SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549-1004
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission file number 0-16415
CUMBERLAND HEALTHCARE, L.P. I-A
(Exact name of Registrant as specified in its charter)
Delaware 59-2660778
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
880 Carillon Parkway, St. Petersburg, Florida 33716
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (813) 573-3800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: 30,000
Title of Each Class
Units of Limited Partnership Interest
$1,000 per unit
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
Number of shares outstanding of each of Registrant's classes of securities:
Number of Units
Title of Each Class at December 31, 1996
Units of Limited Partnership
Interest: $1,000 per unit 30,000
There is no public market for the trading of partnership units and
therefore no market value can be determined.
DOCUMENTS INCORPORATED BY REFERENCE
None
Exhibit Index: Pages 29 - 32
PART I
Item 1. Business
General Development of Business
The Registrant is a limited partnership (the "Partnership") composed of
Medical Investments Partners (the "General Partner") and purchasers of
Partnership units as the limited partners. The General Partner is composed
of RJ Health Properties, Inc. and RJ Medical Investors, Inc., both of which
are wholly-owned subsidiaries of Raymond James Financial, Inc. The
Partnership was formed under the laws of Delaware and commenced operations
on March 13, 1986.
Financial Information about Industry Segments
The Partnership was formed to engage in only one industry segment, the
acquisition of nursing homes subject to leases to third parties. As a
result of the bankruptcy of the original lessees of the Partnership's
nursing homes, the Partnership, on an interim basis, became the operator of
the fourteen nursing homes owned by it pending locating qualified lessees
for the nursing homes.
Narrative Description of Business
The Partnership's business is to acquire and lease nursing homes,
primarily through operating leases expected to generate cash distributions
to the Limited Partners from leasing revenues and proceeds from the sale or
other disposition of the nursing homes.
Termination and Dissolution of the Partnership
On May 8, 1996, the limited partners approved a plan of liquidation
pursuant to which the Partnership will be dissolved and its affairs wound
up pursuant to Article XIV of the Limited Partnership Agreement and its
assets be liquidated with the proceeds of such liquidation to be expended
and distributed as required by the Limited Partnership Agreement. Upon
distribution of all of the assets of the Partnership, the Partnership will
be terminated.
Nursing Home Operations
The Partnership owns 99% of Cumberland Healthcare, L.P. I-C which
leased the Hillcrest Care Center to Arbor Health Care Company ("Arbor").
The General Partner owns the remaining 1% of Cumberland Healthcare, L.P. I-
C. The lease provided for a minimum rent of $330,000 per year and
additional rent of 4% of net revenue. Total lease payments were capped
annually at $545,000. The aggregate amount of the rent paid by Arbor for
the year ended December 31, 1996, was $355,994. Arbor had an option to
purchase the facility which became effective February 1, 1995, and
terminated February 1, 1997, at an amount determined according to the lease
agreement. Arbor exercised its option to purchase Hillcrest Care Center
and on September 20, 1996, the purchase was closed with the payment of
$5,750,000 by Arbor to Cumberland Healthcare, L.P. I-C.
The Partnership leased Bel Tooren, Imperial, La Habra, Mirada Hills,
Northwalk, Rimrock and Sun City (collectively the "LCCA Homes") to Life
Care Centers of America ("LCCA"). The leases with LCCA are hereinafter
referred to as the "LCCA Leases". The LCCA Leases required an annual
minimum rent of $2,408,932 for the fiscal year ended May 31, 1996, with an
annual adjustment based on 6% of the increase in resident service revenues.
The LCCA Leases also called for incentive rent based on a 50% sharing of
LCCA's net profit from the LCCA Homes. LCCA had an option to purchase the
LCCA Homes beginning June 1, 1999 and ending December 31, 1999 for a
purchase price equal to the then fair market value of the LCCA Homes;
provided, however, that the aggregate price for all the LCCA Homes,
pursuant to the option, would not be less than $24,292,000. The LCCA
Leases original expiration date was May 2000. LCCA's obligations under the
LCCA Leases were personally guaranteed by the principal shareholder of
LCCA. During 1994, the Partnership notified LCCA that it believed that
LCCA was in violation of certain technical reporting, rent computation and
other covenants of the LCCA Leases since the reports and certifications
required to be delivered to the Partnership under the LCCA Leases were not
in the detail and form required by the LCCA Leases. LCCA denied that
violations or breaches of the LCCA Leases occurred. The disputes involved
the accounting methods used by LCCA to calculate whether any incentive rent
was due. The parties disagreed as to what credits and debits could be
properly used in making the calculation under the LCCA Leases. The General
Partner estimated the aggregate amount of the disputes to be $50,000. The
Partnership did not recognize any of the disputed amounts as revenue.
Resolution of the disputes was a condition precedent to both parties'
obligations pursuant to the Purchase Agreement and was settled through
negotiations. In addition, LCCA had informed the Partnership that it was
seeking future rental concessions under the LCCA Leases.
The Partnership entered into an agreement with LCCA on August 4, 1995
(the "Purchase Agreement") pursuant to which LCCA agreed to purchase seven
nursing facilities located in California for a purchase price of
$17,900,000. The Purchase Agreement required the purchase price to be paid
by LCCA as follows:
(a) LCCA would assume the indebtedness secured by a mortgage on the
Rimrock Facility.
(b) LCCA would deliver a purchase money note in the amount of $1,000,000
guaranteed by its principal shareholder to the Partnership (the "LCCA
Note"). The LCCA Note matures on the fifth anniversary of its issuance but
payment may be demanded at the option of the Partnership on or anytime
after December 28, 1997. A portion of the accrued interest is payable
monthly and the balance is due on the maturity of the LCCA Note. However,
if the Partnership exercises its right to call the LCCA Note on or after
December 28, 1997, the accrued interest which would otherwise be due at
maturity will be canceled; and
(c) The balance of the purchase price would be paid in cash at closing by
federal funds wire transfer to the Partnership.
The agreement to sell the LCCA Homes to LCCA was subject to Partners'
approval. Approval by the Partners' for the sale of the LCCA Homes was
granted May 8, 1996. On May 29, 1996, the closing of the sale of the LCCA
Homes was finalized. All lease agreements previously held between the
Partnership and LCCA were terminated.
Effective September 19, 1990, the Partnership leased its Rancho Los
Padres nursing home to FHP, Inc. ("FHP"), a large California based HMO and
the principal subsidiary of FHP International Corporation, for ten years.
The lease for Rancho Los Padres required FHP, as lessee, to make a monthly
minimum lease payment of $22,000 ($264,000 annually) for the first year,
$24,500 ($294,000 annually) for the second year, and $24,500 plus the
greater of the percentage increase of the Medi-Cal rate or consumer price
index increase, but not less than 3% nor more than 8%, for years three
through ten of the lease. On October 25, 1995, a Lease Termination
Agreement was signed by Cumberland Healthcare (Cumberland) and FHP, Inc.
relating to FHP - Norwalk f/k/a Rancho Los Padres ( see Note 5 to Financial
Statements) whereby Cumberland would receive an early lease termination
payment (see Note 11 to Financial Statements). A Management Agreement was
also signed whereby Cumberland would become the interim operator of the
facility. Pursuant to the Lease Termination Agreement, $1,566,174 was
placed in escrow, and payment was contingent upon Cumberland obtaining the
appropriate license to operate and maintain the FHP - Norwalk facility. In
January 1996, the State of California - Department of Health Services
issued a license to Cumberland to operate and maintain Pacific Palms
Skilled Nursing f/k/a FHP - Norwalk f/k/a Rancho Los Padres. After various
prorations, working capital advances and earned interest, the net
distribution from the escrow account to Cumberland was $1,534,334. On
October 1, 1995, there was only one resident in FHP - Norwalk and as of
December 31, 1995, there were thirty residents in the facility. FHP, as
part of the termination agreement, agreed to maintain at the nursing
facility an average census of its members/patients sufficient to average
not less than five patient days for each day between September 30, 1995,
and October 1, 1996, at a rate which is essentially $45 per patient day
greater than market rent. In the event of a sale or subsequent lease of
all or any interest in Pacific Palms Skilled Nursing prior to October 1,
1996, the Partnership was required to pay to the lessee 50% of the sale
proceeds in excess of $1,600,000, up to a maximum total payment of
$500,000.
During 1994 the Partnership refinanced debt secured by the Pacific
Palms Skilled Nursing facility (see Note 6 to Financial Statements). A
substantial portion of the proceeds of the $1,500,000 refinancing was used
to reduce other debt of the Partnership having a higher interest rate. In
January 1995, $500,000 of the proceeds of this loan was used to repay the
Raymond James Financial, Inc. indebtedness which matured in October 1994.
In consideration of debt reduction, Raymond James Financial, Inc. extended
the maturity date of the Partnership's term debt to Raymond James
Financial, Inc. In addition, Raymond James Financial, Inc. entered into a
revolving loan agreement as of December 28, 1994, which provides that
Raymond James Financial, Inc. would advance to the Partnership, on a
revolving basis up to $5,000,000 at an interest rate of 15.5% (see Note 7
to Financial Statements). The loan agreement contained typical
representations, warranties and covenants, including conditions and
restrictions on the borrowing which were: draw requests must be submitted
ten (10) business days in advance, disbursements shall be made once a month
and borrower must not be in default. The Partnership granted to Raymond
James Financial, Inc. a security interest in virtually all of the
Partnership's real estate assets and LCCA Leases to secure any advances
under the loan agreement. The Loan Agreement matured October 1, 1996. As
the Partnership no longer had a need for the revolving line of credit, the
note was marked paid and the loan agreement was terminated May 29, 1996.
As of December 31, 1996 and 1995, the Partnership and its subsidiaries
had 229 and 170 employees, respectively.
Regulation
All of the nursing homes and retirement centers leased or managed by
the Partnership are subject to certain federal statutes and regulations and
to statutory and regulatory licensing requirements by state and local
authorities. State and local agencies survey all facilities on a regular
basis to determine whether such facilities are in compliance with
governmental operating and health standards and conditions for
participation in government sponsored third-party payor programs. Such
facilities are also subject to various local building codes and other
ordinances, including fire safety codes.
Government Reimbursement Programs. The Federal government maintains a
health insurance program for the aged known as "Medicare." Individual
states have programs for medical assistance to the indigent known generally
as "Medicaid," which are partially financed by the federal government.
Federal grants are conditioned on state compliance with federal
regulations. A material portion of the current revenue derived from
facilities is received under Medicare, Medicaid, and other governmental
programs.
Both the Medicare and Medicaid programs are subject to statutory and
regulatory changes, administrative rulings, interpretations of policy,
intermediary determinations, and government funding restrictions, all of
which may materially increase or decrease the rate of program payments to
health care facilities. Since 1983, Congress has consistently attempted to
limit the growth of federal spending under the Medicare and Medicaid
programs. In a January 27, 1994 report, the Congressional Budget Office
stated that despite recent deficit reduction legislation, the federal
budget deficit will begin to rise in 1998 and that "increases in spending
for Medicare and Medicaid are the dominant force pushing projected deficits
back up as the 20th century nears its end." The report projected that
federal Medicaid payments in 1999 will be $151 billion, double the 1993
level. Recent federal budget discussions have targeted the Medicare and
Medicaid programs. Proposals to reduce taxes for the middle class and/or
the proposed constitutional amendment to require a balanced federal budget
could result in Medicare and Medicaid spending reductions. In addition,
Congress is considering several proposals that would substantially alter
health care delivery and payment systems, both public and private. These
reform proposals involve increased reliance on managed care plans that
selectively contract with providers, increased incentives for individuals
to be cost-conscious, limitations on tax deductions for employee health
benefits, provider or insurer price controls, emphasis on outpatient and
home-based alternatives to inpatient care, and/or substantial reductions in
payments under Medicare and Medicaid.
