================================================================================
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 2002
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission file number 1-6868
SIENA HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 75-1043392
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5068 West Plano Parkway, Suite 300, Plano Texas 75093
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (972) 381-4255
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, par value $.10 per share Not applicable
Preferred Stock, par value $1.00 per share
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES |X| NO |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
At September 19, 2002 the aggregate market value of the registrant's
common stock held by non-affiliates: $3,561,000.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES |X| NO |_|
On October 10, 1995, the Registrant and Certain of its subsidiaries filed
bankruptcy proceedings under Chapter 11 of the Federal Bankruptcy Code in the
District of Delaware.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
The number of shares outstanding of the registrant's Common Stock, par
value $.10 per share, as of September 19, 2002: Common Stock -- 6,000,000
shares.
================================================================================
SIENA HOLDINGS, INC.
FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 2002
Table of Contents
Page
----
PART I
Item 1. BUSINESS............................................................3
Item 2. PROPERTIES..........................................................7
Item 3. LEGAL PROCEEDINGS...................................................7
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................7
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS..............................................8
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA................................9
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................10
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........13
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................14
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE..........................41
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................41
Item 11. EXECUTIVE COMPENSATION.............................................41
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.....42
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................42
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K...42
2
SIENA HOLDINGS, INC.
FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 2002
PART I
Item 1. BUSINESS
Siena Holdings, Inc. ("SHI"), formerly Lomas Financial Corporation
("LFC"), was incorporated in Delaware in 1960, and its principal executive
offices are located at 5068 West Plano Parkway, Suite 300 in Plano, Texas.
Unless the context otherwise requires, the "Company," as used herein, refers to
SHI, formerly LFC, and its subsidiaries. The Company is primarily engaged in two
businesses through its wholly-owned subsidiaries: assisted care facility
management through Siena Housing Management Corp. and real estate development
through LLG Lands, Inc. Prior to October 1, 1996, the Company's wholly-owned,
principal subsidiary was Lomas Mortgage USA, Inc. ("LMUSA"), now known as Nomas
Corp. ("Nomas"). As a result of the confirmation of LMUSA's Chapter 11
reorganization plan (see "Item 1. Business -- Reorganization"), the Company's
interest in LMUSA was extinguished effective October 1, 1996. LFC's plan of
reorganization was confirmed on October 4, 1996, but not effective until March
1997.
Financial Information and Narrative Description of Industry Segments
Financial information regarding revenues, operating profit and total assets
of the Company are included in "Item 8. Financial Statements and Supplementary
Data" within this report.
Investment in Real Estate
The Company's investment in real estate, owned by LLG, consists of 162.1
acres (approximately 138.0 acres net of flood plain) of unimproved land in
Allen, Texas (the "Allen property") as of June 30, 2002. The southern boundary
of the Allen property is the Exchange Parkway, which provides access to the
property from Central Expressway on the west and from Highway 5 on the east. As
of June 30, 2002, the Allen property included five tracts of land: one tract of
approximately 31.9 net acres zoned multi-family, one tract of approximately 77.2
net acres zoned light industrial (formerly single-family), two tracts of
approximately 24.2 net acres zoned commercial and one tract of 4.6 net acres
zoned residential. With a continuing view towards maximizing shareholder value,
management is attempting to have the one residential tract re-zoned as
commercial.
The acreage was increased by a total of 5.7 gross acres and 13.7 net acres
in fiscal year 2000 due to management's decision to reclaim a portion of the
flood plain acreage and the results of a new land survey that redefined the
boundaries. The Company was successful in fiscal year 1999 in re-zoning and
relocation of zoning in certain tracts. In the fourth quarter of fiscal year
2001, five acres of the multi-family property were successfully re-zoned as
light industrial. As disclosed in prior filings, the Company, with a continuing
view towards maximizing shareholder value, has undertaken an on-going program
involving the possible sale of all or part of the Allen property or its
continued development.
On October 30, 2000, the Company completed the sale of approximately 5.6
acres of one of the commercial properties to 75 Exchange Partners, LP, an
unaffiliated partnership. Net cash proceeds from the sale totaled $1.204 million
and the Company recorded a gain on sale of real estate of $828,000 in the second
quarter of fiscal year 2001, as previously reported in the Company's Statements
of Consolidated Operations and Comprehensive Income (Loss).
On February 23, 2001, the Company completed the sale of approximately 17.3
acres of property zoned light industrial to Crow Family Holdings Industrial
Texas, LP ("Crow Family Holdings"), an unaffiliated partnership. Net cash
proceeds from the sale totaled $1.251 million and the Company recorded a gain on
sale of real estate of
3
$945,000 in the quarter ended March 31, 2001, as previously reported in the
Company's Statements of Consolidated Operations and Comprehensive Income (Loss).
In addition, Crow Family Holdings acquired outstanding options, which expire 18
months from the original sale date, to purchase substantially all the remaining
light industrial property. On January 16, 2002, the Company received additional
cash proceeds of $36,000 from the real estate sale in February 2001,
representing the final settlement and proration of rollback taxes, reported as
additional gain on the sale of real estate in the Company's Statements of
Consolidated Operations and Comprehensive Income (Loss). There is no guarantee
that any sales will be consummated.
On February 22, 2002, the Company and Crow Family Holdings agreed to the
First Amendment to Sale Contract (the "First Amendment") which extends the
closing date on the sale of 14.25 acres of property zoned light industrial to on
or before August 22, 2002. In addition, the First Amendment extends the option
period to August 22, 2002, on all outstanding options. The Company received a
$125,000 non-refundable deposit, which is included in unearned income on the
Company's Consolidated Balance Sheets as of June 30, 2002. In the event a sale
was completed by August 23, 2002, $95,000 of the deposit was to be applied to
the purchase price. However, on August 23, 2002, the Company was informed that
Crow Family Holdings would not close on the transaction. The Company is
currently negotiating with Crow Family Holdings to revise its agreements. There
is no guarantee that any sales will be consummated.
In fiscal year 2001, the Company offset a portion of the income tax expense
due to the gain on sale of real estate against the existing deferred tax assets,
resulting in a decrease in the deferred tax assets. Approximately $20,000 of
alternative minimum tax expense was recorded by the Company for the year ended
June 30, 2001. The only portion of federal income tax expense that was paid by
the Company was the alternative minimum tax liability as a result of the
utilization of a portion of the Company's net operating loss carryforwards and
deductible temporary differences. There is no alternative minimum tax liability
as of June 30, 2002.
Based on the property sales described above, continuing negotiations on
other parcels and improved market conditions, management believes that the
Company would be able to sell the remaining Allen property for a value in excess
of the tax basis. As a result, the Company reported a net deferred tax asset
balance of $1.908 million as of June 30, 2002 and 2001, included in long term
assets on the Company's Consolidated Balance Sheets. Any tax benefits recognized
related to the valuation allowance for pre-reorganization deferred tax assets as
of June 30, 2002 will be allocated to additional paid-in capital.
The Company is involved in discussions and or entered into tentative
agreements to sell certain parcels of land, which it, in its best judgment,
considers to be reasonable and in the interests of its shareholders. However,
there can be no assurance that these or any future discussions and or tentative
agreements may lead to any real estate transactions, and when such transactions
might occur. These tentative agreements may not be completed due to various
uncertainties associated with ongoing negotiations and buyer due diligence
contingencies. Based on management's most recent estimates, any sales that might
result from these discussions and or tentative agreements as well as options
described above would result in a gain on sale for financial reporting purposes.
Assisted Care Facility Management
The assisted care facility management subsidiary, Siena Housing
Management Corp. ("SHM"), is a wholly-owned subsidiary of the Company, and
conducts business in Houston, Texas pursuant to a management agreement. SHM
manages and maintains an assisted care facility in Houston, Texas under a
management agreement into which it entered on June 27, 1977 with Treemont, Inc.
("Treemont"). SHM is entitled to receive a fee under the agreement which,
subject to a required annual priority distribution of project net income to
Treemont and certain adjustments and expenditures specified by the agreement, is
equal to 3% of the facility's gross receipts and 25% of the facility's net
income.
SHM may terminate the agreement on six months' written notice; however,
the termination date must fall on an anniversary of the date on which the
parties entered into the agreement. Treemont can only terminate the agreement
for cause or if Treemont fails to receive its required annual priority
distribution for two consecutive years. SHM has the right to extend the term of
the agreement from year to year in one-year increments until June
4
30, 2028. Unless the agreement is terminated or its term is extended as
described above, the agreement will terminate on June 30, 2003.
On January 4, 2001, the Company agreed to the First Amendment to Management
Agreement (the "First Amendment") with Treemont which specifies the terms for a
potential sale of the Treemont facility. SHM consented that the owners of
Treemont may sell the facility with absolute discretion and terminate the
Management Agreement in exchange for a graduated percentage of the net proceeds
(as defined) from the sale of the facility. The owners of Treemont agreed to
provide written notice of the commencement of any negotiations. During the
second quarter of fiscal year 2002, SHM was notified of the commencement of
negotiations by the Treemont owners with a prospective buyer. In the first
quarter of fiscal year 2002, SHM was informed that the owners of Treemont had
signed an agreement to sell the property. If a sale transaction is ultimately
concluded, SHM shall not be obligated to terminate the Management Agreement if
SHM does not receive at least $2 million as its share of the proceeds. Based
upon the terms of the sale agreement, the payment to SHM could be as much as
$2.5 million, if current costs of sale estimates are correct. The sales
agreement has certain significant due diligence, financing and insurance
requirements. As a result of these significant requirements, there can be no
assurance that the sale transaction will, in fact, close.
Employees
At June 30, 2002, the Company had two executive officers under contract and
one full-time employee. One of the Company's subsidiaries, SHM, had 141
full-time and 20 part-time employees who provide services at an assisted care
facility in Houston, Texas. The compensation expense and all operating expenses
for SHM's employees are funded directly by the assisted care facility owner and
are not reflected in the Statements of Consolidated Operations and Comprehensive
Income (Loss), except indirectly through the management fee income received by
SHM based in part on the facility's net income. The exception is the
compensation for the operations manager of the facility, including commission
and bonus, which is funded directly by SHM and included in personnel expense on
the Company's Statements of Consolidated Operations and Comprehensive Income
(Loss).
Reorganization
On October 10, 1995, LFC, two subsidiaries of LFC and LMUSA (collectively
the "Debtor Corporations") filed separate voluntary petitions for reorganization
under Chapter 11 of the Federal Bankruptcy Code in the District of Delaware. The
petitioning subsidiaries were Lomas Information Systems, Inc. ("LIS") and Lomas
Administrative Services, Inc. ("LAS"). The Debtor Corporations filed two
separate plans of reorganization with the Bankruptcy Court. An order confirming
the second amended joint plan of reorganization filed on October 4, 1996 for
LFC, LIS and LAS (the "Joint Debtors") and a stipulation and order among the
Joint Debtors and the appointed statutory committee of unsecured creditors of
LFC (the "LFC Creditors' Committee") regarding technical modifications to the
plan of reorganization and confirmation order filed on January 27, 1997 together
with the second amended joint plan of reorganization filed on July 3, 1996 are
collectively referred to herein as the "Joint Plan". The Joint Plan was
confirmed on October 4, 1996, but not effective until March 7, 1997, after
certain conditions were either met or waived by the LFC Creditors' Committee.
The Joint Plan provided for a transfer by the Company of $3 million in cash
to partially fund a litigation trust to pursue third-party claims pursuant to
the LFC/LMUSA joint litigation trust agreement among LFC and its subsidiaries
and LMUSA, dated March 6, 1997 (the "LFC/LMUSA Litigation Trust"). Subject to
certain exceptions, the LFC Creditors' Trust (as defined herein) and the
creditors' trust established pursuant to the LMUSA Plan will receive sixty and
forty percent, respectively, of net proceeds from litigation. In March 2000, the
LFC Creditors' Trust received $7.1 million of net proceeds from the LFC/LMUSA
Litigation Trust resulting from litigation.
The Class 3 general unsecured creditors were to receive a combination of
cash and new common stock as settlement of their allowed claim, pursuant to the
Joint Plan. On November 12, 1997, the initial distribution date (the "Initial
Distribution Date"), $12.5 million was disbursed to the distribution agent for
the Class 3 unsecured creditors. Additional cash distributions in the amounts of
$6.2 million, $4.3 million, $8.1 million and $1.2 million were disbursed to the
distribution agent for benefit of the Class 3 unsecured creditors on May 11,
1998, April 21, 1999, April 24, 2000 and February 16, 2001, respectively,
bringing the total cash distributed through June 30, 2002
5
to $32.3 million. On August 30, 2002, the remaining assets of the Creditors'
Trust were liquidated and contingent liabilities were reserved for resulting in
a final net distribution to the distribution agent in the amount of $1.7
million, for ultimate distribution to the beneficiaries of the Creditors' Trust.
The amounts ultimately distributed to the former creditors are solely dependent
on the success of the Company, the amounts realized from the collection of
assets and the settlement of liabilities for both the Creditors' Trust and the
LFC/LMUSA Litigation Trust.
As provided for in the Joint Plan and a decision of the LFC Creditors'
Committee, 4,000,000 shares of the new common stock were issued by the stock
transfer agent on the initial distribution date of November 12, 1997. For
balance sheet presentation and earnings (loss) per share, the 4,000,000 shares
were considered issued as of April 1, 1997. As of March 7, 1999, the stock
distribution agent had distributed 3,822,121 shares of the new common stock to
former creditors. In the second quarter of fiscal year 2000, the stock
distribution agent distributed the final 177,879 shares to all allowed creditors
that had received prior stock distributions.
On November 5, 1998, the Company received $2.2 million from the Company's
Chairman of the Board ($2.102 million net of stock offering expenses) in
exchange for 2 million shares of the Company's common stock, as approved by the
Company's Board of Directors on September 23, 1998. This transaction increased
the number of outstanding shares of common stock to 6 million. See "Item 8.
Financial Statements and Supplementary Data--Stockholders' Equity" footnote.
THE 6,000,000 SHARES OF THE NEW COMMON STOCK ARE RESTRICTED IF THE EFFECT
OF A TRANSFER WOULD RESULT IN AN OWNERSHIP INCREASE TO 4.5 PERCENT OR ABOVE OF
THE TOTAL OUTSTANDING SHARES OR FROM 4.5 PERCENT TO A GREATER PERCENTAGE OF THE
TOTAL OUTSTANDING SHARES, WITHOUT PRIOR APPROVAL BY THE BOARD OF DIRECTORS AS
DESCRIBED IN THE RESTATED CERTIFICATE OF INCORPORATION. SEE EXHIBITS TO THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30, 1997.
