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, 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 22030
Fairfax, Virginia (Zip Code)
(Address of principal executive offices)
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 February 12, 1996 was 22,531,197.
1
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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, 1995 3
Condensed consolidated statements of operations --
Three and nine months ended December 31, 1995 and 1994 5
Condensed consolidated statements of cash flows --
Nine months ended December 31, 1995 and 1994 7
Notes to condensed consolidated financial statements --
December 31, 1995 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II. OTHER INFORMATION
- --------------------------
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
- ----------
EXHIBIT INDEX 26
- -------------
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FORUM GROUP, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Without Audit)
December 31, March 31,
1995 1995
------------ -----------
(in thousands)
ASSETS
------
Current Assets:
Cash and cash equivalents $ 27,145 $ 30,228
Accounts receivable, less allowances for
doubtful accounts of $570 and $487, respectively 10,202 7,992
Notes and other receivables 4,189 4,603
Prepaids and other current assets 1,936 4,851
--------- ---------
Total Current Assets 43,472 47,674
--------- ---------
Restricted Cash 23,005 13,098
Property and equipment:
Land and improvements 52,974 49,737
Buildings and leasehold improvements 290,421 263,411
Furniture and equipment 21,757 18,780
Construction in progress 12,847 5,249
--------- ---------
377,999 337,177
Less accumulated depreciation and amortization 27,543 19,820
--------- ---------
Property and Equipment, net 350,456 317,357
Investments:
Greenville Retirement Community, L.P. 3,180 3,331
Other 1,865 1,531
--------- ---------
Net Investments 5,045 4,862
--------- ---------
Mortgage notes receivable 18,360 -0-
Deferred costs, net of accumulated amortization
of $3,529 and $1,948, respectively 9,633 12,778
Other assets 4,289 2,577
Excess of cost over net assets of business
acquired, net of accumulated amortization of
$60 and $0, respectively 1,725 -0-
--------- ---------
Total Assets $ 455,985 $ 398,346
--------- ---------
3
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FORUM GROUP, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Without Audit)
December 31, March 31,
1995 1995
------------ ------------
(in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current portion of long-term debt $ 56,989 $ 5,275
Accounts payable 3,322 3,846
Accrued expenses 17,033 15,295
Resident deposits and refundable resident fees 18,573 19,609
--------- ---------
Total Current Liabilities 95,917 44,025
Long-term debt, less current portion payable
within one year 259,022 264,761
Deferred income 8,023 7,294
--------- ---------
TOTAL LIABILITIES 362,962 316,080
Other partners' equity 11,528 16,600
Shareholders' equity:
Common stock, no par value - authorized 48,000
shares, issued 22,514 70,129 67,927
Accumulated earnings (deficit) 11,366 (2,261)
--------- ---------
Total Shareholders' Equity 81,495 65,666
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 455,985 $ 398,346
--------- ---------
See Notes to Condensed Consolidated Financial Statements.
4
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FORUM GROUP, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Without Audit)
Three Months Ended Nine Months Ended
December 31, December 31,
------------------- -------------------
1995 1994 1995 1994
-------- --------- --------- -------
(in thousands except per share amounts)
Revenues:
Net operating revenues $ 48,914 $ 41,097 $141,831 $104,028
Management fees 379 185 1,082 1,788
Investment and other income 563 619 2,120 1,688
------- ------- ------- -------
TOTAL REVENUES 49,856 41,901 145,033 107,504
------- ------- ------- -------
Costs and expenses:
Operating expenses 33,733 28,304 98,045 70,492
General and administrative
expenses 3,101 2,357 8,962 5,679
Relocation costs 511 -0- 1,088 -0-
Litigation expense 5 -0- 53 -0-
Depreciation and amortization 3,065 2,388 8,760 5,966
------- ------- ------- -------
TOTAL COSTS AND EXPENSES 40,415 33,049 116,908 82,137
------- ------- ------- -------
9,441 8,852 28,125 25,367
Interest expense (7,533) (6,322) (22,163) (16,756)
Gains from sales of cooperative
memberships 2,545 1,243 13,343 5,440
Gain (loss) on dispositions of
assets and other provisions, net (1,181) -0- 372 -0-
------- ------- ------- -------
Income before minority
interests, income taxes and
extraordinary charge 3,272 3,773 19,677 14,051
Minority interests (353) (136) (703) (333)
------- ------- ------- -------
Income before income taxes
and extraordinary charge 2,919 3,637 18,974 13,718
Income tax benefit (expense) 100 (550) (2,766) (2,550)
------- ------- ------- -------
Income before extraordinary charge 3,019 3,087 16,208 11,168
Extraordinary charge -
early extinguishment of debt, net
of income tax benefit -0- (262) (2,581) (262)
------- ------- ------- -------
NET INCOME 3,019 2,825 13,627 10,906
------- ------- ------- -------
ACCUMULATED EARNINGS (DEFICIT) AT
BEGINNING OF PERIOD 8,347 (6,408) (2,261) (14,489)
------- ------- ------- -------
ACCUMULATED EARNINGS (DEFICIT)
AT END OF PERIOD $ 11,366 $ (3,583) $ 11,366 $(3,583)
------- ------- ------- -------
See Notes to Condensed Consolidated Financial Statements.
