UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
{ X } ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2003
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None
Securities registered pursuant to section 12(g) of the Act:
Assignee Units of Limited Partnership Interests
(Title of class)
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K(ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.[X]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act).
Yes No X
As of December 31, 2003, there were 1,539,000 Units of Assignee Limited
Partnership Interests held by non-affiliates of the Registrant. Because there is
not an established public trading market for the Units, the aggregate market
value of the Units held by non-affiliates of the Registrant cannot be
calculated.
Documents Incorporated by Reference
The Annual Report for 2003 is incorporated by reference.
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
INDEX
Page(s)
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS 3
Part I.
Item 1. Business 4
Item 2. Properties 5-6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Part II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-17
Item 7a. Quantitative and Qualitative Disclosures About Market Risk 17
Item 8. Financial Statements and Supplementary Data 17-18
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 18
Item 9a. Controls and Procedures 18
Part III.
Item 10. Directors and Executive Officers of Registrant 19-20
Item 11. Executive Compensation 20
Item 12. Security Ownership of Certain Beneficial Owners
and Management 21
Item 13. Certain Relationships and Related Transactions 21
Item 14. Principal Accountant Fees and Services 21
Part IV.
Item 15. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 21-30
Signatures 31-32
2
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Cautionary Statement Regarding Forward-Looking Statements
Certain statements contained herein, including certain statements in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" concerning the Fund's business outlook or future economic
performances, anticipated profitability, revenues, expenses or other financial
items together with other statements that are not historical facts are
"forward-looking statements" as that term is defined under the Federal
Securities Law. Forward-looking statements are necessarily estimates reflecting
the best judgment of the party making such statements based upon correct
information and involve a number of risks, uncertainties and other factors which
could cause actual results to differ materially from those stated in such
statements. Risks, uncertainties and factors which could affect the accuracy of
such forward-looking statements are identified in the Fund's Prospectus and the
Fund's Registration Statement filed by the Fund with the Securities and Exchange
Commission, and forward-looking statements contained herein or in other public
statements of the Fund should be considered in light of those factors. There can
be no assurance that factors will not affect the accuracy of such
forward-looking statements.
3
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
PART I
Item 1. Business
Meridian Healthcare Growth and Income Fund Limited Partnership (the
"Fund") was organized under the laws of the State of Delaware on December 8,
1987. The Fund will continue until December 31, 2037, unless sooner terminated
under the provisions of the Partnership Agreement. The Fund was formed to
acquire 98.99% of the limited partnership interests in seven limited
partnerships, each of which owns and operates a single nursing center (the
"Facilities").
The Fund's objectives are to (i) preserve Investors' capital; (ii)
obtain capital appreciation through increases in the value of the Facilities;
and (iii) provide quarterly cash distributions to Investors from income
generated by the Facilities' operating income, the income taxation of a portion
of which is anticipated to be deferred.
The General Partners of the Fund are Brown Healthcare, Inc., a
Maryland corporation (the "Administrative General Partner") and Meridian
Healthcare Investments, Inc., a Maryland corporation (the "Development
General Partner").
A maximum of 1,540,000 assignee units of limited partnership interests
("Units") were registered under the Securities and Exchange Act of 1933, as
amended. During 1988 all 1,540,000 Units were sold, and the Fund's net proceeds
available for investment aggregated $31,878,000 (gross proceeds of $38,500,000
less public offering expenses and acquisition fees of $6,622,000). The Assignor
Limited Partner (Brown Healthcare Holding Co., Inc., an affiliate of the General
Partner) also acquired 40 units of limited partnership interests in 1988.
The Fund acquired 98.99% limited partnership interests (the "Operating
Partnership Interests") in the operating limited partnerships which own and
operate seven nursing center facilities. The Facilities include four nursing
centers located in Maryland; two nursing centers located in North Carolina and
one facility in New Jersey. Each operating partnership owns the real and
personal property of its nursing center facility. (See Note 1, "Organization and
Operations", in Item 8, Financial Statements and Supplementary Data, and Item 2.
Properties, herein.)
The Fund acquired the Operating Partnership Interests with offering
proceeds and certain indebtedness.
The nursing centers owned by the operating partnerships are managed by
and purchase drugs, medical supplies and agency nursing and rehabilitation
services from affiliates of the Development General Partner. (See Note 3,
"Related Party Transactions" in Item 8. Financial Statements and Supplementary
Data, herein.)
On November 30, 1993, NeighborCare, Inc. (formerly Genesis Health
Ventures, Inc.) acquired substantially all of the assets of Meridian Inc.,
Meridian Healthcare, Inc. and their affiliated entities, including all of the
stock of the Development General Partner. The ownership interest in the
Development General Partner was transferred to Genesis Healthcare Corporation
(Genesis) in connection with the spin off of Genesis from NeighborCare on
December 1, 2003. See Item 10. Directors and Executive Officers of Registrant,
herein.
The Fund's sole business is its investment in partnerships which own
and operate nursing centers that are healthcare facilities licensed by
individual states to provide long-term healthcare within guidelines established
by the appropriate state health agencies and as directed by each patient's
physician. Healthcare and related services from private pay and other patients
and Medicaid and Medicare patients accounted for approximately 99% of revenues
during each of the years in the three-year period ended December 31, 2003.
Healthcare facilities, including those owned by the operating
partnerships, are subject to extensive federal, state and in some cases, local
regulatory licensing and inspection requirements. In addition, government
revenue sources, particularly Medicaid and Medicare programs, are subject to
statutory and regulatory changes due to administrative rulings, interpretations
of policy and determination by fiscal intermediaries, and to government funding
restrictions, all of which may materially affect the rate of program payments to
nursing facilities.
The nursing center Facilities face competition with similar facilities
in their general locations as well as the development of other nursing centers
that are able to obtain Certificates of Need and to meet certain other
requirements.
4
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 2. Properties
The Fund owns Operating Partnership Interests in operating partnerships
that own four nursing facilities in the State of Maryland, two nursing
facilities in the State of North Carolina, and one nursing facility in New
Jersey. The Facilities are described below:
Property & Equipment Patient
(before depreciation) Revenues
at December 31, 2003 2003
Name and Location Description (Dollars in Thousands)
Facility 1. Hamilton A 104-bed nursing facility located on $ 5,339 $ 6,661
6040 Harford Road 1.06 acres, constructed in 1972
Baltimore City, consisting of a "T" shaped two-story
Maryland plus partial basement masonry structure
containing 22,082 square feet. The
facility contains 104 comprehensive care
beds of which all are Medicare-
certified. There are two private rooms,
15 semi-private rooms, 4 three-person
rooms and 15 four-person rooms.
