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 December 31, 1994 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.)
8900 Keystone Crossing, Suite 200
P.O. Box 40498
Indianapolis, Indiana 46240-0498
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 317-846-0700
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 February 10, 1995 was 22,500,109.
<PAGE>
INDEX
FORUM GROUP, INC., AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE
- ----------------------------- ----
Item 1. Financial Statements (Without Audit)
Condensed consolidated balance sheets --
December 31 and March 31, 1994 3
Condensed consolidated statements of operations --
Three and nine months ended December 31, 1994 and 1993 4
Condensed consolidated statements of cash flows --
Nine months ended December 31, 1994 and 1993 5
Notes to condensed consolidated financial statements --
December 31, 1994 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings 16
SIGNATURES 17
- ----------
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
------------------------------
FORUM GROUP, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Without Audit)
December 31, March 31,
1994 1994
------------- -----------
ASSETS (in thousands)
------
Property and equipment:
Land and improvements $ 47,388 $ 34,505
Buildings and leasehold improvements 246,757 176,209
Furniture and equipment 17,137 13,046
Project under construction (estimated
cost to complete $7,163) 2,365 -0-
----------- -----------
313,647 223,760
Less accumulated depreciation and amortization 17,401 11,600
----------- -----------
296,246 212,160
Investments:
Greenville Retirement Community, L.P. 3,333 3,614
Forum-NGH Operations-I, LLC 176 -0-
Forum Retirement Partners, L.P. -0- 12,420
Rancho San Antonio Retirement Housing
Corporation -0- 7,228
Other 240 -0-
----------- -----------
3,749 23,262
----------- -----------
Cash and cash equivalents 28,471 18,331
Accounts receivable, less allowance for doubtful
accounts of $595 and $277 9,379 5,246
Notes, investments and other receivables 3,655 5,717
Management fees receivable 62 964
Restricted cash 14,158 9,992
Deferred costs and other assets, net 15,697 14,528
----------- -----------
Total Assets $ 371,417 $ 290,200
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Long-term debt, including $3,723 due
within one year $ 249,355 $ 205,094
Trade accounts payable 2,402 2,332
Accrued expenses 15,514 12,523
Resident deposits and refundable fees 19,089 17,253
Deferred income 7,349 7,041
----------- -----------
Total Liabilities 293,709 244,243
Other partners' equity 16,613 1,673
Shareholders' equity:
Common stock, no par value - authorized 48,000
shares, issued 22,500 and 21,262 shares 63,928 58,773
Paid-in-capital 750 -0-
Accumulated deficit (3,583) (14,489)
----------- -----------
Total Shareholders' Equity 61,095 44,284
----------- -----------
$ 371,417 $ 290,200
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Without Audit)
Three Months Ended Nine Months Ended
December 31, December 31,
------------------- -----------------
1994 1993 1994 1993
-------- -------- ------- -------
(in thousands except per share amounts)
Revenues:
Net operating revenues $ 41,097 $ 27,681 $104,028 $ 79,196
Management fees 185 174 1,788 424
Investment and other income 619 452 1,688 1,016
-------- -------- -------- --------
TOTAL REVENUES 41,901 28,307 107,504 80,636
-------- -------- -------- --------
Costs and expenses:
Operating expenses 28,304 18,646 70,492 55,418
Marketing, general and
administrative expenses 2,357 1,673 5,679 4,502
Litigation expense -0- 55 -0- 1,317
Depreciation 2,388 1,801 5,966 5,841
-------- -------- -------- --------
TOTAL COSTS AND EXPENSES 33,049 22,175 82,137 67,078
-------- -------- -------- --------
8,852 6,132 25,367 13,558
Interest expense (6,322) (4,357) (16,756) (13,241)
Gains from sales of cooperative
memberships 1,243 -0- 5,440 -0-
-------- -------- -------- --------
Income before minority
interests, income taxes and
extraordinary charge 3,773 1,775 14,051 317
Minority interests (136) (143) (333) 972
-------- -------- -------- --------
Income before income taxes
