THIS DOCUMENT IS A COPY OF THE 10-K FILED ON APRIL 16, 1996
PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
For annual and transitions reports pursuant to sections 13 or 15 (d) of the
Securities Exchange Act of 1934.
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-13415
CONSOLIDATED RESOURCES HEALTH CARE FUND II
(Exact name of registrant as specified in its charter)
Georgia 58-1542125
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) identification No.)
7000 Central Parkway, Suite 970, Atlanta, Georgia 30328
(Address of principal executive offices)(Zip Code)
Registrant's telephone number,
including area code 770-698-9040
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: L i m i t e d
Partnership
Units
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definite proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
1
this Form 10-K. [ X ]
Of the registrant's 15,000 Limited Partnership Units, 14,990 are held by non-
affiliates. The aggregate market value of units held by non-affiliates is not
determinable since there is no public trading market for Limited Partnership
Units and transfers of units are subject to certain restrictions.
Documents Incorporated by Reference: See Page 25.
SEE INDEX TO EXHIBITS ON PAGE 27
PAGE ONE OF 29 PAGES.
PART I
ITEM 1. BUSINESS
Consolidated Resources Health Care Fund II (the "Partnership") was organized
on October 31, 1983, as a Limited Partnership under the provisions of the
Georgia Uniform Limited Partnership Act.
At December 31, 1995, the Partnership had three General Partners (the "General
Partners"), Consolidated Associates II, WelCare Consolidated Resources
Corporation of America, serving as the corporate general partner ("WCRCA" or
the "Corporate General Partner") and WelCare Service Corporation-II as
managing general partner ("WSC-II" or the "Managing General Partner"). WCRCA,
a Nevada corporation, and WSC-II, a Georgia corporation, are both wholly-owned
subsidiaries of WelCare Acquisition Corp., a Georgia corporation, which is in
turn a wholly-owned subsidiary of WelCare International, Inc., ("WelCare").
WelCare, a privately-owned Georgia corporation, is engaged in the operation,
acquisition, property management and oversight management of long-term care
facilities. Consolidated Associates II, a Georgia general partnership, is
composed of WCRCA, as the managing general partner, and individuals who were
previously associated with Consolidated Resources Corporation of America
("CRCA").
Pursuant to an agreement dated October 30, 1985, CRCA, a Georgia corporation
that initially was the corporate general partner of the Partnership, was
merged into a subsidiary of Southmark Corporation ("Southmark"). The name of
the surviving Southmark subsidiary was then changed to Southmark Consolidated
Resources Corporation of America ("SCRCA"). Southmark, a Georgia corporation,
emerged from Chapter 11 bankruptcy on August 10, 1990, and has liquidated most
of its assets pursuant to a plan of reorganization. On November 20, 1990,
WelCare, through its subsidiary WelCare Acquisition Corp., acquired from
Southmark all the stock of SCRCA whose name was then changed to WelCare
Consolidated Resources Corporation of America. Southmark is no longer
affiliated with the Partnership. WSC-II was added as a Managing General
Partner on January 13, 1992, following the approval by a majority-in-interest
of the Partnership's limited partners. The acquisition of SCRCA by WelCare
Acquisition Corp., and the addition of WSC-II as Managing General Partner of
the Partnership did not result in a change in compensation to the General
Partners (See Item 8, Notes 1 and 2 and Item 13).
On December 7, 1983, a Registration Statement on Form S-1 was declared
effective by the Securities and Exchange Commission whereby the Partnership
offered for sale $15,000,000 of Limited Partnership Units. The Limited
Partnership Units represent equity interests in the Partnership and entitle
the holders thereof (the "Limited Partners") to participate in certain
allocations and distributions of the Partnership. The sale of Limited
Partnership Units closed in April 1984, with 15,000 units sold at $1,000 each,
for gross proceeds of $15,000,000 to the Partnership.
The Partnership's primary business and only industry segment is to own,
operate and ultimately dispose of a diversified portfolio of health care
related real properties for the benefit of its Limited Partners. At December
31, 1995, and December 31, 1994, the Partnership owned two health care
facilities, a nursing home and a retirement center, both located in Columbus,
Ohio.
Effective March 1, 1991, the Partnership's nursing home was managed by Life
Care Centers of America, Inc. ("LCCA") and the retirement center was managed
by American Lifestyles, Inc. ("ALI"), a division of LCCA. LCCA is a
privately-owned corporation which manages congregate care facilities
throughout the United States. LCCA and ALI receive a management fee equal to
5% of gross revenues of the respective facilities. An affiliate of the
Corporate General Partner provides oversight management services for these
facilities and receives an oversight management fee of 1% of gross revenues.
As of December 31, 1995, the Partnership employed approximately 154 persons,
including administrative, nursing, dietary, social services and maintenance
personnel.
The services provided at the Partnership's nursing home consist of long-term
nursing care. Nursing care consists of 24 hour medical services prescribed by
the resident's physician as well as assistance or supervision with daily
activities such as dressing, grooming, bathing, medication and dietary needs.
The retirement center owned by the Partnership provides apartment living for
ambulatory senior citizens who do not require assistance in their daily
activities.
