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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission file number 33-65948
ROSEWOOD CARE CENTERS CAPITAL FUNDING CORPORATION
(Exact name of Registrant as specified in its charter)
(See table of Co-Registrants)
MISSOURI 43-1623171
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11701 BORMAN DRIVE, SUITE 315
ST. LOUIS, MISSOURI 63146
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 994-9070
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
INDICATE BY CHECK MARK WHETHER 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
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE
CONTAINED, TO THE BEST OF REGISTRANTS' KNOWLEDGE, IN DEFINITIVE PROXY OR
INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM
10-K OR ANY AMENDMENT TO THIS FORM 10-K. [ ]
CERTAIN INFORMATION CALLED FOR ON ITEM 14 OF PART IV OF THIS FORM 10-K
IS INCORPORATED BY REFERENCE TO REGISTRANTS' REGISTRATION STATEMENT (NO.
33-65948) DATED JULY 13, 1993 WHICH WAS DECLARED EFFECTIVE OCTOBER 14, 1993,
REGISTRANTS' FORM 10-Q FILED NOVEMBER 29, 1993, REGISTRANTS' FORM 10-Q FILED
FEBRUARY 11, 1994, REGISTRANTS' FORM 10-K FILED SEPTEMBER 28, 1994,
REGISTRANTS' FORM 10-Q FILED FEBRUARY 14, 1995, REGISTRANTS' FORM 10-Q FILED
MAY 15, 1995, REGISTRANTS' FORM 10-Q FILED FEBRUARY 13, 1996 AND REGISTRANTS'
FORM 10-Q FILED MAY 14, 1996.
Index to Exhibits is on Page 71.
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CO-REGISTRANTS
Rosewood Care Center, Inc. of Swansea
Rosewood Care Center, Inc. of Galesburg
Rosewood Care Center, Inc. of East Peoria
Rosewood Care Center, Inc. of Peoria
Rosewood Care Center, Inc. of Alton
Rosewood Care Center, Inc. of Moline
Swansea Real Estate, Inc.
Galesburg Real Estate, Inc.
East Peoria Real Estate, Inc.
Peoria Real Estate, Inc.
Alton Real Estate, Inc.
Moline Real Estate, Inc.
(Exact names of Co-Registrants as specified in their charters)
No separate periodic or annual reports are filed for each of the co-registrants
and no separate financial statements are included for each of the
co-registrants because the co-registrants are effectively jointly and severally
liable with respect to the Notes and because such separate periodic or annual
reports and such separate financial statements are not deemed material to
investors.
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ROSEWOOD CARE CENTERS CAPITAL FUNDING CORPORATION
INDEX
PART I 4
ITEM 1. BUSINESS 4
ITEM 2. PROPERTIES 10
ITEM 3. LEGAL PROCEEDINGS 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS 11
PART II 12
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 12
ITEM 6. SELECTED FINANCIAL DATA 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13
ITEM 8. COMBINED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 52
PART III 52
ITEM 10. DIRECTORS AND OFFICERS OF THE COMPANY 52
ITEM 11. EXECUTIVE COMPENSATION 52
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 53
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 54
PART IV 56
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS ON FORM 8-K 56
(a) 1 and 2 Financial Statements and Financial Statement Schedule 56
(a) 3 Exhibits 56
(b) Reports on Form 8-K 56
(c) Exhibits 56
(d) Financial Statement Schedule 56
SUPPLEMENTAL INFORMATION 57
EXHIBIT INDEX 71
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PART I
ITEM 1. BUSINESS.
BUSINESS OF THE REMIC
Rosewood Care Centers Capital Funding Corporation, a Missouri
corporation, was formed June 23, 1993 as a single purpose corporation, to
function as a real estate mortgage investment conduit ("REMIC"). The REMIC
was organized to issue the 7 1/4% First Mortgage Redeemable Bonds due
November 1, 2013 and to make first mortgage loans to six affiliated companies
(the "Borrowing Companies"). Each of the six Borrowing Companies owns a
skilled nursing facility which is state-licensed. The six skilled nursing
facilities are operated by six affiliated companies, which are guarantors of
the first mortgage loans (the "Guarantors") (collectively the Borrowing
Companies and the Guarantors are the "Companies"). The principal assets of
the REMIC are the notes from the six first mortgage loans. The REMIC does not
engage in any business or investment activities other than in connection with
administering the repayment of the bonds and the first mortgage loans.
BUSINESS OF THE COMPANIES
The Companies own and operate six Rosewood Care Centersm skilled
nursing facilities located in Illinois, each with a 120 bed capacity. The
facilities provide convalescent care, long-term care, and rehabilitative
services primarily for elderly patients. Each facility offers a complete
therapy program, including physical, occupational and speech therapy under
the direction of a registered therapist.
The Companies principally market to private paying patients and attempt
to provide a high-quality alternative to competing facilities, both in the
physical surroundings and services offered. The Companies' marketing
strategy focuses on obtaining the highest average daily rate as well as high
occupancy levels in order to maximize revenues from the facilities. Although
the facilities provide long-term care for those patients who require it,
emphasis is on rehabilitative services to allow a patient to convalesce and
either return to independent living outside the facility or enjoy a maximum
level of independence and mobility within the facility. The Companies
believe this emphasis has an appeal to a much larger private payor market
than exists for a strictly long-term care oriented nursing home.
Approximately 62% of the patients in the facilities are private paying,
though all the facilities participate in both the Medicare and Medicaid
programs. The majority of the patients have sufficient funds and desire at
the outset to try restorative therapy, which is covered by Medicare and
private insurance. The Medicare program and various forms of private payment
are the principal payors for short-term nursing home care and rehabilitative
services. Because of the high percentage of patients in the facilities that
are private paying, the average daily rate of the facilities is higher than
it would be if the facilities had a greater participation in the Medicaid
program. All of the facilities currently participate in one or more managed
care programs. The Companies are negotiating with additional third parties
and expect to enter into additional managed care contracts in the future.
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OPERATIONS
Each skilled nursing facility is managed by an affiliated company, HSM
Management Services, Inc., an Illinois corporation ("HSM Management"),
pursuant to management agreements with each Guarantor. HSM Management
provides a state-licensed nursing home administrator for each skilled nursing
facility. HSM Management employs a director of operations and three directors
of nursing who supervise operations at the six facilities owned by the
Companies, as well as others. In addition, nursing staff at each skilled
nursing facility is under the supervision of a state-licensed director of
nursing who is an employee of the facility. The nursing staffs consist of
registered nurses and licensed practical nurses, as well as nurses aides.
The facilities also contract with others to provide therapy services, medical
and dietary consulting services, personal grooming services and recreational
activities.
The management agreements entered into with Hovan Enterprises, Inc.
("Hovan"), the precedessor of HSM Management, Inc. by each Guarantor on
October 21, 1993, the bond issue date, continue in full force and effect
after the merger of Hovan into HSM Management. All of the provisions of the
management agreements apply to HSM Management in the same way they previously
applied to Hovan.
REVENUE BY PAYOR
The following table indicates the percentage of patient service revenue
of the Companies by type of payor for the periods indicated.
FISCAL YEAR ENDED JUNE 30,
1994 1995 1996
---- ---- ----
(Dollars in Thousands)
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
Private $16,307 67.0% $16,827 65.0% $17,079 62.0%
Medicare 6,632 27.0 7,443 29.0 9,293 33.0
Medicaid 1,489 6.0 1,495 6.0 1,319 5.0
------- ----- ------- ----- ------- -----
Total $24,428 100.0% $25,765 100.0% $27,691 100.0%
======= ===== ======= ===== ======= =====
OCCUPANCY BY LOCATION AS A PERCENTAGE OF AVAILABLE BEDS
Each facility has the capacity of 120 beds. Most of the rooms are
designed to be semi-private, with two beds per room. Some semi-private rooms
are made available as private at a higher daily rate, thereby resulting in a
lower number of available beds at a facility. The Companies focus on
obtaining the highest average daily rate which may produce higher revenues
even at lower occupancies, whereas if the facilities were principally
Medicaid providers, maximum revenues could only be achieved with maximum
occupancies. The following table indicates occupancy at each facility as a
percentage of available beds for the periods indicated.
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1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Swansea 91.8% 91.7% 96.6% 97.9% 96.5%
Galesburg 93.8 90.4 95.7 91.4 82.2
Alton 90.3 90.2 97.1 95.7 97.6
Peoria 80.0 79.8 91.6 89.7 86.4
East Peoria 90.0 88.6 88.6 83.7 74.5
Moline 80.7 91.0 94.5 94.8 89.2
---- ---- ---- ---- ----
Combined Average 87.8% 88.6% 93.8% 92.2% 87.7%
==== ==== ==== ==== ====
MARKETING
The Companies attempt to increase admissions through marketing
programs. The Companies' marketing programs are executed under the direction
of HSM Management. Marketing is done through direct mail, community programs
and television. Although the Companies provide long-term nursing home care,
their marketing strategy emphasizes short-term nursing home care for
rehabilitative purposes. The Companies believe this emphasis has an appeal
to a much larger private payor market than exists for strictly long-term care
oriented nursing homes.
GOVERNMENTAL REGULATION AND REIMBURSEMENT
The Companies' nursing facilities are required to comply with various
federal and state health care regulations and statutes. Compliance with the
state licensing regulations is a prerequisite for the operation of the
facilities and for participation in government sponsored health care programs
such as Medicaid and Medicare.
All six facilities participate in the federally administered Medicare
program. Medicare is a health insurance program for the aged and certain
other disabled individuals, operated by the federal government and
administered by an insurance intermediary. As a result of the Companies'
emphasis on short-term rehabilitative nursing care, which is covered by
Medicare, the percentage of patient service revenue attributable to Medicare
continues to be a significant sector of the Companies' total revenue.
The Companies have experienced significant growth in ancillary
revenues, primarily for services reimbursed by Medicare, over the past
several years. Ancillary revenues are derived from providing services to
residents over and above room and board and include services such as
occupational, physical, speech, and IV therapy, as well as prescription drugs
and medical supplies. Such services are being provided primarily to Medicare
and private pay residents which is consistent with the current trend of
providing services in the lower cost setting of nursing facilities rather
than in hospitals.
Medicaid is a medical assistance program for the indigent, operated by
the State of Illinois with financial aid provided by the federal government.
Prior to January 1991, four of the six facilities participated in the state
administered Medicaid program. In 1991, the Companies began to voluntarily
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withdraw the facilities from the Medicaid program. However, in May 1993, as
a result of a change in state policy, all six Guarantors requested and
received certification in the Medicaid program for a distinct part of each
facility for a limited number of beds. This certification permits the
Companies to participate in the Medicaid program while limiting the Medicaid
census at their respective facilities. The Galesburg and East Peoria
facilities are certified for twenty beds each and the four remaining
facilities for ten beds each.
Under current reimbursement regulations, funds received under Medicare
programs are subject to audit by the third party payor responsible for
administering the facility account. This results either in amounts due to or
from the facilities based on the actual costs of participating in the
Medicare program during the year. Past audits of the Companies'
reimbursements through the fiscal year ending June 30, 1994, have not
resulted in any material adjustments for any of the Companies that were not
otherwise indemnified for by private vendors to the Companies. Audits of the
Medicare program for all the facilities have recently been completed through
the fiscal year ended June 30, 1995. The Companies experienced a material
negative adjustment to their Medicare cost reports for that year with regard
to costs for therapy services furnished by a private vendor. The Companies
were indemnified by the private vendor for most of the negative adjustment
and continue to be indemnified for 1996 and the years thereafter.
Medicare reimbursement of routine operating costs is subject to a cap
that is related to costs of similar providers. In cases where this cap is
exceeded, the facility may obtain an exception if it can show that the excess
costs are caused by "atypical services." All six of the facilities exceeded
the cap by the aggregate amount of $346,000 in 1996. The Company is in the
process of compiling the information necessary to apply for the exception for
two of the facilities which qualify for the exception for 1995 and one of the
facilities which qualifies for 1996. Management cannot predict whether or
not the Company will be successful in its application to the regulatory
agency to grant the exception. Legislation was enacted by the United States
Congress which froze the routine cost limits at pre October 1, 1993 levels
for cost report periods beginning prior to October 1, 1995. The legislation
limits any exceptions to such limits to the amount that would have been
granted if no restriction on charges to the cost limits had been enacted. In
addition, such legislation eliminated the return on equity payment available
to certain nursing facilities. This legislation has not materially adversely
affected the Companies' results of operations nor do the Companies expect any
significant future impact on revenues.
In addition to the requirements for participation in the Medicare and
Medicaid programs, the Companies' health care facilities are subject to annual
licensing and other regulatory requirements of state authorities. In order to
maintain the operators' licenses, the nursing facilities must meet certain
statutory and administrative requirements. The requirements relate to the
physical condition of the building and equipment used in the patient care, the
quality and adequacy of personnel and the quality of medical care. The Health
Care Financing Administration of the Department of Health and Human Services
("HCFA") has adopted new survey, certification and enforcement procedures by
regulations effective July 1, 1995, to implement various Medicare and Medicaid
provisions of the Omnibus Budget Reconciliation Act of 1987 ("OBRA"). The
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Companies' believe that the facilities are in full compliance with the
requirements of the applicable Medicaid and Medicare regulatory requirements
currently in effect. In the ordinary course of business, the Company receives
notices of deficiencies for failure to comply with various regulatory
requirements. The notices are reviewed and the Companies take the appropriate
action to correct the deficiencies noted. There can be no assurance that the
Company will not be required to expend significant sums in order to maintain
its licenses in the future.