Medicaid. Medicaid is a medical assistance program for the indigent
and is operated by state governments with financial assistance
(approximately 50% of the funds available) from the federal government
under a matching program. Medicaid is subject to federally imposed
requirements. The Medicaid program refers to the various state
administered reimbursement programs created by federal law. Although
Medicaid programs vary from state to state, they typically provide for
fixed rate payments to health care providers based upon historical costs
adjusted for inflation and subject to restrictive limitations.
Reimbursement rates are determined by the state, while the federal
government retains the right to approve or disapprove individual state
plans. There are generally two types of Medicaid reimbursement rates:
retrospective and prospective. The retrospective rate is one which is
determined after completion of the cost report and is designed to reimburse
costs after they are incurred. An interim rate based upon historical cost
factors and inflation is paid by the state during the cost reporting period
and a cost settlement is made following an audit of the filed cost report.
Such adjustments may result in additional payments being made to the
Partnership or in recoupments from the Partnership, depending on actual
performance and the limitations within an individual state plan. The
Washington Medicaid program is, at present, a retrospective plan.
The more prevalent type of Medicaid reimbursement rate is the
prospective rate. Under a prospective plan, the state sets its rate of
payment for the period in advance of services rendered. The provider must
accept the prospective rate as payment in full for all services rendered.
There is no settlement based upon actual costs subsequent to the cost
report filing. Actual costs incurred during the period are used to
establish the prospective rate for a subsequent period. Providers must
accept reimbursement from Medicaid as payment in full for the services
rendered, since the provider may not bill the patient for more than the
amount of the Medicaid payment for services covered by the Medicaid
program. Medi-Cal, California's version of Medicaid, currently provides
for reimbursement at an established daily rate, as determined by the
California Department of Health Services, based on median costs of nursing
facilities, classified by bed and geographic location.
All of the facilities operated and leased by the Partnership
participate in the Medicaid program. Under the federal Medicaid statute
and related regulations, state Medicaid programs must provide facility
rates that are reasonable and adequate to cover the costs of efficiently
and economically operated facilities providing services in conformity with
state and federal standards. Furthermore, payments must be sufficient to
enlist enough providers so that services under the state's Medicaid plan
are available to recipients at least to the extent that those services are
available to the general population.
To date, adjustments from Medicaid audits have not had a material
adverse effect on the Partnership. While there can be no assurance that
future adjustments will not have a material adverse effect on the
Partnership, the Partnership believes that it has properly applied the
various payment formulas and that the possibility of materially adverse
adjustments is remote.
Medicare. All of the Partnership's facilities are participants in the
Medicare program. Medicare is a federally funded and administered health
insurance program primarily designed for individuals who are age 65 or over
and are entitled to receive Social Security benefits. The Medicare program
consists of two parts. The first part (Part A) covers inpatient hospital
services and services furnished by other institutional health care
providers, such as long-term care facilities. The second part (Part B)
covers the services of doctors, suppliers of medical items and services,
home health agencies and various types of outpatient services. Part B
services include physical, speech pathology and occupational therapy,
pharmaceuticals and medical supplies, certain intensive rehabilitation and
psychiatric services, ancillary diagnostic and other services of the type
provided by long-term care or acute care facilities. Part A coverage is
limited to a specified term (generally 100 days in a long-term care
facility) and requires beneficiaries to share some of the cost of covered
services through an annual deductible and a co-insurance payment. There
are no limits on duration of coverage for Part B services, but there is an
annual deductible and a co-insurance requirement for most services covered
by Part B.
The Medicare program is a retrospective program. An interim rate based
upon historical cost factors is paid by Medicare during the cost reporting
period and a cost settlement is made based on actual costs for the period.
Final settlements are subject to an audit of the filed cost report whereby
adjustments may result in additional payments being made to the Partnership
or in recoupments from the Partnership. Under the Medicare program, the
Partnership is reimbursed for its direct costs plus an allocation of
indirect costs up to a regional limit.
Licensure and Certification. Health care facilities must comply with
licensing requirements of state and local health agencies, as well as
building, health, and life safety codes. In granting and reviewing a
facility's license, state health agencies consider the physical buildings
and equipment, the qualifications of the administrative personnel and
nursing staffs, the quality of nursing programs, and the continuing
compliance of the facility with the laws and regulations applicable to its
operations.
Separate standards for certification must be met to participate in
Medicaid and Medicare programs. As part of the Omnibus Budget
Reconciliation Act of 1987 (the "1987 Act"), Congress adopted legislation
that substantially increased the requirements for Medicare and Medicaid
certifications. The 1987 Act, as amended, created a number of new
sanctions for noncomplying facilities. On August 28, 1992, the HHS issued
proposed rules which became final late in 1994 and were implemented in
1995. States are currently changing their rules and regulations to reflect
the federal regulations. The newly adopted rules, among other things,
allow new sanctions for facilities that are found to be out of compliance
with certification standards, including denial of or reductions in
payments, fines and the appointment by the state of a manager to operate
the facility. If a facility is found to be substandard in three
consecutive annual surveys, the state is required to deny payment for new
admissions and to appoint a monitor to oversee correction of deficiencies.
The Partnership believes that its facilities are substantially in
compliance with the applicable Medicare and Medicaid regulatory
requirements. However, from time to time the Partnership or its lessees
receive notices of deficiencies for failure to comply with various
regulatory requirements. The Partnership reviews such notices and takes or
requires its lessees to take appropriate corrective action. In most cases,
the Partnership or its lessees and the reviewing agency agree upon the
measures to be taken to bring the facility into compliance with regulatory
requirements. In some cases the reviewing agency may take various adverse
actions against a facility, including the imposition of fines, temporary
suspension of admission of new patients to the facility, suspension or
decertification from participation in the Medicare or Medicaid programs
and, in extreme circumstances, revocation of a facility's license. These
actions may adversely affect the facility's ability to continue to operate,
the ability of the Partnership or its lessees to provide certain services,
and eligibility to participate in the Medicare, Medicaid or Veterans
Administration programs. Additionally, conviction of abuse or fraudulent
behavior with respect to one facility may subject other facilities under
common control or ownership to disqualification from participation in
Medicare and Medicaid programs. In addition, some state regulations
provide that all facilities under common control or ownership within a
state are subject to being delicensed if any one or more of such facilities
is delicensed. Certain of the Partnership's facilities have received
notices in the past from state agencies that, as a result of certain
alleged deficiencies, the agency was taking steps to decertify the facility
from participation in Medicare and Medicaid programs. In all cases, such
deficiencies were remedied before any facilities were decertified.
Effective October 1, 1990, the Omnibus Budget Reconciliation Act of
1990 eliminated the different certification standards for "skilled" and
"intermediate" care nursing homes under the Medicaid Program in favor of a
single "nursing home" standard. This standard requires, among other
things, that the Partnership's managed nursing homes have at least one
registered nurse on each day shift and one licensed nurse on each other
shift and increases training requirements for nurses aides by requiring a
minimum number of training hours and a certification test before a nurse's
aide can commence work. States continue to be required to certify that
nursing homes provide "skilled" care in order to obtain Medicare
reimbursement.
Fraud and Abuse. As a provider of services under the Medicare and
Medicaid programs in the U.S., the Partnership is subject to Medicare and
Medicaid fraud and abuse law. This law prohibits any bribe, kickback,
rebate or remuneration of any kind in return for the referral of Medicare
or Medicaid patients. In addition, several states in which the Partnership
operates have laws that prohibit certain direct or indirect payments or fee-
splitting arrangements between health care providers, if such arrangements
are designed to induce or encourage the referral of patients to a
particular provider. Violations of these federal or state laws may result
in civil and criminal penalties and exclusion from participation in the
Medicare and Medicaid programs. Such laws are broad, vague and seldom have
been interpreted by the courts or regulatory agencies. On July 29, 1991,
pursuant to the "Medicare and Medicaid Patient and Program Protection Act
of 1987," the Inspector General of the Department of Health and Human
Services issued "safe harbor" regulations, specifying certain business
practices which are exempt from sanctions under the fraud and abuse law.
While the Partnership intends to attempt to comply with all applicable
fraud and abuse laws, there can be no assurance that administrative or
judicial interpretation of existing laws or regulations or enactment of new
laws or regulations will not have a material adverse affect on the
Partnership's business.
Item 2. Properties
As of December 31, 1996, the Partnership owns directly or through
limited partnership investments the properties or interest in the
properties listed below.
Purchase Current
Facility Name and Location Date Investment(1)
Operated Facilities:
Olympic Health Care Center
Sequim, Washington (2) 11/19/86 2,983,455(3)
Pacific Palms Skilled Nursing
Norwalk, California 4/02/86 2,146,487
Paramount Chateau Convalescent Hospital
Paramount, California 4/02/86 2,288,808
$7,418,750
(1) At cost before accumulated depreciation and amortization. Investment
shown is entire investment made by owners of the property. Certain
properties are not entirely owned by the Partnership. See other
footnotes.
(2) The amount represents the entire interest of the owner of the
property, however, the Partnership only owns a 49.5% interest acquired
through a limited partnership investment.
(3) Includes revaluation of assets due to the consummation of the joint
venture entered into effective January 1, 1993.
A summary of the land, buildings, related personal property and
accumulated depreciation at December 31, 1996 is as follows:
Land $1,534,105
Buildings 4,555,358
Furniture & Fixtures 1,329,287
Total Property $7,418,750
Accum. Depreciation and Amortization 2,416,187
Net Book Value $5,002,563
Item 2. Properties: (Continued)
As a result of the sale of the Partnership's leased facilities in
1996, the Partnership, directly or through a manager, operates its three
remaining skilled nursing facilities. 1996 resident occupancy percentages
are included in the following table.
Paramount Chateau (99 Beds - SNF) 12/31/96 12/31/95 12/31/94
Average Census 83.7% 87.6% 92.8%
Private 7.2% 9.9% 11.0%
Medicare 10.1% 6.2% 7.5%
Medi-Cal 80.6% 83.9% 81.3%
HMO .6% -- .2%
Hospice 1.5% -- --
Average Reimbursement Rate
Private $ 96.58 $ 79.69 $ 80.75
Medicare 254.25 244.76 238.86
Medi-Cal 73.30 73.89 71.90
HMO 148.08 -- 82.00
Hospice 81.09 -- --
Average Monthly Revenue $247,659 $234,807 $245,309
Pacific Palms (99 Beds - SNF)
Average Census 36.7% N/A N/A
Private 9.0% N/A N/A
Medicare 6.3% N/A N/A
Medi-Cal 65.3% N/A N/A
HMO 16.4% N/A N/A
Hospice 3.0% N/A N/A
Average Reimbursement Rate
Private $ 107.71 N/A N/A
Medicare 269.30 N/A N/A
Medi-Cal 72.64 N/A N/A
HMO 204.90 N/A N/A
Hospice 141.02 N/A N/A
Average Monthly Revenue $136,188 N/A N/A
Olympic Healthcare (60 Bed - SNF) 12/31/96 12/31/95 12/31/94
Average Census 94.2% 88.1% 88.5%
Private 35.8% 31.8% 32.8%
Medicare 9.9% 11.4% 20.8%
Medicaid 54.3% 56.8% 46.4%
Average Reimbursement Rate
Private $ 99.03 $ 94.75 $ 97.12
Medicare 189.43 173.62 97.35
Medicaid 98.74 94.45 97.07
Average Monthly Revenue $190,642 $183,536 $156,900
Olympic Healthcare (24 Bed - ALF)
Average Census 76.2% 60.3% 6.6%
Private 30.3% 61.0% 100.0%
Medicaid 69.7% 39.0% 0
Average Reimbursement Rate
Private $ 60.59 $ 49.97 $ 49.93
Medicaid 53.58 51.27 N/A
Average Monthly Revenue $ 32,312 $ 23,644 $ 2,405
All Operated Homes
Average Occupancy Rates 69% 84% 92%
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the
Partnership is a party or to which its property is subject. Therefore, no
provision has been made in the accompanying financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of 1996.
