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, 1998
{ } 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, 1998 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
<PAGE>
INDEX
Page No.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS 2
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Partners' Capital 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
Part II. Other Information
Item 1. through Item 6. 12
Signatures 13
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Cautionary Statement Regarding Forward Looking Statements
Certain statements contained herein, including certain statements in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" concerning the Fund's business outlook or future economic
performances, anticipated profitability, revenues, expenses or other financial
items together with other statements that are not historical facts are
"forward-looking statements" as that term is defined under the Federal
Securities Law. Forward-looking statements are necessarily estimates reflecting
the best judgement of the party making such statements based upon correct
information and involve a number of risks, uncertainties and other factors which
could cause actual results to differ materially from those stated in such
statements. Risks, uncertainties and factors which could affect the accuracy of
such forward looking statements are identified in the Fund's Prospectus and the
Fund's Registration Statement filed by the Fund with the Securities and Exchange
Commission, and forward looking statements contained herein or in other public
statements of the Fund should be considered in light of those factors. There can
be no assurance that factors will not affect the accuracy of such forward
looking statements.
-2-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30,
1998 December 31,
(Unaudited) 1997
Assets
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 2,352 $ 2,275
Accounts receivable, net 7,468 6,437
Estimated third-party payor settlements 260 343
Prepaid expenses 625 565
Total current assets 10,705 9,620
Property and equipment, net of accumulated depreciation 33,958 34,839
Other assets
Goodwill, net 5,058 5,239
Loan acquisition costs, net 13 9
5,071 5,248
Total assets $ 49,734 $ 49,707
Liabilities and Partners' Capital
Current liabilities
Current portion of long-term debt $ 737 $ 707
Accrued compensation and related costs 759 1,054
Accounts payable and other accrued expenses 3,283 2,186
Estimated third party payor settlements 2,264 4,234
Total current liabilities 7,043 8,181
Deferred management fee payable 843 812
Loan payable to the Development General Partner 1,074 1,035
Long-term debt 22,750 23,328
24,667 25,175
Partners' capital
General partners (136) (153)
Assignee limited partners; 1,540,040
units issued and outstanding 18,160 16,504
Total partners' capital 18,024 16,351
Total liabilities and
partners' capital $ 49,734 $ 49,707
</TABLE>
See accompanying notes to financial statements
- -3-
<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,
1998 1997 1998 1997
Revenues
<S> <C> <C> <C> <C>
Medicaid and Medicare patients $ 12,030 $ 9,863 $ 31,455 $ 28,523
Private patients 2,905 2,718 8,374 8,234
Investment and other income 100 77 233 235
15,035 12,658 40,062 36,992
Expenses
Operating, including $1,664, $1,626,
$5,192 and $5,014 to related parties 9,998 9,873 29,835 29,541
Management and administration fees
to related parties 963 814 2,586 2,375
General and administrative 243 159 627 510
Depreciation and amortization 497 498 1,466 1,483
Interest expenses 459 505 1,396 1,529
12,160 11,849 35,910 35,438
Net earnings $ 2,875 $ 809 $ 4,152 $ 1,554
Net earnings per unit of assignee
limited partnership interest-basic
(computed based on 1,540,040
units) $ 1.85 $ 0.52 $ 2.67 $ 1.00
</TABLE>
See accompanying notes to financial statements
- -4-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Consolidated Statements of Partners' Capital
For the Nine Months Ended September 30, 1998 and 1997
(Unaudited)
Dollars in thousands
<TABLE>
<CAPTION>
Assignee
General Limited
Partners Partners Total
<S> <C> <C> <C>
Balance at December 31, 1997 $ (153) $ 16,504 $ 16,351
Net earnings 42 4,110 4,152
Distributions to partners (25) (2,454) (2,479)
Balance at September 30, 1998 $ (136) $ 18,160 $ 18,024
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 Septermber 30, 1997 $ (152) $ 16,616 $ 16,464
</TABLE>
See accompanying notes to financial statements
-5-
<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>
1998 1997
Cash flows from operating activities
<S> <C> <C>
Net earnings $ 4,152 $ 1,554
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation and amortization 1,466 1,483
