FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
(Mark One)
{ X } QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
For Quarter Ended March 31, 2003 Commission file number 000-17596
Meridian Healthcare Growth and Income Fund Limited Partnership
(Exact Name of Registrant as Specified in its Charter)
Delaware 52-1549486
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
225 East Redwood Street, Baltimore, Maryland 21202
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (410) 727-4083
N/A
(Former Name, Former Address, and Former Fiscal Year,
if Changed Since Last Report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act).
Yes No X
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
INDEX
Page No.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS 2
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Earnings 4
Condensed Consolidated Statements of Partners' Capital 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-12
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 13
Item 4. Controls and Procedures13
Part II. Other Information
Item 1. through Item 6. 13-22
Signatures 23
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Cautionary Statement Regarding Forward Looking Statements
Statements made in this report, and in our other public filings, which are not
historical facts contain "forward-looking" statements (as defined in the Private
Securities Litigation Reform Act of 1995) that involve risks and uncertainties
and are subject to change at any time. These forward-looking statements may
include, but are not limited to:
o certain statements in "Management's Discussion and Analysis of
Financial Condition and Results of Operations," such as our ability to
meet our liquidity needs, scheduled debt and interest payments and
expected future capital expenditure requirements; and
o certain statements in the Notes to Condensed Consolidated Financial
Statements (Unaudited).
The forward-looking statements involve known and unknown risks, uncertainties
and other factors that are, in some cases, beyond our control. You are
cautioned that these statements are not guarantees of future performance and
that actual results and trends in the future may differ materially.
Factors that could cause actual results to differ materially include, but are
not limited to the following:
o changes in the reimbursement rates or methods of payment from Medicare
and Medicaid, or the implementation of other measures to reduce the
reimbursement for our services;
o the expiration of enactments providing for additional governmental funding;
o efforts of third party payors to control costs;
o the impact of federal and state regulations;
o changes in payor mix and payment methodologies;
o further consolidation of managed care organizations and other third party
payors;
o competition in our business;
o an increase in insurance costs and potential liability for losses not
covered by, or in excess of, our insurance;
o competition for qualified staff in the healthcare industry;
o our ability to control operating costs, and generate sufficient cash flow
to meet operational and financial requirements; and
o an economic downturn or changes in the laws affecting our business in those
markets in which we operate.
These risks are described in more detail in our Annual Report on Form 10-K.
In addition to these factors and any risks and uncertainties specifically
identified in the text surrounding forward-looking statements, any statements in
this report or the reports and other documents filed by us with the SEC that
warn of risks or uncertainties associated with future results, events or
circumstances also identify factors that could cause actual results to differ
materially from those expressed in or implied by the forward-looking statements.
All subsequent written and oral forward-looking statements attributable to us or
any person acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained or referred to in this section. We do not
undertake any obligation to release publicly any revisions to these
forward-looking statements to reflect events or circumstances after the date of
this report or to reflect the occurrence of unanticipated events, except as may
be required under applicable securities law.
-2-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Condensed Consolidated Balance Sheets
(Dollars in thousands)
March 31,
2003 December 31,
(Unaudited) 2002
---------------- ---------------
Assets
Current Assets
Cash and cash equivalents $ 922 $ 740
Accounts receivable, net 7,922 7,809
Estimated third-party payor settlements 658 840
Prepaid expenses and other current assets 966 766
---------------- ---------------
Total current assets 10,468 10,155
---------------- ---------------
Property and equipment, net of accumulated depreciation 31,144 31,231
---------------- ---------------
Other assets
Goodwill, net 4,237 4,237
Loan acquisition costs, net 415 216
---------------- ---------------
4,652 4,453
---------------- ---------------
Total assets $ 46,264 $ 45,839
================ ===============
Liabilities and Partners' Capital
Current liabilities
Current portion of long-term debt $ 678 $ 606
Line of credit 227 -
Accrued compensation and related costs 43 3
Accounts payable and other accrued expenses 3,420 2,808
Estimated third party payor settlements 2,323 2,527
---------------- ---------------
Total current liabilities 6,691 5,944
---------------- ---------------
Deferred management fee payable 1,032 1,021
Loan payable to the Development General Partner 1,304 1,292
Long-term debt 22,043 22,271
---------------- ---------------
24,379 24,584
---------------- ---------------
Partners' capital
General partners (163) (162)
Assignee limited partners; 1,540,040
units issued and outstanding 15,357 15,473
---------------- ---------------
Total partners' capital 15,194 15,311
---------------- ---------------
Total liabilities and
partners' capital $ 46,264 $ 45,839
================ ===============
See accompanying notes to condensed consolidated financial statements.
