UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended March 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-8187
Greenbriar Corporation
(Exact name of Registrant as specified in its charter)
Nevada 75-2399477
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
14185 Dallas Parkway, Suite 650, Dallas, Texas 75254
(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 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 May 13, 2002, the issuer had outstanding approximately 359,000 shares of par
value $.01 Common Stock.
GREENBRIAR CORPORATION
Index to Quarterly Report on Form 10-Q
Period ended March 31, 2002
Part I: Financial 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................................7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................11
Three month period ended March 31, 2002 compared to three month period
ended March 31, 2001.....................................................11
Forward Looking Statements...............................................14
Part II: Other Information....................................................15
2
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
- ----------------\------------
Greenbriar Corporation
Consolidated Balance Sheets
(Amounts in thousands)
March 31, December 31,
Assets 2002 2001
(Unaudited)
------------ ------------
Current Assets
Cash and cash equivalents $ 1,065 $ 1,246
Short-term investments 1,098 1,098
Accounts receivable-trade 184 106
Receivables from affiliated partnership 112 311
Prepaid expenses 156 572
Other current assets 973 541
------------ ------------
Total Current Assets 3,588 3,874
Notes receivable, from sale of properties 6,400 6,400
Less deferred gains (6,090) (6,090)
------------ ------------
310 310
Notes receivable from affiliate partnership 1,600 1,600
Deferred income tax benefit 2,350 2,350
Property and equipment, at cost
Land and improvements 4,437 4,430
Buildings and improvements 32,667 32,675
Equipment and furnishings 3,183 3,134
------------ ------------
40,287 40,239
Less accumulated depreciation 6,783 6,498
------------ ------------
33,504 33,741
Deposits 1,676 1,730
Other Assets 518 417
------------ ------------
$ 43,546 $ 44,022
============ ============
3
Greenbriar Corporation
Consolidated Balance Sheets - Continued
(Amounts in thousands)
March 31, December 31,
Liabilities and Stockholders' Equity 2002 2001
(Unaudited)
------------ ------------
Current Liabilities
Current maturities of long-term debt $ 4,513 $ 4,316
Accounts payable - trade 912 1,042
Accrued expenses 871 1,116
Other current liabilities 640 467
------------ ------------
Total Current Liabilities 6,936 6,941
Long-term debt 16,675 16,693
Financing obligations 10,815 10,815
Other long term liabilities 309 304
------------ ------------
Total Liabilities 34,735 34,753
Stockholders' Equity
Preferred stock 1 1
Common stock $.01 par value; authorized,
100,000 shares; 359 shares issued and outstanding 75 75
Additional paid-in capital 56,828 56,828
Accumulated deficit (45,726) (45,268)
------------ ------------
11,178 11,636
Less stock purchase notes receivable
(Including $2,250 from related parties) (2,367) (2,367)
------------ ------------
Total Equity 8,811 9,269
------------ ------------
$ 43,546 $ 44,022
============ ============
4
Greenbriar Corporation
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
For The Three Month
Period Ended
March 31,
2002 2001
(Unaudited)
Revenue
Assisted living operations $ 2,925 $ 9,976
2,925 9,976
Operating expenses
Assisted living operations $ 1,627 $ 6,004
Lease expense 409 1,154
Depreciation and amortization 331 865
Corporate, general and
administrative 431 1,184
2,798 9,207
Operating income 127 769
Other income (expense)
Interest income $ 164 $ 77
Interest expense (628) (1,422)
Net gain on the sale of assets -- 381
Equity in net loss of affiliated
partnership (121)
Other -- (81)
(585) (1,045)
Net loss (458) (276)
Preferred stock dividend
requirement -- (80)
Loss allocable to common --------- ---------
stockholders (458) (356)
========= =========
