Document and Entity Information
v2.2.0.25
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2010
Mar. 01, 2011
Jun. 30, 2010
Document and Entity Information      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2010
Document Fiscal Period Focus FY    
Document Fiscal Year Focus 2010    
Entity Registrant Name EMERITUS CORP\WA\    
Entity Central Index Key 0001001604    
Current Fiscal Year End Date --12-31    
Entity Filer Category Accelerated Filer    
Trading Symbol esc    
Entity Common Stock, Shares Outstanding   44,205,718  
Entity Well-known Seasoned Issuer No    
Entity Public Float     $ 326,235,409
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    

CONSOLIDATED BALANCE SHEETS
v2.2.0.25
CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands
12 Months Ended
Dec. 31, 2010
Dec. 31, 2009
ASSETS    
Cash and cash equivalents $ 110,124 $ 46,070
Short-term investments 2,874 2,208
Trade accounts receivable, net of allowance of $1,497 and $1,009 23,055 10,861
Other receivables 7,215 7,251
Tax, insurance, and maintenance escrows 22,271 23,565
Prepaid insurance expense 28,852 25,968
Deferred tax asset 15,841 17,756
Other prepaid expenses and current assets 6,417 5,463
Total current assets 216,649 139,142
Investments in unconsolidated joint ventures 19,394 2,091
Property and equipment, net of accumulated depreciation of $304,495 and $222,518 2,163,556 1,716,472
Restricted deposits 14,165 14,349
Goodwill 75,820 74,755
Other intangible assets, net of accumulated amortization of $36,109 and $28,883 100,239 116,418
Other assets, net 23,969 26,713
Total assets 2,613,792 2,089,940
LIABILITIES, SHAREHOLDERS' EQUITY AND NONCONTROLLING INTEREST    
Current portion of long-term debt 73,197 21,324
Current portion of capital lease and financing obligations 14,262 11,144
Trade accounts payable 7,840 5,928
Accrued employee compensation and benefits 53,663 37,624
Accrued interest 7,969 8,013
Accrued real estate taxes 12,306 10,715
Accrued professional and general liability 10,810 8,445
Other accrued expenses 18,759 14,033
Deferred revenue 13,757 10,729
Unearned rental income 21,814 18,669
Total current liabilities 234,377 146,624
Long-term debt obligations, less current portion 1,305,757 1,375,088
Capital lease and financing obligations, less current portion 629,797 165,372
Deferred gain on sale of communities 5,914 7,111
Deferred straight-line rent 50,142 34,659
Other long-term liabilities 36,299 42,188
Total liabilities 2,262,286 1,771,042
Commitments and contingencies    
Shareholders' Equity and Noncontrolling Interest:    
Preferred stock, $0.0001 par value. Authorized 20,000,000 shares, none issued 0 0
Common stock, $0.0001 par value. Authorized 100,000,000 shares, issued and outstanding 44,193,818 and 39,274,590 shares 4 4
Additional paid-in capital 814,209 725,652
Accumulated other comprehensive income 1,472 807
Accumulated deficit (471,340) (414,381)
Total Emeritus Corporation shareholders' equity 344,345 312,082
Noncontrolling interest-related party 7,161 6,816
Total shareholders' equity 351,506 318,898
Total liabilities, shareholders' equity, and noncontrolling interest $ 2,613,792 $ 2,089,940

CONSOLIDATED BALANCE SHEETS (Parenthetical)
v2.2.0.25
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Thousands, except Share data
Dec. 31, 2010
Dec. 31, 2009
CONSOLIDATED BALANCE SHEETS    
Trade accounts receivable, allowance $ 1,497 $ 1,009
Property and equipment, accumulated depreciation 304,495 222,518
Other intangible assets, accumulated amortization $ 36,109 $ 28,883
Preferred stock, par value $ 0.0001 $ 0.0001
Preferred stock, authorized shares 20,000,000 20,000,000
Preferred stock, shares issued 0 0
Common stock, par value $ 0.0001 $ 0.0001
Common stock, authorized shares 100,000,000 100,000,000
Common stock, issued 44,193,818 39,274,590
Common stock, outstanding 44,193,818 39,274,590

CONSOLIDATED STATEMENTS OF OPERATIONS
v2.2.0.25
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Thousands, except Per Share data
12 Months Ended
Dec. 31, 2010
Dec. 31, 2009
Dec. 31, 2008
Revenues:      
Community revenue $ 995,179 $ 893,043 $ 767,411
Management fees 11,886 5,689 5,032
Total operating revenues 1,007,065 898,732 772,443
Expenses:      
Community operations (exclusive of depreciation and amortization and community leases shown separately below) 662,140 585,783 490,867
General and administrative 74,480 63,647 58,784
Acquisitions and development 1,842 517 3,907
Impairments on long-lived assets 0 6,308 10,176
Depreciation and amortization 86,697 77,138 118,776
Community leases 122,290 116,473 90,852
Total operating expenses 947,449 849,866 773,362
Operating income (loss) from continuing operations 59,616 48,866 (919)
Other income (expense):      
Interest income 494 1,035 2,292
Interest expense (114,952) (106,340) (95,590)
Change in fair value of interest rate swaps (182) 849 (1,558)
Net equity earnings (losses) for unconsolidated joint ventures (915) 1,285 (2,203)
Other, net (1,320) 1,158 (3,898)
Net other expense (116,875) (102,013) (100,957)
Loss from continuing operations before income taxes (57,259) (53,147) (101,876)
Benefit of (provision for) income taxes 762 (336) (1,020)
Loss from continuing operations (56,497) (53,483) (102,896)
Loss from discontinued operations (1,345) (1,335) (2,043)
Net loss (57,842) (54,818) (104,939)
Net loss attributable to the noncontrolling interest 883 943 188
Net loss attributable to Emeritus Corporation common shareholders $ (56,959) $ (53,875) $ (104,751)
Basic loss per common share attributable to Emeritus Corporation common shareholders:      
Continuing operations $ (1.39) $ (1.34) $ (2.63)
Discontinued operations $ (0.03) $ (0.03) $ (0.05)
Earnings per share, basic, total $ (1.42) $ (1.37) $ (2.68)
Weighted average basic common shares outstanding 39,974 39,183 39,075
Diluted loss per common share attributable to Emeritus Corporation common shareholders:      
Continuing operations $ (1.39) $ (1.34) $ (2.63)
Discontinued operations $ (0.03) $ (0.03) $ (0.05)
Earnings per share, diluted, total $ (1.42) $ (1.37) $ (2.68)
Weighted average diluted common shares outstanding 39,974 39,183 39,075

CONSOLIDATED STATEMENTS OF CASH FLOWS
v2.2.0.25
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands
12 Months Ended
Dec. 31, 2010
Dec. 31, 2009
Dec. 31, 2008
Cash flows from operating activities:      
Net loss $ (57,842) $ (54,818) $ (104,939)
Adjustments to reconcile net loss to net cash provided by operating activities:      
Depreciation and amortization 86,697 77,138 118,776
Amortization of above/below market rents 8,635 9,684 9,978
Loss on lease termination 2,419 0 1,303
Amortization of deferred gains (1,197) (769) (1,235)
Losses on sale and impairment of long-lived assets 1,517 7,542 13,360
Amortization of loan fees 2,964 3,227 2,587
Allowance for doubtful receivables 5,418 3,464 1,895
Net equity investment losses (earnings) 915 (1,285) 2,203
Stock-based compensation 5,934 4,100 4,895
Change in fair value of interest rate swaps 182 (849) 1,558
Deferred revenue 3,372 830 2,017
Deferred straight-line rent 14,635 18,866 9,903
Other 955 793 2,702
Changes in operating assets and liabilities:      
Trade accounts receivable and other receivables (15,326) (3,612) (465)
Prepaid expenses (636) (10,626) (1,693)
Other assets (1,042) (493) 946
Trade accounts payable 1,982 (1,418) (370)
Other accrued expenses and current liabilities 27,818 7,186 882
Security deposits and other long-term liabilities (3,699) 5,047 (1,793)
Net cash provided by operating activities 83,701 64,007 62,510
Cash flows from investing activities:      
Acquisition of property and equipment (23,593) (30,452) (716,724)
Community acquisitions (33,015) (32,626) (6,935)
Sale of property and equipment 5,262 2,677 6,754
Lease and contract acquisition costs (1,508) (1,339) (1,146)
Payments from (to) affiliates and other managed communities, net (530) 918 33
Distributions from (investments in) unconsolidated joint ventures, net (18,218) 2,153 (413)
Purchase of available-for-sale securities 0 0 (2,976)
Net cash used in investing activities (71,602) (58,669) (721,407)
Cash flows from financing activities:      
Proceeds from sale of stock, net 82,623 1,028 1,121
Repurchase of common stock 0 0 (399)
Decrease (increase) in restricted deposits 437 (1,710) 7,932
Debt issuance and other financing costs (2,776) (885) (12,205)
Proceeds from long-term borrowings and financings 28,000 42,439 691,020
Repayment of long-term borrowings and financings (45,459) (19,443) (62,336)
Repayment of capital lease and financing obligations (12,098) (9,705) (13,507)
Tax benefit of stock compensation 0 622 0
Noncontrolling interest contribution 1,228 1,132 6,815
Net cash provided by financing activities 51,955 13,478 618,441
Net (decrease) increase in cash and cash equivalents 64,054 18,816 (40,456)
Cash and cash equivalents at the beginning of the year 46,070 27,254 67,710
Cash and cash equivalents at the end of the year 110,124 46,070 27,254
Supplemental disclosure of cash flow information:      
Cash paid during the period for interest 111,949 102,050 90,019
Cash paid during the period for income taxes 1,053 3,190 1,981
Cash received during the period for income tax refunds 1,977 694 3,415
Non-cash financing and investing activities:      
Debt refinanced 0 0 125,148
Capital lease and financing obligations 447,100 480 12,848
Unrealized gain on investment in marketable equity securities 665 807 0
Adjustments related to purchase and sale of leased property:      
Decrease in capital lease assets (2,756) 0 0
Decrease in capital lease obligations 2,648 0 0
Adjustments related to purchase of leased properties:      
Capital and financing lease buyouts 0 0 329,638
Change in deferred sale leaseback gains 0 0 17,635
Lease acquisition costs 0 0 14,047
Deferred rent 187 0 1,897
Above/(below) market rents (2,349) 0 1,730
Discount on security deposits 58 0 107
Sale leaseback transactions:      
Increase in property and equipment 32,811 968 0
Increase in intangible assets 1,389 0 0
Financing lease obligation (34,200) 4,115 0
Increase in deferred gain 0 (5,212) 0
Decrease in deferred straight-line rent 0 129 0
Summerville acquisition:      
Contingent purchase price adjustment to goodwill $ 0 $ 0 $ 3,479