While federal regulations do not provide states with the grounds to
curtail funding of their Medicaid cost reimbursement programs due to state
budget deficiencies, the states have reduced funding in the past. No
assurance can be given that the state will not do so in the future or that
the future funding of Medicaid programs will remain comparable to the present
level. The United States Supreme Court ruled in 1990 that health care
providers may bring suit in federal court to enforce the Medicaid Act
requirement that states reimburse nursing facilities at rates which are
reasonable and adequate.
Governmental funding for health care programs continues to be under
pressure. Recent actions have included lowering the Medicaid reimbursement
rate, thus limiting payments to hospitals and nursing homes under the
Medicaid program. Another reimbursement change currently being discussed is
a change in the Medicare system of reimbursement for certain therapy
services.
Health care funding was again a prominent issue in the United States
Congress during the past year. Numerous proposals are pending which seek to
reduce the costs of the Medicare and Medicaid programs by lowering the
utilization of the programs and by controlling costs within the programs.
As a result of the national pressure on health care costs, the Medicare
program is facing significant cutbacks and intense scrutiny. Due to this
atmosphere, the Companies have experienced closer scrutiny and delays with
regard to payment of claims under the Medicare program. The Companies do not
expect this environment to improve in the near future and believe they will
experience future problems relating to reimbursement, some of which could
have a significant effect on operations.
The Companies are carefully monitoring these developments and
attempting to structure contractual arrangements which they believe will
minimize the impact of reductions in government reimbursement. However, no
assurance can be made that the funding of Medicare and Medicaid will remain
at their current levels. Changes in the reimbursement policies of Medicare
and Medicaid as a result of budget cuts by federal and state governments or
other legislative actions could adversely affect the revenues of the
Companies.
COMPETITION
The long-term care industry is highly competitive. The Companies compete
with other providers on the basis of the breadth and quality of services they
offer, the quality of their facilities and price. The Companies also compete
in the recruitment of qualified health care personnel and the acquisition and
development of additional facilities. The Companies' current and potential
competitors include national, regional and local long-term care providers as
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well as hospital-based extended care providers and rehabilitation hospitals,
many of which have significantly greater financial and other resources than the
Companies. In addition, certain competitors are operated by not-for-profit
organizations and similar businesses which can finance capital expenditures on
a tax-exempt basis or receive charitable contributions unavailable to the
Companies. Managed care contracts will also have an impact on competition, as
services formerly provided at hospitals are shifted to nursing homes and as the
managed care model becomes more common in the nursing home industry.
The degree of success with which the Companies compete varies from
location to location and depends on a number of factors, including the number
of competing facilities in the local market, types of services, quality of
care, reputation, age and appearance of each facility and the cost of care in
each location. In light of these factors, the Companies seek to meet
competition in each location by establishing a reputation in the local
community for high quality nursing services and attractive facilities, and by
responding to the specialized health needs of their patients and referral
sources.
The need for skilled nursing facilities is expected to increase in the
future as the demand for rehabilitative and long-term care increases.
Construction of new skilled nursing facilities near the Companies' facilities
could adversely affect the Companies' business. However, state regulations
generally require a CON before a new skilled nursing facility can be
constructed or additional beds can be added to existing facilities. The
Companies believe that these regulations reduce the possibility of
overbuilding and promote higher utilization of existing facilities.
At the time the CON was granted for each of the Companies' skilled
nursing facilities, the addition of such facilities resulted in an excess
number of beds for purposes of future CON analysis. Under current CON
regulations, existing facilities are given a preference in the opportunity to
meet any additional need by expansion before a CON is issued for construction
of a new facility. Recently, there have been Legislative initiatives to
repeal existing CON laws and there can be no assurance that the CON procedure
will not be eliminated or changed in the future. Although the terms of the
loan documents prohibit the Borrowing Companies from undertaking new
construction, the Guarantors are not prohibited from operating additional
facilities, including expansion facilities. All of the facilities are
adjacent to excess acreage owned by affiliated companies and related
companies are allowed to construct expansions to current facilities under
certain conditions. At Galesburg and Alton affiliated companies contemplate
commencing construction of expansions during the 1997 fiscal year.
LEASES
Each of the facilities is leased by a Guarantor from the Borrowing
Company which owns the facility. Lease payments consist of a base rent which
is adjustable based on the amount needed by the Borrowing Company to service
mortgage indebtedness on the facility and additional rent based on the economic
performance of the facilities. Each lease has an initial term of four years
and may be extended for up to five additional four-year periods. Under each
lease, the Borrowing Company is required to furnish the building and all
equipment and furnishings and any replacements necessary for the operation of
the facility.
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The Guarantor is responsible for paying all other expenses associated with
operating the facility. The lease payments represent substantially all of the
income earned by the Borrowing Companies.
INSURANCE
The Companies carry property insurance, general liability insurance and
other insurance which they believe adequate to cover the facilities and their
businesses.
EMPLOYEES
The REMIC and the Borrowing Companies have no employees. The
Guarantors employed 497 persons at June 30, 1996. None of the employees of
the Companies are covered by collective bargaining agreements. The Companies
believe that their relations with their employees are good and they have
never experienced a major labor dispute.
The Company has experienced increases in its labor costs due to higher
wages and greater benefits required to attract and retain qualified
personnel. The Company expects labor costs to increase in the future, but any
increase in costs would probably be offset by increases in patient rates.
The Company has not experienced any shortages in qualified personnel to staff
the facilities, but it competes with other health care providers and service
industries which could adversely affect the availability of qualified
personnel in the future.
ITEM 2. PROPERTIES.
THE FACILITIES
Each of the facilities is a one story, 120 bed skilled nursing care
facility consisting of approximately 38,000 to 40,000 square feet and
situated on 4 to 7 acres. Each facility is new construction, with poured
concrete foundation and brick veneer exterior walls. The facilities were
built by the Companies for use as skilled nursing facilities with modern
design and high quality systems. Accordingly, the Companies believe the
properties are well suited to present and future needs. The six facilities
are encumbered by the first mortgages given to the REMIC.
ROSEWOOD CARE CENTER OF SWANSEA
Rosewood Care Center of Swansea is owned by Swansea Real Estate, Inc.
and is operated by Rosewood Care Center, Inc. of Swansea. The Swansea
Facility opened October 8, 1987 and is located at 100 Rosewood Village Drive,
Swansea, Illinois 62221 on the west side of Highway 159, just north of
Fullerton Road in Swansea, Illinois.
ROSEWOOD CARE CENTER OF GALESBURG
Rosewood Care Center of Galesburg is owned by Galesburg Real Estate,
Inc. and is operated by Rosewood Care Center, Inc. of Galesburg. The
Galesburg Facility opened December 9, 1987 and is located at 1250 West Carl
Sandburg Dr., Galesburg, Illinois 61401 on the southeast corner of Sandburg
Mall Access Road
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and West Carl Sandburg Drive.
ROSEWOOD CARE CENTER OF ALTON
Rosewood Care Center of Alton is owned by Alton Real Estate, Inc. and
is operated by Rosewood Care Center, Inc. of Alton. The Alton facility
opened May 15, 1989 and is located at 3490 Humbert Road, Alton, Illinois
62002 on the north side of Pebble Creek Lane at Humbert Road, Alton,
Illinois.
ROSEWOOD CARE CENTER OF PEORIA
Rosewood Care Center of Peoria is owned by Peoria Real Estate, Inc. and
is operated by Rosewood Care Center, Inc. of Peoria. The Peoria facility
opened June 12, 1989 and is located at 1500 West Northmoor Road, Peoria,
Illinois 61614 at the junction of Northmoor Road and University Avenue in
Northwest Peoria.
ROSEWOOD CARE CENTER OF EAST PEORIA
Rosewood Care Center of East Peoria is owned by East Peoria Real
Estate, Inc. and is operated by Rosewood Care Center, Inc. of East Peoria.
The East Peoria facility opened April 18, 1989 and is located at 900
Centennial Drive, East Peoria, Illinois 61611 on the south side of Centennial
Drive and Oakwood, East Peoria, Illinois. The East Peoria facility is
approximately five miles from the Peoria facility.
ROSEWOOD CARE CENTER OF MOLINE
Rosewood Care Center of Moline is owned by Moline Real Estate, Inc. and
is operated by Rosewood Care Center, Inc. of Moline. The Moline facility
opened May 6, 1990 and is located at 7300 - 34th Avenue, Moline, Illinois
61265 on 34th Avenue two blocks east of Black Hawk College in Moline,
Illinois.
ITEM 3. LEGAL PROCEEDINGS.
There are various lawsuits and regulatory actions pending against the
Companies arising in the normal course of business, some of which seek
punitive damages. The Companies do not believe that the ultimate resolution
of these matters will have a material adverse effect on the Companies'
combined financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
Not applicable.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Not applicable.
ITEM 6. SELECTED FINANCIAL DATA.
The following table of selected combined financial data should be read
in conjunction with the Combined Financial Statements and related Notes
thereto included elsewhere in this annual report on Form 10-K.
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA:
Patient Service Revenue:
Private........................ $14,172 $15,083 $16,307 $16,827 $17,079
Medicare....................... 3,560 5,859 6,632 7,443 9,293
Medicaid....................... 1,726 1,811 1,489 1,495 1,319
Other Patient Revenues, Net of
Expenses 82 80 76 74 62
------- ------- ------- ------- -------
Total.......................... 19,540 22,833 24,504 25,839 27,753
------- ------- ------- ------- -------
Facility Expenses................ 11,847 13,366 14,278 16,050 18,009
------- ------- ------- ------- -------
Income After Facility Expenses... 7,693 9,467 10,226 9,789 9,744
------- ------- ------- ------- -------
Nonfacility Expenses............. 3,799 2,141 2,867 2,772 2,829
------- ------- ------- ------- -------
Income Before Incentives......... 5,668 5,552 7,359 7,017 6,915
Incentive Management Fees and
Officers' Bonuses.............. (2,254) (1,528) (2,573) (2,221) (2,167)
------- ------- ------- ------- -------
Income From Operations........... 4,034 3,414 4,786 4,796 4,748
------- ------- ------- ------- -------
Other Income (expenses).......... (1,684) (1,342) (1,576) (1,447) (1,367)
------- ------- ------- ------- -------
Income Before Taxes.............. 2,350 2,072 3,210 3,349 3,381
Income Tax (expense) Benefit..... 29 (299) (346) (336) (306)
------- ------- ------- ------- -------
Net Income ...................... $ 2,379 $ 1,773 $ 2,864 $3,013 $ 3,075
======= ======= ======= ======= =======
OTHER DATA:
Net income available for debt
service<F1>................... $ 6,958 $ 6,958 $ 9,075 $8,905 $ 8,788
Debt service coverage ratio<F2>.. 2.90x 2.85x 2.81x
DIVIDENDS DECLARED ................ $ 600 $ 1,649 $ 2,542 $ 2,819 $ 2,819
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1992 1993 1994 1995 1996
---- ---- ---- ---- ----
BALANCE SHEET DATA:
Current Assets $ 3,509 $ 4,197 $ 5,916 $ 5,913 $ 6,960
Total Assets 27,881 27,118 36,478 35,584 34,457
Current Liabilities 2,643 2,689 4,147 4,726 5,136
Long-Term Debt 24,300 23,367 30,947 29,280 27,487
Stockholders Equity (Deficit) (938) 1,062 1,384 1,578 1,834
<FN>
- -------------------------
<F1> "Net Income Available for Debt Service" is defined in the loan agreement
among the REMIC and the Companies dated as of October 1, 1993. It is
calculated for a 12 month period by taking the income from operations and
adding non-cash expenditures (depreciation and amortization) and expenses
subordinated to annual debt service (management fees, officers' bonuses) and
interest income.
<F2> Calculated by dividing the Net Income Available for Debt Service by the
annual debt service on the 7 1/4% First Mortgage Redeemable Bonds due
November 1, 2013.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The Companies' operating strategy focuses on the average daily rate as
well as on occupancy levels in order to maximize revenues from the
facilities. The Companies principally market their services to private
paying patients. Revenues from this market continued to grow in 1996.
The Companies have continued their marketing emphasis on short-term
convalescent care while continuing to provide long-term care. The number of
short-term care patients and demand for ancillary rehabilitative and therapy
services continues to increase. Revenues and expenses associated with
rehabilitative and therapy have continued to increase through June 30, 1996.
The Medicare program and various forms of private payment are principal
payors for short-term nursing home care and rehabilitative services. All six
of the facilities participate in the federally administered Medicare program.
In May 1993, as a result of a change in state policy allowing limited
participation in Medicaid, the Companies requested and received certification
in the Medicaid program for a distinct number of beds in each facility. The
Companies believe this is the most economically desirable participation in
the Medicaid program for them. Medicare revenues are expected to remain at
substantially the level experienced in fiscal year 1996. Private patient
revenues continue to represent the major share of all patient service
revenues. All of the Companies currently participate in one or more managed
care programs. The Companies are negotiating with third parties and expect to
enter into additional managed care contracts in the future.
13
14
OPERATING RESULTS
YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995
Net Revenues. Net revenues increased to $27,753,000 for the year ended
June 30, 1996, from $25,839,000 for the same period in 1995, an increase of
$1,914,000 or 7.4%. Private revenue increased $252,000 or 1.5%, which is the
result of an increase in the room revenue of $208,000 and a $44,000 increase
in ancillary revenue during the 1996 fiscal year. Private census decreased
to 162,387 patient days compared to a private census of 170,342 patient days
for the fiscal year ended June 30, 1995. The average room rate for the year
ended June 30, 1996 has increased to $102 per day compared to $96 per day for
1995.
Medicare revenue increased $1,850,000 or 24.9%, due to an increase in
the Medicare reimbursement rate for the current fiscal year, which is a
direct result of the increase in the ancillary services provided to Medicare
eligible residents. The Medicare census for the fiscal year ended June 30,
1996, aggregated 39,509 patient days compared to 40,049 for the fiscal year
ended June 30, 1995.