THE LFC CREDITORS TRUST AND ANY PROCEEDS FROM THE LFC/LMUSA LITIGATION
TRUST ARE SOLELY FOR THE BENEFIT OF THE FORMER CREDITORS OF THE JOINT DEBTORS.
STOCKHOLDERS WILL NOT BENEFIT FROM THESE TRUSTS UNLESS THEY HELD CLASS 3 -
GENERAL UNSECURED CLAIMS AS DEFINED IN THE JOINT PLAN.
Reference is made to "III. Background and General Information -- E. The
Chapter 11 Filings" in the Joint Disclosure Statement, a copy of which is filed
as an exhibit to the Company's annual report on Form 10-K for the year ended
June 30, 1996, for more information on the Company's reorganization. The
principal provisions of the Joint Plan are summarized in the Joint Disclosure
Statement. That summary is qualified in its entirety by reference to the Joint
Plan, which is attached as Exhibits I and II to the Joint Disclosure Statement.
Creditors' Trust
The Joint Plan established a creditors' trust (the "Creditors' Trust") for
which the Company serves as trustee. The Creditors' Trust holds the
non-reorganized assets of the Company in trust pending their disposition and/or
distribution to creditors in accordance with the terms of the Joint Plan. The
Creditors' Trust was organized for the sole purpose of liquidating the
non-reorganized assets, including proceeds, if any from the LFC/LMUSA Litigation
Trust. The original termination date of the Creditors' Trust was March 7, 2002,
however, through a series of extensions, the original termination date has been
extended until September 3, 2002 and the Company has requested the Bankruptcy
Court extend the termination date through November 2, 2002. On August 30, 2002,
the remaining assets of the Creditors' Trust were liquidated and contingent
liabilities were reserved for resulting in a final net distribution to the
distribution agent in the amount of $1.7 million, for ultimate distribution to
the beneficiaries of the Creditors' Trust. It is expected that the Creditors'
Trust will be terminated with Bankruptcy Court approval by November 2, 2002.
The assets and liabilities of the Creditors' Trust are not reflected in the
accompanying Consolidated Balance Sheets as the Company is not the beneficiary
of the Trust. Accordingly, revenues and expenses related to the Creditors' Trust
assets and liabilities since April 1, 1997, are not reflected in the
accompanying Statements of Consolidated Operations and Comprehensive Income
(Loss). The allocation of costs between the Creditors' Trust
6
and the Company is based on management's estimate of each entity's proportional
share of costs. Gains and losses from the Creditors' Trust are solely for the
former creditors' benefit and the Company has no risk of loss on the assets or
liabilities. The amounts ultimately distributed to the former creditors are
solely dependent on the success of the Company, the amounts realized from the
collection of assets, and settlement of liabilities for both the Creditors'
Trust and the LFC/LMUSA Litigation Trust. See "Item 8. Financial Statements and
Supplementary Data - Creditors' Trust" for more information. Stockholders who
are not former creditors of the Joint Debtors are not beneficiaries of the
Creditors' Trust.
THE LFC CREDITORS TRUST AND ANY PROCEEDS FROM THE LFC/LMUSA LITIGATION
TRUST ARE SOLELY FOR THE BENEFIT OF THE FORMER CREDITORS OF THE JOINT DEBTORS.
STOCKHOLDERS WILL NOT BENEFIT FROM THESE TRUSTS UNLESS THEY HELD CLASS 3 -
GENERAL UNSECURED CLAIMS AS DEFINED IN THE JOINT PLAN. See "Item 1. Business --
Reorganization".
Item 2. PROPERTIES
The Company's principal executive offices are located in leased facilities
at 5068 West Plano Parkway, Suite 300 in Plano, Texas. The original lease for
six months expired on August 15, 1998, after which the Company is operating
under a month-to-month lease with a 30-day cancellation notice.
Item 3. LEGAL PROCEEDINGS
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on December 14, 2001,
in Wilmington, Delaware for the following purposes:
1. To elect five directors (John P. Kneafsey, Eric M. Bodow, James D.
Kemp, Matthew S. Metcalfe, and Frank B. Ryan) to serve until the next annual
meeting and until their successors are elected and qualified.
--------------------------------------------------------------------------
VOTING
--------------------------------------------------------------------------
Nominees for Number of Shares Number of Shares Number of Shares
Director For Against Abstained
--------------------------------------------------------------------------
John P. Kneafsey 5,282,332 0 3,333
Erik M. Bodow 5,196,488 0 89,177
James D. Kemp 5,196,488 0 89,177
Matthew S.Metcalfe 5,282,491 0 3,174
Frank B. Ryan 5,196,488 0 89,177
--------------------------------------------------------------------------
2. To ratify the appointment of KPMG LLP as independent public accountants
for the Company for the fiscal year ended June 30, 2002.
--------------------------------------------------------------------------
VOTING
--------------------------------------------------------------------------
Number of Shares Number of Shares Number of Shares Number of Broker
For Against Abstained Non-Votes
--------------------------------------------------------------------------
5,280,838 4,686 141 0
--------------------------------------------------------------------------
7
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of June 30, 2002 and 2001, the Company had 15,000,000 shares of $.10
par value common stock authorized, with 6,000,000 shares issued and outstanding.
Pursuant to the Joint Plan and a decision by the LFC Creditors' Committee,
4,000,000 shares of common stock were reserved for issuance on April 1, 1997 and
ultimately issued by the stock transfer agent on November 12, 1997. For balance
sheet presentation and earnings (loss) per share, the 4,000,000 shares were
considered issued as of April 1, 1997. The process by the stock distribution
agent resulted in 3,822,121 shares of common stock actually distributed to
former creditors through March 7, 1999, the deadline for exchanging predecessor
company bonds for common stock. In the second quarter of fiscal year 2000, the
stock distribution agent distributed the final 177,879 shares, including shares
held for disputed claims, to all allowed creditors that had received prior stock
distributions. The common stock has no preemptive or other subscription rights
and there are no conversion rights, redemption or sinking fund provisions with
respect to such shares.
On November 5, 1998, the Company received $2.2 million from the Company's
Chairman of the Board ($2.102 million net of stock offering expenses) in
exchange for 2 million shares of the Company's common stock, as approved by the
Company's Board of Directors on September 23, 1998. This transaction increased
the number of outstanding shares of common stock to 6 million. See "Item 8.
Financial Statements and Supplementary Data--Stockholders' Equity" footnote.
SHI's common stock, with a trading symbol of SIEN, is traded in the over
the counter market. During the last two fiscal years, the high and low prices
and dividends declared on common stock per share have been (in dollars):
Year ended June 30, 2002 Year ended June 30, 2001
------------------------------ ----------------------------
High Low Dividends High Low Dividends
-------- ------- --------- -------- ------- ---------
First Quarter............... 1.41 1.16 -- 1.59 1.03 --
Second Quarter.............. 1.46 1.18 -- 1.63 1.19 --
Third Quarter............... 1.60 1.22 -- 1.50 1.19 --
Fourth Quarter.............. 1.48 1.22 -- 1.50 1.07 --
The Company, as of June 30, 2002 and 2001, had 1,000,000 shares of $1.00
par value preferred stock authorized, with 0 shares issued and outstanding.
(remainder of page intentionally left blank)
8
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
SIENA HOLDINGS, INC. AND SUBSIDIARIES
Year Ended June 30,
--------------------------------------------------------
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
(in thousands, except per share data)
Statement of Operations Data:
Revenues from operations ................... $ 503 $ 2,701 $ 872 $ 1,002 $ 1,410
Income (loss) from operations before federal
income tax .............................. (318) 1,437 82 52 72
Federal income tax expense ................. -- 503 29 18 25
Net income (loss) .......................... (318) 934 53 34 47
Basic earnings (loss) per share:
Net income (loss) ...................... (0.05) 0.16 0.01 0.01* 0.01*
Average number of shares ............... 6,000 6,000 6,000 5,304 4,000
Diluted earnings (loss) per share:
Net income (loss) ...................... (0.05) 0.15 0.01 0.01* 0.01*
Average number of share ................ 6,000** 6,126 6,106 5,333 4,044
As of June 30,
--------------------------------------------------------
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
(in thousands)
Balance Sheet Data:
Cash ....................................... $ 5,711 $ 5,914 $ 4,088 $ 4,111 $ 2,475
Investment in real estate .................. 4,656 4,570 4,949 4,879 4,800
Deferred tax assets--net ................... 1,908 1,908 1,441 1,175 --
Total assets ............................... 12,593 12,743 10,632 10,420 7,448
Total liabilities .......................... 1,129 1,011 779 931 1,305
Total stockholders' equity ................. 11,464 11,732 9,853 9,489 6,143
* Per share amounts for Reorganized Company are based on shares issued or
reserved for issuance to creditors.
** Potentially dilutive common shares of 135,000 are not included in the
computation of the dilutive per share amount due to the net loss.
9
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Statements contained herein that are not purely historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
but not limited to statements regarding the Company's expectations, hopes,
beliefs, intentions or strategies regarding the future. Actual results could
differ materially from those projected in any forward-looking statements as a
result of a number of factors, including those detailed in this Management's
Discussion and Analysis of Financial Condition and Results of Operations, as
well as those set forth elsewhere herein. The forward-looking statements are
made as of the date of these financial statements and the Company undertakes no
obligation to update or revise the forward-looking statements, or to update the
reasons why actual results could differ materially from those projected in the
forward-looking statements.
The operating results of the Company during the years ended June 30,
2002, 2001, and 2000, were as follows (in thousands):
Years ended June 30,
--------------------------------
2002 2001 2000
-------- -------- --------
Operating income (loss):
Assisted care management ................. $ 161 $ 142 $ 210
Real estate ............................. 15 1,815 (12)
Other .................................... 177 633 510
-------- -------- --------
353 2,590 708
-------- -------- --------
Expenses:
General and administrative .............. (671) (1,153) (626)
-------- -------- --------
Income (loss) before federal income tax .... (318) 1,437 82
Federal income tax expense ................. -- (503) (29)
-------- -------- --------
Net income (loss) ..................... $ (318) $ 934 $ 53
======== ======== ========
Results of Operations--Year Ended June 30, 2002 Compared with Year Ended June
30, 2001
Assisted Care Management. SHM manages and maintains an assisted care
facility in Houston, Texas under a management agreement into which it entered on
June 27, 1977 with Treemont. See "Item 1. Business--Assisted Care Facility
Management" for more information on the management agreement. Operating income
from the assisted care management operations increased from $142,000 for the
year ended June 30, 2001 to $161,000 for the year ended June 30, 2002, primarily
due to a decrease in general and administrative expenses of SHM, including
professional fees and travel expenses.
On January 4, 2001, the Company agreed to the First Amendment to
Management Agreement (the "First Amendment") with Treemont which specifies the
terms for a potential sale of the Treemont facility. SHM consented that the
owners of Treemont may sell the facility with absolute discretion and terminate
the Management Agreement in exchange for a graduated percentage of the net
proceeds (as defined) from the sale of the facility. The owners of Treemont
agreed to provide written notice of the commencement of any negotiations. During
the second quarter of fiscal year 2002, SHM was notified of the commencement of
negotiations by the Treemont owners with a prospective buyer. In the first
quarter of fiscal year 2002, SHM was informed that the owners of Treemont had
signed an agreement to sell the property. If a sale transaction is ultimately
concluded, SHM shall not be obligated to terminate the Management Agreement if
SHM does not receive at least $2 million as its share of the proceeds. Based
upon the terms of the sale agreement, the payment to SHM could be as much as
$2.5 million, if current costs of sale estimates are correct. The sales
agreement has certain significant due diligence, financing and insurance
requirements. As a result of these significant requirements, there can be no
assurance that the sale transaction will, in fact, close.
10
Real Estate. The Company's investment in real estate, owned by LLG,
consists of 162.1 acres (approximately 138.0 acres net of flood plain) of
unimproved land in Allen, Texas (the "Allen property") as of June 30, 2002. The
southern boundary of the Allen property is the Exchange Parkway, which provides
access to the property from Central Expressway on the west and from Highway 5 on
the east. As of June 30, 2002, the Allen property included five tracts of land:
one tract of approximately 31.9 net acres zoned multi-family, one tract of
approximately 77.2 net acres zoned light industrial (formerly single-family),
two tracts of approximately 24.2 net acres zoned commercial and one tract of 4.6
net acres zoned residential.
In the fourth quarter of fiscal year 2001, five acres of the multi-family
property was successfully re-zoned as light industrial. With a continuing view
towards maximizing shareholder value, management is attempting to have the one
residential tract re-zoned as commercial. As disclosed in prior filings, the
Company, with a continuing view towards maximizing shareholder value, has
undertaken an on-going program involving the possible sale of all or part of the
Allen property or its continued development.
On October 30, 2000, the Company completed the sale of approximately 5.6
acres of one of the commercial properties to 75 Exchange Partners, LP, an
unaffiliated partnership. Net cash proceeds from the sale totaled $1.204 million
and the Company recorded a gain on sale of real estate of $828,000 in the second
quarter of fiscal year 2001, as previously reported in the Company's Statements
of Consolidated Operations and Comprehensive Income (Loss).
On February 23, 2001, the Company completed the sale of approximately 17.3
acres of property zoned light industrial to Crow Family Holdings Industrial
Texas, LP("Crow Family Holdings"), an unaffiliated partnership. Net cash
proceeds from the sale totaled $1.251 million and the Company recorded a gain on
sale of real estate of $945,000 in the quarter ended March 31, 2001, as
previously reported in the Company's Statements of Consolidated Operations and
Comprehensive Income (Loss). In addition, Crow Family Holdings acquired
outstanding options, which expire 18 months from the original sale date, to
purchase substantially all the remaining light industrial property. On January
16, 2002, the Company received additional cash proceeds of $36,000 from the real
estate sale in February 2001, representing the final settlement and proration of
rollback taxes, reported as additional gain on the sale of real estate in the
Company's Statements of Consolidated Operations and Comprehensive Income (Loss).
There is no guarantee that any sales will be consummated.
