SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
(Mark One)
{ X } QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
For Quarter Ended March 31, 2004 Commission file number 000-17596
Meridian Healthcare Growth and Income Fund Limited Partnership
(Exact Name of Registrant as Specified in its Charter)
Delaware 52-1549486
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
225 East Redwood Street, Baltimore, Maryland 21202
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (410) 727-4083
N/A
(Former Name, Former Address, and Former Fiscal Year,
if Changed Since Last Report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act).
Yes No X
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
INDEX
Page No.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS 2
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Earnings 4
Condensed Consolidated Statements of Partners' Capital 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-13
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
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 Report on Form 10-K for the
fiscal year ended December 31, 2003.
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-
Part I. Financial Information
Item 1. Finanacial Statements
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Condensed Consolidated Balance Sheets
(Dollars in thousands)
March 31,
2004 December 31,
(Unaudited) 2003
--------------- ---------------
Assets
Current Assets
Cash and cash equivalents $ 564 $ 1,141
Accounts receivable, net 7,008 7,248
Estimated third-party payor settlements 1,055 362
Prepaid expenses and other current assets 941 806
--------------- ---------------
Total current assets 9,568 9,557
--------------- ---------------
Property and equipment, net of accumulated depreciation 30,712 31,207
--------------- ---------------
Other assets
Goodwill, net 4,237 4,237
Loan acquisition costs, net 289 322
--------------- ---------------
4,526 4,559
--------------- ---------------
Total assets $ 44,806 $ 45,323
=============== ===============
Liabilities and Partners' Capital
Current liabilities
Current portion of long-term debt $ 728 $ 712
Line of credit 227 227
Accrued compensation and related costs 146 83
Accounts payable and other accrued expenses 2,576 2,957
Estimated third party payor settlements 1,480 1,984
--------------- ---------------
Total current liabilities 5,157 5,963
--------------- ---------------
Deferred management fee payable 1,074 1,063
Loan payable to the Development General Partner 1,355 1,343
Long-term debt 21,321 21,504
--------------- ---------------
23,750 23,910
--------------- ---------------
Partners' capital
General partners (157) (161)
Assignee limited partners; 1,540,040
units issued and outstanding 16,056 15,611
--------------- ---------------
Total partners' capital 15,899 15,450
--------------- ---------------
Total liabilities and
partners' capital $ 44,806 $ 45,323
=============== ===============
See accompanying notes to condensed consolidated financial statements.
-3-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Condensed Consolidated Statements of Earnings
(Unaudited)
(Dollars in thousands except per unit amounts)
Three Months Ended
---------------------------------
March 31, March 31,
2004 2003
--------------- ---------------
Revenues
Medicaid and Medicare patients $ 14,315 $ 13,086
Private patients 2,397 2,303
Investment and other income 29 18
--------------- ---------------
16,741 15,407
--------------- ---------------
Expenses
Operating, including $1,152, and
$2,503 to related parties 13,534 13,189
Management and administration fees
to related parties 916 833
General and administrative 319 102
Depreciation and amortization 541 504
Interest expense 399 458
--------------- ---------------
15,709 15,086
--------------- ---------------
Net earnings $ 1,032 $ 321
=============== ===============
Net earnings per unit of assignee
limited partnership interest
(computed based on 1,540,040
units) $ 0.66 $ 0.21
=============== ===============
See accompanying notes to condensed consolidated financial statements
-4-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Condensed Consolidated Statements of Partners' Capital
For the Three Months Ended March 31, 2004
(Unaudited)
(Dollars in thousands)
Assignee
General Limited
Partners Partners Total
--------------- --------------- ---------------
Balance at December 31, 2003 $ (161) $ 15,611 $ 15,450
Net earnings 10 1,022 1,032
Distributions to partners (6) (577) (583)
--------------- --------------- ---------------
Balance at March 31, 2004 $ (157) $ 16,056 $ 15,899
=============== =============== ===============
See accompanying notes to condensed consolidated financial statements
-5-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMTIED PARTNERSHIP
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31,