The nursing home is certified to receive benefits under joint Federal and
State funded programs administered by the state to provide medical assistance
to the indigent, known generally as the "Medicaid" program. Benefits under
the Federal Health Insurance for the Aged Act ("Medicare") are for skilled
care only in those facilities which are certified for the program.
Medicaid reimbursement formulas vary by state and are established in
accordance with Federal guidelines. Typically, Medicaid provides for
reimbursement for nursing home care of an all-inclusive nature up to specified
limits based on historical costs, with adjustments for inflation. Federal law
requires that Medicaid reimbursement rates be reasonable and adequate to meet
the costs which must be incurred by efficiently and economically operated
facilities in order to provide care and services in conformity with applicable
laws, regulations and quality and safety standards. Medicaid payments are
generally set prospectively for each facility.
The Medicare and Medicaid programs are subject to statutory and regulatory
changes, administrative rulings, interpretations of policy and determinations
by intermediaries, and to governmental funding restrictions, all of which may
materially increase or decrease program payments to long-term care facilities
and could adversely affect the operations of the Partnership's nursing
facility.
In the operation and sale of properties, the Partnership competes with a
number of individuals and entities, including large, national nursing home
chains and small, locally owned geriatric facilities. Some competing
operators have greater financial resources than the Partnership or may operate
on a nonprofit basis or as charitable organizations. The degree of success
with which the Partnership's facilities compete varies by location and depends
on a number of factors. The Partnership believes that the quality of care
provided, the reputation and physical appearance of facilities and, in the
case of private pay patients, charges for services, are significant
competitive factors. There is limited, if any, competition in price with
respect to Medicaid and Medicare patients since revenues for services to such
patients are strictly controlled and based on fixed rates and cost
reimbursement principles. In light of these factors, the Partnership seeks to
meet competition by improving the appearances of and the quality of services
provided at its facilities, establishing a reputation within the local medical
communities for providing competent care services and continually evaluating
the needs of the community and services offered by other health care
providers.
The following table sets forth information regarding the average daily census
and sources of patient revenues at the Partnership's facilities:
Average Daily Census for Year Revenues for Year
Ended Ended
December 31, 1995 December 31, 1995(1)
Medicaid 52 30.4% 33.9%
Private Pay 27 15.8% 19.3%
VA, Medicare and Other 15 8.8% 21.9%
Retirement Center (1) 77 45.0% 24.9%
171 100.0% 100.0%
Overall Occupancy Rate 90.0%
(1) Retirement Center census is 100% private pay.
Because of a changing census mix (i.e. private pay vs. government reimbursed
patients), the occupancy required for a facility to achieve an operating
break-even point cannot be determined precisely. Generally, a greater ratio
of Medicaid patients will require a higher occupancy to reach a break-even
point. On the other hand, a high Medicare census can drastically change the
break-even point due to a higher reimbursement rate.
The retirement center is much like an apartment complex with additional
services provided to attract the elderly including limited transportation,
housekeeping and food services. The Partnership's retirement center has a net
cash flow break-even occupancy ranging from 75% to 80%. During 1995, this
facility exceeded this occupancy level.
6
ITEM 2. DESCRIPTION OF PROPERTY
The following table sets forth the investment portfolio of the Partnership at
December 31, 1995. The buildings of the projects and the land on which they
are located are beneficially owned by the Partnership in fee, subject in each
case to a first deed of trust as set forth more fully in Item 8, Note 3.
Properties (dollars in 000 s)
Net Occupancy
Secured Acquisition Book Rate in Date
Property Debt Cost Value 1995 Acquired
Mayfair Village
Nursing Care Ct.
Columbus, OH
100 Licensed
Nursing Home Beds $1,608 $4,323 $1,369(1) 94% February
1985
Mayfair Retirement
Center
Columbus, OH
91 Units 2,715 4,251 2,195(1) 85% February
1985
$4,323 $8,574 $3,564
(1) A provision was made prior to 1991 to write down the facility, for
Partnership financial statement purposes, to its net realizable value or
estimated fair value at the time of the write-down as determined by the
Corporate General Partner (See Item 8, Note 5). The amount reflects this
write-down.
ITEM 3. LEGAL PROCEEDINGS
The Partnership is not a party to any material pending legal proceedings,
other than ordinary litigation routine to the Partnership's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP
AND SECURITY HOLDER MATTERS
(A) No market for Limited Partnership Units exists nor is one expected to
7
develop.
(B) Title of Class Number of Record Unit Holders
Limited Partnership Units 1,576 as of March 1,1996
(C) There was a distribution of $150,000 paid to the Limited Partners in
1995. Cumulative distributions paid to the Limited Partners as of
December 31, 1995, were $2,588,103. A distribution of $150,000 was paid
to the Limited Partners during the first quarter of 1996. Future
distributions are dependent on the Partnership's ability to meet its
ongoing obligations. There have been no distributions to the General
Partners. See Liquidity and Capital Resources section of Item 7 -
Management's Discussion and Analysis of Financial Condition and Results
of Operations, for discussion of distributions.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth a summary of selected financial data for the
Partnership. This summary should be read in conjunction with the notes to the
Partnership's financial statements appearing in Item 8.