-3-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Condensed Consolidated Statements of Earnings
(Unaudited)
(Dollars in thousands except per unit amounts)
Three Months Ended
----------------------------------
March 31, March 31,
2003 2002
---------------- ---------------
Revenues
Medicaid and Medicare patients $ 13,086 $ 12,534
Private patients 2,303 2,511
Investment and other income 18 25
---------------- ---------------
15,407 15,070
---------------- ---------------
Expenses
Operating, including $2,503, and
$2,504 to related parties 13,189 12,053
Management and administration fees
to related parties 833 829
General and administrative 102 261
Depreciation and amortization 504 501
Interest expense 458 592
---------------- ---------------
15,086 14,236
---------------- ---------------
Net earnings $ 321 $ 834
================ ===============
Net earnings per unit of assignee
limited partnership interest
(computed based on 1,540,040
units) $ 0.21 $ 0.54
================ ===============
See accompanying notes to condensed consolidated financial statements
-4-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Condensed Consolidated Statements of Partners' Capital
For the Three Months Ended March 31, 2003 and 2002
(Unaudited) (Dollars in
thousands)
Assignee
General Limited
Partners Partners Total
---------------- ---------------- ---------------
Balance at December 31, 2002 $ (162) $ 15,473 15,311
Net earnings 3 318 321
Distributions to partners (4) (434) (438)
---------------- ---------------- ---------------
Balance at March 31, 2003 $ (163) $ 15,357 15,194
================ ================ ===============
Balance at December 31, 2001 $ (153) $ 16,386 16,233
Net earnings 8 826 834
Distributions to partners (8) (818) (826)
---------------- ---------------- ---------------
Balance at March 31, 2002 $ (153) $ 16,394 16,241
================ ================ ===============
See accompanying notes to condensed consolidated financial statements
-5-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMTIED PARTNERSHIP
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31,
(Unaudited) (Dollars in
thousands)
2003 2002
---------------- ---------------
Cash flows from operating activities
Net earnings $ 321 $ 834
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization 504 501
Minority interest in net earnings of operating partnerships 2 11
Increase in loan payable to Development General Partner 12 13
Increase in deferred management fee payable 11 12
Change in other assets and liabilities
Accounts receivable (113) 351
Estimated third-party payor settlements (22) (98)
Prepaid expenses and other current assets (200) (147)
Accrued compensation and related costs 40 (238)
Accounts payable and other accrued expenses 610 (716)
---------------- ---------------
Net cash provided by operating activities 1,165 523
---------------- ---------------
Cash flows from investing activities -
additions to property and equipment (389) (386)
---------------- ---------------
Cash flows from financing activities
Repayment of long-term debt (156) (121)
Loan acquisition costs (227) -
Line of credit 227 -
Distributions to partners (438) (826)
---------------- ---------------
Net cash used in financing activities (594) (947)
---------------- ---------------
Net (decrease) increase in cash and cash equivalents 182 (810)
Cash and cash equivalents
Beginning of period 740 2,066
---------------- ---------------
End of period $ 922 $ 1,256
================ ===============
See accompanying notes to condensed consolidated financial statements.
-6-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Notes to Condensed Consolidated Financial Statements
March 31, 2003
(Unaudited)
NOTE 1 - THE FUND AND BASIS OF PREPARATION
Meridian Healthcare Growth and Income Fund Limited Partnership (the Fund)
was organized under the laws of the State of Delaware and will continue to
operate through December 31, 2037, unless terminated sooner under the provisions
of the Partnership Agreement. The Fund's Administrative General Partner is Brown
Healthcare, Inc. and the Fund's Development General Partner is Meridian
Healthcare Investments, Inc. Brown Healthcare Holding Co., Inc. is the Fund's
Assignor Limited Partner. Meridian Healthcare Investments, Inc. is a subsidiary
of Genesis Health Ventures, Inc. (Genesis).
The Fund owns 98.99% limited partnership interests in each of the seven
operating partnerships. The Fund, through its seven operating partnerships,
derives substantially all of its revenue from extended healthcare provided to
nursing center residents including room and board, nursing care, drugs and other
medical services.
