<PAGE> 1
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 quarterly period ended June 30, 1998
( ) 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 01-13031
AMERICAN RETIREMENT CORPORATION
----------------------------------------------------
(Exact name of Registrant as specified in its charter)
Tennessee 62-1674303
- --------- ----------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
111 Westwood Place, Suite 402, Brentwood, TN 37027
- -------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(615) 221-2250
--------------
(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
----- -----
As of August 7, 1998, there were 17,105,119 shares of the Registrant's common
stock, $.01 par value, outstanding.
<PAGE> 2
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements (unaudited) Page
<S> <C> <C>
Condensed Consolidated Balance Sheets as of
June 30, 1998 and December 31, 1997 ......................................3
Condensed Consolidated Statements of
Operations for the Three Months Ended
June 30, 1998 and June 30, 1997 ..........................................4
Condensed Consolidated Statements of
Operations for the Six Months Ended
June 30, 1998 and June 30, 1997 ..........................................5
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended June 30, 1998
and June 30, 1997 ........................................................6
Notes to Condensed Consolidated Financial Statements .....................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................11
Item 3. Quantitative And Qualitative Disclosures About Market Risk ..............22
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders .....................22
Item 5. Other Information .......................................................23
Item 6. Exhibits and Reports on Form 8-K.........................................23
Signatures .........................................................................24
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
AMERICAN RETIREMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
-------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 23,973 $ 44,583
Assets limited as to use 2,854 2,654
Accounts receivable, net 8,109 7,181
Inventory 624 483
Prepaid expenses 1,699 1,052
Deferred income taxes 3,517 4,332
--------- ---------
Total current assets 40,776 60,285
Assets limited as to use, excluding amounts classified as current 27,684 7,332
Land, buildings and equipment, net 242,596 229,898
Notes receivable 5,329 --
Marketable securities -- 52
Other assets 22,845 19,587
--------- ---------
Total assets $ 339,230 $ 317,154
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 320 $ 316
Accounts payable 3,910 2,429
Accrued expenses 8,745 9,796
--------- ---------
Total current liabilities 12,975 12,541
Tenant deposits 5,473 5,290
Long-term debt, excluding current portion 116,485 99,038
Convertible subordinated debentures 138,000 138,000
Deferred gain on sale-leaseback transactions 3,846 4,073
Deferred income taxes 4,540 3,689
Other long-term liabilities 630 605
--------- ---------
Total liabilities 281,949 263,236
Shareholders' equity:
Preferred stock, no par value; 5,000,000 shares authorized, no
shares issued or outstanding -- --
Common stock, $.01 par value; 50,000,000 shares authorized,
11,435,952 and 11,420,860 shares issued and outstanding,
respectively 114 114
Additional paid-in capital 60,427 60,203
Accumulated deficit (3,260) (6,399)
--------- ---------
Total shareholders' equity 57,281 53,918
--------- ---------
Total liabilities and shareholders' equity $ 339,230 $ 317,154
========= =========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 4
AMERICAN RETIREMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
----------------------------
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Revenues:
Resident and health care revenue $ 28,067 $ 22,442
Management services and other revenue 2,246 437
-------- --------
Total revenues 30,313 22,879
Expenses:
Community operating expenses 18,322 14,120
Lease expense, net 1,962 544
General and administrative 2,318 2,184
Depreciation and amortization 2,119 1,621
-------- --------
Total operating expenses 24,721 18,469
-------- --------
Income from operations 5,592 4,410
Other income (expense):
Interest expense (3,730) (3,354)
Interest income 560 214
Other 113 (31)
-------- --------
Other income (expense), net (3,057) (3,171)
-------- --------
Income before income taxes 2,535 1,239
Income tax expense 913 3,078
-------- --------
Net income (loss) $ 1,622 ($ 1,839)
======== ========
Basic earnings per share $ 0.14
========
Diluted earnings per share $ 0.14
========
Pro forma earnings data:
Income before income taxes, as reported $ 1,239
Pro forma income tax expense 471
--------
Pro forma net income $ 768
Pro forma basic earnings per share $ 0.08
========
Pro forma diluted earnings per share $ 0.08
========
Weighted average shares used:
Basic earnings per share 11,422 10,089
Common stock equivalents 165 35
======== ========
Diluted earnings per share 11,587 10,124
======== ========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 5
AMERICAN RETIREMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Six months ended
----------------------------
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Revenues:
Resident and health care revenue $ 54,465 $ 43,424
Management services and other revenue 3,925 965
-------- --------
Total revenues 58,390 44,389
Expenses:
Community operating expenses 35,340 27,519
Lease expense, net 3,647 1,072
General and administrative 4,371 4,070
Depreciation and amortization 4,093 3,206
-------- --------
Total operating expenses 47,451 35,867
-------- --------
Income from operations 10,939 8,522
Other income (expense):
Interest expense (7,308) (6,611)
Interest income 1,187 364
Other 87 (61)
-------- --------
Other income (expense), net (6,034) (6,308)
-------- --------
Income before income taxes 4,905 2,214
Income tax expense 1,766 3,078
-------- --------
Net income (loss) $ 3,139 $ (864)
======== ========
Basic earnings per share $ 0.27
========
Diluted earnings per share $ 0.27
========
Pro forma earnings data:
Income before income taxes, as reported $ 2,214
Pro forma income tax expense 841
--------
Pro forma net income $ 1,373
Pro forma basic earnings per share $ 0.14
========
Pro forma diluted earnings per share $ 0.14
========
Weighted average shares used:
Basic earnings per share 11,421 9,734
Common stock equivalents 181 18
-------- --------
Diluted earnings per share 11,602 9,752
======== ========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
AMERICAN RETIREMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Six months ended
-------------------------------
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,139 $ (864)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 4,093 3,206
Deferred income taxes 1,666 2,986
Gain on sale of marketable securities (80) --
Amortization of deferred gain (227) (102)
Increase (decrease), net of acquisitions, in cash due to changes in:
Accounts receivable (966) (1,281)
Inventory (42) 1
Prepaid expenses (641) (643)
Other assets (1,105) (333)
Accounts payable 1,415 601
Accrued expenses (1,049) 620
Tenant deposits 183 502
Other long-term liabilities 25 (32)
-------- --------
Net cash provided by operating activities 6,411 4,661
Cash flows from investing activities:
Additions to land, buildings and equipment (28,202) (10,851)