(Unaudited)
(Dollars in thousands)
2004 2003
--------------- ---------------
Cash flows from operating activities
Net earnings $ 1,032 $ 321
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization 541 504
Minority interest in net earnings of operating partnerships 10 2
Increase in loan payable to Development General Partner 12 12
Increase in deferred management fee payable 11 11
Change in other assets and liabilities
Accounts receivable 229 (113)
Estimated third-party payor settlements (1,197) (22)
Prepaid expenses and other current assets (135) (200)
Accrued compensation and related costs 63 40
Accounts payable and other accrued expenses (381) 610
--------------- ---------------
Net cash provided by operating activities 185 1,165
--------------- ---------------
Cash flows from investing activities -
additions to property and equipment (12) (389)
--------------- ---------------
Cash flows from financing activities
Repayment of long-term debt (167) (156)
Loan acquisition costs - (227)
Line of credit - 227
Distributions to partners (583) (438)
--------------- ---------------
Net cash used in financing activities (750) (594)
--------------- ---------------
Net decrease in cash and cash equivalents (577) 182
Cash and cash equivalents
Beginning of period 1,141 740
--------------- ---------------
End of period $ 564 $ 922
=============== ===============
See accompanying notes to condensed consolidated financial statements.
-6-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Notes to Condensed Consolidated Financial Statements
March 31, 2004
(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 HealthCare Corporation (Genesis).
The Fund owns 98.99% limited partnership interests in each of the seven
operating partnerships. Brown Healthcare Inc. and Meridian Healthcare
Investments Inc. are the general partners of the seven underling 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 unaudited condensed consolidated financial statements of 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
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 Report on Form 10-K for the fiscal year ended
December 31, 2003.
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
one-half 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. During 2003, certain of the
operating partnerships also purchased drugs and medical supplies and other
services from affiliates of the Development General Partner. Such purchases are
in turn billed to patients or third party payors at prices which on average
approximate the nursing center's cost.
Transactions with these related parties for the three months ended March 31,
2004 and 2003 are as follows:
2004 2003
Management and administration fees $ 916,000 $ 833,000
* Drug and medical supplies purchases - 909,000
Nursing and rehabilitation services 1,152,000 1,594,000
Interest expense on borrowings 23,000 23,000
* As a result of a spin-off transaction completed on December 1, 2003, Genesis
is no longer affiliated with the Fund's primary supplier of drugs and
medical supplies. Consequently, such transactions are no longer reflected as
related party.
-7-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Notes to Condensed Consolidated Financial Statements
March 31, 2004
(Unaudited)
NOTE 2 - RELATED PARTY TRANSACTIONS (Continued)
The Development General Partner loaned the Fund $597,000, as required by the
Cash Flow Deficit Guaranty Agreement, to support the operating deficits
generated by the Mooresville, Salisbury and Woodlands nursing centers during
each center's first two years of operations subsequent to the Fund's acquisition
of partnership interests. Loans outstanding under an arrangement, including
accumulated interest from inception of the loan at 9% per annum, were $1,355,000
at March 31, 2004 and $1,343,000 at December 31, 2003. 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
On June 12, 2000, the Fund and a commercial bank refinanced mortgage loans
totaling $24,000,000 with a term of five years and an interest rate of 9.75%.
Effective February 1, 2003, the Fund amended the related mortgage loan
agreement. 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
commercial bank. The balance outstanding as of March 31, 2004 and December 31,
2003 was $227,000. Borrowings under the credit facility bear interest at a
floating rate, which equals the announced commercial prime rate. The bank can
renew the credit facility each year for a one-year extension.
The mortgage notes payable are secured by deeds of trust on the related property
and all assets of the Fund. Under the terms of these loan agreements, the
operating partnerships are obligated to conform with specific financial criteria
and are subject to certain other covenants.
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.