The accompanying condensed consolidated financial statements of Meridian
Healthcare Growth and Income Fund Limited Partnership (the "Fund") do not
include all of the information and note disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America. The unaudited interim condensed
consolidated financial statements reflect all adjustments which are, in the
opinion of management, necessary to a fair statement of the results for the
interim periods presented. All such adjustments are of a normal recurring
nature.
The accompanying unaudited condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and the notes
thereto included in the Fund's Annual Report on Form 10-K for the fiscal year
ended December 31, 2002.
The Fund has made a number of estimates relating to the reporting of assets and
liabilities, revenues and expenses and the disclosure of contingent assets and
liabilities to prepare these unaudited condensed consolidated financial
statements in conformity with accounting principles generally accepted in the
United States of America. Actual results could differ from those estimates.
NOTE 2 - RELATED PARTY TRANSACTIONS
The Fund is obligated to pay Brown-Healthcare, Inc. (Administrative General
Partner) an annual administration fee of the greater of $75,000 per year or 1/2
of 1% of the Fund's annual revenues. The nursing centers owned by the operating
partnerships are managed by Meridian Healthcare, Inc., an affiliate of Meridian
Healthcare Investments, Inc. (Development General Partner), under the terms of
existing management agreements which provide for management fees equal to 5% of
the annual revenues of each nursing center. Certain of the operating
partnerships also purchase drugs and medical supplies and other services from
affiliates of the Development General Partner. Such purchases are in turn billed
to patients or third party payors at prices which on average approximate the
nursing center's cost.
Transactions with these related parties for the three months ended March 31,
2003 and 2002 are as follows:
2003 2002
Management and administration fees $ 833,000 $ 829,000
Drug and medical supplies purchases 909,000 915,000
Nursing and rehabilitation services 1,594,000 1,589,000
Interest expense on borrowings 23,000 21,000
-7-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Notes to Condensed Consolidated Financial Statements
March 31, 2003
(Unaudited)
NOTE 2 - RELATED PARTY TRANSACTIONS (Continued)
The Development General Partner loaned the Fund $597,000, as required by the
Cash Flow Deficit Guaranty Agreement, to support the operating deficits
generated by the Mooresville, Salisbury and Woodlands nursing centers during
each center's first two years of operations subsequent to the Fund's acquisition
of partnership interests. Loans outstanding under an arrangement, including
accumulated interest from inception of the loan at 9% per annum, were $1,304,000
at March 31, 2003 and $1,292,000 at December 31, 2002. The Fund is obligated to
repay these loans when certain specified financial criteria are met, the most
significant of which is the payment of a preferred return to the assignee
limited partners as defined in the Fund's partnership agreement.
NOTE 3 - DEBT
The Fund closed its mortgage loan refinancing with a new bank for loans totaling
$24,000,000 on June 12, 2000. The renewal terms became effective on June 12,
2000 and provide for a term of five years at an interest rate of 9.75%. Monthly
payments of $229,886 are based on a 20-year amortization schedule with a balloon
payment due at the end of the 5-year term. Effective February 1, 2003, the Fund
amended the existing mortgage. The amendment provides for a term of five years
at an interest rate of 6.5%. Monthly payments of $180,242 are based on a 20-year
amortization schedule with a mandatory prepayment option at the Bank's
discretion during the period between November 1, 2007 through May 1, 2008.
The Fund established a $4,000,000 revolving credit facility with the same
lender. As of March 31, 2003, the Fund had borrowed $227,304 under this credit
facility to fund financing fees incurred in connection with the amendment of
mortgage terms. Borrowings under the credit facility bear interest at a floating
rate, which equals the announced commercial prime rate. The bank can renew the
credit facility each year for a one-year extention.
NOTE 4 - CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
The Fund receives revenues from Medicare, Medicaid, private insurance, self-pay
residents, and other third party payors. The healthcare industry is experiencing
the effects of the federal and state governments' trend toward cost containment,
as government and other third party payors seek to impose lower reimbursement
and utilization rates and negotiate reduced payment schedules with providers.
These cost containment measures, combined with the increasing influence of
managed care payors and competition for patients, have resulted in constrained
rates of reimbursement for services provided by the Fund.
