SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): DECEMBER 31, 2003
EMERITUS CORPORATION
(Exact name of registrant as specified in charter)
WASHINGTON 1-14012 91-1605464
(State or other jurisdiction of incorporation) (Commission File Number)
(IRS Employer Identification No.)
Raymond R. Brandstrom
Vice President of Finance, Chief Financial Officer, and Secretary
Emeritus Corporation
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121
(Address of principal executive offices) (Zip Code)
(206) 298-2909
(Registrant's telephone number, including area code)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
This Form 8-K/A amends the interim report on Form 8-K dated December 31, 2003,
(filed January 14, 2004) to include Item 7 (a) Financial Statements, and Item 7
(b) Pro Forma Financial Information.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired
The combined balance sheet of the Horizon Bay Properties, eight assisted living
facilities managed by Emeritus Corporation, acquired by Emeritus Corporation as
of December 31, 2003, and the combined statements of operations, cash flows, and
changes in members' deficit for the year then ended, and notes thereto and
report of Independent Auditors relating to the December 31, 2003, financial
statements.
(b) Unaudited Pro Forma Financial Information:
i. Emeritus Corporation Pro Forma Consolidated Balance Sheet as of September
30, 2003;
ii. Emeritus Corporation Pro Forma Consolidated Statements of Operations for
the nine months ended September 30, 2003, and the year ended December 31,
2002,
iii. Notes to the Pro Forma Consolidated Financial Statements;
(c) Exhibits:
23.1 Consent of KPMG LLP
ITEM 7A
INDEX TO FINANCIAL STATEMENTS
HORIZON BAY PROPERTIES
PAGE
Independent Auditors' Report 1
Financial Statements:
Combined Balance Sheet at December 31, 2003 2
Combined Statement of Operations for the year ended December 31, 2003 3
Combined Statement of Changes in Members' Deficit
for the year ended December 31, 2003 4
Combined Statement of Cash Flows for the year ended December 31, 2003 5
Notes to Combined Financial Statements 6
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Emeritus Corporation
We have audited the combined balance sheet of the Horizon Bay Properties (the
"Properties") as of December 31, 2003, and the related combined statements of
operations, changes in members' deficit, and cash flows for the year then ended.
These combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Properties as of
December 31, 2003, and the results of their operations and their cash flows the
year then ended, in conformity with accounting principles generally accepted in
the United States of America.
/s/KPMG LLP
Seattle, Washington
March 12, 2004
HORIZON BAY PROPERTIES
COMBINED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
DECEMBER 31,
2003
-------------
Current Assets:
Cash $ 217
Trade accounts receivable, net 44
Other receivables 70
Prepaid expenses and other current assets 509
--------
Total current assets 840
Property and equipment, net 6,485
Lease acquisition costs, net 325
Other assets, net 203
--------
Total assets $ 7,853
========
LIABILITIES AND MEMBERS' DEFICIT
Current Liabilities:
Current portion of long-term debt $ 6,208
Trade accounts payable 175
Accrued employee compensation and benefits 423
Accrued interest 51
Accrued real estate taxes 399
Other accrued expenses 196
Deferred revenue 426
Current portion of deferred rent 250
Other current liabilities 403
--------
Total current liabilities 8,531
Deferred rent, net of current portion 1,857
Other long-term liabilities 12
--------
Total liabilities 10,400
Members' deficit (2,547)
--------
Total liabilities and members' deficit $ 7,853
========
See accompanying notes to combined financial statements.
HORIZON BAY PROPERTIES
COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED
DECEMBER 31, 2003
-------------------
Revenues:
Community revenue $ 15,769
Other service fees 708
-------------------
Total operating revenues 16,477
-------------------
Expenses:
Community operations 10,906
General and administrative 787
Depreciation and amortization 453
Facility lease expense 4,357
-------------------
Total operating expenses 16,503
-------------------
Loss from operations (26)
-------------------
Other income (expense):
Interest income 3
Interest expense (622)
Other, net 1
-------------------
Net other expense (618)
-------------------
Net loss $ (644)
===================
See accompanying notes to combined financial statements.