Minority interest in net earnings of operating
partnerships 45 18
Increase in loan payable to Development General Partner 39 38
Increase in deferred management fee payable 31 31
Change in other assets and liabilities
Accounts receivable (1,076) (261)
Estimated third-party payor settlements (1,887) 818
Prepaid expenses (60) (189)
Accrued compensation and related costs (295) (777)
Accounts payable and other accrued expenses 1,097 72
Net cash provided by operating activities 3,512 2,787
Cash flows from investing activities-
additions to property and equipment (395) (662)
Cash flows from financing activities
Loan acquistion costs (13) -
Repayment of line of credit borrowings - (1,000)
Repayment of long-term debt (548) (452)
Distributions to partners (2,479) (2,479)
Net cash used in financing activities (3,040) (3,931)
Net increase (decrease) in cash and cash equivalents 77 (1,806)
Cash and cash equivalents
Beginning of period 2,275 3,962
End of period $ 2,352 $ 2,156
</TABLE>
See accompanying notes to financial statements
- -6-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
Septemer 30, 1998
(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 consolidated 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. The unaudited interim financial information contained in the
consolidated financial statements should be read in conjunction with the
consolidated financial statements contained in the 1997 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, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Management and administration fees $ 963,000 $ 814,000
Drug and medical supplies purchases 430,000 461,000
Nursing and rehabilitation services 1,234,000 1,165,000
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 $1,074,000 at September 30, 1998 and $1,035,000 at December
31, 1997.
NOTE 3 - DEBT
On March 3, 1998, the Fund entered into a renewal commitment with a bank to
refinance all of the existing indebtedness. Under the terms of the refinancing,
the mortgages will mature on February 28, 2000 and will bear interest at LIBOR
(5.69% at June 30, 1998) plus 1.55%. The refinancing also extended the
$4,000,000 line of credit commitment until February 28, 2000. There were no
borrowings outstanding under the line of credit commitment at September 30,
1998.
-7-
<PAGE>
Notes to Consolidated Financial Statements
Septemer 30, 1998
(Unaudited)
NOTE 4 - MEDICAID SETTLEMENT
The Fund has resolved reimbursement issues relating to Maryland Medicaid that
resulted in additional Medicaid revenue of $2,584,000 recorded in the quarter
ended September 30, 1998. This amount reflects outstanding reimbursement issues
for the years 1994 through 1998, of which $528,000 relates to 1998 reimbursement
issues and the remaining amount for prior years.
NOTE 5 - 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.
-8-
<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.
On March 3, 1998, the Fund entered into a renewal commitment with a
bank to refinance all of the existing indebtedness. Under the terms of the
refinancing, the mortgages will mature on February 28, 2000 and will bear
interest at LIBOR plus 1.55%. The refinancing also extended the $4,000,000 line
of credit commitment until February 28, 2000. The Fund's line of credit is
designated for working capital needs and is primarily secured by the accounts
receivable of the Fund. At September 30, 1998, there were no outstanding
borrowings under this line of credit.
Between 1988 and 1989 the Development General Partner loaned the Fund
$597,000 to support operating deficits generated by the Mooresville, Salisbury
and Woodlands nursing centers during each center's first two years of operation.
Loans outstanding under this arrangement, including accrued interest at 9% per
annum, were $1,074,000 at September 30, 1998. The Fund is obligated to repay
these loans when certain specified financial criteria are met, the most
significant of which is the payment of a preferred return to the assignee
limited partners as defined in the Fund's partnership agreement.
The Fund has resolved reimbursement issues relating to Maryland
Medicaid that resulted in additional revenue of $2,584,000 being recorded in the
quarter ended September 30, 1998. This amount reflects outstanding reimbursement
issues for the years 1994 through 1998, of which $528,000 relates to 1998 and
the balance relates to prior years.
On November 15, 1998, the Fund will make a cash distribution of
$826,410 to its partners which will be funded from third quarter 1998 nursing
center operations after payment of approximately $84,000 of upper tier expenses.