Medicaid revenue has decreased $176,000 or 11.8% when compared to the
same period last year.
The total patient census aggregated 87.7% of available beds for the
fiscal year ended June 30, 1996, compared to 92.2% for the prior fiscal year.
Facility Operating Expense. Facility operating expenses increased to
$18,009,000 for the period ended June 30, 1996, (or $80.88 per patient day)
from $16,050,000 (or $68.74 per patient day) for the fiscal year ended June
30, 1995, an increase of $1,959,000 (or $12.14 per patient day).
Nursing expenses have decreased $38,000 from $6,556,000 for 1995 to
$6,518,000 for the year ended June 30, 1996. Nursing payroll expenses
increased $303,000 from $5,500,000 for 1995 to $5,803,000 for 1996, while
other nursing expenses decreased $341,000 when compared to the same period
last year.
Ancillary services (which is comprised of physical therapy,
occupational therapy, speech therapy, drugs and medical supplies), increased
$1,826,000 when compared to the same period last year. The increase in cost
is the direct result of the increase in ancillary services billed to Medicare
and private pay residents.
Dietary expenses increased $51,000 or 2.9% compared to the same period
last year, which is primarily due to inflation.
Plant utilities and maintenance expenses have increased $97,000 when
compared to the same period last year.
Housekeeping and laundry expenses increased $37,000 or 4.5% when
compared to the same period last year. The majority of the increase is the
result of an increase in the cost of supplies for those departments.
Employee fringe benefit expenses decreased $32,000 compared to the same
period last year. The majority of the decrease is attributable to the
decrease in the cost of workmen's compensation insurance.
Administrative expenses decreased $73,000 when compared to the same
period last year, primarily as a result of a decrease in payroll expense for
the current year.
14
15
Social service and activities expenses increased $91,000 or 19.8% when
compared to the same period last year. The increase is attributable to an
increase in staffing for these departments.
Nonfacility Expense. Real estate taxes and insurance increased
$36,000, which is the result of an increase in the cost of liability and
property insurance of $10,000 and a $26,000 increase in real estate taxes.
Depreciation and amortization expense increased $21,000 when compared
to the same period last year. The increase is a result of leasehold
improvements aggregating $159,000 and $171,000 for the fiscal years ended
June 30, 1996 and 1995 respectively.
Incentive Fees. Incentive management fees decreased $62,000 compared
to the same period last year as a result of the decrease in the income from
operations of the nursing facilities. Incentive management fees are based on
the combined performance of the six facilities. Officers' bonuses of
$188,000 paid during 1996, compared to $180,000 for 1995, were awarded at the
discretion of the Companies' sole director.
Other Income and Expense. Interest income decreased $36,000 or 4.2%
compared to the same period last year. The decrease is the result of a
decrease in notes receivable from $9,332,000 from Rosewood Care Center
Holding Co. for 1995 to $8,056,000 for the fiscal year ended June 30, 1996.
Interest expense decreased $116,000 compared to the same period last
year which is the result of the decrease in the outstanding long-term debt.
Income Taxes. Income taxes decreased $30,000 while income before
income taxes increased $32,000 because the real estate companies' income is
taxed at the individual shareholder level and not the corporate level. A
larger portion of the combined revenue of the companies was sheltered in the
real estate companies for the current fiscal year compared to the prior
fiscal year.
YEAR ENDED JUNE 30, 1995 COMPARED TO YEAR ENDED JUNE 30, 1994
Net Revenues. Net revenues increased to $25,839,000 for the year ended
June 30, 1995, from $24,504,000 for the same period in 1994, an increase of
$1,335,000 or 5.4%. Private revenue increased $520,000 or 3.2%, which is the
result of an increase in the room rates during the 1995 fiscal year. Private
census decreased to 170,342 patient days compared to a private census of
172,788 patient days for the fiscal year ended June 30, 1994.
Medicare revenue increased $811,000 or 12.2%, due to an increase in the
Medicare reimbursement rate for the current fiscal year, which reimbursement
increase is a direct result of the increase in the cost of ancillary services
provided to Medicare eligible residents. The Medicare census for the fiscal
year ended June 30, 1995, aggregated 40,049 patient days compared to 40,332
for the fiscal year ended June 30, 1994.
Medicaid revenue is virtually unchanged from the prior fiscal year.
The total patient census aggregated 92.2% of available beds for the
fiscal year ended June 30, 1995, compared to 93.8% for the prior fiscal year.
Facility Operating Expense. Facility operating expenses increased to
$16,050,000 for the period ended June 30, 1995, (or $68.74 per patient day) from
15
16
$14,278,000 (or $60.49 per patient day) for the fiscal year ended June 30,
1994, an increase of $1,772,000 (or $8.25 per patient day).
Nursing services increased $567,000 or 9.5% when compared to the same
period last year. The increase is the result of an increase in labor costs
during the 1995 fiscal year.
Ancillary services expense increased $830,000 as the result of an
increase in the cost of ancillary services for occupational therapy, physical
therapy, speech therapy, drugs and medical supplies provided for Medicare and
private residents.
Dietary expenses increased $67,000 or 4.0% compared to the same period
last year. The increase is due primarily to inflation.
Plant utilities and maintenance expenses are virtually unchanged from a
year ago.
Housekeeping and laundry expenses increased $42,000 or 5.4% when
compared to the same period last year. The majority of the increase is the
result of an increase in wages for those departments.
Social services and activities expenses increased $80,000 or 21.1%
compared to the same period last year. The increase is due to increased
staffing in these departments.
Employee fringe benefit expenses increased $139,000 compared to the
same period last year. The cost per patient day increased from $7.06 for
1994 to $7.74 for 1995. The majority of the increase can be accounted for by
the increase in payroll taxes and holiday pay. Payroll taxes increased as a
result of the increase in wages and an increase in state unemployment tax
rates. Full time employee equivalents aggregated 500 and 493 employees for
1995 and 1994 respectively. Holiday pay increased due to a change in company
policy as to employee eligibility for holiday pay premiums.
Administrative expenses increased $32,000 compared to the same period
last year. The increase of 3.6% is the result of inflation for the current
fiscal year. The cost per patient day increased to $3.96 per patient day
compared to $3.76 per patient day for the fiscal year ended June 30, 1994.
Nonfacility Expense. Real estate taxes and insurance decreased
$42,000 compared to the same period last year. The $26,000 real estate tax
reduction is the result of a decrease in the assessment of three of the six
facilities after the appeals of prior increases were decided. Insurance
costs also decreased $16,000.
Depreciation and amortization decreased $53,000 when compared to the
same period last year. The amortization expense for the fiscal year ended
June 30, 1994, contained a write off of loan costs in the amount of $105,892
on refinanced debt.
Incentive Fees. Incentive management fees decreased $357,000 compared
to the same period last year as a result of the decrease in the income from
operations of the nursing facilities. Incentive management fees are based on
the combined performance of the six facilities. Officers' bonuses of
$180,000 paid during 1995, compared to $175,000 for 1994, were awarded at the
discretion of the Companies' sole director.
16
17
Other Income and Expense. Interest income increased $225,000 or 35.8%
compared to the same period last year. The increase is the result of notes
receivable aggregating $9,332,000 from Rosewood Care Center Holding Co. which
were outstanding for the full twelve months of the current fiscal year,
compared to only eight months for the prior fiscal year.
Interest expense increased $96,000 compared to the same period last
year. The refinancing of the corporate debt occurred during October 1993,
four months into the 1994 fiscal year. Interest expense for the current year
reflects a twelve month period under the refinancing arrangement compared to
only eight months for the 1994 fiscal year.
Income Taxes. Income taxes decreased $10,000 while income before
income taxes increased $139,000 because the real estate companies' income is
taxed at the individual shareholder level and not the corporate level. A
larger portion of the combined revenue of the companies was sheltered in the
real estate companies for the current fiscal year compared to the prior
fiscal year.
INFLATIONARY FACTORS
The health care industry is labor intensive. General operating
expenses related to personnel, such as salaries and employee benefits, as
well as expenses of dietary, medical and other supplies, are subject to
normal inflationary factors. The Companies' response to such pressures has
been to concurrently increase rates charged private paying patients. Any
cost increases billed under Medicare are paid for at year-end as a part of
the annual cost reimbursement settlement. Reimbursement of increased
expenses from Medicaid may lag for up to 18 months. Although the Companies
have successfully implemented rate increases to compensate for increases in
operating expenses in the past, there can be no assurance that the Companies
will always be able to do so in the future.
LIQUIDITY AND CAPITAL RESOURCES
Overview. As of June 30, 1996 the Companies had approximately
$2,237,000 in cash and cash equivalents and net working capital of
approximately $1,824,000. The decrease in cash of $285,000 is the result of
cash from operations aggregating $3,174,000, down from $3,827,000 in 1995,
cash from investing activities of $1,117,000 (the majority of which was from
payments on notes with Rosewood Care Center Holding Co.) and cash used in
financing activities of $4,576,000 (which is comprised of debt retirement
aggregating $1,667,000 and payment of dividends aggregating $2,909,000).
On October 21, 1993 the Companies refinanced their long term debt with
the REMIC which issued $33,000,000 of its 7-1/4% First Mortgage Redeemable
Bonds due November 1, 2013. Proceeds from the sale of the bonds were used to
pay off the Companies' existing debt with a number of banks and to pay the
loan costs, including issuance costs of the bonds. Per the terms of the loan
documents, a reserve fund in the form of an irrevocable letter of credit in
the amount of approximately $3,130,000 from a commercial bank rated "AA" has
been established. The letter of credit is secured by cash and investments of
Rosewood Care Center Holding Co. Remaining loan proceeds, net of loan costs,
were loaned to an affiliate, Rosewood Care Center Holding Co., under
unsecured promissory notes bearing interest at 7-1/4% per annum and having
maturities from October to December 1996. The Companies are not
contemplating nor aware of any significant replacement of equipment and
property beyond comparable amounts expended in 1995 and 1996 because the
facilities are all newly constructed with an average age of seven years.
17
18
The Companies believe they have adequate capital for operations and
replacements for the coming year and the foreseeable future.
Accounts Receivable. Private paying patients are billed monthly at the
beginning of the month for that month's routine nursing care charges.
Charges for ancillary services are billed monthly in arrears. Accounts
receivable from private paying patients increased to $1,257,000 as of June
30, 1996, compared to $705,000 as of June 30, 1995. The amounts allowed for
doubtful accounts aggregated $206,000 and $120,000 for 1996 and 1995
respectively, which is 14.8% and 14.5% of the outstanding balances. Accounts
receivable from third parties increased to $3,001,000 as of June 30, 1996,
compared with $2,195,000 as of June 30, 1995. $1,799,000 of this is due from
Medicare for unsettled Medicare Cost Reports filed for the fiscal year ended
June 30, 1996, which are subject to audit by the third party payor. $671,500
of this amount was received subsequent to the end of the 1996 fiscal year.
With the Medicare program facing intense scrutiny and significant cutbacks,
the Companies have experienced closer scrutiny of their Medicare cost reports
and delays with regard to payment of claims. An additional effect of
Medicare's delay has been delay of co-payment amounts received from private
payors. Management does not presently anticipate any cash flow shortages
during the next fiscal year, despite the increase in the amounts due from
Medicare, unless Medicare administration and payment terms significantly
further deteriorate.
The Companies had no open lines of credit with any financial
institution as of June 30, 1996.
Governmental funding for health care programs continues to be under
pressure. Health care funding was again a prominent issue in the United
States Congress during the past year. Numerous proposals are pending which
seek to reduce the costs of the Medicare and Medicaid programs by lowering
the utilization of the programs and by controlling costs within the programs.
Implementation of a change in reimbursement for therapy services provided by
private vendors resulted in a material negative adjustment on the Companies'
Medicare cost reports for the year ended June 30, 1996. Due to an
indemnification arrangement between the Companies and the private vendor, the
effect on the Companies was minimal. However, due to the current national
environment surrounding health care, the Companies believe they will
experience future problems relating to reimbursement, some of which could
have a significant effect on operations.
The Companies continue to monitor legislative and other health care
developments and will attempt to structure contractual arrangements to
minimize the impact of reductions in government reimbursement. However,
changes in the reimbursement policies of Medicare and Medicaid as a result of
budget cuts by federal and state governments or other legislative actions
could have a significant adverse effect on the revenues of the Companies.
THE REMIC
The REMIC is purely a pass-through entity and has no resources and no
operations other than those arising out of the first mortgage loans and the
bonds. All of the payments on the first mortgage loans are used to pay the
obligations on the 7 1/4% First Mortgage Redeemable Bonds due November 1,
2013. All expenses of the offering and the administration of the Trust
Indenture executed as of October 1, 1993 pursuant to which the bonds were
issued are the responsibility of the Companies.
18
19
ITEM 8. COMBINED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
1. ROSEWOOD CARE CENTERS CAPITAL FUNDING CORPORATION
Report of Rubin, Brown, Gornstein & Co. 20
Balance Sheet 21
Statement of Operations 22
Statement of Cash Flows 23
Notes to Financial Statements 24
2. ROSEWOOD CARE CENTER COMPANIES
Rosewood Care Center, Inc. of Swansea
Rosewood Care Center, Inc. of Galesburg
Rosewood Care Center, Inc. of East Peoria
Rosewood Care Center, Inc. of Peoria
Rosewood Care Center, Inc. of Alton
Rosewood Care Center, Inc. of Moline
Swansea Real Estate, Inc.
Galesburg Real Estate, Inc.
East Peoria Real Estate, Inc.
Peoria Real Estate, Inc.
