<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Period Ended March 31, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition Period From to
-------------
-------------
COMMISSION FILE NUMBER: 0-20765
SUNRISE ASSISTED LIVING, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 54-1746596
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
9401 LEE HIGHWAY, SUITE 300
FAIRFAX, VIRGINIA 22031
(Address of principal executive offices)
(703) 273-7500
(Registrant's telephone number, including area code)
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
periods that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--------- ---------
As of May 12, 1997, there were 18,670,397 shares of the Registrant's
Common Stock outstanding.
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<PAGE> 2
SUNRISE ASSISTED LIVING, INC.
FORM 10-Q
MARCH 31, 1997
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1997 and
December 31, 1996 3
Consolidated Statements of Operations for the three
months ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for the three
months ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 19
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
SUNRISE ASSISTED LIVING, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-----------------------------------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 80,664 $101,811
Accounts receivable, less allowance of $1,043
and $927 1,230 1,522
Marketable securities 5,058 8,322
Prepaid and other current assets 1,985 2,394
------------------- -------------------
Total current assets 88,937 114,049
Property and equipment, net 262,245 216,711
Investment 5,750 5,750
Restricted cash and cash equivalents 2,685 1,720
Other assets 6,420 4,609
------------------- -------------------
Total assets $366,037 $342,839
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 7,291 $ 8,331
Deferred revenue 2,240 2,988
Other current liabilities 905 103
Current maturities of long-term debt 926 772
------------------- -------------------
Total current liabilities 11,362 12,194
Notes payable to affiliated partnerships 191 1,421
Interests in unconsolidated partnerships 811 822
Long-term debt, less current maturities 166,418 142,351
------------------- -------------------
Total liabilities 178,782 156,788
Minority interests 227 227
Preferred stock, $0.01 par value, 10,000,000 shares
authorized, no shares issued and outstanding
Common stock, $0.01 par value, 60,000,000 shares
authorized, 18,664,607 and 18,529,869 shares issued
and outstanding in 1997 and 1996 187 185
Contributed capital 202,342 201,274
Accumulated deficit (15,501) (15,635)
------------------- -------------------
Total stockholders' equity 187,028 185,824
------------------- -------------------
Total liabilities and stockholders' equity $366,037 $342,839
=================== ===================
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived
from the audited financial statements at that date but does not
include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements.
See accompanying notes.
3
<PAGE> 4
SUNRISE ASSISTED LIVING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
1997 1996
------------------ -------------------
<S> <C> <C>
Operating revenue:
Resident fees $ 15,953 $ 9,096
Management services income 591 642
---------------- ----------------
16,544 9,738
Operating expenses:
Facility operating expenses 9,921 6,064
Facility development and pre-rental expenses 1,923 184
General and administrative 2,832 2,121
Depreciation and amortization 1,584 811
---------------- ----------------
16,260 9,180
Income from operations 284 558
Other income (expense):
Interest income 1,419 277
Interest expense (1,601) (2,624)
---------------- ----------------
Total other expense (182) (2,347)
Equity in earnings of
unconsolidated partnerships 32 29
Minority interests - 52
---------------- ----------------
Net income (loss) $ 134 $ (1,708)
================ ================
Net income per share data:
-------------------------
Net income per weighted average common share outstanding $ 0.01
================
Weighted average number of common shares outstanding 18,560,163
================
</TABLE>
See accompanying notes.
4
<PAGE> 5
SUNRISE ASSISTED LIVING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
1997 1996
-------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 134 $(1,708)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Equity in earnings of unconsolidated partnerships (32) (29)
Minority interests - (52)
Provision for bad debts 116 142
Accretion of interest on marketable securities (56) -
Depreciation and amortization 1,584 811
Amortization of financing costs and discount on long-term debt 128 114
Changes in operating assets and liabilities:
(Increase) decrease:
Accounts receivable 175 (232)
Prepaid and other current assets 409 (1,523)
Other assets (1,523) (103)
Increase (decrease):
Accounts payable and accrued expenses (1,040) 493
Deferred revenue 219 229
Other liabilities 79 (16)
---------------- ----------------
Net cash provided by (used in) operating activities 193 (1,874)
INVESTING ACTIVITIES:
Increase in restricted cash and cash equivalents (965) (479)
Acquisition of interests in facilities - (193)
Investment in property and equipment (43,536) (14,531)
Proceeds from maturities of marketable securities 3,320 -
Distribution from investment in unconsolidated partnerships - (19)
---------------- ----------------
Net cash used in investing activities (41,181) (15,222)
FINANCING ACTIVITIES:
Organization costs paid (320) (101)
Net proceeds from sale of Series B exchangeable preferred stock - 10,000
Net proceeds from exercised options 1,071 -
Distributions to partners - (390)
Net investment of minority interest - (10)
Additional borrowings under long-term debt 20,145 7,840
Repayment of long-term debt (245) (96)
Financing costs paid (302) (334)
Repayment of related party note payable (508) (19)
---------------- ----------------
Net cash provided by financing activities 19,841 16,890
---------------- ----------------
Net decrease in cash and cash equivalents (21,147) (206)
Cash and cash equivalents at beginning of period 101,811 6,252
---------------- ----------------
Cash and cash equivalents at end of period $ 80,664 $ 6,046
================ ================
</TABLE>
See accompanying notes.
