-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BzbisR/9MmosKbeyQZLJ82tE9CgqSZ5GMaNNUrSzTnaF3jjOvVa+gYbKFzMoUcBl T9kqFeha6pAURzQnDI78eg== 0000950144-97-003411.txt : 19970401 0000950144-97-003411.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950144-97-003411 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDICAL INCOME PROPERTIES 2A LTD PARTNERSHIP CENTRAL INDEX KEY: 0000814433 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 592724921 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 033-06122-01 FILM NUMBER: 97569151 BUSINESS ADDRESS: STREET 1: 7000 CENTRAL PKWY STE 850 CITY: ATLANTA STATE: GA ZIP: 30328 BUSINESS PHONE: 4046681080 MAIL ADDRESS: STREET 1: 7000 CENTRAL PARKWAY STREET 2: SUITE 850 CITY: ATLANTA STATE: GA ZIP: 30328 FORMER COMPANY: FORMER CONFORMED NAME: MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP DATE OF NAME CHANGE: 19900802 10-K 1 MIP 2A LTD PARTNERSHIP 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15 (d) of the Securities and Exchange Act of 1934 For the Fiscal Year Ended Commission File Number December 31, 1996 33-6122-01 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP (Exact Name of Registrant as Specified in its Charter) Delaware 59-2724921 (State of Organization) IRS Employer Identification Number) 7000 Central Parkway, Suite 850 Atlanta, GA 30328 (Address of Principal Executive Office) (770) 668-1080 Registrant's Telephone Number, Including Area Code Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange Title of Each Class on Which Registered ------------------- --------------------- LIMITED PARTNERSHIP UNITS NONE
Indicate by check 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 ---- ---- Aggregate market value of the voting stock held by non-affiliates of the Registrant is not applicable. The number of limited partnership units outstanding on February 27, 1997 was 18,639. The Prospectus of the Registrant dated October 22, 1986, filed pursuant to Rule 424 (b) under the Securities Act of 1933 is incorporated by reference, to the extent indicated in Part III of this report. 2 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP INDEX TO ANNUAL REPORT ON FORM 10-K
Page PART I Item 1: Business 1 Item 2: Properties 3 Item 3: Legal Proceedings 3 Item 4: Submission of Matters to a Vote of Security Holders 3 PART II Item 5: Market for the Registrant's Common Equity and Related Stockholder Matters 4 Item 6: Selected Financial Data 4 Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations 5 Item 8: Financial Statements and Supplementary Data 8 Item 9: Disagreements on Accounting and Financial Disclosure 8 PART III Item 10: Directors and Executive Officers of the Registrant 8 Item 11: Executive Compensation 9 Item 12: Security Ownership of Certain Beneficial Owners and Management 9 Item 13: Certain Relationships and Related Transactions 9 PART IV Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K 9 Signatures 11
3 PART I ITEM 1. BUSINESS General Medical Income Properties 2A Limited Partnership (the Partnership), is a Delaware limited partnership which was organized on May 14, 1986. The Partnership is one of a series of three limited partnerships as represented by the registration statement filed with the Securities and Exchange Commission on October 22, 1986 (the Effective Date), providing for the sale of $10,000,000 of limited partnership units (the Units), with an option to increase the offering by an additional $10,000,000. The offering closed on June 2, 1987, upon the sale of 18,639 units for an aggregate purchase price of $18,639,000. The purpose of the Partnership is to engage in the business of acquiring and holding for investment income-producing health care related properties, primarily nursing homes, and operating such properties as skilled and intermediate care nursing homes. As of December 31, 1996, the Partnership owned a 100% interest of four nursing homes, a 54.55% interest in a nursing home in Decatur, Alabama and a 50% interest in two joint venture nursing homes in the Houston, Texas area. The Partnership employed approximately 502 employees as of February 12, 1997. Business Strategy The Partnership intends to hold its real property investments until such time as a sale or other disposition appears to be advantageous. Such factors as potential capital appreciation, industry trends, cash flow and federal income tax consequences to the Limited Partners will be considered before Partnership property dispositions are made. The Partnership (the "Partnership") has entered into an asset Purchase and Sale Agreement effective as of February 3, 1997 (the "Sale Agreement"), by and among the Partnership, Qualicorp Management, Inc., the managing general partner of the Partnership, and Omega Healthcare Investors, Inc. ("Omega"). The Sale Agreement calls for the sale to Omega of the Partnership's interests in its facilities, and the personal property and intangible assets related to the operation of these facilities. The description of the Sale Agreement set forth herein does not purport to be complete and is qualified in its entirely by the provisions of the Sale Agreement, filed as an exhibit to the Company's Current Report on Form 8-K dated February 18, 1997, and as Appendix A to the Partnership's Consent Solicitation Statement filed March 12, 1997. Under the Sale Agreement, the Partnership will receive total sales consideration of $12,377,275, which will be reduced by accrued expenses of approximately $325,207 for vacation pay, sick pay, taxes and trust fund obligations as provided in the Sale Agreement, by approximately $1,741,052 of closing costs, brokerage fees, third party settlements and other obligations, and by approximately $1,898,867 for the payment of debt, resulting in estimated net proceeds from the sale of $8,412,149. These estimated net proceeds will be augmented by estimated current assets in excess of current liabilities of approximately $1,629,269 which will increase the total amount estimated to be available for distribution to approximately $10,041,418, which will be distributed to the Partnership's limited partners (the "Limited Partners") in three installments as follows: 1. First Installment. The Limited Partners will receive a check in the amount of $725 per unit, payable within 30 business days of the closing and surrender of Partnership certificates (an anticipated aggregate distribution to all of the Limited Partners of $7,909,761); 2. Second Installment. A second distribution of approximately $153 per unit is anticipated to be made within one year of the closing. This distribution is primarily attributable to the collection of accounts receivable in the period subsequent to the closing less the payment of accounts payable and other liabilities (an anticipated aggregate distribution to all of the Limited Partners of $1,668,632); and 3. Final Installments. A final distribution of up to $43 per unit is anticipated to be made following the expiration of the Partnership's representations and warranties to Omega and any additional period required to finally resolve any claims for indemnification against the Partnership brought prior to the termination of such period (an anticipated aggregate distribution to all of the Limited Partners of $463,025). 1 4 The closing of the Sale Agreement is subject to a number of conditions, as outlined in the Sale Agreement, including the approval of the Sale Agreement by the Limited Partners and the closing of facility acquisition agreements between Omega and three other affiliated partnerships. The approval of one of the partnerships has already been obtained and the consents of the other partnerships, including the Limited Partners, are being solicited. Long Term Care Industry The long term care industry is composed of many facilities offering services to subacute, skilled, assisted living, and personal care residents. The Partnership's nursing homes are considered to be in the skilled segment of the industry, although several of its homes offer subacute services. Historically, nursing homes have derived their revenues from Medicare, Medicaid and private pay patients. In the past few years, the industry has seen an increase in private insurance patients and to a greater extent, contractual services from Health Maintenance Organizations (HMO's) and Preferred Provider Organizations (PPO's). The industry has always faced a challenge in staffing facilities, particularly with regard to Registered Nurses, Licensed Practical Nurses and Certified Nurse Aides. Depending upon the geographic area, the Partnership competes with hotels, motels and restaurants for other employees, including dietary and housekeeping staff. The Partnership owns nursing facilities in the States of Illinois, Texas, and Alabama. Each state reimburses nursing facilities on a prospective basis, although Alabama is the only state which bases reimbursement on the nursing facilities' actual cost. Texas and Illinois use average cost derived from all filed cost reports. Texas reimburses nursing facilities on a patient specific need called Texas Index of Level of Effort (TILE). Illinois pays nursing facilities based upon different cost parameters, including paying additional incentives based on facility services provided. Approximately fifty percent of the Partnership's operating costs consist of employee salaries and benefits. In 1995 a federal law was passed which increased the minimum wage level to $4.75 per hour in 1996 and to $5.15 per hour in 1997. Management of the Partnership has already responded to these increases, and to a corresponding "ripple effect" for wages of employees paid above the new minimum wage by increasing wages accordingly. To date, the State of Alabama has increased its reimbursement rates to reimburse actual expenses due to the 1996 minimum wage increase to $4.75. The States of Illinois and Texas have recently increased their reimbursement rates, but these increases were not related to, and do not reimburse providers for, the 1996 minimum wage increase. None of these states are committed to reimbursing nursing home expenses due to the 1997 increases in the minimum wage to $5.15 per hour, and there is considerable doubt as to whether such increases will be forthcoming. The federal government has been discussing changes in Medicare and Medicaid as it looks for ways to downsize government. The Medicaid program could be impacted through block grants or level funding programs which would cap federal funding. If federal funding were capped, and states wished to retain the current level of services, significant additional funding would be required, particularly if the Omnibus Budget Reconciliation Act regulations were not repealed. The Medicare program is being examined by the federal government for possible changes, including the implementation of cost limits on ancillary services (such as therapy programs, equipment and diagnostic services), capital cost reductions, a continued freeze of the routine cost limits and perhaps a prospective payment system. The potential impact of such changes, either alone or in combination, cannot be determined at this time. Information regarding industry segments is not applicable to the Partnership's business. Seasonality The Partnership's revenue and operating income fluctuate from quarter to quarter and tend to be higher in the first and second quarter of each fiscal year. This seasonality is due primarily to the state Medicaid programs in which the Partnership operates, rate increases and census cycles. 2 5 SERVICES PROVIDED Routine Services All of the nursing facilities operated by the Partnership are licensed as skilled care facilities by the appropriate regulatory agencies. Routine services include the provision of skilled care services and assistance with activities of daily living, depending upon the needs of each resident. Skilled nursing care is rendered 24 hours per day by registered or licensed nurses and nurses aides. Ancillary Services The Partnership provides a variety of rehabilitative services at its facilities for residents. These services include physical, speech, occupational, and respiratory therapy programs. The Partnership continues to expand these services as warranted by the needs of its residents and the requirements of third-party payor programs. ITEM 2. PROPERTIES As of December 31, 1996, the following properties were owned by the Partnership:
Date of No. of Average Daily Census Property Acquisition Beds Description 1996 1995 1994 1993 1992 -------- ----------- ---- ----------- ---- ---- ---- ---- ---- Muscle Shoals, AL. 9/1/87 90 Nursing home 83 84 84 82 82 Shoals, AL. 9/1/87 103 Nursing home 98 99 100 100 100 Oak Crest, AL. 9/1/87 109 Nursing home 94 94 95 98 100 University Manor , IL. 3/1/88 120 Nursing home 108 107 106 109 116 Medical Park 7/1/88 183 Nursing home 174 170 175 178 179 Decatur, AL. (54.55% Interest)
In addition, the Partnership has invested in a joint venture consisting of two nursing homes with Medical Income Properties 2B Limited Partnership:
Date of Owner- Acqui- No. of ship Avg. Daily Census Property sition Beds Description % 1996 1995 1994 1993 1992 -------- ------ ---- ----------- - ---- ---- ---- ---- ---- Renaissance Place-Katy, TX. 5/1/88 130 Nursing home 50% 117 121 112 118 116 Renaissance Place-Humble, TX. 5/1/88 120 Nursing home 50% 115 116 115 113 113
A description of the Partnership's purchase of its properties is disclosed in Notes 1(f), 2, 4, 5, 6 and 14 of the Notes to Financial Statements. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal actions against the Partnership. As noted in the financial statements Note 10, however, the Partnership does have certain contingent liabilities. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 3 6 PART II ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS AND RELATED SECURITY HOLDER MATTERS There is no established public trading market for the Partnership Units. There were 1,571 limited partners as of February 27, 1997. Distributions paid per limited partner unit for each quarter in the last five years are incorporated by reference from Item 6 below. ITEM 6. SELECTED FINANCIAL DATA Selected financial data for the period January 1, 1992 to December 31, 1996 is shown below: (000's omitted except for per share data and distributions)
1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Summary of Operations: Total Revenue $20,824 19,050 17,906 16,607 16,037 Operating Income $ 2,233 1,941 1,994 2,624 2,373 Net Income $ 1,699 1,184 1,206 1,651 1,300 Per Share Data: Net Income per Limited Partner Unit $ 84.76 59.09 60.20 82.36 64.87 Financial Condition: Total Assets $25,543 25,186 24,703 24,479 23,612 Bonds, Notes and Capitalized Lease Obligations $ 3,902 4,241 4,584 4,951 4,977 Partners' Capital $16,754 16,260 16,233 16,218 15,319 Distributions per Limited Partner Unit: First Quarter $ 15.00 15.00 12.50 8.75 5.00 Second Quarter $ 15.00 15.00 15.00 8.75 6.25 Third Quarter $ 15.00 15.00 15.00 10.00 6.25 Fourth Quarter $ 15.00 15.00 15.00 10.00 7.50
Quarterly Financial data for the period January 1, 1994 to December 31, 1996: (000's omitted)
1996 --------------------------------------- 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. -------- -------- -------- -------- Total Revenue $5,080 $5,051 $5,082 $5,611 Income from Operations 580 532 522 599 Net Income 435 325 457 482
1995 --------------------------------------- 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. -------- -------- -------- -------- Total Revenue $4,881 $4,841 $4,967 $4,361 Income from Operations 747 606 527 61 Net Income (Loss) 591 495 402 (304)
1994 --------------------------------------- 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. -------- -------- -------- -------- Total Revenue $4,302 $4,412 $4,488 $4,704 Income from Operations 641 496 476 381 Net Income 425 271 380 130
4 7 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Reserves Cash and cash equivalents balances and marketable securities totaled $3,984,054 at December 31, 1996, an increase of $932,898 from December 31, 1995. Accounts receivable balances decreased during the same time frame $444,215 due to improved collection efforts directed toward Medicare, Medicaid and private payors. In addition, more timely Medicaid reimbursement from the State of Illinois decreased receivables $131,000 between years. Net cash from operations increased to $2,598,898 in 1996 compared to $1,914,160 in 1995. Cash paid to suppliers and employees, while increasing $1,865,395, reflected higher salaries and wages paid and increased ancillary services provided by contract services. The Partnership spent $360,089 on capital expenditures during 1996 and expects to spend approximately the same amount in 1997. During the year, the Partnership let lapse the Certificate of Need to construct a fourteen (14) bed addition to its Shoals nursing home which it had intended to finance from existing cash balances. In 1996, the Partnership paid regular distributions to its limited partners of $60 per unit. This distribution equaled a 6% return on the initial investment of $1,000 per unit. Although the Partnership expects to make distributions to its limited partners based upon cash flow generated from operations, after considering cash required for debt obligations, necessary improvements to its properties and working capital reserves, no assurances can be given that distributions will be made in the future. The Partnership has a $500,000 line of credit available to it should the need arise. At the present time, the Managing General Partner believes the Partnership has adequate working capital and does not believe it will be necessary to borrow additional funds. Results of Operations Fiscal Year 1996 Compared to 1995 Net income for the year ended December 31, 1996 was $1,698,843 compared to $1,184,339 for the year ended December 31, 1995. Total revenue increased to $20,824,455 during the year, an increase of $1,774,778 over 1995. This increase was the result of improved routine service rates and the facilities' continued efforts to provide increased ancillary services, particularly therapy services, to its residents. The operating costs of the Partnership increased to $18,591,372 during the year. Operating expenses for 1995 totaled $17,108,449. Professional care of patient costs by year are:
1996 1995 ---- ---- Salaries and Wages $ 5,833,050 $ 5,515,416 Supplies and Pharmaceuticals 837,089 740,854 Ancillary Service Expense 2,899,359 2,160,552 Social Service and Activities 336,707 320,187 Medical Records 80,341 65,715 Temporary Labor -- 46,869 Other Expenses 361,291 356,192 ---------- --------- 10,347,837 9,205,785 ========== =========
Dietary expenses increased during the year approximately 3% while Household and Plant Expenditures increased $8,889 over 1995 levels. 5 8 General and Administrative expenses by year are:
1996 1995 ---- ---- Salaries and Wages $ 510,373 $ 502,629 Supplies 53,357 54,296 Insurance 585,444 595,983 Management Fees 988,841 950,808 Property Management Fees 235,223 -- Cost Reimbursement 144,527 136,679 Property Tax 68,773 69,709 Accounting and Auditing 225,425 185,395 Telephone 51,654 52,921 Travel 42,918 43,577 Other Expenses 262,598 298,764 ---------- ---------- $3,169,133 $2,890,731 ========== ==========
Insurance costs continued to decline due to improved controls on programs, particularly workers compensation programs, in the Alabama facilities. The Partnership paid to Qualicorp a property management fee of $235,223 for services provided to the Partnership in 1996. Accounting and Audit expense increased $40,030 in 1996 over 1995 due to cost report preparation expenses and increased audit costs. Employee health and welfare costs increased in 1996 over 1995 due to higher employment taxes offset by lower than expected health insurance costs. Other income (expenses) for 1996 over 1995 reflected higher interest income earned on investment funds, lower interest rates charged on debt obligations and substantially higher earnings from two Texas properties which increased the Partnership's share of joint venture income by $177,356. Fiscal Year 1995 Compared to 1994 Net income for the year was $1,184,339, compared to $1,206,438 in 1994. Revenue from patient services increased to $19,017,058 during the year, an increase of 6% over the prior year. The cost of nursing care, including ancillary services rose $965,000 between years due to higher labor costs, ancillary services and supply costs. Temporary labor costs declined $134,000 from the prior year level. Professional care of patients costs by year are:
1995 1994 ---- ---- Salaries and Wages $5,515,416 $5,114,186 Supplies and Pharmaceuticals 740,854 611,700 Ancillary Services Expense 2,160,552 1,661,797 Social Service and Activities 320,187 310,435 Medical Records 65,715 62,918 Temporary Labor 46,869 180,950 Other Expenses 356,192 298,801 ---------- ---------- $9,205,785 $8,240,787 ========== ==========
Dietary expenses rose $52,334 due to increased food and supply costs while Household and Plant costs increased $97,124, primarily due to higher labor, supplies and utilities expenses. 6 9 General and Administrative expenses by year are: Salaries and Wages $ 502,629 $ 453,807 Supplies 54,296 50,556 Insurance 595,953 665,557 Management Fees 950,808 914,238 Cost Reimbursement 136,679 147,110 Property Tax 69,709 55,586 Accounting and Auditing 185,395 184,757 Telephone 52,921 45,568 Travel 43,577 52,404 Other Expenses 298,764 229,196 ---------- ---------- $2,890,731 $2,798,779 ========== ==========
