<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report(Date of earliest event reported): June 21, 1996
Commission file number 0-26980
ARV ASSISTED LIVING, INC.
<TABLE>
<CAPTION>
CALIFORNIA 33-0160968
<S> <C>
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION
NO.)
</TABLE>
33-95712
(COMMISSION FILE NO.)
245 FISCHER AVENUE, D-1 92626
COSTA MESA, CA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 751-7400
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The Registrant submits this Form 8-K/A in order to supply the financial
statements and schedules required pursuant to Rule 3-05 of Regulation S-X with
respect to the Registrant's acquisition of an approximate 44.6% interest in
American Retirement Villas Properties II, a California limited partnership
("ARVP-II") and to provide the audited financial statements of ARVP-II required
thereby. This information should be read in conjunction with the Registrant's
Form 8-K filed with the Commission on July 11, 1996.
Financial Statements of Business Acquired
(1) "Financial Statements of American Retirement Villas Properties II,
(A California Limited Partnership) December 31, 1995, 1994, 1993
with Independent Auditors' Report Thereon."
(2) "Unaudited Proforma Combined Balance Sheet of ARV Assisted Living,
Inc. As of June 30, 1996 and the Unaudited Pro Forma Combined
Statement of Operations for the three months ended June 30, 1996
and the Unaudited Pro Forma Combined Statement of Operations for
the year ended March 31, 1996 and the related notes thereon."
1
<PAGE> 3
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Annual Report - Form 10-K
Financial Statements and Schedule
Items 8 and 14(a)
December 31, 1995, 1994 and 1993
(With Independent Auditors' Report Thereon)
2
<PAGE> 4
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Annual Report - Form 10-K
Items 8 and 14(a)
Index to Financial Statements and Schedule
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report 1
Balance Sheets - December 31, 1995 and 1994 2
Statements of Operations - Years ended December 31, 1995, 1994 and 1993 3
Statements of Partners' Capital - Years ended December 31, 1995, 1994 and 1993 4
Statements of Cash Flows - Years ended December 31, 1995, 1994 and 1993 5
Notes to Financial Statements 6
Schedule
Real Estate and Related Accumulated Depreciation and Amortization -
December 31, 1995 Schedule III
</TABLE>
All other schedules are omitted, as the required information is inapplicable or
the information is presented in the financial statements or related notes.
3
<PAGE> 5
INDEPENDENT AUDITORS' REPORT
To ARV Assisted Living, Inc. as the Managing General Partner of
American Retirement Villas Properties II:
We have audited the financial statements of American Retirement Villas
Properties II, a California limited partnership, listed in the accompanying
index. In connection with our audits of the financial statements, we have also
audited the financial statement schedule listed in the accompanying index. These
financial statements and financial statement schedule are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Retirement Villas
Properties II as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Orange County, California
March 20, 1996
4
<PAGE> 6
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
------------------ ------------------
<S> <C> <C>
Properties, at cost (notes 4 and 5):
Land $ 2,902,684 2,902,684
Buildings and improvements, less accumulated depreciation of
$4,579,333 in 1995 and $3,865,219 in 1994 15,179,456 15,669,092
Leasehold property and improvements, less accumulated depreciation
of $6,590,424 in 1995 and $5,595,821 in 1994 825,432 1,764,926
Furniture, fixtures and equipment, less accumulated depreciation
of $863,537 in 1995 and $1,108,392 in 1994 937,861 692,250
----------- ----------
Net properties 19,845,433 21,028,952
Cash 488,582 605,100
Other assets, including impound accounts of $625,615 in 1995 and
$724,494 in 1994 1,189,859 1,130,785
----------- ----------
$21,523,874 22,764,837
============ ==========
LIABILITIES AND PARTNERS' CAPITAL
Notes payable (note 5) $ 7,211,460 7,189,166
Accounts payable and accrued expenses 758,240 772,228
Amounts payable to affiliate (note 3) 155,155 494,423
Distributions payable to Partners 580,163 544,381
----------- ----------
Total liabilities 8,705,018 9,000,198
----------- ----------
Partners' capital (deficit) (note 2):
General partners' capital (deficit) 276,099 (162,861)
Limited partners' capital, 34,995 limited partnership units
authorized, issued and outstanding 12,542,757 13,927,500
----------- ----------
Total partners' capital 12,818,856 13,764,639
----------- ----------
$21,523,874 22,764,837
============ ==========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 7
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Statements of Operations
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Rent $14,768,855 14,055,979 13,578,122
Assisted living 2,018,661 1,728,953 1,307,323
Interest 20,434 14,577 15,704
Other 174,347 203,248 183,435
---------- ---------- ----------
Total revenues 16,982,297 16,002,757 15,084,584
---------- ---------- ----------
Costs and expenses:
Rental property operations (including
$5,514,253, $5,277,461 and $4,932,920
related to affiliates in 1995, 1994 and
1993, respectively) (note 3) 9,993,572 10,001,328 9,326,559
Assisted living (all related to affiliates)
(note 3) 859,322 748,148 577,606
General and administrative (including
$453,110, $638,482 and $613,322 related to
affiliates in 1995, 1994 and 1993,
respectively) (note 3) 800,482 695,970 725,814
