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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
For annual and transition reports pursuant to sections 13 or 15 (d) of the
Securities Exchange Act of 1934.
(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, 2001
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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 0-13415
CONSOLIDATED RESOURCES HEALTH CARE FUND II
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(Exact name of registrant as specified in its charter)
Georgia 58-1542125
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) identification No.)
1175 Peachtree Street, Suite 850, Atlanta, Georgia 31106
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 404-873-1919
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Limited Partnership
Units
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes No x
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations S-K 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 Exchange Act Rule 12b-2). Yes No x
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Of the registrant's 15,000 Limited Partnership Units, 14,975 are held by
non-affiliates. The aggregate market value of units held by non-affiliates is
not determinable since there is no public trading market for Limited Partnership
Units and transfers of units are subject to certain restrictions.
Documents Incorporated by Reference: None
PART I
ITEM 1. BUSINESS
Consolidated Resources Health Care Fund II (the "Partnership") was organized on
October 31, 1983, as a Limited Partnership under the provisions of the Georgia
Uniform Limited Partnership Act.
At December 31, 2001, the Partnership had two general partners (the "General
Partners"), Consolidated Associates II ("CA-II") and WelCare Service
Corporation-II as managing general partner ("WSC-II" or the "Managing General
Partner").
On December 7, 1983, the Partnership offered for sale 15,000 of its Limited
Partnership Units. The Limited Partnership Units represent equity interests in
the Partnership and entitle the holders thereof (the "Limited Partners") to
participate in certain allocations and distributions of the Partnership.
The Partnership's primary business is to own, operate and ultimately dispose of
a portfolio of health care related real properties for the benefit of its
Limited Partners. At December 31, 2001, 2000 and 1999, the Partnership owned and
operated two health care facilities, a nursing home and a retirement center,
both located in Columbus, Ohio. Each of the health care facilities is treated as
a separate reportable segment of the Partnership.
The Partnership's nursing home is managed by Life Care Centers of America, Inc.
("LCCA") and the retirement center is managed by American Lifestyles, Inc.
("ALI"), a division of LCCA. LCCA is a privately-owned corporation which manages
congregate care facilities throughout the United States. LCCA and ALI each
receive a management fee equal to 5% of gross revenues of each of the facilities
they manage. An affiliate of the Managing General Partner provides oversight
management services for these facilities and receives an oversight management
fee of 1% of aggregate gross revenues.
As of December 31, 2001, the Partnership employed 157 employees, including
administrative, nursing, dietary, social services and maintenance personnel.
The nursing home consists of four private rooms with one bed per room and 48
semi-private rooms with two beds per room. The services provided at the
Partnership's nursing home consist of long-term nursing care. Nursing care
consists of 24-hour medical services prescribed by the resident's physician as
well as assistance or supervision with daily activities, such as dressing,
grooming, bathing, medication and dietary needs. The retirement center owned by
the Partnership provides apartment living for ambulatory senior citizens who do
not require assistance in their daily activities.
The nursing home is certified to receive benefits under joint federal and state
funded programs administered by the State of Ohio to provide medical assistance
to the indigent, known generally as the "Medicaid" program. Benefits under the
Federal Health Insurance for the Aged Act ("Medicare") are for skilled care only
in those facilities which are certified for the program. The nursing home is
certified under the Medicare program.
Medicaid reimbursement formulas vary by state and are established in accordance
with Federal guidelines. Typically, Medicaid provides for reimbursement for
nursing home care of an all-inclusive nature up to specified limits based on
historical costs, with adjustments for inflation. Federal law requires that
Medicaid reimbursement rates be reasonable and adequate to meet the costs that
must be incurred by efficiently and economically operated facilities in order to
provide care and services in conformity with applicable laws, regulations and
quality and safety standards. Medicaid payments generally are set prospectively
for each facility.
The Medicare and Medicaid programs are subject to statutory and regulatory
changes, administrative rulings, interpretations of policy and determinations by
intermediaries, and to governmental funding restrictions. Each of these factors
may materially increase or decrease program payments to long-term care
facilities and could adversely affect the operations of the Partnership's
nursing facility. In the operation and sale of properties, the Partnership
competes with a number of individuals and entities, including large, national
nursing home chains and small, locally owned geriatric facilities. Some
competing operators have greater financial resources than the Partnership or may
operate on a nonprofit basis or as charitable organizations. The Partnership
believes that the quality of care provided, the reputation and physical
appearance of its facilities and, in the case of private pay patients, charges
for services, are significant competitive factors which add to the success of a
facility. There is limited, if any, competition in price with respect to
Medicaid and Medicare patients since revenues for services to such patients are
strictly controlled and based on fixed rates and cost reimbursement principles.
In light of these factors, the Partnership seeks to meet competition by
continually improving the appearance of and the quality of services provided at
its facilities, establishing a reputation within the local medical community for
providing competent care services and continually evaluating the needs of the
community and services offered by other health care providers.
All patient and resident revenue derived by the retirement facility is received
from private sources. The nursing facility, however, receives patient revenue
from both the public and private sector. The following table sets forth
information regarding the average daily census and sources of patient and
resident revenues for the last two years at the Partnership's nursing facility:
Revenues for
Average Daily Census for Year Ended Percentages
Year Ended December 31, of Total
December 31, 2001 2001 Revenues
----------------------------------------------------
Number of Percent of Total
Patients/Residents Patients/Residents
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Medicaid 48.41 52% $2,539,945 40%
Private Pay 27.41 30% 1,711,105 27%
Medicare 12.12 13% 1,425,517 23%
HMO/Other1 4.50 5% 653,319 10%
------------ ------ ------------ --------
Total 92.44 100.0% $6,329,886 100.0%
Revenues for
Average Daily Census for Year Ended Percentages
Year Ended December 31, of Total
December 31, 2000 2000 Revenues
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Number of Percent of Total
Patients/Residents Patients/Residents
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Medicaid 51.92 58% $2,595,980 44%
Private Pay 23.89 27% 1,414,604 24%
Medicare 10.14 11% 1,251,906 20%
HMO/Other1 3.67 4% 584,311 10%
Total ------ ---- ---------- ------
89.62 100.0% $5,846,801 100.0%
1 Other revenues include revenues from fees for ancillary services, such as
meals, and other fee opportunities, such as application fees, received in the
ordinary course of business of the facilities, but not directly related to the
number of patients/residents.
Because of regular changes in the census mix (i.e. private pay vs. government
reimbursed patients), the occupancy required for a nursing facility to achieve
an operating break-even point cannot be determined precisely. Generally, a
greater ratio of Medicaid patients will require a higher occupancy to reach a
break-even point. On the other hand, a high Medicare census can significantly
reduce the break-even point due to a higher reimbursement rate. The overall
occupancy rate for the nursing facility in 2001 was 94%. The 2001 break-even
occupancy figure for the nursing facility after depreciation and amortization is
estimated to be approximately 90%. Thus, the nursing facility exceeded its
estimated break-even occupancy for 2001.
The retirement center is much like an apartment complex with additional services
provided to attract the elderly including limited transportation, housekeeping
and food services. The retirement center has 10 studio apartments and 81
one-bedroom apartments. The Partnership's retirement center has a net cash flow
break-even occupancy ranging from 75% to 80%. During 2001, the retirement center
had an occupancy rate of 93%. Therefore, it exceeded its estimated cash flow
break-even occupancy level.
Governmental Regulation and Reimbursement
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Our facilities must comply with numerous federal, state and local statutes and
regulations. Also, the healthcare industry depends significantly upon federal
and federal/state programs for revenues and, as a result, is vulnerable to the
budgetary policies of both the federal and state governments.
Assisted Living.
---------------
According to the National Academy for State Health Policy,
approximately 41 states provide or are approved to provide Medicaid payments for
residents in some assisted living facilities under waivers granted by the
Federal Centers for Medicare and Medicaid Services, known as CMS, or under
Medicaid state plans, and four other states are planning some Medicaid funding
by preparing or requesting waivers to fund assisted living or demonstration
projects. Because rates paid to assisted living facility operators are lower
than rates paid to nursing home operators, some states use Medicaid funding of
assisting living as a means of lowering the cost of services for residents who
may not need the higher intensity of health-related services provided in nursing
homes. States that administer Medicaid programs for assisted living facilities
are responsible for monitoring the services at, and physical conditions of, the
participating facilities. Different states apply different standards in these
matters, but generally we believe these monitoring processes are similar to the
inspection processes mandated by these states for nursing homes.