Insurance costs continue to decline due to improved controls on the workers compensation programs in the State of Alabama. Total other income/expenses totaled $756,889 for the year, a $31,065 improvement over the prior year. The earnings of the two Texas properties were substantially higher than the previous year, therefore increasing the Partnership share of joint venture income by $152,754. The minority interest arising from the operation of the Medical Park facility reflects improved earnings at that facility due to ancillary services utilization. Fiscal Year 1994 Compared to 1993 Net income for the year ended December 31, 1994 was $1,206,438, compared to $1,650,574 for 1993. This decline in earnings was due to sharply higher operating expenses for the care of patients which could not be reflected in increased rates in the current year. These expenditures should be reflected in higher patient care rates in future periods. Professional care of patient costs by year are:
1994 1993 ---- ---- Salaries and Wages $5,114,186 $4,461,047 Supplies and Pharmaceuticals 611,700 478,020 Ancillary Service Expense 1,661,797 897,741 Social Service and Activities 310,435 285,804 Medical Records 62,918 54,084 Temporary Labor 180,950 93,344 Other Expenses 298,801 242,756 ---------- ---------- $8,240,787 $6,512,796 ========== ==========
Ancillary services include physical, occupational, and speech therapy programs that allow patients to have an improved quality of life and, in some cases, to be discharged to their homes. Expenses for salaries and wages include the cost of several new nursing positions which were added in response to the many regulatory changes being implemented by the various state and federal agencies. In addition, vacation pay was allocated to each department in 1994 instead of being included in Employee Health and Welfare accounts, as it was in previous years. A recap of General and Administrative expenses include:
1994 1993 ---- ---- Salaries and Wages $ 453,807 $ 409,137 Supplies 50,556 41,104 Insurance 665,557 751,997 Management Fees 914,238 864,674 Cost Reimbursement 147,110 137,579 Property Tax 55,586 79,569 Audit and Accounting 184,757 153,545 Telephone 45,568 42,377 Travel 52,404 36,944 Other Expenses 229,196 177,747 ---------- ---------- $2,798,779 $2,694,653 ========== ==========
7 10 The decrease in insurance costs was due to improved controls on the workers compensation insurance programs, particularly in the State of Alabama. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data required by Regulation S-X are included in this Form 10-K commencing on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes of auditors for the Partnership during the fiscal years 1996 and 1995. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Partnership has no directors or executive officers. QualiCorp Management, Inc. (QMI), a Delaware corporation, is the Managing General Partner of the Partnership. The directors and executive officers of QMI as of December 31, 1996 are listed below. Directors serve for one year or until the next annual meeting of stockholders of QMI or until their successors are elected and qualified. QMI is a wholly-owned subsidiary of QualiCorp, Inc., a Louisiana corporation. The directors and executive officers of QualiCorp, Inc. are also listed below. The relationship of the Managing General Partner to its Affiliates is described under the caption "Conflicts of Interest" on pages 38 through 42 of the Prospectus, which pages are specifically incorporated by reference herein. The directors and executive officers of QMI and QualiCorp, Inc. are as follows:
Name Age Positions and Recent Principal Occupations ---- --- ------------------------------------------ John M. DeBlois 60 Chairman of the Board since 1981. Chairman of the Board of Qualicare, Inc., a hospital management company, from the mid 1970's to 1983. John H. Stoddard 54 President and Chief Financial Officer since July 1, 1988. Senior Vice President of Safecare Health Services, Inc., a health care management company, from September 1, 1985 to March 1988. From May 1983 to August 1985, Treasurer, Continental Health Services, a health care management company. Prior to May 1983, was Vice President - Finance with Qualicare, Inc. Wanda J. Honea 39 Vice President - Investor Services from May 1990. Office relocation consultant from October 1989 through April 1990. From October 1988 to October 1990, Office Administrator for Hunton & Williams, a law firm. Prior to 1988, administrative assistant at Hansell & Post.
8 11 Mr. DeBlois and Mr. Stoddard are Directors of QMI and Qualicorp, Inc. There are no family relationships among any of the above officers and/or directors. ITEM 11. EXECUTIVE COMPENSATION The Partnership has no officers or directors. No director or officer of the Managing General Partner received any remuneration from the Partnership during the three years ended December 31, 1996. The Partnership paid to Qualicorp, Inc., the parent of QMI, the Managing General Partner, $144,527 as reimbursement for administrative expenses (primarily salaries) incurred during the year. Qualicorp, Inc. also charged the Partnership $235,223 in 1996 for property management fees. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT No person or group is known by the Partnership to own beneficially more than 5% of the outstanding Units of the Partnership. No executive officers or directors of QMI owned any Units in the Partnership at December 31, 1996. Qualicorp, Inc., parent of QMI, the Partnership's Managing General Partner, held 42 units in the Partnership at December 31, 1996. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS For the five years ended December 31, 1996, QualiCorp, Inc., the parent of QMI, charged the Partnership for administrative services $144,527, $136,679, $147,110, $137,579, and $114,791. In addition, Qualicorp, Inc. also charged the Partnership $235,223 in 1996 for property management fees. Under the Partnership Agreement, the General Partners are entitled to participate in distributions of the Partnership's Cash Flow as described under the caption "Management Compensation" at pages 32 through 36 of the Prospectus. Cash distributions of $84,175, $84,175, $80,671, $52,606, and $35,074, were made to the General Partners during 1996, 1995, 1994, 1993, and 1992, respectively. The General Partners also share in the Partnership's net profits and net losses. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1. Financial statements and supplementary information appear on a separate section of this Form 10-K commencing on pages referenced below: MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
Page ---- Independent Auditor's Report F-1 Financial Statements Balance Sheets F-2 Statements of Operations F-3 Statements of Partners' Capital F-4 Statements of Cash Flows F-5 Notes to Financial Statements F-7
9 12 Information Accompanying the Basic Financial Statements Independent Auditor's Report on Additional Information F-20 Schedule VIII - Valuation and Qualifying Accounts and Reserves for Allowances for Doubtful Accounts F-21 Schedule X - Consolidated Supplementary Income Statement Information F-22 Schedule XI - Real Estate and Accumulated Depreciation F-23
All schedules other than those indicated have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. THE TEXAS JOINT VENTURE
Page ---- Independent Auditor's Report F-24 Financial Statements Balance Sheets F-25 Statements of Operations F-26 Statements of Partners' Capital F-27 Statements of Cash Flows F-28 Notes to Financial Statements F-30 Information Accompanying the Basic Financial Statements Independent Auditor's Report on Additional Information F-39 Schedule VIII - Valuation and Qualifying Accounts and Reserves for Allowance for Doubtful Accounts F-40 Schedule X - Consolidated Supplementary Income Statement Information F-41 Schedule XI - Real Estate and Accumulated Depreciation F-42
All schedules other than those indicated have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. 2. Exhibits Exhibits listed below which have been filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, and which were filed as noted below, are hereby incorporated by reference and made a part of this report with the same effect as if filed herewith. 2. Purchase and Sale Agreement (the "Sale Agreement") dated February 3, 1997 (filed as an exhibit to the company's Form 8-K filed February 18, 1997, and as an appendix to the Partnership's Consent Solicitation Statement dated March 12, 1997). 3-A. The prospectus of the Partnership dated October 22, 1986, as amended October 23, 1986, October 29, 1986 and supplemented on February 26, 1987 and filed pursuant to Rule 424(b) is hereby incorporated herein by reference. 3-B. Amended and restated agreement of Limited Partnership set forth as Exhibit A to the prospectus, incorporated herein by reference. 3-C. Consent Solicitation Statement dated March 12, 1997 was filed pursuant to Rule 14A and incorporated herein by reference. (b) No report on Form 8-K was filed during the fourth quarter of the fiscal year ended December 31, 1996. A report on Form 8-K was filed on February 18, 1997 pertaining to the Disposition of Partnership Assets. 10 13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Atlanta, State of Georgia. MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP QUALICORP MANAGEMENT, INC. Managing General Partner By: /s/ John H. Stoddard Date: March 21, 1997 ----------------------------------------- John H. Stoddard President, Director, Chief Financial Officer and Principal Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Name Position Date /s/ John M. DeBlois Chairman of the Board March 21, 1997 - --------------------- John M. DeBlois /s/ John H. Stoddard President, Director, March 21, 1997 - ---------------------- Chief Financial Officer John H. Stoddard and Principal Accounting Officer 11 14 EXHIBIT INDEX Exhibit Number Description - -------------- ----------- 27 Financial Data Schedule (for SEC use only) 15 [SELF & MAPLES, P.A. LETTERHEAD] INDEPENDENT AUDITORS' REPORT To the Partners Medical Income Properties 2A Limited Partnership We have audited the balance sheets of Medical Income Properties 2A Limited Partnership as of December 31, 1996 and 1995 and the related statements of operations, partners' capital and cash flows for each of the years in the three-year period ended December 31, 1996. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Medical Income Properties 2A Limited Partnership as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ Self & Maples, P.A. Oneonta, Alabama January 24, 1997, except for Note 14, as to which the date is February 3, 1997 F-1 16 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP BALANCE SHEETS DECEMBER 31, 1996 AND 1995
