-----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, MK/2WOsNuAr9jE6HrcMhDIMg2AXkxdLAI4z/DkiMa/f04baIUoT+PFQ6i1EwKEPa 2443nKs46BtD67nOS6YXEQ== 0001332349-10-000036.txt : 20101108 0001332349-10-000036.hdr.sgml : 20101108 20101108145553 ACCESSION NUMBER: 0001332349-10-000036 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20100930 FILED AS OF DATE: 20101108 DATE AS OF CHANGE: 20101108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Brookdale Senior Living Inc. CENTRAL INDEX KEY: 0001332349 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-NURSING & PERSONAL CARE FACILITIES [8050] IRS NUMBER: 203068069 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-32641 FILM NUMBER: 101171974 BUSINESS ADDRESS: STREET 1: 111 WESTWOOD PLACE STREET 2: SUITE 400 CITY: BRENTWOOD STATE: TN ZIP: 37027 BUSINESS PHONE: (615) 221-2250 MAIL ADDRESS: STREET 1: 111 WESTWOOD PLACE STREET 2: SUITE 400 CITY: BRENTWOOD STATE: TN ZIP: 37027 10-Q 1 form10-q.htm FORM 10-Q form10-q.htm



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

 
T
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

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: 001-32641

BROOKDALE SENIOR LIVING INC.
(Exact name of registrant as specified in its charter)

Delaware
20-3068069
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer Identification No.)

111 Westwood Place, Suite 400, Brentwood, Tennessee
37027
 
(Address of principal executive offices)
(Zip Code)
 

(615) 221-2250
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 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  T  No  £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  £  No  £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 
Large accelerated filer   £
Accelerated filer                   T
 
 
Non-accelerated filer     £ (Do not check if a smaller reporting company)
 
Smaller reporting company  £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  £  No  T

 
 

 

As of November 2, 2010, 120,545,904 shares of the registrant’s common stock, $0.01 par value, were outstanding (excluding unvested restricted shares).
 


 
2

 
 
 
TABLE OF CONTENTS
BROOKDALE SENIOR LIVING INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2010

 
PAGE
 
     
 
     
   
 
     
   
 
     
   
 
     
   
 
     
 
     
     
     
     
     
 
     
     
     
 
 
 
 


 
PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements

BROOKDALE SENIOR LIVING INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except stock amounts)

   
September 30,
2010
   
December 31,
2009
 
Assets
 
(Unaudited)
       
Current assets
           
Cash and cash equivalents
  $ 68,961     $ 66,370  
Cash and escrow deposits — restricted
    112,340       109,977  
Accounts receivable, net
    83,606       75,816  
Deferred tax asset
    7,688       7,688  
Prepaid expenses and other current assets, net
    56,340       50,350  
Total current assets
    328,935       310,201  
Property, plant and equipment and leasehold intangibles, net
    3,753,707       3,857,774  
Cash and escrow deposits — restricted
    61,885       61,218  
Investment in unconsolidated ventures
    19,516       20,512  
Goodwill
    109,730       109,835  
Other intangible assets, net
    178,325       198,043  
Other assets, net
    85,965       87,928  
Total assets
  $ 4,538,063     $ 4,645,511  
                 
Liabilities and Stockholders’ Equity
               
Current liabilities
               
Current portion of long-term debt
  $ 160,704     $ 166,185  
Trade accounts payable
    31,990       51,612  
Accrued expenses
    195,045       169,612  
Refundable entrance fees and deferred revenue
    309,155       290,673  
Tenant security deposits
    10,287       13,515  
Total current liabilities
    707,181       691,597  
Long-term debt, less current portion
    2,401,841       2,459,341  
Deferred entrance fee revenue
    68,988       69,306  
Deferred liabilities
    152,811       148,690  
Deferred tax liability
    114,031       140,313  
Other liabilities
    30,441       49,682  
Total liabilities
    3,475,293       3,558,929  
                 
Stockholders’ Equity
               
Preferred stock, $0.01 par value, 50,000,000 shares authorized at September 30, 2010 and December 31, 2009; no shares issued and outstanding
           
Common stock, $0.01 par value, 200,000,000 shares authorized at September 30, 2010 and December 31, 2009; 125,495,492 and 124,417,940 shares issued and 124,284,191 and 123,206,639 shares outstanding (including 3,739,559 and 3,915,330 unvested restricted shares), respectively
    1,243       1,232  
Additional paid-in-capital
    1,898,909       1,882,377  
Treasury stock, at cost; 1,211,301 shares at September 30, 2010 and December 31, 2009
    (29,187 )     (29,187 )
Accumulated deficit
    (807,740 )     (766,975 )
Accumulated other comprehensive loss
    (455 )     (865 )
Total stockholders’ equity
    1,062,770       1,086,582  
Total liabilities and stockholders’ equity
  $ 4,538,063     $ 4,645,511  


See accompanying notes to condensed consolidated financial statements.


 
BROOKDALE SENIOR LIVING INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Revenue
                       
Resident fees
  $ 557,125     $ 503,856     $ 1,647,714     $ 1,499,544  
Management fees
    1,339       1,987       4,146       5,002  
Total revenue
    558,464       505,843       1,651,860       1,504,546  
                                 
Expense
                               
Facility operating expense (excluding depreciation and amortization of $54,070, $45,851, $158,277 and $137,102, respectively)
    368,936       328,939       1,077,311       963,637  
General and administrative expense (including non-cash stock-based compensation expense of $5,823, $7,869, $15,799 and $21,549, respectively)
    33,231       34,720       97,017       100,148  
Facility lease expense
    68,090       68,036       203,514       204,211  
Depreciation and amortization
    74,951       66,983       221,180       202,378  
Facility lease termination expense
    4,616             4,616        
Total operating expense
    549,824       498,678       1,603,638       1,470,374  
Income from operations
    8,640       7,165       48,222       34,172  
                                 
Interest income
    441       623       1,521       1,771  
Interest expense:
                               
Debt
    (33,357 )     (30,574 )     (100,540 )     (96,845 )
Amortization of deferred financing costs and debt discount
    (2,244 )     (2,167 )     (7,250 )     (7,099 )
Change in fair value of derivatives and amortization
    (176 )     (2,478 )     (5,023 )     1,137  
Loss on extinguishment of debt, net
    (856 )     (1,178 )     (1,557 )     (2,918 )
Equity in earnings of unconsolidated ventures
    272       42       788       1,218  
Other non-operating (expense) income
    (1,454 )     (52 )     (1,454 )     4,172  
Loss before income taxes
    (28,734 )     (28,619 )     (65,293 )     (64,392 )
Benefit for income taxes
    11,821       7,329       24,528       18,936  
   Net loss
  $ (16,913 )   $ (21,290 )   $ (40,765 )   $ (45,456 )
                                 
Basic and diluted loss per share
  $ (0.14 )   $ (0.18 )   $ (0.34 )   $ (0.42 )
 
Weighted average shares used in computing basic and diluted loss per share
    120,404       118,455       119,817       108,807  

See accompanying notes to condensed consolidated financial statements.


 
BROOKDALE SENIOR LIVING INC.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
 (Unaudited, in thousands)

 
                            Accumulated        
          Additional                 Other        
    Common Stock     Paid-In-     Treasury     Accumulated     Comprehensive        
    Shares     Amount     Capital     Stock     Deficit     Loss     Total  
Balances at January 1, 2010
    123,206     $ 1,232     $ 1,882,377     $ (29,187 )   $ (766,975 )   $ (865 )   $ 1,086,582  
Compensation expense related to restricted stock and restricted stock unit grants
                15,799                         15,799  
Net loss
                            (40,765 )           (40,765 )
Issuance of common stock under Associate Stock Purchase Plan
    48             744                         744  
Restricted stock, net
    1,030       11       (11 )                        
Reclassification of net loss on derivatives into earnings
                                  391       391  
Amortization of payments from settlement of forward interest rate swaps
                                  282       282  
Other
                                  (263 )     (263 )
Balances at September 30, 2010
    124,284     $ 1,243     $ 1,898,909     $ (29,187 )   $ (807,740 )   $ (455 )   $ 1,062,770  


See accompanying notes to condensed consolidated financial statements.



 
BROOKDALE SENIOR LIVING INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)

   
Nine Months Ended
September 30,
 
   
2010
   
2009
 
Cash Flows from Operating Activities
           
Net loss
  $ (40,765 )   $ (45,456 )
Adjustments to reconcile net loss to net cash provided by operating activities:
               
Loss on extinguishment of debt, net
    1,557       2,918  
Depreciation and amortization
    228,430       209,477  
Equity in earnings of unconsolidated ventures
    (788 )     (1,218 )
Distributions from unconsolidated ventures from cumulative share of net earnings
    375       455  
Amortization of deferred gain
    (3,258 )     (3,259 )
Amortization of entrance fees
    (18,160 )     (16,084 )
Proceeds from deferred entrance fee revenue
    27,716       23,225  
Deferred income tax benefit
    (26,544 )     (19,440 )
Change in deferred lease liability
    8,109       12,073  
Change in fair value of derivatives and amortization
    5,023       (1,137 )
Loss (gain) on sale of communities and investment in unconsolidated venture
    1,548       (4,352 )
Change in future service obligation
    (1,064 )      
Non-cash stock-based compensation
    15,799       21,549  
Changes in operating assets and liabilities:
               
Accounts receivable, net
    (6,480 )     13,526  
Prepaid expenses and other assets, net
    (4,007 )     (10,734 )
Accounts payable and accrued expenses
    5,721       29,557  
Tenant refundable fees and security deposits
    (2,720 )     (14,297 )
Deferred revenue
    (5 )     1,811  
Other
    (11,332 )     (12,642 )
Net cash provided by operating activities
    179,155       185,972  
                 
Cash Flows from Investing Activities
               
Decrease in lease security deposits and lease acquisition deposits, net
    2,067       2,071  
Increase in cash and escrow deposits — restricted
    (2,567 )     (54,694 )
Net proceeds from the sale of property, plant and equipment
          210  
Additions to property, plant and equipment and leasehold intangibles, net of related payables
    (70,604 )     (87,507 )
Acquisition of assets, net of related payables and cash received
    (26,116 )     (1,227 )
Payment on (issuance of) notes receivable, net
    1,013       (590 )
Investment in unconsolidated ventures
    (659 )     (1,246 )
Distributions received from unconsolidated ventures
    77       969  
Proceeds from sale of assets
    1,487        
Proceeds from sale leaseback transaction
          9,166  
Proceeds from sale of unconsolidated venture
    675       8,831  
Other
    (638 )      
Net cash used in investing activities
    (95,265 )     (124,017 )
                 
Cash Flows from Financing Activities
               
Proceeds from debt
    382,076       67,986  
Repayment of debt and capital lease obligations
    (444,940 )     (21,194 )
Proceeds from line of credit
    60,000       60,446  
Repayment of line of credit
    (60,000 )     (219,899 )
Payment of financing costs, net of related payables
    (8,436 )     (7,258 )
Proceeds from public equity offering, net
          163,827  
Other
    (590 )     (713 )
Refundable entrance fees:
               
      Proceeds from refundable entrance fees
    27,303       17,032  
      Refunds of entrance fees
    (16,106 )     (16,842 )
Cash portion of loss on extinguishment of debt
    (179 )      
Recouponing and payment of swap termination, net
    (20,427 )      
Net cash (used in) provided by financing activities
    (81,299 )     43,385  
   Net increase in cash and cash equivalents
    2,591       105,340  
   Cash and cash equivalents at beginning of period
    66,370       53,973  
   Cash and cash equivalents at end of period
  $ 68,961     $ 159,313  

See accompanying notes to condensed consolidated financial statements.


 
BROOKDALE SENIOR LIVING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.  Description of Business

Brookdale Senior Living Inc. (“Brookdale” or the “Company”) is a leading owner and operator of senior living communities throughout the United States.  The Company provides an exceptional living experience through properties that are designed, purpose-built and operated to provide the highest quality service, care and living accommodations for residents.  The Company owns, leases and operates retirement centers, assisted living and dementia-care communities and continuing care retirement centers (“CCRCs”).

2.  Summary of Significant Accounting Policies

Basis of Presentation
 
The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for quarterly reports on Form 10-Q. In the opinion of management, these financial statements include all adjustments necessary to present fairly the financial position, results of operations and cash flows of the Company as of September 30, 2010, and for all periods presented. The condensed consolidated financial statements are prepared on the accrual basis of accounting. All adjustments made have been of a normal and recurring nature. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The Company believes that the disclos ures included are adequate and provide a fair presentation of interim period results. Interim financial statements are not necessarily indicative of the financial position or operating results for an entire year. It is suggested that these interim financial statements be read in conjunction with the audited financial statements and the notes thereto, together with management’s discussion and analysis of financial condition and results of operations, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009, as filed with the Securities and Exchange Commission.

Revenue Recognition

Resident Fees

Resident fee revenue is recorded when services are rendered and consist of fees for basic housing, support services and fees associated with additional services such as personalized health and assisted living care. Residency agreements are generally for a term of 30 days to one year, with resident fees billed monthly in advance. Revenue for certain skilled nursing services and ancillary charges is recognized as services are provided and is billed monthly in arrears.

Entrance Fees

Certain of the Company’s communities have residency agreements which require the resident to pay an upfront fee prior to occupying the community.  In addition, in connection with the Company’s MyChoice program, new and existing residents are allowed to pay additional entrance fee amounts in return for a reduced monthly service fee.  The non-refundable portion of the entrance fee is recorded as deferred revenue and amortized over the estimated stay of the resident based on an actuarial valuation.  The refundable portion of a resident’s entrance fee is generally refundable within a certain number of months or days following contract termination or in certain agreements, upon the resale of the resident’s unit or a comparable unit or 12 months after the resident vacates the unit.  0;In such instances the refundable portion of the fee is not amortized and included in refundable entrance fees and deferred revenue.

Certain contracts require the refundable portion of the entrance fee plus a percentage of the appreciation of the unit, if any, to be refunded only upon resale of a comparable unit (“contingently refundable”).  Upon resale the Company may receive reoccupancy proceeds in the form of additional contingently refundable fees, refundable fees, or non-refundable fees.  The Company estimates the amount of reoccupancy proceeds to be received from additional


 
contingently refundable fees or non-refundable fees and records such amount as deferred revenue.  This deferred revenue is amortized over the life of the community and was approximately $60.5 million and $61.8 million at September 30, 2010 and December 31, 2009, respectively.  All remaining contingently refundable fees not recorded as deferred revenue and amortized are included in refundable entrance fees and deferred revenue.

All refundable amounts due to residents at any time in the future, including those recorded as deferred revenue, are classified as current liabilities.

The non-refundable portion of entrance fees expected to be earned and recognized in revenue in one year is recorded as a current liability.  The balance of the non-refundable portion is recorded as a long-term liability.

Community Fees

Substantially all community fees received are non-refundable and are recorded initially as deferred revenue.  The deferred amounts, including both the deferred revenue and the related direct resident lease origination costs, are amortized over the estimated stay of the resident which is consistent with the implied contractual terms of the resident lease.

Management Fees

Management fee revenue is recorded as services are provided to the owners of the communities. Revenues are determined by an agreed upon percentage of gross revenues (as defined).

Fair Value of Financial Instruments

Cash and cash equivalents, cash and escrow deposits-restricted and derivative financial instruments are reflected in the accompanying condensed consolidated balance sheets at amounts considered by management to reasonably approximate fair value.  Management estimates the fair value of its long-term debt using a discounted cash flow analysis based upon the Company’s current borrowing rate for debt with similar maturities and collateral securing the indebtedness.  The Company had outstanding debt with a carrying value of approximately $2.6 billion as of September 30, 2010 and December 31, 2009.  As of September 30, 2010 and December 31, 2009, the estimated fair value of debt was approximately $2.5 billion and $2.6 billion, respectively.

The Financial Accounting Standards Board (FASB) issued Accounting Standards Codification (“ASC”) 820 – Fair Value Measurements (“ASC 820”), which establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:

Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The Company’s derivative positions are valued using models developed internally by the respective counterparty that use as their basis readily observable market parameters (such as forward yield curves) and are classified within Level 2 of the valuation hierarchy.

The Company considers its own credit risk as well as the credit risk of its counterparties when evaluating the fair value of its derivatives. Any adjustments resulting from credit risk are recorded as a change in fair value of derivatives and amortization in the current period statement of operations (Note 14).


 
Self-Insurance Liability Accruals

The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business. Although the Company maintains general liability and professional liability insurance policies for its owned, leased and managed communities under a master insurance program, the Company’s current policy provides for deductibles for each and every claim ($250,000 effective January 1, 2009 and $150,000 effective January 1, 2010).  As a result, the Company is, in effect, self-insured for claims that are less than $150,000.  In addition, the Company maintains a self-insured workers compensation program and a self-insured employee medical program for amounts below excess loss coverage amounts, as defined. The Company reviews the adequacy of its accruals related to these liabilities on an ongoing basis, us ing historical claims, actuarial valuations, third party administrator estimates, consultants, advice from legal counsel and industry data, and adjusts accruals periodically. Estimated costs related to these self-insurance programs are accrued based on known claims and projected claims incurred but not yet reported. Subsequent changes in actual experience are monitored and estimates are updated as information is available.

Treasury Stock

The Company accounts for treasury stock under the cost method and includes treasury stock as a component of stockholders’ equity.

New Accounting Pronouncements

In January 2010, the Company adopted the amendment in ASC 820 requiring new fair value disclosures on fair value measurements for all nonfinancial assets and liabilities, including separate disclosure of significant transfers into and out of Level 3 and the reasons for the transfers, the amount of transfers between Level 1 and Level 2 and the reasons for the transfers, lower level of disaggregation for fair value disclosures (by class rather than major category) and additional details on the valuation techniques and inputs used to determine Level 2 and Level 3 measurements.  Other than the required disclosures, the adoption of the guidance had no impact on the condensed consolidated financial statements.

In January 2010, the Company adopted amendments to the variable interest consolidation model in ASC 810, Consolidation.  The amendments were applied to all structures in place at the date of adoption.  Key amendment changes include:  the scope exception for qualifying special purpose entities was eliminated, consideration of kick-out and participation rights in variable interest entity determination, qualitative analysis considerations for primary beneficiary determination, changes in related party considerations, and certain disclosure changes.  The Company considered the amendments in accounting for its joint ventures and determined that the amendments had no impact on its current accounting.

In July 2010, the FASB issued a final accounting standards update that requires entities to provide extensive new disclosures in their financial statements about their financing receivables, including credit risk exposures and the allowance for credit losses. Adoption of this accounting standards update is required for public entities for interim or annual reporting periods ending on or after December 15, 2010. The Company is currently evaluating this accounting standards update, but does not anticipate a material change to the condensed consolidated financial statements other than additional disclosure.

Dividends

On December 30, 2008, the Company’s board of directors voted to suspend the Company’s quarterly cash dividend indefinitely.
 
Reclassifications

Certain prior period amounts have been reclassified to conform to the current financial statement presentation, with no effect on the Company’s results of operations.


