|
6,672
|
|
|
|
6.45
|
|
|
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest end of year
|
|
|
5,458
|
|
|
|
6.45
|
|
|
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable end of year
|
|
|
3,300
|
|
|
|
10.46
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average grant date fair value of options granted
was $1.94 and $1.47 per share in 2009 and 2008, respectively. No
options were granted or exercised in 2007. The total intrinsic
value of options exercised was $1.7 million and
$4.6 million, respectively, for 2009 and 2008,
respectively. The fair value of shares vested was
$2.3 million, $1.0 million, and $1.3 million for
2009, 2008 and 2007, respectively. Unrecognized compensation
expense related to the unvested portion of our stock options was
approximately $5.4 million as of December 31, 2009,
and is expected to be recognized over a weighted-average
remaining term of approximately 1.8 years.
In 2007, the Compensation Committee of our Board of Directors
extended the exercise period of stock options that were set to
expire unexercised due to the inability of the optionees to
exercise the options due to our not being current in our SEC
filings. The Compensation Committee set the new expiration date
as 30 days after we became a current filer with the SEC. As
a result of this modification, we recognized $2.4 million
of stock-based compensation expense in 2007 and
$0.4 million in 2008.
The amount of cash received from the exercise of stock options
was approximately $1.0 million and there was no related tax
benefit as we have net operating loss carryforwards as of
December 31, 2009.
We generally issue shares for the exercise of stock options from
authorized but unissued shares.
On November 13, 2008, Mr. Ordan, CEO, was granted an
award of 1,500,000 promotion stock options under our 2008
Omnibus Incentive Plan. The promotion options have a term of
10 years and an exercise price per share equal to the
closing price per share of our common stock on the grant date.
One-third of the promotion options will vest on the first three
anniversaries of the date of grant, subject to
Mr. Ordans continued employment on the applicable
vesting date.
On December 23, 2008, Mr. Nadeau, CFO,
Ms. Pangelinan, CAO, Mr. Schwartz, Senior Vice
President, North American Operations, and Mr. Neeb, Chief
Investment Officer, were granted awards of 750,000, 500,000,
200,000, and 500,000 retention stock options, respectively,
under our 2008 Omnibus Incentive Plan. These retention options
105
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
have a term of 10 years and an exercise price per share
equal to the closing price per share of our common stock on the
grant date. One-third of the retention options vest on each of
the first three anniversaries of the date of grant, subject to
the executives continued employment on the applicable
vesting date.
In May 2009, we accelerated the vesting of our former chief
financial officers stock options and restricted stock per
the terms of his separation agreement. Upon his termination,
70,859 shares of restricted stock and 750,000 options
vested. The options expire 12 months after the termination
of his consulting term, which can be up to nine months after his
termination date of May 29, 2009. We recorded non-cash
compensation expense of $0.8 million as a result of the
vesting acceleration.
Restricted
Stock
We have equity award plans providing for the grant of restricted
stock to employees, directors, consultants and advisors. These
grants vest over one to five years and some vesting may be
accelerated if certain performance criteria are met.
Compensation expense is recognized ratably using the
straight-line method for restricted stock with graded vesting.
A summary of our restricted stock activity and related
information for the years ended December 31, 2009, 2008 and
2007 is presented below (share amounts are shown in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Nonvested, January 1, 2007
|
|
|
834
|
|
|
$
|
20.34
|
|
Granted
|
|
|
88
|
|
|
|
33.87
|
|
Vested
|
|
|
(288
|
)
|
|
|
14.01
|
|
Canceled
|
|
|
(108
|
)
|
|
|
27.38
|
|
|
|
|
|
|
|
|
|
|
Nonvested, December 31, 2007
|
|
|
526
|
|
|
|
24.64
|
|
Granted
|
|
|
164
|
|
|
|
18.25
|
|
Vested
|
|
|
(315
|
)
|
|
|
20.55
|
|
Canceled
|
|
|
(51
|
)
|
|
|
27.64
|
|
|
|
|
|
|
|
|
|
|
Nonvested, December 31, 2008
|
|
|
324
|
|
|
|
24.91
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(138
|
)
|
|
|
28.77
|
|
Canceled
|
|
|
(43
|
)
|
|
|
32.38
|
|
|
|
|
|
|
|
|
|
|
Nonvested, December 31, 2009
|
|
|
143
|
|
|
|
19.05
|
|
|
|
|
|
|
|
|
|
|
The total fair value of restricted shares vested was $28.77 per
share and $20.55 per share for 2009 and 2008, respectively.
Unrecognized compensation expense related to the unvested
portion of our restricted stock was approximately
$2.1 million as of December 31, 2009, and is expected
to be recognized over a weighted-average remaining term of
approximately 2.1 years.
Restricted stock shares are generally issued from existing
shares.
Stockholder
Rights Agreement
We have a Stockholders Rights Agreement (Rights
Agreement) that was adopted effective as of April 24,
2006, as amended in November 2008 and January 2010. All shares
of common stock issued by us between the effective date of the
Rights Agreement and the Distribution Date (as defined below)
have rights attached to them. The rights expire on
April 24, 2016. The Rights Agreement replaced our prior
rights plan, dated as of April 25,
106
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
1996, which expired by its terms on April 24, 2006. Each
right, when exercisable, entitles the holder to purchase one
one-thousandth of a share of Series D Junior Participating
Preferred Stock at a price of $170.00 per one one-thousand of a
share (the Purchase Price). Until a right is
exercised, the holder thereof will have no rights as a
stockholder of us.
The rights initially attach to the common stock. The rights will
separate from the common stock and a distribution of rights
certificates will occur (a Distribution Date) upon
the earlier of (1) ten days following a public announcement
that a person or group (an Acquiring Person) has
acquired, or obtained the right to acquire, directly or through
certain derivative positions, 10% or more of the outstanding
shares of common stock (the Stock Acquisition Date)
or (2) ten business days (or such later date as the Board
of Directors may determine) following the commencement of, or
the first public announcement of the intention to commence, a
tender offer or exchange offer, the consummation of which would
result in the beneficial ownership by a person of 10% or more of
the outstanding shares of common stock.
In general, if a person acquires, directly or through certain
derivative positions, 10% or more of the then outstanding shares
of common stock, each holder of a right will, after the end of
the redemption period referred to below, be entitled to exercise
the right by purchasing for an amount equal to the Purchase
Price common stock (or in certain circumstances, cash, property
or other securities of us) having a value equal to two times the
Purchase Price. All rights that are or were beneficially owned
by the Acquiring Person will be null and void. If at any time
following the Stock Acquisition Date (1) we are acquired in
a merger or other business combination transaction, or
(2) 50% or more of our assets or earning power is sold or
transferred, each holder of a right shall have the right to
receive, upon exercise, common stock of the acquiring company
having a value equal to two times the Purchase Price. Our Board
of Directors generally may redeem the rights in whole but not in
part at a price of $.005 per right (payable in cash, common
stock or other consideration deemed appropriate by our Board of
Directors) at any time until ten days after a Stock Acquisition
Date. In general, at any time after a person becomes an
Acquiring Person, the Board of Directors may exchange the
rights, in whole or in part, at an exchange ratio of one share
of common stock for each outstanding right.
The Rights Agreement was amended in November 2008 to:
(1) modify the definition of beneficial ownership so that
it covers, with certain exceptions (including relating to swaps
dealers), interests in shares of common stock created by
derivative positions in which a person is a receiving party to
the extent that actual shares of common stock are directly or
indirectly held by the counterparties to such derivative
positions; and (2) decrease from 20% to 10% the threshold
of beneficial ownership of common stock above which investors
become Acquiring Persons under the Rights Agreement
and thereby trigger the issuance of the rights. Pursuant to the
amendment, stockholders who beneficially owned more than 10% of
our common stock as of November 19, 2008 were permitted to
maintain their existing ownership positions without triggering
the preferred stock purchase rights.
The Rights Agreement was further amended in January 2010 to
exclude FMR LLC (and its affiliates and associates) from the
definition of Acquiring Person so long as
(1) FMR is the beneficial owner of 14.9% or less of our
outstanding common stock, (2) FMR acquired, and continues
to beneficially own, such shares of common stock in the ordinary
course of business with no purpose of changing or influencing
the control, management or policies of the Company, and not in
connection with or as a participant to any transaction having
such purpose, and (3) FMR is not required to report its
beneficial ownership on Schedule 13D under the Securities
Exchange Act, and, if FMR is the beneficial owner of shares
representing 10% or more of the shares of common stock then
outstanding, is eligible to file a Schedule 13G to report
its beneficial ownership of such shares.
107
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
|
|
13.
|
Net Loss
Per Common Share
|
The following table summarizes the computation of basic and
diluted net loss per common share amounts presented in the
accompanying consolidated statements of operations (in
thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Numerator for basic and diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(113,830
|
)
|
|
$
|
(326,425
|
)
|
|
$
|
(2,412
|
)
|
Loss from discontinued operations
|
|
|
(20,085
|
)
|
|
|
(112,754
|
)
|
|
|
(67,863
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(133,915
|
)
|
|
$
|
(439,179
|
)
|
|
$
|
(70,275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic net (loss) income per common
share weighted average shares
|
|
|
51,391
|
|
|
|
50,345
|
|
|
|
49,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(2.22
|
)
|
|
$
|
(6.48
|
)
|
|
$
|
(0.05
|
)
|
Loss from discontinued operations
|
|
|
(0.39
|
)
|
|
|
(2.24
|
)
|
|
|
(1.36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss
|
|
$
|
(2.61
|
)
|
|
$
|
(8.72
|
)
|
|
$
|
(1.41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options are included under the treasury stock method to the
extent they are dilutive. Shares issuable upon exercise of stock
options after applying the treasury stock method of 513,025,
661,423 and 1,367,157 for 2009, 2008 and 2007, respectively,
have been excluded from the computation because the effect of
their inclusion would be anti-dilutive.
|
|
14.
|
Commitments
and Contingencies
|
Leases
for Office Space
Rent expense for office space, excluding Trinity, for 2009, 2008
and 2007 was $7.7 million, $9.7 million and
$7.1 million, respectively. We lease our corporate and
regional offices under various leases which expire through
September 2013. In 2008, we ceased using approximately
40,276 square feet of office space at our corporate
headquarters and recorded a charge of $2.0 million. In
2009, we terminated a portion of our lease at our corporate
headquarters and recorded an additional charge of
$2.7 million related to the termination.
Trinity
Leases
Trinity filed a plan of liquidation and dissolution before the
Delaware Chancery Court in January 2009. The Chancery Court will
supervise the disposition of the assets of Trinity for the
benefit of its creditors. Obligations under long-term leases for
office space used in Trinitys operations were eliminated
by the legal requirement for the landlord to mitigate damages by
re-leasing the vacated space and any amounts not relieved will
be resolved pursuant to the plan of dissolution.
When Trinity ceased operations in December 2008, all leased
premises were vacated and leasehold improvements and furniture,
fixtures and equipment were abandoned. As a result, we recorded
a charge of $1.2 million and $2.7 million in 2009 and
2008, respectively, related to the lease abandonment which are
included in loss from discontinued operations.
108
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Leases
for Operating Communities
We have operating leases for ten communities (excluding the
Marriott leases discussed below) with terms ranging from 15 to
20 years, with two ten-year extension options. We have two
other ground leases related to four operating communities with
lease terms ranging from 15 to 99 years. These leases are
subject to annual increases based on the consumer price index
and/or
stated increases in the lease. In addition, we have one ground
lease related to an abandoned project.
In connection with the acquisition of Marriott Senior Living
Services, Inc. (MSLS) in March 2003, we assumed 14
operating leases and renegotiated an existing operating lease
agreement for another MSLS community in June 2003. We also
entered into two new leases with a landlord who acquired two
continuing care retirement communities from MSLS at the same
date. Fifteen of the leases expire in 2013, while the remaining
two leases expire in 2018. The leases had initial terms of
20 years, and contain one or more renewal options,
generally for five to 15 years. The leases provide for
minimum rentals and additional rentals based on the operations
of the leased community. Rent expense for operating communities
subject to operating leases was $59.3 million,
$59.8 million and $62.3 million for 2009, 2008 and
2007, respectively, including contingent rent expense of
$4.4 million, $5.3 million and $8.2 million for
2009, 2008 and 2007, respectively.
Future minimum lease payments under office, ground and other
operating leases at December 31, 2009 are as follows (in
thousands):
|
|
|
|
|
2010
|
|
$
|
59,569
|
|
2011
|
|
|
56,546
|
|
2012
|
|
|
56,228
|
|
2013
|
|
|
52,913
|
|
2014
|
|
|
21,746
|
|
Thereafter
|
|
|
147,520
|
|
|
|
|
|
|
|
|
$
|
394,522
|
|
|
|
|
|
|
Letters
of Credit
At December 31, 2009, in addition to $19.4 million in
letters of credit related to our Bank Credit Facility, we have
letters of credit outstanding of $85.4 million relating
primarily to our insurance programs.
Guarantees
We have provided project completion guarantees to venture
lenders and the venture itself, operating deficit guarantees to
the venture lenders whereby after depletion of established
reserves we guarantee the payment of the lenders monthly
principal and interest during the term of the guarantee and
guarantees to ventures to fund operating shortfalls. The terms
of the guarantees match the term of the underlying venture debt
and generally range from three to five years, to the extent we
are able to refinance the venture debt. Fundings under the
operating deficit guarantees and debt repayment guarantees are
generally recoverable either out of future cash flows of the
venture or from proceeds of the sale of communities. We have no
projects under construction at December 31, 2009.
109
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
The maximum potential amount of future fundings for outstanding
guarantees, the carrying amount of the liability for expected
future fundings at December 31, 2009 and fundings during
2009 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASC
|
|
|
ASC
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee
|
|
|
Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Topic
|
|
|
Topic
|
|
|
Total
|
|
|
Fundings from
|
|
|
|
|
|
|
Liability
|
|
|
Liability
|
|
|
Liability
|
|
|
January 1,
|
|
|
|
Maximum
|
|
|
for Future
|
|
|
for Future
|
|
|
for Future
|
|
|
2009
|
|
|
|
Potential Amount
|
|
|
Fundings at
|
|
|
Fundings at
|
|
|
Fundings at
|
|
|
through
|
|
|
|
of Future
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
Guarantee Type
|
|
Fundings
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
Operating deficit
|
|
|
Uncapped
|
|
|
$
|
323
|
|
|
$
|
500
|
|
|
$
|
823
|
|
|
$
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
323
|
|
|
$
|
500
|
|
|
$
|
823
|
|
|
$
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
Living Condominium Project
In conjunction with the sale of a majority interest in one
condominium venture and one assisted living venture discussed in
Note 6, we are obligated to fund operating shortfalls. The
weak economy in the Washington, D.C. area has resulted in
lower condominium sales than forecasted and we have funded
$3.5 million under the guarantees through December 31,
2009. In addition, we are required to fund marketing costs
associated with the sale of the condominiums which we estimate
will total approximately $7.5 million by the time the
remaining inventory of condominiums are sold.
In July 2009, the lender alleged that an event of default had
occurred. The event of default was related to providing certain
financial information for the venture that the lender had
previously requested. In October 2009, we received a notice of
default related to the nonpayment of interest. We are in
discussions with the lender on these matters.
Agreements
with Marriott International, Inc.
Our agreements with Marriott International, Inc.
