UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE PERIOD ENDED SEPTEMBER 30, 2000For the period ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-8187
GREENBRIAR CORPORATIONGreenbriar Corporation
(Exact name of Registrant as specified in its charter)
NEVADANevada 75-2399477
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
4265 KELLWAY CIRCLE, ADDISON, TEXAS 7500114185 Dallas Parkway, Suite 650, Dallas, Texas 75240
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 407-8400
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTEREDName of Each Exchange
Title of Each Class on Which Registered
------------------- -----------------------------------------
Common Stock, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the issuer was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
YES [X] NO [ ]
At November 11, 2000,May 14, 2001, the issuer had outstanding approximately 7,011,0008,320,000 shares of
par value $.01 Common Stock.
1
GREENBRIAR CORPORATION
Index to Quarterly Report on Form 10-Q
Period ended September 30, 2000
PARTMarch 31, 2001
Part I: FINANCIAL INFORMATION..................................................3Financial Information..................................................3
ITEM 1: FINANCIAL STATEMENTS................................................3
CONSOLIDATED BALANCE SHEETS...............................................3
CONSOLIDATED STATEMENTS OF OPERATIONS.....................................5
CONSOLIDATED STATEMENTS OF CASH FLOW......................................6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................................7Consolidated Balance Sheets...............................................3
Consolidated Statements Of Operations.....................................5
Consolidated Statements Of Cash Flow......................................6
Notes To Consolidated Financial Statements................................7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.............................11
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000
COMPARED TO THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999.....12
EFFECT OF INFLATION......................................................16
FORWARD LOOKING STATEMENTS...............................................16
PARTOPERATIONS....................................10
Three month period ended March 31, 2001 compared to three month period
ended March 31, 2000.....................................................10
Forward Looking Statements...............................................13
Part II: OTHER INFORMATION....................................................17Other Information....................................................14
2
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
GREENBRIAR CORPORATION- - ----------------------------
Greenbriar Corporation
Consolidated Balance Sheets
(AMOUNTS IN THOUSANDS)(Amounts in thousands)
March 31, December 31,
Assets 2001 2000
(Unaudited)
Current Assets
Cash And Cash Equivalents $ 3,537 $ 2,287
Accounts Receivable-Trade 315 470
Other Current Assets 1,416 1,105
---------- -----------
Total Current Assets 5,268 3,862
Deferred Income Tax Benefit 4,750 4,750
Property And Equipment, At Cost
Land And Improvements 9,308 9,716
Buildings And Improvements 73,428 75,723
Equipment And Furnishings 6,300 6,615
---------- -----------
89,036 92,054
Less Accumulated Depreciation 12,416 12,410
---------- -----------
76,620 79,644
Deposits 3,720 3,834
Goodwill And Other Intangibles 9,251 9,347
Other Assets 1,150 1,151
---------- -----------
$ 100,759 $ 102,588
========== ===========
3
September 30,Greenbriar Corporation
Consolidated Balance Sheets - Continued
(Amounts in thousands)
March 31, December 31,
Liabilities And Stockholders' Equity 2001 2000 1999
------------- -------------
(Unaudited)
ASSETS
Current Assets
Cash And Cash Equivalents $ 2,914 $ 8,814
Accounts Receivable-Trade 517 182
Other Current Assets 1,449 848
------------- -------------
Total Current Assets 4,880 9,844
Deferred Income Tax Benefit 4,750 4,750
Mortgage Note Receivable, Net Of
Deferred Gain Of $3,083 - 3,617
Property And Equipment, At Cost
Land And Improvements 9,943 11,179
Buildings And Improvements 75,906 76,848
Equipment And Furnishings 6,542 6,586
------------- -------------
92,391 94,613
Less Accumulated Depreciation 11,683 9,888
------------- -------------
80,708 84,725
Deposits 3,834 3,907
Goodwill And Other Intangibles 9,848 10,439
Other Assets 703 2,626
------------- -------------
$ 104,723 $ 119,908
============= =============
3
GREENBRIAR CORPORATION
Consolidated Balance Sheets - Continued
(AMOUNTS IN THOUSANDS)
September 30, December 31,
2000 1999
----------------- ----------------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current Maturities Of Long-Term Debt $ 2,5292,413 $ 3,3172,538
Accounts Payable - Trade 1,451 2,072528 1,445
Accrued Expenses 875 1,3451,198 1,934
Other Current Liabilities 1,424 678904 668
------------- -------------
Total Current Liabilities 6,279 7,4125,043 6,585
Long-Term Debt 50,096 50,47750,880 50,887
Financing Obligations 10,815 10,815
Other Long Term Liabilities 1,060 721733 657
------------- -------------
Total Liabilities 68,250 69,42567,471 68,944
Preferred Stock Redemption Obligation 26,262 27,76327,167 26,988
Stockholders' Equity
Preferred Stock 257 28969 254
Common Stock $.01 Par Value; Authorized, 20,000100,000
Shares; Issued And Outstanding, 8,348 Shares 84 76
And 7,514 Shares, 76 76Respectively
Additional Paid-In Capital 61,055 61,52060,215 60,219
Accumulated Deficit (48,810) (36,798)(51,880) (51,526)