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE LOSS
v2.2.0.25
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE LOSS (USD $)
In Thousands, except Share data
Common stock [Member]
Additional paid-in capital [Member]
Accumulated other comprehensive income [Member]
Accumulated deficit [Member]
Noncontrolling interest [Member]
Total
Balances, shares at Dec. 31, 2007 39,030,597          
Balances at Dec. 31, 2007 $ 4 $ 714,258 $ 0 $ (255,755) $ 0 $ 458,507
Issuances of shares under Employee Stock Purchase Plan, net of repurchases, shares 110          
Issuances of shares under Employee Stock Purchase Plan, net of repurchases 0 229 0 0 0 229
Options exercised, shares 60,941          
Options exercised 0 521 0 0 0 521
Stock option compensation expense 0 4,895 0 0 0 4,895
Noncontrolling interest contribution 0 0 0 0 6,815 6,815
Components of comprehensive loss:            
Net loss 0 0 0 (104,751) (188) (104,939)
Balances, shares at Dec. 31, 2008 39,091,648          
Balances at Dec. 31, 2008 4 719,903 0 (360,506) 6,627 366,028
Issuances of shares under Employee Stock Purchase Plan, net of repurchases, shares 22,041          
Issuances of shares under Employee Stock Purchase Plan, net of repurchases 0 285 0 0 0 285
Options exercised, shares 160,901          
Options exercised 0 742 0 0 0 742
Stock option compensation expense 0 4,100 0 0 0 4,100
Stock option income tax benefit 0 622 0 0 0 622
Noncontrolling interest contribution 0 0 0 0 1,132 1,132
Components of comprehensive loss:            
Net loss 0 0 0 (53,875) (943) (54,818)
Unrealized gain on marketable securities 0 0 807 0 0 807
Comprehensive loss 0 0 0 0 0 (54,011)
Balances, shares at Dec. 31, 2009 39,274,590          
Balances at Dec. 31, 2009 4 725,652 807 (414,381) 6,816 318,898
Issuances of shares under Employee Stock Purchase Plan, net of repurchases, shares 43,986          
Issuances of shares under Employee Stock Purchase Plan, net of repurchases 0 633 0 0 0 633
Options exercised, shares 300,242          
Options exercised 0 1,650 0 0 0 1,650
Stock option compensation expense 0 5,934 0 0 0 5,934
Common stock offering, net, shares 4,575,000          
Common stock offering, net 0 80,340 0 0 0 80,340
Noncontrolling interest contribution 0 0 0 0 1,228 1,228
Components of comprehensive loss:            
Net loss 0 0 0 (56,959) (883) (57,842)
Unrealized gain on marketable securities 0 0 665 0 0 665
Comprehensive loss 0 0 0 0 0 (57,177)
Balances, shares at Dec. 31, 2010 44,193,818          
Balances at Dec. 31, 2010 $ 4 $ 814,209 $ 1,472 $ (471,340) $ 7,161 $ 351,506

Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies
v2.2.0.25
Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2010
Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies  
Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies
Note 1.  
Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies

Description of Business

Emeritus Corporation ("Emeritus," the "Company," "we," "us," or "our") is an assisted living and Alzheimer's and dementia care ("memory care") service provider focused on operating residential style senior living facilities ("communities") with operations throughout the United States.  Each of these communities provides a residential housing alternative for senior citizens who need help with the activities of daily living, with an emphasis on assisted living and personal care services.  As of December 31, 2010, 2009, and 2008, the Company owned or leased a total of 306, 266, and 262 communities, respectively, which comprise the communities included in the Consolidated Financial Statements.

We also provide management services to independent and related-party owners of senior living communities.  At December 31, 2010, we managed 173 communities, of which 163 are owned by joint ventures in which the Company has a financial interest.  Some of our management agreements provide for a flat monthly rate, are based on the number of resident days, or provide fees ranging from 5.0% to 10.0% of gross operating revenues, some with mandatory minimum thresholds.  The majority of our management agreements, 162 of 173, provide for fees of 5.0% of gross revenues collected.

Basis of Presentation

Principles of Consolidation

The Consolidated Financial Statements include the accounts of Emeritus and its majority-owned subsidiaries.  In addition, we consolidate the accounts of limited liability companies and partnerships in cases where the Company maintains effective control over such entities' assets and operations, notwithstanding a lack of majority ownership.  We do not consolidate our management contracts and certain joint venture participations that do not result in control.  We eliminate all intercompany balances and transactions in consolidation.

Segment Information

Emeritus has one operating segment, which is assisted living and related services.  Each community provides similar services, namely assisted living and memory care.  The class of customers is relatively homogenous, and the manner in which we operate each of our communities is basically the same.

Use of Estimates

The preparation of Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities.  We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.
 
Summary of Significant Accounting Policies

Cash Equivalents

Cash equivalents consist primarily of money market investments, triple-A rated government agency notes, and certificates of deposit with a maturity date at purchase of 90 days or less.

Short-Term and Long-Term Investments

We classify short-term investment securities with a readily determinable fair value as trading securities and record them at fair value.  They represent investments for the non-qualified deferred compensation plan (see Note 10, Retirement Plans).

We also have investments in marketable equity securities, which are included in other assets, net in the Consolidated Balance Sheets.  We record these securities at fair value as available-for-sale investments (see Note 14, Fair Value Measurements), with changes in fair value recorded in accumulated other comprehensive income in the Statements of Shareholders' Equity and Comprehensive Loss.  If the fair value of these securities declines to a point where we determine the decline to be other than temporary, we record the investment at its reduced fair value with a corresponding charge to earnings.
 
Trade Accounts Receivable

We report trade accounts receivable, net of an allowance for doubtful accounts, to represent our estimate of the amount that ultimately will be realized in cash.  The allowance for doubtful accounts was $1.5 million and $1.0 million as of December 31, 2010 and 2009, respectively.  We review the adequacy of our allowance for doubtful accounts 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.  We record adjustments to the allowance as necessary based upon the results of our review.

Activity in the allowance for doubtful accounts is as follows (in thousands):

Balance at December 31, 2007
  $ 995  
Provision for doubtful receivables
    1,895  
Write-offs and adjustments
    (2,341 )
Balance at December 31, 2008
    549  
Provision for doubtful receivables
    3,464  
Write-offs and adjustments
    (3,004 )
Balance at December 31, 2009
    1,009  
Provision for doubtful receivables
    5,418  
Write-offs and adjustments
    (4,930 )
Balance at December 31, 2010
  $ 1,497  

Property and Equipment

We record property and equipment at the acquired cost.  We compute depreciation and amortization using the straight-line method over the estimated useful lives of the assets as follows:  buildings and improvements, five to 50 years; furniture, equipment, and vehicles, three to seven years; and capital lease assets and leasehold improvements, over the shorter of the useful life or the lease term.  We expense maintenance and repairs as incurred.

We record construction in progress at its acquired cost.  The acquisition cost includes the cost of construction and other direct costs attributable to the construction.  We do not record depreciation on construction in progress until such time as the relevant assets are completed and put into use.  Construction in progress at December 31, 2010 and 2009 represents expansion of existing communities.

We capitalize certain internal software development costs.  Such costs consist primarily of custom-developed and packaged software and the direct labor costs of internally-developed software.  The authoritative accounting literature describes three stages of software development projects: the preliminary project stage (all costs expensed as incurred), the application development stage (certain costs capitalized, certain costs expensed as incurred), and the post-implementation/operation stage (all costs expensed as incurred).  The costs capitalized in the application development stage include the costs of design, coding, and installation of hardware and software.  We capitalize costs incurred during the application development stage of the project as required.

Restricted Deposits

Restricted deposits consist of funds required by various landlords and lenders to be placed on deposit as security for our performance under the lease or debt agreements and will generally be held until the lease termination or debt maturity date, or in some instances, may be released to the Company when the related communities meet certain debt coverage and/or cash flow coverage ratios.

Investments in Unconsolidated Joint Ventures

We have investments in joint ventures with equity interests ranging from 6.0% to 50.0% (for detailed information, see Note 2, Investments in Unconsolidated Joint Ventures).  We account for these investments under the equity method of accounting.  In determining the accounting treatment for these investments, we consider various factors such as the amount of our ownership interest, our voting rights and ability to influence decisions, our participating rights, and whether it is a variable interest entity and, if so, whether Emeritus is the primary beneficiary.  We reevaluate each joint venture's status quarterly or whenever there is a change in circumstances such as an increase in the entity's activities, assets, or equity investments, among other things.

