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, 1997
----------------------
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.)
400 Perimeter Center Terrace, Suite 650, Atlanta, Georgia 30346
- ---------------------------------------------------------------------
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, 770-698-9040
including area code
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Limited 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 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 24
SEE INDEX TO EXHIBITS ON PAGE 24
PAGE ONE OF 26 PAGES.
<PAGE>
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, 1997, the Partnership had three general partners (the "General
Partners"), Consolidated Associates II, ("CA-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"). On January 30,
1997, all of the stock of the Corporate General Partner and the Managing General
Partner was sold to Consolidated Partners Corporation, which is wholly-owned by
a general partner of CA-II.
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, 1997 and
1996, the Partnership owned and operated 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, 1997, the Partnership employed approximately 162 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 of Ohio 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. The nursing home is
certified under the Medicare 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 that
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. Each of these factors
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 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 which add to the success of its
facilities. 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 and resident revenues at the Partnership's facilities:
Revenues for
Average Daily Census for Year Ended
Year Ended December 31,
December 31, 1997 1997 (1)
-------------------------- --------------
Medicaid 42 26% 27%
Private Pay 26 16% 19%
VA, Medicare and 20 12% 35%
Other
Retirement 75 46% 19%
Center (1)
Overall 86%
Occupancy Rate
(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 nursing 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 significantly reduce 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 1997, the facility exceeded
its break-even occupancy level.
ITEM 2. PROPERTIES
The following table sets forth the investment portfolio of the Partnership at
December 31, 1997. 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.
<PAGE>
Properties (dollars in 000's)
------------------------------
Net Occupancy
Secured Acquisition Book Rate Date
Property Value in 1997 Acquired
Debt Cost
Mayfair
Village
Nursing Care
Center
Columbus, OH $1,563 $4,774 $1,280(1) 88% February
100 Licensed 1985
Nursing Home
Beds
Mayfair
Retirement
Center
Columbus, OH 2,637 4,824 2,297(1) 82% February
----- ----- -----
91 Units 1985
$4,200 $9,598 $3,577
====== ====== ======
(1) A provision was made prior to 1991 to write down each facility to their
estimated 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). These values reflect this write-down.
ITEM 3. LEGAL PROCEEDINGS
As of December 31, 1997, the Partnership did not have any pending legal
proceedings that separately, or in the aggregate, if adversely determined, would
have a material adverse effect on the Partnership. The Partnership may, from
time to time, be a party to litigation or administrative proceedings which arise
in the normal course of 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
develop.
(B) Title of Class Number of Record Unit Holders
Limited Partner Units 1,602 as of March 23, 1998
(C) There was a distribution of $200,100 paid to the Limited
Partners in 1997. Cumulative distributions paid to the
Limited Partners as of December 31, 1997, were $2,938,203.
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.
<PAGE>
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 Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Partnership and
notes thereto appearing in Item 8.
Statements of Years Ended December 31, (dollars in 000's,
except per unit figures)
------------------------------------------------
Operations 1997 1996 1995 1994 1993
- ---------- ---- ---- ---- ---- ----
Operating revenue $8,304 $7,189 $6,623 $6,091 $5,481
Income before
extraordinary gain 664 279 175 185 312
Net income 664 279 5,827 185 312
Income before
extraordinary
gain per weighted 42.50 17.84 11.21 11.85 19.96
average
Limited
Partnership Unit
Net income per
weighted
average Limited 42.50 17.84 372.93 11.85 19.96
Partnership
Unit
Distribution paid
per weighted
average Limited 13.34 10.00 10.00 - -
----- ----- ----- ---------- --------
Partnership
Unit
At December 31, (dollars in 000's)
------------------------------------------------
Balance Sheets 1997 1996 1995 1994 1993
- -------------- ---- ---- ---- ---- ----
Property and $3,577 $3,440 $3,564 $3,825 $4,075
equipment, net
Total assets 6,014 5,499 5,592 5,980 6,030
Long-term debt
obligations, less 4,124 4,206 4,261 4,326 4,384
current maturities
Partners' equity 686 222 93 (5,584) (5,769)
(deficit)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Certain statements contained in this Management Discussion and Analysis are not
based on historical facts, but are forward-looking statements that are based
upon numerous assumptions about future conditions that may ultimately prove to
be inaccurate. Actual events and results may materially differ from anticipated
results described in such statements. The Partnership's ability to achieve such
results is subject to certain risks and uncertainties. Such risks and
uncertainties include, but are not limited to, changes in healthcare
reimbursement systems and rates, the availability of capital and financing, and
other factors affecting the Partnership's business that may be beyond its
control.
