UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT TO SECTION

13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): November 22, 2006

FIVE STAR QUALITY CARE, INC.

(Exact Name of Registrant as Specified in Its Charter)

Maryland

(State or other jurisdiction

of incorporation)

Commission File No. 1-16817

 

04-3516029

 

 

(IRS Employer

 

 

Identification No.)

 

 

 

400 Centre Street, Newton, Massachusetts

 

02458

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (617) 796-8387

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 




 

 

Item 8.01. Other Events.

CONSOLIDATING SUBSIDIARY FINANCIAL INFORMATION

Consolidating financial information related to us, our guarantor subsidiaries and our non-guarantor subsidiaries as of September 30, 2006 and 2005 are reflected below.

Unaudited Condensed Consolidating Statement of Operations
For the nine months ended September 30, 2006
(amounts in thousands)

 

 

Parent

 

Guarantor
Subsidiaries

 

Non- Guarantor
Subsidiaries

 

Eliminations

 

FVE
Consolidated

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

Net revenues from residents

 

$

 

$

245,249

 

$

307,724

 

$

 

$

552,973

 

Pharmacy revenue

 

 

 

38,684

 

 

38,684

 

Total revenues

 

 

245,249

 

346,408

 

 

591,657

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

Wages and benefits

 

 

106,501

 

176,946

 

 

283,447

 

Other operating expenses

 

 

67,619

 

72,428

 

 

140,047

 

Termination payment to Sunrise Senior Living Services, Inc.

 

 

89,833

 

 

 

89,833

 

Pharmacy expenses

 

 

 

37,335

 

 

37,335

 

Management fee to Sunrise Senior Living Services, Inc.

 

 

7,792

 

 

 

7,792

 

Rent expense

 

 

48,558

 

31,117

 

 

79,675

 

General and administrative

 

 

7,442

 

15,551

 

 

22,993

 

Depreciation and amortization

 

 

3,040

 

4,080

 

 

7,120

 

Total operating expenses

 

 

330,785

 

337,457

 

 

668,242

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (loss) income

 

 

(85,536

)

8,951

 

 

(76,585

)

Interest and other income

 

 

247

 

1,306

 

 

1,553

 

Interest expense

 

 

(14

)

(2,405

)

 

(2,419

)

Equity in earnings of subsidiaries

 

(82,335

)

 

 

82,335

 

 

(Loss) income from continuing operations before income taxes

 

(82,335

)

(85,303

)

7,852

 

82,335

 

(77,451

)

Provision for income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income from continuing operations

 

(82,335

)

(85,303

)

7,852

 

82,335

 

(77,451

)

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations

 

 

(95

)

(4,789

)

 

(4,884

)

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(82,335

)

$

(85,398

)

$

3,063

 

$

82,335

 

$

(82,335

)

 

2




 

 

Unaudited Condensed Consolidating Statement of Operations
For the nine months ended September 30, 2005
(amounts in thousands)

 

 

Parent

 

Guarantor
Subsidiaries

 

Non- Guarantor
Subsidiaries

 

Eliminations

 

FVE
Consolidated

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

Net revenues from residents

 

$

 

$

234,962

 

$

283,176

 

$

 

$

518,138

 

Pharmacy revenue

 

 

 

22,641

 

 

22,641

 

Total revenues

 

 

234,962

 

305,817

 

 

540,779

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

Wages and benefits

 

 

99,535

 

167,365

 

 

266,900

 

Other operating expenses

 

 

65,906

 

65,188

 

 

131,094

 

Termination payment to Sunrise Senior Living Services, Inc.

 

 

81,536

 

 

 

81,536

 

Pharmacy expenses

 

 

 

21,332

 

 

21,332

 

Management fee to Sunrise Senior Living Services, Inc.