Facilities rent (note 4) 1,178,331 1,175,414 1,155,307
Depreciation and amortization 2,076,480 2,359,826 2,713,413
Property taxes 487,722 434,178 533,019
Advertising 141,031 112,348 117,961
Interest (note 5) 572,061 583,017 606,699
---------- ---------- ----------
Total costs and expenses 16,109,001 16,110,229 15,756,378
---------- ---------- ----------
Net income (loss) $ 873,296 (107,472) (671,794)
=========== ========== ==========
Net income (loss) per limited partner unit $ 24.71 (3.04) (19.00)
=========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 8
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Statments of Partners' Capital
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
TOTAL
GENERAL LIMITED PARTNERS'
PARTNERS PARTNERS CAPITAL
------------------ ------------------ ------------------
<S> <C> <C> <C>
Balance (deficit) at December 31, 1992 $(118,666) 18,302,736 18,184,070
Distribution to partners ($47.53 per limited
partner unit) (16,801) (1,663,258) (1,680,059)
Net loss (6,718) (665,076) (671,794)
--------- ---------- ----------
Balance (deficit) at December 31, 1993 (142,185) 15,974,402 15,832,217
Distribution to partners ($55.45 per limited
partner unit) (19,601) (1,940,505) (1,960,106)
Net loss (1,075) (106,397) (107,472)
--------- ---------- ----------
Balance (deficit) at December 31, 1994 (162,861) 13,927,500 13,764,639
Distribution to partners ($64.28 per limited
partner unit) (22,720) (2,249,306) (2,272,026)
Capital contribution - cancelation of
indebtedness (note 8) 452,947 -- 452,947
Net income 8,733 864,563 873,296
--------- ---------- ----------
Balance at December 31, 1995 $ 276,099 12,542,757 12,818,856
========= ========== ==========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 9
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 873,296 (107,472) (671,794)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 2,076,480 2,359,826 2,713,413
Change in assets and liabilities:
Decrease (increase) in other assets (60,695) 107,570 (19,243)
Increase (decrease) in accounts payable and
accrued expenses (13,988) 127,393 67,969
Increase in amounts payable to affiliate
113,679 63,126 53,689
----------- ---------- ----------
Net cash provided by operating
activities 2,988,772 2,550,443 2,144,034
----------- ---------- ----------
Cash flows used in investing activities - capital
expenditures (891,340) (389,342) (310,783)
----------- ---------- ----------
Cash flows from financing activities:
Principal repayments on notes payable (131,316) (116,814) (110,797)
Increase in long-term debt 153,610 -- --
Borrowings on line of credit 1,225,000 1,735,000 500,000
Repayments on line of credit (1,225,000) (1,735,000) (500,000)
Payment of loan fees -- -- (2,500)
Distributions paid (2,236,244) (1,829,017) (1,668,183)
----------- ---------- ----------
Net cash used in financing
activities (2,213,950) (1,945,831) (1,781,480)
----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents
(116,518) 215,270 51,771
Cash at beginning of year 605,100 389,830 338,059
----------- ---------- ----------
Cash at end of year $ 488,582 605,100 389,830
=========== ========== ==========
Supplemental disclosure of cash flow
information: Cash paid during the year for:
Interest $ 572,061 583,017 607,142
=========== ========== ==========
Supplemental disclosure of noncash financing
activities:
Distributions accrued to partners $ 35,782 544,381 413,292
Cancelation of indebtedness 452,947 -- --
=========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 10
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Notes to Financial Statements
December 31, 1995 and 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
American Retirement Villas Properties II (the Partnership) maintains its
records on the accrual method of accounting for financial reporting and
Federal and state tax purposes.
CARRYING VALUE OF REAL ESTATE
Properties are recorded at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the
estimated useful lives of buildings and improvements, furniture, fixtures
and equipment, ranging from 3 to 27-1/2 years. Leasehold property and
improvements are amortized on a straight-line basis over the lesser of
the lease term or the estimated useful life of the assets.
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121 (SFAS No. 121),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of." SFAS No. 121 requires the Partnership to adopt
the provisions of the new statement no later than fiscal 1996. SFAS 121
requires an impairment loss to be recorded as a reduction to operating
income if the sum of the expected undiscounted cash flows derived from an
asset is less than the asset's carrying value. The Partnership adopted
SFAS 121 in fiscal year 1994 without an impact to the financial
statements.
IMPOUND ACCOUNTS
Other assets includes funds held in impound accounts with the U.S.
Department of Housing and Urban Development (HUD) for payment of property
taxes, insurance and future property improvements (replacement reserves)
on certain properties with HUD financing.
LOAN FEES
Loan fees are amortized using the interest method over the term of the
notes payable and are included in other assets.
RENTAL INCOME
Rent agreements with tenants are on a month-to-month basis. Advance
deposits are applied to the first month's rent.
INCOME TAXES
Under provisions of the Internal Revenue Code and the California Revenue
and Taxation Code, partnerships are generally not subject to income
taxes. For tax purposes, any income or losses realized are those of the
individual partners, not the Partnership.