and extraordinary charge 3,637 1,632 13,718 1,289
Income taxes 550 -0- 2,550 -0-
-------- -------- -------- --------
Income before extraordinary charge 3,087 1,632 11,168 1,289
Extraordinary charge from early
extinguishment of debt, net of
income tax benefit of $50 in 1994 (262) (1,360) (262) (1,772)
-------- -------- -------- --------
NET INCOME (LOSS) 2,825 272 10,906 (483)
ACCUMULATED DEFICIT AT BEGINNING
OF PERIOD (6,408) (8,114) (14,489) (7,359)
-------- -------- -------- --------
ACCUMULATED DEFICIT AT END OF
PERIOD $ (3,583) $ (7,842) $ (3,583) $ (7,842)
======== ========= ======== =========
Average number of common and
common equivalent shares
outstanding 23,164 20,823 22,944 15,858
======== ========= ======== =========
Net income (loss) per common and
common equivalent share (primary
and fully diluted):
Income before extraordinary
charge $ 0.13 $ 0.08 $ 0.49 $ 0.08
Extraordinary charge (0.01) (0.07) (0.01) (0.11)
-------- -------- -------- --------
Net income (loss) $ 0.12 $ 0.01 $ 0.48 $ (0.03)
======== ======== ======== ========
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Without Audit)
Nine Months Ended
December 31,
-------------------------
1994 1993
---------- ----------
(in thousands)
Cash flows from operating activities:
Net income (loss) $ 10,906 $ (483)
Adjustments to reconcile net income (loss)
to cash provided by operating activities:
Depreciation and amortization 5,966 5,841
Amortization of deferred financing costs 1,919 776
Minority interests in losses (earnings)
of consolidated companies 333 (972)
Equity in earnings of unconsolidated
investments (183) (86)
Other accrued revenues and expenses 477 (5,308)
Non-cash portion of extraordinary charge 242 1,630
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 19,660 1,398
---------- ----------
Cash flows from investing activities:
Additions to property and equipment (5,818) (1,280)
Net proceeds from sales of cooperative
memberships in Rancho San Antonio
Retirement Housing Corporation 8,709 (71)
Investment in Forum Retirement Partners, L.P.,
net of acquired cash of $4,872 (3,373) (13,131)
Purchase of Tiffany House (3,624) -0-
Purchase of other businesses (273) -0-
Notes, investments and other receivables 206 259
Other 355 162
---------- ----------
NET CASH USED BY INVESTING ACTIVITIES (3,818) (14,061)
---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt 398 90,711
Payments on long-term debt (8,276) (101,533)
Proceeds from issuance of common stock
and warrants, net 5,155 32,999
Deferred financing and other costs (1,501) (16)
Proceeds from Forum Retirement, Inc.'s
tender of Forum Group common stock -0- 1,861
Net proceeds from sales of cooperative
memberships in Rancho San Antonio
Retirement Housing Corporation -0- 3,614
Distributions to other partners (234) (234)
Recapitalization and tender offer costs -0- (8,541)
Payments of Predecessor Company liabilities -0- (52)
Resident deposits 326 3,628
Net increase in restricted cash (1,570) (1,257)
---------- ----------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (5,702) 21,180
---------- ----------
Net increase in cash and cash equivalents 10,140 8,517
Cash and cash equivalents at beginning of period 18,331 5,817
---------- ----------
Cash and cash equivalents at end of period $ 28,471 $ 14,334
========== ==========
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Without Audit)
December 31, 1994
Note A - Basis of Presentation
- ------------------------------
The balance sheet at March 31, 1994 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, 1994, as amended
(the "1994 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 nine-month period ended December 31, 1994 are
not necessarily indicative of the results that may be expected for the
fiscal year ending March 31, 1995. For further information, refer to
Forum Group's consolidated financial statements as of and for the year
ended March 31, 1994, and the footnotes thereto, included in the 1994
10-K.
Certain amounts in the fiscal year 1994 condensed consolidated financial
statements have been restated to conform to the fiscal year 1995
presentation.
