<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[ ] FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 0-21159
ATRIA COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 61-1303738
(State of other jurisdiction of (I.R.S. Employer
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
515 West Market Street
Suite 200
Louisville, KY 40202
(Address of principal executive offices) (Zip Code)
(502) 596-7540
(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 period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OF COMMON STOCK OUTSTANDING AT OCTOBER 27, 1997
--------------------- -------------------------------
Common stock, $.10 par value 23,372,387 shares
1 of 16
<PAGE>
ATRIA COMMUNITIES, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION ----
<S> <C> <C>
Item 1. Financial Statements:
Condensed Consolidated Statement of Income for the quarter and nine months
ended September 30, 1997 and 1996............................................. 3
Condensed Consolidated Balance Sheet September 30, 1997 and December 31, 1996. 4
Condensed Consolidated Statement of Cash Flows for the nine months
ended September 30, 1997 and 1996............................................. 5
Notes to Condensed Consolidated Financial Statements........................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................... 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................... 15
</TABLE>
2
<PAGE>
ATRIA COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER NINE MONTHS
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues.............................................. $17,731 $13,038 $48,930 $38,486
------- ------- ------- -------
Salaries, wages and benefits.......................... 7,368 5,253 19,874 14,657
Supplies.............................................. 1,679 1,233 4,487 3,683
Rent.................................................. 156 114 358 313
Depreciation and amortization......................... 1,840 1,123 4,963 3,748
Non-recurring transactions............................ - - - 1,050
Other operating expenses.............................. 3,526 2,750 9,695 7,679
------- ------- ------- -------
14,569 10,473 39,377 31,130
------- ------- ------- -------
Operating income...................................... 3,162 2,565 9,553 7,356
Interest expense...................................... 862 966 3,272 2,999
Investment income..................................... (1,108) (404) (2,214) (513)
------- ------- ------- -------
Income before income taxes and extraordinary loss..... 3,408 2003 8,495 4,870
Provision for income taxes............................ 1,360 791 3,390 1,924
------- ------- ------- -------
Income before extraordinary loss...................... 2,048 1,212 5,105 2,946
Extraordinary loss on extinguishment of debt, net of
income tax benefit.................................. - - (199) -
------- ------- ------- -------
Net income........................................ $ 2,048 $ 1,212 $ 4,906 $ 2,946
======= ======= ======= =======
Earnings per common and common equivalent share:
Primary:
Income before extraordinary loss................... $ 0.09 $ 0.10 $ 0.27 $ 0.27
Extraordinary loss on extinguishment of debt....... - - (0.01) -
------- ------- ------- -------
Net income........................................ $ 0.09 $ 0.10 $ 0.26 $ 0.27
======= ======= ======= =======
Fully diluted:
Income before extraordinary loss................... $ 0.09 $ 0.10 $ 0.27 $ 0.27
Extraordinary loss on extinguishment of debt....... - - (0.01) -
------- ------- ------- -------
Net income........................................ $ 0.09 $ 0.10 $ 0.26 $ 0.27
======= ======= ======= =======
Shares used in computing earnings per common and
common equivalent share:
Primary............................................ 23,667 12,595 18,826 11,008
Fully diluted...................................... 23,726 12,595 18,990 11,008
</TABLE>
See accompanying notes.
3
<PAGE>
ATRIA COMMUNITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 79,617 $ 65,238
Resident accounts receivable less allowance for loss of $157 - September 30
and $130 - December 31.......................................................... 598 356
Other............................................................................. 2,280 1,203
-------- --------
82,495 66,797
Property and equipment, at cost.................................................... 243,237 161,946
Accumulated depreciation........................................................... (31,568) (27,426)
-------- --------
211,669 134,520
Intangible assets less accumulated amortization of $1,898 - September 30
and $3,599 - December 31.......................................................... 9,950 3,353
Other.............................................................................. 11,379 5,112
-------- --------
$315,493 $209,782
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................. $ 2,470 $ 2,536
Salaries, wages and other compensation............................................ 1,354 1,163
Other accrued liabilities......................................................... 3,710 2,686
Long-term debt due within one year................................................ 999 14,825
-------- --------
8,533 21,210
Long-term debt..................................................................... 107,207 95,207
Deferred credits and other liabilities............................................. 9,317 4,419
Stockholders' equity:
Common stock, $.10 par value; authorized 50,000 shares;
issued and outstanding 23,372 shares at September 30 and 15,830 at December 31.. 2,337 1,583
Capital in excess of par value.................................................... 181,488 85,658
Retained earnings................................................................. 6,611 1,705
-------- --------
190,436 88,946
-------- --------
$315,493 $209,782
======== ========
</TABLE>
See accompanying notes.
4
<PAGE>
ATRIA COMMUNITIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income......................................................................... $ 4,906 $ 2,946
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization..................................................... 4,963 3,748
Extraordinary loss on extinguishment of debt...................................... 332 -
Non-recurring transactions........................................................ - 750
Other............................................................................. (414) 247
Changes in operating assets and liabilities:
Accounts receivable.............................................................. (19) (270)
Other assets..................................................................... 13 433
Accounts payable................................................................. (1,784) 592
Income taxes..................................................................... (315) -
Other accrued liabilities........................................................ 825 1,614
-------- --------
Net cash provided by operating activities....................................... 8,507 10,060
-------- --------
Cash flows from investing activities:
Purchase of property and equipment................................................ (36,235) (2,487)
Acquisition of new businesses..................................................... (8,000) -
Acquisition of American ElderServe Corporation.................................... (8,720) -
Investment in joint ventures...................................................... (2,775) -
Other............................................................................. (521) (172)
-------- --------
Net cash used in investing activities........................................... (56,251) (2,659)
-------- --------
Cash flows from financing activities:
Issuance of long-term debt........................................................ 3,953 21,847
Repayment of long-term debt....................................................... (33,328) (17,170)
Issuance of common stock.......................................................... 91,587 52,939
Net payments to Vencor, Inc....................................................... - (4,909)
Other............................................................................. (89) 2,396
-------- --------
Net cash provided by financing activities....................................... 62,123 55,103
-------- --------
Change in cash and cash equivalents................................................. 14,379 62,504
Cash and cash equivalents at beginning of period.................................... 65,238 2,819
-------- --------
Cash and cash equivalents at end of period.......................................... $ 79,617 $ 65,323
======== ========
Supplemental information:
Interest payments................................................................. $ 4,645 $ 2,374
Income tax payments............................................................... 3,213 1,675
Fair value of common stock issued in connection with the acquisition of
American ElderServe Corporation.................................................. 5,195 -
Assumption of long-term debt through business and community acquisitions.......... 27,749 -
</TABLE>
See accompanying notes.
5
<PAGE>
ATRIA COMMUNITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - REPORTING ENTITY
Atria Communities, Inc. ("Atria" or the "Company") is a leading national
provider of assisted and independent living communities for the elderly. At
September 30, 1997, Atria operated 37 communities located in 17 states with a
total of 3,890 units, including 1,878 assisted living units and 2,012
independent living units.