5
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FORUM GROUP, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Without Audit)
Three Months Ended Nine Months Ended
December 31, December 31,
------------------- -----------------
1995 1994 1995 1994
--------- -------- -------- -------
(in thousands except per share amounts)
Net Income $ 3,019 $ 2,825 $ 13,627 $ 10,906
------- ------- ------- -------
Average number of common and
common equivalent shares
outstanding 23,651 23,164 23,636 22,944
------- ------- ------- -------
Per common and common
equivalent share (primary
and fully diluted):
Income before
extraordinary charge $ 0.13 $ 0.13 $ 0.68 $ 0.49
Extraordinary charge (0.00) (0.01) (0.11) (0.01)
------- ------- ------- -------
Net income $ 0.13 $ 0.12 $ 0.57 $ 0.48
------- ------- ------- -------
See Notes to Condensed Consolidated Financial Statements.
6
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FORUM GROUP, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Without Audit)
Nine Months Ended
December 31,
-----------------------
1995 1994
--------- ---------
(in thousands)
Cash flows from operating activities:
Net income $ 13,627 $ 10,906
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 8,760 5,966
Amortization of deferred costs 1,581 1,919
Other partners' and interest in losses
of consolidated companies 703 333
Net income of investments on the equity method (321) (183)
Non-cash portion of gain (loss) on dispositions
of assets and other provisions, net 1,667 -0-
Other accrued revenues and expenses, net (68) 477
Tax benefit recorded as additional
shareholders' equity 2,200 -0-
Non-cash portion of extraordinary charge 1,509 242
-------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 29,658 19,660
-------- ---------
Cash flows from investing activities:
Purchases of retirement communities and businesses (20,407) (7,270)
Additions to property and equipment (22,774) (5,818)
Purchases of non-performing HUD loans (18,360) -0-
Purchase of investment in Forum Retirement Partners (7,379) -0-
Purchase of assets of cooperative housing
corporation (1,345) -0-
Proceeds from sale of interest rate cap agreement 5,936 -0-
Proceeds from sale of retirement communities 1,300 -0-
Net proceeds from sales of investment in
Rancho San Antonio Retirement Housing Corporation -0- 8,709
Notes, investments and other receivables (1,472) 206
Other 419 355
-------- ---------
NET CASH USED IN INVESTING ACTIVITIES (64,082) (3,818)
-------- ---------
Cash flows from financing activities:
Proceeds from long-term debt 154,705 398
Payments on long-term debt (108,730) (8,276)
Proceeds from issuance of common stock
and warrants, net -0- 5,155
Deferred financing and other costs (4,792) (1,501)
Distributions to other partners (246) (234)
Resident deposits and restricted cash (9,596) (1,244)
-------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 31,341 (5,702)
-------- ---------
7
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FORUM GROUP, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Without Audit)
Nine Months Ended
December 31,
-----------------------
1995 1994
---------- -------
(in thousands)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 31,341 (5,702)
------- ---------
Net increase (decrease) in cash and cash equivalents (3,083) 10,140
Cash and cash equivalents at beginning of period 30,228 18,331
------- ---------
Cash and cash equivalents at end of period $ 27,145 $ 28,471
------- ---------
See Notes to Condensed Consolidated Financial Statements.
8
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FORUM GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Without Audit)
December 31, 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 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. The statements
have been prepared using the accounting policies described in the
consolidated financial statements of Forum Group included in the 1995
10-K. The unaudited condensed consolidated financial statements include
all adjustments which are necessary, in the opinion of management, to
present fairly, in all material respects, the Company's financial
position and results of operations for the applicable periods. Operating
results for the nine-month period ended December 31, 1995 are not
necessarily indicative of the results that may be expected for the year
ending March 31, 1996 and these financial statements should be read in
conjunction with the 1995 10-K.
Certain amounts in the condensed consolidated financial statements for the
fiscal year ended March 31, 1995 have been reclassified to conform to the
presentation for the periods in the current fiscal year.
