SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended June 30, 1995 Commission File Number 0-6350
FORUM GROUP, INC.
(Exact name of registrant as specified in its charter)
Indiana 61-0703072
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11320 Random Hills Road, Suite 400
Fairfax, Virginia 22030
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 703-277-7000
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 whether the registrant has filed all
documents and reports required to be filed by Sections 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
----- -----
The number of shares outstanding of the registrant's common stock
as of August 9, 1995 was 22,500,109.
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION PAGE
----------------------------- ----
Item 1. Financial Statements (Without Audit)
Condensed consolidated balance sheets --
June 30 and March 31, 1995 3
Condensed consolidated statements of operations --
Three months ended June 30, 1995 and 1994 4
Condensed consolidated statements of cash flows --
Three months ended June 30, 1995 and 1994 5
Notes to condensed consolidated financial statements --
June 30, 1995 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings 17
SIGNATURES 18
----------
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FORUM GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Without Audit)
June 30, March 31,
1995 1995
------------- ------------
(in thousands)
ASSETS
Property and equipment:
Land and improvements $ 51,798 $ 49,737
Buildings and leasehold improvements 278,216 263,411
Furniture and equipment 20,283 18,780
Construction in progress 11,290 5,249
----------- -----------
361,587 337,177
Less accumulated depreciation 22,356 19,820
----------- -----------
Net property and equipment 339,231 317,357
----------- -----------
Investments:
Greenville Retirement Community, L.P. 3,228 3,331
Other 1,950 1,531
----------- -----------
5,178 4,862
----------- -----------
Cash and cash equivalents 21,125 30,228
Accounts receivable, less allowance for doubtful
accounts of $555 and $487 8,194 7,992
Notes and other receivables 25,024 6,138
Restricted cash 15,469 13,098
Deferred costs and other assets, net 16,286 18,671
Excess of cost over net assets of business
acquired, net 1,027 0
----------- -----------
$ 431,534 $ 398,346
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Long-term debt, including $50,806 due
within one year $ 298,634 $ 270,036
Accounts payable 3,294 3,846
Accrued expenses 17,402 15,295
Resident deposits and refundable resident fees 19,631 19,609
Deferred income 7,351 7,294
----------- -----------
346,312 316,080
Other partners' equity 17,429 16,600
----------- -----------
Shareholders' equity:
Common stock, no par value - authorized 48,000
shares, issued 22,500 shares 68,189 67,927
Accumulated deficit (396) (2,261)
----------- -----------
67,793 65,666
----------- -----------
$ 431,534 $ 398,346
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
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<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Without Audit)
Three Months Ended
June 30,
-------------------------
1995 1994
----------- -----------
(in thousands except
per share amounts)
Revenues:
Net operating revenues $ 45,282 $ 26,743
Management fees 353 1,094
Other income 806 253
----------- -----------
Total revenues 46,441 28,090
----------- -----------
Costs and expenses:
Operating expenses 31,120 18,185
General, administrative and marketing expenses 2,890 1,581
Relocation costs 262 0
Litigation expenses 29 5
Depreciation 2,789 1,527
----------- -----------
Total costs and expenses 37,090 21,298
----------- -----------
9,351 6,792
Other:
Interest expense (6,998) (4,656)
Minority interests (188) (60)
----------- -----------
Income before income taxes 2,165 2,076
Income taxes 300 0
----------- -----------
NET INCOME 1,865 2,076
ACCUMULATED DEFICIT AT BEGINNING OF PERIOD (2,261) (14,489)
----------- -----------
ACCUMULATED DEFICIT AT END OF PERIOD $ (396) $ (12,413)
=========== ===========
Average number of common and common equivalent
shares outstanding 23,420 22,764
=========== ===========
Net income per common and common equivalent
share (primary and fully diluted) $ 0.08 $ 0.09
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
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<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Without Audit)
Three Months Ended
June 30,
-------------------------
1995 1994
---------- ----------
(in thousands)
Cash flows from operating activities:
Net income $ 1,865 $ 2,076
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation 2,789 1,527
Amortization of deferred costs 629 580
Other partners' interest in income
of consolidated companies 188 60
Net (income) losses of investees on
the equity method (80) 82
Other accrued revenues and expenses, net 1,250 806
Tax benefit recorded as additional
shareholders' equity 300 0
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,941 5,131