HORIZON BAY PROPERTIES
COMBINED STATEMENT OF CHANGES IN MEMBERS' DEFICIT
(IN THOUSANDS)
YEAR ENDED
DECEMBER 31, 2003
-------------------
Balance, December 31, 2002 $ (3,440)
Contributions 1,537
Net loss (644)
-------------------
Balance, December 31, 2003 $ (2,547)
===================
See accompanying notes to combined financial statements.
HORIZON BAY PROPERTIES
COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED
DECEMBER 31, 2003
-------------------
Cash flows from operating activities:
Net loss ($644)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 453
Amortization of deferred rent (251)
Provision for doubtful accounts (4)
Changes in operating assets and liabilities:
Trade accounts receivable 17
Other receivables (65)
Prepaid expenses and other current assets (425)
Other assets (138)
Trade accounts payable (471)
Accrued employee compensation and benefits 26
Accrued interest 8
Accrued real estate taxes (4)
Other accrued expenses 55
Deferred revenue 168
Other current liabilities (144)
Other long-term liabilities (26)
-------------------
Net cash used in operating activities (1,445)
-------------------
Cash used in investing activities:
Acquisition of property and equipment (214)
-------------------
Cash flows from financing activities:
Contributions 1,537
Repayment of long-term borrowings (91)
-------------------
Net cash provided by financing activities 1,446
-------------------
Net decrease in cash (213)
Cash at the beginning of the year 430
-------------------
Cash at the end of the year $ 217
===================
Supplemental disclosure:
Cash paid for interest ($615)
See accompanying notes to combined financial statements.
HORIZON BAY PROPERTIES
Notes to Combined Financial Statements
December 31, 2003
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The Horizon Bay Properties (the "Properties") are limited liability entities and
include the operations of eight assisted living communities comprising an
aggregate of approximately 617 units. The Properties are located in Louisiana
and Texas and provide a residential housing alternative for senior citizens who
need help with the activities of daily living, with an emphasis on assisted
living and personal care services including memory loss services. Until May
2002, the Properties had been previously operated by Horizon Bay Management
L.L.C. ("Horizon Bay"). In April 2002, Emeritus Corporation (the "Company")
entered into agreements to acquire the ownership interest of one community and
the leasehold interest of seven communities for the assumption of the mortgage
debt relating to the owned community and the lease obligations relating to the
leased communities. In May 2002, the Company assigned its rights under these
agreements to entities wholly owned by Mr. Baty (the "Baty entities") and
entered into five-year management agreements expiring April 30, 2007, with the
Baty entities, providing for a management fee of 5% of gross revenue. As a part
of these agreements, the Company had the right but not the obligation to
reacquire the one community and seven leased communities at any time prior to
April 30, 2007, by assuming the mortgage debt and lease obligations and paying
the Baty entities the amount of any cash investment in the communities, plus 9%
per annum. In the original agreements of acquisition with the Baty entities,
Horizon Bay agreed to fund operating losses of the communities to the extent of
approximately $2.5 million in the first twelve months and $870,000 in the second
twelve months following the closing. Under the management agreements with the
Baty entities, the Company had agreed to fund any operating losses in excess of
these limits over the five-year management term. In late 2002, the Baty entities
and Horizon Bay altered their agreement relating to operating losses whereby (i)
Horizon Bay paid the Baty entities $2.4 million and (ii) the Baty entities
waived any further funding by Horizon Bay of operating losses of the
communities. Such payments were recorded as deferred rent. This alteration did
not change the Company's funding commitment, however, the Company has not funded
any operating losses. Effective December 31, 2003, the Company has assumed the
existing leases relating to the seven leased communities. In lieu of acquiring
the remaining community that was subject to mortgage financing, the Company
entered into an agreement to lease the community from the applicable Baty entity
effective December 31, 2003.
Basis of Presentation and Principles of Combination
The combined financial statements include the accounts of the Properties as of
December 31, 2003. All significant inter-company balances and transactions are
eliminated in combination. The combined financial statements are presented as
if the Properties had operated as an independent stand-alone entity. In
addition, costs related liabilities for general liability and casualty insurance
and workers' compensation have been charged to the Properties based on
agreements in effect between the Company and the Properties based on an
allocation of actual costs.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Operating revenue consists of resident fee revenue and other service fee
revenue. Resident units are rented on a month-to-month basis and rent is
recognized in the month the unit is occupied. Service fees paid by residents
for assisted living and other related services are recognized in the period
services are rendered.