Other Intangible Assets

In connection with certain acquisitions, the Company acquired various definite-lived intangible assets, which consist of above/below market community rents, in-place resident contracts, lease purchase options, trademarks, and operating licenses.  We amortize these assets over their estimated useful lives or the term of the related contract or lease agreement.

Asset Impairments

Investment in available-for-sale securities

On a regular basis, or as circumstances warrant, we review our investment in marketable equity securities for impairment based on criteria that include the extent to which carrying value exceeds related fair value.  If we determine that an investment has sustained an other-than-temporary decline in its value, we record the investment at its reduced fair value with a corresponding charge to earnings.  Such a determination is dependent on the facts and circumstances relating to the applicable investment.  We consider several factors in determining whether an other-than-temporary decline in value has occurred, including the market value of the security in relation to its cost basis, the financial condition of the investee and the intent and ability to retain the investment for a sufficient period of time to allow for recovery in the fair value of the investment.
 
Goodwill

We test goodwill for impairment annually and more frequently if facts and circumstances indicate goodwill carrying values may exceed the estimated implied fair value of the Company's goodwill.  We estimate the fair value of the Company using a combination of the market capitalization, discounted cash flow, and market comparable approaches.  We also use market capitalization as a triggering event that may indicate possible impairment of the reporting unit's goodwill in interim periods.

We performed the annual impairment test as of October 31, 2010 and concluded that no impairment charge was required.  The test requires us to use certain estimates and judgments to determine the value of the Company.  Although we believe that our assumptions and estimates are reasonable and appropriate, different assumptions and estimates could materially affect the Company's estimated fair value.  Different assumptions related to future cash flows, operating margins, growth rates, and discount rates could result in an impairment charge, which we would recognize as a non-cash charge to operating income and a reduction in goodwill on the Consolidated Balance Sheets.

Long-Lived Assets

Long-lived assets include property and equipment, investments in unconsolidated joint ventures, and amortizable intangible assets.  We review our long-lived assets for impairment whenever a change in condition occurs that indicates that the carrying amounts of assets may not be recoverable.  Such changes include changes in our business strategies and plans, changes in the quality or structure of our relationships with our partners, and deteriorating operating performance of individual communities or investees.  We use a variety of factors to assess the realizable value of long-lived assets depending on their nature and use.  Such assessments are primarily based upon the sum of expected future net cash flows over the expected period the asset will be utilized or held, as well as market values and conditions.  Any changes in these factors or assumptions could impact the assessed value of an asset and result in an impairment charge equal to the amount by which its carrying value exceeds its estimated fair value.
 
Self-Insurance Reserves

The Company is self-insured for professional liability claims, and we record losses based on actuarial estimates of the total aggregate liability for claims expected to occur.  If actual losses exceed the actuarial estimates, we would accrue additional expense at the time of such determination.  We make periodic adjustments to the Company's total estimated liability for all open years, which are 2004 through 2010, if actuarial estimates suggest the liability exposure has changed.  In 2010, we recorded a $2.0 million increase to expense as a change in estimate to our open years for professional and general self-insurance for claims exposure, while in 2009 and 2008, respectively, we recorded a $2.8 million and $4.5 million expense reduction.  We recorded these amounts as increases or decreases in community operating expenses.  We cover losses through a self-insurance pool agreement, which, as of December 31, 2010, included 245 of our 306 consolidated owned and leased communities as well as seven of our managed communities on a unit of capacity basis.

We deposit funds with an administrator based in part on a fixed schedule and in part as losses are actually paid.  We record the funds held by the administrator as a prepaid asset, which as of December 31, 2010 and 2009 was $973,000 and $916,000, respectively.  We reduce the prepaid asset as we pay claims from the account.  For policy years beginning in 2005 and continuing through 2010, we have general liability commercial insurance.

For health insurance, we self-insure each participant up to $200,000 per year, above which a catastrophic insurance policy covers any additional costs for certain participants.  We accrue health insurance liabilities based upon historical experience of the aggregate liability for claims incurred.  If these estimates are insufficient, additional charges may be required.

Emeritus maintains workers' compensation insurance coverage in specific insurable states (excluding Washington, Texas, and Ohio) through a high deductible, collateralized insurance policy.  The policy premium is based on standard rates applied to estimated annual payroll.  Each month, we accrue the sum of premiums and related costs, estimated third-party administration costs and actuarial based estimated losses based on actual payroll amounts.  We record the cash collateral paid under the plan as a prepaid asset on the Consolidated Balance Sheets and reduce the prepaid balance as claims are paid from the account by the third-party administrator.  As of December 31, 2010 and 2009, the prepaid insurance expense was $23.6 million and $21.4 million, respectively.  At policy expiration each year, an insurer conducts an audit to adjust premiums based on actual, rather than estimated, annual payroll amounts.  The insurer also audits the total incurred claim amount at least annually and may adjust the applicable policy year collateral requirement.  If there is a reasonable expectation that the total incurred losses will be less than the posted collateral, the excess cash collateral will be returned to the Company.  We contract with an independent third party to determine the actuarial estimates of ultimate losses for workers' compensation under the collateralized policy.  During 2010 and 2009, we had a change in our workers' compensation estimates to increase expense by $3.2 million and $845,000, respectively, for open claim years 2003 to 2009, while during 2008, we recorded expense reductions of $1.5 million based on changes in actuarial estimates.  We recorded these amounts as adjustments to community operating expense.  Claims and expenses incurred under the collateralized policy are shared among the participants through a self-insurance pooling agreement, which includes the managed communities, unless such communities are located in the specific states mentioned above.  We allocate costs to each participating community based on annual payroll amounts.

For work-related injuries in Texas, the Company provides benefits through a qualified state-sponsored plan.  We pay claim expenses as incurred and we accrue estimated losses each month based on actual payroll results.  An insurance policy is in place to cover liability losses in excess of a deductible amount.  In the states of Washington and Ohio, the Company participates in the specific state plan and pays premiums to the state based on a rate determined by the state.

Income Taxes

We compute income taxes using the asset and liability method.  We record current income taxes based on amounts refundable or payable in the current year.  We record deferred income taxes 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 bases.  We measure deferred tax assets and liabilities using enacted tax rates that are expected to apply to taxable income in the years in which we expect those carryforwards and temporary differences to be recovered or settled.  We recognize the effect on deferred tax assets and liabilities of a change in tax rates in income in the period that includes the enactment date.  We record a valuation allowance to reduce the Company's deferred tax assets to the amount that is more likely than not to be realized, which as of December 31, 2010 and 2009, reflects a net asset value of zero.  We have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance.  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 (see Note 12, Income Taxes).

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.  We measure the tax benefits recognized in the financial statements from such a position based on the largest benefit that has a greater than 50.0% likelihood of being realized upon settlement.  We classify interest and penalties related to uncertain tax positions, if any, as tax expense in the Company's financial statements.

Leases

We determine whether to account for our leases as operating, capital, or financing leases depending on the underlying terms.  Our classification criteria are based on estimates regarding the fair value of the leased communities, minimum lease payments, effective cost of funds, the economic life of the community, and certain other terms in the lease agreements.  For properties under capital lease arrangements, we record an asset at the inception of the lease based on the present value of the rental payments, including base rent, fixed annual increases, and any other fixed rental payment obligations payable over the lease term, which amount may not exceed the fair value of the underlying leased property, and we record a corresponding long-term liability.  We allocate lease payments between principal and interest on the lease obligation and depreciate the capital lease asset over the term of the lease.  We account for properties that are sold and leased back and for which the Company has continuing involvement as financing arrangements, whereby the property remains on the Consolidated Balance Sheets and we record a financing obligation that is generally equal to the purchase price of the properties sold.  The impact on the Consolidated Statements of Operations is similar to a capital lease.  We do not include properties under operating leases on the Consolidated Balance Sheets and we reflect the actual rents paid in the Consolidated Statements of Operations as community lease expense (see Note 11, Commitments and Contingencies).

We account for leases with rent holiday provisions or that contain fixed payment escalators on a straight-line basis as if the lease payments were fixed evenly over the life of each lease.  We capitalize out-of-pocket costs incurred to enter into lease contracts as lease acquisition costs and amortize them over the lives of the respective leases.

Certain leases contain payment escalators based on the greater of a fixed rate or the increase in the Consumer Price Index ("CPI") or other variable rate indices.  If we have a high level of certainty that the fixed rate increase under the lease will be met, we account for lease payments on a straight-line basis using the fixed rate.  Deferred straight-line rent on the Consolidated Balance Sheets primarily represents the effects of straight-lining lease payments.

Deferred Gain on Sale of Communities

Deferred gains on sale of communities consist of gains on sale-leaseback transactions.  We amortize these deferred gains using the straight-line method over the terms of the associated leases when the Company has no continuing financial involvement in communities that it has sold and leased back.  In cases of sale-leaseback transactions in which the Company has continuing involvement, other than normal leasing activities, we do not record the sale until such involvement terminates.

Derivative Instruments

In the normal course of business, the Company's financial results are exposed to the effect of interest rate changes so we may limit these risks by following risk management policies and procedures, including the use of derivatives.  To address exposure to interest rates, we have used interest rate swap agreements ("swaps") to fix the rate on debt based on floating-rate indices and to manage the cost of borrowing obligations.

Hedges that we report at fair value and present on the Consolidated Balance Sheets could be characterized as either cash flow hedges or fair value hedges.  We consider the Company's swaps to be cash flow hedges as they address the risk associated with future cash flows of debt transactions.  We did not designate the Company's swaps as hedging instruments; therefore, we recognize the gain or loss resulting from the change in the estimated fair value of the swaps in current earnings during the period of change.