Alton Real Estate, Inc.
Moline Real Estate, Inc.
Report of Rubin, Brown, Gornstein & Co. 29
Combined Balance Sheet 30
Combined Statement of Operations 32
Combined Statement of Stockholders' Equity 33
Combined Statement of Cash Flows 34
Notes to Combined Financial Statements 35
3. ROSEWOOD CARE CENTER COMPANIES FINANCIAL STATEMENT SCHEDULE
Report of Rubin, Brown, Gornstein & Co. LLP 50
Schedule VIII Valuation and Qualifying Accounts 51
19
20
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Stockholders of
Rosewood Care Centers
Capital Funding Corporation
We have audited the accompanying balance sheet of Rosewood Care Centers
Capital Funding Corporation as of June 30, 1995 and 1996 and the statement of
operations for the years ended June 30, 1994, 1995 and 1996 and cash flows
for the years ended June 30, 1994, 1995 and 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these 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 audit 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 Rosewood Care Centers
Capital Funding Corporation as of June 30, 1995 and 1996 and the results of
operations for the years ended June 30, 1994, 1995 and 1996 and cash flows
for the years ended June 30, 1994, 1995 and 1996, in conformity with
generally accepted accounting principles.
/s/ Rubin, Brown, Gornstein & Co. LLP
August 30, 1996
20
21
ROSEWOOD CARE CENTERS
CAPITAL FUNDING CORPORATION
- -------------------------------------------------------------------------------
BALANCE SHEET
(DOLLARS IN THOUSANDS)
ASSETS
JUNE 30,
------------------------------------
1995 1996
------------------------------------
Cash and cash equivalents $ 262 $ 262
Mortgage notes receivable, Rosewood
Companies 30,947 29,280
- ------------------------------------------------------------------------------------------------------
$ 31,209 $ 29,542
======================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
First Mortgage Redeemable Bonds $ 31,020 $ 29,363
Accrued expenses 188 178
- ------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 31,208 29,541
STOCKHOLDERS' EQUITY
Common stock:
Authorized 30,000 shares of $1 par value; issued
and outstanding 1,000 shares at issue price 1 1
- ------------------------------------------------------------------------------------------------------
$ 31,209 $ 29,542
======================================================================================================
- ------------------------------------------------------------------------------------------------------
See the accompanying notes to financial statements.
21
22
ROSEWOOD CARE CENTERS
CAPITAL FUNDING CORPORATION
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
FOR THE YEARS
ENDED JUNE 30,
-------------------------------------------------------------
1994 1995 1996
-------------------------------------------------------------
Interest income $ 1,651 $ 2,299 $ 2,183
Interest expense (1,651) (2,299) (2,183)
- ------------------------------------------------------------------------------------------------------
Net income $ -- $ -- $ --
======================================================================================================
- ------------------------------------------------------------------------------------------------------
See the accompanying notes to financial statements.
22
23
ROSEWOOD CARE CENTERS
CAPITAL FUNDING CORPORATION
- -------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR THE YEARS
ENDED JUNE 30,
---------------------------------------------
1994 1995 1996
---------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ -- $ -- $ --
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase (decrease) in accrued expenses 198 (10) (10)
- -------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 198 (10) (10)
CASH FLOWS FROM INVESTMENT ACTIVITIES
Repayments of mortgage notes receivable 502 1,551 1,667
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of First Mortgage Redeemable Bonds (438) (1,542) (1,657)
- -------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 262 (1) --
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 1 263 262
- -------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 263 $ 262 $ 262
===================================================================================================================
- -------------------------------------------------------------------------------------------------------------------
See the accompanying notes to financial statements.
23
24
ROSEWOOD CARE CENTERS
CAPITAL FUNDING CORPORATION
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
HISTORY AND NATURE OF ACTIVITY
Rosewood Care Centers Capital Funding Corporation was formed as a
"single purpose entity" to function as a Real Estate Mortgage Investment
Conduit (REMIC). Accordingly, the articles of incorporation restrict the
activities to issuance of bonds, making of mortgage loans and related
activities.
Rosewood Care Centers Capital Funding Corporation (the "REMIC") is the
issuer of the First Mortgage Redeemable Bonds. The Bond proceeds were
lent to certain Rosewood Care Center real estate companies. The real
estate companies are referred to as the "Borrowing Companies."
Each of the real estate companies is 100% owned by the two stockholders
who own Rosewood Care Centers Capital Funding Corporation in like ratios.
ESTIMATES AND ASSUMPTIONS
Management uses estimates and assumptions in preparing financial
statements. 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.
CASH EQUIVALENTS
The Company considers all investments purchased with maturities of
three months or less to be cash equivalents.
INCOME TAXES
Although a REMIC is a separate entity for federal income tax purposes,
a REMIC is not generally subject to entity-level income taxes. The net
income or net loss of a REMIC is reported on the tax returns of the
holders of its residual interest who are also the two stockholders of the
real estate companies. The Bonds are designated "regular interests" and
are generally taxable as debt of the REMIC.
- --------------------------------------------------------------------------------
24
25
ROSEWOOD CARE CENTERS CAPITAL
FUNDING CORPORATION
- --------------------------------------------------------------------------------
Notes To Financial Statements (Continued)
2. MORTGAGE NOTES RECEIVABLE
The mortgage notes evidence the loans in the original amount of
$33,000,000 from the REMIC to the real estate companies and are cross
collateralized by a security agreement and assignment of management
agreement from each facility company and a first mortgage which includes
a security interest in fixtures, improvements, and other personal
property, assignment of rents and leases, collateral pledge and security
agreement and subordination and attornment agreements from each real
estate company. In addition, compensation of officers or directors of
the real estate companies is subordinated to payments under the loan
agreement. The mortgage notes bear interest at 7.25%. The facility
companies and the real estate companies are referred to together as the
"Companies."
The mortgage notes from the real estate companies require monthly
principal and interest collections of $260,824 plus an additional annual
principal collection of $720,000 for the first seven years, subject to
certain conditions in the loan agreement. If all additional annual
collections are made, the principal of the mortgage notes will be
collected as follows:
ADDITIONAL
YEARS ENDING ANNUAL
JUNE 30, TOTAL SCHEDULED COLLECTIONS
- ------------------------------------------------------------------------------------------------------
1997 $ 1,792,278 $ 1,072,278 $ 720,000
1998 1,926,624 1,206,624 720,000
1999 2,071,044 1,351,044 720,000
2000 2,226,282 1,506,282 720,000
2001 2,393,160 1,673,160 720,000
2002 1,821,540 1,821,540 --
2003 1,958,080 1,958,080 --
Thereafter 15,090,992 15,090,992 --
- ------------------------------------------------------------------------------------------------------
$ 29,280,000 $ 25,680,000 $ 3,600,000
======================================================================================================
The Borrowing Companies are required to make the additional annual
principal payments up to $720,000 per year to the extent the amount of
cash available exceeds net income available for debt service (income from
operations plus depreciation and amortization, incentive management fees,
interest income, and officer bonuses) for the prior fiscal year less (a)
the regular principal and interest payments for that year, (b) the amount
necessary to pay income taxes of the obligated companies and their
shareholders, (c) any increase in accounts receivable from third party
payors, (d) interest income from related parties and (e) the $1,000,000
cash or cash equivalents required to be maintained by the loan agreement.
- --------------------------------------------------------------------------------
25
26
ROSEWOOD CARE CENTERS CAPITAL
FUNDING CORPORATION
- --------------------------------------------------------------------------------
Notes To Financial Statements (Continued)
The failure of any real estate company to meet the required additional
annual principal payments is not an event of default, but the deficit is
cumulative to the extent any annual payment is less than $720,000. The
difference is carried forward, at which time such real estate company is
subject to certain covenants which restrict its ability to pay out
officer bonuses, dividends and incentive management fees until the
additional annual payment, on a cumulative basis, is paid in full.
The Loan Agreement also contains certain covenants relating to the
consolidation of companies, restrictions on indebtedness, transfers of
property, expansion of facilities, and the commingling of funds.
Bond issuance costs of $609,000 and underwriter's discount of $841,500
(aggregating $1,450,500) were paid by the REMIC on behalf of the real
estate companies from the proceeds of the First Mortgage Redeemable
Bonds.
The Companies have established with the trustee and the trustee is the
custodian of a 12 month debt service reserve fund consisting of a bank
letter of credit for $3,129,889.
3. FIRST MORTGAGE REDEEMABLE BONDS
The bonds are dated October 21, 1993 and bear interest at 7.25%. The
Bonds are secured by first mortgage liens, assignments of rents and
leases, collateral pledge and security agreements, subordination and
attornment agreements from each real estate company, a security
agreement, and assignment of management agreement from each facility
company and are scheduled to mature November 1, 2013. However, if all
the additional annual payments are made as required, the bonds will be
paid in full in July 2009. The application of bond proceeds, tender and
purchase of bonds, redemption of bonds and other covenants are defined in
the trust indenture.
All bond holders receive scheduled monthly principal and interest
payments and may receive additional annual principal payments during the
first seven years of the bond amortization, if additional annual payments
are received on the mortgage notes (See Note 2).
- --------------------------------------------------------------------------------
26
27
ROSEWOOD CARE CENTERS CAPITAL
FUNDING CORPORATION
- --------------------------------------------------------------------------------
Notes To Financial Statements (Continued)
Principal payments in the years subsequent to June 30, 1996 are
approximately as follows:
YEARS ENDING ADDITIONAL
JUNE 30, TOTAL SCHEDULED ANNUAL
- ------------------------------------------------------------------------------------------------------
1997 $ 1,781,520 $ 1,061,520 $ 720,000
1998 1,915,050 1,195,050 720,000
1999 2,058,606 1,338,606 720,000
2000 2,212,914 1,492,914 720,000
2001 2,378,790 1,658,790 720,000
2002 1,810,601 1,810,601 --
2003 1,946,321 1,946,321 --
Thereafter 15,259,198 15,259,198 --
- ------------------------------------------------------------------------------------------------------
$ 29,363,000 $ 25,763,000 $ 3,600,000
======================================================================================================
4. STOCKHOLDERS' EQUITY
Stockholders' equity consists of the following investments:
Larry Vander Maten Revocable Trust $ 750
Darrell Hoefling Revocable Trust 250
-----------
$ 1,000
===========
Each share of common stock has been designated as a "Certificate of
Residual Interest".
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value because of the short
maturity of those instruments.
- --------------------------------------------------------------------------------
27
28
ROSEWOOD CARE CENTERS CAPITAL
FUNDING CORPORATION
- --------------------------------------------------------------------------------
Notes To Financial Statements (Continued)
MORTGAGE NOTES RECEIVABLE
The fair value of the note receivable is estimated based on discounted
future cash flows using current rates at which similar loans would be
made to related borrowers for the same remaining maturities.
FIRST MORTGAGE REDEEMABLE BONDS
The fair value of the Company's first mortgage redeemable bonds is
estimated based on discounted future cash flows at the current rates at
which the Company could borrow funds with similar terms, degree of risk
and remaining maturities.
Estimated fair values of the Company's financial instruments, all of
which are held for nontrading purposes, are as follows:
1996
----------------------------------
CARRYING FAIR
AMOUNT VALUE
----------------------------------
Mortgage notes receivable $ 29,280,000 $ 26,991,000
First mortgage redeemable bonds 29,363,000 27,051,000
The estimated fair value amounts presented herein have been determined
using available market information and appropriate valuation
methodologies and are not necessarily indicative of the amounts the
Company could realize in a current market exchange.
28
29
INDEPENDENT AUDITORS' REPORT
To the Boards of Directors
and Stockholders of
Rosewood Care Center Facility Companies
Rosewood Real Estate Companies
St. Louis, Missouri
We have audited the accompanying combined balance sheet of Rosewood Care
Center Facility Companies and Real Estate Companies (see Note 1 of Notes to
Combined Financial Statements) as of June 30, 1995 and 1996 and the combined
statements of operations, stockholders' equity and cash flows for the years
ended June 30, 1994, 1995 and 1996. These combined financial statements are
the responsibility of the management of the Companies. Our responsibility
is to express an opinion on these combined 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 audit to
obtain reasonable assurance about whether the combined financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the combined
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 combined financial statements referred to in the first
paragraph present fairly, in all material respects, the combined financial
position of Rosewood Care Center Facility Companies and Real Estate Companies
as of June 30, 1995 and 1996 and the combined results of operations and the
combined cash flows for the years ended June 30, 1994, 1995 and 1996 in
conformity with generally accepted accounting principles.
/s/ Rubin, Brown, Gornstein & Co. LLP
August 30, 1996
29
30
ROSEWOOD CARE CENTER
FACILITY COMPANIES AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS)
PAGE 1 OF 2
ASSETS
JUNE 30,
-------------------------------
1995 1996
-------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 2,522 $ 2,237
Accounts receivable - residents, net of allowance
for doubtful accounts of $120 and $206, respectively 705 1,257
Accounts receivable - third party payors 2,195 3,001
Interest receivable 346 326
Prepaid insurance and other prepaids 108 74
Deferred income tax benefits 37 65
- ----------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 5,913 6,960
- ----------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Land 943 943
Site improvements 2,042 2,101
Buildings 17,830 17,830
Equipment 3,616 3,636
Leasehold improvements 192 272
- ----------------------------------------------------------------------------------------------
24,623 24,782
Less: Accumulated depreciation 5,510 6,435
- ----------------------------------------------------------------------------------------------
TOTAL PROPERTY, PLANT AND EQUIPMENT 19,113 18,347
- ----------------------------------------------------------------------------------------------
OTHER ASSETS
Notes receivable from Rosewood Care Center
Holding Co. 9,332 8,056
Amortizable costs, net 1,226 1,094
- ----------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 10,558 9,150
- ----------------------------------------------------------------------------------------------
$ 35,584 $ 34,457
==============================================================================================
- ----------------------------------------------------------------------------------------------
See the accompanying notes to combined financial statements.