5
<PAGE> 6
SUNRISE ASSISTED LIVING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements
have been prepared by the Company and include all normal recurring
adjustments which are, in the opinion of management, necessary for
a fair presentation of the results for the three-month periods
ended March 31, 1997 and 1996 pursuant to the instructions to Form
10-Q and Article 10 of Regulation S-X. Certain information and
footnote disclosures normally included in the financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules
and regulations. These consolidated financial statements should be
read in conjunction with the Company's consolidated financial
statements and the notes thereto for the year ended December 31,
1996 included in the Company's 1996 Annual Report to Stockholders.
Operating results for the three month period ended March 31, 1997
are not necessarily indicative of the results that may be expected
for the entire year ending December 31, 1997. Unless the context
indicates otherwise, the Company means Sunrise Assisted Living,
Inc. and its consolidated subsidiaries.
Certain 1996 balances have been reclassified to conform with
the 1997 presentation.
2. LONG-TERM DEBT
Long-term debt was $167.3 million at March 31, 1997, excluding
notes payable to affiliated entities, compared to $144.1 million at
December 31, 1996.
The Company has an $87.0 million dollar multi-property
mortgage (the "Multi-Property Mortgage"), collateralized by a
blanket first mortgage on all assets of a subsidiary of the Company,
which consists of 15 facilities. The Multi-Property Mortgage
consists of two separate debt classes: Class (A) in the amount of
$65.0 million bears a fixed interest rate of 8.56% and is interest
only until the maturity date of May 31, 2001; Class (B) in the
amount of $22.0 million bears a variable interest rate. In June
1996, the interest rate applicable to the floating rate debt was
reduced from LIBOR plus 5.75% to LIBOR plus 3.75% and effective
March 4, 1997, it was further reduced to LIBOR plus 1.75%.
The Company has obtained a commitment (subject to certain
conditions including syndication) from a financial institution for
a $90.0 million line of credit for construction and interim loans
to finance the development of up to 10 assisted living facilities
of a wholly-owned subsidiary of the Company. As of March 31, 1997,
the Company had closed $58.0 million of the total commitment. The
Company guaranteed the repayment of all amounts outstanding under
this credit facility. The credit facility is for a term of five
years and is secured by cross-collateralized first mortgages on the
real property and improvements and first liens on all other assets
of the subsidiary. Advances under the facility bear interest at
rates from LIBOR plus 1.7% to LIBOR plus 2.5%. As part of this
credit facility, the Company has entered into a swap transaction
whereby effective during the period June 18, 1998 through June 18,
2001, outstanding advances of up to $19.0 million under this credit
facility, or other LIBOR floating rate debt, bear interest at a
fixed rate based on a fixed LIBOR base rate of 7.3%. As of March
31, 1997 there were $23.7 million of advances outstanding under
this facility.
6
<PAGE> 7
SUNRISE ASSISTED LIVING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
2. LONG-TERM DEBT (CONTINUED)
A subsidiary of the Company has received a commitment for a
$51.0 million revolving construction credit facility. The Company
closed $15.4 million of the total commitment. The credit facility
provides for construction and interim loans to finance the
development of up to seven assisted living facilities. The Company
has agreed to guarantee the repayment of all amounts outstanding
under this credit facility. The credit facility is for a term of
five years and is secured by cross-collateralized first mortgages
on the real property and liens on receivables. Advances under the
credit facility bear variable interest rates based upon LIBOR plus
2.25% to LIBOR plus 2.60%. As of March 31, 1997 there were $2.3
million of advances outstanding under this facility.
The Company also has obtained a $13.0 million unsecured credit
facility to be used for development, acquisitions and working
capital needs. The credit facility is for a term of five years.
