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 March 31, 2000
{ } 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 March 31, 2000 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>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
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 Earnings 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
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 12
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>
March 31,
2000 December 31,
(Unaudited) 1999
---------------- ----------------
Assets
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 1,871 $ 2,511
Accounts receivable, net 7,975 7,224
Estimated third-party payor settlements 162 342
Prepaid expenses 512 478
---------------- ----------------
Total current assets 10,520 10,555
---------------- ----------------
Property and equipment, net of accumulated depreciation 33,138 33,346
---------------- ----------------
Other assets
Deferred financing fees, net 56 -
Goodwill, net 4,681 4,745
---------------- ----------------
4,737 4,745
---------------- ----------------
Total assets $ 48,395 $ 48,646
================ ================
Liabilities and Partners' Capital
Current liabilities
Current portion of long-term debt $ 22,482 $ 22,605
Accrued compensation and related costs 428 778
Accounts payable and other accrued expenses 3,546 2,926
Estimated third party payor settlements 1,819 1,934
---------------- ----------------
Total current liabilities 28,275 28,243
---------------- ----------------
Deferred management fee payable 906 894
Loan payable to the Development General Partner 1,150 1,137
---------------- ----------------
2,056 2,031
---------------- ----------------
Partners' capital
General partners (135) (132)
Assignee limited partners; 1,540,040
units issued and outstanding 18,199 18,504
---------------- ----------------
Total partners' capital 18,064 18,372
---------------- ----------------
Total liabilities and
partners' capital $ 48,395 $ 48,646
================ ================
</TABLE>
See accompanying notes to consolidated financial statements
-3-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Consolidated Statements of Earnings
For the three months ended March 31,
(Unaudited)
(Dollars in thousands except per unit amounts)
<TABLE>
<CAPTION>
2000 1999
---------------- ----------------
Revenues
<S> <C> <C>
Medicaid and Medicare patients $ 10,767 $ 9,736
Private patients 2,501 2,536
Investment and other income 70 35
---------------- ----------------
13,338 12,307
---------------- ----------------
Expenses
Operating, including $2,092 and
$1,279 to related parties 10,739 9,550
Management and administration fees
to related parties 866 800
General and administrative 221 251
Depreciation and amortization 546 497
Interest expense 448 415
---------------- ----------------
12,820 11,513
---------------- ----------------
Net earnings $ 518 $ 794
================ ================
Net earnings per unit of assignee
limited partnership interest - basic $ 0.33 $ 0.51
(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 Three Months Ended March 31, 2000 and 1999
(Unaudited)
Dollars in thousands
<TABLE>
<CAPTION>
Assignee
General Limited
Partners Partners Total
---------------- ---------------- ----------------
<S> <C> <C> <C>
Balance at December 31, 1999 $ (132) $ 18,504 $ 18,372
Net earnings 5 513 518
Distributions to partners (8) (818) (826)
---------------- ---------------- ----------------
Balance at March 31, 2000 $ (135) $ 18,199 $ 18,064
================ ================ ================
Balance at December 31, 1998 $ (128) $ 18,941 $ 18,813
Net earnings 8 786 794
Distributions to partners (8) (818) (826)
---------------- ---------------- ----------------
Balance at March 31, 1999 $ (128) $ 18,909 $ 18,781
================ ================ ================
</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 Three Months Ended March 31,
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
2000 1999
---------------- ----------------
Cash flows from operating activities
<S> <C> <C>
Net earnings $ 518 $ 794
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation and amortization 546 497
Minority interest in net earnings of operating
partnerships 5 9
Increase in loan payable to Development General Partner 13 13
Increase in deferred management fee payable 12 12
Change in other assets and liabilities
Accounts receivable (756) (433)
Estimated third-party payor settlements 65 495
Prepaid expenses (34) 107
Accrued compensation and related costs (350) (340)
Accounts payable and other accrued expenses 621 (1,462)
---------------- ----------------
Net cash provided by operating activities 640 (308)
---------------- ----------------
Cash flows from investing activities-
additions to property and equipment (247) (213)
---------------- ----------------
Cash flows from financing activities
Deferred financing fees (84) -
Repayment of long-term debt (123) (208)
Distributions to partners (826) -
---------------- ----------------
Net cash used in financing activities (1,033) (208)
---------------- ----------------
Net decrease in cash and cash equivalents (640) (729)
Cash and cash equivalents
Beginning of period 2,511 2,928
---------------- ----------------
End of period $ 1,871 $ 2,199
================ ================
</TABLE>
See accompanying notes to consolidated financial statements
-6-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
March 31, 2000
(Unaudited)
NOTE 1 - THE FUND AND BASIS OF PREPARATION
The Fund owns 98.99% limited partnership interests in each of the seven
operating partnerships. 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 1999 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 March 31,
2000 and 1999 are as follows:
2000 1999
Management and administration fees $ 866,000 $ 800,000
Drug and medical supplies purchases 887,000 610,000
Nursing and rehabilitation services 1,205,000 669,000
Interest expense on borrowings 25,000 23,000
Loans outstanding under an arrangement with the Development General Partner to
fund operating deficits generated by the Mooresville, Salisbury and Woodlands
nursing centers were $1,150,000 at March 31, 2000 and $1,137,000 at December 31,
1999.