 

 

16,911

 

 

 

16,911

 

Rent expense

 

 

48,360

 

24,811

 

 

73,171

 

General and administrative

 

 

 

19,169

 

 

19,169

 

Depreciation and amortization

 

 

1,722

 

3,562

 

 

5,284

 

Impairment of assets

 

 

 

2,333

 

 

2,333

 

Total operating expenses

 

 

313,970

 

303,760

 

 

617,730

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (loss) income

 

 

(79,008

)

2,057

 

 

(76,951

)

Interest and other income

 

 

207

 

810

 

 

1,017

 

Interest expense

 

 

 

(3,024

)

 

(3,024

)

Equity in earnings of subsidiaries

 

(81,954

)

 

 

81,954

 

 

(Loss) income from continuing operations before income taxes

 

(81,954

)

(78,801

)

(157

)

81,954

 

(78,958

)

Provision for income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income from continuing operations

 

(81,954

)

(78,801

)

(157

)

81,954

 

(78,958

)

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations

 

 

(202

)

(2,794

)

 

(2,996

)

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(81,954

)

$

(79,003

)

$

(2,951

)

$

81,954

 

$

(81,954

)

 

3




 

 

Unaudited Condensed Consolidating Balance Sheet
As of September 30, 2006
(amounts in thousands)

 

 

Parent

 

Guarantor
Subsidiaries

 

Non- Guarantor
Subsidiaries

 

Eliminations

 

FVE
Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

 

$

4,285

 

$

18,965

 

$

 

$

23,250

 

Accounts receivable, net

 

 

14,372

 

36,002

 

 

50,374

 

Prepaid expenses and other current assets

 

 

100

 

45,396

 

 

45,496

 

Total current assets

 

 

18,757

 

100,363

 

 

119,120

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

21,530

 

86,777

 

 

108,307

 

Investment in subsidiary and long term receivable from (to) subsidiaries

 

200

 

 

200

 

(400

)

 

Restricted cash

 

 

 

13,998

 

 

13,998

 

Intercompany

 

227,801

 

 

 

(227,801

)

 

Mortgage notes receivable

 

 

 

2,835

 

 

2,835

 

Goodwill

 

 

 

21,290

 

 

21,290

 

Other long term assets

 

 

402

 

(402

)

 

 

Total assets

 

$

228,001

 

$

40,689

 

$

225,061

 

$

(228,201

)

$

265,550

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and other current liabilities

 

$

 

$

30,127

 

$

62,691

 

$

 

$

92,818

 

Current mortgage notes payable

 

 

 

627

 

 

627

 

Total current liabilities

 

 

30,127

 

63,318

 

 

93,445

 

 

 

 

 

 

 

 

 

 

 

 

 

Long term liabilities:

 

 

 

 

 

 

 

 

 

 

 

Mortgage notes payable

 

 

 

44,285

 

 

44,285

 

Notes payable to related parties

 

200

 

 

 

(200

)

 

Other long term liabilities

 

 

7,087

 

20,049

 

 

27,136

 

Total long term liabilities

 

200

 

7,087

 

64,334

 

(200

)

71,421

 

 

 

 

 

 

 

 

 

 

 

 

 

Total shareholders’ equity

 

227,801

 

3,475

 

97,409

 

(228,001

)

100,684

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

228,001

 

$

40,689

 

$

225,061

 

$

(228,201

)

$

265,550

 

 

4




 

 

Unaudited Condensed Consolidating Balance Sheet
As of September 30, 2005
(amounts in thousands)

 

 

Parent

 

Guarantor
Subsidiaries

 

Non- Guarantor
Subsidiaries

 

Eliminations

 

FVE
Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

 

$

9,432

 

$

38,306

 

$

 

$

47,738

 

Accounts receivable, net

 

 

12,984

 

27,227

 

 

40,211

 

Prepaid expenses and other current assets

 

 

9,966

 

73,599

 

 

83,565

 

Total current assets

 

 

32,382

 

139,132

 

 

171,514

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

16,219

 

74,389

 

 

90,608

 

Investment in subsidiary and long term receivable from (to) subsidiaries

 

200

 

 

200

 

(400

)

 

Restricted cash

 

 

 

17,453

 

 

17,453

 

Intercompany

 

113,639

 

 

 

(113,639

)

 

Mortgage notes receivable

 

 

 

6,003

 

 

6,003

 

Goodwill

 

 

 

18,013

 

 

18,013

 

Other long term assets

 

 

402

 

(402

)

 

 

Total assets

 

$

113,839

 

$

49,003

 

$

254,788

 

$

(114,039

)

$

303,591

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and other current liabilities