Advances under the facility bear interest at a rate per annum,
fluctuating daily, equal to (at the Company's choice) either 1.5%
plus the greater of (i) the lender's prime lending rate and (ii)
the Federal funds rate plus 0.5%, or the average LIBOR rate for
one, two, three, and six months, divided by one minus a reserve
percentage. The reserve percentage is that of maximum reserve
requirement for member banks of the Federal Reserve System in New
York City. The Company issued to the lender warrants to purchase a
total of 50,000 shares of common stock. The per share exercise
price of the warrants is $17.00. There were no amounts outstanding
under the unsecured credit facility at March 31, 1997.
3. MARKETABLE SECURITIES
At March 31, 1997, marketable securities consisted of
high-quality commercial paper with maturities not greater than 182
days at the date of purchase. These securities are classified as
available-for-sale in accordance with Statement of Financial
Accounting Standards No. 115. The carrying amount of these
securities approximates their market value at March 31, 1997.
4. STOCK OPTION PLANS
The Company has stock option plans providing for the grant of
incentive and non-qualified stock options to employees, directors,
consultants and advisors for a fixed number of shares with an
exercised price generally equal to the fair value of the shares at
the date of grant. The Company accounts for stock options grants in
accordance with APB Opinion No. 25, Accounting for Stock Issued to
the Employees and accordingly recognizes no compensation expense
for the stock option grants.
7
<PAGE> 8
SUNRISE ASSISTED LIVING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
4. STOCK OPTION PLANS (CONTINUED)
A summary of the Company's stock option activity and related
information as of March 31, 1997, are presented below:
<TABLE>
<CAPTION>
WEIGHTED-
SHARES AVERAGE
FIXED OPTIONS (000) EXERCISE PRICE
--------------------------------------- -----------------------------------------
<S> <C> <C>
Outstanding - December 31,1996 2,557 $17.79
Granted - -
Exercised (134) 10.01
Forfeited (9) 18.88
--------------------------------------- =========================================
Outstanding - March 31, 1997 2,414 $18.22
=========================================
Exercisable - March 31, 1997 397
==============
</TABLE>
The following table summarizes information about stock options
outstanding at March 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------- --------------------------------
Weighted-Average Weighted-Average Weighted
Range of Number Remaining Exercise Price Number average
Exercise Prices Outstanding Contractual Life exercisable (000) Exercise
(000) Price
------------------ ---------------- -------------------- --------------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
$ 3.00 to 8.00 589 8.22 $ 6.29 213 $ 7.07
10.50 to 20.00 681 9.06 16.23 137 18.14
21.50 to 25.63 1,144 9.70 25.53 47 25.63
================ ==================
$ 3.00 to 25.63 2,414 397
================ ==================
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
On June 8, 1994, the Company exchanged a minority interest in
an operating facility for all of the operating assets of three
related limited partnerships (the "LPs"). The Company does not
directly own any interest in the LPs. In addition, the Company has
unconditionally guaranteed any amounts required by the
three LPs to honor the LP's commitments in 1997, to provide a
guaranteed 9% return to the limited partners and to repurchase the
limited partnership interests of the limited partners. To date,
funding by the Company has been $2.4 million. The guarantees are
considered to be contingent acquisition costs. As such, the
carrying value of the net assets acquired in the exchange have
been increased by the amount funded.
The Company's previously announced three-year growth
objectives include developing at least 55 new Sunrise model
assisted living facilities with an additional resident capacity of
more than 4,500 by the end of 1999. To date, the Company has
completed development of five such new model facilities with a
resident capacity of 471 (Springfield, VA, Oakton, VA, Petaluma,
CA, Blue Bell, PA and Columbia, MD) and has obtained zoning
approval for 25 new facilities with a resident capacity of 2,197,
including 20 facilities currently under construction. The Company
has also entered into contracts to purchase 23 additional sites
and to lease two additional sites, and is negotiating purchase
terms for the remaining sites. The Company intends to pursue
additional development opportunities as market conditions warrant.
In addition to its construction and development plans, the Company
also plans to acquire up to eight additional facilities by the end
of 1999 as market conditions warrant.
8
<PAGE> 9
SUNRISE ASSISTED LIVING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
6. ACQUISITIONS
On January 10, 1997, the Company entered into three
purchase and sale agreements, giving the Company the right to
purchase three properties in California for $17.6 million.