(Marriott), which related to our purchase of
Marriott Senior Living Services, Inc. in 2003, provide that
Marriott has the right to demand that we provide cash collateral
security for Assignee Reimbursement Obligations, as defined in
the agreements, in the event that our implied debt rating is not
at least B- by Standard and Poors or B1 by Moodys Investor
Services. Assignee Reimbursement Obligations relate to possible
liability with respect to leases assigned to us in 2003 and
entrance fee obligations assumed by us in 2003 that remain
outstanding (approximately $8.1 million at
December 31, 2009). Marriott has informed us that they
reserve all of their rights to issue a Notice of Collateral
Event under the Assignment and Reimbursement Agreement.
Other
Generally, the financing obtained by our ventures is
non-recourse to the venture members, with the exception of the
debt repayment guarantees discussed above. However, we have
entered into guarantees with the lenders with respect to acts
which we believe are in our control, such as fraud or voluntary
bankruptcy of the venture, that create exceptions to the
non-recourse nature of debt. If such acts were to occur, the
full amount of the venture debt could become recourse to us. The
combined amount of venture debt underlying these guarantees is
approximately $2.2 billion at December 31, 2009. We
have not funded under these guarantees, and do not expect to
fund under such guarantees in the future.
To the extent that a third party fails to satisfy an obligation
with respect to two continuing care retirement communities we
manage, we would be required to repay this obligation, the
majority of which is expected to be refinanced with proceeds
from the issuance of entrance fees as new residents enter the
communities. At
110
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
December 31, 2009, the remaining liability under this
obligation is $44.3 million. We have not funded under these
guarantees, and do not expect to fund under such guarantees in
the future.
Employment
Agreements
We have employment agreements with Mark S. Ordan, Chief
Executive Officer, Julie A. Pangelinan, Chief Financial Officer,
Daniel J. Schwartz, Senior Vice President North
American Operations and Greg Neeb, Chief Investment Officer.
Each of the employment agreements provides for a three-year
employment term with automatic one-year renewals at the end of
that term and each year thereafter unless either party provides
notice to the other, at least 120 days prior to the next
renewal date, that the term will not be extended. Under the
employment agreements, Mr. Ordan, Ms. Pangelinan,
Mr. Schwartz and Mr. Neeb will receive an annual base
salary of $650,000, $400,000, $350,000, and $400,000 per year,
respectively, and each of such executives will be eligible for
an annual bonus under our annual incentive plan.
Pursuant to each of the employment agreements, in the event that
the executives employment is terminated by us, the
executive will be entitled to severance benefits specified in
the contracts. In the event that the executive becomes subject
to any golden parachute excise taxes under Section 4999 of
the Internal Revenue Code, the executive will be entitled to an
additional payment such that the executive is placed in the same
after-tax position as if no excise tax had been imposed.
However, if the aggregate payments that the executive is
entitled to receive exceeds by 10 percent or less the
maximum amount that the executive could receive without being
subject to the excise tax, then the executive will not receive
such
gross-up
payment, and payments otherwise subject to the excise tax will
be reduced to the maximum amount that the executive could
receive without being subject to the excise tax.
On January 22, 2010, we announced the termination of
employment of Daniel J. Schwartz for other than for
cause effective May 31, 2010.
Legal
Proceedings
HCP
In June 2009, various affiliates of HCP and their associated
tenant entities filed nine complaints in the Delaware Court of
Chancery naming the Company and several of its subsidiaries as
defendants. The complaints allege monetary and non-monetary
defaults under a series of owner and management agreements that
govern nine portfolios comprised of 64 properties with annual
management fees of approximately $25.4 million in 2008 and
$25.9 million in 2009. We have $18.3 million of
unamortized management contract intangibles relating to these
contracts. In each case, the plaintiffs include (a) the HCP
affiliates that own various assisted living community properties
that are managed by Sunrise, and (b) certain tenant
entities alleged to be independent from HCP that lease those
properties from HCP affiliates and have management agreements
with Sunrise. The complaints assert claims for
(1) declaratory judgment; (2) injunctive relief;
(3) breach of contract; (4) breach of fiduciary
duties; (5) aiding and abetting breach of fiduciary duty;
(6) equitable accounting; and (7) constructive trust.
The complaints seek equitable relief, including a declaration of
a right to terminate the agreements, disgorgement, unspecified
money damages, and attorneys fees. Plaintiffs filed a
motion to expedite the proceedings. Following briefing by the
parties, the Delaware Court of Chancery on July 9, 2009
denied the plaintiffs motion. In July 2009, various
affiliates of HCP and their associated tenant entities refiled a
complaint, which had been voluntarily withdrawn in the Delaware
actions, in the federal district court for the Eastern District
of Virginia (the Virginia action). On
August 17, 2009, Sunrise answered all of the complaints in
both jurisdictions and asserted counterclaims.
Trinity
OIG Investigation and
Qui
Tam
Action
As previously disclosed, in 2006, we acquired all of the
outstanding stock of Trinity Hospice Inc. (Trinity).
As a result of this transaction, Trinity became an indirect,
wholly owned subsidiary of the Company. In 2007, Trinity
111
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
and the Company were served with a complaint which amended a
complaint filed under seal on November 21, 2005 by four
former employees of Trinity under the qui tam provisions
of the Federal False Claims Act. In 2008, an amended complaint
was revised in the form of a second amended complaint which
replaced the loss sustained range of $75 million to
$100 million with an alleged loss by the United States of
at least $100 million. The original complaint named KRG
Capital, LLC (an affiliate of former stockholders of Trinity)
and Trinity Hospice LLC (a subsidiary of Trinity) as defendants.
The second amended complaint named Sunrise Senior Living, Inc.,
KRG Capital, LLC, aka KRG Capital Partners, LLC, KRG Capital,
LLC, KRG Capital Fund II, L.P., KRG Capital Fund II
(PA), L.P., KRG Capital Fund II (FF), L.P., KRG
Co-Investment, L.L.C., American Capital Strategies, LTD, and
Trinity as defendants. In 2008, the United States, through the
Civil Division of the U.S. Department of Justice, and the
U.S. Attorneys Office for the District of Arizona,
filed a motion with the District Court to intervene in the
pending case, but only as the case relates to defendant Trinity
Hospice, Inc. In April of 2009, the United States later reversed
its decision to intervene. All parties entered into a
settlement agreement which was subsequently approved by the
District Court on June 3, 2009 and the lawsuit was
dismissed with prejudice on November 10, 2009.
IRS
Audit
The IRS is auditing our federal income tax returns for the years
ended December 31, 2005 through 2008. In July 2008, our
2005 federal income tax return audit was settled with the IRS,
resulting in a tax liability of approximately $0.2 million.
In January 2009, the IRS reopened the audit of our 2005 federal
income tax return as a result of a refund claim filed with our
2007 federal income tax return relating to the 2007 net
operating loss carryback for which we received reimbursement of
the federal income taxes we had paid in 2005. In August 2009,
the IRS concluded field work on the 2006 audit which resulted in
a refund claim of $0.6 million. The IRS will not close the
2006 audit until the audits are completed for the 2007 and 2008
tax years as a net operating loss carryback from these years was
applied to receive reimbursement for federal taxes we paid in
2006.
In February 2009, we settled with the IRS on our employment tax
audits and paid a penalty of $0.2 million in November 2008
for the years 2004, 2005, and 2006. The IRS determined that we
were liable for payroll tax deposit penalties on stock option
exercises during 2004, 2005, and 2006 for certain withholdings
that were made after the prescribed due dates.
SEC
Investigation
In 2006 we received a request from the SEC for information about
insider stock sales, timing of stock option grants and matters
relating to our historical accounting practices that had been
raised in media reports in the latter part of November 2006
following receipt of a letter by us from the Service Employees
International Union. In 2007, we were advised by the staff of
the SEC that it had commenced a formal investigation. We have
fully cooperated, and intend to continue to fully cooperate,
with the SEC. The Company has commenced discussions with the SEC
staff concerning potential resolution of the matter and
conclusion of the investigation.
Putative
Class Action Litigation
Two putative securities class actions, styled United
Food & Commercial Workers Union Local 880-Retail Food
Employers Joint Pension Fund, et al. v. Sunrise Senior
Living, Inc., et al., Case No. 1:07CV00102, and First New
York Securities, L.L.C. v. Sunrise Senior Living, Inc., et
al., Case No. 1:07CV000294, were filed in the
U.S. District Court for the District in 2007. Both
complaints alleged securities law violations by Sunrise and
certain of its current or former officers and directors based on
allegedly improper accounting practices and stock option
backdating, violations of generally accepted accounting
principles, false and misleading corporate disclosures, and
insider trading of Sunrise stock. Both sought to certify a class
for the period August 4, 2005 through June 15, 2006,
and both requested damages and equitable relief, including an
accounting and disgorgement.
In 2009, Sunrise and its current or former directors or officers
who were named individually as defendants entered into an
agreement which called for the certification by the court of a
class consisting of persons (with certain
112
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
exceptions) who purchased Sunrise common stock between
February 26, 2004 and July 28, 2006, and payment of
$13.5 million in cash.
Concurrently with entering into the settlement agreement,
Sunrise and the individual defendants entered into agreements
and releases with two of its insurance carriers, which provided
primary and excess insurance coverage, respectively, under
certain directors and officers liability insurance
policies for the relevant periods. The two insurance carriers
combined to pay $13.4 million toward the settlement amount,
which exhausted the coverage limits under the primary policy
(after taking account of prior payments for related defense
costs), but did not exhaust coverage limits under the excess
policy. These payments pursuant to the settlement were made
under the then applicable policies and, therefore, do not reduce
the amount of insurance proceeds available under current
policies now in effect. Sunrise and the individual defendants
have provided releases to the carrier. Taking into account the
insurance contribution, the net cost of the settlement of the
putative securities class action lawsuit to Sunrise was
approximately $0.1 million. No amounts were paid by the
individual defendants.
In June 2009, the settlement agreement was approved and followed
the settlement agreement entered into by Sunrise and the
individuals named as defendants in two putative stockholder
derivative actions brought by certain alleged stockholders of
Sunrise for the benefit of the Company as discussed below.
Putative
Shareholder Derivative Litigation
In 2007, the first of two putative shareholder derivative
complaints was filed against certain of our current and former
directors and officers, and naming us as a nominal defendant.
The lead plaintiffs filed a Consolidated Shareholder Derivative
Complaint, again naming us as a nominal defendant, and naming as
individual defendants Paul J. Klaassen, Teresa M. Klaassen,
Ronald V. Aprahamian, Craig R. Callen, Thomas J. Donohue, J.
Douglas Holladay, William G. Little, David G. Bradley, Peter A.
Klisares, Scott F. Meadow, Robert R. Slager, Thomas B. Newell,
Tiffany L. Tomasso, John F. Gaul, Bradley G. Rush, Carl Adams,
David W. Faeder, Larry E. Hulse, Timothy S. Smick, Brian C.
Swinton and Christian B. A. Slavin. The consolidated complaint
alleged violations of federal securities laws and breaches of
fiduciary duty by the individual defendants, arising out of the
same matters as are raised in the purported class action
litigation described above. The plaintiffs sought damages and
equitable relief on behalf of Sunrise.
In 2007, a putative shareholder derivative complaint was filed
against Paul J. Klaassen, Teresa M. Klaassen, Ronald V.
Aprahamian, Craig R. Callen, Thomas J. Donohue, J. Douglas
Holladay, David G. Bradley, Robert R. Slager, Thomas B. Newell,
Tiffany L. Tomasso, Carl Adams, David W. Faeder, Larry E. Hulse,
Timothy S. Smick, Brian C. Swinton and Christian B. A. Slavin,
and naming us as a nominal defendant. The complaint alleged
breaches of fiduciary duty by the individual defendants arising
out of the grant of certain stock options that were the subject
of the purported class action and shareholder derivative
litigation described above. The plaintiffs sought damages and
equitable relief on behalf of Sunrise.
In 2009, the Company and the individual defendants entered into
an agreement to settle both actions. Under the terms of this
settlement, the Company, in addition to corporate governance
measures that it already has implemented or is in the process of
implementing, has agreed to (1) require independent
directors to certify that they are independent under the rules
of the New York Stock Exchange and to give prompt notification
of any changes in their status that would render them no longer
independent and (2) implement a minimum two-year vesting
period, with appropriate exceptions, for stock option awards to
employees. In addition, Paul J. Klaassen, the Companys
non-executive chairman, and the Company have agreed that the
700,000 stock options granted to Mr. Klaassen in
conjunction with his previous employment agreement executed in
September 2000 will be repriced from (a) $8.50 per share,
the price set on September 11, 2000 by the Compensation
Committee of the Companys Board based on the prior
days closing price, to (b) $13.09 per share, the
closing price on the business day prior to November 10,
2000, the date on which the Companys full Board approved
the terms of the employment agreement. The agreement also
provided that the Companys insurers pay attorneys fees and
expenses not to exceed $1 million. No
113
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
amounts were paid by the Company or by the individual
defendants. The settlement was approved and the action formally
dismissed.
Other
Pending Lawsuits and Claims
In addition to the lawsuits and litigation matters described
above, we are involved in various lawsuits and claims arising in
the normal course of business. In the opinion of management,
although the outcomes of these other suits and claims are
uncertain, in the aggregate they are not expected to have a
material adverse effect on our business, financial condition,
and results of operations.
|
|
15.
|
Related-Party
Transactions
|
Sunrise
Senior Living Real Estate Investment Trust
In December 2004, we closed the initial public offering of
Sunrise REIT, an independent entity we established in Canada.
Sunrise REIT was formed to acquire, own and invest in income
producing senior living communities in Canada and the United
States.
Concurrent with the closing of its initial public offering,
Sunrise REIT issued C$25.0 million
(U.S. $20.8 million at December 31,
2004) principal amount of subordinated convertible
debentures to us, convertible at the rate of C$11.00 per unit.
We held a minority interest in one of Sunrise REITs
subsidiaries and held the convertible debentures until November
2005, but did not own any common shares of Sunrise REIT. We
entered into a
30-year
strategic alliance agreement that gave us the right of first
opportunity to manage all Sunrise REIT communities and Sunrise
REIT had a right of first offer to consider all development and
acquisition opportunities sourced by us in Canada. Pursuant to
this right of first offer, we and Sunrise REIT entered into
fixed price acquisition agreements with respect to seven
development communities at December 31, 2005. In addition,
we had the right to appoint two of the eight trustees that
oversaw the governance, investment guidelines, and operating
policies of Sunrise REIT.
The proceeds from the offering and placement of the debentures
were used by Sunrise REIT to acquire interests in 23 senior
living communities from us and our ventures, eight of which are
in Canada and 15 of which are in the United States. Three of
these communities were acquired directly from us for an
aggregate purchase price of approximately $40.0 million and
20 were acquired from ventures in which we participated for an
aggregate purchase price of approximately $373.0 million.
With respect to the three Sunrise consolidated communities, we
realized Gain on sale and development of real estate and
equity interests of $2.2 million in 2004, and
deferred gain of $4.1 million, which was recognized in the
fourth quarter of 2006. We contributed our interest in the 15
U.S. communities to an affiliate of Sunrise REIT in
exchange for a 15% ownership interest in that entity. Sunrise
REIT also acquired an 80% interest in one of our communities
that was in
lease-up in
Canada for a purchase price of approximately $12.0 million,
with us retaining a 20% interest. We also recognized
$2.1 million of Professional fees from development,
marketing and other revenue in 2004 for securing debt on
behalf of Sunrise REIT. We had seven wholly owned communities
under construction at December 31, 2005 of which two were
sold to Sunrise REIT in 2006 and five wholly owned communities
under construction at December 31, 2006, which were to be
sold to Sunrise REIT in 2007.