---------- ----------
Cash flows from investing activities:
Purchases of retirement communities and businesses (18,618) 0
Additions to property and equipment (7,549) (525)
Net proceeds from sales of investment in
Rancho San Antonio Retirement Housing Corporation 0 6,554
Notes and other receivables (15,745) 104
Other 839 47
---------- ----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (41,073) 6,180
---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt 29,528 203
Payments on long-term debt (935) (843)
Proceeds from issuance of common stock
and warrants, net 0 5,156
Deferred financing and other costs (1,284) (227)
Distributions to other partners (77) (77)
Resident deposits and restricted cash (2,203) 11
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 25,029 4,223
---------- ----------
Net increase (decrease) in cash and cash equivalents (9,103) 15,534
Cash and cash equivalents at beginning of period 30,228 18,331
---------- ----------
Cash and cash equivalents at end of period $ 21,125 $ 33,865
========== ==========
See Notes to Condensed Consolidated Financial Statements.
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<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Without Audit)
June 30, 1995
Note A - Basis of Presentation
------------------------------
The balance sheet at March 31, 1995 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, 1995 (the "1995
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 three-month period ended June 30, 1995 are not
necessarily indicative of the results that may be expected for the fiscal
year ending March 31, 1996. For further information, refer to Forum
Group's consolidated financial statements as of and for the year ended
March 31, 1995, and the footnotes thereto, included in the 1995
10-K.
Certain amounts in the fiscal year 1995 condensed consolidated financial
statements have been restated to conform to the fiscal year 1996
presentation.
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<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Without Audit)
June 30, 1995
Note B - Changes In Consolidation
---------------------------------
Forum Retirement Partners, L.P. ("Forum Partners") is a publicly traded
limited partnership which owns nine retirement communities. Forum Group
is the parent company of Forum Partners' general partner and has a long-
term management agreement with Forum Partners. In addition, Forum Group
has a substantial beneficial interest in Forum Partners. Prior to August
1, 1994, this beneficial interest was less than 50%, and Forum Group's
investment in Forum Partners was accounted for on the equity method.
Through the acquisition of additional partnership units, Forum Group's
beneficial interest in Forum Partners increased to 56.4% on August 1,
1994. Accordingly, as of that date, the assets, liabilities and financial
results of Forum Partners were included in the consolidated financial
statements of Forum Group. During October, 1994 Forum Group increased its
beneficial interest to 62.1%. The following pro forma amounts summarize
the effect on the condensed consolidated statement of operations for the
three months ended June 30, 1994, as if Forum Group's beneficial interest
in Forum Partners was 62.1% on April 1, 1994:
Three Months Ended
June 30, 1994
------------------
(in thousands except
per share amount)
Total revenues $ 38,649
========
Net income $ 2,360
========
Net income per
common and common
equivalent share $ 0.10
========
Note C - Other Investments
--------------------------
Forum Group has a 50% beneficial interest in Greenville Retirement
Community, L.P. ("GRP"), a limited partnership which owns the Stonegates
retirement community in Wilmington, Delaware ("Stonegates"). Summary
financial information for GRP as of and for the three months ended
June 30, 1995 is as follows (in thousands):
Net property $ 20,040
Other assets 1,190
---------
21,230
Less liabilities 22,825
---------
Net deficit $ 1,595
=========
Revenues $ 1,699
Costs and expenses 1,475
---------
Net income $ 224
=========
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<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AS OF AND FOR THE THREE MONTHS ENDED
June 30, 1995
Results Of Operations
---------------------
Forum Group provides senior housing and healthcare services in 12 states
through the operation of 33 retirement communities ("RCs"). Forum Group
operates (i) 18 RCs owned or leased (the "Owned Communities") or managed
by Forum Group, and one nursing facility owned by Forum Group, (ii) four
RCs owned by partnerships which are not wholly owned by Forum Group but
which are consolidated for financial reporting purposes (the "Consoli-
dated Partnership Communities"), excluding nine communities owned by
Forum Partners, and (iii) two RCs owned by entities which are not
consolidated for financial reporting purposes (the "Unconsolidated
Communities"), one owned by GRP and one owned by Rancho San Antonio
Retirement Housing Corporation ("RSARHC").
