SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended December 31, 1993 Commission File Number 0-6350
FORUM GROUP, INC.
(Exact name of registrant as specified in its charter)
Indiana 61-0703072
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8900 Keystone Crossing, Suite 200
P.O. Box 40498
Indianapolis, Indiana 46240-0498
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 317-846-0700
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90
days:
Yes X No
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution
of securities under a plan confirmed by a court:
Yes X No
The number of shares outstanding of the registrant's common stock
as of February 10, 1994 was 21,261,625.
INDEX
FORUM GROUP, INC., AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE
- ----------------------------- ----
Item 1. Financial Statements (Without Audit)
Condensed consolidated balance sheets --
December 31 and March 31, 1993 3
Condensed consolidated statements of operations --
Three and nine months ended December 31, 1993 and 1992 4
Condensed consolidated statements of cash flows --
Nine months ended December 31, 1993 and 1992 5
Notes to condensed consolidated financial statements --
December 31, 1993 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
- --------------------------
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 22
- ----------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FORUM GROUP, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Without Audit)
December 31, March 31,
1993 1993
ASSETS ------------- -----------
------ (in thousands)
Property and Equipment:
Land and improvements $ 34,486 $ 34,443
Buildings and leasehold improvements 175,717 175,064
Furniture and equipment 12,627 12,225
----------- -----------
222,830 221,732
Less accumulated depreciation and amortization 10,120 5,768
----------- -----------
212,710 215,964
Rancho San Antonio, property and equipment - net -0- 94,573
----------- -----------
212,710 310,537
Investments:
Forum Retirement Partners, L.P. 16,281 3,795
Greenville Retirement Community, L.P. 3,736 3,763
Rancho San Antonio Retirement Housing
Corporation 11,281 -0-
----------- -----------
31,298 7,558
----------- -----------
Cash and cash equivalents 14,334 5,817
Accounts receivable, less allowance for doubtful
accounts (December 31, $230; March 31, $219) 4,587 2,883
Notes, investments and other receivables 4,830 3,149
Land held for resale 1,638 1,638
Restricted cash 8,478 8,804
Deferred costs and other assets 9,116 4,165
Rancho San Antonio, current and other assets -0- 4,090
----------- -----------
$ 286,991 $ 348,641
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Long-term debt, including $8,387 due
within one year $ 191,917 $ 200,098
Trade accounts payable 1,681 1,855
Accrued interest 1,614 708
Other accrued expenses 15,383 17,955
Resident deposits 19,089 16,558
Deferred income 4,650 4,585
Rancho San Antonio, liabilities -0- 30,820
----------- -----------
Total Liabilities 234,334 272,579
Rancho San Antonio, cooperative memberships -0- 55,910
Other partners' equity 1,686 1,707
Shareholders' equity:
Preferred stock - Series B, no par value -
authorized 2,000 shares, issued 25 shares
at March 31, 1993 -0- 4,870
Common stock, no par value - authorized 48,000
shares, issued 21,262 and 7,493 shares at
December 31 and March 31, 1993, respectively 58,813 20,934
Accumulated deficit (7,842) (7,359)
----------- -----------
Total Shareholders' Equity 50,971 18,445
----------- -----------
$ 286,991 $ 348,641
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
FORUM GROUP, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Without Audit)
Three Months Ended Nine Months Ended
December 31, December 31,
------------------- ------------------
1993 1992 1993 1992
-------- -------- ------- --------
(in thousands except per share amounts)
Revenues:
Net operating revenues $ 27,855 $ 23,445 $ 79,620 $ 66,033
Facility sales, net and other 204 197 371 500
-------- -------- -------- --------
TOTAL REVENUES 28,059 23,642 79,991 66,533
-------- -------- -------- --------
Costs and expenses:
Operating expenses 19,587 18,086 57,450 51,900
General and administrative
expenses 732 1,474 2,470 3,791
Litigation expense 55 -0- 1,317 -0-
Depreciation 1,801 2,411 5,841 6,598
-------- -------- -------- --------
TOTAL COSTS AND EXPENSES 22,175 21,971 67,078 62,289
-------- -------- -------- --------
5,884 1,671 12,913 4,244
Other:
Investment income 248 201 645 1,033
Interest expense (4,357) (4,692) (13,241) (13,708)
-------- -------- -------- --------
(4,109) (4,491) (12,596) (12,675)
-------- -------- -------- --------
Income (loss) before minority interests
and extraordinary charge 1,775 (2,820) 317 (8,431)
Minority interests (143) 1,005 972 1,350
-------- -------- -------- --------
Income (loss) before extraordinary
charge 1,632 (1,815) 1,289 (7,081)
Extraordinary charge - early
extinguishment of debt (1,360) -0- (1,772) -0-
-------- -------- -------- --------
NET INCOME (LOSS) 272 (1,815) (483) (7,081)
ACCUMULATED DEFICIT AT BEGINNING
OF PERIOD (8,114) (5,266) (7,359) -0-
-------- -------- -------- --------
ACCUMULATED DEFICIT AT END OF
PERIOD $ (7,842) $ (7,081) $ (7,842) $ (7,081)
======== ========= ======== =========
Average number of common shares
outstanding 20,823 7,493 15,858 7,493
======== ========= ======== =========
Net income (loss) per common share:
Income (loss) before
extraordinary charge $ 0.08 $ (0.24) $ 0.08 $ (0.95)
Extraordinary charge (0.07) 0.00 (0.11) 0.00
-------- -------- -------- --------
Net income (loss) $ 0.01 $ (0.24) $ (0.03) $ (0.95)
======== ========= ======== =========
SEE Notes to Condensed Consolidated Financial Statements.