Acquisition of assisted living residences -- (11,524)
Investments in joint ventures (713) (1,030)
Purchases of assets limited as to use (20,552) (1,987)
Proceeds from the sale of marketable securities 132 --
Increase in notes receivable (5,329) --
Proceeds from the sale of assets 12,128 28,789
Other investing activities (2,022) --
-------- --------
Net cash provided (used) by investing activities (44,558) 3,397
Cash flows from financing activities:
Proceeds from initial public offering, net of expenses -- 45,221
Repayment of reorganization note -- (21,875)
Payment of redeemable preferred interests -- (5,195)
Distributions to partners -- (4,132)
Expenditures for financing costs (75) (32)
Proceeds from exercise of stock options 84 --
Proceeds from issuance of stock through employee stock
purchase plan 140 --
Proceeds from the issuance of long-term debt 17,566 17,132
Principal payments on long-term debt (178) (20,537)
-------- --------
Net cash provided by financing activities 17,537 10,582
Net increase (decrease) in cash and cash equivalents (20,610) 18,640
-------- --------
Cash and cash equivalents at beginning of period 44,583 3,222
-------- --------
Cash and cash equivalents at end of period $ 23,973 $ 21,862
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 8,040 $ 6,268
======== ========
Income taxes paid $ 191 --
======== ========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 7
AMERICAN RETIREMENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
American Retirement Corporation (the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Certain 1997 amounts have been reclassified to conform with the 1998
presentation. Operating results for the three and six months ended June 30, 1998
are not necessarily indicative of the results that may be expected for the
entire year ending December 31, 1998. These financial statements should be read
in conjunction with the combined and consolidated financial statements and the
notes thereto included in the Company's annual report on Form 10-K for the year
ended December 31, 1997.
Prior to its initial public offering in May 1997 (the "IPO"), the Company's
communities were owned, managed and/or operated by one or more limited
partnerships affiliated with the Company's predecessor, American Retirement
Communities, LP (the "Partnership" or "Predecessor"). References to the Company
in connection with historical financial data or otherwise include the
Predecessor.
2. FORMATION OF AMERICAN RETIREMENT CORPORATION, REORGANIZATION AND PRO FORMA
ADJUSTMENTS
The Partnership was reorganized concurrent with the IPO such that all of its
assets and liabilities were contributed to the Company in exchange for 7,812,500
shares of common stock and a promissory note in the original principal amount of
approximately $21.9 million (the "Reorganization"). The promissory note was
subsequently paid with net proceeds from the IPO.
(a) Pro Forma Earnings Data: The pro forma adjustment reflected on the
statement of operations for the three and six months ended June 30, 1997
provides for income taxes assuming the Partnership was subject to taxes.
(b) Pro Forma Earnings per Share: Pro forma earnings per share for the three
and six months ended June 30, 1997 is based on the number of shares that
would have been outstanding assuming the partners had been shareholders and
is based on the 7,812,500 shares received as a result of the Reorganization
plus 1,562,500 shares representing the value of the $21.9 million
promissory note.
7
<PAGE> 8
3. EARNINGS PER SHARE
Basic earnings per share for the three and six months ended June 30, 1998 has
been computed on the basis of the weighted average number of shares outstanding.
Diluted earnings per share also includes common stock equivalents, which consist
of stock options. Pro forma earnings per share data for the three and six months
ended June 30, 1997 is based upon the number of shares that would have been
outstanding assuming the partners had been shareholders prior to the
Reorganization as discussed in Note 2.
4. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, Reporting Comprehensive Income. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements and requires
that all components of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial statements.
Comprehensive income is defined as the change in equity of a business
enterprise, during a period, associated with transactions and other events and
circumstances from non-owner sources. It includes all changes in equity during a
period except those resulting from investments by owners and distributions to
owners. During the three and six month periods ended June 30, 1998 and 1997, the
Company had no components of comprehensive income. Accordingly, comprehensive
income for each of the periods was the same as net income.
5. COMMITMENTS
During the six month period ending June 30, 1998, the Company entered into
various commitments related to the development of eight assisted living
residences (the "Developments"). The Company entered into loan agreements for an
aggregate amount of $43.5 million with the owners of four of the Developments to
provide funding for their construction. Typically, these loans bear interest at
200 basis points over 30 day LIBOR and require amortization over a 25 year term.
As of June 30, 1998, $4.4 million was advanced under the loan agreements.
The owners of the Developments ("the Lessors") have entered into construction
agreements and operating leases with various third parties (the "Lessees") for
the construction and operation of the Developments. In six of these
transactions, the Lessee is an affiliate of a director of the Company. The
operating leases have initial terms of five years and include renewal and
purchase options. The Lessees have entered into construction management and
guaranty agreements with the Company whereby the Company will manage the
construction of the Developments for a fee equal to approximately 3.75% of total
development costs. The Company has pledged certificates of deposit in the amount
of $9.7 million as collateral for its agreement to fund operating deficits of
the Lessees in excess of certain agreed-upon limits. These
8
<PAGE> 9
deposits are reflected on the Company's balance sheet as "non-current assets
limited as to use." The Company has also entered into agreements with the
Lessees to manage the Developments for a fee based on a percentage of revenues
and to acquire the leasehold interests of the Lessees. The Company owns the land
upon which four of the Developments are located and has leased the land to the
owners for a term of 50 years.
6. RECENT ACCOUNTING PRONOUNCEMENT
On April 3, 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position 98-5, Reporting on the Costs of Start-Up Activities (SOP
98-5). The SOP requires that costs incurred during start-up activities,
including organization costs, be expensed as incurred. SOP 98-5 defines start-up
activities broadly to include those one-time activities related to: opening a
new facility; introducing a new product or service; conducting business in a new
territory; conducting business with a new class of customer or beneficiary;
initiating a new process in an existing facility; or commencing some new
operation. Start-up activities also include activities related to organizing a
new entity (costs of such activities are commonly referred to as organization
costs).