The sources and amounts of the Fund's revenues are determined by a number of
factors, including licensed bed capacity and occupancy rates of its eldercare
centers, the mix of patients and the rates of reimbursement among payors.
Changes in the acuity of the patients as well as payor mix among Medicare,
Medicaid and private pay can significantly affect the Fund's profitability.
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.
-8-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
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 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.
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.
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.
The aging of the population and increased life expectancies are the
primary driving forces behind the growth of the Fund's businesses. The Fund's
management believes that positive demographic trends imply that there will be a
growing demand for the services offered by healthcare providers that deliver the
most efficient, responsive, cost effective and high quality eldercare services.
Management of the Fund is continually engaged in various efforts to improve
profitability by focusing on key operational initiatives, including: improving
the quality of the Fund's payor mix, increasing the Fund's rate of occupancy,
improving nursing staff scheduling and retention, reducing reliance on overtime
compensation and temporary nursing agency services, and capitalizing on best
demonstrated practices in various areas of cost control. As a result, the Fund's
management believes the Fund will be well positioned to take advantage of the
favorable demographic and growth trends in its industry.
Government funded programs, principally Medicaid and Medicare, provide
approximately 86% of the Fund's revenue. Over the past five years, changes in
funding from these government sources has had a significant impact on the Fund's
cash flows and profitability. Through trade and other organizations, the Fund's
manager actively participates in partnership with other healthcare providers to
pursue strategies to minimize any potentially adverse impact of government
funding proposals. The Fund's management believes the continuation of government
funding at levels sufficient to profitably operate the Fund's business is its
greatest financial risk. However, the Fund's management believes that sufficient
broad-based support exists for the specific services provided by the Fund to
ensure that adequate funding will continue for the foreseeable future.
Labor costs, including salaries, wages and benefits, account for
significant portion of the Fund's total operating expenses. The Fund competes
with other healthcare providers and with non-healthcare providers for both
professional and non-professional employees. In recent years, the Fund and the
long-term care industry have experienced shortages in qualified professional
clinical staff. While the Fund has been able to retain the services of an
adequate number of qualified personnel to staff its facilities and sites of
services, it has used expensive temporary nursing agency services to supplement
staffing. If a shortage of nurses or other health care workers occurred in the
geographic areas in which the Fund operates, it could adversely affect its
ability to attract and retain qualified personnel and could further increase its
operating costs, without a corresponding increase in the level of government
funded reimbursement.
-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
Reference to the Fund's unaudited condensed consolidated balance sheets and
unaudited condensed consolidated statements of cash flows will facilitate
understanding of the discussion that follows.
The Fund's working capital (excluding the current portion of long-term
debt) increased $833,000 to $5,139,000 at March 31, 2004 as compared to
$4,306,000 at December 31, 2003. 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 $185,000 for the three-month period
ended March 31, 2004 as compared to $1,165,000 for the same period of 2003. This
decrease in cash flow was due primarily to an increase in estimated third-party
payor settlements to account for revenue to be received from the State of North
Carolina relating to the conversion of the State's Medicaid system to a provider
tax-based system, partially offset by increased revenue received as a result of
Medicare rate increases which went into effect in October 2003. 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.
Cash used in investing activities for the three-month period ended March
31, 2004 was $12,000 and included improvements to the Fund's seven operating
facilities. Similar improvements made during the first three months of 2003 were
$389,000. The decrease in investing activity was due to the delayed commencement
of first quarter 2004 capital expenditures which did not begin until the second
quarter. 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.
Cash used in financing activities for the three-month period ended March
31, 2004 included the repayment of long term debt of $167,000 and distributions
to partners totaling $583,000.
The Fund closed its mortgage loan refinancing with a 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% from the effective date. Monthly payments
of $180,242 are based on a 20-year amortization schedule with a mandatory
prepayment option at the Bank's discretion during the period between November 1,
2007 through May 1, 2008.
