SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Fiscal Year Ended Commission File Number
March 31, 1995 0-6350
Forum Group, Inc.
11320 Random Hills Road , Suite 400
Fairfax, Virginia 22030
Telephone: (703) 277-7000
Incorporated in Indiana I.R.S. No. 61-0703072
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Securities registered pursuant to Section 12(g) of the Securities
Exchange Act of 1934:
Common Stock, without par value
Registrant has filed all reports required to be filed by
Section 12, 13, or 15(d) of the Securities Exchange Act of 1934,
including subsequent to the distribution of securities under its
plan of reorganization, during the preceding 12 months and has
been subject to such filing requirements for the past 90 days.
Disclosure of delinquent filers pursuant to Item 405 of
Regulation 8-K is not contained herein, and will not be contained
in definitive proxy or information statements incorporated by
reference in Part III or this Form 10-K or any amendment to this
Form 10-K.
There were 22,500,109 shares of the Registrant's Common
Stock outstanding as of May 1, 1995. The aggregate market value
of the shares of such Common Stock held by nonaffiliates of the
Registrant, based upon the last sale price as reported on the
NASDAQ on May 1, 1995, was approximately $31,182,000. Including
shares held by the Registrant's principal stockholders, such
aggregate value was approximately $163,125,000.
There are 239 pages in this Report. The financial statement
and exhibit indices are located at pages 40 to 43.
PART I
Item 1. Business.
General
Forum Group, Inc. ("Forum Group"), provides senior housing
and healthcare services in 12 states through the operation of 33
retirement communities ("RCs"). Each RC generally provides a
continuum of care, including independent living, assisted living,
and skilled nursing. Independent living services consist of
residential accommodations together with amenities such as
security, meals, housekeeping, and emergency healthcare services.
Assisted living residents, in addition to the independent living
amenities, receive healthcare services, including preventive
health surveillance, periodic health monitoring, assistance with
activities of daily living, and emergency care in private or
semiprivate suites. The skilled nursing section of certain of
the RCs provide residents with a full range of nursing care.
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 (the "Nursing Facility"), (ii) 13 RCs owned
by partnerships which are not wholly owned by Forum Group but
which are consolidated for financial reporting purposes (the
"Consolidated Partnership Communities"), including nine
communities owned by Forum Retirement Partners, L.P. ("Forum
Partners" or "FRP"), a publicly traded limited partnership of
which Forum Group owns, as of May 1, 1995, 62.1% of the
outstanding partnership interests and for which a wholly owned
subsidiary of Forum Group is the general partner, and (iii) two
RCs owned by entities which are not consolidated for financial
reporting purposes (the "Unconsolidated Communities"), one owned
by Greenville Retirement Community, L.P. ("GRP"), a limited
partnership which is 50% owned by Forum Group, and one owned by
Rancho San Antonio Retirement Housing Corporation ("RSARHC"),a
nonprofit California corporation.
Forum Group was organized in 1969. In April 1992, a
reorganization plan ("the Reorganization Plan") for Forum Group
and certain of its affiliates was confirmed under Chapter 11 of
the Bankruptcy Code. In June, 1993, the Company was
recapitalized (the "1993 Recapitalization") pursuant to a series
of transactions in which a group of investors, including Apollo
FG Partners, L.P. ("AFG"), Forum Holdings, L.P. ("Forum
Holdings"), and certain of their affiliates (collectively the
"FGI Investors"), made a $25 million equity investment in Forum
Group and arranged for $90 million of debt financing to refinance
certain indebtedness issued by Forum Group under the
Reorganization Plan. The FGI Investors beneficially own
approximately 80.7% of the outstanding common shares of Forum
Group ("Common Shares") as of May 1, 1995.
Unless the context otherwise requires, as used in this
Report (i) "Forum Group" means Forum Group, Inc. and its
predecessors and subsidiaries and (ii) "Fiscal Year 1995" means
Forum Group's fiscal year ended March 31, 1995; "Fiscal Year
1994" means Forum Group's fiscal year ended March 31, 1994; and
"Fiscal Year 1993" means Forum Group's fiscal year ended March
31, 1993.
Acquisition Program
Following the 1993 Recapitalization, Forum Group adopted a
strategy to improve its results of operations and grow through
acquisitions and additional capital investments. See Item 7.
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Results of Operations" with respect to
Forum Group's results of operations during the Company's last two
fiscal years. Forum Group has also commenced implementation of
part of its long-term growth plan, completing the transactions
described in the following two paragraphs during the 15 months
commencing April 1, 1994. These transactions involve the
expenditure of approximately $60.0 million in the aggregate
during that period, approximately $45.4 million of which was or
is expected to be financed by the incurrence of long-term debt.
See Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Financial Condition."
2
In Fiscal Year 1995, Forum Group invested a total of $8.2
million to increase its equity ownership in Forum Partners to
62.1%. In August 1994, Forum Group also acquired an 80% equity
interest in Tiffany House ("Tiffany"), a 130-unit RC in Fort
Lauderdale, Florida, and in January 1995, Forum Group acquired a
100% equity interest in The Forum at Fountainview
("Fountainview"), an RC in West Palm Beach, Florida with 276
independent living units and 64 assisted living units. In
addition, in June 1994, Forum Group entered into an investment
agreement with National Guest Homes, LLC ("NGH") pursuant to
which Forum Group has the right to fund 89.5% of the equity
capital required for NGH's development of assisted and companion
living facilities based on NGH's retirement community concept
over the five-year period ending on June 30, 1999. As of the
date of this Report, five of such facilities, the average
construction cost of which is expected to be $5.0 million, were
under development (three of which were under construction).
In April 1995, Forum Group acquired Health Care Industries,
Inc., a company which provides nursing and other healthcare
personnel to home healthcare agencies and coordinates various
healthcare management services for RCs in Florida, including
three RCs owned or managed by Forum Group. The purchase price
for this transaction is subject to an earn-out provision through
1997. In May 1995, Forum Group acquired from Autumn America
Retirement, Ltd., an affiliate of Forum Holdings ("Autumn"), for
$1.3 million, Autumn's rights as the manager of five RCs pursuant
to new management contracts between Forum Group and the owners of
such facilities (two of which are affiliates of Forum Holdings).
In addition, Forum Group obtained the right to provide up to 80%
or 90% (depending on the co-investors' election) of the equity
capital for the acquisition of retirement housing properties
based on Autumn's retirement housing concept meeting certain
investment criteria. An unaffiliated co-investor in this
arrangement presently has a 20% interest in each of The Forum at
the Woodlands, an RC with 240 apartments and 63 assisted living
units, in which Forum Group acquired an 80% interest in May 1995,
and in Tiffany. On June 8, 1995, Forum Group acquired from the
United States Department of Housing and Urban Development, two non-
performing first mortgage loans on RCs located in Fort Myers,
Florida (95 units), and Palm Harbor, Florida (254 units). Forum
Group intends to foreclose on these mortgage loans to obtain
ownership of these RCs.
Forum Group presently intends to seek to continue to grow
through additional acquisitions as well as additional capital
investment in its existing properties. See Item 7. "Management's
Discussion of Financial Condition and Results of Operations --
Financial Condition" for a discussion of Forum Group's growth
plans, sources of financing therefor, and related matters.
Business and Properties
Forum Group presently owns, leases, or manages the following
RCs:
Number of Total Independent Assisted
Location Facilities Units Living Units Living Units Nursing
Arizona 3 748 471 59 218
Arkansas 1 163 144 19 0
California 3 806 565 134 107
Delaware 6 935 464 92 379
Florida 7 1,669 1,043 531 95
Indiana 1 191 117 14 60
Kansas 1 207 117 30 60
Kentucky 2 487 316 20 151
New Mexico 1 189 114 15 60
Ohio 1 239 120 59 60
South Carolina 1 149 0 64 85
Texas 6 1,554 963 225 366
Totals 33 7,337 4,434 1,262 1,641
3
Rental Retirement Communities. Forum Group operates 30
RCs which feature leases as the predominant mode of residency.
All but three of Forum Group's RCs have independent living
components. All but eight of Forum Group's rental RCs also have
nursing components. Twenty-five of Forum Group's RCs also have
assisted living components.
Independent living components contain a variety of
accommodations, together with amenities such as dining
facilities, lounges, and game and craft rooms. All residents of
the independent living components are provided security, meals,
housekeeping, and linen service. Emergency healthcare service is
available 24 hours a day from an on-site staff, and each
independent living unit is equipped with an emergency call
system. The independent living components of Forum Group's
rental RCs consist of apartments and villas. Rental RC
independent living first person residency fees presently range
from $838 to $5,614 per month, depending on the size of
accommodations. Each rental RC apartment and villa resident
enters into a residency agreement that may be terminated by the
resident on short notice. Although there can be no assurance
that available apartments and villas will be reoccupied as
apartment and villa residency agreements expire or are
terminated, since 1988, approximately 85% of the residents of the
apartments and villas historically have renewed their residency
agreements from year to year. All residents of the independent
living components of Forum Group rental RCs are given priority in
the assisted living and nursing components (if available at the
particular RC) should the need therefor arise.
Nursing components provide residents a full range of nursing
care. Residents have private or semiprivate rooms and share
communal dining and social facilities. In many instances, RC
residents are entitled to care at no extra charge for up to a
specified number of days annually or an aggregate of a specified
number of nursing days during the resident's lifetime. After
utilizing this accrued time, the resident pays for both
independent living occupancy, and assisted living or nursing
care, until canceling one or the other. The charge for a semi-
private nursing bed presently ranges from $62 to $168 per day.
Assisted living components provide residents a
semistructured environment that encourages independent living.
Residents have private or semiprivate suites, eat meals in
private dining rooms, and are provided the added services of
scheduled activities, housekeeping and linen service, preventive
health surveillance, periodic health monitoring, assistance with
activities of daily living, and emergency care. The charge for a
private assisted living suite presently ranges from $50 to $150
per day.
Continuing Care Retirement Communities. Forum Group owns one
continuing care RC, namely The Forum at Brookside ("Forum/
Brookside"), in Louisville, Kentucky; and manages two continuing
care RCs, namely The Forum - Pueblo Norte ("Forum/Pueblo Norte"),
in Scottsdale, Arizona, and The Forum at Rancho San Antonio
("Forum/Rancho San Antonio") in Cupertino, California. Two of
Forum Group's rental RCs are also licensed to provide continuing
care, although the predominant mode of residency at each is
rental residency agreements.
Each Forum Group continuing care RC contains an independent
living component and a nursing component; and Forum/Brookside and
Forum/Rancho San Antonio also include an assisted living
component. The accommodations and services provided in the
various components of Forum Group continuing care RCs are
substantially the same as those provided in the various
components of Forum Group rental RCs.
Forum Group continuing care RCs differ from Forum Group
rental RCs in the method of payment by current and former
independent living residents. At Forum Group rental RCs,
independent living residents generally make no "front-end"
payment and only pay monthly residency fees. At Forum Group
continuing care RCs, independent living residents generally make
substantial "front-end" payments and pay monthly residency (and,
in the case of two continuing care RCs, healthcare) fees that are
substantially less than monthly residency fees for comparable
accommodations at Forum Group rental RCs. In addition,
independent living residents of Forum Group continuing care RCs
who transfer to the assisted living (if any) or nursing component
4
generally pay healthcare fees which are substantially less than
those paid by independent living residents of Forum Group rental
RCs who so transfer.
