Sonida Senior Living
Annual Report 2015

Plain-text annual report

2015 ANNUAL REPORT Dear Fellow Shareholders: Successful execution of the Company’s clear and differentiated strategy produced growth in all of the Company’s key metrics again in 2015. In 2015, revenue increased 7.4% to $412.2 million resulting in an 8.9% increase in Adjusted EBITDAR to $144.5 million. Our Adjusted EBITDAR Margin improved 70 basis points over the prior year’s record-high annual margin to establish a new record-high annual margin of 36.6%. On a comparable basis, Adjusted CFFO increased 14.7% to $47.0 million or $1.64 per share in 2015.* We differentiate Capital Senior Living as the value leader in providing quality seniors hous- ing and care at reasonable prices. We believe we are well positioned to drive superior shareholder value with our substantially all private-pay business model in a highly- fragmented and resilient industry which benefits from long-term demographics, need-driven demand, limited competitive new supply, a solid housing market and a growing economy. Capital Senior Living is also differentiated by having the highest percentage of wholly- owned communities among the nation’s top senior living operators, owning greater than 60% of its operated communities. Our prudently financed, owned communities create sig- nificant real estate value and sustainable cash flow, which we are investing in people, train- ing, technology, systems, renovations, refurbishments, conversion of units to higher levels of care, accretive acquisitions and share repurchases, while maintaining prudent reserves. And, as a larger company in a highly fragmented industry, we benefit from economies of scale and proprietary systems that provide our operating communities with a competitive advantage in the geographically concentrated regions in which they operate. We are focused on reducing attrition and improving our key financial metrics by converting independent living units to assisted living and memory care units at more than 20 commun- ities. In 2015, we completed the first phase of conversions, with 400 independent living units converted to higher levels of care by the middle of 2015. The impact of this first phase of 400 converted units on occupancy, revenue and net operating income is already out- standing. On a combined basis, occupancy at these communities grew from 82.4% prior to conversion to 90.9% at December 31, 2015. Revenue at these communities increased 15.3% in the fourth quarter of 2015 as compared to the fourth quarter of 2014, while net operating income increased 16.7%. This first phase of 400 converted units added approximately $0.06 per share to the Company’s CFFO in 2015 and is expected to add approximately $0.20 in annual CFFO per share when fully stabilized. Another 100 independent living units were converted to higher levels of care in the second half of 2015, with 200 additional units expected to be converted to higher levels of care in 2016. These next two phases of con- versions are expected to add approximately $0.08 per share to CFFO when stabilized. In 2015, we proactively enhanced the quality of our portfolio through the selective dis- position of five non-strategic communities and the acquisition of nine high quality senior living communities in our existing geographies. The dispositions eliminated our operations in three states, allowing us to sharpen our focus and strengthen our operations in our geo- graphically concentrated regions, and provided the Company with approximately $26 mil- lion of cash for acquisitions of newer, high-performing communities. In 2015, we acquired nine communities for a combined purchase price of $162.5 million. These acquisitions are expected to generate an initial return on equity invested in excess of 15%, and meaningful increases in the Company’s revenues, earnings and real estate value, with an increase in annual CFFO of approximately $0.22 per share. As evidenced by our consistent strong operating results, competitive new supply continues to be constrained in our local markets. This confirms our value strategy with our reasonable average monthly rents acting as an economic barrier to entry for new development. Rents would have to be considerably higher than current levels to generate a reasonable return on the cost of development. As such, senior housing construction remains concentrated in select markets in which the Company has a limited presence. We believe our competitive advantage that allows us to achieve solid operating results and disciplined growth is our people and our culture. Our mission is to provide quality senior living services and care to our residents at reasonable prices. We have talented, long- tenured, and highly experienced employees who are dedicated to providing quality care to our residents. With our onsite, regional and corporate teams’ focus and discipline, I am pleased to report that our 2015 resident satisfaction results were 95%. Our talented employ- ees give us great confidence in the future of our Company and our ability to create long- term value for all of our shareholders and other stakeholders. We are well positioned to add to our success as we expect to achieve continued significant growth in CFFO, earnings and owned real estate that will lead to a meaningful increase in shareholder value. Our fundamentals are strong, and I am excited about the Company’s prospects as we benefit from our substantially all private-pay business model in a highly- fragmented and resilient industry with favorable long-term demographics, need-driven demand, limited competitive new supply, a solid housing market and a growing economy. We thank you for your support. Lawrence A. Cohen Chief Executive Officer * A Non-GAAP reconciliation is provided on Attachment A. Beginning January 1, 2015, the Company no longer includes the change in prepaid resident rent as a component of CFFO as it is a non-economic timing item. On a comparable basis, Adjusted CFFO for full-year 2014 was $41.0 million, or $1.45 per share. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One) Í ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2015 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: 1-13445 Capital Senior Living Corporation (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 14160 Dallas Parkway, Suite 300 Dallas, Texas (Address of principal executive offices) 75-2678809 (I.R.S. Employer Identification No.) 75254 (Zip Code) Registrant’s telephone number, including area code: (972) 770-5600 Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, $.01 par value per share Preferred Stock Purchase Rights Name of each exchange on which registered New York Stock Exchange New York Stock Exchange Indicate by a check mark if No Í Act. Yes ‘ Securities registered pursuant to Section 12(g) of the Act: None the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Indicate by a check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ‘ No Í 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 Í 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes Í No ‘ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Í 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 ‘ Smaller reporting company ‘ Accelerated filer Í Non-accelerated filer ‘ (Do not check if a smaller reporting company) Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ‘ No Í The aggregate market value of the 27,820,315 shares of the Registrant’s common stock, par value $0.01 per share (“Common Stock”), held by non-affiliates (defined to exclude all of the Registrant’s executive officers and directors) on December 31, 2015, based upon the adjusted closing price of the Registrant’s Common Stock as reported by the New York Stock Exchange on June 30, 2015, was approximately $681.6 million. As of February 19, 2016, the Registrant had 29,412,484 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant’s definitive proxy statement pertaining to its 2016 Annual Meeting of Stockholders and filed or to be filed not later than 120 days after the end of the fiscal year pursuant to Regulation 14A are incorporated herein by reference into Part III of this report. CAPITAL SENIOR LIVING CORPORATION TABLE OF CONTENTS Page Number PART I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 2. Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART II Item 5. Market for Registrant's Common Equity; Related Stockholder Matters and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 8. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART III Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 14. 1 17 24 24 24 24 25 28 28 49 50 50 50 51 52 52 52 52 52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Item 15. Exhibits and Financial Statement Schedules 54 Signatures Index to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1 Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1 PART IV i ITEM 1. BUSINESS. Overview PART I Capital Senior Living Corporation, a Delaware corporation (together with its subsidiaries, the “Company”), is one of the largest operators of senior living communities in the United States in terms of resident capacity. The Company and its predecessors have provided senior living services since 1990. As of December 31, 2015, the Company operated 121 senior living communities in 23 states with an aggregate capacity of approximately 15,400 residents, including 71 senior living communities which the Company owned and 50 senior living com- munities the Company leased. As of December 31, 2015, the Company also operated one home care agency. During 2015, approximately 95% of total revenues for the senior living communities operated by the Company were derived from private pay sources. The Company’s operating strategy is to provide value to its senior living residents by providing quality senior living services at reasonable prices, while achieving and sustaining a strong, competitive position within its geographically concentrated regions, as well as continuing to enhance the performance of its operations. The Company provides senior living services to the elderly, including independent living, assisted living, and home care services. Many of the Company’s communities offer a continuum of care to meet its residents’ needs as they change over time. This continuum of care, which integrates independent living and assisted living and is bridged by home care through independent home care agencies or the Company’s home care agency, sustains residents’ autonomy and independence based on their physical and mental abilities. Website The Company’s Internet website www.capitalsenior.com contains an Investor Relations section, which provides links to the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, Section 16 filings and any amendments to those reports and filings. These reports and filings are available through the Company’s Internet website free of charge as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commis- sion (“SEC”). Industry Background The senior living industry encompasses a broad and diverse range of living accommodations and supportive services that are provided primarily to persons 75 years of age or older. For the elderly who require limited services, independent living residences supplemented at times by home health care, offers a viable option. Most independent living communities typically offer community living pack- aged with basic services consisting of meals, housekeeping, laundry, 24-hour staffing, transportation, social and recreational activities and health care monitoring. Independent living residents typically are not reliant on assis- tance with activities of daily living (“ADL’s”) although some residents may contract out for those services. As a senior’s need for assistance increases, care in an assisted living residence is often preferable and more cost-effective than home-based care or nursing home care. Typically, assisted living represents a combination of housing and support services designed to aid elderly residents with ADL’s such as ambulation, bathing, dressing, eating, grooming, personal hygiene and monitoring or assistance with medications. Certain assisted living resi- dences may also provide assistance to residents with low acuity medical needs, or may offer higher levels of personal assistance for incontinent residents or residents with Alzheimer’s disease or other cognitive or physical frailties. Generally, assisted living residents require higher levels of care than residents of independent living residences and retirement living centers, but require lower levels of care than patients in skilled nursing facilities. For seniors who need the constant attention of a skilled nurse or medical practitioner, a skilled nursing facility may be required. According to the American Seniors Housing Association Seniors Housing Construction Monitor report for Winter 2016, as of the fourth quarter of fiscal 2015, 19.9% of the age-restricted seniors housing supply in the 1 United States were assisted living units, 22.7% were independent living units, 51.8% were nursing care units, and 5.6% were memory care units. The senior living industry is highly fragmented and characterized by numerous small operators. Moreover, the scope of senior living services varies substantially from one operator to another. Many smaller senior living providers do not operate purpose-built residences, do not have extensive professional training for staff and pro- vide only limited assistance with ADLs. The Company believes that many senior living operators do not provide the required comprehensive range of senior living services designed to permit residents to “age in place” within the community as residents develop further physical or cognitive frailties. The Company believes that a number of demographic, regulatory and other trends will contribute to the continued growth in the senior living market, including the following: Consumer Preference The Company believes that senior living communities are increasingly becoming the setting preferred by prospective residents and their families for the care of the elderly. Senior living offers residents greater independence and allows them to “age in place” in a residential setting, which the Company believes results in a higher quality of life than that experienced in more institutional or clinical settings. The likelihood of living alone increases with age. Most of this increase is due to an aging population in which women outlive men. Societal changes, such as high divorce rates and the growing numbers of persons choosing not to marry, have further increased the number of Americans living alone. This growth in the number of elderly living alone has resulted in an increased demand for services that historically have been provided by a spouse, other family members or live-in caregivers. Demographics The primary market for the Company’s senior living services is comprised of persons aged 75 and older. This age group is one of the fastest growing segments of the United States population. The older population itself is increasingly older. In 2011, the 75-84 age group (12.8 million) was 16 times larger than in 1900 and the 85 and over age group (5.7 million) was 40 times larger. The 85 and over population is projected to triple from 5.7 million in 2011 to 14.1 million in 2040. As the number of persons aged 75 and older continues to grow, the Company believes that there will be corresponding increases in the number of persons who need assistance with ADLs. Senior Affluence The average net worth of senior citizens is typically higher than non-senior citizens, partially as a result of accumulated equity through home ownership. The Company believes that a substantial portion of the senior population has historically accumulated significant resources available for their retirement and long-term care needs. The Company’s target population is comprised of moderate to upper income seniors who have, either directly or indirectly through familial support, the financial resources to pay for senior living communities, including an assisted living alternative to traditional long-term care. Reduced Reliance on Family Care Historically, the family has been the primary provider of care for seniors. The Company believes that the increase in the percentage of women in the work force, the reduction of average family size, and overall increased mobility in society is reducing the role of the family as the traditional caregiver for aging parents. The Company believes that these factors will make it necessary for many seniors to look outside the family for assis- tance as they age. Restricted Supply of Nursing Beds Several states in the United States have adopted Certificate of Need (“CON”) or similar statutes generally requiring that, prior to the addition of new skilled nursing beds, the addition of new services, or the making of 2 certain capital expenditures, a state agency must determine that a need exists for the new beds or the proposed activities. The Company believes that this CON process tends to restrict the supply and availability of licensed nursing facility beds. High construction costs, limitations on government reimbursement, and start-up expenses also act to constrain growth in the supply of such facilities. At the same time, nursing facility operators are con- tinuing to focus on improving occupancy and expanding services to sub-acute patients generally of a younger age and requiring significantly higher levels of nursing care. As a result, the Company believes that there has been a decrease in the number of skilled nursing beds available to patients with lower acuity levels and that this trend should increase the demand for the Company’s senior living communities, including, particularly, the Company’s assisted living communities. Cost-Containment Pressures In response to rapidly rising health care costs, governmental and private pay sources have adopted cost containment measures that have reduced admissions and encouraged reduced lengths of stays in hospitals and other acute care settings. Private insurers have begun to limit reimbursement for medical services in general to predetermined charges, and managed care organizations (such as health maintenance organizations) are attempt- ing to limit hospitalization costs by negotiating for discounted rates for hospital and acute care services and by monitoring and reducing hospital use. In response, hospitals are discharging patients earlier and referring elderly patients, who may be too sick or frail to manage their lives without assistance, to nursing homes and assisted living residences where the cost of providing care is typically lower than hospital care. In addition, third-party payors are increasingly becoming involved in determining the appropriate health care settings for their insureds or clients, based primarily on cost and quality of care. Based on industry data, the typical day-rate in an assisted living facility is two-thirds of the cost for comparable care in a nursing home. Operating Strategy The Company’s operating strategy is to provide value to its senior living residents by providing quality senior living services at reasonable prices, while achieving and sustaining a strong, competitive position within its geographically concentrated regions, as well as continuing to enhance the performance of its operations. The Company is implementing its operating strategy principally through the following methods: Provide a Broad Range of Quality Personalized Care Central to the Company’s operating strategy is its focus on providing quality care and services that are per- sonalized and tailored to meet the individual needs of each community resident. The Company’s residences and services are designed to provide a broad range of care that permits residents to “age in place” as their needs change and as they develop further physical or cognitive frailties. By creating an environment that maximizes resident autonomy and provides individualized service programs, the Company seeks to attract seniors at an ear- lier stage, before they need the higher level of care provided in a skilled nursing facility. The Company also maintains a comprehensive quality assurance program designed to ensure the satisfaction of its residents and their family members. The Company conducts annual resident satisfaction surveys that allow residents at each community to express whether they are “very satisfied,” “satisfied” or “dissatisfied” with all major areas of a community, including, housekeeping, maintenance, activities and transportation, food service, security and management. In 2015 and 2014, the Company achieved 95% and 94%, respectively, overall approval ratings from the residents’ satisfaction surveys. Offer Services Across a Range of Pricing Options The Company’s range of products and services is continually expanding to meet the evolving needs of its residents. The Company has developed a menu of products and service programs that may be further customized to serve both the moderate and upper income markets of a particular targeted geographic area. By offering a range of pricing options that are customized for each target market, the Company believes that it can develop synergies, economies of scale and operating efficiencies in its efforts to serve a larger percentage of the elderly population within a particular geographic market. 3 Improve Occupancy Rates The Company continually seeks to maintain and improve occupancy rates by: (i) retaining residents as they “age in place” by extending optional care and service programs and converting existing units to higher levels of care; (ii) attracting new residents through the on-site marketing programs focused on residents and family mem- bers; (iii) selecting communities in underserved markets; (iv) aggressively seeking referrals from professional community outreach sources, including area religious organizations, senior social service programs, civic and business networks, as well as the medical community; and (v) continually refurbishing and renovating its com- munities. Improve Operating Efficiencies The Company seeks to improve operating efficiencies at its communities by actively monitoring and manag- ing operating costs. By having an established portfolio of communities in geographically concentrated regions throughout the United States with regional management in place, the Company believes it has established a plat- form to achieve operating efficiencies through economies of scale in the purchase of bulk items, such as food and supplies, and in the spreading of fixed costs, such as corporate overhead, over a larger revenue base, and to pro- vide more effective management supervision and financial controls. The Company’s growth strategy includes acquiring additional communities within our geographically concentrated regions to achieve further efficiencies. Emphasize Employee Training and Retention The Company devotes special attention to the hiring, screening, training, supervising and retention of its employees and caregivers to ensure that quality standards are achieved. In addition to normal on-site training, the Company conducts national management meetings and encourages sharing of expertise among managers. The Company has also implemented a comprehensive online training program that addresses the specific challenges of working within the senior living environment. The Company’s commitment to the total quality management concept is emphasized throughout its training programs. This commitment to the total quality management con- cept means identification of the “best practices” in the senior living market and communication of those “best practices” to the Company’s executive directors and their staff. The identification of best practices is realized by a number of means, including: emphasis on regional and executive directors keeping up with professional trade publications; interaction with other professionals and consultants in the senior living industry through seminars, conferences and consultations; visits to other properties; leadership and participation at national and local trade organization events; and information derived from marketing studies and resident satisfaction surveys. This information is continually processed by regional managers and the executive directors and communicated to the Company’s employees as part of their training. The Company hires an executive director for each of its commun- ities and provides them with autonomy, responsibility and accountability. The Company’s staffing of each community with an executive director allows it to hire more professional employees at these positions, while the Company’s developed career path helps it to retain the professionals it hires. The Company believes its commit- ment to and emphasis on employee training and retention differentiates the Company from many of its com- petitors. Senior Living Services The Company provides senior living services to the elderly, including independent living and assisted living services, and also provides home care services at one of its communities. By offering a variety of services and encouraging the active participation of the resident and the resident’s family and medical consultants, the Com- pany is able to customize its service plan to meet the specific needs and desires of each resident. Additionally, the Company is actively working to expand service offerings through conversions of existing units to higher lev- els of care. As a result, the Company believes that it is able to maximize customer satisfaction and avoid the high cost of delivering unnecessary services to residents. The Company’s operating philosophy is to provide quality senior living communities and services to senior citizens and deliver a continuum of care for its residents as their needs change over time. This continuum of care, living and assisted living and is bridged by home care, sustains residents’ which integrates independent 4 autonomy and independence based on their physical and mental abilities. As residents age, in many of the Company’s communities, they are able to obtain the additional services they need within the same community, avoiding the disruptive and often traumatic move to a different facility. Independent Living Services The Company provides independent living services to seniors who typically do not yet need assistance or support with ADLs, but who prefer the physical and psychological comfort of a residential community that offers health care and other services. As of December 31, 2015, the Company owned 34 communities and leased 19 communities that provide independent living services, which include communities that combine assisted living and other services, with an aggregate capacity for approximately 6,800 residents. Independent living services provided by the Company include daily meals, transportation, social and recrea- tional activities, laundry, housekeeping and 24-hour staffing. The Company also fosters the wellness of its resi- dents by offering access to health screenings (such as blood pressure checks), periodic special services (such as influenza inoculations), dietary and similar programs, as well as ongoing exercise and fitness classes. Classes are given by health care professionals to keep residents informed about health and disease management. Subject to applicable government regulation, personal care and medical services are available to independent living resi- dents through either the community staff or through the Company’s agency or other independent home care agencies. The Company’s independent living residents pay a fee ranging from $1,100 to $6,600 per month, in general, depending on the specific community, program of services, size of the unit and amenities offered. The Company’s contracts with its independent living residents are generally for a term of one year and are typically terminable by either party, under certain circumstances, upon providing 30 days’ notice. Assisted Living Services The Company offers a wide range of assisted living care and services, including personal care services, 24- hour staffing, support services, and supplemental services. As of December 31, 2015, the Company owned 57 communities and leased 41 communities that provide assisted living services, which include communities that combine independent living and other services, with an aggregate capacity for approximately 8,600 residents. The residents of the Company’s assisted living residences generally need help with some or all ADLs, but do not require the more acute medical care traditionally given in nursing homes. Upon admission to the Company’s assisted living communities, and in consultation with the resident, the resident’s family and medical consultants, each resident is assessed to determine his or her health status, including functional abilities and need for personal care services. The resident also completes a lifestyles assessment to determine the resident’s preferences. From these assessments, a care plan is developed for each resident to ensure that all staff members who render care meet the specific needs and preferences of each resident where possible. Each resident’s care plan is reviewed periodically to determine when a change in care is needed. The Company has adopted a philosophy of assisted living care that allows a resident to maintain a dignified independent lifestyle. Residents and their families are encouraged to be partners in the residents’ care and to take as much responsibility for their well-being as possible. The basic types of assisted living services offered by the Company include the following: Personal Care Services. These services include assistance with ADLs such as ambulation, bathing, dressing, eating, grooming, personal hygiene, and monitoring or assistance with medications. Support Services. These services include meals, assistance with social and recreational activities, laundry services, general housekeeping, maintenance services and transportation services. Supplemental Services. These services include extra transportation services, personal maintenance, extra laundry services, and special care services, such as services for residents with certain forms of dementia. Certain of these services require extra charges. The Company’s assisted living residents pay a fee ranging from $1,400 to $8,400 per month, in general, depending on the specific community, the level of personal care services, support service and supplemental serv- 5 ices provided to the resident, size of the unit and amenities offered. The Company’s contracts with its assisted living residents are generally for a term of one year and are typically terminable by either party, under certain circumstances, upon 30 days’ notice unless state law stipulates otherwise. The Company maintains programs and special units at some of its assisted living communities for residents with certain forms of dementia, which provide the attention, care and services needed to help those residents maintain a higher quality of life. Specialized services include assistance with ADLs, behavior management and life skills based activities programs, the goal of which is to provide a normalized environment that supports resi- dents’ remaining functional abilities. Whenever possible, residents assist with meals, laundry and housekeeping. Special units for residents with certain forms of dementia are located in a separate area of the community and have their own dining facilities, resident lounge areas, and specially trained staff. The special care areas are designed to allow residents the freedom to ambulate as they wish, while keeping them safely contained within a secure area with a minimum of disruption to other residents. Resident fees for these special units are dependent on the size of the unit, the design type and the level of services provided. Home Care Services As of December 31, 2015, the Company provided home care services to clients at one senior living commun- ity through the Company’s home care agency and made home care services available to clients at a majority of its senior living communities through third-party providers. The Company believes that the provision of private pay, home care services is an attractive adjunct to its independent living services because it allows the Company to make available more services to its residents as they age in place and increases the length of stay in the Company’s communities. In addition, the Company makes available to residents certain customized physician, dentistry, podiatry and other health-related rehabilitation and therapy services that may be offered by third-party providers. Operating Communities The table below sets forth certain information with respect to senior living communities operated by the Company as of December 31, 2015. Community Owned: Resident Capacity1 Units IL AL Total Ownership Commencement of Operations2 Aspen Grove . . . . . . . . . . . . . . . . . . . . . . . . . Lamberville, MI Autumn Glen . . . . . . . . . . . . . . . . . . . . . . . . Greencastle, IN Brookview Meadows . . . . . . . . . . . . . . . . . . Green Bay, WI Canton Regency . . . . . . . . . . . . . . . . . . . . . . Canton, OH Chateau of Batesville . . . . . . . . . . . . . . . . . . Batesville, IN Country Charm . . . . . . . . . . . . . . . . . . . . . . . Greenwood, IN Indianapolis, IN Country Charm Village . . . . . . . . . . . . . . . . Courtyards at Lake Granbury . . . . . . . . . . . . Granbury, TX Good Tree Retirement and Memories . . . . . Stephenville, TX Gramercy Hill . . . . . . . . . . . . . . . . . . . . . . . . Lincoln, NE Greenbriar Village . . . . . . . . . . . . . . . . . . . . Harbor Court Heritage at the Plains at Parish . . . . . . . . . . . . . . . . . . . . . . . . Rocky River, OH Indianapolis, IN Homestead . . . . . . . . . . . . . . . . . . . . . . . . Oneonta, NY Independence Village of Peoria . . . . . . . . . . Peoria, IL Keystone Woods Assisted Living . . . . . . . . Anderson, IN Laurel Hurst Laurel Woods . . . . . . . . . . . . . Columbus, NC Marquis Place of Elkhorn . . . . . . . . . . . . . . . Elkhorn, NE Middletown . . . . . . . . . . . . . . . . . . . . . . . . . Middletown, OH Montclair . . . . . . . . . . . . . . . . . . . . . . . . . . . Springfield, MO North Pointe . . . . . . . . . . . . . . . . . . . . . . . . . Anderson, SC 6 83 78 — 52 — 64 78 — 156 145 239 162 41 — 43 90 — 166 73 — 105 81 — 112 75 20 60 146 103 62 124 — 134 122 — 144 53 97 166 — 108 158 50 — 102 70 64 — 61 — 158 70 — 70 60 69 75 178 — 70 83 64 156 307 43 166 105 112 95 165 134 144 150 166 70 130 69 75 178 70 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 03/14 06/13 01/15 03/91 10/12 10/12 10/12 03/12 03/12 10/98 08/15 12/12 05/15 08/00 07/11 10/11 03/13 09/13 12/12 10/11 Community Resident Capacity1 Units IL AL Total Ownership Commencement of Operations2 Park-Oak Grove . . . . . . . . . . . . . . . . . . . . . . Roanoke, VA River Crossing Assisted Living . . . . . . . . . . Charlestown, IN Riverbend Independent and Assisted Jeffersonville, IN Irving, TX Living . . . . . . . . . . . . . . . . . . . . . . . . . . . . Remington at Valley Ranch . . . . . . . . . . . . . Residence of Chardon . . . . . . . . . . . . . . . . . Chardon, OH Sugar Grove . . . . . . . . . . . . . . . . . . . . . . . . . Plainfield, IN Summit Place . . . . . . . . . . . . . . . . . . . . . . . . Anderson, SC Summit Point Living . . . . . . . . . . . . . . . . . . Macedonia, OH Towne Centre Retirement Community . . . . Merrillville, IN Vintage Gardens . . . . . . . . . . . . . . . . . . . . . . St. Joseph, MO Waterford at Baytown . . . . . . . . . . . . . . . . . Baytown, TX Waterford at Bridle Brook . . . . . . . . . . . . . . Mahomet, IL Waterford at College Station . . . . . . . . . . . . College Station, TX Waterford at Columbia . . . . . . . . . . . . . . . . . Columbia, SC Waterford at Corpus Christi . . . . . . . . . . . . . Corpus Christi, TX Waterford at Deer Park . . . . . . . . . . . . . . . . Deer Park, TX Waterford at Dillon Pointe . . . . . . . . . . . . . . Spartanburg, SC Waterford at Edison Lakes . . . . . . . . . . . . . . South Bend, IN Waterford at Fairfield . . . . . . . . . . . . . . . . . . Fairfield, OH Waterford at Fitchburg . . . . . . . . . . . . . . . . . Fitchburg, WI Waterford at Fort Worth . . . . . . . . . . . . . . . . Fort Worth, TX Waterford at Hartford . . . . . . . . . . . . . . . . . . Hartford, WI Waterford at Hidden Lake . . . . . . . . . . . . . . Canton, GA Waterford at Highland Colony . . . . . . . . . . . Jackson, MS Waterford at Ironbridge . . . . . . . . . . . . . . . . Springfield, MO Waterford at Levis Commons . . . . . . . . . . . Toledo, OH Waterford at Mansfield . . . . . . . . . . . . . . . . Mansfield, OH Waterford at Mesquite . . . . . . . . . . . . . . . . . Mesquite, TX Waterford at Oakwood . . . . . . . . . . . . . . . . . Oakwood, GA Waterford at Oshkosh . . . . . . . . . . . . . . . . . Oshkosh, WI Waterford at Pantego . . . . . . . . . . . . . . . . . . Pantego, TX Waterford at Plano . . . . . . . . . . . . . . . . . . . . Plano, TX Waterford at Plymouth . . . . . . . . . . . . . . . . . Plymouth, WI Waterford at Richmond Heights . . . . . . . . . Richmond Heights, OH Waterford at Thousand Oaks . . . . . . . . . . . . San Antonio, TX Waterford at Virginia Beach . . . . . . . . . . . . Virginia Beach, VA Waterford at West Bend . . . . . . . . . . . . . . . . West Bend, WI Waterford on Cooper . . . . . . . . . . . . . . . . . . Arlington, TX Waterford on Huebner . . . . . . . . . . . . . . . . . San Antonio, TX Wellington at Arapaho . . . . . . . . . . . . . . . . . Richardson, TX Wellington at Conroe . . . . . . . . . . . . . . . . . . Conroe, TX Wellington at Dayton . . . . . . . . . . . . . . . . . . Dayton, OH Wellington at Kokomo . . . . . . . . . . . . . . . . . Kokomo, IN Wellington at North Richland Hills . . . . . . . North Richland 93 — 164 100 — 106 158 — 112 — 114 127 52 42 — 116 48 164 89 19 91 98 126 163 75 163 210 92 44 102 129 132 18 78 — 120 53 — 87 117 141 — 50 — 56 144 — 120 55 36 — 96 116 45 120 140 — 82 — 150 177 — 151 53 39 — 98 49 — 143 — 119 142 — 118 44 163 146 97 45 118 176 — 153 70 64 — 90 — 109 119 135 69 — 143 — 57 109 82 110 117 135 — 148 119 111 — 138 40 — 41 105 — 151 119 140 44 149 135 — 57 113 35 25 94 146 99 96 — 164 106 114 158 52 164 108 224 238 136 150 120 87 141 56 144 55 141 140 150 177 53 98 143 142 207 142 176 70 109 143 166 82 227 135 138 41 151 135 170 60 240 99 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 08/14 12/13 03/12 04/12 10/12 12/13 10/11 08/11 03/91 05/13 03/15 09/15 03/12 11/00 10/12 11/00 12/13 12/00 11/00 10/13 06/00 05/15 12/14 11/00 06/01 04/09 10/00 09/99 09/13 08/14 12/00 12/00 08/14 04/09 05/00 10/15 05/15 03/12 04/99 05/02 03/12 08/08 07/11 Hills, TX 119 139 — 139 100% 01/02 7 Community Resident Capacity1 Units IL AL Total Ownership Commencement of Operations2 Whispering Pines Village . . . . . . . . . . . . . . . Columbiana, OH Whitcomb House . . . . . . . . . . . . . . . . . . . . . Milford, MA Woodlands of Columbus . . . . . . . . . . . . . . . Columbus, OH Woodlands of Hamilton . . . . . . . . . . . . . . . . Hamilton, OH Woodlands of Shaker Heights . . . . . . . . . . . Shaker Heights, OH Woodview Assisted Living . . . . . . . . . . . . . Fort Wayne, IN Wynnfield Crossing Assisted Living . . . . . . Rochester, IN 88 68 24 68 — 87 116 — 117 87 — 100 66 — 85 88 — 130 79 59 — 112 87 117 100 85 130 79 100% 100% 100% 100% 100% 100% 100% 7,172 3,836 5,247 9,083 Leased: Ventas: Amberleigh . . . . . . . . . . . . . . . . . . . . . . . . Buffalo, NY Cottonwood Village . . . . . . . . . . . . . . . . . Cottonwood, AZ Crown Pointe . . . . . . . . . . . . . . . . . . . . . . Omaha, NE Georgetowne Place . . . . . . . . . . . . . . . . . . Fort Wayne, IN Harrison at Eagle Valley3 . . . . . . . . . . . . . Indianapolis, IN Independence Village of East Lansing . . . East Lansing, MI Independence Village of Olde Raleigh . . Raleigh, NC Rose Arbor . . . . . . . . . . . . . . . . . . . . . . . . Maple Grove, MN Villa Santa Barbara . . . . . . . . . . . . . . . . . Santa Barbara, CA West Shores . . . . . . . . . . . . . . . . . . . . . . . Hot Springs, AR Whitley Place . . . . . . . . . . . . . . . . . . . . . . Keller, TX HCN: Azalea Trails Assisted Living . . . . . . . . . Tyler, TX Buffalo Creek Assisted Living . . . . . . . . . Waxahachie, TX Dogwood Trails Assisted Living . . . . . . . Palestine, TX Hawkins Creek Assisted Living . . . . . . . . Longview, TX Hearth at Prestwick . . . . . . . . . . . . . . . . . Avon, IN Hearth at Windermere . . . . . . . . . . . . . . . Fishers, IN Heritage Oaks Assisted Living . . . . . . . . . Conroe, TX Keepsake Village of Columbus . . . . . . . . Columbus, IN Magnolia Court Assisted Living . . . . . . . Nacogdoches, TX Martin Crest Assisted Living . . . . . . . . . . Weatherford, TX Pecan Point Assisted Living . . . . . . . . . . . Sherman, TX Santa Fe Trails Assisted Living . . . . . . . . Cleburne, TX Spring Lake Assisted Living . . . . . . . . . . Paris, TX Spring Meadows Libertyville . . . . . . . . . . Libertyville, IL Spring Meadows Naperville . . . . . . . . . . . Naperville, IL Spring Meadows at Summit . . . . . . . . . . . Summit, NJ Spring Meadows at Trumbull . . . . . . . . . . Trumbull, CT Stonefield Assisted Living . . . . . . . . . . . . McKinney, TX Walnut Creek Assisted Living . . . . . . . . . Mansfield, TX Waterford at Ames . . . . . . . . . . . . . . . . . . Ames, IA Waterford at Miracle Hills . . . . . . . . . . . . Omaha, NE Waterford at Roxbury Park . . . . . . . . . . . Omaha, NE Waterford at Van Dorn . . . . . . . . . . . . . . . Lincoln, NE Waterford at Woodbridge . . . . . . . . . . . . Plattsmouth, NE 8 267 163 135 159 124 149 167 144 125 137 387 — 58 131 85 80 242 — 138 — 161 — 177 — 86 64 131 47 — 87 62 42 65 70 56 — 70 56 — 75 65 — 56 — 70 136 — 150 128 — 150 90 75 — 48 46 — 70 56 — 86 56 — 70 56 — 86 56 — 70 56 — 45 208 198 45 186 197 98 89 — 42 148 136 90 75 — 56 — 70 60 — 122 70 63 — 70 65 — 84 69 — 45 40 — 387 189 165 242 138 161 177 173 126 173 65 70 70 75 70 150 150 90 48 70 86 70 86 70 253 231 98 178 90 70 122 70 70 84 45 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 07/15 10/13 10/12 10/12 10/12 12/13 07/11 01/92 03/91 08/00 10/05 03/91 08/00 08/00 06/06 08/00 08/00 02/08 09/10 09/10 09/10 09/10 08/06 08/06 09/10 08/06 09/10 09/10 09/10 09/10 09/10 04/11 04/11 04/11 04/11 09/10 09/10 02/06 03/06 02/06 02/06 02/06 Community HCP: . . . . . . . . . . . . . . . Sacramento, CA Atrium of Carmichael Charlotte Square . . . . . . . . . . . . . . . . . . . . Charlotte, NC Chesapeake Place . . . . . . . . . . . . . . . . . . . Chesapeake, VA Covenant Place of Abilene . . . . . . . . . . . . Abilene, TX Covenant Place of Burleson . . . . . . . . . . . Burleson, TX Covenant Place of Waxahachie . . . . . . . . Waxahachie, TX Crescent Place . . . . . . . . . . . . . . . . . . . . . Cedar Hill, TX Crescent Point . . . . . . . . . . . . . . . . . . . . . Cedar Hill, TX Crosswood Oaks . . . . . . . . . . . . . . . . . . . . Sacramento, CA Good Place . . . . . . . . . . . . . . . . . . . . . . . . North Richland Hills, TX Greenville Place . . . . . . . . . . . . . . . . . . . . Greenville, SC Meadow Lakes . . . . . . . . . . . . . . . . . . . . . North Richland Hills, TX Myrtle Beach Estates . . . . . . . . . . . . . . . . Myrtle Beach, SC Tesson Heights . . . . . . . . . . . . . . . . . . . . . St. Louis, MO Veranda Club . . . . . . . . . . . . . . . . . . . . . . Boca Raton, FL Resident Capacity1 Units IL AL Total Ownership Commencement of Operations2 155 — 151 120 — 125 103 — 153 55 50 — 80 74 — 55 50 — 80 — 85 111 121 134 — 127 — 72 — 80 102 — 153 145 — 119 108 — 142 72 134 184 97 129 186 155 125 153 55 80 55 85 134 127 80 153 145 142 206 226 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 01/92 12/06 12/06 08/04 08/04 08/04 11/05 08/04 01/92 08/04 12/06 08/04 12/06 10/98 01/92 6,333 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,378 6,792 8,624 15,416 5,206 2,956 3,377 Total (1) Independent living (IL) residences and assisted living (AL) residences based on community licensure. (2) Indicates the date on which the Company acquired or commenced operating the community. The Company operated certain of its communities pursuant to management agreements prior to acquiring interests in or leasing the communities. (3) The Company’s home care agency is on-site at The Harrison at Eagle Valley community. Management Contracts The Company was party to a series of property management agreements (the “SHPIII/CSL Management Agreements”) with three joint ventures (collectively “SHPIII/CSL”) owned 90% by Senior Housing Partners III, L.P. (“SHPIII”), a fund managed by Prudential Investment Management, Inc. (“Prudential Investment”) and 10% by the Company, which collectively owned and operated three senior living communities. The SHPIII/CSL Management Agreements were for initial terms of ten years from the date the certificate of occupancy was issued and extended until various dates through January 2019. The SHPIII/CSL Management Agreements generally provided for management fees of 5% of gross revenue plus reimbursement for costs and expenses related to the communities. On June 30, 2014, the Company acquired 100% of the member interests in these joint ventures. For additional information refer to Note 4, “Acquisitions”, within the notes to consolidated financial statements. Growth Strategies The Company believes that the fragmented nature of the senior living industry and the limited capital resources available to many small, private operators provide an attractive opportunity for the Company to expand its existing base of senior living operations. The Company believes that its current operations with geographic concentrations throughout the United States serve as the foundation on which the Company can build senior liv- ing networks in targeted geographic markets and thereby provide a broad range of high quality care in a cost- efficient manner. 