SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
FORM 10-Q/A No. 1
AMENDMENT TO APPLICATION OR REPORT
Filed pursuant to Section 12, 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
FORUM GROUP, INC.
..........................
(Exact name of registrant as specified in charter)
The undersigned registrant hereby amends the following statements,
exhibits or other portions of its Quarterly Report on Forum 10-Q for the
quarterly period ended September 30, 1993 as set forth in the pages attached
hereto:
Item 1. Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
Forum Group, Inc.
---------------------------------
Date: February 15, 1994 \s\ Paul A. Shively
----------------------- ---------------------------------
Paul A. Shively
Senior Vice President & Treasurer
(Chief Financial Officer)
<PAGE>
INDEX
FORUM GROUP, INC., AND SUBSIDIARIES
PAGE
----
Item 1. Financial Statements (Without Audit)
Condensed consolidated balance sheets --
September 30 and March 31, 1993 3
Condensed consolidated statements of operations --
Three and six months ended September 30, 1993 and 1992 4
Condensed consolidated statements of cash flows --
Six months ended September 30, 1993 and 1992 5
Notes to condensed consolidated financial statements --
September 30, 1993 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FORUM GROUP, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Without Audit)
September 30, March 31,
1993 1993
------------- ------------
ASSETS (in thousands)
------
Property and Equipment:
Land and improvements $ 34,469 $ 34,443
Buildings and leasehold improvements 175,524 175,064
Furniture and equipment 12,561 12,225
----------- -----------
222,554 221,732
Less accumulated depreciation and amortization 8,663 5,768
----------- -----------
213,891 215,964
Rancho San Antonio, property and equipment - net -0- 94,573
----------- -----------
213,891 310,537
Investments:
Forum Retirement Partners, L.P. 3,902 3,795
Greenville Retirement Community, L.P. 3,805 3,763
Rancho San Antonio Retirement Housing
Corporation 11,748 -0-
----------- -----------
19,455 7,558
----------- -----------
Cash and cash equivalents 18,624 5,817
Accounts receivable, less allowance for doubtful
accounts (September 30, $267; March 31, $219) 3,212 2,883
Notes, investments and other receivables 2,862 3,149
Land held for resale 1,638 1,638
Restricted cash 9,676 8,804
Deferred costs and other assets 9,138 4,165
Rancho San Antonio, current and other assets -0- 4,090
----------- -----------
$ 278,496 $ 348,641
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Long-term debt, including $7,860 due
within one year $ 194,647 $ 200,098
Trade accounts payable 2,548 1,855
Accrued interest 2,226 708
Other accrued expenses 16,620 17,955
Resident deposits 18,056 16,558
Deferred income 4,857 4,585
Rancho San Antonio, liabilities -0- 30,820
----------- -----------
Total Liabilities 238,954 272,579
Rancho San Antonio, cooperative memberships -0- 55,910
Other partners' equity 1,621 1,707
Shareholders' equity:
Preferred stock - Series B, no par value -
authorized 2,000 shares, issued 25 shares
at March 31, 1993 -0- 4,870
Common stock, no par value - authorized 48,000
shares, issued 17,795 and 7,493 shares at
September 30 and March 31, 1993, respectively 46,035 20,934
Accumulated deficit (8,114) (7,359)
----------- -----------
Total Shareholders' Equity 37,921 18,445
----------- -----------
$ 278,496 $ 348,641
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Without Audit)
Three Months Ended Six Months Ended
September 30, September 30,
------------------ ----------------
1993 1992 1993 1992
--------- --------- -------- -------
(in thousands except per share amounts)
Revenues: | |
Net operating revenues $ 26,989 | $ 22,135 $ 51,766 | $ 42,588
Facility sales, net and other (8)| 115 166 | 303
-------- | -------- -------- | --------
TOTAL REVENUES 26,981 | 22,250 51,932 | 42,891
-------- | -------- -------- | --------
| |
Costs and expenses: | |
Operating expenses (19,298)| (16,618) (37,863)| (33,814)
General and administrative | |
expenses (771)| (1,206) (1,738)| (2,317)
Litigation expense (181)| -0- (1,262)| -0-
Depreciation (1,807)| (2,271) (4,040)| (4,187)
-------- | -------- -------- | --------
TOTAL COSTS AND EXPENSES (22,057)| (20,095) (44,903)| (40,318)
-------- | -------- -------- | --------
4,924 | 2,155 7,029 | 2,573
Other: | |
Investment income 245 | 379 396 | 832
Interest expense (4,470)| (4,818) (8,883)| (9,016)
-------- | -------- -------- | --------
Income (loss) before minority | |
interests and extraordinary item 699 | (2,284) (1,458)| (5,611)
Minority interests 160 | 168 1,115 | 345
-------- | -------- -------- | --------
Income (loss) before extraordinary | |
item 859 | (2,116) (343)| (5,266)
| |
Extraordinary item - | |
early extinguishment of debt 2 | -0- (412)| -0-
-------- | -------- -------- | --------
NET INCOME (LOSS) 861 | (2,116) (755)| (5,266)
| |
ACCUMULATED DEFICIT AT BEGINNING | |
OF PERIOD (8,975)| (3,150) (7,359)| -0-
-------- | -------- -------- | --------
| |
ACCUMULATED DEFICIT AT END OF | |
PERIOD $ (8,114)| $ (5,266) $ (8,114)| $ (5,266)
======== | ======== ======== | ========
| |
Average number of common shares | |
outstanding 17,446 | 7,493 13,416 | 7,493
======== | ======== ======== | ========
| |
Net income (loss) per common share: | |
Income (loss) before | |
extraordinary item $ 0.05 | $ (0.28) $ (0.03)| $ (0.70)
Extraordinary item 0.00 | (0.00) (0.03)| (0.00)
-------- | -------- -------- | --------
Net income (loss) $ 0.05 | $ (0.28) $ (0.06)| $ (0.70)
======== | ======== ======== | ========
SEE Notes to Condensed Consolidated Financial Statements.