------------- -------------
12,578 25,0878,488 9,023
Less Stock Purchase Notes Receivable
(Including $2,250 From Related Parties) (2,367) (2,367)
------------- -------------
10,211 22,7206,121 6,656
------------- -------------
$ 104,723100,759 $ 119,908102,588
============= =============
4
Greenbriar Corporation
Consolidated Statements Of Operations
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)(Amounts in thousands, except per share data)
For The Three Month
Period Ended
March 31,
2001 2000
---------- ----------
(Unaudited)
Revenue
Assisted living operations $ 9,976 $ 10,522
---------- ----------
9,976 10,522
Operating expenses
Assisted living community
operations $ 6,004 $ 6,256
Lease expense 1,154 1,288
Depreciation and amortization 865 979
Corporate, general and
administrative 1,184 1,112
---------- ----------
9,207 9,635
---------- ----------
Operating income 769 887
Other income (expense)
Interest income $ 77 $ 115
Interest expense (1,422) (1,391)
Net gain on the sale of assets 381 108
Other (81) (68)
---------- ----------
(1,045) (1,236)
---------- ----------
Loss before income taxes (276) (349)
Income tax benefit -- --
---------- ----------
Net loss (276) (349)
Preferred stock dividend
requirement (80) (1,047)
Loss allocable to common
stockholders (356) (1,396)
========== ==========
Net loss per common share -
basic and diluted $ (0.04) $ (0.19)
Weighted average number
of common and equivalent
shares outstanding 8,348 7,514
5
For The Three Month For The Nine Month
Period Ended Period Ended
September 30, September 30,
----------------------------------- -----------------------------------
2000 1999 2000 1999
---------------- ----------------- ----------------- ----------------
(Unaudited) (Unaudited)
Revenue
Assisted living operations $ 10,263 $ 10,421 $ 31,104 $ 30,872
----------- ---------- ---------- ---------
10,263 10,421 31,104 30,872
Operating Expenses
Assisted living community
operations $ 6,222 $ 6,317 $ 18,619 $ 18,612
Lease expense 1,217 1,297 3,759 3,877
Depreciation and amortization 903 1,002 2,846 3,028
Corporate general and
administrative 1,067 1,093 3,244 3,350
Write-off of impaired assets
and related expenses - - 7,461 -
----------- ---------- ---------- ---------
9,409 9,709 35,929 28,867
----------- ---------- ---------- ---------
Operating income (loss) 854 712 (4,825) 2,005
Other income (expense)
Interest and dividend income $ 105 $ 184 $ 321 $ 497
Interest expense (1,454) (1,424) (4,264) (4,291)
Gain (loss) on the sale of assets - (186) 74 (186)
Other (76) (72) (216) 148
----------- ---------- ---------- ---------
(1,425) (1,498) (4,085) (3,832)
----------- ---------- ---------- ---------
Net loss (571) (786) (8,910) (1,827)
Preferred stock dividend
requirement (1,028) (1,189) (3,103) (3,535)
Loss allocable to common
stockholders (1,599) (1,975) (12,013) (5,362)
----------- ---------- ---------- ---------
Net loss per common share -
basic and diluted $ (0.21) $ (0.27) $ (1.60) $ (.74)
Weighted average number
of common and equivalent
shares outstanding 7,514 7,275 7,514 7,275
5
GREENBRIAR CORPORATION
Consolidated Statements Of Cash Flow
(AMOUNTS IN THOUSANDS)
Greenbriar Corporation
Consolidated Statements Of Cash Flow
(Amounts in thousands)
For the ninethree month
Period Ended September 30,March 31,
2001 2000
1999
---------------- ---------------------------- ----------
(Unaudited) (Unaudited)
Cash flows from operating activities
Net loss $ (8,910)(276) $ (1,827)(349)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 2,846 3,028
Loss (gain)865 979
Gain on salessale of assets (74) 186
Write-off of impaired assets and related expenses 7,461 -(381) (108)
Changes in operating assets and liabilities
Accounts receivable (335) 122155 (122)
Other current and noncurrent assets (791) (253)(236) (413)
Accounts payable and other liabilities (6) (2,503)
------------- ---------------(1,341) (1,332)
---------- ----------
Net cash used in operating activities (1,214) (1,345)
---------- ----------
Cash flows provided by (used in) operating activities 191 (1,247)
------------- ---------------
Cash flows used in investing activities
Proceeds from sale of property 645 6,5672,767 341
Purchase of property and equipment (1,068) (849)
------------- ---------------(91) (416)
---------- ----------
Net cash provided by (used in) investing
activities (423) 5,7182,676 (75)
Cash flows from financing activities
Proceeds from borrowings - 2,080
Payments on debt (569) (6,978)(132) (199)
Dividends on preferred stock (1,099) (1,227)(80) (371)
Redemption of preferred stock (4,000) -
------------- ----------------- (3,500)
---------- ----------
Net cash used in financing
activities (5,668) (6,125)
------------- ---------------(212) (4,070)
---------- ----------
NET DECREASEINCREASE (DECREASE) IN CASH AND (5,900) (1,654)1,250 (5,490)
CASH EQUIVALENTS
Cash and cash equivalents at beginning of period 2,287 8,814
6,024
------------- ------------------------- ----------
Cash and cash equivalents at end of period $ 2,9143,537 $ 4,370
============= ===============3,324
========== ==========
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE UNAUDITED THREE AND NINE MONTHS ENDED SEPTEMBER 30,Notes To Consolidated Financial Statements
For the Unaudited Three Months Ended March 31, 2001 and 2000
AND 1999
NOTENote A: BASIS OF PRESENTATIONBasis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of Greenbriar Corporation and its majority-owned subsidiaries
(collectively, "the Company"). All significant intercompany transactions and
accounts have been eliminated.
The statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and, accordingly, do not include all of the
information and footnotes required by generally accepted accounting principles.
These financial statements have not been auditedexamined by independent certified
public accountants, but in the opinion of management, all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
consolidated results of operations, consolidated financial position and
consolidated cash flows at the dates and for the periods indicated, have been
included.
Operating results for the three and nine month periodsthree-month period ended September 30, 2000March 31, 2001 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000.2001. For further information, refer to the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1999.2000.
7
NOTE B: LONG-TERM OBLIGATIONS
Note B: Long-Term Obligations
Long-term debt is comprised of the following (in thousands):
September 30,March 31, December 31,
2001 2000
1999
------------- ---------------- ----
Notes payable to financial institutions maturing
through 2018; fixed and variable interest rates
ranging from 7.5% to 11.75%; collateralized by
property, fixtures, equipment and the
assignment of rents $ 25,30427,892 $ 25,68127,991
Notes payable to individuals and companies
maturing through 2022; variable and fixed
interest rates ranging from 7% to 12%
collateralized by real property, personal
property, fixtures, equipment and the
assignment of rents 4,488 4,5724,466 4,477
Note payable to the Redevelopment Agency of the
City of Corona, California, payable into a sinking
fund semi-annually in increasing amounts from
$65 to $420 through May 1, 2015; variable
interest rate of 5.55%5.50% at September
30, 2000;March 31, 2001;
collateralized by personal property, land, fixtures
and rents 7,005 7,1106,895 6,895
Mortgage note payable to a financial institution
maturing in 2003; bearing interest at 9.43%7.85%;
collateralized by property and equipment 13,972 13,972
Other 1,856 2,45968 90
------------ -------------
52,625 53,794------------
53,293 53,425
Less: current maturities 2,529 3,3172,413 2,538
------------ -------------------------
$ 50,09650,880 $ 50,47750,887
The Company operates two communities that are financed through sale-leaseback
obligations. At the end of the tenth year of the fifteen-year leases (March 31,
2004), the Company has options to repurchase the communities for the greater of
the sales prices or their current replacement costs less depreciation plus land
at current fair market values. Accordingly, these transactions have been
accounted for as financings, and the Company has recorded the proceeds from the
sales as financing obligations, classified the lease payments as interest
expense and continues to carry the communities and record depreciation.
8
NOTE C: PREFERRED STOCK
Note C: Preferred Stock
The following summarizes the various classes of preferred stock (amounts in
thousands except per share data):
September 30,March 31, December 31,
2001 2000
1999
------------- ---------------- ----
Series B cumulative convertible preferred stock, $.10 par
value; liquidation value of $100; authorized, 100
shares; issued and outstanding, 1 share
$ 1 $ 1
Series D cumulative convertible preferred stock, $.10 par
value; liquidation value of $3,375; authorized, issued
and outstanding, 675 shares
68 68
Series F voting cumulative convertible preferred stock,
$.10 par value; liquidation value of $14,000;
authorized, issued and outstanding, 1,400 shares 140-- 140
Series G cumulative convertible preferred stock, $.10 par
value; liquidation value of $4,800
at September 30, 2000;$4,450; authorized, 800
shares; issued and outstanding, 480445 shares
at September 30, 2000
and 800 shares at December 31, 1999 48 80
----------- -------------- 45
------------- -------------
$ 25769 $ 289
=========== ============254
============= =============
The Series B preferred stock has a liquidation value of $100 per share and is
convertible into common stock over a ten-year period at prices escalating from
$25.00 per share in 1993 to $55.55 per share by 2001. Dividends, at a rate of
6%, are payable in cash or preferred shares at the option of the Company.
The Series D preferred stock has a liquidation value of $5 per share and is
convertible into common stock at $10.00 per share. Cumulative dividends are
payable in cash at a rate of 9.5%.