As of December 31, 2009, Emeritus was party to two swaps.  One swap, with a notional amount of $12.4 million, expired on January 1, 2010 and was not replaced.  The other swap, with a notional amount of $19.6 million, was terminated in September 2010 when the related mortgage debt was modified.  We paid $1.6 million to the counterparty to the swap to terminate our obligation, which was recorded as a reduction in the fair value (liability) of the swap.

The swaps converted the interest rates on the related mortgage debt from floating rates to fixed rates, thus mitigating the impact of interest rate changes on future interest expense.  At December 31, 2009, the fair value of the swaps amounted to a liability of $1.4 million, which we recorded in other long-term liabilities on the Consolidated Balance Sheet.  The change in the fair value of the swaps resulted in a loss of $182,000 for 2010, a gain of $849,000 for 2009, and a loss of $1.6 million for 2008, which we recorded as a separate line item in the Consolidated Statements of Operations.

Contingent Liabilities

We recognize contingent liability obligations if they are probable and estimable based on our best estimate of the ultimate outcome.  If a legal judgment is rendered against the Company or a settlement offer is tendered, then we accrue the full amount of the judgment or the settlement offer.

Common Stock Share Repurchases

We may repurchase shares of our common stock for resale under the Emeritus Corporation 2009 Employee Stock Purchase Plan.  In accordance with the Washington Business Corporation Act, we do not display share repurchases separately as treasury stock on the Consolidated Balance Sheets or Consolidated Statements of Shareholders' Equity and Comprehensive Loss.  Instead, we deduct the par value of repurchased shares from common stock and we deduct the remaining excess repurchase price over par value from additional paid-in capital (see Note 9, Stock Plans).

Revenue Recognition

Operating revenue consists of residents' rental and services fees (collectively "community revenue") and management fees.  We rent resident units on a month-to-month basis and recognize rent in the month residents occupy their units.  To the extent residents prepay their monthly rent, we record unearned rental income.  We recognize service fees paid by residents for assisted living and other related services in the period we render those services.  We receive management fees from community management contracts and we recognize the revenue in the month in which we perform the services in accordance with the terms of the management contract.
 
We also charge nonrefundable move-in fees at the time residents first occupy their unit.  We defer the revenue for these fees and record them as deferred revenue on the Consolidated Balance Sheets.  We recognize the revenue over the average period of resident occupancy, estimated at an average of 21 months for 2010, 21 months for 2009, and 17 months for 2008.
 
Approximately 11.3%, 9.9%, and 8.7% of our community revenues for the year ended December 31, 2010, 2009, and 2008, respectively, were derived from governmental reimbursement programs.  We record billings for services under third-party payor programs net of contractual adjustments as determined by the governmental reimbursement programs.  We accrue any retroactive adjustments when assessed (without regard to when the assessment is paid or withheld), even if we have not agreed to or are appealing the assessment.  We record subsequent positive or negative adjustments to these accrued amounts in net revenues when they become known.

Stock-Based Compensation

We grant stock options to purchase the Company's common stock at the fair market value of the stock on the date of grant.  We estimate the fair value of each stock option granted using the Black-Scholes option pricing model.  This model requires us to make assumptions to determine expected risk-free interest rates, stock price volatility, dividend yield, and weighted-average option life.  Using this model, we recognize stock-based compensation expense over the period from the date of grant to the date when the award is no longer contingent on the employee providing additional services (the vesting period).  The Company's stock incentive plans and the non-employee directors' incentive plan provide that awards generally vest over a one-year to four-year period.  Any unexercised options expire between seven and ten years.  We estimate the fair value of each grant as a single award and amortize that value on a straight-line basis into compensation expense over the grant's vesting period (see Note 9, Stock Plans).
 
Discontinued Operations

In considering whether a group of assets disposed of, or to be disposed of, should be presented as a discontinued operation, we determine whether the disposed assets comprise a component of the Company.  That is, we assess if the disposed assets have material historic operations and cash flows that can be clearly distinguished, both operationally and for financial reporting purposes.  We also determine whether the cash flows associated with the disposed assets have been, or will be, significantly eliminated from the ongoing operations of the Company as a result of the disposal transaction and whether we will have any significant continuing involvement in the operations of the disposed assets after the disposal transaction.  If our determinations are affirmative, we aggregate the results of operations of the disposed assets, as well as any gain or loss on the disposal transaction, for presentation separately from the continuing operating results of the Company in the Consolidated Financial Statements (see Note 13, Discontinued Operations).

Loss Per Share

We compute basic loss per share based on weighted average shares outstanding and exclude any potential dilution.  We compute diluted net loss per share based on the weighted average number of shares outstanding plus dilutive potential common shares.  We include stock options using the treasury stock method to the extent they are dilutive.

We reported a consolidated net loss for each of the three years ended December 31, 2010, 2009, and 2008.  As a result, we have excluded shares issuable upon the exercise of stock options from the computation because the effect of their inclusion would be antidilutive.  The following table summarizes those options that are excluded in each period because they are antidilutive (in thousands):

   
Year Ended December 31,
 
   
2010
   
2009
   
2008
 
Options
    3,955       3,321       2,841  

Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board issued Accounting Standard Update 2010-6, Improving Disclosures About Fair Value Measurements ("ASU 2010-6"), which requires reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair-value measurements.  ASU 2010-6 is effective for annual reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which are effective for annual periods beginning after December 15, 2010.  The adoption of ASU 2010-6 will not have a material impact on our Consolidated Financial Statements.

Reclassifications

We have reclassified certain prior year amounts to conform to the current year's presentation.  Specifically, in the Consolidated Balance Sheet as of December 31, 2009, we reclassified:  (i) "deferred tax assets" from "other prepaid expense and current assets;" (ii) "prepaid workers' compensation" and other prepaid insurance amounts to "prepaid insurance expense;" (iii) our investment in marketable equity securities to "other assets, net;" and (iv) "accrued income taxes" to "other accrued expenses."


Investments in Unconsolidated Joint Ventures
v2.2.0.25
Investments in Unconsolidated Joint Ventures
12 Months Ended
Dec. 31, 2010
Investments in Unconsolidated Joint Ventures  
Investments in Unconsolidated Joint Ventures
Note 2.  
Investments in Unconsolidated Joint Ventures

Investments in unconsolidated joint ventures consist of the following (in thousands):

   
December 31,
 
   
2010
   
2009
 
Investment in Sunwest JV
  $ 16,830     $ 0  
Investment in Blackstone JV
    153       932  
Investment in Emeritus/Wegman joint ventures
    2,411       1,159  
     Total investments in unconsolidated joint ventures
  $ 19,394     $ 2,091  
 
Sunwest Joint Venture
 
In January 2010, we entered into a joint venture agreement (the "Joint Venture Agreement") with BRE/SW Member LLC, an affiliate of Blackstone Real Estate Advisors VI, L.P ("Blackstone") and an entity controlled by Daniel R. Baty, a founder of the Company and the Chairman of our board of directors ("Columbia Pacific"), pursuant to which the Company, Blackstone, and Columbia Pacific formed a joint venture that operates under the name of BRE/SW Portfolio LLC (the "Sunwest JV").  The Sunwest JV was formed to acquire a portfolio of communities (the "Properties") formerly operated by an Oregon limited liability company ("Sunwest").

On January 15, 2010, the Sunwest JV entered into a purchase and sale agreement with Sunwest (the "Purchase Agreement") to acquire the Properties.  On May 17, 2010, the U.S. District Court for the District of Oregon (the "Court") approved the Purchase Agreement, as amended, and on July 13, 2010, the Court confirmed Sunwest's plan of reorganization.

The Sunwest JV acquired 144 Properties in 2010 for an aggregate unadjusted purchase price of approximately $1.3 billion, and the consideration included (i) approximately $279.0 million in a combination of cash and membership interests in the Sunwest JV and (ii) the assumption by the Sunwest JV of secured debt of approximately $979.0 million.  We contributed cash of $19.0 million for our initial capital contribution.  Under the terms of the Joint Venture Agreement, we will be required to make an additional $2.0 million contribution before August 2012 for our proportional share of capital improvements to the Properties.  Including this additional capital contribution, our percentage of ownership in the Sunwest JV is 6.0%.  We are prohibited from selling our interest without Blackstone's consent.  We are accounting for the Sunwest JV as an unconsolidated equity method investee in our Consolidated Financial Statements.

The Joint Venture Agreement provides for cash distributions from the Sunwest JV to the members in accordance with their ownership interests; however, we are entitled to distributions at increasing levels in excess of our ownership percentage if the Sunwest JV achieves certain performance criteria.  The Joint Venture Agreement also provides that in the event Blackstone desires to sell a specified portion of the Properties, all of the Properties or its membership interest in the Sunwest JV, we will have the right of first opportunity to purchase such Properties or membership interest, as applicable.

As contemplated by the Purchase Agreement, we entered into management agreements with the Sunwest JV to manage the Properties for a fee equal to 5.0% of gross collected revenues, and we recorded management fee revenues of $6.3 million for the period from August 5, 2010 through December 31, 2010.  As of December 31, 2010, we managed 139 of the communities owned by the Sunwest JV and the remaining five communities were managed by third parties.  As of December 31, 2010, we had a receivable of $423,000 due from the Sunwest JV.

2006 Blackstone Joint Venture

The Company holds a 19.0% interest in a joint venture with an affiliate of Blackstone (the "Blackstone JV") that acquired a total of 24 properties during 2006 and 2007.

The total initial capital contribution to the Blackstone JV by its members was approximately $37.7 million, of which the Company paid $7.2 million.  The Blackstone JV made capital distributions to its members in 2010, 2009, and 2008 totaling $10.5 million, $11.5 million, and $3.0 million, of which Emeritus received 19.0% or $2.0 million, $2.2 million, and $570,000, respectively.  We are entitled to distributions at increasing levels in excess of our ownership percentage if the Blackstone JV achieves certain performance criteria.