Net loss per common share-
basic and diluted $ (1.28) $ (0.86)
Weighted average number
of common and equivalent
shares outstanding 359 417
5
Greenbriar Corporation
Consolidated Statements Of Cash Flow
(Amounts in thousands)
For the three month
Period Ended March 31,
2002 2001
--------- ---------
(Unaudited) (Unaudited)
Cash flows from operating activities
Net loss $ (458) $ (276)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 331 865
Gain on sale of assets -- (381)
Changes in operating assets and liabilities
Accounts receivable 121 155
Other current and non current assets 38 (236)
Accounts payable and other liabilities (344) (1,341)
--------- ---------
Net cash used in operating activities (312) (1,214)
--------- ---------
Cash flows provided by (used in) investing activities
Proceeds from sale of property -- 2,767
Purchase of property and equipment (48) (91)
--------- ---------
Net cash provided by (used in) investing
Activities (48) 2,676
Cash flows from financing activities
Payments on debt -- (132)
New Debt Borrowings 179
Dividends on preferred stock -- (80)
--------- ---------
Net cash provided by (used in) financing
Activities 179 (212)
--------- ---------
Net increase (decrease) in cash and (181) 1,250
cash equivalents
Cash and cash equivalents at beginning of period 1,246 2,287
--------- ---------
Cash and cash equivalents at end of period $ 1,065 $ 3,537
========= =========
6
Notes To Consolidated Financial Statements
For the Unaudited Three Months Ended March 31, 2002 and 2001
Note A: Basis 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 examined 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-month period ended March 31, 2002 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2002. 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, 2001.
Note B: Notes Receivable From Sale Of Property
During 2001, the Company sold three properties for cash and $6,400,000 of
tax-free-notes bearing interest at 9.5%. The notes mature on April 1, 2032,
March 20, 2037 and August 1, 2031 respectively.
The repayment of the notes is limited to the cash flow of the respective
communities either from operations, refinance or sale. The Company has deferred
gains in the amount of $6,090,000. The deferred gains and interest income will
be recognized as cash is received.
Note C: Affiliated Partnerships
In October 2001, the Company became a limited partner in Corinthians Real Estate
Investors LP (CREI), a partnership formed to acquire two properties. The general
partner is a limited liability corporation whose controlling member is James
Gilley. Mr. Gilley is also CEO of the Company. The Company is a 56% limited
partner. Mr. Gilley has a 25.9% interest, the general partner has a .1%
interest, the Company's chief financial officer has a 10.5% interest, and other
employees of the Company have interests aggregating 7.5%. In October 2001, the
7
Partnership acquired a retirement community for approximately $9,100,000 and in
January 2002, it acquired an assisted living community for approximately
$2,800,000.
The Company issued a $1,600,000 note to the seller as partial payment for the
purchase of the retirement community. The balance of the purchase price was
funded by borrowings by CREI from a third party in the amount of $7,840,000,
which was guaranteed by the Company. CREI gave the Company a $1,600,000 note in
consideration for payment of that amount of the purchase price. The notes bear
interest at 8.75% and are due December 30, 2003. CREI also has debt in the
amount of $3,975,000 collateralized by the assisted living community that has
been guaranteed by the Company.
The Company accounts for its investment in CREI by the equity method and records
56% of the gains or losses of CREI. In addition, because of its debt guarantees
the Company's policy is to record all cash losses of CREI that are in excess of
its 56% investment. For the three-months ended March 31, 2002 the Company
recorded a loss of $121,000. The Company had a receivable of $112,000 at March
31, 2002, resulting from advances to CREI.