 
3.  Earnings Per Share

Basic earnings per share (“EPS”) is calculated by dividing net income by the weighted average number of shares of common stock outstanding.  Diluted EPS includes the components of basic EPS and also gives effect to dilutive common stock equivalents.  For purposes of calculating basic and diluted earnings per share, vested restricted stock awards are considered outstanding.  Under the treasury stock method, diluted EPS reflects the potential dilution that could occur if securities or other instruments that are convertible into common stock were exercised or could result in the issuance of common stock.  Potentially dilutive common stock equivalents include unvested restricted stock and restricted stock units.

During the three and nine months ended September 30, 2010 and September 30, 2009, the Company reported a consolidated net loss.  As a result of the net loss, unvested restricted stock and restricted stock unit awards were antidilutive for each period and were not included in the computation of diluted weighted average shares.  The weighted average restricted stock and restricted stock unit grants excluded from the calculations of diluted net loss per share were 1.1 million and 2.0 million for the three months ended September 30, 2010 and 2009, respectively, and 1.5 million and 1.2 million for the nine months ended September 30, 2010 and 2009, respectively.

4.  Acquisitions

Effective June 16, 2010, the Company acquired four independent living communities that the Company previously leased for an aggregate purchase price of $22.5 million.  In connection with entering into the agreement to acquire the communities, the remaining leases between the Company and the seller/lessor were amended to modify and clarify certain of the terms thereof, including various financial and non-financial covenants.  Transaction expenses of approximately $0.3 million were incurred and were recorded as general and administrative expense in the current year.  The results of operations of these communities, prior and subsequent to the acquisition, are reported in the Retirement Centers segment.

During the nine months ended September 30, 2010, the Company purchased five home health agencies as part of its growth strategy for an aggregate purchase price of approximately $6.3 million.  The entire purchase price of the acquisitions has been ascribed to an indefinite useful life intangible asset and recorded on the condensed consolidated balance sheet under other intangible assets, net.

5.  Stock-Based Compensation

The Company recorded $5.8 million and $7.9 million of compensation expense in connection with grants of restricted stock and restricted stock units for the three months ended September 30, 2010 and 2009, respectively, and $15.8 million and $21.5 million of such expense was recorded for the nine months ended September 30, 2010 and 2009, respectively.  For the nine months ended September 30, 2010 and 2009, compensation expense was calculated net of forfeitures estimated from 0% to 5% and 0% to 6%, respectively, of the shares granted.

For all awards with graded vesting other than awards with performance-based vesting conditions, the Company records compensation expense for the entire award on a straight-line basis over the requisite service period.  For graded-vesting awards with performance-based vesting conditions, total compensation expense is recognized over the requisite service period for each separately vesting tranche of the award as if the award is, in substance, multiple awards once the performance target is deemed probable of achievement.  Performance goals are evaluated quarterly.  If such goals are not ultimately met or it is not probable the goals will be achieved, no compensation expense is recognized and any previously recognized compensation expense is reversed.

During 2009, the Company issued restricted stock units to its Chief Executive Officer.  Under the terms of the award agreement, upon vesting, each restricted stock unit represents the right to receive one share of the Company’s common stock.

Current year grants of restricted shares under the Company’s Omnibus Stock Incentive Plan were as follows (amounts in thousands except for value per share):

 

 
Shares Granted
Value Per Share
Total Value
Three months ended March 31, 2010
64
  $17.95 – $18.19
               $   1,151
Three months ended June 30, 2010
1,146
  $16.85 – $21.36
               $ 19,312
Three months ended September 30, 2010
51
  $14.18 – $14.75
               $      720

The Company has an employee stock purchase plan for all eligible employees.  The plan became effective on October 1, 2008.  Under the plan, eligible employees of the Company can purchase shares of the Company’s common stock on a quarterly basis at a discounted price through accumulated payroll deductions.  Each eligible employee may elect to deduct up to 15% of his or her base pay each quarter.  Subject to certain limitations specified in the plan, on the last trading date of each calendar quarter, the amount deducted from each participant’s pay over the course of the quarter will be used to purchase whole shares of the Company’s common stock at a purchase price equal to 90% of the closing market price on the New York Stock Exchange on such date.  Initially, the Company r eserved 1,000,000 shares of common stock for issuance under the plan.  The employee stock purchase plan also contains an “evergreen” provision that automatically increases the number of shares reserved for issuance under the plan by 200,000 shares on the first day of each calendar year beginning January 1, 2010.  The impact on the Company’s current year condensed consolidated financial statements is not material.

6.  Goodwill and Other Intangible Assets, Net

Following is a summary of changes in the carrying amount of goodwill for the nine months ended September 30, 2010 presented on an operating segment basis (dollars in thousands):
 
   
Retirement
Centers
   
Assisted
Living
   
Total
 
Balance at December 31, 2009
  $ 7,155     $ 102,680     $ 109,835  
Adjustments
          (105 )     (105 )
Balance at September 30, 2010
  $ 7,155     $ 102,575     $ 109,730  

Goodwill is tested for impairment annually with a test date of October 1 or sooner if indicators of impairment are present.  No indicators of impairment were present during the nine months ended September 30, 2010.

Intangible assets with definite useful lives are amortized over their estimated lives and are tested for impairment whenever indicators of impairment arise. The following is a summary of other intangible assets at September 30, 2010 and December 31, 2009 (dollars in thousands):

   
September 30, 2010
   
December 31, 2009
 
   
Gross
Carrying
Amount
   
Accumulated
Amortization
   
Net
   
Gross
Carrying
Amount
   
Accumulated
Amortization
   
Net
 
Community purchase options
  $ 147,782     $ (12,943 )   $ 134,839     $ 147,682     $ (10,169 )   $ 137,513  
Management contracts and other
    158,041       (132,677 )     25,364       158,041       (109,323 )     48,718  
Home health licenses
    18,122             18,122       11,812             11,812  
Total
  $ 323,945     $ (145,620 )   $ 178,325     $ 317,535     $ (119,492 )   $ 198,043  

Amortization expense related to definite-lived intangible assets for both the three months ended September 30, 2010 and 2009 was $8.7 million.  $26.1 million and $26.5 million of such expense was recorded for the nine months ended September 30, 2010 and 2009, respectively.  Home health licenses were determined to be indefinite-lived intangible assets and are not subject to amortization.


 
7.  Property, Plant and Equipment and Leasehold Intangibles, Net

Property, plant and equipment and leasehold intangibles, net, which include assets under capital leases, consist of the following (dollars in thousands):

   
September 30,
2010
   
December 31,
2009
 
Land
  $ 273,755     $ 272,737  
Buildings and improvements
    3,019,349       2,968,659  
Furniture and equipment
    368,544       334,553  
Resident and operating lease intangibles
    597,450       599,618  
Construction in progress
    16,961       17,702  
Assets under capital and financing leases
    606,639       606,224  
      4,882,698       4,799,493  
Accumulated depreciation and amortization
    (1,128,991 )     (941,719 )
Property, plant and equipment and leasehold intangibles, net
  $ 3,753,707     $ 3,857,774  

8.  Debt

Long-term Debt, Capital Leases and Financing Obligations

Long-term debt, capital leases and financing obligations consist of the following (dollars in thousands):

   
September 30,
 2010
   
December 31,
2009
 
Mortgage notes payable due 2011 through 2020; weighted average interest rate of 5.31% for the nine months ended September 30, 2010 (weighted average interest rate of 4.64% in 2009)
  $ 1,369,050     $ 1,416,732  
 
$150,000 Series A notes payable, secured by five communities and by a $3.0 million letter of credit, bearing interest at LIBOR plus 0.88%, payable in monthly installments of interest only until August 2011 and payable in monthly installments of principal and interest through maturity in August 2013
    150,000       150,000  
 
Mortgages payable due 2012; weighted average interest rate of 5.64% for the nine months ended September 30, 2010 (weighted average interest rate of 5.64% in 2009), payable interest only through July 2010 and payable in monthly installments of principal and interest through maturity in July 2012, secured by the underlying assets of the portfolio
    211,850       212,407  
 
Discount mortgage note payable due 2013, weighted average interest rate of 2.54% for the nine months ended September 30, 2010, net of debt discount of $5.3 million as of September 30, 2010
    79,115       78,631  
 
Variable rate tax-exempt bonds credit-enhanced by Fannie Mae; weighted average interest rate of 1.79% for the nine months ended September 30, 2010 (weighted average interest rate of 1.91% in 2009), due 2032, payable interest only until maturity, secured by the underlying assets of the portfolio
    100,841       100,841  
 
 
 
 
Capital and financing lease obligations payable through 2023; weighted average interest rate of 8.76% for the nine months ended September 30, 2010 (weighted average interest rate of 8.82% in 2009)
    336,509       351,735  
 
Mortgage note, bearing interest at a variable rate of LIBOR plus 0.70%, payable interest only through maturity in August 2012.  The note is secured by 15 of the Company’s communities and an $11.5 million guaranty by the Company
    315,180       315,180  
 
Total debt
    2,562,545       2,625,526  
 
Less current portion
    (160,704 )     (166,185 )
 
Total long-term debt
  $ 2,401,841     $ 2,459,341  

Credit Facilities

As of January 1, 2010, the Company had an available secured line of credit of $75.0 million (including a $25.0 million letter of credit sublimit) and secured and unsecured letter of credit facilities of up to $78.5 million in the aggregate.  The line of credit bore interest at a rate of 6.0% and was scheduled to mature on August 31, 2010.  No amounts were borrowed under the secured line of credit during 2010.

2010 Credit Facility

Effective February 23, 2010, the Company terminated the $75.0 million revolving credit facility with Bank of America, N.A. and entered into a credit agreement with General Electric Capital Corporation, as administrative agent and lender, and the other lenders from time to time parties thereto. The new facility had an initial commitment of $100.0 million, with an option to increase the commitment to $120.0 million (which the Company exercised on May 5, 2010), and is scheduled to mature on June 30, 2013.

The revolving line of credit may be used to finance acquisitions and fund working capital and capital expenditures and for other general corporate purposes.

The new facility is secured by a first priority lien on certain of the Company’s communities.  The availability under the line may vary from time to time as it is based on borrowing base calculations related to the value and performance of the communities securing the facility.

Amounts drawn under the facility will bear interest at 90-day LIBOR plus an applicable margin, as described below.  For purposes of determining the interest rate, in no event shall LIBOR be less than 2.0%.  The applicable margin varies with the percentage of the total commitment drawn, with a 4.5% margin at 35% or lower utilization, a 5.0% margin at utilization greater than 35% but less than or equal to 50%, and a 5.5% margin at greater than 50% utilization.  The Company is also required to pay a quarterly commitment fee of 1.0% per annum on the unused portion of the facility.

As of September 30, 2010, the Company had an available secured line of credit with a $120.0 million commitment and secured and unsecured letter of credit facilities of up to $82.5 million in the aggregate.  As of September 30, 2010, there were no borrowings under the revolving loan facility and $72.7 million of letters of credit had been issued under the secured and unsecured letter of credit facilities.

Financings

On February 25, 2010, the Company obtained a $44.6 million first mortgage loan, secured by five communities that the Company acquired in November 2009.  The loan bears interest at a fixed rate of 6.33% and matures in March 2020.  In connection with the transaction, the Company repaid $13.3 million of debt that had been assumed at the time of closing of the acquisition.



Effective May 11, 2010, the Company exercised its option to extend the maturity date of $121.0 million of mortgage notes from May 11, 2010 to May 11, 2011.  No other terms of the notes were changed in connection with the extension.

On June 11, 2010, the Company obtained a $117.0 million first mortgage loan, secured by 21 communities.  The loan bears interest at a fixed rate of 5.98% and matures in July 2020.  In connection with the transaction, the Company repaid $119.0 million of existing variable rate debt.

On August 26, 2010, the Company obtained a $38.0 million first mortgage loan, secured by three communities.  The initial draw on the loan was $31.5 million.  The loan bears interest at LIBOR plus 5.00%, with a base rate of 1.25%, and matures in August 2015.  In connection with the transaction, the Company repaid $39.3 million of existing variable rate debt.

On August 26, 2010, the Company obtained a $181.0 million first mortgage loan, secured by nine communities.  The loan bears interest at a fixed rate of 5.90% and matures in August 2017.  In connection with the transaction, the Company repaid $205.2 million of existing variable rate debt and obtained the release of $27.6 million of restricted cash that had been held as partial security for the debt.

As of September 30, 2010, the Company is in compliance with the financial covenants of its outstanding debt and lease agreements.

Interest Rate Swaps and Caps

In the normal course of business, a variety of financial instruments are used to manage or hedge interest rate risk.  Interest rate protection and swap agreements were entered into to effectively cap or convert floating rate debt to a fixed rate basis, as well as to hedge anticipated future financing transactions.  Pursuant to the hedge agreements, the Company is required to secure its obligation to the counterparty if the fair value liability exceeds a specified threshold.  Cash collateral pledged to the Company’s counterparties was $0.6 million and $16.2 million as of September 30, 2010 and December 31, 2009, respectively.

All derivative instruments are recognized as either assets or liabilities in the condensed consolidated balance sheets at fair value.  The change in mark-to-market of the value of the derivative is recorded as an adjustment to income or other comprehensive loss depending on whether it has been designated and qualifies as an accounting hedge.

Derivative contracts are not entered into for trading or speculative purposes.  Furthermore, the Company has a policy of only entering into contracts with major financial institutions based upon their credit rating and other factors.  Under certain circumstances, the Company may be required to replace a counterparty in the event that the counterparty does not maintain a specified credit rating.

The following table summarizes the Company’s swap instruments at September 30, 2010 (dollars in thousands):

Current notional balance
  $ 150,000  
Highest possible notional
  $ 150,000  
Lowest interest rate
    0.87 %
Highest interest rate
    0.87 %
Average fixed rate
    0.87 %
Earliest maturity date
    2013  
Latest maturity date
    2013  
Weighted average original maturity
 
2.92 years
 
Estimated liability fair value (included in other liabilities at September 30, 2010)
  $ (715 )
Estimated asset fair value (included in other assets, net at September 30, 2010)
  $  



 
The following table summarizes the Company’s cap instruments at September 30, 2010 (dollars in thousands):

Current notional balance
  $ 925,865  
Highest possible notional
  $ 925,865  
Lowest interest rate
    4.96 %
Highest interest rate
    6.50 %
Average fixed rate
    5.82 %
Earliest maturity date
    2011  
Latest maturity date
    2012  
Weighted average original maturity
 
3.2 years
 
Estimated liability fair value (included in other liabilities at September 30, 2010)
  $  
Estimated asset fair value (included in other assets, net at September 30, 2010)
  $ 32  

The fair value of the Company’s interest rate swaps and caps decreased $0.2 million and $2.5 million for the three months ended September 30, 2010 and 2009, respectively, and decreased $5.0 million and increased $1.1 million for the nine months ended September 30, 2010 and 2009, respectively.  This is included as a component of interest expense in the condensed consolidated statements of operations.

During the nine months ended September 30, 2010, the Company terminated 12 swap agreements with a total notional amount of $351.8 million and entered into one new swap agreement with a notional amount of $150.0 million.  In conjunction with these transactions, $20.4 million was paid to the respective counterparties, of which $14.9 million was previously deposited as collateral.
 
9.  Litigation

The Company has been and is currently involved in litigation and claims incidental to the conduct of its business which are comparable to other companies in the senior living industry. Certain claims and lawsuits allege large damage amounts and may require significant costs to defend and resolve. Similarly, the senior living industry is continuously subject to scrutiny by governmental regulators, which could result in litigation related to regulatory compliance matters. As a result, the Company maintains insurance policies in amounts and with coverage and deductibles the Company believes are adequate, based on the nature and risks of its business, historical experience and industry standards.  Effective January 1, 2010, the Company’s current policies provide for deductibles of $150,000 for each claim.  Accordingl y, the Company is, in effect, self-insured for claims that are less than $150,000.



10.  Supplemental Disclosure of Cash Flow Information

(dollars in thousands):
   
Nine Months Ended September 30,
 
   
2010
   
2009
 
Supplemental Disclosure of Cash Flow Information:
           
Interest paid
  $ 99,898     $ 99,460  
Income taxes paid
  $ 1,122     $ 1,846  
Write-off of deferred costs
  $ 2,878     $ 2,918  
                 
Supplemental Schedule of Non-cash Operating, Investing and Financing Activities:
               
Capital leases:
               
Property, plant and equipment and leasehold intangibles, net
  $     $ 18,236  
Long-term debt
          (18,236 )
Net
  $     $  
Lease Incentives:
               
Property, plant and equipment and leasehold intangibles, net
  $     $ 1,237  
Deferred liabilities
          (1,237 )
Net
  $     $  
Acquisition of assets, net of related payables and cash received:
               
Property, plant and equipment and leasehold intangibles, net
  $ 19,900     $  
Other intangible assets, net
    6,310       1,227  
Accrued expenses
    (94 )      
Net
  $ 26,116     $ 1,227  
Reclassification of other intangibles, net
  $     $ 141  

11.  Facility Operating Leases

A summary of facility lease expense and the impact of straight-line adjustment and amortization of deferred gains is as follows (dollars in thousands):

   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Cash basis payment
  $ 66,364     $ 65,331     $ 198,663     $ 195,397  
Straight-line expense
    2,812       3,793       8,109       12,073  
Amortization of deferred gain
    (1,086 )     (1,088 )     (3,258 )     (3,259 )
Facility lease expense
  $ 68,090     $ 68,036     $ 203,514     $ 204,211  



 
12.  Other Comprehensive Loss, Net

The following table presents the after-tax components of the Company’s other comprehensive loss for the periods presented (dollars in thousands):

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
   
2010
   
2009
   
2010
   
2009
Net loss
  $ (16,913 )   $ (21,290 )   $ (40,765 )   $ (45,456 )
Reclassification of net loss on derivatives out of earnings
    124       123       391       369  
Amortization of payments from settlement of forward interest rate swaps
    94       94       282       282  
Other
    (85 )     (84 )     (263 )     (253 )
Total comprehensive loss
  $ (16,780 )   $ (21,157 )   $ (40,355 )   $ (45,058 )

13.  Income Taxes

The Company’s effective tax rates for the three months ended September 30, 2010 and 2009 were 41.1% and 25.6%, respectively, and for the nine months ended September 30, 2010 and 2009 were 37.6% and 29.4%, respectively.  The difference in the effective rate between these periods was primarily due to the impact of the nondeductible stock-based compensation recorded under ASC 718-10 in 2009.

The Company recorded additional interest charges related to its tax contingency reserve for the nine months ended September 30, 2010.  Tax returns for years 2007, 2008 and 2009 are subject to future examination by tax authorities.  In addition, certain tax returns are open from 2000 through 2006 to the extent of the net operating losses generated during those periods.

14.  Fair Value Measurements

The following table provides the Company’s derivative assets and liabilities carried at fair value as measured on a recurring basis as of September 30, 2010 (dollars in thousands):

   
Total Carrying Value at
September 30,
2010
   
Quoted prices in active markets
(Level 1)
   
Significant other observable inputs
(Level 2)
   
Significant unobservable inputs
(Level 3)
 
Derivative assets
  $ 32     $     $ 32     $  
Derivative liabilities
    (715 )           (715 )      
    $ (683 )   $     $ (683 )   $  

The Company’s derivative assets and liabilities include interest rate swaps and caps that effectively convert a portion of the Company’s variable rate debt to fixed rate debt.  The derivative positions are valued using models developed internally by the respective counterparty that use as their basis readily observable market parameters (such as forward yield curves) and are classified within Level 2 of the valuation hierarchy.

