-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DWXuRVRRpe8VULRljXNQ43e+e1LOJx+CiXezPwQ6TFBPktoxqhEu4cvaMwfEJ1aB bH0m/GZK0AFhaTiQxRPUlA== 0000930661-96-000841.txt : 19960807 0000930661-96-000841.hdr.sgml : 19960807 ACCESSION NUMBER: 0000930661-96-000841 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960315 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960725 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREENBRIAR CORP CENTRAL INDEX KEY: 0000105744 STANDARD INDUSTRIAL CLASSIFICATION: 8051 IRS NUMBER: 752399477 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-08187 FILM NUMBER: 96598618 BUSINESS ADDRESS: STREET 1: 4265 KELLWAY CIRCLE CITY: ADDISON STATE: TX ZIP: 75244 BUSINESS PHONE: 2144078400 MAIL ADDRESS: STREET 1: 4265 KELLWAY CIRCLE CITY: ADDISON STATE: TX ZIP: 75244 FORMER COMPANY: FORMER CONFORMED NAME: MEDICAL RESOURCE COMPANIES OF AMERICA DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: WESPAC INVESTORS TRUST DATE OF NAME CHANGE: 19900605 8-K/A 1 AMENDMENT #2 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________________ FORM 8-K/A (Amendment No. 2) CURRENT REPORT Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): March 15, 1996 GREENBRIAR CORPORATION (Exact name of registrant as specified in its charter) NEVADA 0-8187 75-2399477 - - ---------------------------- ----------- ---------------- (State or other jurisdiction (Commission (I.R.S. Employer of incorporation) File Number) Identification No.) 4265 Kellway Circle, Addison, Texas 75244 ------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (214) 407-8400 Page 1 of 23 Item 2. Acquisition or Disposition of Assets. ------------------------------------- Acquisition of Wedgwood Retirement Inns, Inc. On March 15, 1996, Greenbriar Corporation ("the Company") acquired substantially all of the assets and liabilities of a number of companies under common control and managed by Wedgwood Retirement Inns, Inc. ("Wedgwood"). Wedgwood, headquartered in Vancouver, Washington, was one of the first builders and management companies in the retirement and assisted living industry. It operates 1,242 units of assisted and independent living, including some that provide Alzheimer's care. The residences are located in six states: Washington, Oregon, California, Idaho, New Mexico and Texas. As of March, 1996, Wedgwood has three residences under construction, containing 240 assisted living units and Alzheimer's beds. Plans are to begin construction on four additional facilities this year, expanding into two more states, Georgia and Florida. A total of nearly 600 new assisted living and Alzheimer's care units are planned for 1996 construction. Wedgwood was purchased from 20 individuals, and in order to structure the transaction as a tax-free transaction, the Company also acquired a shopping center in North Carolina from James R. Gilley and certain of his affiliates and family members (the Gilley Group). Due to the fact that the Gilley Group is a majority shareholder of Greenbriar and owner of the shopping center, the property was recorded for accounting purposes at the Gilley Group's historical cost basis of approximately $2,300,000. Consideration given was 675,000 shares of Series D preferred stock. Wedgwood's assets were valued at approximately $58,000,000 ($54,000,000 of property and equipment) and liabilities assumed were approximately $44,000,000. In exchange, Greenbriar issued 1,949,950 shares of Series E preferred stock, recorded for accounting purposes at $14,000,000, to the Wedgwood shareholders. Both classes of stock are unregistered, will have no trading market unless converted to common stock, and will be entitled to one vote per share on all matters to come before a meeting of stockholders. The Series D preferred stock will bear a cumulative quarterly dividend of 9.5% per year. The Series E preferred stock bears no dividend for two years and it is anticipated that Series E shares will be converted to Greenbriar common stock before that time. With shareholder approval, expected at a shareholders' meeting during 1996, both series of preferred stock will become convertible into unregistered shares of Greenbriar common stock, with the Series E convertible at 1.2 shares for each share of Greenbriar common stock and Series D convertible at two shares for each share of Greenbriar common stock. As such, the Series D will be convertible into 337,500 shares and the Series E will be convertible into 1,624,958 shares. Page 2 of 23 Item 7. Financial Statements and Exhibits. ---------------------------------- The following financial statements and pro forma financial information regarding Wedgwood are filed with this report. Index to Financial Statements (a) Wedgwood Retirement Inns The audited