0000033939-95-000004.txt : 19950816 0000033939-95-000004.hdr.sgml : 19950816 ACCESSION NUMBER: 0000033939-95-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 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: 95563878 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 June 30, 1995 Commission File Number 0-6350 FORUM GROUP, INC. (Exact name of registrant as specified in its charter) Indiana 61-0703072 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 11320 Random Hills Road, Suite 400 Fairfax, Virginia 22030 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 703-277-7000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days: Yes X No ----- ----- Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court: Yes X No ----- ----- The number of shares outstanding of the registrant's common stock as of August 9, 1995 was 22,500,109. INDEX PART I. FINANCIAL INFORMATION PAGE ----------------------------- ---- Item 1. Financial Statements (Without Audit) Condensed consolidated balance sheets -- June 30 and March 31, 1995 3 Condensed consolidated statements of operations -- Three months ended June 30, 1995 and 1994 4 Condensed consolidated statements of cash flows -- Three months ended June 30, 1995 and 1994 5 Notes to condensed consolidated financial statements -- June 30, 1995 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION -------------------------- Item 1. Legal Proceedings 17 SIGNATURES 18 ---------- -2- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FORUM GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Without Audit) June 30, March 31, 1995 1995 ------------- ------------ (in thousands) ASSETS Property and equipment: Land and improvements $ 51,798 $ 49,737 Buildings and leasehold improvements 278,216 263,411 Furniture and equipment 20,283 18,780 Construction in progress 11,290 5,249 ----------- ----------- 361,587 337,177 Less accumulated depreciation 22,356 19,820 ----------- ----------- Net property and equipment 339,231 317,357 ----------- ----------- Investments: Greenville Retirement Community, L.P. 3,228 3,331 Other 1,950 1,531 ----------- ----------- 5,178 4,862 ----------- ----------- Cash and cash equivalents 21,125 30,228 Accounts receivable, less allowance for doubtful accounts of $555 and $487 8,194 7,992 Notes and other receivables 25,024 6,138 Restricted cash 15,469 13,098 Deferred costs and other assets, net 16,286 18,671 Excess of cost over net assets of business acquired, net 1,027 0 ----------- ----------- $ 431,534 $ 398,346 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Long-term debt, including $50,806 due within one year $ 298,634 $ 270,036 Accounts payable 3,294 3,846 Accrued expenses 17,402 15,295 Resident deposits and refundable resident fees 19,631 19,609 Deferred income 7,351 7,294 ----------- ----------- 346,312 316,080 Other partners' equity 17,429 16,600 ----------- ----------- Shareholders' equity: Common stock, no par value - authorized 48,000 shares, issued 22,500 shares 68,189 67,927 Accumulated deficit (396) (2,261) ----------- ----------- 67,793 65,666 ----------- ----------- $ 431,534 $ 398,346 =========== =========== See Notes to Condensed Consolidated Financial Statements. -3- FORUM GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Without Audit) Three Months Ended June 30, ------------------------- 1995 1994 ----------- ----------- (in thousands except per share amounts) Revenues: Net operating revenues $ 45,282 $ 26,743 Management fees 353 1,094 Other income 806 253 ----------- ----------- Total revenues 46,441 28,090 ----------- ----------- Costs and expenses: Operating expenses 31,120 18,185 General, administrative and marketing expenses 2,890 1,581 Relocation costs 262 0 Litigation expenses 29 5 Depreciation 2,789 1,527 ----------- ----------- Total costs and expenses 37,090 21,298 ----------- ----------- 9,351 6,792 Other: Interest expense (6,998) (4,656) Minority interests (188) (60) ----------- ----------- Income before income taxes 2,165 2,076 Income taxes 300 0 ----------- ----------- NET INCOME 1,865 2,076 ACCUMULATED DEFICIT AT BEGINNING OF PERIOD (2,261) (14,489) ----------- ----------- ACCUMULATED DEFICIT AT END OF PERIOD $ (396) $ (12,413) =========== =========== Average number of common and common equivalent shares outstanding 23,420 22,764 =========== =========== Net income per common and common equivalent share (primary and fully diluted) $ 0.08 $ 0.09 =========== =========== See Notes to Condensed Consolidated Financial