Facility 2. A 215-bed nursing facility located on 12,245 13,229
Randallstown 2.83 acres, constructed in 1971
9109 Liberty Road consisting of a rectangular-shaped
Randallstown, Maryland two-story plus partial basement masonry
structure containing a total of 72,780
square feet. The facility contains 215
comprehensive care beds of which all
are Medicare-certified. There are 96
semi-private rooms and 23 private rooms.
Facility 3. Caton A 168-bed nursing facility located on 8,847 10,134
Manor 0.92 acres, constructed in 1972
3330 Wilkens Avenue consisting of an "L" shaped four-story
Baltimore City, plus basement masonry structure
Maryland containing a total of 48,660 square
feet. All 168 beds are comprehensive
care beds and are all
Medicare-certified. All rooms are
semi-private.
8,316 8,419
Facility 4. Frederick A 137-bed nursing facility located on
(Collegeview) 1.13 acres, originally constructed in
400 North Avenue 1966 consisting of a two-story plus
Frederick, Maryland partial basement masonry structure, the
second floor added in 1968, containing
a total of 52,661 square feet. The
facility contains 137 comprehensive
care beds of which all are
Medicare-certified.
5
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 2. Properties (continued)
Property & Equipment Patient
(before depreciation) Revenues
at December 31, 2003 2003
Name and Location Description (Dollars in Thousands)
Facility 5. Mooresville A 160-bed nursing facility located on 6,689 7,450
550 Glenwood Road 11.38 acres, originally constructed with
Mooresville, 100 beds in 1988 with a 60-bed addition
North Carolina completed in 1992 consisting of a one-
story slab on grade building containing
a total of 47,657 square feet. The
facility contains 130 beds for skilled
care and intermediate care residents, of
which all are Medicare certified. There
are 30 beds in the Home for the Aged
(HA) wing. There are 8 private rooms and
76 semi-private rooms.
Facility 6. Salisbury A 180 bed nursing facility located on 6,489 8,879
710 Julian Road 6.02 acres, originally constructed with
Salisbury, 120 beds in 1988 with a 60-bed addition
North Carolina completed in 1991 consisting of a one-
story slab on grade building containing
a total of 50,500 square feet. The
facility contains 160 beds for skilled
care and intermediate care residents, of
which all are Medicare certified. There
are 20 beds in the Home for the Aged
(HA) wing. There are 16 private rooms
and 82 semi-private rooms.
Facility 7. Woodlands A 140-bed nursing facility located on 8,849 8,977
1400 Woodland Avenue 6.52 acres, constructed in 1989
Plainfield, New Jersey consisting of a two-story slab on grade
building containing a total of 54,000
square feet. The facility contains 120
comprehensive nursing home beds, of
which all are Medicare certified, and
20 residential care beds. There are 12
private rooms, 46 semi-private rooms
and 9 four-bed rooms. --------- ---------
$ 56,774 $ 63,749
========= =========
6
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 3. Legal Proceedings
The Fund is a party to litigation arising in the ordinary course of
business. The Fund does not believe the results of such litigation, even if the
outcome is unfavorable to the Fund, would have a material adverse effect on its
consolidated financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to the security holders for a vote during the
last quarter of the fiscal year covered by this report.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
An established public trading market for the Units does not exist and the Fund
does not anticipate that a public market will develop. Transfer of Units by an
investor and purchase of Units by the Fund may be accommodated under certain
terms and conditions. The Partnership Agreement imposes certain limitations on
the transfer of Units and may restrict, delay or prohibit a transfer primarily
if:
o the transfer of Units would result in 50% or more of all Units having been
transferred by assignment or otherwise within a 12-month period;
o such a transfer would be a violation of any federal or state securities laws
that may cause the Fund to be classified other than as a partnership for
federal income tax purposes;
o such transfers would cause the Fund to be treated as a "publicly traded
partnership" under Sections 7704 and 469(k) of the Internal Revenue Code;
and
o the transfer of Units would cause a technical termination of the Partnership
within meaning of Section 708(b)(1)(A) of the Internal Revenue Code.
As of December 31, 2003, there were 1,694 holders of Units of the
registrant, owning an aggregate of 1,540,040 Units, including 40 Units held by
the Assignor Limited Partner. The Fund made four quarterly distributions
totaling approximately $2,187,000 in fiscal year end December 31, 2003 and
$3,306,000 in each of the years in the two-year period ended December 31, 2002.
See Note 5, "Distributions to Partners and Allocation of Net Earnings", in Item
8. Financial Statements and Supplementary Data, herein.
7
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 6. Selected Financial Data
Years Ended December 31,
2003 2002 2001 2000 1999
(Dollars in thousands - except per Unit amounts)
Statement of Earnings Data
Net revenue $63,849 $61,920 $59,933 $55,764 $51,278
Net earnings 2,326 2,384 2,191 2,282 2,865
Net earnings per assignee Unit-basic $ 1.50 $ 1.53 $ 1.41 $ 1.47 $ 1.84
Operating Data
Payor mix (as a percent of revenue):
Medicaid and Medicare 85% 84% 83% 80% 84%
Private 15% 16% 17% 20% 16%
Occupancy percentage 88.2% 89.9% 90.0% 86.2% 87.9%
Patient Days Available 403,000 403,000 406,000 430,000 429,000
Balance Sheet Data
Total assets $45,323 $45,839 $48,777 $49,398 $48,646
Property and equipment, net of
accumulated depreciation 31,207 31,231 31,927 32,934 33,346
Debt, including loan payable to
Development General Partner 23,786 24,169 24,588 24,964 23,742
Partners' capital 15,450 15,311 16,233 17,348 18,372
Cash distributions paid per Assignee
Limited Partner Unit:
from operations $ 1.41 $ 2.13 $ 2.13 $ 1.70 $ 2.13
from return of capital - - - .43 -
$ 1.41 $ 2.13 $ 2.13 $ 2.13 $ 2.13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
The Fund closed its $24,000,000 mortgage loan refinancing 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 an interest rate of 6.5% for five years. Effective
February 1, 2008 and again on February 1, 2013 the interest rate is adjusted to
a fixed rate based on the bank's prime rate plus 1/4% or floating rate based on
the bank's prime rate at the Fund's option. Monthly payments of $180,242 are
based on a 20-year amortization schedule with a mandatory prepayment option at
the
8
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Liquidity and Capital Resources (continued)
Bank's discretion during the period between November 1, 2007 through May 1, 2008
and November 1, 2012 through May 1, 2013.
