<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For Quarter Ended June 30,1996 Commission File Number 1-9302
FORUM RETIREMENT PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 35-1686799
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11320 Random Hills Road, Suite 400
Fairfax, Virginia 22030
(Address of principal executive offices) (Zip Code)
703-277-7000
(Registrant's telephone number, including area code)
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
----- -----
<PAGE>
INDEX
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
- ----------------------------- ---
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets --
June 30, 1996 and December 31, 1995 3
Condensed consolidated statements of operations --
Three and six months ended June 30, 1996 and 1995 5
Condensed consolidated statement of partners' equity --
June 30, 1996 and December 31, 1995 6
Condensed consolidated statements of cash flows --
Six months ended June 30, 1996 and 1995 7
Notes to condensed consolidated financial statements --
June 30, 1996 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Events 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
- ----------
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------- -----------
(in thousands)
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents $ 3,794 $ 2,960
Accounts receivable, less allowances
for doubtful accounts of $349,000
and $227,000, respectively 3,352 3,057
Other receivables 0 30
Estimated third-party settlements 745 550
Inventory and prepaid expenses 211 639
Other current assets 77 75
-------- ----------
TOTAL CURRENT ASSETS 8,179 7,311
-------- ----------
Restricted cash 4,130 4,154
-------- ----------
Property and equipment:
Land 14,871 14,867
Buildings 101,788 99,293
Furniture and equipment 9,555 9,198
Construction in progress 708 1,478
-------- ----------
126,922 124,836
Less accumulated depreciation 29,528 27,630
-------- ----------
Property and Equipment, net 97,394 97,206
-------- ----------
Deferred costs, net of accumulated amortization
of $898,000 and $714,000, respectively 1,755 1,939
-------- ----------
TOTAL ASSETS $111,458 $ 110,610
======== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- -----------
(in thousands)
<S> <C> <C>
LIABILITIES AND PARTNERS' EQUITY
---------------------------------
Current Liabilities:
Current portion of long-term debt $ 1,075 $ 1,023
Accounts payable and accrued expenses 3,954 4,298
Management fees and amounts due to parent of
general partner 2,269 1,121
Resident deposits 1,173 1,266
-------- --------
Total Current Liabilities 8,471 7,708
Long-term debt, less current portion payable
within one year 47,433 47,984
Deferred management fees due to parent of
general partner 15,780 15,780
-------- --------
TOTAL LIABILITIES 71,684 71,472
-------- --------
General partners' equity in subsidiary partnership 235 229
Partners' Equity:
General Partner 501 495
Limited Partners (15,285 units issued
and outstanding) 39,038 38,414
-------- --------
TOTAL PARTNERS' EQUITY 39,539 38,909
-------- --------
TOTAL LIABILITIES AND PARTNERS' EQUITY $111,458 $110,610
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
PART I.FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
----------------------------
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1996 1995 1996 1995
-------- ------- ------- -------
(in thousands except per unit amounts)
<S> <C> <C> <C> <C>
Revenues:
Routine revenue $11,692 $10,946 $23,024 $21,567
Ancillary revenue 1,475 1,424 3,164 2,891
Other income 29 80 80 153
------- ------- ------- -------
TOTAL REVENUES 13,196 12,450 26,268 24,611
------- ------- ------- -------
Costs and expenses:
Routine expenses 8,162 7,754 15,932 15,357
Ancillary costs 1,238 1,137 2,528 2,339
Management fees to parent
of general partner 1,051 991 2,092 1,957
General and administrative 233 162 454 287
Litigation 2 29 116 68
Depreciation 950 897 1,898 1,782
Interest, including amounts to
parent of general partner of
$6,000, $7,000, $12,000 and
$15,000, respectively 1,301 1,327 2,612 2,661
------- ------- ------- -------
TOTAL COSTS AND EXPENSES 12,937 12,297 25,632 24,451
------- ------- ------- -------
Income before general partner's
interest in income of
subsidiary partnership 259 153 636 160
General partner's interest in income
of subsidiary partnership 3 1 6 1
------- ------- ------- -------
NET INCOME $ 256 $ 152 $ 630 $ 159
======= ======= ======= =======
General partner's interest in
net income $ 2 $ 1 $ 6 $ 1
======= ======= ======= =======
Limited partners' interest in
net income $ 254 $ 151 $ 624 $ 158
======= ======= ======= =======
Average number of units
outstanding 15,285 15,285 15,285 15,285
======= ======= ======= =======
Net income per unit $ 0.02 $ 0.01 $ 0.04 $ 0.01
======= ======= ======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partner Partners
-------- ---------
(in thousands)
<S> <C> <C>
Balances at January 1, 1996 $ 495 $ 38,414