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Without Audit)
Six Months Ended
September 30,
--------------------------
1993 1992
---------- -----------
(in thousands)
Cash flows from operating activities:
Net loss $ (755) $ (5,266)
Items which do not use (provide) cash:
Depreciation and amortization 4,439 4,244
Facility sales, net (55) (366)
Accrued revenues and expenses, net (1,024) (10,087)
Accrued interest 1,499 (225)
Other partners' interest in losses (earnings)
of consolidated partnerships 70 (346)
Equity in losses of unconsolidated entities 73 347
Non-cash portion of extraordinary item 270 -0-
---------- ----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 4,517 (11,699)
---------- ----------
Cash flows from investing activities:
Additions to property and equipment (1,004) (4,334)
Disposals of property and equipment -0- 36,723
Rancho San Antonio - net (26) -0-
Disposals of land held for resale -0- 1,645
Collections (advances) on notes receivable 354 (702)
Other -0- 100
---------- ----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (676) 33,432
---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt 90,303 11,727
Payments on long-term debt (98,395) (26,174)
Restructuring interest payment -0- (13,050)
Proceeds from issuance of common stock 20,000 -0-
Proceeds from Forum Retirement, Inc.'s
tender of Forum Group common stock 1,861 -0-
Recapitalization and tender costs (7,235) -0-
Proceeds from cooperative memberships 2,426 9,278
Net increase (decrease) in restricted cash 139 5,394
Net contribution (distribution to) other partners (118) 57
Deferred financing and other costs (15) (890)
---------- ----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 8,966 (13,658)
---------- ----------
Net increase in cash and
cash equivalents 12,807 8,075
Cash and cash equivalents at beginning of period 5,817 7,542
---------- ----------
Cash and cash equivalents at end of period $ 18,624 $ 15,617
========== ==========
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Without Audit)
September 30, 1993
Note A - Basis of Presentation
- ------------------------------
The balance sheet at March 31, 1993 has been derived from the audited
financial statements at that date included in the Annual Report on Form 10-K
of Forum Group, Inc. ("Forum Group") filed with the Securities and Exchange
Commission for the fiscal year ended March 31, 1993 (the "1993 10-K").
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the six-month period ended September 30, 1993 are not necessarily indicative
of the results that may be expected for the fiscal year ending March 31,
1994. For further information, refer to Forum Group's consolidated financial
statements as of and for the year ended March 31, 1993, and the footnotes
thereto, included in the 1993
10-K.
Note B - Operating Revenues
- ---------------------------
A change in the estimate of amounts reimbursable by third party payors from
prior years, resulted in the recognition of $1,045,000 and $1,115,000 of
operating revenue, respectively, in the three- and six-month periods ended
September 30, 1993. The Company participates in the Medicare program and in
certain Medicaid programs which reimburse the Company on the basis of
allowable costs. Allowable cost is subject to retroactive examination and
adjustment by the agencies adminstering the programs, and provisions are made
in the financing statements for potential adjustments that may result. To
the extent that those estimated provisions differ from the administering
agencies' determinations, operations are routinely charged or credited in the
period of such determinations. As a result, the Company changed its estimate
of amounts reimbursable by third-party payors in 1993 from prior years.
Note C - Refinancing Agreements
- -------------------------------
Recapitalization. As previously disclosed, in June, 1993 Forum Group
consummated a recapitalization (the "FGI Recapitalization") pursuant to a
series of agreements and modifications thereto (collectively, the
"Acquisition Agreement") with a group of investors comprised of Forum
Holdings, L.P. ("Forum Holdings"), Apollo Investment Fund, L.P. ("AIF") and
Lion Advisors, L.P., on behalf of one or more managed accounts ("Lion") (AIF
and Lion, together with their affiliates and assigns, are hereinafter
collectively referred to as "Apollo") and Healthcare Resources I, L.P.
