10-Q 1 mhfiling10q901.txt MERIDIAN 10Q FOR QUARTER ENDING 9/30/01 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) { X } QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 { } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to For Quarter Ended September 30, 2001 Commission file number 000-17596 Meridian Healthcare Growth and Income Fund Limited Partnership (Exact Name of Registrant as Specified in its Charter) Delaware 52-1549486 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) 225 East Redwood Street, Baltimore, Maryland 21202 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (410) 727-4083 N/A (Former Name, Former Address, and Former Fiscal Year, if Changed Since Last Report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP INDEX Page No. CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS 2 Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets 3 Consolidated Statements of Earnings 4 Consolidated Statements of Partners' Capital 5 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 7-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-12 Item 3. Quantitative and Qualitative Disclosures About Market Risk 13 Part II. Other Information Item 1. through Item 6. 13 Signatures 14 MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP Cautionary Statement Regarding Forward Looking Statements Certain statements contained herein, including certain statements in "Management's Discussion and Analysis of Financial Condition and Results of Operations" concerning the Fund's business outlook or future economic performances, anticipated profitability, revenues, expenses or other financial items together with other statements that are not historical facts are "forward-looking statements" as that term is defined under the Federal Securities Law. Forward-looking statements are necessarily estimates reflecting the best judgement of the party making such statements based upon correct information and involve a number of risks, uncertainties and other factors which could cause actual results to differ materially from those stated in such statements. Risks, uncertainties and factors which could affect the accuracy of such forward looking statements are identified in the Fund's Prospectus and the Fund's Registration Statement filed by the Fund with the Securities and Exchange Commission, and forward looking statements contained herein or in other public statements of the Fund should be considered in light of those factors. There can be no assurance that factors will not affect the accuracy of such forward looking statements. -2- MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP Consolidated Balance Sheets (Dollars in thousands)

~~June~~September 30, 2001 December 31, (Unaudited) 2000 ------------------ ---------------~~---~~ Assets Current Assets Cash and cash equivalents $ 1,~~548~~976 $ 1,108 Accounts receivable, net 89,~~694~~467 8,990 Estimated third-party payor settlements ~~553~~549 843 Prepaid expenses ~~500~~577 650 ------------------ ---------------~~---~~ Total current assets 1112,~~295~~569 11,591 ------------------ ---------------~~---~~ Property and equipment, net of accumulated depreciation 32,~~446~~143 32,934 ------------------ ---------------~~---~~ Other assets Goodwill, net 4,~~364~~300 4,490 Loan acquisition costs, net ~~339~~319 383 ------------------ ---------------~~---~~ 4,~~703~~619 4,873 ------------------ ---------------~~---~~ Total assets $ 4849,~~444~~331 $ 49,398 ================== ===============~~===~~ Liabilities and Partners' Capital Current liabilities Current portion of long-term debt $ ~~452~~464 $ 397 Accrued compensation and related costs ~~474~~375 1,055 Accounts payable and other accrued expenses 4,~~353~~688 3,766 Estimated third party payor settlements 12,~~458~~050 1,328 ------------------ ---------------~~---~~ Total current liabilities 67,~~737~~577 6,546 ------------------ ---------------~~---~~ Deferred management fee payable ~~958~~969 937 Loan payable to the Development General Partner 1,~~214~~227 1,188 Long-term debt 2322,~~106~~991 23,379 ------------------ ---------------~~---~~ 25,~~278~~187 25,504 ------------------ ---------------~~---~~ Partners' capital General partners (~~152~~151) (142) Assignee limited partners; 1,540,040 units issued and outstanding 16,~~581~~718 17,490 ------------------ ---------------~~---~~ Total partners' capital 16,~~429~~567 17,348 ------------------ ---------------~~---~~ Total liabilities and partners' capital $ 4849,~~444~~331 $ 49,398 ================== ===============~~===~~

See accompanying notes to financial statements. -3- MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP Consolidated Statements of Earnings (Unaudited) (Dollars in thousands except per unit amounts)

