SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K/A
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CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported) January 29, 1997
INTEGRATED LIVING COMMUNITIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 000-2163 52-01967027
-------- -------- -----------
(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Number) Identification No.)
24850 Old 41 Road, Suite 10, Bonita Springs, FL 34135
- ----------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (941) 947-7200
--------------
Not Applicable
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(Former name or former address, if changed since last report)
<PAGE>
Item 2. Acquisition or Disposition of Assets
On January 29, 1997, Integrated Living Communities purchased four
facilities consisting of 198 beds in Virginia. The facilities are located in
Portsmouth, Norfolk, Virginia Beach, and Gloucester Virginia. Three of the four
facilities were organized as limited partnerships with the Bullock corporation
as the general partner. The fourth facility was leased by the Bullock
Corporation. The facilities were managed by American Retirement Homes.
Integrated Living Communities purchased the four facilities and the related
management contracts for $15,750,000.
In February 1997, the Company acquired a leasehold interest in a
facility in West Columbia, South Carolina consisting of 55 beds.
In March 1997, the Company acquired a leasehold interest in a facility
in Milledgeville, Georgia consisting of 48 beds and acquired a leasehold
interest in a facility in St. Petersburg, Florida consisting of 55 beds.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
a. Financial Statements of Businesses Acquired.
1. The combined balance sheet of the "Bullock Facilities" as of
December 31, 1996 and the related combined statements of
operations and owners' deficit and cash flows for the year then
ended.
b. Pro Forma Financial Information.
1. The unaudited pro forma consolidated balance sheet of Integrated
Living Communities, Inc. as of December 31, 1996, giving effect
to the acquisition of the Bullock facilities. No adjustment was
made for the acquisition of leasehold interests in the West
Columbia, Milledgeville, and St. Petersberg facilities as such
transactions had no effect on the balance sheet.
2. The unaudited pro forma consolidated statement of operations of
Integrated Living Communities, Inc. for the fiscal year ended
December 31, 1996, giving effect to the acquisition of the
Bullock facilities and leasehold interests in the West Columbia,
Milledgeville, and St. Petersburg facilities as if such
transactions were consummated on January 1, 1996.
c. Exhibits
23 Consent of KPMG Peat Marwick LLP.
2
<PAGE>
THE BULLOCK FACILITIES
Financial Statements
December 31, 1996
(With Independent Auditors' Report Thereon)
3
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Integrated Living Communities, Inc.:
We have audited the accompanying balance sheet of The Bullock Facilities, four
facilities managed by American Retirement Homes, Inc. (see note 1), as of
December 31, 1996 and the related statements of operations, owners' deficit and
cash flows for the year then ended. These financial statements are the
responsibility of The Bullock Facilities' management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Bullock Facilities as of
December 31, 1996, and the results of their operations and cash flows for the
year then ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
March 7, 1997
4
<PAGE>
THE BULLOCK FACILITIES
Balance Sheet
December 31, 1996
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ASSETS
Current assets:
Cash and cash equivalents $ 782,868
Accounts receivable 20,425
Notes receivable 4,500
Other current assets 66,037
- --------------------------------------------------------------------------------
Total current assets 873,830
Property, plant and equipment, net (note 3) 4,094,222
Assets limited as to use 331,414
Other assets 355,363
- --------------------------------------------------------------------------------
$ 5,654,829
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LIABILITIES AND OWNERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses (note 4) $ 888,004
Notes payable to affiliate (note 7) 528,058
Current portion of long-term debt (note 6) 45,305
- --------------------------------------------------------------------------------
Total current liabilities 1,461,367
Long-term debt:
Mortgage payable, less current portion (note 6) 4,835,303
- --------------------------------------------------------------------------------
Total liabilities 6,296,670
Owners' deficit (641,841)
- --------------------------------------------------------------------------------
$ 5,654,829
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See accompanying notes to financial statements.
5
<PAGE>
THE BULLOCK FACILITIES
Statement of Operations and Owners' Deficit
Year ended December 31, 1996
================================================================================
Revenues:
Monthly service fees $ 4,010,973
Other 81,448
- --------------------------------------------------------------------------------
Total revenues 4,092,421
- --------------------------------------------------------------------------------
Facility operating expenses:
Community operations 2,390,119
Management fee (note 7) 514,435
Rent (note 5) 262,356
Depreciation and amortization 236,458
- --------------------------------------------------------------------------------
Total expenses 3,403,368
- --------------------------------------------------------------------------------
Operating income 689,053
Interest expense 573,124
- --------------------------------------------------------------------------------
Earnings before income taxes 115,929
Federal and state income taxes 27,082
- --------------------------------------------------------------------------------
Net earnings 88,847
Owners' deficit at December 31, 1995 (730,688)
- --------------------------------------------------------------------------------
Owners' deficit at December 31, 1996 $ (641,841)
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See accompanying notes to financial statements.