Note B - Changes In Consolidation
- ---------------------------------
Forum Retirement Partners, L.P. ("Forum Partners") is a publicly traded
limited partnership which owns nine retirement communities indirectly
through a subsidiary partnership (the "Subsidiary Partnership"). Forum
Group is the parent company of Forum Retirement, Inc., the 1% general
partner of both Forum Partners and the Subsidiary Partnership (the
"General Partner"), and has a long-term management agreement with Forum
Partners. In addition, Forum Group has a substantial beneficial interest
in Forum Partners, which is the 99% limited partner of the Subsidiary
Partnership. Prior to August 1, 1994, this beneficial interest was less
than 50% (including Forum Group's 1% general partner's interest) 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%
9
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FORUM GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Without Audit)
December 31, 1995
Note B - Changes In Consolidation (Continued)
- ---------------------------------------------
(including its 1% general partner's interest) 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. Since August 1, 1994, Forum Group has further
increased its beneficial interest to 79.2% (including its 1% general
partner's interest) through the acquisition of additional partnership
units. The following pro forma amounts summarize the effect on the
condensed consolidated statement of operations for the nine months ended
December 31, 1994, as if Forum Group's beneficial interest in Forum
Partners was 79.2% (including its 1% general partner's interest) on April
1, 1994:
Nine Months Ended
December 31, 1994
-----------------
(in thousands except
per share amount)
Total revenues $121,799
-------
Net income $ 11,346
-------
Net income per common and common
equivalent share $ .49
-------
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 31, 1995 is as follows (in thousands):
Net property $ 19,809
Other assets 1,200
--------
21,009
Less liabilities 23,222
--------
Net deficit $ (2,213)
--------
Revenues $ 5,179
Costs and expenses 4,432
--------
Net income $ 747
--------
10
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FORUM GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Without Audit)
December 31, 1995
Note C - Other Investments (Continued)
- --------------------------------------
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
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 cost method.
Note D - Long Term Debt
- -----------------------
On September 1, 1995, FGI Financing I Corporation ("FFI") and Forum Ohio
Healthcare, Inc. (collectively with FFI, the "Forum Pool Borrowers"),
both wholly owned subsidiaries of Forum Group, obtained a non-recourse
mortgage loan totaling $124.7 million. The loan is secured by first and
second liens on eight Forum Group retirement communities (the "Forum Pool
Properties"). The loan has cross-default and cross-collateral provisions.
The proceeds were used to repay existing indebtedness of $106.0 million,
loan closing costs, funding of the initial capital reserve account and
general corporate purposes.
The loan requires monthly payments based on a 25-year term and bears
interest at a fixed rate of 10.008% until September 2003, at which time
the rate increases to the greater of 15.008% or the 10-year Treasury rate
plus 5%. The loan matures in September 2020 but is open to prepayment
without penalty on and after September 2003. Prior to that time, after
October 1997, the loan is pre-payable subject to a yield maintenance
premium. Because the interest rate on the loan increases significantly in
September 2003, it is anticipated that the loan will be prepaid or
refinanced by September 2003.
As part of the original floating rate debt financing that was repaid
with the proceeds of the loan described in the preceding paragraph, FFI
entered into an interest rate cap agreement with a notional amount equal
to $93.3 million, which expires in March 2001. The agreement entitles
FFI to receive the amount, if any, by which one-month LIBOR exceeds
4.625% on a notional amount of $93.3 million through expiration. The
interest rate cap agreement is included in other assets and was amortized
to interest expense over the term of the agreement until September 1,
1995.
11
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FORUM GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Without Audit)
December 31, 1995
Note D - Long Term Debt (Continued)
- -----------------------------------
The interest rate cap agreement was not terminated upon refinancing of the
underlying debt on September 1, 1995. The market value and unamortized
cost of the interest rate cap agreement at that date was $7.3 million and
$5.7 million, respectively. The difference between market value and the
unamortized cost of the interest rate cap upon extinguishment of the
underlying debt and the changes in market value of the interest rate cap
agreement, including amounts received by Forum under the agreement
subsequent to September 1, 1995 have been recorded as gain (loss) on
dispositions of assets and other provisions, net. The interest rate cap
agreement was sold in December 1995 as discussed in Note E.
As noted above, Forum Group extinguished $106.0 million of debt prior to
its scheduled maturity. In connection with this transaction, Forum Group
incurred an extraordinary loss on extinguishment of debt of $2.6 million,
net of deferred income tax benefits of $0.6 million.
Pursuant to a separate credit agreement, Forum Group may borrow amounts
to fund a portion of the expansions to the properties collateralizing the
above-described mortgage loan. On January 26, 1996, Forum Group obtained
an advance of $2.5 million under the credit agreement and, in connection
therewith, the Forum Pool Borrowers issued to the lender shares of
preferred stock. The loan under the credit agreement is secured by a cash
collection account funded from the cash flows of the Forum Pool Borrowers.
Interest on the loan accrues at LIBOR (as defined) plus 5.00% per annum,
and accrued interest is payable monthly. The loan matures on January 1,
2001 but is open to prepayment at any time without penalty or premium.