financial statements of Wedgwood included with this report are listed on the contents page included as page F-1 of this report. (b) Unaudited Pro Forma Financial Statements The accompanying pro forma consolidated balance sheet as of December 31, 1995 presents the acquisition of Wedgwood by Greenbriar (See Item 2) as though the acquisition had taken place on that date. The accompanying pro forma consolidated statement of earnings presents earnings from continuing operations as though the acquisition had taken place on January 1, 1995. Pro Forma Consolidated Balance Sheet - December 31, 1995 (Unaudited) F-17 Pro Forma Consolidated Statement of Earnings - Year Ended December 31, 1995 (Unaudited) F-18 Explanatory Notes to Consolidated Financial Statements F-19 (c) Exhibits The following exhibits are filed with this report. 1 - Stock purchase agreement among the Company, Wedgwood and certain principals of Wedgwood.* * Previously filed ** Filed herewith Page 3 of 23 SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment No. 2 to this report to be signed on its behalf by the undersigned hereunto duly authorized. Greenbriar Corporation Dated: July 22, 1996 By: /s/ Gene Bertcher --------------------------------- Name: Gene Bertcher Title: Chief Financial Officer Page 4 of 23 INDEX TO FINANCIAL STATEMENTS PAGE ---- Report of Grant Thornton LLP Certified Public Accountants F-2 Wedgwood Retirement Inns, Inc Combined Balance Sheets at December 31, 1994 and 1995 F-3 Combined Statements of Operations for the years ended December 31, 1993, 1994, and 1995 F-5 Combined Statements of Stockholder, Members', Partners' and Owners' Deficit for the years ended December 31, 1993, 1994 and 1995 F-6 Combined Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 F-7 Notes to Combined Financial Statements F-8 Unaudited Pro Forma Financial Statements Pro Forma Consolidated Balance Sheet - December 31, 1995 F-17 Pro Forma Consolidated Statement of Earnings - Year Ended December 31, 1995 F-18 Explanatory Notes to Consolidated Financial Statements F-19 F-1 Page 5 of 23 Report of Independent Certified Public Accountants -------------------------------------------------- Stockholders, Members, Partners and Owners Wedgwood Retirement Inns We have audited the accompanying combined balance sheets of Wedgwood Retirement Inns as of December 31, 1994 and 1995, and the related combined statements of operations, stockholders', members', partners' and owners' deficit, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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 audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above, present fairly, in all material respects, the combined financial position of Wedgwood Retirement Inns as of December 31, 1994 and 1995, and the combined results of their operations and their combined cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. GRANT THORNTON LLP Portland, Oregon March 21, 1996 F-2 Page 6 of 23 Wedgwood Retirement Inns COMBINED BALANCE SHEETS (Amounts in thousands)
December 31, -------------------------- ASSETS 1994 1995 ------------ ------------ CURRENT ASSETS Cash $ 657 $ 885 Accounts receivable Trade 104 147 Employees and owners 2 - Other 66 305 Supplies 47 62 Prepaid expenses 139 113 ------- ------- Total current assets 1,015 1,512 PROPERTY AND EQUIPMENT Buildings and improvements 21,933 29,764 Furniture, fixtures and equipment 2,339 3,127 Vehicles 274 333 Construction-in-progress 1,222 352 Land 3,073 3,346 Less accumulated depreciation and amortization (6,698) (7,797) ------- ------- 22,143 29,125 RESTRICTED ASSETS Mortgage escrow deposits 126 204 Reserve for capital improvements 116 782 Certificate of deposit - 400 Held-to-maturity securities 1,131 1,460 ------- ------- 1,373 2,846 OTHER ASSETS Property held for sale 2,543 798 Organization and start-up costs, net 72 211 Financing costs, net 1,034 1,572 Other 138 14 ------- ------- 3,787 2,595 ------- ------- $28,318 $36,078 ======= =======
The accompanying notes are an integral part of these statements. F-3 Page 7 of 23 Wedgwood Retirement Inns COMBINED BALANCE SHEETS - CONTINUED (Amounts in thousands)
LIABILITIES AND STOCKHOLDERS', MEMBERS', December 31, PARTNERS' AND OWNERS' DEFICIT ------------------ 1994 1995 -------- -------- CURRENT LIABILITIES Accounts payable $ 504 $ 948 Accrued expenses 783 671 Deferred revenues and tenant deposits 309 369 Current maturities of long-term obligations 1,146 1,517 ------- ------- 2,742 3,505 LONG-TERM OBLIGATIONS, less current maturities 17,922 24,396 DEFERRED REVENUE 72 66 FINANCING OBLIGATIONS 10,847 11,800 STOCKHOLDERS', MEMBERS', PARTNERS' AND OWNERS' DEFICIT (3,265) (3,689) ------- ------- $28,318 $36,078 ======= =======