FORUM GROUP, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Without Audit)
Nine Months Ended
December 31,
-------------------------
1993 1992
---------- ----------
(in thousands)
Cash flows from operating activities:
Net loss $ (483) $ (7,081)
Items which do not use (provide) cash:
Depreciation and amortization 6,617 6,824
Facility sales, net (84) (483)
Accrued revenues and expenses, net (5,843) (3,239)
Accrued interest 886 (134)
Other partners' interest in losses (earnings)
of consolidated partnerships 213 (1,351)
Equity in losses (earnings) of
unconsolidated entities (86) 512
Non-cash portion of extraordinary charge 1,630 -0-
---------- ----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 2,850 (4,952)
---------- ----------
Cash flows from investing activities:
Additions to property and equipment (1,280) (4,959)
Disposals of property and equipment -0- 36,723
Rancho San Antonio - net (71) -0-
Construction costs payable -0- (5,395)
Disposals of land held for resale -0- 1,895
Advances on notes receivable (5) (750)
Investment in Forum Retirement Partners, L.P. (13,131) -0-
Other -0- (288)
---------- ----------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES (14,487) 27,226
---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt 90,711 12,802
Payments on long-term debt (101,533) (35,822)
Restructuring interest payment -0- (13,050)
Restructuring legal fees (52) (2,680)
Proceeds from issuance of common stock 32,999 -0-
Proceeds from Forum Retirement, Inc.'s
tender of Forum Group common stock 1,861 -0-
Recapitalization and tender offer costs (8,541) -0-
Proceeds from cooperative memberships 2,426 12,883
Net increase in restricted cash 2,371 3,612
Net distribution to other partners (72) (235)
Deferred financing and other costs (16) (1,124)
---------- ----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 20,154 (23,614)
---------- ----------
Net increase (decrease) in cash and
cash equivalents 8,517 (1,340)
Cash and cash equivalents at beginning of period 5,817 7,542
---------- ----------
Cash and cash equivalents at end of period $ 14,334 $ 6,202
========== ==========
See Notes to Condensed Consolidated Financial Statements.
FORUM GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Without Audit)
December 31, 1993
Note A - Basis of Presentation
- ------------------------------
The balance sheet at March 31, 1993 has been derived from the audited
financial statements at that date included in the Annual Report on Form
10-K of Forum Group, Inc. ("Forum Group") filed with the Securities and
Exchange Commission for the fiscal year ended March 31, 1993 (the "1993
10-K").
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the nine-month period ended December 31, 1993 are
not necessarily indicative of the results that may be expected for the
fiscal year ending March 31, 1994. For further information, refer to
Forum Group's consolidated financial statements as of and for the year
ended March 31, 1993, and the footnotes thereto, included in the 1993
10-K.
Note B - Refinancing Agreements
- -------------------------------
Forum Group Recapitalization. As previously disclosed, in June, 1993
Forum Group consummated a recapitalization (the "FGI Recapitalization")
pursuant to a series of agreements and modifications thereto
(collectively, the "Acquisition Agreement") with a group of investors
comprised of Forum Holdings, L.P. ("Forum Holdings"), Apollo Investment
Fund, L.P. ("AIF") and Lion Advisors, L.P., on behalf of one or more
managed accounts ("Lion") (AIF and Lion, together with their affiliates
and assigns, are hereinafter collectively referred to as "Apollo") and
Healthcare Resources I, L.P. ("Healthcare Resources") (Forum Holdings,
Apollo and Healthcare Resources, together with their affiliates and
assigns, are hereinafter collectively referred to as the "Investors").
As a result of the FGI Recapitalization, including the Investors' Tender
Offer described below, the Investors acquired approximately 71.7% of the
outstanding shares of common stock of Forum Group ("Common Shares"). The
principal components of the FGI Recapitalization included (i) the
issuance and sale by Forum Group on February 1, 1993 of 25,000 shares of
preferred stock (which were exchanged on June 14, 1993 for 2,500,000
newly-issued Common Shares) for an aggregate purchase price of
$5,000,000, (ii) the issuance and sale by Forum Group on June 14, 1993 of
7,098,200 Common Shares, together with warrants exercisable to purchase
at a nominal price an aggregate of 1.1555 Common Shares for each Common
Share reserved in accordance with Forum Group's April 2, 1992, Plan of
Reorganization for the payment of disputed general unsecured claims (each
a "Reserved Share") issued on or after June 14, 1993 for an aggregate
purchase price of $20,000,000, (iii) the borrowing by Forum Group on June
14, 1993, of $50,000,000 pursuant to a new bank credit facility through a
consortium of lenders for which Citicorp USA, Inc. serves as agent (the
"Citibank Term Loan"), (iv) the issuance and sale by Forum Group on
FORUM GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Without Audit)
December 31, 1993 (continued)
June 14, 1993 of $40,000,000 aggregate principal amount of senior
subordinated notes (the "Senior Subordinated Notes"), and (v) the
prepayment by Forum Group on June 14, 1993 of all amounts outstanding
under the senior secured term loan agreement which had been entered into
on April 2, 1992 with a consortium of banks for which Chemical Bank
served as agent. Of the 441,071 Reserved Shares as of March 31, 1993,
170,806 were issued prior to June 14, 1993, 4,984 were issued on August
24, 1993 and 265,281 continued to be reserved as of February 1, 1994.
Pursuant to the Acquisition Agreement, the Investors commenced a tender
offer on July 27, 1993 whereby the Investors offered to purchase Common
Shares from shareholders of Forum Group (other than Forum Group) for
$3.62 per share (the "Investors' Tender Offer"). The Investors' Tender
Offer expired on August 31, 1993 with 1,345,543 Common Shares having been
tendered by shareholders. Included in the Common Shares tendered as a
result of the Investors' Tender Offer were 513,993 Common Shares held by
Forum Retirement, Inc., a wholly owned subsidiary of Forum Group.