Years Ended December 31, (dollars in 000 s except per
share figures)
Operations 1995 1994 1993 1992 1991
Operating revenue $6,623 $6,091 $5,481 $4,802 $4,045
Net income (loss) 5,827 185 312 (28) (126)
Income (loss) before
extraordinary gain 175 185 312 (28) (126)
Income (loss) before
extraordinary gain
per weighted average
Limited Partnership
Unit 11.21 11.85 19.96 (1.80) (8.08)
Net income (loss) per
weighted
average Limited
Partnership
Unit 372.93 11.85 19.96 (1.80) (8.08)
Distribution paid per
weighted average
Limited Partnership
Unit 10.00 - - - -
Balance Sheets
Property and
equipment, net $3,564 $3,825 $4,075 $4,136 $4,346
Total assets 5,592 5,980 6,030 5,639 5,612
Long-term debt
obligations, less
current maturities 4,261 4,326 4,384 4,436 4,487
Partners equity
(deficit) 93 (5,584) (5,769) (6,081) (6,053)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Revenue:
1995 compared to 1994
Operating revenues increased by $531,675 in 1995 as compared to 1994. This
increase is primarily due to changes in census mix from Medicaid to higher
rate private pay and Medicare residents, as well as increases in rates for all
payor types at the Partnership s nursing facility.
9
1994 compared to 1993:
Operating revenues increased by $610,302 in 1994 as compared to the prior
year, a change of 11%. This increase was primarily due to an increase in
Medicare census, ancillary services, and Medicare and Medicaid reimbursement
rates at Mayfair Village Nursing Center. Interest income increased due to
higher cash reserves.
Expenses:
1995 compared to 1994
Operating expenses increased by $520,663 as compared to 1994, a change of 9%.
This increase is primarily due to increased nursing and therapy cost due to
increased Medicare census at the Partnership s nursing facility. The
Partnership s other expenses changed only marginally, with the exception of
management fees which are tied to the increase in operating revenues.
1994 compared to 1993
Operating expenses increased by $617,079 in 1994 as compared to the prior
year, a change of 15%. Of this increase, 9% was a result of increased
staffing at Mayfair Village Retirement Center. The remaining 6% was primarily
due to increased use of skilled nursing and therapy personnel to accommodate
the additional Medicare and heavy-care patients at Mayfair Village Nursing
Center.
Liquidity and Capital Resources
At December 31, 1995, the Partnership held cash and cash equivalents of
$1,115,300 a decrease of $80,956 from the amount held at December 31, 1994.
The cash balance will be necessary to meet the Partnership's current
obligations and to fund capital improvements. In addition, cash balances
maintained at the two Partnership facilities will have to be maintained in
accordance with operating reserves established by HUD through the computation
of surplus cash. At December 31, 1995, the balance of HUD reserved cash at
the facilities was $498,139.
The Partnership's two remaining facilities produced sufficient revenues to
meet their operating and debt service obligations as well as provide
additional cash flow to supplement cash reserves. These facilities should
continue to produce positive cash flow in 1996. Capital expenditures
increased from $110,615 in 1994 to $113,393 in 1995.
As of December 31, 1995, the Partnership was not obligated to perform any
major capital expenditures or renovations. The Managing General Partner
anticipates that any repairs, maintenance, or capital expenditures will be
financed with cash reserves, HUD replacement reserves and cash flow from
operations. During 1996, the Partnership s retirement center may require
renovations to comply with requirements of the State of Ohio s regulations
governing rest homes. The Center s existing cash, HUD replacement reserves
and cash from operations should be sufficient to cover the cost of these
renovations.
On February 10, 1995 and on February 15, 1996, the Partnership distributed
$150,000 to the Limited Partners. The Managing General Partner anticipates
the annual distributions from operating cash flow will continue in future
periods. However, the Partnership s ability to make distributions may be
limited by HUD s requirements for surplus cash at the facility level.
11
Significant changes have and will continue to be made in government
reimbursement programs, and such changes could have a material impact on
future reimbursement formulas. Based on information currently available,
Management does not believe proposed legislation will have an adverse effect
on the Partnership's operations. However, as health care reform is ongoing,
the long-term effects of such changes cannot be accurately predicted at the
present time.
The Partnership should produce sufficient cash flow to meet its ongoing
obligations associated with the two facilities currently owned by the
Partnership. In addition, the Partnership's cash reserves are considered
adequate to meet contingent liabilities related to third party reimbursements
from the operation of the Colorado facilities previously owned by the
Partnership. During 1995, the Partnership did not receive any demands for
payment of any actual or contingent liabilities related to these previously
owned facilities. The Partnership has no existing lines of credit or
assurance of financial support from the General Partners, should the need
arise.