Results of Operations
Revenue:
1997 compared to 1996
Operating revenues increased $1,115,026 in 1997 as compared to 1996. The
increase was due primarily to the recognition of approximately $550,000 in
additional Medicare revenues generated by Routine Cost Limit exception
settlements related to 1995 and 1996 cost report years for the Partnership's
nursing facility. The remaining balance of the revenue increase was attributable
to favorable increases in Medicare and Medicare rates at the nursing facility,
along with an increase in rates at the retirement facility following the
completion of a renovation project initiated in 1996.
1996 compared to 1995
Operating revenues increased $566,525 in 1996 as compared to 1995. The increase
is primarily due to an increase in the nursing facility's reimbursement from
Medicare pursuant to routine cost limit exception request approved during the
period along with favorable changes in patient mix along with an increase in the
volume of higher revenue therapy services being provided over the prior year.
The Partnership's retirement center experienced a decrease in revenue over the
prior year due to a decrease in occupancy, as a result of its renovation project
initiated in the last calendar quarter of 1996.
Expenses:
1997 compared to 1996
Operating expenses increased $732,702 in 1997 as compared to 1996. The increase
was due primarily to a shift to higher acuity patients which require higher cost
ancillary services at the Partnership's nursing facility.
1996 compared to 1995
Operating expenses increased $367,510 in 1996 as compared to 1995. The increase
is due primarily to inflationary increases at both facilities, higher costs
associated with higher acuity patients and increased utilization of therapy
services at the Partnership's nursing facility.
Liquidity and Capital Resources
At December 31, 1997, the Partnership held cash and cash equivalents of
$1,147,310 decrease of $192,448 from the amount held at December 31, 1996. 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 the U.S. Department of Housing and Urban Development
(HUD) through the computation of surplus cash. At December 31, 1997, the balance
of HUD reserved cash at the facilities was $377,159.
The Partnership's two 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 1998. Capital expenditures increased from $265,094 in 1996
to $595,224 in 1997 due in part to the Partnership's renovation of the
retirement center.
As of December 31, 1997, the Partnership was not obligated to perform any major
capital expenditures. 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.
Due to efforts of the Managing General Partner, the Partnership distributed
$150,000 to the Limited Partners on February 10, 1995. On February 15, 1996, the
Partnership distributed $150,000 to the Limited Partners. On February 15, 1997,
the Partnership distributed $200,100 to the Limited Partners. On February 15,
1998, the Partnership distributed $300,000 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 both the
nursing facility and retirement center level.
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.
<PAGE>
The Partnership should produce sufficient cash flow to meet its ongoing
operations 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 1997, 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.
Impact of the Year 2000 Issue
The "Year 2000 Issue" resulted from the use of two digits rather than four
digits to define the applicable year in certain computer programs. With the
coming millennium, any of the Partnership's computer programs that have two
digit date-sensitive software may interpret a date of "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations, causing disruptions of the operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
Management is in the process of evaluating the effect of the Year 2000 Issue on
the Partnership. Based on preliminary findings, the total cost of addressing the
Year 2000 Issue is not expected to have a material effect on the Partnership's
business, financial condition or results of operations. However, management is
in the process of completing its assessment of the potential impact of the Year
2000 Issue on the Partnership and the potential exposure of the Partnership to
related problems on its customers and suppliers. There can be no assurance that
such exposures on the costs of remediating any problems associated therewith
will not materially affect the Partnership's future business, financial
condition, or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index Page
Number
Report of Independent Certified Public Accountants 8
Consolidated Financial Statements
Consolidated Balance Sheets-December 31, 1997 and 1996 9-10
Consolidated Statements of Income
- Years ended December 31, 1997, 1996 and 1995 11
Consolidated Statements of Partners' Equity (Deficit)
- Years ended December 31, 1997, 1996 and 1995 12
Consolidated Statements of Cash Flows
- Years ended December 31, 1997, 1996 and 1995 13
Summary of Significant Accounting Policies 14-16
Notes to Consolidated Financial Statements 17-19
The following financial statement schedule for the years ended December 31,
1997, 1996 and 1995 of the Registrant are submitted herewith in response to Item
14 (a)(2):