Statements. -4- FORUM GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Without Audit) Three Months Ended June 30, ------------------------- 1995 1994 ---------- ---------- (in thousands) Cash flows from operating activities: Net income $ 1,865 $ 2,076 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 2,789 1,527 Amortization of deferred costs 629 580 Other partners' interest in income of consolidated companies 188 60 Net (income) losses of investees on the equity method (80) 82 Other accrued revenues and expenses, net 1,250 806 Tax benefit recorded as additional shareholders' equity 300 0 ---------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES 6,941 5,131 ---------- ---------- Cash flows from investing activities: Purchases of retirement communities and businesses (18,618) 0 Additions to property and equipment (7,549) (525) Net proceeds from sales of investment in Rancho San Antonio Retirement Housing Corporation 0 6,554 Notes and other receivables (15,745) 104 Other 839 47 ---------- ---------- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (41,073) 6,180 ---------- ---------- Cash flows from financing activities: Proceeds from long-term debt 29,528 203 Payments on long-term debt (935) (843) Proceeds from issuance of common stock and warrants, net 0 5,156 Deferred financing and other costs (1,284) (227) Distributions to other partners (77) (77) Resident deposits and restricted cash (2,203) 11 ---------- ---------- NET CASH PROVIDED BY FINANCING ACTIVITIES 25,029 4,223 ---------- ---------- Net increase (decrease) in cash and cash equivalents (9,103) 15,534 Cash and cash equivalents at beginning of period 30,228 18,331 ---------- ---------- Cash and cash equivalents at end of period $ 21,125 $ 33,865 ========== ========== See Notes to Condensed Consolidated Financial Statements. -5- FORUM GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Without Audit) June 30, 1995 Note A - Basis of Presentation ------------------------------ The balance sheet at March 31, 1995 has been derived from the audited financial statements at that date included in the Annual Report on Form 10-K of Forum Group, Inc. ("Forum Group") filed with the Securities and Exchange Commission for the fiscal year ended March 31, 1995 (the "1995 10-K"). The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and 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 three-month period ended June 30, 1995 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 1996. For further information, refer to Forum Group's consolidated financial statements as of and for the year ended March 31, 1995, and the footnotes thereto, included in the 1995 10-K. Certain amounts in the fiscal year 1995 condensed consolidated financial statements have been restated to conform to the fiscal year 1996 presentation. -6- FORUM GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Without Audit) June 30, 1995 Note B - Changes In Consolidation --------------------------------- Forum Retirement Partners, L.P. ("Forum Partners") is a publicly traded limited partnership which owns nine retirement communities. Forum Group is the parent company of Forum Partners' general partner and has a long- term management agreement with Forum Partners. In addition, Forum Group has a substantial beneficial interest in Forum Partners. Prior to August 1, 1994, this beneficial interest was less than 50%, and Forum Group's investment in Forum Partners was accounted for on the equity method. Through the acquisition of additional partnership units, Forum Group's beneficial interest in Forum Partners increased to 56.4% on August 1, 1994. Accordingly, as of that date, the assets, liabilities and financial results of Forum Partners were included in the consolidated financial statements of Forum Group. During October, 1994 Forum Group increased its beneficial interest to 62.1%. The following pro forma amounts summarize the effect on the condensed consolidated statement of operations for the three months ended June 30, 1994, as if Forum Group's beneficial interest in Forum Partners was 62.1% on April 1, 1994: Three Months Ended June 30, 1994 ------------------ (in thousands except per share amount) Total revenues $ 38,649 ======== Net income $ 2,360 ======== Net income per common and common equivalent share $ 0.10 ======== 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 three months ended June 30, 1995 is as follows (in thousands): Net property $ 20,040 Other assets 1,190 --------- 21,230 Less liabilities 