("Healthcare Resources") (Forum Holdings, Apollo and Healthcare Resources,
together with their affiliates and assigns, are hereinafter collectively
referred to as the "Investors"). As a result of the FGI Recapitalization,
including the Investors' Tender Offer described below, the Investors acquired
approximately 71.7% of the outstanding shares of common stock of Forum Group
("Common Shares"). The principal components of the FGI Recapitalization
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Without Audit)
September 30, 1993 (continued)
included (i) the issuance and sale by Forum Group on February 1, 1993 of
25,000 shares of preferred stock (which were exchanged on June 14, 1993 for
2,500,000 newly-issued Common Shares) for an aggregate purchase price of
$5,000,000, (ii) the issuance and sale by Forum Group on June 14, 1993 of
7,098,200 Common Shares, together with warrants exercisable to purchase at a
nominal price an aggregate of 1.1555 Common Shares for each Common Share
reserved in accordance with Forum Group's April 2, 1992, Plan of
Reorganization for the payment of disputed general unsecured claims (each a
"Reserved Share") issued on or after June 14, 1993 for an aggregate purchase
price of $20,000,000, (iii) the borrowing by Forum Group on June 14, 1993, of
$50,000,000 pursuant to a new bank credit facility through a consortium of
lenders for which Citicorp USA, Inc. serves as agent (the "New Term Loan"),
(iv) the issuance and sale by Forum Group on June 14, 1993 of $40,000,000
aggregate principal amount of senior subordinated notes (the "New Senior
Subordinated Notes"), and (v) the prepayment by Forum Group on June 14, 1993
of all amounts outstanding under the senior secured term loan agreement which
had been entered into on April 2, 1992 with a consortium of banks for which
Chemical Bank served as agent. Of the 441,071 Reserved Shares as of March
31, 1993, 170,806 were issued prior to June 14, 1993, 4,984 were issued on
August 24, 1993 and 265,281 continued to be reserved as of November 4, 1993.
The New Term Loan requires that interest be paid quarterly at either the
prime rate plus 2% or the Eurodollar rate plus 3.5%, and requires quarterly
principal payments of $1,000,000 on December 31, 1993 and March 31, 1994;
$1,500,000 through March 31, 1995; $2,250,000 through March 31, 1996; and
$2,750,000 thereafter to maturity on March 31, 1999. The New Senior
Subordinated Notes require that interest be paid semi-annually at 12.5% to
maturity in 2003 (at which time the entire principal amount becomes due).
Pursuant to the Acquisition Agreement, the Investors commenced a tender offer
on July 27, 1993 whereby the Investors offered to purchase Common Shares from
shareholders of Forum Group (other than Forum Group) for $3.62 per share (the
"Investors' Tender Offer"). The Investors' Tender Offer expired on August
31, 1993 with 1,345,543 Common Shares having been tendered by shareholders.
Included in the Common Shares tendered as a result of the Investors' Tender
Offer were 513,993 Common Shares held by Forum Retirement, Inc., a wholly-
owned subsidiary of Forum Group.
Note D - Change In Consolidation. The assets, liabilities and financial
results of Rancho San Antonio Retirement Housing Corporation ("RSARHC") which
operates The Forum at Rancho San Antonio ("Rancho San Antonio"), a
cooperative continuing care community in Cupertino, California, were included
in the consolidated financial statements of Forum Group through July 31, 1993
since Forum Group owned a majority of the memberships in RSARHC. Effective
August 1, 1993, due to continued sales of cooperative memberships, Forum
Group no longer owned in excess of 50% of the memberships, and accordingly,
the financial statements of RSARHC are no longer included in Forum Group's
consolidated financial statements.
Sales of cooperative memberships have totalled $76,000,000 through September
30, 1993 and profits on these sales will be recognized using the cost
recovery method. Forum Group's continuing ownership interest in RSARHC as
the owner of 38% of the cooperative memberships at September 30, 1993 is
accounted for on the equity method.
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Without Audit)
September 30, 1993 (continued)
Note E - Investments
- --------------------
Summary financial information for Forum Retirement Partners, L.P. as of and
for the six months ended September 30, 1993, is as follows (in thousands):
Net property $ 98,588
Other assets 8,994
--------
107,582
Less liabilities 78,962
--------
Net assets $ 28,620
========
Revenues 22,134
Costs and expenses 23,259
--------
Net loss $ 1,125
========
Summary financial information for Greenville Retirement Community, L.P. as of
and for the six months ended September 30, 1993, is as follows (in
thousands):
Net property $ 20,786
Other assets 1,089
--------
21,875
Less liabilities 22,177
--------
Net deficit $ 302
========
Revenues 3,096
Costs and expenses 2,785
--------
Net income $ 311
========
Summary financial information for Rancho San Antonio Retirement Housing
Corporation as of and for the six months ended September 30, 1993, is as
follows (in thousands):
Net property $ 98,214
Other assets 6,911
--------
105,125
Less liabilities 43,427
--------
Net assets $ 61,698
========
Revenues 2,630
Costs and expenses 6,052
--------
Net loss $ 3,422
========
Note F - Subsequent Event. On October 7, 1993, Forum Group announced that it
had entered into an agreement with Forum Retirement Partners, L.P. ("FRP")
relating to Forum Group's participation in a proposed recapitalization of FRP
(the "FRP Recapitalization Agreement"). Forum Group had a 22.1% equity
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Without Audit)
September 30, 1993 (continued)
investment in FRP (prior to the FRP Recapitalization), is the parent company
of FRP's general partner and has a long-term management contract with FRP.