9
<PAGE> 11
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Notes to Financial Statements, Continued
The Partnership has not requested a ruling from the Internal Revenue Service to
the effect that it will be treated as a partnership and not an association
taxable as a corporation for Federal income tax purposes. The Partnership has
received an opinion of counsel as to its tax status prior to its effectiveness
for the offering of limited partnership units, but such opinion is not binding
upon the Internal Revenue Service.
Following are the Partnership's assets and liabilities as determined in
accordance with generally accepted accounting principles (GAAP) and for Federal
income tax reporting purposes at December 31:
<TABLE>
<CAPTION>
1995 1994
--------------------------------------- --------------------------------------
GAAP BASIS TAX BASIS (1) GAAP BASIS TAX BASIS (1)
------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Total assets $21,523,874 26,665,564 22,764,837 27,639,670
Total liabilities 8,705,018 8,666,678 9,000,198 8,905,271
</TABLE>
Following are the differences between the financial statement and tax return
income (loss):
<TABLE>
<CAPTION>
1995 1994 1993
------------------ ------------------ ------------------
<S> <C> <C> <C>
Net income (loss) per financial
statements $ 873,296 (107,472) (671,794)
Cancelation of indebtedness income
(note 8) 452,947 -- --
Depreciation differences on
property (1) (636,838) (322,865) 67,565
Amortization differences on intangible
assets (1) 884,481 752,562 584,567
Other (1) (14,601) 11,824 39,781
------------------ ------------------ ------------------
Taxable income (loss) per Federal
tax return (1) $1,559,285 334,049 20,119
================== ================== ==================
</TABLE>
- --------
(1) Unaudited
NET LOSS PER LIMITED PARTNER UNIT
Net loss per limited partner unit was based on the weighted average number of
limited partner units outstanding of 34,995 in 1995, 1994 and 1993.
RECLASSIFICATIONS
Certain 1994 and 1993 amounts have been reclassified to conform to the 1995
presentation.
10
<PAGE> 12
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Notes to Financial Statements, Continued
(2) ORGANIZATION AND PARTNERSHIP AGREEMENT
The Partnership was formed on February 9, 1988 for the purpose of
acquiring, developing and operating residential retirement facilities.
The term of the Partnership is 59 years and may be dissolved earlier
under certain circumstances.
Limited Partner units (minimum of 2 units per investor for Individual
Retirement Accounts, KEOGH'S and pension plans and 5 units for all other
investors) were offered for sale to the general public. A maximum number
of 35,000 units were offered at $1,000 per unit. The Partnership was
initially capitalized by a $1,000 contribution from a Limited Partner and
a $500 contribution from the General Partners. The Partnership reached
its maximum capitalization in October 1989, representing a total capital
investment of $35,000,000. In June 1990, the Partnership repurchased and
effectively retired 5 units for $4,600 (the balance of unreturned initial
contributions) from a Limited Partner. No additional capital
contributions will be required from any Limited Partner. Under the
Partnership Agreement, the maximum liability of the Limited Partners is
the amount of their capital contributions.
The Managing General Partner is ARV Assisted Living, Inc. (ARVAL), a
California corporation, and the individual General Partners are John A.
Booty, John S. Jason, Gary L. Davidson and Tony Rota. The individual
General Partners are shareholders of the Managing General Partner. The
General Partners are not required to make capital contributions to the
Partnership.
Profits and losses for financial and income tax reporting purposes shall
generally be allocated, other than cost recovery deductions (as defined
in the Partnership Agreement), 1% to the General Partners and 99% to the
Limited Partners. Cost recovery deductions for each year are allocated 1%
to the General Partners and 99% to the Limited Partners who are taxable
investors.
Cash available for distribution from operations is to be distributed 1%
to the General Partners and 99% to the Limited Partners.
Upon any sale, refinancing or other disposition of the Partnership's real
properties, distributions will be made 1% to the General Partners and 99%
to the Limited Partners until the Limited Partners have received an
amount equal to 100% of their capital contributions plus an amount
ranging from 8% to 10% (depending upon the timing of the Limited
Partner's investment) of their capital contributions per annum,
cumulative but not compounded, from the date of each Partner's
investment. The cumulative return will be reduced, but not below zero, by
the aggregate amount of prior distributions from all sources. Thereafter,
distributions are to be 15% to the General Partners and 85% to the
Limited Partners, except that after the sale of the properties, the
proceeds of sale of any last remaining assets owned by the Partnership
shall be distributed in accordance with positive capital account
balances.
(3) TRANSACTIONS WITH AFFILIATES
The Partnership has an agreement with ARVAL providing for a property
management fee of 5% of gross revenues and a Partnership management fee
of 10% of cash flow before distribution, as defined in the Partnership
Agreement, amounting to $849,033, $800,197, $754,329 and $329,905,
$251,969, $227,719, respectively, at December 31, 1995, 1994 and 1993,
respectively.
11
<PAGE> 13
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Notes to Financial Statements, Continued
Payment of the Partnership management fee out of cash flow is
subordinated to a quarterly noncumulating distribution from each property
to the Limited Partners of an amount equal to an annualized return, per
quarter, of 7.5% of Capital Contributions allocated to each property.