In light of the large number of states using Medicaid to purchase services at
assisted living facilities and the growth of assisted living in the 1990s, a
majority of states have adopted licensing standards applicable to assisted
living facilities. According to the National Academy for State Health Policy, 32
states and the District of Columbia have licensing statutes or standards
specifically using the term "assisted living". Thirty-six states have
requirements for facilities servicing people with Alzheimer's disease or
dementia. The majority of states have revised their licensing regulations
recently or are reviewing their policies or drafting or revising their
regulations. State regulatory models vary; there is no national consensus on a
definition of assisted living, and no uniform approach by the states to
regulating assisted living facilities. Most state licensing standards apply to
assisted living facilities whether or not they accept Medicaid funding. Also,
according to the National Academy for State Health Policy, six states require
certificates of need from state health planning authorities before new assisted
living facilities or programs may be developed. Based on our analysis of current
economic and regulatory trends, we believe that assisted living facilities that
become dependent upon Medicaid payments for a majority of their revenues may
decline in value because Medicaid rates may fail to keep up with increasing
costs. We also believe that assisted living facilities located in states that
adopt certificate of need requirements or otherwise restrict the development of
new assisted living facilities may increase in value because these limitations
upon development may help ensure higher occupancy and higher non-governmental
rates.
Nursing homes.
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Reimbursement. A significant portion of nursing home revenues in the
U.S. in 2001 came from government Medicare and Medicaid programs. Nursing homes
are among the most highly regulated businesses in the country. The federal and
state governments regularly monitor the quality of care provided at nursing
homes. State health departments conduct surveys of resident care and inspect the
physical condition of nursing home properties. These periodic inspections and
occasional changes in life safety and physical plant requirements sometimes
require nursing home operators to make significant capital improvements. These
mandated capital improvements have in the past usually resulted in Medicare and
Medicaid rate adjustments, albeit on the basis of amortization of expenditures
over expected useful lives of the improvements. A new Medicare prospective
payment system, often referred to as PPS, was phased in over three years
beginning with cost reporting years starting on or after July 1, 1998. Under
this new Medicare payment system, capital costs are part of the prospective rate
and are not facility specific. This new Medicare payment system and other recent
legislative and regulatory actions with respect to state Medicaid rates are
limiting the reimbursement levels for some nursing home and other eldercare
services. At the same time federal and state enforcement and oversight of
nursing homes are increasing, making licensing and certification of these
facilities more rigorous. These actions have adversely affected the revenues and
increased the expenses of many nursing home operators.
The new Medicare payment system was established by the Balanced Budget Act of
1997, and was intended to reduce the rate of growth in Medicare payments for
skilled nursing facilities. Before the new Medicare payment system, Medicare
rates were facility-specific and cost-based. Under the new Medicare payment
system, facilities receive a fixed payment for each day of care provided to
residents who are Medicare beneficiaries. Each resident is assigned to one of 44
care groups depending on that resident's medical characteristics and service
needs. Per diem payment rates are based on these care groups. Medicare payments
cover substantially all services provided to Medicare residents in skilled
nursing facilities, including ancillary services such as rehabilitation
therapies. The new Medicare payment system is intended to provide incentives to
providers to furnish only necessary services and to deliver those services
efficiently. During the three year phase-in period, Medicare rates for skilled
nursing facilities were based on a blend of facility specific costs and rates
established by the new Medicare payment system. According to the General
Accounting Office, between fiscal year 1998 and fiscal year 1999, the first full
year of the new Medicare payment system phase-in, the average Medicare payment
per day declined by about nine percent.
Since November 1999, Congress has provided some relief from the impact of the
Balanced Budget Act of 1997. Effective April 1, 2000, the Medicare, Medicaid and
SCHIP Balanced Budget Refinement Act of 1999 temporarily boosted payments for
certain skilled nursing cases by 20 percent and allowed nursing facilities to
transition more rapidly to the federal payment system. This Act also increased
the new Medicare payment rates by 4% for fiscal years 2001 and 2002 and imposed
a two-year moratorium on some therapy limitations for skilled nursing patients
covered under Medicare Part B. In December 2000, the Medicare, Medicaid and
SCHIP Benefits Improvement and Protection Act of 2000 was approved. Effective
April 1, 2001, to October 1, 2002, this Act increased the nursing component of
the payment rate for each care group by 16.66%. This Act also increased annual
inflation adjustments for fiscal year 2001, increased rehabilitation care group
rates by 6.7%, and maintained the previously temporary 20% increase in the other
care group rates established in 1999. However, as of October 1, 2002, the 4%
across-the-board increase in Medicare payment rates and the 16.66% increase in
the nursing component of the rates each expired. The 20% increase for the
skilled nursing care groups and the 6.7% increase in rehabilitation care group
rates will expire when the current resource utilization groups are refined.
Because of the current federal budget deficit and other federal government
priorities, such as homeland security and the war on terrorism, we do not expect
the federal government to restore the Medicare rate increases which expired on
October 1, 2002.
Survey And Enforcement. CMS has begun to implement an initiative to
increase the effectiveness of Medicare and Medicaid nursing facility survey and
enforcement activities. CMS' initiative follows a July 1998 General Accounting
Office investigation which found inadequate care in a significant proportion of
California nursing homes and the CMS' July 1998 report to Congress on the
effectiveness of the survey and enforcement system. In 1999, the U.S. Department
of Health and Human Services Office of Inspector General issued several reports
concerning quality of care in nursing homes, and the General Accounting Office
issued reports in 1999 and 2000 which recommended that CMS and the states
strengthen their compliance and enforcement practices to better ensure that
nursing homes provide adequate care. Since 1998, the Senate Special Committee on
Aging has been holding hearings on these issues. CMS is taking steps to focus
more survey and enforcement efforts on nursing homes with findings of
substandard care or repeat violations of Medicare and Medicaid standards and to
identify chain operated facilities with patterns of noncompliance. CMS is
increasing its oversight of state survey agencies and requiring state agencies
to use enforcement sanctions and remedies more promptly when substandard care or
repeat violations are identified, to investigate complaints more promptly, and
to survey facilities more consistently. In addition, CMS has adopted regulations
expanding federal and state authority to impose civil money penalties in
instances of noncompliance. Medicare survey results and nursing staff hours per
resident for each nursing home are posted on the internet at www.medicare.gov.
When deficiencies under state licensing and Medicare and Medicaid standards are
identified, sanctions and remedies such as denials of payment for new Medicare
and Medicaid admissions, civil monetary penalties, state oversight and loss of
Medicare and Medicaid participation or licensure may be imposed. If our nursing
facility is unable to cure deficiencies which are identified from time to time,
such sanctions may be imposed, and if imposed, may adversely affect our
financial condition.
In 2000 and 2002, CMS issued reports on its study linking nursing staffing
levels with quality of care, and CMS is assessing the impact that minimum
staffing requirements would have on facility costs and operations. In a report
presented to Congress in 2002, the Department of Health and Human Services found
that 90% of nursing homes lack the nurse and nurse aide staffing necessary to
provide adequate care to residents. The Bush administration has indicated that
it does not intend to impose minimum staffing levels or to increase Medicare or
Medicaid rates to cover the costs of increased staff at this time, but CMS is
now publishing the nurse staffing level at each nursing home on its internet
site to increase market pressures on nursing home operators.
Federal efforts to target fraud and abuse and violations of anti-kickback laws
and physician referral laws by Medicare and Medicaid providers have also
increased. In March 2000, the U.S. Department of Health and Human Services
Office of Inspector General issued compliance guidelines for nursing facilities,
to assist them in developing voluntary compliance programs to prevent fraud and
abuse. Also, new rules governing the privacy, use and disclosure of individually
identified health information became final in 2001 and will require compliance
in 2003, with civil and criminal sanctions for noncompliance.
Certificates Of Need. Most states also limit the number of nursing
homes by requiring developers to obtain certificates of need before new
facilities may be built. Even states such as California and Texas that have
eliminated certificate of need laws often have retained other means of limiting
new nursing home development, such as the use of moratoria, licensing laws or
limitations upon participation in the state Medicaid program. We believe that
these governmental limitations generally make nursing homes more valuable by
limiting competition.
Other Matters. A number of legislative proposals that would affect
major reforms of the healthcare system have been introduced in Congress, such as
programs for national health insurance, additional Medicare and Medicaid reforms
and federal and state cost containment measures. We cannot predict whether any
of these legislative proposals will be adopted or, if adopted, what effect, if
any, these proposals would have on our business.
Environmental Matters.
- ---------------------
Under various laws, owners of real estate may be required to investigate and
clean up hazardous substances present at a property, and may be held liable for
property damage or personal injuries that result from such contamination. These
laws also expose us to the possibility that we become liable to reimburse the
government for damages and costs it incurs in connection with the contamination.
No assurances can be given that environmental liabilities are not present in our
properties or that costs we incur to remediate contamination will not have a
material adverse effect on our business or financial condition.
Competition
- -----------
The Partnership operates only two facilities, one assisted living facility and
one nursing home. Therefore, many of the Partnership's competitors have more
significant resources and assets available to them with which to compete with
the Partnership's facilities. Generally, competition relates to price, quality
of services and degree of care available. The Partnership attempts to compete
with its larger competitors through active marketing targeted to the population
it desires for its facilities. Further, the Partnership believes that
restrictions on the ability of new facilities to be opened create barriers that
enhance its ability to compete in its markets. However, no assurance can be
given that the Partnership will be able to continue to effectively compete given
its small size.