Pursuant to the FRP Recapitalization Agreement, $13 million of additional
equity was provided to FRP by a subsidiary of Forum Group through the
purchase of 6.5 million units of FRP's limited partnership interests
("Units") at a price of $2.00 per Unit. Subsequent to this purchase, Forum
Group owned 55.2% of the Units, subject to reduction as discussed below.
The FRP Recapitalization Agreement provides that FRP will promptly make a
public offering whereby unitholders of record as of October 18, 1993 (other
than Forum Group and its affiliates) will have the right to acquire
additional Units at the same price paid by the Forum Group subsidiary. Those
rights will not be directly or indirectly transferable. The proceeds of that
offering will be used to repurchase Units from the Forum Group subsidiary at
the same price paid by that subsidiary. Should all of the eligible
unitholders purchase the Units being offered to them, Forum Group's
percentage ownership will return to 22.1%.
Forum Group's acquisition of the 6.5 million Units described above was
financed in part by proceeds from the sale of 2,976,826 additional Common
Shares to Apollo and Forum Holdings for an aggregate purchase price of
$11,163,098. Immediately following their purchase of the 2,976,826 Common
Shares described above, Apollo and Forum Holdings, together with Healthcare
Resources, owned a total of 15,727,982 Common Shares, increasing the percentage
ownership of the Investors from approximately 71.7% to approximately 75.7%.
The agreement under which the 2,976,826 Common Shares were purchased by Forum
Holdings and Apollo provided that Forum Group will file and thereafter use
its best efforts to make effective a registration statement in connection
with an offering (the "FGI Offering") pursuant to which Forum Group
shareholders of record on October 18, 1993 (other than Forum Holdings, Apollo
and, in certain circumstances, Healthcare Resources) will have the right to
acquire additional shares at $3.75 per Common Share, the same price paid by
Forum Holdings and Apollo. The right to purchase Common Shares in the FGI
Offering will not be directly or indirectly assignable or transferable.
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 30, 1993
Results Of Operations
- ---------------------
Forum Group operates (i) 10 retirement communities and one nursing home owned
directly by Forum Group or through wholly owned subsidiaries (the "Owned
Communities") , (ii) four retirement communities through partnerships which
are not wholly owned but are consolidated for financial reporting purposes
(the "Consolidated Partnership Communities"), (iii) 11 retirement communities
through entities which are not consolidated for financial reporting purposes
(the "Unconsolidated Communities"), including nine retirement communities
which are owned by FRP, one owned by Greenville Retirement Community, L.P.
("GRP"), and Rancho San Antonio (which was consolidated for financial
reporting purposes prior to July 31, 1993) (see Note C to accompanying
Condensed Consolidated Financial Statements). The periods in which the
financial results of the consolidated components of Rancho San Antonio (the
lifecare community and an independent healthcare center which opened in
August, 1992) are included in the financial statements of Forum Group are not
comparable. Consequently, Rancho San Antonio is presented separately below
in order to present a comparable disclosure of the other entities' financial
results.
Certain summary financial information for the Owned Communities, Rancho San
Antonio, the Consolidated Partnership Communities, and other corporate
operations ("Corporate Operations") is presented below:
Six Months Ended September 30, 1993
-----------------------------------
Consolidated
Owned Rancho Partnership Corporate
Communities San Antonio Communities Operations Totals
----------- ----------- ------------ ---------- ------
Net
Operating
Revenues $35,733 $ 2,748 $12,623 $ 662 $51,766
Operating
Expenses 25,386 3,015 8,009 1,453 37,863
General and
Administrative
Expenses --- --- 12 1,726 1,738
Depreciation 1,941 879 1,000 220 4,040
Interest
Expense 1,383 707 2,004 4,789 8,883
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Six Months Ended September 30, 1992
-----------------------------------
Consolidated
Owned Rancho Partnership Corporate
Communities San Antonio Communities Operations Totals
----------- ----------- ------------ ---------- ------
Net
Operating
Revenues $29,346 $ 1,611 $11,107 $ 524 $42,588
Operating
Expenses 23,001 1,121 7,580 2,112 33,814
General and
Administrative
Expenses --- --- 111 2,206 2,317
Depreciation 1,891 1,301 984 11 4,187
Interest
Expense 1,322 1,060 2,245 4,389 9,016
Owned Communities. Net operating revenues for the three and six months ended
September 30, 1993 increased by $3,580,000 (23%), from $15,283,000 to
$18,863,000, and by $6,387,000 (22%), from $29,346,000 to $35,733,000,
respectively, as compared to the same periods of the previous year. A change
in the estimate of amounts reimbursable to third party payors from prior
years resulted in the recognition of $1,045 in Note B of operating revenue in
September, 1993. The remaining portions of the increases were primarily
attributable to favorable changes in occupancy, increased utilization of
ancillary healthcare services and increases in residency fees and charges.