On February 1, 1994 the Citibank Term Loan and $30,000,000 aggregate
principal amount of the Senior Subordinated Notes were retired with the
proceeds of a refinancing loan (the "Refinancing Loan") (see Note D).
Forum Retirement Partners, L.P. Recapitalization. On October 7, 1993,
Forum Group announced that it had entered into an agreement with Forum
Retirement Partners, L.P. ("FRP") relating to Forum Group's
participation in a proposed recapitalization of FRP (the "FRP
Recapitalization Agreement"). Forum Group had a 22.1% equity investment
in FRP (prior to the FRP Recapitalization), is the parent company of
FRP's general partner and has a long-term management contract with FRP.
Pursuant to the FRP Recapitalization Agreement, $13 million of additional
equity was provided to FRP by a subsidiary of Forum Group through the
purchase of 6.5 million units of FRP's limited partnership interests
("Units") at a price of $2.00 per Unit. Subsequent to this purchase,
Forum Group owned 55.2% of the Units, subject to reduction as discussed
below.
As required by the FRP Recapitalization Agreement, FRP has made a public
offering whereby unitholders of record as of October 18, 1993 (other than
Forum Group and its affiliates) have the right to acquire additional
Units at $2.00 per unit, the same price paid by the Forum Group
subsidiary. The rights to acquire additional Units expire on February
25, 1994, subject to extension. Those rights are not directly or
indirectly transferable. The proceeds of that offering will be used to
repurchase Units from the Forum Group subsidiary at the same price paid
by that subsidiary. Should all of the eligible unitholders purchase the
Units being offered to them, Forum Group's percentage ownership will
return to 22.1%. Forum Group expects its percentage ownership to be less
than 50% upon completion of the offering; therefore, Forum Group's
investment in FRP is accounted for on the equity method.
Forum Group's subsidiary's acquisition of the 6.5 million Units described
above was financed by proceeds from the sale of 3,466,666 additional
Common Shares to the Investors for an aggregate purchase price of
$13,000,000. Immediately following their purchase of the 3,466,666
FORUM GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Without Audit)
December 31, 1993 (continued)
Common Shares described above, the Investors owned a total of 16,217,922
Common Shares, increasing the Investor's percentage ownership of Forum
Group from approximately 71.7% to approximately 76.3%.
The agreement under which the 3,466,666 Common Shares were purchased by
the Investors provided that Forum Group will file and thereafter use its
best efforts to make effective a registration statement in connection
with an offering (the "FGI Offering") pursuant to which Forum Group
shareholders of record on October 18, 1993 (other than the Investors)
will have the right to acquire additional shares at $3.75 per Common
Share, the same price paid by the Investors. The right to purchase
Common Shares in the FGI Offering will not be directly or indirectly
assignable or transferable. It is presently expected that the FGI
Offering will be commenced in February 1994.
Note C - Change In Consolidation. The assets, liabilities and financial
results of Rancho San Antonio Retirement Housing Corporation ("RSARHC"),
a cooperative which owns The Forum at Rancho San Antonio ("Rancho San
Antonio"), a cooperative continuing care community in Cupertino,
California, were included in the consolidated financial statements of
Forum Group through July 31, 1993 since Forum Group owned a majority of
RSARHC's cooperative memberships. Effective August 1, 1993, due to
continued sales of cooperative memberships, Forum Group no longer owned
in excess of 50% of the memberships, and accordingly, the financial
statements of RSARHC are no longer included in Forum Group's consolidated
financial statements. Sales of cooperative memberships have totalled
$76,000,000 through December 31, 1993 and profits on these sales will be
recognized using the cost recovery method. Forum Group's continuing
ownership interest in RSARHC as the owner of 38% of the cooperative
memberships at December 31, 1993 is accounted for on the equity method.
Note D - Long-Term Debt. On February 1, 1994 proceeds of the Refinancing
Loan of $93,301,000 were used to retire the $49 million principal balance
of the Citibank Term Loan and $30 million of aggregate principal amount
of the Senior Subordinated Notes, and pay expenses totalling
approximately $10,366,000, $7,427,000 of which related to the purchase of
an interest rate cap agreement from a financial institution (which
effectively caps the interest rate on the Refinancing Loan at 8.925% per
annum), and prepayment premiums totalling approximately $3,000,000. The
Refinancing Loan requires monthly payments of principal based on a 25
year amortization to maturity on February 1, 2001, and bears interest at
a floating rate equal to the 30 day LIBOR rate plus 4.3%. As of the
closing date of the Refinancing Loan, the interest rate thereunder was
7.425%.
The write-off of deferred financing costs and other expenses associated
with the refinancing will result in extraordinary charges estimated at $8
million in Forum Group's fourth fiscal quarter.
FORUM GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Without Audit)
December 31, 1993 (continued)
Note E - Investments. Summary financial information for FRP as of and
for the nine months ended December 31, 1993 is as follows (in thousands):
Net property $ 98,265
Other assets 12,215
---------
110,480
Less liabilities 71,868
---------
Net assets $ 38,612
=========
Revenues $ 33,740
Costs and expenses 34,836
Extraordinary charge - early
extinguishment of debt 2,917
---------
Net loss $ 4,013
=========
In December, 1993 FRP completed the refinancing of its long-term debt
and, as a result, recognized an extraordinary charge of $2,917,000 for
early extinguishment of debt. Forum Group's share of this charge is
presented as an extraordinary charge in the accompanying condensed
consolidated statement of operations.
