<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
(Mark One)
{ X } QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
For Quarter Ended June 30, 1997 Commission file number 000-17596
Meridian Healthcare Growth and Income Fund Limited Partnership
(Exact Name of Registrant as Specified in its Charter)
Delaware 52-1549486
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
225 East Redwood Street, Baltimore, Maryland 21202
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (410) 727-4083
N/A
(Former Name, Former Address, and Former Fiscal Year,
if Changed Since Last Report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 1
Consolidated Statements of Operations 2
Consolidated Statements of Partners' Capital 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
Part II. Other Information
1. through Item 6. 10
Signatures 11
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
Assets
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 3,333 $ 3,962
Accounts receivable, net 6,257 6,429
Estimated third-party payor settlements -- 105
Prepaid expenses 452 514
Total current assets 10,042 11,010
Property and equipment, net of accumulated depreciation 35,345 35,680
Other assets
Goodwill, net 5,360 5,490
Loan acquisition costs, net 41 64
Other deferred charges 5 11
5,406 5,565
Total assets $ 50,793 $ 52,255
Liabilities and Partners' Capital
Current liabilities
Current portion of long-term debt $ 24,297 $ 621
Accrued compensation and related costs 2,078 2,415
Accounts payable and other accrued expenses 2,711 2,147
Estimated third party payor settlements 3,425 2,958
Total current liabilities 32,511 8,141
Deferred management fee payable 791 770
Loan payable to the Development General Partner 1,009 984
Line of credit borrowings -- 1,000
Long-term debt -- 23,971
1,800 26,725
Partners' capital
General partners (153) (143)
Assignee limited partners; 1,540,040
units issued and outstanding 16,635 17,532
Total partners' capital 16,482 17,389
Total liabilities and
partners' capital $ 50,793 $ 52,255
</TABLE>
See accompanying notes to financial statements
- -1-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Consolidated Statements of Earnings
(Unaudited)
(Dollars in thousands except per unit amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
Revenues
<S> <C> <C> <C> <C>
Medicaid and Medicare patients $ 9,657 $ 8,932 $ 18,660 $ 17,545
Private patients 2,641 2,724 5,487 5,597
Investment and other income 83 122 187 244
12,381 11,778 24,334 23,386
Expenses
Operating, including $1,890, $1,139,
$3,432 and $2,349 to related parties 9,899 9,358 19,670 18,759
Management and administration fees
to related parties 799 775 1,561 1,509
General and administrative 171 124 349 233
Depreciation and amortization 496 476 984 965
Interest expenses 506 531 1,024 1,043
11,871 11,264 23,588 22,509
Net earnings $ 510 $ 514 $ 746 $ 877
Net earnings per unit of assignee
limited partnership interest $ 0.32 $ 0.33 $ 0.47 $ 0.56
</TABLE>
See accompanying notes to financial statements
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<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Consolidated Statements of Partners' Capital
For the Six Months Ended June 30, 1997 and 1996
(Unaudited)
Dollars in thousands
<TABLE>
<CAPTION>
Assignee
General Limited
Partners Partners Total
<S> <C> <C> <C>
Balance at December 31, 1996 $ (143) $ 17,532 $ 17,389
Net earnings 7 739 746
Distributions to partners (17) (1,636) (1,653)
Balance at June 30, 1997 $ (153) $ 16,635 $ 16,482
Balance at December 31, 1995 $ (127) $ 19,100 $ 18,973
Net earnings 9 868 877
Distributions to partners (17) (1,636) (1,653)
Balance at June 30, 1996 $ (135) $ 18,332 $ 18,197
</TABLE>
See accompanying notes to financial statements
-3-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMTIED PARTNERSHIP
Consolidated Statements of Cash Flows
For the Six Months Ended June 30,
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996
Cash flows from operating activities
<S> <C> <C>
Net earnings $ 746 $ 878
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation and amortization 984 965
Minority interest in net earnings of operating
partnerships 8 10
Increase in loan payable to Development General Partner 25 26
Increase in deferred management fee payable 21 21
Change in other assets and liabilities
Accounts receivable 164 (1,004)
Estimated third-party payor settlements 572 252
Prepaid expenses 64 167
Accrued compensation and related costs (337) 439
Accounts payable and other accrued expenses 564 471
Net cash provided by operating activities 2,811 2,225
Cash flows from investing activities-
additions to property and equipment (492) (192)
Cash flows from financing activities
Line of credit borrowings (1,000) 1,100
Repayment of long-term debt (295) (267)
Distributions to partners (1,653) (1,653)
Net cash used in financing activities (2,948) (820)
Net increase in cash and cash equivalents (629) 1,213
Cash and cash equivalents
Beginning of period 3,962 1,539
End of period $ 3,333 $ 2,752
</TABLE>
See accompanying notes to financial statements
- -4-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
June 30, 1997
(Unaudited)
NOTE 1 - THE FUND AND BASIS OF PREPARATION
The Fund, through its seven operating partnerships, derives substantially all of
its revenue from extended healthcare provided to nursing center residents
including room and board, nursing care, drugs and other medical services.