Combined occupancy increased from 84% at September 30, 1992 to 92% at
September 30, 1993. Operating expenses for the three and six months ended
September 30, 1993 at the Owned Communities increased by $1,389,000 (12%),
from $11,691,000 to $13,080,000, and by $2,385,000 (10%), from $23,001,000 to
$25,386,000, respectively, as compared to the same periods of the previous
year. A change in the estimate of accrued workers' compensation premiums
resulted in the recognition of $152,000 of additional operating expense in
September, 1993. The remaining portions of the increases were primarily
attributable to the increase in occupancy, increased utilization of ancillary
healthcare services and normal inflationary increases. Net operating income
(defined as operating revenues less operating expenses, depreciation and
general and administrative expenses) for the three and six months ended
September 30, 1993 at the Owned Communities increased by $2,158,000, from
$2,646,000 to $4,804,000, and by $3,952,000, from $4,454,000 to $8,406,000,
respectively, as compared to the same periods of the previous year.
Exclusive of the impact of the change in estimate of reimbursable amounts
discussed above, these increases constitute 47% and 56%, respectively, of the
increases in net operating revenues for the three and six month periods,
which are indicative of the degree of incremental profits that result from
increased occupancy.
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Rancho San Antonio. Due to the change in financial statement presentation
discussed above in Note C to the Condensed Consolidated Financial Statements,
the financial results of Rancho San Antonio are not comparable between fiscal
periods. Therefore, no discussion of comparative variances regarding the
consolidated portions of Rancho San Antonio is presented. Net operating
revenues for the consolidated components of Rancho San Antonio for the three
and six months ended September 30, 1993 increased by $496,000, from $752,000
to $1,248,000, and by $1,137,000, from $1,611,000 to $2,748,000,
respectively, as compared to the same periods of the previous year.
Occupancy of the consolidated components of Rancho San Antonio increased from
44%, at September 30, 1992 to 84% at September 30, 1993. Operating expenses
for the consolidated components of Rancho San Antonio for the three and six
month periods increased by $1,507,000, from a credit of $212,000 to
$1,295,000, and by $1,816,000, from $1,199,000 to $3,015,000, respectively,
as compared to the same periods of the previous year. Net operating losses
for the consolidated components of Rancho San Antonio for the three and six
month periods increased by $444,000, from income of $281,000 to a loss of
$163,000, and by $335,000, from a loss of $811,000 to a loss of $1,146,000,
respectively, as compared to the same periods of the previous year.
Consolidated Partnership Communities. Net operating revenues for the three
and six months ended September 30, 1993 increased by $857,000 (15%), from
$5,643,000 to $6,500,000, and by $1,516,000 (14%), from $11,107,000 to
$12,623,000, respectively, as compared to the same periods of the previous
year. A change in the estimate of amounts reimbursable to third party payors
from prior years resulted in the recognition of $142,000 of operating revenue
in September, 1993. The remaining portions of the increases were primarily
attributable to favorable changes in occupancy, increased utilization of
ancillary healthcare services and increases in residency fees and charges.
Combined occupancy increased from 85% at September 30, 1992 to 92% at
September 30, 1993. Operating expenses for the Consolidated Partnership
Communities for the three and six months ended September 30, 1993 increased
by $257,000 (7%), from $3,831,000 to $4,088,000, and by $429,000 (6%), from
$7,580,000 to $8,009,000, respectively, as compared to the same periods of
the previous year. A change in the estimate of accrued workers' compensation
premiums resulted in the recognition of $72,000 of additional operating
expense in September, 1993. The remaining portions of the increases were
primarily attributable to the increase in occupancy, increased utilization of
ancillary healthcare services and to normal inflationary increases. Net
Operating Income for the Consolidated Partnership Communities for the three
and six months ended September 30, 1993 increased by $718,000, from
$1,188,000 to $1,906,000, and by $1,170,000, from $2,432,000 to $3,602,000,
respectively, as compared to the same periods of the previous year.
Exclusive of the impact of the change in estimate of reimbursable amounts
discussed above, these increases constitute 60% and 68% of the increases in
net operating revenues for the three and six months ended September 30, 1993,
which are indicative of the degree of incremental profits that result from
increased occupancy.
Corporate Operations. Revenues for the three and six months ended September
30, 1993 decreased $78,000, from $457,000 to $379,000, and
increased $138,000, from $524,000 to $662,000, respectively, compared to the
same periods of the previous year. Revenues are comprised of management fees
from GRP, a change in the estimate of amounts reimbursable to third party
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
payors from prior years for sold operations, management fees from RSARHC, and
rental income from phase two of Rancho San Antonio. Operating expenses for
the three and six months ended September 30, 1993 decreased by $512,000 and
$659,000, respectively, as compared to the same periods of the previous year.