One property was leased by the Company on March 31, 1997 for a
period of one year with an option to purchase at the end of that
lease, and a second property that is currently under construction
was acquired by the Company on February 24, 1997 for a purchase
price of $8.4 million. Because the purchase and sale agreements
are subject to, among other things, the satisfactory completion by
the Company of a financial, accounting, regulatory and property
due diligence review, there is no assurance that the acquisition
of the remaining properties will be consummated.
On May 1, 1997, the Company purchased the minority 50%
interest held by an unrelated partnership in the Raleigh facility.
The purchase price of approximately $1.0 million was based on a
buy-out schedule specified in the LLC operating agreement.
On February 5, 1997, the Company acquired a 120-unit assisted
and independent living facility in Valencia, California. The
acquisition price was $13.8 million in cash. The pro forma
unaudited results of operations for the three-month periods ended
March 31, 1997 and 1996, assuming consummation of each purchase as
of January 1, are as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
March 31,
---------------------------------------------
1997 1996
---------------------- -----------------
<S> <C> <C>
Operating revenue $ 16,842 $ 10,563
Net income (loss) $ 217 $ (1,533)
Net income per weighted average
common share outstanding
$ .01
</TABLE>
9
<PAGE> 10
SUNRISE ASSISTED LIVING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
7. NET INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings per Share, which is required to
be adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings
per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the
dilutive effect of outstanding stock options and warrants will be
excluded. The impact of Statement 128 on the calculation of primary
earnings per share and fully diluted earnings per share for the
first quarter ended March 31, 1997 is not expected to be material.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULT OF OPERATIONS
Management's discussion and analysis contains certain
forward-looking statements relating to the Company's development
and acquisition programs over the next three years that involve
risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking
statements as a result of certain factors, including, among others,
development and construction risks, acquisition risks, licensing
risks, business conditions, risks of downturns in economic
conditions generally, satisfaction of closing conditions and
availability of financing for development and acquisitions. Unless
the context suggests otherwise, references herein to the "Company"
or "Sunrise" means Sunrise Assisted Living, Inc. and its
subsidiaries.
OVERVIEW
The Company is a leading provider of assisted living services
to the elderly. The Company currently operates 42 facilities in 11
states with a capacity of approximately 3,800 residents, including
37 facilities owned by the Company or in which it has ownership
interests and five facilities managed for third parties. The
Company also operates two skilled nursing facilities owned by a
third party.
The Company reported net income of $0.1 million, or $0.01 per
share, on revenues of $16.5 million for the three months ended
March 31, 1997, compared to a net loss of $1.7 million on revenues
of $9.7 million for the three months ended March 31, 1996.
On February 5, 1997, the Company acquired a 120-unit assisted
and independent living facility in Valencia, California. The
acquisition price was $13.8 million in cash. On January 10, 1997,
the Company entered into three purchase and sale agreements,
giving the Company the right to purchase three properties in
California for $17.6 million. One property was leased by the
Company on March 31, 1997 for a period of one year with an option
to purchase at the end of that lease, and a second property that
is currently under construction was acquired by the Company on
February 24, 1997 for a purchase price of $8.4 million. Because
the purchase and sale agreements are subject to, among other
things, the satisfactory completion by the Company of a financial,
accounting, regulatory and property due diligence review, there is
no assurance that the acquisition of the remaining properties will
be consummated. On May 1, 1997, the Company purchased the minority
50% interest held by an unrelated partnership in its Raleigh
facility. The purchase price of approximately $1.0 million was
based on a buy-out schedule provided in the LLC operating
agreement.
On October 8, 1996, the Company completed its acquisition of
five properties located in the southeast United States for an
aggregate purchase price of $34.0 million in cash with no debt
assumed. The five facilities consist of 498 total units providing
primarily independent and assisted living services. In March 1996,
the Company acquired a 120-unit assisted living facility in Santa
Rosa, California.
In addition to the acquisitions mentioned above, results for
the quarter ended March 31, 1997 include the operations of five
Sunrise model facilities opened in 1996 and 1997: Sunrise of
Raleigh, in Raleigh, N.C., opened in February 1996; Sunrise of
Blue Bell, in Blue Bell, PA., a suburb of Philadelphia, opened in
October 1996; Sunrise of Columbia, in Columbia, MD., a suburb of
Washington, D.C., opened in December 1996; Sunrise of Hunter Mill,
in Oakton, VA., also a
11
<PAGE> 12
suburb of Washington, D.C., opened in February 1997; and Sunrise of
Petaluma, in Petaluma, CA., located 35 miles north of the Golden
Gate Bridge, opened in March 1997. In addition, the Company opened
a Sunrise model facility in May 1997, in Springfield, VA., also a
suburb of Washington, D.C. Combined resident capacity of all six
opened facilities is approximately 565.