Forum Group has a 50% beneficial interest in Greenville Retirement
Community, L.P. ("GRP"), a limited partnership which owns the Stonegates
retirement community in Wilmington, Delaware. Summary financial
information for GRP as of and for the nine months ended December 31, 1993
is as follows (in thousands):
Net property $ 20,684
Other assets 1,090
---------
21,774
Less liabilities 22,932
---------
Net deficit $ 1,158
=========
Revenues $ 4,516
Costs and expenses 4,182
---------
Net income $ 334
=========
Summary financial information for RSARHC as of and for the nine months
ended December 31, 1993 is as follows (in thousands):
Net property $ 97,677
Other assets 7,254
---------
104,931
Less liabilities 44,873
---------
Net assets $ 60,058
=========
Revenues $ 4,296
Costs and expenses 9,674
---------
Net loss $ 5,378
=========
FORUM GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Without Audit)
December 31, 1993 (continued)
Note F - Operating Revenues. A change in the estimate of amounts
reimbursable by third party payors from prior years resulted in the
recognition of $1,115,000 of operating revenue in the nine month period
ended December 31, 1993. Forum Group participates in the Medicare
program and in certain Medicaid programs. These programs provide
reimbursement on the basis of allowable cost. Allowable cost is subject
to retroactive examination and adjustment by the agencies administering
the programs, and provisions are made in the financial statements for
potential adjustments that may result. To the extent that those
estimated provisions differ from the administering agencies'
determinations, operations are routinely charged or credited in the
period of such determinations. As a result, Forum Group changed its
estimate of amounts reimbursable by third party payors in 1993 from prior
years.
FORUM GROUP, INC., AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AS OF AND FOR THE THREE AND NINE MONTHS ENDING
December 31, 1993
Results Of Operations
- ---------------------
Forum Group operates (i) 10 retirement communities and one nursing home
owned directly by Forum Group, or wholly owned subsidiaries of Forum
Group, including one community owned by a nonprofit corporation
controlled by Forum Group (the "Owned Communities") , (ii) four
retirement communities owned by partnerships which are not wholly owned
by Forum Group but which are consolidated for financial reporting
purposes (the "Consolidated Partnership Communities"), (iii) 11
retirement communities owned by entities which are not consolidated for
financial reporting purposes (the "Unconsolidated Communities"),
including nine communities owned by FRP, one owned by GRP, and one owned
by RSARHC (which was consolidated for financial reporting purposes prior
to July 31, 1993) (see Note C to accompanying Condensed Consolidated
Financial Statements). The periods in which the financial results of the
consolidated components of Rancho San Antonio are included in the
financial statements of Forum Group are not comparable. Consequently,
Rancho San Antonio is presented separately below in order to present a
comparable disclosure of the other entities' financial results.
Certain summary financial information for the Owned Communities, Rancho
San Antonio, the Consolidated Partnership Communities, and other
corporate operations ("Corporate Operations") is presented below:
Nine Months Ended December 31, 1993
-----------------------------------
Consolidated
Owned Rancho Partnership Corporate
Communities San Antonio Communities Operations Totals
----------- ----------- ----------- ---------- --------
Net
Operating
Revenues $55,291 $ 4,106 $19,343 $ 880 $79,620
Operating
Expenses 38,542 4,009 12,027 2,872 57,450
General and
Administra-
tive Expense 0 0 (3) 2,473 2,470
Litigation
Expense 0 0 0 1,317 1,317
Depreciation 2,920 878 1,504 539 5,841
Interest
Expense 2,103 707 3,145 7,286 13,241
FORUM GROUP, INC., AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Nine Months Ended December 31, 1992
Consolidated
Owned Rancho Partnership Corporate
Communities San Antonio Communities Operations Totals
----------- ----------- ----------- ---------- --------
Net
Operating
Revenues $45,586 $ 2,565 $17,067 $ 815 $66,033
Operating
Expenses 35,129 2,348 11,507 2,916 51,900
General and
Administra-
tive Expense 0 0 120 3,671 3,791
Litigation
Expense 0 0 0 0 0
Depreciation 2,844 2,186 1,481 87 6,598
Interest
Expense 1,865 1,637 3,339 6,867 13,708
Owned Communities. Net operating revenues for the three and nine months
ended December 31, 1993 increased by $3,318,000 (20%), from $16,240,000
to $19,558,000, and by $9,705,000 (21%), from $45,586,000 to $55,291,000,
respectively, as compared to the same periods of the previous year. A
change in the estimate of amounts reimbursable to third party payors from
prior years resulted in the recognition of $945,000 of operating revenue
in the nine month period ended December 31, 1993. The remaining portions
of the increases were primarily attributable to favorable changes in
occupancy, increased utilization of ancillary healthcare services and
increases in residency fees and charges. Combined occupancy increased
from 88% at December 31, 1992 to 93% at December 31, 1993. Operating
expenses, including general and administrative expenses and depreciation,
for the three and nine months ended December 31, 1993 at the Owned
Communities increased by $1,054,000 (8%), from $13,081,000 to
$14,135,000, and by $3,489,000 (9%), from $37,973,000 to $41,462,000,
respectively, as compared to the same periods of the previous year. The
remaining portions of the increases were primarily attributable to the
increase in occupancy, increased utilization of ancillary healthcare
services and normal inflationary increases. Net operating income,
comprised of operating revenue less operating expenses (including general
and administrative expenses and depreciation), for the three and nine
months ended December 31, 1993 at the Owned Communities increased by
$2,264,000, from $3,159,000 to $5,423,000, and by $6,216,000, from
$7,613,000 to $13,829,000, respectively, as compared to the same periods
of the previous year. Exclusive of the impact of the change in estimate
of reimbursable amounts discussed above, these increases constitute 68%
and 60%, respectively, of the increases in net operating revenues for the
three and nine month periods, which are indicative of the degree of
incremental operating income that results from increased occupancy.