PART II
Item 5. Market for the Registrant's Securities and Related Security Holder
Matters
(a) The Registrant's limited partnership interests are not publicly
traded. There is no market for the Registrant's limited partnership
interests and it is unlikely that any will develop.
(b) Approximate number of Equity Security Holders:
Number of Record Holders
Title of Class as of December 31, 1996
Units of Limited Partnership Interest 1,937
General Partner Interest 1
No Limited Partner owns more than 5% of the Units. The General Partner
Interest is owned by Medical Investments Partners, The Raymond James
Financial Center, 880 Carillon Parkway, St. Petersburg, Florida 33716.
(c) Total Units of Limited Partnership (1,000 units) 30,000
Total Units Outstanding ($1,000 per unit) 30,000
1996 1995 1994
Distributions to Limited Partners $18,150,000$1,500,000$1,050,000
Distributions to General Partner 37,620 30,612 21,430
All of the distributions for 1996, 1995 or 1994 represent return of
capital on a GAAP basis.
Item 6. Selected Financial Data
1996 1995 1994 1993 1992
Total Revenues(1) $7,604,013 $5,460,632 $4,976,288 $7,760,425 $7,307,680
Net Income(2) 12,362,562 1,966,546 1,613,748 964,440 197,440
Total Assets 9,392,809 22,181,442 22,618,448 26,301,479 26,061,273
Mortgage Notes
Payable 1,256,214 7,946,917 8,782,497 10,889,660 13,415,224
Distributions to
Limited Partners
Per Partnership
Unit 605.00 50.00 35.00 20.00 10.00
Net Income(2)
Per Unit $ 13.81 $ 9.87 $ 6.47 $31.50 $6.45
(1) Included in total revenues for 1993 and 1992 are discontinued
operations revenue of $3,233,909 and $3,151,678, respectively. Total
revenues in 1993 omit extraordinary gain on sale of minority interest and
forgiveness of indebtedness.
(2) Net Income and Net Income Per Unit does not include income from
discontinued operations for the years 1996, 1995 and 1994.
The above selected financial data should be read in conjunction with
the financial statements and related notes appearing elsewhere in this
report. This statement is not covered by the auditors' opinion included
elsewhere in this report.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Continuing Operations:
Resident service revenues increased by $2,140,548 (39.6%) for the year
ended December 31, 1996, compared to the same period in 1995. This
increase is due to $1,634,018 resulting from the operation of the Norwalk,
California facility, $164,250 resulting from the payment by FHP, Inc. for
the lease termination resident day guarantee, $154,225 resulting from a
private payor room rate increase and a Medicare per diem rate increase at
the Paramount, California facility and $189,300 resulting from a 7.2%
census increase at the Sequim, Washington skilled nursing facility and a
26% census increase at the Sequim, Washington assisted living facility.
Resident service revenues increased by $466,478 (9.4%) for the year ended
December 31, 1995, compared to the same period in 1994 due to the increase
in census of the assisted living wing at the Sequim, Washington facility
which opened in July, 1994. Resident days at the Sequim, Washington
facility's skilled nursing and assisted living wing increased by 4,851 in
1995. A decrease in census of 1,895 days at the Paramount, California
facility partially offset the resident service revenues increase at the
Sequim, Washington facility. Resident service revenues increased by
$418,355 (9.2%) for the year ended December 31, 1994 compared to the same
period in 1993, due to a continued increase in total census and favorable
census mix. Although the total increase in patient days was 145, the
increase in private and Medicare days was 2,669 versus a decline in
Medicaid days of 2,524. The higher paying private and Medicare improved
the census mix. Medicare and Medicaid revenues totaled $5,832,738,
$4,123,832 and $3,951,735 for the years ended December 31, 1996, 1995 and
1994, respectively. Medicare and Medicaid accounts receivable balances
totaled $812,247 and $538,867 for the years ended December 31, 1996 and
1995, respectively. The Medicare and Medicaid increased receivable
balances at December 31, 1996 as compared to December 31, 1995 are due to
Pacific Palms becoming an operated facility instead of a leased facility.
There are no disputed Medicaid or Medicare claims.
Resident service expenses increased $1,893,646 (40.0%) for the year
ended December 31, 1996, compared to the same period in 1995 due to the
Norwalk, California facility becoming an operated facility. Resident
service expenses increased by $295,576 (6.7%) for the year ended December
31, 1995, compared to the same period in 1994, due to an increase in
payroll and related expenses from the increased total census at the
facilities.
Interest income increased by $2,833 (5.7%) for the year ended December
31, 1996, compared to the same period in 1995 due to increased average cash
balances in interest bearing accounts. Interest income increased $17,866
(56.9%) for the year ending December 31, 1995, compared to the same period
in 1994 due to increased average cash balances.
General and Administrative - Other expenses decreased by $5,435
(70.9%) for the year ended December 31, 1996, compared to the same period
in 1995 due to an increase in the percentage of travel and overhead of
affiliates directly related to and allocated to resident service expenses
while total General and Administrative remained stable. General and
Administrative - Other expenses decreased by $13,968 (15.4%) for the year
ended December 31, 1995, compared to the same period in 1994 due in most
part to the decrease of $7,927 in insurance costs. Affiliate expenses
increased by $15,730 (35.6%) for the year ended December 31, 1996, compared
to the same period in 1995 due to the increased need for senior management
involvement in the LCCA and Arbor sales negotiations. Affiliate expense
increased by $34,440 (353%) for the year ending December 31, 1995, compared
to the same period in 1994 due to the time and travel required by senior
management to negotiate and execute the LCCA sale and the FHP lease
termination.
Depreciation and Amortization expenses increased by $83,637 (57.9%)
for the year ended December 31, 1996, compared to the same period in 1995
due to the transfer of Pacific Palms Skilled Nursing from a leased to an
operated home. Depreciation and Amortization expenses decreased by $36,067
(20%) for the year ended December 31, 1995, compared to the same period in
1994 due to original acquisition costs of furniture and fixtures being
fully depreciated for the entire year of 1995 while being fully depreciated
for only eight months in 1994.
As a result of the above revenue and expense items, the Partnership
had $422,737 net income from continuing operations for the year ending
December 31, 1996, $302,252 net income from continuing operations for the
year ending December 31, 1995 and $198,107 net income from continuing
operations for the year ending December 31, 1994. Inflation and changing
prices have not had a material impact on net revenues and expenses from
continuing operations over the past three years.
Discontinued Operations:
Rental income included in discontinued operations decreased by
$1,904,975 (57.1%) for the year ended December 31, 1996, compared to the
same period in 1995 due to the May 29, 1996, sale of the LCCA Homes, the
September 20, 1996, sale of Hillcrest Care Center and the transfer of the
Norwalk, California facility to an operated facility. Rental income
increased by $141,818 (4.4%) for the year ended December 31, 1995, compared
to the same period in 1994 due to escalations built into the lease
agreements. The escalation clause in the LCCA lease agreement calls for an
adjustment based on 6% of the difference between the base year (June 1,
1993 through May 31, 1994) revenues of the seven leased homes, net of
contractuals, and the most recent period (June 1 through May 31) revenues
(net of contractuals) for the seven leased homes. Prior year adjustments
were based on a fixed rate per bed (660) per day of $9.00 for the period
June 1, 1992 through June 1, 1993, to $9.50 per bed per day for the period
June 1, 1993 through May 31, 1994, and to $10.00 per bed per day for the
period June 1, 1994 through May 31, 1995. This escalation resulted in an
increase in rental income of $115,919 from the year ending December 31,
1994 to the year ending December 31, 1995 and $120,450 from the year ending
December 31, 1993 to the year ending December 31, 1994. The Arbor lease
agreement has a fixed base rate with a contingent lease payment of 4% of
the leased home's revenues, net of contractuals, which accounted for
$21,008 of the increase in rental income from the year ending December 31,
1994 to the year ending December 31, 1995 and $8,283 from the year ending
December 31, 1993 to the year ending December 31, 1994. The balance of the
increase is from the FHP lease which calls for an increase effective
October first of each year based on the greater of that years Medi-Cal rate
increase or consumer price index increase but not less than 3% nor more
than 8% for 1993 until lease termination. The FHP lease was terminated in
January, 1996 as described in Note 5 to the attached financial statements.
Interest income increased by $203,732 (1,504.4%) for the year ended
December 31, 1996, compared to the same period in 1995 due to increased
average cash balances in interest bearing accounts. The increased average
cash balances were a result of the cash proceeds from the sale of eight of
the eleven nursing homes. Interest income increased $7,873 (138.9%) for
the year ending December 31, 1995, compared to the same period in 1994 due
to increased average cash balances.
General and Administrative - Other expenses decreased by $172,898
(98.9%) for the year ended December 31, 1996, compared to the same period
in 1995 due to a decrease in legal, consulting and accounting fees
associated with the 1995 negotiations and drafting of sales contracts for
the sale of the LCCA Homes and the FHP lease termination. General and
Administrative - Other expenses increased by $164,753 (1,633.9%) for the
year ended December 31, 1995, compared to the same period in 1994 due to an
increase in legal, consulting and accounting fees associated with the
negotiations and drafting of sales contracts for the sale of the LCCA Homes
and the FHP lease termination. Rental and Property Management Fees
expenses decreased by $198,786 (58.2%) for the year ended December 31,
1996, compared to the same period in 1995 due to the sale of the LCCA Homes
and Hillcrest Care Center.
Interest expense decreased by $273,875 (45.4%) for the year ended
December 31, 1996, compared to the same period in 1995 due to the payoff of
mortgages on the Sun City Convalescent Hospital and Hillcrest Care Center
from proceeds received as a result of the LCCA and Arbor sales contracts
and the assumption of the mortgage on the Rimrock Villa nursing home by
LCCA. Interest expense decreased by $68,097 (10.1%) for the year ended
December 31, 1995, compared to the same period in 1994 due to the net
effect of the $500,000 payoff of the Raymond James debt balance on January
3, 1995, and the $950,000 pay down of the WMF/Huntoon debt balance with
funds acquired from the $1,500,000 First Union National Bank refinancing of
the Rancho Los Padres facility.