In May 1996, the Board of Directors of Vencor, Inc. ("Vencor") authorized
management to establish Atria as a wholly owned subsidiary to operate Vencor's
assisted and independent living business. As part of that transaction,
management consummated an initial public offering (the "IPO") of 5,750,000
shares of Atria's common stock (including 750,000 shares in connection with the
exercise of the underwriters' overallotment option) in the third quarter of
1996. At September 30, 1997, Vencor owned 10,000,000 shares, or 42.8%, of
Atria's outstanding common stock.
NOTE 2 - BASIS OF PRESENTATION
For periods prior to the IPO, the accompanying condensed consolidated
financial statements reflect the operations of the assisted and independent
living business of Vencor that were transferred to Atria at or prior to
completion of the IPO. These financial statements have been derived from the
consolidated financial statements of Vencor and reflect the operations of Atria
as a separate entity for all periods presented.
The accompanying condensed consolidated financial statements do not include
all of the disclosures normally required by generally accepted accounting
principles or those normally made in Atria's annual audited financial
statements. Accordingly, these financial statements should be read in
conjunction with Atria's audited consolidated financial statements for the year
ended December 31, 1996 filed with the Securities and Exchange Commission
pursuant to Atria's Annual Report on Form 10-K.
The accompanying condensed consolidated financial statements have been
prepared in accordance with Atria's customary accounting practices and have not
been audited. Management believes that the financial information included
herein reflects all adjustments necessary for a fair presentation of interim
results and all such adjustments are of a normal and recurring nature.
Prior year amounts have been reclassified to conform with current year
presentation.
NOTE 3 - REVENUES
Revenues are recognized when services are rendered and consist of resident
fees and fees for other ancillary services. Agreements with residents are
generally on a month to month basis. Revenues from management contracts are
recognized in the period earned in accordance with the terms of the management
agreement.
Substantially all revenues are derived from private pay sources. A summary of
revenues for the quarter and nine months ended September 30, 1997 and 1996
follows (dollars in thousands):
<TABLE>
<CAPTION>
QUARTER NINE MONTHS
---------------- -----------------
1997 1996 1997 1996
------- ------- ------- --------
<S> <C> <C> <C> <C>
Owned and leased communities.. $17,533 $12,965 $48,364 $38,279
Managed communities........... 198 73 566 207
------- ------- ------- -------
$17,731 $13,038 $48,930 $38,486
======= ======= ======= =======
</TABLE>
6
<PAGE>
ATRIA COMMUNITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
NOTE 4 - NON-RECURRING TRANSACTIONS
In June 1996, Atria recorded a non-recurring pre-tax charge of $1.1 million in
connection with the settlement of certain litigation involving a minority
partner at one of its communities.
NOTE 5 - SECONDARY STOCK OFFERING
In July 1997, the Company completed a secondary offering of 6,900,000 shares
of common stock at $14.00 per share (the "Secondary Offering"). The net
proceeds from the Secondary Offering (approximately $91.0 million) are being
used to finance the development and acquisition of assisted living communities
and for general corporate purposes.
NOTE 6 - EARNINGS PER COMMON SHARE
Shares used in the computation of earnings per common share include 10,000,000
shares of common stock issued to Vencor for its contribution of assets to Atria
and the assumption by Atria of related liabilities and shares of restricted
stock issued at the consummation date of the IPO. In addition, for the quarter
and nine months ended September 30, 1997, the computation also gives effect to
the 5,750,000 shares issued in connection with the IPO; 636,487 shares issued in
connection with the acquisition of the American ElderServe Corporation
("American ElderServe"); 6,900,000 shares issued in connection with the
Secondary Offering; the exercise of stock options and the dilution associated
with the issuance of common stock options. Share and per share amounts for
periods prior to the IPO are presented on a pro forma basis.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 "Earnings Per Share," which will require Atria to change the current
method of computing earnings per common share and restate all prior periods.
Pursuant to Statement No. 128, Atria is required, among other things, to
calculate primary earnings per common share by December 31, 1997, in such a
manner as to exclude the dilutive effect of common stock options. The change in
the method of calculation is not expected to have a material impact on
previously reported earnings per common share.
NOTE 7 - AMERICAN ELDERSERVE ACQUISITION
On April 1, 1997, Atria acquired American ElderServe, an operator of assisted
living communities, for a combination of Atria's common stock, cash and
assumption of debt valued at approximately $30.7 million. At the time of the
acquisition, American ElderServe operated 12 assisted living communities
consisting of 503 units and also had six additional communities under
construction containing 345 units scheduled to open in 1997. A summary of the
American ElderServe acquisition follows (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
Fair value of assets acquired....... $36,812
Fair value of liabilities assumed... 22,873
-------
Net assets acquired.............. 13,939
Fair value of common stock issued... (5,195)
Cash received from acquired entity.. (24)
-------
Net cash paid.................... $ 8,720
=======
</TABLE>
The purchase price paid in excess of the fair value of identifiable net assets
acquired (to be amortized over 30 years by the straight-line method) aggregated
$5.7 million.
7
<PAGE>
ATRIA COMMUNITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
NOTE 7 - AMERICAN ELDERSERVE ACQUISITION (CONTINUED)
The pro forma effect of the American ElderServe acquisition, assuming that the
transaction occurred on January 1, 1996, follows (dollars in thousands, except
per share amounts):
<TABLE>
<CAPTION>
Nine Months ended
September 30,
------------------
1997 1996
-------- --------
<S> <C> <C>
Revenues.......................................... $50,752 $42,457
Income before extraordinary loss.................. 1,673 2,177
Net income........................................ 1,474 2,177
Earnings per common and common equivalent share:
Primary:
Income before extraordinary loss............. $ 0.09 $ 0.19
Net income................................... 0.08 0.19
Fully diluted:
Income before extraordinary loss............. $ 0.09 $ 0.19
Net income................................... 0.08 0.19
</TABLE>
Pro forma income for the nine months ended September 30, 1997 includes
non-recurring compensation expense incurred by American ElderServe in connection
with accelerated vesting of certain stock options exercised in conjunction with
the American ElderServe acquisition, the effect of which reduced pro forma net
income by $2.2 million or $0.12 per common share.
In connection with the American ElderServe acquisition, the Company entered
into an agreement with Elder HealthCare Developers, L.L.C. ("Elder HealthCare"),
a limited liability company owned 10% by Atria and 90% by Assisted Care
Developers, L.L.C. ("Assisted Care Developers"), to develop at least 15 assisted
living communities for the Company in the southeastern United States over the
next three years. Assisted Care Developers is wholly-owned by George A.
Schoepf, former Executive Vice President of American ElderServe and the brother
of Andy L. Schoepf, the Company's Chief Operating Officer.