The Medicaid and Medicare programs are highly regulated. The failure of the Fund
to comply with applicable reimbursement regulations could adversely affect its
business. The Fund monitors its receivables from third party payor programs and
reports such revenues at the net realizable value expected to be received.
On December 15, 2000, Congress passed the Benefits Improvement Protection Act
that increased the nursing component of federal prospective payment system's
rates by 16.7% (approximate) for the period from April 1, 2001 through September
30, 2002. The legislation also changed the 20% add-on to 3 of the 14
rehabilitation resource utilization group categories to a 6.7% add-on to all 14
rehabilitation resource utilization group categories beginning April 1, 2001.
The Medicare Part B consolidated billing provision of the Balance Budget
Refinement Act was repealed except for Medicare Part B therapy services and the
moratorium on the $1,500 therapy caps was extended through calendar year 2002.
These changes had a positive impact on operating results.
A number of provisions of the Balanced Budget Refinement Act and the Benefits
Improvement and Protection Act enactments, providing additional funding for
Medicare participating skilled nursing facilities, expired on September 30,
2002. The expiration of these provisions has reduced the Fund's Medicare per
diems per beneficiary, on average, by $34 (the Medicare Cliff). For Federal
fiscal year 2003, the Centers for Medicare and Medicaid Services used their
discretionary authority to continue the payment add-ons. The recently released
proposed Federal Budget for fiscal year 2004 indicates that the Centers for
Medicare and Medicaid Services will extend the add-ons described in the previous
paragraph for the coming year. It is uncertain as to whether as part of the
rule-making process the agency will propose
-8-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Notes to Condensed Consolidated Financial Statements
March 31, 2003
(Unaudited)
NOTE 4 - CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES (Continued)
changes in how the add-ons are applied. Proposed rules are normally released in
late April with a 60-day public comment period. By law, final rules for coming
fiscal year must be issued by August 1. Effective October 1, 2002, Medicare
rates adjusted for the Medicare Cliff were increased by a 2.6% annual market
basket adjustment. For the Fund, the net impact of these provisions is estimated
to adversely impact annual revenue and operating income by approximately $1.2
million.
The recent economic downturn is having a detrimental effect on state revenues in
most jurisdictions. Budget shortfalls range from 4-5% of outlays upwards to 20%
of outlays in a handful of states. Historically these budget pressures have
translated into reductions in state spending. Given that Medicaid outlays are a
significant component of state budgets, the Fund expects continuing cost
containment pressures on Medicaid outlays for nursing homes in the states in
which it operates. State-specific details are just emerging as state
legislatures begin the tasks of approving state budgets.
The plight of state governments has helped to elevate issues related to Medicaid
onto the national agenda. During the 107th Congress, the U.S. Senate passed
legislation providing states with a temporary increase in the Federal Matching
Assistance Percentage. This legislation was not passed, however, it has been
reintroduced in both the U.S. Senate and the U.S. House of Representatives. In
his proposed federal budget for fiscal year 2004, the President offered modest
additional fiscal support and advanced several ideas for revising the program.
The 108th Congress is expected to consider an array of Medicaid reform
proposals.
It is not possible to fully quantify the effect of potential legislative or
regulatory changes, the administration of such legislation or any other
governmental initiatives on the Fund's business. Accordingly, there can be no
assurance that the impact of these changes or any future healthcare legislation
will not further adversely affect the Fund's business. There can be no assurance
that payments under governmental and private third party payor programs will be
timely, will remain at levels comparable to present levels or will, in the
future, be sufficient to cover the costs allocable to patients eligible for
reimbursement pursuant to such programs. The Fund's financial condition and
results of operations may be affected by the reimbursement process, which in the
healthcare industry is complex and can involve lengthy delays between the time
that revenue is recognized and the time that reimbursement amounts are settled.
-9-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
The Fund closed its mortgage loan refinancing with a new bank for loans
totaling $24,000,000 on June 12, 2000. The renewal terms became effective on
June 12, 2000 and provide for a term of five years at an interest rate of 9.75%.
Monthly payments were based on a 20-year amortization schedule with a balloon
payment due at the end of the 5-year term. Effective February 1, 2003, the Fund
amended the existing mortgage. The amendment provides for a term of five years
at an interest rate of 6.5%. Monthly payments of $180,242 are based on a 20-year
amortization schedule with a mandatory prepayment option at the Bank's
discretion during the period between November 1, 2007 through May 1, 2008.