ITEM 2. PROPERTIES
The following table sets forth the investment portfolio of the Partnership at
December 31, 2001. The buildings and the land on which they are located are
beneficially owned by the Partnership in fee, subject in each case to a first
deed of trust as set forth more fully in Note 2 to the consolidated financial
statements included herein.
Properties (dollars in 000's)
-----------------------------
Net Occupancy
Property Secured Acquisition Book Rate in Date
Debt Cost Value(1) 2001 Acquired
Mayfair $1,426 $4,774 $1,006 94% February 1985
Nursing Care Center
Columbus, OH
100 Licensed
Nursing Home
Beds
Mayfair Village Retirement $2,439 $4,824 $1,618 93% February 1985
Center ------ ------ ------
Columbus, OH
91 Units
Total $3,865 $9,598 $2,624
====== ====== ======
(1) A provision was made prior to 1991 to write down each facility to its
estimated net realizable value or estimated fair value at the time of
the write-down as determined by WelCare Consolidated Resources
Corporation of America, the corporate general partner at the time of
this write-down. These values reflect this write-down.
ITEM 3. LEGAL PROCEEDINGS
The Partnership did not have any pending legal proceedings that separately, or
in the aggregate, if adversely determined, would have a material adverse effect
on the Partnership as of December 31, 2001 or as of the date of this report. The
Partnership may, from time to time, be a party to litigation or administrative
proceedings which arise in the normal course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP AND SECURITY
HOLDER MATTERS
(A) No market for Limited Partnership Units exists nor is one expected to
develop.
(B) Title of Class Number of Record Unit Holders
Limited Partner Units 1,243 as of 12/31/01
(C) No cash was distributed to the Limited Partners during 2001. Cumulative
distributions paid to the Limited Partners as of December 31, 2001 were
$3,538,203. Future distributions are dependent on the Partnership's
ability to meet its ongoing obligations. See Liquidity and Capital
Resources section of Item 7 - "Management's Discussion and Analysis of
Financial Condition and Results of Operations," for a discussion of
distributions.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth a summary of selected financial data for the
Partnership. This summary should be read in conjunction with Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Partnership and
notes thereto appearing in Item 8.
Years Ended December 31,
(dollars in 000's, except per unit figures)
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Statements of Operations
------------------- 2001 2000 1999 1998 1997
---------- ---------- ---------- ----------- ----------
Operating revenue $8,146 $7,236 $6,700 $7,495 $8,304
Net income (Loss) 775 90 (245) (168) 664
Net income (Loss) allocable 744 (235) (161) 638
to Limited Partners 86
Weighted average Limited 15,000 15,000 15,000 15,000
Partnership Units 15,000
outstanding
Basic and diluted net $49.61 $5.75 $(15.66) $(10.74) $42.50
income (loss) per weighted
average Limited Partnership
Unit
Cash distribution paid per - - - $40.00 $13.34
Limited Partnership Unit
At December 31,
(dollars in 000's)
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Balance Sheet 2001 2000 1999 1998 1997
-------------------- --------- --------- --------- -------- --------
Property and equipment, net $2,625 $2,732 $2,994 $3,315 $3,577
Total assets 5,249 4,775 4,890 5,228 6,014
Long-term debt obligations, 3,767 3,866 3,957 4,045 4,124
less current maturities
Partners' equity (deficit) 538 (237) (327) (82) 686
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Certain statements contained in this Management's Discussion and Analysis are
not based on historical facts, but are forward-looking statements that are based
upon numerous assumptions about future conditions that may prove ultimately to
be inaccurate. Actual events and results may differ materially from anticipated
results described in such statements. The Partnership's ability to achieve such
results is subject to certain risks and uncertainties. Such risks and
uncertainties include, but are not limited to, changes in healthcare
reimbursement systems and rates, the availability of capital and financing,
changes to amounts recorded as revenues due to final resolution of amounts due
to and from third-party payors, and other factors affecting the Partnership's
business that may be beyond its control.
Results of Operations
The following is a discussion of the major factors that materially affected the
Partnership's operations during the three years ending December 31, 2001 and the
comparability of operations between those years.
Significant changes have and will continue to be made in government
reimbursement programs, and such changes could have a material impact on future
reimbursement formulas. The Balanced Budget Act of 1997 (the "Act"), enacted in
August, 1997, has targeted the Medicare program for reductions in spending
growth of approximately $9.5 billion for skilled nursing facilities over four or
five years, primarily through the implementation of the Medicare prospective
payment system (the "Medicare PPS") for skilled services. The Medicare PPS per
diem, which would cover routine service, ancillary and capital-related costs,
initially will be a blended rate based on (i) a facility-specific payment rate
derived from each facility's 1995 cost report, adjusted by an inflation factor
and (ii) a federal per diem rate derived from all hospital-based and
freestanding (skilled nursing facility) 1995 cost reports, adjusted for case mix
and geographic variations in labor costs. The blended rate will be further
adjusted by a facility-specific case mix (acuity) index.
The Partnership's nursing home facility changed to the Medicare PPS on January
1, 1999. Implementation of the Medicare PPS contributed to the decrease in
revenues in 1999, even though the facility-specific Medicare rate for 1999 of
$379.77 provided the facility with approximately $260,000 in additional revenue
compared to payments based on the full federal rates. Effective October 1, 2000,
all facilities in our industry received a 4% increase in Medicare per diem
payment, and additionally, effective April 1, 2001, a variety of Resource
Utilization Group ("RUG") categories, including our nursing home facility,
received increases ranging from 6.7% to 20% depending on the type and complexity
of the services involved. The per diem add-on to the RUG categories and the 4%
across the board increase in payment, another of which was effective on October
1, 2001, have lessened the impact of the transition to the Medicare PPS. The RUG
add ons will expire whenever CMS refines the case mix classification system, and
CMS has stated they will be in place at least until October 2004. However, the
4% across the board rate increase expired in October 2002, and the Partnership
expects a decrease in revenue as a result of the expiration of the Medicare Rate
Increases.
The following table compares Medicare cost per day for 2001, 2000, and 1999, the
first year of Medicare PPS for the categories shown below. This data is
consistent with the Medicare data and categories reported to and used by the
Medicare administration in monitoring the program. No such breakdown of costs
exists for Medicaid and private pay patients.
- -------------------------------------------------------------------------------------------------------------------
Cost Increase Cost Increase
1999 Medicare 2000 Medicare (Decrease) 2001 Medicare (Decrease)
Category Cost Per Day Cost Per Day 1999/2000 Cost Per Day 2000/2001
- -------------------------------------------------------------------------------------------------------------------
Routine Nursing $125.46 $134.47 $9.01 $135.42 $0.95
- -------------------------------------------------------------------------------------------------------------------
Inpatient
Rehabilitation $93.19 $46.76 $(46.43) $50.36 $3.60
- -------------------------------------------------------------------------------------------------------------------
Other Inpatient $29.07 $20.89 $(8.18) $29.03 $8.14
- -------------------------------------------------------------------------------------------------------------------
Total $247.72 $202.12 $(45.60) $214.81 $12.69
- -------------------------------------------------------------------------------------------------------------------
The cost increases for fiscal 2001 resulted from several factors. First, we have
experienced routine nursing and inflationary increases. Second, inpatient
rehabilitation services in the aggregate and the complexity of services required
increased during 2001, as the case mix shifted to more acute cases. Third, the
percentage of Medicare days applicable to rehabilitation services increased from
77% in 2000 to 79% in 2001. Lastly, the increases are the result of other
inpatient cost such as the Medicare drug cost which increased from $67,206 in
2000 to $102,052 in 2001.
The 18% decrease in total Medicare cost per day in fiscal 2000 was primarily
attributable to a 28% reduction in the overhead allocated to the rehabilitation
area as a result of a decrease in the square footage of the rehabilitation area.
The overhead allocated to inpatient rehabilitation was $194,324 and $138,967 in
1999 and 2000, respectively. Also contributing to the decrease in total Medicare
cost per day was a 12% reduction in other inpatient costs from $168,062 in 1999
to $148,248 in 2000. This decrease was attributable to a reduction in medical
supplies expense. These decreases in other inpatient costs and inpatient
rehabilitation were partially offset by a 16% increase in nursing salaries from
$1,356,479 in 1999 to $1,578,223 in 2000. The increase in nursing salaries was
primarily attributable to an increase in the number of nurses employed, as well
as an increase in the number of hours worked by each nurse.
Management believes that revenues will continue to be lower under the Medicare
PPS; however, management believes that reductions in therapy costs, use of
general purchasing agents and other expense reduction measures should in part
offset the effect of any rate reductions. The Partnership can give no assurance
that payments under such program in the future will remain at a level comparable
to the present level or increase. Any decreases in the level of payments could
have a material adverse effect on the Partnership.