Accounting Pronouncement
The Financial Accounting Standards Board has issued Statement on Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of (SFAS No. 121). The
Company will adopt this standard in Fiscal 1996. In management s opinion,
there will be no material effect on the Company s financial statements of
adopting SFAS No. 121.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index Page Number
Report of Independent Certified Public Accountants 10
Consolidated Financial Statements
Balance Sheets - December 31, 1995 and 1994 11-12
Statements of Operations
- Years ended December 31, 1995, 1994 and 1993 13
Statements of Partners' Equity (Deficit)
- Years ended December 31, 1995, 1994 and 1993 14
Statements of Cash Flows
- Years ended December 31, 1995, 1994 and 1993 15
Summary of Significant Accounting Policies 16-18
Notes to Consolidated Financial Statements 19-20
The following financial statement schedule for the years ended December 31,
1995, 1994 and 1993 of the Registrant is submitted herewith in response to
Item 14 (a)(2):
Schedule II - Valuation and Qualifying Accounts 24
All other schedules of the Partnership for which provision is made in the
applicable regulations of the Securities and Exchange Commission are not
required under the related instructions, are inapplicable or have been
disclosed in the notes to the consolidated financial statements and,
therefore, have been omitted.
Report of Independent Certified Public Accountants
The Partners
Consolidated Resources Health Care Fund II and Subsidiaries
We have audited the accompanying consolidated balance sheets of Consolidated
Resources Health Care Fund II and Subsidiaries (limited partnerships) (the
"Partnership") as of December 31, 1995 and 1994, and the related consolidated
statements of operations, partners' equity (deficit), and cash flows for each
of the three years in the period ended December 31, 1995. We have also
audited the schedule listed in the accompanying index. These consolidated
financial statements and schedule are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements and schedule are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements and schedule. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated
financial statements and schedule. 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 consolidated financial position
of Consolidated Resources Health Care Fund II and Subsidiaries (limited
partnerships) at December 31, 1995 and 1994, and the consolidated results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted
accounting principles.
Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein.
BDO Seidman, LLP
Atlanta, Georgia
March 1, 1996
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Consolidated Balance Sheets
December 31, 1995 1994
Assets
Current
Cash and cash equivalents (Note 8) $1,115,300 $1,196,256
Accounts receivable, net of allowance
for doubtful accounts of $73,218 and
$43,636 (Note 7) 565,965 586,929
Prepaid expenses and other 44,317 108,229
Total current assets 1,725,582 1,891,414
Property and equipment (Notes 3 and 5)
Land 179,341 179,341
Buildings and improvements 6,224,958 6,187,000
Equipment and furnishings 511,590 435,826
6,915,889 6,802,167
Less accumulated depreciation (3,351,815) (2,977,111)
Net property and equipment 3,564,074 3,825,056
Other
Restricted escrows and other deposits (Note 3) 280,246 239,657
Deferred loan costs, net 21,867 23,701
Total other assets 302,113 263,258
$5,591,769 $5,979,828
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Consolidated Balance Sheets
December 31, 1995 1994
Liabilities and Partners' Equity (Deficit)
Current liabilities
Current maturities of long-term debt
obligations (Note 3) $ 62,380 $ 57,886
Accounts payable 335,240 373,786
Accrued expenses 275,532 178,052
Accrued management fees (Note 2) 394,918 702,510
Other liabilities 170,087 273,646
Total current liabilities 1,238,157 1,585,880
Advances from affiliates and former affiliates
(Notes 1 and 6) - 5,651,854
Long-term debt obligations, less current
maturities (Note 3) 4,260,762 4,326,316
Total liabilities 5,498,919 11,564,050
Commitments and Contingencies (Notes 7 and 8)
Partners' equity (deficit) (Note 4)
Limited partners 294,707 (5,149,283)
General partners (201,857) (434,939)
Total partners' equity (deficit) 92,850 (5,584,222)
$5,591,769 $5,979,828
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Consolidated Statements of Operations
Years ended December 31, 1995 1994 1993
Revenue
Operating revenue (Note 7) $6,622,923 $6,091,248 $5,480,946
Interest income 29,356 35,023 25,435
Total revenue 6,652,279 6,126,271 5,506,381
Operating costs and expenses
Operating expenses 5,148,592 4,627,929 4,010,850
Depreciation and amortization 375,742 360,493 350,001
Interest (Note 3) 327,139 331,274 334,967
Management fees (Note 2) 420,899 368,364 313,888
Real estate taxes 120,759 159,035 102,433
Partnership administration costs
(Note 2) 83,930 93,909 82,426
Total operating costs and expenses 6,477,061 5,941,004 5,194,565
Income before extraordinary item 175,218 185,267 311,816
Extraordinary gain on extinguishment
of debt (Note 1) 5,651,854 - -
Net income $5,827,072 $185,267 $311,816
Income per limited partnership
unit before extraordinary gain $ 11.21 $ 11.85 $ 19.96
Extraordinary gain on extinguishment
of debt per limited partnership unit $ 361.72 $ - $ -
Net income per limited partnership unit$ 372.93 $ 11.85 $ 19.96
Limited partnership units outstanding 15,000 15,000 15,000
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Consolidated Statements of Partners Equity (Deficit)
Years Ended December 31, 1995, 1994 and 1993
Total
Partners
Equity
Limited General (Deficit)
Balance, at January 1, 1993 $(5,626,482) $(454,823) $(6,081,305)
Net income 299,343 12,473 311,816
Balance, at December 31, 1993 (5,327,139) (442,350) (5,769,489)
Net income 177,856 7,411 185,267
Balance, at December 31, 1994 (5,149,283) (434,939) (5,584,222)