NOTE 8 - SUBSEQUENT EVENTS
In October 1997, the Company completed a $125,000,000 private offering (the
"Convertible Notes Offering") of 5% Convertible Subordinated Notes due 2002 (the
"Notes"). Net proceeds from this offering approximated $121.6 million and will
be used to finance the development and acquisition of assisted living
communities, for working capital and for general corporate purposes. The Notes
are convertible into shares of the Company's common stock at $20.864 per share
(on or after 90 days following the last date of initial issuance of the Notes),
and may not be redeemed by the Company prior to October 15, 2000.
Additionally, in October 1997, the Company purchased the assets of a
retirement community in Stamford, Connecticut for approximately $14.0 million.
This community was previously owned by Vencor and has been managed by the
Company since April 1997.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Atria is a leading national provider of assisted and independent living
communities for the elderly, operating at September 30, 1997, 37 communities
comprising 3,890 units located in 17 states. At September 30, 1997, Atria had
33 assisted living communities comprising approximately 2,318 units under
development, including 17 communities under construction.
PLANNED EXPANSION AND DEVELOPMENT
Atria intends to expand its business by developing or acquiring 60 to 85
additional assisted living communities consisting of approximately 5,400 to
7,650 units by the year 2000 (including the 33 communities currently being
developed and the communities developed and acquired since the IPO) and
converting at least 750 of its existing independent living units to assisted
living units by the year 2000. The Company will pursue acquisitions in
conjunction with its development efforts in order to cluster assisted living
communities in targeted markets. The estimated cost to construct, equip or
otherwise acquire such communities could approximate $375.0 to $550.0 million,
which is substantially in excess of the Company's present capital resources.
The Company currently estimates that the net proceeds from the Secondary
Offering and the Convertible Notes Offering of July 1997 and October 1997,
respectively, together with existing capital resources and financing commitments
under its $200.0 million bank credit facility (the "Credit Facility"), will be
sufficient to fund its development and acquisition program through mid-1999.
Available sources of future capital may include, among other things, equity,
public or private debt and additional bank revolving credits. However, there
can be no assurance that such financing will be available on terms acceptable to
Atria, nor can there be any assurance that additional financing will not be
required prior to 1999.
Newly opened communities are expected to incur operating losses until
sufficient occupancy levels and operating efficiencies are achieved. Based upon
historical experience, management believes that a typical community will achieve
its targeted occupancy levels approximately 12 months from commencement of
operations. Accordingly, Atria will require substantial amounts of liquidity to
maintain the operations of newly opened communities. In addition, if sufficient
occupancy levels related to newly opened communities are not achieved within a
reasonable period, the results of operations, financial position and liquidity
of Atria could be materially and adversely impacted.
The statements contained under "Planned Expansion and Development" are
"forward looking statements" within the meaning of the Private Securities
Litigation Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company to differ materially from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things: (i) the
successful and timely implementation of the Company's acquisition and
development strategy; (ii) the Company's ability to obtain financing on
acceptable terms to finance its growth strategy and to operate within the
limitations imposed by financing arrangements; (iii) the cost of completing the
Company's acquisition and development plans; and (iv) other factors referenced
in the Company's Annual Report on Form 10-K for the year ended December 31,
1996, filed with the Securities and Exchange Commission. The Company does not
undertake to update any forward-looking statement that may be made from time to
time by, or on behalf, of the Company.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
<S> <C> <C> <C> <C>
A summary of operations follows:
PERCENTAGE OF REVENUES
-----------------------------
THIRD QUARTER NINE MONTHS
------------- -------------
1997 1996 1997 1996
----- ----- ----- -----
Revenues.......................... 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Salaries, wages and benefits...... 41.6 40.3 40.6 38.1
Supplies.......................... 9.5 9.5 9.2 9.6
Rent.............................. 0.9 0.9 0.7 0.8
Depreciation and amortization..... 10.4 8.6 10.1 9.7
Non-recurring transactions........ - - - 2.7
Other operating expenses.......... 19.8 21.0 19.8 20.0
----- ----- ----- -----
82.2 80.3 80.4 80.9
----- ----- ----- -----
Operating income.................. 17.8 19.7 19.6 19.1
Interest expense.................. 4.8 7.4 6.7 7.8
Investment income................. (6.2) (3.1) (4.5) (1.4)
----- ----- ----- -----
Income before income taxes and
extraordinary loss.............. 19.2 15.4 17.4 12.7
Provision for income taxes........ 7.6 6.1 7.0 5.0
----- ----- ----- -----
Income before extraordinary loss.. 11.6% 9.3% 10.4% 7.7%
===== ===== ===== =====
</TABLE>
Revenues increased 36.0% in the third quarter of 1997 to $17.7 million from
$13.0 million in the third quarter of 1996, and revenues increased 27.1% for the
nine month period of 1997 to $48.9 million from $38.5 million in the same period
a year ago. The increase in the third quarter of 1997 was primarily attributable
to price increases ($600,000), growth in ancillary services ($200,000) and the
acquisition of American ElderServe and newly constructed communities ($3.9
million). The increase for the first nine months of 1997 was primarily
attributable to price increases ($1.9 million), growth in ancillary services
($500,000) and the acquisition of American ElderServe and newly constructed
communities ($8.0 million). Same community occupancy was 95.0% and 96.6% for
the third quarter of 1997 and 1996, respectively and 95.2% and 96.1% for the
first nine months of 1997 and 1996, respectively.
Compensation costs as a percentage of revenues increased in both the third
quarter and nine month periods of 1997 compared to the same periods a year ago.
Increases in such costs resulted primarily from the American ElderServe
acquisition and growth in administrative expenses associated with Atria's
expansion and development program and overhead costs associated with development
communities that opened during 1997.
In June 1996, Atria recorded a non-recurring pre-tax charge of $1.1 million in
connection with the settlement of certain litigation involving a minority
partner at one of its communities.
Operating income increased 23.3% to $3.2 million in the third quarter of 1997
compared to $2.6 million in the same period of 1996. For the nine month period,
operating income grew 29.9% to $9.6 million in 1997 compared to $7.4 million in
1996. Excluding the effect of non-recurring transactions, operating income
increased 13.7% for the nine month period of 1997. In both the third quarter
and nine month periods, operating income increased primarily as a result of
improved same community operations as well as the American ElderServe
acquisition. However, operating income in the third quarter and nine month
period was adversely impacted by increased administrative costs incurred in
connection with Atria's expansion and development program.
Income before extraordinary loss increased 69.0% to $2.0 million in the third
quarter of 1997 compared to $1.2 million for the same period a year ago, and
73.3% to $5.1 million for the first nine months of 1997 from $2.9 million for
the same period last year. Excluding the effect of non-recurring transactions,
income before extraordinary loss grew 42.8% for the nine month period of 1997 as
compared to the same period a year ago. The improvement was primarily
attributable to growth in operating income and a reduction in net interest
expense primarily as a result of the Secondary Offering.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
For periods prior to the IPO, certain allocations and estimates have been made
by management in the consolidated financial statements to present the historical
financial position and results of operations of Atria as a separate entity.