In April 2007, Ventas, Inc., a large healthcare REIT acquired
Sunrise REIT, the owner of 77 Sunrise communities. We have an
ownership interest in 56 of these communities. The management
contracts for these communities did not change.
114
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
We recognized the following in our consolidated statements of
operations related to Sunrise REIT (in thousands):
|
|
|
|
|
|
|
Twelve Months
|
|
|
Ended
|
|
|
December 31,
|
|
|
2007
|
|
Management fees
|
|
$
|
5,518
|
|
Reimbursed contract services
|
|
|
77,277
|
|
Gain on sale and development of real estate
|
|
|
8,854
|
|
Interest income received from Sunrise REIT convertible debentures
|
|
|
|
|
Interest incurred on borrowings from Sunrise REIT
|
|
|
414
|
|
Sunrises share of earnings and return on investment in
unconsolidated communities
|
|
|
180
|
|
Sunrise
Senior Living Foundation
Sunrise Senior Living Foundation (SSLF) is an
independent,
not-for-profit
organization whose purpose is to operate schools and day care
facilities, provide low and moderate income assisted living
housing and own and operate a corporate conference center. Paul
Klaassen, our Chairman of the Board of Directors and his wife
are the primary contributors to, and serve on the board of
directors and serve as officers of, SSLF. One or both of them
also serve as directors and as officers of various SSLF
subsidiaries. Certain other of our employees also serve as
directors
and/or
officers of SSLF and its subsidiaries. Since November 2006, the
Klaassens daughter has been the Director of SSLF. She was
previously employed by SSLF from June 2005 to July 2006. Since
October 2007, the Klaassens
son-in-law
has also been employed by SSLF. Beginning January 2007, one of
our employees became the full-time director of the schools
operated by a subsidiary of SSLF, while continuing to provide
certain services to us. Through October 2007, we continued to
pay the salary and benefits of this former employee. In March
2008, SSLF reimbursed us approximately $68,000, representing the
portion of the individuals salary and benefits
attributable to serving as the director of the schools.
Prior to April 2005, we managed the corporate conference center
owned by SSLF (the Conference Facility) and leased
the employees who worked at the Conference Facility under an
informal arrangement. Effective April 2005, we entered into a
contract with the SSLF subsidiary that currently owns the
property to manage the Conference Facility. The contract was
terminated December 31, 2008. Under the contract, we
received a discount when renting the Conference Facility for
management, staff or corporate events, at an amount to be agreed
upon, and priority scheduling for use of the Conference
Facility. We were paid monthly a property management fee of 1%
of gross revenues for the immediately preceding month, which we
estimated to be our cost of managing this property. The costs of
any of our employees working on the property were also to be
paid in addition to the 1% property management fee. In addition,
we agreed, if Conference Facility expenses exceed gross
receipts, determined monthly, to make non-interest bearing loans
in an amount needed to pay Conference Facility expenses, up to a
total amount of $75,000 per
12-month
period. Any such loan was required to be repaid to the extent
gross receipts exceed Conference Facility expenses in any
subsequent months. There were no loans made by us under this
contract provision in 2007, 2008 or 2009. Either party could
terminate the management agreement upon 60 days
notice. Salary and benefits for our employees who manage the
Conference Facility, which were reimbursed by SSLF, totaled
approximately $0.3 million in 2008 and $0.3 million in
2007. In 2008 and 2007, we earned $3,000 and $6,000 in
management fees. We rented the conference center for management,
staff and corporate events and paid approximately
$0.02 million in 2008 and $0.1 million in 2007 to
SSLF. The Trinity Forum, a faith-based leadership forum of which
Mr. Klaassen is the past chairman and is currently a
trustee, operates a leadership academy on a portion of the site
on which the Conference Facility is located. The Trinity Forum
does not pay rent for this space, but leadership academy fellows
who reside on the property provide volunteer services at the
Conference Facility.
115
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
SSLFs stand-alone day care center, which provides day care
services for our employees and non-Sunrise employees, is located
in the same building complex as our corporate headquarters. The
day care center subleases space from us under a sublease that
commenced in April 2004, expires September 30, 2013, and
was amended in January 2007 to include additional space. The
sublease payments, which equal the payments we are required to
make under our lease with our landlord for this space, are
required to be paid monthly and are subject to increase as
provided in the sublease. SSLF paid Sunrise approximately
$0.2 million, $0.1 million and $0.1 million in
sublease payments in 2009, 2008 and 2007, respectively.
Fairfax
Community Ground Lease
We lease the real property on which our Fairfax, Virginia
community is located from Paul and Teresa Klaassen pursuant to a
99-year
ground lease entered into in June 1986, as amended in August
2003. Rent expense under this lease is approximately
$0.2 million annually.
Consulting
Agreement
In November 2008, we entered into an oral consulting arrangement
with Mr. Klaassen. Under the consulting arrangement, we
agreed to pay Mr. Klaassen a fee of $25,000 per month for
consulting with us and Mr. Ordan, our new chief executive
officer, on senior living matters. This was in addition to any
benefits Mr. Klaassen was entitled to under his employment
agreement. Fees totaling $87,500 were paid to Mr. Klaassen
for three and a half months commencing in November 2008.
Corporate
Use of Residence
In June 1994, the Klaassens transferred to us property which
included a residence and a Sunrise community in connection with
a financing transaction. In connection with the transfer of the
property, we agreed to lease back the residence to the Klaassens
under a
99-year
ground lease. The rent was $1.00 per month. Under the lease, the
Klaassens were responsible for repairs, real estate taxes,
utilities and property insurance for the residence. For
approximately the past 12 years, the Klaassens have
permitted the residence to be used by us for business purposes,
including holding meetings and housing out of town employees. In
connection with its use of the residence, we have paid the real
estate taxes, utilities and insurance for the property and other
expenses associated with the business use of the property,
including property maintenance and management services. We paid
expenses totaling approximately $0.1 million annually. For
several years ending August/September 2006, the Klaassens
son lived at the guest house on the property. In December 2007,
the Klaassens terminated their
99-year
ground lease for no consideration.
Purchase
of Condominium Unit
In January 2006, Mr. Klaassen entered into a purchase
agreement with a joint venture in which we own a 30% equity
interest and with which we have entered into a management
services agreement. Pursuant to the purchase agreement,
Mr. Klaassen has agreed to purchase for his parents a
residential condominium unit at the Fox Hill condominium
project. The purchase price of the condominium is approximately
$1.4 million. In June 2007, the purchase agreement was
modified to reflect certain custom amenities upgrades to the
unit for an aggregate price of approximately $0.1 million.
Service
Evaluators Incorporated
Service Evaluators Incorporated (SEI) is a
for-profit company which provided independent sales and
marketing analysis, commonly called mystery shopping
services, for the restaurant, real estate and senior living
industries in the United States, Canada and United Kingdom.
Janine I. K. Connell and her husband, Duncan S. D. Connell, are
the owners and President and Executive Vice President of SEI,
respectively. Ms. Connell and Mr. Connell are the
sister and
brother-in-law
of Mr. Klaassen and Ms. Connell is the
sister-in-law
of Ms. Klaassen.
116
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
For approximately 13 years, we contracted with SEI to
provide mystery shopping services for us. These services
included
on-site
visits at Sunrise communities,
on-site
visits to direct area competitors of Sunrise communities,
telephonic inquiries, and narrative reports of the
on-site
visits, direct comparison analysis and telephone calls. In 2005,
we paid SEI approximately $0.7 million for approximately
380 communities. We paid approximately $0.7 million to SEI
in 2006 for approximately 415 communities and approximately
$0.5 million in 2007 for approximately 435 communities. The
SEI contract was terminable upon 12 months notice. In
August 2007, we gave SEI written notice of the termination of
SEIs contract, effective August 2008. We paid SEI
approximately $0.5 million under SEIs contract in
2008.
Greystone
Earnout Payments
In May 2005, we acquired Greystone. Greystones founder,
Michael B. Lanahan, was appointed chairman of our Greystone
subsidiary in connection with the acquisition and he currently
serves as one of our executive officers. Pursuant to the terms
of the Purchase Agreement, we paid $45.0 million in cash,
plus approximately $1.0 million in transaction costs, to
acquire all of the outstanding securities of Greystone. We also
agreed to pay up to an additional $7.5 million in purchase
price if Greystone met certain performance milestones in 2005,
2006 and 2007. The first earnout payment was $5.0 million
based on 2005 and 2006 results and was paid in April 2007.
Mr. Lanahans share of such earnout payment as a
former owner of Greystone was approximately $1.5 million.
The remaining $2.5 million earnout is based on
Greystones 2007 results, and was paid in April 2008.
Mr. Lanahans share of that payment was approximately
$0.3 million. Greystone was sold to Mr. Lanahan in
March 2009.
Purchase
of Aircraft Interest by Mr. Klaassen
In July 2008, Mr. Klaassen purchased from us one of the
four fractional interests in private aircrafts owned by us. The
purchase price for such interest was approximately
$0.3 million, which represented the fair market value of
the interest at the time of purchase as furnished to us by
independent appraisers. The purchase of the fractional interest
was approved by the Audit Committee of our Board of Directors.
SecureNet
Payment Systems LLC
In October 2008, we entered into a contract with SecureNet
Payment Systems LLC (SecureNet) to provide
consulting services in connection with the processing of direct
deposit and credit card payments by community residents of their
monthly fees. The sales agent representing SecureNet, whose
compensation will be based on SecureNets revenue from the
contract, is the wife of a Sunrise employee. In November 2008,
after the award of the contract, that employee became Senior
Vice President, North American Operations and an officer of the
Company. The Governance Committee reviewed this transaction at
its meeting on July 20, 2009 and concluded that the bidding
process was done with integrity, that the award to SecureNet
appeared to have been in our best interest and that our
employees relationship to the SecureNet sales
representative did not have any influence over the decision to
select SecureNet. In 2009, $0.2 million of fees were paid
to SecureNet.
|
|
16.
|
Employee
Benefit Plans
|
401k
Plan
We have a 401(k) Plan (the Plan) covering all
eligible employees. Under the Plan, eligible employees may make
pretax contributions up to 100% of the IRS limits. The Plan
provides an employer match dependent upon compensation levels
and years of service. The Plan does not provide for
discretionary matching contributions. Matching contributions
were $1.6 million, $1.7 million and $1.6 million
in 2009, 2008 and 2007, respectively.
117
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Sunrise
Executive Deferred Compensation Plans
We have an executive deferred compensation plan (the
Executive Plan) for employees who meet certain
eligibility criteria. Under the Plan, eligible employees may
make pre-tax contributions in amounts up to 25% of base
compensation and 100% of bonuses. We may make discretionary
matching contributions to the Executive Plan. Employees vest in
the matching employer contributions, and interest earned on such
contributions, at a date determined by the Benefit Plan
Committee. Matching contributions were zero in both 2009 and
2008 and $0.4 million in 2007. We terminated the Executive
Plan in January 2010 and distributions will be paid in 2011.
Chief
Executive Officer Deferred Compensation Plan
Pursuant to an employment agreement with Mr. Klaassen, we
are required to make contributions of $150,000 per year for
12 years, beginning on September 12, 2000 into a
non-qualified deferred compensation account, notwithstanding any
termination of Mr. Klaassens employment (such as his
retirement in November 2008). At the end of the
12-year
period, any net gains accrued or realized from the investment of
the amounts contributed by us are payable to Mr. Klaassen
and we will receive any remaining amounts. At December 31,
2007, we had contributed an aggregate of $0.9 million into
this plan, leaving an aggregate amount of $0.9 million to
be contributed. We made contributions for 2006 and 2007 in the
second quarter of 2008 to bring the plan up to date and
contributed the current year funding in the third quarter of
2008. At December 31, 2009, we had contributed an aggregate
of $1.5 million into this plan, leaving approximately
$0.3 million to be contributed.
|
|
17.
|
Discontinued
Operations
|
Discontinued operations consists of our German communities which
we are marketing for sale, our Greystone subsidiary which was
sold in 2009, 22 communities which were sold in 2009, one
community which was closed in 2009, our Trinity subsidiary which
ceased operations in 2008, and two communities which were sold
in 2008. We have no continuing involvement with these sold
communities or sold businesses.
The following amounts related to those communities and
businesses have been segregated from continuing operations and
reported as discontinued operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenue
|
|
$
|
107,644
|
|
|
$
|
170,430
|
|
|
$
|
170,530
|
|
Expenses
|
|
|
(113,644
|
)
|
|
|
(231,834
|
)
|
|
|
(208,884
|
)
|
Impairments
|
|
|
(72,524
|
)
|
|
|
(18,748
|
)
|
|
|
(56,729
|
)
|
Other (expense) income
|
|
|
(15,871
|
)
|
|
|
(15,900
|
)
|
|
|
231
|
|
Gain on sale of real estate or business
|
|
|
74,124
|
|
|
|
1,094
|
|
|
|
|
|
Income taxes
|
|
|
|
|
|
|
(427
|
)
|
|
|
24,340
|
|
Extraordinary loss, net of tax
|
|
|
|
|
|
|
(22,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
$
|
(20,271
|
)
|
|
$
|
(117,516
|
)
|
|
$
|
(70,512
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to the valuation allowance on net deferred tax assets in
2008, no benefit for income taxes was allocated to discontinued
operations for 2009.
|
|
18.
|
Information
about Sunrises Segments
|
Effective in 2009, we changed our operating segments. In 2008,
we reported four operating segments: domestic operations,
international operations (Canada and the United Kingdom),
Germany and Greystone. We now
118
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
have six operating segments for which operating results are
regularly reviewed by our chief operating decision makers:
North American Management includes the results from the
management of third party, venture and wholly owned/leased
Sunrise senior living communities in the United States and
Canada.
North American Development includes the results from the
development of Sunrise senior living communities in the United
States and Canada.
Equity Method Investments includes the results from our
investment in domestic and international ventures.
Consolidated (Wholly Owned/Leased) includes the results
from the operation of wholly owned and leased Sunrise senior
living communities in the United States and Canada net of an
allocated management fee of $21.9 million,
$22.2 million and $22.2 million for 2009, 2008 and
2007, respectively.
United Kingdom includes the results from the development
and management of Sunrise senior living communities in the
United Kingdom.
Germany includes the results from the management of nine
(two of which have been closed) Sunrise senior living
communities in Germany through September 1, 2008. The
operation of nine Sunrise senior living communities after
September 1, 2008 when we began consolidating the
communities are included in discontinued operations.
The old North American segment was split into the new North
American Management, North American Development, Equity Method
Investments and Consolidated (Wholly Owned/Leased) segments.
Results from Canadian operations are now included in the North
American Management and Wholly Owned/Leased segments, while
previously they were included in the International segment. The
operating results from the United Kingdom development and
management activities are now its own separate segment. The
Germany segment remains unchanged. Greystone, which was sold in
2009, and Trinity, which ceased operations in 2008, are now
reported as discontinued operations. Restatement of 2007 to the
current segments was not practical.
