-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, GUWAXURPBVhgkd3TA3FnPB5Sx6tf6bslSLgIqMH0AX3XJjVpj3MNDJn0OzPCllaX XknG1vhFi7lc4xIJa+uHuw== 0000033939-95-000001.txt : 19950215 0000033939-95-000001.hdr.sgml : 19950215 ACCESSION NUMBER: 0000033939-95-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950214 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FORUM GROUP INC CENTRAL INDEX KEY: 0000033939 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SOCIAL SERVICES [8300] IRS NUMBER: 610703072 STATE OF INCORPORATION: IN FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-06350 FILM NUMBER: 95509938 BUSINESS ADDRESS: STREET 1: 8900 KEYSTONE CROSSING STE 200 STREET 2: P O BOX 40498 CITY: INDIANAPOLIS STATE: IN ZIP: 46240-0498 BUSINESS PHONE: 3178460700 MAIL ADDRESS: STREET 1: 8900 KEYSTONE CROSSING STE 200 STREET 2: PO BOX 40498 CITY: INDIANAPOLIS STATE: IN ZIP: 46240-0498 FORMER COMPANY: FORMER CONFORMED NAME: EXCEPTICON INC DATE OF NAME CHANGE: 19810909 FORMER COMPANY: FORMER CONFORMED NAME: GUARDIAN CARE CORP DATE OF NAME CHANGE: 19720615 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended December 31, 1994 Commission File Number 0-6350 FORUM GROUP, INC. (Exact name of registrant as specified in its charter) Indiana 61-0703072 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 8900 Keystone Crossing, Suite 200 P.O. Box 40498 Indianapolis, Indiana 46240-0498 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 317-846-0700 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days: Yes X No --- --- Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court: Yes X No --- --- The number of shares outstanding of the Registrant's common stock as of February 10, 1995 was 22,500,109. INDEX FORUM GROUP, INC., AND SUBSIDIARIES PART I. FINANCIAL INFORMATION PAGE - ----------------------------- ---- Item 1. Financial Statements (Without Audit) Condensed consolidated balance sheets -- December 31 and March 31, 1994 3 Condensed consolidated statements of operations -- Three and nine months ended December 31, 1994 and 1993 4 Condensed consolidated statements of cash flows -- Nine months ended December 31, 1994 and 1993 5 Notes to condensed consolidated financial statements -- December 31, 1994 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION - -------------------------- Item 1. Legal Proceedings 16 SIGNATURES 17 - ---------- 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ------------------------------ FORUM GROUP, INC., AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Without Audit) December 31, March 31, 1994 1994 ------------- ----------- ASSETS (in thousands) ------ Property and equipment: Land and improvements $ 47,388 $ 34,505 Buildings and leasehold improvements 246,757 176,209 Furniture and equipment 17,137 13,046 Project under construction (estimated cost to complete $7,163) 2,365 -0- ----------- ----------- 313,647 223,760 Less accumulated depreciation and amortization 17,401 11,600 ----------- ----------- 296,246 212,160 Investments: Greenville Retirement Community, L.P. 3,333 3,614 Forum-NGH Operations-I, LLC 176 -0- Forum Retirement Partners, L.P. -0- 12,420 Rancho San Antonio Retirement Housing Corporation -0- 7,228 Other 240 -0- ----------- ----------- 3,749 23,262 ----------- ----------- Cash and cash equivalents 28,471 18,331 Accounts receivable, less allowance for doubtful accounts of $595 and $277 9,379 5,246 Notes, investments and other receivables 3,655 5,717 Management fees receivable 62 964 Restricted cash 14,158 9,992 Deferred costs and other assets, net 15,697 14,528 ----------- ----------- Total Assets $ 371,417 $ 290,200 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Long-term debt, including $3,723 due within one year $ 249,355 $ 205,094 Trade accounts payable 2,402 2,332 Accrued expenses 15,514 12,523 Resident deposits and refundable fees 19,089 17,253 Deferred income 7,349 7,041 ----------- ----------- Total Liabilities 293,709 244,243 Other partners' equity 16,613 1,673 Shareholders' equity: Common stock, no par value - authorized 48,000 shares, issued 22,500 and 21,262 shares 63,928 58,773 Paid-in-capital 750 -0- Accumulated deficit (3,583) (14,489) ----------- ----------- Total Shareholders' Equity 61,095 44,284 ----------- ----------- $ 371,417 $ 290,200 =========== =========== See Notes to Condensed Consolidated Financial Statements. 