Three Months Ended ~~Six~~Nine Months Ended ---------------------------------- ---------------------------------- ~~June~~September 30, ~~June~~September 30, ~~June~~September 30, ~~June~~September 30, 2001 2000 2001 2000 ---------------- --------------- ---------------- --------------- Revenues Medicaid and Medicare patients $ 1112,~~648~~681 $ 11,~~099~~190 $ 2335,~~267~~948 $ 2133,~~866~~057 Private patients 2,~~601~~559 2,~~619~~870 57,~~185~~744 57,~~119~~989 Investment and other income 4248 8394 90138 ~~153~~247 ---------------- --------------- ---------------- --------------- 1415,~~291~~288 1314,~~801~~154 2843,~~542~~830 2741,~~138~~293 ---------------- --------------- ---------------- --------------- Expenses Operating, including $2,~~322~~529, $12,~~988~~126, $47,~~633~~163 and $46,~~080~~206 to related parties 1112,~~716~~039 1011,~~656~~110 2335,~~435~~474 2132,~~396~~506 Management and administration fees to related parties ~~784~~838 ~~897~~917 12,~~570~~408 12,~~762~~679 General and administrative ~~239~~280 ~~277~~222 ~~473~~752 ~~497~~719 Depreciation and amortization ~~563~~558 ~~585~~544 1,~~122~~681 1,~~131~~675 Interest expense ~~606~~610 ~~500~~614 1,~~208~~817 ~~948~~1,562 ---------------- --------------- ---------------- --------------- 1314,~~908~~325 1213,~~915~~407 2742,~~808~~132 2539,~~734~~141 ---------------- --------------- ---------------- --------------- Net earnings $ ~~383~~963 $ ~~886~~747 $ ~~734~~1,698 $ 12,~~404~~152 ================ =============== ================ =============== Net earnings per unit of assignee limited partnership interest-basic (computed based on 1,540,040 units) $ 0.2562 $ 0.5748 $ 01.4709 $ 01.9038 ================ =============== ================ ===============

See accompanying notes to financial statements -4- MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP Consolidated Statements of Partners' Capital For the Nine Months Ended September 30, 2001 and 2000 (Unaudited) Dollars in thousands

Assignee General Limited Partners Partners Total --------------- ---------------- --------------- Balance at December 31, 2000 $ (142) $ 17,490 $ 17,348 Net earnings 717 ~~727~~1,681 ~~734~~1,698 Distributions to partners (1725) (12,~~636~~454) (12,~~653~~479) --------------- ---------------- --------------- Balance at ~~June~~September 30, 2001 $ (~~152~~151) $ 16,~~581~~718 $ 16,~~429~~567 =============== ================ =============== Balance at December 31, 1999 $ (132) $ 18,504 $ 18,372 Net earnings 1422 12,~~390~~130 12,~~404~~152 Distributions to partners (1725) (12,~~636~~454) (12,~~653~~479) --------------- ---------------- --------------- Balance at ~~June~~September 30, 2000 $ (135) $ 18,~~258~~180 $ 18,~~123~~045 =============== ================ ===============

See accompanying notes to financial statements -5- MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMTIED PARTNERSHIP Consolidated Statements of Cash Flows For the Nine Months Ended September 30, (Unaudited) (Dollars in thousands)

2001 2000 ----------------- ----------------- Cash flows from operating activities Net earnings $ ~~734~~1,698 $ 12,~~404~~152 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation and amortization 1,~~122~~681 1,~~131~~675 Minority interest in net earnings of operating partnerships 920 1724 Increase in loan payable to Development General Partner 2639 2639 Increase in deferred management fee payable 2132 2333 Change in other assets and liabilities Accounts receivable ~~287~~(495) (~~683~~1,039) Estimated third-party payor settlements ~~420~~1,016 ~~186~~(597) Prepaid expenses ~~150~~73 (48270) Accrued compensation and related costs (~~581~~680) (~~282~~205) Accounts payable and other accrued expenses ~~590~~922 ~~(281)~~1,343 ----------------- ----------------- Net cash provided by operating activities 24,~~778~~306 13,~~493~~155 ----------------- ----------------- Cash flows from investing activities- additions to property and equipment (~~467~~638) (~~479~~836) ----------------- ----------------- Cash flows from financing activities Deferred financing fees - (84) Loan acquisition costs - (429) Net proceeds from issuance of long-term debt - 24,000 Repayment of long-term debt (~~218~~321) (22,~~711~~733) Distributions to partners (12,~~653~~479) (12,~~653~~479) ----------------- ----------------- Net cash used in financing activities (12,~~871~~800) (~~877~~1,725) ----------------- ----------------- Net increase in cash and cash equivalents ~~440~~868 ~~137~~594 Cash and cash equivalents Beginning of period 1,108 2,511 ----------------- ----------------- End of period $ 1,~~548~~976 $ 23,~~648~~105 ================= =================