8
Following are unaudited, condensed financial statements of CREI (in thousands):
Balance Sheet
March 31, 2002
Current Assets $ 643
Property and Equipment 12,188
Other Assets 871
--------
$ 13,702
========
Current Liabilities $ 132
Other Liabilities 466
Notes Payable to Greenbriar Corp. 1,600
Mortgages Payable 11,815
--------
14,013
Partners' Deficit (311)
--------
$ 13,702
========
Statement of Operations
Three months ended March 31, 2002
Revenue $ 743
Expenses
Operating 370
Depreciation 100
General and Administrative 56
Interest 432
--------
958
Net loss $ (215)
========
9
Note D: Long-Term Obligations
Long-term debt is comprised of the following (in thousands):
March 31, December 31,
2002 2001
------------ ------------
Notes payable to financial institutions maturing through 2015; fixed and
variable interest rates ranging from 5.25% to 10.50%; collateralized by
property, fixtures, equipment and the
assignment of rents $ 14,084 $ 8,947
Notes payable to individuals and companies maturing through 2023; variable and
fixed interest rates ranging from 7% to 8.75% collateralized by real
property, personal property, fixtures,
equipment and the assignment of rents 1,655 1,655
Mortgage note payable to a financial institution maturing in 2010; bearing
interest rates ranging from7.5% through 14.5%;
collateralized by property and equipment -- 5,253
Notes Payable to wife of Chief Executive Officer, bearing interest at
10% and maturing on July 1, 2003 3,375 3,375
Notes Payable to executive officers, non interest bearing at 8.5% and maturing
on December 31, 2004, net of discount of $358 and $391
respectively, representing interest imputed at 8.5% 1,382 1,349
Other 692 430
------------ ------------
21,188 21,009
Less: current maturities 4,513 4,316
------------ ------------
$ 16,675 $ 16,693
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.
10
As discussed in Note C the company is guarantor of debt for CREI in the amount
of $11,815,000 at March 31, 2002.
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 13, 2002 the
Company operates 12 communities in seven states with a capacity of 1,069
residents, consisting of three communities that are owned, four that are leased
and five that are managed under contract to one of the Company's subsidiaries
for third party owners.
Three-month period ended March 31, 2002 compared to three-month period ended
March 31, 2001.
Revenues and Operating Expenses from Assisted Living Operations
Revenues were $2,925,000 for the three months ended March 31, 2002 as compared
to $9,976,000 for the three months ended March 31, 2001. Community operating
expenses, which consist of assisted living community expenses, lease expense and
depreciation and amortization, were $2,367,000 for the three months ended March
31, 2002 as compared to $8,023,000 for the three months ended March 31, 2001.
During the last nine months of 2001 the Company disposed of 11 Communities as
part of a redemption of its Series E and F Preferred Stock. The Company also
sold three Communities to not for profit organizations and retained a long-term
management contract. The company also sold one Community and leased one
Community to independent third parties. In addition the Company entered into a
sub-management contract for three properties whereby the sub-manager is
retaining the revenue and paying the expenses as their fee for being a
sub-manager. The sub-manager also has an agreement to acquire the Communities
upon approval of the third party lenders. For reporting purposes the Company no
longer records the revenue and operating expenses of the three Communities.
In October of 2001 and January of 2002 the Company obtained a 56% limited
partnership interest in two Communities. These Communities are accounted for
using the equity method of accounting. Therefore, the Company does not record
the revenue and expenses of the Communities.
11
Overall the Company recorded revenue and expenses for nineteen fewer Communities
during the three months ended March 31, 2002 than for the comparable period in
the preceding year. On a "same store basis" revenue and operating expenses for
the three months ended March 31, 2001 would have been $2,652,000 and $2,196,000
respectively.
Corporate General and Administrative Expenses
General and administrative expenses were $431,000 for the three months ended
March 31, 2002 compared to $1,184,000 for the three months ended March 31, 2001.
The decrease in the corporate general and administrative expenses is primarily a
result of a decrease in salaries and related payroll expenses. Due to the
significant reduction in the number of Communities operated by the Company, the
number of employees on the corporate staff was reduced. In addition the salaries
for members of senior management have been reduced. Also during the three months
ended March 31, 2001 the Company was incurring legal and professional fees with
respect to a lawsuit was a preferred shareholder. Professional fees decreased by
$189,000 for the three months ended March 31, 2002 when compared to the
comparable period of 2001.
Interest Income
Interest Income increased to $164,000 for the three months ended March 31, 2002
as compared to $77,000 for the three months ended March 31, 2001. Included in
2002 is $117,000 of interest received from the notes receivable from the sale of
properties. Interest income from investments other than notes receivable
decreased by $70,000 due to lower interest rates and a less money invested.