Revenue:
2001 compared to 2000
Operating revenues increased $910,214 (13%) in 2001 as compared to 2000. The
increase was attributable primarily to an increase in the number of Medicare,
managed care and private patients at the nursing facility. Also contributing to
the increase in operating revenues was an increase in census at the retirement
facility and yearly room rate increases. Census increased at both facilities due
to targeted marketing efforts by both facilities. Although both facilities
experienced increases in census, revenue increases are a result of both number
of patients and the degree of services required due to the acuity (or severity
of illness) of patients.
2000 compared to 1999
Operating revenues increased $536,149 (8%) in 2000 as compared to 1999. The
increase was attributable to several factors. First, there was a 41% increase in
the average daily census of Medicare patients at the nursing facility, as well
as a 15% increase in the average daily census of managed care patients at the
nursing facility. Furthermore, there was an increase in the Medicare
reimbursement rate at the nursing facility. Also contributing to the increase in
operating revenues was a 12% increase in average daily census at the retirement
facility.
Expenses:
2001 compared to 2000
Operating costs and expenses increased by $215,182 (3%) in 2001 as compared to
2000. The increase was attributable primarily to the 3% increase in occupancy
rate at the nursing home and the 26% increase in occupancy rate at the
retirement center, which in turn caused an increase in staffing and other costs
of serving occupants. The increase in costs and expenses was, however, minimized
to the extent possible by detailed attention to variable cost controls. Also
contributing to the increase in operating costs and expenses was the increase in
a variety of insurance expenses (group insurance, property insurance and general
liability insurance) and taxes.
Also, during the three month period ended December 31, 2001, Management resolved
certain liabilities relating to unpaid management fees and certain state
Medicaid programs. These liabilities, totaling approximately $463,000 were
credited against operating expenses.
2000 compared to 1999
Operating costs and expenses increased $211,632 in 2000 as compared to 1999. The
increase was attributable primarily to additional staffing needs at the
retirement center resulting from the increased occupancy rate.
Net Income (Loss):
2001 compared to 2000
For the fiscal year ended December 31, 2001, the Partnership had a net income
increase of $685,231 over 2000. This increase was primarily attributable to
increased census, increased patient quality mix (i.e. an increase in Medicare
and private pay patients), and detailed attention to variable cost controls.
2000 compared to 1999
For the fiscal year ended December 31, 2000, the Partnership had net income of
$89,880, and for the fiscal year ended December 31, 1999, the Partnership had a
net loss of ($244,752). The net gain in 2000 was attributable primarily to the
increase in operating revenue in 2000 of $536,149 and a decrease in management
and oversight fees in 2000 from 1999, partially offset by an increase of
$235,599 in other operating costs and expenses in 2000 from 1999. The increase
in operating costs and expenses was primarily due to additional staffing needs
at the retirement center as result of the increased census.
Liquidity and Capital Resources
At December 31, 2001, the Partnership held cash and cash equivalents of
$1,496,189, an increase of $390,367 from the amount held at December 31, 2000.
The cash balance will be necessary to meet the Partnership's current obligations
and for operating reserves. In addition, cash balances maintained at the two
Partnership facilities must be maintained in accordance with operating reserves
established by the U.S. Department of Housing and Urban Development ("HUD"). At
December 31, 2001, the balance of HUD reserved cash at the facilities was
$511,769, which is equal to the mortgage escrow and reserve for replacement
accounts.
During fiscal 2001, operating cash flows provided by operations increased to
$898,000 compared to $272,000 in fiscal 2000. The most significant contributor
to the improved cash flow was the increase in net income experienced by the
partnership in 2001.
As the Partnership continues to adjust to Medicare PPS, it believes that it will
produce sufficient cash flow to meet its ongoing operations needs associated
with the two facilities currently owned by the Partnership. In addition, the
Partnership's cash reserves are considered adequate to meet contingent
liabilities related to third-party reimbursements from the operation of
facilities previously owned by the Partnership in Colorado. During 2001, the
Partnership did not receive any demands for payment of any actual or contingent
liabilities related to these previously-owned facilities. The Partnership does
not currently have any lines of credit nor are the General Partners obligated to
provide financial support, should the need arise. Therefore, there can be no
assurance that sufficient funds will be available.
As discussed in "Results of Operations," the nursing facility benefited from
temporary increases in the rates paid by Medicare. Following the expiration of
these temporary rate increases in October 2002, the Partnership expects that it
will continue to generate sufficient cash flow from its operations to meet its
operating needs. In order to offset some of the impact of the expiration of the
rate increases, the Partnership plans to evaluate steps to reduce expenses and
to increase census at the nursing facility.
As of December 31, 2001, the Partnership was not obligated to perform any major
capital expenditures. The Managing General Partner anticipates that any repairs,
maintenance, or capital expenditures will be financed with cash reserves, HUD
replacement reserves and cash flow from operations.
No cash was distributed to the Partners during the year ended December 31, 2001.
In 1998, the Partnership distributed $600,000 to the Limited Partners. No funds
were distributed during 1999 or 2000. Cumulative distributions paid to the
Limited Partners as of December 31, 2001 were $3,538,203. The Managing General
Partner desires to make annual distributions from operating cash flow in future
periods. However, the Partnership's ability to make distributions may be limited
by HUD's requirements for surplus cash at both the nursing facility and
retirement center level.
Critical Accounting Policies
The Partnership's discussion and analysis of the financial condition and results
of operations are based upon the consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires the use of
estimates and judgments that affect the reported amounts and related disclosures
of assets and liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ materially from
these estimates. The Partnership believes the following critical accounting
policies, among others, affect the more significant judgments and estimates used
in the preparation of the consolidated financial statements.
Operating revenue
Operating revenue consists of rental income, long-term nursing revenues, and
other ancillary services revenues. Operating revenues are recognized as services
are provided. Revenues are recorded net of provisions for contractual allowances
with third-party payors, primarily Medicare and Medicaid. Net revenues
realizable under third-party payor agreements are subject to change due to
examination and retroactive adjustment. Estimated third-party payor settlements
are recorded in the period the related services are rendered. The methods of
making such estimates are reviewed periodically, and differences between the net
amounts accrued and subsequent settlements or estimates of expected settlements
are reflected in current results of operations. See "Results of Operations"
above for further discussion of recent changes to third-party payor
reimbursement rates.
Property, equipment and long-lived assets
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. The
Partnership evaluates the carrying value of long-lived assets in relation to the
future projected undiscounted cash flows of the underlying properties to assess
recoverability in accordance with Statement of Financial Accounting Standards
No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"). Those projected future undiscounted cash flows require significant
assumptions about future operations, such as reimbursement rates for Medicaid
and Medicare patients, occupancy rates, wage rates, workers compensation costs
and professional liability costs. Under SFAS 144, an impairment loss is
recognized if the sum of the future net expected cash flows is less than the
carrying amount of the long-lived assets being evaluated. The difference between
the carrying amount of the long-lived assets being evaluated, and the estimated
fair market value of the assets represents the impairment loss. The Partnership
determines estimated fair value for the long-lived assets that it intends to
retain based on anticipated future cash flows discounted at rates commensurate
with the risks involved.
Funding Obligations
We have various contractual commitments that we must fund in 2002 and future
years as part of our normal operations. Summary information about these matters
is set forth in the following table.
The following table discloses aggregate information, as of December 31, 2001,
about our contractual obligations and the periods in which payments are due:
Payments Due By Period (in thousands)
--------------------------------------------------------------------------------------------
Total 2002 2003 2004 2005 2006 Thereafter
Payments
Due
-------------------------------------------------------------------------------------------------------------
Long-Term Debt $3,865 $98 $105 $114 $122 $132 $3,294
-------------------------------------------------------------------------------------------------------------
Total
Contractual
Cash
Obligations $3,865 $98 $105 $114 $122 $132 $3,294
=============================================================================================================
The subsidiaries of the Partnership are obligated to pay management fees to a
related party in an amount equal to 5% of net operating revenues. This agreement
may be terminated by either party upon 60 days notice to the other party.
There are no other significant commercial commitments that we could be obligated
to pay in the future that are not included in our consolidated balance sheet.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership does not engage in any transactions exposing the Partnership to
material market risk. The Partnership has no variable rate debt.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data begin on page F-1 of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES.
This report on Form 10-K covers the fiscal year ended December 31, 2001. As of
the end of that period, no evaluation procedure was specified by the Securities
and Exchange Commission with respect to the Partnership's disclosure controls
and procedures (as now defined by Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")). In fact, the
concept of disclosure controls and procedures had not yet been defined by the
above referenced rules. However, in light of the recently adopted requirements
with respect to disclosure controls and procedures, John F. McMullan, the
principal executive officer and chief financial officer of the managing general
partner of the Partnership, who performs such functions for the Partnership, has
evaluated the effectiveness of the design and operation of the Partnership's
disclosure controls and procedures in connection with the preparation of this
report on Form 10-K. Based on that evaluation, he has concluded that the
Partnership's disclosure controls and procedures are effective at ensuring that
required information is made available to him for disclosure in the
Partnership's reports filed under the Exchange Act. However, the Partnership is
not timely in filing its reports with the Securities and Exchange Commission.