1996 1995 ------------ ------------ ASSETS Current assets Cash and cash equivalents $ 1,644,674 $ 889,401 Marketable securities 2,339,380 2,161,755 Patient accounts receivable, net of allowance for doubtful accounts of $225,011 in 1996 and $190,934 in 1995 2,179,723 2,623,938 Interest receivable 13,914 10,203 Estimated third-party payor settlements 739,842 485,609 Prepaid expenses and other assets 127,032 110,667 ----------- ----------- Total current assets 7,044,565 6,281,573 Investment in joint ventures 4,986,273 4,718,713 Property and equipment, net of accumulated depreciation 13,016,044 13,394,031 Deferred financing costs, net of accumulated amortization of $54,075 in 1996 and $39,294 in 1995 22,545 37,326 Due from affiliates 473,417 754,471 ----------- ----------- Total assets $25,542,844 $25,186,114 =========== =========== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities Current maturities of long-term debt $ 343,697 $ 337,075 Accounts payable 906,261 870,895 Accrued payroll and payroll taxes 309,380 259,497 Accrued vacation 247,096 207,362 Accrued insurance 43,126 65,028 Accrued management fees 82,403 79,234 Patient deposits and trust liabilities 128,204 97,569 Other accrued expenses 91,947 92,522 Estimated third-party payor settlements 516,976 453,166 Due to affiliates 460,564 243,814 ----------- ----------- Total current liabilities 3,129,654 2,706,162 Long-term debt, net of current maturities 3,558,529 3,903,921 ----------- ----------- Total liabilities 6,688,183 6,610,083 Venture partners' minority interest 2,100,875 2,315,986 ----------- ----------- Partners' capital Limited partners 16,709,571 16,250,393 General partners 44,215 9,652 ----------- ----------- Total partners' capital 16,753,786 16,260,045 ----------- ----------- Total liabilities and partners' capital $25,542,844 $25,186,114
See accompanying notes to financial statements. F-2 17 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994 ------------ ------------ ------------- Revenues Net patient service revenue $ 20,783,193 $ 19,017,059 $ 17,872,338 Other revenue 41,262 32,618 34,056 ------------ ------------ ------------ Total revenue 20,824,455 19,049,677 17,906,394 ------------ ------------ ------------ Operating expenses Professional care of patients 10,347,837 9,205,785 8,240,787 Dietary 1,657,865 1,609,770 1,557,436 Household and plant 1,723,483 1,714,594 1,617,470 General and administrative 3,169,133 2,890,731 2,798,779 Employee health and welfare 940,197 919,299 925,354 Depreciation and amortization 752,857 768,270 772,176 ------------ ------------ ------------ Total operating expenses 18,591,372 17,108,449 15,912,002 ------------ ------------ ------------ Operating income 2,233,083 1,941,228 1,994,392 ------------ ------------ ------------ Other income (expenses) Interest income 206,257 157,839 152,591 Interest expense (376,001) (419,354) (380,587) Provider fees (550,861) (550,681) (540,739) Minority interest in consolidated joint venture (371,193) (324,895) (246,667) Partnership share of unconsolidated joint venture income 557,558 380,202 227,448 ------------ ------------ ------------ Total other income (expenses) (534,240) (756,889) (787,954) ------------ ------------ ------------ Net income $ 1,698,843 $ 1,184,339 $ 1,206,438 ============ ============ ============ Net income attributable to limited partners (93%) $ 1,579,924 $ 1,101,435 $ 1,121,987 Net income attributable to general partners (7%) 118,919 82,904 84,451 ------------ ------------ ------------ $ 1,698,843 $ 1,184,339 $ 1,206,438 ============ ============ ============ Net income per weighted average limited partnership unit outstanding $ 84.76 $ 59.09 $ 60.20 ============ ============ ============
See accompanying notes to financial statements. F-3 18 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP STATEMENTS OF PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Limited Partners General Units Amount Partners Total ------------ ------------ ------------ ------------- Partners' capital at December 31, 1993 $ 18,639 $ 16,211,431 $ 6,720 $ 16,218,151 Distributions to partners ($57.50 per limited partnership unit outstanding) -- (1,071,744) (80,671) (1,152,415) Net income -- 1,121,987 84,451 1,206,438 Unrealized loss on marketable securities available for sale -- (36,071) (2,715) (38,786) ------------ ------------ ------------ ------------ Partners' capital at December 31, 1994 18,639 16,225,603 7,785 16,233,388 Distributions to partners ($60.00 per limited partnership unit outstanding) -- (1,118,339) (84,175) (1,202,514) Net income -- 1,101,435 82,904 1,184,339 Unrealized gain on marketable securities available for sale -- 41,694 3,138 44,832 ------------ ------------ ------------ ------------ Partners' capital at December 31, 1995 18,639 16,250,393 9,652 16,260,045 Distributions to partners ($60.00 per limited partnership unit outstanding) -- (1,118,339) (84,175) (1,202,514) Net income -- 1,579,924 118,919 1,698,843 Unrealized loss on marketable securities available for sale -- (2,407) (181) (2,588) ------------ ------------ ------------ ------------ Partners' capital at December 31, 1996 $ 18,639 $ 16,709,571 $ 44,215 $ 16,753,786 ============ ============ ============ ============
See accompanying notes to financial statements. F-4 19 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994 ------------ ------------ ------------ Cash flows from operating activities: Cash received from patient care $ 21,020,618 $ 18,528,805 $ 17,291,338 Interest and dividends received 166,085 159,582 125,965 Other operating receipts 41,262 32,618 34,056 Cash paid to suppliers and employees (17,702,205) (15,836,810) (14,858,368) Interest paid (376,001) (419,354) (380,587) Provider fees (550,861) (550,681) (540,739) ------------ ------------ ------------ Net cash provided (used) by operations 2,598,898 1,914,160 1,671,665 ------------ ------------ ------------ Cash flows from investing activities: Purchases of marketable securities (1,543,752) (755,533) (2,169,477) Maturities of marketable securities 1,400,000 783,981 -- Capital expenditures (360,089) (391,040) (353,775) Distributions from joint ventures 290,000 290,000 189,999 ------------ ------------ ------------ Net cash provided (used) by investing activities (213,841) (72,592) (2,333,253) ------------ ------------ ------------ Cash flows from financing activities: Distributions to partners (1,202,514) (1,202,514) (1,152,415) Payments on long-term debt and lease obligations (338,770) (343,400) (367,156) Net related party transactions 497,804 (229,666) (150,708) Distributions to venture partners (586,304) (40,905) (86,355) ------------ ------------ ------------ Net cash provided (used) by financing activities (1,629,784) (1,816,485) (1,756,634) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents 755,273 25,083 (2,418,222) Cash and cash equivalents, beginning of year 889,401 864,318 3,282,540 ------------ ------------ ------------ Cash and cash equivalents, end of year $ 1,644,674 $ 889,401 $ 864,318 ============ ============ ============
See accompanying notes to financial statements. F-5 20 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994 ----------- ----------- ----------- Reconciliation of net income to net cash provided by operating activities: Net income $ 1,698,843 $ 1,184,339 $ 1,206,438 ----------- ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 752,857 768,270 772,176 Provision for losses on accounts receivable 176,465 112,022 80,123 Partnership share of unconsolidated joint venture (income) loss (557,558) (380,202) (227,448) Minority interest in consolidated joint venture income (loss) 371,193 324,895 246,667 (Increase) decrease in: Patient accounts receivable, net 267,748 (478,052) (729,494) Interest receivable, securities premium amortization and securities discount accretion (40,172) 1,743 (26,626) Estimated third-party payor settlements (254,233) (122,224) (1,184) Prepaid expenses and other assets (16,365) 130,062 (93,140) Increase (decrease) in: Accounts payable 35,366 230,853 277,447 Accrued expenses 70,309 (202,997) 99,893 Estimated third-party payor settlements 63,810 340,394 69,555 Other liabilities 30,635 5,057 (2,742) ----------- ----------- ----------- Total adjustments 900,055 729,821 465,227 ----------- ----------- ----------- Net cash provided (used) by operations $ 2,598,898 $ 1,914,160 $ 1,671,665 =========== =========== =========== Supplemental schedule of noncash investing and financing activities: Unrealized gain (loss) on marketable securities available for sale $ (2,588) $ 44,832 $ (38,786) =========== =========== ===========
See accompanying notes to financial statements. F-6 21 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Organization Medical Income Properties 2A Limited Partnership (the Partnership) is a Delaware limited partnership formed on May 14, 1986 that is engaged in the business of acquiring, operating and holding for investment purposes, income-producing, health care related properties, primarily nursing homes. The Partnership is one of a series of three partnerships as represented by the Partnership Prospectus (Prospectus) dated October 22, 1986, providing for the sale of 10,000 units at $1,000 per unit (with an option to increase to 20,000 units per partnership). The Partnership's first closing on the sale of units was December 9, 1986. The offering closed on June 2, 1987. For the period May 15, 1986 (inception) to August 31, 1987, the Partnership was in the development stage. On September 1, 1987, the Partnership began acquiring property. The general partners are QualiCorp Management, Inc. (a wholly-owned subsidiary of QualiCorp, Inc.) and QualiCorp Capital, Inc. (b) Allocation of Net Profits and Net Losses Net profits and net losses shall be determined and allocated as of December 31 of each year, as follows: - Net profits (losses) (exclusive of net profits (losses) attributable to the sale or disposition of Partnership properties) are allocated 93% to the limited partners and 7% to the general partners. - Net profits attributable to the sale or disposition of a Partnership property shall be allocated as follows: - First, to limited partners with negative balances in their capital accounts in proportion to such negative balances, to the extent of the total of such negative balances; - Second, 1% to the general partners and 99% to the limited partners until the capital account of each limited partner is equal to his capital investment; and - Third, the balance, if any, 85% to the limited partners and 15% to the general partners. F-7 22 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS - Net losses attributable to the sale or disposition of a Partnership property shall be allocated in a manner similar to above, except that limited and general partner accounts would be reduced pro rata to the amount of their respective capital investments, then, pro rata to zero, and for any remaining loss, 93% to the limited partners and 7% to the general partners. (c) Cash Distributions Cash distributions shall be made quarterly within 45 days after the end of the quarter. Cash flow shall be distributed 