FORUM GROUP, INC., AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Rancho San Antonio. Due to the change in financial statement
presentation discussed above in Note C to the Condensed Consolidated
Financial Statements, the financial results of Rancho San Antonio are not
comparable between fiscal periods. Therefore, no discussion of
comparative variances regarding the consolidated portions of Rancho San
Antonio is presented. Net operating revenues for the consolidated
components of Rancho San Antonio for the three and nine months ended
December 31, 1993 increased by $404,000, from $954,000 to $1,358,000, and
by $1,541,000, from $2,565,000 to $4,106,000, respectively, as compared
to the same periods of the previous year. Occupancy of the consolidated
components of Rancho San Antonio increased from 49% at December 31, 1992
to 91% at December 31, 1993. Operating expenses, including general and
administrative expenses and depreciation, for the consolidated components
of Rancho San Antonio for the three and nine month periods decreased by
$1,119,000, from $2,112,000 to $993,000, and increased by $353,000, from
$4,534,000 to $4,887,000, respectively, as compared to the same periods
of the previous year. Net operating income, comprised of operating
revenue less operating expenses (including general and administrative
expenses and depreciation), for the consolidated components of Rancho San
Antonio for the three month period ended December 31, 1993 increased by
$1,523,000, from a loss of $1,158,000 to income of $365,000, as compared
to the same period of the previous year. Net operating losses, comprised
of operating revenue and operating expenses (including general and
administrative expenses and depreciation), for the consolidated
components of Rancho San Antonio for the nine month period ended December
31, 1993 decreased by $1,188,000, from $1,969,000 to $781,000, as
compared to the same period of the previous year.
Consolidated Partnership Communities. Net operating revenues for the
three and nine months ended December 31, 1993 increased by $760,000
(13%), from $5,960,000 to $6,720,000, and by $2,276,000 (13%), from
$17,067,000 to $19,343,000, respectively, as compared to the same periods
of the previous year. A change in the estimate of amounts reimbursable
to third party payors from prior years resulted in the recognition of
$142,000 of operating revenue in September, 1993. The remaining portions
of the increases were primarily attributable to favorable changes in
occupancy, increased utilization of ancillary healthcare services, and
increases in residency fees and charges. Combined occupancy increased
from 86% at December 31, 1992 to 90% at December 31, 1993. Operating
expenses, including general and administrative expenses and depreciation,
for the Consolidated Partnership Communities for the three and nine
months ended December 31, 1993 increased by $74,000 (2%), from $4,433,000
to $4,507,000, and by $420,000 (3%), from $13,108,000 to $13,528,000,
respectively, as compared to the same periods of the previous year. The
remaining portions of the increases were primarily attributable to the
increase in occupancy, increased utilization of ancillary healthcare
services and to normal inflationary increases. Net Operating Income,
comprised of operating revenue less operating expenses (including general
and administrative expenses and depreciation), for the Consolidated
Partnership Communities for the three and nine months ended December 31,
1993 increased by $686,000, from $1,527,000 to $2,213,000, and by
$1,856,000, from $3,959,000 to $5,815,000, respectively, as compared to
the same periods of the previous year. Exclusive of the impact of the
change in estimate of reimbursable amounts discussed above, these
FORUM GROUP, INC., AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
increases constitute 90% and 80% of the increases in net operating
revenues for the three and nine months ended December 31, 1993, which are
indicative of the degree of incremental profits that result from
increased occupancy.
Corporate Operations. Revenues for the three and nine months ended
December 31, 1993 decreased $72,000, from $291,000 to $219,000, and
increased $65,000, from $815,000 to $880,000, respectively, compared to
the same periods of the previous year. Revenues are comprised of
management fees from GRP and RSARHC, a change in the estimate of amounts
reimbursable to third party payors from prior years for sold operations,
and rental income from certain residential units of Rancho San Antonio.
Operating expenses, including general and administrative expenses and
depreciation, for the three and nine months ended December 31, 1993
increased by $140,000 and decreased by $790,000, respectively, as
compared to the same periods of the previous year. These changes reflect
reductions in the headquarters staff and certain allocations of revenues
and expenses related to Rancho San Antonio. Corporate Operations
includes the unallocated interest expense of corporate debt.
Unconsolidated Communities. Forum Group's equity in the earnings of FRP,
which is reflected as other revenues, improved from losses of $51,000 and
$515,000 for the three and nine months ended December 31, 1992,
respectively, to revenue of $582,000 and $638,000 for the three and nine
months ended December 31, 1993, respectively. These increases primarily
reflect improved occupancy at the nine retirement communities owned by
FRP and managed by Forum Group. In December, 1993 FRP completed the
refinancing of its long-term debt and, as a result, recognized an
extraordinary charge of $2,917,000 for early extinguishment of debt.
Forum Group's share of this charge is presented as an extraordinary
charge in the accompanying condensed consolidated statement of
operations. Forum Group's equity in the earnings of GRP, which
is also reported as other revenues, increased from $98,000 and $215,000
for the three and nine months ended December 31, 1992, respectively, to
$88,000 and $232,000 for the three and nine months ended December 31,
1993, respectively. Forum Group's equity in the losses of the
unconsolidated component of Rancho San Antonio for the three and nine
months ended December 31, 1993 was $511,000 and $785,000, respectively.
Consolidated General and Administrative Expenses. For the three and nine
months ended December 31, 1993, consolidated general and administrative
expenses decreased by $742,000, from $1,474,000 to $732,000, and by
$1,321,000, from $3,791,000 to $2,470,000, respectively, compared to the
comparable periods in fiscal 1993. These decreases are primarily
attributable to decreases in salaries and wages of $384,000 and $935,000,
respectively, due to reductions in the headquarters staff. Those
decreases were partially offset by increases, in the amounts of $328,000
and $513,000, respectively, in Forum Group's directors' fees relating to
periods prior to, and expenses related to, the FGI Recapitalization.