The accompanying notes are an integral part of these statements. F-4 Page 8 of 23 Wedgwood Retirement Inns COMBINED STATEMENTS OF OPERATIONS (Amounts in thousands) Year ended December 31,
Year ended December 31, ------------------------------ 1993 1994 1995 -------- -------- -------- Revenues Residential rental $10,184 $12,018 $14,940 Operating expenses Residential operating expenses 7,542 8,585 10,916 Depreciation and amortization 911 1,216 1,374 General and administrative 605 738 959 ------- ------- ------- 9,058 10,539 13,249 ------- ------- ------- Operating income 1,126 1,479 1,691 Other income (expense) Interest income 26 74 160 Interest expense (1,092) (2,191) (2,843) Other 70 77 94 ------- ------- ------- NET EARNINGS (LOSS) $ 130 $ (561) $ (898) ======= ======= =======
The accompanying notes are an integral part of these statements. F-5 Page 9 of 23 Wedgwood Retirement Inns COMBINED STATEMENT OF STOCKHOLDERS', MEMBERS', PARTNERS' AND OWNERS' DEFICIT (Amounts in thousands) Balance at January 1, 1993 $(3,373) Equity contributed 357 Equity distributed (597) Net earnings 130 ------ Balance at December 31, 1993 (3,483) Equity contributed 1,358 Equity distributed (579) Net loss (561) ------ Balance at December 31, 1994 (3,265) Equity contributed 1,945 Equity distributed (1,471) Net loss (898) ------- Balance at December 31, 1995 $(3,689) ======
The accompanying notes are an integral part of these statements. F-6 Page 10 of 23 Wedgwood Retirement Inns COMBINED STATEMENTS OF CASH FLOWS (Amounts in thousands)
Year ended December 31, ------------------------------ 1993 1994 1995 -------- -------- -------- Cash flows from operating activities Net income (loss) $ 130 $ (561) $ (898) Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation and amortization 927 1,230 1,214 Write-off of deferred financing costs - 60 179 Amortization of discount on held-to-maturity securities - - (22) Change in assets and liabilities Mortgage escrow deposits (69) 66 (78) Accounts receivable (120) 324 (282) Supplies (1) (14) (16) Prepaid expenses and other assets 15 (136) (117) Accounts payable and accrued expenses (129) (398) 619 Deferred revenues and tenant deposits (7) 236 136 ------ ------- ------ Net cash provided by operating activities 746 807 735 ------- ------- ------ Cash flows from investing activities Reserves for capital improvements (15) (16) (666) Business acquisitions - (1,794) - Purchases of property and equipment (977) (4,413) (8,870) Purchase of securities - (1,131) (1,462) Proceeds from sale of land - - 15 Purchase of restricted certificate of deposit - - (400) Proceeds from sale of securities - - 1,155 ------- ------- ------- Net cash used in investing activities (992) (7,354) (10,228) ------- ------- ------- Cash flows from financing activities Proceeds from long-term debt 1,144 14,614 14,547 Principal payments on debt (554) (7,119) (5,241) Payments for financing costs (81) (653) (746) Equity contributed 357 356 1,945 Equity distributed (597) (579) (784) ------- ------- ------- Net cash provided by financing activities 269 6,619 9,721 ------- ------- ------- NET INCREASE IN CASH 23 72 228 Cash at beginning of period 562 585 657 ------- ------- ------- Cash at end of period $ 585 $ 657 $ 885 ======= ======= =======
The accompanying notes are an integral part of these statements. F-7 Page 11 of 23 Wedgwood Retirement Inns NOTES TO COMBINED FINANCIAL STATEMENTS (Amounts in thousands of dollars) NOTE A - BASIS OF PRESENTATION The accompanying combined financial statements include the historical assets, liabilities and operations associated with the entities listed below. The combined entities are collectively referred to as Wedgwood Retirement Inns (the Company). All such entities have ownership and management interests in common with either Wedgwood Retirement Inns, Inc. (WRII) or with the controlling principals of WRII. Information relative to the entities included in the combined financial statements at December 31, 1994 and 1995 and for each of the three years in the period then ended is as follows:
Common Entity Control Legal Form - - --------------------------- ----------- ----------------------- Crown Pointe Development - Corona 60.00% Partnership Hermiston Assisted Living, Inc. (Meadowbrook) 100.00 S Corporation King City Retirement Corporation (dba Pacific Pointe Retirement Inn) 90.00 S Corporation Liberty Acquired Brain Injury Habilitation Services, Inc. (Liberty) 25.00 S Corporation Lincolnshire Partners (Lincolnshire) 40.50 Partnership Neawanna by the Sea (Neawanna) 58.88 Limited Partnership Retirement Housing Associates (dba Villa Del Rey-Merced) 50.00 Partnership Villa Del Rey-Visalia Division of Retirement Housing Associates The Terrace Retirement, Inc. 50.00 S Corporation Villa Del Rey-Napa 100.00 Proprietorship Villa Del Rey-Roswell, Limited Partnership (VDR-Roswell) 72.12 Limited Partnership Camelot Retirement Community (Camelot) Division of VDR-Roswell Oak Harbor (dba Summerhill) Division of VDR-Roswell The Village at Forest Glen (VFG)* Division of VDR-Roswell Wedgwood Retirement Inns, Inc. 82.50 S Corporation