The Company considers its own credit risk as well as the credit risk of its counterparties when evaluating the fair value of its derivatives. Any adjustments resulting from credit risk are recorded as a change in fair value of derivatives and amortization in the current period statement of operations.


 
15.  Segment Information

The Company currently has four reportable segments: retirement centers; assisted living; CCRCs; and management services.   These segments were determined based on the way that the Company’s chief operating decision makers organize the Company’s business activities for making operating decisions and assessing performance.

Retirement Centers.  Retirement center communities are primarily designed for middle to upper income senior citizens age 70 and older who desire an upscale residential environment providing the highest quality of service.  The majority of the Company’s retirement center communities consist of both independent living and assisted living units in a single community, which allows residents to “age-in-place” by providing them with a continuum of senior independent and assisted living services.

Assisted Living.  Assisted living communities offer housing and 24-hour assistance with activities of daily life to mid-acuity frail and elderly residents.  The Company’s assisted living communities include both freestanding, multi-story communities and freestanding single story communities.  The Company also operates memory care communities, which are freestanding assisted living communities specially designed for residents with Alzheimer’s disease and other dementias.

CCRCs.  CCRCs are large communities that offer a variety of living arrangements and services to accommodate all levels of physical ability and health.  Most of the Company’s CCRCs have retirement centers, assisted living and skilled nursing available on one campus, and some also include memory care and Alzheimer’s units.

Management Services.  The Company’s management services segment includes communities owned by others and operated by the Company pursuant to management agreements.  Under the management agreements for these communities, the Company receives management fees as well as reimbursed expenses, which represent the reimbursement of certain expenses it incurs on behalf of the owners.

The accounting policies of reportable segments are the same as those described in the summary of significant accounting policies.

The following table sets forth certain segment financial and operating data (dollars in thousands):


 
   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Revenue(1)
                       
Retirement Centers
  $ 133,663     $ 124,277     $ 397,455     $ 371,435  
Assisted Living
    259,572       229,230       765,816       687,124  
CCRCs
    163,890       150,349       484,443       440,985  
Management Services
    1,339       1,987       4,146       5,002  
    $ 558,464     $ 505,843     $ 1,651,860     $ 1,504,546  
Segment operating income(2)
                               
Retirement Centers
  $ 54,199     $ 54,516     $ 162,347     $ 160,568  
Assisted Living
    89,141       77,839       269,740       245,093  
CCRCs
    44,849       42,562       138,316       130,246  
Management Services
    937       1,391       2,902       3,501  
    $ 189,126     $ 176,308     $ 573,305     $ 539,408  
General and administrative (including non-cash stock-based compensation expense)(3)
  $ 32,829     $ 34,124     $ 95,773     $ 98,647  
Facility lease expense
    68,090       68,036       203,514       204,211  
Depreciation and amortization
    74,951       66,983       221,180       202,378  
Lease termination expense
    4,616        —       4,616        
Income from operations
  $  8,640     $ 7,165     $ 48,222     $ 34,172  
                                 
                                 
                   
As of
 
                   
September 30,
2010
   
December 31,
2009
 
Total assets
                               
Retirement Centers
                  $ 1,110,756     $ 1,109,794  
Assisted Living
                    1,468,405       1,519,693  
CCRCs
                    1,662,749       1,685,832  
Corporate and Management Services
                    296,153       330,192  
Total assets
                  $ 4,538,063     $ 4,645,511  


(1)
All revenue is earned from third parties in the United States.
(2)
Segment operating income is defined as segment revenues less segment operating expenses (excluding depreciation and amortization).
(3)
Net of general and administrative costs allocated to management services reporting segment.
 

 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Certain statements in this Quarterly Report on Form 10-Q and other information we provide from time to time may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those forward-looking statements include all statements that are not historical statements of fact and those regarding our intent, belief or expectations, including, but not limited to, statements relating to our operational initiatives and our expectations regarding their effect on our results; our expectations regarding occupancy, revenue, cash flow, expense levels, the demand for senior housing, expansion and development activity, acquisition opportunities, asset dispositions and the valuation of our common stock; our belief regarding our growth prospects; our ability to secure financing or repay, replace or exten d existing debt at or prior to maturity; our ability to remain in compliance with all of our debt and lease agreements (including the financial covenants contained therein); our expectations regarding liquidity; our plans to deleverage; our expectations regarding financings and refinancings of assets (including the timing thereof); our expectations regarding the effect of recently published or proposed changes in government reimbursement programs on our results; our plans to generate growth organically through occupancy improvements, increases in annual rental rates and the achievement of operating efficiencies and cost savings; our plans to expand our offering of ancillary services (therapy and home health); our plans to expand existing communities; the expected project costs for our expansion program; our plans to acquire additional communities, asset portfolios, operating companies and home health agencies; our expected levels of expenditures and reimbursements (and the timing thereof); our expectations f or the performance of our entrance fee communities; our ability to anticipate, manage and address industry trends and their effect on our business; our expectations regarding the payment of dividends; and our ability to increase revenues, earnings, Adjusted EBITDA, Cash From Facility Operations, and/or Facility Operating Income (as such terms are defined herein). Words such as “anticipate(s)”, “expect(s)”, “intend(s)”, “plan(s)”, “target(s)”, “project(s)”, “predict(s)”, “believe(s)”, “may”, “will”, “would”, “could”, “should”, “seek(s)”, “estimate(s)” and similar expressions are intended to identify such forward-looking statements. These statements are based on management’s current expectations and beliefs and are subject to a number of risks and uncertainties that could lead to actual results differing materially from those p rojected, forecasted or expected. Although we believe that the assumptions underlying the forward-looking statements are reasonable, we can give no assurance that our expectations will be attained. Factors which could have a material adverse effect on our operations and future prospects or which could cause actual results to differ materially from our expectations include, but are not limited to, the risk associated with the current global economic crisis and its impact upon capital markets and liquidity; our inability to extend (or refinance) debt (including our credit and letter of credit facilities) as it matures; the risk that we may not be able to satisfy the conditions precedent to exercising the extension options associated with certain of our debt agreements; events which adversely affect the ability of seniors to afford our monthly resident fees or entrance fees; the conditions of housing markets in certain geographic areas; our ability to generate sufficient cash flow to cover required interest and long-term operating lease payments; the effect of our indebtedness and long-term operating leases on our liquidity; the risk of loss of property pursuant to our mortgage debt and long-term lease obligations; the possibilities that changes in the capital markets, including changes in interest rates and/or credit spreads, or other factors could make financing more expensive or unavailable to us; the risk that we may be required to post additional cash collateral in connection with our interest rate swaps; the risk that continued market deterioration could jeopardize the performance of certain of our counterparties’ obligations; changes in governmental reimbursement programs; our limited operating history on a combined basis; our ability to effectively manage our growth; our ability to maintain consistent quality control; delays in obtaining regulatory approvals; our ability to complete acquisitions and integrate them into our operations; competition for the acquisition of assets; our ability to obtain a dditional capital on terms acceptable to us; a decrease in the overall demand for senior housing; our vulnerability to economic downturns; acts of nature in certain geographic areas; terminations of our resident agreements and vacancies in the living spaces we lease; increased competition for skilled personnel; increased union activity; departure of our key officers; increases in market interest rates; environmental contamination at any of our facilities; failure to comply with existing environmental laws; an adverse determination or resolution of complaints filed against us; the cost and difficulty of complying with increasing and evolving regulation; and other risks detailed from time to time in our filings with the Securities and Exchange Commission, press releases and other communications, including those set forth under “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2009 and in this Quarterly Report.  Such forward-looking statements speak only as of the date of this Quarterly Report. We expressly disclaim any obligation to release publicly any updates or revisions


 
to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.

Executive Overview

During the third quarter of 2010, we continued to make progress in implementing our long-term growth strategy, integrating previous acquisitions, and building a platform for future growth.  Our primary long-term growth objectives are to grow our revenues, Adjusted EBITDA, Cash From Facility Operations and Facility Operating Income primarily through a combination of: (i) organic growth in our core business, including expense control and the realization of economies of scale; (ii) continued expansion of our ancillary services programs (including therapy and home health services); (iii) expansion of our existing communities; and (iv) acquisitions of additional operating companies and communities.

Our operating results for the three and nine months ended September 30, 2010 were favorably impacted by an increase in our total revenues, primarily driven by an increase in average monthly revenue per unit, including an increase in our ancillary services revenue, the inclusion of revenue from recent acquisitions and expansions, and an increase in occupancy.  Although we have made significant progress in many areas of our business, the difficult operating environment has continued to result in occupancy rates that are lower than historical levels and diminished growth in the rates we charge our residents.

During the nine months ended September 30, 2010, we also continued our efforts to strengthen our financial position.  For example (and as discussed in more detail under “Credit Facilities - 2010 Credit Facility” below), during the first quarter of 2010, we entered into a new revolving credit facility. The new facility had an initial commitment of $100.0 million, with an option to increase the commitment to $120.0 million (which we exercised during the second quarter), and matures on June 30, 2013. The new facility replaced the $75.0 million revolving credit agreement with Bank of America, N.A. that was scheduled to expire in August 2010.  As a result of our recent operating performance and the steps we have recently taken to improve our liquidity position, we ended the third quarter with $69.0 million of un restricted cash and cash equivalents on our condensed consolidated balance sheet.

The tables below present a summary of our operating results and certain other financial metrics for the three and nine months ended September 30, 2010 and 2009 and the amount and percentage of increase or decrease of each applicable item (dollars in millions).

   
Three Months Ended
September 30,
   
Increase
(Decrease)
 
   
2010
   
2009
   
Amount
   
Percent
 
Total revenues
  $ 558.5     $ 505.8     $ 52.6       10.4 %
Net loss
  $ (16.9 )   $ (21.3 )   $ (4.4 )     (20.7 %)
Adjusted EBITDA
  $ 103.3     $ 85.6     $ 17.6       20.6 %
Cash From Facility Operations
  $ 59.7     $ 48.2     $ 11.5       23.9 %
Facility Operating Income
  $ 181.6     $ 169.2     $ 12.4       7.3 %

   
Nine Months Ended
September 30,
   
Increase
(Decrease)
 
   
2010
   
2009
   
Amount
   
Percent
 
Total revenues
  $ 1,651.9     $ 1,504.5     $ 147.4       9.8 %
Net loss
  $ (40.8 )   $ (45.5 )   $ (4.7 )     (10.3 %)
Adjusted EBITDA
  $ 299.9     $ 263.6     $ 36.3       13.8 %
Cash From Facility Operations
  $ 171.1     $ 150.9     $ 20.2       13.4 %
Facility Operating Income
  $ 551.2     $ 519.8     $ 31.4       6.0 %

Adjusted EBITDA and Facility Operating Income are non-GAAP financial measures we use in evaluating our operating performance. Cash From Facility Operations is a non-GAAP financial measure we use in evaluating our liquidity. See “Non-GAAP Financial Measures” below for an explanation of how we define each of these measures,


 
a detailed description of why we believe such measures are useful and the limitations of each measure, a reconciliation of net loss to each of Adjusted EBITDA and Facility Operating Income and a reconciliation of net cash provided by operating activities to Cash From Facility Operations.

Our revenues for the nine months ended September 30, 2010 increased to $1.7 billion, an increase of $147.3 million, or 9.8%, over our revenues for the nine months ended September 30, 2009.  The increase in revenues in the current year period was primarily a result of an increase in the average monthly revenue per unit compared to the prior year period, including growing revenues from our ancillary services programs, the inclusion of revenue from recent acquisitions and expansions, and an increase in occupancy.  Our weighted average occupancy rate for the nine months ended September 30, 2010 and 2009 was 86.9% and 86.5%, respectively.  As described below, beginning with the first quarter of 2010, occupancy rates and average monthly revenue per unit are being reported using the average unit methodology. &# 160;Occupancy rates and average monthly revenue per unit for all prior periods have been recast to conform to the current presentation.

During the three months ended September 30, 2010, our Adjusted EBITDA, Cash From Facility Operations and Facility Operating Income increased by 20.6%, 23.9% and 7.3%, respectively, when compared to the three months ended September 30, 2009.  During the nine months ended September 30, 2010, our Adjusted EBITDA, Cash From Facility Operations and Facility Operating Income increased by 13.8%, 13.4% and 6.0%, respectively, when compared to the nine months ended September 30, 2009.
 
During the three months ended September 30, 2010, we continued to expand our ancillary services offerings.  As of September 30, 2010, we offered therapy services to approximately 38,100 of our units and home health services to over 24,500 of our units.   We continue to see positive results from the maturation of previously-opened therapy and home health clinics.  We also expect to continue to expand our ancillary services programs to additional units and to open or acquire additional home health agencies.

We believe that the deteriorating housing market, credit crisis and general economic uncertainty have caused some potential customers (or their adult children) to delay or reconsider moving into our communities, resulting in a decrease in occupancy rates and occupancy levels when compared to historical levels.  We remain cautious about the economy and the adverse credit and financial markets and their effect on our customers and our business.  In addition, we continue to experience volatility in the entrance fee portion of our business.  The timing of entrance fee sales is subject to a number of different factors (including the ability of potential customers to sell their existing homes) and is also inherently subject to variability (positively or negatively) when measured over the short-term.  Thes e factors also impact our potential independent living customers to a significant extent.  We expect occupancy and entrance fee sales to normalize over the longer term.

Consolidated Results of Operations

Three Months Ended September 30, 2010 and 2009

The following table sets forth, for the periods indicated, statements of operations items and the amount and percentage of increase or decrease of these items. The results of operations for any particular period are not necessarily indicative of results for any future period. The following data should be read in conjunction with our condensed consolidated financial statements and the related notes, which are included herein.

Beginning with the first quarter of 2010, occupancy rates and average monthly revenue per unit are reported using an average unit methodology based on a consistent treatment of units across all product lines, as compared to the  historical method where occupancy was reported based upon unit calculations that varied by product line.  Occupancy rates and average monthly revenue per unit for all prior periods have been recast to conform to the current presentation.



(dollars in thousands, except average monthly revenue per unit)

   
Three Months Ended
September 30,
             
   
2010
   
2009
   
Increase
(Decrease)
   
% Increase
(Decrease)
 
                         
Statement of Operations Data:
                       
Revenue
                       
Resident fees
                       
Retirement Centers
  $ 133,663     $ 124,277     $ 9,386       7.6 %
Assisted Living
    259,572       229,230       30,342       13.2 %
CCRCs
    163,890       150,349       13,541       9.0 %
Total resident fees
    557,125       503,856       53,269       10.6 %
Management fees
    1,339       1,987       (648 )     (32.6 %)
Total revenue
    558,464       505,843       52,621       10.4 %
Expense
                               
Facility operating expense
                               
Retirement Centers
    79,464       69,761       9,703       13.9 %
Assisted Living
    170,431       151,391       19,040       12.6 %
CCRCs
    119,041       107,787       11,254       10.4 %
Total facility operating expense
    368,936       328,939       39,997       12.2 %
General and administrative expense
    33,231       34,720       (1,489 )     (4.3 %)
Facility lease expense
    68,090       68,036       54       0.1 %
Depreciation and amortization
    74,951       66,983       7,968       11.9 %
Facility lease termination expense
    4,616             4,616       100.0 %
Total operating expense
    549,824       498,678       51,146       10.3 %
Income from operations
    8,640       7,165       1,475       20.6 %
Interest income
    441       623       (182 )     (29.2 %)
Interest expense
                               
Debt
    (33,357 )     (30,574 )     2,783       9.1 %
Amortization of deferred financing costs and debt discount
    (2,244 )     (2,167 )     77       3.6 %
Change in fair value of derivatives and amortization
    (176 )     (2,478 )     (2,302 )     (92.9 %)
Equity in earnings of unconsolidated ventures
    272       42       230       547.6 %
Loss on extinguishment of debt, net
    (856 )     (1,178 )     322       27.3 %
Other non-operating expense
    (1,454 )     (52 )     (1,402 )  
NM
 
Loss before income taxes
    (28,734 )     (28,619 )     115       0.4 %
Benefit for income taxes
    11,821       7,329       4,492       61.3 %
Net loss
  $ (16,913 )   $ (21,290 )   $ (4,377 )     (20.6 %)
                                 
Selected Operating and Other Data:
                               
Total number of communities (at end of period)
    564       547       17       3.1 %
Total units operated(1)
    50,903       49,423       1,480       3.0 %
Owned/leased communities units
    47,117       44,992       2,125       4.7 %
Owned/leased communities occupancy rate (weighted average)
    87.4 %     86.7 %     0.7 %     0.8 %
Average monthly revenue per unit (2)
  $ 4,457     $ 4,259     $ 198       4.6 %
                                 
 
 
 
Selected Segment Operating and Other Data:
                               
Retirement Centers
                               
Number of communities (period end)
    80       77       3       3.9 %
Total units (1)
    14,734       14,114       620       4.4 %
Occupancy rate (weighted average)
    87.4 %     87.3 %     0.1 %     0.1 %
Average monthly revenue per unit (2)
  $ 3,461     $ 3,361     $ 100       3.0 %
Assisted Living
                               
Number of communities (period end)
    429       413       16       3.9 %
Total units (1)
    21,114       20,062       1,052       5.2 %
Occupancy rate (weighted average)
    89.0 %     87.0 %     2.0 %     2.3 %
Average monthly revenue per unit (2)
  $ 4,606     $ 4,376     $ 230       5.3 %
CCRCs
                               
Number of communities (period end)
    36       35       1       2.9 %
Total units (1)
    11,269       10,816       453       4.2 %
Occupancy rate (weighted average)
    84.4 %     85.1 %     (0.7 %)     (0.8 %)
Average monthly revenue per unit (2)
  $ 5,509     $ 5,239     $ 270       5.2 %
Management Services
                               
Number of communities (period end)
    19       22       (3 )     (13.6 %)
Total units (1)
    3,786       4,431       (645 )     (14.6 %)
Occupancy rate (weighted average)
    83.7 %     82.8 %     0.9 %     1.1 %
                                 
Selected Entrance Fee Data:
                               
Non-refundable entrance fees sales
  $ 9,812     $ 12,635                  
Refundable entrance fees sales(3)
    12,242       9,296                  
Total entrance fee receipts(4)
    22,054       21,931                  
Refunds
    (4,984 )     (4,649 )                
Net entrance fees
  $ 17,070     $ 17,282                  
 
__________
 
(1)
Total units operated represent the average units operated during the period, excluding equity homes.
 
(2)
Average monthly revenue per unit represents the average of the total monthly revenues, excluding amortization of entrance fees, divided by average occupied units.
 