Certain summary financial information for the Owned Communities, Forum
Partners, the Consolidated Partnership Communities, and other corporate
operations ("Corporate Operations") is presented below. The results of
Forum Partners' operations were not consolidated for financial reporting
purposes prior to August 1, 1994 (see Note B of Notes to Condensed
Consolidated Financial Statements). Accordingly, the periods in which
the financial results of Forum Partners are included in the financial
statements of Forum Group are not comparable to prior periods.
Effective August 1, 1994, Forum Group purchased additional units in Forum
Partners to exceed a 50% equity ownership interest, and the operations of
Forum Partners are consolidated into Forum Group's consolidated financial
statements from that date. Forum Partners owns and operates nine RCs
which were 93% occupied as of June 30, 1995. Pro forma consolidated
operating results as if Forum Partners' results were consolidated from
April 1, 1994 based upon Forum Group's 62.1% equity ownership of Forum
Partners as of August 1, 1994 are as presented in the following table for
the three months ended June 30, 1994. The pro forma data are presented
for illustrative purposes only and are not necessarily indicative of what
Forum Group's actual results of operations would have been had Forum
Group owned 62.1% of the equity interest in Forum Partners throughout the
period presented. See Note B of Notes to Condensed Consolidated
Financial Statements included elsewhere herein for additional information
relating to Forum Partners.
As presented in the following tables, EBITDA (defined as earnings before
interest, taxes, depreciation, and amortization) reflects Forum Group's
ability to satisfy principal and interest obligations with respect to its
indebtedness and to provide cash for other purposes. EBITDA does not
represent and should not be considered as an alternative to net income or
cash flow as determined pursuant to generally accepted accounting
principles.
-8-
<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Three Months Ended June 30, 1995
--------------------------------
($ in millions)
Actual
-------------------------------------------------------------
(a) Consolidated
Owned Forum Partnership Corporate
Communities Partners Communities Operations Consolidated
----------- ----------- ------------ ---------- ------------
Total
Revenues $24.3 $12.5 $7.5 $2.1 $46.4
Operating
Expenses 16.5 8.9 4.4 1.3 31.1
General,
Adminstrative
and Marketing
Expenses 0.1 0.1 - 2.7 2.9
Relocation
Costs - - - 0.2 0.2
EBITDA (b) 7.7 3.5 3.1 (2.1) 12.2
Depreciation 1.4 0.7 0.5 0.2 2.8
Interest
Expense 4.0 1.2 1.6 0.2 7.0
Minority
Interests - - - 0.2 0.2
Income
Taxes - - - 0.3 0.3
Net Income 1.9
----------------
(a) Effective August 1, 1994, Forum Group purchased additional units in
Forum Partners to exceed a 50% equity ownership interest, and its
operations are consolidated into Forum Group's consolidated
financial statements from that date.
(b) After $0.2 million of non-recurring expenses. See "Relocation
Costs" at page 12 for a discussion of this item.
