t r o p e r l a u n n a y r a m m u s 0 0 0 2 n o i t a r o p r o C g n i v i L r o i n e S l a t i p a C e l i f o r p Capital Senior Living Corporation is committed to providing quality housing and services based on the highest standards of excellence in the industry. Our goal is to enrich the daily lives of our senior residents by providing an environment that stimulates them physically, mentally, and emotionally. Therefore, each community offers a relaxed atmosphere of warmth and caring that promotes com- panionship among residents and staff. Each community’s employees are personally committed to serving residents and treating them with dignity and respect. . y h p a r g o t o h p e h t n i d e t a p i c i t r a p o s l a s t n e d i s e r l a u t c a l a r e v e s , d e s u s a w t n e l a t l e d o m e m o s e l i h W . s e i t i n u m m o c g n i v i L r o i n e S l a t i p a C t a n o i t a c o l n o t o h s s a w t r o p e r l a u n n a s i h t n i y h p a r g o t o h p l l A Capital Senior Living Corporation is a leader in residential communities for senior adults. Our success comes as a result of skilled manage- ment — more than 135 years of combined industr y experience — and careful strategic planning. The dramatic increase in the nation’s elderly population will continue to drive our growth and the demand for our services. In this annual report, we’ll share with you the strategies that will lead to continued success for our Company. To our fellow shar eholders expenditure and building cycle of 2000 com- plete, we will be focused this year on filling our new communities and improving operational performance of our existing communities. The potential for this internal growth comes at a time when expansion capital has been severely curtailed in the senior housing industry. By sim- ply filling our new and expanded properties, we will be able to continue the Company’s growth. One of Capital Senior Living’s greatest strengths is its management team and skill as an operator. In addition to managing our own properties, we were managing 10 properties for third parties at the end of 2000. We continually eval- uate proposals for managing other portfolios and we anticipate that 2001 will bring several of these opportunities. Management contracts provide predictable revenue streams without capital risk and have historically provided acquisition opportunities. Growth without performance is meaningless. We are extremely proud of the fact that dur- ing 2000, our operations exceeded industry averages in occupancies, operating margins and net absorption. The past year was extremely challenging for the senior living industry as a whole. During the year, however, Capital Senior Living Corporation was able to complete several ini- tiatives that should position us favorably to continue our growth and take advantage of emerging opportunities during 2001 and beyond. Since its inception, the Company has operated with a multifaceted strategy that provides the potential for growth through the various cycles of our industry. The cornerstones of this strategy are: add new communities through acquisition or development; expand our existing communities; fulfill the leasing potential at our communities and increase our base of management contracts. During 2000, we opened 16 new communities, expanded one of our properties and acquired eight more. The acquisition was one of the largest completed transactions in the senior housing industry during the year. In total, through development, expansion and acqui- sition, we increased our resident capacity last year by 33 percent, from approximately 6,000 residents at the end of 1999 to over 8,000 res- idents at the end of 2000. This expanded infrastructure positions us for growth in 2001 through fulfilling the leasing capacity of our properties. With the capital 2 Going forward, we see many positive trends. Unlike many industries, we have great visibil- ity in our long-term demand. We know seniors represent the fastest-growing segment of the nation’s population, and Capital Senior Living has over 80 percent of its capacity in the largest senior housing demand—independent living. While 2000 