*Transferred to partners on January 1, 1995. The following additional entities are included as of and for the year ended December 31, 1995:
Common Entity Control Legal Form - - --------------------------- ----------- ----------------------- Lewiston Group LLC (dba Wedgwood Terrace) 82.00% Limited Liability Company Rose Garden Estates, LLC 92.00 Limited Liability Company Roswell Retirement, Ltd. Co. (dba Villa De La Rosa) 82.00 Limited Liability Company Roswell Villa Partners (dba Villa Del Sol) 50.00 Partnership Sweetwater Springs Group, LLC 82.00 Limited Liability Company
F-8 Page 12 of 23 Wedgwood Retirement Inns NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED (Amounts in thousands of dollars) NOTE B - SUMMARY OF ACCOUNTING POLICIES A summary of the significant accounting policies applied in the preparation of the accompanying combined financial statements follows. 1. Line of Business ---------------- The Company is involved in operating, managing and owning assisted living, congregate and Alzheimer's facilities (residences). The principal source of revenues is residential rental. 2. Cash ---- For purposes of the combined statements of cash flows, the Company considers cash to include currency on hand and demand deposits. 3. Concentration of Risk --------------------- The Company's financial instruments that were exposed to concentrations of credit risk consist primarily of cash. The Company places its funds with high credit quality financial institutions and, at times, such funds may be in excess of the FDIC limit. 4. Property and Equipment ---------------------- Depreciation and amortization are provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives. Leasehold improvements are amortized over the lives of the respective leases or the service lives of the improvements, whichever is shorter. Accelerated depreciation is used for substantially all property and equipment. Useful lives are as follows: Buildings and improvements 5 to 28 years Furniture fixtures and equipment 5 to 7 years Vehicles 5 years Property and equipment includes interest costs incurred during the construction period, as well as development fees and other costs directly related to the development and construction of the residences. Maintenance and repairs are charged to income as incurred and significant renewals and betterments are capitalized. Deductions are made for retirements resulting from the renewals or betterments. The property is recorded at the lower of historical cost or net realizable value. 5. Intangible Assets ----------------- Costs incurred in connection with the organization of the individual combined entities have been capitalized and are being amortized over five years on a straight-line basis. Loan costs incurred in connection with obtaining permanent financing of Company owned residences have been capitalized and are amortized over the term of the financing. F-9 Page 13 of 23 Wedgwood Retirement Inns NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED (Amounts in thousands of dollars) NOTE B - SUMMARY OF ACCOUNTING POLICIES - Continued Costs incurred in connection with preopening marketing, employee recruitment and training, and other start-up expenditures necessary to prepare the residences for rent have been capitalized. These prerental costs are amortized over 12 months beginning when the residences are available for occupancy. 6. Income Taxes ------------ Income taxes on the net earnings are payable personally by the stockholders, members, partners and owners and accordingly are not reflected in these financial statements. 7. Purchase of Withdrawing Partner's Interest ------------------------------------------ When a withdrawing partner is paid or credited more than book value to retire or sell the partner's equity interest, the partnership treats the transaction as a purchase and revalues, up to market value, partnership assets. 8. Marketable Securities --------------------- Effective January 1, 1994, the Company implemented Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities. Following the provisions of that statement, the Company has classified its investments in marketable securities as held-to-maturity securities. There was no effect on the Company's income due to the implementation of the statement. 9. Fair Value of Financial Instruments ----------------------------------- At December 31, 1995, the estimated fair value of each class of the Company's financial instruments either approximated carrying values or were not material. 