Net Income 6 624
------ --------
Balances at June 30, 1996 $ 501 $ 39,038
====== ========
Accumulated balances:
Capital contributions $1,173 $116,279
Offering costs (4) (6,715)
Cash distributions (255) (29,679)
Accumulated losses (413) (40,847)
------ --------
Balances at June 30, 1996 $ 501 $ 39,038
====== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------
1996 1995
------- ------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 630 $ 159
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of property and equipment 1,898 1,782
Amortization of deferred financing costs 184 179
Management fees and amounts due to parent
of general partner 1,165 (53)
Other accrued revenues and expenses, net (465) 426
------- ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,412 2,493
------- ------
NET CASH USED IN INVESTING ACTIVITIES -
Additions to property and equipment (2,086) (957)
------- ------
Cash flows from financing activities:
Reduction of long-term debt (516) (452)
Net decrease (increase) in restricted cash 24 (351)
Deferred loan costs 0 (48)
------- ------
NET CASH USED IN FINANCING ACTIVITIES (492) (851)
------- ------
Net increase in cash and cash equivalents 834 685
Cash and cash equivalents at beginning of period 2,960 5,588
------- ------
Cash and cash equivalents at end of period $ 3,794 $6,273
======= ======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
7
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1996
NOTE A - BASIS OF PRESENTATION
- ------------------------------
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. The financial statements have been prepared using the
accounting policies described in the consolidated financial statements of Forum
Retirement Partners, L.P. and Subsidiary Partnership (the "Partnership")
included in the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1995 (the "Annual Report"). The unaudited condensed consolidated
financial statements include all adjustments which are necessary, in the opinion
of management, to reflect fairly, in all material respects, the Partnership's
financial position and results of operations for the applicable periods. Certain
amounts in the 1995 consolidated financial statements have been reclassified to
conform to the 1996 presentation. Operating results for the three and six month
periods ended June 30, 1996 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1996 and these financial
statements should be read in conjunction with the Partnership's Annual Report.
NOTE B - OWNERSHIP INTEREST OF THE GENERAL PARTNER AND ITS AFFILIATES
- ---------------------------------------------------------------------
Forum Retirement, Inc., a wholly-owned subsidiary of Forum Group, Inc. ("Forum
Group"), is the general partner of the Partnership (the "General Partner") and
owns a one percent interest in the Partnership and in a subsidiary operating
partnership in which the Partnership owns a ninety-nine percent interest. The
General Partner's interest in the subsidiary operating partnership is reflected
in the statements of operations as a reduction of the income or loss of the
Partnership. Forum Group beneficially owns approximately 79.0% of the
outstanding Preferred Depository Units (the "Units") representing preferred
limited partner's interests in the Partnership.
8
<PAGE>
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
June 30, 1996
NOTE C - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
For information concerning certain legal proceedings involving the Partnership,
see Item 1 of Part II of the Partnership's Quarterly Report on Form 10-Q for
the three months ended June 30, 1996.
9
<PAGE>
PART I. Financial Information
------------------------------
Item 2. Management's Discussion and Analysis of
------------------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
June 30, 1996
FORWARD-LOOKING STATEMENTS
- --------------------------
Statements in this report which are not strictly historical are "forward-
looking" and are subject to a number of risks and uncertainties which affect the
Partnership's business. These uncertainties, which include competition with
other retirement communities, the balance between supply of and demand for
retirement communities, the Partnership's ability to timely effect its planned
expansion program on current and anticipated terms, including sufficiency of
cash flow from operations to finance the expansion (or the availability of
borrowings if necessary) and timely receipt of zoning and other governmental
approvals, potential changes in Medicaid and/or Medicare reimbursement levels or
criteria, potential changes in the regulatory environment applicable to
retirement communities and related healthcare services and the effect of
national and regional economic conditions, are described from time to time in
the Partnership's filings with the Securities and Exchange Commission, including
Exhibit 99.1 to this report.