brought many factors that caused disappointing results—including increasing costs for labor, utilities, insurance and financ- ing—we are currently seeing a slowing in the overall economy. In the near term, this should reduce interest rates, lessen labor pres- sures and make capital more favorable in the senior housing industry. We believe that our experienced management structure, estab- lished national platform of communities and proven track record position us well to take advantage of these opportunities now and in the future. Our mission is to offer seniors quality housing and services based on the highest standards in the industry and to provide them an environment that stimulates them physically, mentally and emotionally. In fulfilling this mission, our goal is to return rewards to all our stakeholders — our residents, employees, business associates and, importantly, our shareholders. Thank you for your support. James A. Stroud Chairman of the Company (standing) Lawrence A. Cohen Chief Executive Officer (seated) 3 n i l p a h C e i l r a h C — .” d e t s a w y a d a s i r e t h g u a l t u o h t i w y a d A “ s t r a t e g i e s f o r l i f e 2 . 0 7 s s e c c u s r o f s e i g e t a r t s Capital Senior Living will grow through fulfilling our occupancy potential, developing new management contracts, expanding our existing communities and adding new communities through acquisition or development. 3 . 3 5 According to U.S. government estimates, there will be 8.8 million 1 . adults age 85 and older by 2030. Adults 65 to 74 are expected to 0 4 number more than 37 million in the same year. 3 . 5 3 1 . 1 3 6 . 5 2 0 . 0 2 4 . 1 2 . 2 3 . 4 0 . 3 0 . 6 0 . 7 + 5 8 n o i t a l u p o p + 5 6 n o i t a l u p o p 8 . 8 1 9 7 0 1 9 8 0 1 9 9 0 2 0 0 0 2 0 1 0 2 0 2 0 2 0 3 0 p o p u l a t i o n g r o w t h o f t h e e l d e r l y ) s n o i l l i m ( n o i t a l u p o p n i e t s n i E t r e b l A — .” g n i n o i t s e u q p o t s t o n o t s i g n i h t t n a t r o p m i e h T “ s t r a t e g i e s f o r l i f e s s e c c u s r o f s e i g e t a r t s The Company operates nationally with communities in 21 states. This national platform creates geographical diversity and provides strategic locations from which to grow. Presently, Capital Senior Living owns or operates a total of 51 communities with a total capacity of 8,300 residents. Additionally, 4 communities, with a total capacity of 600 residents, were under construction. s r e t r a u q d a e h s e c i f f o l a n o i g e r s e i t i n u m m o c g n i t s i x e n o i t c u r t s n o c r e d n u s t r a t e g i c g e o g r a p h i c a l l o c a t i o n s t t o c s i V d i v a D — .” s e d i s h t o b m o r f n u s e h t l e e f o t s i d e v o l e b o t d n a e v o l o T “ s t r a t e g i e s f o r l i f e s s e c c u s r o f s e i g e t a r t s Capital Senior Living’s continuum of care operating philosophy, which integrates independent living, assisted living and home care ser vices, responds to the area of greatest demand for senior housing. 1,800 1,500 1,200 900 600 300 s d n a s u o h t n i s d e 0 b Over the next 30 years, Independent Living is expected to continue to surpass both Skilled Nursing and Assisted Living as the leading housing preference for seniors. g n i v i l t n e d n e p e d n i g n i s r u n d e l l i k s g n i v i l d e t s i s s a 1 9 9 6 2 0 0 0 2 0 0 5 2 0 1 0 2 0 1 5 2 0 2 0 2 0 2 5 2 0 3 0 g r o w t h i n d e m a n d f o r k e y s e g m e n t s o f t h e s e n i o r h o u s i n g m a r k e t Who we ar e f l o d n a R . G — .” t e g r o f o t i l e b s s o p m i d n a , e v a e l o t t l u c fi f i d , d n fi o t d r a h e r a s d n e i r f t a e r g y l u r T “ Capital Senior Living Corporation provides some of the highest quality housing and retirement services available in the industry. At the beginning of 2001, we owned and/or operated 51 senior housing com- munities in 21 states. At an average of 164 residents per community, this represents living facilities for over 8,300 seniors. I o c s e n o Our beautifully appointed and affordable communities provide an environment that is physically, mentally and emotionally stimulating for our