30
31
ROSEWOOD CARE CENTER
FACILITY COMPANIES AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS)
PAGE 2 OF 2
LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30,
-------------------------------
1995 1996
-------------------------------
CURRENT LIABILITIES
Current maturities of long-term debt $ 1,667 $ 1,792
Accounts payable - trade 655 1,136
Dividends payable 703 614
Accrued expenses:
Salaries and payroll taxes 360 438
Vacation and employee fringes 91 124
Real estate taxes 543 480
Management fees - affiliate 537 464
Income taxes 170 88
- ----------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 4,726 5,136
- ----------------------------------------------------------------------------------------------
LONG-TERM DEBT
Notes payable - Rosewood Care Centers Capital Funding
Corporation 30,947 29,279
Less: Current maturities 1,667 1,792
- ----------------------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT 29,280 27,487
- ----------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock 65 65
Paid-in capital 481 481
Retained earnings 1,032 1,288
- ----------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 1,578 1,834
- ----------------------------------------------------------------------------------------------
$ 35,584 $ 34,457
==============================================================================================
- ----------------------------------------------------------------------------------------------
See the accompanying notes to combined financial statements.
31
32
ROSEWOOD CARE CENTER
FACILITY COMPANIES AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
COMBINED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED JUNE 30,
-------------------------------------------------
1994 1995 1996
-------------------------------------------------
PATIENT SERVICE REVENUE
Private $ 16,307 $ 16,827 $ 17,079
Medicare 6,632 7,443 9,293
Medicaid 1,489 1,495 1,319
Other patient revenues, net of expenses 76 74 62
- ----------------------------------------------------------------------------------------------------
TOTAL PATIENT REVENUES, NET OF EXPENSES 24,504 25,839 27,753
- ----------------------------------------------------------------------------------------------------
FACILITY EXPENSES
Administrative expenses 892 924 851
Employee fringe benefits 1,667 1,806 1,774
Dietary 1,666 1,733 1,784
Nursing 5,989 6,556 6,518
Ancillary services 1,904 2,734 4,560
Plant utilities and maintenance 1,009 1,024 1,121
Housekeeping and laundry 772 814 851
Social service and activities 379 459 550
- ----------------------------------------------------------------------------------------------------
TOTAL FACILITY EXPENSES 14,278 16,050 18,009
- ----------------------------------------------------------------------------------------------------
INCOME AFTER FACILITY EXPENSES 10,226 9,789 9,744
- ----------------------------------------------------------------------------------------------------
NONFACILITY EXPENSES
Real estate taxes and insurance 592 550 586
Base management fees 792 792 792
Illinois Medicaid assessments 394 394 394
Depreciation and amortization 1,089 1,036 1,057
- ----------------------------------------------------------------------------------------------------
TOTAL NONFACILITY EXPENSES 2,867 2,772 2,829
- ----------------------------------------------------------------------------------------------------
INCOME BEFORE INCENTIVES 7,359 7,017 6,915
INCENTIVE MANAGEMENT FEES (2,398) (2,041) (1,979)
OFFICERS' BONUSES (175) (180) (188)
- ----------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 4,786 4,796 4,748
- ----------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest income 627 852 816
Interest expense (2,203) (2,299) (2,183)
- ----------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) (1,576) (1,447) (1,367)
- ----------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 3,210 3,349 3,381
INCOME TAX (EXPENSE) BENEFIT (346) (336) (306)
- ----------------------------------------------------------------------------------------------------
NET INCOME $ 2,864 $ 3,013 $ 3,075
====================================================================================================
- ----------------------------------------------------------------------------------------------------
See the accompanying notes to combined financial statements.
32
33
ROSEWOOD CARE CENTER
FACILITY COMPANIES AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
COMMON STOCK TOTAL
---------------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
----------------------------------------------------------------------------------
Balance - June 30, 1993 65,000 $ 65 $ 481 $ 516 $ 1,062
Net Income -- -- -- 2,864 2,864
Dividends Declared -- -- -- (2,542) (2,542)
- -----------------------------------------------------------------------------------------------------------------
Balance - June 30, 1994 65,000 65 481 838 1,384
Net Income -- -- -- 3,013 3,013
Dividends Declared -- -- -- (2,819) (2,819)
- -----------------------------------------------------------------------------------------------------------------
Balance - June 30, 1995 65,000 65 481 1,032 1,578
Net Income -- -- -- 3,075 3,075
Dividends Declared -- -- -- (2,819) (2,819)
- -----------------------------------------------------------------------------------------------------------------
Balance - June 30, 1996 65,000 $ 65 $ 481 $ 1,288 $ 1,834
=================================================================================================================
- -----------------------------------------------------------------------------------------------------------------
See the accompanying notes to combined financial statements.
33
34
ROSEWOOD CARE CENTER
FACILITY COMPANIES AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
COMBINED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED JUNE 30,
-------------------------------------------------
1994 1995 1996
-------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,864 $ 3,013 $ 3,075
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on sale of equipment -- 2 --
Depreciation 891 903 925
Amortization 198 133 132
Change in assets and liabilities:
(Increase) decrease in accounts receivable - residents (40) 135 (552)
(Increase) decrease in accounts receivable - third party
party payors 182 (585) (806)
(Increase) decrease in other receivables, prepaids
and deferred income tax benefit 70 (60) 26
Increase in accounts payable - trade 52 135 481
Increase in accrued salaries, taxes and fringes 34 45 111
Increase (decrease) in accrued real estate taxes 59 29 (63)
Increase (decrease) in accrued management fees 390 (30) (73)
Increase (decrease) in other payables and accruals (281) 107 (82)
- -----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,419 3,827 3,174
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (69) (171) (159)
Net (advances) payments on notes with Rosewood Care
Center Holding Co. (7,683) 24 1,276
Decrease in restricted cash 300 -- --
- -----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (7,452) (147) 1,117
- -----------------------------------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Repayments of notes with banks (23,673) -- --
Repayments of notes with officers (350) -- --
Proceeds from notes with Rosewood Care Centers
Capital Funding 33,000 -- --
Repayments of notes with Rosewood Care Centers
Capital Funding (502) (1,551) (1,667)
Payment of loan and bond fees (1,494) -- --
Dividends paid (2,016) (2,642) (2,909)
- -----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 4,965 (4,193) (4,576)
- -----------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,932 (513) (285)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 1,103 3,035 2,522
- -----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 3,035 $ 2,522 $ 2,237
=================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 2,250 $ 2,299 $ 2,183
Income taxes paid 583 184 190
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
See the accompanying notes to combined financial statements.
34
35
ROSEWOOD CARE CENTER
FACILITY COMPANIES AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1994, 1995 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REPORTING ENTITY AND OPERATIONS
The combined financial statements include the accounts of six facility
companies (C Corporations) and their six related real estate companies
(S Corporations).
COMMON STOCK
--------------------------------------------------------------------
SHARES
--------------------------------
ISSUED AND
AUTHORIZED OUTSTANDING PAR AMOUNT
--------------------------------------------------------------------
FACILITY COMPANIES:
Rosewood Care Center, Inc. of -
Swansea 100,000 500 No par $ 500
Galesburg 100,000 500 No par 500
Alton 30,000 500 $1 500
Peoria 30,000 500 1 500
East Peoria 30,000 500 1 500
Moline 30,000 500 1 500
REAL ESTATE COMPANIES:
Swansea Real Estate, Inc. 30,000 30,000 $1 30,000
Galesburg Real Estate, Inc. 30,000 30,000 1 30,000
Alton Real Estate, Inc. 30,000 500 1 500
Peoria Real Estate, Inc. 30,000 500 1 500
East Peoria Real Estate, Inc. 30,000 500 1 500
Moline Real Estate, Inc. 30,000 500 1 500
---------------------------------------------------------------------------------------------------------------
500,000 65,000 $ 65,000
===============================================================================================================
The facility companies are wholly-owned subsidiaries of Rosewood Care
Center Holding Co. ("Rosewood Holding Company"). Rosewood Holding
Company and the real estate companies are under common control. The
facility companies and the real estate companies are referred to
together as the "Companies."
The real estate companies own the real estate and equipment and lease
the facilities to the affiliated facility companies.
- --------------------------------------------------------------------------------
35
36
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
The facility companies provide convalescent care, long-term care, and
rehabilitative services primarily to elderly patients in their
facilities in Illinois. Revenues are collected from the patients,
their families, their insurance companies or from third party payors.
Collections from the state third-party payor are in arrears as a result
of budgetary limitations.
All material intercompany balances and transactions between the
Companies have been eliminated in combining the financial statements.
Other similarly owned facility companies and real estate companies have
been excluded from these combined statements because they are not
borrowers or guarantor companies in connection with mortgage loans from
Rosewood Care Centers Capital Funding Corporation.
HISTORY OF OPERATIONS AND BUSINESS ACTIVITY
Each facility company is licensed as a skilled nursing facility by the
state of Illinois.
LOCATION DATE LICENSED
------------------------------------------------------------------
Swansea, Illinois October 8, 1987
Galesburg, Illinois December 9, 1987
Alton, Illinois May 15, 1989
Peoria, Illinois June 12, 1989
East Peoria, Illinois April 18, 1989
Moline, Illinois May 6, 1990
ESTIMATES AND ASSUMPTIONS
Management uses estimates and assumptions in preparing financial
statements. 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.
ACCOUNTING BASIS
The Companies present their financial statements on the accrual basis
in accordance with generally accepted accounting principles and in
accordance with the Audit and Accounting Guide, Audits of Providers of
Health Care Services, issued by the American Institute of Certified
Public Accountants.
- --------------------------------------------------------------------------------
36
37
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
ACCOUNTING RECLASSIFICATION
Certain 1994 and 1995 figures have been reclassified where appropriate
to conform to the financial statement presentation used in 1996.
PATIENT SERVICE REVENUE
Patient service revenue is reported at the estimated net realizable
amounts from residents, third-party payors and others for services
rendered, including estimated retroactive adjustments.
Revenue under federal and state third-party payor agreements is subject
to audit and retroactive adjustment. Provisions for estimated federal
and state third-party payor settlements are provided in the period the
related services are rendered. Differences between the estimated
amounts accrued and interim and final settlements are reported in
operations in the year of settlement.
Accounts receivable - third party payor is comprised of amounts due
from the state Medicaid and Federal Medicare Program for services
provided to residents eligible for participation in those programs.
Also included is an estimate for the settlement of the cost report to
be submitted for the year ended June 30, 1996.
ILLINOIS MEDICAID ASSESSMENT PLAN PAYMENTS
Effective July 1, 1993, a nursing home licensing fee of $1.50 per
licensed bed day was imposed by the State of Illinois. The nursing
home license fee for the years ended June 30, 1996 and 1995 was
$394,200 for each year.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are carried at cost. Depreciation is computed
on the straight-line method for financial reporting purposes as
follows:
DEPRECIABLE
LIVES
---------------
Site improvements 25 years
Buildings 40 years
Equipment 10 years
Leasehold improvements 7 years
- --------------------------------------------------------------------------------
37
38
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
AMORTIZABLE COSTS
Amortizable costs consist of bond issuance costs of $609,000 and
underwriters discount of $841,500 which are being amortized over the
term of the bond issue, on the interest method. Amortization expense
aggregated $131,553 in 1996 and $132,936 in 1995.
1995 1996
---------------------------------
Amortizable costs $ 1,450,500 $ 1,450,500
Less: Accumulated amortization 224,589 356,142
--------------------------------------------------------------------------
$ 1,225,911 $ 1,094,358
==========================================================================
INCOME TAXES
The six facility companies file a consolidated return with Rosewood
Holding Company and its other facility companies. Income taxes are
allocated to each facility based on its proportionate share of net
income. The six real estate companies file separate S Corporation
returns.
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus
deferred taxes (for the facility companies) related primarily to
plant and equipment for financial and income tax reporting. The
deferred tax assets represent the future tax return consequences of
those differences, which will be deductible when the liabilities are
settled.
CASH EQUIVALENTS
The Companies consider all investments purchased with maturities of
three months or less to be cash equivalents.
- --------------------------------------------------------------------------------
38
39
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
2 . RELATED PARTY TRANSACTIONS
Related party interest is as follows:
JUNE 30,
--------------------------------------
1995 1996
--------------------------------------
Interest receivable $ 345,895 $ 326,352
===================================================================================================
FOR THE YEARS ENDED JUNE 30,
--------------------------------------------------------------
1994 1995 1996
--------------------------------------------------------------
Interest income $ 517,067 $ 696,599 $ 702,600
Interest expense 1,668,720 2,298,852 2,182,867
===================================================================================================
The facility companies pay a management fee to HSM Management Services,
Inc., (the management company, formerly known as Hovan Enterprises,
Inc.) which is 100% owned by Rosewood Holding Company for certain
management functions as specified in the management agreements. An
annual base fee of $1,100 per licensed bed is payable monthly plus
additional incentive fees.
Incentive management fees are based on income from the nursing home
operations before income taxes and incentive management fees (base
income) of the combined group. The combined base income from the
nursing home operations is multiplied by, on a graduated basis, various
percentages with the maximum percentage of 75% applied to combined base
income over $100,000. The base plus incentive management fee is
limited to 15% of patient service revenue, by location.
Rosewood Holding Company, as licensee, grants the subsidiary facility
companies a nonexclusive right to the use of the service mark "Rosewood
Care Center."