Nonrefundable move-in fees are deferred and recognized over the average period
of occupancy, approximately 16 months. The Properties have not deferred any of
the costs related to move-ins.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
assets as follows: buildings and improvements, 25 to 40 years; furniture,
equipment and vehicles, five to seven years; leasehold improvements, over the
lease term.
The Properties account for impairment of long-lived assets, which include
property and equipment, in accordance with the provisions of Statement of
Financial Accounting Standard No. 144 Accounting for the Impairment or Disposal
of Long-Lived Assets. Such changes include changes in the Properties business
strategies and plans and deteriorating operating performance of individual
communities. The Properties use a variety of factors to assess the impairment
of assets depending on their nature and use. Such assessments are primarily
based upon the sum of expected future undiscounted net cash flows over the
expected period the asset will be utilized, as well as market values and
conditions. The computation of expected future undiscounted net cash flows can
be complex and involves a number of subjective assumptions. Any changes in
these factors or assumptions could impact the assessment of an asset and result
in an impairment charge equal to the amount by which its carrying value exceeds
its actual or estimated fair value.
Deferred Rent
Deferred rent represents payments made by Horizon Bay to the Properties in
reimbursement for operating losses. Such amounts are being amortized over the
term of the lease.
Community Operations
Community operations expenses represent direct costs incurred to operate the
communities and include costs such as resident activities, marketing,
housekeeping, food service, payroll and benefits, facility maintenance,
utilities, taxes, and licenses.
Income Taxes
No provision for federal income taxes is included in the financial statements
since such taxes, if any, are payable or recoverable by the members.
(2) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31 (In thousands):
DECEMBER 31,
2003
---------------------
Land and improvements $ 1,050
Building and improvements 4,373
Furniture and equipment 1,121
Leasehold improvements 445
---------------------
6,989
Less accumulated depreciation and amortization 504
---------------------
$ 6,485
=====================
(3) LONG-TERM DEBT
Long-term debt consists of a mortgage on one facility which is secured by the
facility. The entire amount of long-term debt is current as of December 31,
2003, as the loan matures on June 30, 2004. Interest is payable monthly at a
rate of 8%. Management believes that this amount will be refinanced and the
debt was not assumed by Emeritus in its December 31, 2003, acquisition.
(4) LEASES
At December 31, 2003, the Properties leased 7 assisted living communities and
certain vehicles and equipment for community operations. Minimum lease payments
under noncancelable operating leases at December 31, 2003, are as follows (In
thousands):
2004 $ 4,499
2005 4,499
2006 4,499
2007 4,499
2008 4,499
Thereafter 13,632
-------------
Total $ 36,127
=============
Facility lease expense under noncancelable operating leases was approximately
$4.6 million for 2003.
(5) COMMITMENTS AND CONTINGENCIES
The Properties are involved in legal proceedings, claims, and litigation arising
in the ordinary course of business. In the opinion of management, the outcome
of these matters will not have a material effect on the Properties' combined
results of operation, financial position, or cash flows.
ITEM 7B
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
HORIZON BAY TRANSACTION
On September 30, 2003, Emeritus Corporation, (the "Company") entered into an
agreement to lease eight communities (the "Properties") in two states comprising
an aggregate of approximately 617 units that we formerly managed. As of
December 31, 2003, we assumed the leases on seven of the leased facilities and
entered into a lease agreement for the eighth facility. The seven assumed
leases are with third-party real estate investment trusts. The eighth lease is
with our Chairman and CEO, Dan Baty. The terms of the eight leases are from 8
to 10 years, effective as of December 31, 2003.
The following unaudited pro forma consolidated balance sheet of Emeritus
Corporation at September 30, 2003, gives effect to the acquisition as if it
occurred as of that date. The following unaudited pro forma consolidated
statements of operations of Emeritus Corporation for the nine months ended
September 30, 2003, and the year ended December 31, 2002, gives effect to the
acquisition as if it occurred as of January 1, 2003, and January 1, 2002,
respectively.