See accompanying notes to financial statements. -6- MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP Notes to Consolidated Financial Statements September 30, 2001 (Unaudited) NOTE 1 - THE FUND AND BASIS OF PREPARATION The Fund owns 98.99% limited partnership interests in each of the seven operating partnerships. The Fund, through its seven operating partnerships, derives substantially all of its revenue from extended healthcare provided to nursing center residents including room and board, nursing care, drugs and other medical services. The accompanying consolidated financial statements of Meridian Healthcare Growth and Income Fund Limited Partnership (the "Fund") do not include all of the information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America. The unaudited interim consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. All such adjustments are of a normal recurring nature. The unaudited interim financial information contained in the consolidated financial statements should be read in conjunction with the consolidated financial statements contained in the 2000 Annual Report. NOTE 2 - RELATED PARTY TRANSACTIONS On October 2, 2001, Genesis Health Ventures, Inc. (Genesis) and certain of its subsidiaries and affiliates emerged from Chapter 11 Bankruptcy protection pursuant to a plan of reorganization approved by the U.S. Bankruptcy Court in Wilmington, Delaware. Certain subsidiaries of Genesis manage the Fund's Nursing Centers, and provide the centers with drugs, medical supplies and other services. The Genesis Bankruptcy filing has had no impact on the Fund's operations, results of operations, or financial position. The Fund is obligated to pay Brown-Healthcare, Inc. (Administrative General Partner) an annual administration fee of the greater of $75,000 per year or 1/2 of 1% of the Fund's annual revenues. The nursing centers owned by the operating partnerships are managed by Meridian Healthcare, Inc., an affiliate of Meridian Healthcare Investments, Inc. (Development General Partner), under the terms of existing management agreements which provide for management fees equal to 5% in 2001 and 6% in 2000 of the annual revenues of each nursing center. Certain of the operating partnerships also purchase drugs and medical supplies and other services from affiliates of the Development General Partner. Such purchases are in turn billed to patients or third party payors at prices which on average approximate the nursing center's cost. Transactions with these related parties for the three and nine months ended September 30, 2001 and 2000 are as follows:

Three Months Ended ~~Six~~Nine Months Ended ~~June~~Sept. 30, 2001 ~~June~~Sept. 30, 2000 ~~June~~Sept. 30, 2001 ~~June~~Sept. 30, 2000 Management and administration fees $ ~~785~~838,000 $ ~~897~~917,000 $12,~~570~~408,000 $12,~~762~~679,000 Drug and medical supplies purchases 1,~~013~~095,000 ~~835~~898,000 23,~~096~~191,000 12,~~722~~621,000 Nursing and rehabilitation services 1,~~309~~434,000 1,~~153~~228,000 23,~~537~~972,000 23,~~358~~585,000 Interest expense on borrowings 2224,000 2423,000 4367,000 4872,000