The Company is the administrative member responsible for day-to-day operations.  Blackstone holds the remaining 81.0% interest in the Blackstone JV and has final authority with respect to all major decisions of the joint venture, including final approval of operating and capital budgets.  The Company is prohibited from selling its interest without Blackstone's consent.  Pursuant to a management agreement with Blackstone JV, the Company manages 23 of the properties for a fee equal to 5.0% of gross revenues collected.  For 2010, 2009, and 2008, we earned management fees of approximately $3.6 million, $3.5 million, and $3.4 million, respectively.
 
Emeritus/Wegman Joint Ventures

In 2010, we entered into a 50.0% joint venture with a Wegman family entity ("Wegman") to develop, construct and operate an 81-unit assisted living and memory care community in Deerfield, Ohio (the "Deerfield JV").  We expect construction of this community, which began in 2010, to be completed in mid-2011.  Emeritus and Wegman have each contributed approximately $1.2 million to the Deerfield JV as of December 31, 2010.

In March 2007, we entered into a 50.0% joint venture with Wegman to develop, construct, and operate an 81-unit assisted living and memory care community in Stow, Ohio (the "Stow JV").  The Stow JV began operations in May 2008.  We have made capital contributions to the Stow JV of approximately $935,000 since its inception and received distributions of $87,000 during 2010 and $91,000 during 2009.  The Company is the administrative member responsible for day-to-day operations for which it receives a management fee equal to the greater of $5,000 per month or 5.0% of gross operating revenues, which totalled $151,000 for 2010, $114,000 for 2009, and $72,000 for 2008.  All major decisions regarding the Stow JV require the consent of Wegman.

In 2007 and 2008, we entered into 50.0% joint ventures with Wegman to develop, construct, and operate two separate 36-unit memory care communities in the state of New York.  Construction on one of these communities is expected to begin in 2011 and commencement of the other project has been postponed due to local market conditions.  We have contributed capital to these joint ventures in the combined amount of $912,000.
 
Condensed combined balance sheets for our unconsolidated joint ventures are as follows (in thousands):

   
December 31,
 
   
2010
   
2009
 
Current assets
  $ 79,225     $ 10,529  
Property and equipment
    1,315,643       183,390  
Other assets
    117,561       931  
Total assets
  $ 1,512,429     $ 194,850  
                 
Current liabilities
  $ 59,000     $ 17,181  
Long-term debt
    1,113,533       161,459  
Other liabilities
    49,585       8,697  
Members' capital
    290,311       7,513  
Total liabilities and members' capital
  $ 1,512,429     $ 194,850  
                 
The Company's share of members' capital
  $ 19,394     $ 2,091  

Condensed combined statements of operations for our unconsolidated joint ventures are as follows (in thousands):

   
Year Ended December 31,
 
   
2010
   
2009
   
2008
 
Total revenues
  $ 221,355     $ 82,368     $ 76,901  
Community operating expenses
    168,052       62,482       59,361  
Acquisition costs
    14,746       0       0  
Operating income (loss)
    (2,525 )     13,720       10,098  
Interest expense, net
    34,960       10,821       11,797  
Gain (loss) on interest rate swap
    2,882       1,567       (4,721 )
Net income (loss)
    (29,490 )     4,523       (6,385 )
                         
The Company's share of net income (loss)
  $ (915 )   $ 1,285     $ (2,203 )


Property and Equipment
v2.2.0.25
Property and Equipment
12 Months Ended
Dec. 31, 2010
Property and Equipment  
Property and Equipment
Note 3.  
Property and Equipment

Property and equipment consisted of the following (in thousands):

   
December 31,
 
   
2010
   
2009
 
Construction in progress
  $ 15,834     $ 15,751  
Land and improvements
    177,869       168,590  
Buildings and improvements
    2,128,907       1,629,887  
Furniture and equipment
    107,064       91,979  
Vehicles
    9,683       9,100  
Leasehold improvements
    28,694       23,683  
Total property and equipment
    2,468,051       1,938,990  
Less: accumulated depreciation and amortization
    304,495       222,518  
Net property and equipment
  $ 2,163,556     $ 1,716,472  

Property and equipment under capital leases and financing obligations included in the above schedule consist of the following at December 31 (in thousands):

                           
Net of
 
   
Cost
   
Accumulated Depreciation
   
Accumulated Depreciation
 
   
2010
   
2009
   
2010
   
2009
   
2010
   
2009
 
 Land and improvements
  $ 3,812     $ 3,983     $ 0     $ 0     $ 3,812     $ 3,983  
 Buildings and improvements
    667,025       223,189       (87,979 )     (67,037 )     579,046       156,152  
 Furniture and equipment
    2,543       1,931       (1,689 )     (1,381 )     854       550  
 Vehicles
    1,007       1,069       (993 )     (1,036 )     14       33  
    $ 674,387     $ 230,172     $ (90,661 )   $ (69,454 )   $ 583,726     $ 160,718  

Depreciation and amortization for capital leases and financing obligations was approximately, $21.4 million, $12.5 million, and $23.6 million, for 2010, 2009, and 2008, respectively.
 

Acquisitions and Other Significant Transactions
v2.2.0.25
Acquisitions and Other Significant Transactions
12 Months Ended
Dec. 31, 2010
Acquisitions and Other Significant Transactions  
Acquisitions and Other Significant Transactions
Note 4.  
Acquisitions and Other Significant Transactions
 
2010 Chenal Heights and Asset Acquisitions
 
In December 2010, we purchased an 80-unit assisted living and memory care community located in Arkansas.  The purchase price was $11.2 million.  We also purchased the properties underlying two communities that we previously operated under lease agreements and accounted for as operating leases, Emeritus at Mandarin and Emeritus at Clearwater, which closed on November 30, 2010 and December 1, 2010, respectively.  These two communities have a combined total of 320 units.  The combined purchase price of these two communities was $21.5 million.  We financed the purchase of these three properties with a mortgage loan in the amount of $28.0 million with the balance paid in cash.

2010 HCP27 Lease
 
In October 2010, we entered into two leases with affiliates of HCP, Inc. ("HCP") to lease a total of 27 senior living communities (the "Master Lease Agreements").  The communities are located in 13 states and consist of approximately 3,240 units, comprised of 2,020 assisted living, 630 memory care, 450 skilled nursing, and 140 independent living units.

The Master Lease Agreements have an initial term of 15 years, commencing November 1, 2010, with two available extension options of 10 years each.  One of the lease agreements contains a purchase option on 10 of the communities, exercisable beginning in year 11 and extending through the remaining initial term of the lease.  The purchase option price for the 10 communities would be the greater of (i) $140.0 million (subject to certain adjustments) or (ii) the fair market value of such communities, as determined by appraisal on the date of exercise, less any shared appreciation amount as set forth in the Master Lease Agreements.  The shared appreciation provision allows us to share any increase in fair value in excess of $140.0 million at 25.0% of the first $15.0 million, 35.0% of the next $15.0 million and 40.0% of any amount in excess of $30.0 million.

Subject to certain adjustments with respect to one of the communities, annual minimum rent on the communities is fixed during the first five years at $31.0 million, $34.5 million, $41.0 million, $46.0 million, and $51.0 million.  Thereafter, annual minimum rent will increase annually by the greater of the increase in the CPI or 3.0%, excluding any additional rent related to capital addition costs funded by HCP.  Minimum rent on the first year of each extension period would be the greater of (i) the fair market rent, not to exceed 106.0% of the prior lease year rent, or (ii) the minimum rent for the prior lease year increased by the greater of the increase in CPI or 3.0%.

We are accounting for the Master Lease Agreements as capital leases and have therefore recorded capital lease assets and capital lease obligations in the aggregate amount of $409.0 million.

2010 Heritage House
 
In October 2010, we purchased a 100-unit assisted living and memory care community located in Mississippi, and simultaneously entered into a sale-leaseback agreement with affiliates of Health Care REIT, Inc. ("HCN").  The property was added to an existing master lease with HCN, which expires in September 2018.  There is one 15-year renewal option available on this building.  The initial annual base rent is approximately $902,000 with annual scheduled increases.

The lease also contains an option to purchase the building at the end of the lease term.  Due to the purchase option in the lease, we are accounting for this lease as a financing lease and recorded property and equipment of $10.2 million, a resident contract intangible asset of $375,000 and a financing lease obligation of $10.6 million.  We expensed transaction costs of approximately $64,000.

2010 Emeritus at Marlton Crossing Lease
 
In September 2010, we purchased a 110-unit assisted living community located in New Jersey and simultaneously entered into a sale-leaseback agreement with affiliates of HCP.  The lease expires in September 2020 and we have two ten-year renewal options available.  The initial annual base rent is approximately $1.2 million with annual scheduled increases.  Due to a purchase option in the lease, we are accounting for this lease as a financing lease and recorded property and equipment of $14.2 million, a resident contract intangible asset of $414,000 and a financing lease obligation of $14.8 million.  We expensed transaction costs of approximately $260,000.

2010 HCP Lease
 
In May 2010, we entered into an agreement with HCP for the lease of four senior living communities (collectively, the "HCP Lease").  The communities, located in Illinois and Texas, consist of 398 assisted living units and 152 skilled nursing units.

The HCP Lease has an initial term of ten years, commencing on June 1, 2010, with two available extension options of ten years each at our election.  We have the option to purchase the properties upon the expiration of the first extended term.  The purchase option price is calculated at the greater of (i) fair market value, as defined, or (ii) $101.2 million, plus any capital addition costs funded by HCP, increased on each lease anniversary date by the greater of (a) 2.5% or (b) the lesser of the applicable increase in the CPI or 5.0%.