The accompanying financial statements of Meridian Healthcare Growth and Income
Fund Limited Partnership (the "Fund") do not include all of the information and
note disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles. The unaudited interim
consolidated financial statements reflect all adjustments which are, in the
opinion of management, necessary to a fair statement of the results for the
interim periods presented. All such adjustments are of a normal recurring
nature. Certain amounts included in the 1996 Consolidated Statement of
Operations have been reclassified to conform to the 1997 presentation. The
unaudited interim financial information contained in the consolidated financial
statements should be read in conjunction with the consolidated financial
statements contained in the 1996 Annual Report.
NOTE 2 - RELATED PARTY TRANSACTIONS
The Fund is obligated to pay the Administrative General Partner an annual
administration fee of the greater of $75,000 per year or 1/2 of 1% of the Fund's
annual revenues. The nursing centers owned by the operating partnerships are
managed by Meridian Healthcare, Inc., an affiliate of the Development General
Partner, under the terms of ten year management agreements which provide for
management fees equal to 6% of the annual revenues of each nursing center.
Certain of the operating partnerships also purchase drugs and medical supplies
and other services from affiliates of the Development General Partner. Such
purchases are in turn billed to patients or third party payors at prices which
on average approximate the nursing center's cost.
Transactions with these related parties for the three months ended June 30,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Management and administration fees $ 799,000 $ 775,000
Drug and medical supplies purchases 596,000 447,000
Nursing and rehabilitation services 1,294,000 692,000
Interest expense on borrowings 23,000 23,000
</TABLE>
Loans outstanding under an arrangement with the Development General Partner to
fund operating deficits generated by the Mooresville, Salisbury and Woodlands
nursing centers were $1,009,000 at June 30, 1997 and $984,000 at December 31,
1996.
NOTE 3 - DEBT
At December 31, 1996, the Randallstown facility failed to meet the required
ratio of cash flow to debt service. Effective March 14, 1997, the lender agreed
under a Limited Forbearance Agreement to refrain and forbear temporarily from
exercising and enforcing any of its remedies for a period of time ending on and
including May 15, 1997. The agreement provides that should Randallstown not meet
all its covenants for the quarter ended March 31, 1997, the lender shall require
that certain partnerships and/or the Fund become either joint and several
co-obligors or guarantors of Randallstown's obligation, note and loan. The
Randallstown facility did not meet the required ratio of cash flow to debt
service at March 31, 1997. On July 2, 1997 under the terms of the agreement,
Caton Manor Meridian Limited Partnership, Frederick Meridian Limited
Partnership, and Hamilton Meridian
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MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
June 30, 1997
(Unaudited)
NOTE 3 - DEBT (continued)
Limited Partnership jointly and severally guaranteed Randallstown's obligation
and secured such guaranty with an indemnity deed of trust lien on their
respective facilities and properties.
Effective June 30, 1997, an amendment to the Limited Forbearance Agreement was
signed which requires Caton Manor Meridian Limited Partnership, Frederick
Meridian Limited Partnership, Hamilton Meridian Limited Partnership and
Randallstown Meridian Limited Partnership to maintain a combined Debt Service
Coverage Ratio of 1.7 to 1.0. At June 30, 1997 the Fund was in compliance with
all of its debt covenants.
NOTE 4 - NET EARNINGS PER UNIT OF ASSIGNEE LIMITED PARTNERSHIP INTEREST
Net earnings per unit of assignee limited partnership interest is disclosed on
the Consolidated Statements of Operations and is based upon 1,540,040 units.
-6-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
The Fund has sufficient liquid assets and other available credit
resources to satisfy its operating expenditures and anticipated routine capital
improvements at each of the seven nursing home facilities.