3 FORUM GROUP, INC., AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Without Audit) Three Months Ended Nine Months Ended December 31, December 31, ------------------- ----------------- 1994 1993 1994 1993 -------- -------- ------- ------- (in thousands except per share amounts) Revenues: Net operating revenues $ 41,097 $ 27,681 $104,028 $ 79,196 Management fees 185 174 1,788 424 Investment and other income 619 452 1,688 1,016 -------- -------- -------- -------- TOTAL REVENUES 41,901 28,307 107,504 80,636 -------- -------- -------- -------- Costs and expenses: Operating expenses 28,304 18,646 70,492 55,418 Marketing, general and administrative expenses 2,357 1,673 5,679 4,502 Litigation expense -0- 55 -0- 1,317 Depreciation 2,388 1,801 5,966 5,841 -------- -------- -------- -------- TOTAL COSTS AND EXPENSES 33,049 22,175 82,137 67,078 -------- -------- -------- -------- 8,852 6,132 25,367 13,558 Interest expense (6,322) (4,357) (16,756) (13,241) Gains from sales of cooperative memberships 1,243 -0- 5,440 -0- -------- -------- -------- -------- Income before minority interests, income taxes and extraordinary charge 3,773 1,775 14,051 317 Minority interests (136) (143) (333) 972 -------- -------- -------- -------- Income before income taxes and extraordinary charge 3,637 1,632 13,718 1,289 Income taxes 550 -0- 2,550 -0- -------- -------- -------- -------- Income before extraordinary charge 3,087 1,632 11,168 1,289 Extraordinary charge from early extinguishment of debt, net of income tax benefit of $50 in 1994 (262) (1,360) (262) (1,772) -------- -------- -------- -------- NET INCOME (LOSS) 2,825 272 10,906 (483) ACCUMULATED DEFICIT AT BEGINNING OF PERIOD (6,408) (8,114) (14,489) (7,359) -------- -------- -------- -------- ACCUMULATED DEFICIT AT END OF PERIOD $ (3,583) $ (7,842) $ (3,583) $ (7,842) ======== ========= ======== ========= Average number of common and common equivalent shares outstanding 23,164 20,823 22,944 15,858 ======== ========= ======== ========= Net income (loss) per common and common equivalent share (primary and fully diluted): Income before extraordinary charge $ 0.13 $ 0.08 $ 0.49 $ 0.08 Extraordinary charge (0.01) (0.07) (0.01) (0.11) -------- -------- -------- -------- Net income (loss) $ 0.12 $ 0.01 $ 0.48 $ (0.03) ======== ======== ======== ======== See Notes to Condensed Consolidated Financial Statements. 4 FORUM GROUP, INC., AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Without Audit) Nine Months Ended December 31, ------------------------- 1994 1993 ---------- ---------- (in thousands) Cash flows from operating activities: Net income (loss) $ 10,906 $ (483) Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation and amortization 5,966 5,841 Amortization of deferred financing costs 1,919 776 Minority interests in losses (earnings) of consolidated companies 333 (972) Equity in earnings of unconsolidated investments (183) (86) Other accrued revenues and expenses 477 (5,308) Non-cash portion of extraordinary charge 242 1,630 ---------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES 19,660 1,398 ---------- ---------- Cash flows from investing activities: Additions to property and equipment (5,818) (1,280) Net proceeds from sales of cooperative memberships in Rancho San Antonio Retirement Housing Corporation 8,709 (71) Investment in Forum Retirement Partners, L.P., net of acquired cash of $4,872 (3,373) (13,131) Purchase of Tiffany House (3,624) -0- Purchase of other businesses (273) -0- Notes, investments and other receivables 206 259 Other 355 162 ---------- ---------- NET CASH USED BY INVESTING ACTIVITIES (3,818) (14,061) ---------- ---------- Cash flows from financing activities: Proceeds from long-term debt 398 90,711 Payments on long-term debt (8,276) (101,533) Proceeds from issuance of common stock and warrants, net 5,155 32,999 Deferred financing and other costs (1,501) (16) Proceeds from Forum Retirement, Inc.'s tender of Forum Group common stock -0- 1,861 Net proceeds from sales of cooperative memberships in Rancho San Antonio Retirement Housing Corporation -0- 3,614 Distributions to other partners (234) (234) Recapitalization and tender offer costs -0- (8,541) Payments of Predecessor Company liabilities -0- (52) Resident deposits 326 3,628 Net increase in restricted cash (1,570) (1,257) ---------- ---------- NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (5,702) 21,180 ---------- ---------- Net increase in cash and cash equivalents 10,140 8,517 Cash and cash equivalents at beginning of period 18,331 5,817 ---------- ---------- Cash and cash equivalents at end of period $ 28,471 $ 14,334 ========== ========== See Notes to Condensed Consolidated Financial Statements. 