SOP 98-5 is effective for financial statements for fiscal years beginning after
December 15, 1998. Earlier application is encouraged in fiscal years for which
annual financial statements have not been issued. Initial application of the SOP
should be as of the beginning of the fiscal year in which the SOP is first
adopted. Restatement of previously issued financial statements is not permitted.
Entities that previously capitalized start-up costs, such as the types of costs
described above, or organization costs, are required to write-off the
unamortized portion of such capitalized costs as the cumulative effect of a
change in accounting principle upon adoption of SOP 98-5. Subsequent to adoption
of the SOP, these types of costs must be expensed as incurred. The Company has
not yet determined when it will adopt SOP 98-5. At June 30, 1998, the
unamortized portion of capitalized start-up costs totaled $430,000.
7. SUBSEQUENT EVENTS
On July 14, 1998, the Company acquired privately-held Freedom Group, Inc.
("FGI") and certain entities affiliated with FGI and with its Chairman. The
acquisition resulted in the ownership of three lifecare continuing care
retirement communities ("CCRCs") and management of four additional CCRCs. The
Company also acquired options to purchase two of the managed CCRCs.
Additionally, the Company entered into a development and management contract
for, and acquired an option to purchase, one additional CCRC currently under
development. The aggregate resident capacity for the owned and managed
communities included in this transaction is approximately 3,700. The development
project will add capacity for approximately 400 residents. The consideration
paid was approximately $43.0 million, including $23.2 million of cash and
1,370,000 shares of the Company's common stock valued at $19.8 million. The
Company paid an additional $4.0 million for the purchase options and $1.5
million to assume two of the management contracts. In connection with the
execution of management agreements for three of the communities to be managed
pursuant to the FGI transaction, the Company assumed FGI's guaranties of an
aggregate of $73.5 million of mortgage debt relating to such communities. The
transaction was accounted for as a
9
<PAGE> 10
purchase effective July 1, 1998. At the time of closing of the FGI transaction,
the communities acquired and managed had a stabilized occupancy rate of 94%.
On August 4, 1998, the Company completed a public offering of 4,500,000 shares
of common stock, of which 4,297,500 were sold by the Company and 202,500 shares
were sold by certain selling shareholders. The Company and certain selling
shareholders have granted the underwriters a thirty-day over-allotment option to
purchase an additional 592,900 and 82,100 shares, respectively, of common stock.
Net proceeds to the Company are estimated to be $64.9 million ($73.9 million if
the over-allotment option is exercised in full).
10
<PAGE> 11
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a national senior living and health care services provider
offering a broad range of care and services to seniors within a residential
setting. The Company currently operates 35 senior living communities in 14
states with an aggregate capacity for approximately 11,400 residents. The
Company currently owns 17 communities, leases six communities pursuant to
long-term leases, and manages 12 communities pursuant to management agreements.
The Company is currently constructing or developing 36 senior living communities
with an estimated aggregate capacity for 4,000 residents and is expanding or is
planning to commence expansions at seven of its communities, which will add
capacity for approximately 600 residents. Additionally, the Company currently
operates five home health agencies based in or near its communities, and manages
two home health agencies for third parties.
The Company completed the IPO and related Reorganization during the second
quarter of 1997. Prior to the IPO, the Company's accounting predecessor operated
as a limited partnership.
The Company reported net income of $1.6 million, or $0.14 diluted earnings per
share, on revenues of $30.3 million for the three months ended June 30, 1998, as
compared with pro forma net income of $768,000, or $0.08 pro forma diluted
earnings per share, on revenues of $22.9 million for the comparable prior year
period.
The Company's growth strategy includes: (i) selective acquisitions of senior
living communities, including CCRCs and assisted living residences; (ii)
development of senior living communities, including special living units and
programs for residents with Alzheimer's and other forms of dementia; (iii)
expansion of existing communities; and (iv) selective development and
acquisition of other properties and businesses that are complementary to the
Company's operations and growth strategy.
RESULTS OF OPERATIONS
The Company's total revenues are comprised of (i) resident and health care
revenues, which include all resident and home health care agency fees, and (ii)
management services and other revenue, which include fees, net of
reimbursements, for the development, marketing and management of retirement
communities and home health care agencies owned by third parties. The Company's
resident and health care revenues are derived from three principal sources: (i)
monthly service fees from independent and assisted living residents,
representing 74.3% and 72.1% of total revenues for the three months ended June
30, 1998 and 1997, respectively, and 74.1% and 73.5% of total revenues for the
six months ended June 30, 1998 and 1997, respectively; (ii) per diem charges
from nursing patients, representing 12.5% and 14.9% of total revenues for the
three months ended
11
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June 30, 1998 and 1997, respectively, and 12.2% and 14.0% of total revenues for
the six months ended June 30, 1998 and 1997, respectively; and (iii) per visit
billings from home health care patients and companion services clients,
representing 5.8% and 11.1% of total revenues for the three months ended June
30, 1998 and 1997, respectively, and 6.9% and 10.3% of total revenues for the
six months ended June 30, 1998 and 1997, respectively. Management services and
other revenue represented 7.4% and 1.9% of total revenues for the three months
ended June 30, 1998 and 1997, respectively, and 6.7% and 2.2% of total revenues
for the six months ended June 30, 1998 and 1997, respectively. Approximately
93.1% and 87.4% of the Company's total revenues for the three months ended June
30, 1998 and 1997, respectively, and 92.7% and 89.2% of the Company's total
revenues for the six months ended June 30, 1998 and 1997, respectively, were
attributable to private pay sources, with the balance attributable to Medicare,
including Medicare-related private pay co-insurance.