residents. Our communities offer a relaxed atmosphere of warmth and caring. More than 80 percent of our residents live independently, and through our continuum of care philosophy we provide them the opportunity to remain in place as they age. The average resident is 80 years old when they move into one of our communities, and the aver- age length of stay is four years. e n e g u E — .” n o i t s e u q e h t t u b , s n e t h g i l n e t a h t r e w s n a e h t t o n s i t I “ O u r p h i l o s o p h y Our continuum of care phi- losophy is based on the belief that seniors should be able to choose an affordable lifestyle that best suits them. Understanding that needs change as people age, we provide three levels of service. 10 The vast majority of our residents live in independent living communities. These communities are for seniors who do not require assistance with activities of daily living (ADLs), but who want the availability of meals, housekeeping, transportation, security and a variety of social, recreational and wellness programs. The second level of service is assisted living which provides assistance with ADLs such as medication management, bathing, grooming, dressing and ambu- lation. Many of our communities either have assisted living facilities in place or have the capac- ity to have assisted living added at a future date. As our independent living residents age, they can therefore take advantage of additional services within the same com- munity. This also means that residents are attracted to Capital Senior Living facilities at an earlier age and remain for a longer period of time. The third level of service our communities offer is home care, which expands our offering and serves to bridge the gap between independent living and assisted living requirements. e r o m y r r a B l O u r 2 0 0 0 p e r f o r m a n c e Capital Senior Living is well recognized in our indus- try for our strong operating record. 11 e h t E — .” n e e b e v a h s e l i m s e r e h w e t a c d n i i y l n o l d u o h s l s e k n i r W “ e g r o B r o t c i l V — .” e p o e p o w t n e e w t e b e c n a t s d i t s e t r o h s e h t s i r e t h g u a L “ We believe residents should be able to choose an affordable lifestyle that’s best suited for them. Last year was no exception. In 2000 we completed our ninth consecutive year of profitability and reported annual net income of $1.2 million or basic earnings of 6 cents per share. Our annual cash earnings were $6.4 million or 33 cents per share. For the year, we exceeded the industry occupancy average with an occupancy of 93 percent in our stabi- lized communities and improved our same community revenue by 2.4 percent over 1999. We achieved average operating margins of 43 percent in our independent and assisted living communities. Last year represented a year of strong external growth. We acquired eight communities, increasing resident capacity of our owned communities by 1,300. Prior to the acquisition, we had managed these properties since 1996. In addition to the acquisition, we opened 16 new communities and expanded one other existing facility. To support this expansion plan, we secured $122 mil- lion of acquisition financing from GMAC. O u r i n d u s t r y The growth of the senior popu- lation in the United States is accelerating. The U.S. government currently predicts the population of adults age 65 or older will approximately double between 2000 and 2030 and there will be 8.8 million adults age 13 85 or older by the year 2030. These demographic trends will drive demand for senior housing over the next few decades. Independent living facilities are anticipated to be the fastest-growing segment of housing for this aging population. With Capital Senior Living’s focus on independent living, as well as its continuum of care philosophy, we are extremely well positioned to ben- efit from these trends. O u r n a t i o n a l p l a t f o r m Capital Senior Living’s established national platform of 51 communities in 21 states provides an excellent foundation from which to grow. Headquartered in Dallas, with four regional offices, we are geographically structured for expansion. This national