The Fund also has a $4,000,000 line of credit with the same lender under
terms similar to the mortgage loan terms described above, except that the line
of credit facility requires annual reaffirmation. As of March 31, 2004, the Fund
had borrowed $227,000 under this 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 $1,355,000 at March 31, 2004 and $1,343,000 at December 31, 2003.
On May 15, 2004, the Fund will make its first quarter 2004 distribution to
partners of $583,000, representing a 6% return. This distribution will be funded
by first quarter 2004 operations. The Fund is evaluating the effect of newly
enacted Medicaid legislation in North Carolina and further capital improvement
needs at the facilities. As such, future distributions will be influenced by
these considerations.
-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 sources and amounts of the
Fund's revenues are determined by a number of factors, including licensed bed
capacity and occupancy rates of its eldercare centers, the mix of patients and
the rates of reimbursement among payors. Changes in the acuity of the patients
as well as payor mix among Medicare, Medicaid and private pay can significantly
affect the Fund's profitability.
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 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 September 30, 2004 of certain payment add-ons that were
authorized in the Balanced Budget Refinement Act to compensate for non-therapy
ancillaries.
The Centers for Medicare and Medicaid Services (CMS) has indicated that
2005 prospective payment system rates will be announced by mid-summer, 2004, and
such rates will be promulgated under existing rules providing for a continuation
of the current payment system with provision for a full market basket inflation
increase and certain payment add-ons that were authorized to compensate for
non-therapy ancillaries. While no changes are anticipated in the fiscal year
2005 rules, CMS affirms that it's contractor, the Urban Institute, is expected
to complete its study of the skilled nursing payment system and that the Urban
Institute recommendations will be incorporated into proposed fiscal year 2006
rules.
The prolonged economic downturn has had a detrimental effect 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, the Fund expects
continuing cost containment pressures on Medicaid outlays for skilled nursing
facilities in the states in which it operates. In each of the major states where
the Fund provides services, its manager is working with trade groups,
consultants and government officials to responsibly address the particular
funding issues. While there are encouraging signs of economic recovery, the Fund
manager's vigilance on state policy decisions continue.
The plight of state governments has helped to elevate issues related to
Medicaid onto the national agenda. Last year, Congress passed temporary relief
to states providing a 2.9% temporary increase in the Federal Medicaid Assistance
Percentage for five quarters estimated to provide states $10 billion in Medicaid
relief. Under current law, this assistance terminates June 30, 2004. Prospects
for Congress to extend the temporary assistance are not encouraging. Actions to
date on state Medicaid budgets affirm that many states are adjusting state
spending to reflect the loss of the temporary Federal assistance.
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.
-11-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Three Months Ended March 31, 2004 versus Three Months Ended March 31, 2003:
Net earnings for the Fund were $1,032,000 for the three months ended March
31, 2004 as compared to $321,000 for the same period in fiscal year 2003. The
increase in earnings is primarily due to an increase in Medicaid and Medicare
patients revenue, which was partially offset by higher operating and general and
administrative costs.
Overall revenues of $16,741,000 increased $1,334,000 or 8.7% for the three
months ended March 31, 2004 compared to the same period in fiscal year 2003. The
increase in revenue is primarily due to an increase in Medicaid and Medicare
revenues. Medicaid and Medicare patients revenue increased $1,229,000 to
$14,315,000 for the first quarter of 2004 compared to the first quarter of
fiscal year 2003. Medicaid revenue for the three months ended March 31, 2004
increased $844,000 compared to the same period in the prior year. This increase
is primarily due to an overall Medicaid rate increase of approximately 12.3%.