The Company's operating expenses are comprised of (i) community operating
expenses, which includes all operating expenses of the Company's owned or leased
communities, including the expenses of its home health care agencies; (ii)
general and administrative expense, which includes all corporate office
overhead; (iii) lease expense; and (iv) depreciation and amortization expense.
The following table sets forth, for the periods indicated, certain resident
capacity and occupancy data for the periods indicated:
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1997
-------------------- -------------------
END OF PERIOD CAPACITY STABLE(1) TOTAL STABLE(1) TOTAL
------- ----- ------- -----
<S> <C> <C> <C> <C>
Owned 3,151 3,397 2,912 3,002
Leased 1,885 1,885 483 573
Managed 2,084 2,339 2,159 2,159
----- ----- ----- -----
Total 7,120 7,621 5,554 5,734
===== ===== ===== =====
END OF PERIOD OCCUPANCY
Owned 94% 90% 95% 93%
Leased 91% 91% 93% 84%
Managed 95% 87% 93% 93%
--- --- --- ---
Total 93% 90% 94% 92%
</TABLE>
- --------------------
(1) Includes communities or expansions thereof that have either (i) achieved 95%
occupancy or (ii) been open at least 12 months.
12
<PAGE> 13
SAME COMMUNITY RESULTS
The following table sets forth certain selected financial and operating data on
a Same Community basis. For purposes of the following discussion, "Same
Community basis" refers to communities that were owned and/or leased by the
Company throughout each of the periods being compared. Revenues on a Same
Community basis do not include any management services revenues.
STATEMENT OF OPERATIONS DATA FOR SAME COMMUNITIES:
(DOLLARS IN THOUSANDS, EXCEPT OTHER DATA)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
1998 1997 %+/- 1998 1997 %+/-
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Monthly/per diem service fees $21,352 $19,747 8.1% $41,465 $38,710 7.1%
Home health and companion services revenue 1,567 2,543 -38.4% 3,495 4,563 -23.4%
------- ------- ------ ------- ------- ------
Resident and health care revenue 22,919 22,290 2.8% 44,961 43,273 3.9%
Community operating expense 14,762 13,982 5.6% 28,893 27,381 5.5%
------- ------- ----- ------- ------- ------
Resident income from operations 8,156 8,308 -1.8% 16,068 15,892 1.1%
Resident income from operations margin(1) 35.6% 37.3% 35.7% 36.7%
Lease expense 556 528 5.3% 1,114 1,056 5.5%
Depreciation and amortization 1,613 1,522 6.0% 3,178 3,044 4.4%
------- ------- ------ ------- ------- ------
Income from operations 5,988 6,258 -4.3% 11,775 11,792 -0.1%
Other data:
Resident Capacity 3,529 3,397 3,529 3,397
Number of communities 12 12 12 12
Average occupancy rate(2) 92.3% 94.3% 92.7% 94.3%
Average monthly revenue per occupied unit(3) $2,476 $2,337 5.9% $2,410 $2,293 5.1%
Average monthly expense per occupied unit(4) $1,508 $1,434 5.2% $1,471 $1,414 4.0%
</TABLE>
(1) "Resident income from operations" margin represents "Resident income from
operations" as a percentage of "Resident and health care revenue."
(2) "Average occupancy rate" is based on the ratio of occupied apartments to
available apartments expressed on a monthly basis for independent and assisted
living residences, and occupied beds to available beds on a per diem basis for
nursing beds.
(3) "Average monthly revenue per occupied unit" is total resident and health
care revenues, excluding home health care agency and companion services fees,
divided by total occupied apartments and nursing beds expressed on a monthly
basis.
(4) "Average monthly expense per occupied unit" is total community operating
expenses, excluding home health care agency and companion services expenses,
divided by total occupied apartments and nursing beds, expressed on a monthly
basis.
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<PAGE> 14
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1997
Revenues Total revenues were $30.3 million for the three months ended June 30,
1998 compared to $22.9 million for the three months ended June 30, 1997,
representing an increase of $7.4 million, or 32.5%. Resident and health care
revenue increased by $5.6 million and management services and other revenue
increased by $1.8 million. Of the increase in resident and health care revenue,
$5.0 million, or 88.8%, was attributable to revenues derived from senior living
communities, assisted living residences, and home health agencies acquired or
leased after June 30, 1997. The remaining $628,000, or 11.2%, of such increase
was attributable to Same Community growth. Management services and other revenue
increased as a percentage of total revenue to 7.4% from 1.9% and includes
development fees of $1.8 million and $30,000 for the three months ended June 30,
1998 and 1997, respectively, and management fees, which increased to $482,000
for the three months ended June 30, 1998 as compared to $407,000 during the
prior year period.
Revenues attributable to Same Communities were $22.9 million for the three
months ended June 30, 1998, representing an increase of $628,000, or 2.8%, over
the same period in 1997. Monthly/per diem service fee revenue on a Same
Community basis increased $1.6 million, or 8.1%, over the three months ended
June 30, 1997. Of this increase, 5.9% was due primarily to increases in average
rates (including adjustments to Medicare rates) and 2.2% was due to a higher
number of occupied units. Same Community average occupancy rates were 92% for
the three months ended June 30, 1998 as compared to 94% for the same period in
1997. The Same Community average occupancy in 1998 includes the dilutive effect
of the first quarter opening of a 127-unit expansion at an owned community.
Home health care agency and companion services fees on a Same Community basis
decreased by $1.0 million, or 38.4%, over the prior period due to significant
reductions in reimbursement rates and the elimination of certain qualifying
services as a result of The Balanced Budget Act of 1997, Public Law 105-33 (the
"BBA"). In response to the negative effects of the BBA on certain of the
Company's home health care agencies, in July 1998, the Company suspended the
operation of six of its recently established home health care agencies pending
either institution of prospective pay or major revisions to the interim payment
system now in effect.
