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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 33-65948
ROSEWOOD CARE CENTERS CAPITAL FUNDING CORPORATION
(Exact name of Registrant as specified in its charter)
(See table of Co-Registrants)
Missouri 43-1623171
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11701 Borman Drive, Suite 315
St. Louis, Missouri 63146
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 994-9070
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether 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
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrants' knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
Certain information called for on Item 14 of Part IV of this Form 10-K
is incorporated by reference to Registrants' Registration Statement (No.
33-65948) dated July 13, 1993 which was declared effective October 14, 1993,
Registrants' Form 10-Q filed November 29, 1993, Registrants' Form 10-Q filed
February 11, 1994, Registrants' Form 10-K filed September 28, 1994,
Registrants' Form 10-Q filed February 14, 1995, Registrants' Form 10-Q filed
May 15, 1995, Registrants' Form 10-Q filed February 13, 1996 and Registrants'
Form 10-Q filed May 14, 1996, Registrants' Form 10-K filed September 26, 1996
and Registrants' Form 10-Q filed November 13, 1996, Registrants' Form 10-Q
filed November 12, 1997, and Registrants' Form 10-Q filed February 11, 1998.
Index to Exhibits is on Page 77.
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CO-REGISTRANTS
Rosewood Care Center, Inc. of Swansea
Rosewood Care Center, Inc. of Galesburg
Rosewood Care Center, Inc. of East Peoria
Rosewood Care Center, Inc. of Peoria
Rosewood Care Center, Inc. of Alton
Rosewood Care Center, Inc. of Moline
Swansea Real Estate, Inc.
Galesburg Real Estate, Inc.
East Peoria Real Estate, Inc.
Peoria Real Estate, Inc.
Alton Real Estate, Inc.
Moline Real Estate, Inc.
(Exact names of Co-Registrants as specified in their charters)
No separate periodic or annual reports are filed for each of the
co-registrants and no separate financial statements are included for each of
the co-registrants because the co-registrants are effectively jointly and
severally liable with respect to the Notes and because such separate periodic
or annual reports and such separate financial statements are not deemed
material to investors.
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<TABLE>
ROSEWOOD CARE CENTERS CAPITAL FUNDING CORPORATION
INDEX
<S> <C>
PART I 4
ITEM 1. BUSINESS 4
ITEM 2. PROPERTIES 11
ITEM 3. LEGAL PROCEEDINGS 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS 13
PART II 14
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS 14
ITEM 6. SELECTED FINANCIAL DATA 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 15
ITEM 8. COMBINED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 53
PART III 53
ITEM 10. DIRECTORS AND OFFICERS OF THE COMPANY 53
ITEM 11. EXECUTIVE COMPENSATION 53
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 54
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 55
PART IV 57
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS ON FORM 8-K 57
(a) 1 and 2 Financial Statements and Financial Statement Schedule 57
(a) 3 Exhibits 57
(b) Reports on Form 8-K 57
(c) Exhibits 57
(d) Financial Statement Schedule 57
SUPPLEMENTAL INFORMATION 58
EXHIBIT INDEX 77
</TABLE>
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PART I
ITEM 1. BUSINESS.
Business of the REMIC
Rosewood Care Centers Capital Funding Corporation, a Missouri
corporation, was formed June 23, 1993 as a single purpose corporation, to
function as a real estate mortgage investment conduit ("REMIC"). The REMIC
was organized to issue the 7 1/4% First Mortgage Redeemable Bonds due
November 1, 2013 and to make first mortgage loans to six affiliated companies
(the "Borrowing Companies"). Each of the six Borrowing Companies owns a
skilled nursing facility which is statelicensed. The six skilled nursing
facilities are operated by six affiliated companies, which are guarantors of
the first mortgage loans (the "Guarantors") (collectively the Borrowing
Companies and the Guarantors are the "Companies"). The principal assets of
the REMIC are the notes from the six first mortgage loans. The REMIC does not
engage in any business or investment activities other than in connection with
administering the repayment of the bonds and the first mortgage loans.
Business of the Companies
The Companies own and operate six Rosewood Care Center(sm) skilled
nursing facilities located in Illinois, each with a 120 bed capacity,
except for the Alton facility, which has a 180 bed capacity. The facilities
provide convalescent care, long-term care, and rehabilitative services primarily
for elderly patients. Each facility offers a complete therapy program,
including physical, occupational and speech therapy under the direction of a
registered therapist.
The Companies principally market to private paying patients and attempt
to provide a high-quality alternative to competing facilities, both in the
physical surroundings and services offered. The Companies' marketing
strategy focuses on obtaining the highest average daily rate as well as high
occupancy levels in order to maximize revenues from the facilities. Although
the facilities provide long-term care for those patients who require it,
emphasis is on rehabilitative services to allow a patient to convalesce and
either return to independent living outside the facility or enjoy a maximum
level of independence and mobility within the facility. The Companies
believe this emphasis has an appeal to a much larger private payor market
than exists for a strictly long-term care oriented nursing home.
Approximately 73% of the patients in the facilities are private paying,
though all the facilities participate in both the Medicare and Medicaid
programs. The majority of the patients have sufficient funds and desire at
the outset to try rehabilitative therapy, which is covered by Medicare and
private insurance. The Medicare program and various forms of private payment
are the principal payors for short-term nursing home care and rehabilitative
services. Because of the high percentage of patients in the facilities that
are private paying, the average daily rate of the facilities is higher than
it would be if the facilities had a greater participation in the Medicaid
program. All of the facilities currently participate in one or more managed
care programs. The Companies are negotiating with additional third parties
and expect to enter into additional managed care contracts in the future.
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Operations
Each skilled nursing facility is managed by an affiliated company, HSM
Management Services, Inc., an Illinois corporation ("HSM Management"),
pursuant to management agreements with each Guarantor. HSM Management
provides a state-licensed nursing home administrator for each skilled nursing
facility. HSM Management employs a director of operations and five area
directors who supervise operations at the six facilities owned by the
Companies, as well as others. In addition, nursing staff at each skilled
nursing facility is under the supervision of a state-licensed director of
nursing who is an employee of the facility. The nursing staffs consist of
registered nurses and licensed practical nurses, as well as nurses aides.
The facilities also contract with others to provide medical and dietary
consulting services, personal grooming services and recreational activities.
The management agreements entered into with Hovan Enterprises, Inc.
("Hovan"), the predecessor of HSM Management, Inc. by each Guarantor on
October 21, 1993, the bond issue date, continue in full force and effect
after the merger of Hovan into HSM Management. All of the provisions of the
management agreements apply to HSM Management in the same way they previously
applied to Hovan.
Revenue By Payor
The following table indicates the percentage of patient service revenue
of the Companies by type of payor for the periods indicated.
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
1996 1997 1998
---- ---- ----
(Dollars in Thousands)
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Private $17,079 62.0% $17,808 60.0% $19,257 62.0%
Medicare 9,293 33.0 10,142 35.0 10,438 33.0
Medicaid 1,319 5.0 1,494 5.0 1,508 5.0
------- ----- ------- ----- ------- -----
Total $27,691 100.0% $29,444 100.0% $31,203 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
Occupancy By Location As A Percentage of Available Beds
Each facility has the capacity of 120 beds, except for the Alton
facility, which has a 180 bed capacity. Most of the rooms are designed to be
semi-private, with two beds per room. Some semi-private rooms are made
available as private at a higher daily rate, thereby resulting in a lower number
of available beds at a facility. The Companies focus on obtaining the highest
average daily rate which may produce higher revenues even at lower occupancies,
whereas if the facilities were principally Medicaid providers, maximum revenues
could only be achieved with maximum occupancies. The East Peoria facility is
the only facility with an average occupancy significantly below levels achieved
by the majority of the Companies' facilities. The East Peoria facility
continues to have a low occupancy and management is of the opinion that this
trend will continue into the next fiscal year.
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The following table indicates occupancy at each facility as a percentage
of available beds for the periods indicated.
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Swansea 96.6% 97.9% 99.5% 96.4% 98.4%
Galesburg 95.7 91.4 82.2 86.3 81.1
Alton 97.1 95.7 97.6 98.1 86.0
Peoria 91.6 89.7 86.4 88.9 89.4
East Peoria 88.6 83.7 74.5 73.8 62.1
Moline 94.5 94.8 89.2 91.7 93.0
---- ---- ---- ---- ----
Combined 93.8% 92.2% 87.7% 89.2% 84.9%
Average ==== ==== ==== ==== ====
</TABLE>
On January 22, 1998 the facility located in Alton, Illinois opened its
sixty bed addition, which results in the facility now being licensed for 180
beds. The drop in occupancy at Alton is due to this additional bed capacity
becoming available this year. The financial statements and other disclosures
for the fiscal year ended June 30, 1998 also reflect this additional
capacity.
Marketing
The Companies attempt to increase admissions through marketing
programs. The Companies' marketing programs are executed under the direction of
a full time marketing staff member employed by HSM Management. Marketing is
done through direct mail, community programs and television. Although the
Companies provide long-term nursing home care, their marketing strategy
emphasizes short-term nursing home care for rehabilitative purposes. The
Companies believe this emphasis has an appeal to a much larger private payor
market than exists for strictly long-term care oriented nursing homes.
Governmental Regulation and Reimbursement
The Companies' nursing facilities are required to comply with various
federal and state health care regulations and statutes. Compliance with the
state licensing regulations is a prerequisite for the operation of the
facilities and for participation in government sponsored health care programs
such as Medicaid and Medicare.
All six facilities participate in the federally administered Medicare
and Medicaid programs. Medicare is a health insurance program for the aged
and certain other disabled individuals, operated by the federal government
and administered by an insurance intermediary. As a result of the Companies'
emphasis on short-term rehabilitative nursing care, which is covered by
Medicare, the percentage of patient service revenue attributable to Medicare
continues to be a significant sector of the Companies' total revenue.
Medicaid is a medical assistance program for the indigent, operated by
the State of Illinois with financial aid provided by the federal government.
Prior to January 1991, four of the six facilities participated in the state
administered Medicaid program. In 1991, the Companies began to voluntarily
withdraw the facilities from the Medicaid program. However, in May 1993, as
a result of a change in state policy, all six Guarantors requested and
received certification in the Medicaid program for a distinct part of each
facility for a limited number of
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beds. This certification permits the Companies to participate in the Medicaid
program while limiting the Medicaid census at their respective facilities. The
Galesburg and East Peoria facilities are certified for twenty beds each and the
four remaining facilities for ten beds each.
Health care reform continues to be a high priority concern at both the
Federal and State government levels. In August 1997, the Balanced Budget Act
of 1997 was signed into law. Included in the law are program changes
directed at balancing the federal budget. The legislation changes Medicare
and Medicaid policy in a number of ways as follows:
a) Development of new Medicare and Medicaid health plan options;
b) Creation of additional safeguards designed to prevent fraud and
abuse;
c) A 10% reduction in Part B therapy costs for the period January 1,
1998 through July 1, 1998. As of July 1, 1998, reimbursement for services is
based on fee schedules established by the United States Department of Health
and Human Services Health Care Financing Administration ("HCFA");
d) Phase-in of a Medicare Prospective Payment System ("PPS") for
skilled nursing facilities effective July 1, 1998; and
e) Limitations in Part B therapy charges per beneficiary per year.
The new legislation will force skilled nursing facilities to contain
costs as well as place further focus on patient outcomes. At this time, the
Companies have not been able to assess the full impact of the changes due to
the uncertainty of the interpretation of the legislation by HCFA and,
therefore, no assurances can be made as to the impact of this legislation or
any future health care legislation on the Companies' financial position,
results of operations or cash flows. However, future and current federal
legislative changes may have a negative impact on the operations of the
Companies.
PPS was effective for all of the Companies on July 1, 1998. This will
change the manner in which the facilities are paid for inpatient services
provided to Medicare beneficiaries.
PPS will have a three year phase-in period. For the fiscal year ending
June 30, 1999, the Medicare reimbursement rate will be based 75% on the June
30, 1995 facility-specific Medicare costs, as adjusted for inflation, and 25%
will be federally determined based on the acuity level of the Medicare
patients. For the fiscal year ending June 30, 2000, the rate will be based
50% on the 1995 facility-specific costs and 50% on the federally determined
acuity rate. For the fiscal year ending June 30, 2001, the Medicare
reimbursement will be based 25% on the 1995 facility-specific costs and 75%
on the federally determined acuity rate. For the fiscal year ending June 30,
2002, the Medicare reimbursement rate will be based entirely on the federally
determined rate based on the acuity level of the patients.
The Companies are analyzing their 1995 facility rates and the acuity
level of the Medicare patients in the facilities. Based on this analysis,
the Companies hope to implement changes to lower the cost of providing
services to their Medicare residents. Should the Companies be unable to
execute the changes to reduce costs, PPS could have a material negative
effect on the Companies'
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financial position and results of operations.
PPS imposes documentation requirements to reflect the acuity level of
the Medicare residents. This will impact billing and payment rates to the
Companies. The Companies have implemented enhanced information systems. The
Companies' personnel and are being trained on PPS to maintain compliance with
Federal and State regulations.
Under reimbursement regulations effective through June 30, 1998, funds
received under Medicare programs are subject to audit by the third party
payor responsible for administering the facility account. This results
either in amounts due to or from the facilities based on the actual costs of
participating in the Medicare program during the year. Past audits of the
Companies' reimbursements through the fiscal year ending June 30, 1996, have
not resulted in any material adjustments for any of the Companies that were
not otherwise indemnified for by private vendors to the Companies.
Medicare reimbursement of routine operating costs is subject to a cap
that is related to costs of similar providers. In cases where this cap is
exceeded, the facility may obtain an exception if it can show that the excess
costs are caused by "atypical services." Five of the facilities exceeded the
cap by the aggregate amount of $240,000 in 1998. The Companies are in the
process of compiling the information necessary to apply for the exception for
the facilities which qualify for 1998.
In addition to the requirements for participation in the Medicare and
Medicaid programs, the Companies' health care facilities are subject to
annual licensing and other regulatory requirements of state authorities. In
order to maintain the operators' licenses, the nursing facilities are
inspected and must meet certain statutory and administrative requirements.
These inspections are called surveys. The survey requirements relate to the
physical condition of the building and equipment used in patient care, the
quality and adequacy of personnel and the quality of medical care. In prior
years, the Illinois Department of Public Health ("IDPH") sent each facility
the results of its annual survey, citing deficiencies. The facility then
conducted its own investigation and reported back to the IDPH with its plan
of correction. IDPH only issued its letter that the facility was not in
substantial compliance with applicable law and regulations if the facility
did not promptly and appropriately respond and correct the deficiencies
listed in IDPH's initial report to the facility of its survey results. In
all cases, the state accepted the Companies' plans of correction, resulting
in satisfaction of the state and federal licensure requirements. The Health
Care Financing Administration of the Department of Health and Human Services
("HCFA") adopted new survey, certification and enforcement procedures by
regulations effective July 1, 1995, to implement various Medicare and
Medicaid provisions of the Omnibus Budget Reconciliation Act of 1987
("OBRA"). In 1997, IDPH, in administering compliance with HCFA regulations,
began a new procedure. The initial letter sent to each facility reporting the
survey results states that the facility has been found not to be in
substantial compliance due to the enumerated deficiencies. However, in the
ordinary course, the letter further states that if the facility promptly and
appropriately responds and corrects the deficiencies, IDPH is recommending
that the facility be certified for continued participation in the Medicare
and Medicaid programs. Although the Companies believe that, as a practical
matter, IDPH will continue to administer its survey and correction procedures
in substantially the same manner as in the past, there can be no assurance of
what position HCFA and the IDPH will adopt in the future in regard to these
survey letters citing routine deficiencies. There also can be no
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assurance that the Companies will not be required to expend significant sums in
order to maintain their licenses in the future.
While federal regulations do not provide states with the grounds to
curtail funding of their Medicaid cost reimbursement programs due to state
budget deficiencies, the states have reduced funding in the past. No
assurance can be given that the state will not do so in the future or that
the future funding of Medicaid programs will remain comparable to the present
level.
As a result of the national pressure on health care costs, the Medicare
program continues to face significant cutbacks and intense scrutiny. Due to
this atmosphere, the Companies have continued to experience closer scrutiny
and delays with regard to payment of claims under the Medicare program. The
Companies do not expect this environment to improve in the near future and
believe they will experience future problems relating to reimbursement, some
of which could have a significant effect on operations.
The Companies are carefully monitoring these developments and attempting
to structure contractual arrangements which they believe will minimize the
impact of reductions in government reimbursement. However, no assurance can
be made that the funding of Medicare and Medicaid will remain at their
current levels. Additional changes in the reimbursement policies of Medicare
and Medicaid as a result of budget cuts by federal and state governments or
other legislative actions could adversely affect the revenues of the
Companies.
Competition
The long-term care industry is highly competitive. The Companies
compete with other providers on the basis of the breadth and quality of
services they offer, the quality of their facilities and price. The
Companies also compete in the recruitment of qualified health care personnel
and the acquisition and development of additional facilities. The Companies'
current and potential competitors include national, regional and local
long-term care providers as well as hospital-based extended care providers
and rehabilitation hospitals, many of which have significantly greater
financial and other resources than the Companies. MPPS will require long
term care providers to increase management efficiencies and lower costs in
order to remain profitable. Hospitals may not be able to reduce costs
sufficiently to continue in the long term skilled nursing care business,
which may provide opportunities for others.
In addition, certain competitors are operated by not-for-profit
organizations and similar businesses which can finance capital expenditures
on a tax-exempt basis or receive charitable contributions unavailable to the
Companies. Managed care contracts will also have an impact on competition,
as services formerly provided at hospitals are shifted to nursing homes and
as the managed care model becomes more common in the nursing home industry.
Alternative facilities, such as assisted living facilities, also compete
with the Companies' facilities for the lower acuity residents. Unlike for
skilled nursing facilities, it is not always necessary to obtain a certificate
of need in order to build these facilities. In addition, assisted living
facilities are not always subject to the licensing requirements or the same
level of inspection and other regulatory compliance as those for skilled nursing
facilities.
The degree of success with which the Companies compete varies from
location to location and depends on a number of factors, including the number
of competing
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facilities in the local market, types of services, quality of care, reputation,
age and appearance of each facility and the cost of care in each location. In
light of these factors, the Companies seek to meet competition in each location
by establishing a reputation in the local community for high quality nursing
services and attractive facilities, and by responding to the specialized health
needs of their patients and referral sources.
The need for skilled nursing facilities is expected to increase in the
future as the demand for rehabilitative and long-term care increases.
Construction of new skilled nursing facilities near the Companies' facilities
could adversely affect the Companies' business. However, state regulations
generally require a certificate of need before a new skilled nursing facility
can be constructed or additional beds can be added to existing facilities.
The Companies believe that these regulations reduce the possibility of
overbuilding and promote higher utilization of existing facilities.
At the time the certificate of need was granted for each of the
Companies' skilled nursing facilities, the addition of such facilities
resulted in an excess number of beds for purposes of future certificate of
need analysis. Under current certificate of need regulations, existing
facilities are given a preference in the opportunity to meet any additional
need by expansion before a certificate of need is issued for construction of
a new facility. There continues to be pressure to repeal existing
certificate of need laws and there can be no assurance that the certificate
of need procedure will not be eliminated or changed in the future. Although
the terms of the loan documents prohibit the Borrowing Companies from
undertaking new construction, the Guarantors are not prohibited from
operating additional facilities, including expansion facilities. All of the
facilities are adjacent to excess acreage owned by affiliated companies and
related companies are allowed to construct expansions to current facilities
under certain conditions. Affiliated companies opened the expansion wing at
the Alton facility and progressed on construction of the expansion at the
Galesburg facility during the 1998 fiscal year.