On February 22, 2002, the Company and Crow Family Holdings agreed to the
First Amendment to Sale Contract (the "First Amendment") which extends the
closing date on the sale of 14.25 acres of property zoned light industrial to on
or before August 22, 2002. In addition, the First Amendment extends the option
period to August 22, 2002, on all outstanding options. The Company received a
$125,000 non-refundable deposit, which is included in unearned income on the
Company's Consolidated Balance Sheets as of June 30, 2002. In the event a sale
was completed by August 23, 2002, $95,000 of the deposit was to be applied to
the purchase price. However, on August 23, 2002, the Company was informed that
Crow Family Holdings would not close on the transaction. The Company is
currently negotiating with Crow Family Holdings to revise its agreements. There
is no guarantee that any sales will be consummated.
In fiscal year 2001, the Company offset a portion of the income tax
expense due to the gain on sale of real estate against the existing deferred tax
assets, resulting in a decrease in the deferred tax assets. Approximately
$20,000 of alternative minimum tax expense was recorded by the Company for the
year ended June 30, 2001. The only portion of federal income tax expense that
was paid by the Company was the alternative minimum tax liability as a result of
the utilization of a portion of the Company's net operating loss carryforwards
and deductible temporary differences. There is no alternative minimum tax
liability as of June 30, 2002.
Based on the property sales described above, continuing negotiations on
other parcels and improved market conditions, management believes that the
Company would be able to sell the remaining Allen property for a value in excess
of the tax basis. As a result, the Company reported a net deferred tax asset
balance of $1.908 million as of June 30, 2002 and 2001, included in long term
assets on the Company's Consolidated Balance Sheets. Any tax benefits recognized
related to the valuation allowance for pre-reorganization deferred tax assets as
of June 30, 2002 will be allocated to additional paid-in capital.
The Company is involved in discussions and or entered into tentative
agreements to sell certain parcels of land, which it, in its best judgment,
considers to be reasonable and in the interests of its shareholders. However,
there can be no assurance that these or any future discussions and or tentative
agreements may lead to any real estate transactions, and when such transactions
might occur. These tentative agreements may not be completed due to various
uncertainties associated with ongoing negotiations and buyer due diligence
contingencies. Based on
11
management's most recent estimates, any sales that might result from these
discussions and or tentative agreements as well as options described above would
result in a gain on sale for financial reporting purposes.
The operating income for fiscal year 2002 is significantly lower than the
prior fiscal year as a result of the two real estate sales described above
accounting for $1.773 million of the $1.815 million real estate operating income
in fiscal year 2001. During fiscal year 2002, improvement costs of $86,000
related to developing the property were capitalized in accordance with the
Company's capitalization policy, as compared to $303,000 of costs that were
capitalized during fiscal year 2001. Of the $303,000 improvement costs in fiscal
year 2001, the Company capitalized $102,000 of property taxes paid on a portion
of the commercial real estate property. The remainder of the increase over the
prior year is due to work performed related to the flood plain recovery project
and the re-zoning project. The costs related to the re-zoning, marketing and
developing the property will continue, some of which may be capitalized.
Other Income. The Company reported other operating income of $177,000 for
the year ended June 30, 2002, as compared to $633,000 for the year ended June
30, 2001, including reimbursements from the Creditors' Trust of $96,000 and
$415,000 for fiscal year 2002 and 2001, respectively, for an overhead allocation
based upon management's estimate of resources used by the Creditors' Trust. The
trust expense reimbursement income for fiscal year 2001 included $238,000 for
success bonuses paid to the Company pursuant to existing compensation plans for
the directors and officers. This amount included $212,000 paid as a result of
the proceeds received by the Creditors' Trust in March 2000 from the LFC/LMUSA
Litigation Trust resulting from litigation. The remainder of the other operating
income is primarily corporate interest income, including interest related to the
directors' deferred compensation plan, of $73,000 and $203,000 for fiscal year
2002 and 2001, respectively, which is lower in fiscal year 2002 due to lower
interest rates.
General and Administrative Expenses. The Company reported a decrease in
general and administrative expenses from $1.153 million for the year ended June
30, 2001 to $671,000 for the year ended June 30, 2002. Fiscal year 2001 expenses
included additional compensation expense of $75,000 and $375,000 related to
success bonuses paid to the directors and officers, respectively, pursuant to
existing compensation plans. In fiscal year 2001, the Company was reimbursed by
the Creditors' Trust for $238,000 of the total success bonuses earned by the
directors and officers included in revenue on the Company's Consolidated
Statements of Operations and Comprehensive Income (Loss). See "Stock and
Compensation Plans" footnote for further information. Additionally, the Company
reported decreases in professional fees, directors' fees and franchise taxes.
In connection with the reorganization in March 1997, the Company agreed to
assume the pre-petition liability to provide certain employees of a former
subsidiary and their spouses with medical insurance. The total amount of the
liability was estimated using a life expectancy age of 90, an annual health care
cost increase rate of approximately 5% and a discount rate of approximately
6.5%. As of June 30, 2002 and 2001, the Company had an accrued liability
established for payments to be made to 27 people to be used toward the payment
of insurance. As of June 30, 2002 and 2001, the current portion of the accrual
for medical insurance premiums is $81,000 and $54,000, respectively, and the
long term liability amount, included in long term liabilities on the Company's
Consolidated Balance Sheets, is $392,000 and $447,000, respectively. The current
portion of accrued medical insurance premiums is higher as of June 30, 2002, as
compared to June 30, 2001, because payments have not been made since December
2001.
Results of Operations--Year Ended June 30, 2001 Compared with Year Ended June
30, 2000
Assisted Care Management. Operating income from the assisted care
management operations decreased from $210,000 for the year ended June 30, 2000,
to $142,000 for the year ended June 30, 2001, primarily due to a decrease in the
management fee received by SHM as a result of higher expenses reported by
Treemont.
Real Estate. Real estate operating income for fiscal year 2001 was
significantly higher than in fiscal year 2000 primarily due to the two real
estate sales that occurred during fiscal year 2001 as previously discussed.
Improvement costs of $303,000 related to developing the property were
capitalized during fiscal year 2001 in accordance with the Company's
capitalization policy, as compared to $70,000 of costs that were capitalized
during fiscal year 2000. The costs were higher in fiscal year 2001 as a result
of property taxes paid on a portion of the commercial real estate property and
special work performed related to the flood plain recovery project and the
re-zoning project.
Other Income. The Company reported other operating income of $633,000 for
the year ended June 30, 2001, as compared to $510,000 for the year ended June
30, 2000, including reimbursements from the Creditors' Trust of $415,000 and
$210,000 for fiscal year 2001 and 2000, respectively, for an overhead allocation
based upon
12
management's estimate of resources used by the Creditors' Trust. In addition,
the Company reported $80,000 of other income in fiscal year 2000 resulting from
a decrease in the long term accrued medical insurance premiums liability. The
remainder of the other operating income is primarily corporate interest income,
including interest related to the directors' deferred compensation plan, of
$203,000 and $214,000 for fiscal year 2001 and 2000, respectively.
General and Administrative Expenses. General and administrative expenses
increased from $626,000 for the year ended June 30, 2000 to $1.153 million for
the year ended June 30, 2001. The increase is primarily attributable to
additional compensation expense of $75,000 and $375,000 related to success
bonuses paid to the directors and officers, respectively, pursuant to existing
compensation plans. In fiscal year 2001, the Company was reimbursed by the
Creditors' Trust for $238,000 of the total success bonuses earned by the
directors and officers included in revenue on the Company's Consolidated
Statements of Operations and Comprehensive Income (Loss). See "Stock and
Compensation Plans" footnote for further information. Additionally, the Company
reported an increase in corporate insurance expense of $20,000, an increase in
professional, legal and accounting fees of $35,000, and a $9,000 increase in
interest expense related to the directors' deferred compensation plan.
See "Item 8. Financial Statements and Supplementary Data" for more
information.
Liquidity and Capital Resources
As of June 30, 2002, the only liabilities of the Company were accounts
payable and other accrued expenses which will be paid from current operating
cash available as of June 30, 2002.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Some of the assets and liabilities by
their nature are more subject to estimates and assumptions. For the Company, the
amount of the net deferred tax asset balance reported on the Company's
Consolidated Balance Sheets is based on management's most recent estimated value
of the investment in real estate in excess of the related tax basis. Such
estimate could change in the future based on the occurrence of one or more
future events.
The Company's liability for accrued medical insurance premiums was
estimated using a life expectancy age of 90, an annual health cost care increase
rate of approximately 5% and a discount rate of approximately 6.5%. Such
estimate could change in the future based on the occurrence of one or more
future events.
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to potential fluctuations in operations and the
fair value of certain of its assets, as well as variations in expected cash
flows due to changes in market interest rates and equity prices. On December 15,
2000, the Company's board of directors authorized the use of up to 20% of the
Company's cash for the investment in equity securities, with no more than 50%
invested in any one company. The investment in equity securities exposes the
Company to general market risks. As of June 30, 2002, the amount invested in
equity securities is $217,000 with realized losses for an other than temporary
decline in value recorded as of June 30, 2002, in the amount of $41,000 for a
net investment at adjusted cost basis of $176,000. The investments had a fair
market value of $197,000 as of June 30, 2002. The securities are classified as
available-for-sale and reported on the Company's Consolidated Balance Sheets at
fair market value with the unrealized holding (gain) loss included, net of tax,
in accumulated other comprehensive (income) loss, a component of stockholders'
equity. Realized gains (losses) are reported as revenue in the Company's
Consolidated Statements of Consolidated Operations and Comprehensive Income
(Loss). Realized losses for other than temporary decline in value are reported
in the Company's Statements of Consolidated Operations and Comprehensive Income
(Loss).
13
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Siena Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Siena
Holdings, Inc. and subsidiaries, (the "Company") as of June 30, 2002 and 2001,
and the related statements of consolidated operations and comprehensive income
(loss), stockholders' equity, and cash flows for each of the years in the
three-year period ended June 30, 2002. In connection with our audits of the
consolidated financial statements, we have also audited the financial statement
schedules, Schedule I -- Condensed Financial Information of Registrant as of
June 30, 2002 and 2001 and for each of the years in the three-year period ended
June 30, 2002 and Schedule III -- Real Estate and Accumulated Depreciation as of
June 30, 2002, 2001 and 2000. These consolidated financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the financial position of Siena
Holdings, Inc. and subsidiaries, as of June 30, 2002 and 2001, and the results
of their operations and their cash flows for each of the years in the three-year
period ended June 30, 2002, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion the related
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects, the information set forth therein.
KPMG LLP
Dallas, Texas
August 30, 2002
14
CONSOLIDATED BALANCE SHEETS
SIENA HOLDINGS, INC. AND SUBSIDIARIES
(in thousands, except par value)
June 30,
-------------------
2002 2001
-------- --------
ASSETS
Current Assets:
Cash and cash equivalents ................................. $ 5,711 $ 5,914
Investments in equity securities .......................... 197 139
Receivables ............................................... 93 73
Prepaid expenses .......................................... 28 139
-------- --------
6,029 6,265
-------- --------
Long Term Assets:
Investment in real estate ................................. 4,656 4,570
Deferred tax assets--net .................................. 1,908 1,908
-------- --------
6,564 6,478
-------- --------
Total Assets ......................................... $ 12,593 $ 12,743
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses ..................... $ 160 $ 158
Unearned income .......................................... 125 --
Deferred tax liabilities ................................. 7 --
-------- --------
292 158
-------- --------
Long Term Liabilities:
Accrued medical insurance premiums ........................ 392 447
Deferred compensation and fees ............................ 444 406
-------- --------
836 853
-------- --------
1,128 1,011
-------- --------
Stockholders' Equity:
Preferred stock--($1.00 par value, 1,000 shares authorized,
0 shares issued and outstanding) ...................... -- --
Common stock--($.10 par value, 15,000 shares authorized,
6,000 shares issued and outstanding) .................. 600 600
Additional paid-in capital ................................ 10,188 10,164
Retained earnings ......................................... 664 982
Accumulated other comprehensive income (loss), net of tax.. 13 (14)
-------- --------
11,465 11,732
-------- --------
Total Liabilities and Stockholders' Equity ........... $ 12,593 $ 12,743
======== ========
See notes to consolidated financial statements.
15
STATEMENTS OF CONSOLIDATED OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
SIENA HOLDINGS, INC. AND SUBSIDIARIES
(in thousands, except per share amounts)
Years ended June 30,
---------------------------------
2002 2001 2000
-------- -------- --------
Revenues:
Commissions and fees ...................................... $ 255 $ 250 $ 360
Interest .................................................. 109 246 214
Trust expense reimbursement ............................... 96 415 210
Gain on sale of real estate ............................... 36 1,773 --
Gain on sale of equity securities ......................... -- 1 --
Other ..................................................... 7 16 88
-------- -------- --------
503 2,701 872
-------- -------- --------
Expenses:
Personnel ................................................. 361 724 382
Other operating ........................................... 419 540 408
Other than temporary losses on equity securities .......... 41 -- --
-------- -------- --------
821 1,264 790
-------- -------- --------
Income (loss) from operations before federal income tax ...... (318) 1,437 82
Federal income tax expense ................................... -- (503) (29)
-------- -------- --------
Net income (loss) ............................................ (318) 934 53
-------- -------- --------
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on equity securities:
Unrealized holding gains (losses) arising during period 1 (13) --
Add: reclassification adjustment for other than
temporary losses included in net income (loss).. 26 -- --
Less: reclassification adjustment for gains
included in net income (loss) .................. -- (1) --
-------- -------- --------
Other comprehensive income (loss), net of tax.............. 27 (14) --
-------- -------- --------
Comprehensive Income (Loss) .................................. $ (291) $ 920 $ 53
======== ======== ========
Basic earnings (loss) per share:
Net income (loss) ......................................... $ (0.05) $ 0.16 $ 0.01
Average number of shares .................................. 6,000 6,000 6,000
Diluted earnings (loss) per share:
Net income (loss) ......................................... $ (0.05) $ 0.15 $ 0.01
Average number of shares .................................. 6,000* 6,126 6,106
* Potentially dilutive common shares of 135,000 are not included in the
computation of the dilutive per share amount due to the net loss.
See notes to consolidated financial statements.