Community Operating Expenses Community operating expenses increased to $18.3
million for the three months ended June 30, 1998, as compared to $14.1 million
for the three months ended June 30, 1997, representing an increase of $4.2
million, or 29.8%. Of the increase in community operating expenses, $3.4
million, or 81.4%, was attributable to expenses from senior living communities,
assisted living residences, and home health agencies acquired or leased after
June 30, 1997. Approximately 18.6% of the increase was attributable to Same
Community operating expenses, which increased by $780,000 over the comparable
period of the prior year. Same Community operating expenses, exclusive of home
health care agency and companion services expenses, increased 7.4% for the three
months ended June 30, 1998, as compared to the comparable period in the
14
<PAGE> 15
prior year. Community operating expense as a percentage of resident and health
care revenues increased to 65.3% for the three months ended June 30, 1998, from
62.9% for the three months ended June 30, 1997. Same Community operating expense
as a percentage of Same Community resident and health care revenues increased to
64.4% for the three months ended June 30, 1998 from 62.7% in the comparable
period in the prior year. Same Community operating expenses exclusive of home
health agency and companion services expenses as a percentage of Same Community
revenues exclusive of home health and companion services revenue decreased to
60.9% for the three months ended June 30, 1998 from 61.3% for the comparable
period in 1997, primarily as a result of an increase in the number of occupied
units.
Same Community resident income from operations decreased 1.8% to $8.2 million
for the three months ended June 30, 1998 as compared to $8.3 million for the
comparable period of 1997. Same Community resident income from operations
excluding home health and companion services increased 9.3% to $8.3 million for
the three months ended June 30, 1998 as compared to $7.6 million for the three
months ended June 30, 1997.
General and Administrative General and administrative expense increased to
$2.3 million for the three months ended June 30, 1998, as compared to $2.2
million for the three months ended June 30, 1997, representing an increase of
$134,000, or 6.1%. The increase was primarily related to increases in salaries
and benefits. General and administrative expense as a percentage of total
revenues decreased to 7.6% for the three months ended June 30, 1998, from 9.5%
for the comparable period in the previous year.
Lease Expense Lease expense increased to $2.0 million for the three months
ended June 30, 1998, from $544,000 for the three months ended June 30, 1997. The
increase of $1.4 million was attributable to leases entered into after June 30,
1997 for Imperial Plaza, Rossmoor Regency, and Bahia Oaks. Same Community lease
expense remained largely unchanged.
Depreciation and Amortization Depreciation and amortization expense increased
to $2.1 million for the three months ended June 30, 1998, from $1.6 million for
the three months ended June 30, 1997, representing an increase of $498,000, or
30.7%. The increase was primarily attributable to senior living communities
acquired or leased after June 30, 1997 and the amortization of the convertible
debenture issuance costs. Same Community depreciation and amortization expense
remained largely unchanged.
Other Income (Expense) Interest expense increased to $3.7 million, net of
capitalized interest of $405,000, for the three months ended June 30, 1998, from
$3.4 million for the three months ended June 30, 1997, representing an increase
of $376,000, or 11.2%. The increase in interest expense was primarily
attributable to the issuance in September 1997 of $138.0 million of the
Company's 5 3/4% Convertible Debentures Due 2002 (the "Convertible Debentures")
and additional indebtedness incurred in connection with acquisitions, partially
offset by the early extinguishment of $65.1 million of fixed rate indebtedness
at December 31, 1997. Interest income increased to $560,000 in the three months
ended
15
<PAGE> 16
June 30, 1998 from $214,000 for the comparable period of the prior year,
primarily due to income generated from the investment of the remaining net
proceeds of the convertible debt offering and certificates of deposits
associated with certain leasing transactions.
Income Tax Expense The conversion from a non-taxable limited partnership to a
taxable corporation in connection with the Company's IPO resulted in a one-time
$3.0 million charge related to the recognition of a net deferred income tax
liability for the difference between accounting and tax bases of the Company's
assets and liabilities. For comparability, pro forma adjustments have been made
to exclude the one-time charge and to provide for income taxes as though the
Company had been subject to corporate income taxes for the entire three months
ended June 30, 1997.
Net Income As a result of the foregoing factors, the Company reported net
income of $1.6 million for the three months ended June 30, 1998 and pro forma
net income of $768,000 for the three months ended June 30, 1997.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Revenues Total revenues were $58.4 million for the six months ended June 30,
1998 compared to $44.4 million for the three months ended June 30, 1997,
representing an increase of $14.0 million, or 31.5%. Resident and health care
revenue increased by $11.0 million and management services and other revenue
increased by $3.0 million. Of the increase in resident and health care revenue,
$9.3 million, or 84.6%, was attributable to revenues derived from senior living
communities, assisted living residences, and home health agencies acquired or
leased after June 30, 1997. The remaining $1.7 million, or 15.4%, of such
increase was attributable to Same Community growth. Management services and
other revenue increased as a percentage of total revenue to 6.7% from 2.2% and
includes development fees of $2.9 million and $240,000 for the six months ended
June 30, 1998 and 1997, respectively, and management fees, which increased to
$1.0 million for the six months ended June 30, 1998 as compared to $725,000
during the prior year period.
Revenues attributable to Same Communities were $45.0 million for the six months
ended June 30, 1998, representing an increase of $1.7 million, or 3.9%, over the
same period in 1997. Monthly/per diem service fee revenue on a Same Community
basis increased $2.8 million, or 7.1%, over the six months ended June 30, 1997.
Of this increase, 5.1% was due primarily to increases in average rates
(including adjustments to Medicare rates) and 2.0% was due to a higher number of
occupied units. Same Community average occupancy rates were 93% for the six
months ended June 30, 1998 as compared to 94% for the same period in 1997. The
Same Community average occupancy in 1998 includes the dilutive effect of the
first quarter opening of a 127-unit expansion at an owned community.
Home health care agency and companion services fees on a Same Community basis
decreased by $1.1 million, or 23.4%, over the prior period due to significant
reductions in
16
<PAGE> 17
reimbursement rates and the elimination of certain qualifying services as a
result of the BBA.