Schedule II - Valuation and Qualifying Accounts 21
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, 1997 and 1996, and the related consolidated
statements of income, partners' equity (deficit) and cash flows for each of the
three years in the period ended December 31, 1997. We have also audited the
accompanying Schedule II - Valuation and Qualifying Accounts for the years ended
December 31, 1997, 1996 and 1995. 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, 1997 and 1996, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997 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 26, 1998
<PAGE>
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Consolidated Balance Sheets
December 31,
------------------------
1997 1996
----------- -----------
Assets
Current
Cash and cash equivalents (Note 7) $1,147,310 $1,339,758
Accounts receivable, net of allowance for
doubtful accounts 321,537 343,421
of $19,035 and $53,554, respectively (Note 6)
Third-party payor settlement receivable 472,017 25,624
(Note 6)
Prepaid expenses and other 18,964 14,560
----------- -----------
Total current assets 1,959,828 1,723,363
----------- -----------
Property and equipment (Notes 3 and 5)
Land 178,609 178,609
Buildings and improvements 6,733,131 6,333,497
Equipment and furnishings 808,245 666,806
----------- -----------
7,719,985 7,178,912
Less accumulated depreciation (4,142,935) (3,738,651)
----------- -----------
Net property and equipment 3,577,050 3,440,261
----------- -----------
Other
Restricted escrows and other deposits (Note 456,992 315,012
3)
Deferred loan costs, net of accumulated
amortization 19,794 20,831
of $12,516 and $11,480, respectively
----------- -----------
Total other assets 476,786 335,843
----------- -----------
$6,013,664 $5,499,467
=========== ===========
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Consolidated Balance Sheets
December 31,
------------------------
1997 1996
----------- -----------
Liabilities and Partners' Equity (Deficit)
Current liabilities
Current maturities of long-term debt $75,836 $67,222
obligations (Note 3)
Accounts payable 242,484 197,950
Accrued expenses 375,411 373,500
Accrued management fees substantially all 440,167 254,518
to affiliates (Note 2)
Deposit liabilities 69,931 179,130
----------- -----------
Total current liabilities 1,203,829 1,072,320
Long-term debt obligations, less current
maturities (Note 3) 4,124,298 4,205,585
----------- -----------
Total liabilities 5,328,127 5,277,905
----------- -----------
Commitments and Contingencies (Notes 6 and 7)
Partners' equity (deficit) (Notes 3 and 4)
Limited partners 849,683 412,271
General partners (164,146) (190,709)
----------- -----------
Total partners' equity 685,537 221,562
----------- -----------
$6,013,664 $5,499,467
=========== ===========
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Consolidated Statements of Income
Years ended December 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
Revenue
Operating revenue (Note 6) $8,304,474 $7,189,448 $6,622,923
Interest income 32,154 29,115 29,356
----------- ----------- -----------
Total revenue 8,336,628 7,218,563 6,652,279
----------- ----------- -----------
Operating costs and expenses
Operating expenses 6,134,554 5,516,102 5,148,592
Depreciation and amortization 437,665 389,943 375,742
Interest (Note 3) 319,009 323,011 327,139
Management and oversight fees 497,528 414,379 420,899
(Note 2)
Real estate taxes 126,169 122,642 120,759
Partnership administration
costs substantially 157,628 173,744 83,930
all to affiliates (Note 2)
----------- ----------- -----------
Total operating costs and expenses 7,672,553 6,939,851 6,477,061
----------- ----------- -----------
Income before extraordinary gain 664,075 278,712 175,218
Extraordinary gain on
extinguishment of debt - - 5,651,854
(Note 1)
----------- ----------- -----------
Net income $664,075 $278,712 $5,827,072
=========== =========== ===========
Income per limited partnership
unit before $ 42.50 $17.84 $11.21
extraordinary gain
=========== =========== ===========
Extraordinary gain on
extinguishment of debt $ - $ - $361.72
per limited partnership unit
=========== =========== ===========
Net income per limited $ 42.50 $17.84 $372.93
partnership unit
=========== =========== ===========
Limited partnership units 15,000 15,000 15,000
outstanding
=========== =========== ===========
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Consolidated Statements of Partners' Equity (Deficit) Years Ended
December 31, 1997, 1996 and 1995
Total
Partners'
Limited General Equity (Deficit)
----------- ----------- -----------
Partners' deficit at January 1,
1995 $(5,149,283) $(434,939) $(5,584,222)
Net income 5,593,990 233,082 5,827,072
Distributions (Note 4) (150,000) - (150,000)
----------- ----------- -----------
Partners' equity (deficit),
at December 31, 1995 294,707 (201,857) 92,850
Net income 267,564 11,148 278,712
Distributions (Note 4) (150,000) - (150,000)
----------- ----------- -----------
Partners' equity (deficit),
at December 31, 1996 412,271 (190,709) 221,562
Net income 637,512 26,563 664,075
Distributions (Note 4) (200,100) - (200,100)
----------- ----------- -----------
Partners' equity (deficit),
at December 31, 1997 $849,683 $(164,146) $685,537
=========== =========== ===========