(3)
Refundable entrance fee sales for the three months ended September 30, 2010 and 2009 include amounts received from residents participating in the MyChoice program, which allows new and existing residents the option to pay additional refundable entrance fee amounts in return for a reduced monthly service fee.  MyChoice amounts received from residents totaled $6.5 million and $0.1 million for the three months ended September 30, 2010 and 2009, respectively.
 
(4)
Includes $2.9 million and $10.6 million of first generation entrance fee receipts (which represent initial entrance fees received from the sale of units at a newly opened entrance fee CCRC) during the three months ended September 30, 2010 and 2009, respectively.

As of September 30, 2010, our total operations included 564 communities with a capacity of 51,837 units.

Resident Fees

The increase in resident fees occurred across all segments.  Resident fees increased over the prior-year third quarter mainly due to an increase in average monthly revenue per unit during the current period, including an increase in our ancillary services revenue as we continue to roll out therapy and home health services to many of our communities, the inclusion of revenue from recent acquisitions and expansions, and an increase in occupancy.  During the current period, revenues grew 3.7% at the 514 communities we operated during both periods with a 3.1% increase in the average monthly revenue per unit (excluding amortization of entrance fees in both instances).  Occupancy increased 0.5% in these communities period over period.



Retirement Centers revenue increased $9.4 million, or 7.6%, primarily due to the inclusion of acquisitions that occurred after the prior period and an increase in average monthly revenue per unit, as well as from an increase in our ancillary services revenue at communities we operated during both periods.

Assisted Living revenue increased $30.3 million, or 13.2%, primarily due to the inclusion of acquisitions that occurred after the prior period and increases in the average monthly revenue per unit, including an increase in our ancillary services revenue, and occupancy at the communities we operated during both periods.

CCRCs revenue increased $13.5 million, or 9.0%, primarily due to the inclusion of expansions that opened after the prior period and an increase in the average monthly revenue per unit, including an increase in our ancillary services revenue, at the communities we operated during both periods.  These increases were partially offset by a decrease in occupancy at these same communities period over period.

Management Fees

Management fees decreased period over period as three management agreements were terminated late in the prior year.  The terminated management agreements were attributed to us acquiring the remaining interest in the communities that we previously managed.

Facility Operating Expense

Facility operating expense increased over the prior-year period primarily due to the inclusion of expenses from recent acquisitions and expansions, an increase in salaries and wages, and additional current year expense incurred in connection with the continued expansion of our ancillary services programs during 2009 and 2010.  These increases were partially offset by a decrease in overtime wages and bonus payments.

Retirement Centers operating expenses increased $9.7 million, or 13.9%, primarily due to the inclusion of expenses from acquisitions that occurred after the prior period and an increase in expenses incurred in connection with the continued expansion of our ancillary services programs.  Facility operating expenses were also negatively impacted by increased salaries and wages due to wage rate increases and an increase in hours worked period over period.  These increases were partially offset by a decrease in overtime wages and bonus payments.

Assisted Living operating expenses increased $19.0 million, or 12.6%, primarily due to the inclusion of expenses from acquisitions that occurred after the prior period, an increase in expenses incurred in connection with the continued expansion of our ancillary services programs, as well as increased salaries and wages due to wage rate increases and an increase in hours worked period over period.

CCRCs operating expenses increased $11.3 million, or 10.4%, primarily due to the inclusion of expenses from expansions that opened after the prior period, increases in lighting retrofit costs related to an initiative to use more energy efficient light bulbs in our communities, and an increase in health care supply expenses.  These were partially offset by decreases in overtime wages and bonus payments, as well as reduced workers compensation expenses.

General and Administrative Expense

General and administrative expense decreased $1.5 million, or 4.3%, primarily as a result of decreases in transaction-related costs and non-cash stock-based compensation expense in the current period, partially offset by increases in employee benefits and travel expenses.  General and administrative expense as a percentage of total revenue, including revenue generated by the communities we manage and excluding non-cash compensation, integration and transaction-related costs, was 4.6% and 4.5% for the three months ended September 30, 2010 and 2009, respectively, calculated as follows (dollars in thousands):
 
 
 
   
Three Months Ended September 30,
 
   
2010
   
2009
 
                         
Resident fee revenues
  $ 557,125       94.1 %   $ 503,856       92.8 %
Resident fee revenues under management
    34,662       5.9 %     39,021       7.2 %
Total
  $ 591,787       100.0 %   $ 542,877       100.0 %
General and administrative expenses (excluding non-cash compensation, integration and transaction-related costs)
  $ 27,408       4.6 %   $ 24,651       4.5 %
Non-cash compensation expense
    5,823       1.0 %     7,869       1.5 %
Integration and transaction-related costs
                2,200       0.4 %
General and administrative expenses (including non-cash compensation, integration and transaction-related costs)
  $ 33,231       5.6 %   $ 34,720       6.4 %

Facility Lease Expense

Lease expense remained relatively constant period over period.

Depreciation and Amortization

Depreciation and amortization expense increased $8.0 million, or 11.9%, primarily due to the inclusion of acquisitions and expansions that occurred or opened subsequent to the prior period.

Facility Lease Termination Expense

The $4.6 million of facility lease termination expense relates to the accrual of costs recorded in connection with the termination of an operating lease agreement with respect to one community.

Interest Income

Interest income remained relatively constant period over period.

Interest Expense

The change in interest expense was primarily driven by additional interest expense recorded on our mortgage debt due to the inclusion of acquisitions and expansions that occurred or opened subsequent to the prior period, partially offset by a decrease in interest expense recorded from the change in the fair value of interest rate swaps and caps due to favorable changes in the LIBOR yield curve period over period.

Income Taxes

Our effective tax rates for the three months ended September 30, 2010 and 2009 were 41.1% and 25.6%, respectively.  The difference in the effective rate between these periods was primarily due to the impact of the nondeductible stock-based compensation recorded under ASC 718-10 in 2009.
 
An additional interest charge related to our tax contingency reserve was recorded during the three months ended September 30, 2010.  Tax returns for years 2007, 2008 and 2009 are subject to future examination by tax authorities.  In addition, certain tax returns are open from 2000 through 2006 to the extent of the net operating losses generated during those periods.

Nine Months Ended September 30, 2010 and 2009

The following table sets forth, for the periods indicated, statements of operations items and the amount and percentage of increase or decrease of these items. The results of operations for any particular period are not


 
necessarily indicative of results for any future period. The following data should be read in conjunction with our condensed consolidated financial statements and the related notes, which are included herein.

Beginning with the first quarter of 2010, occupancy rates and average monthly revenue per unit are reported using an average unit methodology based on a consistent treatment of units across all product lines, as compared to the  historical method where occupancy was reported based upon unit calculations that varied by product line.  Occupancy rates and average monthly revenue per unit for all prior periods have been recast to conform to the current presentation.

(dollars in thousands, except average monthly revenue per unit)

   
Nine Months Ended
September 30,
             
   
2010
   
2009
   
Increase
(Decrease)
   
% Increase
(Decrease)
 
                         
Statement of Operations Data:
                       
Revenue
                       
Resident fees
                       
Retirement Centers
  $ 397,455     $ 371,435     $ 26,020       7.0 %
Assisted Living
    765,816       687,124       78,692       11.5 %
CCRCs
    484,443       440,985       43,458       9.9 %
Total resident fees
    1,647,714       1,499,544       148,170       9.9 %
Management fees
    4,146       5,002       (856 )     (17.1 %)
Total revenue
    1,651,860       1,504,546       147,314       9.8 %
Expense
                               
Facility operating expense
                               
Retirement Centers
    235,108       210,867       24,241       11.5 %
Assisted Living
    496,076       442,031       54,045       12.2 %
CCRCs
    346,127       310,739       35,388       11.4 %
Total facility operating expense
    1,077,311       963,637       113,674       11.8 %
General and administrative expense
    97,017       100,148       (3,131 )     (3.1 %)
Facility lease expense
    203,514       204,211       (697 )     (0.3 %)
Depreciation and amortization
    221,180       202,378       18,802       9.3 %
Facility lease termination expense
    4,616             4,616       100.0 %
Total operating expense
    1,603,638       1,470,374       133,264       9.1 %
Income from operations
    48,222       34,172       14,050       41.1 %
Interest income
    1,521       1,771       (250 )     (14.1 %)
Interest expense
                               
Debt
    (100,540 )     (96,845 )     3,695       3.8 %
Amortization of deferred financing costs and debt discount
    (7,250 )     (7,099 )     151       2.1 %
Change in fair value of derivatives and amortization
    (5,023 )     1,137       6,160       541.8 %
Equity in earnings of unconsolidated ventures
    788       1,218       (430 )     (35.3 %)
Loss on extinguishment of debt, net
    (1,557 )     (2,918 )     (1,361 )     (46.6 %)
Other non-operating (expense) income
    (1,454 )     4,172       (5,626 )     (134.9 %)
Loss before income taxes
    (65,293 )     (64,392 )     901       1.4 %
Benefit for income taxes
    24,528       18,936       5,592       29.5 %
Net loss
  $ (40,765 )   $ (45,456 )   $ (4,691 )     (10.3 %)
                                 
Selected Operating and Other Data:
                               
Total number of communities (at end of period)
    564       547       17       3.1 %
 
 
 
Total units operated(1)
    50,927       49,268       1,659       3.4 %
Owned/leased communities units
    47,140       44,897       2,243       5.0 %
Owned/leased communities occupancy rate (weighted average)
    86.9 %     86.5 %     0.4 %     0.5 %
Average monthly revenue per unit (2)
  $ 4,419     $ 4,244     $ 175       4.1 %
                                 
Selected Segment Operating and Other Data:
                               
Retirement Centers
                               
Number of communities (period end)
    80       77       3       3.9 %
Total units (1)
    14,736       14,116       620       4.4 %
Occupancy rate (weighted average)
    87.2 %     87.2 %            
Average monthly revenue per unit (2)
  $ 3,438     $ 3,353     $ 85       2.5 %
Assisted Living
                               
Number of communities (period end)
    429       413       16       3.9 %
Total units (1)
    21,127       20,073       1,054       5.3 %
Occupancy rate (weighted average)
    88.2 %     86.4 %     1.8 %     2.1 %
Average monthly revenue per unit (2)
  $ 4,568     $ 4,401     $ 167       3.8 %
CCRCs
                               
Number of communities (period end)
    36       35       1       2.9 %
Total units (1)
    11,277       10,708       569       5.3 %
Occupancy rate (weighted average)
    84.2 %     85.8 %     (1.6 %)     (1.9 %)
Average monthly revenue per unit (2)
  $ 5,456     $ 5,141     $ 315       6.1 %
Management Services
                               
Number of communities (period end)
    19       22       (3 )     (13.6 %)
Total units (1)
    3,787       4,371       (584 )     (13.4 %)
Occupancy rate (weighted average)
    83.5 %     84.3 %     (0.8 %)     (0.9 %)
                                 
Selected Entrance Fee Data:
                               
Non-refundable entrance fees sales
  $ 27,716     $ 23,225                  
Refundable entrance fees sales(3)
    27,303       17,032                  
Total entrance fee receipts(4)
    55,019       40,257                  
Refunds
    (16,106 )     (16,842 )                
Net entrance fees
  $ 38,913     $ 23,415                  
 
__________
 
(1)
Total units operated represent the average units operated during the period, excluding equity homes.
 
(2)
Average monthly revenue per unit represents the average of the total monthly revenues, excluding amortization of entrance fees, divided by average occupied units.
 
(3)
Refundable entrance fee sales for the nine months ended September 30, 2010 and 2009 include amounts received from residents participating in the MyChoice program, which allows new and existing residents the option to pay additional refundable entrance fee amounts in return for a reduced monthly service fee.  MyChoice amounts received from residents totaled $6.8 million and $0.7 million for the nine months ended September 30, 2010 and 2009, respectively.
 
(4)
Includes $14.5 million and $10.6 million of first generation entrance fee receipts (which represent initial entrance fees received from the sale of units at a newly opened entrance fee CCRC) during the nine months ended September 30, 2010 and 2009, respectively.

Resident Fees

The increase in resident fees occurred across all segments.  Resident fees increased over the prior-year period mainly due to an increase in average monthly revenue per unit during the current period, including an increase in our ancillary services revenue as we continue to roll out therapy and home health services to many of our communities,


 
the inclusion of revenue from recent acquisitions and expansions, and an increase in occupancy.  During the current period, revenues grew 3.0% at the 514 communities we operated during both periods with a 2.6% increase in the average monthly revenue per unit (excluding amortization of entrance fees in both instances).  Occupancy increased 0.4% in these communities period over period.

Retirement Centers revenue increased $26.0 million, or 7.0%, primarily due to the inclusion of acquisitions that occurred after the prior period and an increase in average monthly revenue per unit, including an increase in our ancillary services revenue, at communities we operated during both periods.

Assisted Living revenue increased $78.7 million, or 11.5%, primarily due to the inclusion of acquisitions that occurred after the prior period and increases in the average monthly revenue per unit, including an increase in our ancillary services revenue, and occupancy at the communities we operated during both periods.

CCRCs revenue increased $43.5 million, or 9.9%, primarily due to the inclusion of expansions that opened after the prior period and an increase in the average monthly revenue per unit, including an increase in our ancillary services revenue, at the communities we operated during both periods, partially offset by a decrease in occupancy at these same communities period over period.

Management Fees

Management fees decreased period over period as four management agreements were terminated late in the prior year.  The decrease was partially offset by the commencement of a new management agreement in mid-2009.  Three of the terminated management agreements were attributed to us acquiring the remaining interest in the communities that we previously managed.

Facility Operating Expense

Facility operating expense increased over the prior-year period primarily due to the inclusion of expenses from recent acquisitions and expansions, an increase in salaries and wages, and additional current year expense incurred in connection with the continued expansion of our ancillary services programs during 2009 and 2010.  These increases were partially offset by a decrease in insurance expense related to changes in estimates.

Retirement Centers operating expenses increased $24.2 million, or 11.5%, primarily due to the inclusion of expenses from acquisitions that occurred after the prior period and an increase in expenses incurred in connection with the continued expansion of our ancillary services programs.  Facility operating expenses were also negatively impacted by increased salaries and wages due to wage rate increases and an increase in hours worked period over period and an increase in the deferred community fee expense recognition.  These increases were partially offset by a decrease in insurance expense related to a change in estimates and reduced workers compensation expenses.

Assisted Living operating expenses increased $54.0 million, or 12.2%, primarily due to the inclusion of expenses from acquisitions that occurred after the prior period, an increase in expenses incurred in connection with the continued expansion of our ancillary services programs, and increased salaries and wages due to wage rate increases and an increase in hours worked period over period.  These increases were partially offset by reduced workers compensation expenses and a decrease in insurance expense related to a change in estimates.

CCRCs operating expenses increased $35.4 million, or 11.4%, primarily due to the inclusion of expenses from expansions that opened after the prior period, increased salaries and wages due to wage rate increases and an increase in hours worked period over period, as well as increases in lighting retrofit costs related to an initiative to use more energy efficient light bulbs in our communities.  These increases were partially offset by a decrease in insurance expense related to a change in estimates and reduced workers compensation expenses.

General and Administrative Expense

General and administrative expense decreased $3.1 million, or 3.1%, primarily as a result of decreases in bonus expense, transaction-related costs and non-cash stock-based compensation expense in the current period, partially offset by increases in employee benefits, travel expenses and professional fees.  General and administrative expense


 
as a percentage of total revenue, including revenue generated by the communities we manage and excluding non-cash compensation, integration and transaction-related costs, was 4.6% and 4.7% for the nine months ended September 30, 2010 and 2009, respectively, calculated as follows (dollars in thousands):

   
Nine Months Ended September 30,
 
   
2010
   
2009
 
                         
Resident fee revenues
  $ 1,647,714       94.1 %   $ 1,499,544       92.7 %
Resident fee revenues under management
    103,358       5.9 %     118,018       7.3 %
Total
  $ 1,751,072       100.0 %   $ 1,617,562       100.0 %
General and administrative expenses (excluding non-cash compensation, integration and transaction-related costs)
  $ 81,218       4.6 %   $ 75,900       4.7 %
Non-cash compensation expense
    15,799       0.9 %     21,549       1.3 %
Integration and transaction-related costs
                2,699       0.2 %
General and administrative expenses (including non-cash compensation, integration and transaction-related costs)
  $ 97,017       5.5 %   $ 100,148       6.2 %

Facility Lease Expense

Lease expense remained relatively constant period over period.

Depreciation and Amortization

Depreciation and amortization expense increased $18.8 million, or 9.3%, primarily due to the inclusion of acquisitions and expansions that occurred or opened subsequent to the prior period.

Facility Lease Termination Expense

The $4.6 million of facility lease termination expense relates to the accrual of costs recorded in connection with the termination of an operating lease agreement with respect to one community.

Interest Income

Interest income remained relatively constant period over period.

Interest Expense

The change in interest expense was primarily driven by additional interest expense recorded from the change in the fair value of interest rate swaps and caps due to unfavorable changes in the LIBOR yield curve period over period.  Additionally, interest expense on our mortgage debt increased due to the inclusion of acquisitions and expansions that occurred or opened subsequent to the prior period, partially offset by a decrease in interest expense related to our line of credit.

Income Taxes

Our effective tax rates for the nine months ended September 30, 2010 and 2009 were 37.6% and 29.4%, respectively.  The difference in the effective rate between these periods was primarily due to the impact of the nondeductible stock-based compensation recorded under ASC 718-10 in 2009.

An additional interest charge related to our tax contingency reserve was recorded during the nine months ended September 30, 2010.  Tax returns for years 2007, 2008 and 2009 are subject to future examination by tax authorities.  In addition, certain tax returns are open from 2000 through 2006 to the extent of the net operating losses generated during those periods.



Liquidity and Capital Resources

The following is a summary of cash flows from operating, investing and financing activities, as reflected in the condensed consolidated statements of cash flows (dollars in thousands):

   
Nine Months Ended
September 30,
 
   
2010
   
2009
 
Cash provided by operating activities
  $ 179,155     $ 185,972  
Cash used in investing activities
    (95,265 )     (124,017 )
Cash (used in) provided by financing activities
    (81,299 )     43,385  
Net increase in cash and cash equivalents
    2,591       105,340  
Cash and cash equivalents at beginning of period
    66,370       53,973  
Cash and cash equivalents at end of period
  $ 68,961     $ 159,313  

The decrease in cash provided by operating activities was attributable to a decrease in working capital partially offset by improved operating performance and increased proceeds from deferred entrance fee revenue related to the opening of a new entrance fee community in the third quarter of 2009.

The decrease in cash used in investing activities was primarily attributable to a decrease in restricted cash funded as we posted restricted cash in the prior-year period in order to reduce our letter of credit needs in connection with the renegotiation of the line of credit as well as the release of restricted cash in the current year in connection with swap terminations and debt refinancings and a reduction of spending on property, plant and equipment and leasehold improvements period over period.  The decrease was partially offset by cash paid for the acquisition of four previously leased communities in the current period.  Additionally, the prior-year period includes cash received on a sale-leaseback transaction and from the sale of a joint venture interest.

The change in cash related to financing activities period over period was primarily attributable to proceeds received from the public equity offering in the prior-year period, an increase in net repayments of debt period over period and an increase in swap termination payments in the current period, partially offset by increased payments made on the credit facility in the prior-year period and an increase in proceeds from refundable entrance fees.

