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, 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 June 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 9-10
Part II. Other Information
Item 1. through Item 6. 11
Signatures 12
<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>
June 30,
1998 December 31,
(Unaudited) 1997
Assets
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 3,082 $ 2,275
Accounts receivable, net 7,298 6,437
Estimated third-party payor settlements 346 343
Prepaid expenses and other current assets 361 565
Total current assets 11,087 9,620
Property and equipment, net of accumulated depreciation 34,236 34,839
Other assets
Goodwill, net 5,118 5,239
Loan acquisition costs, net 1 9
5,119 5,248
Total assets $ 50,442 $ 49,707
Liabilities and Partners' Capital
Current liabilities
Current portion of long-term debt $ 699 $ 707
Accrued compensation and related costs 673 1,054
Accounts payable and other accrued expenses 3,183 2,186
Estimated third party payor settlements 5,071 4,234
Total current liabilities 9,626 8,181
Deferred management fee payable 833 812
Loan payable to the Development General Partner 1,061 1,035
Long-term debt 22,947 23,328
24,841 25,175
Partners' capital
General partners (157) (153)
Assignee limited partners; 1,540,040
units issued and outstanding 16,132 16,504
Total partners' capital 15,975 16,351
Total liabilities and
partners' capital $ 50,442 $ 49,707
</TABLE>
See accompanying notes to consolidated 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 Six Months Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
Revenues
<S> <C> <C> <C> <C>
Medicaid and Medicare patients $ 9,821 $ 9,657 $ 19,425 $ 18,660
Private patients 2,677 2,641 5,469 5,487
Investment and other income 57 83 133 187
12,555 12,381 25,027 24,334
Expenses
Operating, including $1,712, $1,890,
$3,528 and $3,432 to related parties 9,963 9,899 19,836 19,670
Management and administration fees
to related parties 825 799 1,623 1,561
General and administrative 204 171 384 349
Depreciation and amortization 483 496 969 984
Interest expenses 399 506 938 1,024
11,874 11,871 23,750 23,588
Net earnings $ 681 $ 510 $ 1,277 $ 746
Net earnings per unit of assignee
limited partnership interest - basic $ 0.44 $ 0.32 $ 0.82 $ 0.47
(computed based on 1,540,040 units)
</TABLE>
See accompanying notes to consolidated financial statements
- -4-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Consolidated Statements of Partners' Capital
For the Six Months Ended June 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 13 1,264 1,277
Distributions to partners (17) (1,636) (1,653)
Balance at June 30, 1998 $ (157) $ 16,132 $ 15,975
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
</TABLE>
See accompanying notes to consolidated financial statements
-5-
<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>
1998 1997
Cash flows from operating activities
<S> <C> <C>
Net earnings $ 1,277 $ 746
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation and amortization 969 984
Minority interest in net earnings of operating
partnerships 12 8
Increase in loan payable to Development General Partner 26 25
Increase in deferred management fee payable 21 21
Change in other assets and liabilities
Accounts receivable (873) 164
Estimated third-party payor settlements 834 572
Prepaid expenses 204 64
Accrued compensation and related costs (381) (337)
Accounts payable and other accrued expenses 997 564
Net cash provided by operating activities 3,086 2,811
Cash flows from investing activities-
additions to property and equipment (237) (492)
Cash flows from financing activities
Line of credit borrowings - (1,000)
Repayment of long-term debt (389) (295)
Distributions to partners (1,653) (1,653)
Net cash used in financing activities (2,042) (2,948)
Net increase (decrease) in cash and cash equivalents 807 (629)
Cash and cash equivalents
Beginning of period 2,275 3,962
End of period $ 3,082 $ 3,333
</TABLE>
See accompanying notes to consolidated financial statements
- -6-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
June 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 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 1997 Consolidated Statement of Earnings
have been reclassified to conform to the 1998 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 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 June 30,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Management and administration fees $ 825,000 $ 799,000
Drug and medical supplies purchases 478,000 596,000
Nursing and rehabilitation services 1,234,000 1,294,000
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 $1,061,000 at June 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
(5.66% 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 June 30, 1998.
-7-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
June 30, 1998
(Unaudited)
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 Earnings and is based upon 1,540,040 units.
-8-
<PAGE>
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 will also extend the line of
credit commitment until February 28, 2000. The Fund has a $4,000,000 line of
credit which is designated for working capital needs and is primarily secured by
the accounts receivable of the Fund. At June 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 interest at 9% per annum,
were $1,060,500 at June 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.
On August 13, 1998, the Fund will make a cash distribution of $826,410
to its partners which will be funded from second quarter 1998 nursing center
operations after payment of approximately $70,000 of upper tier expenses.