Net income 5,593,990 233,082 5,827,072
Distribution (150,000) - (150,000)
Balance, at December 31, 1995 $294,707 $(201,857) $92,850
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Consolidated Statements of Cash Flows
Years ended December 31, 1995 1994 1993
Operating activities
Net income $5,827,072 $ 185,267 $ 311,816
Adjustments to reconcile net
income to cash
provided by operating activities:
Depreciation and amortization 375,742 360,493 350,001
Bad debt expense 29,582 3,786 -
Gain on extinguishment of debt (5,651,854) -
Changes in assets and liabilities:
Accounts receivable (8,618) 15,781 (151,720)
Prepaid expenses and other 63,912 (70,845) (25,240)
Accounts payable (38,546) (43,879) 260,877
Accrued liabilities (313,670) (137,276) (132,010)
Cash provided by operating activities 283,620 313,327 613,724
Investing activity
Payments for purchases of property
and equipment, net (112,927) (110,615) (288,107)
Financing activities
Net change in restricted escrows and
other deposits (40,589) (35,779) 89,119
Principal payments on long-term debt
obligations (61,060) (53,850) (49,969)
Distribution paid to limited partners (150,000) - -
Cash provided by (used in) financing
activities (251,649) (89,629) 39,150
Net (decrease) increase in cash and
cash equivalents (80,956) 113,083 364,767
Cash and cash equivalents,
beginning of year 1,196,256 1,083,173 718,406
Cash and cash equivalents, end of year $1,115,300 $1,196,256 $1,083,173
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Summary of Significant Accounting Policies
Organization
Consolidated Resources Health Care Fund II (the "Partnership") was organized
on October 31, 1983 as a limited partnership under the provisions of the
Georgia Uniform Limited Partnership Act for the purpose of acquiring,
operating and holding for investment and future capital appreciation income
producing, health care related real properties. As of December 31, 1995, the
Partnership owned a nursing home and a retirement center. During 1995, the
average occupancy for the nursing home and retirement center was 94% and 85%,
respectively.
The General Partners of the Partnership are WelCare Consolidated Resources
Corporation of America, serving as the Corporate General Partner ("WCRCA" or
the "Corporate General Partner") a Nevada corporation, WelCare Service
Corporation-II, serving as Managing General Partner ("WSC-II" or the "Managing
General Partner") a Georgia corporation, and Consolidated Associates II, a
Georgia general partnership (collectively the "General Partners"). WCRCA and
WSC-II are wholly-owned subsidiaries of WelCare Acquisition Corp., which in
turn is a subsidiary of WelCare International, Inc. ("WelCare"). WelCare, a
privately-owned Georgia corporation, is engaged in the operation, acquisition,
property management and oversight management of long-term care facilities.
Consolidated Associates II is composed of WCRCA, as the Managing General
Partner, and individuals who were associated with Consolidated Resources
Corporation of America ("CRCA").
Pursuant to an agreement dated October 30, 1985, CRCA, a Georgia corporation
that initially was the Corporate General Partner of the Partnership, was
merged into a subsidiary of Southmark Corporation ("Southmark"). The name of
the surviving Southmark subsidiary was then changed to Southmark Consolidated
Resources Corporation of America ("SCRCA"). Southmark emerged from Chapter 11
bankruptcy on August 10, 1990, and has liquidated most of its assets pursuant
to a plan of reorganization. On November 20, 1990, WelCare Acquisition Corp.
acquired from Southmark all the stock of SCRCA whose name was then changed to
WelCare Consolidated Resources Corporation of America. Effective January 13,
1992, WSC-II was added as the Managing General Partner of the Partnership.
The financial statements do not reflect assets the partners may have outside
their interests in the Partnership, nor any personal obligations including
income taxes, of the individual partners.
Consolidation
The consolidated financial statements include the accounts of the Partnership
and the partnerships in which it holds a majority interest. All significant
intercompany balances and transactions have been eliminated. The amount of
minority interest is immaterial.
Property and Equipment
Property and equipment are recorded at cost less appropriate reductions for
permanent declines in net realizable value. Property and equipment are not
adjusted for increases in net realizable value.
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Summary of Significant Accounting Policies
The Financial Accounting Standards Board has issued Statement on Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of (SFAS No. 121). The
Company will adopt this standard in Fiscal 1996. In management s opinion,
there will be no material effect on the Company s financial statements of
adopting SFAS No. 121.
Depreciation and Amortization
Property and equipment are depreciated using the straight-line method over
lives of 5 to 30 years. Renewals and betterments are capitalized and repairs
and maintenance are charged to operations as incurred.
Deferred Loan Costs
Deferred loan costs are amortized over the terms of the respective loans using
the straight-line method. Amortization of deferred loan costs is included in
depreciation and amortization expense.
Operating Revenue
Operating revenue is recorded when services are rendered and includes amounts
reimbursable by the Medicaid and Medicare programs. Medicaid and Medicare
revenues are recorded at the applicable net reimbursement rates; therefore, no
contractual adjustments are reported.
Income Taxes
No provision has been made in the consolidated financial statements for
Federal income taxes because under current law, no Federal income taxes are
paid directly by the Partnership. The Partnership reports certain
transactions differently for tax and financial statement purposes.