ARVAL pays certain expenses such as repairs and maintenance, supplies,
payroll and retirement benefit expenses on behalf of the Partnership and
is subsequently reimbursed by the Partnership. The retirement benefit
expense of $27,527, $133,540 and $127,090 for the years ended December
31, 1995, 1994 and 1993, respectively, consists of contributions made to
an employee stock ownership plan (ESOP). The total reimbursements to
ARVAL, including the retirement benefit expense, are included in rental
property operations and general and administrative expenses in the
accompanying statements of operations and amounted to $5,647,746,
$5,611,925 and $5,141,800 for the years ended December 31, 1995, 1994 and
1993, respectively.
In consideration for services rendered with respect to property
acquisitions, the Managing General Partner was paid an investment
advisory fee of a maximum of 2% of the gross offering proceeds. In
addition, the Managing General Partner was entitled to a development and
processing fee of a maximum of 5.5% of gross offering proceeds allocated
to a particular project. Investment advisory and development and
processing fees were capitalized to properties to the extent that gross
offering proceeds were allocated to the respective properties acquired.
Amounts payable to affiliate at December 31, 1995 and 1994 includes
expense reimbursements and accrued property management and partnership
management fees.
(4) PROPERTIES
COVINA VILLA
In October 1988, the Partnership purchased Covina Villa, an existing
assisted living facility in Covina, California. In conjunction with the
acquisition, the Partnership assumed a ground lease, expiring in 2037,
covering the land on which the facility is built. Pledged as collateral
for the ground lease is a security interest in the facility property and
in all furniture, fixtures and equipment which the Partnership places in
the facility. Rent expense under the ground lease for 1995, 1994 and 1993
was $102,570, $114,540 and $82,871, respectively.
RETIREMENT INNS OF AMERICA
In April 1989, the Partnership acquired the operations of eight existing
assisted living facilities located throughout California from Retirement
Inns of America, Inc. As part of the purchase agreement, the Partnership
acquired certain assets and assumed certain liabilities relating to the
operations of the facilities. The Partnership purchased three of the
facilities and assumed a tenant's position under long-term operating
leases for the other five facilities. Rent expense under the operating
leases for 1995, 1994 and 1993 was $1,070,614, $1,060,874 and $1,072,436,
respectively. The expiration dates for the leases range from August 1995
to November 1997 and have options to extend for two additional ten-year
terms.
MONTEGO HEIGHTS
In November 1989, the Partnership purchased Montego Heights, an existing
assisted living facility and related assets in Walnut Creek, California.
12
<PAGE> 14
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Notes to Financial Statements, Continued
Future minimum lease payments under all ground and facility leases
which are treated as operating leases are as follows:
<TABLE>
<CAPTION>
Minimum
lease payments
----------------
Year ending December 31:
<S> <C>
1996 $1,145,933
1997 903,497
1998 556,141
1999 556,141
2000 556,141
Thereafter 5,998,636
----------
$9,716,489
==========
</TABLE>
Pursuant to the Partnership agreement, the expiration of the minimum
holding period (5-7 years) is approaching. The Managing General Partner
is beginning to explore potential disposition strategies for the
Partnership's assets.
(5) NOTES PAYABLE
At December 31, 1995 and 1994, notes payable included the following:
<TABLE>
<CAPTION>
1995 1994
----------- ---------
<S> <C> <C>
HUD financed note payable, bearing interest at 7.5%; monthly principal and
interest payments of $26,171; due August 1, 2018; secured by deed of trust on
the Montego Heights property. $3,418,404 $3,473,805
HUD financed note payable, bearing interest at 8.25%; monthly principal and
interest payments of $23,468; due November 1, 2016; secured by deed of trust on
the Valley View Lodge property. 2,802,113 2,850,371
Note payable to bank, secured by deed of trust on the Fullerton property,
bearing interest at 1% in excess of the bank's prime rate (8.5% at December 31,
1995); monthly principal payments of $1,333 plus interest; all unpaid principal
and interest is due on December 1, 1996.
337,333 353,333
</TABLE>
13
<PAGE> 15
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Notes to Financial Statements, Continued
<TABLE>
<CAPTION>
1995 1994
----------- ---------
<S> <C> <C>
Revolving line of credit (maximum $500,000), guaranteed by
the General Partners, bearing interest at 1.25% in excess of
the bank's prime rate (8.5% at December 31, 1995). The
revolving line of credit expires on January 15, 1996. The
line was extended through October 15, 1996. $ 500,000 500,000
Various notes payable, bearing interest at rates from 8.67%
to 10.39%, payable in monthly principal and interest
installments; all unpaid principal and interest due on or
before November 15, 2000; secured by equipment. 153,610 --
Note payable, bearing interest at 10.25%, payable in
monthly principal and interest installments of $537; all
unpaid principal and interest was paid September 29, 1995. -- 11,657
---------- -------
$7,211,460 7,189,166
========== =========
</TABLE>
The annual principal payments of the notes payable are as follows: Year ending
December 31:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 984,430
1997 155,910
1998 169,451
1999 180,417
2000 160,229
Thereafter 5,561,023
----------
$7,211,460
==========
</TABLE>
The Partnership's revolving line of credit was paid off in January 1996.