Based on the operating results through the third quarter and the
estimate for the remainder of the year, 1998 operating results are expected to
improve significantly when compared to 1997, due primarily to the settlement of
the Maryland Medicaid reimbursement issue discussed above. Distributions to
partners are expected to remain at current levels and be fully funded by the
operations of the facilities. The major challenge to the Fund in the foreseeable
future is to control operating expenses while maximizing revenues through
strategic admissions policies.
Pursuant to the Balanced Budget Act of 1997 (the "Act"), beginning on
January 1, 1999, Medicare reimbursement for skilled nursing facilities such as
those owned by the Fund, will be on a prospective payment system ("PPS").
Skilled nursing facilities will be paid for a per diem rate for all covered Part
A skilled nursing facility services as well as many services for which payment
may be made under Part B during a period when a beneficiary is provided covered
skilled nursing facility care. The per diem rate is adjusted based upon the
resource utilization group of a resident. This payment will cover rehabilitation
and nonrehabilitation ancillary services; however, the per diem rate will not
cover physician, nursing, physician assistant and certain related services. For
the first three cost reporting periods beginning on January 1, 1999, the per
diem will be based on a blend of a facility specific rate and a federal per diem
rate. In subsequent periods, the federal per diem rate will be used without any
facility specific blending.
The Act also repealed the Boren Amendment which required Medicaid
payments to nursing facilities to be "reasonable and adequate" to cover the
costs of efficiently and economically operated facilities. Under the Act, states
must now use a public notice and comment process for determining Medicaid rates
and give interested parties a reasonable opportunity to comment on proposed
rates, rate methodology and justifications. It is unclear what impact the
Balanced Budget Act of 1997 will have on the Fund.
-9-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Year 2000
The Development General Partner is aware of the issues associated with
the programming code in many existing computer systems (the "Year 2000" issue)
as the millennium approaches. The Development General Partner has conducted a
review of its computer systems (on whose system the Fund operates) to identify
hardware and software affected by the Year 2000 issue. This issue affects
computer systems having date sensitive programs that may not properly recognize
the Year 2000. Systems that do not properly recognize such information could
generate erroneous data or cause a system to fail resulting in business
interruption.
With respect to its existing computer systems, the Development General
Partner has converted to a Year 2000 compliant system with the exception of its
billing system which is being upgraded in order to meet the demands of its
expanding business. In the process, the Development General Partner is taking
steps to identify, correct and/or reprogram and test its existing billing system
for Year 2000 compliance. It is anticipated that all new system upgrades or
reprogramming efforts will be completed by late calendar year 1998, allowing
adequate time for testing. The Development General Partner presently believes
that with modification to existing software the Year 2000 issue can be
mitigated. However, given the complexity of the Year 2000 issues, there can be
no assurances that the Development General Partner will be able to address the
problem without costs and uncertainties that might affect future financial
results of the Fund or cause reported financial information of the Fund not to
be necessarily indicative of future operating results or future financial
condition. The Development General Partner is developing a contingency plan to
allow for continued operations in the event that systems are not compliant for
Year 2000.
The Development General Partner has incurred, and expects to incur
additional, internal costs as well as other expenses to address the necessary
software upgrades, training, data conversion, testing and implementation related
to the Year 2000 issue. Such costs are being expensed as incurred. The
Development General Partner does not expect the amounts required to be expensed
to have a material effect on the Fund's financial position or results of
operations. The Year 2000 issue is expected to affect the systems of various
entities with which the Fund and the Development General Partner interact
including payors, suppliers and vendors. There can be no assurance that data
produced by systems of other entities on which the Development General Partner's
systems rely will be converted on a timely basis or that a failure by another
entity's systems to be Year 2000 compliant will not have a material adverse
effect on the Fund.
Results of Operations
Three Months Ended September 30, 1998 vs. Three Months Ended September 30, 1997
Net earnings increased to $2,875,000 during the third quarter of 1998
as compared to $809,000 during the third quarter of 1997, representing an
increase of $2,066,000.