6
<PAGE>
THE BULLOCK FACILITIES
Statement of Cash Flows
December 31, 1996
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Cash flows from operating activities:
Net earnings $ 88,847
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 236,458
Decrease in other assets 735
Decrease in accounts receivable 74,938
Increase in accounts payable and accrued expenses 28,430
Increase in deferred resident income 56,070
- --------------------------------------------------------------------------------
Net cash provided by operating activities 485,478
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Cash flows from financing activities:
Payments on mortgages payable (50,997)
Payments on notes payable (14,847)
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Net cash used by financing activities (65,844)
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Cash flows from investing activities:
Purchases of property, plant and equipment (7,248)
Increases in assets limited as to use (53,426)
Increase in other assets (746)
Increases in notes receivable (1,150)
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Net cash used in investing activities (62,570)
- --------------------------------------------------------------------------------
Increase in cash 357,064
Cash, beginning of period 425,804
- --------------------------------------------------------------------------------
Cash, end of period $ 782,868
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Supplemental disclosure of cash flows information
cash paid for:
Interest $ 573,905
See accompanying notes to financial statements
7
<PAGE>
THE BULLOCK FACILITIES
Notes to Financial Statements
December 31, 1996
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(1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The four assisted living facilities below are hereinafter referred to
as "The Bullock Facilities" and are owned or leased as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Facility Name Location Owner/Lessee Owned or Leased
- ---------------------------------------------------------------------------------------------------------
Churchland House Portsmouth, VA Retirement Home of Portsmouth Owned
Limited Partnership (the Portsmouth LP)
Ghent Arms Norfolk, VA Ghent Arms Limited Partnership Owned
Gloucester House Gloucester, VA Bullock Corporation Leased
Kings' Grant House Virginia Beach, VA Retirement Home of Virginia Owned
Beach Limited Partnership (the Virginia
Beach LP)
</TABLE>
Bullock Corporation is the general partner in each of the three limited
partnerships listed above and is the lessee and operator of the
Gloucester House facility. The combined financial statements represent
the accounts of the limited partnerships identified above and the
accounts of the Gloucester House facility, a division of Bullock
Corporation. The facilities owned or leased by such entities are the
subject of Asset Purchase Agreements dated as of January 24, 1997 under
which Integrated Living Communities, Inc. (ILC) acquired the fee simple
real estate and other business assets of The Bullock Facilities. Also,
ILC acquired the management agreements related to such facilities
pursuant to a Management Agreements Acquisition Agreement of the same
date with American Retirement Homes, Inc. (ARH), the manager of the
facilities and a member of the Bullock Corporation controlled corporate
group. In this connection, ARH acquired the Gloucester House facility
from Sherwood Manor Limited Partnership to enable the consummation of
the sale of the facilities to ILC. The total purchase price was
$15,750,000, including $3,570,000 related to the Gloucester House
facility.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The financial statements have been prepared on the accrual basis of
accounting. Inter-facilities balances and transactions accounts have
been eliminated in the preparation of these financial statements.
REVENUE RECOGNITION
Resident units are rented on a month to month basis and monthly service
fees revenue is recognized in the months the units are occupied.
Service fees paid by residents for assisted-living and other related
services are recognized in the period such services are rendered as
other revenue.
(Continued)
8
<PAGE>
THE BULLOCK FACILITIES
Notes to Financial Statements
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(2) CONTINUED
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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. Actual results could differ
from those estimates.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, other current
assets, other assets, and accounts payable, and accrued expenses
approximate fair value because of the short-term maturity of these
instruments. The carrying amount of the mortgage payable approximates
its fair value because the interest rate is adjusted quarterly based on
market rates.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with an original
maturity of three months or less.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and
amortization of property and equipment are computed using the
straight-line method for buildings and vehicles and an accelerated
method for equipment and furniture over the estimated useful lives of
the assets as follows:
Buildings and improvements 27.5 years
Furniture and equipment 5-7 years
Vehicles 5 years
INCOME TAXES
The Limited Partnerships that own and operate three of the facilities
are not considered taxable for Federal and state income tax purposes
and, accordingly, the accompanying financial statements do not include
a provision for income taxes for the operations of these facilities.