Under the credit agreement, however, Forum Group is obligated to pay the
lender a fee of $1.4 million (subject to reduction in certain
circumstances) at maturity of the loan. At February 13, 1996, an
additional $47.5 million was available to be borrowed by Forum Group under
the loan agreement prior to September 1, 1999.
Note E - Gain (loss) on Dispositions of Assets and Other Provisions, net
- ------------------------------------------------------------------------
On September 1, 1995, the interest rate cap was recorded at market value
upon extinguishment of the underlying debt which resulted in the
recognition of a gain of $1.6 million. The proceeds received from the
holding and sale of the interest rate cap agreement subsequent to
September 1, 1995 totaled $6.3 million which resulted in a net loss of
$1.0 million subsequent to September 1, 1995. These transactions are more
fully discussed in Note D to the Condensed Consolidated Financial
Statements.
12
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FORUM GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Without Audit)
December 31, 1995
Note E - Gain (loss) on Dispositions of Assets and Other Provisions, net
- ------------------------------------------------------------------------
(Continued)
-----------
In addition, Forum Group recorded a provision for loss of approximately
$.2 million relating to a nursing facility located in Delaware. This
provision was based on a determination by management that future cash
flows of the property were insufficient to recover its investment in the
facility and the facility was subsequently sold in December 1995.
Note F - Commitments and Contingencies
- --------------------------------------
For information concerning certain legal proceedings involving Forum
Group, see (i) Item 3 and Note 5 of the Notes to Consolidated Financial
Statements contained in Item 8 of Part I of the 1995 10-K, (ii) Item 1
of Part II of the Quarterly Report on Form 10-Q of Forum Group for the
quarter ended June 30, 1995, and (iii) Item 1 of Part II of the Quarterly
Report on Form 10-Q of Forum Group for the quarter ended September 30,
1995. Such information is incorporated herein by reference.
Note G - Subsequent Event
- -------------------------
On January 6, 1996 Forum Group acquired two assisted living and dementia
related senior housing communities in the Northwestern United States for
a purchase price of approximately $11.7 million. It is anticipated that
a third recently opened community in the Northwestern United States will
be acquired in October 1997 for an amount to be determined as provided in
the purchase agreement once stabilized occupancy has been established.
Management of these assets will be provided by the seller on a fee basis.
The agreement also provides for participation, on a joint venture basis,
for the construction of between 5 and 10 new communities in the
Northwestern United States and the right to develop the concept
nationally.
13
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PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
FORUM GROUP, INC. AND SUBSIDIARIES
The following discussion and analysis covers any material changes in
financial condition since March 31, 1995 and any material changes in the
results of operations for the three and nine months ended December 31,
1995 as compared to the same periods in 1994. This discussion and
analysis should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in
the 1995 10-K.
Results Of Operations
- ---------------------
Forum Group currently provides senior housing and healthcare services
through the ownership and/or operation of 49 senior living and assisted
living communities, including two under construction and three additional
communities expected to commence construction by the end of the fiscal
year and two non-performing first mortgage notes on senior living
communities, one of which it manages. The communities are located in 15
states: Florida, Texas, California, Arizona, Ohio, Delaware, South
Carolina, New Mexico, Kansas, Kentucky, Arkansas, Alabama, Tennessee,
Indiana and Washington.
Certain summary financial information for Forum Group 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 period
in which the financial results of Forum Partners are included in the
Condensed Consolidated Financial Statements of Forum Group is 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. Since August 1, 1994, Forum Group has
further increased its beneficial ownership interest in Forum Partners.
Pro forma consolidated operating results as if Forum Partners' results were
consolidated from April 1, 1994 based upon Forum Group's 79.2% equity
ownership of Forum Partners are presented in the following table for the
nine months ended December 31, 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 79.2% of the equity interest in Forum Partners throughout the period
presented.
Forum Group's equity in the earnings of unconsolidated entities is
reflected in total revenues. 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 and nine
months ended December 31, 1995. Due to the changes in the accounting
treatment for Forum Partners (see Note B of Notes to Condensed Consolidated
Financial Statements), the equity in the earnings of Forum Partners is not
comparable between fiscal periods.
14
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
FORUM GROUP, INC. AND SUBSIDIARIES
As presented in the following table, community-based EBITDA reflects (i)
the operating revenues and operating expenses of Forum Group's retirement
and assisted living communities and its home health care subsidiary,
Health Care Industries, Inc. ("HCI"), (ii) management fees and (iii) investment
and other income. The impact of management fees and investment and other
income on comparability from year to year is not considered material. Both
community-based EBITDA and EBITDA presented in the following table are
defined as earnings before interest, taxes, depreciation, amortization,
gain/loss on dispositions of assets and other provisions, minority interests
and extraordinary charges and reflects Forum Group's ability to satisfy
principal and interest obligations with respect to its indebtedness and to
provide cash for other purposes. Community-based 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.