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Consolidated Statements of Cash Flows
Years ended December 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
Operating activities
Net income $664,075 $278,712 $5,827,072
Adjustments to reconcile net
income to cash provided by
operating activities:
Depreciation and amortization 437,665 389,943 375,742
Loss on disposal of fixed assets 21,807 - -
Gain on extinguishment of debt - - (5,651,854)
Changes in assets and liabilities:
Accounts receivable, net 21,884 222,544 20,964
Prepaid expenses and other (4,404) 29,757 63,912
Accounts payable 44,534 (137,290) (38,546)
Accrued liabilities and 78,361 (33,389) (313,670)
deposit liabilities
Third-party payor settlement (446,393) (25,624) -
receivable
---------- ----------- -----------
Cash provided by operating 817,529 724,653 283,620
activities
----------- ----------- -----------
Investing activities
Payments for purchases of (595,224) (265,094) (112,927)
property and equipment, net
Net change in restricted (141,980) (34,766) (40,589)
escrows and other deposits
----------- ----------- -----------
Cash used in investing activities (737,204) (299,860) (153,516)
----------- ----------- -----------
Financing activities
Principal payments on long-term (72,673) (50,335) (61,060)
debt obligations
Distributions paid to limited (200,100) (150,000) (150,000)
partners
----------- ----------- -----------
Cash used in financing activities (272,773) (200,335) (211,060)
Net increase (decrease) in cash (192,448) 224,458 (80,956)
and cash equivalents
Cash and cash equivalents, 1,339,758 1,115,300 1,196,256
beginning of year
----------- ------------------------
Cash and cash equivalents, end of $1,147,310 $1,339,758 $1,115,300
year
=========== =========== ===========
Supplemental Disclosure:
Cash paid during the year for $319,009 $323,011 $327,139
interest
=========== =========== ===========
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
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. Investments in healthcare real property consist of
a nursing home and a retirement center in Ohio. During 1997, the average
occupancy for the nursing home and retirement center was 88% and 82%,
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,
("CA-II"), a Georgia general partnership (collectively the "General Partners").
On January 30, 1997, all of the stock of the Corporate General Partner and the
Managing General Partner was sold to Consolidated Partners Corporation, which is
wholly-owned by a general partner of CA-II. The General Partners collectively
hold a 4% ownership interest in the Partnership. The limited partner hold 15,000
partnership units which comprise 96% ownership in 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 accounts of the subsidiary 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.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset, a loss is recognized for the difference between the fair
value and carrying value of the asset.
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 which approximates the effective interest method.
Amortization of deferred loan costs is included in depreciation and amortization
expense.
<PAGE>
Operating Revenue
Operating revenue is recorded when services are rendered and includes amounts
reimbursable by the Medicaid and Medicare programs. Revenues are recorded at the
estimated net realizable amounts from patients, third-party payors, and others
for services rendered including estimated retroactive adjustments under
reimbursement agreements with Medicare and Medicaid. Retroactive adjustments are
accrued in the period related services are rendered and adjusted in future
periods as final settlements are determined.
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 computed
as 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
(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.
<PAGE>
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 certain 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.
Reclassifications
Certain 1995 and 1996 amounts have been reclassified to conform to the 1997
presentation.
<PAGE>
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. In July 1991 Southmark filed suit demanding payment of the
alleged advances. In 1991, the Partnership 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. In 1995, the Corporate General Partner 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 and Affiliate Transitions
A related company of the minority interest holder manages the nursing home and
retirement center for a fee of 5% of gross operating revenues. Fees totalling
$414,401, $358,667 and $331,034 were paid to the management company for the
years ended December 31, 1997, 1996 and 1995, respectively. In addition, an
affiliate of the Corporate General Partner was paid an oversight management fee
of 1% of gross operating revenue totalling $83,127, $55,712 and $89,865 in 1997,
1996 and 1995, respectively.
During 1997, 1996 and 1995, an affiliate of the Corporate General Partner was
reimbursed for costs incurred in connection with the administration of
Partnership activities in the amount of $72,813, $44,364 and $41,005,
respectively. These expenses are included in Partnership administration costs on
the accompanying Consolidated Statements of Operations.