RESULTS OF OPERATIONS
- ---------------------
Three Months Ended June 30, 1996 and 1995. As of June 30, 1996 and 1995, the
- -----------------------------------------
Partnership owned nine retirement communities ("RC's"), all of which were
managed by Forum Group. The Partnership reported net income of $256,000 for the
three month period ended June 30, 1996 compared to net income of $152,000 for
the same period in 1995. Total revenues for the three month period ended June
30, 1996 increased $746,000, or 6.0%, to $13,196,000 compared to the same period
last year. Total revenues consist primarily of routine service and ancillary
service revenues. Routine service revenues are generated from monthly charges
for independent living units and daily charges for assisted living suites and
nursing beds which are recognized monthly based on the terms of the residents'
agreements. Ancillary service revenues are generated on a "fee for service"
basis for supplementary items requested by residents and are recognized as the
services are provided. Combined average occupancy (calculated based on the
number of units occupied during the respective period) at the nine RC's was
10
<PAGE>
PART I. Financial Information
------------------------------
Item 2. Management's Discussion and Analysis of
------------------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
(continued)
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
June 30, 1996
94.2% for the three month period ended June 30, 1996, an increase of
approximately 0.2% compared to the same period in 1995.
The combined average monthly rental rate per occupied unit (calculated using
revenue generated from the respective rental components and excluding non-rental
revenues and prior period adjustments) increased 5.2% for the three month period
ended June 30, 1996 compared to the same period in 1995, with each of the nine
communities experiencing increases.
Routine and ancillary revenues for the three month period ended June 30, 1996
increased $797,000, or 6.4%, to $13,167,000 over the comparable period in 1995.
The revenue increase is primarily attributable to increases in residency fees
and charges in the independent living, assisted living and nursing components
and occupancy increases at certain RC's. A favorable net Medicare settlement of
$107,000 also contributed to the increase in routine and ancillary revenues in
the second quarter of 1996.
Routine expenses and ancillary costs for the three month period ended June 30,
1996 increased $509,000, or 5.7%, to $9,400,000 compared to the same period in
1995. The increased costs and expenses resulted primarily from a generally
higher level of nursing and therapy healthcare staffing, increased occupancy at
certain RC's and normal inflationary and other operational increases in other
expenses. Adjusted for the favorable net Medicare settlement realized in the
three month period ended June 30, 1996, Net Operating Income ("NOI") calculated
as routine and ancillary revenues ("operating revenues") less routine and
ancillary expenses ("operating expenses") and management fees increased
$121,000, or 4.9%, to $2,609,000 and the operating margin (operating revenues
less operating expenses) as a percentage of operating revenues decreased from
28.1% for the three month period ended June 30, 1995 to 28.0% for the comparable
period in 1996.
Management fees increased as a function of revenue. Depreciation and
amortization increased as a result of current and prior year additions to
property and equipment. Total interest expense for the three months ended June
30, 1996 decreased by $26,000 compared to total interest expense for
11
<PAGE>
PART I. Financial Information
------------------------------
Item 2. Management's Discussion and Analysis of
------------------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
(continued)
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
June 30, 1996
the same period in 1995 due primarily to a reduction in the principal amount of
long-term debt.
Six Months Ended June 30, 1996 and 1995. The Partnership reported net income of
- ---------------------------------------
$630,000 for the six month period ended June 30, 1996 compared to net income of
$159,000 for the same period in 1995. Total revenues for the six month period
ended June 30, 1996 increased $1,657,000, or 6.7% to $26,268,000 compared to the
same period last year. Combined average occupancy at the nine RC's was 94.2%
for the six month period ended June 30, 1996, an increase of 0.7% compared to
the same period in 1995.
The combined average monthly rental rate per occupied unit increased 4.1% for
the six month period ended June 30, 1996 compared to the same period in 1995.
Routine and ancillary revenues for the six months ended June 30, 1996 increased
$1,730,000, or 7.1% to $26,188,000 over the comparable period in 1995. The
revenue increase is primarily attributable to increases in residency fees and
charges in the independent living, assisted living and nursing components,
occupancy increases at certain RC's, increases in the provision of therapy and
other ancillary healthcare services, a favorable net Medicare settlement of
$107,000 in the second quarter of 1996 and an unfavorable net Medicare
settlement of $190,000 in the first quarter of 1995.
Routine expenses and ancillary costs for the six months ended June 30, 1996
increased $764,000, or 4.3% to $18,460,000 compared to the same period in 1995.
The increased costs and expenses resulted primarily from a generally higher
level of nursing and therapy healthcare staffing, increased occupancy at certain
RC's, the increased provision of ancillary healthcare services and normal
inflationary and other operational increases in other expenses. Adjusted for
the 1996 and 1995 net Medicare settlements previously noted, NOI increased
$534,000, or 10.7% to $5,529,000 and the operating margin as a percentage of
operating revenues increased from 28.2% for the six month period ended June 30,
1995 to 29.2% for the comparable period in 1996.