The Series F voting preferred stock has a liquidation value of $10.00 per share
and each share is convertible into .57 shares of common stock. The Series F
Shareholders have the rights, as a class, to elect one member of the Company's
board of directors and to approve or reject certain transactions, including any
mergers or spin-offs involving the Company. The holder has the option to convert
beginning in January 2000 and must convert by January 2001. Dividends are
payable in cash at a rate of 6%.
The Series G preferred stock has a liquidation value of $10.00 per share and
each share is convertible into .57 shares of common stock. The holder has the
option to convert beginning in January 2000 and must convert by January 2001.
Dividends are payable in cash at a rate of 6%.
9
The Series F and Series G preferred shares were sold to one investor in December
1997, for $22,000,000, less selling and offering costs of $716,000.$453,000. In
connection with the sale, the Company entered into an agreement which provides
that, on the date of conversion, if the value of the Company's common stock has
not increased at an annual rate of at least 14% during the period the preferred
shares are outstanding, the Company is required to make a Cash Payment to the
preferred stockholdersstockholder equal to the market price deficiency on the shares
received upon conversion.
See NOTE E, SUBSEQUENT EVENT and ITEM 2, LIQUIDITY AND CAPITAL RESOURCES for
additional information regardingThe Series F and G preferred shareholders.
NOTE D: WRITE-OFF OF IMPAIRED ASSETS AND RELATED EXPENSES
At June 30, 2000stock had a liquidation value of $10.00 per share
and each share was convertible into .57 shares of common stock. On January 13,
2001 the Company recorded a write-offpreferred F and G shares were converted into 1,054,202 shares of impaired assetscommon
stock. See further discussion of January 13, 2001 conversion and related expenses of $7,461,000.dispute
with preferred shareholder at Item 2, Liquidity and Capital Resources.
9
Note D: Dispositions
In 1992January 2001, the Company sold four nursingits corporate office building in Addison,
Texas and received net cash proceeds of $1,477,772. The Corporate office has
been relocated to approximately 10,000 square feet of leased space in Addison,
Texas. In addition, the Company also sold certain garden homes and related
property that were adjacent to Southern Care CorporationCamelot Retirement in January 2001 and received
net cash proceeds of $866,280. These two transactions resulted in a subsidiarycombined
$381,000 gain on the sale of assets.
Note E: Subsequent Event
In April 2001 the Company exercised purchase options on two of it's leased Fort
Worth, Texas communities, Palm House and Oak Park, and simultaneously sold both
of the two communities to unrelated third parties. Per the terms of the sale of
Oak Park, the Company retained a fifteen-year management agreement with the new
owners. The gross proceeds from the sales of Palm House and Oak Park including
both cash and bonds were $5,200,000 and $15,280,750 respectively. Approximately
$4,450,000 of the cash proceeds generated from the sales of the two communities
were used to payoff the mortgage on a retirement community owned by the Company
in Harlingen, Texas, Camelot Retirement. This mortgage payoff was a requirement
for the exercise of the purchase options on Palm House and Oak Park. The net
cash proceeds generated from these two transactions following the payoff of
Camelot were $496,000.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- - -------------------------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Overview
The Company owns and manages assisted living communities that provide housing,
healthcare, hospitality and personal services to seniors. As of May 14, 2001 the
Company operates 27 communities in 10 states with a capacity of 2,069 residents,
including 1 community managed for a third party.
Three-month period ended March 31, 2001 compared to three-month period ended
March 31, 2000.
Revenues and Operating Expenses from Assisted Living Operations
Revenues were $9,976,000 for the three months ended March 31, 2001 as compared
to $10,522,000 for the three months ended March 31, 2000. Community operating
expenses, which consist of assisted living community expenses, lease expense and
depreciation and amortization, were $8,023,000 for the three months ended March
31, 2001 as compared to $8,523,000 for the three months ended March 31, 2000.
There were two communities disposed of in 2000, and certain garden homes and
related property that was adjacent to Camelot Retirement were sold in 2001. The
revenue and operating expenses from these communities that were included in the
March 31,2000 operating results were $619,000 and $669,000 respectively.
10
Corporate General and Administrative Expenses
General and administrative expenses were $1,184,000 for the three months ended
March 31, 2001 compared to $1,112,000 for the three months ended March 31, 2000.
The increase in the corporate general and administrative expenses is primarily a
result of the increase in corporate legal expenses associated with the ongoing
litigation with LSOF. See further discussion of litigation with LSOF at
Liquidity and Capital Resources.
Net gain on the Sale of Assets
The net gain on the sale of assets for the three months ended March 31, 2001 was
$381,000. The gain is attributable to the sale of Company's corporate office
building which resulted in a gain of $406,000 and the sale of certain garden
homes and related property that was adjacent to Camelot Retirement that resulted
in a loss of $25,000.