The unaudited pro forma consolidated financial statements have been derived
from, and should be read in conjunction with, the historical consolidated
financial statements, including the notes thereto, of the Company and the
Properties. For the Company, those financial statements are included in
Emeritus Corporation's Annual Report on Form 10-K for the year ended December
31, 2002, and Emeritus Corporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2003. For the Properties, those financial
statements are filed herewith. The unaudited pro forma consolidated financial
statements are presented for informational purposes only and are not necessarily
indicative of the financial position or results of operations of the Company
that would have occurred had the acquisition been consummated as of the dates
indicated. In addition, the unaudited pro forma consolidated financial
statements are not necessarily indicative of the future financial condition or
operating results of the Company.
EMERITUS CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2003
(IN THOUSANDS)
ASSETS
PROFORMA EMERITUS
EMERITUS THE PROPERTIES ADJUSTMENTS COMBINED
---------- ---------------- ------------- ---------
Current Assets:
Cash and cash equivalents $ 10,791 $ 525 $ (931) (a,b) $ 10,385
Trade accounts receivable, net 2,276 58 (58) (a) 2,276
Other receivables 2,341 66 (66) (a) 2,341
Prepaid expenses and other current assets 8,829 441 (441) (a) 8,829
---------- ---------------- ------------- ---------
Total current assets 24,237 1,090 (1,496) 23,831
---------- ---------------- ------------- ---------
Property and equipment, net 94,491 6,545 (6,545) (a) 94,491
Property held for development 1,254 - - 1,254
Notes receivable from and investments in affiliates 2,469 - - 2,469
Restricted deposits 5,613 - - 5,613
Lease acquisition costs, net 19,054 343 63 (a,b) 19,460
Other assets, net 5,221 218 (218) (a) 5,221
---------- ---------------- ------------- ---------
Total assets $ 152,339 $ 8,196 $ (8,196) $152,339
========== ================ ============= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Current portion of long-term debt $ 3,161 $ 6,234 $ (6,234) (a) $ 3,161
Trade accounts payable 3,404 382 (382) (a) 3,404
Accrued employee compensation and benefits 6,133 304 (304) (a) 6,133
Accrued interest 1,430 42 (42) (a) 1,430
Accrued real estate taxes 3,793 444 (444) (a) 3,793
Accrued dividends on preferred stock 7,578 - - 7,578
Other accrued expenses 7,279 169 (169) (a) 7,279
Deferred revenue 5,750 426 (426) (a) 5,750
Other current liabilities 5,590 713 (713) (a) 5,590
---------- ---------------- ------------- ---------
Total current liabilities 44,118 8,714 (8,714) 44,118
Long-term debt, less current portion 114,648 - - 114,648
Convertible debentures 32,000 - - 32,000
Deferred gain on sale of communities 38,069 - - 38,069
Deferred rent 282 1,920 (1,920) (a) 282
Other long-term liabilities 530 12 (12) (a) 530
---------- ---------------- ------------- ---------
Total liabilities 229,647 10,646 (10,646) 229,647
Minority interests - - - -
Redeemable preferred stock - - - -
Commitments and contingencies
Shareholders' Deficit:
Preferred stock - - - -
Common stock 1 - - 1
Additional paid-in capital 71,326 (2,450) 2,450 (a) 71,326
Accumulated other comprehensive gain - - - -
Accumulated deficit (148,635) - - (148,635)
---------- ---------------- ------------- ---------
Total shareholders' deficit (77,308) (2,450) 2,450 (77,308)
---------- ---------------- ------------- ---------
Total liabilities and shareholders' deficit $ 152,339 $ 8,196 $ (8,196) $152,339
========== ================ ============= =========
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
EMERITUS CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2003
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PROFORMA EMERITUS
EMERITUS THE PROPERTIES ADJUSTMENTS COMBINED
---------- ---------------- ------------- ----------
Revenues:
Community revenue $ 134,949 $ 11,666 $ - $146,615
Other service fees 3,165 577 - 3,742
Management fees 8,671 - (569) (d) 8,102
---------- ---------------- ------------- ----------
Total operating revenues 146,785 12,243 (569) 158,459
---------- ---------------- ------------- ----------
Expenses:
Community operations 90,486 8,336 - 98,822
General and administrative 17,366 569 (569) (d) 17,366
Depreciation and amortization 5,486 340 (311) (c,e) 5,515
Facility lease expense 27,697 3,201 187 (f) 31,085
---------- ---------------- ------------- ----------
Total operating expenses 141,035 12,446 (693) 152,788