Forum/Pueblo Norte is owned by Pueblo Norte Cooperative
Housing Corporation ("PNCHC") and Forum/Rancho San Antonio is
owned by RSARHC. PNCHC and RSARHC are nonprofit cooperative
housing corporations. Although each was initially sponsored by
Forum Group, neither cooperative housing corporation is owned,
directly or indirectly, by Forum Group. At these RCs, the "front-
end" payment takes the form of the purchase price of a membership
in the cooperative housing corporation. Each membership is
allocated to an independent living unit in the RC, and the
purchase of a membership entitles the purchaser to a long-term
proprietary lease of the unit. Upon resale of the membership,
the resident (or his or her estate) and the cooperative housing
corporation share equally any excess of the sale proceeds over
the resident's membership purchase price. At Forum/Pueblo Norte,
independent living residents may elect to purchase memberships
subject to an option in favor of Forum Group to repurchase upon
cessation of occupancy at a price which reduces to zero over six
or 60 months. The assisted living (if any) and nursing
components of each of Forum/Pueblo Norte and Forum/Rancho San
Antonio are leased to a separate nonprofit corporation, the sole
member of which is Forum Group, and each member/independent
living resident is required to enter into a healthcare agreement
with Forum Group. Membership purchase prices at Forum/Pueblo
Norte and Forum/Rancho San Antonio presently range from $106,530
to $210,895 and $199,000 to $630,000, respectively; first person
monthly residency fees at those RCs for independent living
residents purchasing memberships presently range from $1,072 to
$2,087 and $1,057 to $2,751 respectively; and first person
monthly healthcare fees at those RCs for members presently range
from $-0- to $251.
At Forum/Brookside, the "front-end" payment takes the form
of an interest-free loan to the owner of the RC, which may or may
not be repaid in whole or in part (depending upon the refund
option selected by the resident) from the proceeds of the next
"front-end" payment in respect of the subject unit. Required
interest-free loans at Forum/Brookside presently range from
$57,500 to $148,000 and first person monthly residency fees at
that RC for independent living residents making interest-free
loans presently range from $895 to $1,575.
At each of Forum/Brookside and Forum/Pueblo Norte, certain
independent living residents are parties to residency agreements
with the previous sponsors which were assumed by the current
owners. Under those agreements, the "front-end" payments took the
form of an entrance fee which is 100% (in the case of
Forum/Brookside) or 90% (in the case of Forum/Pueblo Norte), as
the case may be, refundable to the resident (or his or her
estate) from the next entrance fee paid in respect of the subject
unit. Refundable entrance fees at Forum/Brookside and
Forum/Pueblo Norte ranged from $36,400 to $111,000 and first
person monthly residency fees at those RCs for independent living
residents paying refundable entrance fees presently range from
$529 to $1,198 and $1,023 to $2,014 respectively.
At Forum/Brookside and Forum/Pueblo Norte, independent
living residents are also offered the alternative of a rental
residency agreement. First person rental residency fees at Forum
Brookside, Forum/Pueblo Norte and Forum/Rancho San Antonio
presently range from $1,018 to $2,900, $1,780 to $2,590 and
$1,057 to $2,184 respectively.
Mortgages
Each facility owned directly or indirectly by Forum Group,
other than The Lafayette at Country Place/Lexington Country
Place, Forum/Knightsbridge, Tiffany, Fountainview, and the
Nursing Facility, is subject to a first mortgage lien securing
certain long-term debt. As of May 1, 1995, the outstanding
principal amount under that indebtedness was $92.0 million and
bore interest at a variable rate equal to 4.18% over one-month
LIBOR (subject, however, to a cap of 8.805%), which was 6.0625%
as of May 1, 1995 (plus servicing costs presently estimated to be
0.2% per year). The long-term debt matures on February 1, 2001.
The mortgages are cross-defaulted and cross-collateralized.
Certain of Forum Group's other assets have also been pledged or
otherwise encumbered as security under this indebtedness.
5
Forum/Knightsbridge is subject to a first mortgage lien
securing, as of May 1, 1995, $14.3 million of long-term debt,
which bore interest at the rate of 10-1/2% per annum. Principal
and interest of the long-term debt under this loan are payable in
varying monthly installments through and including December 1,
1997, and a "balloon" payment of $13.5 million is payable on
December 31, 1997.
Tiffany and Fountainview are subject to a first mortgage
lien securing, as of May 1, 1995, $15.9 million of long-term
debt, which bear interest at the rate of 11.4875% per annum as of
May 1, 1995 (subject to future adjustment based upon changes in
LIBOR). At the option of Forum Group, each borrowing under the
line may be converted to a ten-year term loan 18 months from the
date of each advance. Prior to that date, the loan does not
require any amortization of principal. The mortgages are cross-
defaulted and cross-collateralized.
Depreciation
The aggregate net federal tax basis of the Owned Communities
and the Nursing Facility as of the fiscal year ended March 31,
1995 was $184.6 million for real property and $7.4 million for
personal property.
Real Estate Taxes
The average real estate tax rate for calendar year 1994 for
the Owned Communities and the Nursing Facility was approximately
2%, and the aggregate assessed real estate tax value for such
facilities for the same period was $85.1 million.
Sources of Payment
The independent and assisted living components (if any) of
Forum Group RCs receive direct payment for resident occupancy
solely on a private pay basis, Forum Group makes substantial
efforts to attract patients whose care is paid for out of private
funds and believes that its average private pay occupancy is
higher than other providers of long-term care. Forum Group
nursing facilities (including the nursing components, if any, of
Forum Group RCs) receive payment for resident care directly on a
private pay basis, including payment from private health
insurance, and from governmental reimbursement programs such as
the federal Medicare program for certain elderly and disabled
residents, and state Medicaid programs for certain indigent
residents. The following table indicates the approximate
percentages of operating revenues for each of the last five
fiscal years derived by the facilities owned or leased by Forum
Group during all or a portion of such period from private
sources, Medicare, and Medicaid, and other sources:
___________Fiscal Year____________
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Private Pay 84.2% 82.5% 79.0% 87.3% 89.7%
Medicare 11.8 12.9 17.2 6.8 5.5
Medicaid 3.8 4.2 3.5 5.6 4.5
Other 0.2 0.4 0.3 0.3 0.3
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
Within the statutory framework of the Medicare and Medicaid
programs, there are substantial areas subject to administrative
rulings, interpretations, and discretion which affect payments
made under those programs. In addition, the federal and state
governments might reduce the funds available under those programs
in the future or require more stringent utilization of healthcare
facilities. Those measures could adversely affect Forum Group's
future revenues and, therefore, the value of the RCs.
6
Most private insurance carriers reimburse their
policyholders, or make direct payment to facilities, for covered
services at rates established by the facilities. Where
applicable, the resident is responsible for any difference
between the insurance proceeds and the total charges. In certain
states, Blue Cross plans pay for covered services at rates
negotiated with facilities. In other states, Blue Cross plans
are administered under contracts with facilities providing for
payment under formulae based on the cost of services. The
Medicare program also makes payment under a cost-based
reimbursement formula. Under the Medicaid program, each state is
responsible for developing and administering its own
reimbursement formula.
Various legislative and industry groups are studying
numerous healthcare issues, including access, delivery, and
financing of long-term health care, and at any given time there
are numerous federal and state legislative proposals relating to
the funding and reimbursement of healthcare costs. It is
difficult to predict whether these proposals will be adopted or
the form in which they might be adopted, and no assurance can be
given that any such legislation, if adopted, would not have a
material effect on Forum Group.
Regulation and Other Factors
RC and nursing home operations are subject to federal,
state, and local government regulations. Facilities are subject
to periodic inspection by state licensing agencies to determine
whether the standards necessary for continued licensure are
maintained. In granting and renewing licenses, the state
agencies consider, among other things, buildings, furniture and
equipment; qualifications of administrative personnel and staff;
quality of care; and compliance with laws and regulations
relating to operation of facilities. State licensure of a
nursing facility is a prerequisite to certification for
participation in the Medicare and Medicaid programs. Most states
have licensure requirements for the assisted living components of
RCs; however, those requirements are generally less comprehensive
and stringent than requirements for licensure of nursing
facilities. None of the states in which Forum Group RCs are
located presently has licensure requirements for the independent
living components of rental RCs. RCs offering continuing care
are subject to additional requirements administered by state
regulatory agencies. Forum Group believes that all of its
facilities are presently in compliance in all material respects
with all applicable federal, state, and local regulations with
respect to licensure requirements. However, those standards are
subject to change and reinterpretation. Accordingly, there can
be no assurance that Forum Group's facilities will be able to
maintain their licenses upon a change in or reinterpretation of
standards, and future changes in or reinterpretation of those
standards could necessitate substantial expenditures by Forum
Group to comply therewith.
Competition
Forum Group facilities compete with various senior housing
and long-term healthcare facilities in the respective geographic
areas in which Forum Group facilities are located. Competing
facilities are operated on a national, regional, and local basis
by religious groups and other nonprofit organizations, as well as
by private operators, some of which have substantially greater
resources than Forum Group. The independent living components of
Forum Group RCs face competition from the various types of
residential opportunities available to the elderly. However, the
number of luxury residential communities that offer on-premises
healthcare services is limited. The assisted living and nursing
components of Forum Group RCs, as well as the Nursing Facility,
compete with other assisted living and nursing facilities, and,
to a lesser extent, with general hospitals. Because the target
market segment for Forum Group RCs is relatively narrow, the risk
of competition may be higher than with some other types of RCs.
Additionally, Forum Group facilities may be subject to
competition from new RCs, and assisted living and nursing
facilities, developed in close proximity to them.
Significant competitive factors for attracting residents to
the independent living components of Forum Group RCs include
price, physical appearance, and amenities and services offered.
Additional competitive factors for attracting residents to the
assisted living and nursing components of Forum Group RCs, and to
7
the Nursing Facility, include quality of care, reputation,
physician and nursing services available, and family preferences.
Forum Group believes that its facilities are generally
competitive based on these factors, except that its facilities
are generally more expensive than competing facilities. The
assisted living and nursing components of Forum Group RCs, and
the Nursing Facility, are designed to supplement, not to compete
with, services provided by general hospitals.
Insurance
Forum Group maintains professional liability, comprehensive
general liability, and other typical insurance coverage on all
its facilities. Forum Group believes that its insurance is
adequate in amount and coverage.
Employees
Forum Group employs approximately 4,000 persons, of whom
approximately 80 are employed pursuant to collective bargaining
agreements. Forum Group has not experienced any material labor
disputes.
Item 2. Properties.
The physical properties owned, leased, managed and/or used
by Forum Group are described in Item 1, "Business and
Properties", of this Report. See Note 3 to Consolidated
Financial Statements for additional information concerning
mortgages and leases with respect to those properties.
Item 3. Legal Proceedings.
Stonegates Litigation. 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 of Chancery of the State
of Delaware in and for New Castle County (the "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, among other
things, GRP delegated 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 with jurisdiction over the
Reorganization Plan (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 December 13, 1994, Mr. Maddock and Forum Group
entered a stipulation 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 stipulation
does not bar the assertion of a claim arising after April 2, 1992
from either a new cause of action or a new breach of any
continuing agreement. On March 13, 1995, Mr. Maddock filed a
motion to amend his complaint in the State Court Action
purportedly seeking to assert claims only with respect to matters
accruing after the effective date of the Reorganization Plan and
also seeking to add Forum Group as a defendant and to add a new
claim asserting that GRP and Forum Group conspired to violate
federal anti-trust laws. GRP and Forum Group have objected to
Mr. Maddock's motion. Forum Group believes that there are
substantial defenses to Mr. Maddock's claims; however, there
necessarily can be no assurance as to the outcome of these
proceedings.
8
Forum Partners Litigation. 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 limited 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. 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.
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 (see above). Under the applicable local rules, Forum
Group's response to the complaint in the Indiana Action will be
due within 23 days after service of the complaint. As with the
Iowa Action, Forum Group believes that there are meritorious
procedural and substantive defenses to the claims asserted in the
Indiana Action and intends vigorously to defend against such
claims; however, there necessarily can be no assurance as to the
ultimate outcome of these proceedings.