Upon consummation of the IPO, Atria became contractually obligated to pay Vencor
for certain centralized management and administrative services underlying such
historical allocations and estimates. The operating results of Atria include
corporate costs and expenses of Vencor aggregating $93,000 and $157,000 for the
three months ended September 30, 1997 and 1996, respectively, and $323,000 and
$457,000 for the respective nine month periods. Management believes that these
allocations reasonably reflect the proportional costs incurred by Vencor on
behalf of Atria.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations totaled $8.5 million and $10.1 million for the
nine months ended September 30, 1997 and 1996, respectively. Cash flows from
operations decreased primarily as a result of reductions in trade accounts
payable.
Net cash used in investing activities totaled $56.2 million and $2.7 million
for the nine months ended September 30, 1997 and 1996, respectively. Atria's
investing activities included capital expenditures related to the development of
new communities and expansion of existing operations totaling $36.2 million and
$2.5 million for the respective periods. In addition, Atria acquired two
communities for $8.0 million and American ElderServe for a combination of $8.7
million cash, common stock and assumption of debt during 1997.
Net cash provided by financing activities totaled $62.1 million and $55.1
million for the nine months ended September 30, 1997 and 1996, respectively. The
1997 amount includes the net proceeds of approximately $91.0 million from the
Secondary Offering, offset by the payment of $33.3 million of long-term debt
assumed which includes, among other things, the repayment of $14.4 million in
the American ElderServe acquisition, resulting in the extraordinary loss on
extinguishment of debt, net of income taxes, of $199,000, and the repayment of
the $14.0 million note payable to Vencor.
The Company's working capital totaled $74.0 million at September 30, 1997,
compared to $45.6 million at December 31, 1996. The increase in working capital
resulted principally from the net proceeds received from the Secondary Offering
offset by the cost of acquisitions during such period, including the repayment
of long-term debt, continued development and cost of expansion activities. In
connection with its expansion and development plans, the Company maintains the
Credit Facility. At September 30, 1997, available borrowings under the Credit
Facility approximated $113.0 million.
Capital expenditures related to acquisitions of existing communities,
construction of new communities and expansion and improvement of existing
communities could approximate $100.0 to $110.0 million in 1997. Additionally,
Atria is committed to finance the development costs of its joint venture with
Elder HealthCare Developers through the Credit Facility. The Company does not
anticipate such commitment will exceed $10 million in 1997. Although management
believes that cash flows from operations, the proceeds from the Secondary
Offering and Convertible Notes Offering and available borrowings under the
Credit Facility are sufficient to meet these capital needs, Atria will require
substantial additional financing to continue its growth plans beyond mid-1999.
The Company currently has under development 33 sites for new assisted living
communities, 17 of which are under construction. At September 30, 1997, the
additional cost to complete and equip the 17 communities under construction
approximated $45.0 million.
Atria plans to retain future earnings to finance the growth of its business
rather than to pay cash dividends. Payment of cash dividends in the future will
depend on the financial condition, results of operations and capital
requirements of Atria as well as other factors deemed relevant by the Board of
Directors. The Credit Facility also prohibits Atria from paying cash dividends.
The Credit Facility contains financial covenants and other restrictions that:
(i) require Atria to meet certain financial tests; (ii) require that there be no
change of control of Atria; (iii) limit, among other things, the ability of
Atria and certain of its subsidiaries to borrow additional funds, dispose of
certain assets and engage in mergers and other business combinations; (iv)
prohibit distributions to Atria's stockholders; and (v) require that Vencor own
at least 30.0% of Atria's common stock.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Vencor has guaranteed for four years certain borrowings by Atria under the
Credit Facility in amounts up to $100.0 million in the first year following the
IPO, declining to $75.0 million, $50.0 million and $25.0 million in each
respective year thereafter. Atria was in compliance with all debt covenants at
September 30, 1997.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND STATISTICAL DATA)
<TABLE>
<CAPTION>
1997 QUARTERS
----------------------------------
FIRST SECOND THIRD NINE MONTHS
-------- -------------- -------- ------------
<S> <C> <C> <C> <C>
Revenues................................ $14,217 $16,982 $17,731 $48,930
------- ------- ------- -------
Salaries, wages and benefits............ 5,660 6,846 7,368 19,874
Supplies................................ 1,290 1,518 1,679 4,487
Rent.................................... 39 163 156 358
Depreciation and amortization........... 1,388 1,735 1,840 4,963
Non-recurring transactions.............. - - - -
Other operating expenses................ 2,786 3,383 3,526 9,695
------- ------- ------- -------
11,163 13,645 14,569 39,377
------- ------- ------- -------
Operating income........................ 3,054 3,337 3,162 9,553
Interest expense........................ 1,182 1,228 862 3,272
Investment income....................... (753) (353) (1,108) (2,214)
------- ------- ------- -------
Income before income taxes and
extraordinary loss.................... 2,625 2,462 3,408 8,495
Provision for income taxes.............. 1,047 983 1,360 3,390
------- ------- ------- -------
Income before extraordinary loss........ 1,578 1,479 2,048 5,105
Extraordinary loss on extinguishment....