The Partnership is in the process of bringing its filings with the Securities
and Exchange Commission up to date and in connection with those efforts intends
to improve its disclosure controls and procedures such that material information
will be made available on a timely basis for disclosure in required reports.
In connection with such review, Mr. McMullan also conducted a preliminary review
of the Partnership's internal control over financial reporting. While the
Managing Partner (MCII) has an informal system of internal controls, given the
size of the Partnership and the control structures in place at each subsidiary,
management does not believe that any material weaknesses exist in the internal
controls that could have a material effect on the financial reporting of the
Partnership. Management intends to conduct additional reviews of the
Partnership's systems of internal control, including control over financial
reporting, and will seek appropriate advice from its independent auditors
regarding recommendations for improving such controls.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership does not have officers or directors. At December 31, 2001, the
General Partners of the Partnership were Consolidated Associates II and WelCare
Service Corporation-II as Managing General Partner of the Partnership. The
executive officer and director of WSC-II who control the affairs of the
Partnership, is as follows:
Name and Position Age at Principal Occupations and Other
- ----------------- 12/31/01 Directorships During the Past 5 Years
-------- -------------------------------------
John F. McMullan, 65 John F. McMullan has served as President,
President, Secretary Secretary and Director of WSC-II since July,
and Sole Director 1998. For more than five years prior to the
date hereof, Mr. McMullan has served as a
consultant to Life Care Centers of America,
the Manager of the Partnership, and numerous
other healthcare facilities. Mr. McMullan
is also a certified public accountant. Mr.
McMullan serves on the Board of Directors of
Small Town Radio, Inc.
ITEM 11. EXECUTIVE COMPENSATION
No individual principal or principals as a group received any direct
remuneration from the Partnership.
The General Partners are not compensated directly for their services as general
partners of the Partnership. See Item 13 and Note 1 to the consolidated
financial statements appearing in Item 8 for further discussion of compensation
paid to affiliates of the General Partners.
The General Partners are entitled to distributions of cash from operations and
from "other sources" (primarily from the sale or refinancing of Partnership
properties, as set forth in Note 3 to the consolidated financial statements
included herein).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) Security ownership of certain beneficial owners.
No individual or group as defined by Section 13(d)(3) of the Securities
Exchange Act of 1934, known to the Partnership, is the beneficial owner
of more than 5% of the Partnership's securities.
(B) Security ownership of management.
The General Partners do not own any Limited Partnership Units. The
management of the General Partners are the beneficial owners of less
than 1% of the outstanding Limited Partnership Units individually and
in the aggregate.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Affiliates and former affiliates of the General Partners, in accordance with the
Partnership Agreement, may receive compensation for services rendered. The
following is a summary of compensation paid to or accrued for the benefit of the
General Partners and affiliates:
2001 2000 1999
---- ---- ----
Oversight management and management fees: $ 81,005 $ 70,237 $ 68,876
Paid at the Fund II level (1)
Paid by the facilities (1) $408,288 $363,518 $334,891
-------- -------- --------
$489,293 $433,755 $403,767
Administration of partnership activities (1) $159,397 $142,278 $200,084
Partnership administration costs for each of 1999, 2000 and 2001include
approximately $72,813 paid annually to affiliates, with the remainder paid to
non-affiliates.
(1) For reimbursement of expenses incurred by affiliates of the Managing
General Partner in performing administrative services including
investor relations and accounting. See Note 1 to the accompanying
consolidated financial statements included herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following financial statements are included in Part II, Item 8:
(1) Consolidated Financial Statements:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets - as of December 31, 2001 and 2000
Consolidated Statements of Operations - for the Years Ended December
31, 2001, 2000 and 1999
Consolidated Statements of Partners' Equity (Deficit) - for the
Years Ended December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows - for the Years Ended December
31, 2001, 2000 and 1999
Summary of Significant Accounting Policies
Notes to Consolidated Financial Statements
(2) The following financial statement schedule is included in this Form
10-K Report:
Schedule II - Valuation and Qualifying Accounts for the years ended
December 31, 2001, 2000 and 1999
All other schedules are omitted because they are not required,
are not applicable, or the financial information required is
included in the consolidated financial statements or notes
thereto.
(3) The following exhibits are incorporated by reference and are an
integral part of this Form 10-K:
Exhibit Number
(as per Exhibit
Table) Page
Document Description Number
3.1 Agreement of Limited Partnership of Consolidated N/A
Resources Health Care Fund II, incorporated by
reference to Exhibit A to the Registration Statement
on Form S-1, as amended, Page A-1, File No. 2-87636,
(now File No. 0-13415).
3.2 Amendment to Agreement of Limited Partnership of N/A
Consolidated Resources Health Care Fund II,
incorporated by reference to Proxy Statement filed
on November 19, 1991, File No. 0-13415.
3.3 Amendment to Amended and Restated Agreement and N/A
Certificate of Limited Partnership of Consolidated
Resources Health Care Fund II, incorporated by
reference to Form 10-Q filed on August 19, 1998,
File No. 0-13415.
21 Subsidiaries E
31.1 Certification Pursuant to 17 CFR 240.13a-14 E
32.1 Certification Pursuant to 18 U.S.C. Section 1350, E
as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
E - Submitted electronically as a separate document herewith the
Registrant's Form 10-K
(b) Reports on Form 8-K:
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CONSOLIDATED RESOURCES HEALTH CARE FUND II
(Registrant)
By: WELCARE SERVICE CORPORATION-II
Managing General Partner
Date: March 24, 2004 By: /s/ John F. McMullan
-----------------------------------------
John F. McMullan, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons, on behalf of the Registrant and
in the capacities and on the dates indicated:
Date: March 24, 2004 By: /s/ John F. McMullan
-----------------------------------------
John F. McMullan
Director and Principal Executive Officer
of the Managing General Partner
Date: March 24, 2004 By: /s/ John F. McMullan
-----------------------------------------
John F. McMullan
Chief Financial Officer of the Managing
General Partner
The Partners
Consolidated Resources Health Care Fund II and Subsidiaries
We have audited the accompanying consolidated balance sheets of Consolidated
Resources Health Care Fund II and Subsidiaries (the "Partnership") as of
December 31, 2001 and 2000 and the related consolidated statements of
operations, partners' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 2001. We have also audited the schedule
listed in the accompanying index. These consolidated financial statements and
schedule are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements and schedule are free of material misstatements. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements and schedule. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the
consolidated financial statements and schedule. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Consolidated Resources Health Care Fund II and Subsidiaries at December 31, 2001
and 2000, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 2001 in conformity
with accounting principles generally accepted in the United States of America.
Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein.