Chapter 11 Proceedings. Forum Group has objected to various
claims filed in Forum Group's reorganization proceedings in the
United States Bankruptcy Court for the Southern District of
Indiana, Indianapolis Division, and further proceedings on those
claims have been and/or will be conducted before the Bankruptcy
Court. As of May 1, 1995, approximately 265,281 Common Shares
were reserved for possible issuance to holders of disputed
general unsecured claims pursuant to the Reorganization Plan.
Malpractice and Negligence Claims. Forum Group has been
named as a defendant in several professional malpractice and
negligence actions, and may be subject to other claims arising
from services provided to residents of its facilities. To the
extent those claims arose before the effective date of the
Reorganization Plan, they have received or will receive treatment
under the Reorganization Plan. Forum Group maintains
professional liability insurance, comprehensive general liability
insurance, and other typical insurance coverage on its
facilities. Management believes that those actions are either
adequately insured or reserved against or, to the extent (if any)
they are not insured or reserved against, will not materially
adversely affect Forum Group's consolidated financial condition
or operating results.
9
Item 4. Submission of Matters to a Vote of Security
Holders.
No matters were submitted to a vote of security holders
during the fourth quarter of Fiscal Year 1995.
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters.
(a) Market Information. The principal United States market
in which Common Shares are traded is the over-the-counter NASDAQ
Small-Cap market (symbol: FOUR). The high and low bid prices for
Common Shares for each full quarterly period within the two most
recent fiscal years, as reported in the National Association of
Securities Dealers, Inc. Automated Quotation System (the
"NASDAQ"), were as follows:
High Low
---- ---
Quarter ended June 30, 1993 $3-3/8 $2-3/4
Quarter ended September 30, 1993 $4 $3-3/8
Quarter ended December 31, 1993 $5 $3-7/8
Quarter ended March 31, 1994 $5-7/8 $4
Quarter ended June 30, 1994 $7-3/4 $5-3/8
Quarter ended September 30, 1994 $6-3/4 $5-5/8
Quarter ended December 31, 1994 $8-1/2 $6-1/8
Quarter ended March 31, 1995 $9-5/8 $6-1/2
(b) Holders. The number of record holders of Common Shares
as of May 1, 1995 was 2,848.
(c) Dividends. No cash dividends were declared on Common
Shares during Forum Group's two most recent fiscal years.
Item 6. Selected Financial Data.
Selected financial data for Forum Group and its consolidated
subsidiaries is set forth below. The balance sheet data and
statement of operations data for the three fiscal years ended
March 31, 1995 and the balance sheet data as of March 31, 1992
reflect the implementation of fresh-start accounting in
conjunction with Forum Group's Chapter 11 reorganization in 1992.
The statement of operations data for the two fiscal years ended
prior to March 31, 1993 and the balance sheet data at March 31,
1991 do not reflect the implementation of fresh-start accounting
and, accordingly, are not comparable to the data referred to in
the preceding sentence. All such financial data should be read
in conjunction with the consolidated financial statements
(including the notes thereto) included elsewhere in this Report.
10
______________Year ended March 31,______________
1995 1994 1993 1992 1991
(in thousands except per share amounts)
------------------------------------------------
|
Successor(a) | Predecessor(a)
Company | Company
Statements of Operations Data: |
|
Total revenues $151,960 $108,465 $ 93,302 |$ 79,768 $ 93,399
Operating expenses 99,462 72,722 69,195 | 75,348 91,543
Marketing, general and |
administrative expenses 9,172 7,283 6,633 | 6,976 9,024
Relocation costs 1,384 -0- -0- | -0- -0-
Litigation expenses 206 1,841 -0- | -0- -0-
Depreciation 8,489 7,355 8,814 | 11,620 12,314
Reduction in carrying |
value of property -0- -0- -0- | 12,771 -0-
------- ------- ------- | ------- -------
33,247 19,264 8,660 | (26,947) (19,482)
Income (loss) before |
extraordinary credit |
(charge) 12,490 2,690 (7,359) |(115,747) (109,198)
Extraordinary credit |
(charge) (262)(b) (9,820)(b) -0- | 116,195(c) -0-
Net income (loss) 12,228 (7,130) (7,359) | 448 (109,198)
|
Per Common Share(d) |
Income (loss) before |
extraordinary credit |
(charge) 0.54 0.16 (0.98) | (3.56) (3.35)
Extraordinary credit |
(charge) (0.01) (0.57) -0- | 3.57 -0-
Net income (loss) 0.53 (0.41) (0.98) | 0.01 (3.35)
Dividends declared per |
Common Share -0- -0- -0- | -0- -0-
|
Balance Sheet Data: +---------+
|
Total assets 398,346 290,200 348,641 393,046 | 468,848
Long-term obligations 270,036 205,094 226,540 260,791 | 409,633(e)
Shareholders' equity 65,666 44,284 18,445 19,394 | 521
Book value per Common |
Share 2.92 2.08 2.46 1.94 | 0.02
____________________________
(a) The Reorganization Plan was effective for financial reporting
purposes as of March 31, 1992. Under generally accepted
accounting principles, Forum Group was required to account for
the reorganization using fresh-start reporting. Accordingly,
all consolidated financial statements for any period prior to
March 31, 1992 are referred to as "Predecessor Company" as they
reflect periods prior to implementation of fresh-start
reporting and are not comparable to consolidated financial
statements for periods subsequent to implementation of fresh-
start reporting, and all consolidated financial statements for
any period subsequent to March 31, 1992 are referred to herein
as "Successor Company" as they reflect periods subsequent to
implementation of fresh-start reporting and are not comparable
to consolidated financial statements for periods prior to
implementation of fresh-start reporting.
(b) Reflects charge from early extinguishment of debt.
(c) Reflects credit from the extinguishment of debt pursuant to
the Reorganization Plan.
(d) Per share data for the fiscal years ended March 31, 1995,
1994, and 1993 are based on 23,032,000, 17,190,000, and
7,493,000 Common Shares issued and outstanding, respectively.
Per share data for the fiscal year ended March 31, 1992, are
based on 10,000,000 Common Shares issuable and outstanding.
Per share data for the fiscal year ended March 31, 1991 are
based on 32,548,108 preconfirmation Common Shares.
(e) Includes liabilities subject to settlement in Chapter 11
reorganization proceedings as of March 31, 1991.
11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
Certain summary financial information for the Owned
Communities, Forum/Rancho San Antonio, the Consolidated
Partnership Communities, and other corporate operations
("Corporate Operations") is presented below. The results of
Forum/Rancho San Antonio's operations were consolidated for
financial reporting purposes prior to July 31, 1993 (see Note 2
of Notes to Consolidated Financial Statements). Accordingly, the
periods in which the financial results of the consolidated
components of Forum/Rancho San Antonio are included in the
financial statements of Forum Group are not comparable to
subsequent periods. Consequently, Forum/Rancho San Antonio is
presented separately below in order to present a comparable
disclosure of the Owned Communities' financial results. The
results of Forum Partners' operations were not consolidated for
financial reporting purposes prior to August 1, 1994 (see Note 1
of Notes to Consolidated Financial Statements). Accordingly, the
periods in which the financial results of Forum Partners are
included in the financial statements of Forum Group (included
below with the Consolidated Partnership Communities) are not
comparable to subsequent 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 94%
occupied as of March 31, 1995. Pro forma consolidated operating
results as if Forum Partner's results were consolidated from
April 1, 1993 based upon Forum Group's 62.1% equity ownership of
Forum Partners as of August 1, 1994 are as presented in the
following tables for the Fiscal Years 1995 and 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 interests in Forum Partners throughout the periods
presented. See Note 1 of Notes to Consolidated Financial
Statement included elsewhere herein for additional information
relating to Forum Partners.
As presented in the following tables, EBITDA (defined as
earnings before interest, taxes, depreciation, amortization, and
extraordinary items) 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.
12
Fiscal Year 1995
($ in millions)
___________________________________Actual_________________________
Forum/ Consolidated Pro
Owned Rancho Partnership Corporate Forma
Communities San Antonio Communities Operations Consolidated Consolidated(a)
Total
Revenues $ 81.9 $ 4.4 $ 61.0 $ 4.7 $ 152.0 $ 166.2
Operating
Expenses 54.9 4.1 40.3 0.2 99.5 110.1
Marketing,
General and
Administra-
tive Expenses - - 0.3 8.9 9.2 9.3
Relocation
Costs - - - 1.4 1.4 1.4
Litigation
Expenses - - 0.1 0.1 0.2 0.2
EBITDA(b) 27.0 0.3 20.3 (5.9) 41.7 45.2
Depreciation 4.4 - 4.0 0.1 8.5 9.8
Interest
Expense 12.7 0.1 8.9 1.4 23.1 24.7
Minority
Interests - - - 0.3 0.3 0.3
Gain From
Sales of
Cooperative
Memberships - - - 6.8 6.8 6.8
Income
Taxes - - - 4.2 4.2 4.2
Extraordinary
Charge - - - 0.3 0.3 0.3
Net Income
(Loss) 12.2 12.7
<FN>
(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, 1993.
(b) After $1.6 million of non-recurring expenses. See
"Relocation Costs" and "Litigation Expenses" at pages 15 and
16, respectively, for a discussion of these items.
</FN>
13
Fiscal Year 1994
($ in millions)
___________________________________Actual_________________________
Forum/ Consolidated Pro
Owned Rancho Partnership Corporate Forma
Communities San Antonio Communities Operations Consolidated Consolidated(a)
Total
Revenues $ 74.4 $ 5.6 $ 25.9 $ 2.6 $ 108.5 $ 152.0
Operating
Expenses 51.5 5.0 16.2 - 72.7 105.8
Marketing,
General and
Administra-
tive Expenses - - - 7.3 7.3 7.3
Relocation
Costs - - - - - -
Litigation
Expenses - - - 1.8 1.8 1.9
EBITDA(b) 22.9 0.6 9.7 (6.5) 26.7 37.0
Depreciation 3.9 0.9 2.0 0.6 7.4 9.7
Interest
Expense 4.4 0.7 4.1 8.3 17.5 23.3
Minority
Interests - - - 0.9 0.9 1.3
Gain From
Sales of
Cooperative
Memberships - - - - - -
Income
Taxes - - - - - -
Extraordinary
Charge - - - 9.8 9.8 10.3
Net Income
(Loss) (7.1) (5.0)
<FN>
(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, 1993.
(b) After $1.8 million of non-recurring expenses. See
"Litigation Expenses" at page 16 for a discussion of this item.
</FN>
14
Owned Communities. Total revenues for Fiscal Year 1995
increased by $7.5 million (10%), from $74.4 million to $81.9
million, as compared to Fiscal Year 1994. This increase was
primarily attributable to increases in occupancy, rental rates,
additional ancillary services, and the acquisition in August 1994
and January 1995 of two RCs, Tiffany and Fountainview,
respectively. Combined occupancy, excluding Tiffany and
Fountainview, averaged 94.1% for Fiscal Year 1995 compared to
91.6% for Fiscal Year 1994. Operating expenses for Fiscal Year
1995 at the Owned Communities increased by $3.4 million (7%),
from $51.5 million to $54.9 million, as compared to Fiscal Year
1994; marketing, general and administrative 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
during the current fiscal year of Tiffany and Fountainview.
EBITDA for Fiscal Year 1995 from the Owned Communities increased
by $4.1 million (18%), from $22.9 million to $27.0 million, as
compared to Fiscal Year 1994. This increase constitutes 55% of
the increase in total revenues for Fiscal Year 1995, which is
indicative of the degree of incremental EBITDA that results from
increased revenues.