These decreases reflect reductions in the home office staff and certain
allocations of revenues and expenses related to Rancho San Antonio.
Corporate Operations includes the unallocated interest expense of corporate
debt.
Unconsolidated Communities. Forum Group's equity in the earnings of FRP,
which is reflected as other revenues, improved from losses of $204,000 and
$464,000 for the three and six months ended September 30, 1992, respectively,
to gains of $27,000 and $57,000 for the three and six months ended September
30, 1993, respectively. These increases primarily reflect improved occupancy
at the nine retirement communities owned by FRP and managed by Forum Group.
GRP, a limited partnership of which Forum Group has a 50% beneficial
interest, operates the Stonegates retirement community in Wilmington,
Delaware. Forum Group's equity in the earnings of GRP, which is also
reported as other revenues, increased from $73,000 and $117,000 for the three
and six months ended September 30, 1992, respectively, to $78,000 and
$144,000 for the three and six months ended September 30, 1993, respectively.
Forum Group's equity in the losses of the unconsolidated component of Rancho
San Antonio for the three and six months ended September 30, 1993 was
$273,000.
Depreciation. For the three and six months ended September 30, 1993,
consolidated depreciation expense decreased by $464,000 and $147,000,
respectively, compared to the comparable periods in fiscal 1993. The changes
primarily reflect the opening of the healthcare facility at Rancho San
Antonio, additional fixed asset additions over the past twelve months.
Consolidated General and Administrative Expenses. For the three and six
months ended September 30, 1993, consolidated general and administrative
expenses decreased by $435,000, from $1,206,000 to $771,000, and by $579,000,
from $2,317,000 to $1,738,000, respectively, compared to the comparable
periods in fiscal 1993. These decreases are primarily attributable to
decreases in salary and wages of $295,000 and $551,000, respectively, due to
reductions in the home office staff. Those decreases were partially offset
by increases, in the amounts of $43,000 and $185,000, respectively, in Forum
Group's directors' fees and directors' expenses related to the FGI
Recapitalization.
Interest Expense. Interest expense attributable to the Owned Communities and
Corporate Operations increased by $125,000, from $3,166,000 to $3,291,000,
and by $461,000, from $5,711,000 to $6,172,000, during the three and six
months ended September 30, 1993, respectively. These changes are primarily
attributable to changes in average borrowing costs and the amortization of
deferred loan costs. As discussed more fully below (see "Financial Condition
- -- Recapitalization"), as part of the Recapitalization, Forum Group retired
the Senior Secured Loan dated April 2, 1992. If the FGI Recapitalization had
been completed as of April 1, 1993, proforma interest expense related to the
corporate operations would have been $8,659,000 compared to an actual amount
of $8,485,000.
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Litigation Expenses. During the three and six months ended September 30,
1993, expenses of $181,000 and $1,262,000, respectively, were incurred in
conjunction with certain litigation related to the FGI Recapitalization,
described below.
Extraordinary Item. During the six months ended September 30, 1993, expenses
of $412,000 related to the early extinguishment of debt in conjunction with
the FGI Recapitalization were recorded.
Net Income/Loss Per Share. The three and six months ended September 30, 1993
produced net income of $861,000 ($0.05 per Common Share) and net loss of
$755,000 ($0.06 per Common Share), respectively, compared to net losses of
$2,116,000 ($0.28 per Common Share) and $5,266,000 ($0.70 per Common Share)
for the three and six months ended September 30, 1992. The current six month
period was adversely affected by $1,262,000 ($0.09 per Common Share) of
expenses related to certain litigation related to the FGI Recapitalization
and an extraordinary charge of $412,000 ($0.03 per Common Share) related to
the early extinguishment of debt.
All per share data are based upon the weighted average number of shares
outstanding for the relevant periods.
Financial Condition
Recapitalization. As previously disclosed, in June, 1993 Forum Group
consummated a substantial recapitalization pursuant to a series of agreements
and modifications thereto with a group of investors. As a result of the FGI
Recapitalization, including the Investors' Tender Offer, the Investors
acquired approximately 71.7% of the outstanding Common Shares. The principal
components of the FGI Recapitalization included (i) the issuance and sale by
Forum Group on February 1, 1993 of 25,000 shares of preferred stock (which
ultimately were exchanged for 2,500,000 newly-issued Common Shares on June
14, 1993) for an aggregate purchase price of $5,000,000, (ii) the issuance
and sale by Forum Group on June 14, 1993, of 7,098,200 newly-issued Common
Shares, together with warrants exercisable to purchase at a nominal price an
aggregate of 1.1555 Common Shares for each Common Share reserved in
accordance with Forum Group's Plan of Reorganization for the payment of
disputed general unsecured claims issued on or after June 14, 1993 for an
aggregate purchase price of $20,000,000, (iii) the borrowing by Forum Group
on June 14, 1993 of $50,000,000 pursuant to a new bank credit facility
through a consortium of lenders for which Citicorp USA, Inc. serves as
agent, (iv) the issuance and sale by Forum Group on June 14, 1993 of
$40,000,000 aggregate principal amount of senior subordinated notes, and (v)
the prepayment by Forum Group on June 14, 1993 of all amounts outstanding
under the senior secured term loan agreement which had been entered into on
April 2, 1992 with a consortium of banks for which Chemical Bank served as
agent. Of the 441,071 Reserved Shares as of March 31, 1993, 170,806 were
issued prior to June 14, 1993, 4,984 were issued on August 24, 1993 and
265,281 continued to be reserved as of November 4, 1993.