Atlanta, Georgia BDO Seidman, LLP
June 2, 2003
Consolidated Resources Health Care Fund II and Subsidiaries
Consolidated Balance Sheets
December 31, 2001 2000
-------------------- --------------------
Assets
Current
Cash and cash equivalents (Note 5) $ 1,496,189 $ 1,105,822
Accounts receivable, net of allowance for doubtful accounts
of $8,934 and $6,304, respectively (Note 4) 468,264 356,586
Prepaid expenses and other 22,577 6,046
------------------ -----------------
Total current assets 1,987,030 1,468,454
------------------ -----------------
Property and equipment (Note 2)
Land 178,609 178,609
Buildings and improvements 7,192,829 6,976,479
Equipment and furnishings 1,259,391 1,086,550
------------------ -----------------
8,630,829 8,241,638
Less: accumulated depreciation (6,005,933) (5,509,461)
------------------ ------------------
Net property and equipment 2,624,896 2,732,177
------------------ -----------------
Other assets
Restricted escrows and other deposits (Note 2) 621,000 557,302
Deferred loan costs, net of accumulated amortization
of $17,460 and $16,423, respectively 15,646 16,683
------------------ -----------------
Total other assets 636,646 573,985
------------------ -----------------
$ 5,248,572 $ 4,774,616
================== =================
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
Consolidated Resources Health Care Fund II and Subsidiaries
Consolidated Balance Sheets
December 31, 2001 2000
------------------- -------------------
Liabilities and Partners' Equity (Deficit)
Current liabilities
Current maturities of long-term debt obligations (Note 2) $ 98,305 $ 90,464
Accounts payable 119,524 67,735
Accrued expenses (Note 6) 477,082 340,287
Accrued management fees substantially all to
affiliates (Notes 1 and 8) - 394,918
Deposit liabilities 105,968 88,261
Deferred revenue 90,003 80,058
Due to Medicare - 67,968
Due to related party (Note 1) 52,631 15,913
------------------ ------------------
Total current liabilities 943,513 1,145,604
Long-term debt obligations, less current
maturities (Note 2) 3,767,104 3,866,168
------------------ ------------------
Total liabilities 4,710,617 5,011,772
------------------ ------------------
Commitments and Contingencies (Notes 1, 4 and 5)
Partners' equity (deficit) (Notes 2 and 3)
Limited partners 684,005 (60,102)
General partners (146,050) (177,054)
------------------- -------------------
Total partners' equity (deficit) 537,955 (237,156)
------------------ -------------------
$ 5,248,572 $ 4,774,616
================== --================
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
Consolidated Resources Health Care Fund II and Subsidiaries
Consolidated Statements of Operations
Years ended December 31, 2001 2000 1999
----------------- ----------------- ----------------
Revenue
Operating revenue (Note 4) $ 8,146,246 $ 7,236,032 $ 6,699,883
Interest income 38,970 48,771 38,656
---------------- ---------------- ---------------
Total revenue 8,185,216 7,284,803 6,738,539
---------------- ---------------- ---------------
Operating costs and expenses
Operating expenses (Note 8) 5,844,603 5,698,370 5,470,488
Depreciation and amortization 497,509 480,968 474,908
Interest (Note 2) 289,870 304,832 307,150
Management and oversight fees (Note 1) 489,293 433,755 403,767
Real estate taxes 129,433 134,720 126,894
Partnership administration costs including
amounts paid to affiliates (Note 1) 159,397 142,278 200,084
---------------- ---------------- ---------------
Total operating costs and expenses 7,410,105 7,194,923 6,983,291
---------------- ---------------- ---------------
Net income/(loss) $ 775,111 $ 89,880 $ (244,752)
================ ================ ================
Basic and diluted net income/(loss) per
limited partnership unit $ 49.61 $ 5.75 $ (15.66)
=============== =============== ===================
Limited partnership units outstanding 15,000 15,000 15,000
================ ================ ===============
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
Consolidated Resources Health Care Fund II and Subsidiaries
Consolidated Statements of Partners' Equity (Deficit)
Years Ended December 31, 2001, 2000 and 1999
Total
Partners'
Equity (Deficit)
Limited General
----------------- ----------------- -----------------
Partners' equity (deficit),
at January 1, 1999 $ 88,575 $ (170,859) $ (82,284)
Net loss (234,962) (9,790) (244,752)
---------------- ---------------- ----------------
Partners' (deficit), at
December 31, 1999 (146,387) (180,649) (327,036)
Net income 86,285 3,595 89,880
--------------- --------------- ---------------
Partners' (deficit), at
December 31, 2000 (60,102) (177,054) (237,156)
Net income 744,107 31,004 775,111
--------------- --------------- ---------------
Partners' equity (deficit), at
December 31, 2001 $ 684,005 $ (146,050) $ 537,955
================= ================= =================
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
Consolidated Resources Health Care Fund II and Subsidiaries
Consolidated Statements of Cash Flows
Years ended December 31, 2001 2000 1999
---- ---- ----
Operating activities
Net income/(loss) $ 775,111 $ 89,880 $ (244,752)
Adjustments to reconcile net income/(loss) to cash
provided by operating activities:
Depreciation and amortization 497,509 480,968 474,908
Bad debt expense 2,630 8,659 37,165
Changes in operating assets and liabilities:
Accounts receivable (114,308) (189,266) 135,314
Prepaid expenses and other (16,531) 7,354 22,777
Accounts payable 51,789 (48,567) (106,941)
Accrued liabilities and deposit liabilities (298,439) (77,474) 85,806
Third-party payor settlement receivable - - 97,501
----------- ------------- -------------
Net cash provided by operating activities 897,761 271,555 501,778
----------- ------------- -------------
Investing activities
Payments for purchases of property and equipment, (389,191) (218,173) (152,952)
Net change in restricted escrows and other deposits (63,698) (30,371) (45,843)
------------ -------------- --------------
Net cash used in investing activities (452,889) (248,544) (198,795)
------------ -------------- --------------
Financing activities
Principal payments on long-term debt obligations (91,223) (84,651) (82,513)
Due to related party 36,718 5,528 10,385
----------- ------------- -------------
Net cash used in financing activities (54,505) (79,123) (72,128)
------------ -------------- --------------
Net increase (decrease) in cash and cash equivalents 390,367 (56,112) 230,855
Cash and cash equivalents, beginning of year 1,105,822 1,161,934 931,079
----------- ------------- -------------
Cash and cash equivalents, end of year $1,496,189 $ 1,105,822 $ 1,161,934
========== =========== ===========
Supplemental Disclosure:
Cash paid during the year for interest $ 294,220 $ 304,832 $ 307,150
========= =========== ===========
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
Consolidated Resources Health Care Fund II and Subsidiaries
Summary of Significant Accounting Policies
Organization
Consolidated Resources Health Care Fund II (the "Partnership") was organized on
October 31, 1983 as a limited partnership under the provisions of the Georgia
Uniform Limited Partnership Act for the purpose of acquiring, operating and
holding for investment and future capital appreciation income producing, health
care related real properties. Investments in healthcare real property consist of
a nursing home and a retirement center in Ohio. During 2001, the average
occupancy for the nursing home and retirement center was 94% and 93%,
respectively.
Prior to July 16, 1998, the General Partners of the Partnership were WelCare
Consolidated Resources Corporation of America, serving as the Corporate General
Partner, ("WCRCA" or the "Corporate General Partner"), a Nevada corporation,
WelCare Service Corporation-II, serving as Managing General Partner, ("WSC-II"
or the "Managing General Partner"), a Georgia corporation, and Consolidated
Associates II, ("CA-II"), a Georgia general partnership (collectively the
"General Partners"). On January 30, 1997, all of the stock of the Corporate
General Partner and the Managing General Partner was sold to Consolidated
Partners Corporation, which is wholly-owned by a general partner of CA-II. The
General Partners collectively hold a 4% ownership interest in the Partnership.
The limited partners hold 15,000 partnership units which comprise 96% ownership
in the Partnership.
On July 16, 1998, WCRCA assigned all of its right, title and interest in and to
its general partner interest in the Partnership to WSCII. On July 22, 1998, an
amendment to the Amended and Restated Agreement and Certificate of Limited
Partnership was filed reflecting the withdrawal of WCRCA from the partnership
and certain other matters. On July 23, 1998 the sole shareholder of the Managing
General Partner sold all of its issued and outstanding shares to a third party.
The financial statements do not reflect assets the partners may have outside
their interests in the Partnership, nor any personal obligations including
income taxes, of the individual partners.
Consolidation
The consolidated financial statements include the accounts of the Partnership
and the accounts of the subsidiary partnerships in which it holds 99.5% of the
units. All significant intercompany balances and transactions have been
eliminated. The amount of minority interest is immaterial.
Property, Equipment and Long-lived Assets
Property and equipment are recorded at cost less appropriate reductions for
permanent declines in net realizable value. Property and equipment are not
adjusted for increases in net realizable value.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset, a loss is recognized for the difference between the fair
value and carrying value of the asset.
Prior to 1992, the Partnership recorded write-downs to reduce the carrying value
of certain properties to their estimated net realizable value as determined by
the Managing General Partner.
Consolidated Resources Health Care Fund II and Subsidiaries
Summary of Significant Accounting Policies
The balance of these write-downs and the carrying values of the property and
equipment were as follows as of December 31, 2001.
Previously Recorded
Write Down Carrying Values
Mayfair Village Nursing Care Center $ 1,441,848 $ 1,006,270
Mayfair Retirement Center 440,602 1,618,626
---------------- ----------------
$ 1,882,450 $ 2,732,177
============ ============
Depreciation and Amortization
Property and equipment are depreciated using the straight-line method over lives
of 24 to 30 years for buildings and 5 to 10 years for equipment and furnishings.
Depreciation expense for 2001, 2000, and 1999 was $496,472, $479,932 and
$473,872, respectively. Renewals and betterments are capitalized and repairs and
maintenance are charged to operations as incurred.
Deferred Loan Costs
Deferred loan costs are amortized over the terms of the respective loans using
the straight-line method which approximates the effective interest method.
Amortization of deferred loan costs is included in depreciation and amortization
expense.
Operating Revenue
Operating revenue is recorded when services are rendered and includes amounts
reimbursable by the Medicaid and Medicare programs. Revenues are recorded at the
estimated net realizable amounts from patients, third-party payors, and others
for services rendered including estimated retroactive adjustments under
reimbursement agreements with Medicare and Medicaid. Retroactive adjustments are
accrued in the period related services are rendered and adjusted in future
periods as final settlements are determined.
The Balanced Budget Act of 1997, (the "Act"), enacted in August 1997, has
targeted the Medicare program for reductions in spending growth of approximately
$9.5 billion for skilled nursing facilities over the next five years, primarily
through the implementation of a Medicare prospective payment system ("PPS") for
skilled services. The PPS per diem, which covers routine service, ancillary and
capital related costs, is initially a blended rate based on (i) a
facility-specific payment rate derived from each facility's 1995 cost report,
adjusted by an inflation factor and (ii) a federal per diem rate derived from
all hospital-based and freestanding (skilled nursing facility) 1995 cost
reports, adjusted for case mix and geographic variations in labor costs. The
blended rate will be further adjusted by a facility-specific case mix (acuity)
index.
