<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 September 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 September 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>
September 30, December 31,
1997 1996
Assets
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 2,156 $ 3,962
Accounts receivable, net 6,672 6,429
Estimated third-party payor settlements 214 105
Prepaid expenses 703 514
Total current assets 9,745 11,010
Property and equipment, net of accumulated depreciation 35,095 35,680
Other assets
Goodwill, net 5,300 5,490
Loan acquisition costs, net 26 64
Other deferred charges 3 11
5,329 5,565
Total assets $ 50,169 $ 52,255
Liabilities and Partners' Capital
Current liabilities
Current portion of long-term debt $ 24,140 $ 621
Accrued compensation and related costs 1,638 2,415
Accounts payable and other accrued expenses 2,219 2,147
Estimated third party payor settlements 3,885 2,958
Total current liabilities 31,882 8,141
Deferred management fee payable 801 770
Loan payable to the Development General Partner 1,022 984
Line of credit borrowings - 1,000
Long-term debt - 23,971
1,823 26,725
Partners' capital
General partners (153) (143)
Assignee limited partners; 1,540,040
units issued and outstanding 16,617 17,532
Total partners' capital 16,464 17,389
Total liabilities and
partners' capital $ 50,169 $ 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 Nine Months Ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
Revenues
<S> <C> <C> <C> <C>
Medicaid and Medicare patients $ 9,863 $ 9,391 $ 28,523 $ 26,936
Private patients 2,718 2,661 8,234 8,311
Investment and other income 77 70 235 261
12,658 12,122 36,992 35,508
Expenses
Operating, including $1,626, $1,476,
$5,014 and $3,825 to related parties 9,873 9,684 29,541 28,443
Management and administration fees
to related parties 814 781 2,375 2,290
General and administrative 159 278 510 511
Depreciation and amortization 498 515 1,483 1,480
Interest expenses 505 554 1,529 1,597
11,849 11,812 35,438 34,321
Net earnings $ 809 $ 310 $ 1,554 $ 1,187
Net earnings per unit of assignee
limited partnership interest $ 0.52 $ 0.20 $ 1.00 $ 0.76
</TABLE>
See accompanying notes to financial statements
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MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Consolidated Statements of Partners' Capital
For the Nine Months Ended September 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 16 1,538 1,554
Distributions to partners (25) (2,454) (2,479)
Balance at September 30, 1997 $ (153) $ 16,617 $ 16,464
Balance at December 31, 1995 $ (127) $ 19,100 $ 18,973
Net earnings 12 1,175 1,187
Distributions to partners (25) (2,454) (2,479)
Balance at September 30, 1996 $ (140) $ 17,821 $ 17,681
</TABLE>
See accompanying notes to financial statements
-3-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMTIED PARTNERSHIP
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30,
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996
Cash flows from operating activities
<S> <C> <C>
Net earnings $ 1,554 $ 1,187
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation and amortization 1,483 1,480
Minority interest in net earnings of operating
partnerships 18 14
Increase in loan payable to Development General Partner 38 39
Increase in deferred management fee payable 31 32
Change in other assets and liabilities
Accounts receivable (261) (698)
Estimated third-party payor settlements 818 2,568
Prepaid expenses (189) (110)
Accrued compensation and related costs (777) (2)
Accounts payable and other accrued expenses 72 (461)
Net cash provided by operating activities 2,787 4,049
Cash flows from investing activities-
additions to property and equipment (662) (296)
Cash flows from financing activities
Line of credit borrowings - 1,100
Repayment of line of credit borrowings (1,000) (200)
Repayment of long-term debt (452) (412)
Distributions to partners (2,479) (2,479)
Net cash used in financing activities (3,931) (1,991)
Net increase (decrease) in cash and cash equivalents (1,806) 1,762
Cash and cash equivalents
Beginning of period 3,962 1,539
End of period $ 2,156 $ 3,301
</TABLE>
See accompanying notes to financial statements
- -4-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
September 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
September 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Management and administration fees $ 814,000 $ 781,000
Drug and medical supplies purchases 461,000 649,000
Nursing and rehabilitation services 1,165,000 826,000
Interest expense on borrowings 23,000 24,000
</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 $1,022,000 at September 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
September 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 September 30, 1997 the Fund was in compliance
with this 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.
As previously discussed, the Randallstown facility did not meet its
required ratio of cash flow to debt service and on July 2, 1997 executed an
amendment to the Limited Forbearance Agreement effective June 30, 1997. This
agreement requires that Caton Manor Meridian Limited Partnership, Frederick
Meridian Limited Partnership and Hamilton Meridian Limited Partnership jointly
and severally guarantee Randallstown's obligation and secure such guaranty with
an indemnity deed of trust lien on their respective facilities and properties
and maintain a Debt Service Coverage Ratio of 1.7 to 1.0. At September 30, 1997
the Fund was in compliance with 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,
$24,140,000, as a current liability on its September 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 its 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 September 30, 1997,
there were no outstanding borrowings under this Facility. The Fund is currently
considering options to replace this credit facility.
On November 13, 1997, the Fund made a cash distribution of $826,410 to
its assignee limited partners, which was funded from nursing center operations
generated during the third quarter of 1997 after payment of approximately
$81,000 of upper tier expenses. In addition to funding the current distribution
and third quarter upper tier expenses, third quarter income was sufficient to
reimburse reserves $176,247, which had been utilized to fund a portion of the
first half 1997 distributions. Through the third quarter of 1997, nursing center
operations generated sufficient income to fund approximately 81% of the total
distributions after payment of upper tier expenses of $226,000.