Any taxable income or loss is the responsibility of the partners on
their tax returns in accordance with their partnership interests.
Gloucester House was operated by the Bullock Corporation, a taxable
entity, during 1996. Federal and state income tax expense consists of
the allocated tax expense of Bullock Corporation that relates to
Gloucester House based on the effective tax rate of Bullock Corporation
applied to the pre-tax income of Gloucester House.
(Continued)
9
<PAGE>
THE BULLOCK FACILITIES
Notes to Financial Statements
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(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
Land and improvements $ 475,277
Building and improvements 4,651,838
Furniture, equipment and vehicles 807,842
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5,934,957
Less accumulated depreciation 1,840,735
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Net property, plant and equipment $ 4,094,222
=======================================================================
(4) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31, 1996 are
summarized as follows:
Accounts payable - trade $ 343,310
Deferred resident income 416,120
Accrued salaries and wages 60,442
Income taxes payable to parent company 27,082
Other accrued expenses 41,050
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Total $ 888,004
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(5) LEASES
In April 1991, the Bullock Corporation entered into a lease with
Sherwood Manor Limited Partnership to lease the Gloucester House
facility from Sherwood Manor Limited Partnership for $230,845 per year
with base rent increases for CPI for a term of ten years. In January
1997 the lease was terminated when Sherwood Manor Limited Partnership
sold the facility to ARH. Rent expense in 1996 was $262,356.
(Continued)
10
<PAGE>
THE BULLOCK FACILITIES
Notes to Financial Statements
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(6) LONG-TERM LIABILITIES
Long-term liabilities consist of the following at December 31, 1996:
10.7% mortgage note payable - Portsmouth facility $ 1,651,264
9.25% mortgage note payable - Norfolk facility 1,387,940
9.9% mortgage note payable - Virginia Beach facility 1,841,404
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4,880,608
Less current portion 45,305
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$ 4,835,303
=======================================================================
Pursuant to a loan agreement with Continental Wingate Associates, the
Retirement Home of Portsmouth Limited Partnership (Portsmouth LP)
obtained a mortgage loan in 1989 for $1,694,300 to acquire the site and
construct the Churchland House facility. The loan bears interest at a
fixed rate of 10.7%. Furthermore, the Portsmouth LP entered into an
agreement with the Federal Department of Housing and Urban Development
(HUD) whereby the loan on this facility is guaranteed by HUD. Under the
agreement with HUD, the Portsmouth LP signed an operating agreement
that requires certain performance on the part of the Portsmouth LP
including the establishment of a replacement reserve to pay for capital
improvements to the property. As of December 31, 1996, the balance of
the replacement reserve for Churchland House was approximately
$173,000.
Pursuant to a loan agreement with Huntoon Paige Mortgage Company, the
Retirement Home of Virginia Beach Limited Partnership (Virginia Beach
LP)obtained a loan in 1990 for $1,950,700 to acquire the site and
construct the Kings Grant facility. The loan bears interest at a fixed
rate of 9.9%. Furthermore, the Virginia Beach LP entered into an
agreement with the Federal Department of Housing and Urban Development
(HUD) whereby the loan on this facility is guaranteed by HUD. Under the
agreement with HUD, the Virginia Beach LP signed an operating agreement
that requires certain performance on the part of the Virginia Beach LP
including the establishment of a replacement reserve to pay for capital
improvements to the property. As of December 31, 1996, the balance of
the replacement reserve for Kings Grant was approximately $157,000.
(Coninued)
11
<PAGE>
THE BULLOCK FACILITIES
Notes to Financial Statements
================================================================================
(6) CONTINUED
Pursuant to a loan agreement with Crestar Bank, the Ghent Arms Limited
Partnership obtained a mortgage loan in 1994 for $1,450,000 to
refinance the Ghent Arms facility. The loan bears interest at a fixed
rate of 9.25%.
Payments for interest were $573,905 in 1996. The aforementioned
mortgage notes payable were paid off in full in January 1997 at the
time of the sale of the facilities to ILC.