16
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
SIENA HOLDINGS, INC. AND SUBSIDIARIES
Years Ended June 30, 2002, 2001, and 2000
(in thousands)
Accumulated
Common Additional Retained Other
Shares Common Paid-in Earnings Comprehensive
Outstanding Stock Capital (Deficit) Income (Loss) Total
----------- --------- --------- --------- ------------- ---------
Balance at June 30, 1999 .......................... 6,000 $ 600 $ 8,894 $ (5) $ -- $ 9,489
Net income for the year ended June 30, 2000 ....... 53 -- 53
Utilization of tax benefits of pre-reorganization
net operating loss carryforwards and
deductible temporary differences ............. -- -- 46 -- -- 46
Decrease in valuation allowance attributable
to pre-reorganization net operating loss
carryforwards ................................ -- -- 249 -- -- 249
Issuance of stock options ......................... -- -- 16 -- -- 16
--------- --------- --------- --------- --------- ---------
Balance at June 30, 2000 .......................... 6,000 600 9,205 48 -- 9,853
--------- --------- --------- --------- --------- ---------
Net income for the year ended June 30, 2001 ....... -- -- -- 934 -- 934
Net unrealized holding losses on equity securities,
net of tax ................................... -- -- -- -- (13) (13)
Reclassification adjustment for gains included
in net income ................................ -- -- -- -- (1) (1)
Utilization of tax benefits of pre-reorganization
net operating loss carryforwards and
deductible temporary differences ............. -- -- 602 -- -- 602
Decrease in valuation allowance attributable
to pre-reorganization net operating loss
carryforwards ................................ -- -- 341 -- -- 341
Issuance of stock options ......................... -- -- 16 -- -- 16
--------- --------- --------- --------- --------- ---------
Balance at June 30, 2001 .......................... 6,000 600 10,164 982 (14) 11,732
--------- --------- --------- --------- --------- ---------
Net loss for the year ended June 30, 2001 ......... -- -- -- (318) -- (318)
Net unrealized holding gains on equity securities,
net of tax ................................... -- -- -- -- 1 1
Reclassification adjustment for other than
temporary losses included in net loss, net of
tax .......................................... -- -- -- -- 26 26
Issuance of stock options ......................... -- -- 16 -- -- 16
Other ............................................. -- -- 8 -- -- 8
--------- --------- --------- --------- --------- ---------
Balance at June 30, 2002 .......................... 6,000 $ 600 $ 10,188 $ 664 $ 13 $ 11,465
========= ========= ========= ========= ========= =========
See notes to consolidated financial statements.
17
STATEMENTS OF CONSOLIDATED CASH FLOWS
SIENA HOLDINGS, INC. AND SUBSIDIARIES
(in thousands)
Years ended June 30,
----------------------------------
2002 2001 2000
-------- -------- --------
Operating activities:
Net income (loss) ...................................................... $ (318) $ 934 $ 53
Adjustments to reconcile net income (loss) to cash provided (used)
by operations:
Federal income tax expense charged to additional paid-in-capital
due to the utilization of pre-reorganization tax attributes ...... -- 602 46
Increase in deferred tax / decrease in federal income tax
expense relating to post-reorganization tax attributes ........... -- (119) (17)
Compensation expense for stock options .............................. 16 16 16
Gain on sale of real estate ......................................... (36) (1,773) --
Gain on sale of equity securities ................................... -- (1) --
Other than temporary losses on equity securities .................... 41 -- --
(Increase) decrease in current receivables and prepaid expenses ..... 91 (58) 101
Increase (decrease) in current accounts payable and accrued
expenses ......................................................... 2 (3) (69)
Increase in unearned income ......................................... 125 -- --
Decrease in long term accrued medical insurance premiums ............ (55) (69) (133)
Increase in long term deferred compensation and fees ................ 38 304 50
-------- -------- --------
Net cash provided (used) by operating activities .............. (96) (167) 47
-------- -------- --------
Investing activities:
Purchases of equity securities ...................................... (57) (166) --
Sale of equity securities ........................................... -- 7 --
Sale of real estate ................................................. 36 2,455 --
Increase in investment in real estate ............................... (86) (303) (70)
-------- -------- --------
Net cash provided (used) by investing activities .............. (107) 1,993 (70)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ................... (203) 1,826 (23)
Cash and cash equivalents at beginning of year ......................... 5,914 4,088 4,111
-------- -------- --------
Cash and cash equivalents at end of year ............................... $ 5,711 $ 5,914 $ 4,088
======== ======== ========
Cash payments for:
Federal income tax ............................................... $ 20 $ -- $ --
Non-cash transactions:
Issuance of stock options ........................................ $ 16 $ 16 $ 16
See notes to consolidated financial statements.
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIENA HOLDINGS, INC. AND SUBSIDIARIES
Significant Accounting Policies
Principles of Consolidation and Basis of Presentation. The consolidated
financial statements include the accounts of Siena Holdings, Corp. ("SHI"),
formerly Lomas Financial Corporation ("LFC"), and its subsidiaries
(collectively, the "Company") after elimination of all significant intercompany
balances and transactions. SHI's wholly-owned, principal subsidiaries are Siena
Housing Management Corp. and LLG Lands, Inc.. Certain prior period amounts have
been reclassified to conform to the current period presentation.
Prior to October 1, 1996, SHI's wholly-owned, principal subsidiary was
Lomas Mortgage USA, Inc. ("LMUSA"), now known as Nomas Corp ("Nomas"). As a
result of the confirmation of LMUSA's Chapter 11 reorganization plan, the
Company's interest in LMUSA was extinguished effective October 1, 1996. LFC's
plan of reorganization was confirmed on October 4, 1996, but not effective until
March 1997. In accordance with the American Institute of Certified Public
Accountants' Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code", the Company adopted fresh-start
accounting as of March 31, 1997, after all material conditions required by the
Plan were satisfied. Since April 1, 1997, the Company's financial statements
have been prepared as if it is a new reporting entity.
Under fresh-start accounting, all assets and liabilities were restated to
reflect their own reorganization value, which approximated fair value at the
date of reorganization. The Company's management and representatives of the
creditors' committee concluded that, based on the fact that the Company
historically incurred losses from operations and projected minimal future
operating profits, the reorganization value of the Company (the fair value of
the Company before considering liabilities) was equivalent to the fair value of
the Company's tangible assets and that no other intrinsic value existed. As a
result, all assets and liabilities were stated at their fair value. See the
"Reorganization" footnote.
Cash and Cash Equivalents. Cash and cash equivalents include cash on hand
and investments with original maturities of three months or less.
Investment in Equity Securities. Investments in equity securities are
classified as available-for-sale and are held by the Company's real estate
subsidiary, LLG Lands, Inc. Unrealized gains and losses are included, net of
tax, in accumulated other comprehensive income (loss), a component of
stockholders' equity as reported on the Company's Consolidated Balance Sheets.
Realized gains and losses are reported in revenue on the Company's Statements of
Consolidated Operations and Comprehensive Income (Loss). Realized losses from
other than temporary decline in value are reported in expenses on the Company's
Statements of Consolidated Operations and Comprehensive Income (Loss).
Investment in Real Estate. Real estate is carried at the fresh-start
reporting value as of March 31, 1997, adjusted for improvements capitalized in
accordance with the Company's capitalization policy. The Company continually
monitors the value of the real estate based on estimates of future cash flows.
Any amounts deemed to be impaired are charged, in the period in which such
impairment is determined. For the years ended June 30, 2002, 2001 and 2000,
there were no charges to operations for impairment of the real estate.
Accrued Medical Insurance Premiums. In connection with the reorganization
in March 1997, the Company agreed to assume the pre-petition liability to
provide certain employees of a former subsidiary and their spouses with medical
insurance. The total amount of the liability was estimated using a life
expectancy age of 90, an annual health care cost increase rate of approximately
5% and a discount rate of approximately 6.5%. The current portion of the accrued
medical insurance premiums is included in accounts payable and accrued expenses
and the long term portion of the accrued medical insurance premiums balance is
listed under long term liabilities, both on the Company's Consolidated Balance
Sheets. The accrual will be reviewed and adjusted, as required, due to either a
change in the health care cost factors used in the accrual calculation or a
decrease in the number of people in the population.
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Assisted Care Facility Management Fee. The Company, through its
wholly-owned subsidiary Siena Housing Management Corp. ("SHM"), manages and
maintains an assisted care facility in Houston, Texas under a management
agreement into which it entered on June 27, 1977 with Treemont, Inc.
("Treemont"). SHM is entitled to receive a fee under the agreement which,
subject to a required annual priority distribution of project net income to
Treemont and certain adjustments and expenditures specified by the agreement, is
equal to 3% of the facility's gross receipts and 25% of the facility's net
income.
The compensation expense and primarily all operating expenses of SHM's
employees who provide services at the assisted care facility are funded directly
by the assisted care facility owner and are not reflected in the Statements of
Consolidated Operations and Comprehensive Income (Loss), except indirectly
through the management fee income received by SHM based in part on the
facility's net income. The exception is the compensation for the operations
manager of the facility which is funded directly by SHM and included in
personnel expense on the Company's Statements of Consolidated Operations and
Comprehensive Income (Loss).
Federal Income Taxes. Income taxes have been provided in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes". Under SFAS No. 109, the deferred tax assets and liabilities are
determined based on the difference between the financial reporting and tax basis
of assets and liabilities and operating loss and tax credit carry forwards and
enacted tax rates that will be in effect for the years in which the differences
are expected to reverse. Under fresh-start reporting, benefits realized from the
utilization of pre-reorganization net operating loss carryforwards and
recognition of pre-reorganization deductible temporary differences existing at
the date of confirmation of the Joint Plan are reported as direct additions to
additional paid-in capital.
Earnings (Loss) Per Share. Earnings (loss) per share were determined using
the weighted average shares issued or reserved for issuance. The effects of
outstanding options are included in the calculation of diluted earnings (loss)
per common share to the extent that they are dilutive to earnings or not
antidilutive to losses.
The following is a reconciliation of net income (loss) and weighted
average common shares outstanding used to compute basic and diluted earnings per
share for the years presented:
Years Ended June 30
---------------------------
2002 2001 2000
------ ------ ------
Reconciliation of net income (loss):
Basic net income (loss):
Net income (loss) ............................ $ (318) $ 934 $ 53
====== ====== ======
Diluted net income (loss):
Net income (loss) ............................ $ (318) $ 934 $ 53
Effect of assumed conversions ................ -- -- --
------ ------ ------
Net income (loss) plus assumed conversions ... $ (318) $ 934 $ 53
====== ====== ======
(table continued on following page)
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended June 30,
---------------------------------
2002 2001 2000
-------- -------- --------
Reconciliation of weighted average common
shares outstanding:
Basic shares of common stock:
Weighted average common shares outstanding ...... 6,000 6,000 6,000
======== ======== ========
Diluted shares of common stock:
Weighted average common shares outstanding ...... 6,000 6,000 6,000
Plus: Dilutive potential common shares
SHI Non-qualified Stock Option Plans ...... --* 126 106
-------- -------- --------
Adjusted weighted average shares outstanding .... 6,000* 6,126 6,106
======== ======== ========
* Potentially dilutive common shares of 135,000 are not included in the
computation of the dilutive per share amount due to the net loss.
Stock-Based Compensation. The Company has adopted the disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation". This
statement provides a choice for the accounting of employee stock compensation
plans. A company may elect to use a fair-value methodology, under which
compensation cost is measured and recognized in the Statements of Consolidated
Operations and Comprehensive Income (Loss), or continue to account for these
plans under Accounting Principles Bulletin ("APB") No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. The Company has elected to
continue to account for these plans under APB No. 25. The "Stock and
Compensation Plans" footnote contains a summary of the pro forma effects to
reported net income (loss) and earnings (loss) per share for the years ended
June 30, 2002, 2001 and 2000, as if the Company had elected to account for
employee stock compensation plans utilizing the fair value methodology
prescribed by SFAS No. 123.
Use of Estimates. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.
Reorganization
On October 10, 1995, LFC, two subsidiaries of LFC and LMUSA (collectively
the "Debtor Corporations") filed separate voluntary petitions for reorganization
under Chapter 11 of the Federal Bankruptcy Code in the District of Delaware. The
petitioning subsidiaries were Lomas Information Systems, Inc. ("LIS") and Lomas
Administrative Services, Inc. ("LAS"). The Debtor Corporations filed two
separate plans of reorganization with the Bankruptcy Court. An order confirming
the second amended joint plan of reorganization filed on October 4, 1996 for
LFC, LIS and LAS (the "Joint Debtors") and a stipulation and order among the
Joint Debtors and the appointed statutory committee of unsecured creditors of
LFC (the "LFC Creditors' Committee") regarding technical modifications to the
plan of reorganization and confirmation order filed on January 27, 1997 together
with the second amended joint plan of reorganization filed on July 3, 1996 are
collectively referred to herein as the "Joint Plan". The Joint Plan was
confirmed on October 4, 1996, but not effective until March 7, 1997, after
certain conditions were either met or waived by the LFC Creditors' Committee.
The Joint Plan provided for a transfer by the Company of $3 million in
cash to partially fund a litigation trust to pursue third-party claims pursuant
to the LFC/LMUSA joint litigation trust agreement among LFC and its subsidiaries
and LMUSA, dated March 6, 1997 (the "LFC/LMUSA Litigation Trust"). Subject to
certain exceptions, the LFC Creditors' Trust (as defined herein) and the
creditors' trust established pursuant to the LMUSA Plan will receive sixty and
forty percent, respectively, of net proceeds from litigation. In March 2000, the
LFC Creditors' Trust received $7.1 million of net proceeds from the LFC/LMUSA
Litigation Trust resulting from litigation
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Class 3 general unsecured creditors were to receive a combination of
cash and new common stock as settlement of their allowed claim, pursuant to the
Joint Plan. On November 12, 1997, the initial distribution date (the "Initial
Distribution Date"), $12.5 million was disbursed to the distribution agent for
the Class 3 unsecured creditors. Additional cash distributions in the amounts of
$6.2 million, $4.3 million, $8.1 million and $1.2 million were disbursed to the
distribution agent for benefit of the Class 3 unsecured creditors on May 11,
1998, April 21, 1999, April 24, 2000, and February 16, 2001, respectively,
bringing the total cash distributed through June 30, 2002 to $32.3 million. On
August 30, 2002, the remaining assets of the Creditors' Trust were liquidated
and contingent liabilities were reserved for resulting in a final net
distribution to the distribution agent in the amount of $1.7 million, for
ultimate distribution to the beneficiaries of the Creditors' Trust. The amounts
ultimately distributed to the former creditors are solely dependent on the
success of the Company, the amounts realized from the collection of assets and
the settlement of liabilities for both the Creditors' Trust and the LFC/LMUSA
Litigation Trust.