Community Operating Expenses Community operating expenses increased to $35.3
million for the six months ended June 30, 1998, as compared to $27.5 million for
the six months ended June 30, 1997, representing an increase of $7.8 million, or
28.4%. Of the increase in community operating expenses, $6.3 million, or 80.7%,
was attributable to expenses from senior living communities, assisted living
residences, and home health agencies acquired or leased after June 30, 1997.
Approximately 19.3% of the increase was attributable to Same Community operating
expenses, which increased by $1.5 million over the comparable period of the
prior year. Same Community operating expenses, exclusive of home health care
agency and companion services expenses, increased 6.1% for the six months ended
June 30, 1998, as compared to the comparable period in the prior year. Community
operating expense as a percentage of resident and health care revenues increased
to 64.9% for the six months ended June 30, 1998, from 63.4% for the six months
ended June 30, 1997. Same Community operating expense as a percentage of Same
Community resident and health care revenues increased to 64.3% for the six
months ended June 30, 1998 from 63.3% in the comparable period in the prior
year. Same Community operating expenses exclusive of home health agency and
companion services expenses as a percentage of Same Community revenues exclusive
of home health and companion services revenue decreased to 61.1% for the six
months ended June 30, 1998 from 61.7% for the comparable period in 1997,
primarily as a result of a higher number of occupied units.
Same Community resident income from operations increased 1.1% to $16.1 million
for the six months ended June 30, 1998 as compared to $15.9 million for the same
period of 1997. Same Community resident income from operations excluding home
health and companion services increased 8.8% to $16.1 million for the six months
ended June 30, 1998 as compared to $14.8 million for the six months ended June
30, 1997.
General and Administrative General and administrative expense increased to
$4.4 million for the six months ended June 30, 1998, as compared to $4.1 million
for the six months ended June 30, 1997, representing an increase of $301,000, or
7.4%. The increase was primarily related to increases in salaries and benefits.
General and administrative expense as a percentage of total revenues decreased
to 7.5% for the six months ended June 30, 1998, from 9.2% for the comparable
period in the previous year.
Lease Expense Lease expense increased to $3.6 million for the six months ended
June 30, 1998, from $1.1 million for the six months ended June 30, 1997. The
increase of $2.6 million was attributable to leases entered into
after June 30, 1997 for Imperial Plaza, Rossmoor Regency, and Bahia Oaks. Same
Community lease expense remained largely unchanged.
Depreciation and Amortization Depreciation and amortization expense increased
to $4.1 million for the six months ended June 30, 1998, from $3.2 million for
the six months
17
<PAGE> 18
ended June 30, 1997, representing an increase of $887,000, or 27.7%. The
increase was primarily attributable to senior living communities acquired or
leased after June 30, 1997 and the amortization of the convertible debenture
issuance costs. Same Community depreciation and amortization expense remained
largely unchanged.
Other Income (Expense) Interest expense increased to $7.3 million, net of
capitalized interest of $855,000, for the six months ended June 30, 1998, from
$6.6 million for the six months ended June 30, 1997, representing an increase of
$697,000, or 10.5%. The increase in interest expense was primarily attributable
to the issuance in 1997 of $138.0 million of the Company's Convertible
Debentures and additional indebtedness incurred in connection with acquisitions,
partially offset by the early extinguishment of $65.1 million of fixed rate
indebtedness at December 31, 1997. Interest income increased to $1.2 million in
the six months ended June 30, 1998 from $364,000 for the comparable period of
the prior year, primarily due to income generated from the investment of the
remaining net proceeds of the convertible debt offering and certificates of
deposits associated with certain leasing transactions.
Income Tax Expense For comparability, pro forma adjustments have been made to
exclude the $3.0 million one-time tax charge related to the conversion from a
limited partnership to a taxable corporation and to provide for income taxes as
though the Company had been subject to corporate income taxes for the entire six
months ended June 30, 1997.
Net Income As a result of the foregoing factors, the Company reported net
income of $3.1 million for the six months ended June 30, 1998 and pro forma net
income of $1.4 million for the six months ended June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its activities with the net proceeds from
the IPO, its public offering of Convertible Debentures in September 1997,
private placements of equity interests, long-term mortgage borrowings, and cash
flows from operations. At June 30, 1998, the Company had $254.8 million of
indebtedness outstanding, including $138.0 million of Convertible Debentures and
$92.0 million of indebtedness to a capital corporation, with fixed maturities
ranging from October 2000 to April 2028. As of June 30, 1998, approximately
89.6% of the Company's indebtedness bore interest at fixed rates, with a
weighted average interest rate of 6.8%. The Company's variable rate indebtedness
carried an average rate of 6.9% as of June 30, 1998. As of June 30, 1998, the
Company had working capital of $27.8 million.
Net cash provided by operating activities was $6.4 million for the six months
ended June 30, 1998, as compared to $4.7 million provided by operating
activities for the six months ended June 30, 1997. The Company's unrestricted
cash balance was $24.0 million as of June 30, 1998.
18
<PAGE> 19
Net cash used by investing activities was $44.6 million for the six months ended
June 30, 1998, as compared with $3.4 million provided by investing activities
for the six months ended June 30, 1997. During the six months ended June 30,
1998, the Company made additions to land, buildings and equipment of $28.2
million, including construction activity, sold $12.1 million of land and
capitalized development costs to third parties, increased notes receivable
by $5.3 million, and purchased $20.6 million of assets limited as to use in
connection with certain lease transactions.
Net cash provided by financing activities was $17.5 million for the three months
ended June 30, 1998, as compared with $10.6 million provided by financing
activities for the three months ended June 30, 1997. The Company had borrowings
of $17.6 million of long-term debt during the six months ended June 30, 1998.
The Company maintains a $50.0 million revolving credit facility that is
available for acquisitions, a $5.0 million secured line of credit with a bank
that is available for land acquisitions, and a $4.0 million secured line of
credit with a bank that is available for working capital and to secure various
debt instruments, of which approximately $2.2 million had been used at June 30,
1998 to obtain letters of credit. During the three months ended June 30, 1998,
the Company borrowed $15.0 million under the $50.0 million revolving credit
facility. No borrowings are outstanding under the $5.0 million line of credit.