The 2000 gain is attributable to the sale of undeveloped land that did not fit
into the Company's strategic plans.
Other Income (Expense)
Other income (expense) for the three months ended March 31, 2001, was ($81,000)
compared to $(68,000) for the same period in 2000. The expense for both periods
is attributable to a minority interest.
Liquidity and Capital Resources
At March 31, 2001, the Company had net working capital of $225,000.
In April 2001 the Company exercised purchase options on two of it's leased Fort
Worth, Texas communities and simultaneously sold both of the two communities to
unrelated third parties. After exercise of the purchase options and the payoff
of approximately $4,450,000 of debt on a third community, the Company generated
$496,000 of cash proceeds. See Note E: Subsequent Event for additional
discussion of these transactions.
In December 1997 the Company sold Series F and Series G convertible preferred
shares for $22,000,000 less selling and offering costs of $453,000. Payment was
received on January 13, 1998. The preferred stockholders receive a cash dividend
of 6% payable quarterly. The sale was to Lone Star Opportunity Fund, L.P.
Subsequent to the initial transaction the preferred stock was sold or
transferred to LSOF Pooled Equity L.P. ("LSOF").
In connection with the sale, the Company entered into a managementan agreement to managewhich
provides that, on the nursing homes. In 1994 Southern Care terminateddate of conversion, if the management agreement and
informedvalue of the Company's common
stock has not increased at the annual rate of at least 14% during the period the
preferred shares are outstanding, the Company that they believed the notes dueis required to make a cash payment
("Cash Payment") to the Companypreferred stockholder equal to the market price
deficiency on the shares received upon conversion.
The 14% guaranteed return has been accreted by a charge to accumulated deficit.
The amount of the Cash Payment that would be required assuming conversion at
each balance sheet date will be transferred from stockholders equity to
temporary equity. At January 13, 2001, a Cash Payment of $27,167,000 would have
been due assuming conversion took place on that date.
11
In January 2000 Greenbriar and LSOF entered into an agreement whereby Greenbriar
would redeem the Series F & G preferred stock from proceeds generated from the
sale or refinancing of certain assets ("the nursing homes in 1992 were invalid. The matter has been inredemption agreement"). In
connection with the courts since 1995 and legal issues were resolved in June 2000 when Greenbriar
was awardedredemption agreement the Company paid LSOF a judgmenttotal of
$18,688,000 for the notes, interest, amounts due for
the management contract and reimbursement of legal fees. The assets had a
recorded value of $4,525,000.
The Company was informed that the financial condition of the four nursing homes
had deteriorated, that they failed to make the mortgage payment, and that the
first mortgage holder foreclosed on the property in June$4,760,000 during 2000.
The Company is
actively pursuing collection of its judgment from Southern Care as well as from
its officers, directors andoriginal agreement provides the Series F & G preferred stockholders the
option to convert beginning January 13, 2000. The agreement further provides for
a third party trustee. However, under the
circumstances the Company is writing off the entire $4,525,000.
The Company decided to dispose of two assisted living communities, which are not
meeting operating performance expectations. These communities were written down
to net realizable value at June 30, 2000. One of these communities was disposed
of in the quarter ending September 30, 2000 with no additional write-off
required. Also, a third community whose operations have deteriorated was written
down basedmandatory conversion on management's estimate of future cash flows pursuant to the
provisions of Statement of Financial Accounting Standards No. 121. In addition
certain receivables associated with these properties were written off. These
write offs substantially account for the remainder of the write-off of impaired
assets and related expenses.
NOTE E: SUBSEQUENT EVENT
The CompanyJanuary 13, 2001. Greenbriar received a notice dated
October 30, 2000, from the holder of all
outstanding shares of Series F Senior Convertible Preferred Stock and Series G
Senior Convertible Preferred Stock,
10
LSOF advising that such holder wasthey were electing to convert the
outstanding shares of preferred stock into common stock. Such notice sets forth
the holder's position that, as a result of certain employee stock options issued
by the Company, the conversion price of the Preferred Stock had been reduced
from $17.50 per share to $0.69 per share, and that the Company must issue
27,502,855 shares of common stock upon conversion. If such shares were issued,
they would constitute 79.7%approximately 80% of the Company's common stock and
represent a change in the control of the
Company.Greenbriar. The Company would be forced to
obtain stockholder approval of the issuance of such a large block of common
stock or face a delisting of its common stock on the American Stock Exchange. In
the event such conversion occurred, the Company's obligation to pay the holder
the "make-whole" distribution that is due upon a conversion or redemption of
preferred stock would be reduced from approximately $27,000,000$27,167,000 to, based upon
information provided by LSOF, approximately $7,600,000.$8,600,000.
The Company believes that the conversion price was not properly subject to
adjustment, and, if the holder were to convert,have converted, it would be at the current
$17.50
conversion price.price stated in the terms of the preferred stock agreement. The
Company's position is based, in part, upon the holder's failure to follow all
procedures for adjustment and conversion at the adjusted price, and on the
Company's recissionrescission of the employee stock options that were the basis for the
holder's purported adjustment.