platform will provide the support for further expansion through acquisition or development and it is one of the factors that attracts poten- tial management contracts. o c n n L i l m a h a r b A — .” e n o d o o g a e b , e r a u o y r e v e t a h W “ O u r m a n a g e m e n t t e a m The Company’s experienced management team is one of our greatest strengths. Our senior operations management has over 135 years of combined industry 14 n o s r e d n A n a i r a M — .” d n e i r f d o o g a i g n e b f o t f i g e h t s i t i f i n e v e i , g n h t e m o s r o f t f i g a s a h e n o y r e v E “ We have a well-established national platform and a respected, experienced management team to execute our strategies. experience, and our regional managers contribute another 76 years of combined industry experience. It is the experience and quality of this management team that permits Capital Senior Living to produce industry-leading performance. Additionally, the proven track record of this management team is one of the major factors in attracting new management con- tracts, one of our key growth strategies. T h e f u t u r e We believe the future holds a great deal of promise for Capital Senior Living. We are well positioned in an industry that, although cyclical, has highly visible and growing demand. We have a well-established national platform and a respected, experienced manage- ment team to execute our strategies. We have one of the strongest balance sheets in our indus- try and we are focused on responsible fiscal management, including preserving and maxi- mizing our cash. With our continuum of care philosophy and our commitment to provide quality, affordable sen- ior housing, we believe that Capital Senior Living is well positioned for the future. e s e v a P e r a s e C — .” s t n e m o m r e b m e m e r e w , s y a d r e b m e m e r t o n o d e W “ 15 i l A d a m m a h u M — .” e f i l i s h f o s r a e y 0 3 d e t s a w s a h 0 2 t a d d i e h s a e m a s e h t 0 5 t a d l r o w e h t s w e i v o h w n a m e h T “ 0 0 3 , 8 0 0 7 , 5 0 0 1 , 6 9 8 9 9 0 0 r e s i d e n t c a p a c i t y g r o w t h r a t e The Company is dedicated to increased shareholder value through growth and stringent fiscal management, including working to retire and refinance existing debt and maximizing cash flow. s t l u s e r l a i c n a n i f 8 2 % i n d e p e n d e n t l i v i n g r e q u i r e s a s s i s t a n c e 18 % r e s i d e n t m i x Repor t of Er nst & Young LLP, Independent Auditors The Board of Directors and Shareholders Capital Senior Living Corporation We have audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheets of Capital Senior Living Corporation at December 31, 2000 and 1999 and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2000 (not presented separately herein) and in our report dated February 9, 2000, which, as to the years 1999 and 1998, are based in part on the report of other independent auditors, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompany- ing condensed consolidated financial statements is fairly stated in all material respects in relation to the consolidated financial statements from which it has been derived. Dallas, Texas February 9, 2001 18 C o n s o l i d a t e d B a l a n c e S h e e t s Capital Senior Living Corporation In thousands Assets Current assets: Cash and cash equivalents Accounts receivable, net Accounts receivable from affiliates Interest receivable from affiliates Federal and state income taxes receivable Deferred taxes Prepaid expenses and other Total current assets Property and equipment, net Deferred taxes Notes receivable Notes receivable from affiliates Investments in limited partnerships Assets held for sale Other assets, net Total assets Liabilities and Shareholders’ Equity Current liabilities: Accounts payable Accrued expenses Current portion of notes payable Customer deposits Total current liabilities Deferred income from affiliates Notes payable, net of current portion Line of credit Minority interest in consolidated partnership Commitments and contingencies Shareholders’ equity: Preferred stock, $.01 par value: December 31, 2000 1999 $ 23,975 $ 32,988 