The Fund also has a $4,000,000 line of credit with the same lender under
terms similar to the mortgage loan terms described above, except that the line
of credit facility requires annual reaffirmation. As of March 31, 2003, the Fund
had borrowed $227,304 under this credit facility to fund financing fees incurred
in connection with the amendment of mortgage terms, discussed above. The Fund
will perform approximately $1 million of non-routine capital improvements to
enhance the functionality and marketability of its Maryland centers. The Fund
expects to draw on its line of credit facility to fund these improvements, as
necessary.
The Fund's working capital (excluding the current portion of long-term
debt) decreased $362,000 to $4,455,000 at March 31, 2003 as compared to
$4,817,000 at December 31, 2002. The Fund has sufficient liquid assets and other
available credit resources to satisfy its operating expenditures and anticipated
routine capital improvements at each of the seven nursing home facilities.
Cash flow from operating activities was $1,165,000 for the three-month
period ended March 31, 2003 as compared to $523,000 for the same period of 2002.
This increase in cash flow was due primarily to an increase in accounts payable
and accrued expenses resulting from timing of payments, offset by lower earnings
due to increased operating expenses at the facilities.
Cash used in investing activities for the three-month period ended March
31, 2003 was $389,000 and included improvements to the Fund's seven operating
facilities. Similar improvements made during the first three months of 2002 were
$386,000.
Cash used in financing activities for the three-month period ended March
31, 2003 included the repayment of long term debt of $156,000 and distributions
to partners totaling $438,000.
The Fund believes that the short-term liquidity needs will be met through
expected cash flow from operations and available working capital from the
existing revolving credit facility.
Between 1988 and 1989 the Development General Partner loaned the Fund
$597,000 to support operating deficits generated by the Mooresville, Salisbury
and Woodlands nursing centers during each centers' first two years of operation.
Loans outstanding under this arrangement, including interest at 9% per annum,
were $1,304,000 at March 31, 2003 and $1,292,000 at December 31, 2002.
On May 15, 2003 the Fund will make its first quarter 2003 distribution to
partners of $583,000, representing a 6% return. Based on operating results
through the first quarter and the 2003 budget, the Fund expects a similar
distribution throughout the remainder of the year as operations have been
affected by reduced Medicare revenues resulting from the expiration of Benefits
Improvement and Protection Act and Balanced Budget Refinement Act legislation on
September 30, 2002.
The major challenge to the Fund in the foreseeable future is to control
operating expenses, to maintain a quality mix of patients and to increase the
overall census at each of the facilities.
-10-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Revenue Sources
The Fund receives revenues from Medicare, Medicaid, private insurance,
self-pay residents, and other third party payors. The healthcare industry is
experiencing the effects of the federal and state governments' trend toward cost
containment, as government and other third party payors seek to impose lower
reimbursement and utilization rates and negotiate reduced payment schedules with
providers. These cost containment measures, combined with the increasing
influence of managed care payors and competition for patients, have resulted in
constrained rates of reimbursement for services provided by the Fund.
A number of provisions of the Balanced Budget Refinement Act and the
Benefits Improvement and Protection Act enactments, providing additional funding
for Medicare participating skilled nursing facilities, expired on September 30,
2002. The expiration of these provisions has reduced the Fund's Medicare per
diems per beneficiary, on average, by $34 (the Medicare Cliff). For Federal
fiscal year 2003, the Centers for Medicare and Medicaid Services used their
discretionary authority to continue the payment add-ons. The recently released
proposed Federal Budget for fiscal year 2004 indicates that the Centers for
Medicare and Medicaid Services will extend the add-ons described in the previous
paragraph for the coming year. It is uncertain as to whether as part of the
rule-making process the agency will propose changes in how the add-ons are
applied. Proposed rules are normally released in late April with a 60-day public
comment period. By law, final rules for coming fiscal year must be issued by
August 1. Effective October 1, 2002, Medicare rates adjusted for the Medicare
Cliff were increased by a 2.6% annual market basket adjustment. For the Fund,
the net impact of these provisions is estimated to adversely impact annual
revenue and operating income by approximately $1.2 million.