15
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
FORUM GROUP, INC. AND SUBSIDIARIES
Three and Nine Months Ended December 31, 1995
---------------------------------------------
($ in millions)
Three Months Nine Months
------------ -----------
Ended December 31, Ended December 31,
------------------ ------------------
1995 1994 1995 1994 Pro forma(1)
------- ------- ------- ------- ---------
Total
Revenues $49.8 $41.9 $145.0 $107.5 $121.8
Operating
Expenses 33.7 28.3 98.0 70.5 81.5
---- ---- ----- ----- -----
Community-Based
EBITDA 16.1 13.6 47.0 37.0 40.3
General and
Administrative
Expenses 3.1 2.4 9.0 5.7 5.8
Relocation
Costs .5 - 1.1 - -
---- ---- ----- ----- -----
EBITDA 12.5 11.2 36.9 31.3 34.5
Gains from Sales
of Cooperative
Memberships 2.5 1.2 13.3 5.4 5.4
Gain (loss) on
Dispositions of
Assets, and Other
Provisions, net (1.2) - .4 - -
Depreciation
and Amortization (3.0) (2.4) (8.7) (5.9) (7.1)
Interest Expense (7.5) (6.3) (22.2) (16.8) (18.3)
Minority
Interests (.4) (.1) (.7) (.3) (.4)
Income Tax Benefit
(Expense) .1 (.5) (2.8) (2.5) (2.5)
Extraordinary loss,
net of income
taxes - (.3) (2.6) (.3) (.3)
---- ---- ----- ----- -----
Net Income $ 3.0 $ 2.8 $ 13.6 $ 10.9 $ 11.3
---- ---- ----- ----- -----
- -----------------
(1) Proforma results of operations reflect the effect on the Condensed
Consolidated Statement of Operations for the Nine Months Ended December 31,
1994 as if Forum Group's interest in Forum Partners was 79.2% on April 1,
1994 and therefore consolidated for financial reporting purposes.
16
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
FORUM GROUP, INC. AND SUBSIDIARIES
Community-Based EBITDA
- ----------------------
Three Months Ended December 31, 1995 and 1994. Total revenues for the
three months ended December 31, 1995 increased by $7.9 million (19%) from
$41.9 million to $49.8 million as compared to the same period of the
pervious year. This increase was primarily attributable to (i) the
acquisition in January 1995 and May 1995 of two retirement communities
("RC's"), The Forum at Fountainview ("Fountainview") and The Forum at the
Woodlands ("Woodlands"), respectively, (ii) the opening of two NGH
assisted living communities in July and October of 1995, (iii) higher
monthly rental rates and higher average occupancy at the RC's owned in
the comparable period, (iv) additional ancillary services to residents
and (v) the acquisition HCI in fiscal year 1996. Operating expenses for
the three months ended December 31, 1995 increased by $5.4 million (19%)
from $28.3 million to $33.7 million compared to the same period last
year. This increase was primarily attributable to (i) the acquisition of
Fountainview and Woodlands, (ii) the opening of two NGH assisted living
communities, (iii) anticipated start-up costs of five additional regional
offices of HCI, (iv) additional ancillary services, (v) higher occupancy
and (vi) normal inflationary increases. Community-based EBITDA for the
three months ended December 31, 1995 increased by $2.5 million (18%) from
$13.6 million to $16.1 million as compared to the same period of the
previous year. The inclusion in total revenues of investment and other
income of $.6 million for the three month periods ended December 31, 1995
and 1994 and management fees of $.4 million and $.2 million for the three
month periods ended December 31, 1995 and 1994, respectively, does not
have a material effect on the comparability of community-based EBITDA.
Nine Months Ended December 31, 1995 and 1994. Total revenues for the
nine months ended December 31, 1995 increased by $37.5 million (35%) from
$107.5 million to $145.0 million as compared to the same period of the
previous year. This increase was primarily attributable to (i) the
consolidation of Forum Partners in August 1994, (ii) the acquisition of
three RC's, Fountainview, Woodlands and Tiffany House ("Tiffany") in
January 1995, May 1995 and August 1994, respectively, (iii) the opening
of two NGH assisted living communities in July and October 1995, (iv)
higher monthly rental rates and higher average occupancy at the RC's
owned in the comparable period, (v) additional ancillary services to
residents and (vi) the acquisition of HCI. Operating expenses for the
nine months ended December 31, 1995 increased by $27.5 million (39%) from
$70.5 million to $98.0 million. The increase was primarily attributable
to
(i) the consolidation of Forum Partners, (ii) the acquisition of Tiffany,
Fountainview and Woodlands, (iii) the opening of two NGH assisted living
communities, (iv) anticipated start-up costs of five additional regional
offices of HCI, (v) increased utilization of ancillary healthcare
services, (vi) higher occupancy and (vii) normal inflationary increases.