As provided for in the Joint Plan and a decision of the LFC Creditors'
Committee, 4,000,000 shares of the new common stock were issued by the stock
transfer agent on the initial distribution date of November 12, 1997. For
balance sheet presentation and earnings (loss) per share, the 4,000,000 shares
were considered issued as of April 1, 1997. The process by the stock
distribution agent resulted in 3,822,121 shares of common stock actually
distributed to former creditors through March 7, 1999, the deadline for
exchanging predecessor company bonds for common stock. In the second quarter of
fiscal year 2000, the stock distribution agent distributed the final 177,879
shares, including shares held for disputed claims, to all allowed creditors that
had received prior stock distributions.
The LFC Creditors' Trust and any proceeds from the LFC/LMUSA Litigation
Trust are solely for the benefit of the former creditors of the Joint Debtors.
Stockholders will not benefit from these trusts unless they held Class 3 -
general unsecured claims as defined in the Joint Plan.
On November 5, 1998, the Company received $2.2 million from the Company's
Chairman of the Board ($2.102 million net of stock offering expenses) in
exchange for 2 million shares of the Company's common stock, as approved by the
Company's Board of Directors on September 23, 1998. This transaction increased
the number of outstanding shares of common stock to 6 million. The 6 million
shares of the new common stock are restricted if the effect of a transfer would
result in an ownership increase to 4.5 percent or above of the total outstanding
shares or from 4.5 percent to a greater percentage of the total outstanding
shares, without prior approval by the board of directors as described in the
restated certificate of incorporation.
Creditors' Trust
The Joint Plan established a creditors' trust (the "Creditors' Trust") for
which the Company serves as trustee. The Creditors' Trust holds the
non-reorganized assets of the Company in trust pending their disposition and/or
distribution to creditors in accordance with the terms of the Joint Plan. The
Creditors' Trust was organized for the sole purpose of liquidating the
non-reorganized assets, including proceeds, if any from the LFC/LMUSA Litigation
Trust. The original termination date of the Creditors' Trust was March 7, 2002,
however, through a series of extensions, the original termination date has been
extended until September 3, 2002 and the Company has requested the Bankruptcy
Court extend the termination date through November 2, 2002. On August 30, 2002,
the remaining assets of the Creditors' Trust were liquidated and contingent
liabilities were reserved for resulting in a final net distribution to the
distribution agent in the amount of $1.7 million, for ultimate distribution to
the beneficiaries of the Creditors' Trust. It is expected that the Creditors'
Trust will be terminated with Bankruptcy Court approval by November 2, 2002.
The assets and liabilities of the Creditors' Trust are not reflected in
the accompanying Consolidated Balance Sheets as the Company is not the
beneficiary of the Trust. Accordingly, revenues and expenses related to the
Creditors' Trust assets and liabilities since April 1, 1997, are not reflected
in the accompanying Statements of Consolidated Operations and Comprehensive
Income (Loss). The allocation of costs between the Creditors' Trust and the
Company is based on management's estimate of each entity's proportional share of
costs. Gains and losses from the Creditors' Trust are solely for the former
creditors' benefit and the Company has no risk of loss on the assets or
liabilities. The amounts ultimately distributed to the former creditors are
solely dependent on the success of the Company, the amounts realized from the
collection of assets, and settlement of liabilities for both the Creditors'
Trust and the LFC/LMUSA Litigation Trust. See "Item 8. Financial Statements and
Supplementary Data - Creditors' Trust" for more information. Stockholders who
are not former creditors of the Joint Debtors are not beneficiaries of the
Creditors' Trust.
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company charged to the Creditors' Trust expenses of $96,000, $415,000,
and $210,000 for the years ended June 30, 2002, 2001 and 2000, respectively,
reported as trust expense reimbursement on the Company's Statements of
Consolidated Operations and Comprehensive Income (Loss). The trust expense
reimbursement for fiscal year 2001 included $238,000 of success bonuses paid to
the Company pursuant to compensation plans for the directors and officers (see
"Stock and Compensation Plans"). The remainder of the trust expense
reimbursement from the Creditors' Trust consisted of an overhead allocation
based upon management's estimate of resources used by the Creditors' Trust.
The LFC Creditors' Trust and any proceeds from the LFC/LMUSA Litigation
Trust are solely for the benefit of the former creditors of the Joint Debtors.
Stockholders will not benefit from these trusts unless they held Class 3 -
general unsecured claims as defined in the Joint Plan. See "Reorganization"
footnote.
Investment in Real Estate
The investment in real estate in the amount of $4.7 million and $4.6
million as of June 30, 2002 and 2001, respectively, is owned by LLG Lands, Inc.
("LLG"), a wholly-owned subsidiary of the Company. For fresh-start reporting,
the land was valued by an independent third party using a discounted cash flow
method of future projected proceeds.
The Company's investment in real estate, owned by LLG, consists of 162.1
acres (approximately 138.0 acres net of flood plain) of unimproved land in
Allen, Texas (the "Allen property") as of June 30, 2002. The southern boundary
of the Allen property is the Exchange Parkway, which provides access to the
property from Central Expressway on the west and from Highway 5 on the east. As
of June 30, 2002, the Allen property included five tracts of land: one tract of
approximately 31.9 net acres zoned multi-family, one tract of approximately 77.2
net acres zoned light industrial (formerly single-family), two tracts of
approximately 24.2 net acres zoned commercial and one tract of 4.6 net acres
zoned residential. With a continuing view towards maximizing shareholder value,
management is attempting to have the one residential tract re-zoned as
commercial.
The acreage was increased by a total of 5.7 gross acres and 13.7 net acres
in fiscal year 2000 due to management's decision to reclaim a portion of the
flood plain acreage and the results of a new land survey that redefined the
boundaries. The Company was successful in fiscal year 1999 in re-zoning and
relocation of zoning in certain tracts. In the fourth quarter of fiscal year
2001, five acres of the multi-family property were successfully re-zoned as
light industrial. As disclosed in prior filings, the Company, with a continuing
view towards maximizing shareholder value, has undertaken an on-going program
involving the possible sale of all or part of the Allen property or its
continued development.
On October 30, 2000, the Company completed the sale of approximately 5.6
acres of one of the commercial properties to 75 Exchange Partners, LP, an
unaffiliated partnership. Net cash proceeds from the sale totaled $1.204 million
and the Company recorded a gain on sale of real estate of $828,000 in the second
quarter of fiscal year 2001, as previously reported in the Company's Statements
of Consolidated Operations and Comprehensive Income (Loss).
On February 23, 2001, the Company completed the sale of approximately 17.3
acres of property zoned light industrial to Crow Family Holdings Industrial
Texas, LP ("Crow Family Holdings"), an unaffiliated partnership. Net cash
proceeds from the sale totaled $1.251 million and the Company recorded a gain on
sale of real estate of $945,000 in the quarter ended March 31, 2001, as
previously reported in the Company's Statements of Consolidated Operations and
Comprehensive Income (Loss). In addition, Crow Family Holdings acquired
outstanding options, which expire 18 months from the original sale date, to
purchase substantially all the remaining light industrial property. On January
16, 2002, the Company received additional cash proceeds of $36,000 from the real
estate sale in February 2001, representing the final settlement and proration of
rollback taxes, reported as additional gain on the sale of real estate in the
Company's Statements of Consolidated Operations and Comprehensive Income (Loss).
There is no guarantee that any sales will be consummated.
On February 22, 2002, the Company and Crow Family Holdings agreed to the
First Amendment to Sale Contract (the "First Amendment") which extends the
closing date on the sale of 14.25 acres of property zoned light industrial to on
or before August 22, 2002. In addition, the First Amendment extends the option
period to August 22, 2002, on all outstanding options. The Company received a
$125,000 non-refundable deposit, which is included in unearned income on the
Company's Consolidated Balance Sheets as of June 30, 2002. In the event a sale
was completed by August 23, 2002, $95,000 of the deposit was to be applied to
the purchase price. However, on August 23, 2002, the Company was
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
informed that Crow Family Holdings would not close on the transaction. The
Company is currently negotiating with Crow Family Holdings to revise its
agreements. There is no guarantee that any sales will be consummated.
In fiscal year 2001, the Company offset a portion of the income tax
expense due to the gain on sale of real estate against the existing deferred tax
assets, resulting in a decrease in the deferred tax assets. Approximately
$20,000 of alternative minimum tax expense was recorded by the Company for the
year ended June 30, 2001. The only portion of federal income tax expense that
was paid by the Company was the alternative minimum tax liability as a result of
the utilization of a portion of the Company's net operating loss carryforwards
and deductible temporary differences. There is no alternative minimum tax
liability as of June 30, 2002.
Based on the property sales described above, continuing negotiations on
other parcels and improved market conditions, management believes that the
Company would be able to sell the remaining Allen property for a value in excess
of the tax basis. As a result, the Company reported a net deferred tax asset
balance of $1.908 million as of June 30, 2002 and 2001, included in long term
assets on the Company's Consolidated Balance Sheets. Any tax benefits recognized
related to the valuation allowance for pre-reorganization deferred tax assets as
of June 30, 2002 will be allocated to additional paid-in capital.
The Company is involved in discussions and or entered into tentative
agreements to sell certain parcels of land, which it, in its best judgment,
considers to be reasonable and in the interests of its shareholders. However,
there can be no assurance that these or any future discussions and or tentative
agreements may lead to any real estate transactions, and when such transactions
might occur. These tentative agreements may not be completed due to various
uncertainties associated with ongoing negotiations and buyer due diligence
contingencies. Based on management's most recent estimates, any sales that might
result from these discussions and or tentative agreements as well as options
described above would result in a gain on sale for financial reporting purposes.
Investments in Equity Securities
Investments in equity securities are classified as available-for-sale and
are held by the Company's real estate subsidiary, LLG. The fair value of the
securities based on quoted market prices was $197,000 and $139,000 as of June
30, 2002 and 2001, respectively. The cost basis of the securities as of June 30,
2002 and 2001, was reported as $176,000 and $160,000, respectively. The cost
basis was reduced by $41,000 during fiscal year 2002 for realized losses from
other than a temporary decline in the value of the securities. Unrealized gains
and losses are included, net of tax, in accumulated other comprehensive loss, a
component of stockholders' equity as reported on the Company's Consolidated
Balance Sheets. Realized gains and losses are reported in revenue on the
Company's Statements of Consolidated Operations and Comprehensive Income (Loss).
Realized losses from other than temporary decline in value of the securities are
reported as expense on the Company's Statements of Consolidated Operations and
Comprehensive Income (Loss).
Receivables
The Company reported receivables of $93,000 and $73,000 as of June 30,
2002 and 2001, respectively, consisting primarily of a management fee receivable
from the assisted care facility of $66,000 and $60,000, respectively, as
discussed below. The remainder of the balance as of June 30, 2002 and 2001
included $27,000 and $13,000 due from the Creditors' Trust for allocation of
expenses (see "Creditors' Trust" footnote).
The Company, through its wholly-owned subsidiary Siena Housing Management
Corp. ("SHM"), manages and maintains an assisted care facility in Houston, Texas
under a management agreement into which it entered on June 27, 1977 with
Treemont, Inc. ("Treemont"). SHM is entitled to receive a fee under the
agreement which, subject to a required annual priority distribution of project
net income to Treemont and certain adjustments and expenditures specified by the
agreement, is equal to 3% of the facility's gross receipts and 25% of the
facility's net income.
SHM may terminate the agreement on six months' written notice; however,
the termination date must fall on an anniversary of the date on which the
parties entered into the agreement. Treemont can only terminate the agreement
for cause or if Treemont fails to receive its required annual priority
distribution for two consecutive years. SHM has the right to extend the term of
the agreement from year to year in one-year increments until June 30, 2028.
Unless the agreement is terminated or its term is extended as described above,
the agreement will terminate on June 30, 2003.
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On January 4, 2001, the Company agreed to the First Amendment to
Management Agreement (the "First Amendment") with Treemont which specifies the
terms for a potential sale of the Treemont facility. SHM consented that the
owners of Treemont may sell the facility with absolute discretion and terminate
the Management Agreement in exchange for a graduated percentage of the net
proceeds (as defined) from the sale of the facility. The owners of Treemont
agreed to provide written notice of the commencement of any negotiations. During
the second quarter of fiscal year 2002, SHM was notified of the commencement of
negotiations by the Treemont owners with a prospective buyer. In the first
quarter of fiscal year 2002, SHM was informed that the owners of Treemont had
signed an agreement to sell the property. If a sale transaction is ultimately
concluded, SHM shall not be obligated to terminate the Management Agreement if
SHM does not receive at least $2 million as its share of the proceeds. Based
upon the terms of the sale agreement, the payment to SHM could be as much as
$2.5 million, if current costs of sale estimates are correct. The sales
agreement has certain significant due diligence, financing and insurance
requirements. As a result of these significant requirements, there can be no
assurance that the sale transaction will, in fact, close.
Current and Long Term Liabilities
Accounts payable and accrued expenses consisted of the following (in
thousands):
June 30,
--------------------
2002 2001
-------- --------
Accrued medical insurance premiums - current portion ............ $ 81 $ 54
Accrued professional fees ....................................... 45 49
Accrued compensation - other .................................... 18 9
Alternative minimum tax payable ................................. -- 20
Accounts payable - directors or officers ........................ 7 --
Other accounts payable and accrued expenses ..................... 9 26
-------- --------
$ 160 $ 158
======== ========
In connection with the reorganization in March 1997, the Company agreed to
assume the pre-petition liability to provide certain employees of a former
subsidiary and their spouses with medical insurance. The total amount of the
liability was estimated using a life expectancy age of 90, an annual health care
cost increase rate of approximately 5% and a discount rate of approximately
6.5%. As of June 30, 2002 and 2001, the Company had an accrued liability
established for payments to be made to 27 people to be used toward the payment
of insurance. As of June 30, 2002 and 2001, the current portion of the accrual
for medical insurance premiums is $81,000 and $54,000, respectively, and the
long term liability amount, included in long term liabilities on the Company's
Consolidated Balance Sheets, is $392,000 and $447,000, respectively. The current
portion of accrued medical insurance premiums is higher as of June 30, 2002, as
compared to June 30, 2001, because payments have not been made since December
2001.
