FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
(Mark One)
{ X } QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 September 30, 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)
300 East Lombard Street, Suite 1200 Baltimore, Maryland 21202
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (410) 727-4083
225 East Redwood Street Baltimore, Maryland 21202
(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 Statement 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 10-13
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 14
Item 4. Controls and Procedures14
Part II. Other Information
Item 1. through Item 6. 14-21
Signatures 22
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 the expected
effects of government regulation on reimbursement for services
provided; 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)
September 30,
2003 December 31,
(Unaudited) 2002
--------------- ---------------
Assets
Current Assets
Cash and cash equivalents $ 613 $ 740
Accounts receivable, net 7,214 7,809
Estimated third-party payor settlements 467 840
Prepaid expenses and other current assets 959 766
--------------- ---------------
Total current assets 9,253 10,155
--------------- ---------------
Property and equipment, net of accumulated depreciation 31,008 31,231
--------------- ---------------
Other assets
Goodwill, net 4,237 4,237
Loan acquisition costs, net 354 216
--------------- ---------------
4,591 4,453
--------------- ---------------
Total assets $ 44,852 $ 45,839
=============== ===============
Liabilities and Partners' Capital
Current liabilities
Current portion of long-term debt $ 701 $ 606
Line of credit 227 -
Accrued compensation and related costs 132 3
Accounts payable and other accrued expenses 2,658 2,808
Estimated third party payor settlements 2,122 2,527
--------------- ---------------
Total current liabilities 5,840 5,944
--------------- ---------------
Deferred management fee payable 1,053 1,021
Loan payable to the Development General Partner 1,330 1,292
Long-term debt 21,685 22,271
--------------- ---------------
24,068 24,584
--------------- ---------------
Partners' capital
General partners (166) (162)
Assignee limited partners; 1,540,040
units issued and outstanding 15,110 15,473
--------------- ---------------
Total partners' capital 14,944 15,311
--------------- ---------------
Total liabilities and
partners' capital $ 44,852 $ 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 Nine Months Ended
--------------------------------- ---------------------------------
September 30, September 30, September 30, September 30,
2003 2002 2003 2002
--------------- --------------- --------------- ---------------
Revenues
Medicaid and Medicare patients $ 13,701 $ 13,270 $ 40,086 $ 38,908
Private patients 2,307 2,301 6,637 7,103
Investment and other income 20 42 55 96
--------------- --------------- --------------- ---------------
16,028 15,613 46,778 46,107
--------------- --------------- --------------- ---------------
Expenses
Operating, including $2,391, $2,452, $7,380
and $7,733 to related parties, respectively 13,329 12,807 39,491 37,564
Management and administration fees
to related parties 880 861 2,513 2,543
General and administrative 346 288 722 830
Depreciation and amortization 535 507 1,559 1,515
Interest expense 400 599 1,256 1,786
--------------- --------------- --------------- ---------------
15,490 15,062 45,541 44,238
--------------- --------------- --------------- ---------------
Net earnings $ 538 $ 551 $ 1,237 $ 1,869
=============== =============== =============== ===============
Net earnings per unit of assignee
limited partnership interest
(computed based on 1,540,040
units) $ 0.35 $ 0.35 $ 0.80 $ 1.20
=============== =============== =============== ===============
See accompanying notes to condensed consolidated financial statements
-4-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Condensed Consolidated Statement of Partners' Capital
For the Nine Months Ended
September 30, 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 12 1,225 1,237
Distributions to partners (16) (1,588) (1,604)
--------------- --------------- ---------------
Balance at September 30, 2003 $ (166) $ 15,110 $ 14,944
=============== =============== ===============
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 Nine Months Ended September 30,
(Unaudited)
(Dollars in thousands)
2003 2002
--------------- ---------------
Cash flows from operating activities
Net earnings $ 1,237 $ 1,869
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization 1,559 1,515
Minority interest in net earnings of operating partnerships 13 21
Increase in loan payable to Development General Partner 38 39
Increase in deferred management fee payable 32 33
Change in other assets and liabilities
Accounts receivable 582 1,182
Estimated third-party payor settlements (32) 147
Prepaid expenses and other current assets (193) (349)
Accrued compensation and related costs 129 (198)
Accounts payable and other accrued expenses (150) (1,686)
--------------- ---------------
Net cash provided by operating activities 3,215 2,573
--------------- ---------------
Cash flows from investing activities -
additions to property and equipment (1,247) (1,001)
--------------- ---------------
Cash flows from financing activities
Repayment of long-term debt (491) (354)
Loan acquisition costs (227) -
Borrowings under line of credit 227 -
Distributions to partners (1,604) (2,479)
--------------- ---------------
Net cash used in financing activities (2,095) (2,833)
--------------- ---------------
Net decrease in cash and cash equivalents (127) (1,261)
Cash and cash equivalents
Beginning of period 740 2,066
--------------- ---------------
End of period $ 613 $ 805
=============== ===============
See accompanying notes to condensed consolidated financial statements.