12
<PAGE>
PART I. Financial Information
------------------------------
Item 2. Management's Discussion and Analysis of
------------------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
(continued)
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
June 30, 1996
Management fees increased as a function of revenue. Depreciation and
amortization expense increased as a result of current and prior year
additions to property and equipment. Total interest expense for the six months
ended June 30, 1996 decreased by $49,000 compared to total interest
expense for the same period in 1995 due primarily to a reduction in the
principal amount of long-term debt.
Pursuant to the terms of the Management Agreement in effect since the
Partnership's formation in 1986, management fees (based on the Partnership's
gross operating revenues) payable to Forum Group for all periods prior to 1994
have been deferred. Fees occurring after January 1, 1994 are paid on a
current basis. The deferred management fees were expensed in the Partnership's
statements of operations and reflected on a deferred basis in the Partnership's
balance sheets for the relevant periods. Accordingly, except for changes in
management fees payable resulting from variations in revenue levels, the current
payment of such fees for periods after January 1, 1994 had a comparable impact
on the Partnership's operating and net income as compared to prior periods,
although it did affect the Partnership's cash position commencing in 1994.
Income Taxes. The Omnibus Budget Reconciliation Act of 1987 provides that
certain publicly traded partnerships will be treated as corporations for federal
income tax purposes. A grandfather provision delays corporate tax status
until 1998 for publicly traded partnerships in existence prior to December
18, 1987. On August 8, 1988 the General Partner was authorized by the limited
partners to do all things deemed necessary or desirable to insure that the
Partnership is not treated as a corporation for federal income tax purposes.
Alternatives available to avoid corporate taxation after 1998 include:
(i) selling or otherwise disposing of all or substantially all of the
Partnership's assets pursuant to a plan of liquidation and (ii) converting the
Partnership into a real estate investment trust or other type of legal entity.
Such actions are prohibited or restricted under the Partnership's current
financing and may require the granting of a waiver by the lender thereunder.
There can be no assurance that any such waiver would be granted. There can be
no assurance
13
<PAGE>
PART I. Financial Information
------------------------------
Item 2. Management's Discussion and Analysis of
------------------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
(continued)
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
June 30, 1996
that the Partnership will avoid being taxed as a corporation for federal income
tax purposes.
FINANCIAL CONDITION
- -------------------
Liquidity and Capital Resources. At June 30, 1996, the Partnership had cash and
cash equivalents of $3,794,000, accounts receivable of $3,352,000, other current
assets of $1,033,000 and current liabilities of $8,471,000, including $1,173,000
of resident deposits which are included in restricted cash at the balance sheet
date. The Partnership believes that it has adequate liquidity to meet its
foreseeable working capital requirements.
The Partnership has initiated an expansion program at some of its properties to
improve the Partnership's operating results. Currently, three projects have
been completed and eight projects are under construction or are in certain
stages of active development. Three more projects are expected to begin after
1996. The three completed projects increased the number of living and nursing
units owned by the Partnership by approximately 3% at an approximate capital
cost of $2.8 million. The eight projects which are either under construction or
are in certain stages of active development are expected to increase the number
of living and nursing units owned by the Partnership by approximately 13% at a
budgeted capital cost of $13.0 million. The three additional projects not yet
begun are expected to increase the Partnership's number of units by an
additional 8% at an expected capital cost of $6.1 million. The expansion
program is designed to modify the uses of or add capacity to existing facilities
without incurring substantial land acquisition and common area build-out costs.
The projects that have not yet commenced will require additional regulatory
approvals.
The Partnership presently intends to finance this expansion program from the
Partnership's cash flow from operations. If cash flow from operations is
insufficient to complete the expansion program on a timely basis, the expansion
program may be delayed, reduced in scope or discontinued. The Partnership's
long-term debt agreement restricts the ability of the
14
<PAGE>
PART I. Financial Information
------------------------------
Item 2. Management's Discussion and Analysis of
------------------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
(continued)
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
June 30, 1996
Partnership to obtain additional third-party financing above $1 million in the
aggregate and prohibits the imposition of liens on the Partnership's assets.
There is no assurance that a waiver could be obtained from the lender to permit
any third-party financing, or whether, when and on what terms any such financing
may be available. As a result of the capital required to fund the expansion
program, the Partnership does not expect to make distributions in respect of
limited partner units in the foreseeable future.