(7) OTHER RELATED PARTY TRANSACTIONS
Corporate general and administrative expenses represent management fees
for certain services, including management, financial, accounting,
human resources, information systems services provided to the
Facilities pursuant to management agreements between ARH and the
respective owner or operator of the facility.
The Bullock Corporation has provided loans to the Virginia Beach LP for
working capital purposes. These loans bear interest at rates ranging
from 5% to 8.5% and are due on demand. The unpaid balance of these
loans at December 31, 1996 was $312,144. The Bullock Corporation has
also made a loan to the Portsmouth L.P. for working capital purposes.
The loan bears interest at 9.25%. The unpaid balance at December 31,
1996 was $8,829.
The Virginia Beach LP also had a loan payable to related party, Kings
Grant LLC. The outstanding balance on the note as of December 31, 1996
was $207,085. The note bears interest at a rate of 16.8% and is due on
February 1, 2014.
================================================================================
12
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The accompanying Unaudited pro forma consolidated financial statements
have been prepared based on (i) the audited consolidated financial statements of
the Company for the year ended December 31, 1996, (ii) the audited combined
financial statements of the Bullock facilities for the year ended December 31,
1996, (iii) the unaudited financial statements of the West Columbia facility for
the year ended December 31, 1996, (iv) the unaudited financial statements of the
Milledgeville facility for the year ended December 31, 1996, and (v) the
unaudited financial statements of the St. Petersburg facility for the year ended
December 31, 1996.
The pro forma consolidated balance sheet as of December 31, 1996 was
prepared as if the acquisition of the Bullock facilities has occurred on
December 31, 1996. No adjustment was made for the acquisition of leasehold
interests in the West Columbia, Milledgeville, or St. Petersburg facilities as
such transactions were accounted for as operating leases and had no effect on
the balance sheet. The pro forma consolidated statements of operations for the
year ended December 31, 1996 were prepared as if the acquisition of the Bullock
facilities, West Columbia facility, Milledgeville facility, and St. Petersburg
facility were consummated on January 1, 1996.
The pro forma adjustments are based upon available information and
certain assumptions that management believes are reasonable. The unaudited pro
forma combined financial information set forth below is not necessarily
indicative of the Company's combined financial position or the results of
operations that actually would have occurred if the transactions had been
consummated on the dates shown. In addition, they are not intended to be a
projection of the results of operations that may be obtained in the Company's
future. The unaudited pro forma consolidated financial information should be
read in conjunction with the financial statements and related notes thereto
included elsewhere or incorporated by reference in this Report.
13
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
DECEMBER 31, 1996
(In Thousands, except shares and per share amounts)
<TABLE>
<CAPTION>
ILC Bullock Facilities
--- ------------------
Pro forma
Actual Actual Adjustments consolidated
------ ------ ----------- ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 4,475 $ 783 $ (538) (A) $ 4,720
Accounts receivable, net 719 20 (20) (A) 719
Prepaid expenses and other current assets 273 71 (71) (A) 273
------------ -------- -------- --------
Total current assets 5,467 874 (629) 5,712
Property, plant, and equipment, net 68,561 4,094 12,021 (B) 84,676
Other assets 1,547 687 (687) (A) 1,547
------------ -------- -------- --------
$ 75,575 $ 5,655 $ 10,705 $ 91,935
Accounts payable $ 1,722 $ 343 $ 17 (D) $ 2,082
Accrued expenses 2,177 546 (296) (D) 2,427
Refundable security deposits 1,194 - - 1,194
Current portion of loan payable to affiliate 1,723 573 (573) (A) 1,723
------------ -------- -------- --------
Total current liabilities 6,816 1,462 (852) 7,426
Long Term Debt 1,579 4,835 10,915 (C) 17,329
Refundable deposits 5,080 - 5,080
Unearned entrance fees 4,134 - - 4,134
------------ -------- -------- --------
Total liabilities 17,609 6,297 10,063 33,969
Common stock, $0.01 par value. Authorized
100,000,000 shares; issued and 67 67
outstanding 6,697,900 shares
Additional paid in capital 60,559 60,559
Accumulated deficit (2,660) (642) 642 (A) (2,660)
------------ -------- -------- --------