Our principal sources of liquidity have historically been from:

 
·
cash balances on hand;
 
·
cash flows from operations;
 
·
proceeds from our credit facilities;
 
·
proceeds from mortgage financing or refinancing of various assets;
 
·
funds generated through joint venture arrangements or sale-leaseback transactions; and
 
·
with somewhat lesser frequency, funds raised in the debt or equity markets and proceeds from the selective disposition of underperforming assets.

Over the longer-term, we expect to continue to fund our business through these principal sources of liquidity.

Our liquidity requirements have historically arisen from:

 
·
working capital;
 
·
operating costs such as employee compensation and related benefits, general and administrative expense and supply costs;
 
·
debt service and lease payments;
 
·
acquisition consideration and transaction costs;
 
·
cash collateral required to be posted in connection with our interest rate swaps and related financial instruments;


 
 
·
capital expenditures and improvements, including the expansion of our current communities and the development of new communities;
 
·
dividend payments;
 
·
purchases of common stock under our previous share repurchase authorization; and
 
·
other corporate initiatives (including integration and branding).

Over the near-term, we expect that our liquidity requirements will primarily arise from:

 
·
working capital;
 
·
operating costs such as employee compensation and related benefits, general and administrative expense and supply costs;
 
·
debt service and lease payments;
 
·
capital expenditures and improvements, including the expansion or redevelopment of select communities;
 
·
other corporate initiatives (including information systems);
 
·
acquisition consideration and transaction costs; and
 
·
to a lesser extent, cash collateral required to be posted in connection with our interest rate swaps and related financial instruments.

We are highly leveraged and have significant debt and lease obligations.  We have two principal corporate-level indebtednesses:  our $120.0 million credit facility and separate letter of credit facilities for up to $82.5 million in the aggregate.  The remainder of our indebtedness is generally comprised of non-recourse property-level mortgage financings.

At September 30, 2010, we had $2.2 billion of debt outstanding, excluding capital lease obligations, at a weighted-average interest rate of 4.19%.  At September 30, 2010, we had $336.5 million of capital and financing lease obligations and $72.7 million of letters of credit had been issued under our letter of credit facilities.  No borrowings were outstanding on our revolving loan facility at September 30, 2010.  Approximately $160.7 million of our debt and capital lease obligations are due on or before September 30, 2011.  We also have substantial operating lease obligations and capital expenditure requirements.  For the year ending September 30, 2011, we will be required to make approximately $267.3 million of payments in connection with our existing operating leases.

We had $69.0 million of cash and cash equivalents at September 30, 2010, excluding cash and escrow deposits-restricted and lease security deposits of $201.6 million.

In 2009, we began replacing some of our outstanding letters of credit with restricted cash in order to reduce our letter of credit needs.

At September 30, 2010, we had $378.2 million of negative working capital, which includes the classification of $232.2 million of refundable entrance fees and $10.3 million in tenant deposits as current liabilities.  Based upon our historical operating experience, we anticipate that only 9.0% to 12.0% of those entrance fee liabilities will actually come due, and be required to be settled in cash, during the next 12 months. We expect that any entrance fee liabilities due within the next 12 months will be fully offset by the proceeds generated by subsequent entrance fee sales.  Entrance fee sales, net of refunds paid, provided $17.1 million and $38.9 million of cash for the three and nine months ended September 30, 2010, respectively.

For the year ending December 31, 2010, we anticipate that we will make investments of approximately $75.0 million to $100.0 million for capital expenditures, comprised of approximately $25.0 million to $35.0 million of net recurring capital expenditures and approximately $50.0 million to $65.0 million of expenditures relating to other major projects (including corporate initiatives).  These major projects include unusual or non-recurring capital projects, projects which create new or enhanced economics, such as major renovations or repositioning projects at our communities (including deferred expenditures in connection with recently acquired communities), integration related expenditures (including the cost of developing information systems), and expenditures supporting the expansion of our ancillary services programs.  For the nine months ended September 30, 2010, we spent approximately $21.6 million for net recurring capital expenditures, approximately $34.1 million for expenditures relating to other major projects and corporate initiatives and approximately $3.9 million (consisting of $12.9 million


 
for capital expenditures net of $9.0 million that had been reimbursed as of September 30, 2010) in connection with our expansion and development program.  We do not anticipate material expenditures in 2010 in connection with our community expansion and development program that will not be reimbursed.

During 2010, we anticipate that our capital expenditures will be funded from cash on hand, cash flows from operations, and amounts drawn on our new credit facility.

Through 2007, we focused on growth primarily through acquisition, spending approximately $2.2 billion during 2007 and 2006 on acquiring communities and companies, excluding fees, expenses and assumption of debt. Given the market environment during 2008 and the first half of 2009, we focused on integrating previous acquisitions and on the significant organic growth opportunities inherent in our growth strategy and engaged in a reduced level of acquisition activity.  We completed two separate portfolio acquisitions during the fourth quarter of 2009 and one portfolio acquisition in the second quarter of 2010.  As opportunities arise, we plan to continue to take advantage of the fragmented continuing care, independent living and assisted living sectors by selectively purchasing existing operating companies, asset portfolio s, home health agencies and communities. We may also seek to acquire the fee interest in communities that we currently lease or manage.

In the normal course of business, we use a variety of financial instruments to mitigate interest rate risk.  We have entered into certain interest rate protection and swap agreements to effectively cap or convert floating rate debt to a fixed rate basis.  Pursuant to certain of our hedge agreements, we are required to secure our obligation to the counterparty by posting cash or other collateral if the fair value liability exceeds specified thresholds.  In periods of significant volatility in the credit markets, the value of these swaps can change significantly and as a result, the amount of collateral we are required to post can change significantly.  We have taken a number of steps to reduce our collateral posting risk.  In particular, we terminated a number of interest rate swaps and pur chased and assumed a number of interest rate caps, which do not require the posting of cash collateral.  Furthermore, we obtained a number of swaps that were secured by underlying mortgaged assets and, hence, did not require cash collateralization. As of September 30, 2010, we have $925.9 million in aggregate notional amount of interest rate caps and a $150.0 million notional amount swap which requires cash collateralization.  All of our variable rate debt, excluding our secured line of credit and capital lease obligations, is currently subject to a cap or swap agreement.

We expect to continue to assess our financing alternatives periodically and access the capital markets opportunistically.  If our existing resources are insufficient to satisfy our liquidity requirements, or if we enter into an acquisition or strategic arrangement with another company, we may need to sell additional equity or debt securities. Any such sale of additional equity securities will dilute the interests of our existing stockholders, and we cannot be certain that additional public or private financing will be available in amounts or on terms acceptable to us, if at all (particularly given current market conditions). If we are unable to obtain this additional financing, we may be required to delay, reduce the scope of, or eliminate one or more aspects of our business development activities, any of which could reduce the growth of our business.

We currently estimate that our existing cash flows from operations, together with existing working capital, amounts available under our new credit facility and, to a lesser extent, proceeds from anticipated financings and refinancings of various assets, will be sufficient to fund our liquidity needs for at least the next 12 months, assuming that the overall economy does not substantially deteriorate further.

Our actual liquidity and capital funding requirements depend on numerous factors, including our operating results, the actual level of capital expenditures, our expansion, development and acquisition activity, general economic conditions and the cost of capital.  Shortfalls in cash flows from operating results or other principal sources of liquidity may have an adverse impact on our ability to execute our business and growth strategies.  The current volatility in the credit and financial markets may also have an adverse impact on our liquidity by making it more difficult for us to obtain financing or refinancing.  As a result, this may impact our ability to grow our business, maintain capital spending levels, expand certain communities, or execute other aspects of our business strategy.  In order to continue some of these activities at historical or planned levels, we may incur additional indebtedness or lease financing to provide additional funding.  There can be no assurance that any such additional financing will be available or on terms that are acceptable to us (particularly in light of current adverse conditions in the credit market).


 
As of September 30, 2010, we are in compliance with the financial covenants of our outstanding debt and lease agreements.

Credit Facilities

As of January 1, 2010, we had an available secured line of credit of $75.0 million (including a $25.0 million letter of credit sublimit) and secured and unsecured letter of credit facilities of up to $78.5 million in the aggregate.  The line of credit bore interest at a rate of 6.0% and was scheduled to mature on August 31, 2010.  No amounts were borrowed under the secured line of credit during 2010.

2010 Credit Facility

Effective February 23, 2010, we terminated the $75.0 million revolving credit facility with Bank of America, N.A. and entered into a credit agreement with General Electric Capital Corporation, as administrative agent and lender, and the other lenders from time to time parties thereto. The new facility had an initial commitment of $100.0 million, with an option to increase the commitment to $120.0 million (which we exercised on May 5, 2010), and is scheduled to mature on June 30, 2013.

The revolving line of credit may be used to finance acquisitions and fund working capital and capital expenditures and for other general corporate purposes.

The new facility is secured by a first priority lien on certain of our communities.  The availability under the line may vary from time to time as it is based on borrowing base calculations related to the value and performance of the communities securing the facility.

Amounts drawn under the facility will bear interest at 90-day LIBOR plus an applicable margin, as described below.  For purposes of determining the interest rate, in no event shall LIBOR be less than 2.0%.  The applicable margin varies with the percentage of the total commitment drawn, with a 4.5% margin at 35% or lower utilization, a 5.0% margin at utilization greater than 35% but less than or equal to 50%, and a 5.5% margin at greater than 50% utilization.  We are also required to pay a quarterly commitment fee of 1.0% per annum on the unused portion of the facility.

The credit agreement contains typical affirmative and negative covenants, including financial covenants with respect to minimum consolidated fixed charge coverage and minimum consolidated tangible net worth.  A violation of any of these covenants could result in a default under the credit agreement, which would result in termination of all commitments under the credit agreement and all amounts owing under the credit agreement and certain other loan agreements becoming immediately due and payable.

As of September 30, 2010, we had an available secured line of credit with a $120.0 million commitment and secured and unsecured letter of credit facilities of up to $82.5 million in the aggregate.  As of September 30, 2010, there were no borrowings under the revolving loan facility and $72.7 million of letters of credit had been issued under the secured and unsecured letter of credit facilities.

Contractual Commitments

Significant ongoing commitments consist primarily of leases, debt, purchase commitments and certain other long-term liabilities. For a summary and complete presentation and description of our ongoing commitments and contractual obligations, see the “Contractual Commitments” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

There have been no material changes in our contractual commitments during the nine months ended September 30, 2010 other than with respect to the change in maturity dates related to financing and refinancing transactions that were completed during the nine months ended September 30, 2010 (Note 8).


 
Off-Balance Sheet Arrangements

The equity method of accounting has been applied in the accompanying financial statements with respect to our investment in unconsolidated ventures that are not considered variable interest entities as we do not possess a controlling financial interest.  We do not believe these off-balance sheet arrangements have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Non-GAAP Financial Measures

A non-GAAP financial measure is generally defined as one that purports to measure historical or future financial performance, financial position or cash flows, but excludes or includes amounts that would not be so adjusted in the most comparable GAAP measure.  In this report, we define and use the non-GAAP financial measures Adjusted EBITDA, Cash From Facility Operations and Facility Operating Income, as set forth below.

Adjusted EBITDA

Definition of Adjusted EBITDA

We define Adjusted EBITDA as follows:

Net income (loss) before:

 
·
provision (benefit) for income taxes;

 
·
non-operating (income) expense items;

 
·
loss on sale of communities (including facility lease termination expense);

 
·
depreciation and amortization (including non-cash impairment charges);

 
·
straight-line rent expense (income);

 
·
amortization of deferred gain;

 
·
amortization of deferred entrance fees;

 
·
non-cash compensation expense; and

 
·
change in future service obligation;

and including:

 
·
entrance fee receipts and refunds (excluding first generation entrance fee receipts on a newly opened entrance fee CCRC).

Management’s Use of Adjusted EBITDA

We use Adjusted EBITDA to assess our overall financial and operating performance.  We believe this non-GAAP measure, as we have defined it, is helpful in identifying trends in our day-to-day performance because the items excluded have little or no significance on our day-to-day operations.  This measure provides an assessment of controllable expenses and affords management the ability to make decisions which are expected to facilitate meeting current financial goals as well as achieve optimal financial performance.  It provides an indicator for management to determine if adjustments to current spending decisions are needed.


 
Adjusted EBITDA provides us with a measure of financial performance, independent of items that are beyond the control of management in the short-term, such as the change in the liability for the obligation to provide future services under existing lifecare contracts, depreciation and amortization (including non-cash impairment charges), straight-line lease expense (income), taxation and interest expense associated with our capital structure.  This metric measures our financial performance based on operational factors that management can impact in the short-term, namely the cost structure or expenses of the organization.  Adjusted EBITDA is one of the metrics used by senior management and the board of directors to review the financial performance of the business on a monthly basis.  Adjusted EBITDA is also use d by research analysts and investors to evaluate the performance of and value companies in our industry.

Limitations of Adjusted EBITDA

Adjusted EBITDA has limitations as an analytical tool.  It should not be viewed in isolation or as a substitute for GAAP measures of earnings.  Material limitations in making the adjustments to our earnings to calculate Adjusted EBITDA, and using this non-GAAP financial measure as compared to GAAP net income (loss), include:

 
·
the cash portion of interest expense, income tax (benefit) provision and non-recurring charges related to gain (loss) on sale of communities and extinguishment of debt activities generally represent charges (gains), which may significantly affect our financial results; and

 
·
depreciation and amortization, though not directly affecting our current cash position, represent the wear and tear and/or reduction in value of our communities, which affects the services we provide to our residents and may be indicative of future needs for capital expenditures.

An investor or potential investor may find this item important in evaluating our performance, results of operations and financial position.  We use non-GAAP financial measures to supplement our GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.

Adjusted EBITDA is not an alternative to net income, income from operations or cash flows provided by or used in operations as calculated and presented in accordance with GAAP.  You should not rely on Adjusted EBITDA as a substitute for any such GAAP financial measure.  We strongly urge you to review the reconciliation of Adjusted EBITDA to GAAP net income (loss), along with our consolidated financial statements included herein.  We also strongly urge you to not rely on any single financial measure to evaluate our business.  In addition, because Adjusted EBITDA is not a measure of financial performance under GAAP and is susceptible to varying calculations, the Adjusted EBITDA measure, as presented in this report, may differ from and may not be comparable to similarly titled measures used by other co mpanies.

The table below shows the reconciliation of net loss to Adjusted EBITDA for the three and nine months ended September 30, 2010 and 2009 (dollars in thousands):
 
 
 
   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Net loss
  $ (16,913 )   $ (21,290 )   $ (40,765 )   $ (45,456 )
Benefit for income taxes
    (11,821 )     (7,329 )     (24,528 )     (18,936 )
Equity in earnings of unconsolidated ventures
    (272 )     (42 )     (788 )     (1,218 )
Loss on extinguishment of debt
    856       1,178       1,557       2,918  
Other non-operating expense (income)
    1,454       52       1,454       (4,172 )
Interest expense:
                               
Debt
    25,817       23,276       77,786       75,071  
Capitalized lease obligation
    7,540       7,298       22,754       21,774  
Amortization of deferred financing costs and debt discount
    2,244       2,167       7,250       7,099  
Change in fair value of derivatives and amortization
    176       2,478       5,023       (1,137 )
Interest income
    (441 )     (623 )     (1,521 )     (1,771 )
Income from operations
    8,640       7,165       48,222       34,172  
Facility lease termination expense
    4,616             4,616        
Depreciation and amortization
    74,951       66,983       221,180       202,378  
Straight-line lease expense
    2,812       3,793       8,109       12,073  
Amortization of deferred gain
    (1,086 )     (1,088 )     (3,258 )     (3,259 )
Amortization of entrance fees
    (6,634 )     (5,742 )     (18,160 )     (16,084 )
Non-cash compensation expense
    5,823       7,869       15,799       21,549  
Change in future service obligation
                (1,064 )      
Entrance fee receipts(1)
    22,054       21,931       55,019       40,257  
First generation entrance fees received(2)
    (2,921 )     (10,626 )     (14,488 )     (10,626 )
Entrance fee disbursements
    (4,984 )     (4,649 )     (16,106 )     (16,842 )
Adjusted EBITDA
  $ 103,271     $ 85,636     $ 299,869     $ 263,618  


 
(1)
Includes the receipt of refundable and nonrefundable entrance fees.
 
(2)
First generation entrance fees received represents initial entrance fees received from the sale of units at a newly opened entrance fee CCRC.

Cash From Facility Operations

Definition of Cash From Facility Operations

We define Cash From Facility Operations (CFFO) as follows:

Net cash provided by (used in) operating activities adjusted for:
 
 
·
changes in operating assets and liabilities;

 
·
deferred interest and fees added to principal;

 
·
refundable entrance fees received;

 
·
first generation entrance fee receipts on a newly opened entrance fee CCRC;

 
·
entrance fee refunds disbursed;

 
·
lease financing debt amortization with fair market value or no purchase options;

 
·
facility lease termination expense;


 
·
other; and

 
·
recurring capital expenditures.

Recurring capital expenditures include expenditures capitalized in accordance with GAAP that are funded from CFFO. Amounts excluded from recurring capital expenditures consist primarily of unusual or non-recurring capital items (including integration capital expenditures), community purchases and/or major projects or renovations that are funded using financing proceeds and/or proceeds from the sale of communities that are held for sale.

Management’s Use of Cash From Facility Operations

We use CFFO to assess our overall liquidity.  This measure provides an assessment of controllable expenses and affords management the ability to make decisions which are expected to facilitate meeting current financial and liquidity goals as well as to achieve optimal financial performance.  It provides an indicator for management to determine if adjustments to current spending decisions are needed.

This metric measures our liquidity based on operational factors that management can impact in the short-term, namely the cost structure or expenses of the organization.  CFFO is one of the metrics used by our senior management and board of directors (i) to review our ability to service our outstanding indebtedness (including our credit facilities and long-term leases), (ii) to review our ability to pay dividends to stockholders, (iii) to review our ability to make regular recurring capital expenditures to maintain and improve our communities on a period-to-period basis, (iv) for planning purposes, including preparation of our annual budget, (v) in making compensation determinations for certain of our associates (including our named executive officers) and (vi) in setting various covenants in our credit agreements.  The se agreements generally require us to escrow or spend a minimum of between $250 and $450 per unit per year.  Historically, we have spent in excess of these per unit amounts; however, there is no assurance that we will have funds available to escrow or spend these per unit amounts in the future.  If we do not escrow or spend the required minimum annual amounts, we would be in default of the applicable debt or lease agreement which could trigger cross default provisions in our outstanding indebtedness and lease arrangements.