The implementation of the expansion program and its impact on the value of an
investment in the Partnership is subject to a number of variables, including
without limitation the amount and timing of cash flow from operations to fund
the expansion, the ability to obtain required zoning variances and permits from
local governmental authorities and the timing thereof, whether development and
construction costs are higher or lower than anticipated, whether newly added
living units are occupied faster or slower than anticipated and whether
operating costs are higher or lower than anticipated.
The management fee payable to Forum Group of $15,780,000 for all periods from
the formation of the Partnership in 1986 to December 31, 1993 was deferred.
Management fees for periods after December 31, 1993 are paid quarterly, in
arrears. Deferred management fees are payable to Forum Group out of proceeds of
sales and refinancing after making distributions of those proceeds in an amount
sufficient to (i) meet limited partners' tax liabilities, (ii) repay limited
partners' capital contributions, and (iii) pay a 12% cumulative, simple annual
return on limited partners' unrecovered capital contributions. Deferred
management fees become immediately due and payable in the event that the
Management Agreement is terminated, which may occur under certain conditions
including, but not limited to, if Forum Retirement, Inc. is removed as the
General Partner and 80% in interest of the limited partners vote to terminate
such agreement. The Partnership is unable to predict when or if management fees
deferred prior to January 1, 1994 will become payable.
15
<PAGE>
I. Financial Information
-------------------------
Item 2. Management's Discussion and Analysis of
------------------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
(continued)
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
June 30, 1996
Operating activities provided $919,000 more cash during the six months ended
June 30, 1996 than during the comparable period in 1995 due principally to
increases in both net income as discussed previously and the fact that
management fees due to the parent of general partner for the first six months of
1996 will be paid in the third quarter due to an inadvertent deferral of payment
of such fees (which are payable quarterly in arrears). These increases were
partially offset by decreases in certain accounts payable and accrued expenses.
Investing activities used $1,129,000 more cash during the six months ended June
30, 1996 than during the comparable period in 1995 due principally to the
significant increase in expansion and renovation activity at several of the RC's
funded by cash from operating activities.
Financing activities used $359,000 less cash during the six months ended June
30, 1996 than during 1995 due principally to a decrease in restricted cash.
Inflation. Management does not believe that inflation has had a material effect
on net income. To the extent possible, increased costs are recovered through
increased residency fees and charges.
16
<PAGE>
PART II. Other Information
---------------------------
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
June 30, 1996
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
On January 24, 1994, The Russell F. Knapp Revocable Trust (the "Plaintiff")
filed a complaint (the "Iowa Complaint") in the United States District Court for
the Northern District of Iowa (the "Iowa Court") against the General Partner
alleging breach of the Partnership Agreement, breach of fiduciary duty, fraud,
insider trading, and civil conspiracy/aiding and abetting. The Plaintiff
subsequently amended the Iowa Complaint, adding Forum Group as a defendant. The
Iowa Complaint alleged, among other things, that the Plaintiff holds a
substantial number of Units, that the Board of Directors of the General Partner
is not comprised of a majority of independent directors as required by the
Partnership Agreement and as allegedly represented in the Partnership's 1986
Prospectus for its initial public offering, and that the General Partner's Board
of Directors has approved and/or acquiesced to an 8% management fee charged by
Forum Group under the Management Agreement. The Iowa Complaint further alleged
that the "industry standard" for such fees is 4%, thereby resulting in an
"overcharge" to the Partnership estimated by the Plaintiff at $1.8 million per
annum beginning in 1994. The Plaintiff sought the restoration of certain former
directors to the Board of Directors of the General Partner and the removal of
certain other Directors from the Board, an injunction prohibiting the payment of
an 8% management fee, and unspecified compensatory and punitive damages. On
April 3, 1995, the Iowa Court entered an order dismissing the Iowa Complaint on
jurisdictional grounds. Although the Plaintiff filed a notice of appeal of the
Iowa Court's ruling, it subsequently dismissed this appeal.
On June 15, 1995, the Plaintiff filed a complaint (the "Indiana Complaint") in
the United States District Court for the Southern District of Indiana (the
"Indiana Court") against the General Partner and Forum Group seeking essentially
the same relief. The defendants moved to dismiss the Indiana Complaint for
failure to state a claim for which relief could be granted and, in response, on
December 11, 1995 the Plaintiff amended the Indiana Complaint.