9 The following are the principal elements of the Company’s clear and differentiated growth strategy: Organic Growth The Company intends to continue to focus on its occupancy, rents and operating margins of its stabilized communities. The Company continually seeks to improve occupancy rates and increase average rents by: (i) retaining residents as they “age in place” by extending optional care and service programs and converting existing units to higher levels of care; (ii) attracting new residents through the on-site marketing programs focused on residents and family members and utilizing technology to enhance Internet marketing; (iii) aggressively seeking referrals from professional community outreach sources, including area religious orga- nizations, senior social service programs, civic and business networks, as well as the medical community; and (iv) continually refurbishing and renovating its communities. Expansion and Conversions of Existing Communities The Company intends to increase levels of care and capacity at certain of its existing communities through expansion and/or conversions of certain units. Increasing our levels of care and capacity is expected to increase revenue and operating income while meeting the needs of our residents who have an average age of 85 years. Pursue Strategic Acquisitions The Company intends to continue to pursue acquisitions of senior living communities. Through strategic acquisitions, joint venture investments, or facility leases, the Company seeks to acquire communities in existing geographically concentrated regions as a means to increase market share, augment existing clusters, strengthen its ability to provide a broad range of care, and create operating efficiencies. As the industry continues to con- solidate, the Company believes that opportunities will arise to acquire other senior living companies. The Com- pany believes that the current fragmented nature of the senior living industry, combined with the Company’s financial resources, geographically concentrated regions, and extensive contacts within the industry, should pro- vide it with the opportunity to evaluate a number of potential acquisition opportunities in the future. In reviewing acquisition opportunities, the Company will consider, among other things, geographic location, competitive climate, reputation and quality of management and communities, and the need for renovation or improvement of the communities. Expand Referral Networks The Company intends to continue to develop relationships with local and regional hospital systems, man- aged care organizations and other referral sources to attract new residents to the Company’s communities. In certain circumstances these relationships may involve strategic alliances or joint ventures. The Company believes that such arrangements or alliances, which could range from joint marketing arrangements to priority transfer agreements, will enable it to be strategically positioned within the Company’s markets if, as the Company believes, senior living programs become an integral part of the evolving health care delivery system. Operations Centralized Management The Company centralizes its corporate and other administrative functions so that the community-based management and staff can focus their efforts on resident care. The Company maintains centralized accounting, finance, human resources, training and other operational functions at its national corporate office in Dallas, Texas. The Company also has a corporate office in New York, New York. The Company’s corporate offices are generally responsible for: (i) establishing Company-wide policies and procedures relating to, among other things, resident care and operations; (ii) performing accounting functions; (iii) developing employee training programs and materials; (iv) coordinating human resources; (v) coordinating marketing functions; and (vi) providing strategic direction. In addition, financing, development, construction and acquisition activities, including feasi- bility and market studies, and community design, development, and construction management are conducted at the Company’s corporate offices. 10 The Company seeks to control operational expenses for each of its communities through proprietary expense management systems, standardized management reporting and centralized controls of capital expenditures, asset replacement tracking, and purchasing for larger and more frequently used supplies and food inventories through group purchasing programs. Community expenditures are monitored by regional and district managers who are accountable for the resident satisfaction and financial performance of the communities in their region. Regional Management The Company provides oversight and support to each of its senior living communities through experienced regional and district managers. A district manager will generally oversee the marketing and operations of three to seven communities clustered in a small geographic area. A regional manager will generally cover a larger geo- graphic area consisting of eight to thirteen communities. In most cases, the district and regional managers will office out of the Company’s senior living communities. Currently, there are district and regional managers based in the East, Central Plains, South Central, Dallas, Indiana, Midwest, Texas, Southwest, and West regions. The executive director at each community reports to a regional or district manager. The regional and district managers report on the operations of each community directly to senior management at the Company’s corporate office. The district and regional managers make regular site visits to each of their assigned communities. The site visits involve a physical plant inspection, quality assurance review, staff training, financial and systems audits, regulatory compliance, and team building. Community-Based Management An executive director manages the day-to-day operations at each senior living community, including over- sight of the quality of care, delivery of resident services, and monitoring of financial performance. The executive director is also responsible for all personnel, including food service, maintenance, activities, security, assisted living, housekeeping, and, where applicable, nursing or care services. In most cases, each community also has department managers who direct the environmental services, nursing or care services, business management functions, dining services, activities, transportation, housekeeping, and marketing functions. The assisted living component of the senior living communities is managed by licensed professionals, such as a nurse and/or a licensed administrator. These licensed professionals have many of the same operational responsibilities as the Company’s executive directors, but their primary responsibility is to oversee resident care. Many of the Company’s senior living communities are part of a campus setting, which include independent liv- ing. This campus arrangement allows for cross-utilization of certain support personnel and services, including administrative functions that result in greater operational efficiencies and lower costs than freestanding facilities. The Company actively recruits personnel to maintain adequate staffing levels at its existing communities and hires new staff for new or acquired communities prior to opening. The Company has adopted comprehensive recruiting and screening programs for management positions that utilize corporate office team interviews and thorough background and reference checks. The Company offers system-wide training and orientation for all of its employees at the community level through a combination of Company-sponsored seminars and conferences. Quality Assurance Quality assurance programs are coordinated and implemented by the Company’s corporate and regional staff. The Company’s quality assurance is targeted to achieve maximum resident and resident family member satisfaction with the care and services delivered by the Company. The Company’s primary focus in quality con- trol monitoring includes routine in-service training and performance evaluations of caregivers and other support employees. Additional quality assurance measures include: Resident and Resident’s Family Input. On a routine basis, the Company provides residents and their fam- ily members the opportunity to provide valuable input regarding the day-to-day delivery of services. On-site management at each community has fostered and encouraged active resident councils and resident committees who meet independently. These resident bodies meet with on-site management on a monthly basis to offer input and suggestions as to the quality and delivery of services. Additionally, at each community the Company con- 11 ducts annual resident satisfaction surveys to further monitor the satisfaction levels of both residents and their family members. These surveys are sent directly to a third party firm for tabulation, then to the Company’s corporate headquarters for distribution to onsite staff. In fiscal 2015 and 2014, the Company achieved 95% and 94%, respectively, approval ratings from its residents. For any departmental area of service scoring below 90%, a corrective action plan is developed jointly by on-site, regional and corporate staff for immediate implementation. Regular Community Inspections. Each community is inspected, on at least a quarterly basis, by regional and/or corporate staff. Included as part of this inspection is the monitoring of the overall appearance and main- tenance of the community interiors and grounds. The inspection also includes monitoring staff professionalism and departmental reviews of maintenance, housekeeping, activities, transportation, marketing, administration and food and health care services, if applicable. The inspections also include observing residents in their daily activ- ities and the community’s compliance with government regulations. Independent Service Evaluations. The Company engages the services of outside professional independent consulting firms to evaluate various components of the community operations. These services include mystery shops, competing community analysis, pricing recommendations and product positioning. This provides management with valuable unbiased product and service information. A plan of action regarding any areas requiring improvement or change is implemented based on information received. At communities where health care is delivered, these consulting service reviews include the on-site handling of medications, record keeping and general compliance with all governmental regulations. Sales and Marketing Most communities are staffed by on-site sales directors and additional marketing/sales staff depending on the community size and occupancy status. The primary focus of the on-site marketing staff is to create awareness of the Company and its services among prospective residents and family members, professional referral sources and other key decision makers. These efforts incorporate an aggressive marketing plan to include monthly, quar- terly and annual goals for leasing, new lead generation, prospect follow up, community outreach and resident and family referrals. Additionally, the marketing plan includes a calendar of promotional events and a comprehensive media program. On-site marketing departments perform a competing community assessment quarterly. Corporate and regional marketing directors monitor the on-site marketing departments’ effectiveness and productivity on a weekly basis. Routine detailed marketing department audits are performed on annual monthly basis or more frequently if deemed necessary. Corporate and regional personnel assist in the development of marketing strat- egies for each community to address the continuously changing resident profile and maintain a focus on building brand awareness and increasing Internet website traffic and leads. The marketing strategies developed utilize the implementation of application program interface systems with certain website and Internet referral partners and the production of creative media and necessary marketing collateral. The Company has also implemented numerous Internet web-based initiatives to attract prospects including certain e-mail and website triggers prompt- ing interactive invitations with on-going follow-ups, as well as a nurturing program to actively engage prospects throughout the marketing/sales cycle. Ongoing sales training of on-site marketing/sales staff is implemented by corporate and regional marketing directors. Government Regulation Changes in existing laws and regulations, adoption of new laws and regulations and new interpretations of existing laws and regulations could have a material effect on the Company’s operations. Failure by the Company to comply with applicable regulatory requirements could have a material adverse effect on the Company’s busi- ness, financial condition, cash flows, and results of operations. Accordingly, the Company monitors legal and regulatory developments on local and national levels. The health care industry is subject to extensive regulation and frequent regulatory change. At this time, no federal laws or regulations specifically regulate assisted or independent living residences. While a number of states have not yet enacted specific assisted living regulations, certain of the Company’s assisted living commun- ities are subject to regulation, licensing, CON and permitting by state and local health care and social service agencies and other regulatory authorities. While such requirements vary from state to state, they typically relate to staffing, physical design, required services and resident characteristics. The Company believes that such regu- 12 lation will increase in the future. In addition, health care providers are receiving increased scrutiny under anti- trust laws as integration and consolidation of health care delivery increases and affects competition. The Compa- ny’s communities are also subject to various zoning restrictions, local building codes, and other ordinances, such as fire safety codes. Failure by the Company to comply with applicable regulatory requirements could have a material adverse effect on the Company’s business, financial condition, and results of operations. Regulation of the assisted living industry is evolving. The Company is unable to predict the content of new regulations and their effect on its business. There can be no assurance that the Company’s operations will not be adversely affected by regulatory developments. The Company believes that its communities are in substantial compliance with applicable regulatory require- ments. However, unannounced surveys or inspections may occur annually or bi-annually, or following a regulator’s receipt of a complaint about a community. In the ordinary course of business, one or more of the Company’s commun- ities could be cited for deficiencies resulting from such inspections or surveys. Most inspection deficiencies are resolved through an agreed-to plan of corrective action relating to the community’s operations, but the reviewing agency typically has the authority to take further action against a licensed or certified community, which could result in the imposition of fines, imposition of a provisional or conditional license, suspension or revocation of a license, suspension or denial of admissions, loss of certification as a provider under federal health care programs or imposition of other sanctions, including criminal penalties. Loss, suspension or modification of a license may also cause us to default under our loan or lease agreements and/or trigger cross-defaults. Sanctions may be taken against providers or facilities without regard to the providers’ or facilities’ history of compliance. We may also expend considerable resources to respond to federal and state investigations or other enforcement action under applicable laws or regu- lations. To date, none of the deficiency reports received by us has resulted in a suspension, fine or other disposition that has had a material adverse effect on our revenues. However, any future substantial failure to comply with any appli- cable legal and regulatory requirements could result in a material adverse effect to our business as a whole. In addition, states Attorneys General vigorously enforce consumer protection laws as those laws relate to the senior living industry. State Medicaid Fraud and Abuse Units may also investigate assisted living communities even if the community or any of its residents do not receive federal or state funds. Under the Americans with Disabilities Act of 1990 (“ADA”), all places of public accommodation are required to meet certain federal requirements related to access and use by disabled persons. A number of addi- tional federal, state and local laws exist that also may require modifications to existing and planned properties to permit access to the properties by disabled persons. While the Company believes that its communities are sub- stantially in compliance with present requirements or are exempt therefrom, if required changes involve a greater expenditure than anticipated or must be made on a more accelerated basis than anticipated, additional costs would be incurred by the Company. Further legislation may impose additional burdens or restrictions with respect to access by disabled persons, the costs of compliance with which could be substantial. The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), in conjunction with the federal regulations promulgated thereunder by the Department of Health and Human Services, has established, among other requirements, standards governing the privacy of certain protected and individually identifiable health information (“PHI”) that is created, received or maintained by a range of covered entities. HIPAA has also established standards governing uniform health care transactions, the codes and identifiers to be used by the covered entities and standards governing the security of certain electronic transactions conducted by covered entities. Penalties for violations can range from civil money penalties for errors and negligent acts to criminal fines and imprisonment for knowing and intentional misconduct. In addition, the Company is subject to various federal, state and local environmental laws and regulations. Such laws and regulations often impose liability whether or not the owner or operator knew of, or was respon- sible for, the presence of hazardous or toxic substances. The costs of any required remediation or removal of these substances could be substantial and the liability of an owner or operator as to any property is generally not limited under such laws and regulations and could exceed the property’s value and the aggregate assets of the owner or operator. The presence of these substances or failure to remediate such contamination properly may also adversely affect the owner’s ability to sell or rent the property, or to borrow using the property as collateral. Under these laws and regulations, an owner, operator or an entity that arranges for the disposal of hazardous or toxic substances, such as asbestos-containing materials, at a disposal site may also be liable for the costs of any 13 required remediation or removal of the hazardous or toxic substances at the disposal site. In connection with the ownership or operation of its properties, the Company could be liable for these costs, as well as certain other costs, including governmental fines and injuries to persons or properties. The Company has completed Phase I environmental audits of substantially all of the communities in which the Company owns interests, typically at the time of acquisition, and such audits have not revealed any material environmental liabilities that exist with respect to these communities. Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at such property, and may be held liable to a governmental entity or to third parties for property damage and for investigation and clean-up costs. The Company is not aware of any environmental liability with respect to any of its owned, leased or managed communities that the Company believes would have a material adverse effect on its business, financial condition, or results of operations. The Company believes that its communities are in compliance in all material respects with all federal, state and local laws, ordinances and regulations regarding hazardous or toxic substances or petroleum products. The Company has not been notified by any governmental authority, and is not otherwise aware of any material non-compliance, liability or claim relating to hazardous or toxic substances or petroleum products in connection with any of the communities the Company currently operates. The Company believes that the structure and composition of government and, specifically, health care regu- lations will continue to change and, as a result, regularly monitors developments in the law. The Company expects to modify its agreements and operations from time to time as the business and regulatory environments change. While the Company believes it will be able to structure all its agreements and operations in accordance with applicable law, there can be no assurance that its arrangements will not be successfully challenged. Competition The senior living industry is highly competitive, and the Company expects that all segments of the industry will become increasingly competitive in the future. Although there are a number of substantial companies active in the senior living industry and in the markets in which the Company operates, the industry continues to be very fragmented and characterized by numerous small operators. The Company primarily competes with national operators such as Brookdale Senior Living Inc., Holiday Retirement Corp., and Five Star Quality Care, Inc. and other regional and local independent operators. The Company believes that the primary competitive factors in the senior living industry are: (i) location; (ii) reputation for and commitment to a high quality of service; (iii) quality on-site staff and support service offerings (such as food services); (iv) fair price for services provided; and (v) physical appearance and amenities associated with the communities. The Company competes with other companies providing independent living, assisted living, skilled nursing, home health care, and other similar service and care alternatives, some of whom may have greater financial resources than the Company. Because seniors tend to choose senior living communities near their homes, the Company’s principal competitors are other senior living and long-term care communities in the same geographic areas as the Company’s communities. The Company also competes with other health care businesses with respect to attracting and retaining nurses, technicians, aides and other high quality professional and non-professional employees and managers. Employees As of December 31, 2015, the Company employed 7,384 persons, of which 3,871 were full-time employees (92 of whom are located at the Company’s corporate offices) and 3,513 were part-time employees. None of the Company’s employees are currently represented by a labor union and the Company is not aware of any union organizing activity among its employees. The Company believes that its relationship with its employees is good. 14 Executive Officers and Other Key Employees of the Registrant The following table sets forth certain information concerning each of the Company’s executive officers and other key employees as of December 31, 2015: Name Lawrence A. Cohen . . . . . . . . . . . . . . . . . . . . . . Keith N. Johannessen . . . . . . . . . . . . . . . . . . . . . Carey P. Hendrickson . . . . . . . . . . . . . . . . . . . . . David R. Brickman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . David W. Beathard, Sr. Gregory P. Boemer. . . . . . . . . . . . . . . . . . . . . . . Gary E. Fernandez . . . . . . . . . . . . . . . . . . . . . . . Joseph G. Solari . . . . . . . . . . . . . . . . . . . . . . . . . Gloria Holland . . . . . . . . . . . . . . . . . . . . . . . . . . Glen H. Campbell . . . . . . . . . . . . . . . . . . . . . . . . Christopher H. Lane . . . . . . . . . . . . . . . . . . . . . . Robert F. Hollister . . . . . . . . . . . . . . . . . . . . . . . Age 62 59 53 57 68 48 52 51 48 71 44 60 Position(s) with the Company Chief Executive Officer and Vice Chairman of the Board President and Chief Operating Officer Senior Vice President and Chief Financial Officer Senior Vice President, Secretary and General Counsel Senior Vice President — Operations Vice President — Operations Vice President — National Sales and Marketing Vice President — Corporate Development Vice President — Finance Vice President — Asset Management Vice President — Financial Reporting Property Controller Lawrence A. Cohen has served as one of our directors since November 1996 and as Vice Chairman of the Board since November 1996. He has served as our Chief Executive Officer since May 1999 and was our Chief Financial Officer from November 1996 to May 1999. From 1991 to 1996, Mr. Cohen served as President and Chief Executive Officer of Paine Webber Properties Incorporated. Mr. Cohen serves on the boards of various charitable organizations and is active in several industry associations. Mr. Cohen was a founding member and is Chairman of the American Seniors Housing Association and serves on the Operator Advisory Board of the National Investment Center for the Seniors Housing & Care Industry. He received an LL.M. in Taxation from New York University School of Law, a JD from St. John’s University School of Law, and a BBA in Accounting from The George Washington University. Mr. Cohen has had positions with businesses involved in senior living for 31 years. Keith N. Johannessen has been a director since 1999. Mr. Johannessen has served as our President since 1994 and Chief Operating Officer since 1999. He previously served as our Executive Vice President from May 1993 to February 1994. He has more than 37 years of operational experience in seniors housing. He began his senior housing career in 1978 with Life Care Services Corporation and then joined Oxford Retirement Services, Inc as Executive Vice President. Mr. Johannessen later served as Senior Manager in the health care practice of Ernst & Young LLP prior to joining the Company in 1993. He has served on the State of the Industry and Model Assisted Living Regulations Committees of the American Seniors Housing Association. Mr. Johannessen holds a Bachelor of Arts degree. Carey P. Hendrickson joined the Company as Senior Vice President and Chief Financial Officer in May 2014. From 2010 through 2014, he served as the Senior Vice President/Chief Financial Officer and Treasurer of Belo Corp., a television company that owned and operated network-affiliated television stations and their asso- ciated websites (“Belo”). Prior to serving in such capacity, Mr. Hendrickson served Belo in various roles includ- ing Senior Vice President/Chief Accounting Officer, Vice President/Human Resources, Vice President/Investor Relations and Corporate Communications, and Vice President/Strategic & Financial Planning. He began his career with KPMG LLP and was the director of financial planning for Republic Financial Services before joining Belo in 1992. Mr. Hendrickson received a BBA in Accounting from Baylor University and a Master of Business Administration in Finance from the University of Texas in Arlington. David R. Brickman is currently the Senior Vice President, Secretary, and General Counsel of the Company. He served as Vice President and General Counsel of the Company and its predecessors since July 1992 and has 15 served as Secretary of the Company since May 2007. From 1989 to 1992, Mr. Brickman served as in-house counsel with LifeCo Travel Management Company, a corporation that provided travel services to U.S. corpo- rations. Mr. Brickman earned a Juris Doctor and Masters of Business Administration from the University of South Carolina and a Masters in Health Administration from Duke University. He currently serves on the Board of Advisors for the Southern Methodist University Corporate Counsel Symposium. He is also a member of the National Center for Assisted Living In-house Counsel Roundtable Task Force, as well as the Long-Term Care Risk Legal Forum. Mr. Brickman has either practiced law or performed in-house counsel functions for 29 years. David W. Beathard, Sr. is currently the Senior Vice President — Operations of the Company. He served as Vice President — Operations of the Company and its predecessors from August 1996 to June 2013. From 1992 to 1996, Mr. Beathard owned and operated a consulting firm, which provided operational, marketing, and feasi- bility consulting regarding senior housing facilities. Mr. Beathard has been active in the operational, sales and marketing, and construction oversight aspects of senior housing for 42 years. Gregory P. Boemer joined the Company in October 2001 as a Regional Manager and has served as Vice President — Operations since June 2013. Prior to joining the Company, Mr. Boemer was a Regional Manager for Alterra Healthcare. Mr. Boemer is a graduate of Texas A&M University and attended the University of North Texas with a focus in Gerontology. Mr. Boemer has been active in all aspects of senior housing for 19 years. Gary E. Fernandez joined the Company in October 2001 as a Regional Sales and Marketing Director and served in such capacity until being promoted to his current position of Vice President — National Sales and Marketing in January 2014. In addition to his role as Regional Sales and Marketing Director with the Company, he served as Director of Corporate Marketing and Media from 2002 to 2003. Prior to joining the Company, he served as National Sales and Marketing Director with Hearthstone Assisted Living from 1999 to 2001. He also served as Director of Advertising with Alterra Healthcare from 1997 to 1999. He is a graduate of the University of Wisconsin — Milwaukee and has been active in the senior housing industry for 18 years. Joseph G. Solari joined the Company as Vice President — Corporate Development in September 2010. Mr. Solari has more than 18 years of experience originating, structuring, negotiating and executing the acquis- ition, sale and divestiture of healthcare real estate and real estate operating companies. Prior to joining the Company, from 2007 to 2009, Mr. Solari was Managing Director, Acquisitions for Ventas, Inc., where he was responsible for the firm’s real estate investment activities in the seniors housing and skilled nursing industries. Prior to Ventas, Inc., from 1999 to 2007, Mr. Solari spent eight years in the healthcare investment banking group of Houlihan Lokey, where he was responsible for the origination and execution of merger and acquisition, private placement and financial restructuring engagements for the firm’s healthcare clients, with particular focus on facility-based, healthcare services companies. Mr. Solari earned his Masters in Business Administration degree from Virginia Commonwealth University. Gloria M. Holland has served as Vice President — Finance of the Company since June 2004. From 2001 to 2004, Ms. Holland served as Assistant Treasurer and a corporate officer for Aurum Technology, Inc., a privately held company that provided technology and outsourcing to community banks. From 1996 to 2001, Ms. Holland held positions in Corporate Finance and Treasury at Brinker International, an owner and operator of casual dining restaurants. From 1989 to 1996, Ms. Holland was a Vice President in the Corporate Banking division of NationsBank and predecessor banks. Ms. Holland received a BBA in Finance from the University of Mississippi in 1989. Glen H. Campbell has served as Vice President — Asset Management of the Company since September 1997. From 1990 to 1997 Mr. Campbell served as Vice President of Development for Greenbrier Corporation, an assisted living development and management company. From 1985 to 1990 Mr. Campbell served as Director of Facility Management for Retirement Corporation of America. Mr. Campbell has been active in the design and development of retirement communities for 43 years. Christopher H. Lane, a Certified Public Accountant, joined the Company in December 2008 and currently serves as Vice President — Financial Reporting. Prior to joining the Company, Mr. Lane served as a Senior Manager in the financial services audit practice of KPMG LLP. Mr. Lane earned a Masters in Accounting from Texas Tech University and is a member of the American Institute of Certified Public Accountants, Texas Society of Certified Public Accountants and Institute of Management Accountants. 16 Robert F. Hollister, a Certified Public Accountant, has served as Property Controller for the Company and its predecessors since April 1992. From 1985 to 1992, Mr. Hollister was Chief Financial Officer and Controller of Kavanaugh Securities, Inc., a National Association of Securities Dealers broker dealer. Mr. Hollister is a member of the American Institute of Certified Public Accountants. Subsidiaries Capital Senior Living Corporation is the parent company of several direct and indirect subsidiaries. Although Capital Senior Living Corporation and its subsidiaries are referred to collectively for ease of reference in this Form 10-K as the Company, these subsidiaries are separately incorporated and maintain their legal existence separate and apart from the parent, Capital Senior Living Corporation. ITEM 1A. RISK FACTORS. Our business involves various risks and uncertainties. When evaluating our business the following information should be carefully considered in conjunction with the other information contained in our periodic filings with the SEC. Additional risks and uncertainties not known to us currently or that currently we deem to be immaterial also may impair our business operations. If we are unable to prevent events that have a negative effect from occurring, then our business may suffer. Negative events are likely to decrease our revenue, increase our costs, make our financial results poorer and/or decrease our financial strength, and may cause our stock price to decline. We have significant debt and our failure to generate cash flow sufficient to cover required interest and principal payments could result in defaults of the related debt. As of December 31, 2015, we had mortgage and other indebtedness, excluding deferred loan costs, totaling approximately $777.1 million. We cannot assure you that we will generate cash flow from operations or receive proceeds from refinancings, other financings or the sales of assets sufficient to cover required interest and princi- pal payments. Any payment or other default could cause the applicable lender to foreclose upon the communities securing the indebtedness with a consequent loss of income and asset value to us. Further, because some of our mortgages contain cross-default and cross-collateralization provisions, a payment or other default by us with respect to one community could affect a significant number of our other communities. We have significant lease obligations and our failure to generate cash flows sufficient to cover these lease obligations could result in defaults under the lease agreements. As of December 31, 2015, we leased 50 communities with future lease obligations totaling approximately $570.3 million, with minimum lease obligations of $64.4 million in fiscal 2016. We cannot assure you that we will generate cash flow from operations or receive proceeds from refinancings, other financings or the sales of assets sufficient to cover these required operating lease obligations. Any payment or other default under any such lease could result in the termination of the lease, with a consequent loss of income and asset value to us. Further, because our leases contain cross-default provisions, a payment or other default by us with respect to one leased community could affect all of our other leased communities with related lessors. Certain of our leases contain various financial and other restrictive covenants, which could limit our flexibility in operating our business. Fail- ure to maintain compliance with the lease obligations as set forth in our lease agreements could have a material adverse impact on us. The termination of a significant portion of our facility lease agreements could have a mate- rial adverse effect on our business, financial condition, cash flows, and results of operations. Our failure to comply with financial covenants and other restrictions contained in debt instruments and lease agreements could result in the acceleration of the related debt or lease or in the exercise of other remedies. Our outstanding indebtedness and leases are secured by our communities, and, in certain cases, a guaranty by our Company or by one or more of our subsidiaries. Therefore, an event of default under the outstanding indebtedness or leases, subject to cure provisions in certain instances, would give the respective lenders or les- 17 sors, as applicable, the right to declare all amounts outstanding to be immediately due and payable, terminate the lease, or foreclose on collateral securing the outstanding indebtedness and leases. There are various financial covenants and other restrictions in certain of our debt instruments and lease agreements, including provisions which: • require us to meet specified financial tests at the subsidiary company level, which include, but are not limited to, tangible net worth requirements; • require us to meet specified financial tests at the community level, which include, but are not limited to, lease coverage tests; and • require consent for changes in control of us. If we fail to comply with any of these requirements, then the related indebtedness or lease obligations could become due and payable prior to their stated dates. We cannot assure that we could pay these debt or lease obligations if they became due prior to their stated dates. We will require additional financing and/or refinancings in the future and may issue equity securities. Our ability to obtain such financing or refinancing on terms acceptable to us could have a material adverse effect on our business, financial condition, cash flows, and results of operations. Our ability to meet our long- term capital requirements, including the repayment of certain long-term debt obligations, will depend, in part, on our ability to obtain additional financing or refinancings on acceptable terms from available financing sources, including through the use of mortgage financing, joint venture arrangements, by accessing the debt and/or equity markets and possibly through operating leases or other types of financing, such as lines of credit. Turmoil in the financial markets can severely restrict the availability of funds for borrowing and may make it more difficult or costly for us to raise capital. There can be no assurance that financing or refinancings will be available or that, if available, will be on terms acceptable to us. Moreover, raising additional funds through the issuance of equity securities could cause existing stockholders to experience dilution and could adversely affect the market price of our common stock. Disruptions in the financial markets may have a significant adverse effect on the market value of our common stock and other adverse effects on us and our business. Our inability to obtain additional financing or refinancings on terms acceptable to us could delay or eliminate some or all of our growth plans, necessitate the sales of assets at unfavorable prices or both, and would have a material adverse effect on our business, financial condition, cash flows, and results of operations. Increases in market interest rates could significantly increase the costs of our floating rate debt and lease obligations, which could adversely affect our liquidity and earnings. Our floating rate debt and lease obligations and any future indebtedness and lease obligations, if applicable, exposes us to interest rate risk. Therefore, increases in prevailing interest rates could increase in the future our interest or lease payment obligations and could in the future have a material adverse effect on our business, financial condition, cash flows, and results of operations. We cannot assure that we will be able to effectively manage our growth. We intend to expand our operations, directly or indirectly, through the acquisition of existing senior living communities and/or the expansion of some of our existing senior living communities. The success of our growth strategy will depend, in large part, on our ability to implement these plans and to effectively operate these communities. If we are unable to manage our growth effectively, our business, financial condition, cash flows, and results of operations may be adversely affected. We cannot assure that we will attempt to, or be able to, acquire additional senior living communities, or expand existing senior living communities. The acquisition of existing communities or other businesses involves a number of risks. Existing commun- ities available for acquisition frequently serve or target different markets than those presently served by us. We may also determine that renovations of acquired communities and changes in staff and operating management 18 personnel are necessary to successfully integrate those communities or businesses into our existing operations. The costs incurred to reposition or renovate newly acquired communities may not be recovered by us. In under- taking acquisitions, we also may be adversely impacted by unforeseen liabilities attributable to the prior oper- ators of those communities or businesses, against whom we may have little or no recourse. The success of our acquisition strategy will be determined by numerous factors, including our ability to identify suitable acquisition candidates; the competition for those acquisitions; the purchase price; the requirement to make operational or structural changes and improvements; the financial performance of the communities or businesses after acquis- ition; our ability to finance the acquisitions; and our ability to integrate effectively any acquired communities or businesses into our management, information, and operating systems. We cannot assure that our acquisition of senior living communities or other businesses will be completed at the rate currently expected, if at all, or if completed, that any acquired communities or businesses will be successfully integrated into our operations. Our ability to successfully expand existing senior living communities will depend on a number of factors, including, but not limited to, our ability to acquire suitable sites at reasonable prices; our success in obtaining necessary zoning, licensing, and other required governmental permits and authorizations; and our ability to con- trol construction costs and accurately project completion schedules. Additionally, we anticipate that the expansion of existing senior living