The $50.0 million revolving credit facility contains financial covenants that
require the Company to maintain certain prescribed debt service coverage,
liquidity, net worth, and capital expenditure reserve levels. All of the
Company's owned communities are subject to mortgages. Seven of the Company's
seventeen owned communities serve as blanket collateral for the indebtedness
payable to the capital corporation described above. Each of the Company's debt
agreements contains restrictive covenants that generally relate to the use,
operation, and disposition of the communities that serve as collateral for the
subject indebtedness, and prohibit the further encumbrance of such community or
communities without the consent of the applicable lender. Additionally,
substantially all of such indebtedness is cross-defaulted. The Company does not
believe such restrictions are material to its business because the Company does
not intend to further encumber its owned properties and does not believe the
covenants relating to the use, operation, and disposition of its communities
materially limit its operations.
The Company has entered into non-binding letters of intent (the "REIT
Facilities") pursuant to which two real estate investment trusts, at the
Company's request and upon satisfaction of certain conditions, would develop,
construct, or acquire up to $110.0 million and $74.7 million, respectively, of
senior living communities and lease the communities to the Company. Currently,
the Company has been allocated $41.6 million and $4.7 million, respectively, in
commitments under the REIT Facilities.
19
<PAGE> 20
In early July 1998, the Company entered into a $36.0 million fixed rate first
mortgage secured by one of its senior living communities. The mortgage bears
interest at a rate of 6.87% and matures in July 2008.
In May 1998, the Company entered into an agreement to operate the Rossmoor
Regency, a senior living community located in Laguna Hills, California, with
capacity for approximately 210 residents. The transaction was structured as a
five-year operating lease (with five one-year renewal options) to the Company
from an unaffiliated special purpose entity that purchased the community as part
of the transaction. The Company is obligated to make annual rental payments of
approximately $2.0 million and has made a refundable security deposit of
approximately $4.6 million. In connection with the transaction, the Company made
a subordinated loan to the owner of the community in the amount of $440,000 and
will receive interest income on such loan at 2.0% over LIBOR. The lease is
structured such that the payments are level throughout the term of the lease,
and the Company is entitled to depreciation deductions for tax purposes. The
Company also acquired an option to purchase the community at the expiration of
the lease term. In addition, the Company paid $1.2 million in cash to acquire
the rights to receive a portion of the entry-fee turnover cash flow from an
unrelated CCRC. At the time of closing, the community was approximately 93%
occupied.
In June 1998, the Company entered into an agreement to operate Bahia Oaks Lodge,
an assisted living residence located in Sarasota, Florida, with capacity for
approximately 100 residents. The transaction was structured as a five-year
operating lease (with five one-year renewal options) to the Company from an
unaffiliated special purpose entity that purchased the community as part of the
transaction. The Company is obligated to make annual rental payments of
approximately $700,000 and has made a refundable security deposit of
approximately $5.4 million. The lease is structured such that the payments are
level throughout the term of the lease, and the Company is entitled to
depreciation deductions for tax purposes. The Company also acquired an option to
purchase the community at the expiration of the lease term. At the time of
closing, the community was approximately 95% occupied.
During the six month period ending June 30, 1998, the Company entered into
various commitments related to the development of eight assisted living
residences (the "Developments"). The Company entered into loan agreements for an
aggregate amount of $43.5 million with the owners of four of the Developments to
provide funding for their construction. Typically, these loans will bear
interest at 200 basis points over 30 day LIBOR and require amortization over a
25 year term. As of June 30, 1998, $4.4 million was advanced under the loan
agreements.
The owners of the Developments ("the Lessors") have entered into construction
agreements and operating leases with various third parties (the "Lessees") for
construction and operation of the Developments. In six of these transactions,
the Lessee is an affiliate of a director of the Company. The operating leases
have initial terms of five years and include renewal and purchase options. The
Lessees have entered into
20
<PAGE> 21
construction management and guaranty agreements with the Company whereby the
Company will manage the construction of the Developments for a fee equal to
approximately 3.75% of total development costs. The Company has pledged
certificates of deposit in the amount of $9.7 million as collateral for its
agreement to fund operating deficits of the Lessees in excess of certain
agreed-upon limits. These deposits are reflected on the Company's balance sheet
as "non-current assets limited as to use." The Company has also entered into
agreements with the Lessees to manage the Developments for a fee based on a
percentage of revenues and to acquire the leasehold interests of the Lessees.
The Company owns the land upon which four of the Developments are located and
has leased the land to the owners for a term of 50 years.
On July 14, 1998, the Company acquired FGI and certain entities affiliated with
FGI and with its Chairman. The acquisition resulted in the ownership of three
lifecare CCRCs and management of four additional CCRCs. The Company also
acquired options to purchase two of the managed CCRCs. Additionally, the Company
entered into a development and management contract for, and acquired an option
to purchase, one additional CCRC currently under development. The aggregate
resident capacity for the owned and managed communities included in this
transaction is approximately 3,700. The development project will add capacity
for approximately 400 residents. The consideration paid was approximately $43.0
million, including $23.2 million of cash and 1,370,000 shares of the Company's
common stock valued at $19.8 million. The Company paid an additional $4.0
million for the purchase options and $1.5 million to assume two of the
management contracts. In connection with the execution of management agreements
for three of the communities to be managed pursuant to the FGI transaction, the
Company assumed FGI's guaranties of an aggregate of $73.5 million of mortgage
debt relating to such communities. The transaction was accounted for as a
purchase. At the time of closing of the FGI transaction, the communities
acquired and managed had a stabilized occupancy rate of 94%.
On August 4, 1998, the Company completed a public offering of 4,500,000 shares
of common stock, of which 4,297,500 were sold by the Company and 202,500 shares
were sold by certain selling shareholders. The Company and certain selling
shareholders have granted the underwriters a thirty-day over-allotment option to
purchase an additional 592,900 and 82,100 shares, respectively, of common stock.
Net proceeds to the Company are estimated to be $64.9 million ($73.9 million if
the over-allotment option is exercised in full).