22,825 --------- Net deficit $ 1,595 ========= Revenues $ 1,699 Costs and expenses 1,475 --------- Net income $ 224 ========= -7- FORUM GROUP, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AS OF AND FOR THE THREE MONTHS ENDED June 30, 1995 Results Of Operations --------------------- Forum Group provides senior housing and healthcare services in 12 states through the operation of 33 retirement communities ("RCs"). Forum Group operates (i) 18 RCs owned or leased (the "Owned Communities") or managed by Forum Group, and one nursing facility owned by Forum Group, (ii) four RCs owned by partnerships which are not wholly owned by Forum Group but which are consolidated for financial reporting purposes (the "Consoli- dated Partnership Communities"), excluding nine communities owned by Forum Partners, and (iii) two RCs owned by entities which are not consolidated for financial reporting purposes (the "Unconsolidated Communities"), one owned by GRP and one owned by Rancho San Antonio Retirement Housing Corporation ("RSARHC"). Certain summary financial information for the Owned Communities, Forum Partners, the Consolidated Partnership Communities, and other corporate operations ("Corporate Operations") is presented below. The results of Forum Partners' operations were not consolidated for financial reporting purposes prior to August 1, 1994 (see Note B of Notes to Condensed Consolidated Financial Statements). Accordingly, the periods in which the financial results of Forum Partners are included in the financial statements of Forum Group are not comparable to prior periods. Effective August 1, 1994, Forum Group purchased additional units in Forum Partners to exceed a 50% equity ownership interest, and the operations of Forum Partners are consolidated into Forum Group's consolidated financial statements from that date. Forum Partners owns and operates nine RCs which were 93% occupied as of June 30, 1995. Pro forma consolidated operating results as if Forum Partners' results were consolidated from April 1, 1994 based upon Forum Group's 62.1% equity ownership of Forum Partners as of August 1, 1994 are as presented in the following table for the three months ended June 30, 1994. The pro forma data are presented for illustrative purposes only and are not necessarily indicative of what Forum Group's actual results of operations would have been had Forum Group owned 62.1% of the equity interest in Forum Partners throughout the period presented. See Note B of Notes to Condensed Consolidated Financial Statements included elsewhere herein for additional information relating to Forum Partners. As presented in the following tables, EBITDA (defined as earnings before interest, taxes, depreciation, and amortization) reflects Forum Group's ability to satisfy principal and interest obligations with respect to its indebtedness and to provide cash for other purposes. EBITDA does not represent and should not be considered as an alternative to net income or cash flow as determined pursuant to generally accepted accounting principles. -8- FORUM GROUP, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Three Months Ended June 30, 1995 -------------------------------- ($ in millions) Actual ------------------------------------------------------------- (a) Consolidated Owned Forum Partnership Corporate Communities Partners Communities Operations Consolidated ----------- ----------- ------------ ---------- ------------ Total Revenues $24.3 $12.5 $7.5 $2.1 $46.4 Operating Expenses 16.5 8.9 4.4 1.3 31.1 General, Adminstrative and Marketing Expenses 0.1 0.1 - 2.7 2.9 Relocation Costs - - - 0.2 0.2 EBITDA (b) 7.7 3.5 3.1 (2.1) 12.2 Depreciation 1.4 0.7 0.5 0.2 2.8 Interest Expense 4.0 1.2 1.6 0.2 7.0 Minority Interests - - - 0.2 0.2 Income Taxes - - - 0.3 0.3 Net Income 1.9 ---------------- (a) Effective August 1, 1994, Forum Group purchased additional units in Forum Partners to exceed a 50% equity ownership interest, and its operations are consolidated into Forum Group's consolidated financial statements from that date. (b) After $0.2 million of non-recurring expenses. See "Relocation Costs" at page 12 for a discussion of this item. -9- FORUM GROUP, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Three Months Ended June 30, 1994 -------------------------------- ($ in millions) Actual --------------------------------------------------------- (a) Consolidated (a) Owned Forum Partnership Corporate Pro Forma Communities Partners Communities Operations Consolidated