10. Accounting Estimates -------------------- In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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. 11. Impairment of Long-Lived Assets ------------------------------- The Company reviews its long-lived assets and certain identifiable intangibles for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. In reviewing recoverability, the Company estimates the future cash flows expected to result from using the assets and eventually disposing of them. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized based on the asset's fair value. The adoption of Statement of Financial Accounting Standards No. 121 is not expected to have a material impact on the Company's financial statements. F-10 Page 14 of 23 Wedgwood Retirement Inns NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED (Amounts in thousands of dollars) NOTE C - SUPPLEMENTAL CASH FLOW INFORMATION
Year ended December 31, ------------------------ 1993 1994 1995 ------ ------ ------ Supplemental cash flow information Interest paid $675 $2,167 $2,758 Supplemental data on noncash investing and financing activities Businesses acquired Fair value of assets acquired $ - $9,184 $ - Liabilities assumed - (470) - Seller debt financing - (5,220) - --- ----- ----- Total cash and nonseller financing $ - $3,494 $ - --- ----- ----- Equity contributed $ - $(1,002) $ - Property and equipment acquired - 1,002 - Debt issued (150) - - Other 150 - - On January 1, 1995 the operations of The Village at Forest Glen were transferred to the individual partners as follows: Current assets $ 23 Property and equipment 2,521 Other assets 35 Accounts payable and accrued liabilities (297) Debt (1,595) Equity (687) ------- $ - -------
F-11 Page 15 of 23 Wedgwood Retirement Inns NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED (Amounts in thousands of dollars) NOTE D - ACQUISITIONS AND NEW ENTITIES VDR-Roswell acquired the operations of Camelot in Harlingen, Texas, Summerhill in Oak Harbor, Washington and VFG in Beaverton, Oregon during 1994. The acquisitions were accounted for using the purchase method of accounting and the results of operations have been included in the Company's combined financial statements subsequent to the acquisition date. The acquired assets and liabilities have been recorded at their estimated fair values at the date of acquisition. The date the facilities were acquired, the allocation of purchase price to assets and the method of payment are as follows:
Camelot Summerhill VFG -------------- ---------- -------------- Date acquired September 1994 April 1994 September 1994 Purchase Price -------------- Land $1,250 $ 193 $ 148 Buildings 3,100 1,902 2,392 Furniture, fixtures and equipment 49 38 8 Acquisition agreements 100 - - Goodwill 1 1 2 ------ ------ ------ $4,500 $2,134 $2,550 ====== ====== ====== Payment ------- Cash $ 661 $ 434 $ 699 Seller debt financing 3,625 - 1,595 Other debt financing - 1,700 - Liabilities 214 - 256 ------ ------ ------ $4,500 $2,134 $2,550 ====== ====== ======
During 1994, Liberty was formed and began to acquire three parcels of land in Ellensburg, Washington. In November 1994, they began construction of a retirement facility. The construction was completed in July 1995 at which time operations began. During 1994, Lincolnshire was formed and entered into a ground lease for property located in Lincoln City, Oregon and began construction of a retirement facility. The construction was completed in late 1995 and operations began in November 1995. During 1995, Lewiston Group LLC was formed and leased a facility (Wedgwood Terrace) in Lewiston, Idaho. The facility began operations in November 1995. During 1995, Rose Garden Estates, LLC was formed and construction was completed on a facility (Rose Garden Estates) located in Ritzville, Washington. The facility began operations in December 1995. F-12 Page 16 of 23 Wedgwood Retirement Inns NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED (Amounts in thousands of dollars) NOTE D - ACQUISITIONS AND NEW ENTITIES - Continued During 1995, Roswell Retirement, Ltd., Co. was formed and began construction of a facility (Villa de la Rosa) located in Roswell, New Mexico. The facility was under construction at December 31, 1995 and is anticipated to begin operations in October 1996. During 1995, Roswell Villa Partners was formed and construction was completed on a facility (Villa Del Sol) located in Roswell, New Mexico. The facility began operations in December 1995. During 1995, Sweetwater Springs Group, LLP was formed and began construction of a facility (Sweetwater Springs) in Lithia Springs, Georgia. At the completion of