The Fund 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 December 31, 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 completed approximately $1.2 million of non-routine capital
improvements to enhance the functionality and marketability of its Maryland
centers in 2003. These improvements were funded from operating cash flow. As a
result, the Fund retains the ability to draw on its line of credit facility to
fund future improvements, as necessary.
The Fund's working capital (excluding the current portion of long-term
debt) decreased $511,000 to $4,306,000 at December 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 $5,244,000 for the year ended
December 31, 2003 as compared to $3,733,000 during 2002. The increase in cash
flow was due primarily to favorable Medicaid settlements associated with prior
year audits which were finalized during 2003.
Cash used in investing activities during 2003 was $1,969,000 and
included routine improvements to the Fund's seven operating facilities and
approximately $1.2 million of non-routine enhancements to the four Maryland
facilities. Capital improvements of $1,245,000 and $902,000 were made during
2002 and 2001, respectively.
Cash flows used in financing activities during 2003 included repayment
of long term debt of $661,000 and distributions to partners and minority
interests totaling $2,213,000.
The Fund believes that the short-term liquidity needs will be met
through expected cash flow from operations, available working capital and from
the existing revolving credit facility.
Between 1988 and 1999 the Development General Partner loaned the Fund
$597,000 to support operating deficits generated by the Mooresville, Salisbury
and Woodlands nursing centers during each centers' first two years of operation.
Loans outstanding under this arrangement, including interest at 9% per annum,
were $1,343,000 at December 31, 2003.
On February 19, 2004 the Fund made its fourth quarter 2003 distribution
to partners in the amount of $583,000. This distribution was funded by fourth
quarter 2003 operations. During 2003 distributions to partners were funded by
operations and working capital of approximately $731,000. While the Fund is
monitoring pending Medicaid legislation in both North Carolina and Maryland and
evaluating further capital improvement needs at the facilities, based on the
existing operating budget we expect to maintain a similar distribution level
throughout 2004.
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.
9
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Results of Operations
December 31, 2003 versus December 31, 2002
Overall 2003 revenues of $63,849,000 increased $1,929,000 or 3.1% from
the same period in 2002.
Revenues of $54,310,000 from Medicaid and Medicare patients for the
twelve months ended December 31, 2003 increased $2,507,000 or 4.8% from the same
period in the prior year. This increase is primarily the result of Medicaid rate
increases. Medicaid revenue increased $2,583,000 primarily due to an overall
rate increase of approximately 8.6% 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 $933,000. Medicare revenue decreased $76,000 due
primarily to decreased utilization of Medicare Part B services.
Revenues from private and other patients decreased $555,000 to
$9,439,000 in fiscal year 2003 as compared to $9,994,000 in fiscal year 2002.
This decrease is a result of lower private census, which was partially offset by
a slight increase in insurance census. Private census made up 8.0 % of the
overall census in fiscal year 2003 compared to 9.3% in fiscal year 2002. In
fiscal year 2003, insurance census made up 2.4% of the overall census as
compared to 2.3% in fiscal year 2002.
Operating expenses increased $2,874,000 or 5.7 % in fiscal year 2003 as
compared to fiscal year 2002. This increase is primarily due to the increased
cost of nursing services, ancillary costs, and property and liability insurance.
Nursing costs increased $1,407,000 for the twelve months ended December 31, 2003
as compared to the same period in 2002. This increase is primarily due to
increases in salary and wages, partially offset by the decreased utilization of
temporary nurse staffing. Salary and wage expense for nurses increased
$2,624,000, while temporary nurse staffing expense decreased $1,217,000 for the
twelve months ended December 31, 2003 compared to the same period in the prior
year. Ancillary expenses increased $688,000 or 9.4% for the twelve months ended
December 31, 2003 as compared to the same period in 2002. This increase is
primarily attributable to the growth in the Medicare census, whose patients have
high ancillary usage. The Medicare average daily census increased 3.9 patients
or 2.9% for the twelve months ended December 31, 2003 compared to the same
period in the prior year. Property and liability insurance increased $170,000
for the twelve months ended December 31, 2003 as compared to the same period in
fiscal year 2002 due to the annual rate increase effective June. The remaining
increase in operating costs is due to general inflationary cost increases.
Management and administrative fees increased $77,000 or approximately
2.3% in fiscal year 2003 as compared to 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 decreased $324,000 or 23.3% for the
twelve months ended December 31, 2003 as compared to the same period in the
prior year. 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
fiscal year 2002.
Depreciation and amortization expense increased $91,000 to $2,114,000
for the twelve months ended December 31,2003 compared to the same period in the
prior year. This increase is primarily due to an increase in depreciation
expense for equipment purchases and an increase in amortization of deferred
finance fees due to the amortization of restructuring fees of $227,000 incurred
February 1, 2003. Interest expense decreased $ 731,000 for the twelve months
ended December 31, 2003 as compared to the same period in fiscal year 2002 due
to the reduction of the interest rate from 9.75% to 6.5% effective February 1,
2003.
10
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Results of Operations (continued)
December 31, 2002 versus December 31, 2001
Overall 2002 revenues of $61,920,000 increased $1,987,000 or 3.3% from
the same period in 2001.
Revenues of $51,803,000 from Medicaid and Medicare patients for the
twelve months ended December 31, 2002 increased $2,781,000 or 5.7% from the same
period in the prior year. This increase is primarily the result of Medicaid rate
increases and an increase in the number of Medicaid days. Medicaid revenue
increased $3,378,000 primarily due to an overall rate increase of approximately
6.3% driven primarily by the four Maryland centers, which received their annual
Medicaid rate adjustment in July 2002. Medicare revenue decreased $597,000
relating to a decline in the Medicare census. In fiscal year 2002, Medicare
census made up 13.3% of the overall census as compared to 13.9% in fiscal year
2001.
Revenues from private and other patients decreased $766,000 to
$9,994,000 in fiscal year 2002 as compared to $10,760,000 in fiscal year 2001.
