-----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, AF0cg/B8Bnczxkil5YfRaSMB5WanzEqxOEcc+CZeWz+2k3D1ztx/fPpkFTuTYhRU /8d2b9qGPDO7ihWoY7+bVg== 0001010549-98-000329.txt : 19981123 0001010549-98-000329.hdr.sgml : 19981123 ACCESSION NUMBER: 0001010549-98-000329 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 DATE AS OF CHANGE: 19981120 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: 10-Q SEC ACT: SEC FILE NUMBER: 000-08187 FILM NUMBER: 98753656 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 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 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 September 30, 1998 or ( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT of 1934 For the transition period from to ------ ------ Commission File Number: 0-8187 GREENBRIAR CORPORATION (Name of Small Business Issuer in its Charter) Nevada 75-2399477 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 4265 Kellway Circle, Addison, Texas, 75001 (Address of principal executive offices) (972) 407-8400 (Issuer's telephone number) Check 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 twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- At November 12, 1998, the issuer had outstanding approximately 6,733,000 shares of par value $.01 common stock. Greenbriar Corporation Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets September 30, 1998 and December 31, 1997...............................................3 Consolidated Statements of Earnings Three & Nine Months Ended September 30, 1998 and 1997...............5 Consolidated Statements of Cash Flows Three and Nine Months Ended September 30, 1998 and 1997.............6 Notes to Consolidated Financial Statements..........................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation.................................11 Part II. Other Information Other Information..................................................16 Signatures.........................................................17 PART I. FINANCIAL INFORMATION - - ------------------------------ ITEM 1. FINANCIAL STATEMENTS - - ----------------------------- Greenbriar Corporation CONSOLIDATED BALANCE SHEETS (Amounts in thousands) September 30, December 31, ASSETS 1998 1997 (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 7,523 $ 23 Accounts receivable-trade 1,306 1,162 Stock subscription receivable - 22,000 Other current assets 2,651 1,317 ----------- ----------- Total current assets 11,480 24,502 REAL ESTATE OPERATIONS HELD FOR SALE, at lower of cost or market 1,318 3,097 DEFERRED INCOME TAX BENEFIT 4,750 2,632 INVESTMENT IN SECURITIES, AT COST 2,046 2,025 MORTGAGE NOTE RECEIVABLE, net of deferred gain of $3,083 3,617 3,617 PROPERTY AND EQUIPMENT, AT COST Land and improvements 12,146 12,114 Buildings and improvements 83,177 80,758 Equipment and furnishings 6,405 5,898 Construction in progress 630 4,864 ----------- ----------- 102,358 103,634 Less accumulated depreciation 7,444 5,486 ----------- ----------- 94,914 98,148 DEPOSITS 4,845 3,619 GOODWILL AND OTHER INTANGIBLES 12,401 12,129 OTHER ASSETS 769 1,474 ----------- ----------- $ 136,140 $ 151,243 =========== =========== 3 Greenbriar Corporation CONSOLIDATED BALANCE SHEETS - CONTINUED (Amounts in thousands) September 30, December 31, LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997 (Unaudited) CURRENT LIABILITIES Current maturities of long-term debt $ 4,511 $ 13,403 Notes payable - affiliate - 1,479 Accounts payable - trade 1,044 1,883 Accrued expenses 2,188 3,345 Other current liabilities 3,018 1,798 ----------- ----------- Total current liabilities 10,761 21,908 MORTGAGE NOTES COLLATERALIZED BY real estate held for sale 886 893 LONG-TERM DEBT 56,780 54,851 FINANCING OBLIGATIONS 10,815 10,815 OTHER LONG TERM LIABILITIES 675 259 ----------- ----------- TOTAL LIABILITIES 79,917 88,726 PREFERRED STOCK REDEMPTION OBLIGATION 21,375 - STOCKHOLDERS' EQUITY Preferred stock 289 289 Common stock $.01 par value authorized, 20,000 shares; issued and outstanding, 7,310 shares 73 73 Additional paid-in capital 63,423 83,339 Accumulated deficit (26,422) (18,669) ----------- ----------- 37,363 65,032 Less stock purchase note receivable (including $2,438 from related parties) (2,515) (2,515) ----------- ----------- 34,848 62,517 ----------- ----------- $ 136,140 $ 151,243 =========== ===========