The Company's previously announced three-year growth
objectives include developing at least 55 new Sunrise model
assisted living facilities with an additional resident capacity of
more than 4,500 by the end of 1999. To date, the Company has
completed development of five such new model facilities with a
resident capacity of 471 (Springfield, VA, Oakton, VA, Petaluma,
CA, Blue Bell, PA and Columbia, MD) and has obtained zoning
approval for 25 new facilities with a resident capacity of 2,197,
including 20 facilities currently under construction. The Company
has also entered into contracts to purchase 23 additional sites
and to lease two additional sites, and is negotiating purchase
terms for the remaining sites. The Company intends to pursue
additional development opportunities as market conditions warrant.
In addition to its construction and development plans, the Company
also plans to acquire up to eight additional facilities by the end
of 1999 as market conditions warrant.
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE THREE MONTHS
ENDED MARCH 31, 1996
Operating Revenue. Operating revenue for the three months
ended March 31, 1997 increased 69.9% to $16.5 million from $9.7
million for the three months ended March 31, 1996 due primarily to
the growth in resident fees. Resident fees (including community
fees and fees for Basic Care (assistance with activities of daily
living and other personalized support services), Assisted Living
Plus Care ("Plus Care") (additional specialized care and services
to residents with low acuity medical needs), and Alzheimer's Care
(specialized care and services to residents with Alzheimer's
disease or other forms of dementia and other services) for the
three months ended March 31, 1997 increased 75.4% to $16.0 million
from $9.1 million in the three months ended March 31, 1996. This
increase was due primarily to the inclusion, for the three months
ended March 31, 1997, of additional total revenue of $3.9 million
generated from the operations of seven acquired facilities, $2.0
million of total revenue generated from five new Sunrise model
facilities opened, additional revenue generated by increases in the
average daily rate and average resident occupancy for owned
facilities operated by the Company for at least twelve months
totaling $0.5 million and $0.4 million, respectively. Average
resident occupancy for owned facilities operated by the Company
for at least 12 months, excluding facilities with temporary
vacancies due to renovations or resident relocations ("Same
Facilities"), increased to 93.4% for the three months ended March
31, 1997 from 91.5% for the three months ended March 31, 1996.
Resident occupancy, including vacancies attributable to
renovations at two facilities in order to meet requirements for
accepting non-ambulatory residents and the relocation of
non-ambulatory residents at a third facility, increased to 93.3%
for the three months ended March 31, 1997 from 88.9% for the three
months ended March 31, 1996.
The average daily resident fee (excluding community fees) for
owned facilities operated by the Company for at least 12 months
increased to $88 in the three months ended March 31, 1997 from $83
in the three months ended March 31, 1996 primarily due to an
increase in the Basic Care rate and an increase in the number of
residents receiving Plus Care and Alzheimer's Care services.
Management services income for the three months ended March
31, 1997 and 1996 remained relatively constant at approximately
$0.6 million.
Operating Expenses. Operating expenses for the three months
ended March 31, 1997 increased by 77.1% to $16.3 million from $9.2
million for the three months ended March 31, 1996. The increase in
operating expenses for the quarter ended March 31, 1997 was
attributable primarily to the growth in facility operating and
facility development and pre-rental expenses.
Facility operating expenses for the three months ended March
31, 1997 increased 63.6% to $9.9 million from $6.1 million in the
three months ended March 31, 1996. As a percentage of operating
revenue, facility operating expenses in the three months ended
March 31, 1997 declined to 60.0% from 62.3% in the three months
ended March 31, 1996. All of the $3.8 million increase was
12
<PAGE> 13
attributable to expenses from the operations of seven acquired and
five developed facilities. Facility operating expenses at existing
facilities remained constant.
Facility development and pre-opening expenses for the three
months ended March 31, 1997 increased $1.7 million to $1.9 million
from $0.2 million for the three months ended March 31, 1996. This
was due to a $0.9 million increase in facility start up costs, a
$1.4 million increase in non-capitalized labor and related
development costs offset, in part, by an increase in other
capitalized expenses of $0.6 million. There are 20 facilities
currently under construction compared to four facilities at
March 31, 1996.