The defendants moved to dismiss the amended complaint on similar grounds, and on
May 17, 1996, the Indiana Court ruled on the defendant's motion by dismissing
without prejudice two of the four counts contained in the
17
<PAGE>
PART II. Other Information (continued)
---------------------------------------
FORUM RETIREMENT PARTNERS, L.P. AND SUBSIDIARY PARTNERSHIP
June 30, 1996
amended complaint, namely the counts for alleged insider trading and civil
conspiracy/aiding and abetting. The litigation is currently in the discovery
stage. The General Partner intends to vigorously defend against this litigation.
ITEM 2. CHANGES IN SECURITIES
- ------------------------------
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- ----------------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
None.
ITEM 5. OTHER EVENTS
- ---------------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits
Exhibit No. Description
---------- -----------
99.1 Forward-Looking Statements
(b) Reports on Form 8-K
On April 9, 1996, the Partnership filed a Form 8-K describing
a change in control of the General Partner of the Partnership.
18
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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 RETIREMENT PARTNERS, L.P.,
A Delaware limited partnership
BY: Forum Retirement, Inc., its general partner
-------------------------------------------
Date: August 14, 1996 By: /s/ Terrence P. Morrow
---------------------------------------------
TERRENCE P. MORROW
VICE-PRESIDENT AND TREASURER
19
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,794
<SECURITIES> 0
<RECEIVABLES> 3,701
<ALLOWANCES> 349
<INVENTORY> 0
<CURRENT-ASSETS> 8,179
<PP&E> 126,922
<DEPRECIATION> 29,528
<TOTAL-ASSETS> 111,458
<CURRENT-LIABILITIES> 8,471
<BONDS> 47,433
0
0
<COMMON> 0
<OTHER-SE> 39,539
<TOTAL-LIABILITY-AND-EQUITY> 111,458
<SALES> 0
<TOTAL-REVENUES> 26,268
<CGS> 0
<TOTAL-COSTS> 25,632
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,612
<INCOME-PRETAX> 630
<INCOME-TAX> 0
<INCOME-CONTINUING> 630
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 630
<EPS-PRIMARY> .04
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<PAGE>
EXHIBIT 99.1
IMPORTANT FACTORS REGARDING
FORWARD -LOOKING STATEMENTS
The following factors, among others, could cause actual results to differ
materially from those contained in forward-looking statements made in this
report and presented elsewhere by management from time to time. Reference is
also made to uncertainties discussed in the following portions of the
Partnership's annual report on Form 10-K for the fiscal year ended December 31,
1995: (a) the subsections entitled "Sources of Payment", "Regulation and Other
Factors" and "Competition" in Item 2, within the "PROPERTIES" section, which
describe (i) the federal and state governmental involvement and discretion in
the funding and payment of Medicare and Medicaid payments that comprise a
significant portion of the Partnership's revenues, (ii) the federal, state and
local governmental regulation of healthcare facilities, including the
requirements of continued licensure, and (iii) the competitive conditions faced
by the Partnership, and (b) Item 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
Competition: The profitability of retirement communities is subject to general
economic conditions, competition, the desirability of particular locations, the
relationship between supply of and demand for senior living facilities, and
other factors. The Partnership's retirement communities are generally located
in markets that contain numerous competitors, and the continued success of the
Partnership's retirement communities in their respective markets will be
dependent, in large part, upon those facilities' ability to compete in such
areas as access, location, quality of accommodations, amenities, specialized
services and rate structure.
Facility Expansion: The timing and success of the planned expansion of the
Partnership's existing retirement communities is dependent upon a number of
factors, including without limitation the amount and timing of cash flow from
operations to fund the expansion, the ability to obtain required zoning
variances and permits from local governmental authorities and the timing
thereof, whether development and construction costs are higher or lower than
anticipated, whether construction is completed faster or slower than
anticipated, whether newly added living units are occupied faster or slower than
anticipated, whether rental rates for additional living units are higher or
lower than anticipated, and whether operating costs are higher or lower than
anticipated.
20
<PAGE>
EXHIBIT 99.1
(continued)
IMPORTANT FACTORS REGARDING
FORWARD -LOOKING STATEMENTS
Availability of Financing: The Partnership presently intends to finance the
planned expansion of its existing retirement communities out of the
Partnership's cash flow from operations. If cash flow from operations is
insufficient to complete such expansion on a timely basis, the expansion may be
delayed, reduced in scope or discontinued. The Partnerships' long-term financing
agreement restricts the ability of the Partnership to obtain third-party
financing above $1 million in the aggregate, and prohibits the imposition of
liens on the Partnership's assets. There can be no assurance that a waiver could
be obtained from the lender to permit any third-party financing, or whether,
when and on what terms any such financing may be available.
21