93% to the limited partners and 7% to the general partners. Sale or financing proceeds shall be distributed first to creditors and then to the limited partners to the extent of their original capital contribution and then the remainder shall be distributed 85% to the limited partners and 15% to the general partners. (d) Per Unit Information Limited partnership information per unit is based on units outstanding of 18,639 in 1996, 1995 and 1994. (e) Patient Service Revenue Patient service revenue is recorded at the nursing homes' established rates with contractual adjustments ($6,510,438 in 1996, $6,182,176 in 1995, and $4,915,980 in 1994), provision for uncollectible accounts, bad debts ($176,465 in 1996, $112,022 in 1995, and $80,123 in 1994) and other discounts deducted to arrive at net patient service revenue. Net patient revenue includes amounts estimated by management to be reimbursable by Medicare, Medicaid and other third-party programs under the provisions of cost and prospective payment reimbursement formulas in effect. Amounts received under these programs are generally less than the established billing rates of the nursing homes and the difference is reported as a contractual adjustment and deducted from gross revenue. The nursing homes recognize currently estimated final settlements due from or to third-party programs. F-8 23 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS Final determination of amounts earned is subject to audit by the intermediaries. Differences between estimated provisions and final settlement will be reflected as charges or credits to operating revenues in the year the cost reports are finalized. (f) Property and Equipment Property and equipment are stated at cost. Items capitalized under capital lease obligations are recorded at their fair market value at the inception of the lease. Depreciation of the buildings is provided over their estimated useful lives of thirty years on the straight-line method. Equipment and other personal property are depreciated over five to seven years on the straight-line method. (g) Income Taxes Taxable income is allocated to the individual partners and, therefore, no income taxes have been provided for in these financial statements. (h) Cash Equivalents Policy For the purposes of the statement of cash flows, the Partnership considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. (i) Uninsured Cash Balances The Partnership maintains cash balances in several banks. Cash accounts at banks are insured by the FDIC for up to $100,000. Amounts in excess of insured limits were approximately $2,427,666 (inclusive of unconsolidated joint ventures) at December 31, 1996 and $380,063 at December 31, 1995. The 1996 and 1995 amounts do not include the total of commingled funds discussed in Note 7., since the amount in excess of FDIC limits related to these funds is not determinable. (j) Marketable Securities The classification of marketable securities is determined at the date of purchase. Gains or losses on the sale of securities are recognized on a specific identification basis. Marketable securities represent an investment of excess funds as a part of the Partnership's cash management policies. These securities are considered to be available for sale under Statement of Financial Accounting Standards No. 115 and are, thus, stated at fair value. Unrealized gains and losses are F-9 24 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS recognized as a component of partners' capital as is required by SFAS No. 115. (k) Uses of Estimates Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were assumed in preparing the financial statements. Note 2. ACQUISITIONS On September 1, 1987, the Partnership acquired Muscle Shoals Nursing Home, Oak Crest Nursing Home, and Shoals Nursing Home located in Alabama for $6,625,000 plus capitalized acquisition costs and fees of $165,612. In 1988 an additional $344,631 of acquisition costs and fees were capitalized. While the transaction is recorded as a purchase, the property was subject to a capitalized lease obligation (see Note 6) of $1,685,000. Title is held by a governmental entity until the lease obligation expires in 2008, at which time title passes to the Partnership. In 1993 the mortgage associated with this capitalized lease was repaid with proceeds of a new mortgage note (see Note 6). The lease continues at $1 per year until the lease expires. On March 1, 1988, the Partnership acquired Edwardsville West Nursing Home, now known as University Manor, located in Illinois for $4,200,000 plus capitalized acquisition fees and costs of $311,738. The property was subject to Industrial Revenue Bonds outstanding of $1,269,723. On July 1, 1988, the Partnership acquired 54.55% of Medical Park Nursing Home (The Alabama Joint Venture) located in Alabama for $2,782,050 plus capitalized acquisition costs of $206,893. Medical Income Properties 2B Limited Partnership (MIP2B) purchased the remaining 45.45% of Medical Park. The assets and liabilities of Medical Park have been consolidated in the financial statements of the Partnership with a minority interest in 45.45% of the net assets recorded. Medical Park's equity at December 31, 1996 and 1995 was $4,621,101 and $5,097,502, respectively, and it had net income of $816,707, $714,840 and $542,722 for the years ended December 31, 1996, 1995 and 1994, respectively. The acquisitions have been accounted for under the purchase method of accounting. Consequently, only operations subsequent to the F-10 25 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS acquisition date have been included in the accompanying financial statements. Note 3. MARKETABLE SECURITIES Marketable securities consist of U.S. Treasury securities. The following schedule summarizes marketable securities activity for the years ended December 31, 1996 and 1995:
1996 1995 ---- ---- Beginning balance, amortized cost $ 2,155,709 $ 2,190,057 Purchase of marketable securities 1,543,752 755,533 Redemption of investments (1,400,000) (783,981) Net amortization of premiums and accretion of discounts 36,463 (5,900) ----------- ----------- Amortized cost 2,335,924 2,155,709 Gross unrealized gain 3,456 6,046 ----------- ----------- Fair value $ 2,339,380 $ 2,161,755 =========== ===========
The maturities of investment securities at December 31, 1996 were as follows: Due in one year or less $ 751,357 Due in two years or less 1,584,567 $2,335,924
Note 4. INVESTMENT IN JOINT VENTURES The Partnership has invested in two joint ventures with MIP2B, an affiliated limited partnership. The Alabama Joint Venture The Alabama Joint Venture includes only Medical Park which is accounted for as a purchase and is consolidated in these financial statements as described in Note 2 above. The Texas Joint Venture The Texas Joint Venture is accounted for under the equity method. On May 1, 1988 the Partnership purchased 50% of the Renaissance Place - Katy Nursing Home located in Texas for $2,736,250 plus capitalized acquisition costs and fees of $254,645. Also, on the same date, the Partnership purchased 50% of Renaissance Place - F-11 26 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS Humble Nursing Home located in Texas for $2,243,750 plus capitalized acquisition costs and fees of $114,406. The condensed balance sheet information for the investment in joint venture as of December 31, 1996 and 1995 and operating statement information for each of the years in the three-year period ending December 31, 1996 is as follows:
Katy 1996 1995 ---- ---- ---- Current assets $2,501,874 $1,684,094 Long-term assets 4,771,630 5,048,138 ---------- ---------- Total assets $7,273,504 $6,732,232 ========== ========== Current liabilities $ 860,008 $ 684,328 Long-term liabilities -- -- ---------- ---------- Equity 6,413,496 6,047,904 Total liabilities and equity $7,273,504 $6,732,232 ========== ========== Partnership's investment at December 31, 1996 and 1995 $3,206,748 $3,023,952 ========== ==========
1996 1995 1994 ---- ---- ---- Revenues $5,039,616 $4,985,129 $3,700,538 Expenses 4,385,765 4,362,005 3,505,169 ---------- ---------- ---------- Net income $ 653,851 $ 623,124 $ 195,369 ========== ========== ==========
Humble 1996 1995 ------ ---- ---- Current assets $1,498,372 $1,140,926 Long-term assets 3,377,314 3,651,762 ---------- ---------- Total assets $4,875,686 $4,792,688 ========== ========== Current liabilities $ 677,478 $ 703,933 Long-term liabilities 631,250 691,850 Equity 3,566,958 3,396,905 ---------- ---------- Total liabilities and equity $4,875,686 $4,792,688 ========== ========== Partnership's investment at December 31, 1996 and 1995 $1,783,479 $1,698,453 ========== ==========
F-12 27
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS Humble (con't) 1996 1995 1994 -------------- ---- ---- ---- Revenues $4,415,307 $3,664,088 $3,373,417 Expenses 3,954,042 3,526,809 3,113,890 ---------- ---------- Net income $ 461,265 $ 137,279 $ 259,527 ========== ========== ==========
Note 5. PROPERTY AND EQUIPMENT Property and equipment is recorded at cost and consists of the following at December 31, 1996 and 1995:
1996 1995 ---- ---- Land $ 493,528 $ 493,528 Buildings and improvements 10,383,782 10,141,958 Furniture and equipment 2,194,993 2,076,727 Property under capitalized lease 6,550,539 6,550,539 ------------ ------------ Total 19,622,842 19,262,752 Accumulated depreciation and amortization (6,606,798) (5,868,721) ------------ ------------ Net property and equipment $ 13,016,044 $ 13,394,031 ============ ============
Note 6. LONG-TERM DEBT Long-term debt consisted of the following at December 31, 1996 and 1995:
1996 1995 ---- ---- Mortgage notes secured by interest in capitalized lease with interest at prime plus 1% (9.25% at December 31, 1996 and 9.50% at December 31, 1995) payable in 60 payments of $22,728 plus interest through April 26, 1998, with a balloon payment due May 26, 1998 $ 3,113,705 $ 3,386,439 Industrial Revenue Bonds secured by real estate, payable at a variable rate of interest (7.755% at December 31, 1996 and 8.225% at December 31, 1995) with monthly principal and interest payments of $10,802 through April 1, 2005. The interest rate is adjusted every May 1 and November 1. 788,521 854,557 ----------- ----------- 3,902,226 4,240,996 Less amounts due in one year or less 343,697 337,075 ----------- ----------- $ 3,558,529 $ 3,903,921 =========== ===========
F-13 28 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS The aggregate annual maturities of bonds and notes payable for the succeeding five fiscal years are as follows: 1997 $ 343,697 1998 2,917,638 1999 82,829 2000 89,486 2001 96,677 Thereafter 371,899 ---------- $3,902,226 ==========