The holder hasLSOF filed a declaratory judgment action in the State District Court in Dallas
County, Texas seeking a finding that it is entitled to a $0.69 conversion price.
The Company intends to defendfiled specific denials and affirmative defenses and counterclaims in
defense of such action, and seekseeking, among other things, a contrary ruling that the
conversion price was not adjusted.
The parties are engaged in negotiations in an attempt to resolve the matter
amicably.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
During 1994On January 13, 2001, the Company began a seriestook the action mandated by the terms of stepsthe
Series F and G Convertible Preferred Stock to focusconvert the shares of Series F and
G Convertible Preferred Stock remaining outstanding into 1,054,202 shares of
common stock and acknowledged its business onobligation to pay the development, management and ownership of assisted living communities. The
Company's historical businesses duringholder the past five years have included
ownership and operation of skilled nursing and retirement centers, real estate
investments and manufacture and leasing of electric convenience vehicles and
wheelchairs. The nursing and retirement centers and convenience
11
vehicle businesses have been sold and the real estate investments have been
liquidated. The Company began to develop its assisted living business in 1994,
began construction of its first assisted living community in July 1995, and
opened that community to residents on May 30, 1996. In order to increase the
Company's presence in the assisted living industry, create geographic diversity
and obtain experienced personnelapproximate
$27,167,000 Cash Payment amount as funds for repayment become lawfully
available.
On January 15, 2001, the Company acquired Wedgwood Retirement Inns,
Inc. (Wedgwood) in March 1996, American Care Communities, Inc. (American Care)
in December 1996, Windsor Group LLC (Windsor) in October 1997 and Villa
Residential Care Homes, Inc. (Villa) in December 1997. At December 31, 1997received a notice dated January 12, 2001 from
the Company operated 55 communities that were owned, leased or managed for third
parties.
Duringformer holder of the third quarter of 1998preferred stock to the Company made several strategic decisions as
to its future direction. It was decidedeffect that the Company redirect itself with
the following objectives:
o Terminate existing management contracts under which the Company managed
communities for a fee. As of January 1, 1998 the company had two such
contracts.
o Reduce the percentage of residentswas in
the Company's communities who
were dependent on direct assistance from governmental agencies for
payment of their fees. As of January 1, 1998 approximately 50%default of the residents atPreferred Stock Purchase Agreement for failing to provide a
quarterly compliance certificate, failing to meet various financial covenants
and failing to notify the Company's communities received government assistance.
o Move toward direct ownershipholder of the communities operated by the Company
as opposed to long-term lease arrangements. Assuch defaults. LSOF contends that these
alleged breaches of January 1, 1998
approximately 50% of the Company's communities were operated under
long-term lease arrangements.
o Divestiture of communities with limited future profit potential or
geographic locations that were isolated from other Company operations.
As of September 30, 2000 the Company had terminated its management contracts to
manage for others and reduced to 28 the number of communities that it operated.
In 1999 the Company disposed of two communities. In the first quarter of 2000
the Company did not renew a lease on a third community and in the third quarter
of 2000 transferred a lease on another community to a third party. The Company
owns or has current options to purchase all but five of its communities. The
percentage of residents who are private pay is approximately 90%.
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE AND NINE
MONTH PERIODS ENDED SEPTEMBER 30, 1999.
REVENUES AND OPERATING EXPENSES FROM ASSISTED LIVING OPERATIONS
Revenues were $10,263,000 and $31,104,000 for the three and nine months ended
September 30, 2000 as compared to $10,421,000 and $30,872,000 for the three and
nine months ended September 30, 1999. Community operating expenses, which
consist of assisted living community expenses, lease expense and depreciation
and amortization, were $8,342,000 and $25,224,000 for the three and nine months
ended September 30, 2000 as compared to $8,616,000 and $25,517,000 for the three
and nine months ended September 30, 1999. The Company has four less communities
in the third quarter of 2000 than it did the same period of 1999, which
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attributes to the decrease in the current period revenue and expenses. The
revenue and community operating expenses for the three month period ended
September 30, 1999 without the four communities would have been $9,891,000 and
$8,158,000 respectively. The increase in the same community revenue and
operating expenses for the three month period ended September 30, 2000 as well
as the increase in revenue for the nine months ended September 30, 2000 is due
to an increase in both census and average rental rates at the remaining
twenty-eight communities. While the revenue has increased at the remaining
twenty-eight communities, the diligent effort to control expenses has resulted
in a slight decrease in operating costs for the nine month period ended
September 30, 2000 compared with the same period in 1999.
WRITE-OFF OF IMPAIRED ASSETS AND RELATED EXPENSES
For the nine months ended September 30, 2000 the Company recorded a write-off of
impaired assets and related expenses of $7,461,000.