---------- ---------------- ------------- ----------
Income (loss) from operations 5,750 (203) 124 5,671
Other income (expense):
Interest income 500 2 (2) (g) 500
Interest expense (9,813) (467) 467 (h) (9,813)
Other, net 1,537 - - 1,537
---------- ---------------- ------------- ----------
Net other income (expense) (7,776) (465) 465 (7,776)
---------- ---------------- ------------- ----------
Net income (loss) before income taxes (2,026) (668) 589 (2,105)
Provision for income taxes (576) - - (576)
---------- ---------------- ------------- ----------
Net income (loss) (2,602) (668) 589 (2,681)
Preferred stock dividends (5,240) - - (5,240)
Gain on repurchase of Series A preferred stock 14,465 - - 14,465
---------- ---------------- ------------- ----------
Net income (loss) to common shareholders $ 6,623 $ (668) $ 589 $ 6,544
========== ================ ============= =========
Income (loss) per common share:
Basic $ 0.65 $ - $ - $ 0.64
========== ================ ============= ==========
Diluted $ 0.59 $ - $ - $ 0.58
========== ================ ============= ==========
Weighted average common shares outstanding:
Basic 10,249 - - 10,249
========== ================ ============= ==========
Diluted 11,311 - - 11,311
========== ================ ============= ==========
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
EMERITUS CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2002
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PROFORMA EMERITUS
EMERITUS THE PROPERTIES ADJUSTMENTS COMBINED
---------- ---------------- ------------- ----------
Revenues:
Community revenue $ 137,662 $ 15,128 $ - $152,790
Other service fees 4,575 661 - 5,236
Management fees 10,892 - (755) (d) 10,137
---------- ---------------- ------------- ---------
Total operating revenues 153,129 15,789 (755) 168,163
---------- ---------------- ------------- ---------
Expenses:
Community operations 93,822 11,958 - 105,780
General and administrative 21,112 755 (755) (d) 21,112
Depreciation and amortization 7,223 386 (347) (c,e) 7,262
Facility lease expense 29,975 4,395 42 (f) 34,412
---------- ---------------- ------------- ----------
Total operating expenses 152,132 17,494 (1,060) 168,566
---------- ---------------- ------------- ----------
Income (loss) from operations 997 (1,705) 305 (403)
Other income (expense):
Interest income 403 - - 403
Interest expense (11,728) (338) 338 (h) (11,728)
Other, net 4,105 (158) - 3,947
---------- ---------------- ------------- ----------
Net other expense (7,220) (496) 338 (7,378)
---------- ---------------- ------------- ----------
Net loss before income taxes (6,223) (2,201) 643 (7,781)
Provision for income taxes - - - -
---------- ---------------- ------------- ----------
Net income (loss) (6,223) (2,201) 643 (7,781)
Preferred stock dividends (7,343) - - (7,343)
Gain on repurchase of Series A preferred stock - - - -
---------- ---------------- ------------- ----------
Net income (loss) to common shareholders $ (13,566) $ (2,201) $ 643 $(15,124)
========== ================ ============= =========
Income (loss) per common share:
Basic $ (1.33) $ - $ - $ (1.48)
========== ================ ============= =========
Diluted $ (1.33) $ - $ - $ (1.48)
========== ================ ============= =========
Weighted average common shares outstanding:
Basic 10,207 - - 10,207
========== ================ ============= =========
Diluted 10,207 - - 10,207
========== ================ ============= =========
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
EMERITUS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(1) BACKGROUND AND BASIS OF PRESENTATION
(A) BACKGROUND
In April 2002, the Company entered into agreements to acquire the ownership
interest of one community and the leasehold interest of seven communities for
the assumption of the mortgage debt relating to the owned community and the
lease obligations relating to the leased communities. The eight communities,
comprising 617 units in Louisiana and Texas, had been previously operated by
Horizon Bay Management L.L.C. ("Horizon Bay"). In May 2002, the Company
assigned its rights under these agreements to entities wholly owned by Mr. Baty
(the "Baty entities") and entered into five-year management agreements expiring
April 30, 2007, with the Baty entities, providing for a management fee of 5% of
gross revenue. As a part of these agreements, the Company had the right but not
the obligation to reacquire the one community and seven leased communities at