4 Greenbriar Corporation CONSOLIDATED STATEMENTS OF EARNINGS (Amounts in thousands, except per share data) For The Three Month For The Nine Month Period Ended Period Ended September 30, September 30, 1998 1997 1998 1997 -------- -------- -------- -------- (Unaudited) (Unaudited) Revenue Assisted living operations $ 13,888 $ 9,806 $ 42,050 $ 27,932 Other 11 57 94 121 -------- -------- -------- -------- 13,899 9,863 42,144 28,053 Operating Expenses Assisted living community $ 9,057 $ 6,625 $ 28,339 $ 18,385 Operations Lease Expense 2,586 1,222 7,881 3,486 Depreciation and amortization 1,140 806 3,413 2,349 Corporate general and administrative 1,003 1,249 4,082 3,952 -------- -------- -------- -------- 13,786 9,902 43,715 28,172 -------- -------- -------- -------- Operating income (loss) 113 (39) (1,571) (119) Other income (expense) Interest and dividend income $ 269 $ 98 $ 839 $ 331 Interest expense (1,524) (1,725) (4,861) (4,894) Other (44) (3) (890) 946 -------- -------- -------- -------- (1,299) (1,630) (4,912) (3,617) -------- -------- -------- -------- Loss before income taxes (1,186) (1,669) (6,483) (3,736) Income tax benefit -- (666) (2,118) (1,680) -------- -------- -------- -------- Net loss (1,186) (1,003) (4,365) (2,056) Preferred stock dividend requirement (1,189) (80) (3,378) (240) Loss allocable to common stockholders (2,375) (1,083) (7,743) (2,296) ======== ======== ======== ======== Net loss per common share - basic and diluted $ (0.32) $ (0.16) $ (1.06) $ (0.35) Weighted average number of common and equivalent shares outstanding 7,310 6,564 7,310 6,564 5 Greenbriar Corporation CONSOLIDATED STATEMENTS OF CASH FLOW (Amounts in thousands) For the nine month Period Ended September 30, 1998 1997 -------- -------- (Unaudited) (Unaudited) Cash flows from operating activities Net loss $ (4,365) $ (2,056) Adjustments to reconcile net loss to net cash used in operating activities Discontinued operations - (792) Depreciation and amortization 3,413 2,349 Loss on sales of assets 741 - Changes in operating assets and liabilities Accounts receivable (144) (792) Deferred income taxes (2,118) (1,480) Other current and non-current assets (3,603) (245) Accounts payable and other liabilities (367) (1,639) -------- -------- Net cash used in operating activities (6,443) (4,655) -------- -------- Cash flows from investing activities Proceeds from sale of assets 7,492 - Collections of notes receivable - 96 Purchase of property and equipment (5,451) (9,772) Additions to notes receivable - (297) Investing activities of discontinued operations - 2,734 -------- -------- Net cash provided by (used in) investing activities 2,041 (7,239) Cash flows from financing activities Proceeds from borrowings 18,530 10,651 Payments on debt (26,972) (1,035) Dividends on preferred stock (1,184) (225) Purchase of common and preferred stock (472) (1) Issuance of preferred stock 22,000 - Exercise of stock options - 263 -------- -------- Net cash provided by financing activities 11,902 9,653 -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,500 (2,241) Cash and cash equivalents at beginning of period 23 2,784 -------- -------- Cash and cash equivalents at end of period $ 7,523 $ 543 ======== ======== 6 Greenbriar Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Unaudited Three and Nine Months Ended September 30, 1998 and 1997 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 inter-company 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 for interim financial statements. 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 and nine month periods ended September 30, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1997. NOTE B - ACQUISITIONS - - --------------------- VILLA RESIDENTIAL CARE HOMES, INC. On December 29, 1997, Greenbriar acquired Dallas, Texas based Villa Residential Care Homes, Inc., and related partnerships ("Villa"). Villa leased and operated 11 assisted living communities in Texas with a resident capacity of 955. A Greenbriar subsidiary became the managing general partner of the operating partnerships. The purchase price was 184,476 shares of registered Greenbriar common stock and 10,464,321 operating partnership units convertible after a one year holding period into 536,990 shares of Greenbriar common stock subject to future registration rights. An additional 85,984 shares of common stock subject to future registration rights may be issued within two years based on certain of the communities meeting performance requirements. The total number of Greenbriar common shares to be issued in the transaction will therefore be between 721,466 and 887,960. For accounting purposes, all the common shares into which the operating units may be converted have been included in outstanding common shares. 7 WINDSOR GROUP In October 1997, Greenbriar issued 160,000 shares of Greenbriar common stock in the acquisition of the Windsor Group ("Windsor"). The Windsor Group owned and operated two communities, had two under construction and had expansion underway in one of the two existing communities. The completion of that construction will provide the service capacity for an additional 122 residents. The acquisitions have been accounted for as purchase transactions and Villa's and Windsor's operations are reflected in the consolidated statement of earnings beginning January 1, 1998 and October 1, 1997, respectively. The following table presents pro forma unaudited consolidated results of operations for the nine month period ended September 30, 1997, assuming that the acquisition had taken place on January 1, 1997. The pro forma results are not necessarily indicative of the results of operations that would have occurred had the