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<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Three Months Ended June 30, 1994
--------------------------------
($ in millions)
Actual
---------------------------------------------------------
(a) Consolidated (a)
Owned Forum Partnership Corporate Pro Forma
Communities Partners Communities Operations Consolidated Consolidated
----------- -------- ------------ ---------- ------------ ------------
Total
Revenues $20.1 $ - $6.7 $1.3 $28.1 $38.6
Operating
Expenses 13.8 - 4.1 0.3 18.2 26.1
General,
Administrative
and Marketing
Expense - - - 1.6 1.6 1.8
Relocation
Costs - - - - - -
EBITDA 6.3 - 2.6 (0.6) 8.3 10.7
Depreciation 1.0 - 0.5 - 1.5 2.4
Interest
Expense 3.2 - 1.2 0.2 4.6 5.8
Minority
Interests - - - 0.1 0.1 0.1
Income
Taxes - - - - - -
Net Income 2.1 2.4
----------------
(a) Effective August 1, 1994, Forum Group purchased additional units in
Forum Partners to exceed a 50% equity ownership interest, and its
operations are consolidated into Forum Group's consolidated
financial statements from that date. Pro forma operating results
are shown as if Forum Partners' results of operations were
consolidated from April 1, 1994.
-10-
<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Owned Communities. Total revenues for the three months ended June 30,
1995 increased by $4.2 million (21%) from $20.1 million to $24.3 million,
as compared to the same period of the previous year. This increase was
primarily attributable to increases in rental rates, additional ancillary
services, and the acquisition in August 1994, January 1995 and May 1995
of three RCs, Tiffany House ("Tiffany"), The Forum at Fountainview
("Fountainview") and The Forum at the Woodlands ("Woodlands"),
respectively. Combined occupancy, excluding Tiffany, Fountainview and
Woodlands, averaged 93.3% for the three months ended June 30, 1995
compared to 93.9% for the three months ended June 30, 1994. Operating
expenses for 1995 at the Owned Communities increased by $2.7 million
(20%), from $13.8 million to $16.5 million, as compared to the three
months ended June 30, 1994; general, administrative and marketing
expenses ("MG&A") for the Owned Communities were included in operating
expenses. This increase was primarily attributable to additional
ancillary services, normal inflationary increases, and the acquisition of
Tiffany, Fountainview and Woodlands. EBITDA for the three months ended
June 30, 1995 from the Owned Communities increased by $1.4 million (22%),
from $6.3 million to $7.7 million, as compared to the three months ended
June 30, 1994.
Consolidated Partnership Communities. Total revenues for the three
months ended June 30, 1995 increased by $0.8 million (12%), from $6.7
million to $7.5 million, as compared to the same period of the previous
year. This increase was primarily attributable to favorable changes in
occupancy, increased utilization of ancillary healthcare services, and
increases in residency fees and charges. Combined occupancy increased
from 91% at June 30, 1994 to 94% at June 30, 1995. Operating expenses
for the Consolidated Partnership Communities for 1995 increased by $0.3
million (7%), from $4.1 million to $4.4 million, as compared to 1994;
MG&A for the Owned Communities are included in operating expenses. The
increase was primarily attributable to the increase in occupancy,
increased utilization of ancillary healthcare services, and normal
inflationary increases. EBITDA for the Consolidated Partnership
Communities for the three months ended June 30, 1995 increased by $0.5
million, from $2.6 million to $3.1 million, as compared to the three
months ended June 30, 1994.
Pro Forma. On a pro forma basis, assuming that Forum Partners' results
of operations were consolidated for the three months ended June 30, 1994
(rather than from August 1, 1994, the actual date of consolidation),
total revenues for the three months ended June 30, 1995 increased by $7.8
million (20%), from $38.6 million to $46.4 million, as compared to the
three months ended June 30, 1994. This increase was primarily
attributable to increases in occupancy, rental rates, additional
ancillary services, and the acquisition of Tiffany, Fountainview and
Woodlands. Operating expenses for the three months ended June 30, 1995
increased by $5.0 million (19%), from $26.1 million to $31.1 million, as
compared to the same period of the previous year; MG&A for the three
months ended June 30, 1995 increased by $1.1 million (61%), from $1.8
million to $2.9 million. The increase in operating expenses was
primarily attributable to additional ancillary services, normal
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<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
inflationary increases, and the acquisition of Tiffany, Fountainview and
Woodlands. The increase in MG&A was primarily attributable to the factor
described under the caption "General, Administrative and Marketing
Expenses" below. EBITDA for the three months ended June 30, 1995
increased by $1.5 million (14%), from $10.7 million to $12.2 million, as
compared to the same period of the previous year.