- --------------------------------------------------------------------------------
39
40
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
3. NOTES RECEIVABLE FROM HOLDING COMPANY
At the closing on the issuance of Rosewood Care Centers Capital Funding
Corporation's (the REMIC) 7-1/4% First Mortgage Redeemable Bonds due
November 1, 2013, $4,369,000 in excess proceeds were loaned to Rosewood
Holding Company pursuant to notes to each Borrowing Company bearing
interest at 7-1/4% per annum and having maturities of October 1996. In
addition, Rosewood Holding Company delivered notes for outstanding
indebtedness to the Borrowing Companies in the aggregate principal
amount of $2,686,000. These notes bore interest at 7% and matured
December 31, 1997. In December 1993, Rosewood Holding Company obtained
a letter of credit which was deposited with the Trustee of the Trust
Indenture into the debt service reserve fund for the benefit of holders
of the REMIC's 7-1/4% First Mortgage Redeemable Bonds due November 1,
2013. Cash of approximately $3,130,000 which was being held in the
debt service reserve fund was then loaned to Rosewood Holding Company
pursuant to 3-year notes bearing interest at 7-1/4% per annum.
Thereafter, loans of excess cash to Rosewood Holding Company were made
pursuant to a series of 3-year notes bearing interest at 7-1/4% per
annum. As of June 30, 1994, all of the notes except for the notes
signed at the bond closing (totalling $4,369,000) were cancelled and
replaced with six (6) new revolving credit notes. As of June 30, 1996,
those notes were cancelled and replaced with new revolving credit notes
which allow Rosewood Holding Company to borrow, pursuant to the
revolving credit notes an aggregate of up to $9,100,000 from the
Borrowing Companies. The new revolving credit notes also bear interest
at a rate of 7-1/4% per annum and mature December 31, 1999. The
outstanding balance of the notes signed at the bond closing was
$3,485,000 at June 30, 1995 and 1996. The outstanding balance of the
revolving credit notes was $5,847,000 at June 30, 1995 and $4,570,448
at June 30, 1996. All of the notes from Rosewood Holding Company to
the Borrowing Companies are pledged to the Trustee under the Trust
Indenture as additional collateral security for repayment of the
REMIC's 7-1/4% First Mortgage Redeemable Bonds due November 1, 2013.
4. LONG-TERM DEBT
Long-term debt consists of:
1995 1996
----------------------------------------
NOTES PAYABLE - RELATED PARTIES:
Notes payable - Rosewood Care Centers Capital Funding
Corporation, payable in monthly installments of
$260,824 plus an additional principal payment of
$720,000 due annually on December 1, 1994 through
December 1, 2000, interest at 7-1/4% per year, with
final payment due November 1, 2013 $ 30,946,849 $ 29,279,548
==================================================================================================
- --------------------------------------------------------------------------------
40
41
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
The notes payable to Rosewood Care Centers Capital Funding Corporation
evidence the loans from the REMIC to the real estate companies and are
cross collateralized by a security agreement and assignment of
management agreement from each facility company and a first mortgage
which includes a security interest in fixtures, improvements, and other
personal property, assignment of rents and leases, collateral pledge
and security agreement and subordination and attornment agreements from
each real estate company. In addition, compensation of officers or
directors of the real estate companies is subordinated to payments
under the loan agreement.
The Borrowing Companies will be required to make the additional annual
payments up to $720,000 per year to the extent the amount of cash
available exceeds net income available for debt service (income from
operations plus depreciation and amortization, incentive management
fees, interest income, and officer bonuses) for the prior fiscal year
less (a) the regular principal and interest payments for that year, (b)
the amount necessary to pay income taxes of the Companies as if they
were all taxed as C Corporations for income tax purposes, (c) any
increase in accounts receivable from third party payors and (d)
interest income from related parties. In addition, the Companies are
required to maintain a minimum cash balance of $1,000,000.
The failure of any real estate company to meet the required additional
annual principal payments is not an event of default, but the deficit
is cumulative to the extent any annual payment is less than $720,000.
The difference is carried forward, at which time such real estate
company is subject to certain covenants which restrict its ability to
pay out officer bonuses, dividends and incentive management fees until
the additional annual payment, on a cumulative basis, is paid in full.
The Loan Agreement also contains certain covenants relating to the
consolidation of companies, restrictions on indebtedness, transfers of
property, expansion of facilities, and the commingling of funds.
The Companies have established with the trustee and the trustee is the
custodian of a 12 month debt service reserve fund consisting of a bank
letter of credit for $3,129,889.
- --------------------------------------------------------------------------------
41
42
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
The scheduled maturities of long-term debt at June 30, 1996 are as
follows:
YEAR AMOUNT
---------------------------------------------
1997 $ 1,792,278
1998 1,926,624
1999 2,071,044
2000 2,226,282
2001 2,393,161
Thereafter 18,870,159
---------------------------------------------
$ 29,279,548
=============================================
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
NOTES RECEIVABLE FROM ROSEWOOD CARE CENTER HOLDING CO.
It was not practicable to estimate the fair value of the notes
receivable from Rosewood Care Center Holding Co. because of the
uncertainty of future cash flows to be paid for interest and principal.
Information pertinent to estimating the fair values is disclosed in
Note 3.
FIRST MORTGAGE REDEEMABLE BONDS
The fair value of the Company's first mortgage redeemable bonds is
estimated based on discounted future cash flows at the current rates at
which the Company could borrow funds with similar terms, degree of risk
and remaining maturities.
Estimated fair values of the Company's financial instruments, all of
which are held for nontrading purposes, are as follows:
1996
---------------------------------------
CARRYING FAIR
AMOUNT VALUE
---------------------------------------
Notes receivable from Rosewood Care
Center Holding Co. $ 8,055,448 Not estimated
Long-term debt 29,279,548 26,991,000
The estimated fair value amounts presented herein have been determined
using available market information and appropriate valuation
methodologies and are not necessarily indicative of the amounts the
Company could realize in a current market exchange.
- --------------------------------------------------------------------------------
42
43
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
6. INCOME TAXES
Income tax expense (benefit) consists of:
1994 1995 1996
--------------------------------------------------------------
Computed expected tax expense $ 1,082,800 $ 1,138,700 $ 973,700
State income taxes 192,600 201,000 171,800
Portion of "expected" tax on
S Corporation earnings for which tax
will be paid at the individual level (929,400) (1,003,700) (839,500)
--------------------------------------------------------------------------------------------------------------------
Income taxes $ 346,000 $ 336,000 $ 306,000
====================================================================================================================
Current $ 349,000 $ 343,500 $ 333,300
Deferred (3,000) (7,500) (27,300)
--------------------------------------------------------------------------------------------------------------------
$ 346,000 $ 336,000 $ 306,000
====================================================================================================================
FACILITY COMPANIES
The facility companies provide for deferred taxes on temporary
differences between amounts reported for financial statement and income
tax purposes of the facility companies, which are taxed under
Subchapter C of the Internal Revenue Code of 1986. The estimated tax
effect of each temporary difference is as follows:
1995 1996
------------------------------------
Allowance for doubtful accounts $ 37,200 $ 82,600
Book versus tax difference between basis
of property, plant and equipment -- 18,100
---------------------------------------------------------------------------------------------
$ 37,200 $ 64,500
=============================================================================================
REAL ESTATE COMPANIES
The real estate companies do not provide for deferred taxes on
temporary differences between financial statement and income tax
depreciation expense on the real estate companies which are taxed under
Subchapter S of the Internal Revenue Code of 1986. The shorter
recovery periods, as prescribed by tax law, which result in lower
taxable income, pass through to the individual shareholder level.
- --------------------------------------------------------------------------------
43
44
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
Income of the real estate companies is taxed at the individual
shareholder level and not at the corporate level.
7. DIVIDENDS
Dividends declared were as follows:
1995 1996
---------------------------------- -------------------------------
PER SHARE AGGREGATE PER SHARE AGGREGATE
-------------------------------------------------------------------------
FACILITY COMPANIES:
Rosewood Care Center, Inc. of:
Swansea $ 173.40 $ 86,700 $ 185.80 $ 92,900
Galesburg 99.20 49,600 94.20 47,100
Alton 168.00 84,000 227.60 113,800
Peoria 98.20 49,100 122.00 61,000
Moline 137.40 68,700 136.20 68,100
East Peoria 69.40 34,700 8.60 4,300
REAL ESTATE COMPANIES:
Swansea Real Estate, Inc. 16.45 493,600 15.05 451,400
Galesburg Real Estate, Inc. 15.51 465,200 13.54 406,100
Alton Real Estate, Inc. 822.80 411,400 1037.20 518,600
Peoria Real Estate, Inc. 788.20 394,100 795.80 397,900
East Peoria Real Estate, Inc. 942.60 471,300 474.00 237,000
Moline Real Estate, Inc. 421.20 210,600 842.40 421,200
---------------- ---------------
$ 2,819,000 $ 2,819,400
================ ===============
8. LITIGATION
The Companies, from time to time, are involved in litigation in the
ordinary course of business including disputes involving management
contracts, patient services, employment claims and construction
matters. The Companies are also involved in routine administrative and
judicial proceedings regarding permits and expenses. The Companies are
not a party to any lawsuit or proceeding which, in the opinion of
management, is not adequately covered by insurance or which is,
individually or in the aggregate, likely to have a material adverse
effect on the combined financial position or results of operations of
the Companies.
- --------------------------------------------------------------------------------
44
45
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
9. SUMMARIZED COMBINING FINANCIAL INFORMATION
Summarized condensed combining financial information for the facility
companies and the real estate companies is as follows:
Balance sheet information (Dollars in thousands):
REAL
FACILITY ESTATE COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
-------------------------------------------------------------------------------
June 30, 1995
Current assets $ 5,555 $ 955 $ (597) $ 5,913
Noncurrent assets 1,200 31,513 (3,042) 29,671
----------------------------------------------------------------------------------------------------------------------
Total assets $ 6,755 $ 32,468 $ (3,639) $ 35,584
======================================================================================================================
Current liabilities $ 3,038 $ 2,285 $ (597) $ 4,726
Noncurrent liabilities 3,042 29,280 (3,042) 29,280
----------------------------------------------------------------------------------------------------------------------
Total liabilities 6,080 31,565 (3,639) 34,006
Stockholders' equity 675 903 -- 1,578
----------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $ 6,755 $ 32,468 $ (3,639) $ 35,584
======================================================================================================================
REAL
FACILITY ESTATE COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
-------------------------------------------------------------------------------
June 30, 1996
Current assets $ 6,626 $ 930 $ (596) $ 6,960
Noncurrent assets 1,944 29,991 (4,438) 27,497
----------------------------------------------------------------------------------------------------------------------
Total assets $ 8,570 $ 30,921 $ (5,034) $ 34,457
======================================================================================================================
Current liabilities $ 3,396 $ 2,335 $ (596) $ 5,136
Noncurrent liabilities 4,439 27,487 (4,438) 27,487
----------------------------------------------------------------------------------------------------------------------
Total liabilities 7,835 29,822 (5,034) 32,623
Stockholders' equity 735 1,099 -- 1,834
----------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $ 8,570 $ 30,921 $ (5,034) $ 34,457
======================================================================================================================
- --------------------------------------------------------------------------------
45
46
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
Statement of Operations information (Dollars in thousands):
REAL
FACILITY ESTATE COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
-------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1994
Gross revenues $ 24,504 $ 5,186 $ (5,186) $ 24,504
Costs and expenses (23,571) (1,333) 5,186 (19,718)
----------------------------------------------------------------------------------------------------------------------
Income from operations 933 3,853 -- 4,786
Other income (expenses) (354) (1,568) -- (1,922)
----------------------------------------------------------------------------------------------------------------------
Net income $ 579 $ 2,285 $ -- $ 2,864
======================================================================================================================
YEAR ENDED JUNE 30, 1995
Gross revenues $ 25,839 $ 5,342 $ (5,342) $ 25,839
Costs and expenses (25,118) (1,267) 5,342 (21,043)
----------------------------------------------------------------------------------------------------------------------
Income from operations 721 4,075 -- 4,796
Other income (expenses) (288) (1,495) -- (1,783)
----------------------------------------------------------------------------------------------------------------------
Net income $ 433 $ 2,580 $ -- $ 3,013
======================================================================================================================
YEAR ENDED JUNE 30, 1996
Gross revenues $ 27,753 $ 5,302 $ (5,302) $ 27,753
Costs and expenses (26,997) (1,310) 5,302 (23,005)
----------------------------------------------------------------------------------------------------------------------
Income from operations 756 3,992 -- 4,748
Other income (expenses) (310) (1,363) -- (1,673)
----------------------------------------------------------------------------------------------------------------------
Net income $ 446 $ 2,629 $ -- $ 3,075
======================================================================================================================
- --------------------------------------------------------------------------------
46
47
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
Statement of Cash Flows Information (Dollars in thousands):
REAL
FACILITY ESTATE COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
----------------------------------------------------------
YEAR ENDED JUNE 30, 1994:
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 580 $ 2,284 $ -- $ 2,864
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6 1,083 -- 1,089
Change in assets and liabilities:
Increase in accounts receivable -
residents (40) -- -- (40)
Decrease in accounts receivable -
third party payors 182 -- -- 182
(Increase) decrease in other
receivables and prepaids (117) 730 (543) 70
Increase in accrued management fees 390 -- -- 390
Increase (decrease) in accounts
payable and other accrued
expenses (637) (42) 543 (136)
---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 364 4,055 -- 4,419
---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (29) (40) -- (69)
Net (advances) payments on notes with
Rosewood Care Holding Co. 1,967 (9,650) -- (7,683)
Decrease in restricted cash -- 300 -- 300
---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES 1,938 (9,390) -- (7,452)
---------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Repayments of notes -- (23,673) -- (23,673)
Repayments of notes with officers -- (350) -- (350)
Net proceeds from notes with Rosewood Care
Centers Capital Funding -- 32,498 -- 32,498
Payment of loan and bond fees -- (1,494) -- (1,494)
Dividends paid (366) (1,650) -- (2,016)
---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (366) 5,331 -- 4,965
---------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,936 (4) -- 1,932
CASH AND CASH EQUIVALENTS - BEGINNING OF
YEAR 1,094 9 -- 1,103
---------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 3,030 $ 5 $ -- $ 3,035
=====================================================================================================================
- --------------------------------------------------------------------------------
47
48
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
REAL
FACILITY ESTATE COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
----------------------------------------------------------
YEAR ENDED JUNE 30, 1995:
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 433 $ 2,580 $ -- $ 3,013
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Loss on sale of equipment -- 2 -- 2
Depreciation and amortization 16 1,020 -- 1,036
Change in assets and liabilities:
Decrease in accounts receivable -
residents 135 -- -- 135
Increase in accounts receivable -
third party payors (585) -- -- (585)
(Increase) decrease in other
receivables and prepaids 261 276 (597) (60)
Increase in accrued management fees (30) -- -- (30)
Increase (decrease) in accounts
payable and other accrued
expenses (265) (16) 597 316
---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (35) 3,862 -- 3,827
---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (127) (44) -- (171)
Net (advances) payments on notes with
Rosewood Care Holding Co. -- 24 -- 24
---------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (127) (20) -- (147)
---------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Repayments of notes -- (1,551) -- (1,551)
Dividends paid (356) (2,286) -- (2,642)
---------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (356) (3,837) -- (4,193)
---------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (518) 5 -- (513)
CASH AND CASH EQUIVALENTS - BEGINNING OF
YEAR 3,029 6 -- 3,035
---------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 2,511 $ 11 $ -- $ 2,522
=====================================================================================================================
- --------------------------------------------------------------------------------
48
49
ROSEWOOD CARE CENTER FACILITY COMPANIES
AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
Notes To Combined Financial Statements (Continued)
REAL
FACILITY ESTATE COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
----------------------------------------------------------
YEAR ENDED JUNE 30, 1996:
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 446 $ 2,629 $ -- $ 3,075
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 34 1,023 -- 1,057
Change in assets and liabilities:
Decrease in accounts receivable -
residents (552) -- -- (552)
Increase in accounts receivable -
third party payors (806) -- -- (806)
(Increase) decrease in other
receivables and prepaids (3) 625 (596) 26
Increase in accrued management fees (73) -- -- (73)
Increase (decrease) in accounts
payable and other accrued
expenses (149) -- 596 447
---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (1,103) 4,277 -- 3,174
---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (80) (79) -- (159)
Net (advances) payments on notes with
Rosewood Care Holding Co. 1,396 (120) -- 1,276
---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES 1,316 (199) -- 1,117
---------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Repayments of notes -- (1,667) -- (1,667)
Dividends paid (498) (2,411) -- (2,909)
---------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (498) (4,078) -- (4,576)
---------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (285) -- -- (285)
CASH AND CASH EQUIVALENTS - BEGINNING OF
YEAR 2,511 11 -- 2,522
---------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 2,226 $ 11 $ -- $ 2,237
=====================================================================================================================
49
50
INDEPENDENT AUDITORS' REPORT
Board of Directors
Rosewood Care Center Facility
and Real Estate Companies
St. Louis, Missouri
We have audited, in accordance with generally accepted auditing standards, the
combined financial statements of Rosewood Care Center Facility Companies and
Real Estate Companies as of June 30, 1995 and 1996 and for each of three years
in the period ended June 30, 1994, 1995 and 1996, and have issued our report
thereon dated August 30, 1996. The combined financial statement schedules are
the responsibility of the Company's management and are presented for the
purpose of complying with Securities and Exchange Commission's rules and are
not part of the combined financial statements. These schedules have been
subjected to the auditing procedures applied in the audit of the combined
financial statements and, in our opinion, presents fairly in all material
respects the financial data required to be set forth herein in relation to the
combined financial statements taken as a whole.