Note B - Changes In Consolidation
- ---------------------------------
The assets, liabilities and financial results of Rancho San Antonio
Retirement Housing Corporation ("RSARHC"), a cooperative housing
corporation which owns The Forum at Rancho San Antonio ("Rancho San
Antonio"), a continuing care community in Cupertino, California, were
included in the consolidated financial statements of Forum Group through
July 31, 1993 because Forum Group owned a majority of RSARHC's
cooperative memberships. 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 were no longer consolidated in Forum Group's consolidated
financial statements. Between August 1, 1993 and June 1, 1994, Forum
Group's continuing ownership interest in RSARHC was accounted for on the
equity method. Since June 1, 1994 Forum Group's continuing ownership
interest in RSARHC as the owner of less than 20% of the cooperative
memberships has been accounted for on the cost method. Sales of
cooperative memberships totalled $103,274,000 through December 31, 1994
and profits on these sales are being recognized using the cost recovery
method. The assets, liabilities and financial results of Rancho San
Antonio Retirement Services, Inc., the wholly owned subsidiary of Forum
Group which operates the healthcare and assisted living components of
Rancho San Antonio, are included in the consolidated financial statements
of Forum Group for all periods presented.
6
<PAGE>
FORUM GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Without Audit)
December 31, 1994
Forum Retirement Partners, L.P. ("FRP") is a publicly traded limited
partnership which owns nine retirement communities. Forum Group is the
parent company of FRP's general partner and has a long-term management
agreement with FRP. In addition, Forum Group has a substantial beneficial
interest in FRP. Prior to August 1, 1994, this beneficial interest was
less than 50%, and Forum Group's investment in FRP was accounted for on
the equity method. Through the acquisition of additional partnership
units, Forum Group's beneficial interest in FRP increased to 56.4% on
August 1, 1994. Accordingly, as of that date, the assets, liabilities and
financial results of FRP 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 statements of operations for the
nine months ended December 31, 1994 and 1993, as if Forum Group's
beneficial interest in FRP was 62.1% on April 1, 1993:
Nine Months Ended
December 31,
-------------------
1994 1993
-------- --------
(in thousands except
per share amounts)
Total revenues $121,799 $112,967
======== ========
Net income $ 11,346 $ 1,208
======== ========
Net income per
common and common
equivalent share $ 0.49 $ 0.08
======== ========
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 nine months ended December
30, 1994 is as follows (in thousands):
Net property $ 20,202
Other assets 1,307
---------
21,509
Less liabilities 23,008
---------
Net deficit $ 1,499
=========
Revenues $ 4,945
Costs and expenses 4,200
---------
Net income $ 745
=========
Forum Group has entered into a co-investment agreement with National Guest
Homes, L.L.C. ("NGH"), a developer of assisted living facilities targeted
toward middle-income senior citizens. Forum Group's investment in
projects under construction is included in the consolidated financial
<PAGE> 7
statements of Forum Group. Forum Group's investment in Forum - NGH
Operations - I, L.L.C. ("NGH Operations"), a manager of assisted living
facilities, is accounted for on the equity method.
8
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results Of Operations
- ---------------------
Forum Group operates (i) ten retirement communities owned or leased
directly or indirectly by Forum Group, one community owned by a nonprofit
corporation, and one nursing facility owned by Forum Group (the "Owned
Communities"), (ii) 13 retirement communities owned by partnerships which
are not wholly owned by Forum Group but which are consolidated for
financial reporting purposes, including the nine communities owned by FRP
(the "Consolidated Partnership Communities"), and (iii) two retirement
communities (Rancho San Antonio and Stonegates), the operating results of
which are not presently consolidated for financial reporting purposes
(the "Unconsolidated Communities"). The results of Rancho San Antonio's
operations were consolidated for financial reporting purposes prior to
July 31, 1993 (see Note B of the Notes to Condensed Consolidated
Financial Statements). Accordingly, the periods in which the financial
results of the consolidated components of Rancho San Antonio 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 Owned Communities' 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:
Three Months Ended December 31, 1994
------------------------------------
($ in millions)
Consolidated
Owned Rancho Partnership Corporate
Communities San Antonio Communities Operations Totals
Net ----------- ----------- ----------- ---------- ------
Operating
Revenues $20.6 $ 1.0 $19.5 $ 0 $41.1
Total
Operating
Expenses 14.0 1.0 13.4 2.3 30.7
Net Operating
Income 6.6 0 6.1 (2.3) 10.4
Depreciation 1.1 0 1.3 0 2.4
Interest
Expense 3.1 0 2.7 .5 6.3
9
<PAGE>
Nine Months Ended December 31, 1994
-----------------------------------
($ in millions)
Consolidated
Owned Rancho Partnership Corporate
Communities San Antonio Communities Operations Totals
Net ----------- ----------- ----------- ---------- ------
Operating
Revenues $59.6 $ 3.2 $41.1 $ .1 $104.0
Total
Operating
Expenses 39.7 3.1 27.4 6.0 76.2
Net Operating
Income 19.9 .1 13.7 (5.9) 27.8
Depreciation 3.1 0 2.8 .1 6.0
Interest
Expense 9.3 .1 6.1 1.3 16.8
Three Months Ended December 31, 1993
------------------------------------
($ in millions)
Consolidated
Owned Rancho Partnership Corporate
Communities San Antonio Communities Operations Totals
Net ----------- ----------- ----------- ---------- ------
Operating
Revenues $19.6 $ 1.4 $ 6.7 $ 0 $27.7
Total
Operating
Expenses 13.1 1.0 4.0 2.2 20.3
Net Operating
Income 6.5 .4 2.7 (2.2) 7.4
Depreciation 1.0 0 .5 .3 1.8
Interest
Expense .7 0 1.1 2.6 4.4
10
<PAGE>
Nine Months Ended December 31, 1993
-----------------------------------
($ in millions)
Consolidated
Owned Rancho Partnership Corporate
Communities San Antonio Communities Operations Totals
Net ----------- ----------- ----------- ---------- ------
Operating
Revenues $55.3 $ 4.1 $19.3 $ .5 $79.2
Total
Operating
Expenses 38.6 4.0 12.0 5.3 59.9
Net Operating
Income 16.7 .1 7.3 (4.8) 19.3
Depreciation 2.9 .9 1.5 .5 5.8
Interest
Expense 2.1 .7 3.1 7.3 13.2
Owned Communities. Net Operating Revenues for the three and nine months
ended December 31, 1994 increased by $1.0 million (5%), from $19.6
million to $20.6 million, and by $4.3 million (8%), from $55.3 million to
$59.6 million, respectively, as compared to the same periods of the
previous year. These 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 93% at December 31, 1993 to 95% at December 31, 1994.
Operating expenses, including marketing and general and administrative
expenses (collectively, "Total Operating Expenses"), at the Owned
Communities for the three and nine months ended December 31, 1994
increased by $900,000 (7%), from $13.1 million to $14.0 million, and by
$1.1 million (3%), from $38.6 million to $39.7 million, respectively, as
compared to the same periods of the previous year. These increases were
primarily attributable to increases in occupancy, increased utilization
of ancillary healthcare services and normal inflationary increases,
partially offset by reductions of $380,000 for the nine months ended
December 31, 1994 due to a change in the estimate of workers compensation
premiums. Net Operating Income, comprised of Net Operating Revenues less
Total Operating Expenses, at the Owned Communities for the three and nine
months ended December 31, 1994 increased by $0.1 million, from $6.5
million to $6.6 million, and by $3.2 million, from $16.7 million to $19.9
million, respectively, as compared to the same periods of the previous
year.
Rancho San Antonio. Due to the change in financial statement
presentation discussed above, the financial results of Rancho San Antonio
are not comparable between fiscal periods. Therefore, no discussion of
variances regarding Rancho San Antonio is presented. Net Operating
Revenues for the consolidated components of Rancho San Antonio for the
three and nine months ended December 31, 1994 decreased by $400,000, from
$1.4 million to $1.0 million, and by $900,000, from $4.1 million to
$3.2 million, respectively, as compared to the same periods of the
previous year. Occupancy of the healthcare and assisted living component
of Rancho San Antonio increased from 91% at December 31, 1993 to 94% at
December 31, 1994. Total Operating Expenses for the consolidated
11
<PAGE>
components of Rancho San Antonio for the three and nine month periods
remained constant at $1.0 million and decreased by $900,000, from $4.0
million to $3.1 million, respectively, as compared to the same periods of
the previous year. Net Operating Income for the consolidated components
of Rancho San Antonio for the three and nine month periods ended December
31, 1994 decreased by $400,000, from $400,000 to zero, and remained
constant at $100,000, respectively, as compared to the same periods of
the previous year.