At December 31, 1996, the Randallstown facility did not meet its
required ratio of cash flow to debt service. Effective March 14, 1997, the
lender agreed under a Limited Forbearance Agreement to refrain and forbear
temporarily from exercising and enforcing any of its remedies for a period of
time ending on and including May 15, 1997. The agreement provides that should
Randallstown not meet all its covenants for the quarter ended March 31, 1997,
the lender shall require that certain partnerships and/or the Fund become either
joint and several co-obligors or guarantors of Randallstown's obligation, note
and loan. The Randallstown facility did not meet the required ratio of cash flow
to debt service at March 31, 1997. On July 2, 1997 under the terms of the
agreement, Caton Manor Meridian Limited Partnership, Frederick Meridian Limited
Partnership and Hamilton Meridian Limited Partnership jointly and severally
guaranteed Randallstown's obligation and secured such guaranty with an indemnity
deed of trust lien on their respective facilities and properties. Effective June
30, 1997 an amendment to the Limited Forebearance Agreement was signed which
requires Caton Manor Meridian Limited Partnership, Frederick Meridian Limited
Partnership, Hamilton Meridian Limited Partnership and Randallstown Meridian
Limited Partnership to maintain a Debt Service Coverage Ratio of 1.7 to 1.0. At
June 30, 1997 the Fund was in compliance with all its debt covenants.
The Fund's long-term debt is scheduled to mature February 28, 1998. As
a result of this maturity date being less than one year from the end of the
current reporting period, the Fund has classified the balance of this debt,
$24,297,000, as a current liability on its June 30, 1997 balance sheet. The Fund
is currently considering several financial options for the repayment of the loan
balances.
On July 29, 1996 the Fund modified the revolving credit facility ("The
Facility") by increasing the maximum amount to $4,000,000 and extending the
maturity date until February 28, 1998. The Facility is designated for working
capital needs and issuance of letters of credit. The Facility is primarily
secured by the accounts receivable of the Fund. Any outstanding cash borrowings
under the Facility bear interest at LIBOR plus 1.75%. At June 30, 1997, there
were no outstanding borrowings under this Facility. The Fund is currently
considering options to replace this credit facility.
The State of North Carolina has delayed the effective date of
elimination in its Medicaid methodology of the current reimbursement rate
component for equity until July 1, 1998. Future action by the North Carolina
Medicaid Agency could affect the reimbursement component for equity and
therefore reduce Medicaid reimbursement for the Fund by up to $240,000 annually.
On August 14, 1997 the Fund will make a cash distribution of $826,410
of which $660,951, or 71%, will be funded from nursing center operations
generated during the second quarter of 1997 after payment of approximately
$75,000 of upper tier expenses.
While future distributions will remain dependent on the operating
performance of the properties, Fund management expects distributions will remain
at current levels. Second half operating results are expected to improve and
fully fund the distribution at its current level. Based upon results through the
first half of the year, the remaining 1997 budget and updated settlement
projections, we expect the operating income of the seven nursing home facilities
will fund approximately 86% of the annual 1997 distribution, while the balance
will be funded by reserves.
-7-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Three Months Ended June 30, 1997 vs. Three Months Ended June 30, 1996
The Fund's patient revenues increased by approximately $642,000 (or 6%)
for the three months ended June 30, 1997 as compared to the three months ended
June 30, 1996. An effective rate increase of 12% resulted in revenue growth of
$715,000 during the second quarter of 1997 when compared to the same period last
year. This significant increase was largely the result of an increased acuity
level of the residents. Also contributing to the increase in patient revenues
was an increase in Medicare ancillary revenues of approximately $226,000 in the
second quarter of 1997 versus the corresponding period in 1996. The ancillary
revenue increase was primarily a result of increased therapy utilization. Total
occupancy for the quarter decreased to 92.9% from 96.7% in 1996 largely due to a
census decline in the state of Maryland. However, Medicare census increased to
9.5% of total patient days in the second quarter of 1997 from 9% of total
patient days in the second quarter of 1996 and more than offset the effect of
the census decline. These increases resulting from the effective rate increase
and increased ancillary utilization were offset in part by a decrease in the
amount of favorable prior year cost settlements recorded in 1997 as compared to
1996. During the three month period ended June 30, 1997, favorable prior year
settlements of $49,000 were recorded as compared to $348,000 in the three months
ended June 30, 1996.
Second quarter 1997 operating expenses increased approximately $541,000
(or 6%) as compared to the same period in 1996. As a percentage of revenue,
operating expenses increased to 80% of revenue in the second quarter of 1997
from 79% of revenue in the second quarter of 1996. Salaries and benefits
increased $144,000 (or 2.3%) as a result of normal wage increases. As a result
of a shortage of certified nursing assistants in the state of Maryland, nursing
agency usage increased $61,000 in the second quarter of 1997 versus the second
quarter of 1996. Total nursing costs, as a result, are $3.08 per patient day
higher in the second quarter of 1997 as compared to the same period in 1996.