Depreciation expense decreased by $305,264 (54.1%) for the year ended
December 31, 1996, compared to the same period in 1995 due to the sale of
the LCCA homes and the Hillcrest Care Center. Depreciation expense
decreased by $204,557 (26.6%) for the year ended December 31, 1995 compared
to the same period in 1994 due to the original acquisition costs of
furniture and fixtures for most of the facilities being fully depreciated
for the entire year of 1995 while for only eight months in 1994.
The Partnership realized income of $11,025,951 for the year ended
December 31, 1996, from transactions related to discontinued operations.
$9,732,487 is from the gain on sale of the LCCA Homes and the Hillcrest
Care Center for the sum of $6,463,878 and $3,268,609, respectively.
$1,293,464 is from the lease termination settlement received from FHP, Inc.
for the early termination of FHP's lease on Pacific Palms Skilled Nursing
f/k/a FHP - Norwalk.
The operating income from the discontinued real estate rental segment
decreased by $750,420 for the year ended December 31, 1996, compared to the
same period in 1995, due to the May 29, 1996, sale of the LCCA Homes and
the September 20, 1996, sale of the Hillcrest Care Center. The operating
income for the discontinued real estate rental segment increased by
$248,653 for the year ended December 31, 1995, compared to the same period
in 1994 due to escalations built into the lease agreements, lower
depreciation expense due to furniture and fixtures being fully depreciated
for the year compared to being fully depreciated for eight months in the
prior year, and continued principal reductions of the related debt thus
reducing interest expense.
As a result of the above revenue and expense items, the Partnership
had $12,362,562 net income for the year ending December 31, 1996,
$1,966,546 net income for the year ending December 31, 1995 and $1,613,748
net income for the year ending December 31, 1994. Inflation and changing
prices have not had a material impact on net revenues and losses from
continuing operations over the past three years.
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of funds for the periods ending December 31, 1996,
1995 and 1994 were rental income, revenues from nursing home operations,
prepayment of the FHP lease, proceeds from the sale of assets and proceeds
from notes payable. These funds were used to pay nursing home expenses,
pay recurring debt service, to make cash distributions to partners and to
reduce the amount of outstanding indebtedness. As of December 31, 1996,
the Partnership owned three nursing homes with a net book value of
$5,002,563. Net book value is not necessarily representative of market
value.
Short-term liquidity requirements consist of funds needed to meet
commitments for debt service, administrative expenses and operations.
These short term needs will be funded by cash at December 31, 1996, plus
interest income and income from resident service revenues.
Debt service paid in 1996 totaled $5,430,984.
In the opinion of the General Partner, the Partnership has sufficient
funds or sources of funds to remain liquid for the next 12 - 24 months.
These sources include cash flows from operations. The General Partner is
not aware of any trends that may significantly affect the Partnership's
liquidity. However, if the future changes in the health care market would
require extensive capital expenditures by the Partnership in order for its
facilities to meet new licensure and/or marketplace standards, the
Partnership may be required to seek additional capital sources or increase
its long term debt in order to meet potential future expenditure
requirements. The General Partner is unable at this time to predict the
extent of future capital expenditure needs of the facilities resulting from
future changes in the nursing home industry.
The cash balance, not including restricted cash, at December 31, 1996,
was $2,063,474. The Partnership had net income of $12,362,562. After
adjusting for depreciation, amortization, gain on sale of assets and
changes in operating assets and liabilities, net cash provided by operating
activities was $2,853,971. The net cash provided by investing activities
was $21,277,029 which includes fixed asset additions and the sale of
investment properties. The net cash used in financing activities was
$23,694,154 and consisted of principal payments on mortgage notes payable
and distributions to partners. Significant changes to the balance sheet
which affected the cash flow of the Partnership for 1996 are primarily due
to the start-up of operations at Pacific Palms (f/k/a FHP-Norwalk, f/k/a
Rancho Los Padres) with its accounts receivable increasing from zero to
$414,774. This increase was due to delays in licensing approval, slow
billing and normal increase in Accounts Receivable. Prepaid expenses
increased $45,190 primarily from an increase in insurance rates and the
additional premium for Pacific Palms which was previously paid by the
lessee. Restricted cash increased by $7,787 due to the net effect of
increased patient trust balances of $44,861 and the release of $37,074 from
the FHP capital improvements escrow account as part of the lease
termination agreement. Additions to investment properties increased
primarily from $74,324 being capitalized upon completion of a laundry
addition at Paramount Chateau. The sale of the seven nursing homes to LCCA
provided $15,639,981 in cash proceeds upon closing at May 29, 1996. The
sale of one nursing home to Arbor provided $5,750,000 in cash proceeds upon
closing at September 20, 1996. Mortgage Notes Payable decreased by
$5,430,984 primarily due to the payment of debt on the Sun City facility of
$1,814,307 from proceeds from the LCCA sale of the seven nursing homes, the
payment of debt on the Pacific Palms facility of $1,298,485 from proceeds
from the FHP lease termination settlement and the payment of debt on the
Hillcrest facility of $2,110,513 from proceeds from the sale of the
facility to Arbor.
Cash distributions to Limited Partners were discontinued during the
first quarter of 1988 and resumed in February 1992. The 1995 distribution
to Limited Partners totaled $1,500,000 (5% of the original capital of
$30,000,000). The February 1996 distribution to the Limited Partners was
$750,000 (2.5% of the original capital of $30,000,.000). The July 1996
distribution to the Limited Partners was $13,200,000 (44% of the original
capital of $30,000,000). The December 1996 distribution to the Limited
Partners was $4,200,000 (14% of the original capital of $30,000,000).
Future distributions will be at a level that is warranted by the cash flow
and profits of the Partnership.
Item 8. Financial Statements and Supplementary Data
CUMBERLAND HEALTHCARE, L.P. I-A
(a Limited Partnership)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No.
Independent Auditor's Report 15
Consolidated Balance Sheets as of December 31, 1996 and 1995 16
Consolidated Statements for the Years Ended December 31, 1996,
1995 and 1994:
Income 17
Partners' Equity 18
Cash Flows 19
Notes to Consolidated Financial Statements 20 - 28
Directors and Officers of the Registrant 28 - 29
Exhibit Index 29 - 32
Financial Statement Schedules -
Schedule VIII - Valuation and Qualifying Accounts
and Reserves 32
Schedule X - Supplementary Income Statement Information 32
INDEPENDENT AUDITOR'S REPORT
To the Partners of
Cumberland Healthcare, L.P. I-A
We have audited the accompanying consolidated balance sheets of
Cumberland Healthcare, L.P. I-A (a Delaware Limited Partnership) as of
December 31, 1996 and 1995, and the related consolidated statements of
income, partners' equity, and cash flows for each of the three years in the
period ended December 31, 1996. These consolidated financial statements
are the responsibility of the Partnership's management. Our responsibility
is to express an opinion on these statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Cumberland Healthcare, L.P. I-A as of December 31, 1996 and 1995 and the
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
As more fully discussed in Note 14, during 1996, the Partnership
discontinued the leasing segment of its operations. Historically, assets
and operations of the leasing segment have represented a substantial
portion of the Partnership's total assets and results of operations.
As more fully disclosed in Note 15, the Partners have approved a plan
of dissolution of the Partnership.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedules listed under
Item 14 in the index are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in
our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
SPENCE, MARSTON, BUNCH, MORRIS & CO.
Certified Public Accountants
Clearwater, Florida
April 1, 1997
CUMBERLAND HEALTHCARE, L.P. I-A
(a Limited Partnership)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
1996 1995
ASSETS
Cash and Cash Equivalents $ 2,063,474 $ 1,626,628
Restricted Cash 67,059 59,272
Accounts Receivable (Net of Allowance
of $343,770 and $73,373) 718,772 705,511
Loan Receivable 1,000,000 0
Prepaid Expenses 119,871 74,681
Deferred Debt Costs (Net of Accumulated
Amortization of $10,826 and $42,336) 21,652 71,094
Intangible Assets (Net of Accumulated
Amortization of $44,380 and $33,285) 399,418 410,513
Investment Properties, at Cost (Net of
Accumulated Depreciation and Amortization
of $2,416,187 and $11,235,282) 5,002,563 19,159,419
Construction in Progress 0 74,324
Total Assets $ 9,392,809 $22,181,442
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Accounts Payable $ 687,968 $ 955,713
Accrued Payroll 276,267 236,217
Interest Payable 0 34,646
Payable to Related Parties
- General Partner 2,524 11,054
- Affiliates 336,929 346,399
Mortgage Notes Payable 1,256,214 7,946,917
Minority Interest 682,927 675,458
Total Liabilities 3,242,829 10,206,404
Partners' Equity:
Limited Partners (30,000 units outstanding
at December 31, 1996 and 1995) 6,226,929 12,261,618
General Partner (76,949) (286,580)
Total Partners' Equity 6,149,980 11,975,038
Total Liabilities and Partners' Equity $ 9,392,809 $22,181,442
The accompanying notes are an integral part
of these consolidated financial statements.
CUMBERLAND HEALTHCARE, L.P. I-A
(a Limited Partnership)
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED
DECEMBER 31, DECEMBER 31,DECEMBER 31,
1996 1995 1994
(Restated) (Restated)
Revenues:
Net Resident Service Revenues $ 7,551,897 $ 5,411,349 $ 4,944,871
Interest Income 52,116 49,283 31,417
Total Revenues 7,604,013 5,460,632 4,976,288
Expenses:
Resident Service Expenses 6,627,830 4,734,184 4,438,608
Interest Expense - Affiliate 0 104 14,735
- Other 111,386 114,095 117,118
General and Administrative
- Affiliates 59,927 44,197 9,757
- Other 71,169 76,604 90,572
Depreciation and Amortization 227,945 144,308 180,375
Total Expenses 7,098,257 5,113,492 4,851,165
Operating Income 505,756 347,140 125,123
Minority Interest
in Net (Income)/Loss
of Consolidated Subsidiary (83,019) (44,888) 72,984
Income from Continuing Operations 422,737 302,252 198,107
Discontinued Operations:
Income from Operations of
Leased Homes 913,874 1,664,294 1,415,641
Gain on Sale of Assets 9,732,487 0 0
Lease Termination Settlement 1,293,464 0 0
Income from Discontinued Operations 11,939,825 1,664,294 1,415,641
Net Income $12,362,562 $ 1,966,546 $ 1,613,748
Income from Continuing Operations
Per $1,000 Limited Partnership Unit $ 13.81 $ 9.87 $ 6.47
Income from Discontinued Operations
Per $1,000 Limited Partnership Unit 390.03 54.37 46.25
Total Income Per $1,000
Limited Partnership Unit $ 403.84 $ 64.24 $ 52.72
Number of Limited Partnership Units
Outstanding 30,000 30,000 30,000
The accompanying notes are an integral part
of these consolidated financial statements.
CUMBERLAND HEALTHCARE, L.P. I-A
(a Limited Partnership)
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Limited General Total
Partners' Partner's Partners'
Equity Equity Equity
Balance at December 31, 1993 $11,302,930 $ (306,144) $10,996,786
Net Income - 1994 (Restated) 1,581,473 32,275 1,613,748
Distribution (1,050,000) (21,430) (1,071,430)
Balance at December 31, 1994
(Restated) $11,834,403 $ (295,299) $11,539,104
Net Income - 1995 1,927,215 39,331 1,966,546
Distribution (1,500,000) (30,612) (1,530,612)
Balance at December 31, 1995 $12,261,618 $ (286,580) $11,975,038
Net Income - 1996 12,115,311 247,251 12,362,562
Distribution (18,150,000) (37,620) (18,187,620)
Balance at December 31, 1996 $ 6,226,929 $ (76,949) $ 6,149,980
The accompanying notes are an integral part
of these consolidated financial statements.