Limitations of Cash From Facility Operations

CFFO has limitations as an analytical tool.  It should not be viewed in isolation or as a substitute for GAAP measures of cash flow from operations.  CFFO does not represent cash available for dividends or discretionary expenditures, since we may have mandatory debt service requirements or other non-discretionary expenditures not reflected in the measure.  Material limitations in making the adjustment to our cash flow from operations to calculate CFFO, and using this non-GAAP financial measure as compared to GAAP operating cash flows, include:

 
·
the cash portion of interest expense, income tax (benefit) provision and non-recurring charges related to gain (loss) on sale of communities and extinguishment of debt activities generally represent charges (gains), which may significantly affect our financial results; and

 
·
depreciation and amortization, though not directly affecting our current cash position, represent the wear and tear and/or reduction in value of our communities, which affects the services we provide to our residents and may be indicative of future needs for capital expenditures.

We believe CFFO is useful to investors because it assists their ability to meaningfully evaluate (1) our ability to service our outstanding indebtedness, including our credit facilities and capital and financing leases, (2) our ability to pay dividends to stockholders and (3) our ability to make regular recurring capital expenditures to maintain and improve our communities.

CFFO is not an alternative to cash flows provided by or used in operations as calculated and presented in accordance with GAAP.  You should not rely on CFFO as a substitute for any such GAAP financial measure.  We strongly urge you to review the reconciliation of CFFO to GAAP net cash provided by (used in) operating activities, along with our consolidated financial statements included herein.  We also strongly urge you to not rely on any single financial measure to evaluate our business.  In addition, because CFFO is not a measure of financial performance under


 
GAAP and is susceptible to varying calculations, the CFFO measure, as presented in this report, may differ from and may not be comparable to similarly titled measures used by other companies.

The table below shows the reconciliation of net cash provided by operating activities to CFFO for the three and nine months ended September 30, 2010 and 2009 (dollars in thousands):

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Net cash provided by operating activities
  $ 64,384     $ 72,900     $ 179,155     $ 185,972  
Changes in operating assets and liabilities
    (3,812 )     (11,438 )     18,823       (7,221 )
Refundable entrance fees received(1)(2)
    12,242       9,296       27,303       17,032  
First generation entrance fees received(3)
    (2,921 )     (10,626 )     (14,488 )     (10,626 )
Entrance fee refunds disbursed
    (4,984 )     (4,649 )     (16,106 )     (16,842 )
Recurring capital expenditures, net
    (7,572 )     (5,495 )     (21,583 )     (12,038 )
Lease financing debt amortization with fair market value or no purchase options
    (2,267 )     (1,793 )     (6,659 )     (5,371 )
Facility lease termination expense
    4,616             4,616        
Cash From Facility Operations
  $ 59,686     $ 48,195     $ 171,061     $ 150,906  
 
 
 
(1)
Entrance fee receipts include promissory notes issued to the Company by the resident in lieu of a portion of the entrance fees due.  Notes issued (net of collections) for the three months ended September 30, 2010 and 2009 were $1.1 million and $3.3 million, respectively, and for the nine months ended September 30, 2010 and 2009 were $4.5 million and $6.8 million, respectively.
 
(2)
Total entrance fee receipts for the three months ended September 30, 2010 and 2009 were $22.1 million and $21.9 million, respectively, including $9.8 million and $12.6 million, respectively, of nonrefundable entrance fee receipts included in net cash provided by operating activities.  Total entrance fee receipts for the nine months ended September 30, 2010 and 2009 were $55.0 million and $40.3 million, respectively, including $27.7 million and $23.2 million, respectively, of nonrefundable entrance fee receipts included in net cash provided by operating activities.
 
(3)
First generation entrance fees received represents initial entrance fees received from the sale of units at a newly opened entrance fee CCRC.

Facility Operating Income

Definition of Facility Operating Income

We define Facility Operating Income as follows:

Net income (loss) before:
 
 
·
provision (benefit) for income taxes;

 
·
non-operating (income) expense items;

 
·
loss on sale of communities (including facility lease termination expense);

 
·
depreciation and amortization (including non-cash impairment charges);

 
·
facility lease expense;

 
·
general and administrative expense, including non-cash stock compensation expense;

 
·
change in future service obligation;


 
·
amortization of deferred entrance fee revenue; and

 
·
management fees.

Management’s Use of Facility Operating Income

We use Facility Operating Income to assess our facility operating performance.  We believe this non-GAAP measure, as we have defined it, is helpful in identifying trends in our day-to-day facility performance because the items excluded have little or no significance on our day-to-day facility operations.  This measure provides an assessment of revenue generation and expense management and affords management the ability to make decisions which are expected to facilitate meeting current financial goals as well as to achieve optimal facility financial performance.  It provides an indicator for management to determine if adjustments to current spending decisions are needed.

Facility Operating Income provides us with a measure of facility financial performance, independent of items that are beyond the control of management in the short-term, such as the change in the liability for the obligation to provide future services under existing lifecare contracts, depreciation and amortization (including non-cash impairment charges), straight-line lease expense (income), taxation and interest expense associated with our capital structure.  This metric measures our facility financial performance based on operational factors that management can impact in the short-term, namely the cost structure or expenses of the organization.  Facility Operating Income is one of the metrics used by our senior management and board of directors to review the financial performance of the business on a monthly basis.& #160; Facility Operating Income is also used by research analysts and investors to evaluate the performance of and value companies in our industry by investors, lenders and lessors.  In addition, Facility Operating Income is a common measure used in the industry to value the acquisition or sales price of communities and is used as a measure of the returns expected to be generated by a community.

A number of our debt and lease agreements contain covenants measuring Facility Operating Income to gauge debt or lease coverages.  The debt or lease coverage covenants are generally calculated as facility net operating income (defined as total operating revenue less operating expenses, all as determined on an accrual basis in accordance with GAAP).  For purposes of the coverage calculation, the lender or lessor will further require a pro forma adjustment to facility operating income to include a management fee (generally 4% to 5% of operating revenue) and an annual capital reserve (generally $250 to $450 per unit).  An investor or potential investor may find this item important in evaluating our performance, results of operations and financial position, particularly on a facility-by-facility basis.

Limitations of Facility Operating Income

Facility Operating Income has limitations as an analytical tool.  It should not be viewed in isolation or as a substitute for GAAP measures of earnings.  Material limitations in making the adjustments to our earnings to calculate Facility Operating Income, and using this non-GAAP financial measure as compared to GAAP net income (loss), include:

 
·
interest expense, income tax (benefit) provision and non-recurring charges related to gain (loss) on sale of communities and extinguishment of debt activities generally represent charges (gains), which may significantly affect our financial results; and

 
·
depreciation and amortization, though not directly affecting our current cash position, represent the wear and tear and/or reduction in value of our communities, which affects the services we provide to our residents and may be indicative of future needs for capital expenditures.

An investor or potential investor may find this item important in evaluating our performance, results of operations and financial position on a facility-by-facility basis.  We use non-GAAP financial measures to supplement our GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.

Facility Operating Income is not an alternative to net income, income from operations or cash flows provided by or used in operations as calculated and presented in accordance with GAAP.  You should not rely on Facility Operating Income as a substitute for any such GAAP financial measure.  We strongly urge you to review the reconciliation of


 
Facility Operating Income to GAAP net income (loss), along with our consolidated financial statements included herein.  We also strongly urge you to not rely on any single financial measure to evaluate our business.  In addition, because Facility Operating Income is not a measure of financial performance under GAAP and is susceptible to varying calculations, the Facility Operating Income measure, as presented in this report, may differ from and may not be comparable to similarly titled measures used by other companies.

The table below shows the reconciliation of net loss to Facility Operating Income for the three and nine months ended September 30, 2010 and 2009 (dollars in thousands):

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
   
2010
   
2009
   
2010
   
2009
Net loss
  $ (16,913 )   $ (21,290 )   $ (40,765 )   $ (45,456 )
Benefit for income taxes
    (11,821 )     (7,329 )     (24,528 )     (18,936 )
Equity in earnings of unconsolidated ventures
    (272 )     (42 )     (788 )     (1,218 )
Loss on extinguishment of debt
    856       1,178       1,557       2,918  
Other non-operating expense (income)
    1,454       52       1,454       (4,172 )
Interest expense:
                               
Debt
    25,817       23,276       77,786       75,071  
Capitalized lease obligation
    7,540       7,298       22,754       21,774  
Amortization of deferred financing costs and debt discount
    2,244       2,167       7,250       7,099  
Change in fair value of derivatives and amortization
    176       2,478       5,023       (1,137 )
Interest income
    (441 )     (623 )     (1,521 )     (1,771 )
Income from operations
    8,640       7,165       48,222       34,172  
Facility lease termination expense
    4,616             4,616        
Depreciation and amortization
    74,951       66,983       221,180       202,378  
Change in future service obligation
                (1,064 )      
Facility lease expense
    68,090       68,036       203,514       204,211  
General and administrative (including non-cash
  stock compensation expense)
    33,231       34,720       97,017       100,148  
Amortization of entrance fees
    (6,634 )     (5,742 )     (18,160 )     (16,084 )
Management fees
    (1,339 )     (1,987 )     (4,146 )     (5,002 )
Facility Operating Income
  $ 181,555     $ 169,175     $ 551,179     $ 519,823  

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

We are subject to market risks from changes in interest rates charged on our credit facilities, other floating-rate indebtedness and lease payments subject to floating rates. The impact on earnings and the value of our long-term debt and lease payments are subject to change as a result of movements in market rates and prices. As of September 30, 2010, we had approximately $1.2 billion of long-term fixed rate debt, $0.9 billion of long-term variable rate debt and $336.5 million of capital and financing lease obligations. As of September 30, 2010, our total fixed-rate debt and variable-rate debt outstanding had a weighted-average interest rate of 4.19%.

We enter into certain interest rate swap agreements with major financial institutions to manage our risk on variable rate debt.  Additionally, during 2009, we entered into certain cap agreements to effectively manage our risk above certain interest rates.  As of September 30, 2010, all of our debt, excluding our secured line of credit and capital and financing lease obligations, carries a fixed rate of interest or has a variable rate subject to a swap or interest rate cap agreement.  A change in interest rates would have impacted our interest rate expense related to all outstanding variable rate debt, excluding our secured line of credit and capital and financing lease obligations, as follows: a one, five and ten percent increase in interest rates would have an impact of $7.6 million, $41.3 million and $59.2 million, respectively.

As noted above, we have entered into certain interest rate protection and swap agreements to effectively cap or convert floating rate debt to a fixed rate basis, as well as to hedge anticipated future financing transactions. Pursuant


 
to certain of our hedge agreements, we are required to secure our obligation to the counterparty by posting cash or other collateral if the fair value liability exceeds a specified threshold.

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that, as of September 30, 2010, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There has not been any change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended September 30, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

The information contained in Note 9 to the Condensed Consolidated Financial Statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by this reference.

Item 1A.  Risk Factors

For information regarding the most significant risks facing the Company, please see the risk factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2009, filed with the SEC on February 26, 2010, as well as the risks discussed below.   There have been no material changes to the risk factors contained in our Form 10-K other than as set forth below.

Recent disruptions in the financial markets could affect our ability to obtain financing or to extend or refinance debt as it matures, which could negatively impact our liquidity, financial condition and the market price of our common stock.

The United States stock and credit markets have recently experienced significant price volatility, dislocations and liquidity disruptions, which have caused market prices of many stocks to fluctuate substantially and the spreads on prospective debt financings to widen considerably. These circumstances have materially impacted liquidity in the financial markets, making terms for certain financings less attractive, and in some cases have resulted in the unavailability of financing. Continued uncertainty in the stock and credit markets may negatively impact our ability to access additional financing (including any refinancing or extension of our existing debt) on reasonable terms, which may negatively affect our business.

As of September 30, 2010, we have an available secured line of credit with a $120.0 million commitment and separate letter of credit facilities of up to $82.5 million in the aggregate.  As of September 30, 2010, we also had $160.7 million of debt that is scheduled to mature during the twelve months ending September 30, 2011.  Although these debt obligations are scheduled to mature on or prior to September 30, 2011, we have the option, subject to the satisfaction of customary conditions (such as the absence of a material adverse change), to extend the maturity of approximately $125.1 million of non-recourse mortgages payable included in such debt until 2013.  If we are unable to extend (or refinance, as applicable) any of our debt or credit or letter of credit facilities prior to their scheduled maturity dates , our liquidity and financial condition could be adversely impacted. In addition, even if we are able to extend or refinance our other maturing debt or credit or letter of credit facilities, the terms of the new financing may not be as favorable to us as the terms of the existing financing.


 
A prolonged downturn in the financial markets may cause us to seek alternative sources of potentially less attractive financing, and may require us to further adjust our business plan accordingly. These events also may make it more difficult or costly for us to raise capital, including through the issuance of common stock. Continued disruptions in the financial markets could have an adverse effect on us and our business.  If we are not able to obtain additional financing on favorable terms, we also may have to delay or abandon some or all of our growth strategies, which could adversely affect our revenues and results of operations.

If we are not able to satisfy the conditions precedent to exercising the extension options associated with certain of our debt agreements, our liquidity and financial condition could be negatively impacted.

Our consolidated financial statements reflect approximately $160.7 million of debt obligations due on or prior to September 30, 2011.  Although these debt obligations are scheduled to mature on or prior to September 30, 2011, we have the option, subject to the satisfaction of customary conditions (such as the absence of a material adverse change), to extend the maturity of approximately $125.1 million of non-recourse mortgages payable included in such debt until 2013, as the instruments associated with these mortgages payable provide that we can extend the respective maturity dates for either one two-year period or two terms of 12 months each from the existing maturity dates.  We presently anticipate that we will exercise the extension options and will satisfy the conditions precedent for doing so with respect to each of these obligations.  If we are not able to satisfy the conditions precedent to exercising these extension options, our liquidity and financial condition could be adversely impacted.

We will rely on reimbursement from governmental programs for a greater portion of our revenues than in the past, and will be subject to changes in reimbursement levels, which could adversely affect our results of operations and cash flow.

We will rely on reimbursement from governmental programs for a greater portion of our revenues than before, and we cannot assure you that reimbursement levels will not decrease in the future, which could adversely affect our results of operations and cash flow. Certain per person annual limits on Medicare reimbursement for therapy services became effective in 2006, subject to certain exceptions. These exceptions are currently scheduled to expire on December 31, 2010. If these exceptions are modified or not extended beyond that date, our revenues and net operating income relating to our outpatient therapy services could be materially adversely impacted.

In addition, there continue to be various federal and state legislative and regulatory proposals to implement cost containment measures that would limit payments to healthcare providers in the future. For example, the Centers for Medicare & Medicaid Services (CMS) recently published changes that will reduce therapy rates for subsequent services in a single session.  We estimate that the reimbursement change will have a recurring negative effect on the net operating income from our outpatient therapy services program in the range of $2.0 million to $4.0 million per year.  In addition, CMS recently published a decrease in home health rates for 2011.  We estimate that the rate decrease will have a negative effect on the net operating income from our home health programs in the range of $5.0 million to $6.0 m illion per year.  Although we believe that other proposed reimbursement changes (such as the pending adoption of RUGS IV) would offset the impact of the outpatient therapy and home health changes, there can be no assurance that such changes will, in fact, be implemented as currently proposed.  Changes in the reimbursement policies of the Medicare program could have an adverse effect on our results of operations and cash flow.

If the ownership of our common stock continues to be highly concentrated, it may prevent you and other stockholders from influencing significant corporate decisions and may result in conflicts of interest.

As of September 30, 2010, funds managed by affiliates of Fortress Investment Group LLC (“Fortress”) and various principals of Fortress, in the aggregate, beneficially own 33,116,326 shares, or approximately 27.5% of our outstanding common stock (excluding unvested restricted shares). In addition, two of our directors are associated with Fortress and, pursuant to our Stockholders Agreement, Fortress currently has the ability to require us to nominate three individuals designated by Fortress for election as members of our nine-member Board of Directors (subject to their election by our stockholders).  As a result, Fortress may be able to effectively control and/or substantially influence fundamental and significant corporate matters and transactions, including: the election of directors; mergers, consolidations or acqu isitions; the sale of all or substantially all of our assets and other decisions affecting our capital structure; the amendment of our amended and restated certificate of incorporation and our


 
amended and restated by-laws; and the dissolution of the Company. Fortress’s interests, including its ownership of the North American operations of Holiday Retirement Corp., one of our competitors, may conflict with your interests. Their effective control of the Company could delay, deter or prevent acts that may be favored by our other stockholders such as hostile takeovers, changes in control of the Company and changes in management. As a result of such actions, the market price of our common stock could decline or stockholders might not receive a premium for their shares in connection with a change of control of the Company.

The market price of our common stock could be negatively affected by sales of substantial amounts of our common stock in the public markets.

At September 30, 2010, 120,544,632 shares of our common stock were outstanding (excluding unvested restricted shares). All of the shares of our common stock are freely transferable, except for any shares held by our “affiliates,” as that term is defined in Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, or any shares otherwise subject to the limitations of Rule 144.

Pursuant to our Stockholders Agreement, Fortress and certain of its affiliates and permitted third-party transferees have the right, in certain circumstances, to require us to register their shares of our common stock under the Securities Act for sale into the public markets. Upon the effectiveness of such a registration statement, all shares covered by the registration statement will be freely transferable. In connection with our obligations under the Stockholders Agreement, we received a request from Fortress to file a registration statement on Form S-3 to permit the resale, from time to time, of up to 60,875,826 shares of common stock owned by certain affiliates of Fortress. The registration statement on Form S-3 was declared effective on May 22, 2009 and 18,205,000 shares owned by affiliates of Fortress were sold pursuant to the regis tration statement in November 2009.  An additional 10,000,000 shares owned by affiliates of Fortress were sold pursuant to the registration statement in May 2010.

In addition, as of September 30, 2010, we had registered under the Securities Act an aggregate of 12,100,000 shares for issuance under our Omnibus Stock Incentive Plan, an aggregate of 1,000,000 shares for issuance under our Associate Stock Purchase Plan and an aggregate of 100,000 shares for issuance under our Director Stock Purchase Plan.  In accordance with the terms of the Omnibus Stock Incentive Plan, the number of shares available for issuance automatically increases by 400,000 shares on January 1 of each year. Pursuant to the terms of the Associate Stock Purchase Plan, the number of shares available for purchase under the plan will automatically increase by 200,000 shares on the first day of each calendar year beginning January 1, 2010.

Subject to any restrictions imposed on the shares and options granted under our stock incentive programs, shares registered under these registration statements will be available for sale into the public markets.

Our ability to use net operating loss carryovers to reduce future tax payments may be limited.

Section 382 of the Internal Revenue code contains rules that limit the ability of a company that undergoes an ownership change, which is generally any change in ownership of 50% of its stock over a three-year period, to utilize its net operating loss carryforward and certain built-in losses recognized in years after the ownership change.  These rules generally operate by focusing on ownership changes involving stockholders owning directly or indirectly 5% or more of the stock of a company and any change in ownership arising from a new issuance of stock by the company.  We have determined that an ownership change occurred within the second quarter of 2010, and, therefore, losses carried into the change period will be limited on a go forward basis.  The annual limitation is equal to the product of the applicabl e long term tax exempt rate and the value of our stock immediately before the ownership change, adjusted for certain items.  The annual limitation may be increased by certain built-in gains existing at the time of change.  In addition to the second quarter ownership change, we have had previous ownership changes.