communities may involve a substantial commitment of capital for a period of time of two years or more until the expansions are operating and producing revenue, the consequence of which could be an adverse impact on our liquidity. Termination of resident agreements and resident attrition could affect adversely our revenues and earnings. State regulations governing assisted living facilities require written resident agreements with each resident. Most of these regulations also require that each resident have the right to terminate the resident agreement for any reason on reasonable notice. Consistent with these regulations, the resident agreements signed by us allow residents to terminate their lease upon 0 to 30 days’ notice. Thus, we cannot contract with residents to stay for longer periods of time, unlike typical apartment leasing arrangements that involve lease agreements with speci- fied leasing periods of up to a year or longer. Our resident agreements generally provide for termination of the lease upon death or allow a resident to terminate their lease upon the need for a higher level of care not provided at the community. If a large number of residents elected to or otherwise terminate their resident agreements at or around the same time, then our revenues and earnings could be adversely affected. In addition, the advanced age of our average resident means that the resident turnover rate in our senior living facilities may be difficult to predict. We largely rely on private pay residents and circumstances that adversely affect the ability of the elderly to pay for our services could have a material adverse effect on us. Approximately 95% of our total revenues from communities that we operated were attributable to private pay sources and approximately 5% of our revenues from these communities were attributable to reimbursements from Medicaid during fiscal 2015. We expect to continue to rely primarily on the ability of residents to pay for our services from their own or family financial resources. Unfavorable economic conditions in the housing, financial, and credit markets, inflation, or other circumstances that adversely affect the ability of the elderly to pay for our services could have a material adverse effect on our business, financial condition, cash flows, and results of operations. The senior living services industry is very competitive and some competitors may have substantially greater financial resources than us. The senior living services industry is highly competitive, and we expect that all segments of the industry will become increasingly competitive in the future. We compete with other companies providing independent living, assisted living, home health care and other similar services and care alternatives. We also compete with other health care businesses with respect to attracting and retaining nurses, technicians, aides and other high quality professional and non-professional employees and managers. Although we believe there is a need for senior living communities in the markets where we operate residences, we expect that competition will increase from existing competitors and new market entrants, some of whom may have substantially greater financial 19 resources than us. In addition, some of our competitors operate on a not-for-profit basis or as charitable orga- nizations and have the ability to finance capital expenditures on a tax-exempt basis or through the receipt of charitable contributions, neither of which are available to us. Furthermore, if the development of new senior liv- ing communities outpaces the demand for those communities in the markets in which we have senior living communities, those markets may become saturated. Regulation in the independent and assisted living industry is not substantial. Consequently, development of new senior living communities could outpace demand. An over- supply of those communities in our markets could cause us to experience decreased occupancy, reduced operat- ing margins and lower profitability. We rely on the services of key executive officers and the loss of these officers or their services could have a material adverse effect on us. We depend on the services of our executive officers for our management. The loss of some of our executive officers and the inability to attract and retain qualified management personnel could affect our ability to manage our business and could adversely affect our business, financial condition, cash flows, and results of operations. A significant increase in our labor costs could have a material adverse effect on us. We compete with other providers of senior living services with respect to attracting and retaining qualified management personnel responsible for the day-to-day operations of each of our communities and skilled person- nel responsible for providing resident care. A shortage of nurses or trained personnel may require us to enhance our wage and benefits package in order to compete in the hiring and retention of these personnel or to hire more expensive temporary personnel. We also will be dependent on the available labor pool of semi-skilled and unskilled employees in each of the markets in which we operate. No assurance can be given that our labor costs will not increase, or that, if they do increase, they can be matched by corresponding increases in rates charged to residents. Any significant failure by us to control our labor costs or to pass on any increased labor costs to resi- dents through rate increases could have a material adverse effect on our business, financial condition, cash flows, and results of operations. We are subject to risks related to the provision for employee health care benefits and recent health care reform legislation. We use a combination of insurance and self-insurance for employee health care plans. We record expenses under these plans based on estimates of the costs of expected claims, administrative costs and stop-loss pre- miums. These estimates are then adjusted to reflect actual costs incurred. Actual costs under these plans are sub- ject to variability depending primarily upon participant enrollment and demographics, the actual costs of claims and whether stop-loss insurance covers these claims. In the event that our cost estimates differ from actual costs, we could incur additional unplanned health care costs which could have a material adverse effect on our busi- ness, financial condition, cash flows, and results of operations. In March 2010, comprehensive health care reform legislation under the Patient Protection and Affordable Care Act (HR 3590) and the Health Care Education and Affordability Reconciliation Act (HR 4872) was passed and signed into law. This legislation expands health care coverage to many uninsured individuals and expands health care coverage to those already insured under existing plans. The health care reform legislation includes, among other things, guaranteed coverage requirements, eliminates pre-existing condition exclusions and annual and lifetime maximum limits, restricts the extent to which policies can be rescinded, and imposes new and sig- nificant taxes on health insurers and health care benefits. Provisions of the health care reform legislation become effective at various dates over the next several years. The United States Department of Health and Human Serv- ices, National Association of Insurance Commissioners, Department of Labor and Treasury Department continue to issue necessary enabling regulations and guidance with respect to the health care reform legislation. Due to the breadth and complexity of the health care reform legislation, the lack of implementing regulations and inter- pretative guidance, and the phased-in nature of the implementation, it is difficult to predict the overall impact this legislation will have over the coming years; however, this legislation could have a material adverse effect on our business, financial condition, cash flows, and results of operations. 20 There is an inherent risk of liability in the provision of personal and health care services, not all of which may be covered by insurance. The provision of personal and health care services in the long-term care industry entails an inherent risk of liability. In recent years, participants in the long-term care industry have become subject to an increasing number of lawsuits alleging negligence or related legal theories, many of which involve large claims and result in the incurrence of significant defense costs. Moreover, senior living communities offer residents a greater degree of independence in their daily living. This increased level of independence may subject the resident and, therefore, us to risks that would be reduced in more institutionalized settings. We currently maintain insurance in amounts we believe are comparable to those maintained by other senior living companies based on the nature of the risks, our historical experience and industry standards, and we believe that this insurance coverage is adequate. How- ever, we may become subject to claims in excess of our insurance or claims not covered by our insurance, such as claims for punitive damages, terrorism and natural disasters. A claim against us not covered by, or in excess of, our insurance could have a material adverse effect upon us. In addition, our insurance policies must be renewed annually. Based upon poor loss experience, insurers for the long-term care industry have become increasingly wary of liability exposure. A number of insurance carriers have stopped writing coverage to this market, and those remaining have increased premiums and deductibles substantially. Therefore, we cannot assure that we will be able to obtain liability insurance in the future or that, if that insurance is available, it will be available on acceptable economic terms. We are subject to government regulations and compliance, some of which are burdensome and some of which may change to our detriment in the future. Federal and state governments regulate various aspects of our business. The development and operation of senior living communities and the provision of health care services are subject to federal, state and local licensure, certification and inspection laws that regulate, among other matters, the number of licensed beds, the provision of services, the distribution of pharmaceuticals, billing practices and policies, equipment, staffing (including professional licensing), operating policies and procedures, fire prevention measures, environmental matters and compliance with building and safety codes. Failure to comply with these laws and regulations could result in the denial of reimbursement, the imposition of fines, temporary suspension of admission of new resi- dents, suspension or decertification from the Medicaid program, restrictions on the ability to acquire new com- munities or expand existing communities and, in extreme cases, the revocation of a community’s license or closure of a community. We believe that such regulation will increase in the future and we are unable to predict the content of new regulations or their effect on our business, any of which could materially adversely affect us. Various states, including several of the states in which we currently operate, control the supply of licensed beds and assisted living communities through CON or other programs. In those states, approval is required for the addition of licensed beds and some capital expenditures at those communities. To the extent that a CON or other similar approval is required for the acquisition or construction of new communities, the expansion of the number of licensed beds, services, or existing communities, we could be adversely affected by our failure or inability to obtain that approval, changes in the standards applicable for that approval, and possible delays and expenses associated with obtaining that approval. In addition, in most states, the reduction of the number of licensed beds or the closure of a community requires the approval of the appropriate state regulatory agency and, if we were to seek to reduce the number of licensed beds at, or to close, a community, we could be adversely affected by a failure to obtain or a delay in obtaining that approval. Federal and state anti-remuneration laws, such as “anti-kickback” laws, govern some financial arrangements among health care providers and others who may be in a position to refer or recommend patients to those providers. These laws prohibit, among other things, some direct and indirect payments that are intended to induce the referral of patients to, the arranging for services by, or the recommending of, a particular provider of health care items or services. Federal anti-kickback laws have been broadly interpreted to apply to some contractual relationships between health care providers and sources of patient referral. Similar state laws vary, are sometimes vague, and seldom have been interpreted by courts or regulatory agencies. Violation of these laws can result in loss of licensure, civil and criminal penalties, and exclusion of health care providers or suppliers from participation in the Medicaid program. There can be no assurance that those laws will be interpreted in a manner consistent with our practices. 21 Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet federal requirements related to access and use by disabled persons. A number of additional federal, state and local laws exist that also may require modifications to existing and planned communities to create access to the properties by disabled persons. Although we believe that our communities are substantially in compliance with present requirements or are exempt therefrom, if required changes involve a greater expenditure than anticipated or must be made on a more accelerated basis than anticipated, additional costs would be incurred by us. Further legislation may impose additional burdens or restrictions with respect to access by disabled persons, the costs of compliance with which could be substantial. The Health Insurance Portability and Accountability Act of 1996, in conjunction with the federal regulations promulgated thereunder by the Department of Health and Human Services, has established, among other requirements, standards governing the privacy of certain protected and individually identifiable health information that is created, received or maintained by a range of covered entities. HIPAA has also established standards governing uniform health care transactions, the codes and identifiers to be used by the covered entities and standards governing the security of certain electronic transactions conducted by covered entities. Penalties for violations can range from civil money penalties for errors and negligent acts to criminal fines and imprison- ment for knowing and intentional misconduct. HIPAA is a complex set of regulations and many unanswered questions remain with respect to the manner in which HIPAA applies to businesses such as those operated by us. An increasing number of legislative initiatives have been introduced or proposed in recent years that would result in major changes in the health care delivery system on a national or a state level. Among the proposals that have been introduced are price controls on hospitals, insurance market reforms to increase the availability of group health insurance to small businesses, requirements that all businesses offer health insurance coverage to their employees and the creation of government health insurance plans that would cover all citizens and increase payments by beneficiaries. We cannot predict whether any of the above proposals or other proposals will be adopted and, if adopted, no assurances can be given that their implementation will not have a material adverse effect on our business, financial condition or results of operations. We may be subject to liability for environmental damages. Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at the property, and may be held liable to a governmental entity or to third parties for property damage and for investigation and clean-up costs incurred by those parties in connection with the con- tamination. These laws typically impose clean-up responsibility and liability without regard to whether the owner knew of or caused the presence of the contaminants, and liability under these laws has been interpreted to be joint and several unless the harm is divisible and there is a reasonable basis for allocation of responsibility. The costs of investigation, remediation or removal of the substances may be substantial, and the presence of the substances, or the failure to properly remediate the property, may adversely affect the owner’s ability to sell or lease the property or to borrow using the property as collateral. In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and costs it incurs in connection with the con- tamination. Persons who arrange for the disposal or treatment of hazardous or toxic substances also may be liable for the costs of removal or remediation of the substances at the disposal or treatment facility, whether or not the facility is owned or operated by the person. Finally, the owner of a site may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site. If we become subject to any of these claims the costs involved could be significant and could have a material adverse effect on our business, financial condition, cash flows, and results of operations. We rely on information technology in our operations, and any material failure, inadequacy, interruption or security failure of that technology could harm our business. We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information and to manage or support a variety of our business processes, including medical records, which may include personally identifiable records, information of residents and other customers and payroll data. We rely on commercially available systems, soft- ware, tools and monitoring to provide security for processing, transmitting and storing confidential information, transactions and maintenance of financial 22 such as personally identifiable information relating to health and financial accounts. Although we have taken steps to protect the security of the data maintained in our information systems, it is possible that our security measures will not be able to prevent the systems’ improper functioning, or the improper disclosure of personally identifiable information such as in the event of cyber-attacks. Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure of confidential information; however, no instances of these potential threats have been identified by the Company. The Company maintains cyber and data privacy-related insurance coverage which provides liability protection associated with network security, privacy and sensitive electronic-data, and privacy breach expenses. Any failure to maintain proper function, security and availability of our information systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties and could materially and adversely affect our business, financial condition, or results of operations. Anti-takeover provisions in our governing documents, governing law and material agreements may dis- courage, delay or prevent a merger or acquisition that our stockholders may consider favorable or prevent the removal of our current board of directors and management. Certain provisions of our amended and restated certificate of incorporation and our amended and restated by-laws may discourage, delay or prevent a merger or acquisition that our stockholders may consider favorable or prevent the removal of our current board of directors and management. We have a number of anti-takeover devices in place that will hinder takeover attempts, including: a staggered board of directors consisting of three classes of directors, each of whom serve three-year terms; removal of directors only for cause, and only with the affirmative vote of at least a majority of the voting interest of stockholders entitled to vote; right of our directors to issue preferred stock from time to time with voting, economic and other rights superior to those of our com- mon stock without the consent of our stockholders; provisions in our amended and restated certificate of incorporation and amended and restated by-laws limiting the right of our stockholders to call special meetings of stockholders; advance notice requirements for stockholders with respect to director nominations and actions to be taken at annual meetings; requirement for two-thirds stockholder approval for amendment of our by-laws and certain provisions of our certificate of incorporation; and no provision in our amended and restated certificate of incorporation for cumulative voting in the election of directors, which means that the holders of a majority of the outstanding shares of our common stock can elect all the directors standing for election. Several of our leases, loan documents and other material agreements require approval in case of a change of control of our company. These provisions may have the effect of delaying or preventing a change of control of our company even if this change of control would benefit our stockholders. In addition to the anti-takeover provisions described above, we are subject to Section 203 of the Delaware General Corporation Law. Section 203 generally prohibits a person beneficially owning, directly or in directly, 15% or more of our outstanding common stock from engaging in a business combination with us for three years after the person acquired the stock. However, this prohibition does not apply if (A) our directors approve in advance the person’s ownership of 15% or more of the shares or the business combination or (B) the business combination is approved by our stockholders by a vote of at least two-thirds of the outstanding shares not owned by the acquiring person. Because we do not presently have plans to pay dividends on our common stock, stockholders must look solely to appreciation of our common stock to realize a gain on their investment. It is the policy of our Board of Directors to retain any future earnings to finance the operation and expansion of the Company’s business. Accordingly, the Company has not and does not currently anticipate declaring or paying cash dividends on your common stock in the foreseeable future. The payment of cash dividends in the future will be at the sole discretion of our Board of Directors and will depend on, among other things, the Company’s earnings, operations, capital requirements, financial condition, restrictions in then existing financing agreements and other factors deemed relevant by our Board of Directors. Accordingly, stockholders must look solely to appreciation of our common stock to realize a gain on their investment. This appreciation may not occur. 23 The price of our common stock has fluctuated substantially over the past several years and may continue to fluctuate substantially in the future. Our stock price may continue to be subject to significant fluctuations as a result of a variety of factors, which are described throughout this Annual report on Form 10-K, including those factors discussed under this section entitled “Risk Factors.” Some of these factors are beyond our control. We may fail to meet the expect- ations of our stockholders or securities analysts at some point in the future, and our stock price could decline as a result. ITEM 1B. UNRESOLVED STAFF COMMENTS. None. ITEM 2. PROPERTIES. The executive and administrative offices of the Company are located at 14160 Dallas Parkway, Suite 300, Dallas, Texas 75254, and consist of approximately 26,000 square feet. The lease on the premises currently extends through September 2020. The Company believes that its corporate office facilities are adequate to meet its requirements through at least fiscal 2016 and that suitable additional space will be available, as needed, to accommodate further physical expansion of corporate operations. The Company also leases executive office space in New York, New York pursuant to a two-year lease agreement. As of December 31, 2015, the Company owned or leased and managed the senior living communities referred to in Item 1 above under the caption “Operating Communities.” ITEM 3. LEGAL PROCEEDINGS. The Company has claims incurred in the normal course of its business. Most of these claims are believed by management to be covered by insurance, subject to normal reservations of rights by the insurance companies and possibly subject to certain exclusions in the applicable insurance policies. Whether or not covered by insurance, these claims, in the opinion of management, based on advice of legal counsel, should not have a material effect on the consolidated financial statements of the Company if determined adversely to the Company. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. 24 PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. (a) Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters. Market Information and Holders The Company’s shares of common stock are listed for trading on the New York Stock Exchange (“NYSE”) under the symbol “CSU”. The following table sets forth, for the periods indicated, the high and low sales prices for the Company’s common stock, as reported on the NYSE. At February 19, 2016, there were approximately 165 stockholders of record of the Company’s common stock. Year 2015 2014 High Low High Low First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26.75 27.75 24.97 24.55 $22.52 24.40 19.20 19.59 $26.89 26.85 25.84 25.91 $21.52 22.26 20.33 21.05 Dividends It is the policy of the Company’s Board of Directors to retain all future earnings to finance the operation and expansion of the Company’s business. Accordingly, the Company did not declare or pay cash dividends on its common stock during fiscal 2015 or 2014 and does not anticipate declaring or paying cash dividends on the common stock in the foreseeable future. The payment of cash dividends in the future will be at the sole discretion of the Company’s Board of Directors and will depend on, among other things, the Company’s earnings, oper- ations, capital requirements, financial condition, restrictions in then existing financing agreements, and other factors deemed relevant by the Board of Directors. Securities Authorized for Issuance Under Equity Compensation Plans The following table presents information relating to the Company’s equity compensation plans as of December 31, 2015: Plan Category Equity compensation plans approved by security holders . . . . . . . . . . . . . . . . Equity compensation plans not approved by security holders . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights Weighted-Average Exercise Price of the Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in First Column) 3,000 — 3,000 $10.97 1,901,886 — $10.97 — 1,901,886 25 Performance Graph The following Performance Graph shows the cumulative total return for the five-year period ended December 31, 2015, in the value of $100 invested in: (1) the Company’s common stock; (2) the Standard & Poor’s Broad Market Index (the “S&P 500”); and (3) the common stock of the Peer Group (as defined below) of companies, whose returns represent the arithmetic average of such companies. The values with each investment as of the beginning of each year are based on share price appreciation and the reinvestment of any dividends on the respective ex-dividend dates. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among Capital Senior Living Corporation, the S&P 500 Index, and a Peer Group Capital Senior Living Corporation S&P 500 Peer Group 500 400 300 200 100 0 S R A L L O D 12/10 12/11 12/12 12/13 12/14 12/15 * $100 invested on 12/31/10 in stock or index, including reinvestment of dividends. Fiscal year ending December 31. Copyright© 2016 S&P, a division of McGraw Hill Financial. All rights reserved. The preceding graph assumes $100 invested at the beginning of the measurement period, including reinvest- ment of any dividends, in the Company’s common stock, the S&P 500, and the Peer Group and was plotted using the following data: 12/10 12/11 12/12 12/13 12/14 12/15 Cumulative Total Returns Capital Senior Living Corporation . . . . . 100.00 S&P 500 . . . . . . . . . . . . . . . . . . . . . . . . . 100.00 Peer Group . . . . . . . . . . . . . . . . . . . . . . . . 100.00 118.51 102.11 77.77 278.96 118.45 114.29 358.06 156.82 122.87 371.79 178.29 160.43 311.34 180.75 82.00 The Company’s Peer Group, which was selected in good faith on an industry basis, consists of Brookdale Senior Living, Inc. and Five Star Quality Care, Inc. (b) Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities. Not applicable. (c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers. The following information is provided pursuant to Item 703 of Regulation S-K. The Company did not repurchase any shares of its common stock pursuant to the Company’s share repurchase program (as described 26 below) during the year ended December 31, 2015. The information set forth in the table below reflects shares repurchased by the Company pursuant to this program prior to the year ended December 31, 2015. Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(1) Total at September 30, 2015 . . . . . . . . . . . . October 1 – October 31, 2015 . . . . . . . . . November 1 – November 30, 2015 . . . . . December 1 – December 31, 2015 . . . . . 349,800 — — — Total at December 31, 2015 . . . . . . . . . . . . 349,800 $2.67 — — — $2.67 349,800 — — — 349,800 $9,065,571 — — — $9,065,571 (1) On January 22, 2009, the Company’s board of directors approved a share repurchase program that authorized the Company to purchase up to $10.0 million of the Company’s common stock. The repurchase program does not obligate the Company to acquire any particular amount of common stock and the share repurchase authorization has no stated expiration date. All shares that have been purchased by the Company under this program were purchased in open-market transactions. On January 14, 2016, the Company announced that its board of directors has approved a continuation of the share repurchase program. 27 ITEM 6. SELECTED FINANCIAL DATA. The following table presents selected financial data of the Company which has been derived from the aud- ited consolidated financial statements of the Company. The selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the con- solidated financial statements and related notes thereto included in this Annual Report. At and for the Year Ended December 31, 2015 2014 2013 2012 2011 (In thousands, except per share and other data) Consolidated Statements of Operations and Comprehensive (Loss) Income Data: Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 412,177 $383,925 $350,362 $310,536 $263,502 17,911 Income from operations . . . . . . . . . . . . . . . . . . . . . Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . 3,025 Net (loss) income per share: 11,250 (16,504) 13,900 (24,126) 18,835 (14,284) 13,655 (3,119) Basic net (loss) income per share . . . . . . . . . . . . $ Diluted net (loss) income per share . . . . . . . . . . . $ (0.50) $ (0.50) $ (0.83) $ (0.83) $ (0.58) $ (0.58) $ (0.11) $ (0.11) $ 0.11 0.11 Balance Sheet Data: Cash and cash equivalents (excluding restricted cash) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 56,087 $ 39,209 $ 13,611 $ 18,737 $ 22,283 20,786 (5,892) 26,726 Working capital (deficit)(1) . . . . . . . . . . . . . . . . . . 462,326 745,549 1,019,033 Total assets(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt, excluding current portion(1) 224,940 467,376 754,949 . . . . Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . $ 135,746 $141,174 $157,950 $168,594 $169,141 (5,712) 636,942 342,366 13,113 891,370 592,884 Other Data: Communities (at end of period) Owned or leased . . . . . . . . . . . . . . . . . . . . . . . . . Joint ventures & managed . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 — 121 117 — 117 109 3 112 98 3 101 81 3 84 Resident capacity: Owned or leased . . . . . . . . . . . . . . . . . . . . . . . . . Joint ventures & managed . . . . . . . . . . . . . . . . . . 15,416 — 15,149 — 13,939 674 12,973 674 11,150 674 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,416 15,149 14,613 13,647 11,824 (1) Working capital, total assets, and long-term debt, excluding current portion, for fiscal 2015 excludes $8,532 in debt issuance costs, net of accumulated amortization, and fiscal 2014 was revised from amounts previously reported to reflect the impact of reclassifying $6,331 in debt issuance costs, net of accumulated amortization, from other assets to notes payable. This revision was due to the Company’s adoption of ASU 2015-03, Inter- est—Imputation of Interest- Simplifying the Presentation of Debt Issuance Costs, during the fourth quarter of fiscal 2015 which requires current and retrospective application to the Company’s Consolidated Balance Sheets for all periods presented. ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Certain information contained in this report constitutes “Forward-Looking Statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which can be identified by the use of forward-looking terminology such as “may,” “will,” “would,” “intend,” “could,” “believe,” “expect,” “anticipate,” “estimate” or “continue” or the negative thereof or other variations thereon or comparable terminology. The Company cautions readers that forward- 28 looking statements, including, without limitation, those relating to the Company’s future business prospects, revenues, working capital, liquidity, capital needs, interest costs, and income, are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements, due to several important factors herein identified. These factors include the Company’s ability to find suitable acquisition properties at favorable terms, financing, licensing, business conditions, risks of downturn in economic conditions generally, satisfaction of closing conditions such as those pertaining to licensure, avail- ability of insurance at commercially reasonable rates, and changes in accounting principles and interpretations, among others, and other risks and factors identified from time to time in the Company’s reports filed with the SEC. Overview The following discussion and analysis addresses (i) the Company’s results of operations on a historical consolidated basis for the years ended December 31, 2015, 2014, and 2013, and (ii) liquidity and capital resources of the Company and should be read in conjunction with the Company’s historical consolidated finan- cial statements and the selected financial data contained elsewhere in this report. The Company is one of the largest operators of senior living communities in the United States. The Compa- ny’s operating strategy is to provide value to its senior living residents by providing quality senior living services at reasonable prices, while achieving and sustaining a strong, competitive position within its geographically concentrated regions, as well as continuing to enhance the performance of its operations. The Company provides senior living services to the elderly, including independent living, assisted living, and home care services at rea- sonable prices. Many of the Company’s communities offer a continuum of care to meet its residents’ needs as they change over time. This continuum of care, which integrates independent living and assisted living and is bridged by home care through independent home care agencies or the Company’s home care agency, sustains residents’ autonomy and independence based on their physical and mental abilities. As of December 31, 2015, the Company operated 121 senior living communities in 23 states with an aggregate capacity of approximately 15,400 residents, including 71 senior living communities which the Com- pany owned and 50 senior living communities the Company leased. As of December 31, 2015, the Company also operated one home care agency. Significant Financial and Operational Highlights The Company primarily derives its revenue by providing senior living and healthcare services to the elderly and operating senior living communities under joint venture arrangements. When comparing fiscal 2015 to fiscal 2014, the Company generated total revenues of approximately $412.2 million compared to total revenues of approximately $383.9 million, respectively, representing an increase of approximately $28.3 million, or 7.4%. The increase in revenues primarily results from the senior living communities acquired by the Company during fiscal 2015 and a full year of activity for the senior living communities acquired by the Company during fiscal 2014 which was slightly offset by a decrease in revenues due to the five properties sold by the Company during fiscal 2015. The weighted average financial occupancy rate for our consolidated communities for the fiscal years ended December 31, 2015 and 2014 was 88.3% and 87.1%, respectively. In addition to the increase we experienced in total consolidated occupancies, we also achieved an increase in average monthly rental rates of 6.5% at our con- solidated communities when comparing fiscal 2015 to fiscal 2014. On a same-store basis, the weighted average financial occupancy rate for our consolidated communities for the fiscal year ended December 31, 2015 and 2014 was 88.0% and 87.5%, respectively. In addition to the increase we experienced in our same-store occupancies, we also achieved an increase in average monthly rental rates of 2.7% when comparing fiscal 2015 to fiscal 2014. The increase in occupancies and average monthly rental rates was primarily the result of our recent community acquisitions and the capital improvements we have prudently invested in our communities for unit conversions which enable us to provide a broader range of senior living services at higher levels of care. On December 17, 2015, the Company completed supplemental mortgage financing of approximately $7.6 million from Fannie Mae on three senior living communities at a fixed interest rate of 5.49% which is cotermi- 29 nous with existing mortgage debt maturing in November 2022. The supplemental mortgage loans are cross- collateralized and cross-defaulted with the original mortgage debt. On November 24, 2015, the Company completed supplemental mortgage financing of approximately $3.2 million from Fannie Mae on one senior living community at a fixed interest rate of 5.46% which is coterminous with existing mortgage debt maturing in April 2023. The supplemental mortgage loan is cross-collateralized and cross-defaulted with the original mortgage debt. On November 24, 2015, the Company completed supplemental mortgage financing of approximately $8.7 million from Fannie Mae on one senior living community at a fixed interest rate of 5.39% which is coterminous with existing mortgage debt maturing in January 2023. The supplemental mortgage loan is cross-collateralized and cross-defaulted with the original mortgage debt. On November 12, 2015, the Company repaid mortgage loans totaling approximately $31.6 million from Fannie Mae associated with four of its senior living communities scheduled to mature in June 2017. The Com- pany obtained approximately $52.8 million of new long-term fixed interest rate mortgage financing from Berka- dia Commercial Mortgage LLC (“Berkadia”), who later sold the loans to Fannie Mae, at a fixed interest rate of 4.68% with a 10-year term and the principal amortized over a 30-year term. As a result of the early repayment of the Company accelerated the amortization of approximately $0.1 million in the existing mortgage debt, unamortized deferred financing costs and incurred a prepayment premium of approximately $1.7 million to Fan- nie Mae. Effective October 30, 2015, the Company closed the acquisition of one senior living community located in Virginia Beach, Virginia, for $38.0 million (the “Virginia Beach Transaction”). The community consists of 111 assisted living units. The Company obtained financing from Protective Life Insurance Company (“Protective Life”) for $28.0 million of the acquisition price at a fixed interest rate of 4.25% with a 10-year term with the balance of the acquisition price paid from the Company’s existing cash resources. Effective September 30, 2015, the Company closed the acquisition of one senior living community located in Mahomet, Illinois, for $15.5 million Mahomet Transaction (the “Mahomet Transaction”). The community consists of 78 assisted living units. The Company obtained financing from Fannie Mae for approximately $11.1 million of the acquisition price at a fixed interest rate of 4.69% with a 10-year term with the balance of the acquisition price paid from the Company’s existing cash resources. On September 30, 2015, the Company completed supplemental financing of approximately $5.0 million from Fannie Mae on an existing senior living community owned by the Company located in Macedonia, Ohio. The supplemental loan is coterminous with existing mortgage debt maturing in October 2021 with a 5.19% fixed interest rate and the principal amortized over a 30-year term. The supplemental loan is cross-collateralized and cross-defaulted with the original mortgage debt. On September 24, 2015, the Company obtained approximately $8.4 million long-term fixed interest rate mortgage financing from Fannie Mae to replace interim variable interest rate financing obtained by the Company from Berkadia on September 30, 2013, in connection with the Company’s previous acquisition of a senior living community located in Oakwood, Georgia. The new mortgage loan has a 10-year term with a 4.7% fixed interest rate and the principal amortized over a 30-year term. Effective August 11, 2015, the Company closed the acquisition of one senior living community located in Indianapolis, Indiana, for $21.0 million (the “Indianapolis Transaction”). The community consists of 124 assisted living units. The Company obtained financing from Protective Life for $13.2 million of the acquisition price at a fixed interest rate of 4.25% with a 10-year term with the balance of the acquisition price paid from the Compa- ny’s existing cash resources. The note with Protective Life associated with the Indianapolis Transaction includes a loan commitment for up to $2.6 million of supplemental funding at the same terms and 4.25% fixed interest rate. The loan commitment is based on meeting certain funding requirements and is available through Febru- ary 28, 2018. Effective August 6, 2015, the Company closed a transaction to sell one of its senior living communities located in Wichita, Kansas, for approximately $14.8 million (the “Sedgwick Sale Transaction”). As a result of 30 the sale, outstanding mortgage debt totaling approximately $6.8 million was assumed by the buyer. The Com- pany recognized a gain on sale of approximately $6.4 million and received net proceeds, less the debt assump- tion, of approximately $8.0 million. For income tax purposes, the Company executed a like-kind exchange and acquired a replacement property shortly after the sale which resulted in the deferral of the gain without the Company incurring any current federal or state income tax liabilities. The Company contracted with a qualified intermediary for purposes of reaching its determination that the transaction satisfied all requirements of a like- kind exchange under applicable federal and state income tax laws. Effective July 28, 2015, the Company closed the acquisition of one senior living community located in Columbiana, Ohio, for approximately $13.3 million (the “Columbiana Transaction”). The community consists of 68 assisted living units. The Company obtained financing from Protective Life for approximately $9.9 million of the acquisition price at a fixed interest rate of 4.25% with a 10-year term with the balance of the acquisition price paid from the Company’s existing cash resources. Effective May 29, 2015, the Company closed the acquisition of one senior living community located in Oneonta, New York, for $14.9 million (the “Heritage Transaction”). The community consists of 64 independent living units and 44 assisted living units. The Company obtained financing from Fannie Mae for approximately $11.2 million of the acquisition price at a fixed interest rate of 4.79% with a 10-year term with the balance of the acquisition price paid from the Company’s existing cash resources. Effective May 21, 2015, the Company closed the acquisition of two senior living communities located in Hartford and West bend, Wisconsin, for $12.0 million (the “Emerald Transaction”). The communities