5 FORUM GROUP, INC., AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Without Audit) December 31, 1994 Note A - Basis of Presentation - ------------------------------ The balance sheet at March 31, 1994 has been derived from the audited financial statements at that date included in the Annual Report on Form 10-K of Forum Group, Inc. ("Forum Group") filed with the Securities and Exchange Commission for the fiscal year ended March 31, 1994, as amended (the "1994 10-K"). The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended December 31, 1994 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 1995. For further information, refer to Forum Group's consolidated financial statements as of and for the year ended March 31, 1994, and the footnotes thereto, included in the 1994 10-K. Certain amounts in the fiscal year 1994 condensed consolidated financial statements have been restated to conform to the fiscal year 1995 presentation. Note B - Changes In Consolidation - --------------------------------- The assets, liabilities and financial results of Rancho San Antonio Retirement Housing Corporation ("RSARHC"), a cooperative housing corporation which owns The Forum at Rancho San Antonio ("Rancho San Antonio"), a continuing care community in Cupertino, California, were included in the consolidated financial statements of Forum Group through July 31, 1993 because Forum Group owned a majority of RSARHC's cooperative memberships. Effective August 1, 1993, due to continued sales of cooperative memberships, Forum Group no longer owned in excess of 50% of the memberships and, accordingly, the financial statements of RSARHC were no longer consolidated in Forum Group's consolidated financial statements. Between August 1, 1993 and June 1, 1994, Forum Group's continuing ownership interest in RSARHC was accounted for on the equity method. Since June 1, 1994 Forum Group's continuing ownership interest in RSARHC as the owner of less than 20% of the cooperative memberships has been accounted for on the cost method. Sales of cooperative memberships totalled $103,274,000 through December 31, 1994 and profits on these sales are being recognized using the cost recovery method. The assets, liabilities and financial results of Rancho San Antonio Retirement Services, Inc., the wholly owned subsidiary of Forum Group which operates the healthcare and assisted living components of Rancho San Antonio, are included in the consolidated financial statements of Forum Group for all periods presented. 6 FORUM GROUP, INC., AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Without Audit) December 31, 1994 Forum Retirement Partners, L.P. ("FRP") is a publicly traded limited partnership which owns nine retirement communities. Forum Group is the parent company of FRP's general partner and has a long-term management agreement with FRP. In addition, Forum Group has a substantial beneficial interest in FRP. Prior to August 1, 1994, this beneficial interest was less than 50%, and Forum Group's investment in FRP was accounted for on the equity method. Through the acquisition of additional partnership units, Forum Group's beneficial interest in FRP increased to 56.4% on August 1, 1994. Accordingly, as of that date, the assets, liabilities and financial results of FRP were included in the consolidated financial statements of Forum Group. During October, 1994 Forum Group increased its beneficial interest to 62.1%. The following pro forma amounts summarize the effect on the condensed consolidated statements of operations for the nine months ended December 31, 1994 and 1993, as if Forum Group's beneficial interest in FRP was 62.1% on April 1, 1993: Nine Months Ended December 31, ------------------- 1994 1993 -------- -------- (in thousands except per share amounts) Total revenues $121,799 $112,967 ======== ======== Net income $ 11,346 $ 1,208 ======== ======== Net income per common and common equivalent share $ 0.49 $ 0.08 ======== ======== Note C - Other Investments - -------------------------- Forum Group has a 50% beneficial interest in Greenville Retirement Community, L.P. ("GRP"), a limited partnership which owns the Stonegates retirement community in Wilmington, Delaware ("Stonegates"). Summary financial information for GRP as of and for the nine months ended December 30, 1994 is as follows (in thousands): Net property $ 20,202 Other assets 1,307 --------- 21,509 Less liabilities 23,008 --------- Net deficit $ 1,499 ========= Revenues $ 4,945 Costs and expenses 4,200 --------- Net income $ 745 ========= Forum Group has entered into a co-investment agreement with National Guest Homes, L.L.C. ("NGH"), a developer of assisted living facilities targeted toward middle-income senior citizens. Forum Group's investment in projects under construction is included in the consolidated financial 7 statements of Forum Group. Forum Group's investment in Forum - NGH Operations - I, L.L.C. ("NGH Operations"), a manager of assisted living facilities, is accounted for on the equity method. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results Of Operations - --------------------- Forum Group operates (i) ten retirement communities owned or leased directly or indirectly by Forum Group, one community owned by a nonprofit corporation, and one nursing facility owned by Forum Group (the "Owned Communities"), (ii) 13 retirement communities owned by partnerships which are not wholly owned by Forum Group but which are consolidated for financial reporting purposes, including the nine communities owned by FRP (the "Consolidated Partnership Communities"), and (iii) two retirement communities (Rancho San Antonio and Stonegates), the operating results of which are not presently consolidated for financial reporting purposes (the "Unconsolidated Communities"). The results of Rancho San Antonio's operations were consolidated for financial reporting purposes prior to July 31, 1993 (see Note B of the Notes to Condensed Consolidated Financial Statements). Accordingly, the periods in which the financial results of the consolidated components of Rancho San Antonio are included in the financial statements of Forum Group are not comparable. Consequently, Rancho San Antonio is presented separately below in order to present a comparable disclosure of the Owned Communities' financial results. Certain summary financial information for the Owned Communities, Rancho San Antonio, the Consolidated Partnership Communities, and other corporate operations ("Corporate Operations") is presented below: Three Months Ended December 31, 1994 ------------------------------------ ($ in millions) Consolidated Owned Rancho Partnership Corporate Communities San Antonio Communities Operations Totals Net ----------- ----------- ----------- ---------- ------ Operating Revenues $20.6 $ 1.0 $19.5 $ 0 $41.1 Total Operating Expenses 14.0 1.0 13.4 2.3 30.7 Net Operating Income 6.6 0 6.1 (2.3) 10.4 Depreciation 1.1 0 1.3 0 2.4 Interest Expense 3.1 0 2.7 .5 6.3 9 Nine Months Ended December 31, 1994 ----------------------------------- ($ in millions) Consolidated Owned Rancho Partnership Corporate Communities San Antonio Communities Operations Totals Net ----------- ----------- ----------- ---------- ------ Operating Revenues $59.6 $ 3.2 $41.1 $ .1 $104.0 Total Operating Expenses 39.7 3.1 27.4 6.0 76.2 Net Operating Income 19.9 .1 13.7 (5.9) 27.8 Depreciation 3.1 0 2.8 .1 6.0 Interest Expense 9.3 .1 6.1 1.3 16.8 Three Months Ended December 31, 1993 ------------------------------------ ($ in millions) Consolidated Owned Rancho Partnership Corporate Communities San Antonio Communities Operations Totals Net ----------- ----------- ----------- ---------- ------ Operating Revenues $19.6 $ 1.4 $ 6.7 $ 0 $27.7 Total Operating Expenses 13.1 1.0 4.0 2.2 20.3 Net Operating Income 6.5 .4 2.7 (2.2) 7.4 Depreciation 1.0 0 .5 .3 1.8 Interest Expense .7 0 1.1 2.6 4.4 10 Nine Months Ended December 31, 1993 ----------------------------------- ($ in millions) Consolidated Owned Rancho Partnership Corporate Communities San Antonio Communities Operations Totals Net ----------- ----------- ----------- ---------- ------ Operating Revenues $55.3 $ 4.1 $19.3 $ .5 $79.2 Total Operating Expenses 38.6 4.0 12.0 5.3 59.9 Net Operating Income 16.7 .1 7.3 (4.8) 19.3 Depreciation 2.9 .9 1.5 .5 5.8 Interest Expense 2.1 .7 3.1 7.3 13.2 Owned Communities. Net Operating Revenues for the three and nine months ended December 31, 1994 increased by $1.0 million (5%), from $19.6 million to $20.6 million, and by $4.3 million (8%), from $55.3 million to $59.6 million, respectively, as compared to the same periods of the previous year. These increases were primarily attributable to favorable changes in occupancy, increased utilization of ancillary healthcare services and increases in residency fees and charges. Combined occupancy increased from 93% at December 31, 1993 to 95% at December 31, 1994. Operating expenses, including marketing and general and administrative expenses (collectively, "Total Operating