This decrease is a result of lower private and insurance census. Private census
made up 9.3 % of the overall census in fiscal year 2002 compared to 9.9% in
fiscal year 2001. In fiscal year 2002, insurance census made up 2.3% of the
overall census as compared to 2.6% in fiscal year 2001.
Operating expenses increased $1,572,000 or 3.2 % from the same period
in the prior year. This increase is primarily due to the increased cost of
nursing services which is partially offset by a decrease in ancillary costs.
Nursing costs increased $1,743,000 for the twelve months ended December 31, 2002
as compared to the same period in 2001. This increase is primarily due to
increases in salary and wages and the increased utilization of temporary nurse
staffing. Salary and wage expense for nurses increased $780,000, and temporary
nurse staffing expense increased $963,000 for the twelve months ended December
31, 2002 compared to the same period in the prior year. The increase in nursing
salary and wages and utilization of temporary nurse staffing is a result of an
overall shortage of nurses within the healthcare industry. Ancillary expenses
decreased $359,000 or 4.7% for the twelve months ended December 31, 2002 as
compared to the same period in 2001. This decrease is primarily due to the
decrease in the Medicare census. The remaining increase in operating costs is
due to increased health insurance costs, and general inflationary cost
increases.
Management and administrative fees increased $71,000 or approximately
2.2% in 2002 as compared to 2001. 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 $419,000 or 43% from the
same period in the prior year. This increase is primarily due to a New Jersey
filing fee and increased legal expenses. New Jersey implemented a filing fee in
fiscal year 2002 which resulted in additional expense of $250,000. Legal fees
increased $63,000 primarily due to fees associated with the collection of
accounts receivable. The remaining increase is due to general inflationary cost
increases.
Depreciation and amortization expense decreased $221,000 to $2,023,000
for the twelve months ended December 31,2002 compared to the same period in the
prior year. This decrease is due to the adoption of SFAS 142, under which
goodwill is no longer amortized.
Contractual Obligations
The Fund is committed to making cash payments in the future on two
types of contracts: a loan payable to the Development General Partner and
indebtedness on mortgage loans. The Fund has no off-balance sheet debt or other
such unrecorded obligations and has not guaranteed the debt of any other party.
11
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Contractual Obligations (continued)
We have future obligations for debt repayments. The obligations as of
December 31, 2003 are summarized as follows: (in thousands):
Payments Due by Period
Less than
Contractual Obligation Total 1 year 1 - 3 years 4 - 5 years Thereafter
- ------------------------------------------ ------------ -------------- ------------- -------------
Long-term debt $22,216,000 $712,000 $2,454,000 $19,050,000 $0
=============== ============ ============== ============= =============
The Fund is obligated to repay the loan payable to the Development
General Partner 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. The loan
payable balance is $1,343,000 as of December 31, 2003. See the discussion in
Note 3 of the Notes to the Consolidated Financial Statements for additional
information on this loan payable.
The Fund believes it has, or has access to, sufficient resources to
meet these contractual obligations and its operating requirements for the
foreseeable future. The Fund currently has in place an agreement to borrow up to
$4 million on a revolving credit facility, of which $227,000 is outstanding at
December 31, 2003. The Fund's ability to meet its capital requirements will
depend on a number of factors, including the ability to meet the loan covenant
requirements necessary under its current debt agreements, the success of its
nursing center operations, competitive advances, future relationships with
corporate partners, government regulation, and the Fund's marketing strategy.
Critical Accounting Policies
An accounting policy is considered to be critical if it is important to
the registrant's financial condition and results of operations, and requires
significant judgment and estimates on the part of management in its application.
The Fund's 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. The Fund believes that the
following represents our critical accounting policies. For a summary of all of
our significant accounting policies, including critical accounting policies
discussed below, see Note 1 -"Summary of Significant Accounting Policies" to our
consolidated financial statements.
Allowance for Doubtful Accounts- The Fund utilizes the "Aging Method"
to evaluate the adequacy of the allowance for doubtful accounts. This method is
based upon applying estimated standard allowance requirement percentages to each
accounts receivable aging category for each type of payor. The Fund has
developed estimated standard allowance requirement percentages by utilizing
historical collection trends and an understanding of the nature and
collectibility of receivables in the various aging categories and the various
segments of our business. The standard allowance percentages are developed by
payor type as the accounts receivable from each payor type have unique
characteristics. The allowance for doubtful accounts is determined utilizing the
aging method described above while also considering accounts specifically
identified as uncollectible. Accounts receivable that we specifically estimate
to be uncollectible, based upon the age of the receivables, the results of
collection efforts or other circumstances, are fully reserved for in the
allowance for doubtful accounts until they are written-off.
12
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Critical Accounting Policies (continued)
The Fund believes the assumptions used in aging method employed in
fiscal 2003, coupled with continued improvements in its collection patterns,
suggest that the allowance for doubtful accounts is adequately provided for at
December 31, 2003. However, because the assumptions underlying the aging method
are based upon historical collection data, there is a risk that these current
assumptions are not reflective of more recent collection patterns. Changes in
overall collection patterns can be caused by market conditions and/or budgetary
constraints of government funded programs such as Medicare and Medicaid. Such
changes can adversely impact the collectibility of receivables, but not be
addressed in a timely fashion when using the aging method, until updates to
these periodic historical collection studies are completed and implemented.
At least annually, the Fund updates its historical collection studies
in order to evaluate the propriety of the assumptions underlying the aging
method. Any changes to the underlying assumptions are implemented immediately.
Changes to these assumptions can have a material impact on our bad debt expense,
which is reported in the consolidated statements of earnings as a component of
operating expenses.
Revenue Recognition- Revenue is recognized in the period the related
services are rendered. The Fund derives a substantial portion of our inpatient
services revenue under Medicaid and Medicare reimbursement systems.
Under certain prospective Medicaid systems and Medicare the Fund is
reimbursed at a predetermined rate based upon the historical cost to provide the
service, demographics of the site of service and the acuity of the customer. The
differences between the established billing rates and the predetermined rates
are recorded as contractual adjustments and deducted from revenues. Under a
prospective reimbursement system, there is no adjustment or settlement of the
difference between the actual cost to provide the service and the predetermined
rate.