The annual minimum lease payments are fixed for the first five years of the lease term at approximately $8.5 million, $9.1 million, $9.6 million, $10.2 million, and $10.7 million for years one through five, respectively, excluding any additional rent related to capital addition costs funded by HCP.  Beginning in the sixth year and continuing each year through the optional extension periods, the rent will increase by the greater of (i) 2.5%, or (ii) the lesser of (a) the applicable increase in the CPI or (b) 5.0%.  We are accounting for this lease as an operating lease.

2010 Eastover Lease
 
In February 2010, we purchased an 88-unit assisted living community located in North Carolina and simultaneously entered into a sale-leaseback agreement.  The lease expires in November 2018 and there are two ten-year renewal options available.  The initial annual base rent is approximately $793,000 with annual scheduled increases.  Due to a purchase option in the lease, we are accounting for this lease as a financing lease and recorded property and equipment of $8.3 million, a resident contact intangible asset of $600,000 and a financing lease obligation of $8.9 million.  We expensed transaction costs of approximately $185,000.
 
2010 National Health Investors, Inc. Lease
 
In January 2010, we entered into an agreement to lease eight communities from National Health Investors, Inc.  The communities are comprised of 336 units.  The term of the agreement is 15 years with two five-year renewal options available.  The initial annual base rent is $3.4 million with annual scheduled increases.  We are accounting for these leases as capital leases and therefore recorded a capital lease asset and obligation in the aggregate amount of $37.5 million.

2009 Trace Pointe Acquisition
 
On October 1, 2009, we purchased Trace Pointe, a 100-unit assisted living and memory care community that we previously managed for an affiliate of Mr. Baty.  The purchase price was $15.8 million, of which $12.1 million was financed with mortgage debt and $2.0 million was financed with an unsecured note payable to an affiliate of Mr. Baty, with the balance paid in cash.

2009 Courtyard at Merced Acquisition
 
On October 1, 2009, we purchased Courtyard at Merced, an 83-unit assisted living and memory care community from Ventas Realty, LP ("Ventas") that we previously operated under a management contract.  The purchase price was $6.3 million and was financed with a three-year first mortgage note from Ventas in the amount of $5.0 million, with the balance paid in cash.

2009 College Park Acquisition
 
In June 2009, we purchased College Park, an 85-unit assisted living community that we previously managed for an affiliate of Mr. Baty.  The purchase price was $10.6 million, of which $7.8 million was financed with mortgage debt and $1.2 million was financed with an unsecured note payable to an affiliate of Mr. Baty with the balance of the purchase price paid in cash.

Sale-Leaseback

In 2003, we sold four communities to HCN and leased them back.  The sale did not qualify for sale-leaseback accounting because of our continuing involvement in the form of a guarantee of the underlying mortgage debt, which was assumed by HCN in the sale.  Therefore, we recorded the sale proceeds of $34.6 million as a financing lease obligation and continued to report the real estate and equipment as owned assets.
 
HCN paid the mortgage obligations in June 2009 and our guarantee terminated.  Therefore, we recorded the sale and we now account for each of the four leases as capital leases.  As a result, in 2009, we recorded a net increase in property and equipment of $968,000, a net decrease in capital lease and financing obligations of $4.1 million, an increase in deferred gains of $5.2 million and a decrease in deferred rent of $129,000.

2009 Real Estate Purchase
 
During the second quarter of 2009, we purchased the California houses of Granger Cobb, our President and Chief Executive Officer, and Budgie Amparo, our Executive Vice President—Quality and Risk Management, in connection with their required relocation to Seattle following the merger with Summerville Senior Living, Inc. ("Summerville") in September 2007.  The combined purchase price was approximately $4.2 million.  The purchase price for each was determined based on an independent appraisal.  We recorded an impairment charge related to Mr. Cobb's house of $624,000 during 2009 and sold the house in July 2010.  We have included Mr. Amparo's house, with a fair value of $797,000, in "Other assets, net" in the Consolidated Balance Sheet at December 31, 2010.  We have included both houses, with a combined fair value of $3.6 million, in "Other assets, net" in the Consolidated Balance Sheet at December 31, 2009.

2009 Northdale Lease
 
In January 2009, we entered into an operating lease for one community consisting of 84 units.  The lease term is ten years with two ten-year renewal options available.  The initial annual minimum rent is approximately $600,000 (less abatements in the first year of $300,000) with fixed annual increases of 3.0%.

2009 New Development
 
In January 2009, we opened a newly constructed community in Urbandale, Iowa.  This 38-unit memory care community had a development cost of $6.6 million and was funded by $5.5 million of short-term construction debt that we repaid in full in the second quarter of 2010.

2008 Ventas Asset Acquisition
 
In December 2008, we purchased five communities from Ventas consisting of approximately 430 units (the "Ventas Purchase") for a purchase price of $64.3 million plus acquisition costs of $282,000.  Prior to this acquisition, we operated these communities under lease agreements with affiliates of Ventas.
 
Previously, we accounted for four of the communities as operating leases, and one of the communities as a capital lease.  In connection with the Ventas Purchase, we borrowed $55.6 million, of which $45.6 million represents mortgage financing and $10.0 million was borrowed from Ventas under a three-year note.

2008 HCP Lease
 
In December 2008, we executed a Master Lease and Security Agreement (the "HCP Agreement") to lease 11 communities comprised of approximately 1,500 units/beds from affiliates of HCP.  The HCP Agreement is for a term of ten years and may be extended for up to one additional year at HCP's option.  Annual rents are fixed at $17.5, $21.0, $25.0, $28.0, and $30.0 million in years one through five, respectively, and thereafter will increase by the greater of the increase in the CPI or 3.0%.  We are accounting for these leases as operating leases.

2008 BV Holdings Lease
 
In December 2008, we entered into a lease for two communities consisting of approximately 250 units.  The lease term is ten years with two five-year renewal options available.  The initial annual lease payment is approximately $1.8 million with fixed increases for two years and increases thereafter at 3.0%.  We are accounting for this lease as an operating lease.

2008 HCN Asset Acquisition
 
In June 2008, we entered into an asset purchase agreement with HCN (the "HCN Agreement") to purchase 29 communities consisting of approximately 2,300 units for a purchase price of $299.9 million, excluding acquisition costs.  The Company formerly leased these communities from HCN.  As provided in the HCN Agreement, the transaction closed in two phases.

In June 2008, we completed the first phase of the HCN transaction ("Tranche 1").  Tranche 1 consisted of 19 communities with a capacity of approximately 1,600 units and a purchase price of $222.7 million, plus closing costs of $1.1 million.  Tranche 1 was financed with mortgage debt of approximately $163.2 million and seller-provided debt of $50.0 million.  We previously accounted for 18 of the 19 acquired communities in Tranche 1 as capital leases.
 
In October 2008, we completed the second phase of the HCN transaction ("Tranche 2").  This closing consisted of ten communities with a capacity of approximately 700 units for a purchase price of $77.2 million plus acquisition costs of $190,000.  Tranche 2 was financed with $29.0 million of fixed rate mortgage debt and $27.4 million of variable rate mortgage debt.  We previously accounted for nine of the ten acquired communities in Tranche 2 as capital leases.

As part of Tranche 2, eight of the ten communities are included in a 50/50 joint venture owned by Emeritus and Mr. Baty, who contributed approximately $6.8 million to the joint venture for the purchase of the properties.  Prior to the acquisition, these eight communities were subject to a cash flow sharing agreement with Mr. Baty, which continues in effect after the acquisition by the joint venture.  (see Note 8, Related-Party Agreements).

2008 Emeritus at Arborwood Acquisition
 
In June 2008, we purchased a 54-unit assisted living community for $6.8 million plus closing costs of $185,000, of which $6.0 million was financed through a mortgage loan.
 
2008 NHP Asset Acquisition
 
In April 2008, we purchased from Nationwide Health Properties, Inc. ("NHP") 24 communities consisting of approximately 1,700 units for a purchase price of $314.0 million plus acquisition costs of $856,000.  We had previously leased these communities from NHP and accounted for them as capital leases.  We financed the purchase through mortgage debt of approximately $249.1 million and seller-provided debt of $30.0 million.

2008 Emeritus at Hazel Creek Lease
 
In January 2008, we entered into a long-term operating lease for a 104-unit assisted living community.  The lease term is 15 years with two 10-year renewal options available.  The initial annual lease payment was approximately $901,000, with annual increases of 3.0%.