-6-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Notes to Condensed Consolidated Financial Statements
September 30, 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 and nine months ended
September 30, 2003 and 2002 are as follows:
Three Months Ended Nine Months Ended
Sept. 30, 2003 Sept. 30, 2002 Sept. 30, 2003 Sept. 30, 2002
Management and administration fees $ 880,000 $ 861,000 $2,513,000 $2,543,000
Drug and medical supplies purchases 1,036,000 913,000 2,758,000 2,910,000
Nursing and rehabilitation services 1,355,000 1,539,000 4,622,000 4,823,000
Interest expense on borrowings 24,000 24,000 70,000 68,000
-7-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Notes to Condensed Consolidated Financial Statements
September 30, 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 this arrangement, including
accumulated interest from inception of the loan at 9% per annum, were $1,330,000
at September 30, 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 September 30, 2003, the Fund had borrowed $227,000 under this
credit facility to fund financing fees incurred in connection with the amendment
of mortgage terms. Borrowings under the credit facility bears 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 extension.
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 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 the 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 Balance 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 Skilled Nursing Facility Medicare Cliff). Effective October 1, 2002,
Medicare rates adjusted for the Skilled Nursing Facility 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
beginning October 1, 2002 by approximately $1.2 million. The expiration of these
provisions after considering the 2.6% annual market basket adjustment, has
reduced our Medicare per diems per beneficiary, on average, by approximately
$24, resulting in reduced revenue of approximately $900 thousand in the Fund's
first nine months of fiscal 2003.
-8-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Notes to Condensed Consolidated Financial Statements
September 30, 2003
(Unaudited)
NOTE 4 - CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES (Continued)
On August 4, 2003, the Centers for Medicare & Medicaid Services (CMS) published
in the Federal Register the final fiscal year 2004 skilled nursing facility
prospective payment system rules effective October 1, 2003. The final rules make
two significant enhancements to the market basket adjusting base rates by 6.26%
(3% increase in the annual update factor and a 3.26% upward adjustment
correcting for previous forecast errors). These two changes are estimated to
increase Medicare payment rates per patient day by $19. The final rules also
provide for the continuation through fiscal year 2004 of certain payment add-ons
which were authorized in the Balanced Budget Refinement Act of 1999 to
compensate for non-therapy ancillaries.
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 provided 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 September 30, 2003, the
Fund had borrowed $227,000 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 $703,000 to $4,114,000 at September 30, 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 $3,215,000 for the nine-month
period ended September 30, 2003 as compared to $2,573,000 for the same period of
2002. This increase in cash flow was due primarily to lower payments of accounts
payable and other accrued expenses resulting from timing of payments offset by
decreased accounts receivable collections.
Cash used in investing activities for the nine-month period ended September
30, 2003 was $1,247,000 and included improvements to the Fund's seven operating
facilities. Similar improvements made during the first nine months of 2002 were
$1,001,000.
Cash used in financing activities for the nine-month period ended September
30, 2003 was $2,095,000 and included the repayment of long term debt of $491,000
and distributions to partners totaling $1,604,000.
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 $1,330,000 at September 30, 2003 and $1,292,000 at December 31, 2002.
On November 14, 2003 the Fund will make its third quarter 2003 distribution
to partners of $583,000, representing a 6% return. Based on operating results
through the third quarter and the outlook for the final quarter of 2003, the
Fund expects a similar distribution for the fourth quarter.
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 Balance 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 Skilled Nursing Facility Medicare Cliff). Effective October 1, 2002,
Medicare rates adjusted for the Skilled Nursing Facility 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
beginning October 1, 2002 by approximately $1.2 million. The expiration of these
provisions after considering the 2.6% annual market basket adjustment, has
reduced our Medicare per diems per beneficiary, on average, by approximately
$24, resulting in reduced revenue of approximately $900 thousand in the Fund's
first nine months of fiscal 2003.
On August 4, 2003, the Centers for Medicare & Medicaid Services (CMS)
published in the Federal Register the final fiscal year 2004 skilled nursing
facility prospective payment system rules effective October 1, 2003. The final
rules make two significant enhancements to the market basket adjusting the base
rates by 6.26% (3% increase in the annual update factor and a 3.26% upward
adjustment correcting for previous forecast errors). These two changes are
estimated to increase Medicare payment rates per patient day by $19. The final
rules also provide for the continuation through fiscal year 2004 of certain
payment add-ons which were authorized in the Balanced Budget Refinement Act of
1999 to compensate for non-therapy ancillaries.