Another factor contributing to the operating expense increase and the
decrease in profitability was increased ancillary expenses due to the higher
acuity levels of the residents along with increased utilization. As compared to
the second quarter of 1996, a greater percentage of ancillaries are being
utilized by the Medicaid population in the facilities and are not reimbursed
under the Medicaid programs. On a gross revenue basis, Medicaid ancillaries in
the second quarter of 1997 accounted for 20% of the total as compared to 17%
during the same period in 1996. On a per patient day basis, there was an
increase in Medicaid utilization of approximately $3 per day. The effect of this
is a revenue decline of approximately $220,000.
General and administrative expenses for the second quarter of 1997
increased $47,000 as compared to the same period in 1996. This was largely the
result of increases in professional and consulting fees.
Six Months Ended June 30, 1997 vs. Six Months Ended June 30, 1996
Patient revenues for the Fund's seven operating partnerships increased
approximately $1,005,000 (or 4%) for the six months ended June 30, 1997 versus
the same period in 1996. Approximately $1,046,000 of the increase was
attributable to rate increases which resulted in an effective rate increase of
7% from the corresponding prior year period. Also contributing to the increase
in patient revenues was an increase in ancillary revenue of $303,000 for the
first six months ended June 30, 1997 as compared to the same period in 1996.
Total occupancy for the first six months of 1997 decreased to 92.5% of total
patient days in 1997 as compared to 94.0% for the first six months of 1996.
However, Medicare census increased to 9.7% of total patient days in 1997 as
compared to 9.2% in 1996. These increases were offset by a decrease in prior
year cost report settlements of $344,000 in 1997.
-8-
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MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations (continued)
Operating expenses for the first six months of 1997 increased
approximately $911,000 (or 5%) versus the same period in 1996. As a percentage
of revenue, operating expenses increased to 81% of revenue in the first six
months of 1997 as compared to 80% of revenue in 1996. Salaries and benefits
increased $299,000 (or 2.4%) as a result of normal salary increases. As a result
of the shortage in certified nursing assistants, nursing agency usage increased
$103,000 in 1997 versus 1996. Total nursing costs, as a result, are $1.98 per
patient higher in 1997 versus 1996.
Another factor contributing to the operating expense increase and the
decrease in profitability was increased ancillary expense due to the higher
acuity levels of the residents along with increased utilization. As compared to
the first six months of 1996, a greater percentage of ancillaries are being
utilized by the Medicaid population in the facilities and are not reimbursed
under the Medicaid programs. On a gross revenue basis, Medicaid ancillaries in
the first half of 1997 accounted for 19% of the total as compared to 17% during
the same period in 1996. On a per patient day basis, there was an increase in
Medicaid utilization of approximately $3 per day. The effect of this is a
revenue decline of approximately $417,000.
General and administrative expenses for the first six months of 1997
increased $116,000 as compared to the first six months of 1996. This was
primarily a result of increased professional and consulting fees.
-9-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Inapplicable
Item 2. Changes in Securities
Inapplicable
Item 3. Defaults upon Senior Securities
Inapplicable
Item 4. Submission of Matters to a Vote of Security Holders
Inapplicable
Item 5. Other Information
Inapplicable
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits: None
b) Reports on Form 8-K: None
-10-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
LIMITED PARTNERSHIP
DATE: 8/13/97 By: /s/ John M. Prugh
John M. Prugh
President and Director
Brown-Healthcare, Inc.
Administrative General Partner
DATE: 8/13/97 By: /s/ Timothy M. Gisriel
Timothy M. Gisriel
Treasurer
Brown-Healthcare, Inc.
Administrative General Partner
-11-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with legend, if applicable)
</LEGEND>
<CIK> 0000826682
<NAME> Meridian Healthcare Growth and Income F
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 3,333,000
<SECURITIES> 0
<RECEIVABLES> 6,257,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,042,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 50,793,000
<CURRENT-LIABILITIES> 32,511,000
<BONDS> 0
0
0
<COMMON> 0
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<TOTAL-LIABILITY-AND-EQUITY> 50,793,000
<SALES> 0
<TOTAL-REVENUES> 24,334,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 22,564,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,024,000
<INCOME-PRETAX> 746,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 746,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 746,000
<EPS-PRIMARY> 0.000
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