NOTE 3 - DEBT
Effective February 28, 1998, the Fund renewed it $4,000,000 line of credit
agreement which is designated for working capital needs and issuance of letters
of credit. This agreement expired on February 28, 2000. Effective February 28,
2000, the Fund extended its line of credit through May 31, 2000 at which time
any and all outstanding borrowings under the agreement become due. Borrowings
are secured primarily by the accounts receivable of the Fund. Any outstanding
cash borrowings under the facility bear interest based on a LIBOR rate plus
1.55%. There were no borrowings or letters of credit outstanding at March 31,
2000.
Effective February 28, 1998, the Fund refinanced all existing mortgages. Under
the terms of the refinancing, the mortgages matured on February 28, 2000.
Effective February 28, 2000, the Fund extended all existing mortgages through
May 31, 2000. The mortgages bear interest at LIBOR plus 1.55%. The Fund's
managers have secured a new long-term commitment from a bank to refinance the
existing indebtedness, as well as the Fund's $4,000,000 line of credit (which is
designated for working capital needs and is secured primarily by the accounts
receivable of the Fund). The Fund's managers believe the refinancing will close
prior to the May 31, 2000 maturity date.
-7-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
March 31, 2000
(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 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
On March 3, 1998, the Fund entered into a renewal commitment with its
existing lender to refinance all of the existing indebtedness. Under the terms
of the refinancing, the mortgages were scheduled to mature on February 28, 2000.
On February 28, 2000 the Fund executed a three-month extension with the bank and
the existing indebtedness is now scheduled to mature on May 31, 2000. Under the
terms of the extension, the mortgages continue to bear interest at LIBOR plus
1.55%. The Fund's managers have secured a commitment from another bank to
refinance the existing indebtedness as well as the Fund's $4,000,000 line of
credit (which is designated for working capital needs and is secured primarily
by the accounts receivable of the Fund). The Fund's managers believe the
refinancing will close prior to the May 31, 2000 maturity date.
The Fund's working capital (excluding long-term debt) decreased $190,000 to
$4,727,000 at March 31, 2000 as compared to $4,917,000 at December 31, 1999. The
Fund has classified its long-term debt as a current liability on the March 31,
2000 balance sheet as a result of its May 31, 2000 maturity date. 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.
Cash flow from operating activities was $640,000 for the three-month period
ended March 31, 2000 as compared to ($308,000) for the same period of 1999. The
primary reason for the rise in cash flow was due to an increase in payables and
accrued expenses during 2000 versus a reduction during the same period of 1999.
Cash used in investing activities for the three-month period ended March
31, 2000 was $247,000 and included improvements to the Fund's seven operating
facilities. Similar improvements made during the first quarter of 1999 were
$213,000.
Cash used in financing activities during the first quarter of 2000 included
repayment of long term debt of $123,000, an extension fee paid to its existing
lender of $84,000 and distributions to partners totaling $826,000.
The Fund believes that the short-term liquidity needs will be met through
expected cash flow from operations and available working capital from the
existing line of credit. Long-term liquidity needs will be met through expected
cash flow from operations and a refinancing of the existing long-term
indebtedness and line of credit capacity.
Between 1988 and 1999 the Development General Partner loaned the Fund
$597,000 to support operating deficits generated by the Mooresville, Salisbury
and Woodlands nursing centers during each centers' first two years of operation.
Loans outstanding under this arrangement, including interest at 9% per annum,
were $1,150,000 at March 31, 2000. The Fund is obligated to repay these loans
when certain 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 or about May 15, 2000 the Fund will make its first quarter 2000
distribution to partners of $826,410. This distribution was funded by first
quarter 2000 operations and reserves of approximately $197,000. Review of the
2000 budget suggests operations from the seven nursing centers will be
sufficient to fund a similar quarterly distribution throughout the year.
The major challenge to the Fund in the foreseeable future is to control
operating expenses in light of Medicare's conversion to the Prospective Payment
System, to maintain a quality mix of patients and to increase the overall census
at each of the facilities.
-9-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Net earnings for the Fund were $518,000 for the three months ended March
31, 2000 as compared to $794,000 for the same period in 1999. The decrease in
earnings is primarily due to increased operating costs of the Fund.