Consolidated Partnership Communities. Due to the change in financial
statement presentation regarding consolidation of the FRP Communities
discussed above, the financial results of the Consolidated Partnership
Communities are not comparable between fiscal periods. Therefore, no
discussion of variances regarding the Consolidated Partnership
Communities is presented. Net Operating Revenues for the three and nine
months ended December 31, 1994 increased by $12.8 million, from
$6.7 million to $19.5 million, and by $21.8 million, from $19.3 million
to $41.1 million, respectively, as compared to the same periods of the
previous year. Combined occupancy of the Consolidated Partnership
Communities increased from 90% at December 31, 1993 to 94% at December
31, 1994. Total Operating Expenses for the Consolidated Partnership
Communities for the three and nine months ended December 31, 1994
increased by $9.4 million, from $4.0 million to $13.4 million, and by
$15.4 million, from $12.0 million to $27.4 million, respectively, as
compared to the same periods of the previous year. Net Operating Income
for the Consolidated Partnership Communities for the three and nine
months ended December 31, 1994 increased by $3.4 million, from $2.7
million to $6.1 million, and by $6.4 million, from $7.3 million to
$13.7 million, respectively, as compared to the same periods of the
previous year.
Corporate Operations. Changes in corporate operations were not material
to Forum Group's results of operations for the three and nine months
ended December 31, 1994.
Unconsolidated Entities. Forum Group's equity in the earnings of
unconsolidated entities is reflected as Investment and Other Income.
Changes in Forum Group's equity in the aggregate net earnings of FRP, the
unconsolidated component of Rancho San Antonio, GRP, and NGH Operations
for the three and nine months ended December 31, 1994 were not material
to Forum Group's results of operations. Due to the changes in financial
statement presentation regarding FRP and Rancho San Antonio discussed
above, the equity adjustments for those entities are not comparable
between fiscal periods.
Consolidated Items. The following is a discussion of certain
consolidated items.
Consolidated Marketing, General and Administrative Expenses. For the
three and nine months ended December 31, 1994, consolidated marketing,
general and administrative expenses increased by $700,000, from
$1.7 million to $2.4 million, and by $1.2 million, from $4.5 million to
$5.7 million, respectively, as compared to the comparable periods in
fiscal 1994. These increases are primarily attributable to (i) the
inclusion in the prior periods of future service income recognition in
respect of FRP management fees and (ii) increased home office staff
costs. During the nine months ended December 31, 1993, expenses of $1.3
million were incurred in conjunction with certain litigation related to
Forum Group's June, 1993 recapitalization (the "FGI Recapitalization").
12
<PAGE>
Management Fees. For the three and nine months ended December 31, 1994,
management fee income remained constant at $0.2 million and increased by
by $1.4 million, from $0.4 million to $1.8 million, respectively. The
nine-month increase was primarily attributable to the recognition of
management fee income (i) due from FRP for periods subsequent to December
31, 1993 but prior to August 1, 1994 and (ii) due from RSARHC for periods
subsequent to July 31, 1993. Pursuant to the terms of the management
agreement between Forum Group and FRP, management fees for periods prior
to December 31, 1993 had been deferred and were not recognized as income
by Forum Group.
Investment and Other Income. For the three and nine months ended
December 31, 1994, investment and other income increased $0.2 million,
from $0.4 million to $0.6 million, and $0.7 million, from $1.0 million to
$1.7 million, respectively, as compared to the comparable periods of
fiscal 1994. These increases are primarily attributable to increases in
investment income.
Depreciation. For the three and nine months ended December 31, 1994,
consolidated depreciation expense increased by $0.6 million and $0.1
million, respectively, as compared to the comparable periods in the
previous year. These changes reflect the August 1, 1994 consolidation of
FRP and fixed asset additions over the last 12 months, as offset by
RSARHC which is no longer a consolidated entity.
Interest Expense. Interest expense attributable to the Owned
Communities, Consolidated Partnership Communities and Corporate
Operations increased by $2.0 million, from $4.3 million to $6.3 million,
and by $3.5 million, from $13.2 million to $16.7 million, during the
three and nine months ended December 31, 1994, respectively. These
changes are primarily attributable to the consolidation of FRP and
changes in average borrowing costs.
Gains From Sales of Cooperative Memberships. During the three and nine
months ended December 31, 1994, $1.2 million and $5.4 million,
respectively, of pre-tax gains were recognized from the sales of
memberships in RSARHC (the "RSA Gains"). As RSA Gains are generated
solely from the initial sale of memberships in RSARHC, and as the number
of available initial memberships is finite, these gains are of a non-
recurring nature and there can be no assurance as to the timing or amount
of future RSA Gains.