The recent economic downturn is having a detrimental effect on state
revenues in most jurisdictions. Budget shortfalls range from 4-5% of outlays
upwards to 20% of outlays in a handful of states. Historically these budget
pressures have translated into reductions in state spending. Given that Medicaid
outlays are a significant component of state budgets, the Fund expects
continuing cost containment pressures on Medicaid outlays for nursing homes in
the states in which it operates. State-specific details are just emerging as
state legislatures begin the tasks of approving state budgets.
The plight of state governments has helped to elevate issues related to
Medicaid onto the national agenda. During the 107th Congress, the U.S. Senate
passed legislation providing states with a temporary increase in the Federal
Matching Assistance Percentage. This legislation was not passed, however, it has
been reintroduced in both the U.S. Senate and the U.S. House of Representatives.
In his proposed federal budget for fiscal year 2004, the President offered
modest additional fiscal support and advanced several ideas for revising the
program. The 108th Congress is expected to consider an array of Medicaid reform
proposals.
It is not possible to fully quantify the effect of potential legislative or
regulatory changes, the administration of such legislation or any other
governmental initiatives on the Fund's business. Accordingly, there can be no
assurance that the impact of these changes or any future healthcare legislation
will not further adversely affect the Fund's business. There can be no assurance
that payments under governmental and private third party payor programs will be
timely, will remain at levels comparable to present levels or will, in the
future, be sufficient to cover the costs allocable to patients eligible for
reimbursement pursuant to such programs. The Fund's financial condition and
results of operations may be affected by the reimbursement process, which in the
healthcare industry is complex and can involve lengthy delays between the time
that revenue is recognized and the time that reimbursement amounts are settled.
Results of Operations
Net earnings for the Fund were $321,000 for the three months ended March
31, 2003 as compared to $834,000 for the same period in fiscal year 2002. The
decrease in earnings is primarily due to an increase in operating costs
partially offset by lower administrative costs and an increase in Medicaid and
Medicare patients revenue.
-11-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations (continued)
Overall revenues of $15,407,000 increased $337,000 or 2.2% for the three
months ended March 31, 2003 compared to the same period in fiscal year 2002. The
increase in revenue is primarily due to an increase in Medicaid revenue.
Medicaid and Medicare patient revenues increased $552,000 to $13,086,000 for the
first quarter of 2003 compared to the first quarter of fiscal year 2002.
Medicaid revenue for the three months ended March 31, 2003 increased $518,000
compared to the same period in the prior year. This increase is primarily due to
an overall Medicaid rate increase of approximately 6.5%. Medicare revenue of
$3,992,000 increased $34,000 or .9% for the three month period ended March 31,
2003 compared to the same period in fiscal year 2002. The increase in Medicare
revenue is due to a growth in the Medicare census, which is partially offset by
lower rates. The average daily Medicare census increased twelve customers per
day or 9.5% to 140 for the three months ended March 31, 2003 as compared to the
same period in the prior year.
First quarter 2003 expenses of $15,086,000 increased $850,000 or 6.0% from
$14,236,000 for the three months ended March 31, 2002.
Operating expenses increased $1,136,000 or 9.4% in the first quarter of
2003 as compared to the same period in fiscal year 2002. This increase is
primarily due to the increased cost of nursing services, bad debt expense and
ancillary costs. Nursing costs increased $515,000 for the three months ended
March 31, 2003 as compared to the same period in fiscal year 2002. Nursing
salaries and benefits increased $543,000, which was partially offset by a
decrease in the utilization of temporary nurse staffing. Bad debt expense of
$317,000 increased $182,000 for the three month period ended March 31, 2003
compared to the same period in fiscal year 2002. Ancillary costs increased
$269,000 or 16.2% in the first quarter of 2003 as compared to the same period in
fiscal year 2002, which is attributable to the 9.5% increase in the average
daily Medicare census. The remaining increase in operating costs is due to
general inflationary cost increases.
General and administrative expenses decreased $159,000 or 60.9% in the
first quarter of 2003 as compared to the same period in fiscal year 2002. This
decrease is primarily due to a change in New Jersey regulations which resulted
in a $190,000 reduction of a filing fee expense recognized in the fiscal year
2002. Partially offsetting the reduction in the filing fee were higher legal and
consulting expenses and general inflationary cost increases.
Interest expense of $458,000 decreased $134,000 or 22.6% for the three
months ended March 31, 2003 as compared to the same period in the prior year.