Leases
Each of the facilities is leased by a Guarantor from the Borrowing
Company which owns the facility. Lease payments consist of a base rent which
is adjustable based on the amount needed by the Borrowing Company to service
mortgage indebtedness on the facility and additional rent based on the
economic performance of the facilities. Each lease has an initial term of
four years and may be extended for up to five additional fouryear periods.
Under each lease, the Borrowing Company is required to furnish the building
and all equipment and furnishings and any replacements necessary for the
operation of the facility. The Guarantor is responsible for paying all other
expenses associated with operating the facility. The lease payments represent
substantially all of the income earned by the Borrowing Companies.
Insurance
The Companies carry property insurance, general liability insurance and
other insurance which they believe adequate to cover the facilities and their
businesses.
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Employees
The REMIC and the Borrowing Companies have no employees. The Guarantors
employed 536 persons at June 30, 1998. None of the employees of the Companies
are covered by collective bargaining agreements. The Companies believe that
their relations with their employees are good and they have never experienced a
major labor dispute.
During October 1997 the Companies implemented a 401(K) Plan for
eligible employees. Employees may elect to defer a portion of their salary to
the Plan. Contributions to the Plan on behalf of the employees is at the
discretion of the Companies' Boards of Directors. The Companies have made no
contributions to the Plan on behalf of any employees.
The Companies have experienced increases in labor costs due to higher
wages and greater benefits required to attract and retain qualified
personnel. The most recent increase in the minimum wage was effective
September 1, 1997. This increase had little effect on the Companies' wage
rates however, and the Companies do not anticipate a material impact, since
all of the Companies' employees earn wages in excess of the minimum wage
rates set by the federal government. The Companies believe such increases in
the minimum wage could create competitive pressure to increase wage levels in
the future. The ability of the Companies to control the cost of labor, which
represents one of the largest components of the Companies' operating
expenses, will significantly impact the future operating results.
The Companies are occasionally experiencing shortages in qualified
personnel to staff the facilities, and they competes for personnel with other
health care providers and service industries, which could adversely affect
the availability of qualified personnel in the future.
ITEM 2. PROPERTIES.
The Facilities
Each of the facilities, excluding the 60 bed expansions at Alton and
Galesburg, is a one story, 120 bed skilled nursing care facility consisting
of approximately 38,000 to 40,000 square feet and situated on 4 to 7 acres.
Each facility has been built within the last eleven years, with poured
concrete foundation and brick veneer exterior walls. The facilities were
built by the Companies for use as skilled nursing facilities with modern
design and high quality systems. Accordingly, the Companies believe the
properties are well suited to present and future needs. The six facilities
are encumbered by the first mortgages given to the REMIC.
The expansion wings at Alton and Galesburg are of similar construction
to the main 120 bed facilities at each location. The Alton expansion was
completed and licensed in January 1998. The Galesburg expansion is nearing
completion but is not yet licensed and open for patients.
Rosewood Care Center of Swansea
Rosewood Care Center of Swansea is owned by Swansea Real Estate, Inc.
and is operated by Rosewood Care Center, Inc. of Swansea. The Swansea
Facility opened October 8, 1987 and is located at 100 Rosewood Village Drive,
Swansea, Illinois 62221 on the west side of Highway 159, just north of
Fullerton Road in Swansea, Illinois.
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Rosewood Care Center of Galesburg
Rosewood Care Center of Galesburg is owned by Galesburg Real Estate,
Inc. and is operated by Rosewood Care Center, Inc. of Galesburg. The
Galesburg Facility opened December 9, 1987 and is located at 1250 West Carl
Sandburg Dr., Galesburg, Illinois 61401 on the southeast corner of Sandburg
Mall Access Road and West Carl Sandburg Drive.
Rosewood Care Center of Alton
Rosewood Care Center of Alton is owned by Alton Real Estate, Inc. and
is operated by Rosewood Care Center, Inc. of Alton. The Alton facility opened
May 15, 1989 and is located at 3490 Humbert Road, Alton, Illinois 62002 on
the north side of Pebble Creek Lane at Humbert Road, Alton, Illinois.
On January 22, 1998, the 60-bed expansion wing opened at Alton.
Although the expansion wing is owned by a separate company, Alton Real Estate
II, L.L.C., as required by the Loan Agreement, the 60-bed addition is leased
and operated by Rosewood Care Center, Inc. of Alton, and managed by HSM
Management Services, Inc., the same companies which lease, operate and manage
the main Alton facility.
Rosewood Care Center of Peoria
Rosewood Care Center of Peoria is owned by Peoria Real Estate, Inc. and
is operated by Rosewood Care Center, Inc. of Peoria. The Peoria facility
opened June 12, 1989 and is located at 1500 West Northmoor Road, Peoria,
Illinois 61614 at the junction of Northmoor Road and University Avenue in
Northwest Peoria.
Rosewood Care Center of East Peoria
Rosewood Care Center of East Peoria is owned by East Peoria Real Estate,
Inc. and is operated by Rosewood Care Center, Inc. of East Peoria. The East
Peoria facility opened April 18, 1989 and is located at 900 Centennial Drive,
East Peoria, Illinois 61611 on the south side of Centennial Drive and Oakwood,
East Peoria, Illinois. The East Peoria facility is approximately five miles
from the Peoria facility.
Rosewood Care Center of Moline
Rosewood Care Center of Moline is owned by Moline Real Estate, Inc. and
is operated by Rosewood Care Center, Inc. of Moline. The Moline facility opened
May 6, 1990 and is located at 7300 - 34th Avenue, Moline, Illinois 61265 on 34th
Avenue two blocks east of Black Hawk College in Moline, Illinois.
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ITEM 3. LEGAL PROCEEDINGS.
There are various lawsuits and regulatory actions pending against the
Companies arising in the normal course of business, some of which seek
punitive damages or other damages generally not covered by insurance. The
Companies do not believe that the ultimate resolution of these matters will
have a material adverse effect on the Companies' combined financial position
or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
Not applicable.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Not applicable.
ITEM 6. SELECTED FINANCIAL DATA.
The following table of selected combined financial data should be read
in conjunction with the Combined Financial Statements and related Notes thereto
included elsewhere in this annual report on form 10-K.
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Patient Service Revenue:
Private $16,307 $16,827 $17,079 $17,808 $19,257
Medicare 6,632 7,443 9,293 10,142 10,438
Medicaid 1,489 1,495 1,319 1,494 1,508
Other Patient Revenues, Net of
Expenses 76 74 62 76 295
------- ------- ------- ------- -------
Total 24,504 25,839 27,753 29,520 31,498
------- ------- ------- ------- -------
Facility Expenses 14,278 16,050 18,009 19,976 21,911
------- ------- ------- ------- -------
Income After Facility Expenses 10,226 9,789 9,744 9,544 9,587
------- ------- ------- ------- -------
Nonfacility Expenses 2,867 2,772 2,829 2,815 2,874
------- ------- ------- ------- -------
Income Before Incentives 7,359 7,017 6,915 6,729 6,713
Incentive Management Fees and
Officers' Bonuses (2,573) (2,221) (2,167) (2,040) (1,988)
------- ------- ------- ------- -------
Income From Operations 4,786 4,796 4,748 4,689 4,725
------- ------- ------- ------- -------
Other Income (expenses) (1,576) (1,447) (1,367) (1,372) (1,269)
------- ------- ------- ------- -------
Income Before Taxes 3,210 3,349 3,381 3,317 3,456
Income Tax (expense) Benefit (346) (336) (306) (270) (265)
------- ------- ------- ------- -------
Net Income $ 2,864 $ 3,013 $ 3,075 $ 3,047 $ 3,191
======= ======= ======= ======= =======
Other Data:
Net income available for debt
service<F1> $ 9,075 $ 8,905 $ 8,788 $ 8,479 $ 8,405
Debt service coverage ratio<F2> 2.90x 2.85x 2.81x 2.71x 2.69x
Dividends Declared $ 2,542 $ 2,819 $ 2,819 $ 2,947 $ 3,160
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Current Assets $ 5,916 $ 5,913 $ 6,960 $ 7,281 $ 7,689
Total Assets 36,478 35,584 34,457 32,847 32,421
Current Liabilities 4,147 4,726 5,136 5,353 6,966
Long-Term Debt 30,947 29,280 27,487 25,560 23,490
Stockholders Equity (Deficit) 1,384 1,578 1,834 1,934 1,965
<FN>
- ---------------------
<F1> "Net Income Available for Debt Service" is defined in the loan agreement
among the REMIC and the Companies dated as of October 1, 1993. It is calculated
for a 12 month period by taking the income from operations and adding non-cash
expenditures (depreciation and amortization) and expenses subordinated to annual
debt service (management fees, officers' bonuses) and interest income.
<F2> Calculated by dividing the Net Income Available for Debt Service by the
annual debt service on the 7 1/4% First Mortgage Redeemable Bonds due November
1, 2013.
</TABLE>
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<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Overview
The Companies' operating strategy focuses on the average daily rate as
well as on occupancy levels in order to maximize revenues from the
facilities. The Companies principally market their services to private
paying patients. Revenues from this market continued to grow in 1998.
However, the underperformance of the facility in East Peoria, where occupancy
has decreased appreciably due to administrative turnover and operational
difficulties, will continue into the next fiscal year.
The Companies have continued their marketing emphasis on shortterm
convalescent care while continuing to provide long-term care. The number of
short-term care patients and demand for ancillary rehabilitative and therapy
services continues to increase. Revenues and expenses associated with
rehabilitative and therapy have continued to increase through June 30, 1998.
Continuance of this trend into the future cannot be readily determined
because of the unknown impact of PPS, as previously discussed.
The Medicare program and various forms of private payment are principal
payors for shortterm nursing home care and rehabilitative services. All six
of the facilities participate in the federally administered Medicare program.
In May 1993, as a result of a change in state policy allowing limited
participation in Medicaid, the Companies requested and received certification
in the Medicaid program for a distinct number of beds in each facility. The
Companies believe this is the most economically desirable participation in
the Medicaid program for them. Private patient revenues continue to represent
the major share of all patient service revenues. All of the Companies
currently participate in one or more managed care programs. The Companies are
negotiating with third parties and expect to enter into additional managed
care contracts in the future. However, no managed care contracts which the
Companies currently have or anticipate entering into in the near future are
expected to have a material effect on overall financial performance.
Operating Results
Year Ended June 30, 1998 Compared to Year Ended June 30, 1997
Net Revenues. Net revenues increased to $31,498,000 for the year ended
June 30, 1998, from $29,520,000 for the same period in 1997, an increase of
$1,978,000 or 6.7%. Private pay revenue increased $1,449,000 from
$17,808,000 for the year ended June 30, 1997 to $19,257,000 for the year
ended June 30, 1998. Revenue generated from ancillary services for private
paying patients increased $1,439,000 while revenue from room charges
increased $539,000 when compared to the same period last year. Private
census has decreased from 163,148 patient days for 1997 to 159,762 patient
days for the current year ended June 30, 1998. The average room rate for the
year ended June 30, 1998 has increased to $114 per day compared to $108 per
day for the year ended June 30, 1997.
The majority of the increase in ancillary revenue can be accounted for
by the change in the method of billing and collecting for drugs sold to
private paying residents. Prior to July 1, 1997, drugs supplied to private
paying residents were billed by an unrelated third party pharmacy company
directly to the private paying residents and not reflected as revenues or
expenses of the Companies. Effective July 1, 1997, the Companies began
directly billing residents
15
<PAGE> 16
for drugs. The drugs, which continue to be supplied to the private paying
residents by the unrelated pharmacy company, are billed to the residents by the
Companies at the same cost as previously charged to the residents by the
unrelated pharmacy company in prior periods. As compensation for performing the
billing and collecting for the drugs, the Companies retain a portion of the drug
Companies retain a portion of the drug billings. For the year ended June 30,
1998, this aggregated $214,000, which is reflected in other Patient Revenues
for the current period.
Medicare revenue increased from $10,142,000 for the year ended June 30,
1997 to $10,438,000 for the year ended June 30, 1998, an increase of $296,000
or 2.9%. The Medicare census has decreased from 38,744 patient days for the
year ended June 30, 1997 to 36,557 patient days for the year ended June 30,
1998. The increase in revenue is the direct result of an increase in the
Companies' Medicare reimbursement rate resulting from the increase in
ancillary services provided to residents.
Medicaid revenue has increased from $1,494,000 for the year ended June
30, 1997 to $1,508,000 for the year ended June 30, 1998. The Medicaid census
has decreased from 22,654 patient days for the fiscal year ended June 30,
1997, to 22,164 patient days for the fiscal year ended June 30, 1998. The
increase in revenue is the result of a slight increase in the Medicaid
reimbursement rate from $66.98 per patient day for the fiscal year ended June
30, 1997 to $68.00 per patient day for the fiscal year ended June 30, 1998.
The occupancy of the facilities has declined, with an occupancy rate of
85% of available beds for the current year compared to an occupancy rate of
89.2% of available beds for the year ended June 30, 1997. As previously
discussed, the East Peoria facility is the only location with a low occupancy
when compared to the other five locations. This situation will continue into
the next fiscal year. Also as previously discussed, the Alton facility
opened a 60 bed addition on January 22, 1998. The Alton facility has
historically had an overall occupancy of 96% to 98%, which decreased to 86%
during the current fiscal year as a result of the 60 bed addition. It is the
Companies' experience that it may take from eighteen months to two years to
again achieve a 95% or better occupancy rate at the expanded Alton location.
Facility Operating Expense. Facility operating expenses increased to
$21,911,000 for the year ended June 30, 1998, (or $100.28 per patient day)
from $19,976,000 (or $88.96 per patient day) for the fiscal year ended June
30, 1997, an increase of $1,935,000 (or $11.32 per patient day).
Administrative expenses increased $79,000 or 1.8%, from $1,004,000 for
the year ended June 30, 1997 to $1,083,000 for the year ended June 30, 1998,
primarily, as a result of the increase in advertising for new employees
during the current fiscal year. The cost per patient day aggregates $4.96
per patient day for the current fiscal year ended June 30, 1998 compared to
$4.47 per patient day for the fiscal year ended June 30, 1997.
Employee fringe benefits decreased $254,000 when compared to the same
period last year. The cost per patient day decreased from $10.02 for 1997 to
$9.14 for the current fiscal year ended June 30, 1998. The majority of the
decrease can be accounted for by the decrease in health insurance and the
cost of workers' compensation insurance for the year. The cost of health
insurance decreased as a result of a decrease in the number of employees
covered under the Companies' health insurance programs and a decrease in the
annual premium cost paid by the Companies. The Companies are members of an
association of nursing home operators within the State of Illinois which
provides workers' compensation insurance coverage to its members at a
substantial savings from that offered by
16
<PAGE> 17
the commercial insurance market. The premiums are based on actuarially
determined rates established for the association applied to the actual payroll
of the Companies. If during any covered year the claims exceed the estimated
premiums, the Companies are required to reimburse the association for those
expenditures. The Companies have participated in the self insured program since
1991. During the current year, claims exceeded the premiums by $90,000 compared
to $287,000 for the fiscal year ended June 30, 1997.
Dietary expenses increased $118,000 or 6.2% compared to the same period
last year. The increase is due to an increase in wages of $88,000 and an
increase in unprepared food cost of $30,000. The cost per patient day
aggregated $9.22 per patient day for the year ended June 30, 1998, compared
to $8.45 per patient day for the year ended June 30, 1997.
Nursing service increased $680,000 or 9.6% when compared to the same
period last year. Nursing payroll has increased $446,000 from $6,276,000 for
the prior fiscal year to $6,722,000 for the year ended June 30, 1998. Other
nursing expenses increased approximately $234,000 when compared to the same
period last year, which was primarily the result of an increase in the cost
of medical supplies. Even though the patient census has declined, labor
hours have remained constant when compared to the same period last year.
Labor costs continue to increase due to increased pressure on the
availability of qualified personnel. Management is of the opinion that this
trend will continue as long as unemployment remains at record low levels.
The Companies will attempt to adjust daily rates to account for the increase
in the cost of labor, while at the same time remaining competitive in the
nursing home industry.
Ancillary services (which is comprised of physical therapy, occupational
therapy, speech therapy, drugs and medical supplies), increased $1,103,000
from $4,978,000 for the year ended June 30, 1997 to $6,081,000 for the year
ended June 30, 1998. The increase in costs is the direct result of the
increase in ancillary services provided to the Medicare and private paying
residents of the facility. The cost of drugs has increased approximately
$805,000 when compared to the same period last year. This increase was the
result of the change in billings for drugs to private residents previously
discussed. The remainder of the increase, or $298,000 is the result of the
increase in the cost of speech, physical and occupational therapy provided to
both private paying and Medicare residents because of the increased
utilization of these services.
In the fiscal quarter ending March 31, 1998, the last two facilities
which had contracts with unrelated third party therapy providers terminated
those contracts. Therapy services for speech, occupational and physical
therapy are now provided at all of the facilities by a related company,
Rosewood Therapy Services, Inc., and are billed to the Companies at cost,
which has resulted in substantial savings to the Companies over contracting
with unrelated third party therapy providers, aggregating $821,000 over the
fiscal year ended June 30, 1997. Even though the Companies were able to
realize substantial savings by contracting with the related Company, the
overall cost of therapy has increased as a result of the increase in
ancillary services utilization by the private paying and Medicare residents
of the facilities.
Plant utilities and maintenance increased from $1,186,000 for the year
ended June 30, 1997 to $1,207,000 for the year ended June 30, 1998, an
increase of only $21,000. The majority of the increase can be accounted for
by the increase in utility costs.
Housekeeping and laundry expenses increased from $924,000 for the year
ended June 30, 1997 to $1,017,000 for the year ended June 30, 1998, an
increase of
17
<PAGE> 18
$93,000 or 10.1%. The cost of payroll has increased $101,000, while the cost of
supplies has decreased $8,000 when compared to the same period last year.
Social service and activities has increased from $646,000 for the year
ended June 30, 1997 to $741,000 for the year ended June 30, 1998. The
increase is the result of staffing increases in the Social Service department
at all of the facilities.
Nonfacility Expense. Real estate taxes decreased $59,000 when
compared to the same period last year. The reduction is the result of a
decrease in the real estate assessment at three of the six facilities.
Depreciation and amortization has decreased from the same period last
year, as a result of equipment at two of the facilities having reached the
end of its 10-year depreciation period.
Rent. Rent expense aggregated $104,000 for the current fiscal year
compared to $-0- for the year ended June 30, 1997. The rent expense is
being paid to an affiliated Company for the new 60 bed addition to the Alton
facility which became operational on January 22, 1998.
Incentive Fees. Incentive management fees decreased $48,000 when
compared to the same period last year as a result of the decrease in the
income before incentives of the nursing facilities.
Officers' Bonuses. Officers' bonuses were awarded by the sole Director
of the Companies in the amount of $188,000 for the current fiscal year, compared
to $192,000 for the prior year ended June 30, 1997.
Other Income and Expense. Interest income decreased $30,000 when
compared to the same period last year as a result of the decrease in the
notes receivable outstanding during the year with the affiliated company
Rosewood Care Center Holding Co. from $7,034,000 for the year ended June 30,
1997 to $6,910,000 for the year ended June 30, 1998.
Interest expense decreased $133,000 compared to the same period last
year which is the result of the decrease in long term debt of the facilities
from $27,581,000 as of June 30, 1997 to $25,561,000 on June 30, 1998.
Income Taxes. The facility companies file a consolidated income tax
return with their parent company, Rosewood Care Center Holding Co. The
income of the real estate companies is taxed at the individual shareholder
level, as each real estate company is an S corporation. The amount reflected
as income taxes is the facility companies' portion of federal and state taxes
calculated for the years ended June 30, 1998 and 1997.