consist of 79 assisted living units. The Company obtained financing from Fannie Mae for approximately $9.2 million of the acquisition price at a fixed interest rate of 4.55% with a 10-year term with the balance of the acquisition price paid from the Company’s existing cash resources. Effective March 27, 2015, the Company closed the acquisition of one senior living community located in Baytown, Texas, for approximately $29.6 million (the “Baytown Transaction”). The community consists of 9 independent living cottages and 120 assisted living units. The Company obtained financing from Protective Life for approximately $21.4 million of the acquisition price at a fixed interest rate of 3.55% with a 10-year term with the balance of the acquisition price paid from the Company’s existing cash resources. On March 5, 2015, the Company repaid an interim, interest only variable rate mortgage loan totaling approx- imately $21.6 million from Wells Fargo on one of its senior living communities located in Toledo, Ohio. The Company obtained approximately $21.8 million of mortgage debt from Fannie Mae to replace the Wells Fargo interim financing. This new mortgage loan has a 10-year term with a fixed interest rate of 3.84% and the princi- pal amortized over 30-years. On February 17, 2015, the Company obtained new permanent mortgage financing totaling approximately $23.2 million from Fannie Mae on one of its owned senior living communities located in Peoria, Illinois. The new financing replaced a mortgage loan previously scheduled to mature on September 1, 2015, which was defeased by the Company on January 21, 2015, in conjunction with the Four Property Sale Transaction, dis- cussed below. This new mortgage loan has a 10-year term with a fixed interest rate of 3.85% and the principal amortized over 30 years. As a result of the Peoria financing, the Company repaid existing mortgage debt on two owned properties totaling approximately $14.1 million. Effective January 22, 2015, the Company closed a transaction to sell four of its senior living communities located in Oklahoma City, Oklahoma, Shreveport, Louisiana, Southfield, Michigan, and Winston-Salem, North Carolina, in a single transaction for approximately $36.5 million (the “Four Property Sale Transaction”). As a result of the sale, the outstanding mortgage debt on the Company’s senior living communities located in Oklahoma City and Shreveport was repaid without incurring any prepayment penalties as these notes were short- term, bridge loan interim financing. However, the mortgage loan associated with the Company’s senior living community located in Winston-Salem could not be prepaid under the existing loan agreement as it did not offer a prepayment provision. Therefore, the Company determined it would defease the mortgage loan by acquiring certain treasury securities to serve as collateral for the outstanding principal balance as of the date of the sale until the note matured on September 1, 2015. The Company contracted with a third party trust to assume the 31 mortgage debt and assigned all of its rights to the treasury securities to serve as collateral until the balance remaining comes due. Based on this structure, the Company concluded it met the requirements to report the debt transaction as a legal defeasance which resulted in the Company removing the respective assets and liabilities from its Consolidated Balance Sheet during the first quarter of fiscal 2015 when the transaction closed. The Company previously reported these assets as held for sale at December 31, 2014, and recorded a remeasurement write-down of approximately $0.6 million to adjust the carrying values of the assets to the sales price, less costs to sell. As a result of the sale, the Company received net proceeds of approximately $35.7 million. Effective January 13, 2015, the Company closed the acquisition of one senior living community located in Green Bay, Wisconsin, for approximately $18.3 million (the “Green Bay Transaction”). The community consists of 78 assisted living units. The Company obtained financing from Fannie Mae for approximately $14.1 million of the acquisition price at a fixed interest rate of 4.35% with a 10-year term with the balance of the acquisition price paid from the Company’s existing cash resources. Joint Venture Transactions and Management Contracts During fiscal 2014, the Company managed three communities owned by joint ventures in which the Com- pany had a minority interest. For communities owned by joint ventures, the Company typically received a man- agement fee of 5% of gross revenues. The Company’s joint venture management fees were based on a percentage of gross revenues. As a result, the cash flow and profitability of such contracts to the Company were more dependent on the revenues generated by such communities and less dependent on net cash flow than for owned or leased communities. On June 30, 2014, the Company closed the SHPIII/CSL Transaction, acquiring 100% of the member interests of SHPIII/CSL Miami, SHPIII/CSL Levis Commons, and SHPIII/CSL Richmond Heights. For additional information refer to Note 4, “Acquisitions”, within the notes to consolidated financial statements. Facility Leases The Company currently leases 50 senior living communities from certain real estate investment trusts (“REITs”). The lease terms are generally for 10-15 years with renewal options for 5-20 years at the Company’s option. Under these lease agreements, the Company is responsible for all operating costs, maintenance and repairs, insurance and property taxes. As of December 31, 2015, the Company leased 11 senior living communities (collectively the “Ventas Lease Agreements”), from Ventas , Inc. (“Ventas”). During the second quarter of fiscal 2015, the Company executed amendments to the master lease agreements with Ventas to facilitate up to $24.5 million of leasehold improvements for 10 communities within the Ventas lease portfolio and extend the lease terms until Sep- tember 30, 2025, with two five-year renewal extensions available at the Company’s option. The initial lease rates under each of the Ventas Lease Agreements ranged from 6.75% to 8% and are subject to certain conditional escalation clauses which will be recognized when probable or incurred. The Company incurred $11.4 million in lease acquisition and modification costs related to the Ventas Lease Agreements. These deferred lease acquisition and modification costs are being amortized over the lease terms and are included in facility lease expense in the Company’s Consolidated Statement of Operations and Comprehensive Loss. The Company accounts for nine of the Ventas Lease Agreements as an operating lease and two as a capital lease and financing obligation. As of December 31, 2015, the Company leased 15 senior living communities (collectively the “HCP Lease Agreements”), from HCP, Inc. (“HCP”). During the fourth quarter of fiscal 2013, the Company executed an amendment to the master lease agreement with HCP to facilitate up to $3.3 million of leasehold improvements for one community within the HCP lease portfolio and extend the initial lease terms for nine communities until October 31, 2020, with two 10-year renewal extensions available at the Company’s option. During the second quarter of fiscal 2015, the Company exercised its right to extend the lease term with HCP for the remaining six communities in the HCP lease portfolio until April 30, 2026, with one 10-year renewal extension available at the Company’s option. The initial lease rates under the HCP Lease Agreements ranged from 7.25% to 8% and are subject to certain conditional escalation clauses, which will be recognized when probable or incurred. The Company incurred $1.6 million in lease acquisition and modification costs related to the HCP Lease Agreements. These deferred lease acquisition and modification costs are being amortized over the lease terms and are included 32 in facility lease expense in the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company accounts for each of the HCP Lease Agreements as an operating lease. As of December 31, 2015, the Company leased 24 senior living communities (collectively the “HCN Lease Agreements”), from Welltower, Inc., formerly Health Care REIT, Inc. (“HCN”). The HCN Lease Agreements each have an initial term of 15 years, with one 15-year renewal extension available at the Company’s option. The initial lease rates under the HCN Lease Agreements ranged from 7.25% to 8.5% and are subject to certain condi- tional escalation clauses, which will be recognized when probable or incurred. The initial terms on the HCN Lease Agreements expire on various dates through April 2026. The Company incurred $2.1 million in lease acquisition costs related to the HCN Lease Agreements. These deferred lease acquisition costs are being amor- tized over the lease terms and are included in facility lease expense in the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company accounts for each of the HCN Lease Agreements as an operating lease. The following table summarizes each of the Company’s facility lease agreements as of December 31, 2015 (dollars in millions): Landlord Date of Lease Number of Communities Value of Transaction Term Ventas . . . . . . . . . September 30, 2005 Ventas . . . . . . . . . October 18, 2005 Ventas . . . . . . . . . June 8, 2006 Ventas . . . . . . . . . January 31, 2008 Ventas . . . . . . . . . June 27, 2012 HCP . . . . . . . . . . . May 1, 2006 HCP . . . . . . . . . . . May 31, 2006 HCP . . . . . . . . . . . December 1, 2006 HCP . . . . . . . . . . . December 14, 2006 HCP . . . . . . . . . . . April 11, 2007 HCN . . . . . . . . . . . April 16, 2010 HCN . . . . . . . . . . . May 1, 2010 6 1 1 1 2 3 6 4 1 1 5 3 $ 84.6 19.5 19.1 5.0 43.3 54.0 43.0 51.0 18.0 8.0 48.5 36.0 HCN . . . . . . . . . . . September 10, 2010 HCN . . . . . . . . . . . April 8, 2011 12 4 104.6 141.0 (4) (Two five-year renewals) (4) (Two five-year renewals) (4) (Two five-year renewals) (4) (Two five-year renewals) (4) (Two five-year renewals) (5) (Two ten-year renewals) (6) (One ten-year renewal) (5) (Two ten-year renewals) (5) (Two ten-year renewals) (5) (Two ten-year renewals) 15 years (One 15-year renewal) 15 years (One 15-year renewal) 15 years (One 15-year renewal) 15 years (One 15-year renewal) Initial Lease Rate(1) Lease Acquisition Costs(2) Deferred Gains / Lease Concessions(3) 8% $ 9.5 $ 4.6 8% 0.3 8% 0.6 7.75% 0.2 6.75% 0.8 8% 0.3 8% 0.2 8% 0.7 7.75% 0.3 7.25% 0.1 8.25% 0.6 8.25% 0.2 8.50% 0.4 — — — — 12.8 0.6 — — — 0.8 0.4 2.0 7.25% 0.9 16.3 Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated amortization through December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated deferred gains / lease concessions recognized through December 31, 2015 . . . . 15.1 (7.4) — 37.5 — (20.2) Net lease acquisition costs / deferred gains / lease concessions as of December 31, 2015 . . . . $ 7.7 $ 17.3 33 (1) Initial lease rates are measured against agreed upon fair market values and are subject to conditional lease escalation provisions as set forth in each respective lease agreement. (2) Lease acquisition and modification costs are being amortized over the respective initial lease terms. (3) Deferred gains of $34.9 million and lease concessions of $2.6 million are being recognized in the Company’s Consolidated Statements of Operations and Comprehensive Loss as a reduction in facility lease expense over the respective initial lease terms. Lease concessions of $0.6 million relate to the transaction with HCP on May 31, 2006, and $2.0 million relate to the transaction with HCN on September 10, 2010. (4) Effective June 17, 2015, the Company executed amendments to the master lease agreements with Ventas to facilitate up to $24.5 million of leasehold improvements for 10 of the leased communities and extend the lease terms through September 30, 2025, with two 5-year renewal extensions available at the Company’s option. (5) On November 11, 2013, the Company executed an amendment to the master lease agreement associated with nine of its leased communities with HCP to facilitate up to $3.3 million of leasehold improvements for one of the leased communities and extend the respective lease terms through October 31, 2020, with two 10-year renewal extensions available at the Company’s option. (6) On April 24, 2015, the Company exercised its right to extend the lease terms with HCP through April 30, 2026, with one 10-year renewal extension remaining available at the Company’s option. Facility lease expense in the Company’s Consolidated Statements of Operations and Comprehensive Loss includes rent expense plus amortization expense relating to leasehold acquisition costs offset by the amortization of deferred gains and lease incentives. There are various financial covenants and other restrictions in the Compa- ny’s lease agreements. The Company was in compliance with all of its lease covenants at December 31, 2015 and 2014. Debt Transactions On December 17, 2015, the Company completed supplemental mortgage financing of approximately $7.6 million from Fannie Mae on three senior living communities located in Columbus, Ohio, Chardon, Ohio, and Greenwood, Indiana, at a fixed interest rate of 5.49% which is coterminous with existing mortgage debt maturing in November 2022. The supplemental mortgage loans are cross-collateralized and cross-defaulted with the origi- nal mortgage debt. The Company incurred approximately $0.2 million in deferred financing costs related to these loans, which are being amortized over the remaining initial loan terms. On November 24, 2015, the Company completed supplemental mortgage financing of approximately $3.2 million from Fannie Mae on one senior living community located in Elkhorn, Nebraska, at a fixed interest rate of 5.46% which is coterminous with existing mortgage debt maturing in April 2023. The supplemental mortgage loan is cross-collateralized and cross-defaulted with the original mortgage debt. The Company incurred approx- imately $0.1 million in deferred financing costs related to this loan, which are being amortized over the remain- ing initial loan term. On November 24, 2015, the Company completed supplemental mortgage financing of approximately $8.7 million from Fannie Mae on one senior living community located in Springfield, Missouri, at a fixed interest rate of 5.39% which is coterminous with existing mortgage debt maturing in January 2023. The supplemental mort- gage loan is cross-collateralized and cross-defaulted with the original mortgage debt. The Company incurred approximately $0.1 million in deferred financing costs related to this loan, which are being amortized over the remaining initial loan term. On November 12, 2015, the Company repaid mortgage loans totaling approximately $31.6 million from Fannie Mae associated with four of its senior living communities located in Columbia, South Carolina, Deer Park and Pantego, Texas, and South Bend, Indiana, scheduled to mature in June 2017. The Company obtained approx- imately $52.8 million of new long-term fixed interest rate mortgage financing from Berkadia, who later sold the loans to Fannie Mae, at a fixed interest rate of 4.68% with a 10-year term and the principal amortized over a 30- year term. The Company incurred approximately $0.6 million in deferred financing costs related to the new 34 mortgage loans, which are being amortized over 10 years. As a result of the early repayment of the existing mortgage debt, the Company accelerated the amortization of approximately $0.1 million in unamortized deferred financing costs and incurred a prepayment premium of approximately $1.7 million to Fannie Mae. On October 30, 2015, in conjunction with the Virginia Beach Transaction, the Company obtained $28.0 million of mortgage debt from Protective Life. The new mortgage loan has a 10-year term with a 4.25% fixed interest rate and the principal amortized over a 30-year term. The Company incurred approximately $0.4 million in deferred financing costs related to this loan, which are being amortized over 10 years. On September 30, 2015, in conjunction with the Mahomet Transaction, the Company obtained approx- imately $11.1 million of mortgage debt from Fannie Mae. The new mortgage loan has a 10-year term with a 4.69% fixed interest rate and the principal amortized over a 30-year term. The Company incurred approximately $0.2 million in deferred financing costs related to this loan, which are being amortized over 10 years. On September 30, 2015, the Company completed supplemental financing of approximately $5.0 million from Fannie Mae on an existing senior living community owned by the Company located in Macedonia, Ohio. The supplemental loan is coterminous with existing mortgage debt maturing in October 2021with a 5.19% fixed interest rate and the principal amortized over a 30-year term. The supplemental loan is cross-collateralized and cross-defaulted with the original mortgage debt. The Company incurred approximately $0.1 million in deferred financing costs related to this loan, which are being amortized over the remaining initial loan term. On September 24, 2015, the Company obtained approximately $8.4 million long-term fixed interest rate mortgage financing from Fannie Mae to replace interim variable interest rate financing obtained by the Company from Berkadia on September 30, 2013, in connection with the Company’s previous acquisition of a senior living community located in Oakwood, Georgia. The new mortgage loan has a 10-year term with a 4.7% fixed interest rate and the principal amortized over a 30-year term. The Company incurred approximately $0.2 million in deferred financing costs related to this loan, which are being amortized over 10 years. On August 11, 2015, in conjunction with the Indianapolis Transaction, the Company obtained approx- imately $13.2 million of mortgage debt from Protective Life. The new mortgage loan has a 10-year term with a 4.25% fixed interest rate and the principal amortized over a 30-year term. The Company incurred approximately $0.2 million in deferred financing costs related to this loan, which are being amortized over 10 years. The note with Protective Life associated with the Indianapolis Transaction includes a loan commitment for up to approx- imately $2.6 million of supplemental funding for the same term and 4.25% fixed interest rate. The loan commit- ment is based on meeting certain funding requirements and is available through February 28, 2018. On August 6, 2015, outstanding mortgage debt totaling approximately $6.8 million was assumed by the buyer in conjunction with the Sedgwick Sale Transaction. As a result of the buyer’s assumption of the existing mortgage debt, the Company accelerated the amortization of approximately $0.1 million in unamortized deferred financing costs. For additional information refer to Note 5, “Dispositions”, within the notes to consolidated financial statements. On July 28, 2015, in conjunction with the Columbiana Transaction, the Company obtained approximately $9.9 million of mortgage debt from Protective Life. The new mortgage loan has a 10-year term with a 4.25% fixed interest rate and the principal amortized over a 30-year term. The Company incurred approximately $0.2 million in deferred financing costs related to this loan, which are being amortized over 10 years. On May 31, 2015, the Company renewed certain insurance policies and entered into a finance agreement totaling approximately $1.7 million. The finance agreement has a fixed interest rate of 1.73% with the principal being repaid over an 11-month term. On May 29, 2015, in conjunction with the Heritage Transaction, the Company obtained approximately $11.2 million of mortgage debt from Fannie Mae. The new mortgage loan has a 10-year term with a 4.79% fixed inter- est rate and the principal amortized over a 30-year term. The Company incurred approximately $0.2 million in deferred financing costs related to this loan, which are being amortized over 10 years. On May 21, 2015, in conjunction with the Emerald Transaction, the Company obtained approximately $9.2 million of mortgage debt from Fannie Mae. The new mortgage loan has a 10-year term with a 4.55% fixed inter- 35 est rate and the principal amortized over a 30-year term. The Company incurred approximately $0.2 million in deferred financing costs related to this loan, which are being amortized over 10 years. On March 27, 2015, in conjunction with the Baytown Transaction, the Company obtained approximately $21.4 million of mortgage debt from Protective Life. The new mortgage loan has a 10-year term with a 3.55% fixed interest rate and the principal amortized over a 30-year term. The Company incurred approximately $0.2 million in deferred financing costs related to this loan, which are being amortized over 10 years. On March 5, 2015, the Company repaid an interim, interest only variable rate mortgage loan totaling approx- imately $21.6 million from Wells Fargo on one of its senior living communities located in Toledo, Ohio. The Company obtained approximately $21.8 million of mortgage debt from Fannie Mae to replace the Wells Fargo interim financing. This new mortgage loan has a 10-year term with a fixed interest rate of 3.84% and the princi- pal amortized over 30-years. The Company incurred approximately $0.2 million in deferred financing costs related to this loan, which are being amortized over the loan term. As a result of the refinance, the Company received approximately $0.2 million in cash proceeds. Due to the early repayment, the Company accelerated the amortization of approximately $79,000 in unamortized deferred financing costs and incurred additional prepay- ment fees totaling approximately $55,000. On February 17, 2015, the Company obtained new permanent mortgage financing totaling approximately $23.2 million from Fannie Mae on one of its owned senior living communities located in Peoria, Illinois. The new financing replaced a mortgage loan previously scheduled to mature on September 1, 2015, which was defeased by the Company on January 22, 2015, in conjunction with the Four Property Sale Transaction. This new mortgage loan has a 10-year term with a fixed interest rate of 3.85% and the principal amortized over 30 years. The Company incurred approximately $0.2 million in deferred financing costs related to this loan, which are being amortized over the loan term. As a result of the Peoria financing, the Company repaid existing mortgage debt on two owned properties totaling approximately $14.1 million. Due to the early repayment, the Company accelerated the amortization of approximately $0.2 million in unamortized deferred financing costs and incurred additional prepayment fees totaling approximately $0.5 million. On January 22, 2015, outstanding mortgage debt totaling approximately $13.7 million was defeased in con- junction with the Four Property Sale Transaction. The mortgage loan associated with the Company’s senior liv- ing community located in Winston-Salem, North Carolina, carried an outstanding balance of approximately $5.7 million and could not be prepaid under the existing loan agreement as it did not offer a prepayment provision. Additionally, this mortgage loan was cross-collateralized with another mortgage loan on one of the Company’s senior living communities located in Peoria, Illinois, which carried an outstanding mortgage balance of approx- imately $8.0 million and also did not offer a prepayment provision. Therefore, the Company determined it would defease the Winston-Salem and Peoria mortgage loans by acquiring certain treasury securities to serve as collateral for the outstanding principal balance as of the date of the sale until the note matured on September 1, 2015. The Company contracted with a third party trust to assume the mortgage debt and assigned all of its rights to the treasury securities to serve as collateral until the balance remaining came due. Based on this structure, the Company concluded it met the requirements to report the debt transaction as a legal defeasance which resulted in the Company removing the respective assets and liabilities from its Consolidated Balance Sheet during the first quarter of fiscal 2015 when the transaction closed. Due to the defeasance, the Company accelerated the amor- tization of approximately $18,000 in unamortized deferred financing costs. For additional information refer to Note 5, “Dispositions”, within the notes to consolidated financial statements. On January 13, 2015, in conjunction with the Green Bay Transaction, the Company obtained approximately $14.1 million of mortgage debt from Fannie Mae. The new mortgage loan has a 10-year term with a 4.35% fixed interest rate and the principal amortized over a 30-year term. The Company incurred approximately $0.1 million in deferred financing costs related to this loan, which are being amortized over 10 years. Recent Events Effective February 16, 2016, the Company closed the acquisition of two senior living communities located in Pensacola, Florida, for approximately $48.0 million. The communities consist of 179 assisted living units. The Company obtained financing from Protective Life for $35.0 million of the acquisition price at a fixed rate of 36 4.38% with a 10-year term with the balance of the acquisition price paid from the Company’s existing cash resources. Effective January 26, 2016, the Company closed the acquisition of three senior living communities located in Colby, Park Falls, and Wisconsin Rapids, Wisconsin, for approximately $16.8 million. The communities con- sist of 138 assisted living units. The Company obtained financing from Protective Life for $11.3 million of the acquisition price at a fixed rate of 4.50% with a 10-year term with the balance of the acquisition price paid from the Company’s existing cash resources. Critical Accounting Policies The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements and related notes. Management bases its estimates and assumptions on histor- ical experience, observance of industry trends and various other sources of information and factors, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially could result in materially different results under different assumptions and conditions. The Company believes the following crit- ical accounting policies require management’s most difficult, subjective and complex judgments. Revenue Recognition Resident and health care revenue is recognized at estimated net realizable amounts, based on historical experiences, due from residents in the period to which the rental and other services are provided. Additionally, substantially all community fees received from residents are non-refundable and are recorded initially by the Company as deferred revenue. The deferred amounts are amortized over the respective residents’ initial lease term which is consistent with the contractual obligation associated with the estimated stay of the resident. Revenues from the Medicaid program accounted for approximately 5% of the Company’s revenue fiscal 2015 and 4% of the Company’s revenue in each of fiscal 2014 and 2013. During fiscal 2015, 2014, and 2013, 34, 30, and 29, respectively, of the Company’s communities were providers of services under Medicaid programs. Accordingly, these communities were entitled to reimbursement under the foregoing program at established rates that were lower than private pay rates. Patient service revenue for Medicaid patients was recorded at the reimbursement rates as the rates were set prospectively by the applicable state upon the filing of an annual cost report. None of the Company’s communities were providers of services under the Medicare program during fis- cal 2015 or 2014. Laws and regulations governing the Medicaid program are complex and subject to interpretation. The Company believes that it is in compliance with all applicable laws and regulations and is not aware of any pend- ing or threatened investigations involving allegations of potential wrongdoing. While no such regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties, and exclusion from the Medicaid program. Management services revenue was recognized when earned and related to the Company providing certain management and administrative support services under management contracts, which were terminated when the Company acquired 100% of the member interests in its unconsolidated joint ventures on June 30, 2014. Community reimbursement revenue is comprised of reimbursable expenses from the non-consolidated communities that the Company operated under long-term management agreements, which were terminated when the Company acquired 100% of the member interests in its unconsolidated joint ventures on June 30, 2014. Credit Risk and Allowance for Doubtful Accounts The Company’s resident receivables are generally due within 30 days from the date billed. Accounts receiv- able are reported net of an allowance for doubtful accounts, and represent the Company’s estimate of the amount that ultimately will be collected. The adequacy of the Company’s allowance for doubtful accounts is reviewed on 37 an ongoing basis, using historical payment trends, write-off experience, analyses of receivable portfolios by payor source and aging of receivables, as well as a review of specific accounts, and adjustments are made to the allowance as necessary. Credit losses on resident receivables have historically been within management’s esti- mates, and management believes that the allowance for doubtful accounts adequately provides for expected losses. Investments in Unconsolidated Joint Ventures The Company accounted for its investments in unconsolidated joint ventures under the equity method of accounting. The Company had not consolidated these joint venture interests because the Company had concluded that the other member of each joint venture had substantive kick-out rights or substantive participating rights. Under the equity method of accounting, the Company recorded its investments in the unconsolidated joint ven- tures at cost and adjusted such investments for its share of the earnings and losses of the joint ventures. On June 30, 2014, the Company acquired 100% of the member interests in these joint ventures. For additional information refer to Note 4, “Acquisitions” within the notes to consolidated financial statements. Off-Balance Sheet Arrangements The Company had no material off-balance sheet arrangements at December 31, 2015. Lease Accounting The Company determines whether to account for its leases as operating, capital or financing leases depend- ing on the underlying terms of each lease agreement. This determination of classification requires significant judgment relating to certain information, including the estimated fair value and remaining economic life of the community, the Company’s cost of funds, minimum lease payments and other lease terms. The lease rates under the Company’s lease agreements are subject to certain conditional escalation clauses which are recognized when probable or incurred and are based on changes in the consumer price index or certain operational performance measures. As of December 31, 2015 and 2014, the Company leased 50 communities, 48 of which the Company classified as operating leases and two of which the Company classified as capital lease and financing obligations. The Company incurs lease acquisition costs and amortizes these costs over the term of the respective lease agreement. Certain leases entered into by the Company qualified as sale/leaseback transactions, and as such, any related gains have been deferred and are being amortized over the respective lease term. No new communities were leased by the Company during fiscal 2015 or 2014. Facility lease expense in the Company’s Consolidated Statements of Operations and Comprehensive loss includes rent expense plus amortization expense relating to leasehold acquisition costs offset by the amortization of deferred gains and lease incentives. Employee Health and Dental Benefits, Workers’ Compensation, and Insurance Reserves The Company offers certain full-time employees an option to participate in its health and dental plans. The Company is self-insured up to certain limits and is insured if claims in excess of these limits are incurred. The cost of employee health and dental benefits, net of employee contributions, is shared between the corporate office and the senior living communities based on the respective number of plan participants. Funds collected are used to pay the actual program costs including estimated annual claims, third-party administrative fees, network pro- vider fees, communication costs, and other related administrative costs incurred by the plans. Claims are paid as they are submitted to the Company’s third-party administrator. The Company records a liability for outstanding claims and claims that have been incurred but not yet reported. This liability is based on the historical claim reporting lag and payment trends of health insurance claims. Management believes that the liability for out- standing losses and expenses is adequate to cover the ultimate cost of losses and expenses incurred at December 31, 2015; however, actual claims and expenses may differ. Any subsequent changes in estimates are recorded in the period in which they are determined. The Company uses a combination of insurance and self-insurance for workers’ compensation. Determining the reserve for workers’ compensation losses and costs that the Company has incurred as of the end of a reporting period involves significant judgments based on projected future events, including potential settlements for pend- 38 ing claims, known incidents which may result in claims, estimates of incurred but not yet reported claims, changes in insurance premiums, estimated litigation costs and other factors. The Company regularly adjusts these estimates to reflect changes in the foregoing factors. However, since this reserve is based on estimates, the actual expenses incurred may differ from the amounts reserved. Any subsequent changes in estimates are recorded in the period in which they are determined. Long-Lived Assets Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful lives of the assets. At each balance sheet date, the Company reviews the carrying value of its property and equipment to determine if facts and circumstances suggest that they may be impaired or that the depreciation period may need to be changed. The Company considers internal factors such as net operating losses along with external factors relating to each asset, including contract changes, local market developments, and other publicly available information. If an indicator of impairment is identified, the carrying value of a long-lived asset is con- sidered impaired when the anticipated undiscounted cash flows from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount the carrying value exceeds the fair market value, generally based on discounted cash flows, of the long-lived asset. The Company does not believe there are any indicators of impairment that would require an adjustment to the carrying value of the property and equipment or their remaining useful lives as of December 31, 2015 and 2014. Assets Held for Sale Assets are classified as held for sale when the Company has determined all of the held-for-sale criteria have been met. The Company determines the fair value, net of costs of disposal, of an asset on the date the asset is categorized as held for sale, and the asset is recorded at the lower of its fair value, net of cost of disposal, or carrying value on that date. The Company periodically re-evaluates assets held for sale to determine if the assets are still recorded at the lower of fair value, net of cost of disposal, or carrying value. The fair values are generally determined based on market rates, industry trends and recent comparable sales transactions. The actual sales price of these assets could differ significantly from the Company’s estimates. During the fourth quarter of fiscal 2014, the Company classified four senior living communities as held for sale and determined the assets had an aggregate fair value, net of cost of disposal, that exceeded the carrying values and a remeasurement write-down of approximately $0.6 million was recorded. The four senior living communities were sold during the first quarter of fiscal 2015 in a single transaction for its carrying value. There were no senior living communities classified as held for sale by the Company at December 31, 2015. Income Taxes Income taxes are computed using the asset and liability method and current income taxes are recorded based on amounts refundable or payable in the current year. Deferred income taxes are recorded based on the estimated future tax effects of loss carryforwards and temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in the years in which we expect those carry- forwards and temporary differences to be recovered or settled. Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strategies, and future expectations of income. Based upon this evaluation, a valuation allowance has been recorded to reduce the Company’s net deferred tax assets to the amount that is more likely than not to be realized. However, in the event that we were to determine that it would be more likely than not that the Company would realize the benefit of deferred tax assets in the future in excess of their net recorded amounts, adjustments to deferred tax assets would increase net income in the period we made such a determination. The benefits of the net deferred tax assets might not be realized if actual results differ from expectations. The effective tax rates for fiscal 2015 and 2014 differ from the statutory tax rates due to state income taxes, permanent tax differences, and changes in the deferred tax asset valuation allowance. The Company is impacted by the Texas Margin Tax (“TMT”), which effectively imposes tax on modified gross revenues for communities within the State of Texas. During fiscal 2015, the Company con- 39 solidated 37 Texas communities and during 2014, the Company consolidated 36 Texas communities and the TMT increased the overall provision for income taxes. The Company evaluates uncertain tax positions through consideration of accounting and reporting guidance on criteria, measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better financial-statement comparability among different companies. The Company is required to recognize a tax benefit in its financial statements for an uncertain tax position only if man- agement’s assessment is that its position is “more likely than not” (i.e., a greater than 50 percent likelihood) to be upheld on audit based only on the technical merits of the tax position. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as income tax expense. The Company is gen- erally no longer subject to federal and state income tax audits for years prior to 2012. Recently Issued Accounting Guidance In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases. ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to les- sor accounting. ASU 2016-02 will be effective beginning in 2019. Early adoption of ASU 2016-02 as of its issu- ance is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. We are currently evaluating the impact of adopting the new leases standard on our consolidated financial statements. In November 2015, the FASB issued ASU 2015-17, Income Taxes – Balance Sheet Reclassification of Deferred Taxes (Topic 740). ASU 2015-17 requires that deferred tax liabilities and assets be classified as non- current in a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this update. The amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adop- tion is permitted and the amendments may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company early adopted ASU 2015-17 in the fourth quarter of 2015 on a prospective basis and included the current portion of deferred tax assets within the non-current portion of deferred tax liabilities within the Company’s consolidated balance sheet. The Company did not adjust its prior period consolidated financial statements as a result of the adoption of ASU 2015-17. In September 2015, the FASB issued ASU 2015-16, Business Combinations — Simplifying the Accounting for Measurement-Period Adjustments. ASU 2015-16 eliminates the requirement for an acquirer in a business combination to account for the measurement-period adjustment retrospectively. Instead, acquirers must recognize measurement-period adjustments during the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. ASU 2015-16 is applied prospectively and is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early application is permitted. The Company is currently evaluating the impact the adoption of ASU 2015-16 will have on the Company’s consolidated finan- cial statements and disclosures. In April 2015, the FASB issued ASU 2015-03, Interest — Imputation of Interest- Simplifying the Pre- sentation of Debt Issuance Costs (Subtopic 835-30). The amendments in ASU No. 2015-03 requires debt issu- ance costs related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guid- ance for debt issuance costs are not affected by the amendments in ASU 2015-03. ASU 2015-03 requires retro- spective application and will be effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early application is permitted. The Company early adopted the provisions of ASU 2015-03 as of October 1, 2015, and incorporated the provisions of this update to its consolidated financial statements upon adoption. As a result of adoption of ASU 2015-03, at December 31, 2015, and 2014, approximately $8.5 million and $6.3 million, respectively, of debt issuance costs, net of accumulated amortization, were reclassified within the Company’s Consolidated Balance Sheets from 40 other assets to notes payable. The adoption of ASU 2015-03 did not have an impact on the Company’s financial condition or results of operations. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into con- tracts for the transfer of nonfinancial assets. Under ASU 2014-09, an entity will recognize revenue when it trans- fers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. ASU 2014-09 is effective for annual periods beginning after December 15, 2017. The Company is currently evaluating the impact the adoption of ASU 2014-09 will have on the Company’s consolidated financial statements and disclosures. Results of Operations The following tables set forth, for the periods indicated, selected historical Consolidated Statements of Operations and Comprehensive loss data in thousands of dollars and expressed as a percentage of total revenues. Year Ended December 31, 2015 2014 2013 $ % $ % $ % Revenues: Resident and healthcare revenue . . . . . . . . . . . . . . . . . Affiliated management services revenue . . . . . . . . . . Community reimbursement income . . . . . . . . . . . . . . $412,177 — — 100.0% $380,400 415 3,110 — — 99.1% $343,478 797 0.1 6,087 0.8 98.1% 0.2 1.7 Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 412,177 100.0 383,925 100.0 350,362 100.0 Expenses: Operating expenses (exclusive of facility lease expense and depreciation and amortization shown below) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General and administrative expenses . . . . . . . . . . . . . Facility lease expense . . . . . . . . . . . . . . . . . . . . . . . . . Provision for bad debts . . . . . . . . . . . . . . . . . . . . . . . . Stock-based compensation . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . Community reimbursement expense . . . . . . . . . . . . . . 248,736 20,351 61,213 1,192 8,833 53,017 — Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393,342 Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . Other income (expense): Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Write-off of deferred loan costs and prepayment premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Joint venture equity investment valuation gain . . . . . . Gain on disposition of assets, net . . . . . . . . . . . . . . . . Equity in earnings of unconsolidated joint ventures, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Write-down of assets held for sale . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,835 53 (35,732) (2,766) — 6,225 — — 1 Loss before provision for income taxes . . . . . . . . . . . . . Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . (13,384) (900) 60.3 4.9 14.9 0.3 2.1 12.9 — 95.4 4.6 0.0 (8.7) (0.7) — 1.5 — — 0.0 (3.3) (0.2) 230,495 19,622 59,332 717 7,262 49,487 3,110 370,025 13,900 52 (31,261) (7,968) 1,519 784 105 (561) 23 (23,407) (719) 60.0 5.1 15.5 0.2 1.9 12.9 0.8 96.4 3.6 0.0 (8.2) (2.1) 0.4 0.2 0.0 (0.2) 0.0 (6.1) (0.2) 207,744 20,238 56,986 497 4,322 43,238 6,087 339,112 11,250 59.3 5.8 16.3 0.2 1.2 12.3 1.7 96.8 3.2 151 (23,767) 0.2 (6.8) — — 1,454 133 — 34 — — 0.4 0.1 — 0.0 (10,745) (5,759) (3.1) (1.6) Net loss and comprehensive loss . . . . . . . . . . . . . . . . . . . $ (14,284) (3.5)% $ (24,126) (6.3)% $ (16,504) (4.7)% 41 Year Ended December 31, 2015 Compared to the Year Ended December 31, 2014 Revenues Total revenues were $412.2 million for the fiscal year ended December 31, 2015 compared to $383.9 mil- lion for the fiscal year ended December 31, 2014, representing an increase of approximately $28.3 million, or 7.4%. This increase in revenue is primarily the result of a $31.8 million increase in resident and healthcare rev- enue, slightly offset by a decrease in community reimbursement revenue of $3.1 million and a decrease in affili- ated management services revenue of $0.4 million. • The increase in resident and healthcare revenue primarily results from an increase of $36.7 million from the senior living communities acquired by the Company during fiscal 2015 and a full year of operating results from the senior living communities acquired by the Company during fiscal 2014 and an increase of $5.8 million from an increase in average monthly rental rates of 1.5% at the Company’s other con- solidated same-store communities, slightly offset by a decrease of $10.7 million due to the Sedgwick Sale Transaction which closed on August 6, 2015 and Four Property Sale Transaction which closed on Jan- uary 22, 2015. • Affiliated management service revenue is comprised of management fees earned from unconsolidated joint ventures that the Company operated under management agreements. On June 30, 2014, the Company acquired 100% of the member interests in these joint ventures. • Community reimbursement income is comprised of reimbursable expenses from unconsolidated joint ventures that the Company operated under management agreements. On June 30, 2014, the Company acquired 100% of the member interests in these joint ventures. Expenses Total expenses were $393.3 million during fiscal 2015 compared to $370.0 million during fiscal 2014, repre- senting an increase of $23.3 million, or 6.3%. This increase in expenses is primarily the result of a $18.2 million increase in operating expenses, a $3.5 million increase in depreciation and amortization expense, a $1.9 million increase in facility lease expense, a $1.6 million increase in stock-based compensation expense, a $0.7 million increase in general and administrative expenses, and a $0.5 million increase in provision for bad debts, slightly offset by a decrease in community reimbursement expense of $3.1 million. • The increase in operating expenses primarily results from an increase of $22.8 million from the senior living communities acquired by the Company during fiscal 2015 and a full year of operating results from the senior living communities acquired by the Company during fiscal 2014 and a $2.6 million increase in general overall operating costs at the Company’s other consolidated same-store communities, partially offset by a decrease of $7.2 million due to the Sedgwick Sale Transaction which closed on August 6, 2015 and Four Property Sale Transaction which closed on January 22, 2015. • The increase in depreciation and amortization expense primarily results from an increase of $13.6 million for senior living communities acquired by the Company during fiscal 2015 and a full year of operating results from the senior living communities acquired by the Company during fiscal 2014 and an increase of $2.0 million due to an increase in depreciable assets at the Company’s other consolidated same-store communities, partially offset by a decrease in in-place lease amortization of $10.3 million from the senior living communities acquired by the Company during fiscal 2014 and 2013 which were fully amortized prior to fiscal 2015 and a decrease of $1.8 million due to the Sedgwick Sale Transaction which closed on August 6, 2015 and Four Property Sale Transaction which closed on January 22, 2015. • The increase in facility lease expense primarily results from contingent annual rental rate escalations for certain existing leases. • The increase in stock-based compensation expense results from the Company granting restricted stock awards and units to certain employees and directors during fiscal 2015, some of which required accel- erated expense recognition, and a full year of amortization for awards and units granted during fiscal 2014. 42 • The increase in general and administrative expenses primarily results from an increase of $1.6 million in wages and benefits for existing employees, primarily attributable to annual merit increases, and additional employees added throughout fiscal 2015 and 2014, partially offset by a decrease of $0.9 million in employee insurance benefits and claims paid, which resulted in lower health insurance costs to the Com- pany. • Community reimbursement expense represents payroll and administrative costs paid by the Company for the benefit of unconsolidated joint ventures that the Company operated under management agreements. On June 30, 2014, the Company acquired 100% of the member interests in these joint ventures. Other income and expense • Interest income generally reflects interest earned on the investment of cash balances and escrowed funds or interest associated with certain income tax refunds or property tax settlements. • Interest expense increased $4.5 million in fiscal 2015 when compared to fiscal 2014 primarily due to an increase of $5.6 million from the additional mortgage debt associated with the senior living communities acquired by the Company during fiscal 2015 and a full year of interest expense for the senior living communities acquired by the Company during fiscal 2014 and an increase of $0.1 million at the Compa- ny’s other consolidated same-store communities due to additional mortgage debt added by the Company associated with certain refinancings and supplemental loans that occurred during fiscal 2015, slightly offset by a $1.2 million decrease due to the Sedgwick Sale Transaction which closed on August 6, 2015 and Four Property Sale Transaction which closed on January 22, 2015. • Write-off of deferred loan costs and prepayment premiums is attributable to the early repayment of certain mortgage debt on the Company’s owned properties due to scheduled maturities and the opportunity to replace interim variable interest rate debt with long-term fixed interest rate financing. • Joint venture equity investment valuation gain is attributable to the Company closing the SHPIII/CSL Transaction during the second quarter of fiscal 2014. The Company acquired 100% of the members’ equity interests in SHPIII/CSL Miami, SHPIII/CSL Richmond Heights, and SHPIII/CSL Levis Commons and received cash proceeds, including incentive distributions, of approximately $2.5 million which resulted in the Company recording a gain of approximately $1.5 million to reflect the fair value of the equity interests on the acquisition date. • The increase in gain on disposition of assets is primarily attributable to the Sedgwick Sale Transaction which closed on August 6, 2015. • Equity in earnings of unconsolidated joint ventures, net, represents the Company’s share of the net earn- ings on its investments in SHPIII/CSL Miami, SHPIII/CSL Richmond Heights, and SHPIII/CSL Levis Commons. On June 30, 2014, the Company acquired 100% of the member interests in these joint ven- tures. • Write-down of assets held for sale is attributable to a fair value remeasurement adjustment recorded by the Company upon classifying four senior living communities as held for sale during the fourth quarter of fiscal 2014. This reclassification resulted in the Company determining the assets had an aggregate fair value, net of costs of disposal, which exceeded the carrying values by approximately $0.6 million, that was primarily attributable to costs of disposal. The four senior living communities were sold during the first quarter of fiscal 2015 in a single transaction for its carrying value. Provision for income taxes Provision for income taxes for fiscal 2015 was $0.9 million, or 6.7% of loss before income taxes, compared to provision for income taxes of $0.7 million, or 3.1% of loss before income taxes, for fiscal 2014. The effective tax rates for fiscal 2015 and 2014 differ from the statutory tax rates due to state income taxes, permanent tax differences, and changes in the deferred tax asset valuation allowance. The Company is impacted by the TMT which effectively imposes tax on modified gross revenues for communities within the State of Texas. During fiscal 2015 the Company operated 37 Texas communities and during fiscal 2014 the Company operated 36 Texas 43 communities and the TMT increased the overall provision for income taxes. For income tax purposes, in con- junction with the Sedgwick Sale Transaction the Company executed a like-kind exchange and acquired a replacement property shortly after the sale which resulted in deferral of the gain without the Company incurring any current federal or state income tax liabilities. Management regularly evaluates the future realization of deferred tax assets and provides a valuation allow- ance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strat- egies, and future expectations of income. Based upon this evaluation, an adjustment to the deferred tax asset valuation allowance of $5.0 million and $8.5 million was recorded during fiscal 2015 and 2014, respectively, to reduce the Company’s net deferred tax assets to the amount that is more likely than not to be realized. Net loss and comprehensive loss As a result of the foregoing factors, the Company reported net loss and comprehensive loss of $(14.3 mil- lion) for the fiscal year ended December 31, 2015, compared to net loss and comprehensive loss of $(24.1 mil- lion) for the fiscal year ended December 31, 2014. The retained deficit currently reported within the Company’s Consolidated Balance Sheets is primarily the accumulated result of the Company recognizing accelerated amor- tization expense of $67.2 million through December 31, 2015, associated with in-place leases from the Compa- ny’s acquisition program which began during fiscal 2010. Year Ended December 31, 2014 Compared to the Year Ended December 31, 2013 Revenues Total revenues were $383.9 million for the year ended December 31, 2014 compared to $350.4 million for the year ended December 31, 2013, representing an increase of approximately $33.6 million, or 9.6%. This increase in revenue is the result of a $36.9 million increase in resident and healthcare revenue, slightly offset by a decrease in affiliated management services revenue of $0.4 million, and a decrease in community reimbursement revenue of $3.0 million. • The increase in resident and healthcare revenue primarily results from an increase of $41.4 million from the senior living communities acquired by the Company during fiscal 2014 and a full year of operating results from the senior living communities acquired by the Company during fiscal 2013, partially offset by a decrease of $7.8 million due to the Company no longer providing skilled nursing services at two of its senior living communities which are in the process of being repositioned with the facilities being con- verted to offer assisted living care and services. • Affiliated management service revenue is comprised of management fees earned from unconsolidated joint ventures that the Company operated under management agreements. On June 30, 2014, the Company closed the SHPIII/CSL Transaction and acquired 100% of the member interests in these joint ventures. For additional information refer to Note 4, “Acquisitions”, within the notes to consolidated financial statements. • Community reimbursement income is comprised of reimbursable expenses from unconsolidated joint ventures that the Company operated under management agreements. On June 30, 2014, the Company closed the SHPIII/CSL Transaction and acquired 100% of the member interests in these joint ventures. 44 Expenses Total expenses were $370.0 million during fiscal 2014 compared to $339.1 million during fiscal 2013, repre- senting an increase of $30.9 million, or 9.1%. This increase is the result of a $22.8 million increase in operating expenses, a $6.2 million increase in depreciation and amortization expense, a $2.9 million increase in stock- based compensation expense, a $2.3 million increase in facility lease expense, and a $0.2 million increase in provision for bad debts, slightly offset by a decrease in community reimbursement expense of $3.0 million and a decrease in general and administrative expenses of $0.6 million. • The increase in operating expenses primarily results from an increase of $27.1 million from the senior living communities acquired by the Company during fiscal 2014 and a full year of operating results from the senior living communities acquired by the Company during fiscal 2013, and an increase in overall operating costs at the Company’s other consolidated same-store communities of $4.2 million. These increases were partially offset by a decrease of $8.5 million due to the Company no longer providing skil- led nursing services at two of its senior living communities which are in the process of being repositioned with the facilities being converted to offer assisted living care and services. The increase in overall operat- ing costs of $4.2 million at the Company’s other consolidated same-store communities primarily results from an increase in employee wages and benefits of $2.3 million, an increase in utilities of $0.5 million, an increase in promotional and advertising costs of $0.5 million, an increase in food costs of $0.2 million, an increase in property taxes of $0.2 million, and an increase in general operating expenses of $0.5 mil- lion. • The increase in facility lease expense primarily results from contingent annual rental rate escalations for certain existing leases. • The increase in stock-based compensation expense results from the accelerated vesting of certain restricted stock awards associated with the retirement of the Company’s former Chief Financial Officer during the second quarter of fiscal 2014 and the Company granting additional shares of restricted stock to certain employees and directors throughout fiscal 2014 and 2013. • The increase in depreciation and amortization expense primarily results from an increase of $19.8 million for senior living communities acquired by the Company during fiscal 2014 and a full year of depreciation and amortization from the senior living communities acquired by the Company during fiscal 2013, and an increase of $0.6 million as a result of an increase in depreciable assets at the Company’s other con- solidated same-store communities. These increases were partially offset by a decrease in in-place lease amortization of $14.2 million from the senior living communities acquired by the Company prior to fiscal 2014. • Community reimbursement expense represents payroll and administrative costs paid by the Company for the benefit of unconsolidated joint ventures that the Company operated under management agreements. On June 30, 2014, the Company acquired 100% of the member interests in these joint ventures. For addi- tional information refer to Note 4, “Acquisitions”, within the notes to unaudited consolidated financial statements. • The decrease in general and administrative expenses primarily results from a decrease of $1.7 million in employee insurance benefits and claims paid, which resulted in lower health insurance costs to the Com- pany, and a decrease of $0.2 million related to professional fees paid for a cost segregation tax study completed during the first quarter of fiscal 2013. These decreases were partially offset by an increase of $1.1 million in wages and benefits for existing and additional employees added throughout fiscal 2014 and 2013 and an increase of $0.2 million for due diligence and legal expenses incurred in connection with the Company’s acquisition program. Other income and expense • Interest income generally reflects interest earned on the investment of cash balances and escrowed funds or interest associated with certain income tax refunds or property tax settlements. 45 • Interest expense increased $7.5 million in fiscal 2014 when compared to fiscal 2013 primarily due to the additional mortgage debt associated with the senior living communities acquired by the Company during fiscal 2014 and a full year of interest expense for the senior living communities acquired by the Company during fiscal 2013. • Write-off of deferred loan costs and prepayment premium is attributable to the early repayment of the Company’s existing mortgage debt with Freddie Mac during fiscal 2014. The Company recorded non- cash charges of approximately $0.5 million to remove the remaining unamortized deferred financing assets related to the refinanced mortgage debt and incurred approximately $7.5 million in early repayment fees and retirement costs. • Joint venture equity investment valuation gain is attributable to the Company closing the SHPIII/CSL Transaction on June 30, 2014, which resulted in the Company acquiring 100% of the members’ equity interests in SHPIII/CSL Miami, SHPIII/CSL Richmond Heights, and SHPIII/CSL Levis Commons. The Company received cash proceeds, including incentive distributions, of approximately $2.5 million which resulted in the Company recording a gain of approximately $1.5 million to reflect the fair value of the equity interests on the acquisition date. • Write-down of assets held for sale is attributable to a fair value remeasurement adjustment recorded by the Company upon classifying four senior living communities as held for sale during the fourth quarter of fiscal 2014. This reclassification resulted in the Company determining the assets had an aggregate fair value, net of costs of disposal, that exceeded the carrying values by approximately $0.6 million, which was primarily attributable to costs of disposal. The four senior living communities were sold during the first quarter of fiscal 2015 in a single transaction for its carrying value. • Equity in earnings of unconsolidated joint ventures, net, represents the Company’s share of the net earn- ings on its investments in SHPIII/CSL Miami, SHPIII/CSL Richmond Heights, and SHPIII/CSL Levis Commons. On June 30, 2014, the Company closed the SHPIII/CSL Transaction acquiring 100% of the member interests in these joint ventures. Provision for income taxes Provision for income taxes for fiscal 2014 was $0.7 million, or 3.1% of loss before income taxes, compared to provision for income taxes of $5.8 million, or 53.5% of loss before income taxes, for fiscal 2013. The effective tax rates for fiscal 2014 and 2013 differ from the statutory tax rates due to state income taxes, permanent tax differences, and changes in the deferred tax asset valuation allowance. The Company is impacted by the TMT which effectively imposes tax on modified gross revenues for communities within the State of Texas. During fiscal 2014 and 2013, the Company consolidated 36 Texas communities and the TMT increased the overall provision for income taxes. Management regularly evaluates the future realization of deferred tax assets and provides a valuation allow- ance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strat- egies, and future expectations of income. Based upon this evaluation, adjustments to the deferred tax asset valu- ation allowance of $8.5 million and $8.8 million were recorded during fiscal 2014 and 2013, respectively, to reduce the Company’s net deferred tax assets to the amount that is more likely than not to be realized. Net loss and comprehensive loss As a result of the foregoing factors, the Company reported net loss and comprehensive loss of $(24.1 mil- lion) for the fiscal year ended December 31, 2014, compared to net loss and comprehensive loss of $(16.5 mil- lion) for the fiscal year ended December 31, 2013. The net loss and comprehensive loss of $(24.1 million) reported by the Company for fiscal 2014, resulted in the Company realizing a retained deficit of $(9.3 million) within the Company’s Consolidated Balance Sheet. The retained deficit currently reported within the Company’s Consolidated Balance Sheets is primarily the accumulated result of the Company recognizing accelerated amor- tization expense of $52.8 million associated with in-place leases from the Company’s acquisition program which began during fiscal 2010. 46 Quarterly Results The following table presents certain unaudited quarterly financial information for each of the four quarters ended December 31, 2015 and 2014. This information has been prepared on the same basis as the audited con- solidated financial statements of the Company appearing elsewhere in this report and include, in the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments) necessary to present fairly the quarterly results when read in conjunction with the audited consolidated financial statements of the Company and the related notes thereto. Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income from operations . . . . . . . . . . . . . . . . . . . . . . . . Net (loss) income and comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net (loss) income per share, basic . . . . . . . . . . . . . . . . Net (loss) income per share, diluted . . . . . . . . . . . . . . . Weighted average shares outstanding, basic . . . . . . . . Weighted average shares outstanding, fully diluted . . . Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income from operations . . . . . . . . . . . . . . . . . . . . . . . . Net loss and comprehensive loss . . . . . . . . . . . . . . . . . . Net loss per share, basic . . . . . . . . . . . . . . . . . . . . . . . . Net loss per share, diluted . . . . . . . . . . . . . . . . . . . . . . . Weighted average shares outstanding, basic . . . . . . . . . Weighted average shares outstanding, fully diluted . . . Liquidity and Capital Resources 2015 Calendar Quarters First Second Third Fourth (In thousands, except per share amounts) $98,640 3,718 $101,588 3,680 $104,420 5,676 $107,529 5,761 (6,039) $ (0.21) $ $ (0.21) $ 28,565 28,565 (5,166) (0.18) $ (0.18) $ 28,705 28,705 2,871 0.10 0.10 28,732 28,733 $ $ (5,950) (0.21) (0.21) 28,749 28,749 2014 Calendar Quarters First Second Third Fourth (In thousands, except per share amounts) $91,857 2,615 (4,647) $ (0.16) $ (0.16) 28,146 28,146 $93,425 3,149 (9,819) $ (0.34) $ (0.34) 28,298 28,298 $98,483 2,679 (5,759) $ (0.20) $ (0.20) 28,371 28,371 $100,160 5,457 (3,901) (0.13) (0.13) 28,387 28,387 $ $ Changes in the current economic environment could result in decreases in the fair value of assets, slowing of transactions, and tightening liquidity and credit markets. These impacts could make securing debt for acquisitions or refinancings for the Company, its joint ventures, or buyers of the Company’s properties more difficult or on terms not acceptable to the Company. Additionally, the Company may be more susceptible to being negatively impacted by operating or performance deficits based on the exposure associated with certain lease coverage requirements. In addition to approximately $56.1 million of unrestricted cash balances on hand as of December 31, 2015, the Company’s principal sources of liquidity are expected to be cash flows from operations, supplemental debt financings, additional proceeds from debt refinancings, equity issuances, and/or proceeds from the sale of assets. The Company expects its available cash and cash flows from operations, supplemental debt financings, addi- tional proceeds from debt refinancings, and proceeds from the sale of assets to be sufficient to fund its short-term working capital requirements. The Company’s long-term capital requirements, primarily for acquisitions and other corporate initiatives, could be dependent on its ability to access additional funds through joint ventures and the debt and/or equity markets. The Company from time to time considers and evaluates transactions related to its portfolio including supplemental debt financings, debt refinancings, equity issuances, purchases and sales of assets, reorganizations and other transactions. There can be no assurance that the Company will continue to gen- erate cash flows at or above current levels or that the Company will be able to obtain the capital necessary to meet the Company’s short and long-term capital requirements. 47 In summary, the Company’s cash flows were as follows (in thousands): Year Ended December 31, 2015 2014 2013 Net cash provided by operating activities . . . . . . . . . . . . . . . . Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . Net cash provided by financing activities . . . . . . . . . . . . . . . . $ 48,895 (161,427) 129,410 $ 46,312 (175,417) 154,703 $ 42,644 (162,296) 114,526 Increase (decrease) in cash and cash equivalents . . . . . . . . . . . $ 16,878 $ 25,598 $ (5,126) Operating Activities The Company had net cash provided by operating activities of $48.9 million, $46.3 million, and $42.6 mil- lion in fiscal 2015, 2014, and 2013, respectively. The net cash provided by operating activities for fiscal 2015 primarily results from net non-cash charges of $63.8 million, a decrease in prepaid expenses of $2.4 million, an increase in accounts payable and accrued expenses of $3.0 million, and an increase in deferred resident rent and customer deposits of $0.5 million, partially offset by net loss of $(14.3 million), an increase in accounts receiv- able of $2.9 million, an increase in property tax and insurance deposits of $2.2 million, and an increase in other assets of $1.3 million. The net cash provided by operating activities for fiscal 2014 results from net non-cash charges of $65.6 million and net changes in operating assets and liabilities of $4.9 million, partially offset by net loss of $(24.1 million). Investing Activities The Company had net cash used in investing activities of $161.4 million, $175.4 million, and $162.3 million in fiscal 2015, 2014, and 2013, respectively. The net cash used in investing activities for fiscal 2015 primarily results from capital expenditures of $42.4 million and acquisitions of senior living communities by the Company of $162.5 million, partially offset by proceeds from the Sedgwick Sale Transaction and Four Property Sale Transaction of $43.5 million. The net cash used in investing activities for fiscal 2014 primarily results from capi- tal expenditures of $18.7 million and acquisitions of senior living communities by the Company of $160.1 mil- lion, slightly offset by proceeds from the SHPIII/CSL Transaction of $2.5 million and proceeds from the sale of assets of $0.8 million. Financing Activities The Company had net cash provided by financing activities of $129.4 million, $154.7 million, and $114.5 million in fiscal 2015, 2014, and 2013, respectively. The net cash provided by financing activities for fiscal 2015 primarily results from notes payable proceeds of $250.9 million, of which approximately $118.1 million is related to new mortgage debt associated with the acquisition of senior living communities by the Company, approximately $2.2 million related to insurance premium financing, and the remaining $130.6 million resulted from supplemental financings, mortgage refinancings, or new mortgage debt obtained on existing unencumbered senior living communities, partially offset by repayments of notes payable of $115.9 million, deferred financing charges paid of $3.8 million, payments on capital lease and financing obligations of $1.0 million, and additions to restricted cash of $0.9 million. The net cash provided by financing activities for fiscal 2014 primarily results from notes payable proceeds of $300.8 million, of which $175.6 million related to the Company refinancing its mortgage loans with Freddie Mac and $125.2 million related to the acquisition of senior living communities by the Company and insurance premium financing, partially offset by repayments of notes payable of $141.0 mil- lion, deferred financing charges paid of $3.5 million, payments on capital lease and financing obligations of $1.0 million, and additions to restricted cash of $0.8 million. 48 Disclosures About Contractual Obligations The following table provides the amounts due under specified contractual obligations for the periods indicated as of December 31, 2015 (in thousands): Long-term debt, including interest expense(1) Operating and capital leases(2) . . . . . . . . . . . . . . . . . . $ 50,708 65,135 Less Than One Year One to Three Years Three to Five Years More Than Five Years Total $108,689 130,090 $ 96,556 $ 796,342 $1,052,295 573,292 250,477 127,590 Total contractual cash obligations . . . . . . . . . . . . . $115,843 $238,779 $224,146 $1,046,819 $1,625,587 (1) Amounts due associated with our variable rate mortgage debt is projected by applying the variable interest rates effective at December 31, 2015. (2) Reflects future minimum lease commitments under the Company’s various property and equipment lease agreements at current rental rates. Long-term debt relates to the aggregate maturities of the Company’s notes payable. The Company leases its corporate headquarters in Dallas, an executive office in New York, 50 senior living communities and certain automobiles and equipment used at the Company’s communities. Impact of Inflation To date, inflation has not had a significant impact on the Company. However, inflation could affect the Company’s future revenues and results of operations because of, among other things, the Company’s dependence on senior residents, many of whom rely primarily on fixed incomes to pay for the Company’s services. As a result, during inflationary periods, the Company may not be able to increase resident service fees to account fully for increased operating expenses. In structuring its fees, the Company attempts to anticipate inflation levels, but there can be no assurance that the Company will be able to anticipate fully or otherwise respond to any future inflationary pressures. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS. The Company’s primary market risk is exposure to changes in interest rates on debt and lease instruments. As of December 31, 2015, the Company had $777.1 million in outstanding debt comprised of various fixed and variable rate debt instruments of $765.3 million and $11.8 million, respectively. In addition, as of December 31, 2015, the Company had $570.3 million in future facility lease obligations with contingent rent increases on cer- tain leases based on changes in the consumer price index or certain operational performance measures. Changes in interest rates would affect the fair market value of the Company’s fixed rate debt instruments, but would not have an impact on the Company’s earnings or cash flows. Fluctuations in interest rates on the Company’s variable rate debt instruments, which are tied to LIBOR, would affect the Company’s earnings and cash flows but would not affect the fair market values of the variable rate debt. Each percentage point increase in interest rates would impact the Company’s annual interest expense by approximately $0.1 million based on the Company’s outstanding variable rate debt as of December 31, 2015. Increases in the consumer price index could have an effect on future facility lease expense if the leased community exceeds the contingent rent escalation thresholds set forth in each of the Company’s lease agreements. The following table summarizes information on the Company’s debt instruments outstanding as of December 31, 2015. The table presents the principal due and weighted average interest rates by expected maturity date for the Company’s debt instruments by fiscal year. 49 Principal Amount, which excludes deferred loan costs, and Average Interest Rate by Expected Maturity Date at December 31, 2015 ($ in thousands): 2016 2017 2018 2019 2020 Thereafter Total Fair Value Long-term debt: . . . $14,698 $13,518 $14,158 $14,829 $15,443 $692,670 $765,316 $712,969 4.6% 4.6% 4.6% 4.6% 4.6% 4.6% 11,800 4.8% 11,800 11,800 $777,116 $724,769 Fixed rate debt Average interest rate . . . Variable rate debt . . . Average interest rate . . . . . . . . Total debt ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The consolidated financial statements of the Company are included under Item 15 of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. The Company had no disagreements on accounting or financial disclosure matters with its independent accountants to report under this Item 9. ITEM 9A. CONTROLS AND PROCEDURES. Effectiveness of Controls and Procedures The Company’s management, with the participation of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of the Company’s 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 amended (the “Exchange Act”)) as of the end of the period covered by this report. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Based upon the controls evaluation, the Company’s CEO and CFO have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective. There have not been any changes in the Company’s 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 Company’s fiscal quarter ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Internal Controls Over Financial Reporting Management’s Report On Internal Control Over Financial Reporting Management of the Company, including the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) under the Exchange Act. The Company’s internal controls were designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect mis- statements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. 50 Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2015. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework (2013 framework). Based on our assessment, we believe that, as of December 31, 2015, the Company’s internal control over financial reporting is effective based on those criteria. The effectiveness of our internal control over financial reporting as of December 31, 2015, has been audited by Ernst & Young LLP, the independent registered public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-K, as stated in their report which is included as part of this Annual Report on Form 10-K. The Ernst & Young LLP report is on page F-36 of this report. ITEM 9B. OTHER INFORMATION. None. 51 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERANCE.* ITEM 11. EXECUTIVE COMPENSATION.* ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.* ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.* ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.* *Information required by Items 10, 11, 12, 13 and 14 is or will be set forth in the definitive proxy statement relat- ing to the 2016 Annual Meeting of Stockholders of Capital Senior Living Corporation, which is to be filed with SEC pursuant to Regulation 14A under the Exchange Act. This definitive proxy statement relates to a meeting of stockholders involving the election of directors and the portions therefrom required to be set forth in this Form 10-K by Items 10, 11, 12, 13 and 14 are incorporated herein by reference pursuant to General Instruction G(3) to Form 10-K. 52 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. PART IV The following documents are filed as part of this Report: (1) Financial Statements: The response to this portion of Item 15 is submitted as a separate section of this Report. See “Index to Financial Statements” at page F-1. (2) Financial Statement Schedules: All schedules have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. (3) Exhibits: The exhibits listed on the accompanying “Index To Exhibits” at page E-1 are filed as part of this Report. 53 Pursuant to the requirements of Section 13 or 15(d) 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. SIGNATURES CAPITAL SENIOR LIVING CORPORATION By: /S/ LAWRENCE A. COHEN Lawrence A. Cohen Vice Chairman of the Board and Chief Executive Officer Date: February 26, 2016 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the fol- lowing persons on behalf of the Registrant and in the capacities and on the dates indicated. Each person whose signature to this report appears below hereby appoints Lawrence A. Cohen and Keith N. Johannessen and each of them, any one of whom may act without the joinder of the other, as his or her attorney-in-fact to sign on his behalf, individually and in each capacity stated below, and to file all amendments to this report, which amend- ment or amendments may make such changes in and additions to the report as any such attorney-in-fact may deem necessary or appropriate. Signature Title Date /s/ LAWRENCE A. COHEN Lawrence A. Cohen /s/ KEITH N. JOHANNESSEN Keith N. Johannessen /s/ CAREY P. HENDRICKSON Carey P. Hendrickson /s/ JAMES A. MOORE James A. Moore /s/ PHILIP A. BROOKS Philip A. Brooks /s/ KIMBERLY S. LODY Kimberly S. Lody /s/ E. RODNEY HORNBAKE E. Rodney Hornbake /s/ JILL M. KRUEGER Jill M. Krueger /s/ RONALD A. MALONE Ronald A. Malone /s/ MICHAEL W. REID Michael W. Reid Chief Executive Officer and Vice Chairman of the Board (Principal Executive Officer) February 26, 2016 President and Chief Operating Officer and Director February 26, 2016 Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) February 26, 2016 Chairman of the Board February 26, 2016 Director Director Director Director Director Director 54 February 26, 2016 February 26, 2016 February 26, 2016 February 26, 2016 February 26, 2016 February 26, 2016 INDEX TO FINANCIAL STATEMENTS Consolidated Financial Statements of Capital Senior Living Corporation Report of Independent Registered Public Accounting Firm, Ernst & Young LLP . . . . . . . . . . . . . . . . . . . Consolidated Balance Sheets — December 31, 2015 and 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Operations and Comprehensive Loss — For the years ended December 31, 2015, 2014 and 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Shareholders’ Equity — For the years ended December 31, 2015, 2014 and 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Cash Flows — For the years ended December 31, 2015, 2014 and 2013 . . . Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Report of Independent Registered Public Accounting Firm on Internal Control over Financial Page F-2 F-3 F-4 F-5 F-6 F-7 Reporting, Ernst & Young LLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-36 F-1 Report of Independent Registered Public Accounting Firm The Board of Directors and Shareholders Capital Senior Living Corporation We have audited the accompanying consolidated balance sheets of Capital Senior Living Corporation as of December 31, 2015 and 2014, and the related consolidated statements of operations and comprehensive loss, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assess- ing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the con- solidated financial position of Capital Senior Living Corporation at December 31, 2015 and 2014, and the con- solidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Capital Senior Living Corporation’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 26, 2016, expressed an unqualified opinion thereon. Dallas, Texas February 26, 2016 /s/ Ernst & Young LLP F-2 CAPITAL SENIOR LIVING CORPORATION CONSOLIDATED BALANCE SHEETS December 31, 2015 2014 (In thousands, except per share data) Current assets: ASSETS Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts receivable from affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property tax and insurance deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid expenses and other $ Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,087 13,159 9,252 2 — — 14,398 4,370 97,268 890,572 31,193 $ 39,209 12,241 5,903 5 460 35,761 12,198 6,797 112,574 747,613 31,183 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,019,033 $891,370 Current liabilities: LIABILITIES AND SHAREHOLDERS’ EQUITY Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes payable of assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current portion of notes payable, net of deferred loan costs . . . . . . . . . . . . . . . . . . . . . Current portion of deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current portion of capital lease and financing obligations . . . . . . . . . . . . . . . . . . . . . . Federal and state income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital lease and financing obligations, net of current portion . . . . . . . . . . . . . . . . . . . . . Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes payable, net of deferred loan costs and current portion . . . . . . . . . . . . . . . . . . . . . . Commitments and contingencies Shareholders’ equity: Preferred stock, $.01 par value: 3,362 — 34,300 — 13,634 16,059 1,257 111 1,819 70,542 13,992 38,835 — 4,969 754,949 $ 2,540 7 32,154 14,847 32,538 14,603 1,054 219 1,499 99,461 15,949 40,016 460 1,426 592,884 Authorized shares — 15,000; no shares issued or outstanding . . . . . . . . . . . . . . . . . — — Common stock, $.01 par value: Authorized shares — 65,000; issued and outstanding shares 29,539 and 29,097 in 2015 and 2014, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained deficit Treasury stock, at cost — 350 shares in 2015 and 2014 . . . . . . . . . . . . . . . . . . . . . . . . 299 159,920 (23,539) (934) 294 151,069 (9,255) (934) Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,746 141,174 Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,019,033 $891,370 See accompanying notes to consolidated financial statements. F-3 CAPITAL SENIOR LIVING CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS Year Ended December 31, 2015 2014 (In thousands, except per share data) 2013 Revenues: Resident and health care revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Affiliated management services revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . Community reimbursement revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $412,177 — — $380,400 415 3,110 $343,478 797 6,087 Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 412,177 383,925 350,362 Expenses: Operating expenses (exclusive of facility lease expense and depreciation and amortization expense shown below) . . . . . . . . . . . . . . . . . . . . . . . . . . General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Facility lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Community reimbursement expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248,736 20,351 61,213 1,192 8,833 53,017 — 230,495 19,622 59,332 717 7,262 49,487 3,110 207,744 20,238 56,986 497 4,322 43,238 6,087 Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393,342 370,025 339,112 Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income (expense): 18,835 13,900 11,250 Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Write-off of deferred loan costs and prepayment premiums . . . . . . . . . . . . . Joint venture equity investment valuation gain . . . . . . . . . . . . . . . . . . . . . . . Gain on disposition of assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in earnings of unconsolidated joint ventures, net . . . . . . . . . . . . . . . . Write-down of assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 (35,732) (2,766) — 6,225 — — 1 Loss before provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,384) (900) 52 (31,261) (7,968) 1,519 784 105 (561) 23 (23,407) (719) 151 (23,767) — — 1,454 133 — 34 (10,745) (5,759) Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (14,284) $ (24,126) $ (16,504) Per share data: Basic net loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted net loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ (0.50) $ (0.83) $ (0.58) (0.50) $ (0.83) $ (0.58) Weighted average shares outstanding — basic . . . . . . . . . . . . . . . . . . . . . . . 28,688 28,301 27,815 Weighted average shares outstanding — diluted . . . . . . . . . . . . . . . . . . . . . . 