Pro Forma. On a pro forma basis, assuming that Forum
Partners' results of operations were consolidated for all of
Fiscal Year 1995 (rather than from August 1, 1994, the actual
date of consolidation), total revenues for Fiscal Year 1995
increased by $14.2 million (9%), from $152.0 million to $166.2
million, as compared to Fiscal Year 1994. This increase was
primarily attributable to increases in occupancy, rental rates,
additional ancillary services, and the acquisition of Tiffany and
Fountainview. Operating expenses for Fiscal Year 1995 increased
by $4.3 million (4%), from $105.8 million to $110.1 million, as
compared to Fiscal Year 1994; MG&A for Fiscal Year 1995 increased
by $2.0 million (27%), from $7.3 million to $9.3 million. The
increase in operating expenses was primarily attributable to
additional ancillary services, normal inflationary increases, and
the acquisition during the current fiscal year of Tiffany and
Fountainview. The increase in MG&A ws primarily attributable to
the factors described under the caption "Marketing, General and
Administrative Expenses" below. EBITDA for Fiscal Year 1995
increased by $8.2 million (22%), from $37.0 million to $45.2
million, as compared to Fiscal Year 1994. This increase
constitutes 58% of the increase in net operating revenues for
Fiscal Year 1995, which is indicative of the degree of
incremental operating income that results from increased
revenues.
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 Forum Partners, the unconsolidated
component of Forum/Rancho San Antonio, and GRP were not material
to Forum Group's consolidated results of operations for Fiscal
Year 1995. Due to the changes in financial statement
presentation regarding Forum Partners (see Note 1 of Notes to
Consolidated Financial Statements) and Forum/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.
Marketing, General and Administrative Expenses. For Fiscal
Year 1995, consolidated MG&A increased by $1.9 million, from $7.3
million to $9.2 million, compared to Fiscal Year 1994. This
increase was primarily attributable to (i) the inclusion in the
prior periods of future service income recognition in respect of
Forum Partners management fees and (ii) increased home office
staff costs.
Relocation Costs. During Fiscal Year 1995, expenses of $1.4
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 $1.5 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.
15
Litigation Expenses. Litigation expenses were not material
to Forum Group's results of operations for Fiscal Year 1995.
During Fiscal Year 1994, expenses of $1.8 million were incurred
in conjunction with certain litigation related to the 1993
Recapitalization. Forum Group entered into an agreement
providing for the dismissal of that litigation in return for the
payment and reimbursement of a portion ($0.5 million), of the
opposing parties' attorneys' fees.
Depreciation. For Fiscal Year 1995, consolidated
depreciation expense increased by $1.1 million compared to the
previous year. These changes reflect the August 1, 1994
consolidation of FRP for financial statement purposes and fixed
asset additions, offset in part by RSARHC which is no longer a
consolidated entity.
Interest Expense. Interest expense attributable to the
Owned Communities and Corporate Operations increased by $1.4
million, from $12.7 million to $14.1 million, during Fiscal Year
1995, as compared to Fiscal Year 1994. This change was primarily
attributable to changes in average borrowing costs and increased
indebtedness incurred to finance acquisitions.
Minority Interests. The decrease of $1.2 million in the
minority interests' elimination for Fiscal Year 1995 compared to
Fiscal Year 1994, resulted from a change in the method of
accounting for Forum Group's minority ownership of RSARHC (see
Note 2 of Notes to Consolidated Financial Statements).
Gains From Sales of Cooperative Memberships. During Fiscal
Year 1995, $6.8 million 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 nonrecurring nature and there can be
no assurance as to the timing or amount of future RSA Gains.
Taxes. Due to the utilization of net operating loss
carryforwards and the recognition of net deferred tax assets,
Forum Group had no federal income tax liability at March 31,
1995. Notes, investments and other receivables include federal
income taxes receivable of $1,250,000 at March 31, 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 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. See Note 4 of
Notes to Consolidated Financial Statements.
Extraordinary Charge. During Fiscal Year 1995 an
extraordinary charge of $262,000 was recorded related to Forum
Group's early extinguishment of debt.
Net Income/Loss Per Share. Fiscal Year 1995 produced net
income of $12.2 million ($0.53 per Common Share) compared to a
net loss of $7.1 million ($0.41 per Common Share) for Fiscal Year
1994. Fiscal Year 1994 was adversely affected by $1.8 million of
expenses related to certain litigation related to the 1993
Recapitalization and extraordinary charges totalling $9.8 million
($0.57 per Common Share) related to the early extinguishment of
Forum Group's and Forum Partners' debt.
All per share data are based upon the weighted average
number of shares outstanding for the relevant periods.
16
Fiscal Year 1993
($ in millions)
__________________________Actual______________________________
Forum/ Consolidated
Owned Rancho Partnership Corporate
Communities San Antonio Communities Operations Consolidated
Total
Revenues $ 63.1 $ 3.8 $ 23.0 $ 3.4 $ 93.3
Operating
Expenses 47.3 4.0 15.6 2.3 69.2
Marketing,
General and
Administra-
tive Expenses - - 0.1 6.5 6.6
Relocation Costs - - - - -
Litigation
Expenses - - - - -
EBITDA 15.8 (0.2) 7.3 (5.4) 17.5
Depreciation 3.8 2.8 2.1 0.1 8.8
Interest
Expense 2.5 2.2 4.4 9.1 18.2
Minority
Interests - - - 2.2 2.2
Gain From
Sales of
Cooperative
Memberships - - - - -
Income Taxes - - - - -
Extraordinary
Charge - - - - -
Net Income (Loss) (7.4)
Owned Communities. Total revenues for Fiscal Year 1994
increased by $11.3 million (18%), from $63.1 million to $74.4
million, as compared to Fiscal Year 1993. A change in the
estimate of amounts reimbursable by third party payers from prior
years resulted in the recognition of $1.0 million of operating
revenue in Fiscal Year 1994. The remaining portion of the
increase was primarily attributable to favorable changes in
occupancy, increased utilization of ancillary healthcare
17
services, and increases in residency fees and charges. Combined
occupancy increased from 89% at March 31, 1993 to 95% at March
31, 1994. Operating expenses for Fiscal Year 1994 at the Owned
Communities increased by $4.2 million (9%), from $47.3 million to
$51.5 million, as compared to Fiscal Year 1993. This increase
was also primarily attributable to the increase in occupancy,
increased utilization of ancillary healthcare services, and
normal inflationary increases. MG&A for the Owned Communities
was included in operating expenses. EBITDA for Fiscal Year 1994
from the Owned Communities increased by $7.1 million (45%), from
$15.8 million to $22.9 million, as compared to Fiscal Year 1993.
Exclusive of the impact of the change in estimate of reimbursable
amounts discussed above, this increase constitutes 59% of the
increase in total revenues for Fiscal Year 1994, which is
indicative of the degree of incremental EBITDA that results from
increased occupancy.
Consolidated Partnership Communities. Total revenues for
Fiscal Year 1994 increased by $2.9 million (13%), from $23.0
million to $25.9 million, as compared to Fiscal Year 1993. A
change in the estimate of amounts reimbursable by third party
payers from prior years resulted in the recognition of $0.2
million of operating revenue in Fiscal Year 1994. The remaining
portion of the 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 86% at March 31, 1993 to 90% at
March 31, 1994. Operating expenses for the Consolidated
Partnership Communities for Fiscal Year 1994 increased by $0.5
million (3%), from $15.7 million to $16.2 million, as compared to
Fiscal Year 1993; 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 Fiscal Year 1994
increased by $2.4 million, from $7.3 million to $9.7 million, as
compared to Fiscal Year 1993. This increase constitutes 83% of
the increase in total revenues for Fiscal Year 1994, which is
indicative of the degree of incremental EBITDA that result from
increased occupancy.
Unconsolidated Communities. Forum Group's equity in the
earnings of Forum Partners, which is reflected as other revenues,
improved from a loss of $0.5 million for Fiscal Year 1993 to net
income of $0.7 million for Fiscal Year 1994. This increase
primarily reflects improved occupancy at the nine retirement
communities owned by Forum Partners and managed by Forum Group.
In December 1993, Forum Partners completed the refinancing of its
long-term debt and, as a result, recognized an extraordinary
charge of $2.9 million for early extinguishment of debt. Forum
Group's share of this charge is presented as an extraordinary
charge in the accompanying consolidated statements of operations.
Forum Group's equity in the earnings of GRP, which is also
reported as other revenues, decreased from $0.3 million for
Fiscal Year 1993 to $0.2 million for Fiscal Year 1994. Forum
Group's equity in the losses of the unconsolidated component of
Forum/Rancho San Antonio for Fiscal Year 1994 was $1.1 million.
Marketing, General and Administrative Expenses. Changes in
consolidated MG&A were not material to Forum Group's consolidated
results of operations for Fiscal Year 1994.
Litigation Expenses. During Fiscal Year 1994, expenses of
$1.8 million were incurred in conjunction with certain litigation
related to the 1993 Recapitalization.
Depreciation. For Fiscal Year 1994, consolidated
depreciation expense decreased by $1.4 million compared to Fiscal
Year 1993. The change is primarily attributable to RSARHC no
longer being a consolidated entity, as partially offset by
additional fixed asset additions over the fiscal year.
Interest Expense. Interest expense attributable to the
Owned Communities and Corporate Operations increased by $1.1
million, from $11.6 million to $12.7 million, during Fiscal Year
1994, as compared to Fiscal Year 1993. This change was primarily
attributable to changes in average borrowing costs.
Minority Interests. The decrease of $1.3 million (59%) in
the minority interests' elimination for Fiscal Year 1994 compared
to Fiscal Year 1993, resulted from a decrease of $0.9 million due
to improved operating results and a decrease of $0.4 million due
to an increase in minority ownership of RSARHC (see Note 2 of
Notes to Consolidated Financial Statements).
18
Extraordinary Charge. During Fiscal Year 1994, charges of
$8.4 million related to the early extinguishment of debt in
conjunction with the 1993 Recapitalization were recorded.
Additionally, during Fiscal Year 1994, an extraordinary charge of
$1.4 million was recorded to reflect Forum Group's share of Forum
Partners' extraordinary charge on the early extinguishment of its
debt.
Net Income/Loss Per Share. Fiscal Year 1994 produced net
losses of $7.1 million ($0.41 per Common Share) compared to net
losses of $7.4 million ($0.98 per Common Share) for Fiscal Year
1993. Fiscal Year 1994 was adversely affected by $1.8 million of
expenses related to certain litigation related to the 1993
Recapitalization and extraordinary charges totalling $9.8 million
($0.57 per Common Share) related to the early extinguishment of
Forum Group's and Forum Partners' debt.
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 March 31, 1995, Forum
Group had cash and cash equivalents of $30.2 million, accounts
receivable of $8.0 million, and notes, investments and other
receivables of $6.1 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.
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 June 23, 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 Nomura 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 that
facility in order to provide greater financial flexibility and
increase shareholder value.
Capital Structure. Forum Group's total long-term debt was
$270.0 million as of March 31, 1995, $124.7 million of which
represents obligations of Consolidated Partnership Communities
which were non-recourse to Forum Group, Inc. Aggregate scheduled
maturities of Forum Group's long-term debt are as follows for the
19
fiscal periods indicated: 1996: $5.3 million; 1997: $46.7
million; 1998: $16.8 million; 1999: $28.9 million; 2000: $2.8
million.
As a result of the 1993 Recapitalization, the 1994
Refinancing, and entering into the above-described loan facility,
Forum Group's long-term debt as of March 31, 1995 was as set
forth below (in millions):
Forum Group, Inc.:
Nomura Term Loan (1) $ 92.1
Senior Subordinated Notes 10.0
Nomura Acquisition Loan (1) 15.9
Mortgages and Capitalized Leases 22.5
Other 4.8
Total Owned Communities and -----
Corporate Operations (2) 145.3
Consolidated Partnership Communities (1) 124.7
-----
Total Long-Term Debt $ 270.0
=====
__________________
(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.
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.