/s/ Rubin, Brown, Gornstein & Co. LLP
RUBIN, BROWN, GORNSTEIN & CO., LLP
St. Louis, Missouri
August 30, 1996
50
51
ROSEWOOD CARE CENTER FACILITIES COMPANIES
AND REAL ESTATE COMPANIES
- --------------------------------------------------------------------------------
Schedule VIII
Reg S-X210.12-09
Valuation And Qualifying Accounts
(Dollars In Thousands)
A B C D E
- ---------------------------------------------------------------------------------------------------------------------
ADDITIONS
------------------------------
CHARGED
BALANCE AT CHARGED TO TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS- DEDUCTIONS- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- ---------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1994:
Allowance for doubtful accounts $ 61 $41 $ -- $ -- $102
=====================================================================================================================
YEAR ENDED JUNE 30, 1995:
Allowance for doubtful accounts $102 $18 $ -- $ -- $120
=====================================================================================================================
YEAR ENDED JUNE 30, 1996:
Allowance for doubtful accounts $120 $86 $ -- $ -- $206
=====================================================================================================================
51
52
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There were no changes in or disagreements with accountants on
accounting and financial disclosures during the fiscal year ended June 30,
1996.
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE COMPANY.
The following table lists the directors and executive officers of the
REMIC and each of the Companies, their ages and their positions. The director
serves for a term of one year. Each executive officer serves at the pleasure
of the director.
Name Age Position with the Issuer
---- --- ------------------------
Larry D. Vander Maten 50 Director and President
Darrell D. Hoefling 46 Vice President
Louis Netemeyer 49 Controller, Secretary
and Treasurer
MR. VANDER MATEN is a founder and principal shareholder (through his
trust) of the REMIC and the Companies. Mr. Vander Maten is actively involved
in related companies in which Mr. Vander Maten, his trust or his family
limited partnership is the principal shareholder. Such businesses have the
same management as and operate substantially similar businesses or businesses
closely related to that of the Companies. Mr. Vander Maten also serves on
the Board of Directors of Charlestown, a life care retirement community in
Baltimore, Maryland and Henry Ford Village, a life care retirement community
in Dearborn, Michigan.
MR. HOEFLING is Vice President of the REMIC and has been Vice President
of Operations of the Companies and the affiliated Rosewood companies since
1985. He is a shareholder (through his trust or his family limited
partnership) of the Companies and all affiliated Rosewood companies.
MR. NETEMEYER has been Controller, Secretary and Treasurer of the REMIC
since its formation and of the Companies since 1985.
ITEM 11. EXECUTIVE COMPENSATION.
The REMIC has no employees and pays no salaries to its officers. The
Companies also do not regularly pay salaries to any officers. However, a
bonus was paid to officers during 1996. The regular compensation of the
executive officers for services rendered to the Companies is paid by HSM
Management, pursuant to the Management Agreements or the Administrative
Services Agreements. Currently, HSM Management pays all such compensation in
the form of cash. Except for any incentive compensation which may be paid to
Messrs. Vander Maten and Hoefling, all such compensation is paid from the
base management fee payable to HSM Management pursuant to the Management
Agreements.
52
53
THE FOLLOWING TABLE SETS FORTH CERTAIN INFORMATION WITH RESPECT TO THE
ANNUAL COMPENSATION PAID OR ACCRUED FOR FISCAL YEAR ENDED JUNE 30, 1996 TO
THE CHIEF EXECUTIVE OFFICER OF THE REMIC AND THE COMPANIES AND TO THE ONLY
OTHER EXECUTIVE OFFICER WHOSE TOTAL SALARY EXCEEDED $100,000 DURING SUCH
FISCAL YEAR.
Name and Principal Position Salary Bonus
- --------------------------- ------ -----
Larry D. Vander Maten
President $273,000<F1> $141,000<F2>
Darrell D. Hoefling
Vice President $147,000<F1> $ 47,000<F2>
<FN>
- ----------------------
<F1> Represents amounts paid to Messrs. Vander Maten and Hoefling by HSM
Management. These amounts are allocated by HSM Management based on the
number of facilities that HSM Management manages for the Companies and their
affiliates and the value rendered to individual facilities.
<F2> Paid by the Companies.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the shares of the REMIC and the
Companies beneficially owned by each person who is the beneficial owner of
more than 5% of the outstanding shares. All of the shares set forth in the
following table are subject to an agreement between the shareholders
restricting transfer of the shares. Each person named in the table has sole
voting and investment power with respect to all shares shown in the table as
being owned by such person. There are no arrangements known to the REMIC or
the Companies which may, at a subsequent date, result in change in control of
the REMIC or the Companies.
Percent
Type of Stock Name and Address of Owner of Ownership
- ------------- ------------------------- ------------
Common Stock Larry D. Vander Maten, as Trustee of
Larry D. Vander Maten Revocable Trust 75%
11701 Borman Drive, Suite 315
St. Louis, Missouri 63146
Common Stock Darrell D. Hoefling, as Trustee of
Darrell D. Hoefling Revocable Trust 25%
11701 Borman Drive, Suite 315
St. Louis, Missouri 63146
53
54
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During 1996 and 1995 the Companies loaned excess cash to an affiliate,
Rosewood Care Center Holding Co., pursuant to certain promissory notes.
Rosewood Care Center Holding Co. is owned 75% by Mr. Vander Maten's family
limited partnership and 25% by Mr. Hoefling's family limited partnership.
Mr. Vander Maten and Mr. Hoefling through their respective controlled
corporations act as general partner of their respective limited partnerships.
Mr. Vander Maten is the president and sole director and Mr. Hoefling is the
vice president of Rosewood Care Center Holding Co. The highest amount of
such indebtedness by Rosewood Care Center Holding Co. to the Companies during
1996 and 1995 was $10,953,000 and $10,384,000 respectively. At June 30, 1996
and 1995, the amount of such indebtedness of Rosewood Care Center Holding Co.
to the Companies was $8,056,448 and $9,332,000 respectively.
At the closing on the issuance of the REMIC's 7 1/4% First Mortgage
Redeemable Bonds due November 1, 2013, $4,369,000 in excess proceeds were
loaned to Rosewood Care Center Holding Co. pursuant to notes to each
Borrowing Company bearing interest at 7 1/4% per annum and having maturities
of October 1996. As of June 30, 1996, when the remaining balance of the
notes aggregated $3,554,847, the original notes were cancelled and replaced
with notes bearing interest at 7 1/4% per annum and due December 31, 1999.
In December 1993, Rosewood Care Center Holding Co. obtained a letter of
credit which was deposited with the Trustee of the Trust Indenture into the
debt service reserve fund for the benefit of holders of the REMIC's 7 1/4%
First Mortgage Redeemable Bonds due November 1, 2013. Cash of approximately
$3,130,000 which was being held in the debt service reserve fund was then
loaned to Rosewood Care Center Holding Co. pursuant to 3 year notes bearing
interest at 7 1/4% per annum. Subsequently, the notes aggregating
approximately $3,130,000 were cancelled and replaced with revolving credit
notes to allow additional amounts of excess cash to be loaned to Rosewood
Care Center Holding Co. without the necessity of continuously revising or
executing new promissory notes. As of June 30, 1996 outstanding notes were
cancelled and replaced with six (6) new revolving credit notes which allow
Rosewood Care Center Holding Co. to borrow, pursuant to the revolving credit
notes, an aggregate up to $9,100,000 from the borrowing companies. The notes
bear interest at 7 1/4% per annum and are due December 31, 1999. The balance
outstanding for the revolving credit notes aggregated $4,501,601 as of June
30, 1996. All of the notes from Rosewood Care Center Holding Co. to the
Borrowing Companies are pledged to the Trustee under the Trust Indenture as
additional collateral security for repayment of the REMIC's 7 1/4% First
Mortgage Redeemable Bonds due November 1, 2013.
54
55
The Guarantors incurred expenses for management fees to HSM Management
during the year ended June 30, 1996 and 1995 of approximately $2,771,222 and
$2,833,174 for services rendered during the 1996 and 1995 fiscal year
respectively. HSM Management is a wholly owned subsidiary of Rosewood Care
Center Holding Co. Mr. Vander Maten and Mr. Hoefling are the President and
Vice President respectively of HSM Management and Mr. Vander Maten is HSM
Management's sole director. At June 30, 1996 and 1995, $464,000 and 537,000
respectively of such fees were unpaid. All such accrued fees were paid
subsequent to the end of the 1996 and 1995 fiscal years. Pursuant to the
management agreements entered into as of October 21, 1993, the bond issue
date, it was anticipated that the Guarantors would, from time to time, accrue
a portion of the incentive management fees and thus be indebted to the
management company until such amounts were paid. Under the loan documents,
payment of the management fees is subordinated and any note given to the
management company for incentive management fees must be subordinated to
payment of the bonds and preclude remedial action against the Companies until
the bonds are paid in full. The management agreements entered into continue
in full force and effect.
HSM Management pays the compensation of persons who render management
services to the Guarantors. Such compensation is paid from the base
management fee payable pursuant to the Management Agreements. In the last
fiscal year, HSM Management allocated $273,000 and $147,000 as the
compensation paid to Messrs. Vander Maten and Hoefling, respectively,
relating to services rendered to the Guarantors. This compensation
arrangement is anticipated to continue.
Each Guarantor pays an annual license fee of $3,000 to Rosewood Care
Center Holding Co. under the terms of a license agreement dated June 30, 1996
under which the Companies are authorized to use the name "Rosewood Care
Center".