The Development General Partner loaned the Fund $597,000, as required by the Cash Flow Deficit Guaranty Agreement, to support the operating deficits generated by the Moorsesville, Salisbury and Woodlands nursing centers during each center's first two years of operations subsequent to the Fund's acquisition of partnership interests. Loans outstanding under an arrangement, including accumulated interest from inception of the loan at 9% per annum, were $1,227,000 at September 30, 2001 and $1,188,000 at December 31, 2000. The Fund is obligated to repay these loans when certain specified financial criteria are met, the most significant of which is the payment of a preferred return to the assignee limited partners as defined in the Fund's partnership agreement. -7- MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP Notes to Consolidated Financial Statements September 30, 2001 (Unaudited) NOTE 3 - DEBT The Fund closed its mortgage loan refinancing with a new bank for loans totaling $24,000,000 on June 12, 2000. The renewal terms became effective on June 12, 2000 and provide for a term of five years at an interest rate of 9.75%. Monthly payments of $229,886 are based on a 25-year amortization schedule with a balloon payment due at the end of the 5-year term. Prior to the effective date of the new loan terms on June 12, 2000, the mortgage loans bore interest at LIBOR plus 1.55%. The Fund also replaced its $4,000,000 line of credit facility with the same lender under the terms similar to the mortgage loan terms above. NOTE 4 - NET EARNINGS PER UNIT OF ASSIGNEE LIMITED PARTNERSHIP INTEREST Net earnings per unit of assignee limited partnership interest is disclosed on the Consolidated Statements of Operations and is based upon 1,540,040 units. -8- MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources The Fund closed its mortgage loan refinancing with a new bank for loans totaling $24,000,000 on June 12, 2000. The renewal terms became effective on June 12, 2000 and provide for a term of five years at an interest rate of 9.75%. Monthly payments are based on a 25-year amortization schedule with a balloon payment due at the end of the 5-year term. The Fund also replaced its $4,000,000 line of credit facility with the same lender under terms similar to the mortgage loan term described above. The Fund's working capital (excluding the current portion of long-term debt) increased $446,000 to $5,456,000 at September 30, 2001 as compared to $5,010,000 at June 30, 2001. The Fund has sufficient liquid assets and other available credit resources to satisfy its operating expenditures and anticipated routine capital improvements at each of the seven nursing home facilities. Cash flow from operating activities was $4,306,000 for the nine-month period ended September 30, 2001 as compared to $3,155,000 for the same period of 2000. Cash used from investing activities for the nine-month period ended September 30, 2001 was $638,000 and included improvements to the Fund's seven operating facilities. Similar improvements made during the first nine months of 2000 were $836,000. The Fund believes that the short-term liquidity needs will be met through expected cash flow from operations and available working capital from the existing line of credit. Between 1988 and 1989 the Development General Partner loaned the Fund $597,000 to support operating deficits generated by the Mooresville, Salisbury and Woodlands nursing centers during each centers' first two years of operation. Loans outstanding under this arrangement, including interest at 9% per annum, were $1,227,000 at September 30, 2001. On November 15, 2001 the Fund will make its third quarter 2001 distribution to partners of $826,410. This distribution will be fully funded by third quarter operations. Based upon a review of the remainder of the 2001 budget, we expect that operations from the seven nursing centers will be sufficient to fund a similar distribution during the fourth quarter. Preliminary discussions regarding 2002 operations would indicate a similar quarterly distribution policy next year. The major challenge to the Fund in the foreseeable future is to control operating expenses, to maintain a quality mix of patients and to increase the overall census at each of the facilities. Results of Operations Three Months Ended September 30,2001 versus Three Months Ended September 30,2000 Net earnings for the Fund were $963,000 for the three months ended September 30, 2001 as compared to $747,000 for the same period in fiscal year 2000. The increase in earnings is primarily due to increased revenues for Medicaid and Medicare patients. Overall revenues of $15,288,000 increased $1,134,000 or 8.0% for the three months ended September 30, 2001 compared to the same period in fiscal year 2000. The increase in revenue is primarily due to an increase in revenues from Medicaid and Medicare patients of $1,491,000, which was partially offset by a decrease in Private Patient and investment and other income revenue. Medicaid revenue increased $573,000 and Medicare revenue increased $918,000 for the three months ended September 30, 2001 compared to the same period in the prior year. The growth in Medicaid revenue is primarily due to an overall Medicaid rate increase of approximately 6.8% driven primarily by the four Maryland -9- MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP Management's Discussion and Analysis of Financial Condition and Results of Operations Results of operations (continued) centers, which received their annual Medicaid rate adjustment in July 2001. The Medicare increase in revenue is primarily due to a rate increase of 4.6% and an increase in the average daily Medicare census of 18.2% or 21.9 customers. Private Patient revenue decreased $311,000 due to a decrease in Private and Insurance