This is due to restructuring of the term loan effective February 1, 2003
reducing the interest rate from 9.75% to 6.5%.
Critical Accounting Policies
We consider an accounting policy to be critical if it is important to our
financial condition and results, and requires significant judgment and estimates
on the part of management in its application. Our critical accounting estimates
and the related assumptions are evaluated periodically as conditions warrant,
and changes to such estimates are recorded as new information or changed
conditions require revision. Application of the critical accounting policies
requires management's significant judgments, often as the result of the need to
make estimates of matters that are inherently uncertain. If actual results were
to differ materially from the estimates made, the reported results could be
materially affected. We believe that the following represents our critical
accounting policies, which are described in our most recent Annual Report on
Form 10-K:
o Allowance for Doubtful Accounts
o Revenue Recognition
During the current quarter, we did not make any material changes to our
estimates or methods by which estimates are derived with regard to our critical
accounting policies.
-12-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
PART I. FINANCIAL INFORMATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Fund has exposure to changing interest rates and is currently not
engaged in hedging activities. Interest on the Fund's $22.9 million mortgage was
at a fixed rate of 9.75% through January 31, 2003. Effective February 1, 2003
the Fund's mortgage is at a fixed rate of 6.5%.
Item 4. Controls and Procedures
Within the 90-day period prior to the filing of the quarterly report, an
evaluation was carried out under the supervision and with the participation of
the Fund's management, including the Chief Executive Officer (or CEO) and Chief
Financial Officer (or CFO), of the effectiveness of our disclosure controls and
procedures. Based on that evaluation, the CEO and CFO have concluded that the
Fund's disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Fund in reports that it files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms. Subsequent to the date of their evaluation,
there were no significant changes in the Fund's internal controls or in other
factors that could significantly affect the disclosure controls, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Inapplicable
Item 2. Changes in Securities and Use of Proceeds
Inapplicable
Item 3. Defaults upon Senior Securities
Inapplicable
Item 4. Submission of Matters to a Vote of Security Holders
Inapplicable
Item 5. Other Information
Inapplicable
-13-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.3 Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.4 Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.5 Certification of Principal Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.6 Certification of Principal Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.7 Certification of Principal Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.8 Certification of Principal Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
b) Reports on Form 8-K: None
-14-
Exhibit 99.1
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
LIMITED PARTNERSHIP
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of Meridian Healthcare Growth and Income Fund
Limited Partnership's (the "Fund") Report on Form 10-Q for the period ending
March 31, 2003 with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Robert H. Fish, the Chief Executive Officer of Meridian
Healthcare Investments, Inc., Development General Partner of the Fund, certify,
pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and result of
operations of the Fund.
Date: 5/13/03 By: /s/ Robert H. Fish
Robert H. Fish
Chief Executive Officer
Meridian Healthcare Investments, Inc.
Development General Partner
-15-
Exhibit 99.2
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
LIMITED PARTNERSHIP
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of Meridian Healthcare Growth and Income Fund
Limited Partnership's (the "Fund") Report on Form 10-Q for the period ending
March 31, 2003 with the Securities and Exchange Commission on the date hereof
(the "Report"), I, George V. Hager, Jr., the Chief Financial Officer of Meridian
Healthcare Investments, Inc., Development General Partner of the Fund, certify,
pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and result of
operations of the Fund.
Date: 5/13/03 By: /s/ George V. Hager, Jr.
George V. Hager, Jr.
Chief Financial Officer
Meridian Healthcare Investments, Inc.
Development General Partner
-16-
Exhibit 99.3
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
LIMITED PARTNERSHIP
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of Meridian Healthcare Growth and Income Fund
Limited Partnership's (the "Fund") Report on Form 10-Q for the period ending
March 31, 2003 with the Securities and Exchange Commission on the date hereof
(the "Report"), I, John M. Prugh, the Chief Executive Officer of Brown
Healthcare, Inc., Administrative General Partner of the Fund, certify, pursuant
to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and result of
operations of the Fund.
Date: 5/14/03 By: /s/ John M. Prugh
John M. Prugh
Chief Executive Officer
Brown Healthcare, Inc.
Administrative General Partner
-17-
Exhibit 99.4
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
LIMITED PARTNERSHIP
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of Meridian Healthcare Growth and Income Fund
Limited Partnership's (the "Fund") Report on Form 10-Q for the period ending
March 31, 2003 with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Timothy M. Gisriel, the Chief Financial Officer of Brown
Healthcare, Inc., Administrative General Partner of the Fund, certify, pursuant
to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and result of
operations of the Fund.