Unconsolidated Entities. Forum Group's equity in the earnings of
unconsolidated entities is reflected as Other income. Changes in Forum
Group's equity in the aggregate net earnings of Forum Partners and GRP
were not material to Forum Group's consolidated results of operations for
the three months ended June 30, 1995. Due to the changes in financial
statement presentation regarding Forum Partners (see Note B of Notes to
Condensed Consolidated Financial Statements), the equity adjustment for
that entity is not comparable between fiscal periods.
Consolidated Items. The following is a discussion of certain
consolidated items:
General, Administrative and Marketing Expenses. For the three months
ended June 30, 1995, consolidated MG&A increased by $1.3 million (81%),
from $1.6 million to $2.9 million, compared to the same period of the
previous year. This increase was primarily attributable to increased
home office staff costs to manage recent and projected growth through
acquisitions and development.
Relocation Costs. During the three months ended June 30, 1995, expenses
of $0.2 million were incurred in conjunction with the relocation of Forum
Group's headquarters from Indianapolis, Indiana to Fairfax, Virginia.
Additional relocation expenses are currently expected to be approximately
$1.3 million. The relocation is expected to benefit the company as a
result of future growth and development targeted along the East Coast
corridor, potential acquisitions, and the ability to attract exceptional
talent necessary to meet the company's expected growth.
Litigation Expenses. Litigation expenses were not material to Forum
Group's results of operations for the three months ended June 30, 1995
and 1994.
Depreciation. For the three months ended June 30, 1995, consolidated
depreciation expense increased by $1.3 million compared to the previous
fiscal period. This increase reflects property additions, the August 1,
1994 consolidation of Forum Partners for financial statement purposes and
the acquisition of Tiffany, Fountainview and Woodlands.
Interest Expense. Interest expense attributable to the Owned Communities
and Corporate Operations increased by $0.8 million, from $3.4 million to
$4.2 million, during the three months ended June 30, 1995, as compared to
the same period of the previous year. This change was primarily
attributable to changes in average borrowing costs and increased
indebtedness incurred to finance acquisitions.
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<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Minority Interests. The increase of $0.1 million in the minority
interests' elimination for 1995 compared to 1994, resulted from improved
operating results.
Taxes. Due to the utilization of net operating loss carryforwards,
Forum Group had no federal income tax liability at June 30, 1995. Notes,
investments and other receivables include federal income taxes receivable
of $1,250,000 at June 30, 1995. As of March 31, 1995, net operating loss
carryforwards for tax purposes were estimated to be approximately $158.0
million before the application of certain net operating loss carryforward
limitations. As a result of these limitations, Forum Group expects the
utilization of net operating loss carryforwards will be limited to
approximately $33.0 million. These net operating loss carryforwards will
expire in varying amounts through fiscal year 2009. For financial
reporting purposes, any future benefit of net operating loss
carryforwards and net deferred tax assets arising prior to the
reorganization plan (April 2, 1992) will be reported as additional
shareholders' equity. The maximum future tax benefit to be recognized
through shareholders' equity was estimated to be approximately $30.0
million at March 31, 1995.
Net Income/Loss Per Share. The three months ended June 30, 1995 produced
net income of $1.9 million ($0.08 per Common Share) compared to net
income of $2.1 million ($0.09 per Common Share) for 1994.
All per share data are based upon the weighted average number of shares
outstanding for the relevant periods.