Forum Group has not paid any dividends on or made other
distributions in respect of its Common Stock since the
Reorganization Plan and presently intends to devote its cash from
operations to financing part of its long-term growth strategy.
Forum Group expects, however, to consider from time to time
making special distributions on, or repurchasing, shares of
Common Stock, whether as a part of a refinancing of existing
indebtedness or other capital transaction, or otherwise. There
can be no assurance as to whether any such distribution or
repurchase will be effected or the timing or terms thereof.
Cash Flow. Operating activities for Fiscal Year 1995
provided $27.4 million of cash compared to $1.3 million of cash
provided by operating activities during Fiscal Year 1994, due
principally to significantly improved operating results and gains
from sales of cooperative memberships in Fiscal Year 1995.
Investing activities used $30.3 million of cash during Fiscal
Year 1995, compared to $6.9 million of cash used by investing
activities during Fiscal Year 1994, due principally to
acquisitions of RCs and other businesses and additions to
property and equipment, as partially offset by net proceeds from
sales of investment in RSARHC.
Financing activities provided $14.8 million of cash during
Fiscal Year 1995, compared to $18.2 million of cash provided by
financing activities during Fiscal Year 1994, due principally to
the impact of the 1993 Recapitalization in Fiscal Year 1994.
20
Item 8. Financial Statements and Supplementary Data.
The following consolidated financial statements and
supplementary financial information are filed under this Item:
Page(s)
Independent Auditors' Report......................22
Consolidated Balance Sheets - March 31, 1995
and 1994........................................23
Consolidated Statements of Operations
- Years ended March 31, 1995, 1994 and 1993.......24
Consolidated Statements of Shareholders' Equity
- Years ended March 31, 1995, 1994 and 1993.......25
Consolidated Statements of Cash Flows
- Years ended March 31, 1995, 1994 and 1993.......26
Notes to Consolidated Financial Statements.....27 - 38
Quarterly Financial Data..........................39
21
Independent Auditors' Report
The Board of Directors and Shareholders
Forum Group, Inc.:
We have audited the accompanying consolidated balance sheets of
Forum Group, Inc. and subsidiaries as of March 31, 1995 and 1994
and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the years in the
three-year period ended March 31, 1995. These consolidated
financial statements are the responsibility of Forum Group's
management. Our responsibility is to express an opinion on these
consolidated financial statements 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Forum Group, Inc. and subsidiaries as of March 31,
1995 and 1994 and the results of their operations and their cash
flows for each of the years in the three-year period ended March
31, 1995 in conformity with generally accepted accounting
principles.
June 3, 1995
22
FORUM GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1995 and 1994
(in thousands)
Assets 1995 1994
------ ---- ----
Property and equipment:
Land and improvements $ 49,737 34,505
Buildings and leasehold improvements 263,411 176,209
Furniture and equipment 18,780 13,046
Construction in progress 5,249 -
------- -------
337,177 223,760
Less accumulated depreciation 19,820 11,600
------- -------
Net property and equipment 317,357 212,160
------- -------
Investments:
Forum Retirement Partners, L.P. - 12,420
Greenville Retirement Community, L.P. 3,331 3,614
Rancho San Antonio Retirement Housing Corporation - 7,228
Other 1,531 -
------- -------
4,862 23,262
------- -------
Cash and cash equivalents 30,228 18,331
Accounts receivable, less allowance for doubtful accounts
of $487 and $277 7,992 5,246
Notes, investments and other receivables 6,138 6,681
Restricted cash 13,098 9,992
Deferred costs and other assets, net 18,671 14,528
------- -------
$ 398,346 290,200
======= =======
Liabilities and Shareholders' Equity
Liabilities:
Long-term debt 270,036 205,094
Accounts payable 3,846 2,332
Accrued expenses 15,295 12,523
Resident deposits and refundable resident fees 19,609 17,253
Deferred income 7,294 7,041
------- -------
Total liabilities 316,080 244,243
------- -------
Other partners' equity 16,600 1,673
------- -------
Shareholders' equity:
Common stock, no par value - authorized 48,000 shares,
issued 22,500 and 21,262 shares 67,927 58,773
Accumulated deficit (2,261) (14,489)
------- -------
65,666 44,284
------- -------
$ 398,346 290,200
======= =======
See notes to consolidated financial statements.
23
FORUM GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended March 31, 1995, 1994 and 1993
(in thousands except per share amounts)
1995 1994 1993
---- ---- ----
Revenues:
Net operating revenues $ 146,861 105,640 90,566
Management fees 2,137 1,505 397
Other income 2,962 1,320 2,339
------- ------- -------
Total revenues 151,960 108,465 93,302
------- ------- -------
Costs and expenses:
Operating expenses 99,462 72,722 69,195
Marketing, general and administrative
expenses 9,172 7,283 6,633
Relocation costs 1,384 - -
Litigation expenses 206 1,841 -
Depreciation 8,489 7,355 8,814
------- ------- -------
Total costs and expenses 118,713 89,201 84,642
------- ------- -------
33,247 19,264 8,660
Other:
Interest expense (23,114)(17,481)(18,171)
Other partners' and cooperative members'
interest in (income) losses of
consolidated companies (289) 907 2,152
Gains from sales of cooperative
memberships 6,846 - -
------- ------- -------
Income (loss) before income tax expense
and extraordinary charge 16,690 2,690 (7,359)
Income tax expense 4,200 - -
------- ------- -------
Income (loss) before extraordinary
charge 12,490 2,690 (7,359)
Extraordinary charge - early
extinguishment of debt (262) (9,820) -
------- ------- -------
Net income (loss) $ 12,228 (7,130) (7,359)
======= ======= =======
Weighted average number of common shares
and common share equivalents
outstanding 23,032 17,190 7,493
======= ======= =======
Income (loss) per common share and common share
equivalent:
Income (loss) before extraordinary
charge $ 0.54 0.16 (0.98)
Extraordinary charge (0.01) (0.57) -
---- ---- ----
Net income (loss) $ 0.53 (0.41) (0.98)
==== ==== ====
See notes to consolidated financial statements.
24
FORUM GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Years ended March 31, 1995, 1994 and 1993
(in thousands)
Common Stock
----------------
Number
of Accumulated
shares Amount deficit
------ ------ -------
Balances at April 1, 1992 10,000 $ 19,394 -
Net loss - - (7,359)
Adjustments to estimated amounts
recorded upon reorganization - 1,540 -
Reduction of issuable shares upon
resolution of disputed general
unsecured claims (2,507) - -
------ ------ ------
Balances at March 31, 1993 7,493 20,934 (7,359)
Net loss - - (7,130)
Conversion of preferred stock to
common stock 2,500 4,870 -
Issuance of common stock, net 11,079 32,969 -
Shares issued upon resolution of
disputed general unsecured claims 190 - -
------ ------ ------
Balances at March 31, 1994 21,262 58,773 (14,489)
Net income - - 12,228
Issuance of common stock, net 1,238 5,154 -
Tax benefit from reduction of
valuation allowance for deferred
tax assets - 4,000 -
------ ------ ------
Balances at March 31, 1995 22,500 $ 67,927 (2,261)
====== ====== ======
See notes to consolidated financial statements.
25
FORUM GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended March 31, 1995, 1994 and 1993
(in thousands)
1995 1994 1993
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 12,228 (7,130) (7,359)
Adjustments to reconcile net income
(loss) to cash provided (used)
by operating activities:
Depreciation 8,489 7,355 8,814
Amortization of deferred financing
costs 2,383 1,151 295
Other partners' and cooperative
members' interest in income
(losses) of consolidated companies 289 (907) (2,152)
Net losses (income) of investees on
the equity method (390) 124 256
Other accrued revenues and expenses,
net 207 (5,780) (2,104)
Tax benefit recorded as additional
shareholders' equity 4,000 - -
Non-cash portion of extraordinary
charge 241 6,462 -
------ ------ ------
Net cash provided (used) by operating
activities 27,447 1,275 (2,250)
------ ------ ------
Cash flows from investing activities:
Purchases of retirement communities (23,961) - -
Proceeds from facility sales, net - - 36,723
Additions to property and equipment (10,173) (2,211) (12,853)
Net proceeds from sales of investment
in Rancho San Antonio Retirement
Housing Corporation 8,719 3,686 94
Investment in Forum Retirement Partners,
L.P., net of acquired cash of $4,872
in 1995 (3,374) (9,143) -
Notes, investments and other receivables 264 377 1,413
Other (1,807) 361 905
------ ------ ------
Net cash provided (used) by
investing activities (30,332) (6,930) 26,282
------ ------ ------
Cash flows from financing activities:
Proceeds from long-term debt 22,038 184,018 14,327
Payments on long-term debt (9,121) (181,663) (36,394)
Payments of predecessor company
liabilities - (4,026) (28,395)
Proceeds from issuance of capital stock
and warrants, net 5,154 32,969 4,870
Deferred financing and recapitalization
costs (2,824) (17,388) (265)
Net proceeds from sales of cooperative
memberships in Rancho San Antonio
Retirement Housing Corporation - 3,613 16,845
Distributions to other partners (313) (313) (313)
Resident deposits and restricted cash (152) 959 3,568
Net cash provided (used) by financing
activities 14,782 18,169 (25,757)
------ ------ ------
Net increase (decrease) in cash and cash
equivalents 11,897 12,514 (1,725)
Cash and cash equivalents at beginning
of year 18,331 5,817 7,542
------ ------- ------
Cash and cash equivalents at end of year $ 30,228 18,331 5,817
====== ======= ======
See notes to consolidated financial statements.
26
FORUM GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1995 and 1994
(1)Summary of Significant Accounting Policies
Basis of Presentation
Forum Group, Inc. ("Forum Group") operates in the senior
housing industry, with particular emphasis on the operation
of full-service retirement communities ("RCs"). As of March
31, 1995, Forum Group and its subsidiaries owned or operated
27 RCs, which were 93% occupied. The consolidated financial
statements include the accounts of Forum Group and its
subsidiaries over which it exercises significant control.
All significant intercompany accounts and transactions have
been eliminated in consolidation.
Significant Transactions
In February 1993, Forum Group entered into agreements with
several investors (the "Investors") for the issuance of
25,000 new shares of convertible preferred stock for
$5,000,000 (the net proceeds of which were used to pay
amounts due and payable under a senior secured term loan).
In June 1993, Forum Group consummated another transaction
with the Investors which included the following:
. The Investors acquired 7,098,200 newly-issued common
shares and certain warrants for the acquisition of
additional common shares for an aggregate purchase price
of $20,000,000. The warrants entitle the Investors to
acquire 1.1555 shares of common stock for each share of
common stock issued in settlement of disputed general
unsecured claims.
. The former senior secured term loan was retired with
the proceeds of a senior credit facility of $50,000,000,
senior subordinated notes of $40,000,000 (of which
$30,000,000 were held by the Investors or their
affiliates) and other funds (see note 3).
. The 25,000 shares of preferred stock were converted
into 2,500,000 newly-issued shares of common stock.
In July 1993, the Investors provided a liquidity option
whereby shareholders were given the option either to retain
their equity interest or to receive in cash $3.62 per share.
After acquiring an additional 1,346,000 shares of common
stock under the liquidity option (including 514,000 shares
owned by a wholly-owned subsidiary of Forum Group), the
Investors owned 64% of Forum Group's outstanding common
stock.
In October 1993, the Investors acquired an additional
3,466,666 shares of common stock at $3.75 per share for an
aggregate purchase price of $13,000,000, thereby increasing
their ownership percentage to 76%. Forum Group subsequently
made an offer to the other shareholders to issue additional
shares of common stock at $3.75 per share, and an additional
1,238,000 shares of common stock were issued, reducing the
ownership percentage of the Investors to 72% of the
outstanding shares.