Consolidated ----------- -------- ------------ ---------- ------------ ------------ Total Revenues $20.1 $ - $6.7 $1.3 $28.1 $38.6 Operating Expenses 13.8 - 4.1 0.3 18.2 26.1 General, Administrative and Marketing Expense - - - 1.6 1.6 1.8 Relocation Costs - - - - - - EBITDA 6.3 - 2.6 (0.6) 8.3 10.7 Depreciation 1.0 - 0.5 - 1.5 2.4 Interest Expense 3.2 - 1.2 0.2 4.6 5.8 Minority Interests - - - 0.1 0.1 0.1 Income Taxes - - - - - - Net Income 2.1 2.4 ---------------- (a) Effective August 1, 1994, Forum Group purchased additional units in Forum Partners to exceed a 50% equity ownership interest, and its operations are consolidated into Forum Group's consolidated financial statements from that date. Pro forma operating results are shown as if Forum Partners' results of operations were consolidated from April 1, 1994. -10- FORUM GROUP, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Owned Communities. Total revenues for the three months ended June 30, 1995 increased by $4.2 million (21%) from $20.1 million to $24.3 million, as compared to the same period of the previous year. This increase was primarily attributable to increases in rental rates, additional ancillary services, and the acquisition in August 1994, January 1995 and May 1995 of three RCs, Tiffany House ("Tiffany"), The Forum at Fountainview ("Fountainview") and The Forum at the Woodlands ("Woodlands"), respectively. Combined occupancy, excluding Tiffany, Fountainview and Woodlands, averaged 93.3% for the three months ended June 30, 1995 compared to 93.9% for the three months ended June 30, 1994. Operating expenses for 1995 at the Owned Communities increased by $2.7 million (20%), from $13.8 million to $16.5 million, as compared to the three months ended June 30, 1994; general, administrative and marketing expenses ("MG&A") for the Owned Communities were included in operating expenses. This increase was primarily attributable to additional ancillary services, normal inflationary increases, and the acquisition of Tiffany, Fountainview and Woodlands. EBITDA for the three months ended June 30, 1995 from the Owned Communities increased by $1.4 million (22%), from $6.3 million to $7.7 million, as compared to the three months ended June 30, 1994. Consolidated Partnership Communities. Total revenues for the three months ended June 30, 1995 increased by $0.8 million (12%), from $6.7 million to $7.5 million, as compared to the same period of the previous year. This increase was primarily attributable to favorable changes in occupancy, increased utilization of ancillary healthcare services, and increases in residency fees and charges. Combined occupancy increased from 91% at June 30, 1994 to 94% at June 30, 1995. Operating expenses for the Consolidated Partnership Communities for 1995 increased by $0.3 million (7%), from $4.1 million to $4.4 million, as compared to 1994; MG&A for the Owned Communities are included in operating expenses. The increase was primarily attributable to the increase in occupancy, increased utilization of ancillary healthcare services, and normal inflationary increases. EBITDA for the Consolidated Partnership Communities for the three months ended June 30, 1995 increased by $0.5 million, from $2.6 million to $3.1 million, as compared to the three months ended June 30, 1994. Pro Forma. On a pro forma basis, assuming that Forum Partners' results of operations were consolidated for the three months ended June 30, 1994 (rather than from August 1, 1994, the actual date of consolidation), total revenues for the three months ended June 30, 1995 increased by $7.8 million (20%), from $38.6 million to $46.4 million, as compared to the three months ended June 30, 1994. This increase was primarily attributable to increases in occupancy, rental rates, additional ancillary services, and the acquisition of Tiffany, Fountainview and Woodlands. Operating expenses for the three months ended June 30, 1995 increased by $5.0 million (19%), from $26.1 million to $31.1 million, as compared to the same period of the previous year; MG&A for the three months ended June 30, 1995 increased by $1.1 million (61%), from $1.8 million to $2.9 million. The increase in operating expenses was primarily attributable to additional ancillary services, normal -11- FORUM GROUP, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) inflationary increases, and the acquisition of Tiffany, Fountainview and Woodlands. The increase in MG&A was primarily attributable to the factor described under