Overall revenue of $13,338,000 increased $1,031,000 or 8.37% for the three
months ended March 31, 2000 compared to the same period in 1999. The increase in
revenue is primarily due to increases in Medicaid and Medicare revenue. Medicaid
and Medicare revenue increased $1,031,000 to $10,767,000 for the first quarter
of 2000 compared to the first quarter of 1999. Medicaid revenue for the three
months ended March 31, 2000 increased $422,000 compared to the same period in
the prior year. The increase is primarily due to an overall Medicaid rate
increase of 10.4% driven primarily by the four Maryland centers which received
their annual Medicaid rate adjustment in July 1999 and a second Medicaid rate
increase in October 1999, which was implemented to reflect a modification to the
State reimbursement program. Medicare A revenue of $3,409,000 increased $517,000
or 18% for the three month period ended March 31, 2000 as compared the same
period in 1999. The increase in Medicare revenue is due to the growth in the
Medicare census. The average daily Medicare census increased twenty residents or
18% to 131 or 12.8% of the total census for the three months ended March 31,
2000 compared to 111 or 10.5% of the total census for the same period in 1999.
Medicare Part B revenue of $133,000 increased $92,000 for the first quarter of
2000 compared to the first quarter of 1999 due to increased utilization of Part
B services.
Operating costs increased $1,189,000 or 12.45% in the first quarter of 2000
as compared to the same period in 1999. Increased utilization of temporary nurse
staffing and increased ancillary expenses were the primary contributors to the
overall growth in operating costs. For the three months ended March 31, 2000
temporary nurse staffing expense of $425,000 increased $420,000 compared to the
same period in 1999. The utilization of temporary staffing agencies to provide
nursing personnel was necessary due to a general shortage of nurses within the
healthcare industry. First quarter 2000 ancillary expenses increased $515,000
over similar costs incurred during the first quarter of 1999. The increase in
ancillary expense is primarily due to the growth in the Medicare census and the
increased utilization of Medicare Part B services. The remaining increase in
cost is primarily due to general inflationary cost increases.
Management and administrative fees to related parties of $866,000 increased
$66,000 for the first quarter of 2000 compared to the same period in 1999. The
growth in these fees is primarily due to increased management fee expense. The
growth in management fee is a result of increases in revenues as the fee is
calculated as a percentage of the Fund's revenue.
Depreciation and amortization expense increased $49,000 to $546,000 for the
three months ended March 31, 2000 as compared to the same period in 1999.
Amortization expense increased $28,000 to recognize the amortization of the
mortgage extension fee. Depreciation expense increased $21,000 due to the
depreciation of the capital improvements made to the facilities.
Interest expense for the first quarter of 2000 increased $33,000 in
comparison to the same period in 1999. The increase is the result of higher
variable interest rates on the Fund's mortgage notes.
-10-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Legislative and Regulatory Issues
Legislative and regulatory action has resulted in continuing changes in the
Medicare and Medicaid reimbursement programs. The changes have limited, and are
expected to continue to limit, payment increases under these programs. Also, the
timing of payments made under the Medicare and Medicaid programs is subject to
regulatory action and governmental budgetary constraints; in recent years, the
time period between submission of claims and payment has increased. Within the
statutory framework of the Medicare and Medicaid programs, there are substantial
areas subject to administrative rulings and interpretations which may further
affect payments made under those programs. Further, the federal and state
governments may reduce the funds available under those programs in the future or
require more stringent utilization and quality reviews of eldercare centers or
other providers. There can be no assurances that adjustments from Medicare or
Medicaid audits will not have a material adverse effect on the Fund.
-11-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
PART I. FINANCIAL INFORMATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The market risk associated with financial instruments and derivative
financial and commodity instruments is the risk of loss from adverse changes in
market prices or rates. The Fund's market risk arises primarily from interest
rate risk relating to its long-term borrowings which bear interest at LIBOR plus
1.55% of a designated bank. Borrowings are classified as a current liability
since they have a May 31, 2000 maturity date. Assuming that the outstanding
balance were to remain unchanged from that at March 31, 2000 a 1% increase in
the LIBOR rate of interest would reduce the Fund's net earnings by approximately
$225,000 on an annualized basis.
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: Financial Data Schedule
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: 5/12/00 By: /s/ John M. Prugh
John M. Prugh
President and Director
Brown-Healthcare, Inc.
Administrative General Partner
DATE: 5/12/00 By: /s/ Timothy M. Gisriel
Timothy M. Gisriel
Treasurer
Brown-Healthcare, Inc.
Administrative General Partner
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with legend, if applicable)
</LEGEND>
<CIK> 0000826682
<NAME> Meridian Healthcare Growth and Income Fund
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-1-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 1,871,000
<SECURITIES> 0
<RECEIVABLES> 7,975,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,520,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 48,395,000
<CURRENT-LIABILITIES> 28,275,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 48,395,000
<SALES> 0
<TOTAL-REVENUES> 13,338,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 12,372,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 448,000
<INCOME-PRETAX> 518,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 518,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 518,000
<EPS-BASIC> 0.330
<EPS-DILUTED> 0.000
</TABLE>