Year Ended June 30, 1997 Compared to Year Ended June 30, 1996
Net Revenues. Net revenues increased to $29,520,000 for the year ended
June 30, 1997, from $27,753,000 for the same period in 1996, an increase of
$1,767,000 or 6.4%. Private pay revenue increased $729,000 from $17,079,000
for the year ended June 30, 1996 to $17,808,000 for the year ended June 30,
1997. Revenue generated from ancillary services for private paying patients
decreased $161,000 while revenue from room charges increased $890,000 when
compared to the same period last year. Private census has increased from
162,387 patient days for 1996 to 163,148 patient days for the current year
ended June 30, 1997. The average room rate for the year ended June 30, 1997
has increased to $108 per day compared to $102 per day for the year ended
June 30, 1996.
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<PAGE> 19
Medicare revenue increased from $9,293,000 for the year ended June 30,
1996 to $10,142,000 for the year ended June 30, 1997, an increase of $849,000
or 9.1%. The Medicare census has decreased from 39,509 patient days for the
year ended June 30, 1996 to 38,744 patient days for the year ended June 30,
1997. The increase in revenue is the direct result of an increase in the
Companies' Medicare reimbursement rate resulting from the increase in
ancillary services provided to residents.
Medicaid revenue has increased from $1,319,000 for the year ended June
30, 1996 to $1,494,000 for the year ended June 30, 1997. The increase is the
result of an increase in patient census from 20,772 patient days for the year
ended June 30, 1996 compared to 22,654 patient days for the year ended June
30, 1997. The facilities have received a minor increase of approximately $2
per day in the reimbursement rate paid to the facilities for residents
covered by the Medicaid program.
The occupancy of the facilities remains strong, with an occupancy rate
of 89.2% of available beds for the current year compared to an occupancy rate
of 87.7% of available beds for the year ended June 30, 1996.
Facility Operating Expense. Facility operating expenses increased to
$19,976,000 for the year ended June 30, 1997, (or $88.96 per patient day)
from $18,009,000 (or $80.88 per patient day) for the fiscal year ended June
30, 1996, an increase of $1,967,000 (or $8.08 per patient day).
Administrative expenses increased $153,000 or 18.0%, from $851,000 for
the year ended June 30, 1996 to $1,004,000 for the year ended June 30, 1997.
After adjusting for inflation, the majority of the increase can be accounted
for by the increase in marketing and advertising, employment ads,
professional fees, and telephone. The cost per patient day aggregates $4.47
per patient day for the current fiscal year ended June 30, 1997 compared to
$3.82 per patient day for the fiscal year ended June 30, 1996.
Employee fringe benefits increased $477,000 when compared to the same
period last year. The cost per patient day increased from $7.97 for 1996 to
$10.02 for the current fiscal year ended June 30, 1997. The majority of the
increase can be accounted for by the increase in payroll taxes, health
insurance and the cost of workers' compensation insurance for the year.
Payroll taxes increased as a result of the increase in staffing during the
current fiscal year, along with an increase in the state unemployment tax
rates. Full time employee equivalents aggregated 524 and 497 for 1997 and
1996 respectively. The cost of health insurance increased as a result of an
increase in the number of employees covered under the Companies' health
insurance programs and an increase in the annual premium cost paid by the
Companies. The Companies are members of an association of nursing home
operators within the State of Illinois which provides workers' compensation
insurance coverage to its members at a substantial savings from that offered
by the commercial insurance market. The premiums are based on actuarially
determined rates established for the association applied to the actual
payroll of the Companies. If during any covered year the claims exceed the
estimated premiums, the Companies are required to reimburse the association
for those expenditures. The Companies have participated in the program since
1991 and, prior to the current year, have not had the claims exceed the
premiums paid to the association, which has resulted in major savings to the
Companies in prior years. During the current year, the claims exceeded the
premiums paid and the Companies were required to pay an additional premium
aggregating $287,000 to cover the cost of the claims filed by employees for
work related injuries. Management
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<PAGE> 20
does not anticipate the claims exceeding the claim fund in the next fiscal year
but cannot guarantee that additional payments will not be required in the
future.
Dietary expenses increased $113,000 or 6.3% compared to the same period
last year. The increase is due to an increase in wages of $53,000 and an
increase in unprepared food cost of $60,000. The cost per patient day
aggregated $8.45 per patient day for the year ended June 30, 1997, compared
to $8.08 per patient day for the year ended June 30, 1996.
Nursing service increased $572,000 or 8.8% when compared to the same
period last year. Nursing payroll has increased $473,000 from $5,803,000 for
the prior fiscal year to $6,276,000 for the year ended June 30, 1997. Other
nursing expenses increased approximately $99,000 when compared to the same
period last year which was primarily the result of an increase in the cost of
medical supplies.
Ancillary services (which is comprised of physical therapy, occupational
therapy, speech therapy, drugs and medical supplies), increased $418,000 from
$4,560,000 for the year ended June 30, 1996 to $4,978,000 for the year ended
June 30, 1997. The increases in cost are the result of the continued
increase in therapy utilization by the residents of the facility, which
services are primarily covered by Medicare.
Plant utilities and maintenance increased from $1,121,000 for the year
ended June 30, 1996 to $1,186,000 for the year ended June 30, 1997, an
increase of $65,000 or 5.80%. The majority of the increase can be accounted
for by the increase in repairs, snow removal and garbage collection. The
cost of repairs has increased approximately $38,000 for the current year as a
result of maintenance to the heat pump system at three of the facilities.
The cost of trash removal has increased $11,000 when compared to the same
period last year. This is a result of the continued cost increase for the
disposal of medical waste. The balance of the increase can be accounted for
by increase in the cost of snow removal due to the harsh winter weather
experienced at three of the locations.
Housekeeping and laundry expenses increased from $851,000 for the year
ended June 30, 1996 to $924,000 for the year ended June 30, 1997, an increase
of $73,000 or 8.6%. The cost of payroll has increased $54,000 when compared
to the same period last year, with the balance of the increase due to the
increase in the cost of housekeeping supplies.
Social service and activities has increased from $550,000 for the year
ended June 30, 1996 to $646,000 for the year ended June 30, 1997. The
increase is the result of staffing increases in the Social Service department
at all of the facilities.
Nonfacility Expense. Real estate taxes decreased $22,000 when compared
to the same period last year. The reduction is the result of a decrease in the
real estate assessment of two of the six facilities.
Depreciation and amortization are virtually unchanged from the same
period last year, increasing only $8,000 over the prior fiscal year.
Incentive Fees. Incentive management fees decreased $131,000 when
compared to the same period last year as a result of the decrease in the
income before incentives of the nursing facilities.
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<PAGE> 21
Officers' Bonuses. Officers' bonuses were awarded by the sole Director
of the Companies in the amount of $192,000 for the current fiscal year,
compared to $188,000 for the prior year ended June 30, 1996.
Other Income and Expense. Interest income decreased $131,000 when
compared to the same period last year as a result of the decrease in the
notes receivable outstanding during the year with the affiliated company
Rosewood Care Center Holding Co. from $8,056,000 for the year ended June 30,
1996 to $7,034,000 for the year ended June 30, 1997.
Interest expense decreased $126,000 compared to the same period last
year which is the result of the decrease in long term debt of the facilities.
Income Taxes. Income taxes decreased $36,000 when compared to the same
period last year. The real estate companies are taxed at the individual
shareholder level and not the corporate level. A larger portion of the
combined revenue of the Companies was sheltered in the real estate companies
for the current fiscal year compared to the fiscal year ended June 30, 1996
which results in a decrease in income taxes for the current period.
Inflationary Factors
The health care industry is labor intensive. General operating expenses
related to personnel, such as salaries and employee benefits, as well as
expenses of dietary, medical and other supplies, are subject to normal
inflationary factors. The Companies' response to such pressures has been to
concurrently increase rates charged private paying patients and continually
review opportunities for cost savings. Prior to July 1, 1998, any cost
increases billed under Medicare are paid for at year-end as a part of the
annual cost reimbursement settlement. Although the Companies' attempt to
implement rate increases to compensate for increases in operating expenses,
PPS will limit the Companies' ability to do this for Medicare patients. In
addition, as to private paying patients, there can be no assurance that the
Companies will always be able to increase rates in the future, which could
adversely affect operations.
Liquidity and Capital Resources
As of June 30, 1998, the Companies had approximately $2,866,000 in cash
and cash equivalents and net working capital of approximately $723,000. There
was a net increase in cash of $546,000 since June 30, 1997. For the year
ended June 30, 1998, net cash provided by operations was $5,672,000. Net
cash used in investing activities was $203,000 of which $124,000 was received
from Rosewood Care Center Holding Co. as payment on notes due from the
affiliated Company and $327,000 was used by the Companies for the purchase of
personal property and equipment used in the operations of the facilities.
Net cash used in financing activities aggregated $4,923,000 of which
$2,020,000 was used to retire debt and $2,903,000 was used for the payment of
dividends. The Companies believe they have adequate capital for operations
and replacements for the coming year and the foreseeable future.
Accounts receivable from private paying patients increased to $1,352,000
as of June 30, 1998, compared to $1,178,000 as of June 30, 1997. Accounts
receivable from third party payers decreased to $2,766,000 as of June 30,
1998, compared to $3,409,000 as of June 30, 1997. $1,292,106 of this amount
is due from Medicare for unsettled cost reports through June 30, 1998 which
are subject to audit.
The Medicare program continues to face intense scrutiny and significant
cutbacks. As previously noted, budget legislation passed by Congress in
1997,
21
<PAGE> 22
enacted a new Medicare prospective payment system. This new PPS is intended to
help the Medicare program achieve targeted reductions in spending growth of
approximately $9.2 billion for skilled nursing facilities over the next five
years. Effective July 1, 1998 all of the facilities are subject to the new PPS
payment system previously discussed. The Companies are analyzing their 1995
facility rates and the acuity level of the Medicare patients in the facilities.
Based on this analysis, the Companies hope to implement changes to lower the
cost of providing services to their Medicare residents. Should the Companies be
unable to execute the changes to reduce costs, PPS could have a material
negative effect on the Companies' financial position and results of operations.
The Companies had no open lines of credit with any financial institution
as of June 30, 1998.
The Companies continue to monitor legislative and other health care
developments and will attempt to structure contractual arrangements to
minimize the impact of reductions in government payment programs. However,
changes in the policies of Medicare and Medicaid as a result of budget cuts
by federal and state governments or other legislative actions could have a
significant adverse effect on the results of operations and cash flow of the
Companies.
The REMIC
The REMIC is purely a pass-through entity and has no resources and no
operations other than those arising out of the first mortgage loans and the
bonds. All of the payments on the first mortgage loans are used to pay the
obligations on the 7 1/4% First Mortgage Redeemable Bonds due November 1,
2013. All expenses of the offering and the administration of the Trust
Indenture executed as of October 1, 1993 pursuant to which the bonds were
issued are the responsibility of the Companies.
Year 2000
Many computers currently in use in business and government use only two
digits, rather than four, to identify the year where information about the
date is entered into or automatically added to computer files. These
computers automatically add the "19" prefix to the last two digits the
computer reads for the year when date information becomes part of a computer
file. Thus, when "2000" is entered, the computer will only read the "00" and
interpret the date as "1900", rather than "2000". This is becoming known as
the Year 2000 ("Y2K") problem. This issue is more of a problem for systems
employing large mainframe computers and other similar or older systems.
Additional problems come from microprocessors embedded in machinery. The
Companies do not utilize mainframes and have updated their computer systems
recently, including accounting and clinical software and hardware. The
Companies are in the process of upgrading all of the Companies computers to
insure microprocessor compatibility.
Investigation of readiness of all mechanical systems and other equipment
in the Companies' facilities has begun and equipment upgrades and readiness
are scheduled to continue over the course of the next year. The Companies
believe their internal accounting and patient management systems will not be
materially disrupted or adversely affected by the Y2K problem because of
software upgrades. Internal software and hardware systems have undergone
extensive upgrading in the last two years, in part to address the Y2K issues.
The Companies will not be making any significant expenditures for computer
equipment or software upgrades, since the cost is being paid for by the
affiliated management company.
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<PAGE> 23
The Companies have had communications with their principal suppliers to
determine the extent to which the Companies' systems and operations are
vulnerable to third party failure to remedy their own year 2000 issues.
There can be no assurance that the systems of other companies or those of the
State and Federal governments, on which the Companies' operations rely, will
be timely converted and will not have an adverse effect on the Companies'
operations.
The Companies receive substantial payments from insurance companies and
Federal and State agencies. The Y2K readiness of individual insurance
companies is not uniform. The Federal government has reported that it is
struggling with the Y2K problem. Accordingly, the Companies can not make any
assurances that these third party payors will be in compliance by January 1,
2000, and if they are not, there would be a significant impact on the
Companies' cash flow. Since under the terms of the bond documents, the
Companies are not allowed additional borrowings, they have not established
any lines of credit and currently have no other contingency plans in place to
normalize cash flow in the event of a significant disruption of payments from
third party payors.
The Companies will continue to use internal and external sources to insure
that the operations of the Companies are not disrupted. However, there can be
no assurance that the goals will be achieved and actual results could be
materially different from those anticipated. Factors that may cause problems
include, but are not limited to, availability and cost of personnel trained
in this area, the ability to locate and correct all computer codes, third
party readiness and other uncertainties.
23
<PAGE> 24
ITEM 8. COMBINED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
1. Rosewood Care Centers Capital Funding Corporation
<TABLE>
<S> <C>
Report of Rubin, Brown, Gornstein & Co. LLP 25
Balance Sheet 26
Statement of Operations 27
Statement of Cash Flows 28
Notes to Financial Statements 29
</TABLE>
2. Rosewood Care Center Companies
Rosewood Care Center, Inc. of Swansea
Rosewood Care Center, Inc. of Galesburg
Rosewood Care Center, Inc. of East Peoria
Rosewood Care Center, Inc. of Peoria
Rosewood Care Center, Inc. of Alton
Rosewood Care Center, Inc. of Moline
Swansea Real Estate, Inc.
Galesburg Real Estate, Inc.
East Peoria Real Estate, Inc.
Peoria Real Estate, Inc.
Alton Real Estate, Inc.
Moline Real Estate, Inc.
<TABLE>
<S> <C>
Report of Rubin, Brown, Gornstein & Co. LLP 34
Combined Balance Sheet 35
Combined Statement of Operations 37
Combined Statement of Stockholders' Equity 38
Combined Statement of Cash Flows 39
Notes to Combined Financial Statements 40
</TABLE>
3. Rosewood Care Center Companies Financial Statement Schedule
<TABLE>
<S> <C>
Report of Rubin, Brown, Gornstein & Co. LLP 56
Schedule VIII Valuation and Qualifying Accounts 57
</TABLE>
24
<PAGE> 25
[Letterhead of RGB & CO]
Independent Auditors' Report
To the Board of Directors
and Stockholders of
Rosewood Care Centers
Capital Funding Corporation
We have audited the accompanying balance sheet of Rosewood Care Centers Capital
Funding Corporation as of June 30, 1997 and 1998 and the statements of
operations and cash flows for the years ended June 30, 1996, 1997 and 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Rosewood Care Centers Capital
Funding Corporation as of June 30, 1997 and 1998 and the results of its
operations and cash flows for the years ended June 30, 1996, 1997 and 1998, in
conformity with generally accepted accounting principles.
/s/Rubin, Brown, Gornstein & Co. LLP
September 14, 1998
25
<PAGE> 26
<TABLE>
ROSEWOOD CARE CENTERS
CAPITAL FUNDING CORPORATION
- ---------------------------------------------------------------------------------------
BALANCE SHEET
(Dollars In Thousands)
<CAPTION>
Assets
June 30,
--------------------------------
1997 1998
--------------------------------
<S> <C> <C>
Cash and cash equivalents $ 1 $ 262
Mortgage notes receivable, Rosewood
Companies 27,581 25,561
Accrued interest receivable 167 --
- ---------------------------------------------------------------------------------------
$27,749 $25,823
=======================================================================================
<CAPTION>
Liabilities And Stockholders' Equity
<S> <C> <C>
Liabilities
First Mortgage Redeemable Bonds $27,581 $25,666
Accrued expenses 167 156
- ---------------------------------------------------------------------------------------
Total Liabilities 27,748 25,822
Stockholders' Equity
Common stock:
Authorized 30,000 shares of $1 par value; issued
and outstanding 1,000 shares at issue price 1 1
- ---------------------------------------------------------------------------------------
$27,749 $25,823
=======================================================================================
- ---------------------------------------------------------------------------------------
See the accompanying notes to financial statements.
</TABLE>
26
<PAGE> 27
<TABLE>
ROSEWOOD CARE CENTERS
CAPITAL FUNDING CORPORATION
- ---------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
(Dollars In Thousands)
<CAPTION>
For The Years
Ended June 30,
-------------------------------------
1996 1997 1998
-------------------------------------
<S> <C> <C> <C>
Interest income $ 2,183 $ 2,057 $ 1,923
Interest expense (2,183) (2,057) (1,923)
- ---------------------------------------------------------------------------------------
Net income $ -- $ -- $ --
=======================================================================================
- ---------------------------------------------------------------------------------------
See the accompanying notes to financial statements.
</TABLE>
27
<PAGE> 28
<TABLE>
ROSEWOOD CARE CENTERS
CAPITAL FUNDING CORPORATION
- ----------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
(Dollars In Thousands)
<CAPTION>
For The Years
Ended June 30,
--------------------------------
1996 1997 1998
--------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ -- $ -- $ --
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
(Increase) decrease in accrued interest receivable -- (167) 167
Decrease in accrued expenses (10) (11) (11)
- ----------------------------------------------------------------------------------------
Net Cash Provided By (Used In) Operating Activities (10) (178) 156
Cash Flows From Investment Activities
Repayments of mortgage notes receivable 1,667 1,699 2,020
Cash Flows From Financing Activities
Repayments of First Mortgage Redeemable Bonds (1,657) (1,782) (1,915)
- ----------------------------------------------------------------------------------------
Increase (Decrease) In Cash And Cash Equivalents -- (261) 261
Cash And Cash Equivalents - Beginning Of Year 262 262 1
- ----------------------------------------------------------------------------------------
Cash And Cash Equivalents - End Of Year $ 262 $ 1 $ 262
========================================================================================
- ---------------------------------------------------------------------------------------
See the accompanying notes to financial statements.
</TABLE>
28
<PAGE> 29
ROSEWOOD CARE CENTERS
CAPITAL FUNDING CORPORATION
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1996, 1997 And 1998
1. Summary Of Significant Accounting Policies
History And Nature Of Activity
Rosewood Care Centers Capital Funding Corporation was formed as a
"single purpose entity" to function as a Real Estate Mortgage Investment
Conduit (REMIC). Accordingly, the articles of incorporation restrict
the activities to issuance of bonds, making of mortgage loans and
related activities.
Rosewood Care Centers Capital Funding Corporation (the "REMIC") is the
issuer of the First Mortgage Redeemable Bonds. The Bond proceeds were
lent to certain Rosewood Care Center real estate companies. The real
estate companies are referred to as the "Borrowing Companies."
Each of the real estate companies is 100% owned by the two stockholders
who own Rosewood Care Centers Capital Funding Corporation in like
ratios.
Estimates And Assumptions
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses.
Cash Equivalents
The Company considers all investments purchased with maturities of three
months or less to be cash equivalents.
Income Taxes
Although a REMIC is a separate entity for federal income tax purposes, a
REMIC is not generally subject to entity-level income taxes. The net
income or net loss of a REMIC is reported on the tax returns of the
holders of its residual interest who are also the two stockholders of
the real estate companies. The Bonds are designated "regular interests"
and are generally taxable as debt of the REMIC.