the caption "General, Administrative and Marketing Expenses" below. EBITDA for the three months ended June 30, 1995 increased by $1.5 million (14%), from $10.7 million to $12.2 million, as compared to the same period of the previous year. Unconsolidated Entities. Forum Group's equity in the earnings of unconsolidated entities is reflected as Other income. Changes in Forum Group's equity in the aggregate net earnings of Forum Partners and GRP were not material to Forum Group's consolidated results of operations for the three months ended June 30, 1995. Due to the changes in financial statement presentation regarding Forum Partners (see Note B of Notes to Condensed Consolidated Financial Statements), the equity adjustment for that entity is not comparable between fiscal periods. Consolidated Items. The following is a discussion of certain consolidated items: General, Administrative and Marketing Expenses. For the three months ended June 30, 1995, consolidated MG&A increased by $1.3 million (81%), from $1.6 million to $2.9 million, compared to the same period of the previous year. This increase was primarily attributable to increased home office staff costs to manage recent and projected growth through acquisitions and development. Relocation Costs. During the three months ended June 30, 1995, expenses of $0.2 million were incurred in conjunction with the relocation of Forum Group's headquarters from Indianapolis, Indiana to Fairfax, Virginia. Additional relocation expenses are currently expected to be approximately $1.3 million. The relocation is expected to benefit the company as a result of future growth and development targeted along the East Coast corridor, potential acquisitions, and the ability to attract exceptional talent necessary to meet the company's expected growth. Litigation Expenses. Litigation expenses were not material to Forum Group's results of operations for the three months ended June 30, 1995 and 1994. Depreciation. For the three months ended June 30, 1995, consolidated depreciation expense increased by $1.3 million compared to the previous fiscal period. This increase reflects property additions, the August 1, 1994 consolidation of Forum Partners for financial statement purposes and the acquisition of Tiffany, Fountainview and Woodlands. Interest Expense. Interest expense attributable to the Owned Communities and Corporate Operations increased by $0.8 million, from $3.4 million to $4.2 million, during the three months ended June 30, 1995, as compared to the same period of the previous year. This change was primarily attributable to changes in average borrowing costs and increased indebtedness incurred to finance acquisitions. -12- FORUM GROUP, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Minority Interests. The increase of $0.1 million in the minority interests' elimination for 1995 compared to 1994, resulted from improved operating results. Taxes. Due to the utilization of net operating loss carryforwards, Forum Group had no federal income tax liability at June 30, 1995. Notes, investments and other receivables include federal income taxes receivable of $1,250,000 at June 30, 1995. As of March 31, 1995, net operating loss carryforwards for tax purposes were estimated to be approximately $158.0 million before the application of certain net operating loss carryforward limitations. As a result of these limitations, Forum Group expects the utilization of net operating loss carryforwards will be limited to approximately $33.0 million. These net operating loss carryforwards will expire in varying amounts through fiscal year 2009. For financial reporting purposes, any future benefit of net operating loss carryforwards and net deferred tax assets arising prior to the reorganization plan (April 2, 1992) will be reported as additional shareholders' equity. The maximum future tax benefit to be recognized through shareholders' equity was estimated to be approximately $30.0 million at March 31, 1995. Net Income/Loss Per Share. The three months ended June 30, 1995 produced net income of $1.9 million ($0.08 per Common Share) compared to net income of $2.1 million ($0.09 per Common Share) for 1994. All per share data are based upon the weighted average number of shares outstanding for the relevant periods. Financial Condition ------------------- Liquidity And Capital Resources. At June 30, 1995, Forum Group had cash and cash equivalents of $21.1 million, accounts receivable of $8.2 million, and notes, investments and