the project in August 1996, Sweetwater will lease the facility from the owner for a minimum of 15 years. NOTE E - RESTRICTED ASSETS Mortgage escrow deposits represent amounts in escrow for the payment of insurance premiums and real property tax assessments. The escrow accounts are required by mortgage lenders or by the Oregon Housing and Community Services Department. The reserve for capital improvements includes $137 of replacement reserves and $645 of renovation funds in escrow. The replacement reserves represent restricted amounts on deposit which are to be used for future acquisition of equipment and building improvements at Pacific Pointe Retirement Inn. Acquisitions must be approved by the Oregon Housing and Community Services Department. The renovation funds represent amounts, disbursed from a loan, which are to be used for the renovation of the congregate facility at Camelot. The certificate of deposit is required as collateral for a loan to Camelot. The Company's held-to-maturity securities consist of mortgage-backed securities which mature through April 23, 1997. The amortized cost, unrealized gains and fair value at December 31, 1995 are $1,460, $4 and $1,464, respectively. The investments are held as collateral for outstanding letters of credit (see note I). NOTE F - DEFERRED REVENUES AND TENANT DEPOSITS Total deferred revenues and tenant deposits are as follows:
1994 1995 ----- ----- Prepaid rents $ 35 $ 65 Unit sales deposits 68 16 Tenant security deposits 206 288 ----- ----- $ 309 $ 369 ===== =====
F-13 Page 17 of 23 Wedgwood Retirement Inns NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED (Amounts in thousands of dollars) NOTE G - LONG-TERM OBLIGATIONS Long-term obligations consist of the following:
1994 1995 ------- ------- Notes payable to banks and financial institutions $ 4,598 $10,767 Notes payable to individuals and companies 5,840 5,039 Note payable to the Redevelopment Agency of the City of Corona, California 7,950 7,815 Notes payable to related parties 680 2,234 Other - 58 ------- ------- 19,068 25,913 Less current maturities 1,146 1,517 ------- ------- $17,922 $24,396 ======= =======
Notes payable to banks and financial institutions mature through the year 2015 and include fixed and variable interest rates ranging from 7.5% to 11.75% at December 31, 1995. The notes are collateralized by real property, personal property, fixtures, equipment and the assignment of rents. Notes payable to individuals and companies mature through the year 2015 and include variable and fixed interest rates ranging from 7% to 10.64% at December 31, 1995. The notes are collateralized by real property, personal property, fixtures, equipment and the assignment of rents. The note payable to the Redevelopment Agency of the City of Corona, California is payable into a sinking fund semi-annually in increasing amounts from $65 to $420 through May 1, 2015. The variable interest rate was 4.75% at December 31, 1995. The note is collateralized by personal property, land, fixtures and rents. Notes payable to related parties mature through the year 2000 and include fixed interest rates ranging from 9.5% to 12%. Aggregate maturities of long-term debt for the five years following December 31, 1995 are as follows: 1996, $1,517; 1997, $530; 1998, $1,432; 1999, $2,726; and 2000, $2,512. F-14 Page 18 of 23 Wedgwood Retirement Inns NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED (Amounts in thousands of dollars) NOTE H - FINANCING OBLIGATIONS During 1994, the Company entered into sale-leaseback transactions for the VDR- Roswell and the Neawanna facilities. At the end of the tenth year of the fifteen year leases, the Company has options to repurchase the facilities for the greater of the sales prices or their fair market values. The sale- leaseback transactions have been accounted for as financings. The Company has recorded the proceeds from the sales as financing obligations, classified the lease payments as interest expense, and continued to carry the facilities at historical cost and to record depreciation. At the end of the ten year period, if the repurchase options are not exercised by the Company, gain on sale will be realized and will be recognized over the remaining five years of the leases. Annual payments under the lease agreements are $1,167 for each of the years 1996 through 2000. The Company sells certain of its individual independent living units at its Camelot facility and, at the time of sale, enters into an agreement to repurchase. The repurchase price of each unit will range from 65% to 80% of the fair market value at the date of repurchase, based upon the number of years each tenant has occupied the units. Upon the repurchase of a unit, Camelot has the intention to resell it. The sales proceeds are recorded as a financing obligation. At December 31, 1994 and 1995 Camelot had $32 and $985, respectively of financing obligations under repurchase transactions. NOTE I - COMMITMENTS 1. Operating Leases ---------------- The Company leases certain retirement centers under operating leases which expire through the year 2024. The leases provide that the Company pay for property taxes, insurance and maintenance. The rent payments normally include monthly payment of property taxes and insurance into reserve accounts. Future minimum payments following December 31, 1995 are as follows: 1996 $ 1,654 1997 1,737 1998 1,053 1999 1,078 2000 334 Thereafter 4,641 -------