- ------------------------------------------------------------------------------
29
<PAGE> 30
ROSEWOOD CARE CENTERS CAPITAL
FUNDING CORPORATION
- ------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
2. Mortgage Notes Receivable
The mortgage notes evidence the loans in the original amount of
$33,000,000 from the REMIC to the real estate companies and are cross
collateralized by a security agreement and assignment of management
agreement from each facility company and a first mortgage which includes
a security interest in fixtures, improvements, and other personal
property, assignment of rents and leases, collateral pledge and security
agreement and subordination and attornment agreements from each real
estate company. In addition, compensation of officers or directors of
the real estate companies is subordinated to payments under the loan
agreement. The mortgage notes bear interest at 7.25%. The facility
companies and the real estate companies are referred to together as the
"Companies."
The mortgage notes from the real estate companies require monthly
principal and interest collections of $260,824 plus an additional
annual principal collection of $720,000 for the first seven years, subject
to certain conditions in the loan agreement. If all additional annual
collections are made, the principal of the mortgage notes will be
collected as follows:
<TABLE>
<CAPTION>
Additional
Years Ending Annual
June 30, Total Scheduled Collections
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999 $ 2,071,044 $ 1,351,044 $ 720,000
2000 2,226,282 1,506,282 720,000
2001 2,393,161 1,673,161 720,000
2002 1,821,541 1,821,541 --
2003 1,958,080 1,958,080 --
Thereafter 15,090,538 15,090,538 --
- ----------------------------------------------------------------------------------------
$25,560,646 $23,400,646 $2,160,000
========================================================================================
</TABLE>
The Borrowing Companies are required to make the additional annual
principal payments up to $720,000 per year to the extent the amount of
cash available exceeds net income available for debt service (income
from operations plus depreciation and amortization, incentive management
fees, interest income, and officer bonuses) for the prior fiscal year
less (a) the regular principal and interest payments for that year, (b)
the amount necessary to pay income taxes of the obligated companies and
their shareholders, (c) any increase in accounts receivable from third
party payors, (d) interest income from related parties and (e) the
$1,000,000 cash or cash equivalents required to be maintained by the
loan agreement.
- ------------------------------------------------------------------------------
30
<PAGE> 31
ROSEWOOD CARE CENTERS CAPITAL
FUNDING CORPORATION
- ------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
The failure of any real estate company to meet the required additional
annual principal payments is not an event of default, but the deficit is
cumulative to the extent any annual payment is less than $720,000. The
difference is carried forward, at which time such real estate company is
subject to certain covenants which restrict its ability to pay out officer
bonuses, dividends and incentive management fees until the additional
annual payment, on a cumulative basis, is paid in full.
The Loan Agreement also contains certain covenants relating to the
consolidation of companies, restrictions on indebtedness, transfers of
property, expansion of facilities, and the commingling of funds.
Bond issuance costs of $609,000 and underwriter's discount of $841,500
(aggregating $1,450,500) were paid by the REMIC on behalf of the real
estate companies from the proceeds of the First Mortgage Redeemable Bonds.
The Companies have established with a trustee a 12-month debt service
reserve fund consisting of a bank letter of credit for $3,129,889. The
trustee is the custodian of the reserve fund.
3. First Mortgage Redeemable Bonds
The bonds are dated October 21, 1993 and bear interest at 7.25%. The
bonds are secured by first mortgage liens, assignments of rents and
leases, collateral pledge and security agreements, subordination and
attornment agreements from each real estate company, a security
agreement, and assignment of management agreement from each facility
company and are scheduled to mature November 1, 2013. However, if all
the additional annual payments are made as required, the bonds will be
paid in full in July 2009. The application of bond proceeds, tender
and purchase of bonds, redemption of bonds and other covenants are
defined in the trust indenture.
All bond holders receive scheduled monthly principal and interest
payments and may receive additional annual principal payments during
the first seven years of the bond amortization, if additional annual
payments are received on the mortgage notes (See Note 2).
- ------------------------------------------------------------------------------
31
<PAGE> 32
ROSEWOOD CARE CENTERS CAPITAL
FUNDING CORPORATION
- ------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
Principal payments in the years subsequent to June 30, 1998 are as
follows:
<TABLE>
<CAPTION>
Years Ending Additional
June 30, Total Scheduled Annual
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999 $ 2,058,606 $ 1,338,606 $ 720,000
2000 2,212,914 1,492,914 720,000
2001 2,378,790 1,658,790 720,000
2002 1,810,601 1,810,601 --
2003 1,946,321 1,946,321 --
Thereafter 15,259,170 15,259,170 --
- -------------------------------------------------------------------------------------
$25,666,402 $23,506,402 $2,160,000
=====================================================================================
</TABLE>
4. Stockholders' Equity
Stockholders' equity consists of the following:
<TABLE>
<S> <C>
Larry Vander Maten Revocable Trust $ 750
Darrell Hoefling Revocable Trust 250
------------
$1,000
============
</TABLE>
Each share of common stock has been designated as a "Certificate of
Residual Interest".
5. Fair Value Of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Cash And Cash Equivalents
The carrying amount approximates fair value because of the short maturity
of those instruments.
- ------------------------------------------------------------------------------
32
<PAGE> 33
ROSEWOOD CARE CENTERS CAPITAL
FUNDING CORPORATION
- ------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
Mortgage Notes Receivable
The fair value of the notes receivable is estimated based on discounted
future cash flows using current rates at which similar loans would be
made to related borrowers for the same remaining maturities.
First Mortgage Redeemable Bonds
The fair value of the Company's first mortgage redeemable bonds is
estimated based on discounted future cash flows at the current rates at
which the Company could borrow funds with similar terms, degree of risk
and remaining maturities.
Estimated fair values of the Company's financial instruments, all of
which are held for nontrading purposes, are as follows:
<TABLE>
<CAPTION>
1998
---------------------------------------
Carrying Fair
Amount Value
---------------------------------------
<S> <C> <C>
Mortgage notes receivable $25,560,646 $24,445,149
First mortgage redeemable bonds 25,666,402 24,700,390
</TABLE>
The estimated fair value amounts presented herein have been determined
using available market information and appropriate valuation
methodologies and are not necessarily indicative of the amounts the
Company could realize in a current market exchange.
- ------------------------------------------------------------------------------
33
<PAGE> 34
[Letterhead of RBG & CO.]
Independent Auditors' Report
To the Boards of Directors
and Stockholders of
Rosewood Care Center Facility Companies
Rosewood Real Estate Companies
St. Louis, Missouri
We have audited the accompanying combined balance sheet of Rosewood Care
Center Facility Companies and Real Estate Companies (see Note 1 of Notes to
Combined Financial Statements) as of June 30, 1997 and 1998 and the combined
statements of operations, stockholders' equity and cash flows for the years
ended June 30, 1996, 1997 and 1998. These combined financial statements are
the responsibility of the management of the Companies. Our responsibility
is to express an opinion on these combined financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the combined
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to in the first
paragraph present fairly, in all material respects, the combined financial
position of Rosewood Care Center Facility Companies and Real Estate Companies
as of June 30, 1997 and 1998 and the combined results of operations and the
combined cash flows for the years ended June 30, 1996, 1997 and 1998 in
conformity with generally accepted accounting principles.
/s/Rubin, Brown, Gornstein & Co. LLP
September 14, 1998
34
<PAGE> 35
<TABLE>
ROSEWOOD CARE CENTER
FACILITY COMPANIES AND REAL ESTATE COMPANIES
- ------------------------------------------------------------------------------------------------------
COMBINED BALANCE SHEET
(Dollars In Thousands)
Page 1 Of 2
<CAPTION>
Assets
June 30,
-------------------------------
1997 1998
-------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 2,320 $ 2,866
Accounts receivable - residents, net of allowance
for doubtful accounts of $224 and $168, respectively 1,178 1,352
Accounts receivable - third party payors 3,409 2,766
Interest receivable 256 282
Due from affiliates -- 327
Prepaid insurance and other prepaids 43 44
Deferred income tax benefits 75 52
- ------------------------------------------------------------------------------------------------------
Total Current Assets 7,281 7,689
- ------------------------------------------------------------------------------------------------------
Property, Plant And Equipment
Land 943 943
Site improvements 2,140 2,140
Buildings 17,830 17,830
Equipment 3,702 3,962
Leasehold improvements 322 389
- ------------------------------------------------------------------------------------------------------
24,937 25,264
Less: Accumulated depreciation 7,370 8,282
- ------------------------------------------------------------------------------------------------------
Total Property, Plant And Equipment 17,567 16,982
- ------------------------------------------------------------------------------------------------------
Other Assets
Notes receivable from Rosewood Care Center
Holding Co. 7,034 6,910
Amortizable costs, net 965 840
- ------------------------------------------------------------------------------------------------------
Total Other Assets 7,999 7,750
- ------------------------------------------------------------------------------------------------------
$32,847 $32,421
======================================================================================================
- ------------------------------------------------------------------------------------------------------
See the accompanying notes to combined financial statements.
</TABLE>
35
<PAGE> 36
<TABLE>
ROSEWOOD CARE CENTER
FACILITY COMPANIES AND REAL ESTATE COMPANIES
- ---------------------------------------------------------------------------------------------------------
COMBINED BALANCE SHEET
(Dollars In Thousands)
Page 2 Of 2
<CAPTION>
Liabilities And Stockholders' Equity
June 30,
----------------------------------
1997 1998
----------------------------------
<S> <C> <C>
Current Liabilities
Current maturities of long-term debt $ 2,021 $ 2,071
Accounts payable - trade 1,083 2,144
Dividends payable 543 801
Accrued expenses:
Salaries and payroll taxes 470 576
Vacation and employee fringes 244 257
Accrued rent -- 43
Real estate taxes 510 471
Accrued interest 167 --
Management fees - affiliate 265 599
Income taxes 50 4
- ---------------------------------------------------------------------------------------------------------
Total Current Liabilities 5,353 6,966
- ---------------------------------------------------------------------------------------------------------
Long-Term Debt
Notes payable - Rosewood Care Centers Capital
Funding Corporation 27,581 25,561
Less: Current maturities 2,021 2,071
- ---------------------------------------------------------------------------------------------------------
Total Long-Term Debt 25,560 23,490
- ---------------------------------------------------------------------------------------------------------
Stockholders' Equity
Common stock 65 65
Paid-in capital 481 481
Retained earnings 1,388 1,419
- ---------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 1,934 1,965
- ---------------------------------------------------------------------------------------------------------
$32,847 $32,421
=========================================================================================================
- ---------------------------------------------------------------------------------------------------------
See the accompanying notes to combined financial statements.
</TABLE>
36
<PAGE> 37
<TABLE>
ROSEWOOD CARE CENTER
FACILITY COMPANIES AND REAL ESTATE COMPANIES
- ---------------------------------------------------------------------------------------------------------------
COMBINED STATEMENT OF OPERATIONS
(Dollars In Thousands)
<CAPTION>
For The Years Ended June 30,
------------------------------------------------------
1996 1997 1998
------------------------------------------------------
<S> <C> <C> <C>
Patient Service Revenue
Private $17,079 $17,808 $19,257
Medicare 9,293 10,142 10,438
Medicaid 1,319 1,494 1,508
Other patient revenues, net of expenses 62 76 295
- ---------------------------------------------------------------------------------------------------------------
Total Patient Revenues, Net Of Expenses 27,753 29,520 31,498
- ---------------------------------------------------------------------------------------------------------------
Facility Expenses
Administrative expenses 851 1,004 1,083
Employee fringe benefits 1,774 2,251 1,997
Dietary 1,784 1,897 2,015
Nursing 6,518 7,090 7,770
Ancillary services 4,560 4,978 6,081
Plant utilities and maintenance 1,121 1,186 1,207
Housekeeping and laundry 851 924 1,017
Social service and activities 550 646 741
- ---------------------------------------------------------------------------------------------------------------
Total Facility Expenses 18,009 19,976 21,911
- ---------------------------------------------------------------------------------------------------------------
Income After Facility Expenses 9,744 9,544 9,587
- ---------------------------------------------------------------------------------------------------------------
Nonfacility Expenses
Rent -- -- 104
Real estate taxes and insurance 586 564 505
Base management fees 792 792 820
Illinois Medicaid assessments 394 394 408
Depreciation and amortization 1,057 1,065 1,037
- ---------------------------------------------------------------------------------------------------------------
Total Nonfacility Expenses 2,829 2,815 2,874
- ---------------------------------------------------------------------------------------------------------------
Income Before Incentives 6,915 6,729 6,713
Incentive Management Fees (1,979) (1,848) (1,800)
Officers' Bonuses (188) (192) (188)
- ---------------------------------------------------------------------------------------------------------------
Income From Operations 4,748 4,689 4,725
- ---------------------------------------------------------------------------------------------------------------
Other Income (Expense)
Interest income 816 685 655
Interest expense (2,183) (2,057) (1,924)
- ---------------------------------------------------------------------------------------------------------------
Total Other Income (Expense) (1,367) (1,372) (1,269)
- ---------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 3,381 3,317 3,456
Income Tax Expense (306) (270) (265)
- ---------------------------------------------------------------------------------------------------------------
Net Income $ 3,075 $ 3,047 $ 3,191
===============================================================================================================
- ---------------------------------------------------------------------------------------------------------------
See the accompanying notes to combined financial statements.
</TABLE>
37
<PAGE> 38
<TABLE>
ROSEWOOD CARE CENTER
FACILITY COMPANIES AND REAL ESTATE COMPANIES
- ----------------------------------------------------------------------------------------------------------------
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
For The Years Ended June 30, 1996, 1997 And 1998
(Dollars In Thousands)
<CAPTION>
Common Stock Total
----------------------- Paid-In Retained Stockholders'
Shares Amount Capital Earnings Equity
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance - July 1, 1995 65,000 $65 $481 $ 1,032 $ 1,578
Net Income -- -- -- 3,075 3,075
Dividends Declared -- -- -- (2,819) (2,819)
- ----------------------------------------------------------------------------------------------------------------
Balance - June 30, 1996 65,000 65 481 1,288 1,834
Net Income -- -- -- 3,047 3,047
Dividends Declared -- -- -- (2,947) (2,947)
- ----------------------------------------------------------------------------------------------------------------
Balance - June 30, 1997 65,000 65 481 1,388 1,934
Net Income -- -- -- 3,191 3,191
Dividends Declared -- -- -- (3,160) (3,160)
- ----------------------------------------------------------------------------------------------------------------
Balance - June 30, 1998 65,000 $65 $481 $ 1,419 $ 1,965
================================================================================================================
- ----------------------------------------------------------------------------------------------------------------
See the accompanying notes to combined financial statements.
</TABLE>
38
<PAGE> 39
<TABLE>
ROSEWOOD CARE CENTER
FACILITY COMPANIES AND REAL ESTATE COMPANIES
- -----------------------------------------------------------------------------------------------------------
COMBINED STATEMENT OF CASH FLOWS
(Dollars In Thousands)
<CAPTION>
For The Years Ended June 30,
---------------------------------------
1996 1997 1998
---------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 3,075 $ 3,047 $ 3,191
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 925 936 912
Amortization 132 129 125
Change in assets and liabilities:
(Increase) decrease in accounts receivable - residents (552) 79 (174)
(Increase) decrease in accounts receivable - third
party payors (806) (408) 643
(Increase) decrease in other receivables, prepaids
and deferred income tax benefit 26 90 (332)
Increase (decrease) in accounts payable - trade 481 (53) 1,062
Increase in accrued salaries, taxes and fringes 111 152 119
Increase (decrease) in accrued real estate taxes (63) 30 (39)
Increase (decrease) in accrued management fees (73) (199) 334
Increase (decrease) in other payables and accruals (82) 129 (169)
- -----------------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 3,174 3,932 5,672
- -----------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Purchase of property and equipment (159) (155) (327)
Net receipts on notes with Rosewood Care Center
Holding Co. 1,276 1,022 124
- -----------------------------------------------------------------------------------------------------------
Net Cash Provided By (Used In) Investing Activities 1,117 867 (203)
- -----------------------------------------------------------------------------------------------------------
Cash Flow From Financing Activities
Repayments of notes with Rosewood Care Centers
Capital Funding (1,667) (1,698) (2,020)
Dividends paid (2,909) (3,018) (2,903)
- -----------------------------------------------------------------------------------------------------------
Net Cash Used In Financing Activities (4,576) (4,716) (4,923)
- -----------------------------------------------------------------------------------------------------------
Net Increase (Decrease) In Cash And Cash Equivalents (285) 83 546
Cash And Cash Equivalents - Beginning Of Year 2,522 2,237 2,320
- -----------------------------------------------------------------------------------------------------------
Cash And Cash Equivalents - End Of Year $ 2,237 $ 2,320 $ 2,866
===========================================================================================================
Supplemental Disclosure Of Cash Flow Information
Interest paid $ 2,183 $ 1,890 $ 2,090
Income taxes paid 190 313 288
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
See the accompanying notes to combined financial statements.
</TABLE>
39
<PAGE> 40
ROSEWOOD CARE CENTER
FACILITY COMPANIES AND REAL ESTATE COMPANIES
- -------------------------------------------------------------------------------
NOTES TO COMBINED FINANCIAL STATEMENTS
June 30, 1996, 1997 And 1998
1. Summary of Significant Accounting Policies
Reporting Entity and Operations
The combined financial statements include the accounts of six facility
companies (C Corporations) and their six related real estate companies
(S Corporations).
<TABLE>
<CAPTION>
Common Stock
---------------------------------------------------------------------
Shares
----------------------------------
Issued And
Authorized Outstanding Par Amount
---------------------------------- -----------------------------
<S> <C> <C> <C> <C>
Facility Companies:
Rosewood Care Center, Inc. of -
Swansea 100,000 500 No par $ 500
Galesburg 100,000 500 No par 500
Alton 30,000 500 $1 500
Peoria 30,000 500 1 500
East Peoria 30,000 500 1 500
Moline 30,000 500 1 500
Real Estate Companies:
Swansea Real Estate, Inc. 30,000 30,000 $1 30,000
Galesburg Real Estate, Inc. 30,000 30,000 1 30,000
Alton Real Estate, Inc. 30,000 500 1 500
Peoria Real Estate, Inc. 30,000 500 1 500
East Peoria Real Estate, Inc. 30,000 500 1 500
Moline Real Estate, Inc. 30,000 500 1 500
- --------------------------------------------------------------------------------------------------------------
500,000 65,000 $65,000
==============================================================================================================
</TABLE>
The facility companies are wholly-owned subsidiaries of Rosewood Care
Center Holding Co. ("Rosewood Holding Company"). Rosewood Holding
Company and the real estate companies are under common control. The
facility companies and the real estate companies are referred to
together as the "Companies."
The real estate companies own the real estate and equipment and lease
the facilities to the affiliated facility companies.
- -------------------------------------------------------------------------------
40
<PAGE> 41
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- -------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
The facility companies provide convalescent care, long-term care, and
rehabilitative services primarily to elderly patients in their
facilities in Illinois. Revenues are collected from the patients, their
families, their insurance companies or from third party payors.
Collections from the state third-party payor are in arrears as a result
of budgetary limitations.
All material intercompany balances and transactions between the
Companies have been eliminated in combining the financial statements.
Other similarly owned facility companies and real estate companies have
been excluded from these combined statements because they are not
borrowers or guarantor companies in connection with mortgage loans from
Rosewood Care Centers Capital Funding Corporation.
History of Operations and Business Activity
Each facility company is licensed as a skilled nursing facility by the
state of Illinois.
<TABLE>
<CAPTION>
Location Date Licensed
---------------------------------------------------------
<S> <C>
Swansea, Illinois October 8, 1987
Galesburg, Illinois December 9, 1987
Alton, Illinois May 15, 1989
Peoria, Illinois June 12, 1989
East Peoria, Illinois April 18, 1989
Moline, Illinois May 6, 1990
</TABLE>
Estimates And Assumptions
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses.