In 1992 the Company sold four nursing homes to Southern Care Corporation and a
subsidiary of the Company entered into a management agreement to manage the
nursing homes. In 1994 Southern Care terminated the management agreement and
informed the Company that they believed the notes due to the Company from the
sale of the nursing homes in 1992 were invalid. The matter has been in the
courts since 1995 and legal issues were resolved in June 2000 when Greenbriar
was awarded a judgment of $18,688,000 for the notes, interest, amounts due for
the management contract and reimbursement of legal fees. The assets had a
recorded value of $4,525,000.
The Company was informed that the financial condition of the four nursing homes
had deteriorated, that they failed to make the mortgage payment, and that the
first mortgage holder foreclosed on the property in June 2000. The Company is
actively pursuing collection of its judgment from Southern Care as well as from
its officers, directors and a third party trustee. However,covenants triggered penalty dividends under the circumstances the Company is writing off the entire $4,525,000.
The Company decided to disposeterms of two assisted living communities, which are not
meeting operating performance expectations. These communities were written down
to net realizable value at June 30, 2000. One of these communities was disposed
of in the quarter ending September 30, 2000 with no additional write-off
required. Also, a third community whose operations have deteriorated was written
down based on management's estimate of future cash flows pursuant to the
provisions of Statement of Financial Accounting Standards No. 121. In addition
certain receivables associated with these properties were written off. These
write offs substantially account for the remainder of the write-off of impaired
assets and related expenses.
INTEREST AND DIVIDEND INCOME
Interest and dividend income for the three and nine months ended September 30,
2000 was $105,000 and $321,000 compared to $184,000 and $497,000 for the
comparable periods in 1999. In the fourth quarter of 1999 the Company disposed
of a preferred stock investment in another company that generated quarterly
dividends in 1999. The decrease in interest and dividend
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income in 2000 is due to the absence of the dividend income from the
preferred stock investment and less cash available for investment purposes.
INTEREST EXPENSE
Interest expense forthat Greenbriar's failure to pay those penalty dividends
entitles the three and nine months ended September 30, 2000 was
$1,454,000 and $4,264,000 comparedLSOF to $1,424,000 and $4,291,000 for the
comparable period in 1999. The decrease in interest expense for the nine month
period ended September 30, 2000 compared to the nine month period ended
September 30, 1999 is reflectiveappoint 70% of the saleBoard of two owned communitiesDirectors. The Company disputes
all such defaults and alternatively claims that such defaults have been waived,
reformed or that LSOF is estopped from asserting them. The Company further
disputes that any penalty dividends were due under the terms of the preferred
stock agreement.
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The State District Court ("the Court") has set July 23, 2001 as the trial date
for this matter.
On March 29, 2001, the Court considered a motion brought by LSOF seeking partial
summary judgment on certain issues. On April 5, 2001, the judge in 1999.
GAIN ON THE SALE OF ASSETSthis case
signed an order granting LSOF's motion as follows:
o The gain oncorrect conversion price of the sale of assets for the nine months ended September 30, 2000 was
$74,000. The gain in the nine-month period ended September 30, 2000 is
attributable to the sale of undeveloped land that did not fit into the Company's
strategic plans.
OTHER INCOME (EXPENSE)
Other income (expense) for the three and nine months ended September 30, 2000,
was ($76,000) and ($216,000) compared to ($72,000) and $148,000 for the same
periods in 1999. The expense for the three and nine months ended September 30,
2000 is attributable to a minority interest. The expense for the three months
ended September 30, 1999 relates to this same minority interest. The income for
the nine months ended September 30, 1999 is a result of a favorable settlement
with a former employee regarding an employment agreement that was accrued in
1998.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had a working capital deficit of $1,399,000
In December 1997 the Company sold Series F and Series G preferred shares for
$22,000,000 less selling and offering costsPreferred
Stock was $0.69 per share based upon Greenbriar's issuance of $716,000.
In connection$0.69
per share options.
o LSOF's Conversion Notice complied with the sale,requirement for conversion
under the Company entered into an agreement which
provides that,Certificates of Designation.
o The conversion price remained $0.69 per share even if Greenbriar
rescinded the $0.69 per share options after LSOF served its conversion
notice based on $0.69 per share of Greenbriar common stock.
This order will be a material factor at the date of conversion, iftrial on July 23, 2001.
Although the value of the Company's commonpreferred stock has not increased at the annual rate of at least 14% during the period the
preferred shares are outstanding,been converted to common stock, the Company is
requiredstill obligated to make a cash payment
("Cash Payment") to the preferred stockholders equal to the market price
deficiency on the shares received upon conversion.
The 14% guaranteed return is being accreted by a charge to accumulated deficit.
The amount ofpay LSOF the Cash Payment that would be required assuming conversion at
each balance sheet date will be transferred from stockholders equityamount. If Greenbriar ultimately
prevails in its dispute with LSOF the amount owed is approximately $27,167,000.