Litigation Expenses. During the three and nine months ended December 31,
1993, expenses of $55,000 and $1,317,000, respectively, were incurred in
conjunction with certain litigation related to the FGI Recapitalization.
FORUM GROUP, INC., AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Depreciation. For the three and nine months ended December 31, 1993,
consolidated depreciation expense decreased by $610,000 and by $757,000,
respectively, compared to the comparable periods in fiscal 1993. The
changes reflect the opening of the healthcare facility at Rancho San
Antonio, additional fixed asset additions over the past twelve months and
increases in other intangible assets.
Interest Expense. Interest expense attributable to the Owned Communities
and Corporate Operations increased by $196,000, from $3,021,000 to
$3,217,000, and by $657,000, from $8,732,000 to $9,389,000, during the
three and nine months ended December 31, 1993, respectively. These
changes are primarily attributable to changes in average borrowing costs.
Extraordinary Charge. During the three and nine months ended December
31, 1993 an extraordinary charge of $1,360,000 was recorded to reflect
Forum Group's share of FRP's extraordinary charge on the early
extinguishment of its debt. Additionally, during the nine months ended
December 31, 1993, expenses of $412,000 related to the early
extinguishment of debt in conjunction with the FGI Recapitalizaiton
were recorded.
Net Income/Loss Per Share. The three and nine months ended December 31,
1993 produced net income of $272,000 ($0.01 per Common Share) and net
loss of $483,000 ($0.03 per Common Share), respectively, compared to net
losses of $1,815,000 ($0.24 per Common Share) and $7,081,000 ($0.95 per
Common Share) for the three and nine months ended December 31, 1992. The
current nine month period was adversely affected by $1,317,000 ($0.08 per
Common Share) of expenses related to certain litigation related to the
FGI Recapitalization and extraordinary charges totalling $1,772,000
($0.11 per Common Share) related to the early extinguishment of Forum
Group's and FRP's debt.
All per share data are based upon the weighted average number of shares
outstanding for the relevant periods.
Financial Condition
Recapitalization. In June, 1993 Forum Group consummated the FGI
Recapitalization. As a result of the FGI Recapitalization, including the
Investors' Tender Offer, the Investors acquired approximately 71.7% of
the outstanding Common Shares. On February 1, 1994 the New Term Loan and
$30,000,000 aggregate principal amount of the New Senior Subordinated
Notes were retired with the proceeds of the Refinancing Loan. For a
discussion of the FGI Recapitalization and the Refinancing Loan, see Note
B of the Notes to Condensed Consolidated Financial Statements.
FORUM GROUP, INC., AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
As a result of the FGI Recapitalization, Forum Group's long term debt as
of December 31, 1993 was as set forth below (in thousands):
Forum Group, Inc. (Owned Communities and Corporate Operations):
Citibank Term Loan $ 49,000
Senior Subordinated Notes 40,000
Mortgages and Capitalized Leases 23,378
Other 3,158
--------
Total Owned Communities and Corporate Operations (1) 115,536
Consolidated Partnership Communities (2) 76,381
--------
Total $191,917
========
(1) Excludes (i) indebtedness aggregating $4,535,000 of GRP, $569,000
of which is recourse to Forum Group and (ii) indebtedness aggregating
$9,645,000 of RSARHC which is non-recourse to Forum Group.
(2) These obligations are non-recourse to Forum Group.
Liquidity And Capital Resources. Following the FGI Recapitalization,
Forum Group's principal sources of funds are cash generated from
operating activities and asset sales. Forum Group's liquidity
requirements relate primarily to the funding of working capital needs,
and principal and interest payments on indebtedness (and, for the current
fiscal year, included approximately $5.9 million of expenses associated
with the FGI Recapitalization and $1.3 million of litigation expenses
relating to the FGI Recapitalization and will include additional expenses
relating to the Refinancing Loan presently estimated at approximately
$10.7 million). At December 31, 1993, Forum Group had cash and cash
equivalents of $14,334,000, accounts receivable of $4,587,000 and notes,
investments and other receivables of $4,830,000.
Forum Group believes that (i) cash from operations, (ii) cash and cash
equivalents, (iii) accounts receivable, and (iv) notes, investments and
other receivables, will provide adequate liquidity to meet its
foreseeable working capital requirements.
The term of Forum Group's prior bank debt required that a substantial
portion of excess cash flow be applied by Forum Group to reduce
indebtedness thereunder whereas the terms of the Refinancing Loan do not
require such prepayments and have an amortization period of 25 years (but
with a stated maturity of February 1, 2001). As a result, Forum Group
may use any excess cash flow to pursue its growth strategy. In addition,
the Refinancing Loan is generally on terms more favorable than the terms
applicable under Forum Group's prior long-term debt. The Refinancing
Loan also includes an option that, subject to certain conditions, enables
Forum Group to increase the amount of borrowings if the operating cash
flows from the assets pledged to secure the Refinancing Loan continue to
improve during the 24-month period ending February 1, 1996, in which
event the increased borrowing proceeds could be used to fund Forum
Group's growth through acquisitions of additional properties, to expand
or upgrade Forum Group's existing RCs or for other corporate purposes.
FORUM GROUP, INC., AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
In addition, the Refinancing Loan permits Forum Group to convert the
initial floating interest rate structure (generally 4.1% over the LIBOR,
which at the closing of the Refinancing Loan was 3.125%, plus servicing
costs, presently estimated to be 0.2% per year) under the Refinancing
Loan to a fixed interest rate structure.