Accounting Basis
The Companies present their financial statements on the accrual basis in
accordance with generally accepted accounting principles and in
accordance with the Audit and Accounting Guide, Audits of Providers of
Health Care Services, issued by the American Institute of Certified
Public Accountants.
- -------------------------------------------------------------------------------
41
<PAGE> 42
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- -------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
Patient Service Revenue
Patient service revenue is reported at the estimated net realizable
amounts from residents, third-party payors and others for services
rendered, including estimated retroactive adjustments.
Revenue under federal and state third-party payor agreements is subject
to audit and retroactive adjustment. Provisions for estimated federal
and state third-party payor settlements are provided in the period the
related services are rendered. Differences between the estimated
amounts accrued and interim and final settlements are reported in
operations in the year of settlement.
Accounts receivable - third party payor is comprised of amounts due from
the state Medicaid and Federal Medicare Program for services provided to
residents eligible for participation in those programs. Also included
is an estimate for the settlement of the cost report to be submitted for
the year ended June 30, 1998.
Effective July 1, 1998, the Federal Medicare Program implemented changes
in its method of reimbursing the Facility Companies for services
provided to eligible residents. Prior to July 1, 1998, revenue received
from Medicare was subject to audit and retroactive adjustments. After
June 30, 1998, revenue received for services provided to residents is
based on established rates determined by geographic regions with no
settlement adjustments based on year end cost reports. Management has
not determined the effect of the new reimbursement system on the
operations of the Facility Companies.
Illinois Medicaid Assessment Plan Payments
Effective July 1, 1993, a nursing home licensing fee of $1.50 per
licensed bed day was imposed by the State of Illinois. The nursing home
license fee for the year ended June 30, 1998, aggregated $408,500 and
$394,200 for 1997 and 1996.
- -------------------------------------------------------------------------------
42
<PAGE> 43
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- -------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
Property, Equipment And Depreciation
Property and equipment are carried at cost. Depreciation is computed on
the straight-line method for financial reporting purposes as follows:
<TABLE>
<CAPTION>
Depreciable
Lives
--------------
<S> <C>
Site improvements 25 years
Buildings 40 years
Equipment 10 years
Leasehold improvements 7 years
</TABLE>
Amortizable Costs
Amortizable costs consist of bond issuance costs of $609,000 and
underwriters discount of $841,500 which are being amortized over the
term of the bond issue, on the interest method. Amortization expense
aggregated $125,490 in 1998 and $129,120 in 1997.
<TABLE>
<CAPTION>
1997 1998
-------------------------------
<S> <C> <C>
Amortizable costs $1,450,500 $1,450,500
Less: Accumulated amortization 485,262 610,752
------------------------------------------------------------------
$ 965,238 $ 839,748
==================================================================
</TABLE>
Income Taxes
The six facility companies file a consolidated return with Rosewood
Holding Company and its other facility companies. Income taxes are
allocated to each facility based on its proportionate share of net
income. The six real estate companies file separate S Corporation
returns.
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus
deferred taxes (for the facility companies) related primarily to
differences between the basis of accounts receivable and property, plant
and equipment for financial and income tax reporting. The deferred tax
assets represent the future tax return consequences of those
differences, which will be deductible when the liabilities are settled.
Cash Equivalents
The Companies consider all investments purchased with maturities of
three months or less to be cash equivalents.
- -------------------------------------------------------------------------------
43
<PAGE> 44
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- -------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
Advertising Costs
Advertising costs are expensed as incurred.
2. Related Party Transactions
Related party interest as follows:
<TABLE>
<CAPTION>
June 30,
---------------------------------
1997 1998
---------------------------------
<S> <C> <C>
Interest receivable $256,378 $281,953
=========================================================================================================
<CAPTION>
For The Years Ended June 30,
-----------------------------------------------------
1996 1997 1998
-----------------------------------------------------
<S> <C> <C> <C>
Interest income $ 702,600 $ 574,504 $ 494,537
Interest expense 2,182,867 2,057,611 1,923,726
</TABLE>
The facility companies pay a management fee to HSM Management Services,
Inc., which is 100% owned by Rosewood Holding Company for certain
management functions as specified in the management agreements. An
annual base fee of $1,100 per licensed bed is payable monthly plus
additional incentive fees.
Incentive management fees are based on income from the nursing home
operations before income taxes and incentive management fees (base
income) of the combined group. The combined base income from the
nursing home operations is multiplied by, on a graduated basis, various
percentages with the maximum percentage of 75% applied to combined base
income over $100,000. The base plus incentive management fee is limited
to 15% of patient service revenue, by location.
On January 22, 1998, a 60 bed addition to the existing 120 bed facility
located in Alton, Illinois was licensed by the State of Illinois and
opened for business. The Company leases the 60 bed addition from a
related party, Alton Real Estate II, LLC. As of June 30, 1998, the
Company owed rent for the 60 bed addition to the affiliated company in
the amount of $43,448 which has been subsequently paid to the related
party. Rent for the period January 22, 1998 through June 30, 1998
aggregated $104,159 and is reflected in the financial statements as rent
expense for the fiscal year ended June 30, 1998.
The Companies incurred expenses for therapy costs to the affiliate,
Rosewood Therapy Services, Inc., in the amount of $2,199,681 for the
fiscal year ended June 30, 1998. Rosewood Therapy Services, Inc. is a
wholly owned subsidiary of Rosewood Care Center Holding Co. At June 30,
1998, $566,511 of such fees were unpaid but were paid in full subsequent
to the end of the June 30, 1998 fiscal year.
- -------------------------------------------------------------------------------
44
<PAGE> 45
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- -------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
Rosewood Holding Company, as licensee, grants the subsidiary facility
companies a nonexclusive right to the use of the service mark "Rosewood
Care Center" for an annual fee of $3,000 for each location. The total
amount paid for 1996, 1997 and 1998 aggregated $18,000 for each year.
3. Notes Receivable From Holding Company
At the closing on the issuance of Rosewood Care Centers Capital Funding
Corporation's (the REMIC) 7-1/4% First Mortgage Redeemable Bonds due
November 1, 2013, $4,369,000 in excess proceeds were loaned to Rosewood
Holding Company pursuant to notes to each Borrowing Company bearing
interest at 7-1/4% per annum and having maturities of October 1996.
Prior to their maturity, these notes were replaced with new notes having
the same credit terms and maturing in December 1999. In addition,
Rosewood Holding Company delivered notes for outstanding indebtedness to
the Borrowing Companies in the aggregate principal amount of $2,686,000.
These notes bore interest at 7% and matured December 31, 1997. In
December 1993, Rosewood Holding Company obtained a letter of credit
which was deposited with the Trustee of the Trust Indenture into the
debt service reserve fund for the benefit of holders of the REMIC's
7-1/4% First Mortgage Redeemable Bonds due November 1, 2013. Cash of
approximately $3,130,000 which was being held in the debt service
reserve fund was then loaned to Rosewood Holding Company pursuant to
3-year notes bearing interest at 7-1/4% per annum. Thereafter, loans of
excess cash to Rosewood Holding Company were made pursuant to a series
of 3-year notes bearing interest at 7-1/4% per annum. As of June 30,
1994, all of the notes except for the notes signed at the bond closing
(totalling $4,369,000) were cancelled and replaced with six (6) new
revolving credit notes. As of June 30, 1996, those notes were cancelled
and replaced with new revolving credit notes which allow Rosewood
Holding Company to borrow, pursuant to the revolving credit notes an
aggregate of up to $9,100,000 from the Borrowing Companies. The new
revolving credit notes also bear interest at a rate of 7-1/4% per annum
and mature December 31, 1999. The outstanding balance of the notes
signed at the bond closing was $2,841,097 at June 30, 1997 and
$2,841,097 at June 30, 1998. The outstanding balance of the revolving
credit notes was $4,192,615 at June 30, 1997 and $4,068,615 at June 30,
1998. All of the notes from Rosewood Holding Company to the Borrowing
Companies are pledged to the Trustee under the Trust Indenture as
additional collateral security for repayment of the REMIC's 7-1/4% First
Mortgage Redeemable Bonds due November 1, 2013.
- -------------------------------------------------------------------------------
45
<PAGE> 46
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- -------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
4. Long-Term Debt
Long-term debt consists of:
<TABLE>
<CAPTION>
1997 1998
----------------------------------------
<S> <C> <C>
Notes Payable - Related Parties:
Notes payable - Rosewood Care Centers Capital Funding
Corporation, payable in monthly installments of $260,824
plus an additional principal payment of $720,000 due
annually on December 1, 1994 through December 1, 2000,
interest at 7-1/4% per year, with final payment due
November 1, 2013 $27,581,456 $25,560,646
==============================================================================================================
</TABLE>
The notes payable to Rosewood Care Centers Capital Funding Corporation
evidence the loans from the REMIC to the real estate companies and are
cross collateralized by a security agreement and assignment of
management agreement from each facility company and a first mortgage
which includes a security interest in fixtures, improvements, and other
personal property, assignment of rents and leases, collateral pledge and
security agreement and subordination and attornment agreements from each
real estate company. In addition, compensation of officers or directors
of the real estate companies is subordinated to payments under the loan
agreement.
The Borrowing Companies will be required to make the additional annual
payments up to $720,000 per year to the extent the amount of cash
available exceeds net income available for debt service (income from
operations plus depreciation and amortization, incentive management
fees, interest income, and officer bonuses) for the prior fiscal year
less (a) the regular principal and interest payments for that year, (b)
the amount necessary to pay income taxes of the Companies as if they
were all taxed as C Corporations for income tax purposes, (c) any
increase in accounts receivable from third party payors and (d) interest
income from related parties. In addition, the Companies are required to
maintain a minimum cash balance of $1,000,000.
The failure of any real estate company to meet the required additional
annual principal payments is not an event of default, but the deficit is
cumulative to the extent any annual payment is less than $720,000. The
difference is carried forward, at which time such real estate company is
subject to certain covenants which restrict its ability to pay out
officer bonuses, dividends and incentive management fees until the
additional annual payment, on a cumulative basis, is paid in full.
- -------------------------------------------------------------------------------
46
<PAGE> 47
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- -------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
The Loan Agreement also contains certain covenants relating to the
consolidation of companies, restrictions on indebtedness, transfers of
property, expansion of facilities, and the commingling of funds.
The Companies have established with a trustee a 12-month debt service
reserve fund consisting of a bank letter of credit for $3,129,889. The
trustee is the custodian of the reserve fund.
The scheduled maturities of long-term debt at June 30, 1998 are as
follows:
<TABLE>
<CAPTION>
Year Amount
------------------------------------------
<S> <C>
1999 $ 2,071,044
2000 2,226,282
2001 2,393,161
2002 1,821,541
2003 1,958,080
Thereafter 15,090,538
------------------------------------------
$25,560,646
==========================================
</TABLE>
5. Fair Value Of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Notes Receivable From Rosewood Care Center Holding Co.
It was not practicable to estimate the fair value of the notes
receivable from Rosewood Care Center Holding Co. because of the
uncertainty of future cash flows to be paid for interest and principal.
Information pertinent to estimating the fair values is disclosed in
Note 3.
First Mortgage Redeemable Bonds
The fair value of the Company's first mortgage redeemable bonds is
estimated based on discounted future cash flows at the current rates at
which the Company could borrow funds with similar terms, degree of risk
and remaining maturities.
- -------------------------------------------------------------------------------
47
<PAGE> 48
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- -------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
Estimated fair values of the Company's financial instruments, all of
which are held for nontrading purposes, are as follows:
<TABLE>
<CAPTION>
1998
----------------------------------------
Carrying Fair
Amount Value
----------------------------------------
<S> <C> <C>
Notes receivable from Rosewood Care
Center Holding Co. $ 6,909,712 Not estimated
Long-term debt 25,560,646 $24,445,149
</TABLE>
The estimated fair value amounts presented herein have been determined
using available market information and appropriate valuation
methodologies and are not necessarily indicative of the amounts the
Company could realize in a current market exchange.
6. Income Taxes
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
1996 1997 1998
---------------------------------------------------
<S> <C> <C> <C>
Computed expected tax expense $ 973,700 $ 1,104,800 $ 1,142,000
State income taxes 171,800 199,000 201,000
Portion of "expected" tax on
S Corporation earnings for which tax
will be paid at the individual level (839,500) (1,033,800) (1,078,000)
-------------------------------------------------------------------------------------------------------------
Income taxes $ 306,000 $ 270,000 $ 265,000
=============================================================================================================
Current $ 333,300 $ 280,000 $ 242,000
Deferred (27,300) (10,000) 23,000
-------------------------------------------------------------------------------------------------------------
$ 306,000 $ 270,000 $ 265,000
=============================================================================================================
</TABLE>
- -------------------------------------------------------------------------------
48
<PAGE> 49
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- -----------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
Facility Companies
The facility companies provide for deferred taxes on temporary
differences between amounts reported for financial statement and income
tax purposes of the facility companies, which are taxed under Subchapter
C of the Internal Revenue Code of 1986. The estimated tax effect of
each temporary difference is as follows:
<TABLE>
<CAPTION>
1997 1998
---------------------------
<S> <C> <C>
Allowance for doubtful accounts $89,600 $67,200
Book versus tax difference between basis
of property, plant and equipment 14,600 15,200
---------------------------------------------------------------------
$75,000 $52,000
=====================================================================
</TABLE>
Real Estate Companies
The real estate companies do not provide for deferred taxes on temporary
differences between financial statement and income tax depreciation
expense on the real estate companies which are taxed under Subchapter S
of the Internal Revenue Code of 1986. The shorter recovery periods, as
prescribed by tax law, which result in lower taxable income, pass
through to the individual shareholder level.
Income of the real estate companies is taxed at the individual
shareholder level and not at the corporate level.
- -------------------------------------------------------------------------------
49
<PAGE> 50
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- -------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
7. Dividends
Dividends declared were as follows:
<TABLE>
<CAPTION>
1997 1998
------------------------------- ------------------------------
Per Share Aggregate Per Share Aggregate
------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Facility Companies:
Rosewood Care Center, Inc. of:
Swansea $ 209.20 $ 104,600 $ 246.00 $ 123,000
Galesburg 102.80 51,400 64.00 32,000
Alton 225.20 112,600 226.60 113,300
Peoria 90.00 45,000 159.40 79,700
Moline 166.00 83,000 218.80 109,400
East Peoria -- -- -- --
Real Estate Companies:
Swansea Real Estate, Inc. 17.23 516,800 21.21 636,300
Galesburg Real Estate, Inc. 15.78 473,400 13.66 409,900
Alton Real Estate, Inc. 1,074.60 537,300 1,007.00 503,500
Peoria Real Estate, Inc. 671.80 335,900 862.40 431,200
East Peoria Real Estate, Inc. 403.20 201,600 429.40 214,700
Moline Real Estate, Inc. 971.40 485,700 1,015.80 507,900
-------------------------------------------------------------------------------------------------------------------
$2,947,300 $3,160,900
===================================================================================================================
</TABLE>
8. Deferred Compensation
During October, 1997, the Facility Companies implemented a 401(k) plan
for eligible employees. Employees may elect to defer a portion of their
salary to the plan. Contributions made to the plan by the Facility
Companies is determined annually by the Board of Directors. No
contributions were made by the Facility Companies during the fiscal year
ending June 30, 1998
- -------------------------------------------------------------------------------
50
<PAGE> 51
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- -------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
9. Litigation
The Companies, from time to time, are involved in litigation in the
ordinary course of business including disputes involving management
contracts, patient services, employment claims and construction matters.
The Companies are also involved in routine administrative and judicial
proceedings regarding permits and expenses. The Companies are not a
party to any lawsuit or proceeding which, in the opinion of management,
is not adequately covered by insurance or which is, individually or in
the aggregate, likely to have a material adverse effect on the combined
financial position or results of operations of the Companies.