The Partnership leases certain property, plant and equipment under a capital lease. The mortgage associated with this capital lease obligation was repaid in 1993 (see Note 2). The capital lease expires in 2008. The mortgage note is secured by all real estate owned by the Partnership. The General Partner of MIP2A has guaranteed the debt, as well as pledged its stock and partnership interest. The management company (See Note 9) has also guaranteed the debt and entered into a negative pledge agreement whereby they will not pledge, transfer or encumber their stock while the loan is outstanding. All management fees are subordinate to the debt. The loan document contains restrictive covenants associated with ratio and earnings requirements. Management is not aware of any conditions that exist that would cause them to be in noncompliance with these requirements. Note 7. RELATED PARTY TRANSACTIONS QualiCorp, Inc. charged the Partnership $144,527 in 1996, $136,679 in 1995 and $147,110 in 1994 for administrative expenses (primarily salaries). QualiCorp, Inc. also charged the Partnership $235,223 in 1996 for property management fees. As a result of the consolidation of Medical Park as described in Note 2. above, amounts due to The Alabama Joint Venture from MIP2B are included in the amounts due from affiliates. Details of the amounts due from affiliates at December 31 are as follows: F-14 29 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS
1996 1995 ---- ---- Due from affiliates of the general partner $ -- $371,954 Due from MIP2B 473,417 382,517 $473,417 $754,471
Details of the amounts due to affiliates at December 31 are as follows:
1996 1995 ---- ---- Due to QualiCorp, Inc. $ 248,108 $ 31,358 Due to The Texas Joint Venture 212,456 212,456 ---------- ---------- $ 460,564 $ 243,814 ========== ==========
During the year ended December 31, 1995, the General Partners established a pooled investment account in which the General Partners and the partnerships in which they act as general partners could participate. This account was used by those entities to invest overnight cash balances, and borrow funds when an entity needed temporary access to funds. Each entity received its share of interest earned monthly, and was charged interest on any funds borrowed. The Articles of Limited Partnership of the partnerships involved state that no General Partner shall have the authority to cause those partnerships to make loans other than in connection with the purchase, sale or disposition of partnership property. The Articles of Limited Partnership of those partnerships also state that the partnerships' funds may not be commingled with any other entities' funds except as necessary for the operation of those partnerships. At December 31, 1995, the Partnership had loaned $371,954 to the other entities, and had earned interest of $33,229 from this arrangement. See Footnote 14 for sale of affiliated assets. Note 8. INCOME TAXES No provision for income taxes is made in the financial statements since taxable income is reported in the income tax returns of its partners. Differences between the net income as reported in the financial statements and Federal taxable income arise from the nature and timing of certain revenue and expense items. The following is a reconciliation of reported net income and Federal taxable income: F-15 30 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS
1996 1995 1994 ---- ---- ---- Net income as reported $ 1,698,843 $ 1,184,339 $ 1,206,438 Adjustments: Depreciation differences 2,767 34,742 60,405 Insurance deductible -- (76,360) -- Bad debt reserve 22,955 71,255 10,571 Vacation accrual 39,240 21,768 23,613 Nondeductible meals, and entertainment 23,941 27,867 12,725 ----------- ----------- ----------- Federal taxable income $ 1,787,746 $ 1,263,611 $ 1,313,752 =========== =========== =========== Federal taxable income per limited partnership unit outstanding $ 89.20 $ 63.05 $ 65.55 =========== =========== ===========
Note 9. CONTRACTUAL AGREEMENTS In 1988, the Partnership entered into management agreements whereby the Manager is required to perform certain services at each of the nursing facilities. Each of the agreements had an initial five-year term with one additional five-year option that was exercised in 1993. Fees were based on 6% of gross collected operating revenues through June 30, 1992. Thereafter they were based on 5% of gross collected operating revenues, but not less than $816,000 in a calendar year and were increased by an inflation factor after 1992. The Manager has a right of first refusal to match a bona fide offer made by an outside party to purchase or lease each of the nursing facilities. The management agreements, as amended, contained a termination clause. The management agreements were amended on January 1, 1995. The amendments call for fixed monthly management fees totaling $79,234 with a cost of living factor equal to the greater of 4% per annum or the increase in the Consumer Price Index or such other measure mutually agreeable to the parties. The agreements expire December 31, 1998. The termination on sale clauses were amended to base the fees on a sum equal to the discounted present value of the monthly management fees as of the date of termination of the agreements times the number of months remaining in the management agreements discounted to the date of termination at an annual interest rate of ten percent (10%). In addition, the parties agreed to terminate the Manager's right of first refusal. Commencing January 1, 1996, the Management Agreement was extended for a period of up to a maximum of eighteen months by one month for every month after January 1, 1996 in which the parties are engaged in the process of attempting to sell the Facilities. In the event of a sale of the Facilities, the termination on sale fee described above would be discounted to the date of termination at an annual F-16 31 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS rate of ten percent (10%) and then further discounted by a factor of thirty-three and one-third percent (33 1/3%). Management fees charged to the Partnership were $988,841 in 1996, $950,808 in 1995, and $914,238 in 1994. Note 10. CONTINGENCY On May 1, 1990, the Texas Joint Venture, of which the Partnership owns 50%, began self insuring its workmen's compensation claims for two nursing home facilities located in Texas. Accrued liabilities have been estimated to cover all asserted and unasserted claims and assessments and funds have been escrowed to cover such claims. The Partnership maintains insurance or reserves which it believes are adequate to meet the needs of the Partnership. While the Partnership has been named as a defendant in several lawsuits, nothing has come to the attention of the Partnership which leads it to believe that it is exposed to a risk of material loss not covered by insurance or reserves. Note 11. RENTALS UNDER OPERATING LEASES The Partnership leases certain minor equipment under various operating leases. The following is a schedule by years of minimum future rentals on operating leases as of December 31, 1996: 1997 $ 1,851
Note 12. CONCENTRATIONS IN REVENUE SOURCES The Partnership provides patient care services under various third party agreements. The principal sources of revenue under these contracts are derived primarily through the Medicaid and Medicare programs, as well as contracts with private pay patients who do not qualify for assistance from the other programs. The percentage of the Joint Venture's income from each of these sources for the years ended December 31, 1996, 1995, and 1994 is as follows:
1996 1995 1994 ---- ---- ---- Private pay patients 13.75% 16.18% 17.73% Medicaid 60.80% 65.72% 64.55% Medicare 25.45% 18.10% 17.72% ------- ------- ------- Total 100.00% 100.00% 100.00% ====== ====== ======
The percentage attributable to private pay patients includes only amounts due for services where the primary payer is a private source. The Medicaid and Medicare percentages include amounts due F-17 32 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS from those programs as well as the patient's financial responsibility incurred under these contracts. Note 13. FAIR VALUE OF FINANCIAL INSTRUMENTS Financial Accounting Statement No. 107, Disclosures about Fair Value of Financial Instruments ("FAS 107") requires disclosure of fair value information about financial instruments, whether or not recognized on the face of the balance sheet, for which it is practicable to estimate the value. The assumptions used in the estimation of the fair value of the Company's financial instruments are detailed below. Where quoted prices are not available, fair values are based on estimates using discounted cash flows and other valuation techniques. The use of discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The following disclosures should not be considered a surrogate of the liquidation value of the Company, but rather represents a good-faith estimate of the increase or decrease in value of financial instruments held by the Company since purchase, origination or issuance. The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments: Investment securities available from sale: These securities are being carried at fair market value as determined by quoted market prices. Long-term Debt: For variable rate notes, fair values are based on carrying values. The other financial instruments of the Company are short-term assets and liabilities whose carrying amounts reported in the balance sheet approximate fair value. These items include cash, accounts receivable and accounts payable. Note 14. SUBSEQUENT EVENT On February 3, 1997, Medical Income Properties 2A Limited Partnership entered into a purchase agreement with Omega HealthCare Investors, Inc. to sell all of the real and personal property of the nursing home facilities. F-18 33 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS The purchase price is allocated among the facilities as follows: Oakcrest Nursing Home (109 beds) $ 3,605,000 Shoals Nursing Home (103 beds) 4,052,000 Muscle Shoals Nursing Home (90 beds) 3,766,000 University Manor (120 beds) 2,200,000 Medical Park Convalescent Center (183 beds) - 54.55% ownership 5,427,725 Renaissance Place - Katy (130 beds) - 50% ownership 2,984,500 Renaissance Place - Humble (120 beds) - 50% ownership 2,487,500 ----------- Proceeds from sale $24,522,725 ===========