The New Term Loan requires that interest be paid quarterly at either the
prime rate plus 2% or the Eurodollar rate plus 3.5%, and requires quarterly
principal payments of $1,000,000 on December 31, 1993, and March 31, 1994;
$1,500,000 through March 31, 1995; $2,250,000 through March 31, 1996; and
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
$2,750,000 thereafter to maturity on March 31, 1999. The New Senior
Subordinated Notes require that interest be paid semi-annually at 12.5% to
maturity in 2003 (at which time the entire principal amount becomes due).
Pursuant to the Acquisition Agreement, the Investors commenced the Investors'
Tender Offer on July 27, 1993, whereby the Investors offered to purchase
Common Shares from shareholders of Forum Group (other than Forum Group and
its affiliates) for $3.62 per share. The Investors' Tender Offer expired on
August 31, 1993 with 1,345,543 Common Shares having been tendered by
shareholders. As a consequence of the Investors' Tender Offer, the
Investors' percentage of ownership of outstanding Common Shares was
approximately 71.7%.
As a result of the FGI Recapitalization, the Company's long term debt as of
September 30, 1993 was as set forth below:
Forum Group, Inc. (Owned Communities and Corporate Operations):
Bank Credit Agreement $ 50,000
Senior Subordinated Notes 40,000
Mortgages and Capitalized Leases 25,201
Other 2,767
--------
Total Owned Communities and Corporate Operations (1) 117,968
Consolidated Partnership Communities (2) 76,679
--------
Total $194,647
========
(1) Excludes (i) indebtedness aggregating $4,559,000 of GRP, which may be
recourse to Forum Group and (ii) indebtedness aggregating $9,569,000 of
Rancho San Antonio Housing Corporation which is non-recourse to Forum
Group.
(2) These obligations are non-recourse to Forum Group.
Liquidity And Capital Resources. Following the FGI Recapitalization, Forum
Group's principal sources of funds are cash generated from operating
activities and asset sales. Forum Group's liquidity requirements relate
primarily to the funding of working capital needs, and principal and interest
payments on indebtedness (and, for fiscal year 1994, includes substantial
expenses associated with the FGI Recapitalization and related transactions
described above). At September 30, 1993, Forum Group had cash and cash
equivalents of $18,624,000, accounts receivable of $3,212,000 and notes,
investments and other receivables of $2,862,000.
Forum Group believes that (i) cash from operations, (ii) cash and cash
equivalents, (iii) accounts receivable, and (iv) notes, investments and other
receivables, will provide adequate liquidity to meet its foreseeable working
capital requirements. On October 21, 1993 Forum Group obtained a commitment
(the "Nomura Commitment") from Nomura Asset Capital Corporation ("Nomura")
which contemplates that an entity to be formed by Forum Group will borrow
between $80 and $95 million. It is contemplated that the proceeds of such
borrowing would be used to prepay certain of Forum Group's existing
indebtedness, including the $50 million principal balance of the New Term
Loan and all or a portion of the $40 million aggregate principal amount of
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
the New Senior Subordinated Notes. The transactions contemplated by the
Nomura Commitment are subject to a number of conditions, including the
execution of definitive documentation acceptable to Nomura and Forum Group
and other conditions, and there can be no assurance that such conditions will
be satisfied. If the closing of the loan contemplated by the Nomura
Commitment does not occur prior to January 31, 1994 the Nomura Commitment
will terminate unless mutually extended by Nomura and Forum Group. Forum
Group will continue to monitor conditions in the capital markets and Forum
Group's then-existing capital structure and requirements and other factors
determined to be relevant, may seek to refinance all or a portion of its or
its subsidiaries' or affiliates' existing indebtedness and, in addition, may
seek to raise equity capital to fund ongoing capital requirements, possible
acquisitions of businesses and assets or for other corporate purposes. Any
such refinancing of indebtedness or raising of equity capital will depend on
various factors, including conditions in the capital markets, Forum Group's
and its subsidiaries' and affiliates' respective financial condition, results
of operations and future prospects, whether the stated maturity dates of
certain indebtedness are extended and other factors that may be relevant in
the circumstances. There can be no assurance as to whether any such
transaction will be effected or, if so, as to the timing and terms thereof.