Item 6.  Exhibits

See Exhibit Index immediately following the signature page hereto, which Exhibit Index is incorporated by reference as if fully set forth herein.



 
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
           
 
BROOKDALE SENIOR LIVING INC.
   
 
(Registrant)
   
           
           
 
By:
/s/ Mark W. Ohlendorf
   
 
Name:
 
Mark W. Ohlendorf
   
 
Title:
 
Co-President and Chief Financial Officer
   
     
(Principal Financial and Accounting Officer)
   
 
Date:
 
November 8, 2010
   
           




EXHIBIT INDEX

     
Exhibit No.
 
Description
     
3.1
 
Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K filed on February 26, 2010).
3.2
 
Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on January 19, 2010).
4.1
 
Form of Certificate for common stock (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (Amendment No. 3) (No. 333-127372) filed on November 7, 2005).
4.2
 
Stockholders Agreement, dated as of November 28, 2005, by and among Brookdale Senior Living Inc., FIT-ALT Investor LLC, Fortress Brookdale Acquisition LLC, Fortress Investment Trust II and Health Partners (incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on Form 10-K filed on March 31, 2006).
4.3
 
Amendment No. 1 to Stockholders Agreement, dated as of July 26, 2006, by and among Brookdale Senior Living Inc., FIT-ALT Investor LLC, Fortress Registered Investment Trust, Fortress Brookdale Investment Fund LLC, FRIT Holdings LLC, and FIT Holdings LLC (incorporated by reference to Exhibit 4.3 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2006).
4.4
 
Amendment Number Two to Stockholders Agreement, dated as of November 4, 2009 (incorporated by reference to Exhibit 4.4 to the Company’s Quarterly Report on Form 10-Q filed on November 4, 2009).
10.1
 
Form of Severance Letter and Brookdale Senior Living Inc. Severance Pay Policy, Tier I  (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on August 6, 2010).
31.1
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32
 
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
 
XBRL Instance Document.*
101.SCH
 
XBRL Taxonomy Extension Schema Document.*
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.*
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.*
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document.*
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document.*

*           Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 
 
47
 

 
EX-31.1 2 exhibit31_1.htm CEO CERTIFICATION Unassociated Document

 
EXHIBIT 31.1



CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, W.E. Sheriff, certify that:

1.  
I have reviewed this Quarterly Report on Form 10-Q of Brookdale Senior Living Inc.;
 
2.  
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.  
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.  
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
(a)  
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b)  
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c)  
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d)  
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.  
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
(a)  
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b)  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 

Date:  November 8, 2010
 
/s/ W.E. Sheriff
   
W.E. Sheriff
   
Chief Executive Officer
 
EX-31.2 3 exhibit31_2.htm CFO CERTIFICATION Unassociated Document

EXHIBIT 31.2



CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Mark W. Ohlendorf, certify that:

1.  
I have reviewed this Quarterly Report on Form 10-Q of Brookdale Senior Living Inc.;
 
2.  
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.  
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.  
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
(a)  
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b)  
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c)  
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d)  
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.  
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
(a)  
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b)  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 

Date:  November 8, 2010
 
/s/ Mark W. Ohlendorf
   
Mark W. Ohlendorf
   
Chief Financial Officer
 
EX-32 4 exhibit32.htm CERTIFICATION OF CEO AND CFO Unassociated Document

 
EXHIBIT 32



CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL
OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Quarterly Report on Form 10-Q of Brookdale Senior Living Inc. (the “Company”) for the period ended September 30, 2010, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), W.E. Sheriff, as Chief Executive Officer of the Company, and Mark W. Ohlendorf, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ W.E. Sheriff
 