of debt, net of income tax benefit..... - (199) - (199)
------- ------- ------- -------
Net income.......................... $ 1,578 $ 1,280 $ 2,048 $ 4,906
======= ======= ======= =======
Earnings per common and common
equivalent share:
Primary:
Income before extraordinary loss..... $ 0.10 $ 0.09 $ 0.09 $ 0.27
Extraordinary loss on
extinguishment of debt.............. - (0.01) - (0.01)
------- ------- ------- -------
Net income.......................... $ 0.10 $ 0.08 $ 0.09 $ 0.26
======= ======= ======= =======
Fully diluted:
Income before extraordinary loss..... $ 0.10 $ 0.08 $ 0.09 $ 0.27
Extraordinary loss on
extinguishment of debt.............. - (0.01) - (0.01)
------- ------- ------- -------
Net income.......................... $ 0.10 $ 0.07 $ 0.09 $ 0.26
======= ======= ======= =======
Shares used in computing earnings per
common and common equivalent share:
Primary............................... 15,987 16,660 23,667 18,826
Fully diluted......................... 15,987 16,825 23,726 18,990
Average occupancy....................... 94.6% 87.9% 88.7% 90.1%
Number of communities at end of period.. 25 40 37
Number of units at end of period........ 3,226 3,977 3,890
</TABLE>
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Condensed Consolidated Statement of Income
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND STATISTICAL DATA)
<TABLE>
<CAPTION>
1996 QUARTERS
--------------------------------------
FIRST SECOND THIRD FOURTH YEAR
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues.................................. $12,611 $12,837 $13,038 $13,360 $51,846
------- ------- ------- ------- -------
Salaries, wages and benefits.............. 4,677 4,727 5,253 5,204 19,861
Supplies.................................. 1,227 1,223 1,233 1,341 5,024
Rent...................................... 100 99 114 40 353
Depreciation and amortization............. 1,312 1,313 1,123 1,312 5,060
Non-recurring transactions................ - 1,050 - - 1,050
Other operating expenses.................. 2,434 2,495 2,750 2,915 10,594
------- ------- ------- ------- -------
9,750 10,907 10,473 10,812 41,942
------- ------- ------- ------- -------
Operating income.......................... 2,861 1,930 2,565 2,548 9,904
Interest expense.......................... 982 1,051 966 1,288 4,287
Investment income......................... (48) (61) (404) (926) (1,439)
------- ------- ------- ------- -------
Income before income taxes................ 1,927 940 2,003 2,186 7,056
Provision for income taxes................ 761 372 791 863 2,787
------- ------- ------- ------- -------
Net income................................ $ 1,166 $ 568 $ 1,212 $ 1,323 $ 4,269
======= ======= ======= ======= =======
Earnings per common and common
equivalent share (a):
Primary:
Income from operations excluding
non-recurring item.................... $ 0.11 $ 0.11 $ 0.10 $ 0.08 $ 0.40
Non-recurring transactions............ - (0.05) - - (0.05)
------- ------- ------- ------- -------
Net income............................ $ 0.11 $ 0.06 $ 0.10 $ 0.08 $ 0.35
======= ======= ======= ======= =======
Fully diluted:
Income from operations excluding
non-recurring item.................... $ 0.11 $ 0.11 $ 0.10 $ 0.08 $ 0.40
Non-recurring transactions............ - (0.05) - - (0.05)
------- ------- ------- ------- -------
Net income............................ $ 0.11 $ 0.06 $ 0.10 $ 0.08 $ 0.35
======= ======= ======= ======= =======
Shares used in computing earnings per
common and common equivalent share (a):
Primary................................. 10,095 10,095 12,595 15,924 12,226
Fully diluted........................... 10,095 10,095 12,595 15,924 12,226
Average occupancy......................... 95.7 % 95.4% 96.2% 97.0% 96.1%
Number of communities at end of period.... 22 22 22 21
Number of units at end of period.......... 3,022 3,022 3,022 2,942
</TABLE>
(a) Share and per share amounts for periods prior to the IPO are presented on a
pro forma basis.
14
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
EXHIBIT NO. DESCRIPTION
4.1 Amendment No. 4 to Credit Agreement dated as of September 29, 1997
among Atria Communities, Inc., as borrower, the lending
institutions named therein, PNC Bank, National Association as
Administrative Agent, PNC Bank Kentucky, Inc., as Managing Agent,
and National City Bank of Kentucky, as Documentation Agent.
27 Financial Data Schedule (included only in filings submitted under
the Electronic Data Gathering Analysis Retrieval system).
(B) REPORTS ON FORM 8-K:
The Company did not file a Current Report on Form 8-K during the quarter
ended September 30, 1997.
15
<PAGE>
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.
ATRIA COMMUNITIES, INC.
Date: October 30, 1997 /s/ W. PATRICK MULLOY, II
- ------------------------ -------------------------------------
W. Patrick Mulloy, II
President and Chief Executive Officer
Date: October 30, 1997 /s/ J. TIMOTHY WESLEY
- ------------------------ -------------------------------------
J. Timothy Wesley
Chief Financial Officer,
Vice President of Development
and Secretary
(Principal Financial Officer)
16
<PAGE>
EXHIBIT 4.1
- --------------------------------------------------------------------------------
ATRIA COMMUNITIES, INC.
as Borrower
And
THE LENDERS NAMED HEREIN
as Lenders
And
PNC BANK, NATIONAL ASSOCIATION
as Administrative Agent
PNC BANK, KENTUCKY, INC.
as Managing Agent
NATIONAL CITY BANK OF KENTUCKY
as Documentation Agent
----------------------
AMENDMENT NO. 4
dated as of
September 29, 1997
to
CREDIT AGREEMENT
dated as of
August 15, 1996
----------------------
- --------------------------------------------------------------------------------
<PAGE>
AMENDMENT NO. 4 TO CREDIT AGREEMENT
THIS AMENDMENT NO. 4 TO CREDIT AGREEMENT, dated as of September 29, 1997
("this Amendment"), among ATRIA COMMUNITIES, INC. a Delaware corporation
(herein, together with its successors and assigns, the "Borrower"); the Lenders
who have executed this Amendment as indicated by their signatures on the
signature pages hereof, constituting all of the Lenders party to the Credit
Agreement referred to herein (the "Lenders"); PNC BANK, NATIONAL ASSOCIATION, a
national banking association, as administrative agent (the "Administrative
Agent") for the Lenders under the Credit Agreement (hereafter defined); PNC
BANK, KENTUCKY, INC., a Kentucky banking corporation, as managing agent (the
"Managing Agent") for the Lenders under the Credit Agreement; and NATIONAL CITY
BANK OF KENTUCKY, a national banking association, as documentation agent (the
"Documentation Agent") for the Lenders under the Credit Agreement:
PRELIMINARY STATEMENTS:
(1) The Borrower, the Lenders named therein, and the Agents party hereto
entered into the Credit Agreement, dated as of August 15, 1996, Amendment No. 1
to Credit Agreement, dated as of January 15, 1997, Amendment No. 2 to Credit
Agreement, dated as of March 27, 1997, and Amendment No. 3 to Credit Agreement,
dated as of May 27, 1997 (as so amended, the "Credit Agreement"; with the terms
defined therein, or the definitions of which are incorporated therein, being
used herein as so defined).
(2) The Borrower desires to issue up to $175 million of convertible
subordinated notes due 2002 to several initial purchasers who propose to resell
such notes to "qualified institutional buyers" (as defined in Rule 144A under
the Securities Act of 1933, as amended) in reliance on Rule 144A, and
institutional "accredited investors" within the meaning of Rule 501(a)(1),(2),
(3) or (7) under such Securities Act.
(3) The Borrower, such Agents and the Lenders party hereto desire to amend
certain of the terms and provisions of the Credit Agreement in order to permit
the issuance of such convertible subordinated notes, all as more fully set forth
below.
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT.