Financial Condition
-------------------
Liquidity And Capital Resources. At June 30, 1995, Forum Group had cash
and cash equivalents of $21.1 million, accounts receivable of $8.2
million, and notes, investments and other receivables of $25.0 million.
Forum Group believes that its liquidity and the capital resources
available to it are adequate to meet its foreseeable working capital and
strategic growth requirements.
Forum Group has adopted a growth-oriented strategic plan which
contemplates the acquisition of businesses and assets as well as
additional capital investment in its existing properties. Forum Group's
acquisition strategy is designed to add additional properties in
strategically located markets, to establish joint ventures to develop or
acquire properties or businesses in the senior housing sector, and to
pursue other opportunities relating to senior service, including home
health care and other home or community-based services to the seniors'
market.
Forum Group also intends to seek to expand its existing properties
through additional capital investment. Forum Group's expansion strategy
is intended to modify the use of, or add capacity to, existing facilities
without incurring substantial land acquisition and common area build-out
costs, and to take advantage of other existing infrastructive investment
and personnel in place.
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<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
There necessarily can be no assurance that any material acquisitions or
expansions will be completed or, if so, as to the timing or terms
thereof.
Forum Group is currently a party to a loan facility providing for up to
$100.0 million of acquisition financing. The unutilized amount of this
facility at August 9, 1995 was $70.1 million. At the option of Forum
Group, each borrowing under the facility may be converted to a ten-year
term loan after 18 months from the date of the borrowing. During the 18-
month period, Forum Group may repay the indebtedness using proceeds from
other financing sources, if any such financing becomes available on more
favorable terms. Absent conversion or refinancing, interest on the
acquisition loan is payable monthly in arrears at LIBOR plus 5.425%
(including service costs and other fees of 2.075%). Forum Group has an
option permitting it to increase the borrowings against the properties
acquired if the debt service coverage computed on a trailing 12-month
basis exceeds certain thresholds, in which event the increased borrowings
could be used to fund Forum Group's growth or for other corporate
purposes. While Forum Group believes that the existing acquisition
facility, together with its other capital resources, are sufficient to
finance its acquisition and capital investment strategy over the
intermediate term, Forum Group is also exploring the possible
modification or replacement of, or supplements to, that facility and
other possible financings and refinancings in order to provide greater
financial flexibility and increased shareholder value.
Capital Structure. Forum Group's total long-term debt was $298.6 million
as of June 30, 1995, $124.2 million of which represents obligations of
Consolidated Partnership Communities which were non-recourse to Forum
Group, Inc.
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<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Forum Group's long-term debt as of June 30, 1995 was as set forth below
(in millions):
Forum Group, Inc.:
Nomura Term Loan (1) $ 91.9
Senior Subordinated Notes 10.0
Nomura Acquisition Loan (1) 29.9
Mortgages and Capitalized Leases 22.4
Mortgage (1) 15.5
Other 4.7
------
Total Owned Communities and Corporate Operations (2) 174.4
Consolidated Partnership Communities (1) (3) 124.2
------
Total Long-Term Debt $298.6
======
----------------
(1) These obligations are non-recourse to Forum Group, Inc.
(2) Excludes indebtedness aggregating $4.3 million of GRP, $0.5 million
of which is recourse to Forum Group, Inc.
(3) Includes indebtedness aggregating $47.5 million of Forum Retirement
Communities II, L.P., which matures during May, 1996. Forum Group
believes it has adequate debt capacity to refinance the maturing
notes, and is presently evaluating it's refinancing options.
Forum Group will continue to monitor conditions in the bank lending and
capital markets and, if appropriate in light of then-current market
conditions, Forum Group's then-existing capital structure and
requirements, Forum Group's growth strategy, and other factors determined
to be relevant, may enter into one or more capital arrangements. Such
arrangements could include one or more issuances of indebtedness or other
financings. Although Forum Group intends to actively consider the
financing alternatives that may be available to it, there can be no
assurance that any such transactions will be completed or, if so, as to
the timing or terms thereof.