Expenses"), at the Owned Communities for the three and nine months ended December 31, 1994 increased by $900,000 (7%), from $13.1 million to $14.0 million, and by $1.1 million (3%), from $38.6 million to $39.7 million, respectively, as compared to the same periods of the previous year. These increases were primarily attributable to increases in occupancy, increased utilization of ancillary healthcare services and normal inflationary increases, partially offset by reductions of $380,000 for the nine months ended December 31, 1994 due to a change in the estimate of workers compensation premiums. Net Operating Income, comprised of Net Operating Revenues less Total Operating Expenses, at the Owned Communities for the three and nine months ended December 31, 1994 increased by $0.1 million, from $6.5 million to $6.6 million, and by $3.2 million, from $16.7 million to $19.9 million, respectively, as compared to the same periods of the previous year. Rancho San Antonio. Due to the change in financial statement presentation discussed above, the financial results of Rancho San Antonio are not comparable between fiscal periods. Therefore, no discussion of variances regarding Rancho San Antonio is presented. Net Operating Revenues for the consolidated components of Rancho San Antonio for the three and nine months ended December 31, 1994 decreased by $400,000, from $1.4 million to $1.0 million, and by $900,000, from $4.1 million to $3.2 million, respectively, as compared to the same periods of the previous year. Occupancy of the healthcare and assisted living component of Rancho San Antonio increased from 91% at December 31, 1993 to 94% at December 31, 1994. Total Operating Expenses for the consolidated 11 components of Rancho San Antonio for the three and nine month periods remained constant at $1.0 million and decreased by $900,000, from $4.0 million to $3.1 million, respectively, as compared to the same periods of the previous year. Net Operating Income for the consolidated components of Rancho San Antonio for the three and nine month periods ended December 31, 1994 decreased by $400,000, from $400,000 to zero, and remained constant at $100,000, respectively, as compared to the same periods of the previous year. Consolidated Partnership Communities. Due to the change in financial statement presentation regarding consolidation of the FRP Communities discussed above, the financial results of the Consolidated Partnership Communities are not comparable between fiscal periods. Therefore, no discussion of variances regarding the Consolidated Partnership Communities is presented. Net Operating Revenues for the three and nine months ended December 31, 1994 increased by $12.8 million, from $6.7 million to $19.5 million, and by $21.8 million, from $19.3 million to $41.1 million, respectively, as compared to the same periods of the previous year. Combined occupancy of the Consolidated Partnership Communities increased from 90% at December 31, 1993 to 94% at December 31, 1994. Total Operating Expenses for the Consolidated Partnership Communities for the three and nine months ended December 31, 1994 increased by $9.4 million, from $4.0 million to $13.4 million, and by $15.4 million, from $12.0 million to $27.4 million, respectively, as compared to the same periods of the previous year. Net Operating Income for the Consolidated Partnership Communities for the three and nine months ended December 31, 1994 increased by $3.4 million, from $2.7 million to $6.1 million, and by $6.4 million, from $7.3 million to $13.7 million, respectively, as compared to the same periods of the previous year. Corporate Operations. Changes in corporate operations were not material to Forum Group's results of operations for the three and nine months ended December 31, 1994. Unconsolidated Entities. Forum Group's equity in the earnings of unconsolidated entities is reflected as Investment and Other Income. Changes in Forum Group's equity in the aggregate net earnings of FRP, the unconsolidated component of Rancho San Antonio, GRP, and NGH Operations for the three and nine months ended December 31, 1994 were not material to Forum Group's results of operations. Due to the changes in financial statement presentation regarding FRP and Rancho San Antonio discussed above, the equity adjustments for those entities are not comparable between fiscal periods. Consolidated Items. The following is a discussion of certain consolidated items. Consolidated Marketing, General and Administrative Expenses. For the three and