Name:
W.E. Sheriff
 
Title:
Chief Executive Officer
 
Date:
November 8, 2010
 




/s/ Mark W. Ohlendorf
 
Name:
Mark W. Ohlendorf
 
Title:
Chief Financial Officer
 
Date:
November 8, 2010
 

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(&#8220;Brookdale&#8221; or the &#8220;Company&#8221;) is a leading owner and operator of senior living communities throughout the United States.&#160;&#160;The Company provides an exceptional living experience through properties that are designed, purpose-built and operated to provide the highest quality service, care an d living accommodations for residents.&#160;&#160;The Company owns, leases and operates retirement centers, assisted living and dementia-care communities and continuing care retirement centers (&#8220;CCRCs&#8221;).</font></div> Yes 20427000 0 8436000 7258000 70604000 87507000 2067000 2071000 0 0 0 0 282000 282000 31990000 51612000 178325000 198043000 56340000 50350000 428100000 10-Q 0.01 0.01 66370000 53973000 68961000 159313000 -3258000 -3259000 120404000 118455000 119817000 108807000 368936000 328939000 1077311000 963637000 Yes 0001332349 124284191 123206639 50000000 50000000 -81299000 43385000 0 163827000 1487000 0 -2720000 -14297000 -4007000 -10734000 -28734000 -28619000 -65293000 -64392000 195045000 169612000 7688000 7688000 <div style="DISPLAY: block; 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Certain claims and lawsuits allege large damage amounts and may require significant costs to defend and resolve. Similarly, the senior living industry is continuously subject to scrutiny by governmental regulators, which could result in l itigation related to regulatory compliance matters. 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It is suggested that these interim financial statements be read in conjunction with the audited financial statements and the notes thereto, together with management&#8217;s discussion and analysis of financial condition and results of operations, included in the Company&#8217;s Annual Report on Form 10-K for the fiscal year ended December 31, 2009, as filed with the Securities and Exchange Commission.</font></div><div style="DISPLAY: block; TEXT-INDENT: 0pt"><br /></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">Revenue Recognition</font></div><div style="DISPLAY: block; TEXT-INDENT: 0pt"><br /></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align ="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">Resident Fees</font></div><div style="DISPLAY: block; TEXT-INDENT: 0pt"><br /></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Resident fee revenue is recorded when services are rendered and consist of fees for basic housing, support services and fees associated with additional services such as personalized health and assisted living care. 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Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 123R -Paragraph 64, 65, A240 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Statement of Position (SOP) -Number 93-6 -Paragraph 53 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 14 false 1 2 false UnKnown UnKnown UnKnown false true XML 13 R10.xml IDEA: Acquisitions  2.2.0.7 false Acquisitions 006040 - Disclosure - Acquisitions true false false false 1 USD false false u000 Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 u002 Divide http://www.xbrl.org/2003/iso4217 USD iso4217 http://www.xbrl.org/2003/instance shares xbrli 0 u001 Standard http://www.xbrl.org/2003/instance shares xbrli 0 $ 2 0 bkd_NotesToFinancialStatementsAbstract bkd false na duration No definition available. false false false false false true false false false false false false 1 false false false false 0 0 false false false xbrli:stringItemType string No definition available. false 3 1 us-gaap_ScheduleOfBusinessAcquisitionsByAcquisitionTextBlock us-gaap true na duration No definition available. false false false false false false false false false false false label false 1 false false false false 0 0 <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">4.&#160;&#160;Acquisitions</font></div><div style="DISPLAY: block; TEXT-INDENT: 0pt"><br /></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Effective June 16, 2010, the Company acquired four independent living communities that the Company previously leased for an aggregate purchase price of $22.5 million.&#160; In connection with entering into the agreement to acquire the communities, the remaining leases between the Company and the seller/lessor were amended to modify and clarify certain of the terms thereof, including various financial and non-financial covenants.&#160; Transaction expenses of a pproximately $0.3 million were incurred and were recorded as general and administrative expense in the current year.&#160;&#160;The results of operations of these communities, prior and subsequent to the acquisition, are reported in the Retirement Centers segment.</font></div><div style="DISPLAY: block; TEXT-INDENT: 0pt"><br /></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">During the nine months ended September 30, 2010, the Company purchased five home health agencies as part of its growth strategy for an aggregate purchase price of approximately $6.3 million.&#160;&#160;The entire purchase price of the acquisitions has been ascribed to an indefinite useful life intangible asset and recorded on the condensed consolidated balance sheet under other intangible assets, net.</font></div> 4.&#160;&#160;AcquisitionsEffective June 16, 2010, the Company acquired four independent living communities that the Company previously leased for an aggregate false false false us-types:textBlockItemType textblock Schedule of a material business combination completed during the period, including background, timing, and recognized assets and liabilities. 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Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 141R -Paragraph 68 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 141 -Paragraph 52 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 141 -Paragraph 51 -Subparagraph a Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 141R -Paragraph F4 -Subparagraph e -Appendix F false 1 2 false UnKnown UnKnown UnKnown false true XML 14 R8.xml IDEA: Summary of Significant Accounting Policies  2.2.0.7 false Summary of Significant Accounting Policies 006020 - Disclosure - Summary of Significant Accounting Policies true false false false 1 USD false false u000 Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 u002 Divide http://www.xbrl.org/2003/iso4217 USD iso4217 http://www.xbrl.org/2003/instance shares xbrli 0 u001 Standard http://www.xbrl.org/2003/instance shares xbrli 0 $ 2 0 bkd_NotesToFinancialStatementsAbstract bkd false na duration No definition available. false false false false false true false false false false false false 1 false false false false 0 0 false false false xbrli:stringItemType string No definition available. false 3 1 us-gaap_ScheduleOfNewAccountingPronouncementsAndChangesInAccountingPrinciplesTextBlock us-gaap true na duration No definition available. false false false false false false false false false false false false 1 false false false false 0 0 <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2.&#160;&#160;Summary of Significant Accounting Policies</font></div><div style="DISPLAY: block; TEXT-INDENT: 0pt"><br /></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">Basis of Presentation</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The accompanying unaudited interim condensed con solidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for quarterly reports on Form 10-Q. In the opinion of management, these financial statements include all adjustments necessary to present fairly the financial position, results of operations and cash flows of the Company as of September 30, 2010, and for all periods presented. The condensed consolidated financial statements are prepared on the accrual basis of accounting. All adjustments made have been of a normal and recurring nature. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The Company believes that the disclosures included are adequate and provide a fair presentation of interim period results. Interim financial statements are not necessarily indicative of the financial position or operating results for an entire year. It is su ggested that these interim financial statements be read in conjunction with the audited financial statements and the notes thereto, together with management&#8217;s discussion and analysis of financial condition and results of operations, included in the Company&#8217;s Annual Report on Form 10-K for the fiscal year ended December 31, 2009, as filed with the Securities and Exchange Commission.</font></div><div style="DISPLAY: block; TEXT-INDENT: 0pt"><br /></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">Revenue Recognition</font></div><div style="DISPLAY: block; TEXT-INDENT: 0pt"><br /></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-STYLE: italic; FO NT-FAMILY: Times New Roman">Resident Fees</font></div><div style="DISPLAY: block; TEXT-INDENT: 0pt"><br /></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Resident fee revenue is recorded when services are rendered and consist of fees for basic housing, support services and fees associated with additional services such as personalized health and assisted living care. Residency agreements are generally for a term of 30 days to one year, with resident fees billed monthly in advance. Revenue for certain skilled nursing services and ancillary charges is recognized as services are provided and is billed monthly in arrears.</font></div><div style="DISPLAY: block; TEXT-INDENT: 0pt"><br /></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISP LAY: inline; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">Entrance Fees</font></div><div style="DISPLAY: block; TEXT-INDENT: 0pt"><br /></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Certain of the Company&#8217;s communities have residency agreements which require the resident to pay an upfront fee prior to occupying the community.&#160;&#160;In addition, in connection with the Company&#8217;s MyChoice program, new and existing residents are allowed to pay additional entrance fee amounts in return for a reduced monthly service fee.&#160;&#160;The non-refundable portion of the entrance fee is recorded as deferred revenue and amortized over the estimated stay of the resident based on an actuarial valuation.&#160;&#160;The refundable portion of a resident&#8217;s entrance fee is generally refundable within a certain number of months or days following contract termination or in certain agreements, upon the resale of the resident&#8217;s unit or a comparable unit or 12 months after the resident vacates the unit.&#160;&#160;In such instances the refundable portion of the fee is not amortized and included in refundable entrance fees and deferred revenue.</font></div><div style="DISPLAY: block; 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Althou gh the Company maintains general liability and professional liability insurance policies for its owned, leased and managed communities under a master insurance program, the Company&#8217;s current policy provides for deductibles for each and every claim ($250,000 effective January 1, 2009 and $150,000 effective January 1, 2010).&#160;&#160;As a result, the Company is, in effect, self-insured for claims that are less than $150,000.&#160;&#160;In addition, the Company maintains a self-insured workers compensation program and a self-insured employee medical program for amounts below excess loss coverage amounts, as defined. The Company reviews the adequacy of its accruals related to these liabilities on an ongoing basis, using historical claims, actuarial valuations, third party administrator estimates, consultants, advice from legal counsel and industry data, and adjusts accruals periodically. Estimated costs related to these self-insurance programs are accrued based on known claims and pro jected claims incurred but not yet reported. Subsequent changes in actual experience are monitored and estimates are updated as information is available.</font></div><div style="DISPLAY: block; TEXT-INDENT: 0pt"><br /></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">Treasury Stock</font></div><div style="DISPLAY: block; TEXT-INDENT: 0pt"><br /></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The Company accounts for treasury stock under the cost method and includes treasury stock as a component of stockholders&#8217; equity.</font></div><div style="DISPLAY: block; TEXT-INDENT: 0pt"><br /></div>&l t;div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">New Accounting Pronouncements</font></div><div style="DISPLAY: block; TEXT-INDENT: 0pt"><br /></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In January 2010, the Company adopted the amendment in ASC 820 requiring new fair value disclosures on fair value measurements for all nonfinancial assets and liabilities, including separate disclosure of significant transfers into and out of Level 3 and the reasons for the transfers, the amount of transfers between Level 1 and Level 2 and the reasons for the transfers, lower level of disaggregation for fair value disclosures (by class rather than major category) and additional deta ils on the valuation techniques and inputs used to determine Level 2 and Level 3 measurements.&#160;&#160;Other than the required disclosures, the adoption of the guidance had no impact on the condensed consolidated financial statements.</font></div><div style="DISPLAY: block; TEXT-INDENT: 0pt"><br /></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In January 2010, the Company adopted amendments to the variable interest consolidation model in ASC 810, <font style="DISPLAY: inline; FONT-STYLE: italic">Consolidation</font>.&#160;&#160;The amendments were applied to all structures in place at the date of adoption.&#160;&#160;Key amendment changes include:&#160;&#160;the scope exception for qualifying special purpose entities was eliminated, consideration of kick-out and participation rights in varia ble interest entity determination, qualitative analysis considerations for primary beneficiary determination, changes in related party considerations, and certain disclosure changes.&#160;&#160;The Company considered the amendments in accounting for its joint ventures and determined that the amendments had no impact on its current accounting.</font></div><div style="DISPLAY: block; TEXT-INDENT: 0pt"><br /></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In July 2010, the FASB issued a final accounting standards update that requires entities to provide extensive new disclosures in their financial statements about their financing receivables, including credit risk exposures and the allowance for credit losses. Adoption of this accounting standards update is required for public entities for interim or annual reporting periods ending o n or after December 15, 2010. The Company is currently evaluating this accounting standards update, but does not anticipate a material change to the condensed consolidated financial statements other than additional disclosure.</font></div><div style="DISPLAY: block; TEXT-INDENT: 0pt"><br /></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">Dividends</font></div><div style="DISPLAY: block; TEXT-INDENT: 0pt"><br /></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On December 30, 2008, the Company&#8217;s board of directors voted to suspend the Company&#8217;s quarterly cash dividend indefinitely.</font></div><div s tyle="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">Reclassifications</font></div><div style="DISPLAY: block; TEXT-INDENT: 0pt"><br /></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Certain prior period amounts have been reclassified to conform to the current financial statement presentation, with no effect on the Company&#8217;s results of operations.</font></div> 2.&#160;&#160;Summary of Significant Accounting PoliciesBasis of Presentation&#160;The accompanying unaudited interim condensed consolidated financial false false false us-types:textBlockItemType textblock Represents disclosure of any changes in an accounting principle, including a change from one generally accepted accounting principle to another generally accepted accounting principle when there are two or more generally accepted accounting principles that apply or when the accounting principle formerly used is no longer generally accepted. Also disclose any change in the method of applying an accounting principle, or any change in an accounting principle required by a new pronouncement in the unusual instance that a new pronouncement does not include specific transition provisions. 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Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 19, 20, 22 -Article 5 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 129 -Paragraph 2, 4 false 1 2 false UnKnown UnKnown UnKnown false true XML 21 R15.xml IDEA: Litigation  2.2.0.7 false Litigation 006090 - Disclosure - Litigation true false false false 1 USD false false u000 Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 u002 Divide http://www.xbrl.org/2003/iso4217 USD iso4217 http://www.xbrl.org/2003/instance shares xbrli 0 u001 Standard http://www.xbrl.org/2003/instance shares xbrli 0 $ 2 0 bkd_NotesToFinancialStatementsAbstract bkd false na duration No definition available. false false false false false true false false false false false false 1 false false false false 0 0 false false false xbrli:stringItemType string No definition available. false 3 1 us-gaap_CommitmentsAndContingenciesDisclosureTextBlock us-gaap true na duration No definition available. false false false false false false false false false false false false 1 false false false false 0 0 <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">9.&#160;&#160;Litigation</font></div><div style="DISPLAY: block; TEXT-INDENT: 0pt"><br /></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The Company has been and is currently involved in litigation and claims incidental to the conduct of its business which are comparable to other companies in the senior living industry. 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The nature of such security interests included herein may consist of debt securities, long-term capital lease obligations, and capital securities. 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Cash equivalents, excluding items classified as marketable securities, include short-term, highly liquid investments that are both readily convertible to known amounts of cash, and so near their maturity that they present minimal risk of changes in value because of changes in interest rates. Generally, only investments with original maturities of three months or less qualify under that definition. Original maturity means original maturity to the entity holding the investment. For example, both a three-month US Treasury bill and a three-year Treasury note purchased three months from maturity qualify as cash equivalents. However, a Treasury note purchased th ree years ago does not become a cash equivalent when its remaining maturity is three months. Compensating balance arrangements that do not legally restrict the withdrawal or usage of cash amounts may be reported as Cash and Cash Equivalents, while legally restricted deposits held as compensating balances against borrowing arrangements, contracts entered into with others, or company statements of intention with regard to particular deposits should not be reported as cash and cash equivalents. 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It also includes other kinds of accounts that have the general characteristics of demand deposits in that the Entity may deposit additional funds at any time and also effectively may withdraw funds at any time without prior notice or penalty. Cash equivalents, excluding items classified as marketable securities, include short-term, highly liquid investments that are both readily convertible to known amounts of cash, and so near their maturity that they present minimal risk of changes in value because of changes in interest rates. Generally, only investments with original maturities of three months or less qualify under that definition. Original maturity means original maturity to the entity holding the investment. For example, both a three-month US Treasury bill and a three-year Treasury note purchased three months from maturity qualify as cash equivalents. 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Examples include land, building and production equipment. This disclosure may include property plant and equipment accounting policies and methodology, a schedule of property, plant and equipment gross, additions, deletions, transfers and other changes, depreciation, depletion and amortization expense, net, accumulated depreciation, depletion and amortization expense and useful lives, income statement disclosures, assets held for sale and public utility disclosures. This element may be used as a single block of text to include the entire PPE disclosure, including data and tables. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Accounting Principles Board Opinion (APB) -Number 12 -Paragraph 5 false 1 2 false UnKnown UnKnown UnKnown false true XML 32 R1.xml IDEA: Condensed Consolidated Balance Sheets  2.2.0.7 false Condensed Consolidated Balance Sheets (USD $) 001000 - Statement - Condensed Consolidated Balance Sheets true false In Thousands false false 1 USD false false u001 Standard http://www.xbrl.org/2003/instance shares xbrli 0 u000 Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 u002 Divide http://www.xbrl.org/2003/iso4217 USD iso4217 http://www.xbrl.org/2003/instance shares xbrli 0 $ false 2 USD false false u001 Standard http://www.xbrl.org/2003/instance shares xbrli 0 u000 Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 u002 Divide http://www.xbrl.org/2003/iso4217 USD iso4217 http://www.xbrl.org/2003/instance shares xbrli 0 $ 4 2 us-gaap_AssetsCurrentAbstract us-gaap true na duration No definition available. false false false false false true false false false false false false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false xbrli:stringItemType string No definition available. false 5 3 us-gaap_CashAndCashEquivalentsAtCarryingValue us-gaap true debit instant No definition available. false false false false false false false false false false false false 1 true true false false 68961000 68961 false false false 2 true true false false 66370000 66370 false false false xbrli:monetaryItemType monetary Includes currency on hand as well as demand deposits with banks or financial institutions. It also includes other kinds of accounts that have the general characteristics of demand deposits in that the Entity may deposit additional funds at any time and also effectively may withdraw funds at any time without prior notice or penalty. Cash equivalents, excluding items classified as marketable securities, include short-term, highly liquid investments that are both readily convertible to known amounts of cash, and so near their maturity that they present minimal risk of changes in value because of changes in interest rates. Generally, only investments with original maturities of three months or less qualify under that definition. Original maturity means original maturity to the entity holding the investment. For example, both a three-month US Treasury bill and a three-year Treasury note purchased three months from maturity qualify as cash equivalents. However, a Treasury note purchased th ree years ago does not become a cash equivalent when its remaining maturity is three months. Compensating balance arrangements that do not legally restrict the withdrawal or usage of cash amounts may be reported as Cash and Cash Equivalents, while legally restricted deposits held as compensating balances against borrowing arrangements, contracts entered into with others, or company statements of intention with regard to particular deposits should not be reported as cash and cash equivalents. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 95 -Paragraph 7, 26 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 95 -Paragraph 8, 9 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 95 -Paragraph 7 -Footnote 1 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 1 -Article 5 false 6 3 us-gaap_RestrictedCashAndCashEquivalentsAtCarryingValue us-gaap true debit instant No definition available. false false false false false false false false false false false terselabel false 1 false true false false 112340000 112340 false false false 2 false true false false 109977000 109977 false false false xbrli:monetaryItemType monetary The carrying amounts of cash and cash equivalent items which are restricted as to withdrawal or usage. Restrictions may include legally restricted deposits held as compensating balances against short-term borrowing arrangements, contracts entered into with others, or entity statements of intention with regard to particular deposits; however, time deposits and short-term certificates of deposit are not generally included in legally restricted deposits. Excludes compensating balance arrangements that are not agreements which legally restrict the use of cash amounts shown on the balance sheet. For a classified balance sheet represents the current portion only (the noncurrent portion has a separate concept); there is a separate and distinct element for unclassified presentations. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 1 -Article 5 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Audit and Accounting Guide (AAG) -Number AAG-BRD -Chapter 4 -Paragraph 80 -Subparagraph Exhibit 4-8, 3 -IssueDate 2006-05-01 false 7 3 us-gaap_AccountsReceivableNetCurrent us-gaap true debit instant No definition available. false false false false false false false false false false false false 1 false true false false 83606000 83606 false false false 2 false true false false 75816000 75816 false false false xbrli:monetaryItemType monetary Amount due from customers or clients, within one year of the balance sheet date (or the normal operating cycle, whichever is longer), for goods or services (including trade receivables) that have been delivered or sold in the normal course of business, reduced to the estimated net realizable fair value by an allowance established by the entity of the amount it deems uncertain of collection. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 3 -Subparagraph a(1) -Article 5 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 4 -Article 5 false 8 3 us-gaap_DeferredTaxAssetsNetCurrent us-gaap true debit instant No definition available. false false false false false false false false false false false false 1 false true false false 7688000 7688 false false false 2 false true false false 7688000 7688 false false false xbrli:monetaryItemType monetary The current portion of the aggregate tax effects as of the balance sheet date of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; after deducting the allocated valuation allowance, if any, to reduce such amount to net realizable value. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. An unrecognized tax benefit that is directly related to a position taken in a tax year that results in a net operating los s carryforward should be presented as a reduction of the related deferred tax asset. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 41, 42, 43 false 9 3 bkd_PrepaidExpensesAndOtherCurrentAssetsNet bkd false debit instant Sum of the amounts paid in advance for capitalized costs that will be expensed with the passage of time or the occurrence of... false false false false false false false false false false false terselabel false 1 false true false false 56340000 56340 false false false 2 false true false false 50350000 50350 false false false xbrli:monetaryItemType monetary Sum of the amounts paid in advance for capitalized costs that will be expensed with the passage of time or the occurrence of a triggering event, and will be charged against earnings within one year or the normal operating cycle, if longer, combined with the aggregate carrying amount, as of the balance sheet date, of current assets not separately presented elsewhere in the balance sheet. Current assets are expected to be realized or consumed within one year (or the normal operating cycle, if longer). No authoritative reference available. false 10 3 us-gaap_AssetsCurrent us-gaap true debit instant No definition available. false false false false false false false false false false false totallabel false 1 false true false false 328935000 328935 false false false 2 false true false false 310201000 310201 false false false xbrli:monetaryItemType monetary Sum of the carrying amounts as of the balance sheet date of all assets that are expected to be realized in cash, sold, or consumed within one year (or the normal operating cycle, if longer). Assets are probable future economic benefits obtained or controlled by an entity as a result of past transactions or events. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 9 -Article 5 true 11 2 us-gaap_PropertyPlantAndEquipmentNet us-gaap true debit instant No definition available. false false false false false false false false false false false false 1 false true false false 3753707000 3753707 false false false 2 false true false false 3857774000 3857774 false false false xbrli:monetaryItemType monetary Tangible assets that are held by an entity for use in the production or supply of goods and services, for rental to others, or for administrative purposes and that are expected to provide economic benefit for more than one year; net of accumulated depreciation. Examples include land, buildings, and production equipment. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 13 -Subparagraph a -Article 5 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 12 -Paragraph 5 -Subparagraph b, c Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 03 -Paragraph 8 -Article 7 false 12 2 us-gaap_RestrictedCashAndCashEquivalentsNoncurrent us-gaap true debit instant No definition available. false false false false false false false false false false false false 1 false true false false 61885000 61885 false false false 2 false true false false 61218000 61218 false false false xbrli:monetaryItemType monetary Cash and equivalents whose use in whole or in part is restricted for the long-term, generally by contractual agreements or regulatory requirements. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 1 -Article 5 false 13 2 us-gaap_InvestmentsInAffiliatesSubsidiariesAssociatesAndJointVenturesFairValueDisclosure us-gaap true debit instant No definition available. false false false false false false false false false false false false 1 false true false false 19516000 19516 false false false 2 false true false false 20512000 20512 false false false xbrli:monetaryItemType monetary Total investments in (A) an entity in which the company has significant influence, but does not have control, (B) subsidiaries that are not required to be consolidated and are accounted for using the equity and or cost method. Investments in an entity that is affiliated with the reporting entity by means of direct or indirect ownership, (C) an entity in which the reporting entity shares control of the entity with another party or group, and (D) an entity in which the company has significant influence, but does not have control. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 33 false 14 2 us-gaap_Goodwill us-gaap true debit instant No definition available. false false false false false false false false false false false false 1 false true false false 109730000 109730 false false false 2 false true false false 109835000 109835 false false false xbrli:monetaryItemType monetary Carrying amount as of the balance sheet date, which is the cumulative amount paid, adjusted for any amortization recognized prior to adoption of FAS 142 and for any impairment charges, in excess of the fair value of net assets acquired in one or more business combination transactions. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 142 -Paragraph 43 false 15 2 us-gaap_OtherIndefiniteLivedIntangibleAssets us-gaap true debit instant No definition available. false false false false false false false false false false false false 1 false true false false 178325000 178325 false false false 2 false true false false 198043000 198043 false false false xbrli:monetaryItemType monetary Carrying amount (original costs adjusted for previously recognized amortization and impairment) as of the balance sheet date of rights not otherwise specified in the taxonomy having a projected indefinite period of benefit. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 142 -Paragraph 45 -Subparagraph b false 16 2 us-gaap_OtherAssetsNoncurrent us-gaap true debit instant No definition available. false false false false false false false false false false false false 1 false true false false 85965000 85965 false false false 2 false true false false 87928000 87928 false false false xbrli:monetaryItemType monetary Aggregate carrying amount, as of the balance sheet date, of noncurrent assets not separately disclosed in the balance sheet due to materiality considerations. Noncurrent assets are expected to be realized or consumed after one year (or the normal operating cycle, if longer). Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 17 -Article 5 false 17 2 us-gaap_Assets us-gaap true debit instant No definition available. false false false false false false false false false false false totallabel false 1 false true false false 4538063000 4538063 false false false 2 false true false false 4645511000 4645511 false false false xbrli:monetaryItemType monetary Sum of the carrying amounts as of the balance sheet date of all assets that are recognized. Assets are probable future economic benefits obtained or controlled by an entity as a result of past transactions or events. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Concepts (CON) -Number 6 -Paragraph 25 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 18 -Article 5 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 03 -Paragraph 12 -Article 7 true 19 2 us-gaap_LiabilitiesCurrentAbstract us-gaap true na duration No definition available. false false false false false true false false false false false false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false xbrli:stringItemType string No definition available. false 20 3 us-gaap_LongTermDebtCurrent us-gaap true credit instant No definition available. false false false false false false false false false false false false 1 false true false false 160704000 160704 false false false 2 false true false false 166185000 166185 false false false xbrli:monetaryItemType monetary Total of the portions of the carrying amounts as of the balance sheet date of long-term debt, which may include notes payable, bonds payable, debentures, mortgage loans, and commercial paper, which are scheduled to be repaid within one year or the normal operating cycle, if longer, and after deducting unamortized discount or premiums, if any. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 20 -Article 5 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 19 -Article 5 false 21 3 us-gaap_AccountsPayableTradeCurrent us-gaap true credit instant No definition available. false false false false false false false false false false false false 1 false true false false 31990000 31990 false false false 2 false true false false 51612000 51612 false false false xbrli:monetaryItemType monetary Carrying value as of the balance sheet date of obligations incurred (and for which invoices have typically been received) and payable to vendors for goods and services received that are used in an entity's business. Used to reflect the current portion of the liabilities (due within one year or within the normal operating cycle if longer). Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 19 -Subparagraph a -Article 5 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Accounting Research Bulletin (ARB) -Number 43 -Chapter 3 -Section A -Paragraph 7 false 22 3 us-gaap_AccruedLiabilitiesCurrent us-gaap true credit instant No definition available. false false false false false false false false false false false false 1 false true false false 195045000 195045 false false false 2 false true false false 169612000 169612 false false false xbrli:monetaryItemType monetary Carrying value as of the balance sheet date of obligations incurred and payable, pertaining to costs that are statutory in nature, are incurred on contractual obligations, or accumulate over time and for which invoices have not yet been received or will not be rendered. Examples include taxes, interest, rent and utilities. Used to reflect the current portion of the liabilities (due within one year or within the normal operating cycle if longer). Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 20 -Article 5 false 23 3 bkd_RefundableEntranceFeesAndDeferredRevenue bkd false credit instant Carrying amount as of the balance sheet date of proceeds that had been received in revenue related transactions that are... false false false false false false false false false false false terselabel false 1 false true false false 309155000 309155 false false false 2 false true false false 290673000 290673 false false false xbrli:monetaryItemType monetary Carrying amount as of the balance sheet date of proceeds that had been received in revenue related transactions that are refundable to the customers and do not meet the criteria for revenue recognition (for example, refundable membership fees). And, total carrying amount of consideration received or receivable as of the balance sheet date on potential earnings that were not recognized as revenue or other forms of income in conformity with GAAP, and which are expected to be recognized as such within one year or the normal operating cycle, if longer. No authoritative reference available. false 24 3 us-gaap_SecurityDepositLiability us-gaap true credit instant No definition available. false false false false false false false false false false false false 1 false true false false 10287000 10287 false false false 2 false true false false 13515000 13515 false false false xbrli:monetaryItemType monetary This element represents money paid in advance to protect the provider of a product or service, such as a lessor, against damage or nonpayment by the buyer or tenant (lessee) during the term of the agreement. Such damages may include physical damage to the property, theft of property, and other contractual breaches. Security deposits held may be interest or noninterest bearing. No authoritative reference available. false 25 3 us-gaap_LiabilitiesCurrent us-gaap true credit instant No definition available. false false false false false false false false false false false totallabel false 1 false true false false 707181000 707181 false false false 2 false true false false 691597000 691597 false false false xbrli:monetaryItemType monetary Total obligations incurred as part of normal operations that are expected to be paid during the following twelve months or within one business cycle, if longer. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 21 -Article 5 true 26 2 us-gaap_LongTermDebtNoncurrent us-gaap true credit instant No definition available. false false false false false false false false false false false false 1 false true false false 2401841000 2401841 false false false 2 false true false false 2459341000 2459341 false false false xbrli:monetaryItemType monetary Sum of the carrying values as of the balance sheet date of all long-term debt, which is debt initially having maturities due after one year from the balance sheet date or beyond the operating cycle, if longer, but excluding the portions thereof scheduled to be repaid within one year (current maturities) or the normal operating cycle, if longer, and after deducting unamortized discount or premiums, if any. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 22 -Article 5 false 27 2 us-gaap_DeferredRevenueAndCreditsNoncurrent us-gaap true credit instant No definition available. false false false false false false false false false false false false 1 false true false false 68988000 68988 false false false 2 false true false false 69306000 69306 false false false xbrli:monetaryItemType monetary Total carrying amount of consideration received or receivable as of the balance sheet date representing potential earnings that were not as yet recognized as revenue or other forms of income in conformity with GAAP, and which are expected to be recognized as such after one year or beyond the normal operating cycle, if longer. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 13 -Section A false 28 2 bkd_DeferredLiabilities bkd false credit instant The aggregae carrying amounts of the straight-lining of deferred lease liability rents and amortizaton of deferred gain on... false false false false false false false false false false false terselabel false 1 false true false false 152811000 152811 false false false 2 false true false false 148690000 148690 false false false xbrli:monetaryItemType monetary The aggregae carrying amounts of the straight-lining of deferred lease liability rents and amortizaton of deferred gain on facilities. No authoritative reference available. false 29 2 us-gaap_DeferredTaxLiabilitiesNoncurrent us-gaap true credit instant No definition available. false false false false false false false false false false false false 1 false true false false 114031000 114031 false false false 2 false true false false 140313000 140313 false false false xbrli:monetaryItemType monetary Represents the noncurrent portion of deferred tax liabilities, which result from applying the applicable tax rate to net taxable temporary differences pertaining to each jurisdiction to which the entity is obligated to pay income tax. A noncurrent taxable temporary difference is a difference between the tax basis and the carrying amount of a noncurrent asset or liability in the financial statements prepared in accordance with generally accepted accounting principles. In a classified statement of financial position, an enterprise shall separate deferred tax liabilities and assets into a current amount and a noncurrent amount. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. 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Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 24 -Article 5 false 31 2 us-gaap_Liabilities us-gaap true credit instant No definition available. false false false false false false false false false false false totallabel false 1 false true false false 3475293000 3475293 false false false 2 false true false false 3558929000 3558929 false false false xbrli:monetaryItemType monetary Sum of the carrying amounts as of the balance sheet date of all liabilities that are recognized. Liabilities are probable future sacrifices of economic benefits arising from present obligations of an entity to transfer assets or provide services to other entities in the future. No authoritative reference available. true 32 2 us-gaap_StockholdersEquityIncludingPortionAttributableToNoncontrollingInterestAbstract us-gaap true na duration No definition available. false false false false false true false false false false false terselabel false 1 false false false false 0 0 false false false 2 false false false false 0 0 false false false xbrli:stringItemType string No definition available. false 33 3 us-gaap_PreferredStockValue us-gaap true credit instant No definition available. false false false false false false false false false false false false 1 false true false false 0 0 false false false 2 false true false false 0 0 false false false xbrli:monetaryItemType monetary Dollar value of issued nonredeemable preferred stock (or preferred stock redeemable solely at the option of the issuer) whether issued at par value, no par or stated value. This item includes treasury stock repurchased by the entity. Note: elements for number of nonredeemable preferred shares, par value and other disclosure concepts are in another section within stockholders' equity. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 129 -Paragraph 2, 3, 4, 5, 6, 7, 8 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Accounting Principles Board Opinion (APB) -Number 12 -Paragraph 10 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 04 -Article 3 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 29 -Article 5 false 34 3 us-gaap_CommonStockValue us-gaap true credit instant No definition available. false false false false false false false false false false false label false 1 false true false false 1243000 1243 false false false 2 false true false false 1232000 1232 false false false xbrli:monetaryItemType monetary Dollar value of issued common stock whether issued at par value, no par or stated value. This item includes treasury stock repurchased by the entity. Note: elements for number of common shares, par value and other disclosure concepts are in another section within stockholders' equity. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 30 -Article 5 false 35 3 us-gaap_AdditionalPaidInCapital us-gaap true credit instant No definition available. false false false false false false false false false false false false 1 false true false false 1898909000 1898909 false false false 2 false true false false 1882377000 1882377 false false false xbrli:monetaryItemType monetary Excess of issue price over par or stated value of the entity's capital stock and amounts received from other transactions involving the entity's stock or stockholders. Includes adjustments to additional paid in capital. Some examples of such adjustments include recording the issuance of debt with a beneficial conversion feature and certain tax consequences of equity instruments awarded to employees. Use this element for the aggregate amount of APIC associated with common AND preferred stock. For APIC associated with only common stock, use the element Additional Paid In Capital, Common Stock. For APIC associated with only preferred stock, use the element Additional Paid In Capital, Preferred Stock. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 31 -Article 5 false 36 3 us-gaap_TreasuryStockValue us-gaap true debit instant No definition available. false false false false false false false false false false true negated false 1 false true false false -29187000 -29187 false false false 2 false true false false -29187000 -29187 false false false xbrli:monetaryItemType monetary Value of common and preferred shares of an entity that were issued, repurchased by the entity, and are held in its treasury. Treasury stock is issued but is not outstanding. This stock has no voting rights and receives no dividends. Note that treasury stock may be recorded at its total cost or separately as par (or stated) value and additional paid in capital. Note: number of treasury shares concept is in another section within stockholders' equity. 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