Date: 5/14/03 By: /s/ Timothy M. Gisriel
Timothy M. Gisriel
Chief Financial Officer
Brown Healthcare, Inc.
Administrative General Partner
-18-
Exhibit 99.5
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
LIMITED PARTNERSHIP
Certification of Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Robert H. Fish, certify that:
1. I have reviewed this report of Meridian Healthcare Growth and Income Fund
Limited Partnership;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the issuer as of, and for, the periods presented in this report;
4. The issuer's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the issuer and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the issuer, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the issuer's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
report (the "Evaluation Date"); and
c) presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The issuer's other certifying officers and I have disclosed, based on our
most recent evaluation, to the issuer's auditors and the audit committee of
issuer's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the issuer's ability to record,
process, summarize and report financial data and have identified for
the issuer's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the issuer's internal
controls; and
6. The issuer's other certifying officers and I have indicated in this report
whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: 5/13/03 By: /s/ Robert H. Fish
Robert H. Fish
Chief Executive Officer
Meridian Healthcare Investments,Inc.
Development General Partner
-19-
Exhibit 99.6
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
LIMITED PARTNERSHIP
Certification of Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, George V. Hager, Jr., certify that:
1. I have reviewed this report of Meridian Healthcare Growth and Income Fund
Limited Partnership;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the issuer as of, and for, the periods presented in this report;
4. The issuer's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the issuer and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the issuer, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the issuer's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
report (the "Evaluation Date"); and
c) presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The issuer's other certifying officers and I have disclosed, based on our
most recent evaluation, to the issuer's auditors and the audit committee of
issuer's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the issuer's ability to record,
process, summarize and report financial data and have identified for
the issuer's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the issuer's internal
controls; and
6. The issuer's other certifying officers and I have indicated in this report
whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: 5/13/03 By: /s/ George V. Hager, Jr.
George V. Hager, Jr.
Chief Financial Officer
Meridian Healthcare Investments, Inc.
Development General Partner
-20-
Exhibit 99.7
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
LIMITED PARTNERSHIP
Certification of Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, John M. Prugh, certify that:
1. I have reviewed this report of Meridian Healthcare Growth and Income Fund
Limited Partnership;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the issuer as of, and for, the periods presented in this report;
4. The issuer's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the issuer and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the issuer, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the issuer's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
report (the "Evaluation Date"); and
c) presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The issuer's other certifying officers and I have disclosed, based on our
most recent evaluation, to the issuer's auditors and the audit committee of
issuer's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the issuer's ability to record,
process, summarize and report financial data and have identified for
the issuer's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the issuer's internal
controls; and
6. The issuer's other certifying officers and I have indicated in this report
whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: 5/14/03 By: /s/ John M. Prugh
John M. Prugh
Chief Executive Officer
Brown Healthcare, Inc.
Administrative General Partner
-21-
Exhibit 99.8
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
LIMITED PARTNERSHIP
Certification of Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Timothy M. Gisriel, certify that:
1. I have reviewed this report of Meridian Healthcare Growth and Income Fund
Limited Partnership;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the issuer as of, and for, the periods presented in this report;
4. The issuer's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the issuer and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the issuer, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the issuer's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
report (the "Evaluation Date"); and
c) presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The issuer's other certifying officers and I have disclosed, based on our
most recent evaluation, to the issuer's auditors and the audit committee of
issuer's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the issuer's ability to record,
process, summarize and report financial data and have identified for
the issuer's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the issuer's internal
controls; and
6. The issuer's other certifying officers and I have indicated in this report
whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: 5/14/03 By: /s/ Timothy M. Gisriel
Timothy M. Gisriel
Chief Financial Officer
Brown Healthcare, Inc.
Administrative General Partner
-22-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
LIMITED PARTNERSHIP
DATE: 05/14/03 By: /s/ John M. Prugh
John M. Prugh
President and Director
Brown-Healthcare, Inc.
Administrative General Partner
DATE: 05/14/03 By: /s/ Timothy M. Gisriel
Timothy M. Gisriel
Treasurer
Brown Healthcare, Inc.
Administrative General Partner
-23-