10. Summarized Combining Financial Information
Summarized condensed combining financial information for the facility
companies and the real estate companies is as follows:
Balance sheet information (Dollars in thousands):
<TABLE>
<CAPTION>
Real
Facility Estate Combined
Companies Companies Eliminations Companies
--------------------------------------------------------------
<S> <C> <C> <C> <C>
June 30, 1997
Current assets $6,749 $ 842 $ (310) $ 7,281
Noncurrent assets 2,347 28,546 (5,327) 25,566
-----------------------------------------------------------------------------------------------------------------------
Total assets $9,096 $29,388 $(5,637) $32,847
=======================================================================================================================
Current liabilities $2,994 $ 2,669 $ (310) $ 5,353
Noncurrent liabilities 5,327 25,560 (5,327) 25,560
-----------------------------------------------------------------------------------------------------------------------
Total liabilities 8,321 28,229 (5,637) 30,913
Stockholders' equity 775 1,159 -- 1,934
-----------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $9,096 $29,388 $(5,637) $32,847
=======================================================================================================================
</TABLE>
- -------------------------------------------------------------------------------
51
<PAGE> 52
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- -------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
<TABLE>
<CAPTION>
Real
Facility Estate Combined
Companies Companies Eliminations Companies
---------------------------------------------------------------
<S> <C> <C> <C> <C>
June 30, 1998
Current assets $7,526 $ 911 $ (748) $ 7,689
Noncurrent assets 1,472 26,695 (3,435) 24,732
-----------------------------------------------------------------------------------------------------------------------
Total assets $8,998 $27,606 $(4,183) $32,421
=======================================================================================================================
Current liabilities $4,819 $ 2,895 $ (748) $ 6,966
Noncurrent liabilities 3,435 23,490 (3,435) 23,490
-----------------------------------------------------------------------------------------------------------------------
Total liabilities 8,254 26,385 (4,183) 30,456
Stockholders' equity 744 1,221 -- 1,965
-----------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $8,998 $27,606 $(4,183) $32,421
=======================================================================================================================
<CAPTION>
Statement of Operations information (Dollars in thousands):
Real
Facility Estate Combined
Companies Companies Eliminations Companies
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended June 30, 1996
Gross revenues $ 27,753 $ 5,302 $(5,302) $ 27,753
Costs and expenses (26,997) (1,310) 5,302 (23,005)
-----------------------------------------------------------------------------------------------------------------------
Income from operations 756 3,992 -- 4,748
Other expenses (310) (1,363) -- (1,673)
-----------------------------------------------------------------------------------------------------------------------
Net income $ 446 $ 2,629 $ -- $ 3,075
=======================================================================================================================
Year Ended June 30, 1997
Gross revenues $ 29,520 $ 5,211 $(5,211) $ 29,520
Costs and expenses (28,767) (1,275) 5,211 (24,831)
-----------------------------------------------------------------------------------------------------------------------
Income from operations 753 3,936 -- 4,689
Other expenses (317) (1,325) -- (1,642)
-----------------------------------------------------------------------------------------------------------------------
Net income $ 436 $ 2,611 $ -- $ 3,047
=======================================================================================================================
Year Ended June 30, 1998
Gross revenues $ 31,498 $ 5,260 $(5,260) $ 31,498
Costs and expenses (30,795) (1,238) 5,260 (26,773)
-----------------------------------------------------------------------------------------------------------------------
Income from operations 703 4,022 -- 4,725
Other expenses (284) (1,250) -- (1,534)
-----------------------------------------------------------------------------------------------------------------------
Net income $ 419 $ 2,772 $ -- $ 3,191
=======================================================================================================================
</TABLE>
- -------------------------------------------------------------------------------
52
<PAGE> 53
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- -------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
<TABLE>
Statement of Cash Flows Information (Dollars in thousands)
<CAPTION>
Real
Facility Estate Combined
Companies Companies Eliminations Companies
--------------------------------------------------------------
Year Ended June 30, 1996:
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 446 $ 2,629 $ -- $ 3,075
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 34 1,023 -- 1,057
Change in assets and liabilities:
Decrease in accounts receivable -
residents (552) -- -- (552)
Increase in accounts receivable -
third party payors (806) -- -- (806)
(Increase) decrease in other
receivables and prepaids (3) 625 (596) 26
Increase in accrued management fees (73) -- -- (73)
Increase (decrease) in accounts
payable and other accrued
expenses (149) -- 596 447
-----------------------------------------------------------------------------------------------------------------------
Net Cash Provided By (Used In) Operating
Activities (1,103) 4,277 -- 3,174
-----------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Purchase of property and equipment (80) (79) -- (159)
Net (advances) payments on notes with
Rosewood Care Holding Co. 1,396 (120) -- 1,276
-----------------------------------------------------------------------------------------------------------------------
Net Cash Provided By (Used In) Investing
Activities 1,316 (199) -- 1,117
-----------------------------------------------------------------------------------------------------------------------
Cash Flow From Financing Activities
Repayments of notes -- (1,667) -- (1,667)
Dividends paid (498) (2,411) -- (2,909)
-----------------------------------------------------------------------------------------------------------------------
Net Cash Used In Financing Activities (498) (4,078) -- (4,576)
-----------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) In Cash And Cash
Equivalents (285) -- -- (285)
Cash And Cash Equivalents - Beginning Of
Year 2,511 11 -- 2,522
-----------------------------------------------------------------------------------------------------------------------
Cash And Cash Equivalents - End Of Year $ 2,226 $ 11 $ -- $ 2,237
=======================================================================================================================
</TABLE>
- -------------------------------------------------------------------------------
53
<PAGE> 54
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- -------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
<TABLE>
<CAPTION>
Real
Facility Estate Combined
Companies Companies Eliminations Companies
----------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended June 30, 1997:
Cash Flows From Operating Activities
Net income $ 436 $ 2,611 $ -- $ 3,047
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 45 1,020 -- 1,065
Change in assets and liabilities:
Decrease in accounts receivable -
residents 79 -- -- 79
Increase in accounts receivable -
third party payors (408) -- -- (408)
(Increase) decrease in other
receivables and prepaids 24 352 (286) 90
Increase in accrued management
fees (199) -- -- (199)
Increase (decrease) in accounts
payable and other accrued
expenses (200) 172 286 258
-------------------------------------------------------------------------------------------------------------------
Net Cash Provided By (Used In) Operating
Activities (223) 4,155 -- 3,932
-------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Purchase of property and equipment (50) (105) -- (155)
Net (advances) receipts on notes with affiliates 491 (491) -- --
Net receipts on notes with Rosewood Care
Holding Co. -- 1,022 -- 1,022
-------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Investing Activities 441 426 -- 867
-------------------------------------------------------------------------------------------------------------------
Cash Flow From Financing Activities
Repayments of notes -- (1,698) -- (1,698)
Dividends paid (400) (2,618) -- (3,018)
-------------------------------------------------------------------------------------------------------------------
Net Cash Used In Financing Activities (400) (4,316) -- (4,716)
-------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) In Cash And Cash
Equivalents (182) 265 -- 83
Cash And Cash Equivalents - Beginning Of
Year 2,226 11 -- 2,237
-------------------------------------------------------------------------------------------------------------------
Cash And Cash Equivalents - End Of Year $2,044 $ 276 $ -- $ 2,320
===================================================================================================================
</TABLE>
- -------------------------------------------------------------------------------
54
<PAGE> 55
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- -------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
<TABLE>
<CAPTION>
Real
Facility Estate Combined
Companies Companies Eliminations Companies
-------------------------------------------------------------
Year Ended June 30, 1998:
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 427 $ 2,764 $ -- $ 3,191
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 49 988 -- 1,037
Change in assets and liabilities:
Decrease in accounts receivable -
residents (174) -- -- (174)
Increase in accounts receivable -
third party payors 643 -- -- 643
(Increase) decrease in other
receivables and prepaids (421) (328) 417 (332)
Increase in accrued management
fees 334 -- -- 334
Increase (decrease) in accounts
payable and other accrued
expenses 1,407 (17) (417) 973
----------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Operating
Activities 2,265 3,407 -- 5,672
----------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Purchase of property and equipment (66) (261) -- (327)
Net (advances) receipts on notes with affiliates (1,000) 1,000 -- --
Net receipts on notes with Rosewood Care
Holding Co. -- 124 -- 124
----------------------------------------------------------------------------------------------------------------------
Net Cash Provided By (Used In)
Investing Activities (1,066) 863 -- (203)
----------------------------------------------------------------------------------------------------------------------
Cash Flow From Financing Activities
Repayments of notes (2,020) -- (2,020)
Dividends paid (395) (2,508) -- (2,903)
----------------------------------------------------------------------------------------------------------------------
Net Cash Used In Financing Activities (395) (4,528) -- (4,923)
----------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) In Cash And Cash
Equivalents 806 (260) -- 546
Cash And Cash Equivalents - Beginning Of
Year 2,044 276 -- 2,320
----------------------------------------------------------------------------------------------------------------------
Cash And Cash Equivalents - End Of Year $ 2,850 $ 16 $ -- $ 2,866
======================================================================================================================
</TABLE>
- -------------------------------------------------------------------------------
55
<PAGE> 56
[Letterhead of RBG & CO.]
Independent Auditors' Report
Board of Directors
Rosewood Care Center Facility
and Real Estate Companies
St. Louis, Missouri
We have audited, in accordance with generally accepted auditing standards,
the combined financial statements of Rosewood Care Center Facility Companies
and Real Estate Companies as of June 30, 1997 and 1998 and for each of three
years in the period ended June 30, 1996, 1997 and 1998, and have issued our
report thereon dated September 14, 1998. The combined financial statement
schedules are the responsibility of the Company's management and are presented
for the purpose of complying with Securities and Exchange Commission's rules
and are not part of the combined financial statements. These schedules have
been subjected to the auditing procedures applied in the audit of the
combined financial statements and, in our opinion, presents fairly in all
material respects the financial data required to be set forth herein in
relation to the combined financial statements taken as a whole.
/s/ Rubin, Brown, Gornstein & Co. LLP
RUBIN, BROWN, GORNSTEIN & CO. LLP
St. Louis Missouri
September 14, 1998
56
<PAGE> 57
ROSEWOOD CARE CENTER FACILITIES COMPANIES
AND REAL ESTATE COMPANIES
- -------------------------------------------------------------------------------
<TABLE>
Schedule VIII
Reg S-X210.12-09
<CAPTION>
Valuation And Qualifying Accounts
(Dollars In Thousands)
A B C D E
- -----------------------------------------------------------------------------------------------------------------------
Additions
--------------------------
Charged
Balance At Charged To To Other Balance At
Beginning Costs And Accounts - Deductions - End Of
Description Of Period Expenses Describe Describe Period
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended June 30, 1996:
Allowance for doubtful accounts $120 $86 $-- $-- $206
=======================================================================================================================
Year Ended June 30, 1997:
Allowance for doubtful accounts $206 $18 $-- $-- $224
=======================================================================================================================
Year Ended June 30, 1998:
Allowance for doubtful accounts $224 $-- $-- $-- $168
=======================================================================================================================
</TABLE>
- -------------------------------------------------------------------------------
57
<PAGE> 58
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There were no changes in or disagreements with accountants on accounting
and financial disclosures during the fiscal year ended June 30, 1998.
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE COMPANY
The following table lists the directors and executive officers of the
REMIC and each of the Companies, their ages and their positions. The director
serves for a term of one year. Each executive officer serves at the pleasure of
the director.
<TABLE>
<CAPTION>
Name Age Position with the Issuer
---- --- ------------------------
<S> <C> <C>
Larry D. Vander Maten 52 Director, President
and Principal Financial and
Accounting Officer
Darrell D. Hoefling 48 Vice President
Louis Netemeyer 51 Controller, Secretary
and Treasurer
</TABLE>
Mr. Vander Maten is a founder and principal shareholder (through his trust
or his family limited partnership) of the REMIC and the Companies. Mr. Vander
Maten is actively involved in related companies in which Mr. Vander Maten, his
trust or his family limited partnership is the principal shareholder. Such
businesses have the same management as and operate substantially similar
businesses or businesses closely related to that of the Companies. Mr. Vander
Maten also serves on the Board of Directors of Charlestown, a life care
retirement community in Baltimore, Maryland.
Mr. Hoefling is Vice President of the REMIC and has been Vice President of
Operations of the Companies and the affiliated Rosewood companies since 1985.
He is a shareholder (through his trust or his family limited partnership) of the
Companies and all affiliated Rosewood companies.
Mr. Netemeyer has been Controller, Secretary and Treasurer of the REMIC
since its formation and of the Companies since 1985.
ITEM 11. EXECUTIVE COMPENSATION.
The REMIC has no employees and pays no salaries to its officers. The
Companies also do not regularly pay salaries to any officers. The regular
compensation of the executive officers for services rendered to the Companies is
paid by HSM Management, pursuant to the Management Agreements or the
Administrative Services Agreements. Currently, HSM Management pays all such
compensation in the form of cash. Except for any incentive compensation which
may be paid to Messrs. Vander Maten and Hoefling, all such compensation is paid
from the base management fee payable to HSM Management pursuant to the
Management Agreements.
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<PAGE> 59
The following table sets forth certain information with respect to the
annual compensation paid or accrued for fiscal year ended June 30, 1998 to the
chief executive officer of the REMIC and the Companies and to the only other
executive officer whose total salary exceeded $100,000 during such fiscal year.
<TABLE>
<CAPTION>
Name and Principal Position Salary Bonus
- ---------------------------
<S> <C> <C>
Larry D. Vander Maten $260,000 $138,500
President <F1> <F2>
Darrell D. Hoefling $122,500 $ 49,500
Vice President <F2> <F2>
<FN>
- ----------------------
<F1> Represents amounts paid to Messrs. Vander Maten and Hoefling by HSM
Management. These amounts are allocated by HSM Management based on the
number of facilities that HSM Management manages for the Companies and their
affiliates and the value rendered to individual facilities.
<F2> Paid by the Companies.
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the shares of the REMIC and the Companies
beneficially owned by each person who is the beneficial owner of more than 5% of
the outstanding shares. All of the shares set forth in the following table are
subject to an agreement between the shareholders restricting transfer of the
shares. Each person named in the table has sole voting and investment power
with respect to all shares shown in the table as being owned by such person.
There are no arrangements known to the REMIC or the Companies which may, at a
subsequent date, result in change in control of the REMIC or the Companies.
<TABLE>
<CAPTION>
Percent
Type of Stock Name and Address of Owner of Ownership
- ------------- ------------------------- ------------
<S> <C> <C>
Common Stock Larry D. Vander Maten, as Trustee of
Larry D. Vander Maten Revocable Trust 75%
Or
Vander Maten Family Limited Partnership,
11701 Borman Drive, Suite 315
St. Louis, Missouri 63146
Common Stock Darrell D. Hoefling, as Trustee of
Darrell D. Hoefling Revocable Trust 25%
Or
Hoefling Family Limited Partnership
11701 Borman Drive, Suite 315
St. Louis, Missouri 63146
</TABLE>
59
<PAGE> 60
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During 1998 and 1997 the Companies loaned excess cash to an affiliate,
Rosewood Care Center Holding Co., pursuant to certain promissory notes.
Rosewood Care Center Holding Co. is owned 75% by Mr. Vander Maten's family
limited partnership and 25% by Mr. Hoefling's family limited partnership. Mr.
Vander Maten and Mr. Hoefling through their respective controlled corporations
act as general partner of their respective limited partnerships. Mr. Vander
Maten is the president and sole director and Mr. Hoefling is the vice president
of Rosewood Care Center Holding Co. The highest amount of such indebtedness by
Rosewood Care Center Holding Co. to the Companies during 1998 and 1997 was
$8,075,712 and $9,571,000 respectively. At June 30, 1998 and 1997, the amount
of such indebtedness of Rosewood Care Center Holding Co. to the Companies was
$6,909,712 and $7,033,712 respectively.
At the closing on the issuance of the REMIC's 7 1/4% First Mortgage
Redeemable Bonds due November 1, 2013, $4,369,000 in excess proceeds were
loaned to Rosewood Care Center Holding Co. pursuant to notes to each
Borrowing Company bearing interest at 7 1/4% per annum and having maturities
of October 1997. As of June 30, 1996, when the remaining balance of the
notes aggregated $3,485,000, the original notes were cancelled and replaced
with notes bearing interest at 7 1/4% per annum and due December 31, 1999. At
June 30, 1998, the remaining balance of the notes aggregated $2,841,097.
In December 1993, Rosewood Care Center Holding Co. obtained a letter of
credit which was deposited with the Trustee of the Trust Indenture into the debt
service reserve fund for the benefit of holders of the REMIC's 7 1/4% First
Mortgage Redeemable Bonds due November 1, 2013. Cash of approximately
$3,130,000 which was being held in the debt service reserve fund was then loaned
to Rosewood Care Center Holding Co. pursuant to 3 year notes bearing interest at
7 1/4% per annum. Subsequently, the notes aggregating approximately $3,130,000
were cancelled and replaced with revolving credit notes to allow additional
amounts of excess cash to be loaned to Rosewood Care Center Holding Co. without
the necessity of continuously revising or executing new promissory notes. As of
June 30, 1996 outstanding notes were cancelled and replaced with six (6) new
revolving credit notes which allow Rosewood Care Center Holding Co. to borrow,
pursuant to the revolving credit notes, an aggregate up to $9,100,000 from the
borrowing companies. The notes bear interest at 7 1/4% per annum and are due
December 31, 1999. The balance outstanding for the revolving credit notes
aggregated $4,068,615 as of June 30, 1998. All of the notes from Rosewood
Care Center Holding Co. to the Borrowing Companies are pledged to the Trustee
under the Trust Indenture as additional collateral security for repayment of
the REMIC's 7 1/4% First Mortgage Redeemable Bonds due November 1, 2013.
The Companies have contracted during the current fiscal year with a
related party, Rosewood Therapy Services, Inc., to provide speech, physical
and occupational therapy services to the residents of the facilities. The
Companies reimburse the affiliate for the cost associated with providing
those services to the residents.
60
<PAGE> 61
The Companies incurred expenses for therapy costs to the affiliate,
Rosewood Therapy Services, Inc., in the amount of $2,199,681 for the fiscal
year ended June 30, 1998. Rosewood Therapy Services, Inc. is a wholly owned
subsidiary of Rosewood Care Center Holding Co. Mr. Vander Maten and Mr.
Hoefling are the President and Vice President respectively of Rosewood
Therapy Services, Inc. and Mr. Vander Maten is the sole director. At June
30, 1998, $566,511 of such fees were unpaid but were paid in full subsequent
to the end of the June 30, 1998 fiscal year.
The Guarantors incurred expenses for management fees to HSM
Management during the year ended June 30, 1998 and 1997 of approximately
$2,619,435 and $2,640,352 for services rendered during the 1998 and 1997
fiscal years, respectively. HSM Management is a wholly owned subsidiary of
Rosewood Care Center Holding Co. Mr. Vander Maten and Mr. Hoefling are the
President and Vice President respectively of HSM Management and Mr. Vander
Maten is HSM Management's sole director. At June 30, 1998 and 1997, $599,000
and $265,000, respectively, of such fees were unpaid. All such accrued fees
were paid subsequent to the end of the 1998 and 1997 fiscal years. Pursuant
to the management agreements entered into as of October 21, 1993, the bond
issue date, it was anticipated that the Guarantors would, from time to time,
accrue a portion of the incentive management fees and thus be indebted to the
management company until such amounts were paid. Under the loan documents,
payment of the management fees is subordinated and any note given to the
management company for incentive management fees must be subordinated to
payment of the bonds and preclude remedial action against the Companies until
the bonds are paid in full. The management agreements entered into at the
time of the bond issuance continue in full force and effect.
HSM Management pays the compensation of persons who render
management services to the Guarantors. Such compensation is paid from the
base management fee payable pursuant to the management agreements. In the
last fiscal year, HSM Management allocated $260,000 and $122,500 as the
compensation paid to Messrs. Vander Maten and Hoefling, respectively,
relating to services rendered to the Guarantors. This compensation
arrangement is anticipated to continue.
Each Guarantor pays an annual license fee of $3,000 to Rosewood Care
Center Holding Co. under the terms of a license agreement dated June 30, 1996
under which the Companies are authorized to use the name "Rosewood Care
Center".
Construction of a 60 bed expansion of the facility at Rosewood Care
Center of Galesburg is proceeding as originally planned. The construction is
the undertaking of a related company, Galesburg Real Estate II, L.L.C., which
is owned 75% by Mr. Vander Maten's family limited partnership and 25% by Mr.
Hoefling's family limited partnership. Mr. Vander Maten is the Manager of
Galesburg Real Estate II, L.L.C. Galesburg Real Estate II, L.L.C. was granted
a long term ground lease and easements by Galesburg Real Estate, Inc., as
permitted under the loan documents, for the purpose of facilitating the
expansion. The expansion building is connected to the existing Galesburg
facility by a corridor. The expansion building is owned by the affiliate
Galesburg Real Estate II, L.L.C. but when licensed will be operated by
Rosewood Care Center, Inc. of Galesburg and managed by HSM Management. The
expansion building may share some special use areas and equipment with the
Galesburg facility. However, the Galesburg facility will continue to be able
to function as a separate facility. Therefore, if it should become necessary
or desirable to sever the expansion building from the Galesburg facility or
cease operation of the expansion building, there should be no material
adverse effect on the existing Galesburg facility's ability to operate as a
complete, separate physical structure. Although any rents or proceeds from
the ground lease and easements are encumbered, the ground leases and
easements are not encumbered by the mortgage held by the REMIC on the
61
<PAGE> 62
Galesburg facility. The bifurcated ownership structure is required by the
loan documents and is intended to shelter bondholders from risks associated
with construction. The opening of the Galesburg expansion is projected for
Fall 1998.
The expansion of the Alton facility on terms substantially similar
to those described above for the Galesburg facility has been completed and
the facility opened January 22, 1998. The Alton expansion wing is owned by
an affiliate, Alton Real Estate II, L.L.C., which has an ownership and
management structure which is identical to that of Galesburg Real Estate II,
L.L.C. The expansion wing is leased from the related party, Alton Real
Estate II, L.L.C. The Companies incurred rent expense aggregating $104,159
for the period January 22, 1998 through June 30, 1998, of which $43,448 was
unpaid as of June 30, 1998, but was subsequently paid. Similar expansion is
a possibility at any or all of the remaining facilities.
The Guarantors are all subsidiaries of and file a consolidated tax
return with Rosewood Care Center Holding Co. As of June 30, 1998, the
Companies were owed $19,600 from Rosewood Care Center Holding Co. for
estimated taxes paid for the fiscal year ended June 30, 1998. As of June 30,
1997, the Companies owed $50,115 to Rosewood Care Center Holding Co. for
income taxes for the fiscal year ended June 30, 1997. All such accrued
amounts were paid subsequent to the end of the 1998 and 1997 fiscal years.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS ON FORM 8-K
(a) 1 and 2 Financial Statements and Financial Statement Schedule
The financial statements and the financial statement schedule listed
in Item 8 in the index to Combined Financial Statements and Supplementary
Data are filed as part of this annual report on Form 10-K.
(a) 3 Exhibits
The Exhibits listed in the accompanying index to exhibits are
incorporated by reference herein and filed as part of this annual report on
Form 10-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter.
(c) Exhibits
See the accompanying index to exhibits referenced in Item 14(a)(3)
above for a list of exhibits incorporated herein by reference or filed as
part of this annual report on Form 10-K.