 

$

 

$

31,156

 

$

131,696

 

$

 

$

162,852

 

Current mortgage notes payable

 

 

 

559

 

 

559

 

Total current liabilities

 

 

31,156

 

132,255

 

 

163,411

 

 

 

 

 

 

 

 

 

 

 

 

 

Long term liabilities:

 

 

 

 

 

 

 

 

 

 

 

Mortgage notes payable

 

 

 

44,915

 

 

44,915

 

Notes payable to related parties

 

200

 

 

 

(200

)

 

Other long term liabilities

 

 

7,081

 

17,021

 

 

24,102

 

Total long term liabilities

 

200

 

7,081

 

61,936

 

(200

)

69,017

 

 

 

 

 

 

 

 

 

 

 

 

 

Total shareholders’ equity

 

113,639

 

10,766

 

60,597

 

(113,839

)

71,163

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

113,839

 

$

49,003

 

$

254,788

 

$

(114,039

)

$

303,591

 

 

5




 

 

Unaudited Condensed Consolidating Cash Flow Statement
For the nine months ended September 30, 2006
(amounts in thousands)

 

 

 

Parent

 

Guarantor
Subsidiaries

 

Non- Guarantor
Subsidiaries

 

Eliminations

 

FVE
Consolidated

 

Cash Flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(82,335

)

$

(85,398

)

$

3,063

 

$

82,335

 

$

(82,335

)

Undistributed equity in earnings of subsidiaries

 

82,335

 

 

 

(82,335

)

 

Adjustments to reconcile net income to cash provided by (used in) operating acitivities, net

 

 

86,724

 

(87,244

)

 

(520

)

Net cash provided by (used in) operating activities

 

 

1,326

 

(84,181

)

 

(82,855

)

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(11,956

)

(26,033

)

 

(37,989

)

Proceeds from the sale of property and equipment

 

 

6,593

 

10,193

 

 

16,786

 

Other, net

 

 

1,096

 

(4,152

)

 

(3,056

)

Net cash used in investing activities

 

 

(4,267

)

(19,992

)

 

(24,259

)

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of common shares, net

 

 

 

114,052

 

 

114,052

 

Change in borrowings, net

 

 

 

(417

)

 

(417

)

Other, net

 

 

 

 

 

 

Net cash provided by financing activities

 

 

 

113,635

 

 

113,635

 

Change in cash and cash equivalents

 

 

(2,941

)

9,462

 

 

6,521

 

Cash and cash equivalents at beginning of period

 

 

7,226

 

9,503

 

 

16,729

 

Cash and cash equivalents at end of period

 

$

 

$

4,285

 

$

18,965

 

$

 

$

23,250

 

 

6




 

 

Unaudited Condensed Consolidating Cash Flow Statement
For the nine months ended September 30, 2005
(amounts in thousands)

 

 

Parent

 

Guarantor
Subsidiaries

 

Non- Guarantor
Subsidiaries

 

Eliminations

 

FVE
Consolidated

 

Cash Flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(81,954

)

$

(79,003

)

$

(2,951

)

$

81,954

 

$

(81,954

)

Undistributed equity in earnings of subsidiaries

 

81,954

 

 

 

(81,954

)

 

Adjustments to reconcile net income to cash provided by operating acitivities, net

 

 

85,054

 

21,617

 

 

106,671

 

Net cash provided by operating activities

 

 

6,051

 

18,666

 

 

24,717

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(10,713

)

(85,302

)

 

(96,015

)

Proceeds from the sale of property and equipment

 

 

4,848

 

28,493

 

 

33,341

 

Other, net

 

 

859

 

(5,864

)

 

(5,005

)

Net cash used in investing activities

 

 

(5,006

)

(62,673

)

 

(67,679

)

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of common shares, net

 

 

 

56,865

 

 

56,865

 

Change in borrowings, net

 

 

 

2,893

 

 

2,893

 

Other, net

 

 

 

 

 

 

Net cash provided by financing activities

 

 

 

59,758

 

 

59,758

 

Change in cash and cash equivalents

 

 

1,045

 

15,751

 

 

16,796

 

Cash and cash equivalents at beginning of period

 

 

8,387

 