nine months ended December 31, 1994, consolidated marketing, general and administrative expenses increased by $700,000, from $1.7 million to $2.4 million, and by $1.2 million, from $4.5 million to $5.7 million, respectively, as compared to the comparable periods in fiscal 1994. These increases are primarily attributable to (i) the inclusion in the prior periods of future service income recognition in respect of FRP management fees and (ii) increased home office staff costs. During the nine months ended December 31, 1993, expenses of $1.3 million were incurred in conjunction with certain litigation related to Forum Group's June, 1993 recapitalization (the "FGI Recapitalization"). 12 Management Fees. For the three and nine months ended December 31, 1994, management fee income remained constant at $0.2 million and increased by by $1.4 million, from $0.4 million to $1.8 million, respectively. The nine-month increase was primarily attributable to the recognition of management fee income (i) due from FRP for periods subsequent to December 31, 1993 but prior to August 1, 1994 and (ii) due from RSARHC for periods subsequent to July 31, 1993. Pursuant to the terms of the management agreement between Forum Group and FRP, management fees for periods prior to December 31, 1993 had been deferred and were not recognized as income by Forum Group. Investment and Other Income. For the three and nine months ended December 31, 1994, investment and other income increased $0.2 million, from $0.4 million to $0.6 million, and $0.7 million, from $1.0 million to $1.7 million, respectively, as compared to the comparable periods of fiscal 1994. These increases are primarily attributable to increases in investment income. Depreciation. For the three and nine months ended December 31, 1994, consolidated depreciation expense increased by $0.6 million and $0.1 million, respectively, as compared to the comparable periods in the previous year. These changes reflect the August 1, 1994 consolidation of FRP and fixed asset additions over the last 12 months, as offset by RSARHC which is no longer a consolidated entity. Interest Expense. Interest expense attributable to the Owned Communities, Consolidated Partnership Communities and Corporate Operations increased by $2.0 million, from $4.3 million to $6.3 million, and by $3.5 million, from $13.2 million to $16.7 million, during the three and nine months ended December 31, 1994, respectively. These changes are primarily attributable to the consolidation of FRP and changes in average borrowing costs. Gains From Sales of Cooperative Memberships. During the three and nine months ended December 31, 1994, $1.2 million and $5.4 million, respectively, of pre-tax gains were recognized from the sales of memberships in RSARHC (the "RSA Gains"). As RSA Gains are generated solely from the initial sale of memberships in RSARHC, and as the number of available initial memberships is finite, these gains are of a non- recurring nature and there can be no assurance as to the timing or amount of future RSA Gains. Minority Interests. The increase of $1.3 million in the minority interests' elimination for the nine months ended December 31, 1994 compared to the same period of the prior fiscal year resulted primarily from improved operating results and a change in the method of accounting for Forum Group's minority ownership of RSARHC (see Note B of the Notes to Condensed Consolidated Financial Statements). Income Taxes. On April 1, 1993, Forum Group adopted Financial Accounting Standards No. 109, Accounting for Income Taxes, and has reported the cumulative effect of that change in the method of accounting for income taxes in the March 31, 1994 and December 31, 1994 condensed consolidated financial statements. As of December 31, 1994, income tax loss carryforwards for tax purposes were estimated to be approximately $26.0 million after the application of certain loss carryforward limitations. These tax loss carryforwards will 13 expire in varying amounts through fiscal year 2009. For financial reporting purposes, the future benefit of tax loss carryforwards arising prior to Forum Group's reorganization is reported as additional paid-in- capital. During the quarter and nine months ended December 31, 1994, the condensed consolidated statements of operations contained a provision for income taxes of $0.6 million and $2.6 million, respectively, including $0.8 million related to the benefit of pre-organization tax loss carryforwards which was added to