acquisition been made on January 1, 1997, or of future results of operations of the combined companies. (Amounts in Thousands, except per share data) For the Nine Month Period Ended September 30,1997 (Pro Forma) ----------- (Unaudited) Revenue $ 37,523 Net Loss $ (2,813) Preferred stock dividend requirement $ (4,240) Loss allocable to common shareholders $ (.47) NET LOSS PER SHARE $ (.43) NOTE C - DISPOSITION OF REAL ESTATE HELD FOR SALE - - ------------------------------------------------- At January 1, 1998 the Company owned three shopping centers in Georgia. While all the centers are profitable, they do not fit into the Company's long range strategic plans and commitment to the assisted living industry. In June 1998, the Company sold one of the shopping centers for approximately $1.5 million dollars. The Company is actively attempting to sell the remaining two centers which as of September 30, 1998, have an aggregate book value of $1,318,000. NOTE D - DISPOSITION OF ASSISTED LIVING COMMUNITIES - - --------------------------------------------------- In June 1998, the Company sold one of its assisted living communities in North Carolina. The proceeds of $5.8 million dollars were used to reduce long term debt. In addition, in September 1998 the Company terminated leases on two other communities in North Carolina and subleased one community in Oregon to a local operator. 8 See MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERTIONS for additional information regarding the disposition of real estate. NOTE E - LONG-TERM OBLIGATIONS - - ------------------------------
Long-term debt is comprised of the following (in thousands): September 30, December 31, 1998 1997 ---- ---- Notes payable to financial institutions maturing through 2015; fixed and variable Interest rates ranging from 7.5% to 11.75%; collateralized by property, fixtures, equipment and the assignment of rents $ 32,026 $ 30,090 Notes payable to individuals and companies maturing through 2022; variable and fixed interest rates ranging from 7% to 12% collateralized by real property, personal property, fixtures, equipment and the assignment of rents 4,724 9,544 Note payable to the Redevelopment Agency of the City of Corona, California, payable into a sinking fund semi-annually in increasing amounts from $65 to $420 through May 1, 2015; variable interest rate of 5.725% at June 30, 1997; collateralized by personal property, land, fixtures and rents 7,405 7,495 Notes payable to related parties maturing in 2001; interest rates ranging from 9.25% to 12% - 897 Notes payable to financial institution maturing through 2000; bearing interest at prime plus .50% to 1.25%; collateralized by property and equipment 2,225 8,023 Mortgage note payable to a financial institution maturing in 2007; bearing interest at 11.35%; collateralized by property and equipment 14,069 11,413 Other 842 792 -------- -------- 61,291 68,254 Less: current maturities 4,511 13,403 -------- -------- $ 56,780 $ 54,851 ======== ========
9 The Company operates two communities that are financed through sale-leaseback obligations. At the end of the tenth year of the fifteen-year leases, 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. NOTE F - PREFERRED STOCK - - ------------------------ The following summarizes the various classes of preferred stock at December 31, 1997, and September 30, 1998. (amounts in thousands except per share data): Series B cumulative convertible preferred stock, $.10 par value; liquidation value of $100; authorized, 100 shares; issued and outstanding, 1 share $ 1 Series D cumulative convertible preferred stock, $.10 par value; liquidation value of $3,375; authorized, issued and outstanding 675 shares 68 Series F voting cumulative convertible preferred stock, $.10 par value; liquidation value of $14,000; authorized, issued and outstanding, 1,400 shares 140 Series G cumulative convertible preferred stock, $.10 par value; liquidation value of $8,000; authorized issued and outstanding, 800 shares 80 -------- $ 289 ======== The Series B preferred stock has a liquidation value of $100 per share and is convertible into common stock over a ten-year period at prices escalating from $25.00 per share in 1993 to $55.55 per share by 2001. Dividends at a rate of 6% are payable in cash or preferred shares at the option of the Company. The Series D preferred stock has a liquidation value of $5 per share and is convertible into common stock at $10.00 per share. Cumulative dividends are payable in cash at a rate of 9.5%. The Series F voting preferred stock has a liquidation value of $10.00 per share and each share is convertible into 5.7 shares of common stock. The holder has the option to convert beginning in January 2000 and must convert by January 2001. Dividends are payable in cash at a rate of 6%. 