Community-based EBITDA for the nine months ended December 31, 1995
increased by $10.0 million (27%) from $37.0 million to $47.0 million as
compared to the nine months ended December 31, 1994. The inclusion in
total revenues of investment and other income of $2.1 million and $1.7
million for the nine months ended December 31, 1995 and 1994,
17
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
FORUM GROUP, INC. AND SUBSIDIARIES
respectively, and management fees of $1.1 million and $1.8 million for
the nine months ended December 31, 1995 and 1994, respectively, does not
have a material effect on the comparability of community-based EBITDA for
these periods.
Pro Forma. On a pro forma basis, assuming that Forum Partners' results
of operations were consolidated for the nine months ended December 31, 1994
(rather than from August 1, 1994, the actual date of consolidation), total
revenues for the nine months ended December 31, 1995 increased by $23.2
million (19.0%), from $121.8 million to $145.0 million, as compared to the
same period of the previous year. This increase was primarily attributable
to (i) higher occupancy and rental rates, (ii) additional ancillary services,
(iii) the acquisition of Tiffany, Fountainview and Woodlands,
(iv) the acquisition of HCI and (v) the opening of two NGH assisted living
communities. Operating expenses for the nine months ended December 31, 1995
increased by $16.5 million (20%) from $81.5 million to $98.0 million compared
to the nine months ended December 31, 1994. The increase in operating
expenses were primarily attributable to (i) the acquisition and opening of
three RC's and two NGH assisted living communities, (ii) anticipated start-up
costs of HCI, (iii) additional ancillary services and (iv) higher occupancy
rates. Community-based EBITDA for the nine months ended December 31, 1995
increased by $6.7 million (17%) from $40.3 million to $47.0 million as
compared to the same period of the previous year. The inclusion in total
revenues of investment and other income of $2.1 million and $1.8 million and
management fees of $1.1 million and $.6 million for the nine months ended
December 31, 1995 and 1994, respectively, does not have a material effect on
the comparability of community-based EBITDA for these periods.
General and Administrative Expenses. For the three and nine months ended
December 31, 1995, consolidated general and administrative expenses
("G&A")increased by $.7 million (32%), from $2.4 million to $3.1 million,
and by $3.3 million (59%) from $5.7 million to $9.0 million,
respectively, compared to the same periods of the previous year. This
increase was primarily attributable to increased home office staff costs
to manage the Company's acquisition and development programs. Litigation
expenses were not material to Forum Group's results of operations for the
three and nine months ended December 31, 1995 and 1994 and are included
in G&A expenses for presentation purposes.
Relocation Costs. During the three and nine months ended December 31,
1995, expenses of $.5 million and $1.1 million, respectively, 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 $.6 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 personnel necessary to meet the
Company's strategic initiatives.
18
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
FORUM GROUP, INC. AND SUBSIDIARIES
Gains From Sale Of Cooperative Memberships. The operating results of
Rancho San Antonio Retirement Housing Corporation ("Rancho San Antonio"),
a cooperative corporation which owns an RC in Cupertino, California were
included in the consolidated financial statements of Forum Group through
July 31, 1993 because Forum Group owned a majority of the cooperative
memberships. Effective August 1, 1993, due to continued sales of
cooperative memberships, Forum Group no longer owned in excess of 50%
and, accordingly, the financial statements of Rancho San Antonio were no
longer consolidated into Forum Group's financial statements from that
date. Sales of cooperative memberships have totaled $117.5 million
through December 31, 1995, and profits of these sales are recognized
using the cost recovery method. In August 1994, all of Forum Group's
costs were recovered through sale of memberships, and the investment was
reduced to zero. Remaining membership sales are recognized as gains from
sales of cooperative memberships. Proceeds from future sales of
memberships are estimated to approximate $1.2 million. For the three and
nine months ended December 31, 1995, six and 37 memberships were sold,
respectively, and $2.5 and $13.3 million of gains were recognized.
Gain (loss) on Dispositions of Assets and Other Provisions, Net.
On September 1, 1995, an interest rate cap was recorded at market value
upon extinguishment of the underlying debt which resulted in the
recognition of a gain of $1.6 million. The proceeds received from the
holding and sale of the interest rate cap agreement subsequent to
September 1, 1995 totaled $6.3 million which resulted in a net loss of
$1.0 million subsequent to September 1, 1995. These transactions are more
fully discussed in Note D to the Condensed Consolidated Financial
Statements. The gain of $1.6 million recorded in September 1995 has been
reclassified from extraordinary charges to gain (loss) on dispositions of
assets and other provisions, net to conform to the presentation of the
changes in market value of the interest rate cap agreement for the three
months ended December 31, 1995.