paid-in-capital. Extraordinary Charge. During the three months ended December 31, 1994 an extraordinary charge of $0.3 million was recorded related to Forum Group's early extinguishment of debt. During the three and nine months ended December 31, 1993 an extraordinary charge of $1.4 million was recorded to reflect Forum Group's share of FRP's extraordinary charge on the early extinguishment of its debt. Additionally, during the nine months ended December 31, 1993, expenses of $0.4 million related to the early extinguishment of debt in conjunction with the FGI Recapitalization were recorded. Net Income/Loss Per Share. The three and nine months ended December 31, 1994 produced net income of $2.8 million ($0.12 per share of common stock of Forum Group ("Common Share")) and $10.9 million ($0.48 per Common Share), respectively, compared to net income of $0.3 million ($0.01 per Common Share) and a net loss of $0.5 million ($0.03 per Common Share), respectively, for the three and nine months ended December 31, 1993. Net income for the current quarter and nine-month period was favorably affected by non-recurring after-tax gains of $1.1 million and $4.4 million, respectively ($0.05 and $0.19, respectively, per Common Share) from the sales of cooperative memberships in RSARHC, which has 86% of its memberships sold. Net income for the current quarter and nine-month period was adversely affected by an extraordinary charge, pertaining to Forum Group's early extinguishment of debt, of $0.3 million ($0.01 per Common Share). Net income for the prior year nine-month period was adversely affected by litigation expense of $1.3 million ($0.08 per Common Share). Additionally, the prior year three and nine month periods were adversely affected by extraordinary charges of $1.4 million and $1.8 million ($0.07 and $0.11, respectively, per Common Share), respectively, due to the early extinguishment of debt. Without these items, net income for the current three and nine-month periods would have been $0.08 and $0.30, respectively, per Common Share compared to $0.08 and $0.16 per Common Share for the three and nine-month periods, respectively, of the prior fiscal year. All per share data are based upon the weighted average number of common and common equivalent shares outstanding for the relevant periods. Financial Condition - ------------------- Liquidity And Financial Condition. Management believes that Forum Group's cash on hand, cash from operations and borrowings available to it under credit facilities are sufficient to fund its foreseeable working capital, debt service and capital expenditure requirements. Forum Group will continue to monitor conditions in the capital markets and otherwise in an effort to take advantage of opportunities which may become available to it in the pursuit of its long-term growth strategy. At December 31, 1994, Forum Group's cash and cash equivalents were $28.5 14 million, compared to $18.3 million at March 31, 1994. Net cash provided by operations was $19.7 million for the nine months ended December 31, 1994, compared to $1.4 million for the comparable period of the prior fiscal year. Total long-term debt was $249.4 million at December 31, 1994, compared to $205.1 million at March 31, 1994. Of these amounts, $220.5 million and $170.4 million, respectively, was project-level debt that is not recourse to Forum Group. Total maturities of long-term debt for each of the next five calendar years are as follows (in millions): Non- Forum Year Recourse Group ---- -------- ------- 1995 $ 3.0 $ 0.7 1996 49.4 0.9 1997 2.7 14.4 1998 2.9 0.5 1999 28.8 0.3 Management expects that such amounts will be paid out of a combination of cash on hand, cash from operations and refinancing proceeds, although there necessarily can be no assurance with respect thereto. Forum Group has adopted a growth-oriented strategic plan which contemplates the acquisition of additional assets and continued investment in its existing properties. Forum Group is a party to an acquisition facility providing for up to $100.0 million of acquisition financing. Under the facility, the lender will advance $2.00 of debt financing for each $1.00 of equity capital invested by Forum Group, which equity is presently expected to be obtained from liquid assets, future offering of additional Common Shares to shareholders (including the principal shareholders of Forum Group), cash from operations (including cash from sales of memberships in existing RCs, primarily Rancho San Antonio), or a combination of the