10 The Series G preferred stock has a liquidation value of $10.00 per share and each share is convertible into 5.7 shares of common stock. The holder has the option to convert beginning in January 2000 and must convert by January 2001. Dividends are payable in cash at a rate of 6%. The Series F and Series G preferred shares were sold in December 1997, for $22,000,000, less selling and offering costs of $453,000. Payment was received in January 1998. In connection with the sale, the Company entered into an agreement which provides that, on the date of conversion, if the value of the Company's common stock has not increased at an annual rate of at least 14% during the period the preferred shares are outstanding, the Company is required to make a Cash Payment ("the Cash Payment") to the preferred stockholders equal to the market price deficiency on the shares received upon conversion. The 14% guaranteed return will be accreted by a charge to accumulated deficit. The amount of the Cash Payment that would be required assuming conversion at each balance sheet date will be transferred from stockholders equity to temporary equity. At September 30, 1998, a Cash Payment of $21,375,000 would have been due assuming conversion took place. See Item 2, Liquidity and Capital Resources for additional information regarding Series F and G preferred shareholders. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - - ------ ----------------------------------------------------------------------- OF OPERATIONS - - ------------- Overview During 1994 the Company began a series of steps to focus its business on the development, management and ownership of assisted living communities. The Company began construction of its first assisted living community in July 1995, and opened that community to residents on May 30, 1996. By July 1, 1996, the Company (excluding acquisitions) had three additional assisted living communities under construction. In order to increase the Company's presence in the assisted living industry, create geographic diversity and obtain experienced personnel, the Company acquired Wedgwood Retirement Inns ("Wedgwood")in March 1996 and American Care Communities, Inc. ("American Care") in December 1996, Windsor in October 1997, and Villa in December 1997. The acquisitions of Wedgwood, Windsor and Villa have been accounted for as purchases, and the historical financial statements of the Company do not include any revenues or earnings (losses) attributed to those operations prior to the acquisition. The American Care acquisition has been accounted for as a pooling of interests and accordingly, the Company's financial statements have been restated to include the accounts and operations of American Care for all periods prior to the acquisition. 11 Results of Operations - - ---------------------- Three and nine month periods ended September 30, 1998 compared to three and nine month periods ended September 30, 1997. Revenues and Operating Expenses from Assisted Living Operations - - --------------------------------------------------------------- Revenues were $13,899,000 and $42,144,000 for the three and nine months ended September 30, 1998 as compared to $9,863,000 and $28,053,000 for the three and nine months ended September 30, 1997. Community operating expenses which consists of assisted living community expenses, lease expense and depreciation and amortization, were $12,783,000 and $39,633,000 for the three and nine months ended September 30, 1998 as compared to $8,653,000 and $24,220,000 for the three and nine months ended September 30, 1997. Villa and Windsor were acquired in the fourth quarter of 1997, in transactions that were accounted for as purchases. The revenue and related expenses for the communities acquired through these acquisitions are not included in the amounts for 1997. The revenues and related expenses for these communities for the three and nine months ended September 30, 1998, were $3,539,556 and $3,660,925, and $10,084,542 and $10,701,977 respectively. The balance or the increases are due to the opening by Greenbriar of new communities during 1997, and increased census at the existing communities. Three Month Period Ended September 30, 1998 (Amounts in thousands) Stabilized Start-up Total Communities Communities (1) (2) -------- -------- -------- Assisted Living Community Income $ 13,260 $ 639 $ 13,899 Assisted Living Community Operating Expenses 8,521 536 9,057 -------- -------- -------- Gross Operating Income 4,739 103 4,842 Lease Expense 2,165 421 2,586 Community depreciation and amortization 1,119 21 1,140 -------- -------- -------- Income (loss) from community operations $ 1,455 $ (339) $ 1,116 ========= ========== ======== 1. Stabilized communities are those communities that have been operating for one year or have achieved stabilized occupancy of 95%. 2. Start-up communities are those communities that have not been operating for one year and have not achieved a stabilized occupancy of 95% or more. 12 3. At September 30, 1998 the Company has 49 stabilized and 6 start-up communities. 