CUMBERLAND HEALTHCARE, L.P. I-A
(a Limited Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
December 31,December 31,December 31,
1996 1995 1994
(Restated)
Cash Flows from Operating Activities:
Net Income $12,362,562$ 1,966,546$ 1,613,748
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 487,456 709,083 949,708
Minority Interest in Net Income (Loss) 83,019 44,888 (72,984)
Gain on Sale of Assets (9,732,487) 0 0
Changes in Operating Assets and Liabilities:
(Increase) Decrease in Accounts Receivable(13,261) 303,118 (635,100)
(Increase) Decrease in Prepaid Expenses (45,190) (29,998) 36,218
(Increase) Decrease in Restricted Cash (7,787) (6,492) (2,627)
Increase (Decrease) in Payable to Related
Parties (18,000) 18,490 (338,906)
Increase (Decrease) in Payables
and Accruals (262,341) (100,288) (19,292)
Net Cash Provided by Operating
Activities 2,853,971 2,905,347 1,530,765
Cash Flows from Investing Activities:
(Additions) to Investment Properties (112,952) (52,173) (44,820)
(Additions) to Construction in Progress 0 (74,324) (64,132)
Sale of Investment Properties 21,389,981 0 0
Net Cash Provided by (Used in)
Investing Activities 21,277,029 (126,497) (108,952)
Cash Flows from Financing Activities:
Proceeds from Mortgage Notes Payable 0 0 1,500,000
Payments of Mortgage Notes Payable (5,430,984) (836,030)(3,606,713)
(Increase) Decrease in Deferred Debt Costs 0 12,245 (53,411)
Distribution to Partners:
Limited Partners (18,150,000)(1,500,000)(1,050,000)
General Partner (37,620) (30,612) (21,430)
Minority Interest (75,550) 0 0
Net Cash (Used in) Financing
Activities (23,694,154)(2,354,397)(3,231,554)
Increase (Decrease) in Cash and
Cash Equivalents 436,846 424,453 (1,809,741)
Cash and Cash Equivalents at
Beginning of Year 1,626,628 1,202,175 3,011,916
Cash and Cash Equivalents at
End of Year $2,063,474 $1,626,628 $1,202,175
Supplemental Disclosure of Cash Flow Information:
Interest Paid $ 475,402 $ 723,159 $ 829,887
See Note 9 for Non-Cash Investing and Financing Activities
The accompanying notes are an integral part
of these consolidated financial statements.
CUMBERLAND HEALTHCARE, L.P. I-A
(a Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - ORGANIZATION:
Cumberland Healthcare, L.P. I-A (the "Partnership"), a limited
partnership, was organized under the provisions of the Delaware Revised
Uniform Limited Partnership Act as amended. Operations commenced on March
13, 1986, for the purpose of acquiring and leasing nursing homes. On May
8, 1996, the limited partners approved a plan of liquidation pursuant to
which the Partnership will be dissolved and its affairs wound up pursuant
to Article XIV of the Limited Partnership Agreement.
Medical Investments Partners, the General Partner, manages and
controls the business and affairs of the Partnership. Medical Investments
Partners is a Florida general partnership whose corporate partners are RJ
Health Properties, Inc. and RJ Medical Investors, Inc., both wholly-owned
subsidiaries of Raymond James Financial, Inc.
These consolidated financial statements include the accounts of
several limited partnerships in which the Partnership is a 99% Limited
Partner. Detailed information as to the consolidated entities is as
follows:
Net Book Value Income/Loss
of Investment Net Sharing
General Properties at Income Limited General
Partnership Name Partners 12/31/96 (Loss) Partners Partners
Cumberland
Healthcare, Medical
L.P. I-A Investments $ 2,962,174 $ 8,760,996 N/A N/A
Partners
Cumberland
Healthcare, Medical
L.P. I-B * Investments 2,040,389 83,020 99% 1%
Partners &
Olympic Health
Services, Inc.
Cumberland
Healthcare, Medical
L.P. I-C Investments 0 3,518,546 99% 1%
Partners
Total $ 5,002,563 $12,362,562
* A 50% interest was sold to Olympic Health Services, Inc. and William
Littlejohn effective as of January 1, 1993.
Allocation of Net Income and Net Losses
Net income and loss of the Partnership, other than that attributable
to a sale or other disposition of the properties, shall be allocated 98% to
the limited partners and 2% to the General Partner. Any distributions of
cash from operations for any year shall be distributed 98% to the limited
partners and 2% to the General Partner until the limited partners have
received distributions of cash from operations for such year equal to 9% of
their respective adjusted capital contribution; thereafter, any remaining
cash from operations for such calendar year shall be distributed 85% to the
limited partners and 15% to the General Partner. In no event shall such
cash from operations distributed to the General Partner for any calendar
year exceed 10% of the total distributions of cash from operations made for
such calendar year.
Net income or loss and cash distributions from the sale or other
disposition of the Properties will be allocated as formulated in the
Limited Partnership Agreement.
CUMBERLAND HEALTHCARE, L.P. I-A
(a Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1996
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:
Basis of Accounting
The accompanying financial statements are prepared on the accrual
basis. Revenues are recognized when earned and expenses are recognized as
obligations when incurred. These financial statements include the accounts
of Cumberland Healthcare, L.P. I-B and Cumberland Healthcare, L.P. I-C. In
Cumberland Healthcare, L.P. I-C, the Partnership is a 99% Limited Partner.
In Cumberland Healthcare, L.P. I-B, the Partnership is a 49 1/2% Limited
Partner with William Littlejohn being a 49 1/2% Limited Partner (see Note
9). The only activity of these entities is to hold title for certain of
the properties included in these financial statements. See Note 1 for
further explanation.
Cash and Cash Equivalents
It is the Partnership's policy to include all money market funds,
commercial paper and banker's acceptances with an original maturity of
three months or less in Cash and Cash Equivalents.
Concentrations of Credit Risk
Financial instruments which potentially subject the Partnership to
concentrations of credit risk consist principally of short-term investments
and receivables.
The Partnership's short-term investments are primarily in high quality
securities placed with institutions with high credit ratings. The
Partnership's investment policy limits the exposure to concentration of
credit risk.
The Partnership's receivables are related to medical services and are
primarily due from federal and state agencies in California and Washington
and are not collateralized.
The Partnership maintains deposits in excess of federally insured
limits. Statement of Financial Accounting Standards No. 105 requires
disclosure regardless of the degree of risk.
Investment Properties
These assets are carried at the lower of cost, or net realizable value
plus a revaluation increase for Olympic Health Care of Cumberland
Healthcare, L.P. I-B. Impairment in value is reflected as an adjustment to
carrying value when appropriate. There was no impairment in value in 1995
or 1996.
Major additions are capitalized while replacements, maintenance and
repairs which do not improve or extend the life of the respective assets
are expensed currently. When property is retired or otherwise disposed of,
the cost of the property is eliminated from the asset account, accumulated
depreciation is charged with an amount equal to the depreciation provided,
and the difference, if any, is charged or credited to income.
Depreciation is provided for on the straight-line method over the
estimated useful lives which are as follows:
Building and Improvements: 35 Years
Furniture and Fixtures: 8 Years
Leasehold Interest: 8-28 Years
Deferred Debt Costs
Deferred debt costs represent the cost of obtaining financing for the
Partnership. Such cost is being amortized on a straight-line basis over
the life of the remaining loan, which expires 2013.
CUMBERLAND HEALTHCARE, L.P. I-A
(a Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1996
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Medicare/Medicaid Settlements
The Partnership does not record any Medicare or Medi-Cal receivables
above their current rate of reimbursement. No receivables are recorded for
cost report settlements. The accounts payable for third party settlements
for prior years were $100,000 and $378,851 for the years ended December 31,
1996 and 1995, respectively.
Resident Service Revenues
Resident Service Revenues are reported net of provisions for
contractual and other adjustments in the Consolidated Statements of Income
for financial reporting purposes. There are no revenues from outside
donations included in Resident Service Revenues.
Income Taxes
Federal and state income tax regulations provide that taxes on the
income or loss of the Partnership are reportable by the Partners in their
individual income tax returns. Accordingly, no provision for such taxes
has been made.
Intangible Assets
Intangible assets are comprised of a licensing fee and goodwill which
were recognized upon the revaluation of assets due to the sale of one half
of the Partnership's interest in Cumberland Healthcare, L.P. I-B. The
licensing fee represents the value of the license to operate the Olympic
Health Care Center. Goodwill represents the excess of the cost of the
partnership interest over the fair value of the net assets as of the
revaluation date, January 1, 1993. These items are being amortized on the
straight line method over 40 years.
Leases
The Partnership accounted for all its leases under the operating
method, with the leased property recorded as an asset at cost. The
leasehold interest was being amortized over the remaining life of the lease
(28 years) on the straight-line method.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates that affect
certain reported amounts and disclosures. These estimates are based on
management's knowledge and experience. Accordingly, actual results could
differ from these estimates.
Reclassification
Certain items in the 1995 and 1994 financial statements have been
reclassified for comparative purposes to conform with the financial
statement presentation used in the 1996 statements.
NOTE 3 - RELATED PARTY TRANSACTIONS:
The General Partner manages the operations of the Partnership's
investment properties and is entitled to a property management fee equal to
1.25% of gross lease payments received by the Partnership. This amounted
to $17,391, $41,287 and $39,531 for 1996, 1995 and 1994, respectively.
The General Partner is reimbursed for general and administrative costs
on an accountable basis. The General Partner's reimbursable costs were
$42,881, $28,067 and $6,908 for 1996, 1995 and 1994, respectively.
Affiliates of the General Partner are reimbursed for direct costs incurred
on behalf of the Partnership. Direct reimbursable costs amounted to
$7,946, $7,920 and $1,153 for 1996, 1995 and 1994, respectively. These
costs are included in the Consolidated Statements of Income.
CUMBERLAND HEALTHCARE, L.P. I-A
(a Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1996
NOTE 3 - RELATED PARTY TRANSACTIONS: (Continued)
The General Partner is reimbursed a general and administration fee of
up to .5% of the Partnership's aggregate capital contributions on an annual
basis for certain expenses incurred on behalf of the Partnership. The
General Partner's reimbursable expenses were $9,100, $8,210 and $1,696 for
1996, 1995 and 1994, respectively. These expenses are accrued but not paid
and are included in the Consolidated Statements of Income.
As of December 31, 1996, 1995 and 1994, the amounts payable to the
General Partner and affiliates for the above items are $336,929, $357,453
and $338,963, respectively. The payable is non-interest bearing, unsecured
and payable on demand.
NOTE 4 -NOTES RECEIVABLE:
The notes receivable is recorded at its face value. The note is a
promissory note with a maturity date of May 29, 2001, secured by the
personal guarantee of the principal shareholder of Life Care Centers of
America, Inc. Interest shall accrue at the rate of 10% per annum and shall
be payable monthly at the rate of 5% per annum. The unpaid interest shall
accrue. The Partnership has the right to demand payment in full at any
time on or after December 28, 1997, with 60 days prior written notice. If
the Partnership exercises its right to demand payment before the maturity
date, the 5% accrued interest shall be canceled.