22,555

 

 

30,942

 

Cash and cash equivalents at end of period

 

$

 

$

9,432

 

$

38,306

 

$

 

$

47,738

 

 

7




 

 

UNAUDITED PRO FORMA FINANCIAL INFORMATION

 

Five Star Quality Care, Inc.
Unaudited Pro Forma Consolidated Balance Sheet
As of September 30, 2006
(amounts in thousands)

 

 

Historical

 

Adjustments for
convertible senior
notes offering

 

Adjusted for
convertible senior
notes offering

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

23,250

 

$

122,771

(A)

$

146,021

 

Accounts receivable, net

 

50,374

 

 

50,374

 

Prepaid expenses and other current assets

 

45,496

 

 

45,496

 

Total current assets

 

119,120

 

122,771

 

241,891

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

108,307

 

 

108,307

 

Restricted cash

 

13,998

 

 

13,998

 

Mortgage notes receivable

 

2,835

 

 

2,835

 

Goodwill

 

21,290

 

 

21,290

 

Other long term assets

 

 

3,729

(B)

3,729

 

Total assets

 

$

265,550

 

$

126,500

 

$

392,050

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

$

93,445

 

$

 

$

93,445

 

Mortgage notes payable

 

44,285

 

 

44,285

 

3.75% Convertible Senior Notes due 2026

 

 

126,500

(C)

126,500

 

Other long term liabilities

 

27,136

 

 

27,136

 

Total liabilities

 

164,866

 

126,500

 

291,366

 

 

 

 

 

 

 

 

 

Total shareholders’ equity

 

100,684

 

 

100,684

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

265,550

 

$

126,500

 

$

392,050

 

 

8




 

 

Five Star Quality Care, Inc.

Unaudited Pro Forma Consolidated Income Statement

For the nine months ended September 30, 2006

(amounts in thousands)

 

Historical

 

Adjustments for
April 2006 equity
offering

 

Adjusted for April
2006 equity
offering

 

Adjustments for
June 2006 Sunrise
terminations

 

Adjusted for
April 2006 equity
offering and June
2006 Sunrise
terminations

 

Adjustments for
convertible senior
note offering

 

Adjusted for April 2006
equity offering, June
2006 Sunrise
terminations and
convertible senior
note offering

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues from residents

 

$

552,973

 

$

 

$

552,973

 

$

 

$

552,973

 

$

 

$

552,973

 

Pharmacy revenue

 

38,684

 

 

38,684

 

 

38,684

 

 

38,684

 

Total revenues

 

591,657

 

 

591,657

 

 

591,657

 

 

591,657

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property level operating expenses

 

423,494

 

 

423,494

 

 

423,494

 

 

423,494

 

Termination payment to Sunrise Senior Living Services, Inc.

 

89,833

 

 

89,833

 

 

89,833

 

 

89,833

 

Pharmacy expenses

 

37,335

 

 

37,335

 

 

37,335

 

 

37,335

 

Management fee to Sunrise Senior Living Services, Inc.

 

7,792

 

 

7,792

 

(3,333

)(E)

4,460

 

 

4,460

 

Rent expense

 

79,675

 

 

79,675

 

 

79,675

 

 

79,675

 

General and administrative

 

22,993

 

 

22,993

 

 

22,993

 

 

22,993

 

Depreciation and amortization

 

7,120

 

 

7,120

 

 

7,120

 

 

7,120

 

Total operating expenses

 

668,242

 

 

668,242

 

(3,333

)

664,910

 

 

664,910

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (loss) income

 

(76,585

)

 

(76,585

)

3,333

 

(73,253

)

 

(73,253

)

Interest and other income

 

1,553

 

 

1,553

 

 

1,553

 

 

1,553

 

Interest expense

 

(2,419

)

 

(2,419

)

 

(2,419

)

(3,698

)(F)

(6,117

)

(Loss) income from continuing operations before income taxes

 

(77,451

)

 

(77,451

)

3,333

 

(74,119

)

(3,698

)

(77,816

)

Provision for income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income from continuing operations

 

$

(77,451

)

$

 

$

(77,451

)

$

3,333

 

$

(74,119

)

$

(3,698

)

$

(77,816

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Shares Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