The Partnership's nursing home changed to the PPS reimbursement system on
January 1, 1999. Management believes that revenues will continue to be lower
under PPS; however, reductions in therapy costs, use of general purchasing
agents and other expense reduction measures should in part offset the effect of
any rate reductions. During 2001, temporary increases in Medicare reimbursement
rates were granted. These temporary increases expired on October 31, 2002. The
Company can give no assurance that payments under such programs in the future
will remain at a level comparable to the present level or increase, and
decreases in the level of payments could have a material adverse effect on the
Company.
Income Taxes
No provision has been made in the consolidated financial statements for Federal
income taxes because under current law, no Federal income taxes are paid
directly by the Partnership. The Partnership reports certain transactions
differently for tax and financial statement purposes.
Allocation of Net Income and Loss
The Partnership's net profits and net losses (other than net profits or net
losses from a sale or refinancing of Partnership property), are allocated 96% to
the Limited Partners and 4% to the General Partners. Distributions are computed
as described in Note 3.
Net losses resulting from a sale or refinancing shall be allocated 99% to the
Limited Partners and 1% to the General Partners. Net profits resulting from a
sale or refinancing shall be allocated in the following order:
(1) First, 1% to the General Partners and 99% to the Limited Partners until
the net profits allocated to the Limited Partners from such sale or
refinancing equals the excess of the greater of the following items
over their capital account immediately prior to such sale or
refinancing:
(a) zero; or
(b) the Limited Partners' invested capital immediately prior to
such sale or refinancing plus 9% per annum of the Limited
Partners' average invested capital for all fiscal years to the
extent not received through prior distributions of
distributable cash from operations or sale or refinancing
proceeds; or
(c) the amount of sale or refinancing proceeds distributable to
the Limited Partners;
(2) Second, to the General Partners until the net profits allocated to the
General Partners from such sale or refinancing equals the excess of the
greater of the following items over their capital account immediately
prior to such sale or refinancing:
(a) zero; or
(b) the amount of sale or refinancing proceeds distributable to
the General Partners from such sale or refinancing;
(3) Third, any remaining net profits shall be allocated 15% to the General
Partners and 85% to the Limited Partners.
Net Income (Loss) Per Limited Partnership Unit
Net income (loss) per Limited Partnership Unit is computed by dividing net
income (loss) allocated to the Limited Partners by the number of Limited
Partnership units outstanding.
Statements of Cash Flows
For purposes of this statement, cash equivalents include U.S. government
securities, commercial paper and certificates of deposit with original
maturities of three months or less.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board finalized FASB Statements
No. 141, "Business Combinations" ("SFAS 141"), and No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). SFAS 141 requires the use of the purchase
method of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that the Partnership recognize acquired intangible assets apart
from goodwill if the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also
requires, upon adoption of SFAS 142, that the Partnership reclassify the
carrying amounts of intangible assets and goodwill based on the criteria in SFAS
141.
SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Partnership identify reporting units for
the purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Partnership to complete a
transitional goodwill impairment test six months from the date of adoption. The
Partnership is also required to reassess the useful lives of other intangible
assets within the first interim quarter after adoption of SFAS 142.
The Partnership expects that the effect of the adoption of SFAS 141 and SFAS 142
will not be material to its financial position or results of operations.
In June 2001 the FASB approved the issuance of Statement of Financial Accounting
Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143").
SFAS 143 establishes accounting standards for the recognition and measurement of
legal obligations associated with the retirement of tangible long-lived assets.
SFAS 143 will become effective for the Partnership on January 1, 2003 and
requires recognition of a liability for an asset retirement obligation in the
period in which it is incurred. Management is in the process of evaluating the
impact this standard will have on the Partnership's financial statements.
In October 2001 the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"). SFAS 144 addresses financial accounting and reporting for the impairment
or disposal of long-lived assets. The provisions of this statement are effective
for financial statements issued for fiscal years beginning after December 15,
2001. Management does not expect adoption of this standard to have a material
impact on the Partnership's financial statements.
In April 2002, the Financial Accounting Standards Board issued SFAS No. 145,
"Rescission of SFAS No. 4, 44, 64, Amendment of SFAS No. 13, and Technical
Corrections" ("SFAS 145"). SFAS 4, which was amended by SFAS 64, required all
gains and losses from the extinguishment of debt to be aggregated and, if
material, classified as an extraordinary item, net of related income tax effect.
As a result of SFAS 145, the criteria in Accounting Principles Board Opinion 30
will now be used to classify those gains and losses. SFAS 13 was amended to
eliminate an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. The
adoption of SFAS 145 will not have a current impact on the Partnership's
consolidated financial statements.
In June 2002, the FASB issued Statement of Financial Accounting Standards No.
146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS
No. 146"). SFAS No. 146 requires companies to recognize costs associated with
exit or disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. SFAS No. 146 is to be applied
prospectively to exit or disposal activities initiated after December 31, 2002.
The adoption of SFAS No. 146 is not expected to have a material impact on the
Partnership's financial position or results of operations.
In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148, "Accounting for Stock-Based Compensation--Transition and Disclosure"
("SFAS No. 148"). SFAS No. 148 amends Statement No. 123, Accounting for
Stock-Based Compensation ("SFAS No. 123"), to provide alternative methods for
voluntary transition to SFAS No. 123's fair value method of accounting for
stock-based employee compensation ("the fair value method"). SFAS No. 148 also
requires disclosure of the effects of an entity's accounting policy with respect
to stock-based employee compensation on reported net income (loss) and earnings
(loss) per share in annual and interim financials statements. The transition
provisions of SFAS No. 148 are effective in fiscal years beginning after
December 15, 2002. The Partnership does not have stock-based compensation, and
therefore, this standard is not anticipated to have an impact.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees and Indebtedness of Others." FIN 45 elaborates on the
disclosures to be made by the guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also requires that a guarantor recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and measurement provisions of this
interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002; while the provisions of the disclosure
requirements are effective for financial statements of interim or annual reports
ending after December 15, 2002. The adoption of FIN 45 is not expected to have a
material impact on the Partnership's consolidated results of operations or
financial position.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." In general, a variable interest
entity is a corporation, partnership, trust, or any other legal structure used
for business purposes that either (a) does not have equity investors with voting
rights or (b) has equity investors that do not provide sufficient financial
resources for the entity to support its activities. FIN 46 requires certain
variable interest entities to be consolidated by the primary beneficiary of the
entity if the investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties. The consolidation requirements of FIN 46 apply immediately to
variable interest entities created after January 31, 2003. The consolidation
requirements apply to other entities in the first fiscal year or interim period
beginning after June 15, 2003. Certain of the disclosure requirements apply in
all financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. Since the Partnership currently has
identified no variable interest entities, management expects that the adoption
of the provisions of FIN 46 will not have a material impact on the Partnership's
consolidated results of operations or financial position.
In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". SFAS
No. 150 requires three types of freestanding financial instruments to be
classified as liabilities in statements of financial position. One type is
mandatorily redeemable shares, which the issuing company is obligated to buy
back in exchange for cash or other assets. A second type, which includes put
options and forward purchase contracts, involves instruments that do or may
require the issuer to buy back some of its shares in exchange for cash or other
assets. The third type of instrument is obligations that can be settled with
shares, the monetary value of which is fixed, tied solely or predominately to a
variable such as a market index, or varies inversely with the value of the
issuer's shares. The majority of the guidance in SFAS No. 150 is effective for
all financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. In accordance with SFAS No. 150, the Partnership plans to
adopt this standard on July 1, 2003. Adoption of SFAS No. 150 by the Company on
July 1, 2003 is not expected to have a material impact on the Partnership's
consolidated financial position and results of operations.
Reclassifications
Certain amounts in the accompanying financial statements for 2000 and 1999 have
been reclassified to be consistent with the 2001 financial statements. Such
reclassifications had no effect on earnings or loss per limited partnership unit
or on the Partnership's financial position.
Consolidated Resources Health Care Fund II and Subsidiaries
Notes to Consolidated Financial Statements
1. Management Fees and Affiliate Transactions
Two companies related to the Partnership and the minority interest holder manage
the nursing home and retirement center for a fee of 5% of gross operating
revenues. Fees totaling $408,288, $363,518 and $334,891 were paid to the
management company for the years ended December 31, 2001, 2000, and 1999,
respectively. In addition, an affiliate of the Managing General Partner was paid
an oversight management fee of 1% of gross operating revenue totaling $81,005,
$70,237 and $68,876 in 2001, 2000, and 1999, respectively.
During 2001, 2000 and 1999, the affiliate of the Managing General Partner was
reimbursed for costs incurred in connection with the administration of
Partnership activities ranging from approximately $140,000 to $200,000 each
year. These expenses are included in Partnership administration costs on the
accompanying Consolidated Statement of Operations.