1.1 Indebtedness. Effective on the Effective Date (as hereinafter
defined), clause (c) of section 8.4 of the Credit Agreement is amended to
include reference to the Convertible Subordinated Notes (as hereinafter
defined), so that as so amended such clause reads in its entirety as follows:
(c) the following:
(i) Existing Indebtedness, and any refinancing, extension,
renewal or refunding of any such Existing Indebtedness, provided that
(A) the aggregate principal amount of any such Indebtedness in respect
of Residential Mortgage Bond programs of the Borrower and its
Subsidiaries (as described in the Registration Statement) currently in
existence is not increased above $50,000,000, and (B) the principal
amount of any other such Existing Indebtedness is not increased:
(ii) the American ElderServe Assumed Debt (including any guaranty
by the Borrower or any Subsidiary of any of the American ElderServe
Assumed Debt), provided that the entire American ElderServe Assumed
Debt (and any such guaranty), other than the Suburban Lodge Debt (and
any such guaranty in respect thereof), is retired, repaid or prepaid
<PAGE>
in full within 90 days following the date the American ElderServe
Acquisition is completed and not refinanced in whole or in part with
Indebtedness other than Loans made hereunder;
(iii) Contingent Obligations of the Borrower and its
Subsidiaries in respect of the American ElderServe Assumed Finance
Lease Obligations covering not more than $25,000,000 of Approved Costs
(as defined in the documents governing the American ElderServe Assumed
Finance Lease Obligations as in effect on the date the American
ElderServe Acquisition is completed); and
(iv) the Convertible Subordinated Notes; and any refinancing,
extension, renewal or refunding thereof effected in compliance with
the applicable provisions of section 8.7;
1.2. Prepayments and Refinancings. Effective on the Effective Date, clause
(c) of section 8.7 of the Credit Agreement is redesignated as clause (d) and
clause (b) of section 8.7 of the Credit Agreement is replaced with the following
clauses (b) and (c):
(b) make (or give any notice in respect thereof) any voluntary or
optional payment or prepayment or redemption or acquisition for value of
(including, without limitation, by way of depositing with the trustee with
respect thereto money or securities before due for the purpose of paying
when due) or exchange of, or refinance or refund, any Convertible
Subordinated Notes, or any Indebtedness (other than Indebtedness consisting
of the Notes issued hereunder) which has previously refinanced any of the
Convertible Subordinated Notes; provided that the Borrower may refinance
or refund any Convertible Subordinated Notes or any such Indebtedness if
(i) the aggregate outstanding principal amount thereof is not increased,
(ii) the weighted average life to maturity thereof (computed in accordance
with standard financial practice) is not reduced, and (iii) any such
refinancing, extension, renewal or refunding of thereof involves terms of
subordination no less favorable to the Lenders than those originally
applicable to the Convertible Subordinated Notes;
(c) amend or modify (or permit the amendment or modification of) any
of the terms or provisions of or terminate (other than any scheduled
termination in accordance with the terms thereof) (i) in any manner adverse
to the interests of the Lenders any documents or agreement governing any
Existing Indebtedness or the Convertible Subordinated Notes, or (ii) in any
manner that has, or which would reasonably be expected to have, a Material
Adverse Effect, any Acquisition Document; and/or
1.3. Definitions. Effective on the Effective Date, section 10 of the
Credit Agreement is amended to include the following definition in its
appropriate alphabetic order:
"Convertible Subordinated Notes" shall mean up to $175,000,000
aggregate principal amount of Convertible Subordinated Notes due 2002,
issued by the Borrower as contemplated by the Offering Memorandum dated
September 26, 1997, a true and correct draft of which has been furnished to
the Lenders, provided that the terms of subordination applicable to such
Notes are not changed from the description thereof contained in such draft
in a manner adverse to the interests of the Lenders.
SECTION 2. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants as follows:
2.1. Authorization, Validity and Binding Effect. This Amendment has been
duly authorized by all necessary corporate action on the part of the Borrower,
has been duly executed and delivered by a duly authorized officer or officers of
the Borrower, and constitutes the valid and binding agreement of the Borrower,
enforceable against the Borrower in accordance with its terms.
2
<PAGE>
2.2. Representations and Warranties True and Correct. The representations
and warranties of the Borrower contained in the Credit Agreement, as amended
hereby, are true and correct on and as of the date hereof as though made on and
as of the date hereof, except to the extent that such representations and
warranties expressly relate to a specified date, in which case such
representations and warranties are hereby reaffirmed as true and correct when
made.
2.3. No Event of Default, etc. No condition or event has occurred or
exists which constitutes or which, after notice or lapse of time or both, would
constitute an Event of Default.
2.4. Compliance. The Borrower is in full compliance with all covenants and
agreements contained in the Credit Agreement, as amended hereby, and the other
Credit Documents to which it is a party.
2.5. Offering Memorandum. The Borrower has delivered or caused to be
delivered to the Lenders prior to the execution hereof by any Lender a current
draft of the Offering Memorandum pursuant to which the Convertible Subordinated
Notes are to be offered. The terms of the Convertible Notes as originally issued
will be as described in such draft Offering Memorandum (with blank information
as to interest rate, payment dates, etc, appropriately completed, and any
changes in principal amount not involving an increase in the aggregate principal
amount above $175 million being permitted), but with no changes therein as to
subordination, redemption or maturity matters which are adverse to the Lenders.
2.6. Senior Indebtedness, etc. Loans outstanding under the Credit
Agreement, as well as reimbursement obligations in respect of Letters of Credit
issued under the Credit Agreement, and all related obligations in respect of
principal, interest, fees, costs, enforcement expenses and indemnity obligations
under the Credit Agreement, will constitute "Senior Indebtedness" as defined in
the Indenture governing the Convertible Subordinated Notes, and the Senior
Indebtedness under the Credit Agreement will constitute "Designated Senior
Indebtedness" as defined in such Indenture.
SECTION 3. RATIFICATIONS.
The terms and provisions set forth in this Amendment shall modify and
supersede all inconsistent terms and provisions set forth in the Credit
Agreement, and except as expressly modified and superseded by this Amendment,
the terms and provisions of the Credit Agreement are ratified and confirmed and
shall continue in full force and effect.
SECTION 4. BINDING EFFECT.
This Amendment shall become effective if and when, on a date (the
"Effective Date") on or prior to November 30, 1997, the following conditions
shall have been satisfied:
(a) this Amendment shall have been executed by the Borrower, the
Administrative Agent, the Managing Agent and the Documentation Agent, and
counterparts hereof as so executed shall have been delivered to the
Administrative Agent;
(b) the Acknowledgment and Consent appended hereto shall have been
executed by the Credit Parties named therein, and counterparts thereof as
so executed shall have been delivered to the Administrative Agent;
(c) the Administrative Agent shall have been notified by the Required
Lenders that such Lenders have executed this Amendment (which notification
may be by facsimile or other written confirmation of such execution); and
3
<PAGE>
(d) the Borrower shall have completed the initial issuance of the
Convertible Subordinated Notes, without giving effect to any over-allotment
option; and shall have so notified the Administrative Agent thereof;
and thereafter this Amendment shall be binding upon and inure to the benefit of
the Borrower, the Administrative Agent, the Managing Agent, the Documentation
Agent and each Lender and their respective permitted successors and assigns.
After this Amendment becomes effective, the Managing Agent will promptly
furnish a copy of this Amendment to each Lender and the Borrower and confirm the
specific Effective Date hereof.
SECTION 5. MISCELLANEOUS.
5.1. Survival of Representations and Warranties. All representations and
warranties made in this Amendment shall survive the execution and delivery of
this Amendment, and no investigation by any Agent or any Lender or any
subsequent Loan or other Credit Event shall affect the representations and
warranties or the right of any Agent or any Lender to rely upon them.