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
Three Months Ended September 30, 2003 vs Three Months Ended September 30, 2002
Net earnings for the Fund were $538,000 for the three months ended
September 30, 2003 as compared to $551,000 for the same period in fiscal year
2002. The decrease in earnings is primarily due to an increase in operating
costs, partially offset by an increase in Medicaid revenues.
Overall revenues of $16,028,000 increased $415,000 or 2.7% for the three
months ended September 30, 2003 compared to $15,613,000 for the same period in
fiscal year 2002. The increase in revenue is primarily due to a net increase in
revenues from Medicaid and Medicare patients of $431,000. Medicaid revenue of
$9,703,000 increased $545,000 for the three months ended September 30, 2003
compared to the same period in the prior year. The Medicaid revenue growth is
primarily due to overall rate increases, and the settlement of prior period
Medicaid audits. Medicaid rates increased 5.6% driven primarily by the four
Maryland centers, which received their annual Medicaid rate adjustment in July
2003. Maryland Medicaid settlements for fiscal year 1999 audits were finalized,
resulting in increased Medicaid revenue of $358,000. Medicare revenue of
$3,998,000 decreased $114,000 or 2.8% for the three month period ended September
30, 2003 compared to the same period in fiscal year 2002. This decrease is
primarily due to a reduction of rates. Investment and other income decreased
$22,000 due to lower income interest earned.
-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)
Third quarter 2003 expenses of $15,490,000 increased $428,000 or 2.8% from
$15,062,000 for the three months ended September 30, 2002.
Operating expenses increased $522,000 or 4.1% in the third 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 and ancillary costs. Nursing costs
increased $182,000 for the three months ended September 30, 2003 as compared to
the same period in fiscal year 2002. This increase is primarily due to increases
in salary, wages, and employee benefits, which is partially offset by a decrease
in the cost of temporary nurse staffing. Salary, wage, and benefits expense for
nurses increased $610,000, while temporary nurse staffing expense decreased
$428,000 for the three months ended September 30, 2003 compared to the same
period in fiscal year 2002. Ancillary expenses for the three months ended
September 30, 2003 increased $336,000 or 18.7% compared to the same period in
fiscal year 2002, which is attributable to the growth in the Medicare census,
whose customers have high ancillary usage. The average daily Medicare census
increased 5.8% for the three month period ended September 30, 2003 compared to
the same period in fiscal year 2002. The remaining increase in operating costs
is due to general inflationary cost increases.
Management and administrative fees of $880,000 increased $19,000 or
approximately 2.2% for the third quarter 2003 compared to the same period in
fiscal year 2002. This increase is due to an increase in the management fee
expense, which is calculated at 5% of the Fund's net revenues.
General and administrative expenses increased $58,000 or 20.1% in the third
quarter of 2003 as compared to the same period in fiscal year 2002. This
increase is a result of increased legal, advertising - help wanted, and
purchased services, which increased $31,000, $8,000, and $9,000, respectively,
over the same period in the prior year. The remaining increase is due to general
inflationary cost increases.
Interest expense decreased $199,000 for the three months ended September
30, 2003 as compared to the same period in fiscal year 2002. The decrease in
interest expense is due to the reduction of the interest rate from 9.75% to 6.5%
effective February 1, 2003.
Nine Months Ended September 30, 2003 vs Nine Months Ended September 30, 2002
Net earnings for the Fund were $1,237,000 for the nine months ended
September 30, 2003 as compared to $1,869,000 for the same period in fiscal year
2002, representing a decrease of $632,000 or 33.8 %.
Overall revenues of $46,778,000 increased $671,000 or 1.5 % for the nine
months ended September 30, 2003 compared to $46,107,000 for the same period in
fiscal year 2002. This increase in revenue is primarily due to a net increases
in revenue from Medicaid and Medicare patients. Medicaid and Medicare revenue
increased $1,178,000 to $40,086,000 for the nine month period ended September
30, 2003 compared to the same period in 2002. Medicaid revenue for the nine
months ended September 30, 2003 increased $1,587,000 compared to the same period
in the prior year. The Medicaid revenue growth is primarily due to overall rate
increases, and the settlement of prior period Medicaid audits. Medicaid rates
increased 6.3 % driven primarily by the four Maryland centers, which received
their annual Medicaid rate adjustment in July 2003. Medicaid settlements for
prior year audits were finalized, resulting in increased Medicaid revenue of
$503,000. Medicare revenue decreased $409,000 or 3.3% for the nine month period
ended September 30, 2003 compared to the same period in fiscal year 2002. This
decrease is primarily due to a decrease in the Medicare rate of approximately
6.3% and decreased utilization of Medicare Part B services. Private patient
revenue decreased $466,000 to $6,637,000 for the nine months ended September 30,
2003 as compared to the same period in 2002. This decrease is due to a decline
in the census, partially offset by higher rates. The Private average daily
census for the nine months ended September 30, 2003 decreased 14% or 16
customers compared to the same period in fiscal year 2002.