On February 22, 2002, the Company and Crow Family Holdings agreed to the
First Amendment to Sale Contract (the "First Amendment") which extends the
closing date on the sale of 14.25 acres of property zoned light industrial to on
or before August 22, 2002. In addition, the First Amendment extends the option
period to August 22, 2002, on all outstanding options. The Company received a
$125,000 non-refundable deposit, which is included in unearned income on the
Company's Consolidated Balance Sheets as of June 30, 2002. In the event a sale
was completed by August 23, 2002, $95,000 of the deposit was to be applied to
the purchase price. However, on August 23, 2002, the Company was informed that
Crow Family Holdings would not close on the transaction. The Company is
currently negotiating with Crow Family Holdings to revise its agreements. There
is no guarantee that any sales will be consummated.
The SHI Deferred Compensation Plan allows the members of the Board of
Directors to defer annual director fees, meeting fees, and success bonus
payments for a given calendar year. Interest earned on the cash will be accrued
and paid to the director. A deferred compensation balance of $444,000 and
$406,000, including accrued interest, is included in long term liabilities on
the Company's Consolidated Balance Sheets as of June 30, 2002 and 2001,
respectively. See "Stock and Compensation Plans" footnote.
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Federal Income Taxes
The Company in prior years filed a consolidated federal income tax return
as the common parent of a group of corporations which included LFC and its
subsidiaries as well as LMUSA and its subsidiaries. The LMUSA Plan of
Reorganization was confirmed by the United States Bankruptcy Court on October 1,
1996 and it immediately emerged with a new name, Nomas Corp. (see
"Reorganization" footnote). As a result of the LMUSA Plan, the Company ceased to
own any common stock of LMUSA and its subsidiaries as of October 1, 1996.
Accordingly, SHI and its subsidiaries thereafter no longer file a consolidated
federal income tax return with Nomas and its subsidiaries. SHI and its
subsidiaries will instead continue to file their own consolidated federal income
tax return for the years ended June 30, 2002, 2001 and 2000. Various tax
attributes, including net operating loss carryforwards, were allocated between
the SHI consolidated group and the Nomas consolidated group pursuant to Internal
Revenue Service consolidated return regulations and based upon the balances
calculated as of the date that LMUSA and its subsidiaries were deconsolidated
from the Company's consolidated group. All companies included in a consolidated
federal income tax return remain jointly and severally liable for any tax
assessments based on such consolidated returns.
Fresh-start reporting requires SHI and its subsidiaries to report federal
income tax expense when in a taxable position before utilization of any
pre-reorganization net operating loss carryforwards and recognition of any
pre-reorganization deductible temporary differences. Benefits realized in the
consolidated income tax return from utilization of pre-reorganization net
operating loss carryforwards and recognition of pre-reorganization deductible
temporary differences existing at the date of confirmation of the Plan are
reported as direct increases to additional paid-in capital under fresh-start
reporting.
SHI and its subsidiaries reported federal income tax expense of $0,
$503,000 and $29,000 for fiscal years ended June 30, 2002, 2001 and 2000,
respectively. The Company reported a tax benefit of $0, $602,000 and $46,000 as
an increase to additional paid-in capital for fiscal years ended June 30, 2002,
2001 and 2000, respectively, resulting from utilization of a portion of the
Company's pre-reorganization net operating loss carryforwards and deductible
temporary differences. Approximately $20,000 of alternative minimum tax expense
was recorded by the Company for the year ended June 30, 2001. The only portion
of federal income tax expense that was owed by the Company for the year ended
June 30, 2001, was the alternative minimum tax liability as a result of the
utilization of a portion of the Company's net operating loss carryforwards and
deductible temporary differences.
SHI and its subsidiaries had $95 million and $95 million in gross deferred
tax assets as of June 30, 2002 and 2001, respectively, subject to an offsetting
valuation allowance of $93 million and $93 million, respectively. Essentially
all of this valuation allowance is considered to be attributable to
pre-reorganization tax attributes. Accordingly, future utilization of these
pre-reorganization tax attributes on a consolidated basis will result in
adjustments to additional paid-in capital. The Company reported gross deferred
tax liabilities of $7,000 and $0 as of June 30, 2002 and 2001, respectively.
The Company reported a net deferred tax asset balance of $1.908 million
and $1.908 million as of June 30, 2002 and 2001, respectively, included in long
term assets on the Company's Consolidated Balance Sheets. Based on the property
sales described above, continuing negotiations on other parcels and improved
market conditions, management believes that the Company would be able to sell
the remaining Allen property for a value in excess of the tax basis. As a
result, the Company reduced the valuation allowance for deferred tax assets by
$341,000 and additional paid-in-capital was increased by $341,000 for the year
ended June 30, 2001. Due to the change in zoning received on certain tracts in
1999 and the change in flood plain acreage in 2000, the Company reduced the
valuation allowance for deferred tax assets and additional paid in capital was
increased by $249,000 for the year ended June 30, 2000.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which these temporary differences become deductible. Management
considers the reversal of any deferred tax liabilities, projected future taxable
income and tax planning strategies in making this assessment. Management
believes that it is more likely than not that the Company will realize the
benefit of these deferred tax assets, net of the existing valuation allowance as
of June 30, 2002 and 2001. Any tax benefits recognized related to the valuation
allowance for pre-reorganization deferred tax assets as of June 30, 2002, will
be allocated to additional paid-in capital.
SHI and its subsidiaries had allocable consolidated tax net operating loss
carryforwards at June 30, 2002 totaling approximately $269 million. These net
operating loss carryforwards expire in the years 2003 through 2022.
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Approximately $137 million of these net operating losses arose prior to
the previous 1991 reorganization of the LFC group and will therefore remain
subject to the annual limitations of Internal Revenue Code ("IRC") Section 382.
At June 30, 2002, SHI and its subsidiaries had a cumulative unused Section 382
limitation equal to the $137 million of pre-1991 net operating loss
carryforwards; accordingly, such pre-1991 net operating loss carryforwards may
be utilized currently by SHI and its subsidiaries under the restrictions of
Section 382. The remaining net operating losses of approximately $132 million
arose subsequent to the 1991 reorganization and are considered to come under the
"bankruptcy exception" of Section 382(1)(5) and are therefore not subject to the
annual limitations provided by Section 382(a).
All of the net operating loss carryforwards are subject to applicable
provisions of the IRC, and approximately $261million of the total of $269
million of net operating loss carryforwards would be limited to zero if it were
determined that SHI underwent an ownership change, within the meaning of Section
382, during the two year period following the October 1, 1996 ownership change
resulting from the Plan of Reorganization. The remaining $8 million of net
operating loss will continue to be subject to the annual limitation of IRC
Section 382, and could be further limited upon any subsequent ownership change.
The amounts and expiration dates of the regular tax net operating losses
of SHI and its subsidiaries at June 30, 2002, are as follows (in thousands):
Amount of Net
Operating Loss Expiration Date
Carryforwards as of June 30
------------- ---------------
$ 2,392 2003
54,431 2004
27,495 2006
82,943 2007
21,496 2008
22,906 2009
41,080 2010
8,075 2011
1,634 2012
2,526 2013
4,203 2019
222 2022
--------
$269,403
========
The Company's alternative minimum tax net operating loss is approximately
the same as its regular tax net operating loss.
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The difference between actual tax expense (benefit) and the amount
computed by applying the statutory rate to income (loss) from operations before
federal income tax consisted of the following components (in thousands):
Years Ended June 30,
--------------------------------
2002 2001 2000
-------- -------- --------
Tax expense (benefit) at statutory rate ............... $ (111) $ 503 $ 29
Book/tax difference in loss reserves
attributable to sale of assets ..................... -- 85 --
Increase in net operating loss (attributable
to realization of pre-reorganization deductible
temporary differences, resulting in an increase
in the pre-reorganization net operating loss
carryover) ......................................... -- (34) (17)
Increase in post-reorganization net operating loss
carryover .......................................... (78) -- --
Increase in post-reorganization capital loss
carryover .......................................... (14) -- --
Change in valuation allowance for deferred
tax assets for current year activity and for
adjustment to net operating loss
carryforward ...................................... 111 (484) 7
Book net operating loss carryforward not realized ..... 111 -- --
Increase in deferred compensation accruals ............ (13) (113) (11)
Increase in accrued stock option accruals ............. (6) (6) (6)
Provision to tax return adjustments ................... -- 15 --
-------- -------- --------
Actual tax expense ................................ $ -- $ 503 $ 29
======== ======== ========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
2002, 2001 and 2000 are presented below (in thousands):
Years Ended June 30,
--------------------------------
2002 2001 2000
-------- -------- --------
Deferred tax assets:
Post-reorganization net operating loss carryover ... $ 108 $ 30 $ 30
Pre-reorganization net operating loss carryover .... 94,183 94,183 94,701
Post-reorganization capital loss carryover ......... 14 -- --
Loss reserves ...................................... 541 541 626
Deferred compensation .............................. 155 142 29
Unrealized loss on equity securities ............... -- 7 --
Non-qualified stock option expense ................. 27 21 15
-------- -------- --------
Total gross deferred tax assets ................ 95,028 94,924 95,401
Less valuation allowance ........................... (93,120) (93,016) (93,960)
-------- -------- --------
Net deferred tax assets .................... $ 1,908 1,908 $ 1,441
======== ======== ========
Deferred tax liabilities:
Unrealized gain on equity securities ................ $ 7 $ -- $ --
-------- -------- --------
Net deferred tax liabilities ............... $ 7 $ -- $ --
======== ======== ========
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stockholders' Equity
As of June 30, 2002 and 2001, the Company had 15,000,000 shares of $.10
par value common stock authorized, with 6,000,000 shares issued and outstanding.
Pursuant to the Joint Plan and a decision by the LFC Creditors' Committee,
4,000,000 shares of common stock were reserved for issuance on April 1, 1997 and
ultimately issued by the stock transfer agent on November 12, 1997. For balance
sheet presentation and earnings (loss) per share, the 4,000,000 shares were
considered issued as of April 1, 1997. The process by the stock distribution
agent resulted in 3,822,121 shares of common stock actually distributed to
former creditors through March 7, 1999, the deadline for exchanging predecessor
company bonds for common stock. In the second quarter of fiscal year 2000, the
stock distribution agent distributed the final 177,879 shares, including shares
held for disputed claims, to all allowed creditors that had received prior stock
distributions. The common stock has no preemptive or other subscription rights
and there are no conversion rights, redemption or sinking fund provisions with
respect to such shares.
Recognizing the need of the Company for additional working capital, the
Chairman of the Company offered to make a cash investment for a certain number
of shares of the Company's common stock. This offer was considered and accepted
by the Company's Board of Directors at its regularly scheduled quarterly meeting
held in Wilmington, Delaware on September 23, 1998. The Chairman did not
participate in the vote of the Board accepting this offer. On November 5, 1998,
the Company received $2.102 million, net of stock offering expenses of $98,000,
in exchange for 2 million shares of the Company's common stock. This transaction
increased the number of outstanding shares of common stock to 6 million.
During the years ended June 30, 2002, 2001 and 2000, the valuation
allowance for deferred tax assets was decreased by $0, $341,000 and $249,000,
respectively, and additional paid-in capital was increased by the same amounts.
Any tax benefits recognized related to the valuation allowance for
pre-reorganization deferred tax assets as of June 30, 2002, will be allocated to
additional paid-in capital.
SHI and its subsidiaries reported federal income tax expense of $0,
$503,000 and $29,000 for fiscal years ended June 30, 2002, 2001 and 2000,
respectively. The Company reported a tax benefit of $0, $602,000 and $46,000, as
an increase to additional paid-in capital for fiscal years ended June 30, 2002,
2001 and 2000, respectively, resulting from utilization of a portion of the
Company's pre-reorganization net operating loss carryforwards and deductible
temporary differences. Approximately $20,000 of alternative minimum tax expense
was recorded by the Company for the year ended June 30, 2001. The only portion
of federal income tax expense that was paid by the Company was the alternative
minimum tax liability as a result of the utilization of a portion of the
Company's net operating loss carryforwards and deductible temporary differences.
See "Federal Income Taxes" footnote.
The Company, as of June 30, 2002 and 2001, had 1,000,000 shares of $1.00
par value preferred stock authorized, with 0 shares issued and outstanding.
Stock and Compensation Plans
Officer's Compensation Plan. Separate retention agreements (the "Retention
Agreements") were approved by the Board of Directors effective December 1, 1997,
for the Company's two executive officers, John P. Kneafsey - Chief Executive
Officer and W. Joseph Dryer - President. The Retention Agreements, with a five
year term, provide for the payment of: (1) a monthly retainer, (2) severance
upon early termination of the contract by the Company, and (3) a success bonus
based upon certain performance criteria of the Company and its subsidiaries and
the Company's results as trustee of the Creditors' Trust.
In accordance with the success bonus defined above, the Board of Directors
approved bonuses payable to the executive officers of the Company for fiscal
years ended June 30, 2002 and 2001, in the amount of $4,000 and $375,000,
respectively. Fiscal year 2001 included $198,000 in success bonuses reimbursed
by the Creditors' Trust and included in other income on the Company's Statements
of Consolidated Operations and Comprehensive Income (Loss). The majority of the
bonuses reimbursed by the Creditors' Trust were paid as a result of the proceeds
received by the Creditors' Trust in March 2000 from the LFC/LMUSA Litigation
Trust resulting from litigation. The remainder of the success bonuses earned
resulted from the real estate sales discussed in the "Investment in Real Estate"
footnote. One officer deferred all bonuses earned in accordance with the SHI
Deferred Compensation Plan as described below.
Officer's Stock Option Plan. The Retention Agreements also awarded stock
options to Mr. Kneafsey and Mr. Dryer pursuant to the SHI Non-qualified Stock
Option Agreements. The plan according to the SHI Non-qualified Stock
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Option Agreements (the "Stock Option Plan") granted the officers options to
purchase an aggregate of 434,750 shares of the Company's common stock, with an
effective date of December 1, 1997 (the "Date of Grant").