NOTE 5 - LEASES AND INVESTMENT PROPERTIES:
Leases
The Partnership leased Hillcrest Care Center to Arbor Health Care
Company ("Arbor"). The lease with Arbor required the lessee to make a
minimum rent payment of $330,000 per year and additional rent payments
based on four percent (4%) of net revenue. Total lease payments were
capped annually at $545,000. The lessee had an option to purchase the
facility which became effective February 1, 1995 and terminated February 1,
1997, at an amount determined according to the lease agreement. Arbor
exercised its option to purchase Hillcrest Care Center and on September 20,
1996, the purchase was closed with the payment of $5,750,000 by Arbor to
Cumberland Healthcare I-C.
The Partnership leased Bel Tooren, Imperial, La Habra, Mirada Hills,
Northwalk, Rimrock and Sun City to Life Care Centers of America ("LCCA").
The Leases required a minimum rent payment of $2,408,932 annually with an
annual adjustment based on 6% of the increase in resident service revenues.
These payments have amounted to $1,022,994, $2,474,732 and $2,358,813 for
1996, 1995 and 1994, respectively. The Leases also called for incentive
rent based on an equal sharing of profits. There has been no incentive
rent to date. The Lessee had an option to purchase the facilities
beginning June 1, 1999 and ending December 31, 1999. The Leases would have
expired in May 2000.
LCCA's obligations under the leases were personally guaranteed by the
principal shareholder of LCCA.
The Partnership entered into an agreement with LCCA on August 4, 1995
(the "Purchase Agreement") pursuant to which LCCA agreed to purchase seven
nursing facilities located in California for a purchase price of
$17,900,000.
The Purchase Agreement required the purchase price to be paid by LCCA as
follows:
(a) LCCA would assume the indebtedness secured by a mortgage on the
Rimrock Facility.
(b) LCCA would deliver a purchase money note in the amount of $1,000,000
guaranteed by its principal shareholder to the Partnership (the "LCCA
Note"). The LCCA Note would mature on the fifth anniversary of its
issuance but could be accelerated at the option of the Partnership at the
end of 1997. A portion of the accrued interest would be payable monthly
and the balance would be due on the maturity of the LCCA Note. However, if
the Partnership exercised its right to call the Note after 1997, the
accrued interest which would otherwise be due at maturity would be
canceled; and
(c) The balance of the purchase price would be paid in cash at closing by
federal funds wire transfer to the Partnership.
CUMBERLAND HEALTHCARE, L.P. I-A
(a Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1996
NOTE 5 - LEASES AND INVESTMENT PROPERTIES:(Continued)
Leases (Continued)
Closing of the LCCA transaction was contingent upon approval of the
plan by a majority interest of the Limited Partners. Approval by the
Partners for the sale of the LCCA Homes was granted May 8, 1996. On May
29, 1996, the closing of the sale of the LCCA Homes finalized the Purchase
Agreement requirements and terminated all lease agreements previously held
between the Partnership and LCCA.
Effective September 19, 1990, the Partnership entered into a ten-year
lease with FHP, Inc. ("FHP"), the principal subsidiary of FHP International
Corporation, for Rancho Los Padres. The lease required FHP, as lessee, to
make a monthly minimum lease payment of $22,000 ($264,000 annually) for the
first year, $24,500 ($294,000 annually) for the second year, and $24,500
plus the greater of the Medi-Cal rate increase or consumer price index
increase, but not less than 3% nor more than 8%, for years three through
ten of the lease.
On October 25, 1995, a Lease Termination Agreement was signed by
Cumberland Healthcare ("Cumberland") and FHP, Inc. relating to FHP-Norwalk
f/k/a Rancho Los Padres whereby Cumberland would receive an early lease
termination payment. A Management Agreement was also signed whereby
Cumberland would become the interim operator of the facility. The Lease
Termination Agreement was consummated January 1996 (see Note 11).
Due to the sale of the Partnership's leased properties, there is no
future rental income on non-cancelable leases to report.
Rental Income Included in Discontinued Operations
1996 1995 1994
Contingent $ 118,577 $ 169,193 $ 148,185
Guaranteed 1,311,626 3,165,985 3,045,175
Total $ 1,430,203 $ 3,335,178 $ 3,193,360
The Partnership continues to operate Olympic nursing home pursuant to a
management contract (which continues on a month to month basis with no set
termination date) with a third party operator. Paramount Chateau is being
managed under an employment contract (which continues on an annual renewal
each September 30) with a third party operator. As a result of the FHP
lease termination, the Partnership commenced operating Pacific Palms
Skilled Nursing in January 1996.
Investment Properties
The schedule below reflects purchase dates and construction years for
the facilities owned by the Partnership as of December 31, 1996:
Purchase Construction
Facility Name and Location Date Year
Operated Facilities:
Olympic Health Care Center*
Sequim, Washington 11/19/86 1978 & 1994
Paramount Chateau Convalescent Hospital
Paramount, California 4/02/86 1969
Pacific Palms Skilled Nursing**
Norwalk, California 4/02/86 1964
* A 50% interest was sold to Olympic Health Services, Inc. and William
Littlejohn effective January 1, 1993.
** As of January 1, 1996, Pacific Palms Skilled Nursing became an
operated home.
CUMBERLAND HEALTHCARE, L.P. I-A
(a Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1996
NOTE 5 - LEASES AND INVESTMENT PROPERTIES: (Continued)
A summary of the land, buildings and personal property, and
accumulated depreciation and amortization at December 31, 1996 is as
follows:
Buildings Accumulated
& Personal Depreciation & Net Book
Facility Name Land Property Total Amortization Value
Olympic 180,000 2,803,455 2,983,455 (943,066) 2,040,389*
Paramount 740,956 1,549,422 2,290,378 (819,458) 1,470,920
Pacific Palms 613,149 1,531,768 2,144,917 (653,663) 1,491,254
Total $1,534,105 $5,884,645 $7,418,750$(2,416,187) $ 5,002,563
* This includes a 50% minority interest and revaluation of the assets.
A summary of the land, buildings, personal property and
accumulated depreciation for the years ended December 31, 1996 and
1995 is as follows:
1996 1996 1995 1995
Operated Leased Operated Leased
Land $ 1,534,105 $ 0 $ 920,956 $ 3,761,787
Buildings 4,555,358 0 3,277,814 16,332,237
Furniture & Fixtures 1,329,287 0 919,500 4,332,749
Leasehold Interest 0 0 0 849,658
7,418,750 0 5,118,270 25,276,431
Accum. Depreciation
and Amortization (2,416,187) 0 (1,621,407) (9,613,875)
$ 5,002,563 $ 0 $3,496,863 $15,662,556
NOTE 6 - MORTGAGE NOTES PAYABLE:
Mortgage notes payable are summarized below:
December 31,December 31,
Mortgagor 1996 1995
WMF/Huntoon, Paige $ 0 $ 1,824,971
GMAC Commercial Mortgage Corp. 0 1,268,902
U.S. Bank of Oregon 1,256,214 1,287,989
Provident Bank 0 2,181,722
First Union National Bank 0 1,383,333
$ 1,256,214 $ 7,946,917
WMF/Huntoon, Paige: December 31, 1996 - $ 0
December 31, 1995 - $ 1,824,971
This mortgage note was payable with a variable interest rate of 3.25%
over the auction average for 6-month Treasury Bills, adjusted every six
months, payable in monthly installments of principal and interest, based on
a 30-year amortization schedule, adjusted to reflect current interest
rates, with a balloon payment due April 30, 1996. A principal payment of
$950,000 was made in December of 1994 from proceeds received from the First
Union loan. A final principal payment of $1,814,307 was made May 29, 1996,
from proceeds received from the LCCA Homes sale. This note was secured by
Sun City Convalescent Center.
GMAC Commercial
Mortgage Corp.: December 31, 1996 - $ 0
December 31, 1995 - $ 1,268,902
An 8.5% mortgage note, payable in monthly installments of principal
and interest of $12,305, with a final payment of $1,341,069, originally due
December 31, 1991, secured by Rimrock Villa Convalescent Center. As of
December 31, 1991, a two-year extension was elected, the interest rate was
fixed at 8.5% and the loan became due January 1, 1994, with a final payment
of $1,318,004. A second extension was granted February 1994 by G.F.I.
Commercial Mortgage, L.P. The terms of the loan remained the same with the
exception that this extension could be terminated with 30 days written
notice from G.F.I. This note was assumed by Life Care Centers of America,
Inc. as a condition of sale of the LCCA Homes.
CUMBERLAND HEALTHCARE, L.P. I-A
(a Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1996
NOTE 6 - MORTGAGE NOTES PAYABLE: (Continued)
Provident Bank: December 31, 1996 - $ 0
December 31, 1995 - $ 2,181,722
The note with Provident Bank consisted of a mortgage, secured by
Hillcrest Care Center, payable in monthly installments, amortized on a 15-
year schedule. The interest rate was fixed for three years at 7.59% and
had a balloon payment due on September 30, 1997 of $1,974,936. The
interest rate was reset on October 1, 1995, at 325 basis points above the
average yield of United States Treasury Securities adjusted to a constant
maturity of three years. A final principal payment of $2,110,513 was made
September 20, 1996, from proceeds received from the sale of Hillcrest Care
Center to Arbor.
U.S. Bank of Oregon: December 31, 1996 - $ 1,256,214
December 31, 1995 - $ 1,287,989
U.S. Bank of Oregon mortgage note payable has a fixed interest rate of
8.75%, payable monthly in installments of principal and interest based on a
20-year amortization schedule, with a balloon payment due September 1,
2013. This note is secured by Olympic Health Care Center.
First Union National Bank: December 31, 1996 - $ 0
December 31, 1995 - $ 1,383,333
First Union mortgage note had a variable interest rate based on the 90-
day LIBOR rate plus 275 basis points payable monthly in installments of
principal and interest based on a fixed principal payment of $10,606.06
plus the accrued monthly interest with all remaining funds due May 30,
2000. A final principal payment of $1,298,485 was made August 15, 1996,
from proceeds received from the FHP, Inc. lease termination settlement.
This note was secured by Pacific Palms Skilled Nursing f/k/a FHP - Norwalk
f/k/a Rancho Los Padres.
The aggregate annual maturities of all of the Partnership's mortgage
notes payable for the succeeding five years and thereafter are as follows:
Year Total
1997 $ 34,603
1998 37,755
1999 41,195
2000 44,947
2001 49,042
Thereafter 1,048,672
$1,256,214
NOTE 7 - REVOLVING LINE OF CREDIT:
Raymond James Financial, Inc. entered into a revolving loan agreement
December 28, 1994 which provided that Raymond James Financial, Inc. would
advance to the Partnership, on a revolving basis up to $5,000,000 at an
interest rate of 15.5%. The Partnership granted to Raymond James
Financial, Inc. a security interest in virtually all of the Partnership's
real estate assets and LCCA Leases to secure any advances under the loan
agreement. The loan agreement was canceled in May 1996.