Forum Group intends to seek to grow through the acquisition of additional
properties and other assets. In connection with the FGI
Recapitalization, the Investors stated their intention to make up to $30
million of additional equity capital available to Forum Group for this
purpose. Although the Investors already invested an additional $13
million in Forum Group since the completion of the FGI Recapitalization,
such amount was contributed to the capital of FRP and used by FRP to pay
bank debt. Any additional equity investment by the Investors would be
subject to the negotiation of mutually acceptable terms. Accordingly,
there can be no assurance that any such additional investment will be
made or as to the timing and terms thereof. Forum Group has also entered
into a commitment letter agreement (the "Acquisition Commitment") with
Nomura Asset Capital Corporation ("Nomura") providing for up to $100
million in new debt financing (the "Acquisition Loan"), the proceeds of
which would be used, together with equity to be provided by Forum Group,
to fund the purchase price for acquisitions of skilled nursing home,
assisted living and other senior housing properties. Under the
acquisition facility, Nomura would advance $2.00 of debt financing for
each $1.00 of equity capital invested by Forum Group, which equity is
presently expected to be obtained from future offering of additional
Common Shares to shareholders (including the Investors), cash from
operations (including cash from sales of units in existing RCs, primarily
Rancho San Antonio), or a combination of the foregoing. During the 24-
month period in which amounts could be drawn to finance acquisitions
under the Acquisition Loan, Forum Group would have the right, subject to
the satisfaction of certain conditions, to convert the indebtedness
thereunder to seven-year debt under either a fixed or floating interest
rate structure. During such period, Forum Group could also repay such
indebtedness using proceeds from other financing sources, if any such
financing becomes available on more favorable terms. Forum Group would
have an option that would permit it to increase the borrowings against
the properties acquired if, at the end of 24 months after the initial
closing of the Acquisition Loan, the debt service coverage computed on a
trailing 12-month basis exceeded certain thresholds, in which event the
increased borrowings, like any increased borrowings under the Refinancing
Loan, could be used to fund Forum Group's growth or for other corporate
purposes.
There can be no assurance that any acquisitions will be completed or, if
so, as to the timing or terms thereof. The Acquisition Commitment is
subject to the negotiation of definitive documentation and certain
conditions. Moreover, Nomura's obligation to provide financing under the
acquisition facility, if completed, will be subject to a number of
conditions, and there can be no assurance that such conditions will be
satisfied.
FORUM GROUP, INC., AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Participation in Recapitalization of FRP. In October 1993 Forum Group
entered into the FRP Recapitalization Agreement. Forum Group has a
substantial equity investment in FRP, is the parent company of FRP's
general partner and has a long-term management contract with FRP. For a
discussion of FRP's recapitalization, see Note B of the Notes to
Condensed Consolidate Financial Statements.
Cash Flow. Operating activities for the nine months ended December 31,
1993 provided $2,850,000 of cash compared to $4,952,000 of cash used by
operating activities during the nine months ended December 31, 1992, due
principally to significantly improved operating results in 1993.
Investing activities used $14,487,000 of cash during the nine months
ended December 31, 1993, compared $27,226,000 of cash provided by
investing activities during the nine months ended December 31, 1992, due
principally to Forum Group's participation in the FRP Refinancing and the
April, 1992 sale of two retirement communities.
Financing activities provided $20,154,000 of cash during the nine months
ended December 31, 1993, compared to $23,614,000 of cash used by
financing activities during the comparable period of 1992, due
principally to the impact of the FGI Recapitalization and the April, 1992
sale of two retirement communities.
PART II. OTHER INFORMATION
FORUM GROUP, INC., AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
- -------------------------
Forum/Classic Claims. As previously reported, on April 29, 1993,
Forum/Classic, L.P., Dalfort Corporation, Diamond Investments, Ltd. and
Morris Weiser (collectively, the "Forum/Classic Plaintiffs") filed suit
in the Superior Court of Marion County, Indiana, against Forum Group, the
persons who then comprised the Board (the "Director Defendants"), and
AIF, Apollo Advisors, L.P., Evergreen Healthcare, Ltd., ("Evergreen"),
Investors Genpar, Inc., ("Genpar"), FL Advisors, L.P., Lion Forum
Holdings (collectively, the "Investor Defendants") alleging, among other
things, that the Director Defendants breached their fiduciary duties by
entering into the Acquisition Agreement (as originally in effect) that
the Investor Defendants knowingly participated in such alleged breaches
of fiduciary duties, that Forum Group breached an alleged contract to
enter into certain transactions proposed by Forum/Classic and Dalfort and
that the Investor Defendants induced such breach and interfered with an
alleged business relationship between Forum/Classic and Dalfort and Forum
Group. The Forum/Classic Plaintiffs sought, on behalf of themselves and
alleged other similarly situated shareholders, among other things, (i)
the rescission of the Acquisition Agreement (as originally in effect) and
certain related agreements and the issuance of the certain preferred
stock, (ii) an injunction prohibiting the consummation of the
transactions contemplated by the Acquisition Agreement (as originally in
effect) and certain related agreements, (iii) an order requiring Forum
Group to consummate the transactions proposed by Forum Classic and
Dalfort, (iv) attorney's fees, (v) expenses, and (vi) punitive damages
against the Director Defendants and the Investor Defendants. Following a
hearing (of a preliminary nature as to the Director Defendants and final
as to all other defendants), the presiding court entered an order (the
"Order") enjoining the defendants from taking any action to consummate a
transaction which did not provide shareholders the opportunity to receive
$3.62 per share, in cash, for their Common Shares but otherwise
permitting the defendants to proceed with the transactions contemplated
by the Acquisition Agreement. The court also concluded that (i) the
decision by the Director Defendants to enter into a February 1, 1993
agreement in principle with the predecessors in interest of the
Investor's was made in good faith after reasonable investigation, the
agreement in principle was conclusively presumed to be valid, and Forum
Group was bound thereby and (ii) no contract existed between Forum Group
and Forum/Classic or Dalfort. On June 11, 1993, the Forum/Classic
Plaintiffs filed a motion (the "Contempt Motion") to find Forum Group and
the Investor Defendants in contempt of the Order. The court denied the
Contempt Motion, but amended the Order to make it clear that in order to
be consistent with the Order, the transaction between Forum Group and the
Investors must provide for the payment of $3.62 per Common Share without
adjustment. The Forum/Classic Plaintiffs thereafter commenced an appeal
of the Order to the Indiana Court of Appeals (the "Appeals Court"). The
defendants then moved to dismiss the appeal on procedural grounds. On
October 4, 1993, the Appeals Court granted the defendants' motion. The
Forum/Classic Plaintiffs thereafter appealed the Appeals Court's ruling
to the Indiana Supreme Court which, on January 27, 1994, upheld the
Appeal Court's dismissal of the appeal. A hearing date for final
adjudication of the claims against the Director Defendants has not been
set.