Under certain retrospective Medicaid systems, revenues are generally
based on reimbursement of the reasonable direct and indirect costs of providing
services to program participants. The Fund separately estimates revenues due
from each third party with which it has a contractual arrangement and records
anticipated settlements with these parties in the contractual period during
which services were rendered. The amounts actually reimbursable under the cost
based reimbursement programs are determined by filing cost reports which are
then subject to audit and retroactive adjustment by the payor. The Fund provides
an allowance for potential audit adjustments to the interim reimbursement
amounts received under these cost reimbursement programs. Revisions to this
allowance, if any, are recorded as an adjustment to revenues in the year such
amounts are determined. Factors that management considers when establishing or
adjusting an allowance for potential audit adjustments include, but are not
limited to, changes in estimates resulting from improved cost information and
preliminary results of third-party audits and reviews. Adjustments and final
settlements with third-party payors are reflected in operations at the time of
the adjustment or settlement as an increase or decrease to the balance of
estimated third-party payor settlements and revenue.
There can be no assurances that any future healthcare legislation will
not adversely affect the business of the Fund. There can be no assurance that
payments under government 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 revenue reimbursement process, which in the
Fund's industry is complex and can involve lengthy delays between the time that
revenue is recognized and the time that reimbursement amounts are settled.
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
13
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Revenue Sources (continued)
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, increasing the nursing component of federal prospective payment
system's rates by approximately 16.7% 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.
A number of provisions of the Balanced Budget Refinement Act and the
Benefits Improvement and Protection Act, providing additional funding for
Medicare participating skilled nursing facilities, expired on September 30, 2002
resulting in an approximate 10% reduction in the rates paid to us for providing
services to Medicare patients. We refer to the expiration of the additional
funding as 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 adversely impacted annual revenue and net earnings in
fiscal 2003 by approximately $900,000.
The final fiscal year 2004 prospective payment system rules for skilled
nursing facilities became effective on October 1, 2003. The final rules enhance
the reimbursement rates for fiscal year 2004 by increasing base rates by 6.26%
(a 3% increase in the annual update factor and a 3.26% upward adjustment
correcting previous forecast errors). These 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 that were
authorized in the Balanced Budget Refinement Act to compensate for non-therapy
ancillaries.
The recent economic downturn is having a detrimental affect on state
revenues in most jurisdictions. Budget shortfalls range from 4% to 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, we expect continuing cost
containment pressures on Medicaid outlays for skilled nursing facilities in the
states in which we operate. In each of the major states where we provide
services, we are working with trade groups, consultants and government officials
to responsively address the particular funding issues.
The plight of state governments has helped to elevate issues related to
Medicaid onto the national agenda. In May 2003, Congress passed the Jobs and
Growth Tax Relief Reconciliation Act of 2003 which provided temporary relief to
states by providing a 2.9% temporary increase in the Federal Medicaid Assistance
Percentage for five quarters. This assistance is estimated to provide states
with an aggregate of $10 billion in Medicaid relief. Unless Congress acts to
extend this financial support, the temporary assistance will expire on June 30,
2004.
Late in November 2003, the General Accounting Office released a study
examining how nursing home reimbursement has been affected by the fiscal crisis
being experienced by a number of states. The report documents that most states
have sustained their reimbursement commitments. States have tapped reserves,
tobacco settlement monies and other funding strategies including provider
assessments to meet their obligations. While the data does not evaluate the
adequacy of state Medicaid payments for nursing facility services, the analysis
does suggest that under current difficult conditions states are honoring their
commitments.
14
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Revenue Sources (continued)
It is not possible to quantify fully 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.
Legislative and Regulatory Issues
The Fund's business is subject to extensive federal, state and, in some
cases, local regulation with respect to, among other things, licensure,
certification and health planning. This regulation relates, among other things,
to the adequacy of physical plant and equipment, qualifications of personnel,
standards of care and operational requirements. Compliance with such regulatory
requirements, as interpreted and amended from time to time, can increase
operating costs and thereby adversely affect the financial viability of our
business. Failure to comply with current or future regulatory requirements could
also result in the imposition of various remedies including fines, restrictions
on admission, the revocation of licensure, decertification, imposition of
temporary management or the closure of the facility.
All of the Fund's centers, to the extent required, are licensed under
applicable law. All skilled nursing centers or practitioners providing the
services therein, are certified or approved as providers under one or more of
the Medicaid and Medicare programs. Licensing, certification and other
applicable standards vary from jurisdiction to jurisdiction and are revised
periodically. State and local agencies survey all skilled nursing centers on a
regular basis to determine whether such centers are in compliance with
governmental operating and health standards and conditions for participation in
government sponsored third party payor programs. The Fund believes that its
eldercare centers and other sites of service are in substantial compliance with
the various Medicare, Medicaid and state regulatory requirements applicable to
them. However, in the ordinary course of our business, the Fund receives notices
of deficiencies for failure to comply with various regulatory requirements. The
Fund reviews such notices and takes appropriate corrective action. In most
cases, the Fund and the reviewing agency will agree upon the measures to be
taken to bring the center into compliance with regulatory requirements. In some
cases, the reviewing agency may take various adverse actions against a provider,
including but not limited to the imposition of fines; suspension of payments for
all or new admissions to the center, and in extreme circumstances,
decertification from participation in the Medicare or Medicaid programs and
revocation of a center's or site of service's license. These actions may
adversely affect a center's ability to continue to operate, ability to provide
certain services, and/or eligibility to participate in the Medicare or Medicaid
programs or to receive payments from other payors.
The Fund's centers are currently certified to receive benefits provided
under Medicare. Additionally, all of the Fund's skilled nursing centers are
currently certified to receive benefits under Medicaid. Both initial and
continuing qualifications of a skilled nursing center to participate in such
programs depend upon many factors including accommodations, equipment, services,
patient care, safety, personnel, physical environment, and adequate policies,
procedures and controls.
The Fund is also subject to federal and state laws that govern
financial and other arrangements between healthcare providers. These laws often
prohibit certain direct and indirect payments or fee-splitting arrangements
between healthcare providers that are designed to induce or encourage the
referral of patients to, or the recommendation of, a particular provider for
medical products and services. These laws include:
15
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Legislative and Regulatory Issues (continued)
o the "anti-kickback" provisions of the federal Medicare and Medicaid
programs, which prohibit, among other things, knowingly and willfully
soliciting, receiving, offering or paying any remuneration (including any
kickback, bribe or rebate) directly or indirectly in return for or to induce
the referral of an individual to a person for the furnishing or arranging
for the furnishing of any item or service for which payment may be made in
whole or in part under Medicare or Medicaid; and
o the "Stark laws" which prohibit, with limited exceptions, the referral of
patients by physicians for certain services, including home health services,
physical therapy and occupational therapy, to an entity in which the
physician has a financial interest.