This rate increase is driven by the four Maryland centers, which received their
annual Medicaid rate adjustment in July 2003, and a rate increase effective
October 2003 for the two North Carolina centers. These rate increases are
partially offset by a reduction in the Medicaid census. The average daily
Medicaid census decreased by 26 residents or 3.8% for the three months ended
March 31, 2004 as compared to the same period in the prior year. Medicare
revenue of $4,377,000 increased $385,000 or 9.6% for the three month period
ended March 31, 2004 compared to the same period in fiscal year 2003 primarily
due to an enhancement to the Medicare reimbursement rates effective October 1,
2003. See " -- Revenue Sources"
Total expenses of $15,709,000 for the three months ended March 31, 2004
increased $623,000 or 4.1% from $15,086,000 for the three months ended March 31,
2003.
Operating expenses increased $345,000 or 2.6% for the three months ended
March 31, 2004 as compared to the same period in fiscal year 2003. This increase
is primarily due to the increased costs of nursing services, property and
liability insurance, and state assessment, which is partially offset by a
decrease in bad debt expense. Nursing costs increased $247,000 for the three
months ended March 31, 2004 as compared to the same period in fiscal year 2003.
This increase is primarily due to increases in salaries and benefits, which is
partially offset by a decrease in the cost of temporary nurse staffing. Nursing
salaries and benefits increased $737,000, while temporary nurse staffing expense
decreased $490,000 for the three months ended March 31, 2004 compared to the
same period in fiscal year 2003. Property and Liability insurance increased
$69,000 for the three months ended March 31, 2004 as compared to the same period
in fiscal year 2003 due an annual policy renewal and the related increase in
premiums effective June 1, 2003. An assessment levied by the state of North
Carolina to patient days effective October 2003 in the amount of $137,000 was
recognized in the first quarter of 2004. Bad debt expense of $107,000 decreased
$210,000 for the three month period ended March 31, 2004 compared to the same
period in fiscal year 2003. The remaining increase in operating costs is due to
general inflationary cost increases.
Management and administration fees of $916,000 increased $83,000 or
approximately 10.0% for the three months ended March 31, 2004 compared to the
same period in fiscal year 2003. This increase is primarily due to an increase
in management fee expense, which is calculated at 5% of the Fund's net revenues.
General and administrative expenses increased $217,000 or 212.8% for the
three months ended March 31, 2004 as compared to the same period in fiscal year
2003. This increase is primarily due to a change in New Jersey regulations
resulting in a $190,000 reduction in a filing fee expense, which was recorded in
the first quarter of fiscal year 2003.
Interest expense of $399,000 decreased $59,000 or 12.9% for the three
months ended March 31, 2004 as compared to the same period in the prior year due
to the mortgage debt refinancing effective February 1, 2003, which reduced the
interest rate from 9.75% to 6.5%.
-12-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Management's Discussion and Analysis of Financial
Condition and Results of Operations
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 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
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Fund has exposure to changing interest rates. At March 31, 2004, the
Fund has $227,000 of debt subject to variable rates of interest. A one percent
increase in such variable rate would result in an increase to the Fund's
interest expense of $2,270 annually.
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, 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: 5/14/04 By: /s/ George V. Hager, Jr.
George V. Hager, Jr.
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, James V. McKeon, III, 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: 5/13/04 By: /s/ James V. McKeon, III
James V. McKeon, III
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: 5/13/04 By: /a/ 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: 5/14/04 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 March 31, 2004 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: 5/14/04 By: /s/ George V. Hager, Jr.
George V. Hager, Jr.
Chief Executive Officer
Meridian Healthcare Investments, Inc.
Development General Partner
Date: 5/13/04 By: /s/ James V. McKeon, III
James V. McKeon, III
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 March 31, 2004 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: 5/14/04 By: /s/ John M. Prugh
John M. Prugh
Chief Executive Officer
Brown-Healthcare, Inc.
Administrative General Partner
Date: 5/13/04 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: 05/14/04 By: /s/ John M. Prugh
John M. Prugh
President and Director
Brown-Healthcare, Inc.
Administrative General Partner
DATE: 05/13/04 By: /s/ Timothy M. Gisriel
Timothy M. Gisriel
Treasurer
Brown-Healthcare, Inc.
Administrative General Partner
-22-