other receivables of $25.0 million. Forum Group believes that its liquidity and the capital resources available to it are adequate to meet its foreseeable working capital and strategic growth requirements. Forum Group has adopted a growth-oriented strategic plan which contemplates the acquisition of businesses and assets as well as additional capital investment in its existing properties. Forum Group's acquisition strategy is designed to add additional properties in strategically located markets, to establish joint ventures to develop or acquire properties or businesses in the senior housing sector, and to pursue other opportunities relating to senior service, including home health care and other home or community-based services to the seniors' market. Forum Group also intends to seek to expand its existing properties through additional capital investment. Forum Group's expansion strategy is intended to modify the use of, or add capacity to, existing facilities without incurring substantial land acquisition and common area build-out costs, and to take advantage of other existing infrastructive investment and personnel in place. -13- FORUM GROUP, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) There necessarily can be no assurance that any material acquisitions or expansions will be completed or, if so, as to the timing or terms thereof. Forum Group is currently a party to a loan facility providing for up to $100.0 million of acquisition financing. The unutilized amount of this facility at August 9, 1995 was $70.1 million. At the option of Forum Group, each borrowing under the facility may be converted to a ten-year term loan after 18 months from the date of the borrowing. During the 18- month period, Forum Group may repay the indebtedness using proceeds from other financing sources, if any such financing becomes available on more favorable terms. Absent conversion or refinancing, interest on the acquisition loan is payable monthly in arrears at LIBOR plus 5.425% (including service costs and other fees of 2.075%). Forum Group has an option permitting it to increase the borrowings against the properties acquired if 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. While Forum Group believes that the existing acquisition facility, together with its other capital resources, are sufficient to finance its acquisition and capital investment strategy over the intermediate term, Forum Group is also exploring the possible modification or replacement of, or supplements to, that facility and other possible financings and refinancings in order to provide greater financial flexibility and increased shareholder value. Capital Structure. Forum Group's total long-term debt was $298.6 million as of June 30, 1995, $124.2 million of which represents obligations of Consolidated Partnership Communities which were non-recourse to Forum Group, Inc. -14- FORUM GROUP, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Forum Group's long-term debt as of June 30, 1995 was as set forth below (in millions): Forum Group, Inc.: Nomura Term Loan (1) $ 91.9 Senior Subordinated Notes 10.0 Nomura Acquisition Loan (1) 29.9 Mortgages and Capitalized Leases 22.4 Mortgage (1) 15.5 Other 4.7 ------ Total Owned Communities and Corporate Operations (2) 174.4 Consolidated Partnership Communities (1) (3) 124.2 ------ Total Long-Term Debt $298.6 ====== ---------------- (1) These obligations are non-recourse to Forum Group, Inc. (2) Excludes indebtedness aggregating $4.3 million of GRP, $0.5 million of which is recourse to Forum Group, Inc. (3) Includes indebtedness aggregating $47.5 million of Forum Retirement Communities II, L.P., which matures during May, 1996. Forum Group believes it has adequate debt capacity to refinance the maturing notes, and is presently evaluating it's refinancing options. Forum Group will continue to monitor conditions in the bank lending and capital markets and, if appropriate in light of then-current market conditions, Forum Group's then-existing capital structure and requirements, Forum Group's growth strategy, and other factors determined to be relevant, may enter into one or more capital arrangements. Such arrangements could include one or more issuances of indebtedness or other financings. Although Forum Group intends to actively consider the financing alternatives that may be available to it, there can be no assurance that any such transactions will be completed or, if so, as to the timing or terms thereof. Cash Flow. Operating