foregoing. During the 24-month period in which amounts can be drawn under the acquisition facility (the "Funding Period"), Forum Group has the right, subject to the satisfaction of certain conditions, to convert the indebtedness thereunder to seven- year debt under either a fixed or floating interest rate structure. During such period, Forum Group may repay such indebtedness using proceeds from other financing sources, if any such financing becomes available on more favorable terms. Absent conversion or refinancing, interest on the Acquisition Loan is payable monthly in arrears at LIBOR plus 3.35%, exclusive of servicing costs. Forum Group has an option permitting it to increase the borrowings against the properties acquired if, by September 1996, the debt service coverage computed on a trailing 12-month basis exceeds certain thresholds, in which event the increased borrowings could be used to fund Forum Group's growth or for other corporate purposes. There can be no assurance that any acquisitions will be completed or, if so, as to the timing or terms thereof. Moreover, the lender's obligation to provide financing under the Acquisition Facility is subject to a number of conditions, and there can be no assurance that such conditions will be satisfied. Forum Group recently purchased (i) Tiffany House, an assisted care living facility with 130 licensed units located in Fort Lauderdale, Florida, and (ii) Fountainview Retirement Center, with 276 independent living apartments and 64 assisted living suites, located in West Palm Beach, Florida. 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings. - --------------------------- Maddock Litigation. As described in the 1994 10-K, on May 7, 1992, Charles S. Maddock, a resident of Stonegates, a condominium RC in Greenville, Delaware, instituted an action against Greenville Retirement Community, L.P. ("GRP"), the developer and managing agent of, and owner of the service units (i.e. nursing, kitchen and dining facilities) at, Stonegates, in the Court Chancery of the State of Delaware in and for New Castle County ("State Court Action"). Forum Group is the sole general partner of, and the owner of a 50% beneficial interest in, GRP. Forum Group is also the operator and manager of Stonegates pursuant to an operation and management agreement with GRP under which, inter alia, GRP delegates to Forum Group all of GRP's duties and responsibilities as managing agent of Stonegates. Mr. Maddock alleges that certain of the organizational documents of Stonegates violate state law and that GRP and Forum Group have breached their responsibilities under such documents. Mr. Maddock sought various forms of injunctive, and declaratory relief, and damages. On August 21, 1992, Forum Group instituted an action in the Bankruptcy Court (the "Bankruptcy Court Action") alleging that the relief requested in the State Court Action effectively asserts a claim against Forum Group, the assertion of which is barred under the terms of the Reorganization Plan, and requesting injunctive relief preventing the further prosecution of the State Court Action. On September 17, 1993, the Bankruptcy Court issued an order permanently enjoining Mr. Maddock from pursuing the State Court Action. Mr. Maddock appealed the Bankruptcy Court's decision, and on August 30, 1994, the appeals court vacated the injunction and remanded the matter to the Bankruptcy Court for further proceedings. On December 13, 1994, Mr. Maddock and Forum Group entered into an agreement entered in the Bankruptcy Court providing that Mr. Maddock will be enjoined from asserting claims based upon acts or omissions of Forum Group or GRP occurring prior to April 2, 1992 (the effective date of the Reorganization Plan). The agreement does not bar the assertion of a claim arising after April 2, 1992 from either a new course of action or a new breach of any continuing agreement. Refer to the 1994 10-K for additional information regarding this lawsuit and other legal proceedings to which the Registrant or its subsidiaries are parties. 16 SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FORUM GROUP, INC. Date: February 14, 1995 By: \s\ Paul A. Shively -------------------------------- Paul A. Shively Senior Vice President and Treasurer 17 EX-27 2
5 1,000 9-MOS MAR-31-1995 DEC-31-1994 28,471 0 9,974 595 0 41,567 313,647 17,401 371,417 21,639 249,355 61,095 0 0 16,613 371,417 0 107,504 0 82,137 0 0 16,756 13,718 2,550 11,168 0 (262) 0 10,906 .48 .48
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