$10,497 ====== Lease expense in 1993, 1994 and 1995 was $1,617, $2,009 and $1,676, respectively. Certain leases contain rent escalation clauses which are based upon future events or changes in indices. F-15 Page 19 of 23 Wedgwood Retirement Inns NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED (Amounts in thousands of dollars) NOTE I - COMMITMENTS - Continued 2. Commitments to Repurchase Units ------------------------------- At the date of the acquisition of Camelot, it had outstanding obligations to purchase 101 individual independent living units which had been sold with agreements to repurchase. The repurchase prices are based on a discount from the market value of each unit. At December 31, 1994 and 1995, the remaining estimated outstanding repurchase obligation acquired in the Camelot acquisition was $4,900 and $4,561, respectively. The estimated fair value of the properties was $7,150 and $6,939, respectively. 3. Letters of Credit ----------------- The Company has three outstanding letters of credit totaling $1,167 as of December 31, 1995. The letters of credit were issued in conjunction with real estate financing transactions and are collateralized by the Company's held-to- maturity securities. 4. Agreement to Support -------------------- The Company, as part of a ground lease for the Lincolnshire facility, entered into an agreement to support the North Lincoln Hospital, a charitable foundation and the ground lessor. The calculation of the annual contribution will be based upon 33.33% of the distributable net income of Lincolnshire as defined in the agreement, less ground rent paid. Contributions are to be made monthly. No contribution was made in 1995. NOTE J - RELATED PARTY TRANSACTION The Company purchases services from Lund Construction and Wedgwood Services, companies which are owned by a major investor in the Company. During the years ended December 31, 1994 and 1995, the Company incurred $198 and $266, respectively, for construction and remodeling services from these related entities. NOTE K - SUBSEQUENT EVENTS Subsequent to year end, the Company entered into a merger agreement with Greenbriar Corporation (Greenbriar). Under the terms of the agreement, the Company's owners received preferred stock of Greenbriar and cash in exchange for all of the outstanding shares of Wedgwood Retirement Inns, Inc. and substantially all of the assets and liabilities of the combined entities included in these financial statements. F-16 Page 20 of 23 Greenbriar Corporation PRO FORMA CONSOLIDATED BALANCE SHEET (Amounts in thousands) December 31, 1995
Greenbriar Wedgwood Gilley Pro forma Consolidated Corporation Retirement Inns Property Adjustments Notes Pro forma ----------- --------------- -------- ----------- ----- ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 7,199 $ 885 $ $ (303) $ 7,781 Accounts receivable Trade 23 147 170 Other - 305 305 Deferred income tax benefit 2,150 - (2,150) 4 0 Supplies - 62 62 Other current assets 1,536 113 1 1,650 -------- -------- ------- -------- --------- Total current assets 10,908 1,512 0 (2,452) 9,968 REAL ESTATE 3,190 - 2,283 1 5,473 NET ASSETS OF MOBILITY GROUP 3,371 - 3,371 INVESTMENT IN SECURITIES, AT COST 1,853 - 1,853 NOTES RECEIVABLE 7,368 - 7,368 PROPERTY AND EQUIPMENT, AT COST Land 322 3,346 2,330 2 5,998 Buildings and improvements 767 29,764 15,211 2 45,742 Furniture, fixtures, and equipment 203 3,127 (1,702) 21,628 Vehicles - 333 (175) 2 158 Construction in progress 1,576 352 1,928 -------- -------- ------- -------- --------- 2,868 36,922 0 15,664 55,454 Less accumulated depreciation and amortization (252) (7,797) 7,797 2 (252) -------- -------- ------- -------- --------- 2,616 29,125 0 23,461 55,202 RESTRICTED CASH AND INVESTMENTS 105 2,846 2,951 OTHER ASSETS 361 2,595 (1,781) 2 1,175 -------- -------- ------- -------- --------- $ 29,772 $ 36,078 $ 2,283 $ 19,228 $ 87,361 ======== ======== ======= ======== ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term obligations $ 8 $ 1,517 $ $ 1,525 Accounts payable-trade 412 948 1,360 Accrued expenses 343 671 721 3 1,735 Other current liabilities 130 369 499 -------- -------- ------- -------- -------- Total current liabilities 893 3,505 0 721 5,119 LONG-TERM DEBT, less current maturities 901 24,396 120 25,417 DEFERRED INCOME TAXES - - 1,111 4 1,111 DEFERRED GAIN 3,083 66 (66) 3,083 FINANCING OBLIGATIONS - 11,800 1 11,801 STOCKHOLDERS' EQUITY 24,895 (3,689) 2,283 17,341 1,2 40,830 -------- -------- ------- -------- -------- $ 29,772 $ 36,078 $ 2,283 $ 19,228 $ 87,361 ======== ======== ======= ======== ========