The aggregate estimated cost to complete and lease-up the 36 senior living
communities currently under development is approximately $440.0 million to
$465.0 million. In addition, the Company plans to expand seven of its owned
communities, which are expected to cost approximately $55.0 million to complete
and lease-up.
The Company expects that its current cash, together with cash flow from
operations, the proceeds of the offering completed in July 1998, and credit
available under the $50.0 million revolving credit facility, the REIT
Facilities, and other existing credit arrangements, will be sufficient to meet
its operating requirements and to fund its anticipated growth for at least the
next 12 months. The Company expects to use a wide variety of financing sources
to fund its future growth, including public and private debt
21
<PAGE> 22
and equity, conventional mortgage financing, and unsecured bank financing, among
other sources. There can be no assurance that financing from such sources will
be available in the future or, if available, that such financing will be
available on terms acceptable to the Company.
YEAR 2000 COMPLIANCE
The Company is currently assessing the impact of Year 2000 issues on the
Company's business, results of operations, and financial condition. The Company
anticipates substantially completing the testing of its information systems
during the first quarter of 1999. The majority of the Company's critical
information systems were purchased from outside vendors who have upgraded their
applications to be Year 2000 compliant. One of the Company's billing systems was
internally developed and is currently not capable of processing Year 2000
transactions. Although the Company has not completed its assessment, the Company
does not currently believe that the costs to make such billing system Year 2000
compliant will be material. The Company is also evaluating other Year 2000
implications associated with its community operations, such as elevators,
security systems, HVAC systems, and utilities, which will include contacting the
providers of such systems and services to determine the status of their Year
2000 compliance and is developing contingency plans for those systems and
services that are not Year 2000 compliant. The Company anticipates substantially
completing the testing of such systems and services during the first quarter of
1999. The total cost of compliance measures is not estimated to be material and
is being funded through operating cash flows and expensed as incurred.
RISKS ASSOCIATED WITH FORWARD LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements within the meaning of
the federal securities laws, which are intended to be covered by the safe
harbors created thereby. Those statements include, but may not be limited to,
the discussions of the Company's operating and growth strategy, including its
development plans and possible acquisitions. Investors are cautioned that all
forward-looking statements involve risks and uncertainties including, without
limitation, those set forth under the caption "Risk Factors" in the Company's
Registration Statements on Form S-1 (No. 333-23197 and No. 333-34339) and the
Company's prospectus supplement dated July 30, 1998. Although the Company
believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could prove to be
inaccurate, and therefore, there can be no assurance that the forward-looking
statements included in this Form 10-Q will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved. The Company undertakes no obligation to
publicly release any revisions to any forward-looking statements contained
herein to reflect events and circumstances occurring after the date hereof or to
reflect the occurrence of unanticipated events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on May 5,
1998 (the "Annual Meeting"). At the Annual Meeting, the
shareholders of the Company voted to elect four Class I directors
for a term of three years and until their successors are duly
elected and qualified. The following table sets forth the number
of votes cast for and against/withheld with respect to each of
the director nominees:
<TABLE>
<CAPTION>
Nominee For Against/Withheld
------- --- ----------------
<S> <C> <C>
Jack O. Bovender, Jr. 9,474,637 1,265
Christopher J. Coates 9,474,637 1,265
Daniel K. O'Connell 9,474,637 1,265
Lawrence J. Stuesser 9,474,637 1,265
</TABLE>
In addition to the foregoing directors, the following table sets
forth the other members of the Board of Directors whose term of
office continued after the meeting and the year in which his or
her term expires:
<TABLE>
<CAPTION>
Name Term Expires
---- ------------
<S> <C>
Frank M. Bumstead 1999
Clarence Edmonds 1999
Nadine C. Smith 1999
W.E. Sheriff 2000
H. Lee Barfield II 2000
John A. Morris, Jr., M.D. 2000
Robin G. Costa 2000
</TABLE>
22
<PAGE> 23
ITEM 5. OTHER INFORMATION
Any proposal intended to be presented for action at the 1999
annual meeting of shareholders by any shareholder of the Company
must be received by the Secretary of the Company not later than
December 1, 1999 in order for such proposal to be considered
timely under the advance notice provisions of the Company's bylaws
and to be eligible for inclusion in the Company's proxy statement
and form of proxy relating to its 1999 annual meeting of
shareholders. Nothing in this paragraph shall be deemed to require
the Company to include any shareholder proposal that does not meet
all of the requirements for such inclusion established by the
Securities and Exchange Commission or the Company's bylaws.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 27 --- Financial Data Schedule for SEC use only.
b. Reports on Form 8-K
The Company filed a Current Report on Form 8-K, dated May 29,
1998, to report pursuant to Item 5 that the Company had entered
into definitive agreements to acquire 100% of the ownership
interests in FGI and certain entities affiliated with FGI and with
its chairman, and to enter into certain related transactions. The
Current Report contained audited financial statements for the
entities acquired pursuant to the FGI Transaction and pro forma
financial statements for the Company giving effect to the FGI
transaction.
23
<PAGE> 24
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.
American Retirement Corporation
Date: August 14, 1998 By: /s/ George T. Hicks
---------------------------
George T. Hicks
Executive Vice President
and Chief Financial Officer
(principal financial and
accounting officer)
24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 23,973
<SECURITIES> 0
<RECEIVABLES> 8,109
<ALLOWANCES> 0
<INVENTORY> 624
<CURRENT-ASSETS> 40,776
<PP&E> 264,704
<DEPRECIATION> 22,108
<TOTAL-ASSETS> 339,230
<CURRENT-LIABILITIES> 12,975
<BONDS> 254,485
0
0
<COMMON> 114
<OTHER-SE> 57,167
<TOTAL-LIABILITY-AND-EQUITY> 339,230
<SALES> 0
<TOTAL-REVENUES> 58,390
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 47,451
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,308
<INCOME-PRETAX> 4,905
<INCOME-TAX> 1,766
<INCOME-CONTINUING> 3,139
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,139
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