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 1996, these amounts were reduced by amounts due
from an affiliate of the Corporate General Partner. In 1997, the amounts due
from the affiliate of the Corporate General Partner were recovered.
3. Long-Term Debt Obligations
Long-term debt obligations consisted of:
1997 1996
---------- ---------
7.5% note related to Mayfair
Village Nursing Care Center,
collateralized by a first
trust deed on land, buildings
and furnishing and insured by
the U.S. Department of Housing
and Urban Development; payable $1,563,214 $1,595,057
in monthly installments of
principal and interest of
$12,050, due January 1, 2020
7.5% note related to Mayfair Retirement Center, collateralized by a first trust
deed on land, buildings and furnishing and insured by
the U.S. Department of Housing 2,636,920
and Urban Development; payable 2,677,750
in monthly installments of
principal and interest of
$20,023, due March 1, 2021
---------- ---------
4,200,134 4,272,807
Less current maturities 75,836
67,222
---------- ---------
$4,124,298 $4,205,585
========== =========
<PAGE>
Future maturities of long-term debt obligations at December 31, 1997 are as
follows:
Amount
1998 $ 75,836
1999 81,723
2000 88,067
2001 94,904
2002 102,363
Thereafter 3,757,241
------------
$4,200,134
============
Restricted escrows and other deposits include amounts held in trust for payment
of property taxes and insurance and for repairs and replacements of the property
as approved by HUD. Under covenants contained in the Regulatory agreement with
HUD, the subsidiary partnerships are limited as to the amount of distributions
they may make to the Partnership to the extent of surplus cash, as defined. The
Regulatory Agreement also imposes restrictions regarding cash receipts and
disbursements and compliance with the Fair Housing Act.
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. Carrying values of
the Partnerships' financial instruments approximate their fair values at
December 31, 1997.
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.
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.
The Partnership distributed cash of $200,100, $150,000 and $150,000 to the
Limited Partners for the years ended December 31, 1997, 1996 and 1995,
respectively. Cumulative distributions paid to the Limited Partners as of
December 31, 1997 are $2,938,203. No distributions have been made to the General
Partners.
5. Loss on Write-Down of Properties
Prior to 1992, the Partnership recorded write-downs to reduce the carrying value
of certain properties to their estimated net realizable value as determined by
the Corporate General Partner.
<PAGE>
The balance of these write-downs and the carrying values of the property and
equipment were as follows as of December 31, 1997.
Write Down Carrying
Value
Mayfair Village Nursing Care Center $1,441,848 $1,280,408
Mayfair Retirement Center 440,602 2,296,642
$1,882,450 $3,577,050
6. 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. 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.
At December 31, 1997 and 1996, estimated third-party payor settlement
receivables were $472,017 and $25,624, respectively.
Medicaid and Medicare programs accounted for approximately 61%, 58% and 56% of
operating revenue during 1997, 1996 and 1995, respectively.
Accounts receivable, recorded at net realizable value, relate principally to
amounts due from both the Ohio Medicaid program and Medicare are as follows:
1997 1996
------------ ------------
Ohio Medicaid Program $126,617 $211,901
Medicare 133,864 153,113
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 90 days on an interim basis
with final settlement occurring annually.
7. Concentrations of Credit Risk
At December 31, 1997, the Partnership had cash on deposit at one bank which
exceeded the Federal Deposit Insurance Corporation limit in the aggregate by
$796,537.
<PAGE>
26
SCHEDULE
<PAGE>
Consolidated Resources Health Care Fund II and Subsidiaries
(limited partnerships)
Schedule II - Valuation and Qualifying Accounts Years Ended December
31, 1997, 1996 and 1995
Balance at Additions Balance at
beginning of charged to Deductions end of year
year costs and (1)
expenses
1997
Allowance for
doubtful $53,554 $6,671 $(41,190) $19,035
======= ====== ========= =======
accounts
1996
Allowance for
doubtful $73,218 $ - $(19,664) $53,554
======= ========= ========= =======
accounts
1995
Allowance for
doubtful $43,636 $29,582 $ - $73,218
======= ======= ========= =======
accounts
(1)Represents direct write-offs of receivables and recoveries of previously
written off receivables.