(6) ESOP
ARVAL offers an Employee Stock Ownership Plan (ESOP) to all eligible
employees which includes the employees of the Partnership. The amount of
stock contributed annually to the ESOP is at the discretion of ARVAL.
During 1994 and 1993, ARVAL's Board of Directors declared a contribution
that approximated 3% of each employee's payroll expense. During 1995,
ARVAL's Board of Directors declared a contribution in only the first
quarter of the year and that contribution approximated 3% of each
employee's payroll expense. The Partnership's expense was $27,527,
$133,540 and $127,090 for the ESOP (as a reimbursement to ARVAL) in 1995,
1994 and 1993, respectively.
14
<PAGE> 16
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Notes to Financial Statements, Continued
(7) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107 (SFAS 107), "Disclosures about
Fair Value of Financial Instruments." The estimated fair value amounts
have been determined using available market information and appropriate
valuation methodologies. However, considerable judgment is necessarily
required to interpret market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that could be realized in a current market
exchange. The use of different market assumptions or estimation
methodologies may have a material impact on the estimated fair value
amounts.
Fair value information related to financial instruments is as follows:
<TABLE>
<CAPTION>
December 31, 1995
Financial instrument Book value Fair value
---------------------- ----------- -----------
(dollars in thousands)
<S> <C> <C>
Cash $ 489 489
Notes payable 7,211 6,464
</TABLE>
CASH
The carrying amount for cash approximates fair value because these
instruments are demand deposits and do not present unanticipated interest
rate or credit concerns.
NOTES PAYABLE
For notes payable with variable interest rates, fair value is the amount
reported as payable in the financial statements. For notes payable with
fixed rates of interest, fair value is estimated using the rates
currently offered for bank borrowings with similar terms.
(8) CANCELATION OF INDEBTEDNESS
On March 31, 1995, ARVAL, the Managing General Partner of the
Partnership, decided to cancel indebtedness owed to it by the Partnership
in the amount of $452,947. This indebtedness related to accrued
Partnership management fees accumulated in prior years. As discussed at
note 3, the Partnership agreement provides that the payment of a
Partnership management fee is subordinate to a quarterly noncumulating
distribution from each property to the Limited Partners of an amount
equal to an annualized return, per quarter, of 7.5% of capital
contributions allocated to each property. ARVAL canceled the indebtedness
as collection appeared unlikely.
15
<PAGE> 17
Schedule III
AMERICAN RETIREMENT VILLAS PROPERTIES II
(A California Limited Partnership)
Real Estate and Related Accumulated Depreciation and Amortization
December 31, 1995
<TABLE>
<CAPTION>
INITIAL COST
-------------------------------------------------- COSTS
BUILDINGS LEASEHOLD CAPITALIZED
AND PROPERTY AND SUBSEQUENT TO
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS ACQUISITION
- ------------------------------ ------------- ---------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Covina Villa $ 3,630 -- 1,850,000 -- 498,908
Retirement Inns:
Burlingame 29,636 -- -- 937,724 509,411
Campbell -- -- -- 814,059 402,482
Daly City 29,636 500,000 1,179,185 -- 519,032
Fremont 29,636 -- -- 566,727 356,588
Fullerton 337,333 500,000 981,583 -- 612,758
Willow Glen 29,636 -- -- 1,011,390 434,473
Sunnyvale 16,068 -- -- 1,431,320 951,682
Valley View 2,817,496 1,000,000 4,017,624 -- 975,959
Montego Heights 3,418,404 900,000 7,800,000 -- 1,323,740
------------- ---------- ------------- ------------- --------------
$6,711,475 2,900,000 15,828,392 4,761,220 6,585,033
============= ========== ============= ============= ==============
</TABLE>
<TABLE>
<CAPTION>
GROSS AMOUNT
-----------------------------------------------------------
LEASEHOLD DEPRECIABLE
BUILDINGS AND PROPERTY AND ACCUMULATED DATE OF LIVES
DESCRIPTION LAND IMPROVEMENTS IMPROVEMENTS TOTAL (1) DEPRECIATION ACQUISITION (YEARS)
- --------------------- ------------ -------------- ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Covina Villa -- 2,348,908 -- 2,348,908 613,180 10/88 27.5
Retirement Inns:
Burlingame -- -- 1,447,135 1,447,135 1,095,606 4/89 8.5(2)
Campbell -- -- 1,216,541 1,216,541 1,212,883 4/89 6.3(2)
Daly City 500,000 1,698,217 -- 2,198,217 472,548 4/89 27.5
Fremont -- -- 923,315 923,315 789,420 4/89 7.8(2)
Fullerton 500,000 1,594,341 -- 2,094,341 388,459 4/89 27.5
Willow Glen -- -- 1,445,863 1,445,863 1,132,021 4/89 8.7(2)
Sunnyvale -- -- 2,383,002 2,383,002 2,305,024 4/89 7.0(2)
Valley View 1,000,000 4,993,583 -- 5,993,583 1,190,106 4/89 27.5
Montego Heights 902,684 9,123,740 -- 10,026,424 1,970,510 11/89 27.5
------------ -------------- ------------ ----------- ------------
2,902,684 19,758,789 7,415,856 30,077,329 11,169,757
============ ============== ============ =========== ============
</TABLE>
- --------
(1) Aggregate cost for Federal income tax purposes is $30,954,179 at December
31, 1995.