PART II. OTHER INFORMATION
FORUM GROUP, INC., AND SUBSIDIARIES
(continued)
Knapp Claims. On January 24, 1994, the Russell F. Knapp Revokable Trust,
(the "Knapp Trust"), a substantial holder of the publicly traded units of
FRP, filed a complaint (the "Knapp Trust Complaint") in the United States
District Court for the Northern District of Iowa against Forum
Retirement, Inc., the wholly-owned subsidiary of Forum Group which serves
as general partner of FRP ("FRI"), alleging breach of FRP's partnership
agreement, breach of fiduciary duty, fraud, and civil conspiracy. The
Knapp Trust Complaint alleges, among other things, that the Board of
Directors of FRI is not comprised of a majority of Independent Directors,
as required by the FRP's partnership agreement and as allegedly
represented in the 1986 Prospectus of FRP, and that FRI's Board of
Directors has approved and/or acquiesced in 8% management fees being
charged by Forum Group under the management agreement under which Forum
Group manages all of FRP's RC's. The Knapp Trust Complaint further
alleges that the "industry standard" for such fees is 4% thereby
resulting in an "overcharge" to FRP estimated by the Knapp Trust at $1.8
million per annum, beginning in 1994. The Knapp Trust is seeking the
restoration of certain former directors to the Board of Directors of FRI
and the removal of certain other directors from such Board, an injunction
prohibiting the payment of 8% management fees, and unspecified
compensatory and punitive damages. FRI believes that the allegations in
the Knapp Trust Complaint are without merit and intends vigorously to
defend against this litigation.
ITEM 2. CHANGES IN SECURITIES
- -----------------------------
When the Citibank Term Loan was paid with some of the proceeds of the
Refinancing Loan, certain negative covenants under the Citibank Term Loan
were removed. However, dividends and other distributions to shareholders
are still prohibited by the terms of the Senior Subordinated Notes as
long as such Notes remain outstanding. For more information on the
Senior Subordinated Notes, see Note B to Item 1.
The provisions of the Refinancing Loan place certain restrictions on the
ability of the borrower thereunder to pay dividends and incur additional
debt in certain circumstances. However, such restrictions will not apply
to FGI or any of its other affiliates other than the borrower under the
Refinancing Loan. For further information on the Refinancing Loan, see
Note D to Item 1.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
(a) Exhibits:
--------
Recapitalization Agreement made as of October 6, 1993 between Forum
Group, Inc. and Forum Retirement Partners, L.P. [incorporated by
reference to Exhibit 10(1) to Forum Group's Current Report on Form 8-K
dated October 6, 1993 (the "October, 1993 8-K")].
Stock Purchase Agreement dated as of October 6, 1993 among Forum Group,
Inc., Forum Holdings, L.P. and Apollo FG Partners, L.P. [incorporated by
reference to Exhibit 10(2) to the October, 1993 8-K].
PART II. OTHER INFORMATION
FORUM GROUP, INC., AND SUBSIDIARIES
(continued)
Stock Purchase Agreement dated as of November 16, 1993, between Forum
Group, Inc. and Healthcare Resources, L.P. [incorporated by reference to
Exhibit 10(3) to Forum Group's Forum S-2 dated December 2, 1993 (the "FGI
Form S-2"].
Commitment Letter from Nomura Asset Capital Corporation to Forum Group,
Inc. dated October 21, 1993 refinancing the refinancing loan
[incorporated by reference to Exhibit 10(4) to the FGI Form S-2].
Commitment Letter from Nomura Asset Capital Corporation to Forum Group,
inc. dated October 21, 1993 referencing the acquisition loan
[incorporated by reference to Exhibit 10(5) to the FGI Form S-2].
Amended and Restated Loan Agreement dated February 1, 1994 between FGI
Financing I Corporation and Nomura Asset Capital Corporation.
Amendment, dated as of January 31, 1994, to Indenture, dated as of June
1, 1993, between Forum Group, as Issuer, and First National Trust
Association, as Trustee.
Waiver and Supplement, dated as of January 31, 1994, to Credit Agreement
dated as of June 10, 1993, among Forum Group, the Lenders named therein,
Citibank, N.A. as Issuing Bank and Citicorp, U.S.A., as Agent.
(b) Reports on Form 8-K:
-------------------
The following report on Form 8-K was filed during the last quarter of the
period covered by this report: Report on Form 8-K reporting "Other
Events" occurring on October 6, 1993, and filed on October 12, 1993.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FORUM GROUP, INC.
Date: February 14, 1994 By: \s\ Paul A. Shively
--------------------------------
Paul A. Shively
Senior Vice President and Treasurer