Accrued management fees at December 31, 2000 consisted of management's estimates
of amounts payable to affiliates and former affiliates and an unrelated
management company resulting from management fees incurred. These amounts were
settled during 2001 and credited against operating expenses. See Note 8.
2. Long-Term Debt Obligations
Long-term debt obligations consisted of:
2001 2000
- --------------------------------------------------------------------------------
7.5% note related to Mayfair Village
Nursing Care Center, collateralized by a
first trust deed on land, buildings and
furnishings and insured by the U.S.
Department of Housing and Urban Development;
payable in monthly installments of principal
and interest of $12,050, due January 1, 2020 $1,426,068 $1,462,227
7.5% note related to Mayfair Retirement
Center, collateralized by a first trust
deed on land, buildings and furnishings and
insured by the U.S. Department of Housing and
Urban Development; payable in monthly installments
of principal and interest of $20,023, due March 1,
2021 2,439,341 2,494,405
- --------------------------------------------------------------------------------
3,865,409 3,956,632
Less current maturities (98,305) (90,464)
- --------------------------------------------------------------------------------
$3,767,104 $3,866,168
- --------------------------------------------------------------------------------
Future maturities of long-term debt obligations at December 31, 2001 are as
follows:
Amount
- --------------------------------------------------------------------------------
2002 $ 98,305
2003 105,338
2004 113,527
2005 122,381
2006 132,031
Thereafter 3,293,827
- --------------------------------------------------------------------------------
$3,865,409
- --------------------------------------------------------------------------------
Consolidated Resources Health Care Fund II and Subsidiaries
Notes to Consolidated Financial Statements
Restricted escrows and other deposits include amounts held in trust for payment
of property taxes and insurance and for repairs and replacements of the property
as approved by HUD. Under covenants contained in the Regulatory Agreement with
HUD, the subsidiary partnerships are limited as to the amount of distributions
they may make to the Partnership to the extent of surplus cash, as defined in
the Regulatory Agreement with HUD. The Regulatory Agreement also imposes
restrictions regarding cash receipts and disbursements and compliance with the
Fair Housing Act.
The fair value of the Partnership's obligations are estimated on the quoted
market prices for the same or similar issues or on the current rates offered to
the Partnership for debt of the same remaining maturities. Carrying values of
the Partnerships' financial instruments approximate their fair values at
December 31, 2001.
3. Distributions
Distributions to the partners are paid from operations of the Partnership's
properties or from sales or refinancing of properties. Cash from operations is
distributed 96% to the Limited Partners and 4% to the General Partners. However,
no distributions of cash from operations shall be made to the General Partners
in any year until the Limited Partners have received distributions for such year
equal to 9% of their invested capital.
Distributions of cash from sales and refinancing are made in the following
order:
(a) First, to the Limited Partners in an amount equal to their invested
capital; then,
(b) to the Limited Partners in an amount necessary to provide the Limited
Partners with a 9% cumulative, non-compounded return on invested
capital to the extent not previously received through distributions of
distributable cash from operations; then,
(c) to the General Partners in an amount up to 3% of the sale price of all
properties on a cumulative basis; then,
(d) the balance of such proceeds shall be distributed 15% to the General
Partners and 85% to the Limited Partners.
No cash was distributed to Limited Partners during 2001, 2000 or 1999.
Cumulative distributions paid to the Limited Partners as of December 31, 2001
are $3,538,203. No distributions have been made to the General Partners.
4. Cost Reimbursements
Accounts receivable and operating revenue include amounts estimated by
management to be reimbursable by Medicaid and Medicare under the provisions of
cost reimbursement formulas in effect. Final determination of amounts earned is
subject to audit by the intermediaries. In the opinion of management, adequate
provision has been made for any adjustments that may result from such audits.
Differences between estimated provisions and final settlement are reflected as
charges or credits to operating revenue in the year finalized. Significant
changes have and will continue to be made in government reimbursement programs,
and such changes could have a material impact on future reimbursement formulas.
Medicaid and Medicare programs accounted for approximately 48%, 53% and 46% of
operating revenue during 2001, 2000 and 1999, respectively.
Consolidated Resources Health Care Fund II and Subsidiaries
Notes to Consolidated Financial Statements
Accounts receivable, recorded at net realizable value, include amounts due from
both the Ohio Medicaid program and Medicare are as follows:
December 31, 2001 2000
- --------------------------------------------------------------------------------
Ohio Medicaid Program $134,734 $ 81,725
Medicare $159,571 $126,573
Amounts due from the Ohio Medicaid program are paid on an interim and final
basis generally within 30 to 60 days from date of billing. Amounts due from the
Medicare program are generally received within 30 days.
5. Concentrations of Credit Risk
At December 31, 2001, the Partnership had cash on deposit at three banks which
exceeded the Federal Deposit Insurance Corporation limits of $100,000 per
financial institution.
6. Accrued Expenses
Accrued expenses consisted of the following:
December 31, 2001 2000
- --------------------------------------------------------------------------------
Accrued salaries and wages $ 151,909 $ 148,963
Accrued property taxes 119,547 120,800
Other 205,626 70,524
- --------------------------------------------------------------------------------
$ 477,082 $ 340,287
- --------------------------------------------------------------------------------
7. Segment Information
During 1998, the Partnership adopted SFAS 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS 131 establishes standards for the way
that public business enterprises report information about operating segments in
their financial statements. The standard defines operating segments as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision makers in
deciding how to allocate resources and in assessing the performance. The
Company's chief operating decision makers aggregate operating segments based on
the facility type. Based on the quantitative thresholds specified in SFAS 131,
the Partnership has determined that it has two reportable segments, a nursing
home operation and a retirement center operation.
The accounting policies of the operating segments are the same as those
described in the Summary of Significant Accounting Policies. Segment amounts
disclosed are prior to any elimination entries made in the consolidation. The
chief operating decision-makers evaluate performance of the segments based on
operating results.
Consolidated Resources Health Care Fund II and Subsidiaries
Notes to Consolidated Financial Statements
Summary information by segment follows:
Corporate and
Retirement Nursing Eliminations Total
2001
Revenues $1,839,864 $6,329,886 $ 15,466 $8,185,216
Operating income (loss) (100,537) 637,700 237,948 775,111
Depreciation and amortization 266,029 231,480 - 497,509
Total segment assets 2,031,775 2,699,727 517,070 5,248,572
Capital expenditures 82,206 306,985 - 389,191
2000
Revenues $1,424,570 $5,846,801 $ 13,432 $7,284,803
Operating income (loss) (257,211) 548,345 (189,254) 89,880
Depreciation and amortization 254,202 226,766 - 480,968
Total segment assets 2,238,820 2,395,406 140,390 4,774,616
Capital expenditures 151,372 66,801 - 218,173
1999
Revenues $1,206,401 $5,507,925 $ 24,213 $6,738,539
Operating income (loss) (296,959) 320,459 (268,252) (244,752)
Depreciation and amortization 249,006 225,902 - 474,908
Total segment assets 2,217,125 2,233,106 439,669 4,889,900
Capital expenditures 44,601 108,351 - 152,952
8. Selected Quarterly Data and Share Information (Unaudited)
The following table sets forth, for the fiscal periods indicated, selected
consolidated financial data.
Fiscal Year Ended 2001
--------------------------------------------------------------
First Second Quarter Third Quarter Fourth Quarter
Quarter
- ------------------------------------------------------------------------------------------------------------------
Total Revenue $1,934,373 $2,063,238 $2,028,508 $2,159,097
Net Income (loss) 16,599 134,079 119,983 504,450
Basic and diluted net income (loss) per L.P. unit $1.06 $8.58 $7.68 $32.28
Fiscal Year Ended 2000
--------------------------------------------------------------
First Second Quarter Third Quarter Fourth Quarter
Quarter
- ------------------------------------------------------------------------------------------------------------------
Total Revenue $1,794,589 $1,745,981 $1,877,909 $1,866,324
Net Income (loss) 80,270 (59,281) 15,627 53,264
Basic and diluted net income (loss) per L.P. unit $5.14 $ (3.79) $1.00 $3.41
During the three month period ended December 31, 2001, Management resolved
certain liabilities relating to unpaid management fees and certain state
Medicaid programs. These liabilities, totaling approximately $463,000 were
credited against operating expenses.
Schedule II - Valuation and Qualifying Accounts
Years Ended December 31, 2001, 2000 and 1999
Balance at Additions charged
beginning of to costs and Balance at end
year expenses Deductions(1) of year
2001
Allowance for doubtful accounts $6,304 $2,630 $ - $ 8,934
2000
Allowance for doubtful accounts $7,153 $8,659 $(9,508) $ 6,304
1999
Allowance for doubtful accounts $14,562 $37,165 $(44,574) $ 7,153
(1) Represents direct write-offs of receivables.