Our historical segment reporting has been restated to reflect
the changes made in 2009.
119
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Segment results are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Unallocated
|
|
|
|
|
North
|
|
North
|
|
Equity
|
|
(Wholly
|
|
|
|
Germany
|
|
Corporate
|
|
|
|
|
American
|
|
American
|
|
Method
|
|
Owned/
|
|
United
|
|
Management
|
|
and
|
|
|
|
|
Management
|
|
Development
|
|
Investments
|
|
Leased)
|
|
Kingdom
|
|
Company
|
|
Eliminations
|
|
Total
|
|
Revenues
|
|
$
|
1,105,974
|
|
|
$
|
6,637
|
|
|
$
|
2,151
|
|
|
$
|
350,165
|
|
|
$
|
27,597
|
|
|
$
|
1,717
|
|
|
$
|
(30,097
|
)
|
|
$
|
1,464,144
|
|
Community expense
|
|
|
2,170
|
|
|
|
214
|
|
|
|
42
|
|
|
|
287,719
|
|
|
|
|
|
|
|
158
|
|
|
|
(21,984
|
)
|
|
|
268,319
|
|
Development expense
|
|
|
25
|
|
|
|
9,347
|
|
|
|
606
|
|
|
|
312
|
|
|
|
1,682
|
|
|
|
128
|
|
|
|
401
|
|
|
|
12,501
|
|
Depreciation and amortization
|
|
|
11,925
|
|
|
|
1,927
|
|
|
|
|
|
|
|
17,550
|
|
|
|
382
|
|
|
|
114
|
|
|
|
14,731
|
|
|
|
46,629
|
|
Other operating expenses
|
|
|
1,058,795
|
|
|
|
25,285
|
|
|
|
6,306
|
|
|
|
61,198
|
|
|
|
25,009
|
|
|
|
4,672
|
|
|
|
55,764
|
|
|
|
1,237,029
|
|
Impairment of owned communities, land parcels, goodwill and
intangibles
|
|
|
|
|
|
|
28,897
|
|
|
|
|
|
|
|
2,953
|
|
|
|
|
|
|
|
|
|
|
|
(165
|
)
|
|
|
31,685
|
|
Income (loss) from operations
|
|
|
33,059
|
|
|
|
(59,033
|
)
|
|
|
(4,803
|
)
|
|
|
(19,567
|
)
|
|
|
524
|
|
|
|
(3,355
|
)
|
|
|
(78,844
|
)
|
|
|
(132,019
|
)
|
Interest income
|
|
|
413
|
|
|
|
869
|
|
|
|
7
|
|
|
|
225
|
|
|
|
(10
|
)
|
|
|
11
|
|
|
|
(164
|
)
|
|
|
1,351
|
|
Interest expense
|
|
|
(169
|
)
|
|
|
(926
|
)
|
|
|
|
|
|
|
(4,866
|
)
|
|
|
|
|
|
|
(29
|
)
|
|
|
(4,311
|
)
|
|
|
(10,301
|
)
|
Foreign exchange gain/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,989
|
|
|
|
(632
|
)
|
|
|
(645
|
)
|
|
|
|
|
|
|
6,712
|
|
Sunrises share of earnings (losses) and return on
investment in unconsolidated communities
|
|
|
|
|
|
|
|
|
|
|
5,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(199
|
)
|
|
|
5,673
|
|
Income (loss) before income taxes, discontinued operations, and
noncontrolling interests
|
|
|
37,080
|
|
|
|
(53,678
|
)
|
|
|
1,076
|
|
|
|
(16,707
|
)
|
|
|
(913
|
)
|
|
|
(4,146
|
)
|
|
|
(79,836
|
)
|
|
|
(117,124
|
)
|
Investments in unconsolidated communities
|
|
|
|
|
|
|
|
|
|
|
64,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,971
|
|
Segment assets
|
|
|
141,389
|
|
|
|
71,061
|
|
|
|
71,124
|
|
|
|
295,062
|
|
|
|
13,862
|
|
|
|
105,763
|
|
|
|
212,328
|
|
|
|
910,589
|
|
Expenditures for long-lived assets
|
|
|
|
|
|
|
9,794
|
|
|
|
|
|
|
|
10,111
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
19,950
|
|
Deferred gains on the sale of real estate and deferred revenue
|
|
|
|
|
|
|
16,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
21,865
|
|
120
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Unallocated
|
|
|
|
|
North
|
|
North
|
|
Equity
|
|
(Wholly
|
|
|
|
Germany
|
|
Corporate
|
|
|
|
|
American
|
|
American
|
|
Method
|
|
Owned/
|
|
United
|
|
Management
|
|
and
|
|
|
|
|
Management
|
|
Development
|
|
Investments
|
|
Leased)
|
|
Kingdom
|
|
Company
|
|
Eliminations
|
|
Total
|
|
Revenues
|
|
$
|
1,189,971
|
|
|
$
|
27,425
|
|
|
$
|
2,303
|
|
|
$
|
340,834
|
|
|
$
|
32,803
|
|
|
$
|
11,104
|
|
|
$
|
(33,466
|
)
|
|
$
|
1,570,974
|
|
Community expense
|
|
|
(535
|
)
|
|
|
774
|
|
|
|
122
|
|
|
|
282,051
|
|
|
|
|
|
|
|
60
|
|
|
|
(24,917
|
)
|
|
|
257,555
|
|
Development expense
|
|
|
5,065
|
|
|
|
21,405
|
|
|
|
3,121
|
|
|
|
15
|
|
|
|
4,335
|
|
|
|
16
|
|
|
|
177
|
|
|
|
34,134
|
|
Depreciation and amortization
|
|
|
6,969
|
|
|
|
1,132
|
|
|
|
88
|
|
|
|
15,491
|
|
|
|
331
|
|
|
|
114
|
|
|
|
15,372
|
|
|
|
39,497
|
|
Other operating expenses
|
|
|
1,130,122
|
|
|
|
113,672
|
|
|
|
19,556
|
|
|
|
60,480
|
|
|
|
22,749
|
|
|
|
15,322
|
|
|
|
75,891
|
|
|
|
1,437,792
|
|
Impairment of owned communities, land parcels, goodwill and
intangibles
|
|
|
121,553
|
|
|
|
5,870
|
|
|
|
6,350
|
|
|
|
15,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149,644
|
|
Income (loss) from operations
|
|
|
(73,203
|
)
|
|
|
(115,428
|
)
|
|
|
(26,934
|
)
|
|
|
(33,074
|
)
|
|
|
5,388
|
|
|
|
(4,408
|
)
|
|
|
(99,989
|
)
|
|
|
(347,648
|
)
|
Interest income
|
|
|
825
|
|
|
|
425
|
|
|
|
836
|
|
|
|
289
|
|
|
|
621
|
|
|
|
265
|
|
|
|
3,006
|
|
|
|
6,267
|
|
Interest expense
|
|
|
(287
|
)
|
|
|
(1,260
|
)
|
|
|
(366
|
)
|
|
|
(4,471
|
)
|
|
|
|
|
|
|
(94
|
)
|
|
|
(231
|
)
|
|
|
(6,709
|
)
|
Foreign exchange gain/(loss)
|
|
|
|
|
|
|
(9,796
|
)
|
|
|
|
|
|
|
(4,399
|
)
|
|
|
(3,075
|
)
|
|
|
2,620
|
|
|
|
|
|
|
|
(14,650
|
)
|
Sunrises share of losses and return on investment in
unconsolidated communities
|
|
|
|
|
|
|
|
|
|
|
(13,816
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30
|
)
|
|
|
(13,846
|
)
|
Income (loss) before income taxes, discontinued operations, and
noncontrolling interests
|
|
|
(72,282
|
)
|
|
|
(112,091
|
)
|
|
|
(39,996
|
)
|
|
|
(40,670
|
)
|
|
|
2,936
|
|
|
|
(2,218
|
)
|
|
|
(109,406
|
)
|
|
|
(373,727
|
)
|
Investments in unconsolidated communities
|
|
|
|
|
|
|
|
|
|
|
66,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,852
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,025
|
|
|
|
39,025
|
|
Segment assets
|
|
|
192,079
|
|
|
|
184,786
|
|
|
|
80,836
|
|
|
|
422,980
|
|
|
|
21,929
|
|
|
|
152,094
|
|
|
|
326,853
|
|
|
|
1,381,557
|
|
Expenditures for long-lived assets
|
|
|
|
|
|
|
137,449
|
|
|
|
|
|
|
|
16,723
|
|
|
|
19,270
|
|
|
|
103
|
|
|
|
|
|
|
|
173,545
|
|
Deferred gains on the sale of real estate and deferred revenue
|
|
|
|
|
|
|
26,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,415
|
|
|
|
88,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended and as of December 31, 2007
|
|
|
North
|
|
|
|
|
|
|
|
|
America
|
|
International
|
|
Germany
|
|
Total
|
|
Revenues
|
|
$
|
1,431,983
|
|
|
$
|
39,710
|
|
|
$
|
10,327
|
|
|
$
|
1,482,020
|
|
Interest income
|
|
|
8,329
|
|
|
|
1,014
|
|
|
|
149
|
|
|
|
9,492
|
|
Interest expense
|
|
|
4,056
|
|
|
|
1,118
|
|
|
|
5
|
|
|
|
5,179
|
|
Foreign exchange (loss) gain
|
|
|
|
|
|
|
3,966
|
|
|
|
(6,280
|
)
|
|
|
(2,314
|
)
|
Sunrises share of earnings and return on investment in
unconsolidated communities
|
|
|
31,812
|
|
|
|
75,535
|
|
|
|
|
|
|
|
107,347
|
|
Depreciation and amortization
|
|
|
41,715
|
|
|
|
750
|
|
|
|
136
|
|
|
|
42,601
|
|
(Loss) income from continuing operations
|
|
|
(33,718
|
)
|
|
|
54,847
|
|
|
|
(23,604
|
)
|
|
|
(2,475
|
)
|
Investments in unconsolidated communities
|
|
|
80,423
|
|
|
|
16,750
|
|
|
|
|
|
|
|
97,173
|
|
Goodwill
|
|
|
169,736
|
|
|
|
|
|
|
|
|
|
|
|
169,736
|
|
Segment assets
|
|
|
1,551,098
|
|
|
|
213,538
|
|
|
|
33,961
|
|
|
|
1,798,597
|
|
Expenditures for long-lived assets
|
|
|
188,509
|
|
|
|
48,908
|
|
|
|
139
|
|
|
|
237,556
|
|
Deferred gains on the sale of real estate and deferred revenue
|
|
|
74,367
|
|
|
|
|
|
|
|
|
|
|
|
74,367
|
|
In 2009, 2008 and 2007, our first U.K. development venture in
which we have a 20% equity interest sold four, four and seven
communities, respectively, to a venture in which we have a 10%
interest. Primarily as a result of the gains on these asset
sales recorded in the ventures, we recorded equity in (loss)
earnings in 2009, 2008 and 2007 of
121
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
approximately $19.5 million, $(3.6) million and
$75.5 million, respectively. When our U.K. and Germany
ventures were formed, we established a bonus pool in respect to
each venture for the benefit of employees and others responsible
for the success of these ventures. At that time, we agreed with
our partner that after certain return thresholds were met, we
would each reduce our percentage interests in venture
distributions with such excess to be used to fund this bonus
pool. During 2009, 2008 and 2007, we recorded bonus expense of
$0.7 million, $7.9 million and $27.8 million,
respectively, in respect of the bonus pool relating to the U.K.
venture. These bonus amounts are funded from capital events and
the cash is retained by us in restricted cash accounts until
payment of bonuses. As of December 31, 2009, approximately
$0.2 million of this amount was included in restricted
cash. Under this bonus arrangement, no bonuses were payable
until we receive distributions at least equal to certain capital
contributions and loans made by us to the U.K. and Germany
ventures. This bonus distribution limitation was satisfied in
2008.
We recorded $6.7 million, net, in foreign exchange gains in
2009 ($8.0 million in gains related to the Canadian dollar
and $(1.3) million in losses related to the Euro and
British pound); in 2008, net losses of $14.6 million
($14.2 million and $3.1 million in losses related to
the Canadian dollar and British pound, respectively, and
$2.7 million in gains related to the Euro); in 2007, net
losses of $2.3 million ($7.2 million in gains related
to the Canadian dollar and $9.5 million in losses related
to the Euro and British pound).
Upon designation as assets held for sale, we recorded the German
assets at the lower of their carrying value or their fair value
less estimated costs to sell. We used the bids received to date
in the determination of fair value. As the carrying value of a
majority of the assets was in excess of the fair value less
estimated costs to sell, during 2009 we recorded a charge of
$49.9 million which is included in discontinued operations.
Also in 2009, we recorded land parcels, operating communities,
closed construction sites, a condominium project and closed
communities which were either held and used or held for sale at
the lower of their carrying value or fair value less estimated
costs to sell. We used appraisals, market knowledge and broker
opinions of value to determine fair value. As the carrying value
was in excess of the fair value, we recorded impairment charges
of $31.7 million.
In 2008, we recorded an impairment charge of $121.8 million
related to all the goodwill for our North American business
segment which resulted from our acquisition of Marriott Senior
Living, Inc. in 2003 and Karrington Health, Inc. in 1999. The
impairment was recorded as the fair value of the North American
business was less than the fair value of the net tangible assets
and identifiable intangible assets.
In 2008, we recorded impairment charges of $19.3 million
related to five communities in the U.S., $5.2 million
related to two communities in Germany and $12.0 million
related to land parcels that are no longer expected to be
developed. In 2007, we recorded an impairment charge of
$7.6 million related to two communities in the U.S.
We generated 14.2%, 12.0% and 11.8% of revenue from Ventas in
2009, 2008 and 2007, respectively; 23.2%, 18.8% and 18.9% from
HCP in 2009, 2008 and 2007, respectively; and 11.4% in 2009 from
a private capital partner for senior living communities which we
manage.
122
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
|
|
19.
|
Accounts
Payable and Accrued Expenses
|
Accounts payable and accrued expenses consist of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Accounts payable and accrued expenses
|
|
$
|
40,034
|
|
|
$
|
66,760
|
|
Accrued salaries and bonuses
|
|
|
24,738
|
|
|
|
30,123
|
|
Accrued employee health and other benefits
|
|
|
41,340
|
|
|
|
47,685
|
|
Accrued legal, audit and professional fees
|
|
|
3,999
|
|
|
|
8,933
|
|
Other accrued expenses
|
|
|
27,921
|
|
|
|
30,643
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
138,032
|
|
|
$
|
184,144
|
|
|
|
|
|
|
|
|
|
|
|
|
20.
|
Severance
and Restructuring Plan
|
In 2008, we implemented a program to reduce corporate expenses,
including a voluntary separation program for certain team
members, as well as a reduction of spending related to
administrative processes, vendors, consultants and other costs.
As a result of this program and other staffing reductions, we
eliminated 182 positions in overhead and development, primarily
in our McLean, Virginia headquarters, associated with this
program. We have recorded severance charges related to this
program of $3.0 million and $15.0 million for 2009 and
2008, respectively. Primarily all of the restructuring charges
are reflected in our domestic segment.