* See accompanying explanatory notes F-17 Page 21 of 23 Greenbriar Corporation Pro Forma Condensed Combined Statement of Operations (Unaudited) For the Year Ended December 31, 1995 (in thousands, except per share amounts)
Historical ------------------------- Company Pro Forma Pro Forma Company Wedgewood Adjustments Combined ------- ----------- -------------- ---------- REVENUES Assisted living facilities $ - $ 14,940 $ $ 14,940 Long term care facilities 557 - 557 Real estate operations 666 - (666)/(7)/ - Gain on sale of assets 7,043 - (7,043)/(7)/ - Interest and dividends 1,205 - (1,205)/(7)/ - Other 239 - 239 ------- ----------- -------------- ---------- 9,710 14,940 (8,914) 15,736 Expenses Assisted living facilities - 10,916 1,279/(5)/(7)/ 12,195 Long term care facilities 322 322 Real estate operations 337 - (337)/(7)/ - Depreciation and amortization - 1,374 (1,374)/(5)/(7)/ - General and administrative 2,764 959 3,723 Interest 206 - (206)/(7)/ - ------- ----------- -------------- ---------- 3,629 13,249 (638) 16,240 ------- ----------- -------------- ---------- Operating profit (loss) 6,081 1,691 (8,276) (504) Other income (expense) Interest and dividend income - 160 1,205/(7)/ 1,365 Interest expense - (2,843) (206)/(7)/ (3,049) Gain on sale of assets - - 7,043/(7)/ 7,043 Real estate operations, net - - 329/(7)/ 329 Other - 94 - 94 ------- ----------- -------------- ---------- - (2,589) 8,371 5,782 ------- ----------- -------------- ---------- Earnings (loss) from continuing operations before income taxes 6,081 (898) 95 5,278 Income tax expense 186 - 1,820/(4)/ 2,006 ------- ----------- -------------- ---------- Earnings (loss) from continuing operations 5,895 (898) (1,725) 3,272 Preferred dividend requirement 225 - (320)/(6)/ (545) ------- ----------- -------------- ---------- Earnings (loss) from continuing operations allocable to common shareholders $ 5,670 $ (898) $ (2,045) $ 2,727 ------- ----------- -------------- ---------- Earnings per share Continuing operations $ 1.60 $ 0.53 Weighted average number of common and equivalent shares outstanding 3,539 5,164
* See accompanying explanatory notes F-18 Page 22 of 23 Greenbriar Corporation Explanatory Notes to Consolidated Financial Statements (1) To reflect the acquisition of commercial property acquired from the Gilley group and the issuance of Series D Preferred Stock. (2) To reflect the application of purchase accounting. Included in the purchase accounting adjustments are write-offs of other assets of $1,781,000 which include organization costs and start-up costs of $209,000 and financing costs of $1,572,000. (3) To reflect the anticipated costs of $800,000 to complete the acquisition. (4) The pro forma income tax expense of $2,006,000 is based upon applying the statutory tax rate to pre-tax income. If the Wedgwood acquisition had taken place at January 1, 1995, the deferred tax liabilities arising from the transaction would have eliminated the need for a deferred tax asset valuation allowance at that date. Accordingly, there would have been no change in the valuation allowance during 1995 and, therefore, the effective tax rate would have approximated 34% rather than the 3% actually experienced. The deferred tax liability is calculated as follows:
Excess of cost over tax basis of assets acquired 12,652,000 Deferred tax liability - Wedgwood 4,691,000 Less: Elimination of deferred tax valuation allowance - Greenbriar (1,430,000) Deferred tax asset - Greenbriar (2,150,000) ---------- Deferred tax liability - as adjusted 1,111,000 ==========
(5) To reflect the difference in depreciation and amortization on Wedgwood property and equipment and other assets due to change in asset bases and lives under purchase accounting.
Depreciation Amortization Total ------------ ------------ ----- New basis 1,279,000 - 1,279,000 Old basis 1,090,000 284,000 1,374,000 --------- ------- --------- Difference 189,000 (284,000) (95,000) ========= ======== =======
(6) To reflect annual dividend requirement of Series D Preferred Stock. (7) To classify income and expenses in a manner consistent with the future direction of the Company in the assisted living business. F-19 Page 23 of 23 -----END PRIVACY-ENHANCED MESSAGE-----