General and administrative expenses in the three months ended
March 31, 1997 increased 33.6% to $2.8 million from $2.1 million in
the three months ended March 31, 1996. As a percentage of operating
revenue, general and administrative expenses in the three months
ended March 31, 1997 decreased to 17.1% from 21.8% in the three
months ended March 31, 1996. Of the $0.7 million increase in
general and administrative expenses in the three months ended March
31, 1997, $0.2 million was related to labor costs, including $0.1
million attributable to hiring and training additional staff and
$0.1 million related to salary increases and benefits of existing
headquarters and regional office staff. The remaining $0.5 million
was attributable to increases in various other corporate expenses.
Depreciation and amortization in the three months ended March
31, 1997 compared to the three months ended in March 31, 1996
increased $0.8 million, or 95.4%, to $1.6 million primarily due to
the acquisition of assets from seven facilities and the opening of
five Sunrise model facilities.
Other income (expense). Interest income increased to $1.4
million for the three months ended March 31, 1997 compared to $0.3
million for the three months ended March 31, 1996. This increase
was due primarily to the investment of funds received from the
Company's initial public offering and follow-on public offering
completed during 1996. Interest expense decreased for the three
months ended March 31, 1997 to $1.6 million from $2.6 million for
the three months ended March 31, 1996. Of this decrease, $0.4
million was due to the elimination of a 25% participation interest
on the Multi-Property Mortgage and reduction of the interest rate
applicable to $22.0 million outstanding of variable rate
indebtedness, offset, in part, by a $0.6 million increase of
interest for additional borrowings related to new Sunrise model
facilities in operation. Capitalized interest increased by $1.2
million corresponding to the increase in the number of facilities
currently under construction discussed above.
Net income loss. The Company had net income of $0.1 million
for the three months ended March 31, 1997, compared to a net loss
of $1.7 million for the three months ended March 31, 1996. The
$1.8 million change was primarily attributable to a $6.8 million
increase in operating revenue coupled with both a $1.0 million
decrease in interest expense and a $1.1 million increase in
interest income offset, in part, by a $7.1 million increase in
operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has financed its operations from
long-term borrowings, equity offerings and cash generated from
operations. At March 31, 1997, the Company had $167.3 million of
outstanding debt (excluding notes payable to affiliates) at a
weighted average interest rate of 8.4%. Of such amount, the Company
had $78.9 million of fixed-rate debt (excluding a $1.7 million loan
discount) at a weighted average interest rate of 8.3%, and $88.4
million of variable
13
<PAGE> 14
rate debt at a weighted average interest rate of 8.6%. Increases in
prevailing interest rates could increase the Company's interest
payment obligations relating to variable-rate debt.
At March 31, 1997, the Company had approximately $80.7 million
in unrestricted cash and cash equivalents, $77.6 million in net
working capital, including $68.7 million in high quality short-term
investments (A1/P1 rated) with maturities no more than 182 days,
and $128.0 million of unused lines of credit.
Working capital decreased to $77.6 million at March 31, 1997,
compared to $101.9 million as of December 31, 1996, primarily due
to the Company's continued investment in the development of Sunrise
model facilities funded by available working capital and additional
debt.
Net cash provided by operating activities for the three months
ended March 31, 1997 was approximately $0.2 million as compared to
net cash used in operations of $1.9 million for the three months
ended March 31, 1996.
For the three months ended March 31, 1997 and 1996, the
Company used cash in investing activities of $41.2 million and
$15.2 million, respectively. Investing activities included $43.5
million and $14.5 million used for construction of assisted living
facilities for each period, respectively.
On June 8, 1994, the Company exchanged a minority interest in
an operating facility for all of the operating assets of three
related limited partnerships (the "LPs"). The Company does not
directly own any interest in the LPs. In addition, the Company has
unconditionally guaranteed any amounts required by the
three LPs to honor the LP's commitments in 1997, to provide a
guaranteed 9% return to the limited partners and to repurchase the
limited partnership interests of the limited partners. To date,
funding by the Company has been $2.4 million. The guarantees are
considered to be contingent acquisition costs. As such, the
carrying value of the net assets acquired in the exchange have
been increased by the amount funded.
Net cash provided by financing activities was $19.8 million
and $16.9 million for the three months ended March 31, 1997 and
1996, respectively. Cash provided by financing activities for the
three months ended March 31, 1997 included $20.1 million in
additional borrowings. Cash provided by financing activities for
the three months ended March 31, 1996 included $10.0 million of net
proceeds from the sale of Series B Exchangeable Preferred Stock
(redeemed in June of 1996) and $7.8 million in additional
borrowings.