Minority Interests. The increase of $1.3 million in the minority
interests' elimination for the nine months ended December 31, 1994
compared to the same period of the prior fiscal year resulted primarily
from improved operating results and a change in the method of accounting
for Forum Group's minority ownership of RSARHC (see Note B of the Notes
to Condensed Consolidated Financial Statements).
Income Taxes. On April 1, 1993, Forum Group adopted Financial Accounting
Standards No. 109, Accounting for Income Taxes, and has reported the
cumulative effect of that change in the method of accounting for income
taxes in the March 31, 1994 and December 31, 1994 condensed consolidated
financial statements.
As of December 31, 1994, income tax loss carryforwards for tax purposes
were estimated to be approximately $26.0 million after the application of
certain loss carryforward limitations. These tax loss carryforwards will
13
<PAGE>
expire in varying amounts through fiscal year 2009. For financial
reporting purposes, the future benefit of tax loss carryforwards arising
prior to Forum Group's reorganization is reported as additional paid-in-
capital.
During the quarter and nine months ended December 31, 1994, the condensed
consolidated statements of operations contained a provision for income
taxes of $0.6 million and $2.6 million, respectively, including $0.8
million related to the benefit of pre-organization tax loss carryforwards
which was added to paid-in-capital.
Extraordinary Charge. During the three months ended December 31, 1994
an extraordinary charge of $0.3 million was recorded related to Forum
Group's early extinguishment of debt. During the three and nine months
ended December 31, 1993 an extraordinary charge of $1.4 million was
recorded to reflect Forum Group's share of FRP's extraordinary charge on
the early extinguishment of its debt. Additionally, during the nine
months ended December 31, 1993, expenses of $0.4 million related to the
early extinguishment of debt in conjunction with the FGI Recapitalization
were recorded.
Net Income/Loss Per Share. The three and nine months ended December 31,
1994 produced net income of $2.8 million ($0.12 per share of common stock
of Forum Group ("Common Share")) and $10.9 million ($0.48 per Common
Share), respectively, compared to net income of $0.3 million ($0.01 per
Common Share) and a net loss of $0.5 million ($0.03 per Common Share),
respectively, for the three and nine months ended December 31, 1993. Net
income for the current quarter and nine-month period was favorably
affected by non-recurring after-tax gains of $1.1 million and $4.4
million, respectively ($0.05 and $0.19, respectively, per Common Share)
from the sales of cooperative memberships in RSARHC, which has 86% of its
memberships sold. Net income for the current quarter and nine-month
period was adversely affected by an extraordinary charge, pertaining to
Forum Group's early extinguishment of debt, of $0.3 million ($0.01 per
Common Share). Net income for the prior year nine-month period was
adversely affected by litigation expense of $1.3 million ($0.08 per
Common Share). Additionally, the prior year three and nine month periods
were adversely affected by extraordinary charges of $1.4 million and $1.8
million ($0.07 and $0.11, respectively, per Common Share), respectively,
due to the early extinguishment of debt. Without these items, net income
for the current three and nine-month periods would have been $0.08 and
$0.30, respectively, per Common Share compared to $0.08 and $0.16 per
Common Share for the three and nine-month periods, respectively, of the
prior fiscal year.
All per share data are based upon the weighted average number of common
and common equivalent shares outstanding for the relevant periods.
Financial Condition
- -------------------
Liquidity And Financial Condition. Management believes that Forum
Group's cash on hand, cash from operations and borrowings available to it
under credit facilities are sufficient to fund its foreseeable working
capital, debt service and capital expenditure requirements. Forum Group
will continue to monitor conditions in the capital markets and otherwise
in an effort to take advantage of opportunities which may become
available to it in the pursuit of its long-term growth strategy.
At December 31, 1994, Forum Group's cash and cash equivalents were $28.5
14
<PAGE>
million, compared to $18.3 million at March 31, 1994. Net cash provided
by operations was $19.7 million for the nine months ended December 31,
1994, compared to $1.4 million for the comparable period of the prior
fiscal year.