5.2. Reference to Credit Agreement. The Credit Agreement and any and all
other agreements, instruments or documentation now or hereafter executed and
delivered pursuant to the terms of the Credit Agreement as amended hereby, are
hereby amended so that any reference therein to the Credit Agreement shall mean
a reference to the Credit Agreement as amended hereby.
5.3. Expenses. As provided in the Credit Agreement, but without limiting
any terms or provisions thereof, the Borrower agrees to pay on demand all costs
and expenses incurred by the Administrative Agent, the Managing Agent or the
Documentation Agent in connection with the preparation, negotiation, and
execution of this Amendment, including without limitation the costs and fees of
the Documentation Agent's and the Administrative Agent's special legal counsel,
regardless of whether this Amendment becomes effective in accordance with the
terms hereof, and all costs and expenses incurred by the Administrative Agent,
the Managing Agent, the Documentation Agent or any Lender in connection with the
enforcement or preservation of any rights under the Credit Agreement, as amended
hereby.
5.4. Severability. Any term or provision of this Amendment held by a court
of competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the term or provision so held to be invalid or unenforceable.
5.5. Applicable Law. This Amendment shall be governed by and construed in
accordance with the laws of the Commonwealth of Kentucky.
5.6. Headings. The headings, captions and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
5.7. Entire Agreement. This Amendment is specifically limited to the
matters expressly set forth herein. This Amendment and all other instruments,
agreements and documentation executed and delivered in connection with this
Amendment embody the final, entire agreement among the parties hereto with
respect to the subject matter hereof and supersede any and all prior
commitments, agreements, representations and understandings, whether written or
oral, relating to the matters covered by this Amendment, and may not be
contradicted or varied by evidence of prior, contemporaneous or subsequent oral
agreements or discussions of the parties hereto. There are no oral agreements
among the parties hereto relating to the subject matter hereof or any other
subject matter relating to the Credit Agreement.
5.8. Counterparts. This Amendment may be executed by the parties hereto
separately in one or more counterparts, each of which when so executed shall be
deemed to be an original, but all of which when taken together shall constitute
one and the same agreement.
4
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as
of the date first above written.
ATRIA COMMUNITIES, INC. THE BANK OF NEW YORK
By: /s/ J. Timothy Wesley By: /s/ Edward J. Dougherty, III
-------------------------------- ------------------------------
Chief Financial Officer and Vice President
Vice President of Development
PNC BANK, NATIONAL ASSOCIATION, THE CHASE MANHATTAN BANK
Individually and as
Administrative Agent
By: /s/ Justin A. Falgione By: /s/ Dawn Lee Lum
-------------------------------- -----------------------------
Vice President Vice President
NATIONAL CITY BANK OF KENTUCKY, MORGAN GUARANTY TRUST COMPANY OF
Individually and as NEW YORK
Documentation Agent
By: /s/ Deroy Scott By: /s/ Diana H. Inkof
-------------------------------- -----------------------------
Vice President Vice President
PNC BANK, KENTUCKY, INC. AMSOUTH BANK OF ALABAMA
Individually and as
Managing Agent
By: /s/ Benjamin A. Willingham By: /s/ Joseph M. Rosen
-------------------------------- -----------------------------
Vice President Vice President
THE TORONTO-DOMINION BANK US BANK OF WASHINGTON,
NATIONAL ASSOCIATION
By: /s/ Jimmy Simien By:
-------------------------------- -----------------------------
Mgr. Credit Administration Vice President
BANK ONE, KENTUCKY, NA FIRST AMERICAN NATIONAL BANK
By: /s/ Dennis P. Heishman By: /s/ Kent P. Wood
-------------------------------- -----------------------------
Senior Vice President Senior Vice President
NATIONSBANK, N.A. KEY CORPORATE CAPITAL INC.
By: /s/ Kevin Wagley By: /s/ J. Mark Mullen
-------------------------------- -----------------------------
Vice President Assistant Vice President
FLEET NATIONAL BANK
By: /s/ Ginger Stolzenthaler
--------------------------------
Senior Vice President
5
<PAGE>
ACKNOWLEDGMENT AND CONSENT
For the avoidance of doubt, and without limitation of the intent and effect
of sections 5 and 6 of the Parent Guaranty and sections 6 and 10 of the
Subsidiary Guaranty (as each of such terms is defined in the Credit Agreement
referred to in the Amendment No. 4 to Credit Agreement (the "Amendment"), to
which this Acknowledgment and Consent is appended), each of the undersigned
hereby unconditionally and irrevocably (i) acknowledges receipt of a copy of the
Credit Agreement and the Amendment, and (ii) consents to all of the terms and
provisions of the Credit Agreement as amended by the Amendment.
Capitalized terms which are used herein without definition shall have the
respective meanings ascribed thereto in the Credit Agreement referred to herein.
This Acknowledgment and Consent is for the benefit of the Lenders, the
Administrative Agent, the Collateral Agent, the Managing Agent, the
Documentation Agent, any other person who is a third party beneficiary of the
Parent Guaranty or the Subsidiary Guaranty, and their respective successors and
assigns. No term or provision of this Acknowledgment and Consent may be modified
or otherwise changed without the prior written consent of the Administrative
Agent, given as provided in the Credit Agreement. This Acknowledgment and
Consent shall be binding upon the successors and assigns of each of the
undersigned. This Acknowledgment and Consent may be executed by any of the
undersigned in separate counterparts, each of which shall be an original and
all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, each of the undersigned has duly executed and delivered
this Acknowledgment and Consent as of the date of the Amendment referred to
herein.
SIGNATURES OF PARTIES TO THE PARENT GUARANTY
VENCOR, INC.
FIRST HEALTHCARE CORPORATION
NORTHWEST HEALTH CARE, INC.
MEDISAVE PHARMACIES, INC.
NATIONWIDE CARE, INC.
TheraTx, Incorporated
(successor by merger with
Peach Acquisition Corp.)
VENCOR HOSPITALS ILLINOIS, INC.
VENCOR HOSPITALS SOUTH, INC.
VENCOR HOSPITALS EAST, INC.
VENCOR HOSPITALS CALIFORNIA, INC.
VENCOR HOSPITALS TEXAS, LTD.
By: VCI Specialty Services, Inc.,
its General Partner
VENTECH SYSTEMS, INC.
PASATIEMPO DEVELOPMENT CORP.
VCI SPECIALTY SERVICES, INC.
VENCOR PROPERTIES, INC.
By: /s/ Richard A. Lechleiter
--------------------------
Vice President
<PAGE>
SIGNATURES OF PARTIES TO THE PARENT GUARANTY-Continued
PersonaCare, Inc.
Respiratory Care Services, Inc.
TheraTx Medical Supplies, Inc.
TheraTx Healthcare Management Inc.
TheraTx Staffing, Inc.
Horizon Healthcare Services, Inc.
PersonaCare of Connecticut, Inc.
PersonaCare of Huntsville, Inc.