NOTE 8 - TAXABLE INCOME:
The financial statements of the Partnership and the Partnership tax
returns are prepared on the accrual basis. The following is a
reconciliation between net income per the financial statements and
Partnership net income for tax purposes:
1996 1995 1994
Net income (loss) per
financial statements $12,362,562 $ 1,966,546 $1,613,748
Tax depreciation and amortization
in excess of book depreciation (265,398) (539,176) (322,587)
Gain on sale of Assets 2,025,263 0 0
Other Adjustments 176,393 6,652 (20,139)
Partnership income (loss) for
tax purposes $14,298,820 $1,434,022 $1,271,022
CUMBERLAND HEALTHCARE, L.P. I-A
(a Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1996
NOTE 9- ADDITIONAL CASH FLOW INFORMATION:
The Partnership's non-cash investing and financing activities for the
years ended December 31, 1996, 1995 and 1994 were as follows:
December 31, 1996:
Notes Receivable $ 1,000,000
Assumed Mortgage 1,259,719
Construction in Progress Paid in Prior Year
Transferred to Investment Property in 1996 74,324
December 31, 1995:
None to Report
December 31, 1994:
Reduction in Accounts Receivable from Minority Interest
for Payments of Construction in Progress of Partnership
Assets Made Directly by the Minority Interest $ 201,034
Partnership Investment Property Additions Paid Directly
by Minority Interest $ 513,580
Construction in Progress Paid in Prior Year Transferred
to Investment Property in 1994 $ 307,543
NOTE 10 - LEGAL PROCEEDINGS:
The General Partner is not aware of any uninsured open claims that have
been filed against the Partnership. Therefore, no provision has been made
in the accompanying financial statements.
NOTE 11- DISTRIBUTIONS:
The 1996 cash distributions to limited partners were $18,150,000 (60.5%
of capital contributions) and for 1995 totaled $1,500,000 (5% of capital
contributions). The 1996 distributions represented a return of capital.
Future distributions will be at a level that is warranted by the cash flow
and profits of the Partnership.
NOTE 12 - PRIOR PERIOD ADJUSTMENT:
The accompanying financial statements for 1994 have been restated to
correct an error made in 1994 relating to depreciation expense. The effect
of the restatement was to decrease depreciation expense and increase net
income for 1994 by $314,789 ($10.28 per $1,000 Limited Partnership Unit
Outstanding). The error occurred because a computer generated depreciation
schedule was not properly programmed to cease depreciation on assets whose
depreciable lives ended midway through 1994. In order to prevent further
occurrences of this error, all assets were reentered on new depreciation
software. Since 1994 was the first year that any assets became fully
depreciated, no other years were affected.
Note 13 - RISKS AND UNCERTAINTIES:
Proposed federal Medicare cuts could have a significant effect on the
future revenue stream of the Partnership if such proposals reducing
Medicare growth are signed into law in the near future.
Note 14 - DISCONTINUED OPERATIONS:
As more fully discussed in Note 5, the Partnership sold 8 of its 9
third-party leased homes in 1996, and as a result of the lease termination,
became the operator of the 9th home. As a result, the Partnership has
discontinued the leasing segment of its operations. The real estate rental
revenues from discontinued operations were $1,430,203, $3,335,178 and
$3,193,360 for the years ended December 31, 1996, 1995 and 1994,
respectively.
CUMBERLAND HEALTHCARE, L.P. I-A
(a Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1996
Note 14 - DISCONTINUED OPERATIONS: (Continued)
The following assets and liabilities from discontinued operations were
included in the 1995 balance sheet.
Accounts Receivable $ 44,000
Deferred Debt Cost 46,195
Investment Properties
(Net of Accum.Depreciation) 15,662,556
Accounts Payable (332,486)
Interest Payable (34,646)
Payable to General Partner (11,054)
Mortgage Notes Payable (6,658,928)
Net Assets of Discontinued
Operations $ 8,715,637
The income statements for the years ended December 31, 1995 and 1994
have been restated to reclassify the operating results of the leasing
segment to discontinued operations.
As a result of the sale of the eight leased homes, the Partnership
realized a gain on sale of assets of $9,732,487. As a result of the lease
termination on the ninth home, the Partnership realized a lease termination
settlement of $1,293,464.
Note 15 - TERMINATION AND DISSOLUTION OF THE PARTNERSHIP
On May 8, 1996, the limited partners approved a plan of liquidation
pursuant to which the Partnership will be dissolved and its affairs wound
up pursuant to Article XIV of the Limited Partnership Agreement and its
assets be liquidated with the proceeds of such liquidation to be expended
and distributed as required by the Limited Partnership Agreement. Upon
distribution of all of the assets of the Partnership, the Partnership will
be terminated.
Item 9. Disagreements on Accounting and Financial Disclosures
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partner is Medical Investments Partners ("MIP"), a Florida
General Partnership with two Partners, RJ Health Properties, Inc. ("RJHP")
(99% interest in MIP) and RJ Medical Investors, Inc. ("RJMI") (1% interest
in MIP).
RJHP is the Managing General Partner of MIP, who is the General
Partner of Cumberland Healthcare. RJHP is owned 100% by Raymond James
Financial, Inc. All of the officers and directors of RJHP are employees of
either Raymond James Financial, Inc. or Raymond James & Associates, Inc.
The Board of Directors of RJHP currently has two members. Directors
hold their terms until the annual meeting of the parent company at which
time they are reaffirmed. Executive officers serve at the pleasure of the
Board.
RJ Health Properties, Inc. Board of Directors and Executive Officers:
Fred E. Whaley, age 51, has been the President and Director of RJ
Health Properties, Inc. since January, 1986. Mr. Whaley's term will expire
in 1997. He joined Raymond James & Associates, Inc. in 1980. At Raymond
James, Mr. Whaley is a Managing Director responsible for public and private
offerings, mergers and acquisitions and leveraged buyouts.
J. Davenport Mosby III, age 41, has been the Vice President and
Director of RJ Health Properties, Inc. since December, 1988. Mr. Mosby's
term will expire in 1997. He is a Managing Director of Raymond James &
Associates, Inc., which he joined in 1982. He is head of the Partnership
Investment Banking department, which originates and markets public and
private limited partnerships.
Item 11. Executive Compensation
The directors and officers of RJ Health Properties, Inc., managing
General Partner of Medical Investments Partners the General Partner of
Cumberland Healthcare, do not receive any compensation from the Partnership
or any of its affiliates for acting in the capacity of a director or
officer of RJ Health Properties, Inc.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The corporate partners of Medical Investments Partners, as purchasers
of Partnership units, do not own any units of the outstanding securities of
the Partnership as of December 31, 1996. Directors and officers of the
General Partners of Medical Investments Partners do own units of the
outstanding securities of the Partnership as of December 31, 1996. In a
secondary market transaction 45 units were acquired by J. Davenport Mosby,
III, Vice President and Director.
The Registrant is a Limited Partnership and therefore does not have
voting shares of stock. To the knowledge of the Partnership, no person
owns of record or beneficially more than 5% of the Partnership's
outstanding units.
Item 13. Certain Relationships and Related Transactions
The Partnership has no officers or directors. However, under the
terms of the public offering, various kinds of compensation and fees are
payable to the General Partner and its affiliates during the organization
and operations of the Partnership. The General Partner received a property
management fee of $17,391, $41,287 and $39,531 for 1996, 1995 and 1994,
respectively. Reimbursement to the General Partner for general and
administrative costs amounted to $42,881, $28,067 and $6,908 for 1996, 1995
and 1994, respectively. Reimbursable expenses to the General Partner on
behalf of the Partnership amounted to $9,100, $8,210 and $1,696 for 1996,
1995 and 1994, respectively. Direct reimbursable costs to affiliates of
the General Partner amounted to $7,946, $7,920 and $1,153 for 1996, 1995
and 1994, respectively. Total payments to the General Partner and
affiliates amounted to $218,368, $364,493 and $338,963 for 1996, 1995 and
1994, respectively.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
A. (1) Financial Statements - See accompanying index to financial
statements, Item 8.
(2) Financial Statement Schedules -
Schedule VIII - Valuation and Qualifying Accounts and Reserves
Schedule X - Supplementary Income Statement Information
All other schedules for the Partnership have been omitted as not required,
not applicable, or the information required to be shown therein is included
in the financial statements and related notes.
Table Number
Page
(3) Exhibit Index -
2 Plan of acquisition, organization, arrangement, liquidation or
succession *
3 Articles of Incorporation and By-laws *
3.10 Amended Certificate and Agreement of Limited Partnership of
Columbia
Healthcare Partnership II-A, L.P. dated November 19, 1986 among
Columbia Healthcare Partners Inc., Medical Investments Partners,
Alfred W. Taylor, III, and Cumberland Healthcare, L.P. I-A **
3.11 Amended Agreement of Limited Partnership of Cumberland Healthcare,
L.P. I-C dated November 19, 1986 among Medical Investments
Partners,
Frank N. Fleischer, and Cumberland Healthcare, L.P. I-A **
3.12 Amended Certificate and Agreement of Limited Partnership of
Columbia
Healthcare Partners III-A dated November 19, 1986 among Columbia
Healthcare Partners, Inc., Medical Investments Partners, Alfred W.
Taylor, III, and Cumberland Healthcare, L.P. I-A **
3.13 Amended Agreement of Limited Partnership of Cumberland Healthcare,
L.P. I-B dated November 19, 1986 among Medical Investments
Partners,
Frank N. Fleischer, and Cumberland Healthcare, L.P. I-A **
4 Instruments defining the rights of security holders, including
debentures *
9 Voting Trust Agreement ***
10 Material Contracts ***
10.7 Quakertown Lease Agreement dated December 1, 1986 between Columbia
Healthcare Partners, II-A, L.P. and Columbia East Corporation. **
10.8 First Amendment to Lease Agreement dated February 3, 1987 between
Columbia Healthcare Partners II-A, L.P. and Columbia East
Corporation. **
10.9 Mortgage Note for $3,500,000 dated as of December 8, 1986 between
Columbia Healthcare Partners II-A, L.P. and Rhode Island Hospital
Trust National Bank. **
10.10 Mortgage and Security Agreement dated as of December 8, 1986
between
Columbia Healthcare Partners II-A, L.P. and Rhode Island Hospital
Trust National Bank. **
10.11 Subordination Agreement dated as of December 8, 1986 between
Columbia Healthcare Partners II-A, L.P., Medical Investments
Partners,
Columbia East Corporation and Columbia Corporation in favor of
Rhode
Island Hospital Trust National Bank. **
10.12 Conditional Assignment dated as of December 8, 1986 by Columbia
Healthcare Partners II-A, L.P. to Rhode Island Hospital Trust
National
Bank. **
10.13 UCC Financing Statement dated December 8, 1986 between Columbia
Healthcare Partners II-A, L.P. and Rhode Island Hospital Trust
National
Bank. **
10.14 Hillcrest Lease Agreement dated February 3, 1987 between
Cumberland
Healthcare, L.P. I-C and Columbia East Corporation. **
10.15 Hopkins House Lease Agreement dated February 3, 1987 between
Columbia Healthcare Partners, III-A, and Columbia East Corporation.