Goodwill and Other Intangible Assets and Liabilities
v2.2.0.25
Goodwill and Other Intangible Assets and Liabilities
12 Months Ended
Dec. 31, 2010
Goodwill and Other Intangible Assets and Liabilities  
Goodwill and Other Intangible Assets and Liabilities
Note 5.  
Goodwill and Other Intangible Assets and Liabilities

Goodwill

We recorded goodwill and various other intangible assets in connection with community acquisitions accounted for as business combinations (see Note 4, Acquisitions and Other Significant Transactions).  Additionally, in 2010, we recorded a reduction of goodwill as a result of sales of three communities during 2010.  The change in the carrying value of goodwill during 2010 and 2009 is set forth below (in thousands):

Balance at December 31, 2008
  $ 73,704  
Goodwill acquired during the year
    1,051  
Balance at December 31, 2009
    74,755  
Goodwill acquired during the year
    1,338  
Goodwill allocated to sales of communities
    (273 )
Balance at December 31, 2010
  $ 75,820  
 
Other Intangible Assets and Liabilities

Our intangible assets and liabilities other than goodwill consisted of the following as of December 31, 2010 (in thousands):

   
Gross
             
   
Carrying
   
Accumulated
   
Net Book
 
   
Amount
   
Amortization
   
Value
 
In-place resident contracts
  $ 4,201     $ (2,646 )   $ 1,555  
Below market community rents
    86,711       (33,137 )     53,574  
Lease purchase options
    44,269       0       44,269  
Operating licenses
    1,167       (326 )     841  
Other intangible assets
  $ 136,348     $ (36,109 )   $ 100,239  
Above market community rents
                       
(included in other long-term liabilities)
  $ (13,961 )   $ 4,191     $ (9,770 )
 

 
Our intangible assets and liabilities other than goodwill consisted of the following as of December 31, 2009 (in thousands):
 
   
Gross
             
   
Carrying
   
Accumulated
   
Net Book
 
   
Amount
   
Amortization
   
Value
 
In-place resident contracts
  $ 2,600     $ (557 )   $ 2,043  
Below market community rents
    94,432       (25,944 )     68,488  
Lease purchase options
    44,269       0       44,269  
Trademarks and operating licenses
    4,000       (2,382 )     1,618  
Other intangible assets
  $ 145,301     $ (28,883 )   $ 116,418  
Above market community rents
                       
(included in other long-term liabilities)
  $ (13,961 )   $ 2,944     $ (11,017 )

We acquired substantially all of our intangibles in our acquisition of Summerville in September 2007.  The weighted average amortization periods assigned at the merger date were as follows: in-place resident contracts, 17 months; below market rents, 11 years; above market rents, 11.6 years; and trademarks and operating licenses, 12 years.  The lease purchase options are not currently amortized, but will be added to the cost basis of the related communities when the option is exercised, and will then be depreciated over the estimated useful life of the community.  In 2008, we changed the estimated remaining useful life of trademarks to two years and they became fully amortized during 2010.

We recorded in-place resident contract intangibles in connection with the purchase of communities totaling $1.6 million in 2010 and $2.6 million in 2009, and we are amortizing these contracts over 21 months and 19 months, respectively.  Also, we wrote off below market rent intangibles in the amount of $5.0 million in 2010, of which we expensed $2.7 million and added $2.3 million to the carrying value of the property, in connection with the purchase of two communities that we previously operated under lease agreements.  In 2009, we wrote off and expensed below market rent intangibles in the amount of $1.2 million related to the sale of one community that we included in discontinued operations (see Note 13, Discontinued Operations).
 
Aggregate amortization expense for intangibles, excluding above and below market rents, was $2.7 million for 2010, $5.8 million for 2009, and $45.6 million for 2008.  Above and below market rent amortization, a component of community lease expense on the Consolidated Statements of Operations, was $8.6 million for 2010, $9.7 million for 2009, and $10.0 million for 2008.

Estimated amortization of intangibles is as follows (in thousands):

2011
  $ 8,863  
2012
    6,723  
2013
    5,086  
2014
    4,719  
2015
    3,263  
Thereafter
    61,815  
Total
  $ 90,469  
 

Long-term Debt and Line of Credit
v2.2.0.25
Long-term Debt and Line of Credit
12 Months Ended
Dec. 31, 2010
Long-term Debt and Line of Credit  
Long-term Debt and Line of Credit
Note 6.  
Long-term Debt and Line of Credit

The following table details our mortgages and notes payable (in thousands).  Interest rates, unless otherwise indicated, are as of December 31, 2010.  Payments on each note are due monthly and include amortization of principal subsequent to interest-only periods.  Unless otherwise indicated, all of these notes are secured by real estate.

     
December 31,
 
     
2010
   
2009
 
Interest at rates from 8.26% to 12.5% through December 2013 (a)
  $ 2,972     $ 6,859  
Interest only at 6.29% through April 2011, due May 2018
    25,371       25,371  
Interest only at LIBOR plus 2.25%, (2.51%), due May 2011
    8,948       8,948  
Interest only at 8.5%, increasing annually by 0.15%, due March 2017 (b)
    21,426       21,426  
Principal plus interest at 7.23%, due July 2013
    7,452       7,593  
Principal plus interest at LIBOR plus 4.0%, LIBOR floor of 2.5%, (6.5%), due March 2012
    4,224       4,298  
Interest only at 6.21% through May 2011, due May 2018
    129,000       129,000  
Principal plus interest at LIBOR plus 4.0%, LIBOR floor of 2.5%, (6.5%), due October 2011
    22,351       22,782  
Interest only at 6.52% through April 2010, due April 2012
    87,109       88,000  
Principal plus interest at LIBOR plus 4.25% (4.55%), due August 2012
    14,407       19,504  
Interest only at 6.305% through September 2010, due September 2017
    226,314       226,916  
Interest only at LIBOR plus 4.0%, LIBOR floor of 2.5%, (6.5%), due January 2012
    26,200       26,200  
Principal and interest at LIBOR plus 4.0%, LIBOR floor of 2.5%, (6.5%), due January 2012
    30,526       39,401  
Principal plus interest at 6.185%, due September 2014
    66,819       67,575  
Interest only at LIBOR plus 2.0%, repaid July 2010
    0       5,461  
Interest only at 9.04%, increasing annually by 0.27%, due September 2018 (b)
    12,865       12,865  
Principal plus interest at LIBOR plus 3.5% (3.76%), due January 2012
    11,130       11,326  
Interest only at 5.905% through April 2011, due April 2018
    241,890       241,890  
Interest only at 8.50%, increasing annually by 0.15%, due March 2017
    30,000       30,000  
Interest only at LIBOR plus 3.25% through March 2010, LIBOR floor of 3.0%, (6.25%), due October 2011
    7,287       7,378  
Interest only LIBOR plus 2.5%, LIBOR floor of 2.75%, (5.25%), due July 2011
    6,000       6,000  
Principal plus interest at 6.65%, due July 2018
    160,924       162,587  
Interest only at 8.62%, increasing annually by 0.25%, due July 2014 (b)
    50,000       50,000  
Principal plus interest at 6.49%, due November 2018
    28,975       29,000  
Interest at LIBOR plus 3.0%, (3.26%), due October 2011 (d)
    7,208       14,168  
Principal plus interest 8.25%, increasing annually by 0.25%, repaid December 2010
    0       9,520  
Interest only at 5.97% through January 2011, due January 2019
    25,921       25,921  
Interest only at LIBOR plus 4.0%, LIBOR floor of 2.75% through January 2011, (6.75%), due January 2012
    19,700       19,700  
Interest only at 6.05% through January 2011, due January 2019
    36,303       36,303  
Interest only at 6.92% through January 2011, due January 2019
    7,760       7,760  
Interest only at 6.5%, due July 2014 (c)
    1,250       1,250  
Interest only at LIBOR plus 6.5%, (6.73%), repaid December 2010
    0       5,000  
Principal plus interest at 6.74%, due November 2018
    8,516       8,600  
Principal plus interest at 6.67%, due July 2018
    3,694       3,731  
Principal plus interest at 6.14%, due October 2019
     11,992       12,129  
Interest only at 6.5%, due October 2014 (c)
    1,950       1,950  
Principal plus interest at 5.38%, due November 2020 (d)
    4,470       0  
Interest only at LIBOR plus 4.5%, LIBOR floor of 1.50% (6.0%), due December 2012
    28,000       0  
Total long-term debt
    1,378,954       1,396,412  
Less current portion
    73,197       21,324  
Long-term debt, less current portion
  $ 1,305,757     $ 1,375,088  
                   
(a)
This balance represents $1,854 of unsecured non-interest bearing loans related to resident housing deposits that are refunded upon vacating the premises. The remaining balance includes vehicle loans of $1,118. The vehicle loans are secured by the assets underlying the loan.
 
(b)
Secured by leasehold mortgages.
               
(c)
Repaid in January 2011; see Note 17, Subsequent Events
 
(d)
As of December 31, 2009, we had a loan with a balance of $14,168 secured by two communities. During 2010, we refinanced this loan and, as of December 31, 2010, have two separate loans of $4,470 and $7,208, respectively.
 

Long-Term Debt Activity in 2010

In December 2010, we financed the purchase of three properties with a mortgage loan in the amount of $28.0 million (see Note 4, 2010 Chenal Heights and Asset Acquisitions).  The note bears interest at a variable rate based on the monthly London Interbank Offered Rate ("LIBOR") plus 4.50%, with a LIBOR floor of 1.50%.

In December 2010, we repaid the outstanding balance of two loans payable to Ventas with outstanding principal amounts of $9.0 million and $5.0 million, respectively.  The interest rates on these loans varied throughout the scheduled loan term, but as of December 2010 when we paid off these loans, the interest rates were 8.50% and 6.76%, respectively.

In November 2010, we entered into agreements with NHP to amend the terms of two loans payable to NHP (the "Notes").  A Note in the amount of $21.4 million was amended to extend the maturity date from March 31, 2012 to March 31, 2017.  A Note in the amount of $30.0 million was amended to extend the maturity date from April 1, 2012 to March 31, 2017.

The interest rate on each of the Notes is 8.50%, increasing annually on the anniversary date by 0.15%.  Monthly payments on the Notes are interest only, with the unpaid principal balance due at maturity.

In September 2010, we entered into an amendment to a credit agreement related to $19.5 million of mortgage debt secured by three communities.  Under the terms of the amended credit agreement, we prepaid $5.0 million of the principal balance and terminated the related interest rate swap contract.  The interest rate on the debt, which was effectively fixed at 6.35% with the swap, was changed to a variable rate equal to the 90-day LIBOR plus 4.25%.  All other terms of the credit agreement remained unchanged.

In August 2010, we paid off the outstanding balance of a mortgage loan in the amount of $2.8 million.  The interest rate on the loan was 10.54% and it was due to mature in January 2011.