While future distributions will remain dependent on the operating
performance of the properties, Fund management expects distributions will remain
at current levels. Fourth quarter operating results are expected to be in line
with the improved performance reflected in the third quarter and as a result, we
expect next quarter's income to fully fund the distribution to partners.
Results of Operations
Three Months Ended September 30, 1997 vs. Three Months Ended September 30, 1996
The Fund's patient revenues increased by approximately $529,000 (or 4%)
for the three months ended September 30, 1997 as compared to the same period for
1996. This increase was primarily the result of effective rate increases.
Effective July 1, 1997, the four Fund facilities in the State of Maryland
received rate increases of 5%-6% compared to Medicaid rate increases of
approximately 2.5% on July 1, 1996. Medicaid census in those four facilities
increased slightly in the three months ended September 30, 1997 as compared to
the same period in 1996 (43 days). The acuity level of those residents has also
increased. The average private rate increased by approximately $9.71 per day in
the third quarter of 1997 as compared to the same period of 1996 accounting for
approximately $212,000 of the effective rate increase. Private census was 1,174
days lower in the third quarter of 1997 versus the third quarter of 1996;
however, there was a shift in census towards facilities with overall higher
-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 (continued)
private room rates. The remainder of the effective rate increase occurred in the
Medicare area. Although Medicare census decreased to 9.7% of total census in the
three months ended September 30, 1997 as compared to 10.2% of total census in
the comparable period in the prior year, the acuity level of those residents has
increased. These favorable variances were offset in part by a decrease of
approximately $205,000 in prior year third party cost report settlements in 1997
as compared to 1996 as well as a decrease in Medicare ancillaries due to the
decrease in Medicare census.
Operating expenses for the three months ended September 30, 1997
increased by approximately $189,000 (or 2%) as compared to the same period in
the prior year; however, operating expenses as a percentage of revenue declined
to 78% in 1997 as compared to 80% in 1996. This decrease was largely a result of
improved cost control and in response to the census decline. Salaries and wages
increased by approximately $151,000 (or 2.8%) due to normal wage increases as
well as the use of special weekend incentive programs at the Randallstown
facility in an effort to decrease agency usage. Agency usage was approximately
$17,000 higher in the third quarter of 1997 versus 1996; however, this
represented a decrease from prior quarters. The remainder of the variance was
due to expected cost increases as well as increased benefits in response to the
increased salaries.
General and administrative expenses decreased approximately $119,000
due primarily to a decrease in professional and consulting fees in the third
quarter of 1997 versus the comparable period in 1996. Additionally, the third
quarter of 1996 includes a reclassification of expenses which resulted in that
quarters expenses being higher than normal by approximately $70,000.
Interest expense in the third quarter of 1997 versus 1996 decreased by
$49,000 as a result of the pay down of the line of credit borrowings in April,
1997.
Nine Months Ended September 30, 1997 vs. Nine Months Ended September 30, 1996
Patient revenues for the Fund's seven operating partnerships increased
$1,510,000 (or 4%) for the nine months ended September 30, 1997 as compared to
the same period in 1996. The primary reason for the revenue growth was effective
rate increases, including $1,170,000 relating to Medicaid residents. Effective
July 1, 1997, the four Maryland facilities received Medicaid rate increases of
5-6% as compared to approximately 2.5% on July 1, 1996. Also contributing to
this Medicaid increase was a shift to higher acuity Medicaid residents at the
facilities. The remainder of the rate increase occurred in Medicare where there
has also been a shift to a higher acuity resident. Additionally, ancillary usage
increased in 1997 versus the comparable period in 1996. Although total census
decreased by 5,281 days, Medicare census was 473 days higher in the first nine
months of 1997 versus the same period in 1996. Partially offsetting these
favorable variances was a decrease of approximately $467,000 in prior year third
party cost report settlements.
Operating expenses for the nine months ended September 30, 1997
increased approximately $1,098,000 (or 4%) as compared to the nine months ended
September 30, 1996. As a percentage of total revenue, operating expenses
remained consistent at 80% of revenue. Salaries and wages increased
approximately $537,000 (or 3%) in the first three quarters of 1997 compared to
the same time period in 1996 due to normal rate increases. As a result of a
shortage in certified nursing assistants in the State of Maryland, nursing
agency usage increased approximately $121,000 in 1997 versus 1996. Total nursing
costs, as a result, are $1.76 per day higher in 1997 as compared to 1996.
Another factor contributing to the operating expense increase was
higher ancillary utilization in the first nine months of 1997 versus 1996. This
was partially a result of the increased Medicare census in 1997 as well as an
increase in the utilization of ancillaries by Medicaid residents. As compared to
1996, a greater percentage of ancillaries are being utilized by the Medicaid
population and are not reimbursed under the Medicaid programs. On a per patient
day basis, Medicaid ancillary utilization is $2.30 higher in 1997 than in 1996.
-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)
Interest expense for the nine months ended September 30, 1997 decreased
by approximately $68,000 versus the same expense in 1996. This was due to a
decreased use of the line of credit borrowings. All line of credit borrowings
were paid off in full in April of 1997.
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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
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<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: 11/11/97 By: /s/ John M. Prugh
John M. Prugh
President and Director
Brown-Healthcare, Inc.
Administrative General Partner
DATE: 11/11/97 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 2,156,000
<SECURITIES> 0
<RECEIVABLES> 6,672,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,745,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 50,169,000
<CURRENT-LIABILITIES> 31,882,000
<BONDS> 0
0
0
<COMMON> 0
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<SALES> 0
<TOTAL-REVENUES> 36,992,000
<CGS> 0
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<OTHER-EXPENSES> 33,909,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,529,000
<INCOME-PRETAX> 1,554,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,554,000
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