3,221 3,764 2,074 3,728 1,208 1,935 39,905 204,764 8,872 570 43,388 6,526 6,920 7,599 3,392 9,055 834 6,035 910 508 53,722 104,723 9,516 – 30,596 9,123 9,549 4,647 $ 318,544 $ 221,876 $ 3,907 3,194 4,770 1,012 12,883 2,241 176,507 7,553 8,572 $ 2,512 2,127 1,199 911 6,749 1,785 58,416 34,000 11,377 Authorized shares –15,000,000; no shares issued or outstanding – – Common stock, $.01 par value: Authorized shares –65,000,000 Issued and outstanding shares–19,717,347 in 2000 and 1999 Additional paid-in capital Retained earnings Total shareholders’ equity Total liabilities and shareholders’ equity 197 91,935 18,656 110,788 $ 318,544 197 91,935 17,417 109,549 $ 221,876 19 C o n s o l i d a t e d S t a t e m e n t s o f I n c o m e Capital Senior Living Corporation In thousands, except per share data Revenues: Resident and health care revenue Rental and lease income Unaffiliated management services revenue Affiliated management services revenue Unaffiliated development fees Affiliated development fees Total revenues Expenses: Operating expenses General and administrative expenses Provision for bad debts Depreciation and amortization Total expenses Income from operations Other income (expense): Interest income Interest expense (Loss) gain on sale of properties Income before income taxes and minority interest in consolidated partnership Provision for income taxes Income before minority interest in consolidated partnership Minority interest in consolidated partnership Net income Net income per share: Basic Diluted Weighted average shares outstanding–basic Weighted average shares outstanding–diluted Year Ended December 31, 2000 1999 1998 $ 49,185 $41,071 $25,988 4,603 2,271 1,040 563 1,992 59,654 29,530 11,116 4,318 5,186 50,150 9,504 5,981 (11,980) (350) 3,155 (763) 2,392 (1,153) $ 1,239 $ $ 0.06 0.06 19,717 19,724 4,304 2,695 456 1,341 14,086 63,953 24,470 9,212 15,896 4,671 54,249 9,704 5,822 (7,089) 748 9,185 (2,992) 6,193 (1,355) $ 4,838 $ 0.25 $ 0.24 19,717 19,806 4,282 2,465 1,327 1,234 7,472 42,768 17,067 6,094 500 2,734 26,395 16,373 4,939 (1,922) 422 19,812 (7,476) 12,336 (379) $11,957 $ $ 0.61 0.61 19,717 19,717 20 C o n s o l i d a t e d S t a t e m e n t s o f S h a r e h o l d e r s ’ E q u i t y Capital Senior Living Corporation In thousands Balance at January 1, 1998 Net income Balance at December 31, 1998 Noncash compensation Net income Balance at December 31, 1999 Net income Balance at December 31, 2000 Common Stock Shares 19,717 – 19,717 – – 19,717 – 19,717 Amount $197 – 197 – – 197 – $197 Additional Paid-In Capital $91,740 – 91,740 195 – 91,935 – Retained Earnings (Deficit) Total $ 622 $ 92,559 11,957 12,579 – 4,838 17,417 1,239 11,957 104,516 195 4,838 109,549 1,239 $91,935 $18,656 $110,788 21 C o n s o l i d a t e d S t a t e m e n t s o f C a s h F l o w s Capital Senior Living Corporation In thousands Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Amortization Amortization of deferred financing charges Minority interest in consolidated partnership Deferred interest Deferred income from affiliates Deferred income Deferred income taxes (benefit) Loss (gain) on sale of properties Non-cash compensation Provision for bad debts Changes in operating assets and liabilities, net of acquisitions: Accounts receivable Accounts receivable from affiliates Interest receivable from affiliates Notes receivable Prepaid expenses and other Other assets Accounts payable Accrued expenses Federal and state income taxes receivable/payable Customer deposits Net cash provided by operating activities Investing Activities Capital expenditures Cash paid for acquisitions, net of cash acquired of $2,060 in 2000 and $0 in 1998 Proceeds from sale of properties Advances to affiliates Proceeds from (investments in) limited partnerships Net cash used in investing activities Year Ended December 31, 2000 1999 1998 $ 1,239 $ 4,838 $ 11,957 5,094 92 495 1,153 – 456 – 346 350 – 4,567 104 519 1,355 – 992 (115) (30) (748) 195 4,318 15,896 (955) 5,291 (1,240) (570) (1,427) 191 1,395 1,067 2,307 101 19,703 (1,012) (12,464) (645) – (60) (1,504) (268) (872) (7,704) 59 3,103 2,640 94 164 379 (680) 792 (116) (297) (422) – 500 (1,482) (7,191) (306) – 