27,584

 

6,030

(D)

33,614

 

 

33,614

 

 

33,614

 

Fully Diluted

 

27,584

 

6,030

 

33,614

 

 

33,614

 

 

33,614

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted income per share from:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(2.81

)

 

 

$

(2.30

)

 

 

$

(2.21

)

 

 

$

(2.31

)

Fully Diluted

 

$

(2.81

)

 

 

$

(2.30

)

 

 

$

(2.21

)

 

 

$

(2.31

)

 

9




 

FIVE STAR QUALITY CARE, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share amounts)

INTRODUCTION TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

The unaudited pro forma consolidated balance sheet as of September 30, 2006, presents the consolidated financial position of Five Star as if the October 2006 private placement of $126.5 million of our 3.75% convertible senior notes due 2026, or the convertible senior notes, had been completed as of September 30, 2006, as described in the notes thereto. The unaudited pro forma consolidated statement of operations for the nine months ended September 30, 2006, presents the consolidated results of operations of Five Star as if (1) our April 2006 offering of 11.5 million of our common shares, or the April 2006 equity offering; (2) the reduction in our management fees payable in respect of 10 Sunrise Senior Living Services, Inc., or SLS, management agreements that we terminated in June 2006; and (3) the October 2006 private placement of our convertible senior notes, had been completed as of January 1, 2006, as described in the notes thereto.  This pro forma financial information does not give pro forma effect to other events subsequent to September 30, 2006, including, without limitation, (1) our commencement of the operations of two rehabilitation hospitals in October 2006, (2) HealthSouth Corporation’s agreement in November 2006 to reimburse us for certain costs in connection with the transfer of the lease for the hospitals to us and (3) the seven SLS management agreements that we agreed with SLS in November 2006 to terminate.

These unaudited pro forma consolidated financial statements do not represent our consolidated financial condition or results of operations for any future date or period. Actual future results may be materially different from pro forma results. Differences could arise from many factors, including, but not limited to, those set forth under “Risk factors” and “Warning concerning forward looking statements” in our Annual Report on Form 10-K for the year ended December 31, 2005 and our Quarterly Reports on Form 10-Q for the quarters ended March 31 and September 30, 2006.  These unaudited pro forma consolidated financial statements should be read in conjunction with our consolidated financial statements and the related management’s discussion and analysis of financial condition and results of operations for the nine months ended September 30, 2006 included in our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2006.

Pro forma consolidated balance sheet as of September 30, 2006 adjustments

A.                     Represents the proceeds we received from our issuance of our convertible senior notes as follows:

Convertible senior notes issued

 

$

126,500

 

Initial purchaser discount and commissions and other offering costs

 

3,729

 

Net proceeds

 

$

122,771

 

 

B.                                     Represents deferred finance fees we incurred as a result of our issuance of our convertible senior notes.  Amounts represent the initial purchaser discount and commissions and other offering costs which will be amortized over the term of our convertible senior notes.

C.                                     Represents the principal amount of our convertible senior notes.

Pro forma consolidated statement of operations for the nine months ended September 30, 2006 adjustments

D.                                    Represents our issuance of common shares in our April 2006 equity offering. The adjustment has been weighted to reflect shares actually outstanding as of September 30, 2006.

E.                                      Represents the elimination of the contractual management fee with SLS.  In connection with the termination of 10 management agreements with SLS, we will no longer be required to make these payments.

F.                                      Represents the interest expense we will incur on our convertible senior notes, as well as amortization of deferred finance fees. The adjustment is calculated as follows:

Interest expense for nine months on the $126,500 of our convertible senior notes at 3.75% per annum

 

$

(3,558

)

Amortization of deferred finance fees (see Note B) for nine months. Deferred finance fees amortized over term of our convertible senior notes, or 20 years

 

(140

)

Total adjustment

 

$

(3,698

)

 

10




 

 

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 hereunto duly authorized.

FIVE STAR QUALITY CARE, INC.

 

 

 

 

 

By:

/s/ Bruce J. Mackey Jr.

 

Name:

Bruce J. Mackey Jr.

 

Title:

Treasurer and Chief Financial Officer

 

 

Date: November 22, 2006

 

 

11