27
In February 1994, a mortgage loan was obtained to retire
$49,000,000 of the senior secured credit facility and
$30,000,000 of the senior subordinated notes, to pay the
related prepayment premiums to the Investors and their
affiliates totaling $3,000,000 (included as an extraordinary
charge in the accompanying consolidated statement of
operations), to pay fees and expenses of approximately
$4,000,000, and to purchase an interest rate cap agreement
for approximately $7,427,000.
In connection with a recapitalization of Forum Retirement
Partners, L.P. ("Forum Partners") and the refinancing of its
debt, the $13,000,000 of proceeds from the October 1993 sale
of common stock to the Investors was used to acquire
6,500,000 limited partner units, increasing Forum Group's
equity interest in Forum Partners from 23% to 55%. Forum
Partners subsequently made an offer for the other partners to
acquire additional units at $2.00 per unit, and proceeds
totaling $3,990,000 were received for the repurchase of
1,994,000 units from Forum Group, reducing Forum Group's
equity interest in Forum Partners to 43% at March 1, 1994
(see note 2). As a result of the refinancing of its long-
term debt, Forum Partners recognized an extraordinary charge
totaling $2,917,000, and Forum Group's share of this non-cash
charge of $1,360,000 is included in the extraordinary charge
in the accompanying 1994 consolidated statement of
operations.
In August 1994, Forum Group purchased additional units in
Forum Partners to reach a 57% equity ownership interest, and
consequently its operations are consolidated into Forum
Group's consolidated financial statements from that date.
Forum Partners owns and operates nine RCs which were 94%
occupied as of March 31, 1995. Pro forma operating results
as if Forum Partners' results were consolidated from April 1,
1993 are as follows (in thousands except per share amounts):
_________Unaudited____________
Year ended Year ended
March 31, 1995 March 31, 1994
Total revenues $ 166,225 152,065
Income before extraordinary charge 12,930 5,284
Net income (loss) 12,668 (4,992)
Net income (loss) per share 0.55 (0.29)
During fiscal 1994, Forum Group accrued fees payable to one
of the Investors for administrative, refinancing and general
acquisition matters in the amount of $750,000.
28
During 1995, Forum Group commenced implementation of its long-
term growth plan by executing the following transactions and
incurring expenditures of approximately $60 million: (i) in
June 1994 entered into an investment agreement with National
Guest Homes, LLC ("NGH") pursuant to which Forum Group has
the right to fund 89.5% of the equity capital required for
NGH's development of assisted and companion living facilities
(five such facilities are currently under development), (ii)
in August 1994 acquired an 80% equity interest in Tiffany
House ("Tiffany"), a 130-unit RC in Fort Lauderdale, Florida,
(iii) in January 1995 acquired a 100% equity interest in The
Forum at Fountainview, an RC in West Palm Beach, Florida with
276 independent living units and 64 assisted living units,
(iv) in April 1995 acquired Health Care Industries, Inc., a
company which provides nursing and other healthcare personnel
to home healthcare agencies and coordinates various
healthcare management services for RCs in Florida, including
three RCs owned or managed by Forum Group, (v) in May 1995
acquired from Autumn America Retirement, Ltd., an affiliate
of an Investor ("Autumn"), for $1,300,000, Autumn's rights as
the manager of five RCs (two of which are affiliates of an
Investor) and the right to provide up to 80% or 90%
(depending on the co-investors' election) of the equity
capital for the acquisition of retirement housing properties
based on Autumn's retirement housing concept meeting certain
investment criteria, (vi) in May 1995 acquired an 80%
interest in The Forum at the Woodlands, an RC in Houston,
Texas with 240 apartments and 63 assisted living units, and
(vii) in June 1995 acquired from the United States Department
of Housing and Urban Development two non-performing first
mortgage loans on a 95-unit RC in Fort Myers, Florida and a
254-unit RC in Palm Harbor, Florida, which Forum Group
intends to foreclose to obtain ownership of the RCs.
During the fourth quarter of 1995, Forum Group incurred
$1,400,000 of expenses attributable to the Company's June
1995 relocation to Fairfax, Virginia from Indianapolis,
Indiana. Changes in estimated workers compensation
liabilities resulted in a $600,000 reduction of operating
expenses in fiscal 1995.
Revenues
Routine service revenues, generated by monthly charges for
independent living units and daily or monthly charges for
assisted living suites and nursing beds, are recognized based
on the terms of the residency and admission agreements.
Ancillary service revenues, generated on a fee for service
basis for supplementary items requested by residents, are
recognized as the services are provided.
Net operating revenues include amounts estimated by
management to be reimbursable by Medicaid, Medicare and other
cost-based programs. Cost-based reimbursements are subject
to audit by agencies administering the programs, and
estimates are recorded for potential adjustments that may
result. To the extent estimated amounts are expected to be
adjusted in the actual settlements, revenues are charged or
credited when the adjustments become determinable. Changes
in estimated reimbursable amounts resulted in $265,000 and
$1,447,000 of additional operating revenues in fiscal 1995
and 1994, respectively.
29
Property and Equipment
Property and equipment are carried at management's estimate
of their value as of March 31, 1992, the effective date of
Forum Group's reorganization, with subsequent additions
recorded at cost. Depreciation is computed on a straight-
line basis over the estimated useful lives of the related
assets. A provision for value impairment is recorded
whenever the estimated future cash flows from a property's
operations and subsequent sale are less than the property's
net carrying value. Capital leases are recorded at the lower
of the estimated market value of the assets leased or the
present value of the minimum lease payments.
Investments
Investments in limited partnerships are carried at Forum
Group's percentage interest in the estimated net value of the
RCs owned by the partnerships as of March 31, 1992, plus its
share of income or loss, less distributions since that date.
Any difference between the carrying value of limited
partnership investments and the percentage interest in the
partnerships' underlying book value is amortized over the
remaining estimated useful life of the partnerships'
properties.
Cash Equivalents
Cash equivalents represent commercial paper and other income-
producing securities having an original maturity of less than
three months, are readily convertible to cash and are stated
at cost, which approximates market.
Restricted Cash
At March 31, 1995 and 1994, restricted cash includes
$1,436,000 and $1,909,000, respectively, deposited by present
and prospective residents of lifecare RCs; $6,319,000 and
$3,658,000, respectively, of resident security deposits; and
$5,344,000 and $4,425,000, respectively, funded under long-
term debt and restricted to specific purposes.
Deferred Costs
Fees and other costs incurred to obtain long-term financing
are amortized to interest expense over the term of the
related debt on a straight-line basis. In connection with
the 1994 refinancings, deferred costs totaling $5,087,000
were written off and included in the extraordinary charge on
the accompanying consolidated statements of operations.
Costs incurred in the initial occupancy of RCs are amortized
on the straight-line method over the shorter of the life
expectancy of the initial residents or the term of the
initial residency agreement, generally one year.
Deferred Income
Deferred income represents resident advanced fees under
lifecare residency agreements which are recognized as income
over the estimated useful lives of the RCs.
30
Shareholders' Equity
Forum Group has 2,000,000 authorized voting preferred shares,
all without par value, none of which were issued at March 31,
1995. The accumulated deficit is from March 31, 1992, the
effective date of Forum Group's reorganization plan confirmed
by the U.S. Bankruptcy Court.
As of March 31, 1995, approximately 265,000 common shares
were reserved pending the final settlement of disputed
general unsecured claims totaling approximately $5,160,000.
In fiscal year 1993, the estimated amount recorded for assets
and liabilities, legal fees and mechanics liens were
recovered or settled at amounts less than accrued as of March
31, 1992. In connection with Forum Group's reorganization,
common stock has been increased by $1,540,000 based on the
amount actually recovered or paid and management's estimate
of remaining amounts to be recovered or paid as of March 31,
1993.
During 1995, Forum Group adopted a stock option plan which
permits the issuance of 2,250,000 shares of common stock to
key executives. Under the terms of the plan, options granted
are issued at prices ranging from $4.00 or the prevailing
market price at the date of grant and vest equally over a
five-year period commencing on the first grant date
anniversary. During 1995, no stock options were exercisable
or exercised, and at March 31, 1995, there were 1,313,000
shares under option at an average exercise price of $5.56 per
share.
Warrants were issued to a former lender to acquire 550,000
common shares at $2.86 per share, subject to adjustment and
an annual increase of 18% each June 11 from 1994 through
1999. Additional warrants were issued to such former lender
to acquire 149,607 shares at $0.01 per share before June 12,
1999.
Per share amounts for 1995 are based on the weighted average
number of common shares and common share equivalents
(warrants and stock options) issued and outstanding. Common
share equivalents are not included in the per share
computation for 1994 and 1993 as they were anti-dilutive.
Income Taxes
Income taxes are provided to the extent expected to be
payable for the current year, plus or minus the change in
deferred income tax liabilities or assets established for
expected future income tax consequences resulting from
differences between the book and tax bases of assets and
liabilities.
Reclassifications
Certain amounts in the 1993 and 1994 consolidated financial
statements have been reclassified to conform to the 1995
presentation.
31
(2)Investments
To support distributions to limited partners, the payment of
all management fees due to Forum Group by Forum Partners
through December 31, 1993, totaling $15,780,000, had been
deferred, and such amounts were not recognized as income by
Forum Group. Subsequent to December 31, 1993, management
fees equal to 8% of Forum Partners' revenue are payable
quarterly and amounted to $904,000 for the three months ended
March 31, 1994 and $1,241,000 for the four months ended July
31, 1994. Management fees since that date have been
eliminated in consolidation. Other income for 1995, 1994 and
1993 includes Forum Group's share of Forum Partners'
operating income (loss) before extraordinary charge of
$73,000, ($175,000) and ($536,000), respectively.
The investment in Greenville Retirement Community, L.P.,
which owns and operates one RC, represents a 50% equity
interest. Other income for 1995, 1994 and 1993 includes
Forum Group's share of Greenville's income of $451,000,
$251,000 and $308,000, respectively.
The operating results of Rancho San Antonio Retirement
Housing Corporation ("Rancho San Antonio"), a cooperative
corporation which owns an RC in Cupertino, California, were
included in the consolidated financial statements of Forum
Group through July 31, 1993 since Forum Group owned a
majority of the cooperative memberships. Effective August 1,
1993, due to continued sales of cooperative memberships,
Forum Group no longer owned in excess of 50%, and
accordingly, the financial statements of Rancho San Antonio
were no longer consolidated into Forum Group's financial
statements from that date. Sales of cooperative memberships
have totaled $104,000,000 through March 31, 1995, and profits
on these sales are recognized using the cost recovery method.
In August 1994, all of Forum Group's costs were recovered
through sale of memberships, and the investment was reduced
to zero. Remaining membership sales are recognized as gains
from sales of cooperative memberships. Proceeds from future
sales of memberships are estimated to approximate
$15,700,000; however, sales have currently been suspended at
the request of the California Department of Social Services.
Other income for 1995 and 1994 includes losses of $111,000
and $1,117,000, respectively, representing Forum Group's
share of losses of Rancho San Antonio.