With the elimination of these positions, we reconfigured our
office space and two floors of leased space in our headquarters
were vacated. We ceased using the space on December 31,
2008. The fair value of the lease obligation of the vacated
space was approximately $2.4 million. A charge of
$2.0 million (net of an existing straight-line lease
liability of approximately $0.4 million) was recorded in
2008 for this obligation. In addition, we recorded an impairment
charge of $0.9 million related to the leasehold
improvements in the vacated space.
In 2009, we announced a plan to continue to reduce corporate
expenses through a further reorganization of our corporate cost
structure, including a reduction in spending related to, among
others, administrative processes, vendors, and consultants. The
plan is designed to reduce our annual recurring general and
administrative expenses (including expenses previously
classified as venture expense) to approximately
$100 million, and to reduce our centrally administered
services which are charged to the communities by approximately
$1.5 million. Under this plan, approximately 184 positions
will be eliminated. As of December 31, 2009, we had
eliminated 154 positions and will be eliminating an additional
30 positions by mid 2010. We have recorded severance expense of
$8.3 million as a result of the plan through
December 31, 2009 and expect to record an additional
$1.6 million through mid 2010.
In May 2009, we entered into a separation agreement with our
then chief financial officer, Richard Nadeau, in connection with
this plan. Pursuant to the separation agreement,
Mr. Nadeaus employment with us terminated effective
as of May 29, 2009. Pursuant to Mr. Nadeaus
employment agreement, Mr. Nadeau received severance
benefits that included a lump sum cash payment of
$1.4 million. In addition, Mr. Nadeau received a bonus
in the amount of $0.5 million and Mr. Nadeaus
outstanding and unvested stock options, restricted stock and
other long-term equity compensation awards were fully vested,
resulting in a non-cash compensation expense to us of
$0.8 million.
In September 2009, we terminated a portion of our lease on our
corporate headquarters in McLean, Virginia. We recorded a charge
of $2.7 million related to the termination.
In January 2010, we terminated the employment of Daniel J.
Schwartz, our Senior Vice President, North American Operations,
in connection with this plan, effective as of May 31, 2010.
Mr. Schwartz will receive the severance payments and
benefits payable to him pursuant to his employment agreement
upon a termination of his employment, except that in lieu of a
lump sum cash severance payment equal to two years base
salary and 75% of
123
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
his target bonus amount (based on his base salary of
$0.4 million and target bonus of 100% of base salary),
Mr. Schwartz will receive such cash severance payment in
the form of equal monthly installments of
1/24th
of the total cash severance amount commencing July 2010 and
continuing until December 2010, and the remaining balance to be
paid in a lump sum on December 31, 2010.
Mr. Paul Klaassen resigned as our chief executive officer
effective November 1, 2008 and became our non-executive
Chair of the Board. Upon his resignation as our chief executive
officer, under his employment agreement, he became entitled to
receive:
|
|
|
|
|
annual payments for three years, beginning on the first
anniversary of the date of termination, equal to
Mr. Klaassens annual salary ($0.5 million) and
bonus ($0) for the year of termination;
|
|
|
|
continuation of the medical insurance and supplemental coverage
provided to Mr. Klaassen and his family until
Mr. Klaassen attains or, in the case of his death, would
have attained, age of 65 (but to his children only through their
attainment of age 22); and
|
|
|
|
continued participation in his deferred compensation plan in
accordance with the terms of his employment agreement.
|
The fair value of the continued participation of
Mr. Klaassen in the deferred compensation plan cannot be
reasonably estimated, as it is dependent upon
Mr. Klaassens selection of available investment
options and the future performance of those selections.
Accordingly, no additional accrual was recorded with respect to
the continued participation by Mr. Klaassen in his deferred
compensation plan. At December 31, 2009, we had a deferred
compensation liability of $0.1 million. See Note 15 of
the Notes to the Consolidated Financial Statements for more
information regarding Mr. Klaassens deferred
compensation account.
The following table reflects the activity related to our
severance and restructuring plans during 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability at
|
|
|
|
|
|
|
|
|
Cash Payments
|
|
|
Liability at
|
|
|
|
January 1,
|
|
|
Additional
|
|
|
|
|
|
and Other
|
|
|
December 31,
|
|
(In thousands)
|
|
2009
|
|
|
Charges
|
|
|
Adjustments
|
|
|
Settlements
|
|
|
2009
|
|
|
Voluntary severance
|
|
$
|
3,312
|
|
|
$
|
1,067
|
|
|
$
|
(253
|
)
|
|
$
|
(4,126
|
)
|
|
$
|
|
|
Involuntary severance
|
|
|
1,518
|
|
|
|
10,956
|
|
|
|
(367
|
)
|
|
|
(10,154
|
)
|
|
|
1,953
|
|
CEO retirement compensation
|
|
|
1,523
|
|
|
|
55
|
|
|
|
|
|
|
|
(500
|
)
|
|
|
1,078
|
|
Professional fees
|
|
|
|
|
|
|
18,647
|
|
|
|
|
|
|
|
(18,647
|
)
|
|
|
|
|
Lease termination costs
|
|
|
2,394
|
|
|
|
3,208
|
|
|
|
591
|
|
|
|
(2,637
|
)
|
|
|
3,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,747
|
|
|
$
|
33,933
|
|
|
$
|
(29
|
)
|
|
$
|
(36,064
|
)
|
|
$
|
6,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the above table is legal and professional fees of
$18.7 million relating to corporate restructuring.
124
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Comprehensive loss for the twelve months ended December 31,
2009, 2008 and 2007 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net loss attributable to common shareholders
|
|
$
|
(133,915
|
)
|
|
$
|
(439,179
|
)
|
|
$
|
(70,275
|
)
|
Foreign currency translation adjustment
|
|
|
(4,813
|
)
|
|
|
5,583
|
|
|
|
5,865
|
|
Equity interest in investees other comprehensive income
(loss)
|
|
|
6,324
|
|
|
|
(7,206
|
)
|
|
|
(100
|
)
|
Unrealized gain on investments
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
(132,284
|
)
|
|
|
(440,802
|
)
|
|
|
(64,510
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to noncontrolling interest -
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on investments
|
|
|
(120
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to common shareholders
|
|
$
|
(132,404
|
)
|
|
$
|
(440,802
|
)
|
|
$
|
(64,510
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22.
|
Quarterly
Results of Operations (Unaudited)
|
The following is a summary of quarterly results of operations
for the fiscal quarter (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4(2)
|
|
Total
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
376,054
|
|
|
$
|
360,965
|
|
|
$
|
362,790
|
|
|
$
|
364,335
|
|
|
$
|
1,464,144
|
|
Loss from continuing operations
|
|
|
(28,207
|
)
|
|
|
(19,164
|
)
|
|
|
(36,220
|
)
|
|
|
(30,239
|
)
|
|
|
(113,830
|
)
|
Income (loss) from discontinued operations
|
|
|
10,046
|
|
|
|
(62,624
|
)
|
|
|
(8,182
|
)
|
|
|
40,675
|
|
|
|
(20,085
|
)
|
Net (loss) income
|
|
|
(18,161
|
)
|
|
|
(81,788
|
)
|
|
|
(44,402
|
)
|
|
|
10,436
|
|
|
|
(133,915
|
)
|
Basic net (loss) income per common share(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.56
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
(0.72
|
)
|
|
$
|
(0.57
|
)
|
|
$
|
(2.22
|
)
|
Discontinued operations
|
|
|
0.20
|
|
|
|
(1.24
|
)
|
|
|
(0.16
|
)
|
|
|
0.76
|
|
|
|
(0.39
|
)
|
Net (loss) income
|
|
|
(0.36
|
)
|
|
|
(1.62
|
)
|
|
|
(0.88
|
)
|
|
|
0.19
|
|
|
|
(2.61
|
)
|
Diluted net (loss) income per common share(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.56
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
(0.72
|
)
|
|
$
|
(0.57
|
)
|
|
$
|
(2.22
|
)
|
Discontinued operations
|
|
|
0.20
|
|
|
|
(1.24
|
)
|
|
|
(0.16
|
)
|
|
|
0.76
|
|
|
|
(0.39
|
)
|
Net (loss) income
|
|
|
(0.36
|
)
|
|
|
(1.62
|
)
|
|
|
(0.88
|
)
|
|
|
0.19
|
|
|
|
(2.61
|
)
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
389,388
|
|
|
$
|
390,981
|
|
|
$
|
392,186
|
|
|
$
|
398,419
|
|
|
$
|
1,570,974
|
|
Loss from continuing operations
|
|
|
(25,192
|
)
|
|
|
(20,524
|
)
|
|
|
(40,956
|
)
|
|
|
(234,991
|
)
|
|
|
(321,663
|
)
|
Loss from discontinued operations
|
|
|
(7,933
|
)
|
|
|
(11,252
|
)
|
|
|
(27,710
|
)
|
|
|
(70,621
|
)
|
|
|
(117,516
|
)
|
Net loss
|
|
|
(33,125
|
)
|
|
|
(31,776
|
)
|
|
|
(68,666
|
)
|
|
|
(305,612
|
)
|
|
|
(439,179
|
)
|
Basic and diluted net loss per common share(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.52
|
)
|
|
$
|
(0.43
|
)
|
|
$
|
(0.84
|
)
|
|
$
|
(4.69
|
)
|
|
$
|
(6.48
|
)
|
Discontinued operations
|
|
|
(0.14
|
)
|
|
|
(0.20
|
)
|
|
|
(0.52
|
)
|
|
|
(1.38
|
)
|
|
|
(2.24
|
)
|
Net loss
|
|
|
(0.66
|
)
|
|
|
(0.63
|
)
|
|
|
(1.36
|
)
|
|
|
(6.07
|
)
|
|
|
(8.72
|
)
|
125
Sunrise
Senior Living, Inc.
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
(1) |
|
The sum of per share amounts for the quarters may not equal the
per share amount for the year due to a variance in shares used
in the calculations or rounding. |
|
(2) |
|
During the fourth quarter of 2009, we sold 21 properties and
recognized a gain of $48.9 million which is included in
discontinued operations. During the fourth quarter of 2008, we
recorded an impairment charge of $121.8 million related to
all of the goodwill for our North American business segment.
Also, we determined that a valuation allowance on the net
deferred tax assets was required. Because of this, we reversed
the tax benefit associated with our extraordinary loss recorded
in the third quarter. |
On January 31, 2010, our first U.K. development venture in
which we have a 20% equity interest sold two communities to a
venture in which we have a 10% interest. Primarily as a result
of the gains on these asset sales recorded in the ventures, we
estimate that we will record equity in earnings related to this
venture of approximately $4.6 million in the first quarter
of 2010.
On February 12, 2010, we extended $56.9 million of
debt that was either past due or in default at December 31,
2009. The debt is associated with an operating community and two
land parcels. In connection with the extension we (i) made
a $5.0 million principal payment at closing;
(ii) extended the terms of the debt to no earlier than
December 2, 2010; (iii) provided for an additional
$5.0 principal payment on or before July 31, 2010; and,
among other items, (iv) defaults under the loan agreements
were waived by the lenders.
On February 15, 2010, we sold two operating properties for
approximately $10.8 million which will result in an
expected gain of approximately $4.1 million. This expected
gain is after a reduction of $0.7 million related to
potential future indemnification obligations which expire in
February 2011. The properties are part of the liquidating trust
held as collateral for the electing lenders and all proceeds
from the sale are to be distributed to the electing lenders upon
execution of the definitive documentation for the restructuring.
We have evaluated all other events occurring after
December 31, 2009 through February 24, 2010, the date
our financial statements are issued.
126
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
Evaluation
of Controls and Procedures
Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer, we evaluated the effectiveness of our
disclosure controls and procedures (as such term is defined in
Rules 13a-15(e)
and
15d-15(e) of
the Securities Exchange Act of 1934 (the Exchange
Act)). Based upon that evaluation, our Chief Executive
Officer and the Chief Financial Officer concluded that, as of
December 31, 2009, our disclosure controls and procedures
were effective to provide reasonable assurance that information
required to be disclosed by us in the reports that we file or
submit under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in
the rules and forms of the SEC.
Managements
Report on Internal Control Over Financial Reporting
Management of Sunrise is responsible for establishing and
maintaining adequate internal control over financial reporting
and for the assessment of the effectiveness of internal control
over financial reporting. As defined by rules of the SEC,
internal control over financial reporting is a process designed
by, or under the supervision of, the Companys principal
executive and principal financial officers and effected by the
Companys Board of Directors, management and other
personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of the
consolidated financial statements in accordance with
U.S. generally accepted accounting principles.
A system of internal control over financial reporting
(1) pertains to the maintenance of records that, in
reasonable detail, should accurately and fairly reflect the
Companys transactions and dispositions of the
Companys assets; (2) provides reasonable assurance
that transactions are recorded as necessary to permit
preparation of the consolidated financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of the Company are being made
only in accordance with authorizations of the Companys
management and directors; and (3) provides reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
Companys assets that could have a material effect on the
consolidated financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In connection with the preparation of the Companys annual
consolidated financial statements, management undertook an
assessment of the effectiveness of the Companys internal
control over financial reporting as of December 31, 2009,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO Framework).
Managements assessment included an evaluation of the
design of the Companys internal control over financial
reporting and testing of the operational effectiveness of key
financial reporting controls. Management has concluded that, as
of December 31, 2009, our internal control over financial
reporting was effective based on these criteria.
Our independent registered public accounting firm,
Ernst & Young LLP, that audited the financial
statements in this report has issued an attestation report
expressing an opinion on the effectiveness of internal control
over financial reporting at December 31, 2009, which
appears at the end of this Item 9A.
Changes in Internal Control over Financial Reporting
None.
127
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and Board of Directors
Sunrise Senior Living, Inc.
We have audited Sunrise Senior Living, Inc.s internal
control over financial reporting as of December 31, 2009,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria).
Sunrise Senior Living, Inc.s management is responsible for
maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control
over financial reporting included in the accompanying
Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Sunrise Senior Living, Inc. maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2009 based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Sunrise Senior Living, Inc. as of
December 31, 2009 and 2008, and the related consolidated
statements of operations, changes in stockholders equity,
and cash flows for each of the three years in the period ended
December 31, 2009 of Sunrise Senior Living, Inc. and our
report dated February 24, 2010 expressed an unqualified
opinion thereon that included an explanatory paragraph regarding
Sunrise Senior Living, Inc.s ability to continue as a
going concern.
McLean, Virginia
February 24, 2010
128
|
|
Item 9B.
|
Other
Information.
|
None.