-12-
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 expenses increased $1,303,000 or 2.9% to $45,541,000 for the nine
months ended September 30, 2003 as compared to $44,238,000 for the same period
in fiscal year 2002.
Operating expenses increased $1,927,000 or 5.1% to $39,491,000 for the nine
months ended September 30, 2003 as compared to the same period in fiscal year
2002. This increase is primarily due to the increased cost of nursing services,
ancillary costs, and property and liability insurance, which is being partially
offset by a decrease in bad debt expense. Nursing costs increased $831,000 for
the nine months ended September 30, 2003 as compared to the same period in
fiscal year 2002. This increase is primarily due to increases in salary, wages,
and employee benefits, which is partially offset by a decrease in the cost of
temporary nurse staffing. Salary, wage, and benefits expense for nurses
increased $1,590,000, while temporary nurse staffing expense decreased $759,000
for the nine months ended September 30, 2003 compared to the same period in
fiscal year 2002. Ancillary expenses for the nine months ended September 30,
2003 increased $607,000 or 11.4 % compared to the same period in fiscal 2002,
attributable to the growth and the Medicare census whose customers have high
ancillary usage. The average daily Medicare census increased 4.8% for the nine
month period ended September 30, 2003 compared to the same period in fiscal year
2002. Property and Liability insurance increased $122,000 for the nine months
ended September 30, 2003 as compared to the same period in fiscal year 2002 due
to the annual rate increase effective June. Bad debt expense decreased $280,000
or 28.2% for the nine months ended September 30, 2003 as compared to the same
period in fiscal year 2002. The remaining increase in operating costs is due to
general inflationary cost increases.
Interest expense decreased $ 530,000 for the nine months ended September
30, 2003 as compared to the same period in fiscal year 2002. This decrease in
interest expense is due to the reduction of the interest rate from 9.75% to 6.5%
effective February 1, 2003.
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.
-13-
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
-14-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 31.1 Certification of Principal Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2 Certification of Principal Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.3 Certification of Principal Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.4 Certification of Principal Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
b) Reports on Form 8-K: None
-15-
Exhibit 31.1
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 quarterly report on Form 10-Q 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 registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures [as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)] for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, 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 registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: 11/7/03 By: /s/ Robert H. Fish
Robert H. Fish
Chief Executive Officer
Meridian Healthcare Investments, Inc.
Development General Partner
-16-
Exhibit 31.2
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 quarterly report on Form 10-Q 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 registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures [as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)] for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, 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 registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: 11/07/03 By: /s/ George V. Hager, Jr.
George V. Hager, Jr.
Chief Financial Officer
Meridian Healthcare Investments, Inc.
Development General Partner
-17-
Exhibit 31.3
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, John M. Prugh, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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 registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures [as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)] for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, 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 registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: 11/14/03 By: /s/ John M. Prugh
John M. Prugh
Chief Executive Officer
Brown-Healthcare, Inc.
Administrative General Partner
-18-
Exhibit 31.4
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 quarterly report on Form 10-Q 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 registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures [as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)] for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, 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 registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: 11/14/03 By: /s/ Timothy M. Gisriel
Timothy M. Gisriel
Chief Financial Officer
Brown-Healthcare, Inc.
Administrative General Partner
-19-
Exhibit 32.1
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") Quarterly Report on Form 10-Q for the period
ending September 30, 2003 with the Securities and Exchange Commission on the
date hereof (the "Report"), We 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 results of
operations of the Fund.
Date: 11/07/03 By: /s/ Robert H. Fish
Robert H. Fish
Chief Executive Officer
Meridian Healthcare Investments, Inc.
Development General Partner
Date: 11/07/03 By: /s/ George V. Hager, Jr.
George V. Hager, Jr.
Chief Financial Officer
Meridian Healthcare Investments, Inc.
Development General Partner
-20-
Exhibit 32.2
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") Quarterly Report on Form 10-Q for the period
ending September 30, 2003 with the Securities and Exchange Commission on the
date hereof (the "Report"), We 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 results of
operations of the Fund.
Date: 11/14/03 By: /s/ JohnM. Prugh
John M. Prugh
Chief Executive Officer
Brown-Healthcare, Inc.
Administrative General Partner
Date: 11/14/03 By: /s/ Timothy M. Gisriel
Timothy M. Gisriel
Chief Financial Officer
Brown-Healthcare, Inc.
Administrative General Partner
-21-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
LIMITED PARTNERSHIP
DATE: 11/14/03 By: /s/ John M. Prugh
John M. Prugh
President and Director
Brown-Healthcare, Inc.
Administrative General Partner
DATE: 11/14/03 By: /s/ Timothy M. Gisriel
Timothy M. Gisriel
Treasurer
Brown-Healthcare, Inc.
Administrative General Partner
-22-