The Fund faces additional federal requirements that mandate major
changes in the transmission and retention of health information. The Health
Insurance Portability and Accountability Act of 1996 was enacted to ensure,
first, that employees can retain and at times transfer their health insurance
when they change jobs, and secondly, to simplify health care administrative
processes. This simplification includes expanded protection of the privacy and
security of personal medical data and requires the adoption of standards for the
exchange of electronic health information. Among the standards that the
Department of Health and Human Services may adopt pursuant to the Health
Insurance Portability and Accountability Act are standards for the following:
electronic transactions and code sets; unique identifiers for providers,
employers, health plans and individuals; security and electronic signatures;
privacy; and enforcement.
Although the Health Insurance Portability and Accountability Act was
intended to ultimately reduce administrative expenses and burdens faced within
the healthcare industry, the Fund believes that implementation of this law will
result in additional costs. Genesis, the Fund's manager, has established a
Health Insurance Portability and Accountability Act task force consisting of
clinical, financial and information services professionals focused on the Health
Insurance Portability and Accountability Act compliance.
The Department of Health and Human Services has released three rules to
date mandating the use of new standards with respect to certain health care
transactions and health information. The first rule establishes uniform
standards for common health care transactions, including:
o Health care claims information;
o plan eligibility, referral certification and authorization;
o claims status;
o plan enrollment and disenrollment;
o payment and remittance advice;
o plan premium payments; and
o coordination of benefits.
Second, the Department of Health and Human Services has released
standards relating to the privacy of individually identifiable health
information. These standards not only require the Fund's compliance with rules
governing the use and disclosure of protected health information, but they also
require us to impose those rules, by contract, on any business associate to whom
it discloses information. Third, the Department of Health and Human Services has
released rules governing the security of health information maintained or
transmitted in electronic form.
16
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Legislative and Regulatory Issues (continued)
The Department of Health and Human Services finalized the transaction
standards on August 17, 2000. While the Fund initially was required to comply
with them by October 16, 2002, Congress passed legislation in December 2001 that
delayed for one year (until October 16, 2003) the compliance date, but only for
entities that submit a compliance plan to the Department of Health and Human
Services by the original implementation deadline. The Department of Health and
Human Services issued the privacy standards on December 28, 2000, and, after
certain delays, they became effective on April 14, 2001, with a compliance date
of April 14, 2003. On February 20, 2003, the Department of Health and Human
Services issued final rules governing the security of health information. This
rule specifies a series of administrative, technical and physical security
procedures to assure the confidentiality of electronic protected health
information. Affected parties will have approximately two years to be fully
compliant. Sanctions for failing to comply with the Health Insurance Portability
and Accountability Act health information practices provisions include criminal
penalties and civil sanctions.
At this time, management anticipates that the Fund will be able to
fully comply with those Health Insurance Portability and Accountability Act
requirements that have been adopted. However, management cannot at this time
estimate the cost of compliance.
It is not possible to fully quantify the effect of recent legislation,
the interpretation or 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 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 our
industry is complex and can involve lengthy delays between the time that revenue
is recognized and the time that reimbursement amounts are settled.
Outlook
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.
Item 7a. Quantitative and Qualitative Disclosures About Market Risks
The Fund has exposure to changing interest rates and is currently not
engaged in hedging activities. Interest on the Fund's $22.2 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% for five years.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements:
Annual Report
Page(s)
Independent Auditors' Report 5
Consolidated Balance Sheets 6
Consolidated Statements of Earnings 7
Consolidated Statements of Partners' Capital (Deficit) 8
Consolidated Statements of Cash Flows 9
Notes to Consolidated Financial Statements 10-19
17
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 8. Financial Statements and Supplementary Data (continued)
Supplementary Data
Quarterly Financial Data (Unaudited)
The Fund's unaudited quarterly financial information is as follows (in
thousands):
Total Net Net
Revenues Earnings
Quarter ended:
March 31, 2003 $15,407 $321
June 30, 2003 15,343 378
September 30, 2003 16,028 538
December 31, 2003(1) 17,071 1,089
March 31, 2002 15,070 834
June 30, 2002 15,426 483
September 30, 2002 15,613 551
December 31, 2002 15,811 516
(1) Increase in quarterly net earnings primarily due to favorable
Medicaid settlements of $451 related to prior year audits.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
Item 9a. Controls and Procedures
An evaluation was performed under the supervision of management, including
the Chief Executive Officers and Chief Financial Officers of Brown Healthcare
Inc. the Administrative General Partner and Meridian Healthcare Investments,
Inc. the Development General Partner, of the effectiveness as of December 31,
2003 of the design and operation of disclosure controls and procedures as
defined in Rule 13a-15 of the rules promulgated under the Securities and
Exchange Act of 1934, as amended. Based on that evaluation, the Chief Executive
Officers and Chief Financial Officers of the General Partners concluded that the
design and operation of these disclosure controls and procedures were effective.
No changes in the Fund's internal control over financial reporting occurred
during the last fiscal quarter that have materially affected, or are reasonably
likely to materially affect, the Fund's internal control over financial
reporting.
18
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
PART III
Item 10. Directors and Executive Officers of Registrant
The General Partners of the Fund are Meridian Healthcare Investments,
Inc., the Development General Partner, and Brown Healthcare, Inc., the
Administrative General Partner. The Fund's principal executive offices are
located at 300 East Lombard Street, Suite 1200, Baltimore, Maryland 21202. The
General Partners had primary responsibility for the selection and negotiation of
terms concerning the acquisition of the Operating Partnership Interests,
selecting a manager for the interim investments and the structure of the
Offering and the Fund. The General Partners have primary responsibility for
overseeing the performance of those who contract with the Fund as well as making
decisions with respect to the financing, sale and liquidation of the Fund's or
the operating partnerships' assets. The General Partners are responsible for all
reports to and communications with investors and others, all distributions and
allocations to investors, the administration of the Fund's business and all
filings with the Securities and Exchange Commission and other Federal or State
regulatory authorities. The Fund's Partnership Agreement provides certain rights
for investors, which are incorporated herein by reference.