129
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by this item is included under the
captions Election of Directors Biographical
and Other Information, Executive Officers,
Corporate Governance Overview,
Revised Code of Conduct and Integrity
and Audit Committee, and
Section 16(a) Beneficial Ownership Reporting
Compliance in our 2010 Annual Meeting Proxy Statement,
which we intend to file within 120 days after our fiscal
year end, and is incorporated by reference herein.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this item is included under the
captions Corporate Governance
2009 Director Compensation, Compensation
Discussion and Analysis, Report of Compensation
Committee, Summary Compensation Table,
Grants of Plan-Based Awards in Fiscal Year 2009,
Narrative to Summary Compensation Table and Grants of
Plan-Based Awards Table, Outstanding Equity Awards
at Fiscal Year-End 2009, Option Exercises and Stock
Vested in Fiscal Year 2009, Nonqualified Deferred
Compensation for Fiscal Year 2009, Potential
Payments Upon Termination and Change of Control to
Messrs. Ordan and Neeb and Ms. Pangelinan,
Payments Made to Mr. Nadeau Upon Termination of
Employment, Payments to be Made to Mr. Schwartz
Upon Termination of Employment, Payments Made to
Mr. Gaul Upon Termination of Employment,
Narrative Disclosure of the Companys Compensation
Policies and Practices as They Relate to the Companys Risk
Management, and Compensation Committee Interlocks
and Insider Participation in our 2010 Annual Meeting Proxy
Statement, which we intend to file within 120 days after
our fiscal year end, and is incorporated by reference herein.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters
|
The information required by this item is included under the
captions Stock Owned by Management, Principal
Holders of Voting Securities and Equity Compensation
Plan Information in our 2010 Annual Meeting Proxy
Statement, which we intend to file within 120 days after
our fiscal year end, and is incorporated by reference herein.
|
|
Item 13.
|
Certain
Relationships and Related Transactions and Director
Independence
|
The information required by this item is included under the
captions Certain Transactions and Corporate
Governance Director Independence in our 2010
Annual Meeting Proxy Statement, which we intend to file within
120 days after our fiscal year end, and is incorporated by
reference herein.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
The information required by this item is included under the
captions Ratification of Appointment of Independent
Registered Public Accounting Firm Independent
Registered Public Accountants Fees and
Pre-Approval of Audit and Non-Audit Fees
in our 2010 Annual Meeting Proxy Statement, which we intend to
file within 120 days after our fiscal year end, and is
incorporated by reference herein.
130
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
|
|
|
|
a.
|
(1) All financial statements
|
Consolidated financial statements filed as part of this report
are listed under Part II, Item 8 of this
Form 10-K.
|
|
|
|
(2)
|
Financial statement schedules
|
No schedules are required because either the required
information is not present or is not present in amounts
sufficient to require submission of the schedule, or because the
information is included in the consolidated financial statements
or the notes thereto.
b. Exhibits
The exhibits listed in the accompanying index are filed as part
of this report.
131
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,
thereunto duly authorized, on this
25th
day of February 2010.
SUNRISE SENIOR LIVING, INC.
Mark S. Ordan, Director 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 in the capacities and on the date
indicated above.
|
|
|
|
|
|
|
PRINCIPAL EXECUTIVE OFFICER
|
|
PRINCIPAL FINANCIAL OFFICER
|
|
|
|
|
|
|
|
By:
|
|
/s/ Mark S. Ordan
|
|
By:
|
|
/s/ Julie A. Pangelinan
|
|
|
Mark S. Ordan, Director and
|
|
|
|
Julie A. Pangelinan, Chief Financial Officer
|
|
|
Chief Executive Officer
|
|
|
|
|
|
PRINCIPAL ACCOUNTING OFFICER
|
|
|
|
|
|
|
|
By:
|
|
/s/ C. Marc Richards
|
|
|
|
|
|
|
C. Marc Richards
|
|
|
|
|
|
|
Chief Accounting Officer
|
|
|
|
|
|
DIRECTORS
|
|
|
|
|
|
|
|
By:
|
|
/s/ Paul J. Klaassen
|
|
|
|
|
|
|
Paul J. Klaassen, Chair of the Board
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Glyn F. Aeppel
|
|
|
|
|
|
|
Glyn F. Aeppel, Director
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Thomas J. Donohue
|
|
|
|
|
|
|
Thomas J. Donohue, Director
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ David I. Fuente
|
|
|
|
|
David I. Fuente, Director
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Stephen D. Harlan
|
|
|
|
|
|
|
Stephen D. Harlan, Director
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ J. Douglas Holladay
|
|
|
|
|
J. Douglas Holladay, Director
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Lynn Krominga
|
|
|
|
|
Lynn Krominga, Director
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ William G. Little
|
|
|
|
|
William G. Little, Director
|
|
|
|
|
132
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCORPORATED BY REFERENCE
|
Exhibit
|
|
|
|
|
|
|
|
Exhibit
|
Number
|
|
Description
|
|
Form
|
|
Filing Date with SEC
|
|
Number
|
|
|
2
|
.1
|
|
Stock Purchase Agreement dated as of December 30, 2002 by
and among Marriott International, Inc., Marriott Senior Holding
Co., Marriott Magenta Holding Company, Inc. and Sunrise Assisted
Living, Inc.
|
|
10-K
|
|
March 27, 2003
|
|
|
2
|
.3
|
|
2
|
.2
|
|
Amendment No. 1 to Stock Purchase Agreement, dated as of
March 28, 2003, by and among Marriott International, Inc.,
Marriott Senior Holding Co., Marriott Magenta Holding Company,
Inc. and Sunrise Assisted Living, Inc.
|
|
8-K
|
|
April 9, 2003
|
|
|
2
|
.2
|
|
2
|
.3
|
|
Master Agreement (CNL Q3 2003 Transaction) dated as of the
30th day of September, 2003 by and
among (i) Sunrise Development, Inc., (ii) Sunrise
Senior Living Management, Inc., (iii) Twenty Pack
Management Corp., Sunrise Madison Senior Living, L.L.C. and
Sunrise Development, Inc. (collectively, as the Tenant),
(iv) CNL Retirement Sun1 Cresskill NJ, LP, CNL Retirement
Edmonds WA, LP, CNL Retirement Sun1 Lilburn GA, LP and CNL
Retirement Sun1 Madison NJ LP, and (v) Sunrise Senior
Living, Inc.
|
|
8-K
|
|
October 15, 2003
|
|
|
2
|
.4
|
|
2
|
.4
|
|
Securities Purchase Agreement by and among Sunrise Senior
Living, Inc., Greystone Partners, Ltd., Concorde Senior Living,
LLC, Mahalo Limited, Westport Advisors, Ltd., Greystone
Development Company, LLC, Michael B. Lanahan, Paul F. Steinhoff,
Jr., Mark P. Andrews and John C. Spooner, dated as of
May 2, 2005.
|
|
10-Q
|
|
August 9, 2005
|
|
|
2
|
.1
|
|
2
|
.5
|
|
Asset Purchase Agreement by and among Sunrise Senior Living
Investments, Inc., Fountains Continuum of Care Inc. and various
of its subsidiaries and affiliates, and George B. Kaiser, dated
as of January 19, 2005.
|
|
10-Q
|
|
May 10, 2005
|
|
|
10
|
.1
|
|
2
|
.6
|
|
Facilities Purchase and Sale Agreement by and among Sunrise
Senior Living Investments, Inc., and Fountains Charitable Income
Trust and various of its subsidiaries and affiliates, dated as
of January 19, 2005.
|
|
10-Q
|
|
May 10, 2005
|
|
|
10
|
.2
|
|
2
|
.7
|
|
Purchaser Replacement and Release Agreement by and among Sunrise
Senior Living, Inc. and various of its subsidiaries and
affiliates and Fountains Charitable Income Trust and various of
its subsidiaries and affiliates, dated as of February 18,
2005.
|
|
10-Q
|
|
May 10, 2005
|
|
|
10
|
.3
|
|
2
|
.8
|
|
Agreement and Plan of Merger, dated as of August 2, 2006,
by and among Sunrise Senior Living, Inc., a newly-formed
indirect wholly owned subsidiary of Sunrise and Trinity Hospice,
Inc., American Capital Strategies, Ltd. and certain affiliates
of KRG Capital Partners, LLC, as the principal stockholders of
Trinity Hospice, Inc.
|
|
10-K
|
|
March 24, 2008
|
|
|
2
|
.8
|
|
2
|
.9
|
|
Purchase and Sale Agreement, dated as of October 7, 2009,
by and among various subsidiaries of Sunrise Senior Living, Inc.
and BLC Acquisitions, Inc.
|
|
10-Q
|
|
November 9, 2009
|
|
|
2
|
.1
|
|
2
|
.10
|
|
First Amendment to Purchase and Sale Agreement, dated as of
October 7, 2009, by and among various subsidiaries of
Sunrise Senior Living, Inc. and BLC Acquisitions, Inc.
|
|
10-Q
|
|
November 9, 2009
|
|
|
2
|
.2
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCORPORATED BY REFERENCE
|
Exhibit
|
|
|
|
|
|
|
|
Exhibit
|
Number
|
|
Description
|
|
Form
|
|
Filing Date with SEC
|
|
Number
|
|
|
2
|
.11
|
|
Second Amendment to Purchase and Sale Agreement, dated as of
October 7, 2009, by and among various subsidiaries of
Sunrise Senior Living, Inc. and BLC Acquisitions, Inc.
|
|
10-Q
|
|
November 9, 2009
|
|
|
2
|
.3
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of Sunrise,
effective as of November 14, 2008.
|
|
Def 14A
|
|
October 20, 2008
|
|
|
A
|
|
|
3
|
.2
|
|
Amended and Restated Bylaws of Sunrise, effective as of
November 14, 2008.
|
|
8-K
|
|
November 19, 2008
|
|
|
3
|
.1
|
|
4
|
.1
|
|
Form of Common Stock Certificate.
|
|
10-K
|
|
March 24, 2008
|
|
|
4
|
.1
|
|
4
|
.2
|
|
Rights Agreement between Sunrise Senior Living, Inc. and
American Stock Transfer & Trust Company, as
rights agent, dated April 24, 2006.
|
|
8-K
|
|
April 21, 2006
|
|
|
4
|
.1
|
|
4
|
.3
|
|
First Amendment to the Rights Agreement, dated as of
November 19, 2008, between Sunrise Senior Living, Inc. and
American Stock Transfer & Trust Company, as
rights agent.
|
|
8-K
|
|
November 19, 2008
|
|
|
4
|
.1
|
|
4
|
.4
|
|
Second Amendment to the Rights Agreement, dated as of
January 27, 2010, between Sunrise Senior Living, Inc. and
American Stock Transfer & Trust Company, as
rights agent.
|
|
8-K
|
|
January 27, 2010
|
|
|
4
|
.1
|
|
10
|
.1
|
|
1995 Stock Option Plan, as amended.+
|
|
10-K
|
|
March 31, 1998
|
|
|
10
|
.20
|
|
10
|
.2
|
|
1996 Directors Stock Option Plan, as amended.+
|
|
10-K
|
|
March 31, 1999
|
|
|
10
|
.36
|
|
10
|
.3
|
|
1996 Non-Incentive Stock Option Plan, as amended.+
|
|
10-Q
|
|
May 15, 2000
|
|
|
10
|
.8
|
|
10
|
.4
|
|
1997 Stock Option Plan, as amended.+
|
|
10-K
|
|
March 31, 1998
|
|
|
10
|
.25
|
|
10
|
.5
|
|
1998 Stock Option Plan.+
|
|
10-K
|
|
March 31, 1999
|
|
|
10
|
.41
|
|
10
|
.6
|
|
1999 Stock Option Plan.+
|
|
10-Q
|
|
May 13, 1999
|
|
|
10
|
.1
|
|
10
|
.7
|
|
2000 Stock Option Plan.+
|
|
10-K
|
|
March 12, 2004
|
|
|
10
|
.4
|
|
10
|
.8
|
|
2001 Stock Option Plan.+
|
|
10-Q
|
|
August 14, 2001
|
|
|
10
|
.15
|
|
10
|
.9
|
|
2002 Stock Option and Restricted Stock Plan.+
|
|
10-Q
|
|
August 14, 2002
|
|
|
10
|
.1
|
|
10
|
.10
|
|
2003 Stock Option and Restricted Stock Plan.+
|
|
10-Q
|
|
August 13, 2002
|
|
|
10
|
.1
|
|
10
|
.11
|
|
Forms of equity plan amendment adopted on March 19, 2008
regarding determination of option exercise price. +
|
|
10-K
|
|
July 31, 2008
|
|
|
10
|
.11
|
|
10
|
.12
|
|
2008 Omnibus Incentive Plan.+
|
|
Def 14A
|
|
October 20, 2008
|
|
|
B
|
|
|
10
|
.13
|
|
Form of Executive Restricted Stock Agreement.+
|
|
10-Q
|
|
May 10, 2005
|
|
|
10
|
.4
|
|
10
|
.14
|
|
Form of Restricted Stock Unit Agreement.+
|
|
8-K
|
|
March 14, 2006
|
|
|
10
|
.1
|
|
10
|
.15
|
|
Form of Director Stock Option Agreement.+
|
|
8-K
|
|
September 14, 2005
|
|
|
10
|
.2
|
|
10
|
.16
|
|
Form of Stock Option Certificate.+
|
|
10-K
|
|
March 24, 2008
|
|
|
10
|
.14
|
|
10
|
.17
|
|
Form of Non-Qualified Stock Option Agreement.+*
|
|
10-K
|
|
March 2, 2009
|
|
|
10
|
.17
|
|
10
|
.18
|
|
Form of Incentive Stock Option Agreement.+*
|
|
10-K
|
|
March 2, 2009
|
|
|
10
|
.18
|
|
10
|
.19
|
|
Form of Restricted Stock Agreement.+*
|
|
10-K
|
|
March 2, 2009
|
|
|
10
|
.19
|
|
10
|
.20
|
|
Restricted Stock Agreement by and between Sunrise Senior Living,
Inc. and Michael B. Lanahan, dated as of May 10, 2005.+
|
|
10-Q
|
|
August 9, 2005
|
|
|
10
|
.2
|
|
10
|
.21
|
|
Form of Sunrise Assisted Living Holdings, L.P. Class A
Limited Partner Unit Agreement.+
|
|
10-K
|
|
March 29, 2002
|
|
|
10
|
.89
|
|
10
|
.22
|
|
Sunrise Employee Stock Purchase Plan, as amended.+
|
|
Def 14A
|
|
April 7, 2005
|
|
|
B
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCORPORATED BY REFERENCE
|
Exhibit
|
|
|
|
|
|
|
|
Exhibit
|
Number
|
|
Description
|
|
Form
|
|
Filing Date with SEC
|
|
Number
|
|
|
10
|
.23
|
|
Sunrise Executive Deferred Compensation Plan, effective
January 1, 2009.+
|
|
10-K/A
|
|
March 31, 2009
|
|
|
10
|
.23
|
|
10
|
.24
|
|
Greystone Communities Nonqualified Deferred Compensation Plan.+
|
|
10-K
|
|
July 31, 2008
|
|
|
10
|
.25
|
|
10
|
.25
|
|
Bonus Deferral Programs for Certain Executive Officers.+
|
|
8-K
|
|
March 14, 2006
|
|
|
10
|
.2
|
|
10
|
.26
|
|
Sunrise Assisted Living, Inc. Long Term Incentive Cash Bonus
Plan effective August 23, 2002.+
|
|
10-Q
|
|
November 13, 2002
|
|
|
10
|
.1
|
|
10
|
.27
|
|
Amendment 1 to the Sunrise Assisted Living, Inc. Long Term
Incentive Cash Bonus Plan.+
|
|
10-K
|
|
March 16, 2005
|
|
|
10
|
.32
|
|
10
|
.28
|
|
Amendment 2 to the Sunrise Assisted Living, Inc. Long Term
Incentive Cash Bonus Plan.+
|
|
10-K/A
|
|
March 31, 2009
|
|
|
10
|
.28
|
|
10
|
.29
|
|
Sunrise Senior Living, Inc. Senior Executive Severance Plan.+
|
|
10-K
|
|
March 16, 2006
|
|
|
10
|
.53
|
|
10
|
.30
|
|
Amendment to Sunrise Senior Living, Inc. Senior Executive
Severance Plan.+
|
|
10-K/A
|
|
March 31, 2009
|
|
|
10
|
.30
|
|
10
|
.31
|
|
Form of Indemnification Agreement.+
|
|
10-K
|
|
March 16, 2006
|
|
|
10
|
.54
|
|
10
|
.32
|
|
Amended and Restated Employment Agreement dated as of
November 13, 2003 by and between Sunrise and Paul J.