Proceeds from the sale will be reduced by expenses incurred as a result of the sale, cash offsets for liabilities assumed by the buyer and existing indebtedness. These payments should approximate $7,432,000. The closing could take place as early as March 31, 1997 and can be extended by the Partnership until April 30, 1997. If conditions precedent to either party's obligation to close are not satisfied or waived, the closing can be extended to a date no later than July 31, 1997. Approximately $904,550 of these proceeds will be set aside in a joint signature account for the purpose of securing all of the seller's obligations under the purchase agreement. These funds will be available to the Partnership in the event that these obligations do not exceed the funds held in escrow. In addition, a separate amount of proceeds of approximately $870,000 will also be held in reserve by the Partnership pending final settlement of third-party cost reports and other contingencies. This agreement can be terminated by mutual consent of the parties and other conditions precedent. In conjunction with the above sale, Omega HealthCare Investors, Inc. has agreed to a similar purchase of assets from RWB Medical Properties Limited Partnership IV, of which an officer of QualiCorp, Inc. owns either directly or indirectly a 21.53% interest. This sale relates to a 131 bed nursing home in Patterson, Louisiana and the purchase price for the assets is $5,350,000. F-19 34 THE TEXAS JOINT VENTURE NOTES TO FINANCIAL STATEMENTS Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Organization The Texas Joint Venture was formed on April 29, 1988, and is engaged in the business of acquiring, operating and holding for investment purposes, income-producing, health care related properties, primarily nursing homes. The joint venture partners are Medical Income Properties 2A Limited Partnership and Medical Income Properties 2B Limited Partnership. Each partner owns 50% of the Joint Venture. Both partners are part of a series of three Delaware limited partnerships as represented by a Partnership Prospectus dated October 22, 1986. The Texas Joint Venture currently owns and operates two nursing homes in Texas. (b) Allocation of Net Profits and Net Losses Net profits and net losses are shared equally by the partners. (c) Cash Distributions Cash distributions are made quarterly within 45 days after the end of the quarter. Cash flow shall be distributed equally to the partners. Sale or financing proceeds will be distributed first to creditors and then to the partners equally. (d) Patient Service Revenue Patient service revenue is recorded at the nursing homes' established rates with contractual adjustments ($3,502,579 in 1996, $4,015,882 in 1995 and $2,929,956 in 1994), provision for uncollectible accounts, (bad debt expense of $41,632 in 1996, $108,332 in 1995 and $67,766 in 1994) and other discounts deducted to arrive at net patient service revenue. Net patient revenue includes amounts estimated by management to be reimbursable by Medicare, Medicaid and other third-party programs under the provisions of cost and prospective payment reimbursement formulas in effect. Amounts received under these programs are generally less than the established billing rates of the nursing homes and the difference is reported as a contractual adjustment and deducted from gross revenue. The nursing homes recognize currently estimated final settlements due from or to third-party programs. Final determination of amounts earned is subject to audit by the intermediaries. Differences between estimated provisions and F-30 35 THE TEXAS JOINT VENTURE NOTES TO FINANCIAL STATEMENTS final settlement will be reflected as charges or credits to operating revenues in the year the cost reports are finalized. (e) Property and Equipment Property and equipment are stated at cost. Depreciation of the buildings is provided over their estimated useful lives of thirty years on the straight-line method. Equipment and other personal property are depreciated over five to seven years on the straight-line method. (f) Income Taxes Taxable income is allocated to the partners and, therefore, no income taxes have been provided for in these financial statements. (g) Cash Equivalents Policy For the purposes of the statements of cash flows, the Joint Venture considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. (h) Uninsured Cash Balances The Joint Venture maintains cash balances in several banks. Cash accounts at banks are insured by the FDIC for up to $100,000. Amounts in excess of insured limits were approximately $531,586 at December 31, 1996 and $274,391 at December 31, 1995. The 1995 amount includes the total of commingled funds discussed in Note 8., since the amount in excess of FDIC limits related to these funds is not determinable. (i) Marketable Securities The classification of marketable securities is determined at the date of purchase. Gains or losses on the sale of securities are recognized on a specific identification basis. Marketable securities represent an investment of excess funds as a part of the Joint Venture's cash management policies. These securities are considered to be available for sale under Statement of Financial Accounting Standards No. 115 and are, thus, stated at fair value. Unrealized gains and losses are recognized as a component of partners' capital as is required by SFAS No. 115. F-31 36 THE TEXAS JOINT VENTURE NOTES TO FINANCIAL STATEMENTS (j) Uses of Estimates Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were assumed in preparing the financial statements. Note 2. ACQUISITIONS On May 1, 1988, the Joint Venture purchased Renaissance Place - Katy Nursing Home located in Texas for $5,472,500 plus capitalized acquisition costs and fees of $509,290. The seller took back a note for $300,000 due May 1, 1992, that has subsequently been paid. On May 1, 1988, the Joint Venture purchased Renaissance Place - Humble Nursing Home located in Texas for $4,487,500 plus capitalized acquisition costs and fees of $228,812. Note 3. MARKETABLE SECURITIES Marketable securities consist of U.S. Treasury securities. The following schedule summarizes marketable securities activity for the years ended December 31, 1996 and 1995.
1996 1995 ---- ---- Beginning balance, amortized cost $1,402,286 $1,394,565 Purchase of marketable securities 1,642,784 503,438 Redemption of investments (900,000) (500,000) Net amortization of premiums and accretion of discounts 37,857 4,283 ----------- ---------- Amortized cost 2,182,927 1,402,286 Gross unrealized gain (loss) 7,913 7,384 ---------- ---------- Fair value $2,190,840 $1,409,670 ========== ==========
The maturities of investment securities at December 31, 1996 were as follows: Due in one year or less $ 500,713 Due in two years or less 1,682,214 ---------- $2,182,927 ==========
F-32 37 THE TEXAS JOINT VENTURE NOTES TO FINANCIAL STATEMENTS Note 4. PROPERTY AND EQUIPMENT Property and equipment consisted of the following at December 31:
1996 1995 ---- ---- Land $ 950,000 $ 950,000 Buildings and improvements 9,550,624 9,525,253 Furniture and equipment 1,136,348 1,118,289 ----------- ----------- Total 11,636,972 11,593,542 Accumulated depreciation (3,918,600) (3,483,409) ----------- ----------- Net property and equipment $ 7,718,372 $ 8,110,133 =========== ===========
Note 5. LONG-TERM DEBT Long-term debt at December 31 was as follows:
1996 1995 ---- ---- Mortgage note with a variable rate of interest (9.25% at December 31, 1996 and 9.5% at December 31, 1995) with monthly principal and interest payments of $5,050 through April 26, 1998, with a balloon payment due May 26, 1998. $ 691,850 $ 752,450 Less amounts due in one year or less 60,600 60,600 ---------- ---------- $ 631,250 $ 691,850 ========== ==========
The aggregate annual maturities of long-term debts are as follows: 1997 $ 60,600 1998 631,250 --------- $ 691,850 ========= The mortgage note is secured by all real estate owned by the Joint Venture, as well as the real estate owned by The Alabama Joint Venture. Both the Joint Venture and The Alabama Joint Venture are jointly owned by the Medical Income Properties 2A Limited Partnership (MIP2A) and the Medical Income Properties 2B Limited Partnership (MIP2B). The General Partner of MIP2A and MIP2B has guaranteed the debt, as well as pledged its stock and partnership interest. The management company (See Note 6) has also guaranteed the debt and entered into a negative pledge agreement whereby it will not pledge, transfer or encumber its stock while the loan is outstanding. All management fees are subordinate to the debt. The loan document contains restrictive covenants associated with ratio F-33 38 THE TEXAS JOINT VENTURE NOTES TO FINANCIAL STATEMENTS and earnings requirements. Management is not aware of any conditions that exist that would cause them to be in noncompliance with these requirements. Note 6. CONTRACTUAL AGREEMENTS On May 1, 1988, the Joint Venture entered into a management agreement whereby the Manager is required to perform certain services. The agreement had an initial five-year term with one additional five-year option that was exercised in 1993. Fees were based on 6% of gross collected operating revenues through June 30, 1992. Thereafter they were based on 5% of gross collected operating revenues, but not less than $324,000 in a calendar year and were increased by an inflation factor after 1992. These fees are subordinated to the outstanding mortgage debt (See Note 5). The Manager has a right of first refusal to match a bona fide offer made by an outside party to purchase or lease the nursing home. The management agreement, as amended, contained a termination clause. The management agreement was amended on January 1, 1995. The amendment calls for a fixed monthly management fee of $31,379 with a cost of living factor equal to the greater of 4% per annum or the increase in the Consumer Price Index or such other measure mutually agreeable to the parties. The agreement expires December 31, 1998. The termination on sale clause was amended to base the fee on a sum equal to the discounted present value of the monthly management fee as of the date of termination of the agreement times the number of months remaining in the management agreement discounted to the date of termination at an annual interest rate of ten percent (10%). In addition, the parties agreed to terminate the Manager's right of first refusal. Commencing January 1, 1996, the Management Agreement was extended for a period of up to a maximum of eighteen months by one month for every month after January 1, 1996 in which the parties are engaged in the process of attempting to sell the Facilities. In the event of a sale of the Facilities, the termination on sale fee described above would be discounted to the date of termination at an annual rate of ten percent (10%) and then further discounted by a factor of thirty-three and one-third percent (33 1/3%). Management fees charged to the Joint Venture were $391,610 in 1996, $376,548 in 1995, and $362,065 in 1994. Note 7. INCOME TAXES No provision for income taxes is made in the financial statements since taxable income is reported in the tax returns of the partners. F-34 39 THE TEXAS JOINT VENTURE NOTES TO FINANCIAL STATEMENTS Differences between the net income as reported in the financial statements and Federal taxable income arise from the nature and timing of certain revenue and expense items. The following is a reconciliation of reported net income and Federal taxable income.