4. The community operating expense does not include corporate general and administrative expense or lease expense for the respective communities. Corporate General and Administrative Expenses - - --------------------------------------------- General and administrative expenses were $1,003,000 and $4,082,000 for the three and nine months ended September 30, 1998 compared to $1,249,000 and $3,952,000 for the three and nine months ended September 30, 1997. The decrease in the three month expense is a result of reorganization of the regional and corporate office that resulted in the elimination of one of the regional offices and a reduction in Corporate staff in the third quarter of 1998. The increase in the nine month expense is due primarily to the growth in the number of communities. Interest and Dividend Income - - ---------------------------- Interest and dividend income for the three and nine months ended September 30, 1998 was $269,000 and $839,000 compared to $98,000 and $331,000 for the comparable period in 1997. In the first quarter of 1998, the Company received proceeds from the sale of preferred stock of $22,000,000. The increase in interest and dividend income is due to an increase in cash available for investment purposes. Interest Expense - - ---------------- Interest expense for the three and nine months ended September 30, 1998 was $1,524,000 and $4,861,000 compared to $1,725,000 and $4,894,000 for the comparable period in 1997. The decrease in interest expense is reflective of the sale of one Community and thus a decrease in the mortgage debt. Other Income (Expense) - - ---------------------- Other income (expense) for the three and nine months ended September 30, 1998, was ($44,000) and ($890,000) compared to ($3,000) and $946,000 for the same period in 1997. The other income is 1997, is the result of a gain recorded on the sale of assets. The losses recorded in 1998, are attributable to losses on the sales of assets as well as a minority interest. Disposition of Certain Assisted Living Communities - - -------------------------------------------------- Greenbriar has determined that it would be advantageous to reduce the number of communities in its portfolio that are reliant on government reimbursement programs for the majority of their revenue. In September 1998 the Company terminated two leases for communities located in North Carolina. (See Note D) 13 Subsequent to September 30, 1998, in two unrelated transactions the Company sold nine communities in North Carolina and eight communities in Texas. The sales were to unrelated third parties and were effective as of October 31, 1998. As of October 31, 1998, the total occupancy of the 17 communities was 1,020 of which 681 were residents where payments were received from governmental agencies. After giving effect to the above transactions, Greenbriar will have a revenue mix of 90% private pay and 10% state assistance. From time to time the Company will dispose of communities from its portfolio. Effective October 31, 1998 the company sold a leased community in Florida. The community had a capacity of 60 residents. All of the disposed communities were held by Greenbriar through long term leases at rates ranging from 9.72% to 10.65%. Each of these leases had escalation clauses which increase the lease cost by as much as 30 % during the remainder of the lease. At the conclusion of the above transactions the Company will own 21 Communities and lease 11 Communities. The Company has purchase options for eight of the leases and a right of first refusal on one Community. Liquidity and Capital Resources At September 30, 1998, the Company had working capital of $719,000. In December 1997, the Company sold Series F and Series G preferred shares for $22,000,000 less selling and offering costs of $453,000. Payment was received in January 1998. Throughout 1997, and into 1998, the Company has been refinancing certain of its long term debt. In July 1997 and January 1998, the Company refinanced the debt on a total of six of its communities resulting in a lower interest rate and additional working capital of $2,800,000 and $1,935,000 respectively. In June 1998, the Company sold an assisted living community in North Carolina for approximately $5,800,000. The proceeds were used to reduce long term debt. The agreements between the Company and the Series F and G preferred shareholders contain certain financial covenants, which the Company must maintain. The Company believes that certain of the required calculations are not clearly defined in the agreement. Further, certain events subsequent to the issuance of the preferred stock including a decline in the Company's stock price and the sale, by the Company, of 21 Communities, have changed the factors used in determining compliance with such covenants. Greenbriar does not believe it is currently in default, however it has asked the preferred stockholders to review and amend certain of the covenants. The preferred stockholders have agreed to review issues raised by the Company. The agreements between the Company and the Series F and G preferred shareholders 14 also provide for Greenbriar to obtain approval prior to the sale