Klaassen.+
|
|
10-K
|
|
March 12, 2004
|
|
|
10
|
.1
|
|
10
|
.33
|
|
Amendment No. 1 to Amended and Restated Employment
Agreement by and between Sunrise and Paul J. Klaassen.+
|
|
10-K
|
|
March 24, 2008
|
|
|
10
|
.30
|
|
10
|
.34
|
|
Letter dated March 16, 2008 regarding surrender of bonus
compensation.
|
|
10-K
|
|
March 24, 2008
|
|
|
10
|
.65
|
|
10
|
.35
|
|
Consulting Arrangement with Paul J. Klaassen. +
|
|
10-Q
|
|
November 9, 2009
|
|
|
10
|
.29
|
|
10
|
.36
|
|
Employment Agreement by and between Sunrise Senior Living, Inc.
and Michael B. Lanahan, dated as of May 10, 2005.+
|
|
10-Q
|
|
August 9, 2005
|
|
|
10
|
.1
|
|
10
|
.37
|
|
Employment Agreement between the Corporation and Mark S. Ordan,
dated November 13, 2008.+
|
|
8-K
|
|
November 19, 2008
|
|
|
10
|
.1
|
|
10
|
.38
|
|
Letter Agreement between the Corporation and Julie Pangelinan,
dated November 17, 2008.+
|
|
8-K
|
|
November 19, 2008
|
|
|
10
|
.2
|
|
10
|
.39
|
|
Separation Agreement and General Release between the Company and
John F. Gaul, dated December 9, 2008.+
|
|
8-K
|
|
December 15, 2008
|
|
|
10
|
.1
|
|
10
|
.40
|
|
Employment Agreement between Sunrise Senior Living, Inc. and
Julie A. Pangelinan, dated January 14, 2009.+
|
|
8-K
|
|
January 21, 2009
|
|
|
10
|
.2
|
|
10
|
.41
|
|
Employment Agreement between Sunrise Senior Living, Inc. and
Daniel J. Schwartz, dated January 16, 2009.+
|
|
8-K
|
|
January 21, 2009
|
|
|
10
|
.3
|
|
10
|
.42
|
|
Employment Agreement between Sunrise Senior Living, Inc. and
Greg Neeb, dated January 21, 2009.+
|
|
8-K
|
|
January 21, 2009
|
|
|
10
|
.4
|
|
10
|
.43
|
|
Employment Agreement between Sunrise Senior Living, Inc. and
Richard J. Nadeau, dated February 25, 2009.+
|
|
8-K
|
|
February 26, 2009
|
|
|
10
|
.1
|
|
10
|
.44
|
|
Separation Agreement between the Company and Richard J. Nadeau,
dated May 29, 2009. +
|
|
8-K
|
|
June 4, 2009
|
|
|
10
|
.1
|
|
10
|
.45
|
|
2008 Non-Employee Director Fees and Other Compensation.+
|
|
10-K
|
|
March 2, 2009
|
|
|
10
|
.45
|
|
10
|
.46
|
|
2009 Annual Bonus Performance Metrics Applicable to Executive
Officers.+
|
|
10-Q
|
|
November 9, 2009
|
|
|
10
|
.28
|
|
10
|
.47
|
|
2009 Special Bonus Payments to Executive Officers. +
|
|
10-Q
|
|
November 9, 2009
|
|
|
10
|
.30
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCORPORATED BY REFERENCE
|
Exhibit
|
|
|
|
|
|
|
|
Exhibit
|
Number
|
|
Description
|
|
Form
|
|
Filing Date with SEC
|
|
Number
|
|
|
10
|
.48
|
|
2009 Partial Bonus Payments to Executive Officers. +
|
|
10-Q
|
|
November 9, 2009
|
|
|
10
|
.31
|
|
10
|
.49
|
|
2009 Director Fees. +
|
|
10-Q
|
|
November 9, 2009
|
|
|
10
|
.32
|
|
10
|
.50
|
|
Credit Agreement by and among Sunrise Senior Living, Inc. and
certain subsidiaries, as the Borrowers, the subsidiaries of the
Borrower as identified therein, as the Guarantors, Bank of
America, N.A., as the Administrative Agent, Swing Line Lender
and L/C Issuer, Wachovia Bank, National Association, as
Syndication Agent, and other lender parties thereto, dated as of
December 2, 2005.
|
|
8-K
|
|
December 8, 2005
|
|
|
10
|
.1
|
|
10
|
.51
|
|
Pledge, Assignment and Security Agreement between Sunrise Senior
Living, Inc. and Bank of America, N.A., as Administrative Agent,
dated as of December 2, 2005.
|
|
10-K
|
|
March 24, 2008
|
|
|
10
|
.41
|
|
10
|
.52
|
|
First Amendment to Credit Agreement by and among Sunrise Senior
Living, Inc. and certain subsidiaries, as the Borrowers, the
subsidiaries of the Borrower as identified therein, as the
Guarantors, Bank of America, N.A., as the Administrative Agent,
Swing Line Lender and L/C Issuer, and other lender parties
thereto, dated as of March 6, 2006.
|
|
10-K
|
|
March 24, 2008
|
|
|
10
|
.42
|
|
10
|
.53
|
|
Second Amendment to the Credit Agreement by and among Sunrise
Senior Living, Inc. and certain subsidiaries, as the Borrowers,
the subsidiaries of the Borrower as identified therein, as the
Guarantors, Bank of America, N.A., as the Administrative Agent,
Swing Line Lender and L/C Issuer, and other lender parties
thereto, dated as of January 31, 2007.
|
|
10-K
|
|
March 24, 2008
|
|
|
10
|
.43
|
|
10
|
.54
|
|
Third Amendment to Credit Agreement by and among Sunrise Senior
Living, Inc. and certain subsidiaries, as the Borrowers, the
subsidiaries of the Borrower as identified therein, as the
Guarantors, Bank of America, N.A., as the Administrative Agent,
Swing Line Lender and L/C Issuer, and other lender parties
thereto, dated as of June 27, 2007.
|
|
10-K
|
|
March 24, 2008
|
|
|
10
|
.44
|
|
10
|
.55
|
|
Fourth Amendment to Credit Agreement by and among Sunrise Senior
Living, Inc. and certain subsidiaries, as the Borrowers, the
subsidiaries of the Borrower as identified therein, as the
Guarantors, Bank of America, N.A., as the Administrative Agent,
Swing Line Lender and L/C Issuer, and other lender parties
thereto, dated as of September 17, 2007.
|
|
10-K
|
|
March 24, 2008
|
|
|
10
|
.45
|
|
10
|
.56
|
|
Fifth Amendment to Credit Agreement by and among Sunrise Senior
Living, Inc. and certain subsidiaries, as the Borrowers, the
subsidiaries of the Borrower as identified therein, as the
Guarantors, Bank of America, N.A., as the Administrative Agent,
Swing Line Lender and L/C Issuer, and other lender parties
thereto, dated as of January 31, 2008.
|
|
10-K
|
|
March 24, 2008
|
|
|
10
|
.46
|
|
10
|
.57
|
|
Sixth Amendment to Credit Agreement by and among Sunrise Senior
Living, Inc. and certain subsidiaries, as the Borrowers, the
subsidiaries of the Borrower as identified therein, as the
Guarantors, Bank of America, N.A., as the Administrative Agent,
Swing Line Lender and L/C Issuer, and other lender parties
thereto, dated as of February 19, 2008.
|
|
10-K
|
|
March 24, 2008
|
|
|
10
|
.47
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCORPORATED BY REFERENCE
|
Exhibit
|
|
|
|
|
|
|
|
Exhibit
|
Number
|
|
Description
|
|
Form
|
|
Filing Date with SEC
|
|
Number
|
|
|
10
|
.58
|
|
Pledge, Assignment and Security Agreement between Sunrise Senior
Living, Inc. and Bank of America, N.A., as Administrative Agent,
dated as of February 19, 2008.
|
|
10-K
|
|
March 24, 2008
|
|
|
10
|
.48
|
|
10
|
.59
|
|
Seventh Amendment to Credit Agreement by and among Sunrise
Senior Living, Inc. and certain subsidiaries, as the Borrowers,
the subsidiaries of the Borrower as identified therein, as the
Guarantors, Bank of America, N.A., as the Administrative Agent,
Swing Line Lender and L/C Issuer, and other lender parties
thereto, dated as of March 13, 2008.
|
|
10-K
|
|
March 24, 2008
|
|
|
10
|
.49
|
|
10
|
.60
|
|
Security Agreement by and among Sunrise Senior Living, Inc. and
certain subsidiaries, as the Loan Parties, and Bank of America,
N.A., as the Administrative Agent, Swing Line Lender and L/C
Issuer, and other lender parties thereto, dated as of
March 13, 2008.
|
|
10-K
|
|
March 24, 2008
|
|
|
10
|
.50
|
|
10
|
.61
|
|
Eighth Amendment to Credit Agreement by and among Sunrise Senior
Living, Inc. and certain subsidiaries, as the Borrowers, the
subsidiaries of the Borrower as identified therein, as the
Guarantors, Bank of America, N.A., as the Administrative Agent,
Swing Line Lender and L/C Issuer, and other lender parties
thereto, dated as of July 23, 2008.
|
|
10-K
|
|
July 31, 2008
|
|
|
10
|
.48
|
|
10
|
.62
|
|
Ninth Amendment to Credit Agreement by and among Sunrise Senior
Living, Inc. and certain subsidiaries, as the Borrowers, the
subsidiaries of the Borrower as identified therein, as the
Guarantors, Bank of America, N.A., as the Administrative Agent,
Swing Line Lender and L/C Issuer, and other lender parties
thereto, dated as of November 6, 2008.
|
|
10-Q
|
|
November 7, 2008
|
|
|
10
|
.2
|
|
10
|
.63
|
|
Tenth Amendment to Credit Agreement by and among Sunrise Senior
Living, Inc. and certain subsidiaries, as the Borrowers, the
subsidiaries of the Borrower as identified therein, as the
Guarantors, Bank of America, N.A., as the Administrative Agent,
Swing Line Lender and L/C Issuer, and other lender parties
thereto, dated as of January 20, 2008.
|
|
8-K
|
|
January 21, 2009
|
|
|
10
|
.1
|
|
10
|
.64
|
|
Eleventh Amendment to Credit Agreement by and among Sunrise
Senior Living, Inc. and certain subsidiaries, as the Borrowers,
the subsidiaries of the Borrower as identified therein, as the
Guarantors, Bank of America, N.A., as the Administrative Agent,
Swing Line Lender and L/C Issuer, and other lender parties
thereto, dated as of January 20, 2008.
|
|
8-K
|
|
March 23, 2009
|
|
|
10
|
.1
|
|
10
|
.65
|
|
Twelfth Amendment to the Credit Agreement, dated April 28,
2009, by and among Sunrise Senior Living, Inc., certain
subsidiaries of Sunrise Senior Living, Inc. party thereto, the
lenders from time to time party thereto and Bank of America, N.A.
|
|
8-K
|
|
April 28, 2009
|
|
|
10
|
.1
|
|
10
|
.66
|
|
Thirteenth Amendment to the Credit Agreement, dated
October 19, 2009, by and among Sunrise Senior Living, Inc.,
certain subsidiaries of Sunrise Senior Living, Inc. party
thereto, the lenders from time to time party thereto and Bank of
America, N.A.
|
|
8-K
|
|
October 20, 2009
|
|
|
10
|
.1
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCORPORATED BY REFERENCE
|
Exhibit
|
|
|
|
|
|
|
|
Exhibit
|
Number
|
|
Description
|
|
Form
|
|
Filing Date with SEC
|
|
Number
|
|
|
10
|
.67
|
|
Assumption and Reimbursement Agreement made effective as of
March 28, 2003, by and among Marriott International, Inc.,
Sunrise Assisted Living, Inc., Marriott Senior Living Services,
Inc. and Marriott Continuing Care, LLC.
|
|
10-Q
|
|
May 15, 2003
|
|
|
10
|
.4
|
|
10
|
.68
|
|
Assumption and Reimbursement Agreement (CNL) made effective as
of March 28, 2003, by and among Marriott International,
Inc., Marriott Continuing Care, LLC, CNL Retirement Properties,
Inc., CNL Retirement MA3 Pennsylvania, LP, and CNL Retirement
MA3 Virginia, LP.
|
|
10-Q
|
|
May 15, 2003
|
|
|
10
|
.5
|
|
10
|
.69
|
|
Amended and Restated Ground Lease, dated August 29, 2003,
by and between Sunrise Fairfax Assisted Living, L.L.C. and Paul
J. Klaassen and Teresa M. Klaassen.
|
|
10-K
|
|
March 24, 2008
|
|
|
10
|
.62
|
|
10
|
.70
|
|
Multifamily Mortgage, Assignment of Rents and Security Agreement.
|
|
8-K
|
|
May 12, 2008
|
|
|
10
|
.1
|
|
10
|
.71
|
|
Discount MBS Multifamily Note.
|
|
8-K
|
|
May 12, 2008
|
|
|
10
|
.1
|
|
10
|
.72
|
|
Pre-Negotiation and Standstill Agreement dated December 24,
2008, by and among Sunrise Senior Living, Inc., Sunrise Hannover
Senior Living GmbH & Co. KG, Sunrise Hannover GmbH and
Natixis, London Branch.
|
|
8-K
|
|
December 24, 2008
|
|
|
10
|
.1
|
|
10
|
.73
|
|
Standstill Agreement, dated December 23, 2008, by and among
Sunrise Senior Living, Inc., Sunrise Hannover Senior Living
GmbH & Co. KG, Sunrise Hannover GmbH and Natixis,
London Branch.
|
|
8-K
|
|
December 24, 2008
|
|
|
10
|
.2
|
|
10
|
.74
|
|
Pre-Negotiation and Standstill Agreement, dated
February 19, 2009, by and among Sunrise Senior Living,
Inc., Sunrise München-Thalkirchen Senior Living
GmbH & Co. KG, Sunrise München- Thalkirchen GmbH
and Natixis, London Branch.
|
|
8-K
|
|
February 20, 2009
|
|
|
10
|
.1
|
|
10
|
.75
|
|
Standstill Agreement, dated February 19, 2009, by and among
Sunrise Senior Living, Inc., Sunrise München-Thalkirchen
Senior Living GmbH & Co. KG, Sunrise
München-Thalkirchen GmbH and Natixis, London Branch.
|
|
8-K
|
|
February 20, 2009
|
|
|
10
|
.2
|
|
10
|
.76
|
|
Letter Agreement, dated March 5, 2009, by and among Sunrise
Senior Living, Inc., Sunrise Senior Living Development, Inc.,
Sunrise Senior Living Investments, Inc., and Greystone
Partners II LP.
|
|
8-K
|
|
March 11, 2009
|
|
|
10
|
.1
|
|
10
|
.77
|
|
First Amendment to Amended and Restated Pre-Negotiation and
Standstill Agreement, dated March 31, 2009, by and among
Sunrise Senior Living, Inc., Sunrise Hannover Senior Living
GmbH & Co. KG, Sunrise Hannover GmbH and Natixis,
London Branch.