customers. Investment and other income decreased $46,000 in the third quarter of 2001 as compared to the same period in fiscal year 2000 due primarily to a decrease in interest income. Third quarter 2001 expenses of $14,325,000 increased $918,000 or 6.8% from the three months ended September 30, 2000. Operating expenses increased $929,000 or 8.4% in the third quarter of 2001 as compared to the same period in fiscal year 2000. This increase is primarily due to the increased cost of nursing services and ancillary costs. Nursing costs increased $499,000 for the three months ended September 30, 2001 as compared to the same period in fiscal year 2000. This increase is primarily due to increases in salary, wages, employee benefits, and an increase in the utilization of temporary nurse staffing, which is being driven by the strong market demand for nursing personnel. Salary, wage, and benefits expense for nurses increased $339,000 and temporary nurse staffing expense increased $160,000 for the three months ended September 30, 2001 compared to the same period in fiscal year 2000. Third quarter ancillary expenses increased $202,000 or 11.7% for the three months ended September 30, 2001 as compared to the same period in fiscal year 2000. This increase is primarily due to higher ancillary utilization and the increased utilization of Medicare Part B ancillary services. The remaining increase in operating costs is due to general inflationary cost increases. Management and administrative fees of $838,000 decreased $79,000 or approximately 8.6% for the third quarter 2001 compared to the same period in fiscal year 2000. This decrease is due to an amendment to the management agreement effective January 1, 2001, which reduced the management fee from 6% to 5% of net patient service revenue. Nine Months Ended September 30, 2001 versus Nine Months Ended September 30, 2000 Net earnings for the Fund were $1,698,000 for the nine months ended September 30, 2001 as compared to $2,152,000 for the same period in fiscal year 2000, representing a decrease of $454,000 or 21.1%. The decrease in earnings is primarily due to increased operating costs of the Fund and an increase in interest expense due to refinancing, which took place in June 2000. Overall revenues of $43,830,000 increased $2,537,000 or 6.1% for the nine months ended September 30, 2001 as compared to the same period in fiscal year 2000. This increase in revenue is primarily due to increases in revenue from Medicaid and Medicare patients. Medicaid and Medicare revenue increased $2,891,000 to $35,948,000 for the nine month period ended September 30, 2001 compared to the same period in 2000. Medicaid revenue for the nine months ended September 30, 2001 increased $1,548,000 compared to the same period in the prior year. This increase is primarily due to an overall Medicaid rate increase of approximately 8.3% driven primarily by the four Maryland centers, which received their annual Medicaid rate adjustment in July 2001. Medicare revenue increased $1,343,000 or 12.2% for the nine month period ended September 30, 2001 compared to the same period in fiscal year 2000. The increase in Medicare revenue is primarily due to an increase in the Medicare census and the increased utilization of Medicare Part B services. The Medicare average daily census increased by 9.2 customers or 7.1% for the nine months ended September 30, 2001 compared to the nine months ended September 30, 2000. Medicare Part B revenue increased $212,376 or 45.6% due to an increase in Part B utilization. Investment and other income decreased $109,000 for the nine months ended September 30, 2001 compared to the same period in fiscal year 2000 due primarily to a decrease in interest income. Overall expenses increased $2,991,000 or 7.6% to $42,132,000 for the nine months ended September 30, 2001 as compared to $39,141,000 for the same period in fiscal year 2000. -10- MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP Management's Discussion and Analysis of Financial Condition and Results of Operations Results of operations (continued) Operating expenses increased $2,968,000 or 9.1% to $35,474,000 for the nine months ended September 30, 2001 as compared to the same period in fiscal year 2000. This increase is primarily due to the increased cost of nursing services and ancillary costs. Nursing costs increased $1,628,000 for the nine months ended September 30, 2001 as compared to the same period in fiscal year 2000. This increase is primarily due to increases in salary, wages, employee benefits, and an increase in the utilization of temporary nurse staffing, which is being driven by the strong market demand for nursing personnel. Salary, wage, and benefits expense for nurses increased $1,228,000,and temporary nurse staffing expense increased $400,000 for the nine months ended September 30, 2001 compared to the same period in fiscal year 2000. Ancillary expenses increased $559,000 or 10.8% for the nine months ended September 30, 2001 compared to the same period in fiscal year 2000. This increase is primarily due to the increase in Medicare census and the increase utilization of Part B ancillary services. The remaining increase in operating costs is due to general inflationary cost increases. Management and administrative fees of $2,408,000 decreased $271,000 or approximately 10.1% for the nine months ended September 30, 2001 compared to the same period in fiscal year 2000. This decrease is due to an amendment to the management agreement effective January 1, 2001, which reduced the management fee from 6% to 5% of net patient service revenue. Interest expense for the nine months ended September 30, 2001 increased $255,000 compared to the same period in fiscal year 2000. This increase is due to refinancing of the mortgage increasing the beginning principal