32
(3)Long-term Debt
Long-term debt is comprised of the following at March 31 (in
thousands):
1995 1994
---- ----
Mortgage loans:
Secured by seven Forum Group RCs requiring
monthly payments based on a 25-year term
including interest at LIBOR plus 4.180%,
not to exceed 8.805%, (8.805% and 7.894%
at March 31, 1995 and 1994, respectively)
to maturity in 2001. Requires a pre-
payment penalty until 1997 with a yield
maintenance premium thereafter and
additional payments if debt service
coverage ratio is below specified levels $ 92,146 93,194
Secured by nine Partnership RCs requiring
monthly payments based on a 20-year term
including interest at 9.93% to maturity
in 2001. Requires a prepayment penalty
until 1997 with a yield maintenance
premium thereafter and additional payments
if debt service coverage ratio is below
specified levels 49,711 -
Secured by one Forum Retirement Communities
I RC requiring quarterly interest
payments at LIBOR plus 1.50% (7.81% and
5.10% at March 31, 1995 and 1994,
respectively) with quarterly principal
payments based on a 30-year term to
maturity in 1999 25,832 25,993
Secured by three Forum Retirement Communities
II RCs requiring quarterly interest
payments at LIBOR plus 1.30% (7.61% and
4.90% at March 31, 1995 and 1994,
respectively) with quarterly principal
payments based on a 30-year term to
maturity in 1996 46,036 46,685
Secured by one Forum Group RC requiring
monthly payments based on a 30-year
term including interest at 10.5% to
maturity in 1997 14,321 14,580
Other mortgages 3,139 3,407
------- -------
231,185 183,859
Line of credit 15,865 -
Senior subordinated notes 10,000 10,000
Capitalized leases 8,171 8,471
Other 4,815 2,764
------- -------
$ 270,036 205,094
======= =======
33
During September 1994, Forum Investments I, L.L.C. ("FII"), a
wholly-owned subsidiary of Forum Group, obtained a
$100,000,000 line of credit to finance the acquisition,
rehabilitation and/or expansion of RCs, which are pledged to
secure the line of credit. Interest payments are due monthly
at LIBOR plus 5.425% (including service costs and other fees
of 2.075%), and FII has the option to convert amounts
borrowed to a ten-year term loan eighteen months from the
date of each advance. Additional principal payments are
required if the debt service coverage ratio is below
specified levels. Prepayment after October 1, 1999 requires
a yield maintenance premium.
The senior subordinated notes require interest semi-annually
at 12.5% to maturity in 2003 and a premium payment if the
senior subordinated notes are prepaid by Forum Group or
redeemed by the holders.
Future minimum payments under capitalized leases approximate
$1,100,000 for each of the five years ending March 31, 2000,
with approximately $8,500,000 due thereafter, including
imputed interest of approximately $5,800,000. Property and
equipment at March 31, 1995 and 1994 include $10,965,000 and
$10,567,000, respectively, of assets under capital leases,
consisting principally of buildings and leasehold
improvements, and related accumulated depreciation was
$977,000 and $621,000, respectively. During 1995, a lease
obligation was refinanced, which resulted in a $262,000
extraordinary charge, net of income tax benefit of $50,000,
in the accompanying statement of operations.
At March 31, 1995, scheduled maturities of long-term debt
during the next five years (based on current interest rates)
are $5,275,000 in 1996, $46,690,000 in 1997, $16,759,000 in
1998, $28,939,000 in 1999 and $2,834,000 in 2000. Cash paid
for interest was $20,005,000, $15,309,000 and $30,539,000 in
fiscal years 1995, 1994 and 1993, respectively.
On June 14, 1993, senior secured term notes were retired with
the proceeds of a senior credit facility of $50,000,000,
senior subordinated notes of $40,000,000 (of which
$30,000,000 were held by the Investors and their affiliates)
and other funds. The senior credit facility required that
interest be paid quarterly at either the prime rate plus 2.0%
or the Eurodollar rate plus 3.5%.
The senior secured term notes repaid in June 1993 required
interest at the lead bank's reference rate with a minimum
rate of 6.5% through June 30, 1992 and the lead bank's
reference rate plus 2.0% (to be reduced by .25% as each
principal installment is made) with a minimum of 8.5%
(reducing commensurately) thereafter (8.5% at March 31,
1993).
34
(4)Income Taxes
Income tax expense differs from the amount computed by
applying the U.S. federal income tax rate of 34% to income
(loss) before income tax expense and extraordinary charge as
a result of the following (in thousands):
Years ended March 31,
1995 1994 1993
---- ---- ----
Computed "expected" tax expense
(benefit) $ 5,675 915 (2,502)
Forgiveness of installment note - - (1,235)
Reduction of valuation allowance
for deferred tax assets (5,680) - -
Tax benefit recorded as additional
shareholders'equity 4,000 - -
Settlement of disputed general
unsecured claims - - (387)
Other 205 (915) 287
Amounts added to net operating loss
carryforward - - 3,837
----- ----- -----
$ 4,200 - -
===== ===== =====
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and
liabilities at March 31 are as follows (in thousands):
1995 1994
---- ----
Deferred tax assets:
Property and equipment, principally
due to differences in the bases of
assets as a result of fresh-start
accounting and depreciation methods $ 19,403 22,326
Net operating loss carryforwards 11,290 12,190
Accrued expenses 818 2,366
Other 151 435
Losses in consolidated taxable entities 3,571 3,720
Deferred income 1,136 1,136
Deferred compensation 667 605
------ ------
Total gross deferred tax assets 37,036 42,778
Less valuation allowance 34,532 40,212
------ ------
Net deferred tax assets 2,504 2,566
------ ------
Deferred tax liabilities:
Gains on property sales (1,542) (1,595)
Deferred management fees (593) (593)
Investments, principally due to differences
in the bases of assets as a result of
fresh-start accounting (369) (378)
------ ------
Total gross deferred tax liabilities (2,504) (2,566)
------ ------
Net deferred tax liabilities $ - -
====== ======
35
Due to the utilization of net operating loss carryforwards
and the recognition of net deferred tax assets, Forum Group
had no federal income tax liability at March 31, 1995.
Notes, investments and other receivables include federal
income taxes receivable of $1,250,000 at March 31, 1995.
As of March 31, 1995, net operating loss carryforwards for
tax purposes were estimated to be approximately $158,000,000
before the application of certain net operating loss
carryforward limitations resulting from changes in ownership.
As a result of these limitations, Forum Group expects the
utilization of net operating loss carryforwards will be
limited to approximately $33,000,000. 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 will
be reported as additional shareholders' equity. The maximum
tax benefit to be recognized through shareholders' equity was
estimated to be approximately $30,000,000 at March 31, 1995.
(5)Commitments and Contingencies
In January 1994, the Russell F. Knapp Revocable Trust (the
"Knapp Trust"), instituted an action in the United States
District Court for the Northern District of Iowa ("District
Court") against Forum Retirement, Inc. ("FRI"), the wholly-
owned subsidiary of Forum Group which serves as general
partner of Forum Partners, 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 limited partnership units,
(ii) the Board of Directors of FRI 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 FRI is a consequence of actions by
Forum Group, (iv) FRI'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
FRI, Forum Group and Forum Partners have breached Forum
Partners' partnership agreement and securities laws, and
filed to discharge fiduciary duties. The Knapp Trust is
seeking the restoration of certain former directors to the
Board of Directors of FRI, the removal of certain other
directors from such Board, an injunction prohibiting the
payment of 8% management fees and unspecified compensatory
and punitive damages. On April 4, 1995, the District Court
dismissed the Knapp Trust complaint in its entirety, ruling
that personal jurisdiction does not exist over either Forum
Group or FRI in Iowa. 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 Eight Circuit. 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.
36
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 Partners (the "Indiana
Action") containing essentially the identical allegations
asserted in the Iowa Action (see above). Under the
applicable local rules, Forum Group's response to the
compliant in the Indiana Action will be due within 23 days
after service of the compliant. As with the Iowa Action,
Forum Group believes that there are meritorious procedural
and substantive defenses to the claims asserted in the
Indiana Action and intends vigorously to defend against such
claims; however, there necessarily can be no assurance as to
the ultimate outcome of these proceedings.
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 of Chancery of the State of Delaware
in and for New Castle County (the "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, among other
things, GRP delegated 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 with
jurisdiction over Forum Group's reorganization (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 December 13, 1994, Mr. Maddock and Forum Group entered a
stipulation 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 stipulation does not bar the assertion of a claim
arising after April 2, 1992 from either a new cause of action
or a new breach of any continuing agreement. On March 13,
1995, Mr. Maddock filed a motion to amend his complaint in
the State Court Action purportedly seeking to assert claims
only with respect to matters accruing after the effective
date of the Reorganization Plan and also seeking to add Forum
Group as a defendant and to add a new claim asserting that
GRP and Forum Group conspired to violate federal anti-trust
laws. GRP and Forum Group have objected to Mr. Maddock's
motion. Forum Group believes that there are substantial
defenses to Mr. Maddock's claims; however, there necessarily
can be no assurance as to the outcome of these proceedings.
Forum Group and its subsidiaries have been named as
defendants in several other professional malpractice and
negligence actions and may be subject to other claims arising
from services provided to residents of their facilities. To
the extent those claims arose before the effective date of
Forum Group's reorganization, they have received or will
receive treatment under the plan. Forum Group maintains
professional liability insurance, comprehensive general
liability insurance and other typical insurance coverage on
its facilities. Management believes that those claims are
either adequately insured or, to the extent (if any) they are
not insured, will not materially adversely affect Forum
Group's consolidated financial condition or operating
results.
37
(6)Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107,
"Disclosures About Fair Value of Financial Instruments,"
requires disclosure of the fair value of all financial assets
and liabilities for which it is practicable to estimate.
Fair value is defined in the Statement as the amount at which
the instrument could be exchanged in a current transaction
between willing parties, other than in a forced or
liquidation sale. Forum Group believes the carrying amount
of its financial instruments (excluding property
indebtedness) approximates their fair value due to the
relatively short maturity of these instruments. There is no
quoted market value available for any of the Forum Group's
instruments. Property indebtedness, with carrying amount of
$166,178,000 has been calculated to have a fair value of
$158,473,000 by discounting the scheduled loan payments to
maturity using rates that are believed to be currently
available for debt of similar terms and maturities. Due to
restrictions of transferability and prepayment, previously
modified debt terms and other property specific competitive
conditions, Forum Group may be unable to refinance the
indebtedness to obtain such calculated debt amounts reported.
(7)Employee Benefit Plan
Effective April 1, 1993, Forum Group established a defined
contribution profit sharing plan, including features under
Section 401(k) of the Internal Revenue Code, which will
provide retirement benefits to its eligible employees. Forum
Group contributes to the plan for participants employed at
the RCs. Forum Group has expensed $147,000 and $108,000 in
1995 and 1994, respectively, relating to its portion of
employee contributions under this plan.
Forum Group has retirement agreements with certain current
and former officers under which each officer is to be paid
50% of average annual compensation, as defined, for a period
of fifteen years upon reaching age 65. Upon disability or
death prior to retirement, benefits are to be paid for a
period of ten years based on compensation as calculated for
retirement benefits. At March 31, 1995 and 1994, Forum Group
had an accrued expense of $1,963,000 and $1,780,000,
respectively.
38
Quarterly Financial Data
The following quarterly financial data summarize the
unaudited quarterly results for the fiscal years ended March 31,
1994 and March 31, 1995.
Income (Loss)
Per Common Share
-------------------------
Income (Loss) Income (Loss)
Before Before
Total Extraordinary Net Income Extraordinary Net Income
Revenues Charge (Loss) Charge (Loss)
Quarters Ended --------------------------------------------------------------
(in thousands except per share amounts)
June 30, 1993 $25,103 $(1,201) $(1,616) $(0.13) $(0.17)
September 30, 1993 27,226 859 861 0.05 0.05
December 31, 1993 28,307 1,631 272 0.08 0.01
March 31, 1994 27,829 1,401 (6,647) 0.07 (0.31)
June 30, 1994 $28,090 $2,076 $2,076 $0.09 $0.09
September 30, 1994 37,513 6,005 6,005 0.26 0.26
December 31, 1994 41,901 3,087 2,825 0.13 0.12
March 31, 1995 44,456 1,322 1,322 0.06 0.06
Item 9. Disagreements on Accounting and Financial
Disclosure. Not applicable.
PART III
The information required to be filed under Part III is
incorporated by reference from Forum Group's definitive proxy or
information statement, which will be filed with the Commission
not later than July 29, 1995 (or, if not so filed by such date,
the Items comprising the Part III information will be filed as an
amendment to this Report not later than July 29, 1995).