Allocation of Net Income or Net Loss
The Partnership's net profits and net losses (other than net profits or net
losses from a sale or refinancing of Partnership property), are allocated 96%
to the Limited Partners and 4% to the General Partners. Distributions are
allocated on the basis described in Note 4.
Net losses resulting from a sale or refinancing shall be allocated 99% to the
Limited Partners and 1% to the General Partners. Net profits resulting from a
sale or refinancing shall be allocated in the following order:
(1) First, 1% to the General Partners and 99% to the Limited Partners until
the net profits allocated to the Limited Partners from such sale or
refinancing equals the excess of the greater of the following items over
their capital account immediately prior to such sale or refinancing:
(a) zero; or
(b) the Limited Partners' invested capital immediately prior to such
sale or refinancing plus 9% per annum of the Limited Partners'
average invested capital for all fiscal years to the extent not
received through prior distributions of distributable cash from
operations or sale or refinancing proceeds; or
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Summary of Significant Accounting Policies
(c) the amount of sale or refinancing proceeds distributable to the
Limited Partners;
(2) Second, to the General Partners until the net profits allocated to the
General Partners from such sale or refinancing equals the excess of the
greater of the following items over their capital account immediately
prior to such sale or refinancing:
(a) zero; or
(b) the amount of sale or refinancing proceeds distributable to the
General Partners from such sale or refinancing;
(3) Third, any remaining net profits shall be allocated 15% to the General
Partners and 85% to the Limited Partners.
Net Income Per Limited Partnership Unit
Net income per Limited Partnership Unit is computed by dividing net income
allocated to the Limited Partners by the number of Limited Partnership units
outstanding.
Reclassifications
Certain 1993 and 1994 amounts on the consolidated financial statements have
been reclassified to conform with the 1995 presentation.
Statements of Cash Flows
For purposes of this statement, cash equivalents include U.S. government
securities, commercial paper and certificates of deposit with original
maturities of three months or less.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Notes to Consolidated Financial Statements
1. Transactions With Affiliates and Former Affiliates
Amounts claimed payable to former affiliates (primarily Southmark and the
Corporate General Partner), totalled $5,651,854, including accrued interest,
at December 31, 1994, and are classified as Advances From Affiliates and
Former Affiliates on the 1994 balance sheet. In July 1991 Southmark filed
suit demanding payment of the alleged advances. In 1991, after WelCare's
affiliate acquired the Corporate General Partner, it challenged the validity
of some of these payables through claims filed against the Southmark
bankruptcy estate. In 1994, the suits were settled whereby the Partnership
was released of all liabilities to Southmark (See Note 6). In 1995, the
Corporate General Partner released the Partnership from all remaining
liabilities, forgave all remaining amounts owed by the Partnership, resulting
in a gain on debt forgiveness of $5,651,854 for the year ended December 31,
1995.
2. Management Fees
An unrelated company manages the nursing home and retirement center for a fee
of 5% of gross operating revenues. Fees totalling $331,034, $303,511 and
$274,161 were paid to the management company for the years ended December 31,
1995, 1994 and 1993, respectively.
During 1995, 1994 and 1993, an affiliate of the Corporate General Partner was
reimbursed for costs incurred in connection with the administration of
Partnership activities of $41,005, $25,850 and $27,395, respectively.
Included in Partnership administration costs are fees paid to an affiliate for
oversight management fees of 1% of gross operating revenue totalling $89,865,
$64,853 and $54,809 in 1995, 1994 and 1993, respectively.
Accrued management fees consist of amounts payable to affiliates and former
affiliates and an unrelated management company and resulted from management
fees incurred prior to 1992. During 1995, approximately $300,000 of these
fees were paid to affiliates of the Corporate General Partner.
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Notes to Consolidated Financial Statements
3. Long-Term Debt Obligations
Long-term debt obligations consisted of:
1995 1994
7.5% note related to Mayfair Village
Nursing Care Center, collateralized by
property and equipment and insured by
the U.S. Department of Housing and
Urban Development; payable in monthly
installments of principal and interest
of $12,050, due January 1, 2020 $1,607,502 $1,630,723
7.5% note related to Mayfair Retirement
Center, collateralized by property and
equipment and insured by the U.S.
Department of Housing and Urban
Development; payable in monthly
installments of principal and interest of
$20,023, due March 1, 2021 2,715,640 2,753,479
4,323,142 4,384,202
Less current maturities 62,380 57,886
$4,260,762 $4,326,316
Future maturities of long-term debt obligations are as follows:
Amount
1995 $62,380
1996 67,222
1997 72,441
1998 78,064
2000 84,125
Thereafter 3,958,910
$4,323,142
Restricted escrows and other deposits include amounts held by lenders under
various note terms.
The fair value of the Partnership s obligations are estimated on the quoted
market prices for the same or similar issues or on the current rates offered
to the Partnership for debt of the same remaining maturities. Current rates
approximate market rates.
4. Distributions
Distributions to the partners are paid from operations of the Partnership's
properties or from sales or refinancing of properties. Cash from operations
is distributed 96% to the Limited Partners and 4% to the General Partners.
However, no distributions of cash from operations shall be made to the General
Partners in any year until the Limited Partners have received distributions
for such year equal to 9% of their invested capital.