(2) Leasehold property and improvements are amortized over remaining terms of
ground leases, which are shorter than the estimated useful lives.
Following is a summary of investment in properties for the years ended
December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
---------------- -------------- -------------
<S> <C> <C> <C>
Balance at beginning of year $29,797,742 29,660,641 29,621,332
Improvements 279,587 137,101 39,309
---------------- -------------- -------------
Balance at end of year $30,077,329 29,797,742 29,660,641
================ ============== =============
</TABLE>
Following is a summary of accumulated depreciation and amortization of
investment in properties for the years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
---------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year $ 9,461,040 7,723,848 6,013,365
Additions charged to expense 1,708,717 1,737,192 1,710,483
----------- --------- ---------
Balance at end of year $11,169,757 9,461,040 7,723,848
=========== ========= =========
</TABLE>
16
<PAGE> 18
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Combined Financial Statements give effect to
the acquisition of 44% of the limited partnership units of American Retirement
Villas Properties II ("ARVP II"). The Unaudited Pro Forma Combined Financial
Statements are based on the assumptions and adjustments described in the
accompanying notes and should be read in conjunction therewith and in
conjunction with the historical financial statements of ARV Assisted Living,
Inc. and subsidiaries ("ARVAL" or the "Company") and the notes thereto included
in the Company's report on Form 10-Q as of and for the three month period ended
June 30, 1996 and the Company's consolidated financial statements as of and for
the year ended March 31, 1996. The Unaudited Pro Forma Combined Financial
Statements do not purport to present the financial position or the results of
operations of ARVAL had the transaction assumed therein occurred on the dates
indicated, nor are they necessarily indicative of the results of operations
which may be achieved in the future.
17
<PAGE> 19
ARV ASSISTED LIVING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1996
<TABLE>
<CAPTION>
Historical Other Pro Forma
ARVAL ACQUISITIONS ADJUSTMENTS
------------ ------------- -----------
<S> <C> <C> <C>
ASSETS
Cash $ 42,109,000 $ 37,000 $ (341,000) (b)
Fees receivable from affiliates 908,000 - -
Deferred project costs 1,162,000 - -
Investments in real estate 8,652,000 - -
Other assets 2,574,000 64,000 (22,000) (c)
------------ ----------- -----------
Total current assets 55,405,000 101,000 (363,000)
Restricted cash 5,366,000 - -
Property, furniture and equipment 65,833,000 3,030,000 861,000 (d)
Notes receivable from affiliates 277,000 - -
Deferred tax asset 2,044,000 - -
Other non-current assets 6,641,000 13,000 (1,881,000) (d)
------------ ----------- -----------
Total non-current assets 80,161,000 3,043,000 (1,020,000)
------------ ----------- -----------
Total assets $135,566,000 $ 3,144,000 $(1,383,000)
============ =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 5,369,000 150,000 -
Deferred revenue, current portion 46,000 7,000 -
Notes payable, current portion 3,458,000 - -
Notes payable and other amounts due to affiliates
121,000 10,000 (22,000) (c)
------------ ----------- -----------
Total current liabilities 8,994,000 167,000 (22,000)
Deferred revenue 1,397,000 - -
Notes payable, less current portion 71,744,000 360,000 -
------------ ----------- -----------
Total non-current liabilities 73,141,000 360,000 -
Total liabilities 82,135,000 527,000 (22,000)
Minority interest 1,131,000 - 1,256,000 (d)
Shareholders' equity:
Common stock 60,035,000 - -
Accumulated equity (deficit) (7,735,000) 2,617,000 (2,617,000) (d)
------------ ----------- -----------
Total shareholders' equity 52,300,000 2,617,000 (2,617,000)
------------ ----------- -----------
Total liabilities and shareholders' equity
$135,566,000 $ 3,144,000 $(1,383,000)
============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Pro Forma Pro Forma
ARVAL ADJUSTMENTS COMBINED
------------ ------------ -----------
<S> <C> <C> <C>
ASSETS
Cash $ 41,805,000 $(11,090,000) (a) $ 30,715,000
Fees receivable from affiliates 908,000 - 908,000
Deferred project costs 1,162,000 - 1,162,000
Investments in real estate 8,652,000 - 8,652,000
Other assets 2,616,000 - 2,616,000
------------ ------------ ------------
Total current assets 55,143,000 (11,090,000) 44,053,000
Restricted cash 5,366,000 - 5,366,000
Property, furniture and equipment 69,724,000 - 69,724,000
Notes receivable from affiliates 277,000 - 277,000
Deferred tax asset 2,044,000 - 2,044,000
Other non-current assets 4,773,000 11,090,000 (a) 15,863,000
------------ ------------ ------------
Total non-current assets 82,184,000 11,090,000 93,274,000
------------ ------------ ------------
Total assets $137,327,000 $ $137,327,000
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities 5,519,000 - 5,519,000
Deferred revenue, current portion 53,000 - 53,000
Notes payable, current portion 3,458,000 - 3,458,000
Notes payable and other amounts due to affiliate
109,000 - 109,000
------------ ------------ ------------
Total current liabilities 9,139,000 - 9,139,000
Deferred revenue 1,397,000 - 1,397,000
Notes payable, less current portion 72,104,000 - 72,104,000
------------ ------------ ------------
Total non-current liabilities 73,501,000 - 73,501,000
Total liabilities 82,640,000 - 82,640,000
Minority interest 2,387,000 - 2,387,000
Shareholders' equity:
Common stock 60,035,000 60,035,000
Accumulated equity (deficit) (7,735,000) (7,735,000)
------------ ------------ ------------
Total shareholders' equity 52,300,000 - 52,300,000
------------ ------------ ------------
Total liabilities and shareholders' equity $137,327,000 $ - $137,327,000
============ ============ ============
</TABLE>
See accompanying notes to unaudited pro forma combined financial
statements.