The Fund's overall revenue increased by $2,377,000 (or 19%) for the
three months ended September 30, 1998 as compared to the same period in 1997.
This increase was principally due to the favorable settlement of Maryland
Medicaid reimbursement issues dating back to 1994. As a direct result of this
settlement, Medicaid revenues increased by $2,584,000, of which $176,000 relates
to the third quarter, $352,000 relates to the first half of 1998 and the balance
relates to prior years. Also contributing to the rise in the Fund's quarterly
revenues were rate increases which resulted in increased revenues of $258,000.
Offsetting these increases, in part, was a decrease in the overall census at the
Fund's facilities from 93.4% during the third quarter of 1997, to 91.7% during
the third quarter of 1998. The decreased census translates into a decline in
total patient days of 1,779 (of which 1,733 were Medicare days), and decreased
quarterly revenues by $388,000.
Third quarter 1998 expenses were $12,160,000 and increased $311,000 (or
2.1%) when compared to similar expenses during the third quarter of 1997. The
increase was primarily a result of higher management fees associated with the
Medicaid revenue settlement discussed above. Operating expenses increased
$125,000 due to
-10-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Results of Operations, (continued)
higher benefit expenses and physical therapy charges. General and Administrative
expenses incurred during the third quarter of the year increased $84,000 when
compared to the third quarter of 1997 due to increased consulting and
professional fees. Offsetting these increases in part is a decrease in interest
expense of $46,000 related to the refinancing of the Fund's debt which became
effective March 3, 1998.
Nine Months Ended September 30, 1998 vs. Nine Months Ended September 30, 1997
Net earnings for the nine months ended September 30, 1998 were
$4,152,000 as compared to $1,554,000 for the same period in 1997 representing an
increase of $2,598,000.
Fund revenues increased $3,070,000 principally due to the resolution of
the Maryland Medicaid reimbursement issues dating back to 1994. As a direct
result of this settlement, Medicaid revenues increased by $2,584,000, of which
$528,000 relates to the nine months ended September 30, 1998 and the balance
relates to prior years. Rate increases resulted in $1,720,000 of additional
revenue, while a decline in patient days of 4,382 (or 1.5%) reduced revenues by
$1,160,000. Overall patient occupancy, or census, decreased from 93.6% to 91.8%.
Both Private and Medicare census decreased as a percentage of the total
occupancy from 21.1% and 9.9% respectively, to 19.7% and 9.1% for the nine
months ended September 30, 1997, versus the nine months ended September 30,
1998.
Overall, expenses increased $472,000 to $35,910,000 for the nine months
ended September 30, 1998, as compared to $35,438,000 for the nine months ended
September 30, 1997. Operating expenses increased $294,000 due to higher benefit
costs and physical therapy expenses. Management fees (calculated as a percentage
of revenues) increased $211,000 due to the rise in overall revenues. General and
Administrative fees increased $117,000 due to increased consulting and
professional services. Interest expense declined $133,000 due to lower interest
rates resulting from the refinancing of the Fund's debt, which became effective
March 3, 1998.
-11-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Inapplicable
Item 2. Changes in Securities and Use of Proceeds
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
-12-
<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: 11/13/98 By: /s/ John M. Prugh
John M. Prugh
President and Director
Brown-Healthcare, Inc.
Administrative General Partner
DATE: 11/13/98 By: /s/ Timothy M. Gisriel
Timothy M. Gisriel
Treasurer
Brown-Healthcare, Inc.
Administrative General Partner
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with legend, if applicable)
</LEGEND>
<CIK> 0000826682
<NAME> Meridian Healthcare Growt
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 2,352,000
<SECURITIES> 0
<RECEIVABLES> 7,468,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,705,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 49,734,000
<CURRENT-LIABILITIES> 7,043,000
<BONDS> 22,750,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 49,734,000
<SALES> 0
<TOTAL-REVENUES> 40,062,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 34,514,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,396,000
<INCOME-PRETAX> 4,152,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,152,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,152,000
<EPS-PRIMARY> 2.670
<EPS-DILUTED> 0.000
</TABLE>