28,688 28,301 27,815 Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (14,284) $ (24,126) $ (16,504) See accompanying notes to consolidated financial statements. F-4 CAPITAL SENIOR LIVING CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Common Stock Shares Amount Additional Paid-In Capital Retained Earnings Treasury Stock Total Balance at January 1, 2013 . . . . . . . . . . . . . . . . . Exercise of stock options . . . . . . . . . . . . . . . . . Restricted stock awards . . . . . . . . . . . . . . . . . . Stock-based compensation . . . . . . . . . . . . . . . . Excess tax benefits on stock options 28,218 247 380 — exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — $286 2 4 — — — Balance at December 31, 2013 . . . . . . . . . . . . . . Exercise of stock options . . . . . . . . . . . . . . . . . Restricted stock awards . . . . . . . . . . . . . . . . . . Stock-based compensation . . . . . . . . . . . . . . . . Excess tax benefits on stock options 28,845 292 13 — 239 — — 2 exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — Balance at December 31, 2014 . . . . . . . . . . . . . . Exercise of stock options . . . . . . . . . . . . . . . . . Restricted stock awards . . . . . . . . . . . . . . . . . . Stock-based compensation . . . . . . . . . . . . . . . . Excess tax benefits on stock options 29,097 3 439 — exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — 294 1 4 — — — (In thousands) $137,867 3,157 — 4,322 $ 31,375 — — — $(934) — — — $168,594 3,159 4 4,322 (1,625) — — — (16,504) — 143,721 168 — 7,262 14,871 — — — (934) — — — (82) — — — (24,126) — 151,069 37 — 8,833 (9,255) — — — (934) — — — (19) — — — (14,284) — (1,625) (16,504) 157,950 168 2 7,262 (82) (24,126) 141,174 38 4 8,833 (19) (14,284) Balance at December 31, 2015 . . . . . . . . . . . . . . 29,539 $299 $159,920 $(23,539) $(934) $135,746 See accompanying notes to consolidated financial statements. F-5 CAPITAL SENIOR LIVING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Operating Activities Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of deferred financing charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of deferred lease costs and lease intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lease incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Write-off of deferred loan costs and prepayment premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Joint venture equity investment valuation gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on disposition of assets, net Equity in earnings of unconsolidated joint ventures, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Write-down of assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in operating assets and liabilities: Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts receivable from affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property tax and insurance deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal and state income taxes receivable/payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred resident revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2015 2014 2013 (in thousands) $ (14,284) $ (24,126) $ (16,504) 53,017 1,029 1,421 (677) — 2,464 2,766 — (6,225) — — 1,192 8,833 (2,931) 3 (2,200) 2,427 (1,289) 815 2,146 (108) 176 320 49,487 1,361 1,230 (616) — — 7,968 (1,519) (784) (105) 561 717 7,262 (2,868) 411 (1,162) (192) (163) (1,267) 2,833 5,342 1,932 10 43,238 1,100 1,164 (1,666) 10,793 — — — (1,454) (133) — 497 4,322 980 337 406 (1,847) (1,745) (3,166) 4,876 (1,222) 2,719 (51) Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investing Activities Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash paid for acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from SHPIII/CSL Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from disposition of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions from joint ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financing Activities Proceeds from notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repayments of notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash payments for capital lease and financing obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash proceeds from the issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Excess tax benefits on stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred financing charges paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,895 46,312 42,644 (42,430) (162,460) — 43,463 — (18,742) (160,105) 2,532 796 102 (13,562) (150,391) — 1,460 197 (161,427) (175,417) (162,296) 250,944 (115,896) (978) (918) 42 (19) (3,765) 300,820 (140,950) (971) (816) 170 (82) (3,468) 140,237 (23,539) (871) (1,246) 3,163 (1,625) (1,593) Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129,410 154,703 114,526 Increase (Decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,878 39,209 25,598 13,611 (5,126) 18,737 Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 56,087 $ 39,209 $ 13,611 Supplemental Disclosures Cash paid during the year for: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 33,642 $ 28,856 $ 21,953 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-cash operating, investing, and financing activities: Notes payable assumed by purchaser through disposition of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 1,039 6,764 $ $ 724 $ 702 — $ — See accompanying notes to consolidated financial statements. F-6 CAPITAL SENIOR LIVING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2015 1. Organization Capital Senior Living Corporation, a Delaware corporation (together with its subsidiaries, the “Company”), is one of the largest operators of senior living communities in the United States in terms of resident capacity. The Company owns, operates, develops and manages senior living communities throughout the United States. As of December 31, 2015, the Company operated 121 senior living communities in 23 states with an aggregate capacity of approximately 15,400 residents, including 71 senior living communities which the Company owned and 50 senior living communities that the Company leased. As of December 31, 2015, the Company also oper- ated one home care agency. The accompanying consolidated financial statements include the financial statements of Capital Senior Living Corporation and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. The Company accounts for significant investments in uncon- solidated companies, in which the Company has significant influence, using the equity method of accounting. 2. Summary of Significant Accounting Policies Cash and Cash Equivalents and Restricted Cash The Company considers all highly liquid investments with original maturities of three months or less at the date of acquisition to be cash equivalents. The Company has deposits in banks that exceed Federal Deposit Insurance Corporation insurance limits. Management believes that credit risk related to these deposits is minimal. Restricted cash consists of deposits required by certain lenders as collateral pursuant to letters of credit. The deposit must remain so long as the letter of credit is outstanding which is subject to renewal annually. Long-Lived Assets Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful lives of the assets. At each balance sheet date, the Company reviews the carrying value of its property and equipment to determine if facts and circumstances suggest that they may be impaired or that the depreciation period may need to be changed. The Company considers internal factors such as net operating losses along with external factors relating to each asset, including contract changes, local market developments, and other publicly available information. If an indicator of impairment is identified, the carrying value of a long-lived asset is con- sidered impaired when the anticipated undiscounted cash flows from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount the carrying value exceeds the fair market value, generally based on discounted cash flows, of the long-lived asset. The Company does not believe there are any indicators of impairment that would require an adjustment to the carrying value of the property and equipment or their remaining useful lives as of December 31, 2015 and 2014. Assets Held for Sale Assets are classified as held for sale when the Company has determined all of the held-for-sale criteria have been met. The Company determines the fair value, net of costs of disposal, of an asset on the date the asset is categorized as held for sale, and the asset is recorded at the lower of its fair value, net of cost of disposal, or carrying value on that date. The Company periodically reevaluates assets held for sale to determine if the assets are still recorded at the lower of fair value, net of cost of disposal, or carrying value. The fair values are generally determined based on market rates, industry trends and recent comparable sales transactions. The actual sales price of these assets could differ significantly from the Company’s estimates. During the fourth quarter of fiscal 2014, the Company classified four senior living communities as held for sale and determined the assets had an aggregate fair value, net of cost of disposal, that exceeded the carrying values, using level 2 inputs as defined in the accounting standards codification, and a remeasurement write-down of approximately $0.6 million was recorded to adjust the carrying values of the assets held for sale to $35.8 mil- F-7 CAPITAL SENIOR LIVING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) lion at December 31, 2014. The four senior living communities were sold during the first quarter of fiscal 2015 in a single transaction for its carrying value. There were no senior living communities classified as held for sale by the Company at December 31, 2015. Investments in Unconsolidated Joint Ventures The Company accounted for its investments in unconsolidated joint ventures under the equity method of accounting. The Company had not consolidated these joint venture interests because the Company had concluded that the other member of each joint venture had substantive kick-out rights or substantive participating rights. Under the equity method of accounting, the Company recorded its investments in the unconsolidated joint ven- tures at cost and adjusted such investments for its share of the earnings and losses of the joint ventures. On June 30, 2014, the Company acquired 100% of the member interests in these joint ventures. For additional information refer to Note 4, “Acquisitions.” Off-Balance Sheet Arrangements The Company had no material off-balance sheet arrangements at December 31, 2015. Income Taxes Income taxes are computed using the asset and liability method and current income taxes are recorded based on amounts refundable or payable in the current year. Deferred income taxes are recorded based on the estimated future tax effects of loss carryforwards and temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in the years in which we expect those carry- forwards and temporary differences to be recovered or settled. Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strategies, and future expectations of income. The Company evaluates uncertain tax positions through consideration of accounting and reporting guidance on criteria, measurement, derecognition, classification, interest and penalties, accounting in interim periods, dis- closure, and transition that is intended to provide better financial-statement comparability among different companies. The Company is required to recognize a tax benefit in its financial statements for an uncertain tax position only if management’s assessment is that its position is “more likely than not” (i.e., a greater than 50 percent likelihood) to be upheld on audit based only on the technical merits of the tax position. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as income tax expense. Revenue Recognition Resident and health care revenue is recognized at estimated net realizable amounts, based on historical experiences, due from residents in the period in which the rental and other services are provided. Additionally, substantially all community fees received from residents are non-refundable and are recorded initially by the Company as deferred revenue. The deferred amounts are amortized over the respective residents’ initial lease term which is consistent with the contractual obligation associated with the estimated stay of the resident. Revenues from the Medicaid program accounted for approximately 5% of the Company’s revenue in fiscal 2015 and 4% of the Company’s revenue in each of fiscal 2014 and 2013. During fiscal 2015, 2014, and 2013, 34, 30, and 29, respectively, of the Company’s communities were providers of services under the Medicaid program. Accordingly, these communities were entitled to reimbursement under the foregoing program at established rates F-8 CAPITAL SENIOR LIVING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) that were lower than private pay rates. Patient service revenue for Medicaid patients was recorded at the reimbursement rates as the rates were set prospectively by the applicable state upon the filing of an annual cost report. None of the Company’s communities were providers of services under the Medicare program during fis- cal 2015 or 2014. Laws and regulations governing the Medicaid program are complex and subject to interpretation. The Company believes that it is in compliance with all applicable laws and regulations and is not aware of any pend- ing or threatened investigations involving allegations of potential wrongdoing. While no such regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties, and exclusion from the Medicaid program. Management services revenue was recognized when earned and related to the Company providing certain management and administrative support services under management contracts which were terminated when the Company acquired 100% of the member interests in its unconsolidated joint ventures on June 30, 2014. Community reimbursement revenue is comprised of reimbursable expenses from the non-consolidated communities that the Company operated under long-term management agreements, which were terminated when the Company acquired 100% of the member interests in its unconsolidated joint ventures on June 30, 2014. Lease Accounting The Company determines whether to account for its leases as operating, capital or financing leases depend- ing on the underlying terms of the lease agreement. This determination of classification requires significant judgment relating to certain information, including the estimated fair value and remaining economic life of the community, the Company’s cost of funds, minimum lease payments and other lease terms. The lease rates under the Company’s lease agreements are subject to certain conditional escalation clauses which are recognized when probable or incurred and are based on changes in the consumer price index or certain operational performance measures. As of December 31, 2015 and 2014, the Company leased 50 communities, 48 of which the Company classified as operating leases and two of which the Company classified as capital lease and financing obligations. The Company incurs lease acquisition costs and amortizes these costs over the term of the lease agreement. Cer- tain leases entered into by the Company qualified as sale/leaseback transactions, and as such, any related gains have been deferred and are being amortized over the respective lease term. No new communities were leased by the Company during fiscal 2015 or 2014. Facility lease expense in the Company’s Consolidated Statements of Operations and Comprehensive loss includes rent expense plus amortization expense relating to leasehold acquisition costs offset by the amortization of deferred gains and lease incentives. Credit Risk and Allowance for Doubtful Accounts The Company’s resident receivables are generally due within 30 days from the date billed. Accounts receiv- able are reported net of an allowance for doubtful accounts, and represent the Company’s estimate of the amount that ultimately will be collected. The adequacy of the Company’s allowance for doubtful accounts is reviewed on an ongoing basis, using historical payment trends, write-off experience, analyses of receivable portfolios by payor source and aging of receivables, as well as a review of specific accounts, and adjustments are made to the allowance as necessary. Credit losses on resident receivables have historically been within management’s esti- mates, and management believes that the allowance for doubtful accounts adequately provides for expected losses. Employee Health and Dental Benefits, Workers’ Compensation, and Insurance Reserves The Company offers certain full-time employees an option to participate in its health and dental plans. The Company is self-insured up to certain limits and is insured if claims in excess of these limits are incurred. The F-9 CAPITAL SENIOR LIVING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) cost of employee health and dental benefits, net of employee contributions, is shared between the corporate office and the senior living communities based on the respective number of plan participants. Funds collected are used to pay the actual program costs, including estimated annual claims, third-party administrative fees, network pro- vider fees, communication costs, and other related administrative costs incurred by the plans. Claims are paid as they are submitted to the Company’s third-party administrator. The Company records a liability for outstanding claims and claims that have been incurred but not yet reported. This liability is based on the historical claim reporting lag and payment trends of health insurance claims. Management believes that the liability for out- standing losses and expenses is adequate to cover the ultimate cost of losses and expenses incurred at December 31, 2015; however, actual claims and expenses may differ. Any subsequent changes in estimates are recorded in the period in which they are determined. The Company uses a combination of insurance and self-insurance for workers’ compensation. Determining the reserve for workers’ compensation losses and costs that the Company has incurred as of the end of a reporting period involves significant judgments based on projected future events, including potential settlements for pend- ing claims, known incidents which may result in claims, estimates of incurred but not yet reported claims, changes in insurance premiums, estimated litigation costs and other factors. The Company regularly adjusts these estimates to reflect changes in the foregoing factors. However, since this reserve is based on estimates, the actual expenses incurred may differ from the amounts reserved. Any subsequent changes in estimates are recorded in the period in which they are determined. Advertising Advertising is expensed as incurred. Advertising expenses for the years ended December 31, 2015, 2014, and 2013 were $13.9 million, $12.7 million, and $10.5 million, respectively, and are included as a component of operating expenses within the Consolidated Statements of Operations and Comprehensive Loss. Net loss Per Share Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Potentially dilutive securities consist of unvested restricted shares and shares that could be issued under outstanding stock options. Potentially dilutive securities are excluded from the computation of net loss per common share if their effect is antidilutive. The following table sets forth the computation of basic and diluted net loss per share (in thousands, except for per share amounts): Year Ended December 31, 2015 2014 2013 Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net loss allocated to unvested restricted shares . . . . . . . . . . . . . . . $(14,284) — $(24,126) (598) $(16,504) (513) Undistributed net loss allocated to common shares . . . . . . . . . . . . Weighted average shares outstanding — basic . . . . . . . . . . . . . . . Effects of dilutive securities: $(14,284) 28,688 $(23,528) 28,301 $(15,991) 27,815 Employee equity compensation plans . . . . . . . . . . . . . . . . . . . . — — — Weighted average shares outstanding — diluted . . . . . . . . . . . . . . 28,688 28,301 27,815 Basic net loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted net loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ (0.50) (0.50) $ $ (0.83) (0.83) $ $ (0.58) (0.58) F-10 CAPITAL SENIOR LIVING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Awards of unvested restricted stock representing approximately 0.8 million, 0.7 million, and 0.9 million shares were outstanding for the fiscal years ended December 31, 2015, 2014, and 2013, respectively, and are antidilutive. During fiscal 2015, the unvested restricted stock did not meet all of the requirements to be deemed participating securities. Therefore, for current and future reporting periods, (losses) earnings per share will be calculated under the treasury method and the two-class method will no longer be utilized by the Company. Treasury Stock The Company accounts for treasury stock under the cost method and includes treasury stock as a component of shareholders’ equity. There were no repurchases of the Company’s stock during fiscal 2015 or 2014. The Company has repurchased 144,315 shares during the first quarter of fiscal 2016 through the date of the filing of our 2015 annual report on Form 10-K with the SEC. Stock-Based Compensation The Company recognizes compensation expense for share-based payment awards to certain employees and directors, including grants of stock options and awards of restricted stock, in the Consolidated Statements of Operations and Comprehensive Loss based on their fair values. On May 8, 2007, the Company’s stockholders approved the 2007 Omnibus Stock and Incentive Plan for Capital Senior Living Corporation (as amended, the “2007 Plan”) which provides for, among other things, the grant of restricted stock awards and stock options to purchase shares of the Company’s common stock. The 2007 Plan authorizes the Company to issue up to 4.6 million shares of common stock and the Company has reserved 2.0 million shares of common stock for future issuance pursuant to awards under the 2007 Plan. Effective May 8, 2007, the 1997 Omnibus Stock and Incentive Plan (as amended, the “1997 Plan”) was terminated and no addi- tional shares will be granted under the 1997 Plan. The Company has reserved 0.3 million shares of common stock for future issuance upon the exercise of outstanding stock options pursuant to the 1997 Plan. Segment Information The Company evaluates the performance and allocates resources of its senior living facilities based on cur- rent operations and market assessments on a property-by-property basis. The Company does not have a concen- tration of operations geographically or by product or service as its management functions are integrated at the property level. The Company has determined that all of its operating units meet the criteria in Accounting Stan- dards Codification (“ASC”) Topic 280, Segment Reporting, to be aggregated into one reporting segment. As such, the Company operates in one segment. Recently Issued Accounting Guidance In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases. ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to les- sor accounting. ASU 2016-02 will be effective beginning in 2019. Early adoption of ASU 2016-02 as of its issu- ance is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. We are currently evaluating the impact of adopting the new leases standard on our consolidated financial statements. In November 2015, the FASB issued ASU 2015-17, Income Taxes – Balance Sheet Reclassification of Deferred Taxes (Topic 740). ASU 2015-17 requires that deferred tax liabilities and assets be classified as non- current in a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this update. The amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adop- F-11 CAPITAL SENIOR LIVING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) tion is permitted and the amendments may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company early adopted ASU 2015-17 in the fourth quarter of 2015 on a prospective basis and included the current portion of deferred tax assets within the non-current portion of deferred tax liabilities within the Company’s Consolidated Balance Sheet. The Company did not adjust its prior period consolidated financial statements as a result of the adoption of ASU 2015-17. In September 2015, the FASB issued ASU 2015-16, Business Combinations — Simplifying the Accounting for Measurement-Period Adjustments. ASU 2015-16 eliminates the requirement for an acquirer in a business combination to account for the measurement-period adjustment retrospectively. Instead, acquirers must recognize measurement-period adjustments during the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. ASU 2015-16 is applied prospectively and is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early application is permitted. The Company is currently evaluating the impact the adoption of ASU 2015-16 will have on the Company’s consolidated finan- cial statements and disclosures. In April 2015, the FASB issued ASU 2015-03, Interest — Imputation of Interest- Simplifying the Pre- sentation of Debt Issuance Costs (Subtopic 835-30). The amendments in ASU No. 2015-03 requires debt issu- ance costs related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guid- ance for debt issuance costs are not affected by the amendments in ASU 2015-03. ASU 2015-03 requires retro- spective application and will be effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early application is permitted. The Company early adopted the provisions of ASU 2015-03 as of October 1, 2015, and incorporated the provisions of this update to its consolidated financial statements upon adoption. As a result of adoption of ASU 2015-03, at December 31, 2015, and 2014, approximately $8.5 million and $6.3 million, respectively, of debt issuance costs, net of accumulated amortization, were reclassified within the Company’s Consolidated Balance Sheets from other assets to notes payable. The adoption of ASU 2015-03 did not have an impact on the Company’s financial condition or results of operations. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into con- tracts for the transfer of nonfinancial assets. Under ASU 2014-09, an entity will recognize revenue when it trans- fers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. ASU 2014-09 is effective for annual periods beginning after December 15, 2017. The Company is currently evaluating the impact the adoption of ASU 2014-09 will have on the Company’s consolidated financial statements and disclosures. Use of Estimates and Critical Accounting Policies The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements and related footnotes. Management bases its estimates and assumptions on historical experi- ence, observance of industry trends and various other sources of information and factors, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially could result in materially dif- ferent results under different assumptions and conditions. The Company believes revenue recognition, credit risk and allowance for doubtful accounts, investments in unconsolidated joint ventures, lease accounting, employee health and dental benefits, workers’ compensation and insurance reserves, long-lived assets, assets held for sale, and income taxes are its most critical accounting policies and require management’s most difficult and subjective judgments. F-12 CAPITAL SENIOR LIVING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Reclassifications Certain reclassifications have been made to prior period amounts to conform to current period presentation. The Company’s Consolidated Statements of Cash Flows now reflect changes in deferred resident revenue sepa- rately from other components of deferred income. Accordingly, the Company reclassified changes in deferred resident revenue from changes in deferred income to a separate line item within the Consolidated Statements of Cash Flows for the years ended December 31, 2014 and 2013, to be consistent with the presentation for the year ended December 31, 2015. This reclassification had no impact on net cash provided by operating activities. 3. Transactions with Affiliates The Company was party to a series of property management agreements (the “SHPIII/CSL Management Agreements”) with three joint ventures (collectively “SHPIII/CSL”) owned 90% by Seniors Housing Partners III, LP (“SHPIII”), a fund managed by Prudential Investment Management, Inc. (“Prudential Investment”) and 10% by the Company, which collectively owned and operated three senior living communities. The SHPIII/CSL Management Agreements were for initial terms of ten years from the date the certificate of occupancy was issued and extended until various dates through January 2019. The SHPIII/CSL Management Agreements generally provided for management fees of 5% of gross revenue plus reimbursement for costs and expenses related to the communities. On June 30, 2014, the Company acquired 100% of the member interests in these joint ventures. For additional information refer to Note 4, “Acquisitions.” 4. Acquisitions Fiscal 2015 Effective October 30, 2015, the Company closed the acquisition of one senior living community located in Virginia Beach, Virginia, for $38.0 million (the “Virginia Beach Transaction”). The community consists of 111 assisted living units. The Company incurred approximately $0.1 million in transaction costs related to this acquisition which have been included in general and administrative expenses within the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company obtained financing from Protective Life Insurance Company (“Protective Life”) for $28.0 million of the acquisition price at a fixed interest rate of 4.25% with a 10-year term with the balance of the acquisition price paid from the Company’s existing cash resources. Effective September 30, 2015, the Company closed the acquisition of one senior living community located in Mahomet, Illinois, for $15.5 million Mahomet Transaction (the “Mahomet Transaction”). The community consists of 78 assisted living units. The Company incurred approximately $0.1 million in transaction costs related to this acquisition which have been included in general and administrative expenses within the Company’s Con- solidated Statements of Operations and Comprehensive Loss. The Company obtained financing from Fannie Mae for approximately $11.1 million of the acquisition price at a fixed interest rate of 4.69% with a 10-year term with the balance of the acquisition price paid from the Company’s existing cash resources. Effective August 11, 2015, the Company closed the acquisition of one senior living community located in Indianapolis, Indiana, for $21.0 million (the “Indianapolis Transaction”). The community consists of 124 assisted living units. The Company incurred approximately $0.1 million in transaction costs related to this acquisition which have been included in general and administrative expenses within the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company obtained financing from Protective Life for $13.2 million of the acquisition price at a fixed interest rate of 4.25% with a 10-year term with the balance of the acquisition price paid from the Company’s existing cash resources. The note with Protective Life associated with the Indian- apolis Transaction includes a loan commitment for up to $2.6 million of supplemental funding at the same terms and 4.25% fixed interest rate. The loan commitment is based on meeting certain funding requirements and is available through February 28, 2018. Effective July 28, 2015, the Company closed the acquisition of one senior living community located in Columbiana, Ohio, for approximately $13.3 million (the “Columbiana Transaction”). The community consists of F-13 CAPITAL SENIOR LIVING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 68 assisted living units. The Company incurred approximately $0.1 million in transaction costs related to this acquisition which have been included in general and administrative expenses within the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company obtained financing from Protective Life for approximately $9.9 million of the acquisition price at a fixed interest rate of 4.25% with a 10-year term with the balance of the acquisition price paid from the Company’s existing cash resources. Effective May 29, 2015, the Company closed the acquisition of one senior living community located in Oneonta, New York, for $14.9 million (the “Heritage Transaction”). The community consists of 64 independent living units and 44 assisted living units. The Company incurred approximately $0.4 million in transaction costs related to this acquisition which have been included in general and administrative expenses within the Compa- ny’s Consolidated Statements of Operations and Comprehensive Loss. The Company obtained financing from Fannie Mae for approximately $11.2 million of the acquisition price at a fixed interest rate of 4.79% with a 10- year term with the balance of the acquisition price paid from the Company’s existing cash resources. Effective May 21, 2015, the Company closed the acquisition of two senior living communities located in Hartford and West bend, Wisconsin, for $12.0 million (the “Emerald Transaction”). The communities consist of 79 assisted living units. The Company incurred approximately $0.2 million in transaction costs related to this acquisition which have been included in general and administrative expenses within the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company obtained financing from Fannie Mae for approximately $9.2 million of the acquisition price at a fixed interest rate of 4.55% with a 10-year term with the balance of the acquisition price paid from the Company’s existing cash resources. Effective March 27, 2015, the Company closed the acquisition of one senior living community located in Baytown, Texas, for approximately $29.6 million (the “Baytown Transaction”). The community consists of 9 independent living cottages and 120 assisted living units. The Company incurred approximately $0.2 million in transaction costs related to this acquisition which have been included in general and administrative expenses within the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company obtained financing from Protective Life for approximately $21.4 million of the acquisition price at a fixed interest rate of 3.55% with a 10-year term with the balance of the acquisition price paid from the Company’s existing cash resources. Effective January 13, 2015, the Company closed the acquisition of one senior living community located in Green Bay, Wisconsin, for approximately $18.3 million (the “Green Bay Transaction”). The community consists of 78 assisted living units. The Company incurred approximately $0.1 million in transaction costs related to this acquisition which have been included in general and administrative expenses within the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company obtained financing from Fannie Mae for approximately $14.1 million of the acquisition price at a fixed interest rate of 4.35% with a 10-year term with the balance of the acquisition price paid from the Company’s existing cash resources. As a result of these acquisitions, the Company recorded additions to property and equipment of approx- imately $148.0 million and other assets of approximately $14.6 million, primarily consisting of in-place lease intangibles, within the Company’s Consolidated Balance Sheets which will be depreciated or amortized over the estimated useful lives. The purchase accounting for the fourth quarter 2015 acquisition is preliminary as it is subject to final valuation adjustments. During fiscal 2015, these acquisitions generated $17.2 million of revenue and $(6.5) million of losses before income taxes which are included in the Company’s Consolidated Statements of Operations and Comprehensive Loss from the dates of acquisition. Losses before income taxes primarily result from the amortization of in-place lease intangibles associated with acquisitions during fiscal 2015 and 2014. The unaudited pro forma combined results of operations have been prepared as if the acquisitions had occurred on January 1, 2014, as follows (in thousands): Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $425,789 $ (3,616) $416,518 $ (40,880) F-14 December 31, 2015 2014 CAPITAL SENIOR LIVING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The unaudited pro forma consolidated amounts are presented for informational purposes only and do not necessarily reflect the results of operations of the Company that would have actually resulted had the acquisitions occurred on January 1, 2014. Fiscal 2014 Effective December 17, 2014, the Company closed the acquisition of one senior living community located in Canton, Georgia, for approximately $14.6 million (the “Canton Transaction”). The community consists of 49 assisted living units. The Company incurred approximately $0.1 million in transaction costs related to this acquisition which have been included in general and administrative expenses within the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company obtained financing from Fannie Mae for approximately $10.4 million of the acquisition price at a fixed interest rate of 4.50% with a 10-year term, with the balance of the acquisition price paid from the Company’s existing cash resources. Effective August 27, 2014, the Company closed the acquisition of one senior living community located in Plymouth, Wisconsin, for $13.5 million (the “Plymouth Transaction”). The community consists of 69 assisted living units. The Company incurred approximately $0.1 million in transaction costs related to this acquisition which have been included in general and administrative expenses within the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company obtained financing from Fannie Mae for approximately $10.4 million of the acquisition price at a fixed interest rate of 4.70% with a 10-year term with the balance of the acquisition price paid from the Company’s existing cash resources. Effective August 4, 2014, the Company closed the acquisition of one senior living community located in Roanoke, Virginia, for approximately $16.8 million (the “Roanoke Transaction”). The community consists of 60 assisted living units and 34 independent living units. The Company incurred approximately $0.2 million in trans- action costs related to this acquisition which have been included in general and administrative expenses within the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company obtained financ- ing from Fannie Mae for approximately $12.9 million of the acquisition price at a fixed interest rate of 4.59% with a 10-year term with the balance of the acquisition price paid from the Company’s existing cash resources. Effective August 4, 2014, the Company closed the acquisition of one senior living community located in Oshkosh, Wisconsin, for approximately $17.1 million (the “Oshkosh Transaction”). The community consists of 90 assisted living units. The Company incurred approximately $0.1 million in transaction costs related to this acquisition which have been included in general and administrative expenses within the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company obtained financing from Fannie Mae for approximately $13.2 million of the acquisition price at a fixed interest rate of 4.59% with a 10-year term with the balance of the acquisition price paid from the Company’s existing cash resources. Effective June 30, 2014, the Company acquired 100% of the members’ equity interests in SHPIII/CSL Miami, LLC (“SHPIII/CSL Miami”), SHPIII/CSL Richmond Heights, LLC (“SHPIII/CSL Richmond Heights”), and SHPIII/CSL Levis Commons, LLC (“SHPIII/CSL Levis Commons”) for approximately $83.6 million (the “SHPIII/ CSL Transaction”). Prior to the acquisition, SHP III, a fund managed by Prudential Investment maintained a 90% equity interest in each joint venture with the remaining 10% equity interest in each joint venture held by wholly owned subsidiaries of the Company. Based on the Company acquiring the remaining ownership interests of the joint ventures, the Company concluded the acquisition took the form of a “step-acquisition” or a “business combination achieved in stages.” Further, with the Company obtaining complete ownership of the joint ventures, the act of obtaining control triggered the application of the acquisition model in Accounting Standards Codification (“ASC”) 805, Business Combinations, which resulted in the equity ownership interest being remeasured at fair value and the acquired assets and assumed liabilities measured at their full fair values. The remeasurement fair value of the equity interests were determined based on the cash proceeds, including incentive distributions, received by the Company in accordance with each respective joint venture partnership agreement. Accordingly, the Company received cash proceeds of approximately $2.5 million and recognized a gain of approximately $1.5 million during the second F-15 CAPITAL SENIOR LIVING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) quarter of fiscal 2014 which was reflected as a joint venture equity investment valuation gain within the Company’s Consolidated Statements of Operations and Comprehensive Loss. On June 30, 2014, in conjunction with the SHPIII/CSL Transaction, the Company obtained approximately $16.4 million of mortgage debt from Fannie Mae for the acquisition of SHPIII/CSL Miami. The new mortgage loan has a 10-year term with a fixed interest rate of 4.30% and the principal amortized over a 30-year term. The Company also obtained approximately $23.7 million of mortgage debt from Fannie Mae for the acquisition of SHPIII/CSL Richmond Heights. The new mortgage loan has a 10-year term with a fixed interest rate of 4.48% and the principal amortized over a 30-year term. The Company obtained interim, interest only, financing of $21.6 million from Wells Fargo Bank, N.A. (“Wells Fargo”) for the acquisition of SHPIII/CSL Levis Commons with a variable interest rate of LIBOR plus 2.75% and a 24-month term. The balance of the acquisition price was paid from the Company’s existing cash resources. The Company incurred approximately $0.3 million in transaction costs related to this acquisition which have been included in general and administrative expenses within the Company’s Consolidated Statements of Operations and Comprehensive Loss. Effective March 26, 2014, the Company closed the acquisition of one senior living community located in Lambertville, Michigan, for $14.6 million (the “Aspen Grove Transaction”). The community consists of 78 assisted living units. The Company incurred approximately $0.2 million in transaction costs related to this acquisition which have been included in general and administrative expenses within the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company obtained financing from Fannie Mae for $11.0 million of the acquisition price at a fixed interest rate of 5.43% with a 12-year term with the balance of the acquisition price paid from the Company’s existing cash resources. As a result of these acquisitions, the Company recorded additions to property and equipment of approx- imately $146.1 million and other assets of approximately $14.1 million, primarily consisting of in-place lease intangibles, within the Company’s Consolidated Balance Sheets which will be depreciated or amortized over the estimated useful lives. The purchase accounting for the Canton Transaction which closed during the fourth quar- ter of fiscal 2014 was preliminary as it was subject to final valuation adjustments. During the first quarter of fis- cal 2015, final valuation adjustments resulted in the Company reclassifying approximately $0.4 million from other assets to property and equipment and the 2014 Consolidated Balance Sheet has been recast to reflect the final purchase price allocation. During fiscal 2014, these acquisitions generated $16.6 million of revenue and $(4.6) million of losses before income taxes which are included in the Company’s Consolidated Statements of Operations and Comprehensive Loss from the dates of acquisition. Losses before income taxes primarily result from the amortization of in-place lease intangibles associated with acquisitions during fiscal 2014 and 2013. The unaudited pro forma combined results of operations have been prepared as if the acquisitions had occurred on January 1, 2013, as follows (in thousands): December 31, 2014 2013 Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $400,653 $ (15,655) $378,737 $ (25,963) The unaudited pro forma consolidated amounts are presented for informational purposes only and do not necessarily reflect the results of operations of the Company that would have actually resulted had the acquisitions occurred on January 1, 2013. 