or transfer of five or more Communities. Greenbriar has effective November 1, 1998 exceeded the limit of five. Greenbriar has been consulting with the Series F and G preferred shareholders throughout the negotiations and anticipates approval once all the legal documents are completed and reviewed. Greenbriar believes that it will be successful in clarifying any existing covenant issues and will receive formal approval for the sale of the Communities. However, should it be determined that Greenbriar is in default of the terms of the agreement and should such default not be waived, the preferred shareholders could exercise their rights which would include (a) additional dividends of $1.20 per share, (b) a requirement that Greenbriar repurchase the outstanding preferred stock or (c) an exercise of conversion rights for Greenbriar common stock. As of September 30, 1998, the Company has loans in place or has received commitments for future financing, subject, in the case of the commitments, to final documentation, as follows: Health Care REIT, Inc. has issued a commitment to provide $90 million to acquire and pay 100% of the construction costs of assisted living communities to be leased to the Company. The term of the leases will be the maximum term available for operating lease treatment but not less than 13 years plus three five-year renewal options. The credit facility will expire on December 31, 2000. A 1% commitment fee is required, as each lease is entered into. The Company will have the option to purchase each community at the end of the term for its original cost plus 50% of the increase in its fair market value. As additional security to the lessor, the Company will provide a letter of credit for 5% of the amount financed, a first lien on personal property and receivables of the community, and subordination of management fees and rentals from subtenants. In 1995 Investors Real Estate Trust ("IRET") issued a commitment to provide 100% of the construction costs up to $2,810,000 for Sweetwater Springs in Lithia Springs, Georgia that opened in October 1996. Upon completion the community was leased to the Company for a term of 15 years. In 1996 the commitment was increased by $1,540,000 to a maximum of $4,350,000 in order to provide for the construction of a second phase of the community consisting of 16 Alzheimer's special care units. The Company has an option to purchase the Community at fair market value during the first nine months of the fourteenth year of the lease. The lease is secured by the community. Construction of the second phase has been deferred indefinitely. Though some of the additional funding has been utilized, the remaining funds available are considered sufficient to complete the second phase. The Company believes it has adequate resources to complete its communities currently under construction and development and plans to use the balance of such committed sources and its net working capital in excess of operating needs for future development of assisted living communities. 15 Future development activities of the Company are dependent upon obtaining capital and financing through various means, including financing obtained from sale/leaseback transactions, construction financing, long-term state bond financing, debt or equity offerings and, to the extent available, cash generated from operations. There can be no assurance that the Company will be able to obtain adequate capital to finance its projected growth. Forward Looking Statements - - -------------------------- Certain statements included in this Management's Discussion and Analysis are forward looking statements that predict the future development of the Company. The realization of these predictions will be subject to a number of variable contingencies, and there is no assurance that they will occur or be realized in the time frame proposed. The risks associated with the potential actualization of the Company's plans include: contractor delays, the availability and cost of financing, availability of managerial oversight and regulatory approvals, to name a few. PART II. OTHER INFORMATION - - --------------------------- Not applicable Greenbriar Corporation 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: November 12, 1998 By: /s/ Gene S. Bertcher ---------------------------- Executive Vice President Chief Financial Officer 17 EX-27 2 FDS --
5 This schedule contains summary financial information extracted from the Form 10-Q unaudited consolidated balance sheet as of September 30, 1998 and the unaudited consolidated statement of earnings for the nine month period ended September 30, 1998 and is qualified in its entirety by reference to such financials statements. 0000105744 Greenbrier Corporation 1 US Dollars 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 1 7,523 0 1,306 0 0 11,480 102,358 7,444 136,140 10,761 56,780 0 289 73 34,486 136,140 0 42,144 0 43,715 0 0 4,861 (6,483) 2,118 0 0 0 0 (4,365) (1.06) 0
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