|
|
8-K
|
|
April 6, 2009
|
|
|
10
|
.1
|
|
10
|
.78
|
|
Second German Standstill Agreement Hannover I, dated
March 31, 2009, by and among Sunrise Senior Living, Inc.,
Sunrise Hannover Senior Living GmbH & Co. KG, Sunrise
Hannover GmbH and Natixis, London Branch.
|
|
8-K
|
|
April 6, 2009
|
|
|
10
|
.2
|
|
10
|
.79
|
|
First Amendment to Pre-Negotiation and Standstill Agreement,
dated March 31, 2009, by and among Sunrise Senior Living,
Inc., Sunrise München-Thalkirchen Senior Living
GmbH & Co. KG, Sunrise München-Thalkirchen GmbH
and Natixis, London Branch.
|
|
8-K
|
|
April 6, 2009
|
|
|
10
|
.3
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCORPORATED BY REFERENCE
|
Exhibit
|
|
|
|
|
|
|
|
Exhibit
|
Number
|
|
Description
|
|
Form
|
|
Filing Date with SEC
|
|
Number
|
|
|
10
|
.80
|
|
Second German Standstill Agreement, dated March 31, 2009,
by and among Sunrise Senior Living, Inc., Sunrise
München-Thalkirchen Senior Living GmbH & Co. KG,
Sunrise München-Thalkirchen GmbH and Natixis, London Branch.
|
|
8-K
|
|
April 6, 2009
|
|
|
10
|
.4
|
|
10
|
.81
|
|
Restructure Term Sheet, dated October 22, 2009, by and
among Sunrise Senior Living, Inc. and the creditors party
thereto.
|
|
8-K
|
|
October 28, 2009
|
|
|
10
|
.1
|
|
10
|
.82
|
|
Settlement Agreement, dated as of October 26, 2009, by and
among Sunrise Senior Living Investments, Inc., Senior Living
Management, Inc., Sunrise Senior Living, Inc., US Senior Living
Investments, LLC and Sunrise IV Senior Living Holdings, LLC.
|
|
8-K
|
|
October 28, 2009
|
|
|
10
|
.2
|
|
10
|
.83
|
|
Settlement Agreement, dated as of October 26, 2009, by and
among Sunrise Senior Living Investments, Inc., Sunrise Senior
Living, Inc., Fountains Senior Living Holdings, LLC, Sunrise
Senior Living Management, Inc., US Senior Living Investments,
LLC, HSH Nordbank AG, New York Branch.
|
|
8-K
|
|
October 28, 2009
|
|
|
10
|
.2
|
|
10
|
.84
|
|
Settlement Agreement, dated as of June 12, 2009, by and
among Sunrise Senior Living, Inc. and the former majority
stockholders of Trinity.
|
|
10-Q
|
|
November 9, 2009
|
|
|
10
|
.1
|
|
10
|
.85
|
|
Loan Agreement, dated as of September 28, 2007, by and
among Sunrise Pasadena CA Senior Living, LLC and Sunrise
Pleasanton CA Senior Living, LP, as borrowers, and Wells Fargo
Bank, National Association, as lender.
|
|
10-Q
|
|
November 9, 2009
|
|
|
10
|
.2
|
|
10
|
.86
|
|
Letter Agreement, dated October 1, 2009, by and among
Sunrise Pasadena CA Senior Living, LLC and Sunrise Pleasanton CA
Senior Living, L.P., as borrowers, Sunrise Senior Living, Inc.,
as guarantor, and Wells Fargo Bank, National Association, as
lender.
|
|
10-Q
|
|
November 9, 2009
|
|
|
10
|
.3
|
|
10
|
.87
|
|
Loan and Security Agreement (Loan A), dated as of
August 28, 2007, by and among Sunrise Connecticut Avenue
Assisted Living, L.L.C., as borrower, and Chevy Chase Bank,
F.S.B., as agent for the lenders party thereto.
|
|
10-Q
|
|
November 9, 2009
|
|
|
10
|
.4
|
|
10
|
.88
|
|
Guaranty of Payment (Loan A), dated as of August 28, 2007,
by and among Sunrise Senior Living, Inc. and Chevy Chase Bank,
F.S.B.
|
|
10-Q
|
|
November 9, 2009
|
|
|
10
|
.5
|
|
10
|
.89
|
|
Deed of Trust Note A, dated as of August 28,
2007, by Sunrise Connecticut Avenue Assisted Living, L.L.C., as
borrower, to MB Financial Bank, N.A.
|
|
10-Q
|
|
November 9, 2009
|
|
|
10
|
.6
|
|
10
|
.90
|
|
Deed of Trust Note A, dated as of August 28,
2007, by Sunrise Connecticut Avenue Assisted Living, L.L.C., as
borrower, to Chevy Chase Bank, F.S.B.
|
|
10-Q
|
|
November 9, 2009
|
|
|
10
|
.7
|
|
10
|
.91
|
|
Deed of Trust, Assignment, Security Agreement and Fixture Filing
(Loan A), dated as of August 28, 2007, by Sunrise
Connecticut Avenue Assisted Living, L.L.C., as grantor,
Alexandra Johns and Ellen-Elizabeth Lee, as trustees, and Chevy
Chase Bank, F.S.B., as agent.
|
|
10-Q
|
|
November 9, 2009
|
|
|
10
|
.8
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCORPORATED BY REFERENCE
|
Exhibit
|
|
|
|
|
|
|
|
Exhibit
|
Number
|
|
Description
|
|
Form
|
|
Filing Date with SEC
|
|
Number
|
|
|
10
|
.92
|
|
Loan and Security Agreement (Loan B), dated as of
August 28, 2007, by and among Sunrise Connecticut Avenue
Assisted Living, L.L.C., as borrower, and Chevy Chase Bank,
F.S.B., as lender.
|
|
10-Q
|
|
November 9, 2009
|
|
|
10
|
.9
|
|
10
|
.93
|
|
Guaranty of Payment (Loan B), dated as of August 28, 2007,
by and among Sunrise Senior Living, Inc. and Chevy Chase Bank,
F.S.B.
|
|
10-Q
|
|
November 9, 2009
|
|
|
10
|
.10
|
|
10
|
.94
|
|
Deed of Trust Note B, dated as of August 28,
2007, by Sunrise Connecticut Avenue Assisted Living, L.L.C., as
borrower, to Chevy Chase Bank, F.S.B.
|
|
10-Q
|
|
November 9, 2009
|
|
|
10
|
.11
|
|
10
|
.95
|
|
Deed of Trust, Assignment, Security Agreement and Fixture Filing
(Loan B), dated as of August 28, 2007, by Sunrise
Connecticut Avenue Assisted Living, L.L.C., as grantor,
Alexandra Johns and Ellen-Elizabeth Lee, as trustees, and Chevy
Chase Bank, F.S.B.
|
|
10-Q
|
|
November 9, 2009
|
|
|
10
|
.12
|
|
10
|
.96
|
|
First Amendment to Loan Agreement (Loan A), dated as of
April 15, 2008, by and among Sunrise Connecticut Avenue
Assisted Living, L.L.C., as borrower, and Chevy Chase Bank,
F.S.B., as agent to the lenders party thereto.
|
|
10-Q
|
|
November 9, 2009
|
|
|
10
|
.13
|
|
10
|
.97
|
|
First Amendment to Guaranty of Payment (Loan A), dated as of
September 2008, by and between Sunrise Senior Living, Inc. and
Chevy Chase Bank, F.S.B.
|
|
10-Q
|
|
November 9, 2009
|
|
|
10
|
.14
|
|
10
|
.98
|
|
First Amendment to Loan Agreement (Loan B), dated as of
April 15, 2008, by and among Sunrise Connecticut Avenue
Assisted Living, L.L.C., as borrower, and Chevy Chase Bank,
F.S.B. as lender.
|
|
10-Q
|
|
November 9, 2009
|
|
|
10
|
.15
|
|
10
|
.99
|
|
First Amendment to Guaranty of Payment (Loan B), dated as of
September 2008, by and between Sunrise Senior Living, Inc. and
Chevy Chase Bank, F.S.B.
|
|
10-Q
|
|
November 9, 2009
|
|
|
10
|
.16
|
|
10
|
.100
|
|
Second Amendment to Loan Agreement (Loan A), dated as of
August 28, 2009, by and among Sunrise Connecticut Avenue
Assisted Living, L.L.C., as borrower, and Chevy Chase Bank, a
division of Capital One, N.A., as agent for the lenders party
thereto.
|
|
10-Q
|
|
November 9, 2009
|
|
|
10
|
.17
|
|
10
|
.101
|
|
Second Amendment to Guaranty of Payment (Loan A), dated as of
August 28, 2009, by and between Sunrise Senior Living, Inc.
and Chevy Chase Bank, a division of Capital One, N.A.
|
|
10-Q
|
|
November 9, 2009
|
|
|
10
|
.18
|
|
10
|
.102
|
|
First Amendment to Deed of Trust Note A (Loan A),
dated as of August 28, 2009,by and between Sunrise
Connecticut Avenue Assisted Living, L.L.C., as borrower, and MB
Financial Bank, N.A., as lender.
|
|
10-Q
|
|
November 9, 2009
|
|
|
10
|
.19
|
|
10
|
.103
|
|
First Amendment to Deed of Trust Note A (Loan A),
dated as of August 28, 2009, by and between Sunrise
Connecticut Avenue Assisted Living, L.L.C., as borrower, and
Chevy Chase Bank, a division of Capital One, N.A., as lender.
|
|
10-Q
|
|
November 9, 2009
|
|
|
10
|
.20
|
|
10
|
.104
|
|
Second Amendment to Loan Agreement (Loan B), dated as of
August 28, 2009, by and among Sunrise Connecticut Avenue
Assisted Living, L.L.C., as borrower, and Chevy Chase Bank, a
division of Capital One, N.A., as lender.
|
|
10-Q
|
|
November 9, 2009
|
|
|
10
|
.21
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCORPORATED BY REFERENCE
|
Exhibit
|
|
|
|
|
|
|
|
Exhibit
|
Number
|
|
Description
|
|
Form
|
|
Filing Date with SEC
|
|
Number
|
|
|
10
|
.105
|
|
Second Amendment to Guaranty of Payment (Loan B), dated as of
August 28, 2009, by and between Sunrise Senior Living, Inc.
and Chevy Chase Bank, a division of Capital One, N.A.
|
|
10-Q
|
|
November 9, 2009
|
|
|
10
|
.22
|
|
10
|
.106
|
|
First Amendment to Deed of Trust Note A (Loan B),
dated as of August 28, 2009, by and between Sunrise
Connecticut Avenue Assisted Living, L.L.C., as borrower, and
Chevy Chase Bank, a division of Capital One, N.A., as lender.
|
|
10-Q
|
|
November 9, 2009
|
|
|
10
|
.23
|
|
10
|
.107
|
|
Letter Agreement, dated December 1, 2009, by and among
Sunrise Pasadena CA Senior Living, LLC and Sunrise Pleasanton CA
Senior Living, L.P., as borrowers, Sunrise Senior Living, Inc.,
as guarantor, and Wells Fargo Bank, National Association, as
lender.
|
|
8-K
|
|
December 7, 2009
|
|
|
10
|
.1
|
|
10
|
.108
|
|
Third Amendment to Loan Agreement and Settlement Agreement (Loan
A), effective as of December 2, 2009, by and among Sunrise
Connecticut Avenue Assisted Living, L.L.C., as borrower, and
Chevy Chase Bank, a division of Capital One, N.A., as agent for
the lenders party thereto.
|
|
8-K
|
|
December 24, 2009
|
|
|
10
|
.1
|
|
10
|
.109
|
|
Third Amendment to Guaranty of Payment (Loan A), effective as of
December 2, 2009, by and between Sunrise Senior Living,
Inc. and Chevy Chase Bank, a division of Capital One, N.A.
|
|
8-K
|
|
December 24, 2009
|
|
|
10
|
.2
|
|
10
|
.110
|
|
Second Amendment to Deed of Trust Note A (Loan A),
effective as of December 2, 2009, by and between Sunrise
Connecticut Avenue Assisted Living, L.L.C., as borrower, and MB
Financial Bank, N.A., as lender.
|
|
8-K
|
|
December 24, 2009
|
|
|
10
|
.3
|
|
10
|
.111
|
|
Second Amendment to Deed of Trust Note A (Loan A),
effective as of December 2, 2009, by and between Sunrise
Connecticut Avenue Assisted Living, L.L.C., as borrower, and
Chevy Chase Bank, a division of Capital One, N.A., as lender.
|
|
8-K
|
|
December 24, 2009
|
|
|
10
|
.4
|
|
10
|
.112
|
|
Third Amendment to Loan Agreement and Settlement Agreement (Loan
B), effective as of December 2, 2009, by and among Sunrise
Connecticut Avenue Assisted Living, L.L.C., as borrower, and
Chevy Chase Bank, a division of Capital One, N.A., as lender.
|
|
8-K
|
|
December 24, 2009
|
|
|
10
|
.5
|
|
10
|
.113
|
|
Third Amendment to Guaranty of Payment (Loan B), effective as of
December 2, 2009, by and between Sunrise Senior Living,
Inc. and Chevy Chase Bank, a division of Capital One, N.A.
|
|
8-K
|
|
December 24, 2009
|
|
|
10
|
.6
|
|
10
|
.114
|
|
Second Amendment to Deed of Trust Note B (Loan B),
effective as of December 2, 2009, by and between Sunrise
Connecticut Avenue Assisted Living, L.L.C., as borrower, and
Chevy Chase Bank, a division of Capital One, N.A., as lender.
|
|
8-K
|
|
December 24, 2009
|
|
|
10
|
.7
|
|
10
|
.115
|
|
Amendment to Employment Agreement between Sunrise Senior Living,
Inc. and Julie A. Pangelinan, dated July 9, 2009.+*
|
|
N/A
|
|
N/A
|
|
|
N/A
|
|
|
10
|
.116
|
|
Separation Agreement between Sunrise Senior Living, Inc. and
Daniel J. Schwartz, dated February 15, 2010.+*
|
|
N/A
|
|
N/A
|
|
|
N/A
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCORPORATED BY REFERENCE
|
Exhibit
|
|
|
|
|
|
|
|
Exhibit
|
Number
|
|
Description
|
|
Form
|
|
Filing Date with SEC
|
|
Number
|
|
|
21
|
|
|
Subsidiaries of the Registrant.*
|
|
N/A
|
|
N/A
|
|
|
N/A
|
|
|
23
|
.1
|
|
Consent of Ernst & Young LLP*
|
|
N/A
|
|
N/A
|
|
|
N/A
|
|
|
31
|
.1
|
|
Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.*
|
|
N/A
|
|
N/A
|
|
|
N/A
|
|
|
31
|
.2
|
|
Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.*
|
|
N/A
|
|
N/A
|
|
|
N/A
|
|
|
32
|
.1
|
|
Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.*
|
|
N/A
|
|
N/A
|
|
|
N/A
|
|
|
32
|
.2
|
|
Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.*
|
|
N/A
|
|
N/A
|
|
|
N/A
|
|
|
|
|
+ |
|
Represents management contract or compensatory plan or
arrangement. |
|
* |
|
Filed herewith. |
142