In July 2010, we entered into an agreement to extend the maturity date on an existing $50.0 million loan with HCN (the "HCN Note").  The HCN Note, originally due July 1, 2011, was extended to July 1, 2014.  The current interest rate of 8.50% will increase by 0.15% on each anniversary date beginning July 1, 2011.  Monthly payments of interest only are due through June 1, 2011, with additional principal payments of $200,000 per month due July 1, 2011 and each month thereafter until maturity.  In the event the Company issues securities with net proceeds to the Company in excess of $150.0 million, then such excess proceeds must be used to reduce the principal balance on the HCN Note.  In addition, if we make any principal payments on our $51.4 million of loans with NHP, then we must make a like payment on the HCN Note.

Revolving Line of Credit
 
We are party to a credit agreement with Wells Fargo Bank, N.A. ("Wells Fargo"), which provides a $25.0 million unsecured revolving line of credit that matures on June 30, 2011.  The line of credit allows us to obtain letters of credit from the lender, if the undrawn amount of any outstanding letters of credit (and any borrowings outstanding under the credit agreement) does not exceed $25.0 million.  The interest rate on the line of credit is our choice of either (a) a fluctuating rate equal to the daily one-month LIBOR plus 2.50% or (b) a fixed rate for a 30-day term equal to the one-month LIBOR plus 2.25%, payable monthly.  We pay a commitment fee of 0.25% on the average daily unused amount of the line of credit, payable quarterly.  In addition, Wells Fargo requires us to pay fees equal to 1.00% of the face amount of every letter of credit issued as well as the negotiation fees on each letter.  We must maintain a zero balance on advances for 30 consecutive days during each fiscal year and a fixed charge coverage ratio of 1.1 to 1.0.  In addition, we must maintain liquid assets (cash, cash equivalents and/or publicly traded marketable securities) with an aggregate fair value of at least $10.0 million in excess of the outstanding balance at any time under the line of credit.  There were no outstanding borrowings under the line of credit as of December 31, 2010.

Debt Covenants
 
Our lease and loan agreements generally include customary provisions related to: (i) restrictions on cash dividends, investments, and borrowings; (ii) cash held in escrow for real estate taxes, insurance, and building maintenance; (iii) financial reporting requirements; and (iv) events of default.  Certain loan agreements require the maintenance of debt service coverage or other financial ratios and specify minimum required annual capital expenditures at the related communities.  Many of our lease and debt instruments contain "cross-default" provisions pursuant to which a default under one obligation can cause a default under one or more other obligations to the same lender or property owner.  Such cross-default provisions affect the majority of our properties.  Accordingly, an event of default could cause a material adverse effect on our financial condition if such debts/leases are cross-defaulted.  As of December 31, 2010, we were in violation of a financial covenant in one debt agreement with a balance, as of December 31, 2010, of $2.7 million.  We have obtained a waiver of this violation from the lender and have classified this loan, which matures in May 2011, as current in the Consolidated Balance Sheet as of December 31, 2010.

Principal maturities of long-term debt at December 31, 2010, are as follows (in thousands):

2011
  $ 73,197  
2012
    225,974  
2013
    22,545  
2014
    124,243  
2015
    12,920  
Thereafter
    920,075  
Total
  $ 1,378,954  
 

Shareholders' Equity
v2.2.0.25
Shareholders' Equity
12 Months Ended
Dec. 31, 2010
Shareholders' Equity  
Shareholders' Equity
Note 7.  
Shareholders' Equity

In November 2010, we sold 5,575,000 shares of Emeritus common stock in a public offering, of which the Company sold 4,575,000 shares and certain shareholders sold 1,000,000 shares.  We received net proceeds of $80.3 million after issuance costs.  With the proceeds, we paid off two loans to Ventas totaling $14.0 million, as required in the loan agreements, and the remaining cash is available to be used for acquisitions and other corporate purposes.  We received no cash from the sale of shares by the selling shareholders.

Related-Party Agreements
v2.2.0.25
Related-Party Agreements
12 Months Ended
Dec. 31, 2010
Related-Party Agreements  
Related-Party Agreements
Note 8.  
Related-Party Agreements

In 1995, Mr. Baty and a current director of Emeritus formed a New York general partnership (the "Partnership") to facilitate the operation of assisted living communities in the state of New York, which generally requires that natural persons be designated as the licensed operators of assisted living communities.  The Partnership operates ten communities in New York.  We have agreements with the Partnership and the partners under which all of the Partnership's profits have been assigned to us and we have indemnified the partners against losses.  Because we have unilateral and perpetual control over the Partnership's assets and operations, we include the Partnership in our consolidated financial statements.

Mr. Baty is a principal owner of Columbia Pacific, which owns assisted living communities.  We manage five of these communities under various agreements.  One of the agreements provides for a flat monthly rate while the others provide for fees of 5.0% of gross operating revenues.  The agreements have terms ranging from two to five years, with options to renew.  For two of the five communities, we are entitled to distributions upon a sale to a third party or purchase by Emeritus if the communities achieve certain performance criteria.  Management fee revenue earned under these agreements was approximately $732,000, $1.0 million, and $1.1 million in 2010, 2009, and 2008, respectively.

Emeritus and Mr. Baty are parties to a cash flow sharing agreement ("CFSA") related to, as of December 31, 2010, 18 assisted living communities (the "CFSA Facilities") that are included in our Consolidated Financial Statements.  We entered into the CFSA in 2004 in connection with Mr. Baty's guarantee of our obligations under a lease agreement with HCN.  Under the terms of the CFSA, Mr. Baty shares in 50.0% of the positive cash flow (as defined) and is responsible for 50.0% of the cash deficiency for these communities.  Additionally, we have the right to purchase Mr. Baty's 50.0% interest in the cash flow of the communities based on a prescribed formula.  Under the CFSA, Mr. Baty earned $1.3 million, $956,000, and $710,000 in 2010, 2009, and 2008, respectively, which is included in community operations expense in our Consolidated Statement of Operations.

Emeritus and Mr. Baty each hold a 50.0% ownership interest in a joint venture (the "Batus JV"), which purchased eight of the CFSA Facilities from HCN in 2008 (see Note 4, 2008 HCN Asset Acquisition)The net loss attributable to the noncontrolling interest in our Consolidated Statement of Operations represents Mr. Baty's share of the Batus JV's net loss from continuing operations.  We have the option to buy out Mr. Baty's membership interest in all or part of the Batus JV after January 1, 2011, for a price equal to the lesser of fair market value or a formula specified in the Batus JV operating agreement but in no event less than the amount of Mr. Baty's capital contribution.
 
Effective January 1, 2011, we exercised our option to purchase Mr. Baty's rights related to six of the CFSA Facilities and Mr. Baty's membership interest in three of the six CFSA Facilities owned by the Batus JV (see Note 17, Subsequent Events).


Stock Plans
v2.2.0.25
Stock Plans
12 Months Ended
Dec. 31, 2010
Stock Plans  
Stock Plans
Note 9.  
Stock Plans

2006 Equity Incentive Plan

In June 2006, our shareholders approved the 2006 Equity Incentive Plan (the "2006 Plan").  In May 2010, our shareholders approved an amendment to the 2006 Plan, whereby a total of 5,800,000 shares of our common stock may be issued to employees, non-employee directors, consultants, advisors, and independent contractors.  The 2006 Plan allows for the granting of various types of awards, one of which is stock options that generally vest over a three-year or four-year period.  Unless the terms of option grants specifically provide otherwise, any unexercised options expire no later than ten years from the date of the grant.  As of December 31, 2010, 2,051,608 shares are available for option grants under the 2006 Plan.
 
Amended and Restated Stock Option Plan for Non-employee Directors

The Amended and Restated Stock Option Plan for Non-employee Directors (the "Directors Plan") is a nonqualified stock option plan that has been in effect since 1995.  The Directors Plan authorizes the issuance of options to purchase up to 550,000 shares of Emeritus common stock.  Each non-employee director automatically receives an option to purchase 2,500 shares of Emeritus common stock at the time of his or her initial election or appointment to the board of directors.  In addition, each non-employee director automatically receives an option to purchase 7,500 shares of Emeritus common stock immediately following each year's annual meeting of shareholders.  All options granted under the plan fully vest on the day immediately prior to the annual shareholders meeting that follows the date of grant and expire 10 years after the date of grant, with the exception of the option for 2,500 shares granted at the time of a director's initial election or appointment to the board of directors, which is vested immediately upon grant.  The exercise price for these options is the fair market value of Emeritus common stock on the grant date.  As of December 31, 2010, there were 249,000 shares available for option grants under the Directors Plan.

1995 Stock Incentive Plan

The 1995 Stock Incentive Compensation Plan (the "1995 Plan") provided for incentive and non-qualified stock options, stock appreciation rights, and stock awards, including restricted stock.  The 1995 Plan expired in September 2005.  We cannot grant any new options under the 1995 Plan, but outstanding options will continue to be exercisable in accordance with their terms.

The following is a summary of stock options outstanding and exercisable under the 2006 Plan, the Directors Plan, and the 1995 Plan as of December 31, 2010:

         
Options Outstanding
   
Options Exercisable
 
Range of Exercise Prices
   
Number Outstanding
   
Weighted-Average Remaining Contractual Life
   
Weighted- Average Exercise Price
   
Number Exercisable
   
Weighted-Average Remaining Contractual Life
   
Weighted- Average Exercise Price
 
  $ 2.11 - $11.65       793,888       6.2     $ 6.98       477,513       5.1     $ 6.04  
  11.66 -   17.39       863,209       8.6       16.25       278,284       8.1       15.58  
  17.40 -   18.03       1,041,700       9.9       18.03       0       0       0  
  18.04 -   26.02       348,496       4.9       19.45       277,496       3.7       19.55  
  26.03 -   30.89       907,500