Based on a review of the 1998 operating budget, operating results are
projected to improve over 1997 results. Distributions to partners are expected
to remain at current levels and cash flow is expected to completely fund the
distributions. The major challenge to the Fund in the foreseeable future is to
control operating expenses while maximizing revenues through strategic
admissions policies.
Results of Operations
Three Months Ended June 30, 1998 vs. Three Months Ended June 30, 1998
Net earnings increased to $681,000 during the second quarter of 1998 as
compared to $510,000 during the second quarter of 1997, representing an increase
of $171,000 or 33%.
The Fund's revenues increased by approximately $174,000 (or 1.4%) for
the three months ended June 30, 1998 as compared to the same period in the prior
year. The increase is primarily due to increased room rates and an increase in
the number of Medicaid residents. Rate increases accounted for approximately
$411,000 of additional revenue. The rate increases are primarily a result of an
increase in the acuity level of the residents. Offsetting the rate increase is a
decrease in overall census resulting in a revenue decrease of $210,000. Overall,
census for the quarter decreased to 92% as compared to 93% in 1997. Investment
and other income decreased $26,000 for the three months ended June 30, 1998 in
comparison to the same period last year as interest earned on invested cash
decreased due to lower interest rates.
Second quarter 1998 expenses were relatively unchanged, as compared to
the same period in 1997. Operating expenses increased $64,000 due to higher
benefits expense for insurance, retirement plan and nonproductive time.
Management and administration fees (calculated as a percentage of revenue)
increased $26,000 (or 3.3%) for the second quarter of 1998 as compared to the
second quarter of 1997. General and administrative costs increased $34,000 (or
20%) for the three months ended June 30, 1998 as compared to the same period in
1997, due to increased consulting and professional fees. Offsetting these
increases is a decrease in interest expense of $107,000 related to the
refinancing of the Fund's debt which became effective
February 22, 1998.
9
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations (continued)
Six Months Ended June 30, 1998 vs. Six Months Ended June 30, 1997
Net earnings for the six months ended June 30, 1998 were $1,277,000 as
compared to $746,000 for the same period in 1997 representing an increase of
$531,000 or 71%.
Fund revenues increased $693,000 (or 2.9%) for the six months ended
June 30, 1998 versus the same period in 1997. The increase is primarily the
result of rate increases and an increase in the number of Medicaid residents.
Rate increases account for $1,173,000 of additional revenue. Increased rates are
the result of higher acuity residents at the nursing facilities. Partially
offsetting the positive rate variance is a decrease in overall census and a
shift away from the higher paying Private and Medicare residents to Medicaid,
resulting in a revenue decrease of $390,000. Overall census decreased to 92% for
the six months ended June 30, 1998 as compared to 93% for the same period in
1997. Medicaid census increased to 73% of the overall census for the first six
months of 1998 as compared to 69% in 1997. Both Private and Medicare census has
decreased as a percentage of the overall total with the Private census
representing 17% and Medicare 10% for the six months ended June 30, 1998 as
compared to 21% and 10%, respectively, during the same period in 1997.
Investment and other income decreased $54,000 for the first half of 1998 versus
1997 as interest rates on invested cash declined.
Overall expenses increased $162,000 (or .69%) to $23,750,000 for the
six months ended June 30, 1998 as compared to $23,588,000 for the same period in
1997. Operating expenses increased $166,000 (or .84%) to $19,836,000 for the six
months ended June 30, 1998 as compared to $19,670,000 for the same period in
1997. As a percentage of revenue, operating expenses decreased to 79% for the
first six months of 1998 as compared to 81% in 1997. Management and
administration fees (calculated as a percentage of revenues) increased $62,000
or 4% reflecting the increase in patient revenue. General and administrative
costs increased $35,000 (or 10%) for the six months ended June 30, 1998 as
compared to the same period in 1997, due to increased consulting and
professional fees. Interest expense for the first half of 1998 decreased $86,000
(or 9%) versus 1997 due to the lower interest rates resulting from the February
22, 1998 refinancing of the Fund's long term debt.
10
<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
-11-
<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: 08/11/98 By: /s/ John M. Prugh
John M. Prugh
President and Director
Brown-Healthcare, Inc.
Administrative General Partner
DATE: 08/11/98 By: /s/ Timothy M. Gisriel
Timothy M. Gisriel
Treasurer
Brown-Healthcare, Inc.
Administrative General Partner
-12-
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 3,082,000
<SECURITIES> 0
<RECEIVABLES> 7,298,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,087,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 50,442,000
<CURRENT-LIABILITIES> 9,626,000
<BONDS> 22,947,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 50,442,000
<SALES> 0
<TOTAL-REVENUES> 25,027,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 22,812,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 938,000
<INCOME-PRETAX> 1,277,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,277,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,277,000
<EPS-PRIMARY> 0.000
<EPS-DILUTED> 0.000
</TABLE>
