CORRESP 1 filename1.htm
 
DISCOVER the difference
   
   
 
February 13, 2017
   

 
VIA EDGAR

Mr. Larry Spirgel
Assistant Director
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
 
Re:
Capital Senior Living Corporation
Form 8-K
Filed August 2, 2016
File No: 1-13445
 
Dear Mr. Spirgel:

This letter sets forth the additional response of Capital Senior Living Corporation (the “Company”) to the comment letter dated December 22, 2016 (the “Comment Letter”) from the staff (the “Staff”) of the Securities and Exchange Commission concerning the above-captioned Form 8-K.  For the convenience of the Staff, we have set forth below, in bold-face type, the text of the comment in the Comment Letter followed by the Company’s response thereto.

Form 8-K filed August 2, 2016

Exhibit 99.1

1. We have read your response to comment 2 and we believe that your non-GAAP presentation of EBITDAR that excludes lease expense is inconsistent with Question 100.01 of the updated Non-GAAP Compliance and Disclosure Interpretations issued on May 17, 2016.  Please revise in your next earnings release.

As discussed with the Staff, in the future, the Company will present Adjusted EBITDAR as a financial valuation measure, rather than as a financial performance or operating measure, and will no longer present Adjusted EBITDAR margin.  Attached as Exhibit A are portions of the Company’s third-quarter earnings release that reflect how the Company would propose to present Adjusted EBITDAR in the future.

Thank you for your consideration.  Because the Company expects to issue its next earnings release on or about February 28, 2017, the Company would appreciate the Staff’s prompt attention to its response.  Please do not hesitate to contact me at (972) 770-5600 with any questions or concerns.
 
  Sincerely,  
      
 
/s/ CAREY P. HENDRICKSON
  
   
  Carey P. Hendrickson  
  Senior Vice President and Chief Financial Officer   
  Capital Senior Living Corporation   

 
cc:
Claire DeLabar, Staff Accountant
Terry French, Accountant Branch Chief
Courtney Lindsay II, Staff Attorney
John C. Kennedy
     Paul, Weiss, Rifkind, Wharton & Garrison LLP
         
Exhibit A

Illustrative Non-GAAP Disclosure

[See attached]
 
 
 
 
Disclosure of Non-GAAP Financial Measures

Adjusted EBITDAR was $38.0 million in the third quarter of 2016, a 4.3% increase from the third quarter of 2015.  Adjusted EBITDAR is a financial valuation measure, rather than a financial performance measure, used by management and others to evaluate the value of companies in the senior living industry.  The three communities undergoing repositioning, lease-up or significant renovation and conversion, not included in Adjusted EBITDAR, generated an additional $0.8 million of EBITDAR.

Description of Non-GAAP Financial Measures

Adjusted EBITDAR is a financial valuation measure and Adjusted Net Income and Adjusted CFFO are financial performance measures 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 costs 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, financial results and measures determined or calculated in accordance with GAAP.

Adjusted EBITDAR is a valuation measure commonly used by our management, research analysts and investors to value companies in the senior living industry.  Because Adjusted EBITDAR excludes interest expense and rent expense, it allows our management, research analysts and investors to compare the enterprise values of different companies without regard to differences in capital structures and leasing arrangements.

The Company believes that Adjusted Net Income and Adjusted CFFO are useful as performance measures in identifying trends in day-to-day operations because they exclude the costs associated with acquisitions and conversions and other items that do not ordinarily reflect the ongoing operating results of our primary business.  Adjusted Net Income and Adjusted CFFO provide indicators to management of progress in achieving both consolidated and individual business unit operating performance and are used by research analysts and investors to evaluate the performance of companies in the senior living industry.

The Company strongly urges you to review on the last page of this release the reconciliation of income from operations to Adjusted EBITDAR and the reconciliation of net (loss) income to Adjusted Net (Loss) Income and Adjusted CFFO, along with the Company’s consolidated balance sheets, statements of operations, and statements of cash flows.
 