The Company's previously announced three-year growth
objectives include developing at least 55 new Sunrise model
assisted living facilities with an additional resident capacity of
more than 4,500 by the end of 1999. To date, the Company has
completed development of five such new model facilities with a
resident capacity of 471 (Springfield, VA, Oakton, VA, Petaluma,
CA, Blue Bell, PA and Columbia, MD) and has obtained zoning
approval for 25 new facilities with a resident capacity of 2,197,
including 20 facilities currently under construction. The Company
has also entered into contracts to purchase 23 additional sites
and to lease two additional sites, and is negotiating purchase
terms for the remaining sites. The Company intends to pursue
additional development opportunities as market conditions warrant.
In addition to its construction and development plans, the Company
also plans to acquire up to eight additional facilities by the end
of 1999 as market conditions warrant.
The Company currently estimates that existing working capital
and financing commitments and financing expected to be available,
will be sufficient to fund its development and acquisition programs
for at least the next 18 months. Additional financing will be
required to complete the Company's growth plans or to refinance
existing indebtedness if cash flows from
14
<PAGE> 15
operations do not increase as a result of planned growth. There can
be no assurance that such financing will be available on acceptable
terms.
The Company has obtained a commitment (subject to certain
conditions including syndication) from a financial institution for
a $90.0 million credit facility for construction and interim loans
to finance the development of up to 10 assisted living facilities
by a wholly owned subsidiary of the Company. To date, of this total
credit facility, the Company has closed $58.0 million. The Company
guaranteed the repayment of all amounts outstanding under this
credit facility. The credit facility is for a term of five years
and is secured by cross-collateralized first mortgages on the real
property and improvements and first liens on all other assets of
the subsidiary. Advances under the credit facility bear interest at
rates from LIBOR plus 1.7% to LIBOR plus 2.5%. As part of this
credit facility, the Company has entered into a swap transaction
whereby effective during the period June 18, 1998 through June 18,
2001, outstanding advances of up to $19.0 million under this credit
facility, or other LIBOR floating rate debt, bear interest at a
fixed rate based on a fixed LIBOR base rate of 7.3%. As of March
31, 1997 there were $23.7 million of advances outstanding under
this facility.
A subsidiary of the Company has received a commitment for a
$51.0 million revolving construction credit facility. As of March
14, 1997, the Company had closed $15.4 million of the total
commitment. The credit facility provides for construction and
interim loans to finance the development of up to seven assisted
living facilities. The Company has agreed to guarantee the
repayment of all amounts outstanding under this credit facility.
The credit facility is for a term of five years and is secured by
cross-collateralized first mortgage on the real property and liens
on receivables. Advances under the credit facility bear variable
interest rates based upon LIBOR plus 2.25% to LIBOR plus 2.60%. As
of March 31, 1997 there were $2.3 million of advances outstanding
under this facility.
The Company also has a $13.0 million, five-year unsecured
credit facility to be used for development, acquisition and
working capital needs. There were no amounts outstanding with this
credit facility at March 31, 1997.
The Company's financing documents contain financial covenants
and other restrictions that (i) require the Company to meet certain
financial tests and maintain certain escrows of funds, (ii) require
that the Company's founders, Paul Klaassen and Teresa Klaassen,
maintain ownership of at least 20% of the Common Stock and that one
of them serves as Chairman of the Board and President of the
Company, (iii) require consent for changes in management or control
of the Company, (iv) limit, among other things, the ability of the
Company and certain of its subsidiaries to borrow additional funds,
dispose of assets and engage in mergers or other business
combinations, and (v) prohibit the Company from operating competing
facilities within certain distances from mortgaged facilities.
At March 31, 1997 the Company had stockholders' equity of
$187.0 million compared to stockholders' equity of $185.8 million
at December 31, 1996. The change resulted primarily from (i) adding
the receipt of net proceeds of $1.1 million from common shares
issued from the exercise of stock options granted, and (ii) adding
net income for the three months ended March 31, 1997 of $0.1
million. At March 31, 1997, the Company had net operating loss
carryforwards for income tax purposes of approximately $15.7
million which expire from 2010 through 2011.
15
<PAGE> 16
IMPACT OF CERTAIN ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings per Share, which is required to
be adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings
per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the
dilutive effect of outstanding stock options and warrants will be
excluded. The impact of Statement 128 on the calculation of primary
earnings per share and fully diluted earnings per share for the
first quarter ended March 31, 1997 is not expected to be material.