1996 1995 1994 ---- ---- ---- Net income as reported $ 1,115,116 $ 760,403 $ 454,896 Adjustments: Depreciation differences 37,528 56,349 74,970 Bad debt reserve (26,045) 75,856 16,294 Nondeductible travel and entertainment 9,231 9,770 6,430 Accrued insurance - (80,000) - Vacation accrual 12,128 23,280 15,272 ---------- --------- --------- Federal taxable income $1,147,958 $ 845,658 $ 567,862 ========== ========= =========
Note 8. RELATED PARTY TRANSACTIONS Details of the amounts due from affiliates at December 31 are as follows:
1996 1995 ---- ---- Due from MIP2A $ 212,456 $ 212,456 Due from MIP2B 210,631 210,631 Due from affiliates of the general partner - 153,911 ---------- ----------- Due from affiliates $ 423,087 $ 576,998 ========== ==========
During the year ended December 31, 1995, the General Partners established a pooled investment account in which the General Partners and the partnerships in which they act as general partners could participate. This account was used by those entities to invest overnight cash balances, and borrow funds when an entity needed temporary access to funds. Each entity received its share of interest earned monthly, and was charged interest on any funds borrowed. The Articles of Limited Partnership of the joint venture partners state that no General Partner shall have the authority to cause the joint venture partners to make loans other than in connection with the purchase, sale or disposition of partnership property. The Articles of Limited Partnership also state the joint venture partners' funds may not be commingled with any other entities' funds except as necessary for the operation of the partnerships. F-35 40 THE TEXAS JOINT VENTURE NOTES TO FINANCIAL STATEMENTS At December 31, 1995, the Joint Venture had loaned $153,911 to the other entities, and had earned interest of $24,238 from this arrangement. See Footnote 12 for sale of affiliated assets. Note 9. CONTINGENCY On May 1, 1990, the Joint Venture began self insuring its workmen's compensation claims for its two nursing home facilities. Accrued liabilities have been estimated to cover all asserted and unasserted claims and assessments and funds have been escrowed to cover such claims. The Joint Venture maintains insurance or reserves that it believes are adequate to meet the needs of the Joint Venture. While the Joint Venture Partners have been named as a defendant in several lawsuits, nothing has come to the attention of the Joint Venture that leads it to believe that it is exposed to a risk of material loss not covered by insurance or reserves. The real estate owned by The Texas Joint Venture is mortgaged as security on debt incurred by a joint venture partner - Medical Income Properties 2A Limited partnership (MIP2A). This debt is also secured by all other real estate owned by MIP2A. The total outstanding debt secured by all these properties is $3,805,555. Note 10. CONCENTRATIONS IN REVENUE SOURCES The Joint Venture provides patient care services under various third party agreements. The principal sources of revenue under these contracts are derived primarily through the Medicaid and Medicare programs, as well as contracts with private pay patients who do not qualify for assistance from the other programs. The percentage of the Joint Venture's income from each of these sources for the years ended December 31, 1996, 1995, and 1994 is as follows:
1996 1995 1994 ---- ---- ---- Private pay patients 15.07% 18.05% 19.42% Medicaid 39.62% 38.99% 47.81% Medicare 45.31% 42.96% 32.77% ------ ------ ------ Total 100.00% 100.00% 100.00% ====== ====== ======
The percentage attributable to private pay patients includes only amounts due for services where the primary payer is a private source. The Medicaid and Medicare percentages include amounts due from those programs as well as the patient's financial responsibility incurred under these contracts. F-36 41 THE TEXAS JOINT VENTURE NOTES TO FINANCIAL STATEMENTS Note 11. FAIR VALUE OF FINANCIAL INSTRUMENTS Financial Accounting Statement No. 107, Disclosures about Fair Value of Financial Instruments ("FAS 107") requires disclosure of fair value information about financial instruments, whether or not recognized on the face of the balance sheet, for which it is practicable to estimate the value. The assumptions used in the estimation of the fair value of the Company's financial instruments are detailed below. Where quoted prices are not available, fair values are based on estimates using discounted cash flows and other valuation techniques. The use of discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The following disclosures should not be considered a surrogate of the liquidation value of the Company, but rather represents a good-faith estimate of the increase or decrease in value of financial instruments held by the Company since purchase, origination or issuance. The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments: Investment securities available from sale: These securities are being carried at fair market value as determined by quoted market prices. Long-term Debt: For variable rate notes, fair values are based on carrying values. The other financial instruments of the Company are short-term assets and liabilities whose carrying amounts reported in the balance sheet approximate fair value. These items include cash, accounts receivable and accounts payable. Note 12. SUBSEQUENT EVENT On February 3, 1997, Medical Income Properties 2A Limited Partnership and Medical Income Properties 2B Limited Partnership, the general partners of The Texas Joint Venture, entered into a purchase agreement with Omega HealthCare Investors, Inc. to sell all of the real and personal property of the nursing home facilities. F-37 42 THE TEXAS JOINT VENTURE NOTES TO FINANCIAL STATEMENTS The purchase price is allocated among the facilities as follows: Renaissance Place - Katy (130 beds) $ 5,969,000 Renaissance Place - Humble (120 beds) 4,975,000 ----------- Proceeds from sale $10,944,000 =========== Proceeds from the sale will be reduced by expenses incurred as a result of the sale, cash offsets for liabilities assumed by the buyer and existing indebtedness. These payments should approximate $2,505,000. The closing could take place as early as March 31, 1997 and can be extended by the Partnership until April 30, 1997. If conditions precedent to either party's obligation to close are not satisfied or waived, the closing can be extended to a date no later than July 31, 1997. Approximately $365,000 of these proceeds will be set aside in a joint signature account for the purpose of securing all of the seller's obligations under the purchase agreement. These funds will be available to the Partnership in the event that these obligations do not exceed the funds held in escrow. In addition, a separate amount of proceeds of approximately $400,000 will also be held in reserve by the Alabama Joint Venture pending final settlement of third-party cost reports and other contingencies. This agreement can be terminated by mutual consent of the parties and other conditions precedent. In conjunction with the above sale, Omega HealthCare Investors, Inc. has agreed to a similar purchase of assets from RWB Medical Properties Limited Partnership IV, of which an officer of QualiCorp, Inc. owns either directly or indirectly a 21.53% interest. This sale relates to a 131 bed nursing home in Patterson, Louisiana and the purchase price for the assets is $5,350,000. F-38 43 [LETTERHEAD] SELF & MAPLES, P.A. INDEPENDENT AUDITORS' REPORT ON ADDITIONAL INFORMATION To the Partners The Texas Joint Venture Our report on our audits of the basic financial statements of The Texas Joint Venture for 1996 appears on page 1. Those audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The Schedule of Valuation and Qualifying Accounts and Reserves for Allowances for Doubtful Accounts, Schedule of Consolidated Supplementary Income Statement Information, and Schedule of Real Estate and Accumulated Depreciation are presented for purposes of additional analysis and are not required parts of the basic financial statements. Such information has been subjected to the auditing procedures applied to the audits of the basic financial statements, and in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. /s/ Self & Maples, P.A. Oneonta, Alabama January 24, 1997, except for Note 12, as to which the date is February 3, 1997 F-39 44 THE TEXAS JOINT VENTURE SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR ALLOWANCES FOR DOUBTFUL ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 --------- --------- -------- Balance at beginning of year $ 132,796 $ 56,941 $ 40,647 Charged to patient service revenues (67,678) (32,477) (51,472) Write-offs 41,632 108,332 67,766 --------- --------- -------- Balance at end of year $ 106,750 $ 132,796 $ 56,941 ========= ========= ========
F-40 45 THE TEXAS JOINT VENTURE SCHEDULE X CONSOLIDATED SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 ---------- ---------- ---------- Professional care of patients Nursing salaries and wages $2,442,501 $2,469,846 $2,197,347 Ancillary services expense 1,830,025 1,714,698 940,266 Supplies 138,992 151,705 107,170 Temporary labor 4,380 83,851 32,084 General and administrative Salaries and wages 236,614 207,708 192,944 Accounting and auditing 87,134 64,745 69,999 Insurance 132,282 13,436 48,076 Property tax 249,483 237,917 223,764 Management fees 391,610 376,548 362,065 Dietary Food 298,273 291,648 279,660 Household and plant Repairs and maintenance 73,771 103,388 73,199 Utilities 190,141 165,204 175,535 Depreciation $ 435,191 $ 444,905 $ 443,765 ========== ========== ==========
F-41 46 THE TEXAS JOINT VENTURE SCHEDULE XI REAL ESTATE AND ACCUMULATED DEPRECIATION FOR THE YEAR ENDED DECEMBER 31, 1996
INITIAL COST COSTS CAPITALIZED TO PARTNERSHIP(A) SUBSEQUENT TO ACQUISITION BUILDING AND CARRYING DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COST - ------------------------ ------------ ---------- ------------ ------------ -------- RENAISSANCE PLACE-KATY $ 0 $ 650,000 $4,822,500 $503,346 $509,290 RENAISSANCE PLACE-HUMBLE 691,850 300,000 4,187,500 435,524 228,812 -------- ----------------------- -------------------- $691,850 $ 950,000 $9,010,000 $938,870 $738,102 ======== ======================= ==================== LIFE ON WHICH GROSS AMOUNT AT WHICH CARRIED DEPRECIATION AS OF DECEMBER 31, 1996(B) IN LATEST STATEMENT OF BUILDING AND ACCUMULATED DATE OF DATE OPERATION IS DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED - ------------------------ -------- ------------ ----------- ------------ ------------ -------- ------------- RENAISSANCE PLACE-KATY $650,000 $ 5,835,136 $ 6,485,136 $2,082,569 1984 05/01/88 5 TO 30 YEARS RENAISSANCE PLACE-HUMBLE 300,000 4,851,836 5,151,836 1,836,031 1987 05/01/88 5 TO 30 YEARS -------------------------------------- ---------- $950,000 $10,686,972 $11,636,972 $3,918,600 ====================================== ==========
(A) The initial cost to the Partnership represents the original purchase price of the properties. (B) The aggregate cost of real estate owned at December 31, 1996 for Federal Income tax purposes was approximately $11,636,972. (C) Reconciliation of real estate owned at December 31, 1996, 1995, and 1994:
1996 1995 1994 ----------- ----------- ----------- Balance at beginning of period $11,593,542 $11,292,495 $10,939,816 Additions 43,430 301,047 352,679 Reductions 0 0 0 ----------- ----------- ----------- Balance at end of period $11,636,972 $11,593,542 $11,292,495 =========== =========== =========== (D) Reconciliation of accumulated depreciation: Balance at beginning of period $ 3,479,409 $ 3,038,503 $ 2,594,737 Depreciation expense (3,479,409) 440,906 443,766 Reductions 0 0 0 ----------- ----------- ----------- Balance at end of period $ 3,918,600 $ 3,479,409 $ 3,038,503 =========== =========== ===========
F-42 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 1,644,674 2,339,380 2,404,734 225,011 0 7,044,565 11,636,972 3,918,600 25,542,844 3,129,654 3,558,529 0 0 0 16,753,786 25,542,844 0 208,244,455 0 18,591,372 344,604 0 376,001 1,698,843 0 1,698,843 0 0 0 1,698,843 0 0 5.02(31) REPRESENTS TOTAL PARTNERSHIP CAPITAL INCLUDING NET INCOME NET OF DISTRIBUTIONS PAID.
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