(d) Financial Statement Schedule
See the accompanying index to Combined Financial Statements and
Supplementary Data referenced in Item 14(a)1 and 2 above.
62
<PAGE> 63
SUPPLEMENTAL INFORMATION TO BE FURNISHED
WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT
BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT
The Registrant has only debt registered under the Securities Act of
1933. No annual report has been or will be sent to security (bond) holders.
If any security holder requests information, a copy of this annual report on
Form 10-K will be sent to such security holder.
63
<PAGE> 64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ROSEWOOD CARE CENTERS CAPITAL
FUNDING CORPORATION, Registrant
Dated: September 25, 1998 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and
Principal Financial and Accounting Officer)
64
<PAGE> 65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ROSEWOOD CARE CENTER, INC. OF
SWANSEA, Registrant
Dated: September 25, 1998 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
65
<PAGE> 66
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ROSEWOOD CARE CENTER, INC. OF
GALESBURG, Registrant
Dated: September 25, 1998 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
66
<PAGE> 67
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ROSEWOOD CARE CENTER, INC. OF
PEORIA, Registrant
Dated: September 25, 1998 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
67
<PAGE> 68
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ROSEWOOD CARE CENTER, INC. OF
EAST PEORIA, Registrant
Dated: September 25, 1998 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
68
<PAGE> 69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ROSEWOOD CARE CENTER, INC. OF
ALTON, Registrant
Dated: September 25, 1998 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
69
<PAGE> 70
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ROSEWOOD CARE CENTER, INC. OF
MOLINE, Registrant
Dated: September 25, 1998 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
70
<PAGE> 71
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SWANSEA REAL ESTATE, INC., Registrant
Dated: September 25, 1998 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal and Executive Officer and Principal
Financial and Accounting Officer)
71
<PAGE> 72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GALESBURG REAL ESTATE, INC., Registrant
Dated: September 25, 1998 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
72
<PAGE> 73
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PEORIA REAL ESTATE, INC., Registrant
Dated: September 25, 1998 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
73
<PAGE> 74
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
EAST PEORIA REAL ESTATE, INC., Registrant
Dated: September 25, 1998 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
74
<PAGE> 75
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ALTON REAL ESTATE, INC., Registrant
Dated: September 25, 1998 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
75
<PAGE> 76
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MOLINE REAL ESTATE, INC., Registrant
Dated: September 25, 1998 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
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<PAGE> 77
ROSEWOOD CARE CENTERS CAPITAL FUNDING CORPORATION
EXHIBIT INDEX
These Exhibits are numbered in accordance with the Exhibit Table of Item 601
of Regulation S-K
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<C> <S>
3.1 Reference is made to the Amended and Restated Articles of
Incorporation of Rosewood Care Centers Capital Funding Corporation
filed on September 28, 1994 as Exhibit 3.1 of the Form 10-K of
Registrants.
3.2 Reference is made to the Amended and Restated Articles of
Incorporation of Rosewood Care Center, Inc. of Swansea filed on
September 28, 1994 as Exhibit 3.2 of the Form 10-K of Registrants.
3.3 Reference is made to the Amended and Restated Articles of
Incorporation of Rosewood Care Center, Inc. of Galesburg filed on
September 28, 1994 as Exhibit 3.3 of the Form 10-K of Registrants.
3.4 Reference is made to the Amended and Restated Articles of
Incorporation of Rosewood Care Center, Inc. of East Peoria filed on
September 28, 1994 as Exhibit 3.4 of the Form 10-K of Registrants.
3.5 Reference is made to the Amended and Restated Articles of
Incorporation of Rosewood Care Center, Inc. of Peoria filed on
September 28, 1994 as Exhibit 3.5 of the Form 10-K of Registrants.
3.6 Reference is made to the Amended and Restated Articles of
Incorporation of Rosewood Care Center, Inc. of Alton filed on
September 28, 1994 as Exhibit 3.6 of the Form 10-K of Registrants.
3.7 Reference is made to the Amended and Restated Articles of
Incorporation of Rosewood Care Center, Inc. of Moline filed on
September 28, 1994 as Exhibit 3.7 of the Form 10-K of Registrants.
3.8 Reference is made to the Amended and Restated Articles of
Incorporation of Swansea Real Estate, Inc. filed on September 28,
1994 as Exhibit 3.8 of the Form 10-K of Registrants.
3.9 Reference is made to the Amended and Restated Articles of
Incorporation of Galesburg Real Estate, Inc. filed on September 28,
1994 as Exhibit 3.9 of the Form 10-K of Registrants.
3.10 Reference is made to the Amended and Restated Articles of
Incorporation of East Peoria Real Estate, Inc. filed on
September 28, 1994 as Exhibit 3.10 of the Form 10-K of Registrants.
3.11 Reference is made to the Amended and Restated Articles of
Incorporation of Peoria Real Estate, Inc. filed on September 28,
1994 as Exhibit 3.11 of the Form 10-K of Registrants.
3.12 Reference is made to the Amended and Restated Articles of
Incorporation of Alton Real Estate, Inc. filed on September 28, 1994
as Exhibit 3.12 of the Form 10-K of Registrants.
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<PAGE> 78
3.13 Reference is made to the Amended and Restated Articles of
Incorporation of Moline Real Estate, Inc. filed on September 28,
1994 as Exhibit 3.13 of the Form 10-K of Registrants.
3.14 Reference is made to the Bylaws of Rosewood Care Centers Capital
Funding Corporation filed on July 13, 1993 as Exhibit 3.14 of the
Registration Statement of Registrants (No. 33-65948) declared
effective October 14, 1993.
3.15 Reference is made to the Bylaws of Rosewood Care Center, Inc. of
Swansea filed on July 13, 1993 as Exhibit 3.15 of the Registration
Statement of Registrants (No. 33-65948) declared effective October
14, 1993.
3.16 Reference is made to the Bylaws of Rosewood Care Center, Inc. of
Galesburg filed on July 13, 1993 as Exhibit 3.16 of the Registration
Statement of Registrants (No. 33-65948) declared effective October
14, 1993.
3.17 Reference is made to the Bylaws of Rosewood Care Center, Inc. of
East Peoria filed on July 13, 1993 as Exhibit 3.17 of the
Registration Statement of Registrants (No. 33-65948) declared
effective October 14, 1993.
3.18 Reference is made to the Bylaws of Rosewood Care Center, Inc. of
Peoria filed on July 13, 1993 as Exhibit 3.18 of the Registration
Statement of Registrants (No. 33-65948) declared effective October
14, 1993.
3.19 Reference is made to the Bylaws of Rosewood Care Center, Inc. of
Alton filed on July 13, 1993 as Exhibit 3.19 of the Registration
Statement of Registrants (No. 33-65948) declared effective October
14, 1993.
3.20 Reference is made to the Bylaws of Rosewood Care Center, Inc. of
Moline filed on July 13, 1993 as Exhibit 3.20 of the Registration
Statement of Registrants (No. 33-65948) declared effective October
14, 1993.
3.21 Reference is made to the Bylaws of Swansea Real Estate, Inc. filed
on July 13, 1993 as Exhibit 3.21 of the Registration Statement of
Registrants (No. 33-65948) declared effective October 14, 1993.
3.22 Reference is made to the Bylaws of Galesburg Real Estate, Inc. filed
on July 13, 1993 as Exhibit 3.22 of the Registration Statement of
Registrants (No. 33-65948) declared effective October 14, 1993.
3.23 Reference is made to the Bylaws of East Peoria Real Estate, Inc.
filed on July 13, 1993 as Exhibit 3.23 of the Registration Statement
of Registrants (No. 33-65948) declared effective October 14, 1993.
3.24 Reference is made to the Bylaws of Peoria Real Estate, Inc. filed on
July 13, 1993 as Exhibit 3.24 of the Registration Statement of
Registrants (No. 33-65948) declared effective October 14, 1993.
3.25 Reference is made to the Bylaws of Alton Real Estate, Inc. filed on
July 13, 1993 as Exhibit 3.25 of the Registration Statement of
Registrants (No. 33-65948) declared effective October 14, 1993.
3.26 Reference is made to the Bylaws of Moline Real Estate, Inc. filed on
July 13, 1993 as Exhibit 3.26 of the Registration Statement of
Registrants (No. 33-65948) declared effective October 14, 1993.
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<PAGE> 79
4.1 Reference is made to Article III of the Articles of Incorporation of
Rosewood Care Centers Capital Funding Corporation filed on July 13,
1993 as Exhibit 3.1 (and referenced in Exhibit 4.1) of the
Registration Statement of Registrants (No. 33-65948) declared
effective October 14, 1993.
4.2 Reference is made to the Trust Indenture filed on November 29, 1993
as Exhibit 4.2 of the Form 10-Q of Registrants.
4.3 Reference is made to the Bond filed on November 29, 1993 as
Exhibit 4.3 of the Form 10-Q of Registrants.
4.4 Reference is made to the Loan Guaranty Agreement between Rosewood
Care Centers Capital Funding Corporation and Rosewood Care Center,
Inc. of Alton and the additional Loan Guaranty Agreements listed on
the Schedule filed on November 29, 1993 as Exhibit 4.4 of the Form
10-Q of Registrants.
4.5 Reference is made to the Note executed by Alton Real Estate, Inc.
and the additional Notes listed on the Schedule filed on November
29, 1993 as Exhibit 4.5 of the Form 10-Q of Registrants.
10.1 Reference is made to the Trust Indenture filed on November 29, 1993
as Exhibit 4.2 of the Form 10-Q of Registrants.
10.2 Reference is made to the Collateral Pledge and Security Agreement
between Rosewood Care Centers Capital Funding Corporation and Alton
Real Estate, Inc. and the additional Collateral Pledge and Security
Agreements listed on the Schedule filed on November 29, 1993 as
Exhibit 10.2 of the Form 10-Q of Registrants.
10.3 Reference is made to the Mortgage Between Alton Real Estate, Inc.
and Rosewood Care Centers Capital Funding Corporation and the
additional Mortgages listed on the Schedule filed on November 29,
1993 as Exhibit 10.3 of the Form 10-Q of Registrants.
10.4 Reference is made to the Security Agreement between Rosewood Care
Centers Capital Funding Corporation and Rosewood Care Center, Inc.
of Alton and the additional Security Agreements listed on the
Schedule filed on November 29, 1993 as Exhibit 10.4 of the Form 10-Q
of Registrants.
10.5 Reference is made to the Assignment of Rents and Leases between
Rosewood Care Centers Capital Funding Corporation and Alton Real
Estate, Inc. and the additional Assignments of Rents and Leases
listed on the Schedule filed on November 29, 1993 as Exhibit 10.5 of
the Form 10-Q of Registrants.
10.6 Reference is made to the Subordination and Attornment Agreement
between Rosewood Care Centers Capital Funding Corporation and Alton
Real Estate, Inc. and the additional Subordination and Attornment
Agreements listed on the Schedule filed on November 29, 1993 as
Exhibit 10.6 of the Form 10-Q of Registrants.
10.7 Reference is made to the Acknowledgment and Consent between Rosewood
Care Centers Capital Funding Corporation and Hovan Enterprises, Inc.
filed on November 29, 1993 as Exhibit 10.7 of the Form 10-Q of
Registrants
10.8 Reference is made to the Administrative Services Agreement between
Hovan Enterprises, Inc. and Alton Real Estate, Inc. and the
additional Administrative Services Agreements listed on the Schedule
filed on November 29, 1993 as Exhibit 10.8 of the Form 10-Q of
Registrants.
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<PAGE> 80
10.9 Reference is made to the Revised and Restated Management Agreement
between Rosewood Care Center, Inc. of Alton and Hovan Enterprises,
Inc. and the additional Revised and Restated Management Agreements
listed on the Schedule filed on November 29, 1993 as Exhibit 10.9 of
the Form 10-Q of Registrants.
10.10 Reference is made to the Lease between Alton Real Estate, Inc. and
Rosewood Care Center, Inc. of Alton and the additional Leases listed
on the Schedule filed on November 29, 1993 as Exhibit 10.10 of the
Form 10-Q of Registrants.
10.11 Reference is made to the Assignment of Management Agreement between
Rosewood Care Center, Inc. of Alton and Mercantile Bank and the
additional Assignments of Management Agreement listed on the
Schedule filed on November 29, 1993 as Exhibit 10.11 of the Form
10-Q of Registrants.
10.12 Reference is made to the Contract between Resident and Facility
filed on July 13, 1993 as Exhibit 10.12 of the Registration
Statement of Registrants (No. 33-65948) declared effective October
14, 1993.
10.13 Reference is made to the Loan Agreement among Rosewood Care Centers
Capital Funding Corporation and Alton Real Estate, Inc., Swansea
Real Estate, Inc., Peoria Real Estate, Inc., East Peoria Real
Estate, Inc., Moline Real Estate, Inc., and Galesburg Real Estate,
Inc. filed on November 29, 1993 as Exhibit 10.13 of the Form 10-Q of
Registrants.
10.14 Reference is made to the Loan Guaranty Agreement filed on November
29, 1993 as Exhibit 4.4 of the Form 10-Q of Registrants.
10.15 Reference is made to the Letter of Credit issued by Sun Bank,
National Association to Mercantile Bank of St. Louis N.A. as Trustee
under the Trust Indenture on December 6, 1993 and substituted for
the cash in the Debt Service Reserve Fund on December 9, 1993, filed
on February 11, 1994 as Exhibit 10.15 on the Form 10-Q of the
Registrants.
10.16 Reference is made to the renewal of the Letter of Credit filed on
February 11, 1994 as Exhibit 10.15 on the Form 10-Q of the
Registrants, which renewal was filed on February 14, 1996 as Exhibit
10.16 of the Form 10-Q of the Registrants.
10.17 Reference is made to the renewal of the Letter of Credit filed on
February 11, 1994 as Exhibit 10.15 on the Form 10-Q of the
Registrants, which renewal was filed on February 13, 1996 as Exhibit
10.17 of the Form 10-Q of the Registrants.
10.18 Reference is made to the renewal of the Letter of Credit filed on
February 11, 1994 as Exhibit 10.15 on the Form 10-Q of the
Registrants, which renewal was filed on November 13, 1996 as Exhibit
10.18 of the Form 10-Q of the Registrants.
10.19 Reference is made to the Consultant Services Agreement between
Rosewood Therapy Services, Inc. and Rosewood Care Center, Inc. of
Alton (Additional Consultant Services Agreements listed on the
Schedule), which was filed on November 12, 1997 as Exhibit 10.19 of
the Form 10-Q of the Registrants.
10.20 Reference is made to Renewal of the Letter of Credit filed on
February 11, 1994 as Exhibit 10.15 on the Form 10-Q of the
Registrants, which renewal was filed on February 11, 1998 as Exhibit
10.20 of the Form 10-Q of the Registrants.
80
<PAGE> 81
27.1 Financial Data Schedule of Rosewood Care Center Capital Funding
Corporation.
27.2 Financial Data Schedule of Rosewood Care Center of Galesburg.
27.3 Financial Data Schedule of Rosewood Care Center of Swansea.
27.4 Financial Data Schedule of Rosewood Care Center of East Peoria.
27.5 Financial Data Schedule of Rosewood Care Center of Peoria.
27.6 Financial Data Schedule of Rosewood Care Center of Alton.
27.7 Financial Data Schedule of Rosewood Care Center of Moline.
27.8 Financial Data Schedule of Swansea Real Estate.
27.9 Financial Data Schedule of Galesburg Real Estate.
27.10 Financial Data Schedule of East Peoria Real Estate.
27.11 Financial Data Schedule of Peoria Real Estate.
27.12 Financial Data Schedule of Alton Real Estate.
27.13 Financial Data Schedule of Moline Real Estate.
99.1 Reference is made to the Amended and Restated License Agreement
filed on September 28, 1994 as Exhibit 99.1 of the Form 10-K of the
Registrants.
99.2 Reference is made to the Medicare Provider Agreement between The
Secretary of Health and Human Services and Rosewood Care Center,
Inc. of Swansea filed on July 13, 1993 as Exhibit 99.2 of the
Registration Statement of Registrants (No. 33-65948) declared
effective October 14, 1993.
99.3 Reference is made to the Medicare Provider Agreement between The
Secretary of Health and Human Services and Rosewood Care Center,
Inc. of Alton filed on July 13, 1993 as Exhibit 99.3 of the
Registration Statement of Registrants (No. 33-65948) declared
effective October 14, 1993.
99.4 Reference is made to the Medicare Provider Agreement between The
Secretary of Health and Human Services and Rosewood Care Center,
Inc. of East Peoria filed on July 13, 1993 as Exhibit 99.4 of the
Registration Statement of Registrants (No. 33-65948) declared
effective October 14, 1993.
99.5 Reference is made to the Medicare Provider Agreement between The
Secretary of Health and Human Services and Rosewood Care Center,
Inc. of Peoria filed on July 13, 1993 as Exhibit 99.5 of the
Registration Statement of Registrants (No. 33-65948) declared
effective October 14, 1993.
99.6 Reference is made to the Medicare Provider Agreement between The
Secretary of Health and Human Services and Rosewood Care Center,
Inc. of Galesburg filed on July 13, 1993 as Exhibit 99.6 of the
Registration Statement of Registrants (No. 33-65948) declared
effective October 14, 1993.
81
<PAGE> 82
99.7 Reference is made to the Medicare Provider Agreement between The
Secretary of Health and Human Services and Rosewood Care Center,
Inc. of Moline filed on July 13, 1993 as Exhibit 99.7 of the
Registration Statement of Registrants (No. 33-65948) declared
effective October 14, 1993.
99.8 Reference is made to the Medicaid Provider Agreement between The
Illinois Department of Public Aid and Rosewood Care Center, Inc. of
Swansea filed on July 13, 1993 as Exhibit 99.8 of the Registration
Statement of Registrants (No. 33-65948) declared effective October
14, 1993.
99.9 Reference is made to the Medicaid Provider Agreement between The
Illinois Department of Public Aid and Rosewood Care Center, Inc. of
Alton filed on July 13, 1993 as Exhibit 99.9 of the Registration
Statement of Registrants (No. 33-65948) declared effective October
14, 1993.
99.10 Reference is made to the Medicaid Provider Agreement between The
Illinois Department of Public Aid and Rosewood Care Center, Inc. of
East Peoria filed on July 13, 1993 as Exhibit 99.10 of the
Registration Statement of Registrants (No. 33-65948) declared
effective October 14, 1993.
99.11 Reference is made to the Medicaid Provider Agreement between The
Illinois Department of Public Aid and Rosewood Care Center, Inc. of
Peoria filed on July 13, 1993 as Exhibit 99.11 of the Registration
Statement of Registrants (No. 33-65948) declared effective October
14, 1993.
99.12 Reference is made to the Medicaid Provider Agreement between The
Illinois Department of Public Aid and Rosewood Care Center, Inc. of
Galesburg filed on July 13, 1993 as Exhibit 99.12 of the
Registration Statement of Registrants (No. 33-65948) declared
effective October 14, 1993.
99.13 Reference is made to the Medicaid Provider Agreement between The
Illinois Department of Public Aid and Rosewood Care Center, Inc. of
Moline filed on July 13, 1993 as Exhibit 99.13 of the Registration
Statement of Registrants (No. 33-65948) declared effective October
14, 1993.
99.14 Reference is made to the Lease Agreement filed on September 28, 1994
as Exhibit 99.14 of the Form 10-K of the Registrants.
99.15 Reference is made to the Revised and Restated Grant and Declaration
of Easements filed on September 28, 1994 as Exhibit 99.15 of the
Form 10-K of the Registrants.