Cash Flow. Operating activities for the three months ended June 30, 1995
provided $6.9 million of cash compared to $5.1 million of cash provided
by operating activities during the same period of the previous year, due
principally to improved operating results.
Investing activities used $41.1 million of cash during the three months
ended June 30, 1995, compared to $6.2 million of cash provided by
investing activities during the same period of the previous year, due
principally to the purchase of two non-performing first mortgage loans on
RCs, acquisition of an RC and other businesses and additions to property
and equipment, including construction in progress.
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<PAGE>
FORUM GROUP, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Financing activities provided $25.0 million of cash during the three
months ended June 30, 1995, compared to $4.2 million of cash provided by
financing activities during the same period of the previous year, due
principally to the proceeds from long-term debt used to finance
acquisition of an RC and the purchase of two non-performing first
mortgage loans.
-16-
<PAGE>
PART II. OTHER INFORMATION
FORUM GROUP, INC. AND SUBSIDIARIES
June 30, 1995
ITEM 1. LEGAL PROCEEDINGS
On January 24, 1994, the Russell F. Knapp Revokable Trust (the "Knapp
Trust") instituted an action in the United States District Court for the
Northern District of Iowa against Forum Retirement, Inc., a wholly owned
subsidiary of Forum Group which is the general partner of Forum Partners
("Forum Retirement"), adding Forum Group as a defendant on March 17, 1994
(the "Iowa Action"), alleging, among other things, that (i) the Knapp
Trust holds a substantial number of Forum Partners' publicly traded
partnership units, (ii) the Board of Directors of Forum Retirement is not
comprised of a majority of independent directors as required by Forum
Partners' partnership agreement and as allegedly represented in Forum
Partners' 1986 Prospectus for its initial public offering, (iii) the
allegedly improper composition of the Board of Directors of Forum
Retirement is a consequence of actions by Forum Group, (iv) Forum
Retirement's Board of Directors has approved and/or acquiesced in 8%
management fees being charged by Forum Group under its management
agreement with Forum Partners, whereas the complaint alleges that the
"industry standard" for management fees of the type at issue is 4%,
thereby resulting in an alleged "overcharge" to Forum Partners estimated
by the Knapp Trust at $1.8 million per annum, beginning in 1994, and (v)
as a consequence of the allegedly improper composition of the Board of
Directors of Forum Retirement, Forum Group and Forum Retirement have
breached Forum Partners' partnership agreement and the securities laws,
and failed to discharge fiduciary duties. The Knapp Trust is seeking the
restoration of certain former directors to the Board of Directors of
Forum Retirement and the removal of certain other directors from the
Board of Directors of Forum Retirement, an injunction prohibiting the
payment of 8% management fees, and unspecified compensatory and punitive
damages. On April 4, 1995, the District Court entered an order
dismissing the Complaint in its entirety, holding that no personal
jurisdiction exists in Iowa over the General Partner or Forum Group. On
May 3, 1995, the Knapp Trust filed a Notice of Appeal with the District
Court, indicating that it will appeal the District Court's decision to
the United States Court of Appeals for the Eighth Circuit.
On June 15, 1995, the Knapp Trust filed an action in the United States
District Court for the Southern District of Indiana against Forum Group
and Forum Retirement (the "Indiana Action") containing essentially the
identical allegations asserted in the Iowa Action and other allegations.
On August 7, 1995 the Knapp Trust moved to dismiss its Eighth Circuit
Appeal in favor of the Indiana Action. Forum Group believes that there
are substantial defenses to the claims asserted by the Knapp Trust and
intends vigorously to defend against such claims; however, there
necessarily can be no assurance as to the ultimate outcome of these
proceedings.
-17-
<PAGE>
SIGNATURE
---------
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.
FORUM GROUP, INC.
Date: August 14, 1995 By: /s/ Richard A. Huber
--------------------------------
Richard A. Huber
Vice President-Operations Finance
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