4 (1,059) 312 526 837 37 6,689 (3,121) (1,887) (6,027) (102,014) 4,504 (18,209) 2,597 (116,243) – 2,740 (22,794) 5,414 (16,527) (67,729) 676 (11,728) (1,694) (86,502) 22 C o n s o l i d a t e d S t a t e m e n t s o f C a s h F l o w s ( c o n t i n u e d ) Capital Senior Living Corporation In thousands Year Ended December 31, 2000 1999 1998 Financing Activities Proceeds from notes payable and line of credit Repayments of notes payable and line of credit Distributions to minority partners Cash received for redemption of NHP limited partnership interest Repurchase of HCP limited partnership interests by HCP Deferred financing charges paid Net cash provided by financing activities Decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 125,248 (30,033) (3,958) – – (3,730) 87,527 (9,013) 32,988 61,506 (48,981) (1,198) – – (742) 10,585 (2,839) 35,827 $ 23,975 $ 32,988 67,039 (791) – 1,997 (144) (586) 67,515 (12,298) 48,125 $ 35,827 Supplemental Disclosures Cash paid during the year for: Interest Income taxes $ 10,609 $ 619 $ 6,476 $ 10,276 $ 1,957 $ 6,935 23 Company Management Corporate Information Shareholder Information James A. Stroud Chairman of the Company Lawrence A. Cohen Chief Executive Officer Keith N. Johannessen President and Chief Operating Officer Ralph A. Beattie Executive Vice President and Chief Financial Officer Rob L. Goodpaster Vice President, National Marketing David W. Beathard Vice President, Operations Glen H. Campbell Vice President, Development David R. Brickman Vice President and General Counsel Paul T. Lee Vice President, Finance Jerry D. Lee Corporate Controller Robert F. Hollister Property Controller Board of Directors James A. Stroud1 Chairman of the Board Capital Senior Living Corporation Dallas, Texas Lawrence A. Cohen1 Vice Chairman of the Board Capital Senior Living Corporation New York, New York Keith N. Johannessen Capital Senior Living Corporation Dallas, Texas Gordon I. Goldstein, M.D.2,3 Chairman, Dallas Anesthesiology Associates Dallas, Texas Craig F. Hartberg 3 Retired First Vice President, Bank One, Texas, N.A. Dallas, Texas James A. Moore1,2,3 President, Moore Diversified Services, Inc. Fort Worth, Texas Victor W. Nee, Ph.D.2 Professor, Department of Aerospace and Mechanical Engineering, University of Notre Dame, South Bend, Indiana 1 Member of the Board’s Executive Committee 2 Member of the Board’s Compensation Committee 3 Member of the Board’s Audit Committee Corporate Headquarters Stock Exchange Listing 14160 Dallas Parkway, Suite 300 Dallas, Texas 75240 (972) 770-5600 (972) 770-5666 fax main@capitalsenior.com New York Office 237 Park Avenue, 21st Floor New York, New York 10017 (212) 551-1770 (212) 551-1774 fax Corporate Web Site http://www.capitalsenior.com Regional Information Eastern Regional Office 186 Old Stagecoach Road Ridgefield, Connecticut 06877 (203) 894-9406 (203) 894-9407 fax Southeastern Regional Office 6061 Palmetto Circle North Boca Raton, Florida 33433 (561) 417-8579 (561) 417-8376 fax Midwestern Regional Office 2820 South 80th Omaha, Nebraska 68124 (402) 926-2884 (402) 926-2891 fax Western Regional Office 5757 Cypress Avenue Carmichael, California 95608 (916) 480-0634 (916) 486-4375 fax Capital Senior Living Corporation Common Stock is listed on the New York Stock Exchange and trades under the symbol CSU. Shares Outstanding 19.7 million Transfer Agent and Registrar Mellon Investor Services LLC 85 Challenger Road Ridgefield, New Jersey 07660 (800) 635-9270 http://www.mellon-investor.com Auditors Ernst & Young LLP 2121 San Jacinto, Suite 1500 Dallas, Texas 75201 (214) 969-8000 Annual Meeting of Shareholders May 1, 2001 at 10 a.m. Central Time Addison Conference & Theater Center 15650 Addison Road Addison, Texas 75001 (972) 452-6200 Form 10-K A copy of Capital Senior Living Corporation’s 2000 annual report to the SEC on Form 10-K is available without charge upon written request to the Investor Relations Department at corporate headquarters. It can also be found on the SEC’s web site, http://www.edgar.com. 24 Capital Senior Living Corporation 14160 Dallas Parkway, Suite 300 Dallas, Texas 75240 (972) 770-5600 fax (972) 770-5666 http://www.capitalsenior.com