In addition, Forum Group recorded a provision for loss of approximately
$.2 million relating to a nursing facility located in Delaware. This
provision was based on a determination by management that future cash
flows of the property were insufficient to recover its investment in the
facility. The facility was sold in December 1995.
Depreciation and Amortization. For the three and nine months ended
December 31, 1996 consolidated depreciation expense increased by $.6
million and $2.8 million, compared to the previous fiscal period. This
increase reflects (i) capital expenditures at the communities, (ii) the
August 1, 1994 consolidation of Forum Partners for accounting purposes,
(iii) the acquisition of Tiffany, Fountainview and Woodlands, (iv) the
acquisition from Autumn America Retirement, Ltd., ("Autumn") of Autumn's
rights as manager of five RC's pursuant to management contracts, (v) the
opening of two NGH assisted living communities and (vi) the expansion of
two communities.
19
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
FORUM GROUP, INC. AND SUBSIDIARIES
Interest Expense. Consolidated interest expense increased by $1.2
million, from $6.3 million to $7.5 million, and by $5.4 million from
$16.8 million to $22.2 million, respectively, during the three and nine
months ended December 31, 1995, as compared to the same periods of the
previous year. This change was primarily attributable to changes in
average borrowing costs and increased indebtedness incurred to finance
acquisitions.
Taxes. Due to the utilization of net operating loss carry forwards,
Forum Group had no federal income tax liability at December 31, 1995
related to fiscal year 1996 estimated tax liability. Notes and other
receivables include federal income taxes receivable of $1.2 million at
December 31, 1995 related to fiscal year 1995 tax return. As of March 31,
1995, net operating loss carry forwards for tax purposes were
estimated to be approximately $158 million before the application of
certain net operating loss carry forward limitations. As a result of
these limitations, Forum Group expects the utilization of net operating
loss carry forwards will be limited to approximately $34 million. These
net operating loss carry forwards will expire in varying amounts through
fiscal year 2009. For financial reporting purposes, any future benefit
of net operating loss carry forwards and net deferred tax assets arising
prior to Forum Group's 1992 reorganization plan will be reported as
additional shareholders' equity. The maximum future tax benefit to be
recognized through shareholders' equity was estimated to be approximately
$30 million at March 31, 1995.
Extraordinary Loss. On September 1, 1995, the Company extinguished $106
million of debt prior to its scheduled maturity. In connection with this
transaction, the Company incurred an extraordinary loss of $2.6 million,
net of $.6 million of income tax benefit.
Net Income/Loss Per Share. The three and nine months ended December 31,
1995 produced net income of $3.0 million ($0.13 per Common Share) and
$13.6 million ($0.57 per Common Share) compared to net income of $2.8
million ($0.12 per Common Share) and $10.9 million ($0.48 per Common
Share) for the comparable periods in 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 December 31, 1995, Forum Group had
positive net working capital of $4.5 million, excluding $57.0 million of
indebtedness due within one year. 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. The
$57.0 million of indebtedness due within one year at December 31, 1995
includes approximately $52.1 million of debt which is currently due or
matures during May, 1996. As discussed under "Capital Structure" on page
23, Forum Group believes it has the available cash on hand to extinguish
amounts currently due and adequate debt capacity to extend the $52.1
million of indebtedness due in May 1996. Forum Group is currently
evaluating available alternatives with respect to extinguishing or
extending maturing obligations.
20
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
FORUM GROUP, INC. AND SUBSIDIARIES
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 infrastructure investment
and personnel in place.
There necessarily can be no assurance that additional material
acquisitions or expansions will be completed or, if so, as to the timing
or terms thereof.
Forum Group executed an agreement to develop, own and operate a second
assisted living concept on a national basis through a joint venture with
an owner/operator of moderately priced free-standing assisted living and
dementia-related properties. On January 6, 1996, Forum Group acquired
two existing stabilized properties. It is anticipated that Forum Group
will acquire a third recently opened community in October 1997 for an
amount to be determined as provided in the purchase agreement once
stabilized occupancy has been established. All three of these properties
are located in the Northwestern United States. Management of these
assets will be provided by the seller on a fee basis. The agreement also
provides for participation, on a joint venture basis, in construction of
between 5 and 10 new communities in the Northwestern United States and
the right to develop the concept nationally. The acquisition price of
$11.7 million was funded from available corporate cash and the
acquisition loan facility discussed below.
In December 1995, Forum Group sold an interest rate cap agreement with a
notional amount of $93.3 million. The agreement had not previously been
terminated upon refinancing of the underlying debt on September 1, 1995.
Forum Group received proceeds of approximately $5.9 million in connection
with the sale. Subsequent to September 1, 1995 proceeds from the holding
and sale of the interest rate cap agreement totaled $6.3 million.