Interest Expense
Interest expense decreased to $628,000 for the three months ended March 31, 2002
as compared to $1,422,000 for the three months ended March 31, 2001. Due to the
reduction in the number of Communities the Company's long-term debt has been
reduced significantly. The interest expense on a "same store basis" for the
three months ended March 31, 2001 would have been $562,000. The increase in
interest expense on a "same store basis" is due principally to higher interest
rates on existing borrowings.
Other Income (Expense)
Other Income (expense) for the three months ended March 31, 2001 was $(81,000))
which represented minority interest in a Community. The community was sold
during 2001.
12
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.
Liquidity and Capital Resources
At March 31, 2002, the Company had current assets of $3,588,000 and current
liabilities of $6,936,000.
Operating activities used $312,000 of cash in 2002 and $1,214,000 in 2001. The
decrease in cash used in 2002 as compared to 2001 was the net result of
decreased cash for certain working capital accounts.
Investing Activities used $48,000 of cash in 2002 and provided $2,676,000 of
cash in 2001. In 2001 the Company sold certain assets, including its corporate
office building, and realized cash proceeds of $2,767,000. There were no
property sales in 2002.
Financing activities provided $179,000 in cash in 2002 and used $212,000 in cash
in 2001. In 2002 the Company had increased net borrowings of $179,000 while in
2001 the Company had a net reduction in debt of $132,000. In addition in 2001
the Company paid $80,000 in dividends in 2001. There were no dividend payments
in 2002.
Included in current liabilities is a $3,360,000 mortgage for an assisted living
community, which matures in October 2002. The Company intends to refinance that
mortgage on a long-term basis prior to its maturity date.
During 2001 the Company reduced it long-term debt from $50,887,000 to
$16,693,000. The reduction was due to the sale of properties and the repayment
of the mortgages related to the properties.
In January 1997 the Company negotiated employment contracts with the Chief
Executive Officer (CEO) and Chief Financial Officer (CFO) of the Company. Both
individuals had been employed by the Company since 1989. The employment
contracts called for combined salaries of $640,000 per year and provided that if
the contracts were terminated or amended the individuals would be entitled to
cash payment of three years salary for the CEO and two years salary for the CFO.
In light of the reduced size of the Company the independent directors and the
officers in October 2001 agreed to modify the employment agreements with the two
officers. The two officers have each agreed to continue their roles in the
Company for $12,000 per year for three years. The revisions in the contracts
triggered the contract termination payments requiring the Company to immediately
pay the two officers $1,740,000. However, the two officers agreed to accept
non-interest-bearing notes due December 31, 2004. These notes have certain
acceleration provisions if the Company violates the terms of the revised
contracts.
13
In the future the two officers will participate with the Company in partnerships
or other entities formed to acquire and sell real estate properties during the
period of their contracts. The Company believes that this arrangement will allow
it to maintain experienced senior management at a cost that will not overburden
its resources while at the same time allowing it to realize significant profits
through management fees, operating profits and the ultimate sale of the
properties.
It is anticipated that the Company will acquire additional properties through
investments in third party entities, which for the most part, will be
partnerships. The Company may or may not be the controlling party with respect
to these investments. It is anticipated that the two senior officers will bring
potential acquisitions and financing to Greenbriar. The Company has no
obligation to participate.
The Company conducts its property management operations through its subsidiary
Senior Living Management, Inc (SLM). SLM expects to manage properties, which are
owned or leased by the Company or are owned by partnerships or other entities
where Greenbriar is an investor, for a fee. To a far lesser degree SLM will
manage properties for independent third parties.
Future acquisitions by of the Company are dependent upon obtaining capital and
financing through various means, including financing obtained from loans,
sale/leaseback transactions, 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 projected 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 filing 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.
14
PART II: OTHER INFORMATION
ITEMS 1-6: ARE NOT APPLICABLE.
-------------------
15
Signatures
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: May 20, 2002 By: /s/ Gene S. Bertcher
----------------------------
Executive Vice President
Chief Financial Officer
16