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Notes to Consolidated Financial Statements
Distributions of cash from sales and refinancing are made in the following
order:
(a) First, to the Limited Partners in an amount equal to their invested
capital; then,
(b) to the Limited Partners in an amount necessary to provide the Limited
Partners with a 9% cumulative, non-compounded return on invested capital
to the extent not previously received through distributions of
distributable cash from operations; then,
(c) to the General Partners in an amount up to 3% of the sale price of all
properties on a cumulative basis; then,
(d) the balance of such proceeds shall be distributed 15% to the General
Partners and 85% to the Limited Partners.
During 1995, the Partnership distributed $150,000 to the Limited Partners.
There were no cash distributions made to the Limited Partners for the years
ended December 31, 1994 and 1993. Cumulative distributions paid to the
Limited Partners as of December 31, 1995 are $2,588,103. No distributions
have been made to the General Partners.
5. Loss on Write-Down of Properties
The Partnership recorded write-downs in prior years to reduce the carrying
value of certain properties to their estimated net realizable value as
determined by the Corporate General Partner.
The cumulative amount of these write-downs were as follows as of December 31,
1995:
Mayfair Village Nursing Care Center $1,441,848
Mayfair Retirement Center 440,602
$1,882,450
The net book value of the assets at December 31, 1995 were as follows:
Net Book
Value
Mayfair Village Nursing Care Center $1,369,521
Mayfair Retirement Center 2,194,553
$3,564,074
6. Southmark Litigation
In November 1990, the Partnership filed claims against Southmark in the United
States Bankruptcy Court for the Northern District of Texas, Dallas Division
(the "Bankruptcy Court"). In August 1991, the Partnership was served notice
that Southmark filed suit against the Partnership, the Corporate General
Partner and partnerships controlled by affiliates of the Corporate General
Partner. In this suit, Southmark was seeking $4,928,329, alleging a
fraudulent, preferential or post-petition transfer. On October 15, 1991, the
Partnership filed its response, including counterclaims against Southmark, for
alleged fraud and misrepresen-tation and asserting that in fact Southmark owed
amounts to the Partnership as represented by proof of claims filed against
Southmark's bankrupt estate.
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Notes to Consolidated Financial Statements
The Partnership and Southmark reached a settlement which was filed with the
Bankruptcy Court in January 1994 regarding the claims filed by the Partnership
against Southmark and Southmark's suit against the Partnership. Under this
settlement agreement, Southmark released all claims against the Partnership.
7. Cost Reimbursements
Accounts receivable and operating revenue include amounts estimated by
management to be reimbursable by Medicaid and Medicare under the provisions of
cost reimbursement formulas in effect. Final determination of amounts earned
is subject to audit by the intermediaries. In the opinion of management,
adequate provision has been made for any adjustments that may result from such
audits. Differences between estimated provisions and final settlement are
reflected as charges or credits to operating revenue in the year finalized.
Medicaid and Medicare programs accounted for approximately 56%, 57% and 48% of
operating revenue during 1995, 1994, and 1993, respectively.
Significant changes have and will continue to be made in government
reimbursement programs, and such changes could have a material impact on
future reimbursement formulas.
Accounts receivable, recorded at net realizable value, relate principally to
amounts due from both the Ohio Medicaid program and Medicare are as follows:
1995 1994
Ohio Medicaid Program $223,504 $167,541
Medicare 194,759 253,971
Amounts due from the Ohio Medicaid program are paid on an interim and final
basis generally within 30 to 60 days from date of billing. Amounts due from
the Medicare program are generally received within 30 to 60 days on an interim
basis with final settlement occurring annually.
8. Concentrations of Credit Risk
At December 31, 1995, the Partnership had cash on deposit at three banks which
exceeded the Federal Deposit Insurance Corporation limit in the aggregate by
$381,078.
9. Supplemental Disclosures of Cash Flow Information
As discussed in Note 1, the Partnership had a forgiveness of debt due to the
Corporate General Partner during 1995. In connection with the forgiveness, a
gain of $5,651,854 was recorded. This amount is included as a gain on
extinguishment of debt on the accompanying statement of cash flows.
SCHEDULES
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Schedule II - Valuation and Qualifying Accounts
Years Ended December 31, 1995, 1994 and 1993
Additions
Balance charged to
beginning costs and Balance at
of year expenses Deductions(1) end of year
1995
Allowance for
doubtful accounts $43,636 $29,582 $ - $73,218
1994
Allowance for
doubtful accounts $39,850 $ 3,786 $ - $43,636
1993
Allowance for
doubtful accounts $49,824 $ - $(9,974) $39,850
Represents direct write-offs of receivables.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership does not have officers or directors. At December 31, 1995,
the General Partners of the Partnership were WelCare Consolidated Resources
Corporation of America, Inc. ("WCRCA"), Consolidated Associates II and WelCare
Service Corporation-II ("WSC-II") as Managing General Partner of the
Partnership. The executive officers and director of WSC-II and WCRCA, who
control the affairs of the Partnership, are as follows:
Name and Position Age Other Principal Occupations and Other
Directorships During the Past 5 Years
J. Stephen Eaton
President and
Director 45 Mr. Eaton has been President and Director of
WelCare International, Inc. since its formation
in February 1989. WelCare International, Inc.,
an affiliate of the General Partners, is engaged
in the operation, acquisition, property
management and oversight management of long-term
care facilities. Since 1988, Mr. Eaton has
served as a Director and is currently Chairman
of St. Joseph's Mercy Care Corporation, a non-
profit corporation.