18
<PAGE> 20
ARV ASSISTED LIVING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
HISTORICAL Other Pro Forma Pro Forma
ARVAL Acquisitions Adjustments ARVAL
------------------- ---------------- ----------- ------------------
<S> <C> <C> <C> <C>
REVENUE:
Assisted living facility revenues $13,446,000 $ 938,000 $ - $14,384,000
(e)
Management fees 612,000
- (16,000)(f) 596,000
Development fees 333,000 - - 333,000
Interest Income 817,000 - (69,000)(i) 748,000
Other income 137,000 5,000 (e) - 142,000
------------------- --------------- ---------------- ------------------
Total revenue $15,345,000 $ 943,000 $(85,000) $16,203,000
EXPENSES
Assisted living facility operating
expenses $ 8,462,000 $ 657,000 (g) $ - $ 9,119,000
Assisted living facility lease expenses 2,747,000 - - 2,747,000
General and administrative 1,606,000 - - 1,606,000
Depreciation and amortization 667,000 77,000 (h) - 44,000
Discontinued project costs and accounts
receivable written-off 61,000 - - 61,000
Interest 1,401,000 10,000 (i) - 1,411,000
------------------- --------------- ---------------- ------------------
Total expenses $14,944,000 $ 744,000 $ - $15,688,000
------------------- --------------- ---------------- ------------------
Income before income tax expense $ 401,000 $ 199,000 $(85,000) $ 515,000
Income tax expense 150,000 68,000 (29,000)(j) 189,000
------------------- --------------- ---------------- ------------------
Net income $ 251,000 $ 131,000 $(56,000) $ 326,000
=================== =============== ================ ==================
Net income available for common shares $ 251,000 $ 326,000
=================== ==================
Net income per common share $ 0.03 $ 0.04
=================== ==================
Weighted average common shares outstanding 8,805,000 8,805,000
=================== ==================
</TABLE>
ARV ASSISTED LIVING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Adjustments Combined
---------------- -------------------
<S> <C> <C>
REVENUE:
Assisted living facility revenues $ - $14,384,000
Management fees - 596,000
Development fees - 333,000
Interest Income (139,000) (i) 609,000
Other income 67,000 (k) 209,000
--------------------- ------------------
Total revenue $ (72,000) $16,131,000
EXPENSES
Assisted living facility operating
expenses $ - $ 9,119,000
Assisted living facility lease expenses - 2,747,000
General and administrative - 1,606,000
Depreciation and amortization - 744,000
Discontinued project costs and accounts
receivable written-off - 61,000
Interest - 1,411,000
--------------------- ------------------
Total expenses $ - $15,688,000
--------------------- ------------------
Income before income tax expense $ (72,000) $ 443,000
Income tax expense (24,000) (j) 165,000
--------------------- ------------------
Net income $ (48,000) $ 278,000
===================== ==================
Net income available for common shares $ 278,000
==================
Net income per common share $ 0.03
==================
Weighted average common shares outstanding 8,805,000
==================
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
19
<PAGE> 21
ARV ASSISTED LIVING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
HISTORICAL Other Pro Forma Pro Forma
ARVAL Acquisitions Adjustments ARVAL
----------------- ------------------- --------------------- -----------------
<S> <C> <C> <C> <C>
REVENUES:
Assisted living facility revenues $25,479,000 $3,615,000 (e) $ - $ 29,094,000
Management fees 2,822,000 - (67,000)(f) 2,755,000
Development fees 1,500,000 - - 1,500,000
Interest income 1,070,000 - (327,000)(i) 743,000
Other income 2,242,000
2,192,000 50,000 (e) -
----------------- ------------------- --------------------- -----------------
Total revenue $33,063,000 $3,665,000 $(394,000) $ 36,334,000
EXPENSES
Assisted living facility operating
expenses $16,395,000 $2,529,000 (g) $ - $ 18,924,000
Assisted living facility lease
expenses 6,644,000 - 6,644,000
General and administrative 7,644,000 - 7,644,000
Depreciation and amortization 1,031,000 304,000 (h) - 1,335,000
Discontinued project costs and
accounts receivable written-off 395,000 - 395,000
Interest 1,544,000 46,000 (i) - 1,590,000
----------------- ------------------- --------------------- -----------------
Total expenses $33,653,000 $2,879,000 $ - $ 36,532,000
Income (loss) before income tax expense $ (590,000) $ 786,000 $(394,000) $ (198,000)
----------------- ------------------- --------------------- -----------------
Income tax expense 375,000 267,000 (134,000)(j) 508,000
----------------- ------------------- --------------------- -----------------
Net income (loss) $ (965,000) $ 519,000 $(260,000) $ (706,000)
================= =================== ===================== =================
Preferred dividends declared $ 351,000 $ 351,000
----------------- -----------------
Net loss available for common shares $(1,316,000) $(1,057,000)
================= =================
Net loss per common share $ (0.21) $ (0.17)
================= =================