Development General Partner
Meridian Healthcare Investments, Inc., the Development General Partner,
is a Maryland corporation. On November 30, 1993, Genesis acquired substantially
all the assets of Meridian, Inc., Meridian Healthcare (" MHC") and their
affiliated entities, including all the stock of the Fund's Development General
Partner. As part of the acquisition, MHC, the manager of the Fund's seven
nursing centers, continues to operate the facilities pursuant to management
agreements. Genesis operates primarily in three regional markets. The networks
include 217 eldercare centers with approximately 26,502 beds; Genesis employs
physicians, physician assistants and nurse practitioners; and certified
rehabilitation agencies providing services by approximately 4,300 licensed
rehabilitation therapists and assistants. Genesis also provides diagnostic and
hospitality services in selected markets. Genesis has concentrated its eldercare
networks in three geographic regions in order to achieve operating efficiencies,
economies of scale and significant market share. The three geographic markets
that Genesis principally serves are: New England Region (Massachusetts,
Connecticut, New Hampshire, Vermont, Rhode Island); Mid Atlantic Region (Greater
Philadelphia, Delaware Valley, New Jersey); and Chesapeake, Allegheny Region
(Southern Delaware, Eastern Shore of Maryland, Baltimore, Maryland, Washington
D.C., Virginia, West Virginia, Western Pennsylvania, North Carolina).
The following individuals are the directors and principal officers of
Meridian Healthcare Investments, Inc.:
George V. Hager, Jr., age 47, serves as Chairman and Chief Executive
Officer of Genesis HealthCare. Prior to becoming CEO, Hager was Executive Vice
President and Chief Financial Officer and was responsible for corporate finance,
information services, reimbursement and risk management. Hager joined Genesis in
1992 as Vice President and Chief Financial Officer and was named Senior Vice
President and Chief Financial Officer in 1994. He holds a Bachelor of Arts
degree in Economics from Dickenson College and a Master of Business
Administration degree from Rutgers Graduate School of Management.
James V. McKeon, III., age 39, is Chief Financial Officer and has
previously served as Senior Vice President and Corporate Controller, Director of
Financial Reporting and Investor Relations plus Vice President of Finance and
Investor Relations since joining Genesis in 1994. He holds a Bachelor of Science
degree in Accounting from Villanova University.
Eileen M. Coggins, age 39, is Senior Vice President, General Counsel &
Corporate Compliance Officer and is also responsible for the Corporate Integrity
Program as well as survey, certification and enforcement matters. Coggins is a
graduate of West Chester University and Widener University School of Law.
19
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 10. Directors and Executive Officers of Registrant (continued)
Administrative General Partner
Brown Healthcare, Inc., the Administrative General Partner, is a Maryland
corporation, and is wholly-owned by Alex. Brown Realty, Inc. The Administrative
General Partner is responsible for administering the business of the Fund,
including providing clerical services, communications, services and reports to
investors, and making all reports and filings to securities regulatory
authorities.
The following individuals are the directors and principal officers of the
Administrative General Partner:
John M. Prugh, age 55, has been a Director and President of the
Administrative General Partner since 1988, and of Alex. Brown Realty, Inc. and
Armata Financial Corp. since 1984. Mr. Prugh graduated from Gettysburg College
in 1970, and was designated a Certified Property Manager by the Institute of
Real Estate Management in 1979. He has worked in property management for H. G.
Smithy Co., in Washington, D.C., and Dreyfus Bros., Inc. in Bethesda, Maryland.
Since 1977, Mr. Prugh has been involved in managing, administering, developing
and selling real estate investment projects sponsored by Alex. Brown Realty,
Inc. and its subsidiaries.
Peter E. Bancroft, age 51, has been a Director and Vice President of the
Administrative General Partner since 1988 and a Senior Vice President of Alex.
Brown Realty, Inc. and Armata Financial Corp. since 1983. Mr. Bancroft graduated
from Amherst College in 1974, attended the University of Edinburgh, and received
a J.D. degree from the University of Virginia School of Law in 1979. Prior to
joining Alex. Brown Realty, Inc. in 1983, Mr. Bancroft held legal positions with
Venable, Baetjer and Howard and T. Rowe Price Associates, Inc.
Terry F. Hall, age 57, has been the Secretary of the Administrative General
Partner and a Vice President and Secretary of, and Legal Counsel for, Alex.
Brown Realty, Inc. since 1989. Mr. Hall graduated from the University of
Nebraska-Lincoln in 1968, and received a J.D. degree from the University of
Pennsylvania Law School in 1973. Prior to joining Alex. Brown Realty, Inc. in
1986, Mr. Hall was a Partner at the law firm of Venable, Baetjer and Howard from
1981 to 1986 and an associate at the same firm from 1973 to 1981.
Timothy M. Gisriel, age 47, has been the Treasurer of the Administrative
General Partner and of Alex. Brown Realty, Inc. and Armata Financial Corp. since
1990. He was Controller of Alex. Brown Realty, Inc. and Armata Financial Corp.
from 1984 through 1990. Mr. Gisriel graduated from Loyola College in 1978 and
received his Masters of Business Administration degree from the Robert G.
Merrick School of Business, University of Baltimore in 1993. Prior to joining
Alex. Brown Realty, Inc. in 1984, Mr. Gisriel was an audit supervisor in the
Baltimore office of Coopers & Lybrand. He is a Maryland Certified Public
Accountant.
There is no family relationship among the officers and directors of the
General Partner.
Item 11. Executive Compensation
The officers and directors of the Administrative General Partner and
Development General Partner received no compensation from the Fund.
The General Partners are entitled to receive a share of cash
distributions and a share of profits and losses as described in the Agreement of
Limited Partnership. (See Note 5, "Distributions to Partners and Allocation of
Net Income" in Item 8. Financial Statements, herein.)
For a discussion of compensation and fees to which the General Partners
are entitled, see Item 13. Certain Relationships and Related Transactions,
herein.
20
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 12. Security Ownership of Certain Beneficial Owners and Management
No person is known to the Fund to own beneficially more than 5% of the
outstanding Units of the Fund.
The General Partners each have a .5% interest in the Fund as General
Partners, but do not hold any Units.
The Assignor Limited Partner, Brown Healthcare Holding Co., Inc., an
affiliate of the Administrative General Partner, owns for its benefit 40 Units.
The Units held by the Assignor Limited Partner have all rights attributable to
such Units under the Limited Partnership Agreement except that these Units are
non-voting.