Total stockholders' equity 57,966 (642) 642 57,966
------------ -------- -------- --------
$ 75,575 $ 5,655 $ 10,705 $ 91,935
============ ======== ======== ========
</TABLE>
14
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(In Thousands, except per share amounts)
<TABLE>
<CAPTION>
ILC BULLOCK WEST COLUMBIA MILLEDGEVILLE
ACTUAL ACTUAL ADJ ACTUAL ADJ ACTUAL ADJ
Revenues:
<S> <C> <C> <C> <C> <C> <C>
Monthly service and entrance fees $ 23,047 $ 4,011 $ 903 $ 665
Management services and other 1,181 81
------------ ----------- ----------- ---------- ---------- ---------- ----------
Total revenues 24,228 4,092 - 903 - 665 -
------------ ----------- ----------- ---------- ---------- ---------- ----------
Expenses:
Community operations 15,526 2,390 611 411
Corporate administrative and general 3,884 514 (514)(E)
Rent 2,615 262 (262)(F) 257 (I) 128 101 (I)
Depreciation and amortization 1,220 236 167 (G) 52 (52)(J) 3 (3)(J)
------------ ----------- ----------- ---------- ---------- ---------- ----------
Total expenses 23,245 3,402 (609) 663 205 542 98
------------ ----------- ----------- ---------- ---------- ---------- ----------
Operating income 983 690 609 240 (205) 123 (98)
------------ ----------- ----------- ---------- ---------- ---------- ----------
Interest income 92
Interest expense (349) (573) (766)(H) (100) 100 (K)
------------ ----------- ----------- ---------- ---------- ---------- ----------
Earnings before income taxes 726 117 (157) 140 (105) 123 (98)
------------ =========== =========== ========== ========== ========== ==========
Federal and state income taxes 279
------------
Net earnings $ 447
=============
Net earnings per common share $ 0.10
==============
Weighted average shares outstanding 4,541
==============
</TABLE>
<PAGE>
ST. PETERSBURG PRO FORMA
ACTUAL ADJ CONSOLIDATED
Revenues:
Monthly service and entrance fees $ 551 $ 29,177
Management services and other 1,262
----------- ----------- -------------
Total revenues 551 - 30,439
----------- ----------- -------------
Expenses:
Community operations 412 19,350
Corporate administrative and general 3,884
Rent 87 69(I) 3,257
Depreciation and amortization 1,623
----------- ----------- -------------
Total expenses 499 69 28,114
----------- ----------- -------------
Operating income 52 (69) 2,325
----------- ----------- -------------
Interest income 92
Interest expense (1,688)
----------- ----------- -------------
Earnings before income taxes 52 (69) 729
=========== =========== -------------
Federal and state income taxes 281(L)
-------------
Net earnings $ 448
=============
Net earnings per common share $ 0.10
=============
Weighted average shares outstanding 4,541
=============
15
<PAGE>
NOTES TO PRO FORMA UNAUDITED STATEMENTS
A To remove the assets not acquired and liabilities not assumed in the
Bullock transaction
B Represents the step up in basis in the real estate acquired as follows:
Purchase price $15,750,000
Seller liability 250,000
Closing Costs 115,000
-----------
Total 16,115,000
===========
C Represents financing of the purchase of $15,750, less prior owner
financing paid at closing.
D Represents the following:
Liabilities incurred at closing 250 115
Liabilities not assumed (233) (411)
------- -------
17 (296)
======= =======
E To eliminate intercompany management fee recorded by prior owner
F To eliminate rent on building purchased by the Company
G To record depreciation on the new basis of the assets acquired as
follows:
Land 2,417,250
Building 12,892,000 40 year life 322,300
Equipment 805,750 10 year life 80,575
------------ --------
Total 16,115,000 402,875
========== =======
H To record interest expense on the note used to finance the Bullock
acquisition:
Note balance $15,750,000
Interest rate 8.5%
-----------
Pro forma interest expense 1,338,751
===========
I To adjust rent to terms of the new lease.
J To eliminate depreciation on assets not assumed
K To eliminate interest expense on debt not assumed
L To adjust the provision for income taxes to the effective tax rate of
the Company
16
<PAGE>
SIGNATURES
----------
Pursuant to the requirements 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.
Date: April 14, 1997
INTEGRATED LIVING COMMUNITIES, INC.
By: \s\ John B. Poole
----------------------
John B. Poole
Senior Vice President - Chief Financial Officer
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Integrated Living Communities, Inc.:
We consent to the use of our reports included herein, relating to the
financial statements of the Bullock Facilities as of December 31, 1996, and for
the year then ended.
KPMG PEAT MARWICK LLP
Baltimore, Maryland
April 10, 1997