Forum Group is currently a party to a loan facility providing for up to
$100 million of acquisition financing. The unutilized amount of this
facility at February 1, 1996 was $61.0 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%
21
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
FORUM GROUP, INC. AND SUBSIDIARIES
(including service costs and other fees of 2.075%). 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 financing and refinancings in order to
provide greater financial flexibility.
Capital Structure. Forum Group's total long-term debt was $316 million
as of December 31, 1995, including $123.3 million of debt of four RC's
owned by partnerships which are not wholly owned by Forum Group and nine
RC's owned by Forum Partners all of which are consolidated for financial
reporting purposes, which was non-recourse to Forum Group. Of the
remaining $192.7 million, $169.8 million was non-recourse to Forum Group.
The portion of long-term debt due within one year was $57.0 million at
December 31, 1995. Of this total, indebtedness of up to $52.1 million is
currently due or matures during May, 1996. Forum believes it has
available cash on hand to extinguish amounts currently due and adequate
debt capacity to extend the $52.1 million. Forum is presently evaluating
available alternatives with respect to extinguishing or extending
maturing obligations. Total long-term indebtedness excludes $4.2 million
of GRP debt, $.6 million of which is recourse to Forum Group.
On September 1, 1995, the Forum Pool Borrowers obtained a non-recourse
mortgage loan totaling $124.7 million. The loan is secured by first and
second liens on the Forum Pool Properties. The loan has cross-default
and cross-collateral provisions. The proceeds were used to repay existing
indebtedness of $106.0 million, loan closing costs, funding of the initial
capital reserve account and general corporate purposes. See Note D to the
Notes to Condensed Consolidated Financial Statements.
Pursuant to a separate credit agreement, Forum Group may borrow amounts to
fund a portion of the expansions to the properties collateralizing the
above-described mortgage loan. On January 26, 1996, Forum Group obtained
an advance of $2.5 million under the credit agreement. At February 13,
1996, an additional $47.5 million was available to be borrowed by Forum
Group under the loan agreement prior to september 1, 1999. See Note D to
the Notes to Condensed Consolidated Financial Statements.
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.
22
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
FORUM GROUP, INC. AND SUBSIDIARIES
Cash Flow. Operating activities for the nine months ended December 31,
1995 provided $29.7 million of cash compared to $19.7 million of cash
provided by operating activities during the same period of the previous
year, due principally to sales of cooperative memberships and improved
operating results.
Investing activities used $64.1 million of cash during the nine months
ended December 31, 1995, compared to $3.8 million of cash used in
investing activities during the same period of the previous year, due
principally to (i) the purchase of two non-performing first mortgage
loans on RCs, (ii) acquisition of an RC and other businesses, (iii)
additions to property and equipment, including construction in progress,
and (iv) the acquisition of an increased interest in Forum Retirement
Partners.
Financing activities provided $31.3 million of cash during the nine
months ended December 31, 1995, compared to $5.7 million of cash
used in financing activities during the same period of the previous
year, due principally to the proceeds from long-term debt used to finance
the acquisition of an RC and the purchase of two non-performing first
mortgage loans.
23
<PAGE>
PART II. OTHER INFORMATION
--------------------------
FORUM GROUP, INC. AND SUBSIDIARIES
December 31, 1995
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
(a) Exhibits:
---------
99.1 Item 3 and Note 5 of the Notes to Consolidated Financial
Statements contained in Item 8 of Part I of Forum Group,
Inc.'s Annual Report on Form 10-K for the year ended March 31,
1995 (incorporated by reference thereto).
99.2 Item 1 of Part II of Forum Group, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995 (incorporated
by reference thereto).
99.3 Item 1 of Part II of Forum Group, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995(incorporated by
reference thereto).
(b) Reports on Form 8-K: NONE
--------------------
Items 1, 2, 3, 4 and 5 have been omitted from this Part II as inapplicable or
not required under the applicable instructions.
24
<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/ Robert A. Wilkins
--------------------------
Robert A. Wilkins
Vice President-Corporate Controller
25
<PAGE>
EXHIBIT INDEX
- -------------
DESCRIPTION
-----------
Exhibit No.:
------------
99.1 Item 3 and Note 5 of the Notes to Consolidated Financial
Statements contained in Item 8 of Part I of Forum Group,
Inc.'s Annual Report on Form 10-K for the year ended March 31,
1995 (incorporated by reference thereto).
99.2 Item 1 of Part II of Forum Group, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995 (incorporated by
reference thereto).
99.3 Item 1 of Part II of Forum Group, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995 (incorporated
by reference thereto).
26
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<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> DEC-31-1995
<CASH> 27,145
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<RECEIVABLES> 10,772
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<COMMON> 81,495
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