any time prior to April 30, 2007, by assuming the mortgage debt and lease
obligations and paying the Baty entities the amount of any cash investment in
the communities, plus 9% per annum. In the original agreements of acquisition
with the Baty entities, Horizon Bay agreed to fund operating losses of the
communities to the extent of approximately $2.5 million in the first twelve
months and $870,000 in the second twelve months following the closing. Under
the management agreements with the Baty entities, the Company had agreed to fund
any operating losses in excess of these limits over the five-year management
term. In late 2002, the Baty entities and Horizon Bay altered their agreement
relating to operating losses whereby (i) Horizon Bay paid the Baty entities $2.4
million and (ii) the Baty entities waived any further funding by Horizon Bay of
operating losses of the communities. This alteration did not change the
Company's funding commitment. During 2002, the Company received management fees
of $661,000, including $120,000 of mobilization fees from management agreements
with the Baty entities. For nine months ended September 30, 2003, the Company
received management fees of $569,000 from the same agreements.
On September 30, 2003, the Company entered into an agreement to lease eight
communities that it formerly managed. As of December 31, 2003, the Company
assumed the leases on seven of the leased facilities and entered into a lease
agreement for the eighth facility. The seven assumed leases are with
third-party real estate investment trusts. The eighth lease is with the
Company's Chairman and CEO, Dan Baty. The terms of the eight leases are from 8
to 10 years, effective as of December 31, 2003.
The Properties' financial statements are presented for the purposes of complying
with the Securities and Exchange Commission's rules and regulations regarding
acquired businesses.
(B) BASIS OF PRESENTATION
The combined financial statements of the Properties as of and for the nine-month
period ended September 30, 2003 and the year ended December 31, 2002, are
unaudited but, in the opinion of management, have been prepared on the same
basis as the audited financial statements and reflect all adjustments,
consisting of normal recurring accruals necessary for a fair presentation of the
information set forth therein. The Properties were acquired by the Baty
entities effective May 1, 2002. The combined financial statements for the year
ended December 31, 2002, include both the eight-months of operations of the
Properties subsequent to the acquisition and the four months of operations under
the previous owner. The results of operations for the nine-month period ended
September 30, 2003, are not necessarily indicative of the operating results to
be expected for the full year or any other period. These combined financial
statements should be read in conjunction with the combined financial statements
and notes included in the audited financial statements of the Properties for the
year ended December 31, 2003, filed herewith.
EMERITUS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS-CONT.
(2) Pro Forma Adjustments
a) To remove all assets, liabilities and net accumulated deficit of the
Horizon Bay Properties (the "Properties") as Emeritus acquired the Properties
through operating lease agreements.
b) To record lease acquisition costs of approximately $406,000 incurred in
the acquisition.
c) To amortize nine months of lease acquisition cost of approximately
$29,000 for the nine months ended September 30, 2003, and $39,000 for the year
ended December 31, 2002.
d) To eliminate management fees charged to the Properties of approximately
$569,000 for the nine months ended September 30, 2003, and $755,000 for the year
ended December 31, 2002, since Emeritus is not hiring any additional
administrative staff to operate the Properties and will no longer receive
management fees.
e) To eliminate depreciation and amortization on the Properties as Emeritus
acquired the buildings through operating lease agreements.
f) To eliminate amortization of deferred rent as no deferred rent payments
were made to Emeritus.
g) To eliminate interest income on cash that was not assumed by Emeritus.
h) To eliminate interest expense on debt that was not assumed by Emeritus.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
EMERITUS CORPORATION
By: /s/ Raymond R. Brandstrom
-------------------------
Raymond R. Brandstrom
Vice President of Finance,
Chief Financial Officer,
and Secretary
Dated: March 15, 2004