-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ISDQkoRzAhvhlErbGlMtmo2UJmKvV5KeJcCS3d0oonm9+Cwx0v4nemKSaEEIO62r 9mKUDM9p3vhoqdtJy70ebw== 0000892569-96-001808.txt : 19960911 0000892569-96-001808.hdr.sgml : 19960911 ACCESSION NUMBER: 0000892569-96-001808 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960621 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960910 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARV ASSISTED LIVING INC CENTRAL INDEX KEY: 0000949322 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-NURSING & PERSONAL CARE FACILITIES [8050] IRS NUMBER: 330160968 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-26980 FILM NUMBER: 96628053 BUSINESS ADDRESS: STREET 1: 245 FISCHER AVE STREET 2: SUITE D-1 CITY: COSTA MESA STATE: CA ZIP: 92626 BUSINESS PHONE: 7147517400 MAIL ADDRESS: STREET 1: 245 FISCHER AVENUE STREET 2: SUITE D-1 CITY: COSTA MESA STATE: CA ZIP: 92626 8-K/A 1 FORM 8-K/A - DATED JUNE 21, 1996 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.
CALIFORNIA 33-0160968 (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
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 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 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 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
Page 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
All other schedules are omitted, as the required information is inapplicable or the information is presented in the financial statements or related notes. 3 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 6 AMERICAN RETIREMENT VILLAS PROPERTIES II (A California Limited Partnership) Balance Sheets December 31, 1995 and 1994
ASSETS 1995 1994 ------------------ ------------------ 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 ============ ==========
See accompanying notes to financial statements. 5 7 AMERICAN RETIREMENT VILLAS PROPERTIES II (A California Limited Partnership) Statements of Operations Years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ---------- ---------- ---------- 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) =========== ========== ==========
See accompanying notes to financial statements. 6 8 AMERICAN RETIREMENT VILLAS PROPERTIES II (A California Limited Partnership) Statments of Partners' Capital Years ended December 31, 1995, 1994 and 1993
TOTAL GENERAL LIMITED PARTNERS' PARTNERS PARTNERS CAPITAL ------------------ ------------------ ------------------ 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 ========= ========== ==========
See accompanying notes to financial statements. 7 9 AMERICAN RETIREMENT VILLAS PROPERTIES II (A California Limited Partnership) Statements of Cash Flows Years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ----------- ---------- ---------- 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 -- -- =========== ========== ==========
See accompanying notes to financial statements. 8 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 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:
1995 1994 --------------------------------------- -------------------------------------- GAAP BASIS TAX BASIS (1) GAAP BASIS TAX BASIS (1) ------------------ ----------------- ----------------- ----------------- 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
Following are the differences between the financial statement and tax return income (loss):
1995 1994 1993 ------------------ ------------------ ------------------ 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 ================== ================== ==================
- -------- (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 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 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 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:
Minimum lease payments ---------------- Year ending December 31: 1996 $1,145,933 1997 903,497 1998 556,141 1999 556,141 2000 556,141 Thereafter 5,998,636 ---------- $9,716,489 ==========
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:
1995 1994 ----------- --------- 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
13 15 AMERICAN RETIREMENT VILLAS PROPERTIES II (A California Limited Partnership) Notes to Financial Statements, Continued
1995 1994 ----------- --------- 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 ========== =========
The annual principal payments of the notes payable are as follows: Year ending December 31:
1996 $ 984,430 1997 155,910 1998 169,451 1999 180,417 2000 160,229 Thereafter 5,561,023 ---------- $7,211,460 ==========
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 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:
December 31, 1995 Financial instrument Book value Fair value ---------------------- ----------- ----------- (dollars in thousands) Cash $ 489 489 Notes payable 7,211 6,464
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 17 Schedule III AMERICAN RETIREMENT VILLAS PROPERTIES II (A California Limited Partnership) Real Estate and Related Accumulated Depreciation and Amortization December 31, 1995
INITIAL COST -------------------------------------------------- COSTS BUILDINGS LEASEHOLD CAPITALIZED AND PROPERTY AND SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS ACQUISITION - ------------------------------ ------------- ---------- ------------- ------------- -------------- 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 ============= ========== ============= ============= ==============
GROSS AMOUNT ----------------------------------------------------------- LEASEHOLD DEPRECIABLE BUILDINGS AND PROPERTY AND ACCUMULATED DATE OF LIVES DESCRIPTION LAND IMPROVEMENTS IMPROVEMENTS TOTAL (1) DEPRECIATION ACQUISITION (YEARS) - --------------------- ------------ -------------- ------------ ----------- ------------ ------------ ------------ 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 ============ ============== ============ =========== ============
- -------- (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:
1995 1994 1993 ---------------- -------------- ------------- 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 ================ ============== =============
Following is a summary of accumulated depreciation and amortization of investment in properties for the years ended December 31, 1995, 1994 and 1993:
1995 1994 1993 ---------- --------- --------- 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 =========== ========= =========
16 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 19 ARV ASSISTED LIVING, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED BALANCE SHEET JUNE 30, 1996
Historical Other Pro Forma ARVAL ACQUISITIONS ADJUSTMENTS ------------ ------------- ----------- 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) ============ =========== ===========
Pro Forma Pro Forma Pro Forma ARVAL ADJUSTMENTS COMBINED ------------ ------------ ----------- 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 ============ ============ ============
See accompanying notes to unaudited pro forma combined financial statements. 18 20 ARV ASSISTED LIVING, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1996
HISTORICAL Other Pro Forma Pro Forma ARVAL Acquisitions Adjustments ARVAL ------------------- ---------------- ----------- ------------------ 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 =================== ==================
ARV ASSISTED LIVING, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1996
Pro Forma Pro Forma Adjustments Combined ---------------- ------------------- 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 ==================
See accompanying notes to unaudited pro forma combined financial statements. 19 21 ARV ASSISTED LIVING, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS YEAR ENDED MARCH 31, 1996
HISTORICAL Other Pro Forma Pro Forma ARVAL Acquisitions Adjustments ARVAL ----------------- ------------------- --------------------- ----------------- 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 ================= =================
Pro Forma Pro Forma Adjustments Combined ------------------ -------------------- 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 ====================
See accompanying notes to unaudited pro forma combined financial statements. 20 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 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 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 -----END PRIVACY-ENHANCED MESSAGE-----