In connection with the FGI Recapitalization, Forum Group has paid or
reimbursed fees, costs and expenses aggregating approximately $8,474,000
through September 30, 1993, consisting of litigation expenses of
approximately $1,239,000, fees and expenses incurred by the Investors of
approximately $1,798,000, fees and expenses of the lenders under the New Term
Loan of approximately $3,539,000 and various other costs and expenses
aggregating approximately $1,898,000. In addition, Forum Group is required
under the Acquisition Agreement to reimburse the Investors for all fees,
costs and expenses incurred in connection with the Investors' Tender Offer.
Those fees, costs and expenses are expected to be approximately $550,000.
Participation in Proposed Recapitalization of FRP. In October 1993 Forum
Group entered into the FRP Recapitalization Agreement. Forum Group has a
substantial equity investment in FRP, is the parent company of FRP's general
partner and has a long-term management contract with FRP.
As part of its proposed recapitalization, FRP has obtained a commitment from
a major financial institution to provide FRP up to $50 million of new debt
financing. This financing, if completed, together with an equity infusion of
approximately $13 million provided to FRP by a Forum Group subsidiary and
which was used by FRP to prepay a portion of FRP's bank debt which matures on
December 31, 1993 (the "FRP Bank Debt"), is expected to allow FRP to
refinance all of its existing indebtedness, including the approximate $9.5
million balance of the FRP Bank Debt. The loan commitment is subject to
various conditions, including the completion of due diligence, definitive
documentation and other conditions. There can be no assurance that these
conditions will be met.
The $13 million of additional equity described above was provided pursuant to
the FRP Recapitalization Agreement by a subsidiary of Forum Group through the
purchase of 6.5 million Units at a price of $2.00 per Unit. The FRP
Recapitalization Agreement provides that FRP will promptly make a public
offering whereby unitholders of record as of October 18, 1993 (other than
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Forum Group and its affiliates), in order to avoid dilution, will have the
right to acquire additional Units at the same price paid by the Forum Group
subsidiary. Those rights will not be directly or indirectly transferable.
The proceeds of that offering will be used to repurchase Units from the Forum
Group subsidiary at the same price paid by such subsidiary.
Immediately following its purchase of the Units described above, Forum Group
directly or indirectly owned a total of 8,440,268 Units, increasing its
percentage ownership of the total outstanding Units from approximately 22.1%
to approximately 55.2%. If all eligible unitholders elect to purchase Units
in the offering described above, Forum Group's percentage ownership would
return to approximately 22.1%.
Under the FRP Recapitalization Agreement, if the new FRP financing is not
completed prior to December 31, 1993, FRP will have the right, subject to
certain conditions, to require Forum Group to purchase additional Units to
permit FRP to pay the balance of the FRP Bank Debt or, in certain
circumstances, to require Forum Group to acquire that debt and extend its
maturity.
Forum Group's acquisition of the 6.5 million Units described above was
financed in part by proceeds from the sale, on October 6, 1993, of an
aggregate 2,976,826 newly-issued Common Shares to Forum Holdings and Apollo
for an aggregate purchase price of $11,163,098. It is presently contemplated
that Healthcare Resources will purchase an additional 489,840 newly-issued
Common Shares for a price per share no less than that paid by Forum Holdings
and Apollo.
The agreement under which the 2,976,826 Common Shares were purchased by Forum
Holdings and Apollo provided that Forum Group will file and thereafter use
its best efforts to make effective a registration statement in connection
with an offering pursuant to which Forum Group shareholders of record on
October 18, 1993 (other than Forum Holdings, Apollo and, if it also purchases
additional Common Shares as described above, Healthcare Resources) will have
the right to acquire additional shares at $3.75 per Common Share, the same
price paid by Forum Holdings and Apollo. The right to purchase Common Shares
in the offering will not be directly or indirectly assignable or
transferable.
Immediately following the purchase of 2,976,826 Common Shares by Forum
Holdings and Apollo described above, those persons, together with Healthcare
Resources, owned a total of 15,727,982 Common Shares, increasing the
percentage ownership of the Investors from approximately 71.7% to
approximately 75.7%. If all eligible shareholders elect to purchase shares
in the offering described above, the percentage ownership of the Investors
would return to approximately 71.7%.
Cash Flow. Operating activities for the six months ended September 30, 1993
provided $4,517,000 of cash compared to $11,699,000 of cash used by operating
activities during the six months ended September 30, 1992, due principally to
the payment of accrued expenses in 1992 and significantly improved operating
results in 1993.
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Investing activities used $676,000 of cash during the six months ended
September 30, 1993, compared $33,432,000 of cash provided by investing
activities during the six months ended September 30, 1992, due principally to
the April, 1992 sale of two retirement communities.
Financing activities provided $8,966,000 of cash during the six months ended
September 30, 1993, compared to $13,658,000 of cash used by financing
activities during the comparable period of 1992, due principally to the
impact of the FGI Recapitalization and the April, 1992 sale of two retirement
communities.