16
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 28,1997, The Company held its 1997 annual meeting of
stockholders at The Ritz-Carlton (Tysons Corner), 1700 Tysons
Boulevard, McLean, Virginia. The annual meeting was called for the
following purposes: (1) to elect three directors for terms of three
years each; (2) to approve the 1997 Stock Option Plan; and (3) to
transact such other business as may properly come before the annual
meeting or any adjournments thereof.
The following table sets forth the names of the directors
elected at the annual meeting for new three year terms and the
number of votes cast for and withheld for each director:
<TABLE>
<CAPTION>
WITHHOLD
AUTHORITY
Directors FOR TO VOTE
--------- --- ----------
<S> <C> <C>
Thomas J. Donohue 14,573,552 1,632,250
David W. Faeder 14,573,552 1,632,250
Scott F. Meadow 14,573,552 1,632,250
</TABLE>
The names of each of the other directors whose term of offices
continued after the annual meeting is as follows: Paul J.
Klaassen, Teresa M. Klaassen, Ronald V. Aprahamian, Richard A.
Doppelt, Darcy J. Moore and Timothy S. Smick.
The 1997 stock option plan also was approved at the meeting.
The vote tabulation was as follows: 13,726,337 votes (84.7% of the
total eligible votes excluding broker-non-votes) were cast for
approval of the 1997 stock option plan, 2,117,617 votes (13.1% of
the total eligible votes excluding broker-non-votes) were cast
against such approval, and 4,444 votes (.0002% of the total
eligible votes excluding broker-non-votes) were abstentions.
Broker non-votes totaled 357,404.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit Name
----------- ------------
<S> <C>
10 1997 Stock Option Plan (incorporated herein by
reference to Exhibit 4.5 to the Company's Form S-8
Registration Statement No. 333-26837)
11 Computation of Net Income Per Share
27 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange Commission
for information only and is not filed.
</TABLE>
17
<PAGE> 18
(b) REPORTS ON FORM 8-K
On March 5, 1997, the Company filed a Form 8-K with the
Securities and Exchange Commission announcing the date of the
Company's 1997 annual meeting of stockholders.
On February 18, 1997, the Company filed a Form 8-K with the
Securities and Exchange Commission announcing the purchase on
February 5, 1997, of a 120-unit assisted and independent living
facility in Valencia, California with a resident capacity of 130
for $13.75 million in cash with no debt assumed.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements 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.
SUNRISE ASSISTED LIVING, INC.
(Registrant)
Date: May 15, 1997 /S/ David W. Faeder
--------------------------------------------
David W. Faeder
Executive Vice President and Chief
Financial Officer
Date: May 15, 1997 /S/ Larry E. Hulse
--------------------------------------------
Larry E. Hulse
Chief Accounting Officer
19
<PAGE> 20
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit Name Page
----------- ------------ ----
<S> <C> <C>
10 1997 Stock Option Plan (incorporated
herein by reference to Exhibit 4.5
to the Company's Form S-8 Registration
Statement No. 333-26837)
11 Computation of Net Income Per Share 21
27 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information only and is not filed.
</TABLE>
20
<PAGE> 1
EXHIBIT 11.1 COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997
--------------------
<S> <C>
Primary:
-------
Weighted average common shares
outstanding 18,560,163
Net effect of dilutive stock options and
warrants-based on the treasury stock
method using average market price 920,618
--------------
Totals 19,480,781
==============
Net income $133,788
==============
Per share amount $0.01
==============
Fully diluted:
-------------
Weighted average common shares
outstanding 18,560,163
Net effect of dilutive stock options and
warrants-based on the treasury stock
method using quarter-end market price
which is greater than average market
price 931,077
--------------
19,491,240
==============
Net income $133,788
==============
Per share amount $0.01
==============
</TABLE>
21
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 80,664
<SECURITIES> 5,058
<RECEIVABLES> 2,273
<ALLOWANCES> 1,043
<INVENTORY> 0
<CURRENT-ASSETS> 88,937
<PP&E> 282,147
<DEPRECIATION> 19,902
<TOTAL-ASSETS> 366,037
<CURRENT-LIABILITIES> 11,362
<BONDS> 166,418
0
0
<COMMON> 187
<OTHER-SE> 186,841
<TOTAL-LIABILITY-AND-EQUITY> 366,037
<SALES> 0
<TOTAL-REVENUES> 16,544
<CGS> 0
<TOTAL-COSTS> 16,260
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 116
<INTEREST-EXPENSE> 1,601
<INCOME-PRETAX> 134
<INCOME-TAX> 0
<INCOME-CONTINUING> 134
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 134
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