<PAGE>
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, 1997, 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 Age Other Principal Occupations and Other
Position Directorships During the Past 5 Years
J. Stephen Eaton 47 J. Stephen Eaton is also Chairman of the
President, Chief Board and the founder of Centennial
Executive HealthCare Corporation and has served as
Officer its President and Chief Executive Officer
and Sole since its inception in February 1989.
Director Mr. Eaton has been involved in the
long-term care industry since 1982. Mr. Eaton also
serves as a director of Saint Joseph's Mercy Care
Corporation, a non-profit corporation based in Atlanta,
Georgia which provides mobile health services to the
homeless and other underserved populations, and of
Saint Joseph's Health System, a major tertiary care
hospital and health system in Atlanta, Georgia.
Alan C. Dahl 37 Alan C. Dahl has served as Executive Vice
Vice President President, Chief Financial Officer, and
Chief Financial Director of Centennial HealthCare
Officer Corporation since January 1996. From
and Treasurer February 1991 to December 1995, he served
as senior vice president. Mr. Dahl has
been involved in healthcare finance for
the past eleven years. Mr. Dahl was
previously senior vice president of
Southmark Public Syndications, Inc., a
subsidiary of Southmark Corporation. Mr.
Dahl, a certified public accountant, also
worked in the tax department at Arthur
Young & Company.
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.
<PAGE>
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).
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 1997:
Oversight management and management fees $83,127
Administration of partnership activities (1) $72,813
(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.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) The following financial statements are included in Part II, Item 8:
(1)Consolidated Financial Statements:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets - as of December 31, 1997 and 1996
Consolidated Statements of Income - for the Years Ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Partners' Equity (Deficit) - for the Years Ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows - for the Years Ended December 31,
1997, 1996 and 1995
Summary of Significant Accounting Policies
Notes to Consolidated Financial Statements
(2)The following financial statement schedule is included in this Form 10-K
Report::
Schedule II - Valuation and Qualifying Accounts for the years ended
December 31, 1997, 1996 and 1995
All other schedules are omitted since they are not required,
are not applicable or the financial information
required is included in the financial statements or notes
thereto.
(3)The following exhibits are incorporated by reference and are an integral
part of this Form 10-K:
Exhibit Number
(as per Exhibit Document Description Page
Table) Number
3.1 Agreement of Limited Partnership of
Consolidated Resources Health Care N/A
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 of Consolidated
Resources N/A Health Care Fund II incorporated by reference
to Proxy Statement filed on November 19, 1991, File No.
0-13415.
21 Subsidiaries E
27 Financial Data Schedules E
E - Submitted electronically as a separate document herwith
the Registrant's Form 10-K405
(b) Reports on Form 8-K:
1. None
<PAGE>
EXHIBIT 21
SUBSIDIARIES
Consolidated Resources HealthCare Fund II - Mayfair Village, Ltd.
Consolidated Resources HealthCare Fund II - Mayfair Nursing Care
Center, Ltd.
<PAGE>
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 II
(Registrant)
By: WELCARE SERVICE CORPORATION-II
Managing General Partner
By: /s/ J. STEPHEN EATON
Date: MARCH 31, 1998 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 MARCH 31, 1998 J. Stephen Eaton,
Sole Director and Principal
Executive Officer of the
Managing General Partner
By: /s/ ALAN C. DAHL
Date MARCH 31, 1998 Alan C. Dahl
Chief Financial Officer
of the Managing
General Partner
EXHIBIT 21
SUBSIDIARIES
Mayfair Village, Ltd.
Mayfair Nursing Care Center, Ltd.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS UNAUDITED SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE DECEMBER 31, 1997 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH 10-K.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.0
<CASH> 1,147,310
<SECURITIES> 0
<RECEIVABLES> 340,572
<ALLOWANCES> 19,035
<INVENTORY> 0
<CURRENT-ASSETS> 1,959,828
<PP&E> 7,719,985
<DEPRECIATION> 4,142,935
<TOTAL-ASSETS> 6,013,664
<CURRENT-LIABILITIES> 1,203,829
<BONDS> 4,124,298
0
0
<COMMON> 0
<OTHER-SE> 685,537
<TOTAL-LIABILITY-AND-EQUITY> 6,013,664
<SALES> 8,304,474
<TOTAL-REVENUES> 8,336,628
<CGS> 6,134,554
<TOTAL-COSTS> 7,353,544
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 319,009
<INCOME-PRETAX> 664,075
<INCOME-TAX> 0
<INCOME-CONTINUING> 664,075
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 664,075
<EPS-PRIMARY> 42.500
<EPS-DILUTED> 42.500
</TABLE>