Total long-term debt was $249.4 million at December 31, 1994, compared to
$205.1 million at March 31, 1994. Of these amounts, $220.5 million and
$170.4 million, respectively, was project-level debt that is not recourse
to Forum Group. Total maturities of long-term debt for each of the next
five calendar years are as follows (in millions):
Non- Forum
Year Recourse Group
---- -------- -------
1995 $ 3.0 $ 0.7
1996 49.4 0.9
1997 2.7 14.4
1998 2.9 0.5
1999 28.8 0.3
Management expects that such amounts will be paid out of a combination of
cash on hand, cash from operations and refinancing proceeds, although
there necessarily can be no assurance with respect thereto.
Forum Group has adopted a growth-oriented strategic plan which
contemplates the acquisition of additional assets and continued
investment in its existing properties. Forum Group is a party to an
acquisition facility providing for up to $100.0 million of acquisition
financing. Under the facility, the lender will advance $2.00 of debt
financing for each $1.00 of equity capital invested by Forum Group, which
equity is presently expected to be obtained from liquid assets, future
offering of additional Common Shares to shareholders (including the
principal shareholders of Forum Group), cash from operations (including
cash from sales of memberships in existing RCs, primarily Rancho San
Antonio), or a combination of the foregoing. During the 24-month period
in which amounts can be drawn under the acquisition facility (the
"Funding Period"), Forum Group has the right, subject to the satisfaction
of certain conditions, to convert the indebtedness thereunder to seven-
year debt under either a fixed or floating interest rate structure.
During such period, Forum Group may repay such 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 3.35%, exclusive of servicing costs. Forum Group has an option
permitting it to increase the borrowings against the properties acquired
if, by September 1996, 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. There can be no assurance that any acquisitions will
be completed or, if so, as to the timing or terms thereof. Moreover, the
lender's obligation to provide financing under the Acquisition Facility
is subject to a number of conditions, and there can be no assurance that
such conditions will be satisfied.
Forum Group recently purchased (i) Tiffany House, an assisted care living
facility with 130 licensed units located in Fort Lauderdale, Florida, and
(ii) Fountainview Retirement Center, with 276 independent living
apartments and 64 assisted living suites, located in West Palm Beach,
Florida.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
- ---------------------------
Maddock Litigation. As described in the 1994 10-K, on May 7, 1992,
Charles S. Maddock, a resident of Stonegates, a condominium RC in
Greenville, Delaware, instituted an action against Greenville Retirement
Community, L.P. ("GRP"), the developer and managing agent of, and owner
of the service units (i.e. nursing, kitchen and dining facilities) at,
Stonegates, in the Court Chancery of the State of Delaware in and for New
Castle County ("State Court Action"). Forum Group is the sole general
partner of, and the owner of a 50% beneficial interest in, GRP. Forum
Group is also the operator and manager of Stonegates pursuant to an
operation and management agreement with GRP under which, inter alia, GRP
delegates to Forum Group all of GRP's duties and responsibilities as
managing agent of Stonegates. Mr. Maddock alleges that certain of the
organizational documents of Stonegates violate state law and that GRP and
Forum Group have breached their responsibilities under such documents.
Mr. Maddock sought various forms of injunctive, and declaratory relief,
and damages. On August 21, 1992, Forum Group instituted an action in the
Bankruptcy Court (the "Bankruptcy Court Action") alleging that the relief
requested in the State Court Action effectively asserts a claim against
Forum Group, the assertion of which is barred under the terms of the
Reorganization Plan, and requesting injunctive relief preventing the
further prosecution of the State Court Action. On September 17, 1993,
the Bankruptcy Court issued an order permanently enjoining Mr. Maddock
from pursuing the State Court Action. Mr. Maddock appealed the
Bankruptcy Court's decision, and on August 30, 1994, the appeals court
vacated the injunction and remanded the matter to the Bankruptcy Court
for further proceedings. On December 13, 1994, Mr. Maddock and Forum
Group entered into an agreement entered in the Bankruptcy Court providing
that Mr. Maddock will be enjoined from asserting claims based upon acts
or omissions of Forum Group or GRP occurring prior to April 2, 1992 (the
effective date of the Reorganization Plan). The agreement does not bar
the assertion of a claim arising after April 2, 1992 from either a new
course of action or a new breach of any continuing agreement.
Refer to the 1994 10-K for additional information regarding this
lawsuit and other legal proceedings to which the Registrant or its
subsidiaries are parties.
16
<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: February 14, 1995 By: \s\ Paul A. Shively
--------------------------------
Paul A. Shively
Senior Vice President and Treasurer
17
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