Kent C. Fosha, Sr.
Executive Vice
President
Operations 54 Mr. Fosha has been Executive Vice President of
WelCare International, Inc. since 1990. WelCare
International, Inc., an affiliate of the General
Partners, is engaged in the operation, acquisi-
tion, property management and oversight manage-
ment of long-term care facilities. Mr. Fosha is
a licensed nursing home administrator in the
state of Georgia.
Alan C. Dahl
Executive Vice
President 35 Mr. Dahl has been Executive Vice President of
WelCare International, Inc. since February 1991.
WelCare International, Inc., an affiliate of the
General Partners, is engaged in the operation,
acquisition, property management and oversight
management of long-term care facilities. Mr.
Dahl is a certified public accountant.
ITEM 11. EXECUTIVE COMPENSATION
No individual principal or principals as a group received any direct
remuneration from the Partnership.
The General Partners are not compensated directly for their services as
general partners of the Partnership. See Item 13 and Note 2 to the
consolidated financial statements appearing in Item 8 for further discussion
of compensation paid to affiliates of the General Partners.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) Security ownership of certain beneficial owners.
No individual or group as defined by Section 13(d)(3) of the Securities
Exchange Act of 1934, known to the Partnership is the beneficial owner of
more than 5% of the Partnership's securities.
(B) Security ownership of management.
The General Partners and their management own less than 1%.
The General Partners are entitled to distributions of cash from operations
and from "other sources" (primarily from the sale or refinancing of
Partnership properties, as set forth in Item 8, Note 4).
(C) Change in control.
None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Affiliates and former affiliates of the General Partners, in accordance with
the Partnership Agreement, may receive compensation for services rendered.
The following is a summary of compensation paid to or accrued for the benefit
of the General Partners and affiliates in 1995:
Oversight management and management fees $89,865
Administration of partnership activities (1) 41,005
(1) For reimbursement of expenses incurred by affiliates of the Corporate
General Partner in performing administrative services including investor
relations and accounting. See Note 2 to the accompanying consolidated
financial statements appearing in Item 8.
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) Consolidated Financial Statements:
Report of Independent Certified Public Accountants
Balance Sheets
as of December 31, 1995 and 1994
Statements of Operations
for the Years Ended December 31, 1995, 1994 and 1993
Statements of Partners' (Deficit)
for the Years Ended December 31, 1995, 1994 and 1993
Statements of Cash Flows
for the Years Ended December 31, 1995, 1994 and 1993
Summary of Significant Accounting Policies
Notes to Consolidated Financial Statements
(2) Schedules Included in Part II, Item 8:
Schedule VIII - Valuation and Qualifying Accounts
(3) Exhibits:
The following exhibits are incorporated by reference and are an integral
part of this Form 10-K.
Exhibit Number
as per Exhibit Page
Table) Document Description Number
3.1 Agreement of Limited Partnership of N/A
Consolidated Resources Health Care Fund II
incorporated by reference to Exhibit A to the
Registration Statement on Form S-1, as
amended, Page A-1, File No. 2-87636, (now
File No. 0-13415)
3.2 Amendment to Agreement of Limited Partnership N/A
of Consolidated Resources Health Care Fund II
incorporated by reference to Proxy Statement
filed on November 19, 1991, File No. 0-13415.
22 Subsidiaries 26
27 Financial Data Schedules N/A
(b) Reports on Form 8-K:
(1) None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CONSOLIDATED RESOURCES HEALTH CARE FUND
IV
(Registrant)
By: WELCARE CONSOLIDATED RESOURCES
CORPORATION OF AMERICA
Corporate General Partner
By: /S/ J. Stephen Eaton
Date
J. Stephen Eaton,
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons, on behalf of the
Registrant and in the capacities and on the dates indicated:
By: /S/ J. Stephen Eaton
Date
J. Stephen Eaton,
Sole Director and Principal
Executive Officer of the
Corporate General Partner
By: /S/ Alan C. Dahl
Date
Alan C. Dahl
Chief Financial Officer
of the Corporate
General Partner
Exhibit Index
Sequential Page
Exhibit Number Description Number
3.1 Agreement of Limited Partnership of N/A
Consolidated Resources Health Care Fund
II incorporated by reference to Exhibit
A to the Registration Statement on Form
S-1, as amended, Page A-1, File No. 2-
87636, (now File No. 0-13415)
3.2 Amendment to Agreement of Limited N/A
Partnership of Consolidated Resources
Health Care Fund II incorporated by
reference to Proxy Statement filed on
November 19, 1991, File No. 0-13415.
22 Subsidiaries 26
27 Financial Data Schedules N/A
EXHIBIT 22
SUBSIDIARIES
Mayfair Village, Ltd.
Mayfair Nursing Care Center, Ltd.
<TABLE> <S> <C>
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THIS SCHEDULE CONTAINS UNAUDITED SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE DECEMBER 31, 1995 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH 10-K.
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