activities for the three months ended June 30, 1995 provided $6.9 million of cash compared to $5.1 million of cash provided by operating activities during the same period of the previous year, due principally to improved operating results. Investing activities used $41.1 million of cash during the three months ended June 30, 1995, compared to $6.2 million of cash provided by investing activities during the same period of the previous year, due principally to the purchase of two non-performing first mortgage loans on RCs, acquisition of an RC and other businesses and additions to property and equipment, including construction in progress. -15- FORUM GROUP, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Financing activities provided $25.0 million of cash during the three months ended June 30, 1995, compared to $4.2 million of cash provided by financing activities during the same period of the previous year, due principally to the proceeds from long-term debt used to finance acquisition of an RC and the purchase of two non-performing first mortgage loans. -16- PART II. OTHER INFORMATION FORUM GROUP, INC. AND SUBSIDIARIES June 30, 1995 ITEM 1. LEGAL PROCEEDINGS On January 24, 1994, the Russell F. Knapp Revokable Trust (the "Knapp Trust") instituted an action in the United States District Court for the Northern District of Iowa against Forum Retirement, Inc., a wholly owned subsidiary of Forum Group which is the general partner of Forum Partners ("Forum Retirement"), adding Forum Group as a defendant on March 17, 1994 (the "Iowa Action"), alleging, among other things, that (i) the Knapp Trust holds a substantial number of Forum Partners' publicly traded partnership units, (ii) the Board of Directors of Forum Retirement is not comprised of a majority of independent directors as required by Forum Partners' partnership agreement and as allegedly represented in Forum Partners' 1986 Prospectus for its initial public offering, (iii) the allegedly improper composition of the Board of Directors of Forum Retirement is a consequence of actions by Forum Group, (iv) Forum Retirement's Board of Directors has approved and/or acquiesced in 8% management fees being charged by Forum Group under its management agreement with Forum Partners, whereas the complaint alleges that the "industry standard" for management fees of the type at issue is 4%, thereby resulting in an alleged "overcharge" to Forum Partners estimated by the Knapp Trust at $1.8 million per annum, beginning in 1994, and (v) as a consequence of the allegedly improper composition of the Board of Directors of Forum Retirement, Forum Group and Forum Retirement have breached Forum Partners' partnership agreement and the securities laws, and failed to discharge fiduciary duties. The Knapp Trust is seeking the restoration of certain former directors to the Board of Directors of Forum Retirement and the removal of certain other directors from the Board of Directors of Forum Retirement, an injunction prohibiting the payment of 8% management fees, and unspecified compensatory and punitive damages. On April 4, 1995, the District Court entered an order dismissing the Complaint in its entirety, holding that no personal jurisdiction exists in Iowa over the General Partner or Forum Group. On May 3, 1995, the Knapp Trust filed a Notice of Appeal with the District Court, indicating that it will appeal the District Court's decision to the United States Court of Appeals for the Eighth Circuit. On June 15, 1995, the Knapp Trust filed an action in the United States District Court for the Southern District of Indiana against Forum Group and Forum Retirement (the "Indiana Action") containing essentially the identical allegations asserted in the Iowa Action and other allegations. On August 7, 1995 the Knapp Trust moved to dismiss its Eighth Circuit Appeal in favor of the Indiana Action. Forum Group believes that there are substantial defenses to the claims asserted by the Knapp Trust and intends vigorously to defend against such claims; however, there necessarily can be no assurance as to the ultimate outcome of these proceedings. -17- 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: August 14, 1995 By: /s/ Richard A. Huber -------------------------------- Richard A. Huber Vice President-Operations Finance EX-27 2
5 1,000 3-MOS MAR-31-1996 JUN-30-1995 21,125 0 8,749 555 0 54,343 361,587 22,356 431,534 71,502 298,634 67,793 0 0 17,429 431,534 0 46,441 0 37,090 0 0 6,998 2,165 300 1,865 0 0 0 1,865 .08 .08