Item 13. Certain Relationships and Related Transactions
The General Partners and their affiliates have and are permitted to
engage in transactions with the Fund. For a summarization of fees paid during
2003, 2002, and 2001, and to be paid to the General Partners and their
affiliates at December 31, 2003, see Note 3, "Related Party Transactions" in
Item 8. Financial Statements, herein.
Item 14. Principal Accountant Fees and Services
KPMG LLP served as the Fund's independent auditors for the last fiscal
year. For services rendered during or in connection with our fiscal years 2003
and 2002, as applicable, KPMG LLP billed the following fees:
2003 2002
Audit Fees $ 80,300 $ 77,000
Audit-Related Fees $ 0 $ 0
Tax Fees $ 25,600 $ 20,700
All Other Fees $ 0 $ 0
The Board of Directors of the General Partner has the sole authority to
pre-approve any engagement of the independent auditor to provide audit or
non-audit services and pre-approved all of the services provided by KPMG LLP in
2003.
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements: see Index to Financial Statements and
Supplementary Data in Item 8 on Page 18.
2. Financial Statement Schedules: Schedule II - Valuation and
Qualifying Accounts for the years ended December 31, 2003, 2002 and
2001. All other schedules are omitted because they are not
applicable or the required information is shown in the financial
statements or notes thereto.
3. Exhibits:
(3, 4) Limited Partnership Agreement on pages 1 through 41 of
Exhibit A to the Fund's Prospectus, and the Fund's
Registration Statement on Form S-1 (File No. 33-19277)
included herein by reference.
(13) Annual Report for 2003.
21
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 15. Exhibits, Financial Statement Schedules and
Reports on Form 8-K (continued)
(31.1) Certification of Principal Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
(31.2) Certification of Principal Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
(31.3) Certification of Principal Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
(31.4) Certification of Principal Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
(32.1) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(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.
22
INDEPENDENT AUDITORS REPORT
To the Partners of
Meridian Healthcare Growth and
Income Fund Limited Partnership:
Under date of February 13, 2004, we reported on the consolidated balance sheets
of Meridian Healthcare Growth and Income Fund Limited Partnership and
subsidiaries (the Fund) as of December 31, 2003 and 2002, and the related
consolidated statements of earnings, partners' capital (deficit) and cash flows
for each of the years in the three-year period ended December 31, 2003, as
contained in the annual report on Form 10-K for the year ended December 31,
2003. In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule in the annual report on Form 10-K. This financial statement schedule is
the responsibility of the Fund's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 13, 2004
23
Meridian Healthcare Growth and Income Fund Limited Partnership
Valuation and Qualifying Accounts
Years Ended December 31, 2003, 2002 and 2001
(Dollars in Thousands)
Schedule II
Balance at Beginning Charged to Balance at End
Description of Period Operations Deductions(1) of Period
- -----------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2003
Allowance for Doubtful Accounts $1,353 939 (1,437) $855
Year Ended December 31, 2002
Allowance for Doubtful Accounts $1,656 1,062 (1,365) $1,353
Year Ended December 31, 2001
Allowance for Doubtful Accounts $1,245 1,678 (1,267) $1,656
(1) - Represents amounts written off as uncollectible.
24
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, George V. Hager, Jr. certify that:
1. I have reviewed this annual report on Form 10-K 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: 3/29/04 By: /s/ George V. Hager, Jr.
George V. Hager, Jr.
Chief Executive Officer
Meridian Healthcare Investments, Inc.
Development General Partner
25
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, James V. McKeon, III, certify that:
1. I have reviewed this annual report on Form 10-K 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: 3/29/04 By: /s/ James V. McKeon, III
James V. McKeon, III
Chief Financial Officer
Meridian Healthcare Investments,Inc.
Development General Partner
26
Exhibit 31.3
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 annual report on Form 10-K 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: 3/29/04 By: /s/ John M. Prugh
John M. Prugh
Chief Executive Officer
Brown-Healthcare, Inc.
Administrative General Partner
27
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 annual report on Form 10-K 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: 3/29/04 By: /s/ Timothy M. Gisriel
Timothy M. Gisriel
Chief Financial Officer
Brown-Healthcare, Inc.
Administrative General Partner
28
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") annual report on Form 10-K for the period
ending December 31, 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: 3/29/04 By: /s/ George V. Hager, Jr.
George V. Hager, Jr.
Chief Executive Officer
Meridian Healthcare Investments, Inc.
Development General Partner
Date: 3/29/04 By: /s/ James V. McKeon, III
James V. McKeon, III
Chief Financial Officer
Meridian Healthcare Investments, Inc.
Development General Partner
29
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") annual report on Form 10-K for the period
ending December 31, 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: 3/29/04 By: /s/ John M. Prugh
John M. Prugh
Chief Executive Officer
Brown-Healthcare, Inc.
Administrative General Partner
Date: 3/29/04 By: /s/ Timothy M. Gisriel
Timothy M. Gisriel
Chief Financial Officer
Brown-Healthcare, Inc.
Administrative General Partner
30
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: 3/29/04 By: /s/ John M. Prugh
John M. Prugh
President and Director
Brown-Healthcare, Inc.
Administrative General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934 as amended,
this report has been signed by the following in the capacities and on the dates
indicated.
DATE: 3/29/04 By: /s/ John M. Prugh
John M. Prugh
President and Director
Brown-Healthcare, Inc.
Administrative General Partner
DATE: 3/29/04 By: /s/ Peter E. Bancroft
Peter E. Bancroft
Vice President and Director
Brown-Healthcare, Inc.
Administrative General Partner
DATE: 3/29/04 By: /s/ Terry F. Hall
Terry F. Hall
Secretary
Brown-Healthcare, Inc.
Administrative General Partner
DATE: 3/29/04 By: /s/ Timothy M. Gisriel
Timothy M. Gisriel
Treasurer
Brown-Healthcare, Inc.
Administrative General Partner
31
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
SIGNATURES (continued)
DATE: 3/29/04 By: /s/ George V. Hager, Jr.
George V. Hager, Jr.
Chief Executive Officer
Meridian Healthcare Investments, Inc.
Development General Partner
DATE: 3/29/04 By: /s/ James V. McKeon, III
James V. McKeon, III
Chief Financial Officer
Meridian Healthcare Investments, Inc.
Development General Partner
32