5. Dispositions Effective August 6, 2015, the Company closed a transaction to sell one of its senior living communities located in Wichita, KS, for approximately $14.8 million (the “Sedgwick Sale Transaction”). As a result of the sale, outstanding mortgage debt totaling approximately $6.8 million was assumed by the buyer. The Company recognized a gain on sale of approximately $6.4 million and received net proceeds, less the debt assumption, of F-16 CAPITAL SENIOR LIVING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) approximately $8.0 million. For income tax purposes, the Company executed a like-kind exchange and acquired a replacement property shortly after the sale which resulted in the deferral of the gain without the Company incurring any current federal or state income tax liabilities. The Company contracted with a qualified interme- diary for purposes of reaching its determination that the transaction satisfied all requirements of a like-kind exchange under applicable federal and state income tax law. Effective January 22, 2015, the Company closed a transaction to sell four of its senior living communities located in Oklahoma City, Oklahoma, Shreveport, Louisiana, Southfield, Michigan, and Winston-Salem, North Carolina, in a single transaction for approximately $36.5 million (the “Four Property Sale Transaction”). As a result of the sale, the outstanding mortgage debt on the Company’s senior living communities located in Oklahoma City and Shreveport was repaid without incurring any prepayment penalties as these notes were short- term, bridge loan interim financing. However, the mortgage loan associated with the Company’s senior living community located in Winston-Salem could not be prepaid under the existing loan agreement as it did not offer a prepayment provision. Additionally, this mortgage loan was cross-collateralized with another mortgage loan on one of the Company’s senior living communities located in Peoria, IL, which also did not offer a prepayment provision. Therefore, the Company determined it would defease the Winston-Salem and Peoria mortgage loans by acquiring certain treasury securities to serve as collateral for the outstanding principal balance as of the date of the sale until the note matured on September 1, 2015. The Company contracted with a third party trust to assume the mortgage debt and assigned all of its rights to the treasury securities to serve as collateral until the balance remaining comes due. Based on this structure, the Company concluded it met the requirements to report the debt transaction as a legal defeasance which resulted in the Company removing the respective assets and liabilities from its Consolidated Balance Sheet during the first quarter of fiscal 2015 when the transaction closed. The Company had reported these assets as held for sale at December 31, 2014, and recorded a remeasurement write- down of $0.6 million to adjust the carrying values of these assets to the sales price, less costs to sell. As a result of the sale, the Company received net proceeds of approximately $35.7 million. 6. Property and Equipment Property and equipment consists of the following (in thousands): Asset Lives 2015 2014 December 31, Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Land improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buildings and building improvements . . . . . . . . . . . . . . . . Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . Automobiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . 5 to 20 years 10 to 40 years 5 to 10 years 5 to 7 years (1) NA Less accumulated depreciation and amortization. . . . . . . . $ 61,254 17,613 897,668 42,879 4,977 58,466 5,700 1,088,557 197,985 $ 54,115 13,209 764,794 34,921 3,829 41,679 1,520 914,067 166,454 Property and equipment, net . . . . . . . . . . . . . . . . . . . . . $ 890,572 $747,613 (1) Leasehold improvements are amortized over the shorter of the useful life of the asset or the remaining lease term. At December 31, 2015 and 2014, furniture and equipment include $3.0 million of capitalized computer software development costs of which $2.6 million and $2.5 million, respectively, has been amortized and is included as a component of accumulated depreciation and amortization. During fiscal 2015, final valuation adjustments associated with 2014 senior living community acquisitions resulted in the Company reclassifying approximately $0.4 million from other assets to property and equipment and the 2014 Consolidated Balance Sheet has been recast to reflect the final purchase price allocation. F-17 CAPITAL SENIOR LIVING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Property and equipment includes $32.4 million of assets under capital lease in connection with the Ventas Lease Transaction, as discussed at Note 17, “Leases”, of which $13.7 million and $12.8 million has been amor- tized and is included as a component of accumulated depreciation and amortization at December 31, 2015 and 2014, respectively. 7. Other Assets Other assets consist of the following (in thousands): Deferred lease costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Security and other deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . In-place lease intangibles, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31, 2015 2014 8,211 12,953 7,719 2,310 9,684 11,324 7,443 2,732 $31,193 $31,183 In connection with the Company’s acquisitions and certain lease transactions, subject to final valuation adjustments, the Company records additions to in-place lease intangibles in order to reflect the value associated with the resident operating leases acquired. In-place lease intangibles are being amortized over the estimated remaining useful life of the respective resident operating leases. The value of in-place leases includes lost rev- enue that would be realized if the resident operating leases were to be replaced by the Company. During fiscal 2015, final valuation adjustments associated with 2014 senior living community acquisitions resulted in the Company reclassifying approximately $0.4 million from other assets to property and equipment and the 2014 Consolidated Balance Sheet has been recast to reflect the final purchase price allocations. Additionally, other assets at December 31, 2014, was revised from amounts previously reported to reflect the impact of reclassifying $6.3 million in debt issuance costs, net of accumulated amortization, to notes payable. This revision was due to the Company’s adoption of ASU 2015-03, Interest—Imputation of Interest- Simplifying the Presentation of Debt Issuance Costs, during the fourth quarter of fiscal 2015 which requires current and retrospective application to the Company’s Consolidated Balance Sheets for all periods presented. At December 31, 2015 and 2014, the Company had gross in-place lease intangibles of $74.9 million and $60.6 million, respectively, of which $67.2 million and $52.8 million, respectively, has been amortized. The unamortized balance at December 31, 2015 is expected to be fully amortized during fiscal 2016. 8. Accrued Expenses Accrued expenses consist of the following (in thousands): December 31, 2015 2014 Accrued salaries, bonuses and related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued property taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued health claims and workers comp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,121 14,087 3,035 3,230 748 2,079 $ 9,865 13,050 2,485 4,026 771 1,957 $34,300 $32,154 F-18 CAPITAL SENIOR LIVING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 9. Notes Payable Notes payable consists of the following (in thousands): Lender Average Monthly Payment Net Book Value Of Collateral(1) Interest Rate Maturity Date Fannie Mae . . . . . . . . . . . . . . . . . . . . . — Fannie Mae . . . . . . . . . . . . . . . . . . . . . — Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . Fannie Mae . . . . . . . . . . . . . . . . . . . . . 78 26 101 27 117 27 60 135 60 144 33 43 84 49 39 85 18 45 67 67 282 632 120 81 134 54 53 95 70 109 102 47 59 81 58 44 273 62 — — 5.69 4.97 4.92 5.19 4.92 4.38 4.76 4.69 4.48 4.34 4.50 5.49 4.32 5.39 4.58 4.66 5.46 5.93 5.50 5.38 5.56 4.24 4.48 4.30 4.59 4.70 4.50 4.46 4.35 3.85 3.84 4.55 4.79 5.30 4.69 4.70 4.68 5.43 (4) (4) August 2021 October 2021 October 2021 October 2021 November 2021 March 2022 April 2022 April 2022 May 2022 November 2022 November 2022 November 2022 January 2023 January 2023 January 2023 April 2023 April 2023 October 2023 November 2023 November 2023 January 2024 July 2024(5) July 2024 July 2024 September 2024 September 2024 January 2025 January 2025 February 2025 March 2025 April 2025 June 2025 June 2025 June 2025 October 2025 October 2025 December 2025 April 2026 — — 15,214 5,594 21,093 21,093 24,283 6,273 12,507 28,287 15,981 34,998 7,685 26,987 18,439 18,439 8,682 18,782 5,524 8,700 14,242 13,028 55,740 118,792 27,851 20,660 29,273 11,550 13,093 6,579 16,630 9,434 26,078 10,404 13,014 16,535 13,677 10,380 41,027 12,144 F-19 Notes Payable December 31, 2015 2014 $ — $ 26,809 5,372 12,915 4,582 18,096 — 21,041 5,132 11,007 25,026 11,348 27,970 6,222 — 16,460 — 7,350 15,967 — 7,506 11,686 11,756 48,722 134,650 23,572 16,304 26,070 10,357 10,406 18,923 — — — — — 14,237 — — — 10,908 — 12,716 4,502 17,779 4,978 20,674 5,036 10,814 24,584 11,141 27,462 6,113 7,592 16,164 8,684 7,224 15,700 3,150 7,411 11,526 11,591 48,071 125,677 23,196 16,035 25,666 10,200 10,258 18,651 13,909 22,939 21,548 9,087 11,095 14,029 11,122 8,406 52,774 10,761 CAPITAL SENIOR LIVING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Lender Average Monthly Payment Net Book Value Of Collateral(1) Interest Rate Maturity Date Notes Payable December 31, 2015 2014 96 Protective Life . . . . . . . . . . . . . . . . . . 49 Protective Life . . . . . . . . . . . . . . . . . . 65 Protective Life . . . . . . . . . . . . . . . . . . Protective Life . . . . . . . . . . . . . . . . . . 138 Berkadia . . . . . . . . . . . . . . . . . . . . . . . — Berkadia . . . . . . . . . . . . . . . . . . . . . . . — Berkadia . . . . . . . . . . . . . . . . . . . . . . . — Berkadia . . . . . . . . . . . . . . . . . . . . . . . — Berkadia . . . . . . . . . . . . . . . . . . . . . . . — 48 Berkadia . . . . . . . . . . . . . . . . . . . . . . . Wells Fargo . . . . . . . . . . . . . . . . . . . . . — 16 HUD . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Insurance Financing . . . . . . . . . . . . . . 138 Insurance Financing . . . . . . . . . . . . . . Insurance Financing . . . . . . . . . . . . . . 208 Insurance Financing . . . . . . . . . . . . . . — Insurance Financing . . . . . . . . . . . . . . — 26,385 12,207 19,045 34,327 — — — — — 14,359 — 5,759 — — — — — 3.55 4.25 4.25 4.25 — — — — — (3) — 4.48 1.73 1.73 1.79 — — April 2025 August 2025 September 2025 November 2025 (6) (7) (6) (8) (7) July 2017(9) (10) September 2045 October 2016 April 2016 March 2016 February 2015 September 2015 21,081 9,882 13,145 27,961 — — — — — 11,800 — 3,093 711 553 625 — — — — — — 13,777 4,550 9,300 8,472 9,500 11,800 21,600 3,142 — — 3,095 390 580 $4,490 4.60%(2) Less deferred loan costs, net . . . . . . . . Less current portion . . . . . . . . . . . . . . 777,116 646,600 8,533 6,331 768,583 13,634 640,269 47,385 $754,949 $592,884 (1) 69 of the facilities owned by the Company are encumbered by mortgage debt and are provided as collateral under their respective loan agreements. (2) Weighted average interest rate on current fixed interest rate debt outstanding. (3) Variable interest rate of LIBOR plus 4.50%, which was 4.79% at December 31, 2015. (4) On November 12, 2015, the Company obtained new long-term financing from Berkadia, who later sold the loans to Fannie Mae, to replace this mortgage debt with a fixed interest rate of 4.68% and a 10-year term. (5) On August 6, 2015, approximately $6.8 million of this outstanding mortgage debt was assumed by the buyer to Note 5, in conjunction with the Sedgwick Sale Transaction. For additional “Dispositions.” information refer (6) On January 22, 2015, this mortgage debt was repaid or defeased in conjunction with the Four Property Sale Transaction. For additional information refer to Note 5, “Dispositions.” (7) On February 17, 2015, the Company obtained new long-term financing from Fannie Mae to replace this mortgage debt with a fixed interest rate of 3.85% and a 10-year term. (8) On September 24, 2015, the Company obtained new long-term financing from Fannie Mae to replace this mortgage debt with a fixed interest rate of 4.70% and a 10-year term. F-20 CAPITAL SENIOR LIVING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (9) On February 4, 2015, the Company exercised its right to extend the maturity date with Berkadia to July 10, 2017. (10) On March 5, 2015, the Company obtained new long-term financing from Fannie Mae to replace this mort- gage debt with a fixed interest rate of 3.84% and a 10-year term. The aggregate scheduled maturities of notes payable at December 31, 2015 are as follows (in thousands): 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,698 25,318 14,158 14,829 15,443 692,670 $777,116 On December 17, 2015, the Company completed supplemental mortgage financing of approximately $7.6 million from Fannie Mae on three senior living communities located in Columbus, Ohio, Chardon, Ohio, and Greenwood, Indiana, at a fixed interest rate of 5.49% which is coterminous with existing mortgage debt maturing in November 2022. The supplemental mortgage loans are cross-collateralized and cross-defaulted with the origi- nal mortgage debt. The Company incurred approximately $0.2 million in deferred financing costs related to these loans, which are being amortized over the remaining initial loan terms. On November 24, 2015, the Company completed supplemental mortgage financing of approximately $3.2 million from Fannie Mae on one senior living community located in Elkhorn, Nebraska, at a fixed interest rate of 5.46% which is coterminous with existing mortgage debt maturing in April 2023. The supplemental mortgage loan is cross-collateralized and cross-defaulted with the original mortgage debt. The Company incurred approx- imately $0.1 million in deferred financing costs related to this loan, which are being amortized over the remain- ing initial loan term. On November 24, 2015, the Company completed supplemental mortgage financing of approximately $8.7 million from Fannie Mae on one senior living community located in Springfield, Missouri, at a fixed interest rate of 5.39% which is coterminous with existing mortgage debt maturing in January 2023. The supplemental mort- gage loan is cross-collateralized and cross-defaulted with the original mortgage debt. The Company incurred approximately $0.1 million in deferred financing costs related to this loan, which are being amortized over the remaining initial loan term. On November 12, 2015, the Company repaid mortgage loans totaling approximately $31.6 million from Fannie Mae associated with four of its senior living communities located in Columbia, South Carolina, Deer Park and Pantego, Texas, and South Bend, Indiana, scheduled to mature in June 2017. The Company obtained approx- imately $52.8 million of new long-term fixed interest rate mortgage financing from Berkadia Commercial Mort- gage LLC (“Berkadia”), who later sold the loans to Fannie Mae, at a fixed interest rate of 4.68% with a 10-year term and the principal amortized over a 30-year term. The Company incurred approximately $0.6 million in deferred financing costs related to the new mortgage loans, which are being amortized over 10 years. As a result of the early repayment of the existing mortgage debt, the Company accelerated the amortization of approximately $0.1 million in unamortized deferred financing costs and incurred a prepayment premium of approximately $1.7 million to Fannie Mae. On October 30, 2015, in conjunction with the Virginia Beach Transaction, the Company obtained $28.0 million of mortgage debt from Protective Life. The new mortgage loan has a 10-year term with a 4.25% fixed interest rate and the principal amortized over a 30-year term. The Company incurred approximately $0.4 million in deferred financing costs related to this loan, which are being amortized over 10 years. F-21 CAPITAL SENIOR LIVING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) On September 30, 2015, in conjunction with the Mahomet Transaction, the Company obtained approx- imately $11.1 million of mortgage debt from Fannie Mae. The new mortgage loan has a 10-year term with a 4.69% fixed interest rate and the principal amortized over a 30-year term. The Company incurred approximately $0.2 million in deferred financing costs related to this loan, which are being amortized over 10 years. On September 30, 2015, the Company completed supplemental financing of approximately $5.0 million from Fannie Mae on an existing senior living community owned by the Company located in Macedonia, Ohio. The supplemental loan is coterminous with existing mortgage debt maturing in October 2021 with a 5.19% fixed interest rate and the principal amortized over a 30-year term. The supplemental loan is cross-collateralized and cross-defaulted with the original mortgage debt. The Company incurred approximately $0.1 million in deferred financing costs related to this loan, which are being amortized over the remaining initial loan term. On September 24, 2015, the Company obtained approximately $8.4 million long-term fixed interest rate mortgage financing from Fannie Mae to replace interim variable interest rate financing obtained by the Company from Berkadia on September 30, 2013, in connection with the Company’s previous acquisition of a senior living community located in Oakwood, Georgia. The new mortgage loan has a 10-year term with a 4.7% fixed interest rate and the principal amortized over a 30-year term. The Company incurred approximately $0.2 million in deferred financing costs related to this loan, which are being amortized over 10 years. On August 11, 2015, in conjunction with the Indianapolis Transaction, the Company obtained approx- imately $13.2 million of mortgage debt from Protective Life. The new mortgage loan has a 10-year term with a 4.25% fixed interest rate and the principal amortized over a 30-year term. The Company incurred approximately $0.2 million in deferred financing costs related to this loan, which are being amortized over 10 years. The note with Protective Life associated with the Indianapolis Transaction includes a loan commitment for up to $2.6 mil- lion of supplemental funding at the same terms and 4.25% fixed interest rate. The loan commitment is based on meeting certain funding requirements and is available through February 28, 2018. On August 6, 2015, outstanding mortgage debt totaling approximately $6.8 million was assumed by the buyer in conjunction with the Sedgwick Sale Transaction. As a result of the buyer’s assumption of the existing mortgage debt, the Company accelerated the amortization of approximately $0.1 million in unamortized deferred financing costs. For additional information refer to Note 5, “Dispositions”. On July 28, 2015, in conjunction with the Columbiana Transaction, the Company obtained approximately $9.9 million of mortgage debt from Protective Life. The new mortgage loan has a 10-year term with a 4.25% fixed interest rate and the principal amortized over a 30-year term. The Company incurred approximately $0.2 million in deferred financing costs related to this loan, which are being amortized over 10 years. On May 31, 2015, the Company renewed certain insurance policies and entered into a finance agreement totaling approximately $1.7 million. The finance agreement has a fixed interest rate of 1.73% with the principal being repaid over an 11-month term. On May 29, 2015, in conjunction with the Heritage Transaction, the Company obtained approximately $11.2 million of mortgage debt from Fannie Mae. The new mortgage loan has a 10-year term with a 4.79% fixed inter- est rate and the principal amortized over a 30-year term. The Company incurred approximately $0.2 million in deferred financing costs related to this loan, which are being amortized over 10 years. On May 21, 2015, in conjunction with the Emerald Transaction, the Company obtained approximately $9.2 million of mortgage debt from Fannie Mae. The new mortgage loan has a 10-year term with a 4.55% fixed inter- est rate and the principal amortized over a 30-year term. The Company incurred approximately $0.2 million in deferred financing costs related to this loan, which are being amortized over 10 years. On March 27, 2015, in conjunction with the Baytown Transaction, the Company obtained approximately $21.4 million of mortgage debt from Protective Life. The new mortgage loan has a 10-year term with a 3.55% fixed interest rate and the principal amortized over a 30-year term. The Company incurred approximately $0.2 million in deferred financing costs related to this loan, which are being amortized over 10 years. F-22 CAPITAL SENIOR LIVING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) On March 5, 2015, the Company repaid an interim, interest only variable rate mortgage loan totaling approx- imately $21.6 million from Wells Fargo on one of its senior living communities located in Toledo, Ohio. The Company obtained approximately $21.8 million of mortgage debt from Fannie Mae to replace the Wells Fargo interim financing. This new mortgage loan has a 10-year term with a fixed interest rate of 3.84% and the princi- pal amortized over 30-years. The Company incurred approximately $0.2 million in deferred financing costs related to this loan, which are being amortized over the loan term. As a result of the refinance, the Company received approximately $0.2 million in cash proceeds. Due to the early repayment, the Company accelerated the amortization of approximately $79,000 in unamortized deferred financing costs and incurred additional prepay- ment fees totaling approximately $55,000. On February 17, 2015, the Company obtained new permanent mortgage financing totaling approximately $23.2 million from Fannie Mae on one of its owned senior living communities located in Peoria, Illinois. The new financing replaced a mortgage loan previously scheduled to mature on September 1, 2015, which was defeased by the Company on January 22, 2015, in conjunction with the Four Property Sale Transaction. This new mortgage loan has a 10-year term with a fixed interest rate of 3.85% and the principal amortized over 30 years. The Company incurred approximately $0.2 million in deferred financing costs related to this loan, which are being amortized over the loan term. As a result of the Peoria financing, the Company repaid existing mortgage debt on two owned properties totaling approximately $14.1 million. Due to the early repayment, the Company accelerated the amortization of approximately $0.2 million in unamortized deferred financing costs and incurred additional prepayment fees totaling approximately $0.5 million. On January 22, 2015, outstanding mortgage debt totaling approximately $13.7 million was defeased in con- junction with the Four Property Sale Transaction. The mortgage loan associated with the Company’s senior liv- ing community located in Winston-Salem, North Carolina, carried an outstanding balance of approximately $5.7 million and could not be prepaid under the existing loan agreement as it did not offer a prepayment provision. Additionally, this mortgage loan was cross-collateralized with another mortgage loan on one of the Company’s senior living communities located in Peoria, Illinois, which carried an outstanding mortgage balance of approx- imately $8.0 million and also did not offer a prepayment provision. Therefore, the Company determined it would defease the Winston-Salem and Peoria mortgage loans by acquiring certain treasury securities to serve as collateral for the outstanding principal balance as of the date of the sale until the note matured on September 1, 2015. The Company contracted with a third party trust to assume the mortgage debt and assigned all of its rights to the treasury securities to serve as collateral until the balance remaining came due. Based on this structure, the Company concluded it met the requirements to report the debt transaction as a legal defeasance which resulted in the Company removing the respective assets and liabilities from its Consolidated Balance Sheet during the first quarter of fiscal 2015 when the transaction closed. Due to the defeasance, the Company accelerated the amor- tization of approximately $18,000 in unamortized deferred financing costs. For additional information refer to Note 5, “Dispositions”. On January 13, 2015, in conjunction with the Green Bay Transaction, the Company obtained approximately $14.1 million of mortgage debt from Fannie Mae. The new mortgage loan has a 10-year term with a 4.35% fixed interest rate and the principal amortized over a 30-year term. The Company incurred approximately $0.1 million in deferred financing costs related to this loan, which are being amortized over 10 years. On December 23, 2014, the Company refinanced a mortgage loan totaling approximately $8.4 million from Freddie Mac associated with one of its senior living communities located in Lincoln, Nebraska. The Company obtained approximately $18.9 million of new mortgage debt from Fannie Mae. The new mortgage loan has a 10- year term with a 4.46% fixed interest rate and the principal amortized over a 30-year term. The Company incurred approximately $0.2 million in deferred financing costs related to this loan, which is being amortized over 10 years. As a result of the early repayment of the existing mortgage debt with Freddie Mac, the Company accelerated the amortization of approximately $48,000 in unamortized deferred financing costs and incurred a prepayment premium of approximately $0.9 million. F-23 CAPITAL SENIOR LIVING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) On December 17, 2014, in conjunction with the Canton Transaction, the Company obtained approximately $10.4 million of mortgage debt from Fannie Mae. The new mortgage loan has a 10-year term with a 4.50% fixed interest rate and the principal amortized over a 30-year term. The Company incurred approximately $0.1 million in deferred financing costs related to this loan, which is being amortized over 10 years. On August 27, 2014, in conjunction with the Plymouth Transaction, the Company obtained approximately $10.4 million of mortgage debt from Fannie Mae. The new mortgage loan has a 10-year term with a 4.70% fixed interest rate and the principal amortized over a 30-year term. The Company incurred approximately $0.1 million in deferred financing costs related to this loan, which is being amortized over 10 years. On August 4, 2014, in conjunction with the Roanoke Transaction, the Company obtained approximately $12.9 million of mortgage debt from Fannie Mae. The new mortgage loan has a 10-year term, with a 4.59% fixed interest rate and the principal amortized over a 30-year term. The Company incurred approximately $0.1 million in deferred financing costs related to this loan, which is being amortized over 10 years. On August 4, 2014, in conjunction with the Oshkosh Transaction, the Company obtained approximately $13.2 million of mortgage debt from Fannie Mae. The new mortgage loan has a 10-year term with a 4.59% fixed interest rate and the principal amortized over a 30-year term. The Company incurred approximately $0.1 million in deferred financing costs related to this loan, which is being amortized over 10 years. On June 30, 2014, in conjunction with the SHPIII/CSL Transaction, the Company obtained approximately $16.4 million of mortgage debt from Fannie Mae for the acquisition of SHPIII/CSL Miami. The new mortgage loan has a 10-year term with a fixed interest rate of 4.30% and the principal amortized over a 30-year term. The Company also obtained approximately $23.7 million of mortgage debt from Fannie Mae for the acquisition of SHPIII/CSL Richmond Heights. The new mortgage loan has a 10-year term with a fixed interest rate of 4.48% and the principal amortized over a 30-year term. The Company obtained interim, interest only, financing of $21.6 million from Wells Fargo for the acquisition of SHPIII/CSL Levis Commons with a variable interest rate of LIBOR plus 2.75% and a 24-month term. The Company incurred approximately $0.5 million in deferred financ- ing costs related to these loans, which are being amortized over the respective loan terms. On June 27, 2014, the Company refinanced mortgage loans totaling approximately $111.9 million from Freddie Mac associated with 15 of its senior living communities. The Company obtained approximately $135.5 million of mortgage debt and supplemental financings for 12 of the senior living communities from Fannie Mae. These new mortgage loans have 10-year terms with fixed interest rates of 4.24% and the principal amortized over 30-year terms. The Company obtained interim, interest only, financing of $9.3 million from Berkadia for two of the senior living communities with a variable interest rate of LIBOR plus 4.50% and a 12-month term. The Company also obtained interim, interest only, financing of $11.8 million from Berkadia for one of the senior living communities with a variable interest rate of LIBOR plus 4.50% and a 24-month term. The Company incurred approximately $2.0 million in deferred financing costs related to these loans, which are being amortized over the respective loan terms. As a result of the refinance, the Company received approximately $36.5 million in cash proceeds. As a result of the early repayment of the existing mortgage debt with Freddie Mac, the Company accelerated the amortization of approximately $0.5 million in unamortized deferred loan costs and incurred a prepayment premium of approximately $6.5 million. On May 31, 2014, the Company renewed certain insurance policies and entered into a finance agreement totaling approximately $1.7 million. The finance agreement has a fixed interest rate of 1.92% with principal being repaid over a 9-month term. On March 26, 2014, in conjunction with the Aspen Grove Transaction, the Company obtained approx- imately $11.0 million of mortgage debt from Fannie Mae. The new mortgage loan has a 12-year term with a 5.43% fixed interest rate and the principal amortized over a 30-year term. The Company incurred approximately $0.2 million in deferred financing costs related to this loan, which is being amortized over 12 years. On March 25, 2011, the Company issued standby letters of credit, totaling approximately $2.6 million, for the benefit of HCN on certain leases between HCN and the Company. F-24 CAPITAL SENIOR LIVING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) On September 10, 2010, the Company issued standby letters of credit, totaling approximately $2.2 million, for the benefit of HCN on certain leases between HCN and the Company. On April 16, 2010, the Company issued standby letters of credit, totaling approximately $1.7 million, for the benefit of HCN on certain leases between HCN and the Company. In connection with the Company’s loan commitments described above, the Company incurred financing charges that were deferred and amortized over the life of the notes. At December 31, 2015 and 2014, the Com- pany had gross deferred loan costs of $10.3 million and $8.5 million, respectively. Accumulated amortization was $1.8 million and $2.2 million at December 31, 2015 and 2014, respectively. During fiscal 2015, due to the early repayment of the Company’s existing mortgage debt associated with the Four Property Sale Transaction, Sedgwick Sale Transaction and refinancings with Fannie Mae, the Company wrote-off approximately $0.5 mil- lion in unamortized deferred financing charges and removed the respective accumulated amortization of approx- imately $1.4 million. Amortization expense is expected to be approximately $1.1 million in each of the next five fiscal years. The Company was in compliance with all aspects of its outstanding indebtedness at December 31, 2015 and 2014. 10. Equity Preferred Stock The Company is authorized to issue preferred stock in series and to fix and state the voting powers and such designations, preferences and relative participating, optional or other special rights of the shares of each such series and the qualifications, limitations and restrictions thereof. Such action may be taken by the Board without stockholder approval. The rights, preferences and privileges of holders of common stock are subject to the rights of the holders of preferred stock. No preferred stock was outstanding as of December 31, 2015 and 2014. Share Repurchases On January 22, 2009, the Company’s board of directors approved a share repurchase program that authorized the Company to purchase up to $10.0 million of the Company’s common stock. Purchases may be made from time to time using a variety of methods, which may include open market purchases, privately nego- tiated transactions or block trades, or by any combination of such methods, in accordance with applicable insider trading and other securities laws and regulations. The size, scope and timing of any purchases will be based on business, market and other conditions and factors, including price, regulatory and contractual requirements or consents, and capital availability. The repurchase program does not obligate the Company to acquire any partic- ular amount of common stock and the share repurchase authorization has no stated expiration date. Shares of stock repurchased under the program will be held as treasury shares. Pursuant to this authorization, during fiscal 2009, the Company purchased 349,800 shares at an average cost of $2.67 per share for a total cost to the Com- pany of approximately $0.9 million. All such purchases were made in open market transactions. The Company did not purchase any shares of its common stock pursuant to the Company’s share repurchase program during fiscal 2015, 2014, or 2013. 11. Stock-Based Compensation Stock Options Although the Company has not granted stock options in recent years, the Company’s stock option program is a long-term retention program that is intended to attract, retain and provide incentives for employees, officers and directors and to more closely align stockholder and employee interests. The Company’s stock options gen- erally vest over one to five years and the related expense is amortized on a straight-line basis over the vesting period. F-25 CAPITAL SENIOR LIVING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) A summary of the Company’s stock option activity and related information for the years ended December 31, 2015, 2014, and 2013 is presented below: Outstanding at Beginning of Year Granted Exercised Forfeited Outstanding End of Year Options Exercisable December 31, 2015 Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted average price . . . . . . . . . . . . . December 31, 2014 Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted average price . . . . . . . . . . . . . December 31, 2013 Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted average price . . . . . . . . . . . . . 6,000 8.44 19,000 7.10 $ $ 265,930 6.28 $ — — — — — — 3,000 — 5.90 — 3,000 $ 10.97 3,000 $ 10.97 13,000 — 6.48 — 6,000 8.44 $ 6,000 8.44 $ $ $ 246,930 — 6.21 — $ 19,000 7.10 $ 19,000 7.10 $ The options outstanding and the options exercisable at December 31, 2015, 2014, and 2013, had an aggregate intrinsic value of $30,000, $0.1 million, and $0.3 million, respectively. All stock options outstanding are fully vested. The following table summarizes information relating to the Company’s options outstanding and options exercisable as of December 31, 2015. Range of Exercise Prices Options Outstanding Options Exercisable Number Outstanding at End of Year Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Number Exercisable at End of Year Weighted Average Exercise Price $10.97 . . . . . . . . . . . . . . . . . 3,000 .35 $10.97 3,000 $10.97 Restricted Stock The Company may grant restricted stock awards and units to employees, officers, and directors in order to attract, retain, and provide incentives for such individuals and to more closely align stockholder and employee interests. For restricted stock awards and units without performance-based vesting conditions, the Company records compensation expense for the entire award on a straight-line basis over the requisite service period, which is generally a period of one to four years, unless the award is subject to certain accelerated vesting requirements. Restricted stock awards are considered outstanding at the time of grant since the holders thereof are entitled to dividends, upon vesting, and voting rights. For restricted stock 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 periodically and if such goals are not ulti- mately met or it is not probable the goals will be achieved, no compensation expense is recognized and any pre- viously recognized compensation expense is reversed. F-26 CAPITAL SENIOR LIVING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The Company recognizes compensation expense of a restricted stock award over its respective vesting or performance period based on the fair value of the award on the grant date, net of forfeitures. A summary of the Company’s restricted common stock awards activity and related information for the years ended December 31, 2015, 2014, and 2013 is presented below: Outstanding at Beginning of Year Issued Vested Forfeited Outstanding End of Year December 31, 2015 Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31, 2014 Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31, 2013 Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 702,718 467,944 358,716 28,636 783,310 870,217 350,716 406,072 112,143 702,718 803,218 403,715 312,980 23,736 870,217 The restricted stock outstanding at December 31, 2015, 2014, and 2013, had an aggregate intrinsic value of $16.3 million, $17.5 million, and $20.9 million, respectively. During fiscal 2015, the Company awarded 467,944 shares of restricted common stock to certain employees and directors of the Company, of which 130,000 shares were subject to performance-based vesting conditions. The average market value of the common stock on the date of grant was $24.08. These awards of restricted shares vest over a one to four-year period, unless the award is subject to certain accelerated vesting requirements, and had an intrinsic value of $11.3 million on the date of grant. Additionally, during fiscal 2015, the Company awarded 11,756 restricted stock units to certain directors of the Company with an average market value of $25.52 and an intrinsic value of $0.3 million on the date of grant, that vest over a one-year period. On February 24, 2016, the Company awarded 541,327 shares of restricted common stock to certain employ- ees of the Company, of which 199,692 shares were subject to performance-based vesting conditions. The market value of the common stock on the date of grant was $15.92. These awards of restricted shares vest over a one to four-year period, unless the award is subject to certain accelerated vesting requirements, and had an intrinsic value of $8.6 million on the date of grant. Stock Based Compensation The Company uses the Black-Scholes option pricing model to estimate the grant date fair value of its stock options. The Black-Scholes model requires the input of certain assumptions including expected volatility, expected dividend yield, expected life of the option and the risk free interest rate. The expected volatility used by the Company is based primarily on an analysis of historical prices of the Company’s common stock. The expected term of options granted is based primarily on historical exercise patterns on the Company’s outstanding stock options. The risk free rate is based on zero-coupon U.S. Treasury yields in effect at the date of grant with the same period as the expected option life. The Company does not expect to pay dividends on its common stock and therefore has used a dividend yield of zero in determining the fair value of its awards. The option forfeiture rate assumption used by the Company is based primarily on the Company’s historical option forfeiture patterns. The Company recognizes compensation expense of a restricted stock award over its respective vesting period based on the fair value of the award on the grant date, net of estimated forfeitures. The Company recognized $8.8 million, $7.3 million, and $4.3 million in stock-based compensation expense during fiscal 2015, 2014, and 2013, respectively. Unrecognized stock-based compensation expense, net of esti- mated forfeitures, is $8.3 million for the year ended December 31, 2015. The Company expects this expense to be recognized over a one-year period for performance awards and a one to four-year period for nonperformance awards. F-27 CAPITAL SENIOR LIVING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 12. Income Taxes The provision (benefit) for income taxes consists of the following (in thousands): Year Ended December 31, 2015 2014 2013 Current: Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $— 900 $— 719 $(5,411) 377 Deferred: Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — 6,251 4,542 $900 $719 $ 5,759 The provision (benefit) for income taxes differed from the amounts of income tax provision (benefit) determined by applying the U.S. federal statutory income tax rate to income before provision (benefit) for income taxes as a result of the following (in thousands): Tax (benefit) provision at federal statutory rates . . . . . . . . . . . . . . . . . State income tax expense, net of federal effects . . . . . . . . . . . . . . . . . Federal and state income tax return true up . . . . . . . . . . . . . . . . . . . . . State effective rate changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in deferred tax asset valuation allowance . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2015 2014 2013 $(4,515) 64 — — 4,986 365 $(7,958) (90) — 6 8,456 305 $(3,653) 401 325 (20) 8,810 (104) $ 900 $ 719 $ 5,759 A summary of the Company’s deferred tax assets and liabilities, are as follows (in thousands): December 31, 2015 2014 Deferred tax assets: Deferred gains on sale/leaseback transactions . . . . . . . . . . . . . . . . . . . . . . . . Net operating loss carryforward (expiring up to 2032) . . . . . . . . . . . . . . . . . Compensation costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments in unconsolidated joint ventures . . . . . . . . . . . . . . . . . . . . . . . . . Capital loss carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,176 15,144 1,804 — — 2,802 $ 7,027 12,556 972 — — 1,806 Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation Allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,926 (22,252) 22,361 (17,266) Total deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,674 5,095 Deferred tax liabilities: Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,674) (5,095) Total deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ — Current deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term deferred tax (liabilities) assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . $ — — $ 460 (460) Total deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ — F-28 CAPITAL SENIOR LIVING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Income taxes are computed using the asset and liability method and current income taxes are recorded based on amounts refundable or payable in the current year. Deferred income taxes are recorded based on the estimated future tax effects of loss carryforwards and temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in the years in which we expect those carry- forwards and temporary differences to be recovered or settled. Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strategies, and future expectations of income. Based upon this evaluation, a valuation allowance has been recorded to reduce the Company’s net deferred tax assets to the amount that is more likely than not to be realized. A significant component of objective evidence evaluated was the cumulative loss incurred by the Company over the past four fiscal years. Such objective evi- dence severely limits the ability to consider other subjective evidence such as the Company’s ability to generate sufficient taxable income in future periods to fully recover the deferred tax assets. However, in the event that we were to determine that it would be more likely than not that the Company would realize the benefit of deferred tax assets in the future in excess of their net recorded amounts, adjustments to deferred tax assets would increase net income in the period we made such a determination. The benefits of the net deferred tax assets might not be realized if actual results differ from expectations. As of December 31, 2015, the Company has Federal and State Net Operating Loss (“NOL”) carryforwards of $34.7 million and $63.3 million and related deferred tax assets of $11.7 million and $3.1 million, respectively, and a Federal Alternative Minimum Tax Credit carryforward of $0.3 million. If not used, the Federal NOL will expire during fiscal 2033 to 2035 and state NOL’s will expire during fiscal 2016 to 2035. Additionally, the Company has a Federal NOL carryforward of $10.4 million related to the excess tax benefits associated with stock-based compensation and stock option exercises. The benefit of this NOL will be recognized as an increase to additional paid-in capital at the point when such NOL provides cash benefit to the Company. The effective tax rates for fiscal 2015 and 2014 differ from the statutory tax rates due to state income taxes, permanent tax differences, and changes in the deferred tax asset valuation allowance. The Company is impacted by the Texas Margin Tax (“TMT”), which effectively imposes tax on modified gross revenues for communities within the State of Texas. During fiscal 2015 the Company consolidated 37 Texas communities and during fiscal 2014 the Company consolidated 36 Texas communities and the TMT increased the overall provision for income taxes. The Company is generally no longer subject to federal and state tax audits for years before 2012. 13. Employee Benefit Plans The Company has a 401(k) salary deferral plan (the “Plan”) in which all employees of the Company meet- ing minimum service and age requirements are eligible to participate. Contributions to the Plan are in the form of employee salary deferrals, which are subject to employer matching contributions of 50% of up to 4% of the employee’s annual salary. The Company’s contributions are funded semi-monthly to the Plan administrator. Matching contributions of $0.5 million were contributed to the Plan in each of fiscal 2015 and 2014 and $0.4 million in fiscal 2013. The Company incurred administrative expenses related to the Plan of $20,900, $15,000, and $15,300 in fiscal 2015, 2014, and 2013, respectively. 14. Contingencies The Company has claims incurred in the normal course of its business. Most of these claims are believed by management to be covered by insurance, subject to normal reservations of rights by the insurance companies and possibly subject to certain exclusions in the applicable insurance policies. Whether or not covered by insurance, these claims, in the opinion of management, based on advice of legal counsel, should not have a material effect on the consolidated financial statements of the Company if determined adversely to the Company. F-29 CAPITAL SENIOR LIVING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 15. Fair Value of Financial Instruments The carrying amounts and fair values of financial instruments at December 31, 2015 and 2014 are as follows (in thousands): Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 2014 Carrying Amount $ 56,087 13,159 777,116 Fair Value $ 56,087 13,159 724,769 Carrying Amount $ 39,209 12,241 646,600 Fair Value $ 39,209 12,241 647,449 The following methods and assumptions were used in estimating its fair value disclosures for financial instruments: Cash and cash equivalents and Restricted cash: The carrying amounts reported in the balance sheet for cash and cash equivalents and restricted cash equal fair value, which represent level 1 inputs as defined in the accounting standards codification. Notes payable: The fair value of notes payable is estimated using discounted cash flow analysis, based on current incremental borrowing rates for similar types of borrowing arrangements, which represent level 2 inputs as defined in the accounting standards codification. The estimated fair value of these assets and liabilities could be affected by market changes and this effect could be material. 16. Allowance for Doubtful Accounts The components of the allowance for doubtful accounts are as follows (in thousands): Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for bad debts, net of recoveries . . . . . . . . . . . . . . . . . . . . . . . . Write-offs and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,321 1,192 (325) $1,900 717 (296) $1,825 497 (422) Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,188 $2,321 $1,900 December 31, 2015 2014 2013 17. Leases The Company currently leases 50 senior living communities from certain real estate investment trusts (“REITs”). The lease terms are generally for 10-15 years with renewal options for 5-20 years at the Company’s option. Under these lease agreements, the Company is responsible for all operating costs, maintenance and repairs, insurance and property taxes. F-30 CAPITAL SENIOR LIVING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following table summarizes each of the Company’s facility lease agreements as of December 31, 2015 Number of Communities Value of Transaction Term Initial Lease Rate(1) Lease Acquisition Costs(2) Deferred Gains /Lease Concessions(3) 8% $ 9.5 $ 4.6 (dollars in millions): Landlord Date of Lease Ventas . . . . . . . . . September 30, 2005 Ventas . . . . . . . . . October 18, 2005 Ventas . . . . . . . . . June 8, 2006 Ventas . . . . . . . . . January 31, 2008 Ventas . . . . . . . . . June 27, 2012 HCP . . . . . . . . . . . May 1, 2006 HCP . . . . . . . . . . . May 31, 2006 HCP . . . . . . . . . . . December 1, 2006 HCP . . . . . . . . . . . December 14, 2006 HCP . . . . . . . . . . . April 11, 2007 HCN . . . . . . . . . . . April 16, 2010 HCN . . . . . . . . . . . May 1, 2010 6 1 1 1 2 3 6 4 1 1 5 3 $ 84.6 19.5 19.1 5.0 43.3 54.0 43.0 51.0 18.0 8.0 48.5 36.0 (4) (Two five-year renewals) (4) (Two five-year renewals) (4) (Two five-year renewals) (4) (Two five-year renewals) (4) (Two five-year renewals) (5) (Two ten-year renewals) 10 years (Two ten-year renewals) (5) (Two ten-year renewals) (5) (Two ten-year renewals) (5) (Two ten-year renewals) 15 years (One 15-year renewal) 15 years (One 15-year renewal) 15 years (One 15-year renewal) 15 years (One 15-year renewal) 8% 8% 7.75% 6.75% 8% 8% 8% 7.75% 7.25% 8.25% 8.25% 8.50% 7.25% 0.3 0.6 0.2 0.8 0.3 0.2 0.7 0.3 0.1 0.6 0.2 0.4 0.9 — — — — 12.8 0.6 — — — 0.8 0.4 2.0 16.3 37.5 — (20.2) HCN . . . . . . . . . . . September 10, 2010 HCN . . . . . . . . . . . April 8, 2011 12 4 104.6 141.0 Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated amortization through December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated deferred gains / lease concessions recognized through December 31, 2015 . . . . 15.1 (7.4) — Net lease acquisition costs / deferred gains / lease concessions as of December 31, 2015 . . . . $ 7.7 $ 17.3 (1) Initial lease rates are measured against agreed upon fair market values and are subject to conditional lease escalation provisions as set forth in each respective lease agreement. (2) Lease acquisition and modification costs are being amortized over the respective initial lease terms. (3) Deferred gains of $34.9 million and lease concessions of $2.6 million are being recognized in the Company’s Consolidated Statements of Operations and Comprehensive Loss as a reduction in facility lease expense over the respective initial lease terms. Lease concessions of $0.6 million relate to the transaction with HCP on May 31, 2006, and $2.0 million relate to the transaction with HCN on September 10, 2010. (4) Effective June 17, 2015, the Company executed amendments to the master lease agreements with Ventas to facilitate up to $24.5 million of leasehold improvements for 10 of the leased communities and extend the lease terms through September 30, 2025, with two 5-year renewal extensions available at the Company’s option. (5) On November 11, 2013, the Company executed a third amendment to the master lease agreement associated with nine of its leased communities with HCP to facilitate up to $3.3 million of leasehold improvements for F-31 CAPITAL SENIOR LIVING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) one of the leased communities and extend the respective lease terms through October 31, 2020, with two 10- year renewal extensions available at the Company’s option. (6) On April 24, 2015, the Company exercised its right to extend the lease term with HCP through April 30, 2026, with one 10-year renewal extension remaining available at the Company’s option. Ventas As of December 31, 2015, the Company leased 11 senior living communities from Ventas, Inc. (“Ventas”). During the second quarter of fiscal 2015, the Company executed amendments to the master lease agreements with Ventas to facilitate up to $24.5 million of leasehold improvements for 10 communities within the Ventas lease portfolio and extend the lease terms until September 30, 2025, with two five-year renewal extension avail- able at the Company’s option. The initial lease rates under each of the Ventas Lease Agreements range from 6.75% to 8% and are subject to certain conditional escalation clauses which will be recognized when probable or incurred. The Company incurred $11.4 million in lease acquisition and modification costs related to the Ventas Lease Agreements. These deferred lease acquisition and modification costs are being amortized over the lease terms and are included in facility lease expense in the Company’s Consolidated Statement of Operations and Comprehensive loss. The Company accounts for nine of the Ventas Lease Agreements as an operating lease and two as a Capital lease and financing obligation. Effective June 27, 2012, the Company closed a lease modification transaction with Ventas which resulted in the Company exchanging two of its owned communities for one of the communities in the existing Ventas lease portfolio and simultaneously leasing back the two communities exchanged (the “Ventas Lease Transaction”). This transaction was the result of negotiations for a solution to the anticipation of the Company not meeting cer- tain lease coverage ratio requirements for its lease portfolio of ten properties with Ventas. The two communities previously owned by the Company are located in East Lansing, Michigan (the “East Lansing Community”) and Raleigh, North Carolina (the “Raleigh Community”) and were exchanged for a community located in Merrill- ville, Indiana (the “Towne Centre Community”). All three communities continue to be operated by the Company. In conjunction with this transaction, Ventas assumed approximately $18.3 million of existing mortgage debt from Berkadia and the Company received the Towne Centre Community unencumbered. All of the leased commun- ities in the Ventas lease portfolio were modified to be coterminous with the East Lansing and Raleigh Commun- ity leases expiring on September 30, 2020, with two 5-year renewal extensions available at the Company’s option, eliminate property-level lease covenants, and contain substantially similar terms and conditions. These leases were re-evaluated by the Company at the modification date and continue to be treated as operating leases. Under the terms of the original lease agreements with Ventas, the Company had previously deposited additional cash collateral of approximately $3.4 million which was returnable to the Company once certain performance targets were reached. However, due to the rebalanced lease portfolio meeting the lease coverage ratio require- ments, the Company negotiated the return of these deposits as a condition to the lease modification. Additionally, due to the extension of the lease terms for the Ventas lease portfolio to fiscal 2020, the rights of Ventas to reset the underlying values of the leased communities were deferred for five years. Pursuant to ASC 840, Leases, the Company performed a sale/leaseback analysis to determine whether the East Lansing Community and Raleigh Community could be removed from its Consolidated Balance Sheets. Based upon the analysis performed, the Company concluded certain aspects of the lease modification would be considered forms of “continuing involvement” which precludes the Company from derecognizing these assets from its Consolidated Balance Sheets under sale/leaseback accounting criteria. Therefore, the Company recorded financing obligations equal to the fair market value of the communities exchanged and the mortgage debt assumed by Ventas. At the end of the lease term, including exercise of any renewal options, the net remaining financing obligation less the net carrying value of the leased assets will be recognized as a non-cash gain on sale of the East Lansing Community and Raleigh Community. Rental payments under these leases will not be reflected as a component of facility lease expense but will be recognized as a reduction of the financing obliga- tion and interest expense based upon the Company’s incremental borrowing rate at the time the transaction was F-32 CAPITAL SENIOR LIVING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) closed. As a result of this transaction, the Company recorded additions to property and equipment of approx- imately $13.2 million and other assets, primarily consisting of lease intangibles, of approximately $11.8 million within the Company’s Consolidated Balance Sheets which will be depreciated or amortized over the estimated useful lives. The additions to property and equipment were reduced by approximately $4.9 million which repre- sented the unamortized portion of the deferred gain previously recognized by the Company when the Towne Centre Community had been sold in fiscal 2006. Lease intangibles consist of the fair value of in-place leases associated with the Towne Centre Community and the fair value attributable to Ventas deferring its right to reset the underlying values of the lease portfolio five years until fiscal 2020. HCP As of December 31, 2015, the Company leased 15 senior living communities from HCP, Inc. (“HCP”). During the fourth quarter of fiscal 2013, the Company executed an amendment to the master lease agreement with HCP to facilitate up to $3.3 million of leasehold improvements for one community within the HCP lease portfolio and extend the initial lease terms for nine communities until October 31, 2020, with two 10-year renewal extensions available at the Company’s option. During the second quarter of fiscal 2015, the Company exercised its right to extend the lease term with HCP for the remaining six communities in the HCP lease portfo- lio until April 30, 2026, with one 10-year renewal extension available at the Company’s option. The initial lease rates under the HCP Lease Agreements range from 7.25% to 8% and are subject to certain conditional escalation clauses, which will be recognized when probable or incurred. The Company incurred $1.6 million in lease acquisition and modification costs related to the HCP Lease Agreements. These deferred lease acquisition and modification costs are being amortized over the lease terms and are included in facility lease expense in the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company accounts for each of the HCP Lease Agreements as an operating lease. HCN As of December 31, 2015, the Company leased 24 senior living communities from Welltower, Inc., for- merly Health Care REIT, Inc. (“HCN”). The HCN Lease Agreements each have an initial term of 15 years, with one 15-year renewal extension available at the Company’s option. The initial lease rates under the HCN Lease Agreements range from 7.25% to 8.5% and are subject to certain conditional escalation clauses, which will be recognized when probable or incurred. The initial terms on the HCN Lease Agreements expire on various dates through April 2026. The Company incurred $2.1 million in lease acquisition costs related to the HCN Lease Agreements. These deferred lease acquisition costs are being amortized over the lease terms and are included in facility lease expense in the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company accounts for each of the HCN Lease Agreements as an operating lease. Facility lease expense in the Company’s Consolidated Statements of Operations and Comprehensive Loss includes rent expense plus amortization expense relating to leasehold acquisition costs offset by the amortization of deferred gains and lease incentives. The Company leases its corporate headquarters in Dallas, Texas, and an office in New York City and has various lease contracts for a duration of 5 years or less on automobiles, buses and office equipment. The lease on the corporate headquarters currently expires on September 30, 2020. F-33 CAPITAL SENIOR LIVING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The Company incurred $62.8 million, $60.9 million, and $58.8 million in lease expense during fiscal 2015, 2014, and 2013, respectively. Future minimum lease commitments as of December 31, 2015, are as follows (in thousands): 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,135 65,092 64,998 64,939 62,651 250,477 $573,292 At December 31, 2015 and 2014, the Company had gross deferred lease costs of $15.1 million and $15.0 million, respectively. Accumulated amortization at December 31, 2015 and 2014 was $7.4 million and $6.0 mil- lion, respectively, and amortization expense is expected to be approximately $1.5 million in each of the next five fiscal years. There are various financial covenants and other restrictions in the Company’s lease agreements. The Company was in compliance with all of its lease covenants at December 31, 2015 and 2014. 18. Quarterly Financial Information (Unaudited) The following table presents certain unaudited quarterly financial information for each of the four quarters ended December 31, 2015 and 2014. This information has been prepared on the same basis as the audited con- solidated financial statements of the Company and include, in the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments) necessary to present fairly the quarterly results when read in conjunction with the audited consolidated financial statements of the Company. 2015 Calendar Quarters First Second Third Fourth (In thousands, except per share amounts) Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $98,640 $101,588 $104,420 $107,529 5,761 Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,950) Net (loss) income and comprehensive (loss) income . . . . . (0.21) Net (loss) income per share, basic . . . . . . . . . . . . . . . . . . . $ (0.21) $ (0.21) Net (loss) income per share, diluted . . . . . . . . . . . . . . . . . . $ (0.21) $ 28,749 Weighted average shares outstanding, basic . . . . . . . . . . . . 28,749 Weighted average shares outstanding, fully diluted . . . . . . 3,680 (5,166) (0.18) $ (0.18) $ 5,676 2,871 0.10 $ 0.10 $ 3,718 (6,039) 28,565 28,565 28,732 28,733 28,705 28,705 2014 Calendar Quarters First Second Third Fourth (In thousands, except per share amounts) $93,425 Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $91,857 3,149 2,615 Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . Net loss and comprehensive loss . . . . . . . . . . . . . . . . . . . . (9,819) (4,647) Net loss per share, basic . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.16) $ (0.34) Net loss per share, diluted . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.16) $ (0.34) 28,298 Weighted average shares outstanding, basic . . . . . . . . . . . . 28,298 Weighted average shares outstanding, fully diluted . . . . . . 28,146 28,146 $98,483 2,679 (5,759) $ (0.20) $ $ (0.20) $ 28,371 28,371 $100,160 5,457 (3,901) (0.13) (0.13) 28,387 28,387 F-34 CAPITAL SENIOR LIVING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 19. Subsequent Events Effective February 16, 2016, the Company closed the acquisition of two senior living communities located in Pensacola, Florida, for approximately $48.0 million. The communities consist of 179 assisted living units. The Company obtained financing from Protective Life for $35.0 million of the acquisition price at a fixed rate of 4.38% with a 10-year term with the balance of the acquisition price paid from the Company’s existing cash resources. The Company has not yet completed its initial purchase price allocation for this transaction. Effective January 26, 2016, the Company closed the acquisition of three senior living communities located in Colby, Park Falls, and Wisconsin Rapids, Wisconsin, for approximately $16.8 million. The communities con- sist of 138 assisted living units. The Company obtained financing from Protective Life for $11.3 million of the acquisition price at a fixed rate of 4.50% with a 10-year term with the balance of the acquisition price paid from the Company’s existing cash resources. The Company has not yet completed its initial purchase price allocation for this transaction. F-35 Report of Independent Registered Public Accounting Firm The Board of Directors and Shareholders Capital Senior Living Corporation We have audited Capital Senior Living Corporation’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Capital Senior Living Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the compa- ny’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect mis- statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that con- trols may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, Capital Senior Living Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Consolidated Balance Sheets of Capital Senior Living Corporation as of December 31, 2015 and 2014, and the related consolidated statements of operations and comprehensive loss, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2015, and our report dated Febru- ary 26, 2016, expressed an unqualified opinion thereon. /s/ Ernst & Young LLP Dallas, Texas February 26, 2016 F-36 The following documents are filed as a part of this report. Those exhibits previously filed and incorporated herein by reference are identified below. Exhibits not required for this report have been omitted. INDEX TO EXHIBITS Exhibit Number 3.1 3.1.1 3.2 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 Description — Amended and Restated Certificate of Incorporation of the Registrant (Incorporated by reference to Exhibit 3.1 to the Registration Statement No. 333-33379 on Form S-1/A filed by the Company with the Securities and Exchange Commission on September 8, 1997.) — Amendment to Amended and Restated Certificate of Incorporation of the Registrant (Incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1999, filed by the Company with the Securities and Exchange Commission.) — Second Amended and Restated Bylaws of the Registrant (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on March 8, 2013.) — 1997 Omnibus Stock and Incentive Plan for Capital Senior Living Corporation, as amended (Incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8, filed on December 3, 1999, by the Company with Securities and Exchange Commission.) — 2007 Omnibus Stock and Incentive Plan for Capital Senior Living Corporation. (Incorporated by reference to Exhibit 4.6 to the Company’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on May 31, 2007.) — First Amendment to 2007 Omnibus Stock and Incentive Plan for Capital Senior Living Corporation. (Incorporated by reference to Exhibit 4.7 to the Company’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on May 31, 2007.) — Amended and Restated Second Amendment to the 2007 Omnibus Stock and Incentive Plan for Capital Senior Living Corporation, as amended. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on May 22, 2015.) — Rights Agreement, dated as of February 25, 2010, by and between Capital Senior Living Corporation and Mellon Investor Services LLC, including all exhibits thereto (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on February 26, 2010). — Form of Certificate of Designation of Series A Junior Participating Preferred Stock, par value $0.01 per share (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K on February 26, 2010). — Form of Right Certificate (included as Exhibit B to the Rights Agreement, which is Exhibit 4.4 hereto, as amended pursuant to the First Amendment to Rights Agreement, which is Exhibit 4.8 hereto, and incorporated herein by reference). — Form of Summary of Rights (included as Annex A to the First Amendment to Rights Agreement, which is Exhibit 4.8 hereto, and incorporate herein by reference). — First Amendment to Rights Agreement, dated as of March 5, 2013, by and between the Company and Computershare Shareowner Services LLC (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on March 8, 2013.) 10.1 — Form of Stock Option Agreement (Incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-8, filed on December 3, 1999, by the Company with Securities and Exchange Commission.) E-1 Exhibit Number 10.2 10.3 10.4 10.5 10.6 10.7 10.8 10.9 10.9.1 10.10 10.11 10.12 Description — Employment Agreement, dated as of November 1, 1996, by and between Capital Senior Living Corporation and Lawrence A. Cohen (Incorporated by reference to Exhibit 10.11 from the Registration Statement No. 333-33379 on Form S-1 filed by the Company with the Securities and Exchange Commission.) — Employment Agreement, dated as of November 26, 1996, by and between Capital Senior Living, Inc. and David R. Brickman (Incorporated by reference to Exhibit 10.12 to the Registration State- ment No. 333-33379 on Form S-1 filed by the Company with the Securities and Exchange Commission.) — Employment Agreement, dated as of November 26, 1996, by and between Capital Senior Living, Inc. and Keith N. Johannessen (Incorporated by reference to Exhibit 10.13 from the Registration Statement No. 333-33379 on Form S-1 filed by the Company with the Securities and Exchange Commission. — Agreement of Limited Partnership of Triad Senior Living II, L.P. dated September 23, 1998 (Incorporated by reference to Exhibit 10.57 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998, filed by the Company with the Securities and Exchange Commission.) — Agreement of Limited Partnership of Triad Senior Living III, L.P. dated November 10, 1998 (Incorporated by reference to Exhibit 10.58 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998, filed by the Company with the Securities and Exchange Commission.) — Agreement of Limited Partnership of Triad Senior Living IV, L.P. dated December 22, 1998 (Incorporated by reference to Exhibit 10.59 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998, filed by the Company with the Securities and Exchange Commission.) — Employment Agreement, dated May 26, 1999, by and between Lawrence A. Cohen and Capital Senior Living Corporation (Incorporated by reference to the Exhibit 10.4 to the Company’s Quar- terly Report on Form 10-Q for the quarterly period ended September 30, 1999, filed by the Com- pany with the Securities and Exchange Commission.) — Second Amended and Restated Agreement of Limited Partnership of Triad Senior Living I, L.P. (Incorporated by reference to the Exhibit 10.78 to the Company’s Annual Report on Form 10-K, dated March 30, 2000, filed by the Company with the Securities and Exchange Commission.) — Amendment No. 1 to Second Amended and Restated Agreement of Limited Partnership of Triad Senior Living I, LP. (Incorporated by reference to the Exhibit 10.10.5 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002, filed by the Company with the Securities and Exchange Commission.) — First Amendment to Triad II Partnership Agreement (Incorporated by reference to Exhibit 10.26 to the Company’s Current Report on Form 8-K, dated August 15, 2000, filed by the Company with the Securities and Exchange Commission.) — Support Agreement dated as of September 11, 2002 by and between Capital Senior Living, Inc., Triad I, Triad II, Triad III, Triad IV and Triad V. (Incorporated by reference to Exhibit 10.102 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002, filed by the Company with the Securities and Exchange Commission.) — Second Amendment to the Employment Agreement of Lawrence A. Cohen, dated January 27, 2003 by and between Lawrence A. Cohen and Capital Senior Living Corporation (Incorporated by reference to Exhibit 10.106 to the Company’s Annual Report on Form 10-K, dated March 26, 2003, filed by the Company with the Securities and Exchange Commission.) E-2 Exhibit Number 10.13 10.14 10.15 Description — First Amendment to the Employment Agreement of Keith N. Johannessen, dated January 17, 2003 by and between Keith N. Johannessen and Capital Senior Living Corporation (Incorporated by reference to Exhibit 10.107 to the Company’s Annual Report on Form 10-K, dated March 26, 2003, filed by the Company with the Securities and Exchange Commission.) — Second Amendment to the Employment Agreement of David R. Brickman, dated January 27, 2003 by and between David R. Brickman and Capital Senior Living Corporation (Incorporated by refer- ence to Exhibit 10.109 to the Company’s Annual Report on Form 10-K, dated March 26, 2003, filed by the Company with the Securities and Exchange Commission.) — Amended and Restated Draw Promissory Note, dated February 1, 2003, of Triad Senior Living I, L.P. in favor of Capital Senior Living Properties, Inc. (Incorporated by reference to Exhibit 10.110 to the Company’s Annual Report on Form 10-K, dated March 26, 2003, filed by the Company with the Securities and Exchange Commission.) 10.15.1 — Amended and Restated Draw Promissory Note (Fairfield), dated February 1, 2003, of Triad Senior Living II, L.P. in favor of Capital Senior Living Properties, Inc. (Incorporated by reference to Exhibit 10.111.1 to the Company’s Annual Report on Form 10-K, dated March 26, 2003, filed by the Company with the Securities and Exchange Commission.) 10.15.2 — Amended and Restated Draw Promissory Note (Oklahoma City), dated February 1, 2003, of Triad Senior Living II, L.P. in favor of Capital Senior Living Properties, Inc. (Incorporated by reference to Exhibit 10.111.2 to the Company’s Annual Report on Form 10-K, dated March 26, 2003, filed by the Company with the Securities and Exchange Commission.) 10.15.3 — Amended and Restated Draw Promissory Note (Plano), dated February 1, 2003, of Triad Senior Living II, L.P. in favor of Capital Senior Living Properties, Inc. (Incorporated by reference to Exhibit 10.111.3 to the Company’s Annual Report on Form 10-K, dated March 26, 2003, filed by the Company with the Securities and Exchange Commission.) 10.16 10.17 10.18 10.19 10.20 10.21 — Amended and Restated Draw Promissory Note, dated February 1, 2003, of Triad Senior Living III, L.P. in favor of Capital Senior Living Properties, Inc. (Incorporated by reference to Exhibit 10.112 to the Company’s Annual Report on Form 10-K, dated March 26, 2003, filed by the Company with the Securities and Exchange Commission.) — Amended and Restated Draw Promissory Note, dated February 1, 2003, of Triad Senior Living IV, L.P. in favor of Capital Senior Living Properties, Inc. (Incorporated by reference to Exhibit 10.113 to the Company’s Annual Report on Form 10-K, dated March 26, 2003, filed by the Company with the Securities and Exchange Commission.) — Amended and Restated Draw Promissory Note, dated February 1, 2003, of Triad Senior Living V, L.P. in favor of Capital Senior Living Properties, Inc. (Incorporated by reference to Exhibit 10.114 to the Company’s Annual Report on Form 10-K, dated March 26, 2003, filed by the Company with the Securities and Exchange Commission.) — Master Lease Agreement, dated June 30, 2005, between Ventas Amberleigh, LLC and Capital Senior Management 2, Inc. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A, dated June 30, 2005, filed by the Company with the Securities and Exchange Commission on July 11, 2005.) — Schedule identifying substantially identical agreements to Exhibit 10.63 (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K/A, dated June 30, 2005, filed by the Company with the Securities and Exchange Commission on July 11, 2005.) — Loan Agreement, dated July 18, 2005, by Capital Senior Living Peoria, LLC and GMAC Commer- cial Mortgage Bank (Incorporated by reference to the Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated July 18, 2005, filed by the Company with the Securities and Exchange Commission.) E-3 Exhibit Number 10.22 10.23 10.24 10.25 10.26 10.27 10.28 10.29 10.30 10.31 10.32 10.33 10.34 Description — Schedule identifying substantially identical agreements to Exhibit 10.65 (Incorporated by reference to the Exhibit 10.2 to the Company’s Current Report on Form 8-K, dated July 18, 2005, filed by the Company with the Securities and Exchange Commission.) — Master Lease Agreement, dated October 18, 2005, between Ventas Georgetowne, LLC and Capital Senior Management 2, Inc. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated October 18, 2005, filed by the Company with the Securities and Exchange Commission.) — Schedule identifying substantially identical agreements to Exhibit 10.70 (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, dated March 7, 2006, filed by the Company with the Securities and Exchange Commission.) — Master Lease Agreement, dated May 31, 2006, between subsidiaries of the Company and HCP (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated May 31, 2006, filed by the Company with the Securities and Exchange Commission.) — Lease, dated May 31, 2006, between subsidiaries of the Company and HCP regarding the Cross- wood Oaks Facility in Citrus Heights, California (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, dated May 31, 2006, filed by the Company with the Securities and Exchange Commission.) — Schedule identifying substantially identical agreements to Exhibit 10.73 (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, dated May 31, 2006, filed by the Company with the Securities and Exchange Commission.) — Multifamily Note, dated June 9, 2006, executed by Triad Senior Living II, L.P. in favor of Cap- mark. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated June 9, 2006, filed by the Company with the Securities and Exchange Commission.) — Schedule identifying substantially identical agreements to Exhibit 10.75 (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, dated June 9, 2006, filed by the Company with the Securities and Exchange Commission.) — Multifamily Deed of Trust, Assignment of Rents and Security Agreement and Fixture Filing, dated June 9, 2006, by Triad Senior Living II, L.P. to Ed Stout, as trustee, for the benefit of Capmark. (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, dated June 9, 2006, filed by the Company with the Securities and Exchange Commission.) — Loan Agreement, dated June 20, 2006, by and between Triad Senior Living III, L.P. and Capmark Bank. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated June 20, 2006, filed by the Company with the Securities and Exchange Commission.) — Multifamily Note dated May 3, 2007 executed by Triad Senior Living III, L.P. in favor of Capmark Bank (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated March 3, 2007, filed by the Company with the Securities and Exchange Commission.) — Schedule identifying substantially identical agreements to Exhibit 10.3 (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, dated March 3, 2007, filed by the Company with the Securities and Exchange Commission.) — Multifamily Deed of Trust, Assignment of Rents and Security Agreement and Fixture Filing dated May 3, 2007 by Triad Senior Living III, L.P. in favor of Chicago Title Insurance Company, as trustee for the benefit of Capmark Bank. (Incorporated by reference to Exhibit 10.3 to the Compa- ny’s Current Report on Form 8-K, dated March 3, 2007, filed by the Company with the Securities and Exchange Commission.) E-4 Exhibit Number Description 10.35 10.36 10.37 10.38 10.39 10.40 10.41 10.42 *21.1 *23.1 *31.1 *31.2 *32.1 *32.2 — Schedule identifying substantially identical agreements to Exhibit 10.5. (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, dated March 3, 2007, filed by the Company with the Securities and Exchange Commission.) — Fourth Amendment to the Employment Agreement of Lawrence A. Cohen. (Incorporated by refer- ence to exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 20, 2010.) — Second Amendment to the Employment Agreement of Keith N. Johannessen. (Incorporated by reference to exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 20, 2010.) — Master Lease Agreement, dated as of September 10, 2010, between Capital Texas S, LLC and the Landlord parties thereto. (Incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 16, 2010.) — Employment Agreement, dated July 22, 2010, by and between Capital Senior Living, Inc. and Joseph G. Solari (Incorporated by reference to the Exhibit 10.50 to the Company’s Annual Report on Form 10-K, dated March 12, 2012, filed by the Company with the Securities and Exchange Commission.) — Employment Agreement, dated April 25, 2014, by and between Capital Senior Living, Inc. and Carey P. Hendrickson (Incorporated by reference to the Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated April 28, 2014, filed by the Company with the Securities and Exchange Commission.) — Form of Outside Directors Restricted Share Unit Award Under the 2007 Omnibus Stock and Incentive Plan for Capital Senior Living Corporation. (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed by the Company with the Securities and Exchange Commission on August 5, 2015.) — Second Amendment to Employment Agreement of Joseph G. Solari, dated August 31, 2013 by and between Capital Senior Living Corporation and Joseph G. Solari. (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed by the Company with the Securities and Exchange Commission on May 6, 2015.) — Subsidiaries of the Company — Consent of Ernst & Young LLP — Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) — Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) — Certification of Lawrence A. Cohen pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. — Certification of Carey P. Hendrickson 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.LAB — XBRL Taxonomy Extension Label Linkbase Document *101.PRE — XBRL Taxonomy Extension Presentation Linkbase Document *101.DEF — XBRL Taxonomy Extension Definition Linkbase Document * Filed herewith. E-5 NON-GAAP RECONCILIATIONS (In thousands, except per share data) ATTACHMENT A The Company utilizes certain financial measures of operating performance, such as adjusted EBITDAR, adjusted CFFO and adjusted CFFO per share, that are not calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). Non-GAAP financial measures may have material limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP. As a result, these non-GAAP financial measures should not be considered a substitute for, nor superior to, finan- cial results and measures determined or calculated in accordance with GAAP. The Company believes that these non-GAAP measures are useful in identifying trends in day-to-day performance because they exclude items that are of little or no significance to operations and provide indicators to management of progress in achieving opti- mal operating performance. In addition, these measures are used by many research analysts and investors to evaluate the performance and the value of companies in the senior living industry. The Company strongly urges you to review the following reconciliation of net income from operations to adjusted EBITDAR and the reconciliation of net loss to adjusted CFFO, along with the Company’s consolidated balance sheets, statements of operations, and statements of cash flows included within the Company’s Annual Reports on Form 10-K. Year Ended December 31, 2013 2014 2015 Adjusted EBITDAR Net income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Facility lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Casualty losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transaction costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CCRC’s being repositioned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,250 43,238 4,322 56,986 497 543 1,866 859 $ 13,900 49,487 7,262 59,332 717 748 2,648 (1,494) $ 18,835 53,017 8,833 61,213 1,192 1,250 3,262 (3,141) Adjusted EBITDAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $119,561 $132,600 $144,461 Adjusted CFFO and Adjusted CFFO per share Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-cash charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lease incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recurring capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Casualty losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transaction costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax impact of 4 property sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax impact of Spring Meadows Transaction . . . . . . . . . . . . . . . . . . . . . . . Tax impact of lease modificaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CCRC’s being repositioned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (16,504) $ (24,126) $ (14,284) 63,820 65,562 (2,464) — (4,413) (4,257) 1,250 748 3,262 2,648 351 — (424) (424) — — (101) 746 57,862 — (3,866) 543 1,866 — (424) — 631 Adjusted CFFO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,108 $ 40,897 $ 46,997 Adjusted CFFO per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.44 $ 1.45 $ 1.64 Company Management Board of Directors Shareholder Information LAWRENCE A. COHEN Chief Executive Officer and Vice Chairman of the Board KEITH N. JOHANNESSEN President and Chief Operating Officer CAREY P. HENDRICKSON Senior Vice President and Chief Financial Officer DAVID R. BRICKMAN Senior Vice President, General Counsel and Secretary DAVID W. BEATHARD Senior Vice President, Operations GREGORY P. BOEMER Vice President, Operations GLEN H. CAMPBELL Vice President, Asset Management GARY E. FERNANDEZ Vice President, National Marketing GLORIA M. HOLLAND Vice President, Finance ROBERT F. HOLLISTER Property Controller CHRISTOPHER H. LANE Vice President, Financial Reporting JOSEPH G. SOLARI Vice President, Corporate Development DONNY S. BEASLEY Director of Human Resources JAMES A. MOORE 1 Independent Chairman of the Board President Moore Diversified Services, Inc. Fort Worth, Texas LAWRENCE A. COHEN Vice Chairman of the Board and Chief Executive Officer Capital Senior Living Corporation New York, New York PHILIP A. BROOKS 2, 3 Managing Partner Select Living, LLC Richmond, Virginia KIMBERLY S. LODY 3 President GN ReSound Bloomington, Minnesota E. RODNEY HORNBAKE, M.D. 3 Managing Partner Essex Internal Medicine Essex, Connecticut KEITH N. JOHANNESSEN President and Chief Operating Officer Capital Senior Living Corporation Dallas, Texas JILL M. KRUEGER 2 President and CEO Symbria, Inc. Warrenville, Illinois RONALD A. MALONE 1, 3 Former Director and CEO Gentiva Health Services, Inc. Atlanta, Georgia MICHAEL W. REID 1, 2 Partner Herald Square Properties New York, New York 1 Member of the Board’s Compensation Committee 2 Member of the Board’s Audit Committee 3 Member of the Board’s Nominating and Corporate Governance Committee STOCK EXCHANGE LISTING Capital Senior Living Corporation Common Stock is listed on the New York Stock Exchange and trades under the symbol CSU. TRANSFER AGENT AND REGISTRAR Computershare, Inc. P.O. Box 30170 College Station, TX 77842-3170 or 211 Quality Circle, Ste. 210 College Station, TX 77845 (866) 267-2831 TDD for hearing impaired: (800) 231-5469 Foreign shareowners: (201) 680-6578 TDD foreign shareowners: (201) 680-6610 www.computershare.com/investor AUDITORS Ernst & Young LLP 2323 Victory Avenue, Suite 2000 Dallas, Texas 75219 (214) 969-8000 Corporate Information CORPORATE HEADQUARTERS 14160 Dallas Parkway, Suite 300 Dallas, Texas 75254 (972) 770-5600 (972) 770-5666 fax main@capitalsenior.com NEW YORK OFFICE 590 Madison Avenue, Suite 2100 New York, New York 10022 (212) 551-1770 (212) 551-1774 fax CORPORATE WEB SITE www.capitalsenior.com Form 10-K A copy of Capital Senior Living Corporation’s 2015 annual report to the SEC on Form 10-K is included herein and is available without charge upon written request to the Investor Relations Department at corporate headquarters. It can also be found on the Company’s web site, www.capitalsenior.com. Annual Shareholders Meeting May 19, 2016 at 10:00 am, Eastern Time New York Palace Hotel 455 Madison Avenue New York, NY 10022 (212) 303-6071 14160 Dallas Parkway, Suite 300 Dallas, Texas 75254 972.770.5600 Fax: 972.770.5666 www.capitalsenior.com 

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