balance to $24,000,000 at an interest rate of 9.75% effective June 12, 2000. Legislative and Regulatory Issues Legislative and regulatory action has resulted in continuing changes in the Medicare and Medicaid reimbursement programs. The changes have limited, and are expected to continue to limit, payment increases under these programs. Also, the timing of payments made under the Medicare and Medicaid programs is subject to regulatory action and governmental budgetary constraints; in recent years the time period between submission of claims and payment has increased. Within the statutory framework of the Medicare and Medicaid programs, there are substantial areas subject to administrative rulings and interpretations which may further affect payments made under those programs. Further, the federal and state governments may reduce the funds available under those programs in the future or require more stringent utilization and quality review of eldercare centers of other providers. There can be no assurances that adjustments from Medicare of Medicaid audits will not have a material adverse effect on the Fund. On December 15, 2000, Congress passed the Benefit Improvement and Protection Act of 2000 that, among other provisions, increases the nursing component of Federal PPS rates by approximately 16.7% for the period from April 1, 2001 through September 30, 2002. Recently Issued Accounting Pronouncements In July 2001, the FASB issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. Statement 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill, noting that any purchase price allocable to an assembled workforce may not be accounted for separately. Statement 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 will also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment. -11- MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP Management's Discussion and Analysis of Financial Condition and Results of Operations Recently Issued Accounting Pronouncements (continued) The Company is required to adopt the provisions of Statement 141 immediately, except with regard to business combinations initiated prior to July 1, 2001, and Statement 142 effective January 1, 2002. Furthermore, any goodwill and any intangible asset determined to have an indefinite useful life that are acquired in a purchase business combination completed after June 30, 2001 will not be amortized, but will continue to be evaluated for impairment in accordance with the appropriate pre-Statement 142 accounting literature. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 will continue to be amortized prior to the adoption of Statement 142. As of the date of adoption, the Partnership expects to have unamortized goodwill in the amount of $4,237,000 which will be subject to the transition provisions of statement 142. Amortization expense related to goodwill was $63,000 and $63,000 for the three-month periods ended September 30, 2001 and 2000 respectively. Amortization expense related to goodwill was $190,000 and $190,000 for the nine-month period ended September 30, 2001 and 2000, respectively. FASB Statement No. 143, Accounting for Asset Retirement Obligations (Statement No. 143), which was released in August 2001, addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and for the associated asset retirement costs. Statement No. 143 requires an enterprise to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and or normal use of the assets. The enterprise also is to record a corresponding increase to the carrying amount of the related long-lived asset (i.e., the associated asset retirement costs) and to depreciate that cost over the life of the asset. The liability is changed at the end of each period to reflect the passage of time (i.e., accretion expense) and changes in the estimated future cash flows underlying the initial fair value measurement. Because of the extensive use of estimates, most enterprises will record a gain or loss when they settle the obligation. The Company is required to adopt Statement No. 143 for its fiscal year beginning January 1, 2003. On October 3, 2001, the Financial Accounting Standards Board issued FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (Statement No. 144), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While Statement No. 144 supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, it retains many of the fundamental provisions of that Statement. Statement No. 144 also supersedes the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. However, it retains the requirement in Opinion 30 to report separately discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. Statement No. 144 is effective for the Company for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. -12- MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP PART I. FINANCIAL INFORMATION Item 3. Quantitative and Qualitative Disclosures About Market Risk The Fund has exposure to changing interest rates and is currently not engaged in hedging activities. Interest on the Fund's 23.5 million mortgage is at a fixed rate of 9.75%. PART II. OTHER INFORMATION Item 1. Legal Proceedings Inapplicable Item 2. Changes in Securities and Use of Proceeds Inapplicable Item 3. Defaults upon Senior Securities Inapplicable Item 4. Submission of Matters to a Vote of Security Holders Inapplicable Item 5. Other Information Inapplicable Item 6. Exhibits and Reports on Form 8-K a) Reports on Form 8-K: None -13- MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP DATE: 11/14/01 By: /s/ John M. Prugh John M. Prugh President and Director Brown-Healthcare, Inc. Administrative General Partner DATE: 11/14/01 By: /s/ Timothy M. Gisriel Timothy M. Gisriel Treasurer Brown-Healthcare, Inc. Administrative General Partner -14-

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