Weighted average common shares
outstanding 6,246,000 6,246,000
================= =================
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Adjustments Combined
------------------ --------------------
<S> <C> <C>
REVENUES:
Assisted living facility revenues $ - $29,094,000
Management fees 2,755,000
Development fees - 1,500,000
Interest income (555,000)(i) 188,000
Other income (k) 2,622,000
380,000
---------------- -------------------
Total revenue $(175,000) $36,159,000
EXPENSES
Assisted living facility operating
expenses $ - $18,924,000
Assisted living facility lease
expenses - 6,644,000
General and administrative - 7,644,000
Depreciation and amortization - 1,335,000
Discontinued project costs and accounts
receivable written-off - 395,000
Interest - 1,590,000
---------------- --------------------
Total expenses $ - $36,532,000
Income (loss) before income tax expense $(175,000) $ (373,000)
---------------- --------------------
Income tax expense (60,000)(j) 448,000
---------------- --------------------
Net income (loss) $(115,000) $ (821,000)
================ ====================
Preferred dividends declared $ 351,000
--------------------
Net loss available for common shares $(1,172,000)
====================
Net loss per common share $ (0.19)
====================
Weighted average common shares
outstanding 6,246,000
====================
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
20
<PAGE> 22
ARV ASSISTED LIVING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
I. As of June 30, 1996, the Company has acquired 2 assisted living
facilities since March 31, 1996, through direct purchases for its own
account, or purchases of controlling partnership interests.
II. On May 16, 1996, the Company tendered for the limited partnership units
in ARVP II, at a net cash price per unit of $720. At the close of June
21, 1996, holders of approximately 15,300 units tendered their shares
representing approximately 44% of all units. Therefore, when added to
previously acquired units, the Company owns approximately 15,410 units or
approximately 44% of the limited partnership units. As of June 30, 1996,
the Company had paid approximately $71,000 of the acquisition-related
costs. In July 1996, the Company paid the remaining $11.1 million for the
15,300 units with cash on hand to acquire these limited partnership units
inclusive of other acquisition-related costs.
III. The Unaudited Pro Forma Combined Balance Sheet at June 30, 1996 presents
the historical balance sheet of the Company as of June 30, 1996, the pro
forma balance sheet of the Company as if the acquisitions described in
note (1) above, had been completed as of June 30, 1996, and the pro forma
balance sheet of the Company after giving effect to the acquisition
described in note (2) above as if the event had also occurred on June 30,
1996.
IV. The Unaudited Pro Forma Combined Statement of Operations for the year
ended March 31, 1996 and the three months ended June 30, 1996 present the
historical operations of the Company, the pro forma operations of the
Company as if the acquisitions described in note (1) above had occurred
at the beginning of each period, and the pro forma combined operations of
the Company as if the acquisition described in note (2) had occurred at
the beginning of each period.
V. Pro forma adjustments are as follows:
A. To reflect the use of cash in July and August 1996 for the purchase of
the additional partnership interests in ARVP II to increase the
Company's limited partnership ownership interest to 44%
B. To reflect the use of cash for the purchase of the limited partnership
interests described in note (1) above
C. To eliminate the receivables and payables between entities
D. To record the assets and liabilities acquired in connection with the
purchase of the majority partnership interest at fair value, minority
interest and the elimination of the partners' equity in the limited
partnership referenced in note (1) above
E. To reflect the assisted living facility revenue and other income of
the acquired facilities
F. To reflect the decrease in property management and partnership
administration fees received by the Company
G. To reflect the increase in assisted living facility operating expenses
H. To reflect the new depreciation expense associated with the
acquisitions mentioned in note (1) above
21
<PAGE> 23
I. To reflect in increase in interest expense from debt assumed and the
decrease in interest income due to cash used to fund the acquisitions
mentioned in note (1) and note (2) above
J. To reflect the pro forma change in income tax expense (benefit)
K. To reflect the increase in equity in income (loss) associated with the
increased ownership in ARVP II.
22
<PAGE> 24
SIGNATURES
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.
ARV Assisted Living, Inc.
By: /s/ Patrick M. Donovan
-----------------------------------------
Patrick M. Donovan
Vice President Finance
(Duly authorized officer)
Date: September 9, 1996
23