The options granted under the Stock Option Plan have an exercise price of
$0.92 per common share and vest at a rate of twenty percent per year for five
years on the anniversary of the Date of Grant. The fair market value of the
common stock on the Date of Grant was $1.109. Upon the event of any
change-in-control of the Company (as defined) the stock options shall be 100%
vested. The stock options resulted in compensation expense of $16,000 with a
corresponding increase in additional paid-in capital, for each of the years
ended June 30, 2002, 2001 and 2000. Additional stock options or other forms of
long-term incentive compensation arrangements may from time to time be granted
by the Board of Directors.
Director's Compensation Plan. At the annual meeting on December 16, 1998,
the shareholders of SHI (the "Shareholders") approved additional compensation
with a retroactive effective date of December 1, 1997, for the non-officer
members of the Board of Directors (the "Directors' Additional Compensation
Plan"). The Directors' Additional Compensation Plan, with a five year term,
provides for a success bonus for each non-officer director based upon certain
performance criteria of the Company and its subsidiaries and the Company's
results as trustee of the Creditors' Trust.
For fiscal years ended June 30, 2002 and 2001, and in accordance with the
success bonus defined above, the directors of the Company collectively earned
$1,000 and $75,000, respectively, in success bonuses. Fiscal year 2001 included
$40,000 reimbursed by the Creditors' Trust and included in other income on the
Company's Statements of Consolidated Operations and Comprehensive Income (Loss).
The majority of the bonuses reimbursed by the Creditors' Trust were earned as a
result of the proceeds received by the Creditors' Trust in March 2000 from the
LFC/LMUSA Litigation Trust resulting from litigation. The remainder of the
success bonuses earned by the directors resulted from the real estate sales
discussed in the "Investment in Real Estate" footnote.
Certain directors elected to defer a portion or all of the payments earned
pursuant to the SHI Deferred Compensation Plan (the "Deferred Compensation
Plan"), approved by the Board of Directors on and effective as of December 16,
1998. The Deferred Compensation Plan allows the members of the Board of
Directors to defer annual director fees, meeting fees, and success bonus
payments for a given calendar year. Interest earned on the cash will be accrued
and paid to the director. During fiscal years 2002 and 2001, four of the five
directors deferred some or all of directors' fees and success bonuses earned. A
deferred compensation balance of $444,000 and $406,000, including accrued
interest, is included in long term liabilities on the Company's Consolidated
Balance Sheets as of June 30, 2002 and 2001, respectively.
Director's Stock Option Plan. The Non-qualified Stock Option Agreements
for the Board of Directors (the "Directors' Stock Option Plan") were also
approved by the Shareholders on December 16, 1998 (the "Date of Shareholder
Approval"). The Directors' Stock Option Plan granted each of the five directors'
the option to purchase 40,000 shares of the Company's common stock, with an
effective date of December 1, 1997 (the "Date of Grant").
The options granted under the Directors' Stock Option Plan have an
exercise price of $0.92 per common share and vest at a rate of twenty percent
per year for five years on the anniversary of the Date of Grant. The fair market
value of the common stock on the Date of Shareholder Approval was $0.84375. Upon
the event of any change-in-control of the Company (as defined) the stock options
shall be 100% vested.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes data relating to stock options activity for
the years ended June 30, 2002, 2001 and 2000:
Years Ended June 30,
--------------------------------
2002 2001 2000
-------- -------- --------
Number of shares subject to option:
Outstanding at beginning of year .................. 634,750 634,750 634,750
Granted ........................................... -- -- --
Expired / canceled ................................ -- -- --
Exercised ......................................... -- -- --
-------- -------- --------
Outstanding at end of year ................... 634,750 634,750 634,750
======== ======== ========
Exercisable at end of year .......................... 507,800 380,850 253,900
======== ======== ========
All outstanding stock options have an exercise price of $0.92 per common
share.
As allowed under the provisions of SFAS No. 123, the Company applies APB
Opinion 25 and related Interpretations in accounting for its stock option plans
and, accordingly, does not recognize compensation cost based on fair value as a
component of net income (loss). The fair value of each option granted pursuant
to the officers' Stock Option Plan was estimated as of the grant date, using the
Black-Scholes multiple options approach prescribed by SFAS No. 123, with the
following assumptions: expected volatility of 58.58%, risk free interest rate of
6.35%, and an expected life of 10 years. The fair value of each option granted
pursuant to the Directors' Stock Option Plan was estimated as of the date of
shareholder approval, also using the Black-Scholes multiple options approach
prescribed by SFAS No. 123, with the following assumptions: expected volatility
of 138.53%, risk free interest rate of 4.58%, and an expected life of 9 years.
If the Company had elected to recognize compensation cost based on the fair
value of the options as of the grant date, the Company's net income (loss) as
well as earnings (loss) per share would have been reduced (increased) by the pro
forma amounts (net of income tax effect) indicated in the following table:
(table on following page)
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended June 30,
---------------------------------
2002 2001 2000
-------- -------- --------
Reconciliation of net income (loss):
Basic net income (loss):
Net income (loss) (As reported) ............................ $ (318) $ 934 $ 53
Pro forma compensation expense--net of tax effect** ........ (91) (59) (62)
-------- -------- --------
Pro forma net income (loss) ................................ $ (409) $ 875 $ (9)
======== ======== ========
Diluted net income (loss):
Net income (loss) (As reported) ............................ $ (318) $ 934 $ 53
Income effect of assumed conversions ....................... -- -- --
-------- -------- --------
Net income (loss) plus assumed conversions (As reported) ... (318) 934 53
Pro forma compensation expense--net of tax effect** ........ (91) (59) (62)
-------- -------- --------
Pro forma net income (loss) plus assumed conversions ....... $ (409) $ 875 $ (9)
======== ======== ========
Earnings (loss) per share ("EPS") information:
Basic net income (loss):
Net income (loss) (As reported) ............................ $ (0.05) $ 0.16 $ 0.01
Pro forma compensation expense--net of tax effect** ........ (0.02) (0.01) (0.02)
-------- -------- --------
Pro forma net income (loss) ................................ $ (0.07) $ 0.15 $ (0.01)
======== ======== ========
Common shares used in computing basic EPS ..................... 6,000 6,000 6,000
======== ======== ========
Diluted net income (loss):
Net income (loss) (As reported) ............................ $ (0.05) $ 0.15 $ 0.01
Income effect of assumed conversions ....................... -- -- --
-------- -------- --------
Net income (loss) plus assumed conversions (As reported) ... (0.05) 0.15 0.01
Pro forma compensation expense--net of tax effect** ........ (0.02) (0.01) (0.01)
-------- -------- --------
Pro forma net income (loss) plus assumed conversions ....... $ (0.07) $ 0.14 $ 0.00
======== ======== ========
Common shares used in computing diluted EPS ................... 6,000* 6,126 6,106
======== ======== ========
* Potentially dilutive common shares of 135,000 are not included in
the computation of the dilutive per share amount due to the net
loss.
** Due to the reported net loss, the pro forma compensation expense for
2002 is not tax effected.
Fair Value of Financial Instruments
SFAS No. 107 requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for those that it
is practicable to estimate fair value. Fair value estimates are made as of a
specific point in time based on the characteristics of the financial instruments
and the relevant market information. Where available quoted market prices are
used, and in other cases, fair values are based on estimates using present value
or other valuation techniques. These techniques involve uncertainties and are
significantly affected by the assumptions used and the judgments made regarding
risk characteristics of various financial instruments, discount rates, estimates
of future cash flows, future expected loss experience and other factors. Changes
in assumptions could significantly affect these estimates and the resulting fair
values. The derived fair value estimates cannot be substantiated by comparison
to independent markets and could not be realized in an immediate sale of the
instruments.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Under SFAS No. 107 fair value estimates are based on existing financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. The aggregate fair value amounts presented do not
represent the underlying market value of the Company.
Described below are the methods and assumptions used by the Company in
estimating fair values.
Cash and Cash Equivalents. The carrying amounts reported in the
Consolidated Balance Sheets approximate the fair values and maturities are less
than three months.
Investment in Equity Securities. The securities are classified as
available-for-sale and reported on the Company's Consolidated Balance Sheets at
fair market value based on quoted market prices, with any unrealized holding
gains (losses) included, net of tax, in accumulated other comprehensive income
(loss), a component of stockholders' equity.
The estimated fair values of the Company's financial instruments are as
follows (in thousands):
June 30,
-------------------------------------------------
2002 2001
----------------------- -----------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
---------- ---------- ---------- ----------
Financial Assets:
Cash and cash equivalents ...... $ 5,711 $ 5,711 $ 5,914 $ 5,914
Investment in equity securities. 197 197 139 139
Financial instruments that potentially subject the Company to
concentrations of credit risk principally consist of excess cash invested 18 12
night in euro-dollar denominated accounts. As of June 30, 2002, approximately
$5.4 million of the Company's cash and cash equivalents balance of $5.7 million
was invested in 30 day U. S. Treasury bills. Approximately $140,000 of the
remainder of the Company's cash and cash equivalents was deposited in various
accounts at one financial institution and $194,000 was invested in a money
market fund at another institution.
Leases
The Company incurred rental expense for office space of $10,000 for each
of the years ended June 30, 2002, 2001, and 2000, and had no future minimum
rental commitments at June 30, 2002 for noncancellable leases.
The Company also incurred expense of $18,000 for each of the years ended
June 30, 2002, 2001, and 2000, for the reimbursement of office space and
expenses in Maryland utilized by the Chairman and Chief Executive Officer of the
Company, and are included in other operating expenses on the Company's
Statements of Consolidated Operations and Comprehensive Income (Loss). The
Company is not a party to the lease.
Quarterly Results (Unaudited)
The following is a summary of the unaudited quarterly results of
operations for the year ended June 30, 2002 (in thousands, except per share
amounts):
Year Ended June 30, 2002
------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
Revenues .................................... $ 157 $ 104 $ 128 $ 114
Net loss .................................... (10) (94) (104) (110)
Basic earnings (loss) per common share:
Net loss ............................... (0.00) (0.02) (0.02) (0.02)
Diluted earnings (loss) per common share:
Net loss ............................... (0.00) (0.02) (0.02) (0.02)
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Revenues were fairly consistent among the quarters in fiscal year 2002,
consisting primarily of management fee income, interest income and trust expense
reimbursement. The trust expense reimbursement revenue was reported quarterly in
the amounts of $33,000, $24,000, $11,000 and $27,000, respectively. The third
quarter was lower than the other quarters, however this was offset by a gain on
sale of real estate in the amount of $36,000. The management fee income reported
by the Company was slightly higher in the first quarter than in the second,
third or fourth quarter, as a result of higher occupancy and lower expenses
reported by Treemont.
Professional fees were reported by the Company as $12,000, $26,000,
$20,000 and $57,000 for the respective quarters in fiscal year 2002. The fourth
quarter expense was higher as a result of accounting and other professional fees
related to the year end audit and tax work. Expenses, including stockholder
services, travel and legal, related to the issuance of the proxy and annual
shareholder's meeting were higher in the second quarter.
The following is a summary of the unaudited quarterly results of
operations for the year ended June 30, 2001 (in dollars, except per share
amounts):
Year Ended June 30, 2001
---------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
Revenues .................................... $ 178 $ 1,239 $ 1,132 $ 152
Net income (loss) ........................... 9 454 534 (63)
Basic earnings (loss) per common share:
Net income (loss) ...................... 0.00 0.08 0.09 (0.01)
Diluted earnings (loss) per common share:
Net income (loss) ...................... 0.00 0.07 0.09 (0.01)
Revenues were higher in the second and third quarters as a result of two
separate sales of a portion of the Company's real estate investment, resulting
in a gain on sale of real estate of $828,000 and $945,000 for the second and
third quarter, respectively. Refer to the "Investment in Real Estate" footnote
for more information on the real estate sales. In accordance with existing
compensation plans for the directors and officers, the Company incurred
additional compensation expense related to these sales in the amount of $99,000
and $113,000 in the second and third quarter, respectively, reported as
personnel expense on the Company's Statements of Consolidated Operations and
Comprehensive Income (Loss). The net gains reported from the sale of the real
estate also increased the federal income tax expense for the same two quarters.
Trust expense reimbursement revenue from the Creditors' Trust was reported
quarterly by the Company in the amounts of $61,000, $265,000, $34,000 and
$55,000, respectively. The second and fourth quarters included specific
reimbursements for bonus payments to the directors and officers in accordance
with existing compensation plans in the amounts of $212,000 and $25,000,
respectively. These amounts were also reported as personnel expense on the
Company's Statements of Consolidated Operations and Comprehensive Income (Loss)
for the same periods thereby eliminating a fluctuation in net income. See the
"Stock and Compensation Plans" footnote for further information.
The Company reported increased travel expense in the amount of $10,000 in
the second quarter. Professional fees increased slightly by quarter, reported as
$13,000, $36,000, $31,000 and $57,000 for the first through the fourth quarter.
The Company incurred additional legal fees in the second quarter and higher
accounting fees in the fourth quarter.
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Industry Segment Data of Operations
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", requires that companies disclose segment data on a basis that is
used internally by management for evaluating segment performance and allocating
resources to segments. The Company has two reportable segments: (1) assisted
care management, which receives a fee for managing and maintaining an assisted
care facility in Houston, Texas, and (2) real estate investment and development.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. See the "Significant Accounting
Policies" footnote for more information. The Company's management evaluates
performance of each segment based on profit and loss from operations excluding
allocation of corporate overhead expenses and interest income.