39
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) The following documents are filed as a part of
this report:
1. Financial statements:
The following consolidated financial statements are
filed under Item 8 of this report:
Page(s)
Independent Auditors' Report......................22
Consolidated Balance Sheets - March 31, 1995
and 1994........................................23
Consolidated Statements of Operations
- Years ended March 31, 1995, 1994 and 1993.......24
Consolidated Statements of Shareholders' Equity
- Years ended March 31, 1995, 1994 and 1993.......25
Consolidated Statements of Cash Flows
- Years ended March 31, 1995, 1994 and 1993.......26
Notes to Consolidated Financial Statements.....27 - 38
2. Financial statement schedules:
The following other financial statements and financial
statement schedules are filed pursuant to this Item:
Page(s)
Independent Auditors' Report....................F-1
Schedule VIII - Valuation and Qualifying Accounts
- Years ended March 31, 1995, 1994 and 1993...F-2
All other schedules for which provision is made in Regulation S-X
are not required under the related instructions or are
inapplicable, and have therefore been omitted.
40
3. Exhibits. Page(s)
Exhibit 3(1) Amended and Restated
Articles of Incorporation of Forum
Group (incorporated by reference to
Exhibit 4.3 to Forum Group's
Registration Statement on Form S-8
[Registration No. 33-56355], filed
November 7, 1994 [the "Form S-8"]).........N/A
Exhibit 3(2) Amended and Restated Code
of By-Laws of Forum Group, as
amended.................................E-1 - E-23
Exhibit 10(1) Warrant Agreement, dated
as of June 10, 1993, by and between
Forum Group and Citicorp USA, Inc.
(incorporated by reference to
Exhibit 4(3) to Forum Group's
Report on Form 10-K for fiscal year
ended March 31, 1993 (the "1992
Form 10-K"))...............................N/A
Exhibit 10(2) Recapitalization
Agreement, dated as of October 6,
1993, between Forum Group and Forum
Partners (incorporated by reference
to Exhibit 10(1) to the Company's
Current Report on Form 8-K dated
October 6, 1993 (the "October 1993
Form 8-K"))................................N/A
Exhibit 10(3) Stock Purchase Agreement,
dated October 6, 1993, by and among
Forum Group, Forum Holdings and
Apollo FG Partners, L.P.
(incorporated by reference to
Exhibit 10(2) to the October 1993
Form 8-K)..................................N/A
Exhibit 10(4) Stock Purchase Agreement,
dated November 16, 1993, by and
between Forum Group and Healthcare
Resources I, L.P. (incorporated by
reference to Exhibit 10(3) to Forum
Group's Registration Statement on
Form S-2 (Registration No. 33-
51251), filed December 31, 1993............N/A
Exhibit 10(5) Amended and Restated Loan
Agreement, dated as of February 1,
1994, by and among FGI Financing I
Corporation, Nomura and Bankers
Trust Company (incorporated by
reference to Forum Group's
Quarterly Report on Form 10-Q for
the quarter ended December 31, 1993
(the "1993 Third Quarter Form
10-Q").....................................N/A
Exhibit 10(6) Amended and Restated Loan
Agreement, dated as of June 8,
1995, among Forum Investments I,
L.L.C., Nomura and Midland Loan
Services, L.P..........................E-24 - E-171
41
Exhibit 10(7) Management Agreement,
dated as of December 31, 1986,
among Forum Partners, Forum
Retirement Operations, L.P.
("Operations"), Forum Health
Partners l-A, L.P., Foulk Manor
Associates, L.P. and Forum Group
(incorporated by reference to
Exhibit 10(1) of Forum Partners'
Registration Statement on Form S-2
(Registration No. 33-71498) filed
with the Commission on November 10,
1993 (the "FRP Form S-2")).................N/A
Exhibit 10(8) First Amendment to
Management Agreement, dated as of
June 29, 1989 (incorporated by
reference to Exhibit 10(2) to the
FRP Form S-2)..............................N/A
Exhibit 10(9) Second Amendment to
Management Agreement, dated as of
September 29, 1989 (incorporated by
reference to Exhibit 10(3) to the
FRP Form S-2)..............................N/A
Exhibit 10(10) Third Amendment to
Management Agreement, dated as of
May 27, 1992 (incorporated by
reference to Exhibit 10(4) to the
FRP Form S-2)..............................N/A
Exhibit 10(11) Fourth Amendment to
Management Agreement, dated as of
November 9, 1993 (incorporated by
reference to Exhibit 10(5) to the
FRP Form S-2)..............................N/A
Exhibit 10(12) Option Agreement (MLP),
dated as of December 29, 1986,
among Forum Group, Forum Partners
and Operations (incorporated by
reference to Exhibit 2(1) to the
FRP Form S-2)..............................N/A
Exhibit 10(13) Note Purchase Agreement
among Japan Leasing (U.S.A.), Inc.,
Inter-Lease (U.S.A.) Corporation,
Forum Retirement Communities II,
L.P. ("FRCIILP") and Japan Leasing
(U.S.A.), lnc., as agent
(incorporated by reference to
Exhibit 10(1) to Forum Group's
Current Report on Form 8-K dated
May 15, 1989 (the "May 1989 Form
8-K")).....................................N/A
Exhibit 10(14) Guaranty Issuance
Agreement among GATX Realty
Corporation, GATX Leasing
Corporation and FRCIILP
(incorporated by reference to
Exhibit 10(2) to the May 1989 Form
8-K).......................................N/A
Exhibit 10(15) Note Purchase Agreement
among Mitsui Leasing (U.S.A.) Inc.,
BOT Leasing America Inc., Redwood
Properties, Inc., Forum Group,
Forum Retirement Communities I,
L.P. (FRCILP, and Mitsui Leasing
(U.S.A.) Inc., as agent
(incorporated by reference to
Exhibit 10(1) to Forum Group's
Current Report on Form 8-K dated
April 24, 1990 (the "April 1990
Form 8-K"))................................N/A
42
Exhibit 10(16) Guaranty Issuance
Agreement among GATX Realty
Corporation, GATX Capital
Corporation and FRCILP
(incorporated by reference to
Exhibit 10(2) to the April 1990
Form 8-K)..................................N/A
Exhibit 10(17) Indenture, dated as of
June 1, 1993, between Forum Group,
as Issuer, and First Trust National
Association Trustee, including form
of Senior Subordinated Note (the
"Indenture") (incorporated by
reference to Exhibit 4(1) to the
1992 Form 10-K)............................N/A
Exhibit 10(18) Amendment to the
Indenture and Notes, dated as of
January 31, 1994 (incorporated by
reference to the 1993 Third Quarter
Form 10-Q).................................N/A
Exhibit 10(19) Second Amendment to the
Indenture and Notes, dated as of
June 20, 1995.........................E-172 - E-175
Exhibit 10(20) Forum Group, Inc. Equity
Incentive Plan (incorporated by
reference to Exhibit 4.1 to the FGI
Form S-8)..................................N/A
Exhibit 10(21) Employment Agreement,
dated as of August 7, 1994, between
Forum Group and Mark L. Pacala........E-176 - E-190
Exhibit 21 Subsidiaries of Forum Group.........E-191
Exhibit 23 Consent of KPMG Peat Marwick
LLP.......................................E-192
Exhibit 27 Financial Data Schedules.............
(b) Reports on Form 8-K. There were no
reports on Form 8-K during the last
quarter of the period covered by
this Report.
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FORUM GROUP, INC.
By: _/s/___Mark L. Pacala____
Mark L. Pacala, President and
Chief Executive Officer
Date: June 28, 1995
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
(1) Principal Executive Officer:
_/s/___Mark L. Pacala____ President and June 28, 1995
Mark L. Pacala Chief Executive Officer
(2) Principal Financial and
Accounting Officer:
_/s/___Paul A. Shively__ Senior Vice President, June 28, 1995
Paul A. Shively Treasurer and Chief
Financial Officer
S-1
Signature Title Date
(3) A Majority of the Board of
Directors:
/s/___Robert A. Whitman_____ Director June 28, 1995
Robert A. Whitman
/s/___Mark L. Pacala________ Director June 28, 1995
Mark L. Pacala
/s/___Laurence M. Berg______ Director June 28, 1995
Laurence M. Berg
/s/___Peter P. Copses_______ Director June 28, 1995
Peter P. Copses
/s/___Daniel A. Decker______ Director June 28, 1995
Daniel A. Decker
__________________________ Director June , 1995
James E. Eden
/s/___Asher O. Pacholder____ Director June 28, 1995
Asher O. Pacholder
/s/___Antony P. Ressler_____ Director June 28, 1995
Antony P. Ressler
__________________________ Director June , 1995
D. Ellen Shuman
/s/___Merlin C.Spencer______ Director June 28, 1995
Merlin C. Spencer
/s/___George D. Woodard_____ Director June 28, 1995
George D. Woodard
S-2
Independent Auditors' Report
The Board of Directors and Shareholders
Forum Group, Inc.:
Under date of June 3, 1995, we reported on the consolidated
balance sheets of Forum Group, Inc. and subsidiaries as of
March 31, 1995 and 1994 and the related consolidated
statements of operations, shareholders' equity and cash
flows for each of the years in the three-year period ended
March 31, 1995, as contained in the annual report on Form 10-
K for the year ended March 31, 1995. In connection with our
audits of the aforementioned consolidated financial
statements, we also have audited the related financial
statement schedule as listed in the accompanying index.
This financial statement schedule is the responsibility of
Forum Group's management. Our responsibility is to express
an opinion on this financial statement schedule based on our
audits.
In our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
June 3, 1995
F-1
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FORUM GROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------------------------------------------------------
COL. A | COL. B | COL. C | COL. D | COL. E
- --------------------------------------------------------------------------------------------------------------------------------
| | Additions | |
| |--------------------------------------| |
| | (1) | | |
| Balance | Charged to | Charged to | | Balance
| at Beginning | Costs and | Other Accounts - | Deductions - | at End
Description | of Period | Expenses | Describe | Describe | of Period
- --------------------------------------------------------------------------------------------------------------------------------
Year ended March 31, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts
receivable and contractual
adjustments $277,000 $463,000 $173,000 (1) $426,000 (2) $487,000
Deferred tax asset valuation
allowance 40,212,000 0 0 5,680,000 (3) 34,532,000
----------------- ----------------- ----------------- ---------------- ----------------
TOTALS $40,489,000 $463,000 $173,000 $6,106,000 $35,019,000
================= ================= ================= ================ ================
Year ended March 31, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts
receivable and contractual
adjustments $219,000 $301,000 $0 $243,000 (2) $277,000
Deferred tax asset valuation
allowance 35,552,000 0 4,660,000 (4) 0 40,212,000
----------------- ----------------- ----------------- ---------------- ----------------
TOTALS $35,771,000 $301,000 $4,660,000 $243,000 $40,489,000
================= ================= ================= ================ ================
Year ended March 31, 1993:
Deducted from asset accounts:
Allowance for doubtful accounts
receivable and contractual
adjustments $109,000 $264,000 $0 $154,000 (2) $219,000
Deferred tax asset valuation
allowance 0 0 35,552,000 (4) 0 $35,552,000
----------------- ----------------- ----------------- ---------------- ----------------
TOTALS $109,000 $264,000 $35,552,000 $154,000 $35,771,000
================= ================= ================= ================ ================
<FN>
Note 1. As of August 1, 1994, the assets of Forum Retirement Partners, L.P. were included in the consolidated financial statemen
Note 2. Uncollectible accounts receivable charged off, less recoveries and contractual adjustments of revenues.
Note 3. Utilization of net operating loss carryforwards and other net deferred tax assets.
Note 4. Provision to fully reserve net deferred tax assets.
</FN>
F-2