PersonaCare of Ohio, Inc.
PersonaCare of Owensboro, Inc.
PersonaCare of Pennsylvania, Inc.
PersonaCare of Reading, Inc.
PersonaCare of San Antonio, Inc.
PersonaCare of San Pedro, Inc.
PersonaCare of Wisconsin, Inc.
PersonaCare of Rhode Island, Inc.
PersonaCare of St. Petersburg, Inc.
PersonaCare of Pompano West, Inc.
PersonaCare of Clearwater, Inc.
PersonaCare of Bradenton, Inc.
PersonaCare of Pompano East, Inc.
PersonaCare of Shreveport, Inc.
Tucker Nursing Center, Inc.
Lafayette Health Care Center, Inc.
PersonaCare of Warner Robins, Inc.
NFM, Inc.
Stamford Health Facilities, Inc.
Courtland Gardens Health Center, Inc.
Courtland Gardens Residence, Inc.
Homestead Health Center, Inc.
Tunstall Enterprises, Inc.
Stamford Health Associates Limited Partnership
By: Stamford Health Facilities, Inc.,
its General Partner
Care Venture Partners, L.P.
By: PersonaCare of Rhode Island, Inc.
its General Partner
Oak Hill Nursing Associates Limited Partnership
By: PersonaCare of Rhode Island, Inc.,
its General Partner
Health Havens Associates Limited Partnership
By: PersonaCare of Rhode Island, Inc.,
its General Partner
By: /s/ Richard A. Lechleiter
----------------------------
Vice President
2
<PAGE>
SIGNATURES OF PARTIES TO THE PARENT GUARANTY--Continued
Transitional Hospitals Corporation, a Nevada corporation
Transitional Hospitals Corporation, a Delaware corporation
Community Psychiatric Centers of California, a California corporation
Transitional Hospitals Corporation of Louisiana Inc., a Louisiana corporation
Transitional Hospitals Corporation of Texas Inc., a Texas corporation
THC-Seattle, Inc., a Washington corporation
Transitional Hospitals Corporation of Indiana, Inc., an Indiana corporation
THC Minneapolis, Inc., a Washington corporation
J. B. Thomas Hospital, Inc., a Massachusetts corporation
Transitional Hospitals Corporation of Nevada, Inc., a Nevada corporation
THC-Chicago, Inc., an Illinois corporation
THC-North Shore, Inc., an Illinois corporation
Transitional Hospitals Corporation of New Mexico, Inc., a New Mexico corporation
Transitional Hospitals Corporation of Tampa, Inc., a Florida corporation
THC-Hollywood, Inc., a Florida corporation
THC-Houston, Inc., a Texas corporation
Transitional Hospitals Corporation of Wisconsin, Inc., a Wisconsin corporation
THC-Orange County, Inc., a California corporation
THC-San Diego, Inc., a California corporation
Community Psychiatric Centers Properties, Incorporated, a California corporation
CPC Investment Corporation, a California corporation
Vencor Kentucky, Inc., a Delaware corporation
By: /s/ Richard A. Lechleiter
----------------------------------------
Richard A. Lechleiter
Vice President of Finance and
Corporate Controller, on behalf of
each of the above corporations
3
<PAGE>
SIGNATURES OF PARTIES TO THE SUBSIDIARY GUARANTY
LANTANA PARTNERS, LTD.
By: HILLHAVEN PROPERTIES, LTD.,
a General Partner
PHILLIPPE ENTERPRISES, INC.
HILLHAVEN PROPERTIES, LTD.
CASTLE GARDENS RETIREMENT CENTER
By: HILLHAVEN PROPERTIES, LTD.,
a General Partner
HILLCREST RETIREMENT CENTER, LTD.
By: FAIRVIEW LIVING CENTERS, INC.
a General Partner
SANDY RETIREMENT CENTER LIMITED PARTNERSHIP
By: HILLHAVEN PROPERTIES, LTD.,
a General Partner
TOPEKA RETIREMENT CENTER, LTD.
By: HILLHAVEN PROPERTIES, LTD.,
a General Partner
EVERGREEN WOODS, LTD.
By: ATRIA COMMUNITIES, INC.,
a General Partner
FAIRVIEW LIVING CENTERS, INC.
TWENTY-NINE HUNDRED ASSOCIATES, LTD.
By: TWENTY-NINE HUNDRED CORPORATION,
a General Partner
TWENTY-NINE HUNDRED CORPORATION
WOODHAVEN PARTNERS, LTD.
By: HILLHAVEN PROPERTIES, LTD.,
a General Partner
TUCSON RETIREMENT CENTER LIMITED PARTNERSHIP
By: HILLHAVEN PROPERTIES, LTD.,
a General Partner
By: /s/ J. Timothy Wesley
-----------------------------------------
Vice President
4
<PAGE>
SIGNATURES OF PARTIES TO THE SUBSIDIARY GUARANTY-Continued
ATRIA COMMUNITIES SOUTHEAST, INC.
AMERICAN ELDERSERVE MANAGEMENT, INC.
SOUTHERN CARE, INC.
AMERICAN ELDERSERVE OF ALABAMA, INC.
AMERICAN ELDERSERVE OF TEXAS, INC.
SOUTHEAST ASSISTED LIVING RESIDENCES, INC.
AMERICAN ELDERSERVE OF NORTH CAROLINA, INC.
AMERICAN ELDERSERVE OF FLORIDA, INC.
PLANTATION SOUTH ON CYPRESSWOOD LIMITED PARTNERSHIP
By: American ElderServe of Texas, Inc.
its General Partner
PLANTATION SOUTH AT AUBURN PARTNERSHIP
By: American ElderServe of Alabama, Inc.
its General Partner
By: /s/ J. Timothy Wesley
-----------------------------------------------
Vice President
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from Atria Communities,
Inc.'s condensed consolidated financial statements for the nine months ended
September 30, 1997 and is qualified in its entirety by reference to such
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 79,617
<SECURITIES> 0
<RECEIVABLES> 755
<ALLOWANCES> (157)
<INVENTORY> 138
<CURRENT-ASSETS> 82,495
<PP&E> 243,237
<DEPRECIATION> (31,568)
<TOTAL-ASSETS> 315,493
<CURRENT-LIABILITIES> 8,533
<BONDS> 107,207
0
0
<COMMON> 2,337
<OTHER-SE> 181,488
<TOTAL-LIABILITY-AND-EQUITY> 315,493
<SALES> 0
<TOTAL-REVENUES> 48,930
<CGS> 0
<TOTAL-COSTS> 24,719
<OTHER-EXPENSES> 9,660
<LOSS-PROVISION> 35
<INTEREST-EXPENSE> 3,272
<INCOME-PRETAX> 8,495
<INCOME-TAX> 3,390
<INCOME-CONTINUING> 5,105
<DISCONTINUED> 0
<EXTRAORDINARY> (199)
<CHANGES> 0
<NET-INCOME> 4,906
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