99.16 Reference is made to the Managed Care Agreement between Rosewood
Care Center, Inc. of Moline, Heritage National Health Plan, Inc.,
John Deere Family Health Plan and Deere and Company filed on May 15,
1996 as Exhibit 99.16 of the Form 10-Q of the Registrants.
99.17 Reference is made to the Skilled Nursing Facility Agreement between
Health Care Service Corporation and Rosewood Care Center, et al.
filed on September 26, 1996 as Exhibit 99.17 of the Form 10-K of the
Registrants.
</TABLE>
82
<PAGE> 83
SCHEDULE
THE FOLLOWING DOCUMENTS ARE SUBSTANTIALLY IDENTICAL TO THE DOCUMENT FILED AS
THE CORRESPONDING EXHIBIT IN THE 10-Q OF THE REGISTRANTS FILED ON NOVEMBER
23, 1993 10-Q.
<TABLE>
<C> <S>
4.4 Loan Guaranty Agreement between Rosewood Care Centers Capital
Funding Corporation and Rosewood Care Center, Inc. of Swansea
Loan Guaranty Agreement between Rosewood Care Centers Capital
Funding Corporation and Rosewood Care Center, Inc. of Peoria
Loan Guaranty Agreement between Rosewood Care Centers Capital
Funding Corporation and Rosewood Care Center, Inc. of East Peoria
Loan Guaranty Agreement between Rosewood Care Centers Capital
Funding Corporation and Rosewood Care Center, Inc. of Moline
Loan Guaranty Agreement between Rosewood Care Centers Capital
Funding Corporation and Rosewood Care Center, Inc. of Galesburg
4.5 Note executed by Swansea Real Estate, Inc.
Note executed by Peoria Real Estate, Inc.
Note executed by East Peoria Real Estate, Inc.
Note executed by Moline Real Estate, Inc.
Note executed by Galesburg Real Estate, Inc.
10.2 Collateral Pledge and Security Agreement between Rosewood Care
Centers Capital Funding Corporation and Swansea Real Estate, Inc.
Collateral Pledge and Security Agreement between Rosewood Care
Centers Capital Funding Corporation and Peoria Real Estate, Inc.
Collateral Pledge and Security Agreement between Rosewood Care
Centers Capital Funding Corporation and East Peoria Real Estate,
Inc.
Collateral Pledge and Security Agreement between Rosewood Care
Centers Capital Funding Corporation and Moline Real Estate, Inc.
Collateral Pledge and Security Agreement between Rosewood Care
Centers Capital Funding Corporation and Galesburg Real Estate, Inc.
10.3 Mortgage Between Swansea Real Estate, Inc. and Rosewood Care Centers
Capital Funding Corporation
Mortgage Between Peoria Real Estate, Inc. and Rosewood Care Centers
Capital Funding Corporation
Mortgage Between East Peoria Real Estate, Inc. and Rosewood Care
Centers Capital Funding Corporation
83
<PAGE> 84
Mortgage Between Moline Real Estate, Inc. and Rosewood Care Centers
Capital Funding Corporation
Mortgage Between Galesburg Real Estate, Inc. and Rosewood Care
Centers Capital Funding Corporation
10.4 Security Agreement between Rosewood Care Centers Capital Funding
Corporation and Rosewood Care Center, Inc. of Swansea
Security Agreement between Rosewood Care Centers Capital Funding
Corporation and Rosewood Care Center, Inc. of Peoria
Security Agreement between Rosewood Care Centers Capital Funding
Corporation and Rosewood Care Center, Inc. of East Peoria
Security Agreement between Rosewood Care Centers Capital Funding
Corporation and Rosewood Care Center, Inc. of Moline
Security Agreement between Rosewood Care Centers Capital Funding
Corporation and Rosewood Care Center, Inc. of Galesburg
10.5 Assignment of Rents and Leases between Rosewood Care Centers Capital
Funding Corporation and Swansea Real Estate, Inc.
Assignment of Rents and Leases between Rosewood Care Centers Capital
Funding Corporation and Peoria Real Estate, Inc.
Assignment of Rents and Leases between Rosewood Care Centers Capital
Funding Corporation and East Peoria Real Estate, Inc.
Assignment of Rents and Leases between Rosewood Care Centers Capital
Funding Corporation and Moline Real Estate, Inc.
Assignment of Rents and Leases between Rosewood Care Centers Capital
Funding Corporation and Galesburg Real Estate, Inc.
10.6 Subordination and Attornment Agreement between Rosewood Care Centers
Capital Funding Corporation and Swansea Real Estate, Inc.
Subordination and Attornment Agreement between Rosewood Care Centers
Capital Funding Corporation and Peoria Real Estate, Inc.
Subordination and Attornment Agreement between Rosewood Care Centers
Capital Funding Corporation and East Peoria Real Estate, Inc.
Subordination and Attornment Agreement between Rosewood Care Centers
Capital Funding Corporation and Moline Real Estate, Inc.
Subordination and Attornment Agreement between Rosewood Care Centers
Capital Funding Corporation and Galesburg Real Estate, Inc.
10.8 Administrative Services Agreement between Hovan Enterprises, Inc.
and Swansea Real Estate, Inc.
84
<PAGE> 85
Administrative Services Agreement between Hovan Enterprises, Inc.
and Peoria Real Estate, Inc.
Administrative Services Agreement between Hovan Enterprises, Inc.
and East Peoria Real Estate, Inc.
Administrative Services Agreement between Hovan Enterprises, Inc.
and Moline Real Estate, Inc.
Administrative Services Agreement between Hovan Enterprises, Inc.
and Galesburg Real Estate, Inc.
10.9 Revised and Restated Management Agreement between Rosewood Care
Center, Inc. of Swansea and Hovan Enterprises, Inc.
Revised and Restated Management Agreement between Rosewood Care
Center, Inc. of Peoria and Hovan Enterprises, Inc.
Revised and Restated Management Agreement between Rosewood Care
Center, Inc. of East Peoria and Hovan Enterprises, Inc.
Revised and Restated Management Agreement between Rosewood Care
Center, Inc. of Moline and Hovan Enterprises, Inc.
Revised and Restated Management Agreement between Rosewood Care
Center, Inc. of Galesburg and Hovan Enterprises, Inc.
10.10 Lease between Swansea Real Estate, Inc. and Rosewood Care Center,
Inc. of Swansea
Lease between Swansea Real Estate, Inc. and Rosewood Care Center,
Inc. of Peoria
Lease between Swansea Real Estate, Inc. and Rosewood Care Center,
Inc. of East Peoria
Lease between Swansea Real Estate, Inc. and Rosewood Care Center,
Inc. of Moline
Lease between Swansea Real Estate, Inc. and Rosewood Care Center,
Inc. of Galesburg
10.11 Assignment of Management Agreement between Rosewood Care Center,
Inc. of Swansea and Mercantile Bank
Assignment of Management Agreement between Rosewood Care Center,
Inc. of Peoria and Mercantile Bank
Assignment of Management Agreement between Rosewood Care Center,
Inc. of East Peoria and Mercantile Bank
Assignment of Management Agreement between Rosewood Care Center,
Inc. of Moline and Mercantile Bank
85
<PAGE> 86
Assignment of Management Agreement between Rosewood Care Center,
Inc. of Galesburg and Mercantile Bank
<CAPTION>
THE FOLLOWING DOCUMENTS ARE SUBSTANTIALLY IDENTICAL TO THE DOCUMENT FILED AS
THE CORRESPONDING EXHIBIT IN THE 10-Q OF THE REGISTRANTS FILED ON NOVEMBER
12, 1997
<C> <S>
10.19 Consultant Services Agreement between Rosewood Therapy Services,
Inc. and Rosewood Care Center, Inc. of Swansea
Consultant Services Agreement between Rosewood Therapy Services,
Inc. and Rosewood Care Center, Inc. of Moline
Consultant Services Agreement between Rosewood Therapy Services,
Inc. and Rosewood Care Center, Inc. of Galesburg
Consultant Services Agreement between Rosewood Therapy Services,
Inc. and Rosewood Care Center, Inc. of Peoria
Consultant Services Agreement between Rosewood Therapy Services,
Inc. and Rosewood Care Center, Inc. of East Peoria
</TABLE>
86
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FINANCIAL STATEMENTS AT JUNE 30, 1998 FOR THE YEAR ENDED JUNE 30,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000909110
<NAME> ROSEWOOD CARE CENTER CAPITAL FUNDING CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 262
<SECURITIES> 0
<RECEIVABLES> 25,561
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 262
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 25,823
<CURRENT-LIABILITIES> 156
<BONDS> 25,666
<COMMON> 1
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 25,823
<SALES> 0
<TOTAL-REVENUES> 1,923
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,923
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMBINED FINANCIAL STATEMENTS AT JUNE 30, 1998 FOR
THE YEAR ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000909114
<NAME> ROSEWOOD CARE CENTER OF GALESBURG
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 2,866
<SECURITIES> 0
<RECEIVABLES> 4,286
<ALLOWANCES> 168
<INVENTORY> 0
<CURRENT-ASSETS> 7,689
<PP&E> 25,264
<DEPRECIATION> 8,282
<TOTAL-ASSETS> 32,421
<CURRENT-LIABILITIES> 6,966
<BONDS> 0
<COMMON> 65
0
0
<OTHER-SE> 1,900
<TOTAL-LIABILITY-AND-EQUITY> 32,421
<SALES> 31,498
<TOTAL-REVENUES> 32,153
<CGS> 0
<TOTAL-COSTS> 26,773
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,924
<INCOME-PRETAX> 3,456
<INCOME-TAX> 265
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,191
<EPS-PRIMARY> 49
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMBINED FINANCIAL STATEMENTS AT JUNE 30, 1998 FOR
THE YEAR ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000909113
<NAME> ROSEWOOD CARE CENTER OF SWANSEA
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 2,866
<SECURITIES> 0
<RECEIVABLES> 4,286
<ALLOWANCES> 168
<INVENTORY> 0
<CURRENT-ASSETS> 7,689
<PP&E> 25,264
<DEPRECIATION> 8,282
<TOTAL-ASSETS> 32,421
<CURRENT-LIABILITIES> 6,966
<BONDS> 0
<COMMON> 65
0
0
<OTHER-SE> 1,900
<TOTAL-LIABILITY-AND-EQUITY> 32,421
<SALES> 31,498
<TOTAL-REVENUES> 32,153
<CGS> 0
<TOTAL-COSTS> 26,773
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,924
<INCOME-PRETAX> 3,456
<INCOME-TAX> 265
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,191
<EPS-PRIMARY> 49
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMBINED FINANCIAL STATEMENTS AT JUNE 30, 1998 FOR THE
YEAR ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000909115
<NAME> ROSEWOOD CARE CENTER OF EAST PEORIA
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 2,866
<SECURITIES> 0
<RECEIVABLES> 4,286
<ALLOWANCES> 168
<INVENTORY> 0
<CURRENT-ASSETS> 7,689
<PP&E> 25,264
<DEPRECIATION> 8,282
<TOTAL-ASSETS> 32,421
<CURRENT-LIABILITIES> 6,966
<BONDS> 0
<COMMON> 65
0
0
<OTHER-SE> 1,900
<TOTAL-LIABILITY-AND-EQUITY> 32,421
<SALES> 31,498
<TOTAL-REVENUES> 32,153
<CGS> 0
<TOTAL-COSTS> 26,773
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,924
<INCOME-PRETAX> 3,456
<INCOME-TAX> 265
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,191
<EPS-PRIMARY> 49
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMBINED FINANCIAL STATEMENTS AT JUNE 30, 1998 FOR
THE YEAR ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000909116
<NAME> ROSEWOOD CARE CENTER OF PEORIA
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 2,866
<SECURITIES> 0
<RECEIVABLES> 4,286
<ALLOWANCES> 168
<INVENTORY> 0
<CURRENT-ASSETS> 7,689
<PP&E> 25,264
<DEPRECIATION> 8,282
<TOTAL-ASSETS> 32,421
<CURRENT-LIABILITIES> 6,966
<BONDS> 0
<COMMON> 65
0
0
<OTHER-SE> 1,900
<TOTAL-LIABILITY-AND-EQUITY> 32,421
<SALES> 31,498
<TOTAL-REVENUES> 32,153
<CGS> 0
<TOTAL-COSTS> 26,773
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,924
<INCOME-PRETAX> 3,456
<INCOME-TAX> 265
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,191
<EPS-PRIMARY> 49
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMBINED FINANCIAL STATEMENTS AT JUNE 30, 1998 FOR THE
YEAR ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000909117
<NAME> ROSEWOOD CARE CENTER OF ALTON
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 2,866
<SECURITIES> 0
<RECEIVABLES> 4,286
<ALLOWANCES> 168
<INVENTORY> 0
<CURRENT-ASSETS> 7,689
<PP&E> 25,264
<DEPRECIATION> 8,282
<TOTAL-ASSETS> 32,421
<CURRENT-LIABILITIES> 6,966
<BONDS> 0
<COMMON> 65
0
0
<OTHER-SE> 1,900
<TOTAL-LIABILITY-AND-EQUITY> 32,421
<SALES> 31,498
<TOTAL-REVENUES> 32,153
<CGS> 0
<TOTAL-COSTS> 26,773
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,924
<INCOME-PRETAX> 3,456
<INCOME-TAX> 265
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,191
<EPS-PRIMARY> 49
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMBINED FINANCIAL STATEMENTS AT JUNE 30, 1998 FOR
THE YEAR ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000909118
<NAME> ROSEWOOD CARE CENTER OF MOLINE
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 2,866
<SECURITIES> 0
<RECEIVABLES> 4,286
<ALLOWANCES> 168
<INVENTORY> 0
<CURRENT-ASSETS> 7,689
<PP&E> 25,264
<DEPRECIATION> 8,282
<TOTAL-ASSETS> 32,421
<CURRENT-LIABILITIES> 6,966
<BONDS> 0
<COMMON> 65
0
0
<OTHER-SE> 1,900
<TOTAL-LIABILITY-AND-EQUITY> 32,421
<SALES> 31,498
<TOTAL-REVENUES> 32,153
<CGS> 0
<TOTAL-COSTS> 26,773
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,924
<INCOME-PRETAX> 3,456
<INCOME-TAX> 265
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,191
<EPS-PRIMARY> 49
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMBINED FINANCIAL STATEMENTS AT JUNE 30, 1998 FOR THE
YEAR ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000909120
<NAME> SWANSEA REAL ESTATE
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 2,866
<SECURITIES> 0
<RECEIVABLES> 4,286
<ALLOWANCES> 168
<INVENTORY> 0
<CURRENT-ASSETS> 7,689
<PP&E> 25,264
<DEPRECIATION> 8,282
<TOTAL-ASSETS> 32,421
<CURRENT-LIABILITIES> 6,966
<BONDS> 0
<COMMON> 65
0
0
<OTHER-SE> 1,900
<TOTAL-LIABILITY-AND-EQUITY> 32,421
<SALES> 31,498
<TOTAL-REVENUES> 32,153
<CGS> 0
<TOTAL-COSTS> 26,773
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,924
<INCOME-PRETAX> 3,456
<INCOME-TAX> 265
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,191
<EPS-PRIMARY> 49
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMBINED FINANCIAL STATEMENTS AT JUNE 30, 1998 FOR THE
YEAR ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000909121
<NAME> GALESBURG REAL ESTATE
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 2,866
<SECURITIES> 0
<RECEIVABLES> 4,286
<ALLOWANCES> 168
<INVENTORY> 0
<CURRENT-ASSETS> 7,689
<PP&E> 25,264
<DEPRECIATION> 8,282
<TOTAL-ASSETS> 32,421
<CURRENT-LIABILITIES> 6,966
<BONDS> 0
<COMMON> 65
0
0
<OTHER-SE> 1,900
<TOTAL-LIABILITY-AND-EQUITY> 32,421
<SALES> 31,498
<TOTAL-REVENUES> 32,153
<CGS> 0
<TOTAL-COSTS> 26,773
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,924
<INCOME-PRETAX> 3,456
<INCOME-TAX> 265
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,191
<EPS-PRIMARY> 49
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMBINED FINANCIAL STATEMENTS AT JUNE 30, 1998 FOR THE
YEAR ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000909122
<NAME> EAST PEORIA REAL ESTATE
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 2,866
<SECURITIES> 0
<RECEIVABLES> 4,286
<ALLOWANCES> 168
<INVENTORY> 0
<CURRENT-ASSETS> 7,689
<PP&E> 25,264
<DEPRECIATION> 8,282
<TOTAL-ASSETS> 32,421
<CURRENT-LIABILITIES> 6,966
<BONDS> 0
<COMMON> 65
0
0
<OTHER-SE> 1,900
<TOTAL-LIABILITY-AND-EQUITY> 32,421
<SALES> 31,498
<TOTAL-REVENUES> 32,153
<CGS> 0
<TOTAL-COSTS> 26,773
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,924
<INCOME-PRETAX> 3,456
<INCOME-TAX> 265
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,191
<EPS-PRIMARY> 49
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMBINED FINANCIAL STATEMENTS AT JUNE 30, 1998 FOR THE
YEAR ENDED JUNE 30,1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000909123
<NAME> PEORIA REAL ESTATE
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 2,866
<SECURITIES> 0
<RECEIVABLES> 4,286
<ALLOWANCES> 168
<INVENTORY> 0
<CURRENT-ASSETS> 7,689
<PP&E> 25,264
<DEPRECIATION> 8,282
<TOTAL-ASSETS> 32,421
<CURRENT-LIABILITIES> 6,966
<BONDS> 0
<COMMON> 65
0
0
<OTHER-SE> 1,900
<TOTAL-LIABILITY-AND-EQUITY> 32,421
<SALES> 31,498
<TOTAL-REVENUES> 32,153
<CGS> 0
<TOTAL-COSTS> 26,773
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,924
<INCOME-PRETAX> 3,456
<INCOME-TAX> 265
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,191
<EPS-PRIMARY> 49
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMBINED FINANCIAL STATEMENTS AT JUNE 30, 1998 FOR THE
YEAR ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STAEMENTS.
</LEGEND>
<CIK> 0000909124
<NAME> ALTON REAL ESTATE
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 2,866
<SECURITIES> 0
<RECEIVABLES> 4,286
<ALLOWANCES> 168
<INVENTORY> 0
<CURRENT-ASSETS> 7,689
<PP&E> 25,264
<DEPRECIATION> 8,282
<TOTAL-ASSETS> 32,421
<CURRENT-LIABILITIES> 6,966
<BONDS> 0
<COMMON> 65
0
0
<OTHER-SE> 1,900
<TOTAL-LIABILITY-AND-EQUITY> 32,421
<SALES> 31,498
<TOTAL-REVENUES> 32,153
<CGS> 0
<TOTAL-COSTS> 26,773
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,924
<INCOME-PRETAX> 3,456
<INCOME-TAX> 265
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,191
<EPS-PRIMARY> 49
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMBINED FINANCIAL STATEMENTS AT JUNE 30, 1998 FOR THE
YEAR ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000909125
<NAME> MOLINE REAL ESTATE
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 2,866
<SECURITIES> 0
<RECEIVABLES> 4,286
<ALLOWANCES> 168
<INVENTORY> 0
<CURRENT-ASSETS> 7,689
<PP&E> 25,264
<DEPRECIATION> 8,282
<TOTAL-ASSETS> 32,421
<CURRENT-LIABILITIES> 6,966
<BONDS> 0
<COMMON> 65
0
0
<OTHER-SE> 1,900
<TOTAL-LIABILITY-AND-EQUITY> 32,421
<SALES> 31,498
<TOTAL-REVENUES> 32,153
<CGS> 0
<TOTAL-COSTS> 26,773
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,924
<INCOME-PRETAX> 3,456
<INCOME-TAX> 265
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,191
<EPS-PRIMARY> 49
<EPS-DILUTED> 0
</TABLE>