The following table summarizes the Company's identifiable assets by
segment as of June 30, 2002 and 2001 (in thousands):
June 30, 2002 June 30, 2001
------------- -------------
Identifiable assets:
Assisted care facility management (including receivable from
parent company eliminated in consolidation) ............... $ 449 $ 338
Real estate ................................................. 6,798 6,645
-------- --------
7,247 6,983
-------- --------
Reconciling items:
Corporate cash, receivables and prepaid expenses (including
receivable from subsidiary eliminated in consolidation) . 3,768 4,147
Deferred tax assets--net .................................. 1,908 1,908
Elimination of intercompany receivables ................... (330) (295)
-------- --------
Total assets per the Consolidated Balance Sheets .............. $ 12,593 $ 12,743
======== ========
The following tables summarize the Company=s segment data of operations
for the years ended June 30, 2002, and 2000 (in thousands):
Years Ended June 30
------------------------------
2002 2001 2000
------ ------ ------
Revenues:
Assisted care management ............................. $ 255 $ 250 $ 360
Real estate .......................................... 71 1,818 2
------ ------ ------
326 2,068 362
------ ------ ------
Reconciling items:
Corporate interest income ......................... 73 203 214
Trust expense reimbursement ....................... 96 415 210
Other corporate revenue ........................... 7 15 86
------ ------ ------
177 633 510
------ ------ ------
Total revenues per Statements of Consolidated Operations
and Comprehensive Income (Loss) ...................... $ 503 $2,701 $ 872
====== ====== ======
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended June 30
--------------------------------------
2002 2001 2000
-------- -------- --------
Operating income (loss):
Assisted care management ........................................... $ 161 $ 142 $ 210
Real estate ........................................................ 15 1,815 (12)
-------- -------- --------
176 1,957 198
-------- -------- --------
Reconciling items:
Corporate interest income .......................................... 74 203 214
Trust expense reimbursement ........................................ 96 415 210
Unallocated corporate expenses ..................................... (671) (1,153) (626)
Other .............................................................. 7 15 86
-------- -------- --------
(494) (520) (116)
-------- -------- --------
Income (loss) from operations before federal income tax per Statements
of Consolidated Operations and Comprehensive Income (Loss) ........... $ (318) $ 1,437 $ 82
======== ======== ========
Recent Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, addresses the financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of. This statement supercedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of. SFAS No. 144 requires, among other things, that impairment
losses resulting form the initial application of its provision for long-lived
assets to be held and used be reported in the period in which the recognition
criteria are initially applied and met based on the facts and circumstances
existing at that date. This statement, like SFAS No. 121, requires consideration
of the continuing effect of events or changes in circumstances that occurred
prior to initial application of SFAS No. 144. The Company adopted SFAS No. 144
on July 1, 2002, and there was no impact to its consolidated financial
statements.
On July 1, 2000, SFAS No. 133/ 138, Accounting for Derivative Instruments
and Hedging Activities, became effective and requires companies to carry all
derivative instruments on the balance sheet at fair value. Since the Company has
no derivative instruments, the adoption had no effect on the accompanying
consolidated financial statements.
36
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SIENA HOLDINGS, INC.
CONDENSED BALANCE SHEETS
(in thousands)
June 30,
----------------------
2002 2001
-------- --------
ASSETS
Current Assets:
Cash and cash equivalents .............................................. $ 3,713 $ 3,975
Receivables (including $0 and $20, respectively, receivables
from subsidiaries eliminated in consolidation) ....................... 27 33
Prepaid expenses ....................................................... 28 139
-------- --------
3,768 4,147
-------- --------
Long Term Assets:
Investments (including $9,000 and $8,844, respectively,
investments in subsidiaries eliminated in consolidation) ............. 9,000 8,844
-------- --------
Total Assets ......................................................... $ 12,768 $ 12,991
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses (including $330 and $275,
respectively, payables to subsidiaries eliminated in consolidation) .. $ 467 $ 406
Long Term Liabilities:
Accrued medical insurance premiums ..................................... 392 447
Deferred compensation and fees ......................................... 444 406
-------- --------
836 853
-------- --------
1,303 1,259
-------- --------
Stockholders' Equity:
Preferred stock -- ($1.00 par value, 1,000 shares authorized,
0 shares issued and outstanding) ..................................... -- --
Common stock -- ($.10 par value, 15,000 shares authorized,
6,000 shares issued and outstanding) ................................. 600 600
Additional paid-in capital ............................................... 10,188 10,164
Retained earnings ........................................................ 664 982
Accumulated other comprehensive income (loss) ............................ 13 (14)
-------- --------
11,465 11,732
-------- --------
Total Liabilities and Stockholders' Equity ........................... $ 12,768 $ 12,991
======== ========
See notes to consolidated financial statements.
37
SCHEDULE I----CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(Continued)
SIENA HOLDINGS, INC.
CONDENSED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except par values)
Years ended June 30,
--------------------------------------
2002 2001 2000
-------- -------- --------
Revenues:
Interest ........................................... $ 74 $ 203 $ 214
Trust expense reimbursement ........................ 96 415 210
Other .............................................. 7 15 86
-------- -------- --------
177 633 510
-------- -------- --------
Expenses:
Personnel .......................................... 292 663 288
Other operating .................................... 379 491 338
-------- -------- --------
671 1,154 626
-------- -------- --------
Loss from operations before income from subsidiaries
and federal income tax ............................ (494) (521) (116)
Income from subsidiaries - equity ..................... 116 1,274 126
Income from subsidiaries - federal tax share .......... 60 684 72
-------- -------- --------
Income (loss) before federal income tax ............... (318) 1,437 82
Federal income tax expense ............................ -- (503) (29)
-------- -------- --------
Net income (loss) ..................................... (318) 934 53
-------- -------- --------
Other comprehensive income (loss), net of tax:
Other comprehensive income (loss) from subsidiaries 27 (14) --
-------- -------- --------
Other comprehensive income (loss), net of tax ..... 27 (14) --
-------- -------- --------
Comprehensive income (loss) ........................... $ (291) $ 920 $ 53
======== ======== ========
See notes to consolidated financial statements.
Note: Pursuant to an existing tax sharing agreement, the Company began
allocating federal income tax expense to one of its subsidiaries, Siena
Housing Management, on January, 1, 2000.
38
SCHEDULE I---CONDENSED FINANCIAL INFORMATION OF REGISTRANT---(Continued)
SIENA HOLDINGS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended June 30,
--------------------------------------
2002 2001 2000
-------- -------- --------
Operating activities:
Net income (loss) ....................................................... $ (318) $ 934 $ 53
Adjustments to reconcile net income (loss) to cash used by operations:
Federal income tax utilization of pre-reorganization tax
attributes ............................................................ -- 602 46
Increase in deferred tax / decrease in federal income tax
expense relating to post-reorganization tax attributes ................ -- (119) (17)
Compensation expense for stock options .................................. 16 16 16
Income from subsidiaries - equity ....................................... (116) (1,274) (126)
Income from subsidiaries - federal tax share ............................ (60) (664) (72)
(Increase) decrease in current receivables and prepaid
expenses - excluding receivables from subsidiaries .................... 97 (88) 53
Increase (decrease) in current accounts payable and accrued
expenses - excluding payables to subsidiaries ......................... 6 18 (69)
Net (decrease) increase in receivables from and payables
to subsidiaries - net of federal tax share ............................ 130 230 (435)
Decrease in long term accrued medical insurance
premiums .............................................................. (55) (69) (133)
Increase in long term deferred compensation and fees .................... 38 304 50
-------- -------- --------
Net cash used by operating activities ................................. (262) (110) (634)
-------- -------- --------
Investing activities:
Return of capital from investments in subsidiaries ...................... -- -- 615
-------- -------- --------
Net cash provided by investing activities ............................. -- -- 615
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ...................... (262) (110) (19)
Cash and cash equivalents at beginning of year ............................ 3,975 4,085 4,104
-------- -------- --------
Cash and cash equivalents at end of year .................................. $ 3,713 $ 3,975 $ 4,085
======== ======== ========
Non-cash transactions:
Issuance of stock options ............................................... $ 16 $ 16 $ 16
See notes to consolidated financial statements.
Note: Pursuant to an existing tax sharing agreement, the Company began
allocating federal income tax expense to one of its subsidiaries, Siena
Housing Management, on January, 1, 2000.
39
SCHEDULE III---REAL ESTATE AND ACCUMULATED DEPRECIATION
SIENA HOLDINGS, INC. AND SUBSIDIARIES
(in thousands)
------------------------------------------------------------------------------------------------------------
Initial cost to Cost capitalized to
Company acquisition
-------------------------------------------------------
Description Encumbrances
------------------------------------------------------------------------------------------------------------
Buildings and
Land improvements Improvements Carrying costs
------------------------------------------------------------------------------------------------------------
185.1 gross acres of
unimproved land in Allen,
Texas (the "Allen property")..... -- $ 4,800* $ -- $ 537 $ --
------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
Gross amount at which carried
at close of June 30, 2002 (**) Life on which
------------------------------- depreciation in latest
Buildings and Accumulated Date of Date income statements is
Land improvements Total depreciation construction acquired computed
-----------------------------------------------------------------------------------------------------------------------------------
185.1 gross acres of
unimproved land in Allen,
Texas (the "Allen property")..... $ 4,656 $ -- 4,656 $ -- N/A 3/5/97 N/A
-----------------------------------------------------------------------------------------------------------------------------------
The changes in the investment in real estate are as follows (in thousands):
Years Ended June 30
--------------------------------------
2002 2001 2000
-------- -------- --------
$ 4,570 $ 4,949 $ 4,879
Additions during the year:
Improvements, etc .......... 86 303 70
-------- -------- --------
86 303 70
-------- -------- --------
Deductions during the year:
Cost of real estate sold ... -- (682) --
-------- -------- --------
-- (682) --
-------- -------- --------
$ 4,656 $ 4,570 $ 4,949
======== ======== ========
* The fair market value of the property on the date the Company adopted
fresh-start accounting (see "Item 8. Financial Statements and
Supplementary Data--Significant Accounting Policies" footnote).
** The aggregate cost for Federal income tax purposes of the Allen property
at June 30, 2002, 2001 and 2000 is $6.20 million, $6.12 million and $6.59
million, respectively.
40
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors of the Registrant
The Company held its Annual Meeting of Stockholders on December 14, 2001,
and elected the following five directors to serve until the next annual meeting
and until their successors are elected and qualified:
JOHN P. KNEAFSEY -- Chairman and Chief Executive Officer of the Company,
since October 1996; President, Pathfinder Advisory Services, Inc., since
1997; Senior Vice President - Investments, Prudential Securities, Inc.,
from 1980 to 1997. Age 55.
ERIC M. BODOW -- Chief Administrative Officer, GEM Capital Management,
Inc., since 1998; Senior Vice President, Sagner/Marks, Inc., from 1992 to
1998; Vice President, First National Bank of Chicago, from 1985 to 1992.
Age 58.
JAMES D. KEMP -- Principal, Antaean Solutions, LLC, since 1997; President
and Chief Executive Officer, The Trust Company, N.A., from 1996 to 1997;
President and Chief Executive Officer, Kemp Consulting, from 1992 to 1997;
President, Ameritrust Texas, N.A., from 1980 to 1992. Age 55.
MATTHEW S. METCALFE -- Chairman and President, Airland Corporation;
Director Emeritus, Amsouth Bancorporation; Member, State of Alabama Oil
and Gas Board; Chairman, Mobile Airport Authority. Age 71.
FRANK B. RYAN -- Vice President and Faculty Member, Rice University, from
1990 to 1996; Director, Danielson Holding Corporation, from 1990 to 2002;
Director, Texas Micro, Inc., from 1995 to 2000; Director, America West
Airlines, Inc., from 1995 to 1999. Age 66.
Executive Officers of the Registrant
The following two executive officers were approved by the Board of
Directors and given separate five year retention agreements effective December
1, 1997:
JOHN P. KNEAFSEY -- Chief Executive Officer of the Company. See
information under "Directors of the Registrant" above.
W. JOSEPH DRYER -- President and Chief Accounting Officer of the Company
since October 4, 1996, prior thereto, Senior Vice President from January
1995; President and Director of Russian River Energy Co. from 1992 to
1994; President and Director of Geothermal Resources International, Inc.
since 1994, prior thereto, an officer since 1984; and President of
Worldcorp, Inc. since May, 2000. Age 47.
Item 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference
to the information contained in the Proxy Statement relating to the Company's
fiscal year 2002 Annual Meeting of Stockholders which will be filed with the SEC
no later than 120 days after the close of the fiscal year ended June 30, 2002.
41
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference
to the information contained in the Proxy Statement relating to the Company's
fiscal year 2002 Annual Meeting of Stockholders which will be filed with the SEC
no later than 120 days after the close of the fiscal year ended June 30, 2002.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(i) The following consolidated financial statements are included
in Item 8.
Pages
-----
Consolidated Balance Sheets--June 30, 2002 and 2001 ................. 15
Statements of Consolidated Operations and Comprehensive Income
(Loss)--Years Ended June 30, 2002, 2001 and 2000 ................. 16
Statements of Consolidated Stockholders' Equity--Years Ended June 30,
2002, 2001 and 2000 .............................................. 17
Statements of Consolidated Cash Flows--Years Ended June 30, 2002,
2001 and 2000 .................................................... 18
Notes to Consolidated Financial Statements .......................... 19
(ii) The following financial statement schedules are included in
Item 8:
Schedule I--Condensed Financial Information of Registrant............ 37
Schedule III--Real Estate and Accumulated Depreciation............... 40
All other schedules are omitted as the required information is
inapplicable or the information is presented in the Consolidated Financial
Statements or related notes.
Financial statements (and summarized financial information) of
unconsolidated subsidiaries and 50-Percent-or-Less-Owned Persons accounted for
by the equity method are not presented because they do not, individually or in
aggregate, constitute a significant subsidiary.
(b) Exhibits:
Exhibit
Number
------
(21) List of subsidiaries of Registrant.
(99.1) Certification of Chief Executive Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
(99.2) Certification of Chief Financial Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
(c) Reports on Form 8-K:
None.
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SIENA HOLDINGS, INC.
Registrant
Date: September 25, 2002 /s/ W. JOSEPH DRYER
--------------------------------------
W. Joseph Dryer
Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: September 25, 2002 /s/ W. JOSEPH DRYER
--------------------------------------
W. Joseph Dryer
President
Pursuant to the requirements of the Securities Exchange Act of 1934 and in
response to General Instruction D to Form 10-K, this report has been signed
below on behalf of the registrant by the following directors on the dates
indicated.
Date: September 25, 2002 By /s/ JOHN P. KNEAFSEY
------------------------------------
(John P. Kneafsey, Chairman)
Date: September 25, 2002 By /s/ ERIC M. BODOW
------------------------------------
(Eric M. Bodow)
Date: September 25, 2002 By /s/ JAMES D. KEMP
------------------------------------
(James D. Kemp)
Date: September 25, 2002 By /s/ MATTHEW S. METCALFE
------------------------------------
( Matthew S. Metcalfe)
Date: September 25, 2002 By /s/ FRANK RYAN
------------------------------------
(Frank Ryan)