 
 
Reconciliation of Non-GAAP Financial Measures

CAPITAL SENIOR LIVING CORPORATION
  
NON-GAAP RECONCILIATIONS
  
(In thousands, except per share data)
  
                         
                         
    
Three Months Ended September 30,
    
Nine Months Ended September 30,
  
   
2016
    
2015
    
2016
    
2015
  
                         
Adjusted EBITDAR
                        
Income from operations
  
$
3,686
    
$
5,676
    
$
13,633
    
$
13,074
  
Depreciation and amortization expense
    
14,400
      
12,722
      
44,103
      
38,985
  
Stock-based compensation expense
    
2,479
      
2,301
      
7,482
      
6,745
  
Facility lease expense
    
15,500
      
15,321
      
46,150
      
45,875
  
Provision for bad debts
    
405
      
329
      
1,214
      
873
  
Casualty losses
    
634
      
306
      
1,069
      
827
  
Transaction and conversion costs
    
1,663
      
543
      
3,063
      
2,007
  
Communities being  repositioned/leased up
    
(779
)
    
(776
)
    
(2,434
)
    
(2,127
)
Adjusted EBITDAR
  
$
37,988
    
$
36,422
    
$
114,280
    
$
106,259
  
                                 
Adjusted Revenues
                                
Total revenues
  
$
111,436
    
$
104,420
    
$
331,643
    
$
304,648
  
Communities being  repositioned/leased up
    
(4,399
)
    
(4,648
)
    
(13,198
)
    
(13,431
)
Adjusted revenues
  
$
107,037
    
$
99,772
    
$
318,445
    
$
291,217
  
                                 
                                 
Adjusted net (loss) income and Adjusted net (loss) income per share
                          
Net (loss) income
  
$
(7,076
)
  
$
2,871
    
$
(17,507
)
  
$
(8,334
)
Casualty losses
    
634
      
306
      
1,069
      
827
  
Transaction and conversion costs
    
1,663
      
543
      
2,831
      
2,007
  
Resident lease amortization
    
2,583
      
3,029
      
9,593
      
10,836
  
Write-off of deferred loan costs and prepayment premium
    
-
      
102
      
-
      
973
  
Loss (Gain) on disposition of assets
    
16
      
(6,418
)
    
53
      
(6,247
)
Tax impact of Non-GAAP adjustments (37%)
    
(1,812
)
    
902
      
(5,012
)
    
(3,107
)
Deferred tax asset valuation allowance
    
2,976
      
(1,306
)
    
6,398
      
3,044
  
Tax impact of 4 property sale
    
-
      
1
      
-
      
292
  
Communities being  repositioned/leased up
    
334
      
289
      
994
      
995
  
Adjusted net (loss) income
  
$
(682
)
  
$
319
    
$
(1,581
)
  
$
1,286
  
                                 
Diluted shares outstanding
    
28,959
      
28,733
      
28,879
      
28,670
  
                                 
Adjusted net (loss) income per share
  
$
(0.02
)
  
$
0.01
    
$
(0.05
)
  
$
0.04
  
                                 
Adjusted CFFO
                                
Net (loss) income
  
$
(7,076
)
  
$
2,871
    
$
(17,507
)
  
$
(8,334
)
Non-cash charges, net
    
19,597
      
9,466
      
59,466
      
42,861
  
Lease incentives
    
(1,968
)
    
-
      
(5,858
)
    
-
  
Recurring capital expenditures
    
(1,155
)
    
(1,109
)
    
(3,451
)
    
(3,291
)
Casualty losses
    
634
      
306
      
1,069
      
827
  
Transaction and conversion costs
    
1,663
      
543
      
2,831
      
2,007
  
Tax impact of 4 property sale
    
-
      
1
      
-
      
292
  
Tax impact of Spring Meadows Transaction
    
(106
)
    
(106
)
    
(318
)
    
(318
)
Communities being  repositioned/leased up
    
(1
)
    
(14
)
    
(92
)
    
143
  
Adjusted CFFO
  
$
11,588
    
$
11,958
    
$
36,140
    
$
34,187