Greenbriar is continuing its plan to temporary equity. At September 30, 2000, a Cash Payment of $26,262,000 would
have been due assuming conversion took place.
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In 2000 the Company made payments totaling $4,000,000 to redeem a portion of the
preferred stock.
In conjunction with the $4,000,000 payment noted above, Greenbriar and the
preferred stockholders have an agreement whereby Greenbriar would redeem the
Series F and G preferred stock from proceeds generated from the salesell or
refinancing of certain assets. The original agreement provides the Series F and
G preferred stockholders the option to convert beginning January 2000 and
mandatory conversion at January 13, 2001.
The Company is proceeding with a plan to refinance its existing portfolio of
communities. At current interest rates and property values the Company believes
it can refinance its existing communities and, if necessary, also sell certain
Communities and obtain sufficient cashassets to
meet the potential Cash Payment. In
addition the Company will seek out additional third party financing. While the
Company believes it will be able to meet any potential Cash Payment requirementrepay LSOF. Although there can be no assurance that the Company's planCompany will be
successful.
At September 30, 2000successful, at current interest rates and since the date of issuance of the Series F and G
preferred stock, the Company was not in compliance with one of theproperty values Greenbriar believes it
can obtain sufficient cash to meet all its financial ratio covenants of the stock purchase agreement. The Company believes this
situation stems from a computational mistake that was made at the time this
particular ratio test was originally determined.
The Company has brought this mistake to the attention of the representative of
the preferred shareholder. The representatives have not indicated to the Company
that they consider that a default has occurred. However, an event of default (1)
gives the holder, upon giving the Company written notice of an event of default,
the right (Put Right) to require the Company to repurchase, "out of funds
legally available therefor," any or all of the preferred stock for an amount
equal to the liquidation value ($18,957,000 in the aggregate) plus accumulated
but unpaid dividends, plus a premium of 20%, and (2) entitles the holder to
additional dividends of $1.20 per share (an aggregate of $660,000 per quarter).
Any additional dividends paid pursuant to this provision would reduce the amount
of the Cash Payment resulting from the aforementioned 14% guaranteed return.obligations including
repaying LSOF.
Future development activities of the Company are dependent upon obtaining
capital and financing through various means, including financing obtained from
sale/leaseback transactions, construction financing, long-term state bond
financing, debt or equity offerings and, to the extent available, cash generated
from operations. There can be no assurance that the Company will be able to
obtain adequate capital to finance its future development activities.
See NOTE E for additional information regarding Series F and G preferred
shareholders.
EFFECT OF INFLATION
The Company's principal sources of revenues are from resident fees from
Company-owned or leased assisted living communities and management fees from
communities operated by the Company for third parties. The operation of the
communities is affected by rental rates that are highly dependent upon market
conditions and the competitive environment in the areas where the
15
communities are located. Compensation to employees is the principal cost element
relative to the operations of the communities. Although the Company has not
historically experienced any adverse effects of inflation on salaries or other
operating expenses, there can be no assurance that such trends will continue or
that should inflationary pressures arise that the Company will be able to offset
such costs by increasing rental rates or management fees.
FORWARD LOOKING STATEMENTSprojected growth
Forward Looking Statements
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: A number of the matters and subject areas discussed in this form 10Qfiling that
are not historical or current facts deal with potential future circumstances,
operations, and prospects. The discussion of such matters and subject areas is
qualified by the inherent risks and uncertainties surrounding future
expectations generally, and also may materially differ from Greenbriar
Corporation's actual future experience involving any one or more of such matters
and subject areas relating to interest rate fluctuations, ability to obtain
adequate debt and equity financing, demand, pricing, competition, construction,
licensing, permitting, construction delays on new developments contractual and
licensure, and other delays on the disposition, transition, or restructuring of
currently or previously owned, leased or managed communities in the Company's
portfolio, and the ability of the Company to continue managing its costs and
cash flow while maintaining high occupancy rates and market rate assisted living
charges in its assisted living communities. Greenbriar Corporation has attempted
to identify, in context, certain of the factors that they currently believe may
cause actual future experience and results to differ from Greenbriar
Corporation's current expectations regarding the relevant matter of subject
area. These and other risks and uncertainties are detailed in the Company's
reports filed with the Securities and Exchange Commission (SEC), including
Greenbriar Corporation's Annual Reports on Form 10-K and Quarterly Reports on
Form 10-Q.
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PART II: OTHER INFORMATION
ITEMS 1-5:1-6: ARE NOT APPLICABLE.
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SIGNATURESSignatures
Pursuant to the requirements of the Securities and Exchange Act of 1934,
registrant has duly caused this report to be signed on its behalf by
undersigned, thereunto duly authorized.
Greenbriar Corporation
Date: November 11, 2000May 14, 2001 By: /S/ GENE/s/ Gene S. BERTCHER
----------------------------Bertcher
--------------------------
Executive Vice President
Chief Financial Officer
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