**
10.16 Olympic Lease Agreement dated as of February 3, 1987 between
Cumberland
Healthcare, L.P. I-B and Columbia West Corporation. **
11 Computation of per-share earnings ***
12 Computation of ratios ***
13 Annual report to security holders ***
16.1 Letter regarding change in certifying accountants **
18 Letter regarding change in accounting principles ***
19 Previously unfiled documents ***
22 Subsidiaries of the Registrant ***
23 Published report regarding matters submitted to a vote of security
holders ***
24 Consents of experts and counsel ***
25 Power of Attorney ***
28 Additional Exhibits
28.01 Excerpts from Appraisal Report for Quakertown Manor Care Center
as of February 1, 1986 **
28.02 Excerpts from Appraisal Report for Hillcrest Care Center as of
September 3, 1986 **
28.03 Excerpts from Appraisal Report for Hopkins House Nursing Home as
of July 14, 1986 **
28.04 Excerpts from Appraisal Report for Olympic Health Care Center as
of August 19, 1986 **
28.05 Letter to limited partner dated June 24, 1988 **
28.06 Restructuring Agreement by and among Cumberland Healthcare,
L.P. I-A, Cumberland Healthcare, L.P. I-B, Cumberland Healthcare,
L.P. I-C, and Columbia Healthcare Partners III-A, and Carteret Savings
Bank, F.A. and The Howard Savings Bank, dated April 6, 1989. ****
28.07 Release and Indemnification made and entered into as of the 6th
day of April, 1989, by Cumberland Healthcare, L.P. I-A, Cumberland
Healthcare, L.P. I-B, Cumberland Healthcare, L.P. I-C, and
Columbia Healthcare Partners III-A (collectively "Borrowers")
and Carteret Savings Bank, F.A., and The Howard Savings Bank
(collectively "Lenders"). ****
28.08 Assignment of Leases made as of the 6th day of April, 1989, by
and
between Cumberland Healthcare, L.P. I-A ("Assignor") Carteret
Savings Bank, F.A. ("Assignee") and Life Care Centers of
America, Inc. ("Lessee"). ****
28.09 Second Amended and Restated Master Lease between Cumberland
Healthcare,
L.P. I-A, Lessor, and Life Care Centers of America, Inc., a
Tennessee corporation, Lessee, dated as of March 1, 1989 (Bel
Tooren
Villa, La Habra, North Walk, and Rancho Los Padres Facilities)****
28.10 Second Amended and Restated Management Agreement made and entered
into effective as of the 1st day of March, 1989, by and between
Cumberland Healthcare, L.P. I-A ("Owner") and Life Care Centers
of America, Inc. ("Manager"). ****
28.11 Second Amended and Restated Unconditional Guaranty of Payment and
Performance dated as of the 6th day of April, 1989 by and between
Forrest L. Preston ("Guarantor"), Cumberland Healthcare, L.P. I-A
("Lessor"), and Life Care Centers of America, Inc. ("Lessee").****
28.12 Facility Lease (Hillcrest Facility) dated as of the 1st day of
February,
1989, among Cumberland Healthcare, L.P. I-C, ("Lessor") and Arbor
Health Care Company ("Lessee"). ****
28.13 Open End Mortgage and Security Agreement executed on the 18th day
of April, 1989, between Cumberland Healthcare, L.P. I-C,
("Mortgagor") and Southeast Bank, N.A. ("Lender"). ****
28.14 Note dated April 18, 1989 between Cumberland Healthcare, L.P. I-C
("Maker") and Southeast Bank, N.A. ("Holder") in the amount of
$2,600,000. ****
28.15 Reimbursement, Indemnification and Security Agreement made and
entered
into as of the 18th day of April, 1989 by and among Raymond James
Financial, Inc., RJ Health Properties, Inc., Raymond James
Partners, Inc., Medical Investments Partners, Inc.
(collectively the "Obligators") and Cumberland Healthcare, L.P.
I-C (the "Limited Partner"). ****
28.16 Assignment of Leases, Rents and Contract Rights made as of the
18th day of April, 1989 by Cumberland Healthcare, L.P. I-C
("Assignor") to Southeast Bank, N.A. ("Assignee"). ****
28.17 Subordination, Non-Disturbance, and Attornment Agreement made and
entered into as of the 18th day of April, 1989, by and among
Southeast Bank, N.A. ("Mortgagee") by Cumberland Healthcare,
L.P. I-C ("Landlord") and Arbor Health Care Company ("Tenant").****
28.18 Indemnity Agreement made as of the 18th day of April, 1989, from
Cumberland Healthcare, L.P. I-C ("Borrower") and Raymond James
Financial Corp. ("Indemnitor") to Southeast Bank, N.A. ("Lender").
****
28.19 Purchase and Sale Agreement, executed August 24, 1989, by
and between Cumberland Healthcare, L.P. I-A, Columbia Healthcare
Partners II-A, L.P., Columbia Healthcare Partners III-A,
collectively, "Sellers" and Multicare Management, Inc., a New York
Corporation, Daniel E. Straus and Moshael J. Straus, "Buyers"
covering Holly Manor, Mendham, New Jersey; Quakertown Manor,
Quakertown,
Pennsylvania; and Hopkins House, Wyncote, Pennsylvania. **
28.20 Letter, dated September 13, 1989, referencing Quakertown Manor
Nursing Home, Quakertown, PA, amending certain sections of the
Purchase and Sale Agreement, dated August 24, 1989. **
28.21 Letter, dated October 4, 1989, referencing the Purchase and Sale
Agreement as of July 1, 1989, amending Section 9.4 of the Purchase
and Sale Agreement, dated August 24, 1989. **
28.22 Letter, dated October 4, 1989, referencing Quakertown Manor
Nursing
Home, Quakertown, PA, amending certain segments of the Purchase
and Sale Agreement, dated August 24, 1989. **
28.23 Purchase and Sale Agreement dated March 31, 1990, by and among
Cumberland Healthcare, L.P., Columbia Healthcare Partners, II-A,
L.P., and Columbia Healthcare Partners III-A, as Sellers and
Multicare Management, Inc., Daniel E. Straus and Moshael J. Straus
as Buyers, effective as of July 1, 1989, as amended by those
certain
letter agreements, dated August 24, 1989, September 7, 1989,
September 13, 1989, September 14, 1989, September 15, 1989,
September
22, 1989, October 4, 1989 (three letter agreements), October 6,
1989,
October 19, 1989, October 31, 1989, November 1, 1989, and November
17, 1989 (collectively, the "Agreement"). **
28.24 Fourth Amendment to the Second Amended and Restated Master Lease
Agreement between Life Care Centers of America, Inc., a Tennessee
corporation, and Cumberland Healthcare, L.P. I-A ("Owner") a
Delaware
limited partnership dated March 1, 1989. *****
28.25 Lease between Cumberland Healthcare, L.P. I-A, as lessor
("Lesssor"),
a limited partnership and FHP, Inc., a California corporation as
lessee ("Lessee") dated September 19, 1990. *****
28.26 Management Contract between Olympic Health Services, Inc., a
Washington corporation ("OHS") and Cumberland Healthcare, L.P. I-B,
a Delaware limited partnership ("Owner") dated January 1, 1993.**
***
28.27 Amended and Restated Limited Partnership Agreement by and among
Medical
Investments Partners, a Florida general Partnership, ("MIP"), and
Olympic Health Services, Inc., a Washington corporation ("OHS"), as
General Partners, Cumberland Healthcare, L.P. I-A, a Delaware
limited
partnership ("Cumberland"), and William W. Littlejohn, a resident
of
the State of Washington ("Littlejohn"), as Limited Partners dated
January 1, 1993. *****
28.28 Sublease among Cumberland Healthcare, L.P. I-A, as lessor
("Sublessor"),
a limited partnership and Life Care Centers of America, Inc., a
Tennessee corporation as lessee ("Sublessee") dated March 1, 1989.
*****
28.29 Deed of Trust among Cumberland Healthcare, L.P. I-B, a Delaware
Limited Partnership, ("Grantor"); U.S. Bank of Washington, National
Association, ("Lender" and sometimes "Beneficiary"); and United
States
National Bank of Oregon ("Trustee") dated August 25, 1993. *****
28.30 Loan Agreement between First Union National Bank of Florida, a
national
banking association ("Lender") and Cumberland Healthcare, L.P. I-A,
a
Delaware limited partnership ("Borrower") dated December 28, 1994.
*****
28.31 Purchase and Sale Agreement between Cumberland Healthcare, L.P. I-
A,
a Delaware limited partnership (the "Seller") and Life Care Centers
of
America, Inc. and permitted assigns (the "Purchaser"). ******
28.32 Revolving Loan Agreement between Cumberland Healthcare, L.P. I-A,
a Delaware limited partnership ("Borrower") and Raymond James Financial,
Inc., a Florida corporation ("Lender") dated December 28, 1994.**
****
29 Information from reports furnished to state insurance regulatory
authorities. ***
* Included with Form S-11, Registration No. 33-4301 previously
filed with the Securities and Exchange Commission.
** Included with Forms 8-K, as amended, previously filed with the
Securities and Exchange Commission.
*** Exhibits were omitted as not required, not applicable, or the
information required to be shown therein is included elsewhere
in this report.
**** Included as exhibits to Form 10-K for year ended December 31,
1988.
***** Included as exhibits to Form 10-K for year ended December 31, 1994.
****** Included as exhibit to Form 10-Q for period ended June 30, 1995.
******* Included as exhibit to Form 10-K for year ended December 31, 1995.
B. Reports filed on Form 8-K - None.
C. Exhibits filed with this Report - None
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Balance at Additions Deductions Balance
Beginning to From at End
of Year Reserves Reserves of Year
Reserve deducted in the
Balance Sheet from the asset
to which it applies:
Reserve for doubtful accounts:
Year Ended December 31, 1996 73,373 318,937 48,540 343,770
Year Ended December 31, 1995 63,866 9,507 0 73,373
Year Ended December 31, 1994 76,927 1,170 14,231 63,866
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
Year Ended December 31,
1996 1995 1994
Amortization of Deferred
Debt Costs 49,442 19,437 22,524
Amortization of Leasehold
Properties 15,422 37,498 37,498
Amortization of Intangible
Assets 11,095 11,095 11,095
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
CUMBERLAND HEALTHCARE, L.P. I-A
By: Medical Investments Partners
By: RJ Health Properties, Inc.
Managing General Partner
ATTEST:
\s\Fred E. Whaley By: \s\J. Davenport Mosby, III,
President Vice President
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed by the following persons
on behalf of the Registrant in the capacities and on the dates indicated.
CUMBERLAND HEALTHCARE, L.P. I-A
By: Medical Investments Partners
By: RJ Health Properties, Inc.
Managing General Partner
ATTEST:
Date: April 1, 1997 By: \s\Fred E. Whaley
President and Director
Date: April 1, 1997 By: \s\J. Davenport Mosby, III
Vice President and Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the period ended December 31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,063,474
<SECURITIES> 0
<RECEIVABLES> 1,062,542
<ALLOWANCES> 343,770
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 7,418,750
<DEPRECIATION> 2,416,187
<TOTAL-ASSETS> 9,392,809
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 1,939,141
0
0
<COMMON> 0
<OTHER-SE> 6,149,980
<TOTAL-LIABILITY-AND-EQUITY> 9,392,809
<SALES> 0
<TOTAL-REVENUES> 7,604,013
<CGS> 0
<TOTAL-COSTS> 6,627,830
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111,386
<INCOME-PRETAX> 12,362,562
<INCOME-TAX> 0
<INCOME-CONTINUING> 422,737
<DISCONTINUED> 11,939,825
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,362,562
<EPS-PRIMARY> 403.84<F2>
<EPS-DILUTED> 403.84<F2>
<FN>
<F1>Registrant has an unclassified balance sheet
<F2>EPS-is net income per $1,000 Limited Partnership unit
</FN>
</TABLE>