During the last quarter of 1994, one of the Companies, Galesburg Real
Estate, Inc., granted a long term ground lease and easements for nominal
consideration to related companies, Galesburg Real Estate II, L.L.C. and HSM
Investment, L.L.C., as permitted under the loan documents, for the purpose of
facilitating construction of a planned 60 bed expansion at Rosewood Care
Center of Galesburg. If expansion proceeds as originally planned, the
easement rights will be assigned to Galesburg Real Estate, L.L.C. when it
acquires the property adjoining the Galesburg facility from HSM Investment,
L.L.C. Galesburg Real Estate II, L.L.C. and HSM Investment, L.L.C. are owned
75% by Mr. Vander Maten's family limited partnership and 25% by Mr.
Hoefling's family limited partnership. Mr. Vander Maten is the Manager of
both Galesburg Real Estate II, L.L.C. and HSM Investment, L.L.C. The
expansion building will be connected to the existing Galesburg facility by a
corridor. The expansion building will be constructed and owned by the
affiliate Galesburg Real Estate II, L.L.C. but operated by Rosewood Care
Center, Inc. of Galesburg and managed by HSM Management. The expansion
building may share some special use areas and equipment with the Galesburg
facility. However, the Galesburg facility will continue to be able to
function as a separate facility. Therefore, if it should become necessary or
desirable to sever the expansion building from the Galesburg facility or
cease operation of the expansion building, there should be no material
adverse effect on the existing Galesburg facility's ability to operate as a
complete, separate physical structure. Although any rents or proceeds from
the ground lease and easements are encumbered, the ground leases and
easements are not encumbered by the mortgage held by the REMIC on the
Galesburg facility. The bifurcated ownership structure is required by the
loan documents and is intended to shelter bondholders from risks associated
with construction. The Galesburg facility expansion is currently under
review by the Illinois Health Facilities Planning Board and, if the expansion
does proceed, it may not occur in the manner described above.
55
56
Plans for the expansion of the Alton facility on terms substantially
similar to those described above for the Galesburg facility are nearing
completion. As of June 30, 1996 construction of the Alton expansion was
contemplated to begin in the next fiscal quarter. Similar expansion is a
possibility at any or all of the remaining facilities.
The Guarantors are all subsidiaries of and file a consolidated tax
return with Rosewood Care Center Holding Co. As of June 30, 1996 and 1995,
the Companies owed $88,263 and $170,120 respectively as their share of the
current year income taxes to the Rosewood Care Center Holding Co. All such
accrued amounts were paid subsequent to the end of the 1996 and 1995 fiscal
years.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS ON FORM 8-K
(a) 1 AND 2 FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The financial statements and the financial statement schedule listed in
Item 8 in the index to Combined Financial Statements and Supplementary Data
are filed as part of this annual report on Form 10-K.
(a) 3 EXHIBITS
The Exhibits listed in the accompanying index to exhibits are
incorporated by reference herein and filed as part of this annual report on
Form 10-K.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter.
(c) EXHIBITS
See the accompanying index to exhibits referenced in Item 14(a)(3)
above for a list of exhibits incorporated herein by reference or filed as
part of this annual report on Form 10-K.
(d) FINANCIAL STATEMENT SCHEDULE
See the accompanying index to Combined Financial Statements and
Supplementary Data referenced in Item 14(a)1 and 2 above.
56
57
SUPPLEMENTAL INFORMATION TO BE FURNISHED
WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT
BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT
The Registrant has only debt registered under the Securities Act of
1933. No annual report has been or will be sent to security (bond) holders.
If any security holder requests information, a copy of this annual report on
Form 10-K will be sent to such security holder.
57
58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ROSEWOOD CARE CENTERS CAPITAL
FUNDING CORPORATION, Registrant
Dated: September 26, 1996 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and
Principal Financial and Accounting Officer)
58
59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ROSEWOOD CARE CENTER, INC. OF
SWANSEA, Registrant
Dated: September 26, 1996 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
59
60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ROSEWOOD CARE CENTER, INC. OF
GALESBURG, Registrant
Dated: September 26, 1996 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer
60
61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ROSEWOOD CARE CENTER, INC. OF
PEORIA, Registrant
Dated: September 26, 1996 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
61
62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ROSEWOOD CARE CENTER, INC. OF
EAST PEORIA, Registrant
Dated: September 26, 1996 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
62
63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ROSEWOOD CARE CENTER, INC. OF
ALTON, Registrant
Dated: September 26, 1996 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
63
64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ROSEWOOD CARE CENTER, INC. OF
MOLINE, Registrant
Dated: September 26, 1996 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
64
65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SWANSEA REAL ESTATE, INC., Registrant
Dated: September 26, 1996 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal and Executive Officer and Principal
Financial and Accounting Officer
65
66
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GALESBURG REAL ESTATE, INC., Registrant
Dated: September 26, 1996 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
66
67
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PEORIA REAL ESTATE, INC., Registrant
Dated: September 26, 1996 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
EAST PEORIA REAL ESTATE, INC., Registrant
Dated: September 26, 1996 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
68
69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ALTON REAL ESTATE, INC., Registrant
Dated: September 26, 1996 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MOLINE REAL ESTATE, INC., Registrant
Dated: September 26, 1996 /s/ Larry D. Vander Maten
-------------------------
Larry D. Vander Maten
President and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
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ROSEWOOD CARE CENTERS CAPITAL FUNDING CORPORATION
EXHIBIT INDEX
These Exhibits are numbered in accordance with the Exhibit Table of Item 601
of Regulation S-K
Exhibit
Number Description
- ------- -----------
3.1 Reference is made to the Amended and Restated Articles of Incorporation of Rosewood
Care Centers Capital Funding Corporation filed on September 28, 1994 as Exhibit 3.1
of the Form 10-K of Registrants.
3.2 Reference is made to the Amended and Restated Articles of Incorporation of Rosewood
Care Center, Inc. of Swansea filed on September 28, 1994 as Exhibit 3.2 of the Form
10-K of Registrants.
3.3 Reference is made to the Amended and Restated Articles of Incorporation of Rosewood
Care Center, Inc. of Galesburg filed on September 28, 1994 as Exhibit 3.3 of the Form
10-K of Registrants.
3.4 Reference is made to the Amended and Restated Articles of Incorporation of Rosewood
Care Center, Inc. of East Peoria filed on September 28, 1994 as Exhibit 3.4 of the
Form 10-K of Registrants.
3.5 Reference is made to the Amended and Restated Articles of Incorporation of Rosewood
Care Center, Inc. of Peoria filed on September 28, 1994 as Exhibit 3.5 of the Form
10-K of Registrants.
3.6 Reference is made to the Amended and Restated Articles of Incorporation of Rosewood
Care Center, Inc. of Alton filed on September 28, 1994 as Exhibit 3.6 of the Form 10-K
of Registrants.
3.7 Reference is made to the Amended and Restated Articles of Incorporation of Rosewood
Care Center, Inc. of Moline filed on September 28, 1994 as Exhibit 3.7 of the Form
10-K of Registrants.
3.8 Reference is made to the Amended and Restated Articles of Incorporation of Swansea
Real Estate, Inc. filed on September 28, 1994 as Exhibit 3.8 of the Form 10-K of
Registrants.
3.9 Reference is made to the Amended and Restated Articles of Incorporation of
Galesburg Real Estate, Inc. filed on September 28, 1994 as Exhibit 3.9
of the Form 10-K of Registrants.
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3.10 Reference is made to the Amended and Restated Articles of Incorporation of East
Peoria Real Estate, Inc. filed on September 28, 1994 as Exhibit 3.10 of the Form
10-K of Registrants.
3.11 Reference is made to the Amended and Restated Articles of Incorporation of Peoria
Real Estate, Inc. filed on September 28, 1994 as Exhibit 3.11 of the Form 10-K of
Registrants.
3.12 Reference is made to the Amended and Restated Articles of Incorporation of Alton
Real Estate, Inc. filed on September 28, 1994 as Exhibit 3.12 of the Form 10-K of
Registrants.
3.13 Reference is made to the Amended and Restated Articles of Incorporation of Moline
Real Estate, Inc. filed on September 28, 1994 as Exhibit 3.13 of the Form 10-K of
Registrants.
3.14 Reference is made to the Bylaws of Rosewood Care Centers Capital Funding
Corporation filed on July 13, 1993 as Exhibit 3.14 of the Registration
Statement of Registrants (No. 33-65948) declared effective October 14, 1993.
3.15 Reference is made to the Bylaws of Rosewood Care Center, Inc. of Swansea filed on
July 13, 1993 as Exhibit 3.15 of the Registration Statement of Registrants (No.
33-65948) declared effective October 14, 1993.
3.16 Reference is made to the Bylaws of Rosewood Care Center, Inc. of Galesburg filed
on July 13, 1993 as Exhibit 3.16 of the Registration Statement of Registrants
(No. 33-65948) declared effective October 14, 1993.
3.17 Reference is made to the Bylaws of Rosewood Care Center, Inc. of East Peoria filed
on July 13, 1993 as Exhibit 3.17 of the Registration Statement of Registrants
(No. 33-65948) declared effective October 14, 1993.
3.18 Reference is made to the Bylaws of Rosewood Care Center, Inc. of Peoria filed on
July 13, 1993 as Exhibit 3.18 of the Registration Statement of Registrants (No.
33-65948) declared effective October 14, 1993.
3.19 Reference is made to the Bylaws of Rosewood Care Center, Inc. of Alton filed on
July 13, 1993 as Exhibit 3.19 of the Registration Statement of Registrants (No.
33-65948) declared effective October 14, 1993.
3.20 Reference is made to the Bylaws of Rosewood Care Center, Inc. of Moline filed on
July 13, 1993 as Exhibit 3.20 of the Registration Statement of Registrants (No.
33-65948) declared effective October 14, 1993.
3.21 Reference is made to the Bylaws of Swansea Real Estate, Inc. filed on July 13, 1993
as Exhibit 3.21 of the Registration Statement of Registrants (No. 33-65948) declared
effective October 14, 1993.
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3.22 Reference is made to the Bylaws of Galesburg Real Estate, Inc. filed on July 13,
1993 as Exhibit 3.22 of the Registration Statement of Registrants (No. 33-65948)
declared effective October 14, 1993.
3.23 Reference is made to the Bylaws of East Peoria Real Estate, Inc. filed on July 13,
1993 as Exhibit 3.23 of the Registration Statement of Registrants (No. 33-65948)
declared effective October 14, 1993.
3.24 Reference is made to the Bylaws of Peoria Real Estate, Inc. filed on July 13, 1993
as Exhibit 3.24 of the Registration Statement of Registrants (No. 33-65948) declared
effective October 14, 1993.
3.25 Reference is made to the Bylaws of Alton Real Estate, Inc. filed on July 13, 1993
as Exhibit 3.25 of the Registration Statement of Registrants (No. 33-65948)
declared effective October 14, 1993.
3.26 Reference is made to the Bylaws of Moline Real Estate, Inc. filed on July 13, 1993
as Exhibit 3.26 of the Registration Statement of Registrants (No. 33-65948) declared
effective October 14, 1993.
4.1 Reference is made to Article III of the Articles of Incorporation of Rosewood Care
Centers Capital Funding Corporation filed on July 13, 1993 as Exhibit 3.1 (and
referenced in Exhibit 4.1) of the Registration Statement of Registrants (No.
33-65948) declared effective October 14, 1993.
4.2 Reference is made to the Trust Indenture filed on November 29, 1993 as Exhibit 4.2
of the Form 10-Q of Registrants.
4.3 Reference is made to the Bond filed on November 29, 1993 as Exhibit 4.3 of the Form
10-Q of Registrants.
4.4 Reference is made to the Loan Guaranty Agreement between Rosewood Care Centers
Capital Funding Corporation and Rosewood Care Center, Inc. of Alton and the additional
Loan Guaranty Agreements listed on the Schedule filed on November 29, 1993 as
Exhibit 4.4 of the Form 10-Q of Registrants.
4.5 Reference is made to the Note executed by Alton Real Estate, Inc. and the
additional Notes listed on the Schedule filed on November 29, 1993 as Exhibit
4.5 of the Form 10-Q of Registrants.
10.1 Reference is made to the Trust Indenture filed on November 29, 1993 as Exhibit 4.2
of the Form 10-Q of Registrants.
10.2 Reference is made to the Collateral Pledge and Security Agreement between Rosewood
Care Centers Capital Funding Corporation and Alton Real Estate, Inc. and the
additional Collateral Pledge and Security Agreements listed on the
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Schedule filed on November 29, 1993 as Exhibit 10.2 of the Form 10-Q of
Registrants.
10.3 Reference is made to the Mortgage Between Alton Real Estate, Inc. and Rosewood
Care Centers Capital Funding Corporation and the additional Mortgages listed on
the Schedule filed on November 29, 1993 as Exhibit 10.3 of the Form 10-Q of
Registrants.
10.4 Reference is made to the Security Agreement between Rosewood Care Centers Capital
Funding Corporation and Rosewood Care Center, Inc. of Alton and the additional
Security Agreements listed on the Schedule filed on November 29, 1993 as
Exhibit 10.4 of the Form 10-Q of Registrants.
10.5 Reference is made to the Assignment of Rents and Leases between Rosewood Care
Centers Capital Funding Corporation and Alton Real Estate, Inc. and the additional
Assignments of Rents and Leases listed on the Schedule filed on November 29, 1993
as Exhibit 10.5 of the Form 10-Q of Registrants.
10.6 Reference is made to the Subordination and Attornment Agreement between Rosewood
Care Centers Capital Funding Corporation and Alton Real Estate, Inc. and the
additional Subordination and Attornment Agreements listed on the Schedule filed
on November 29, 1993 as Exhibit 10.6 of the Form 10-Q of Registrants.
10.7 Reference is made to the Acknowledgment and Consent between Rosewood Care Centers
Capital Funding Corporation and Hovan Enterprises, Inc. filed on November 29, 1993
as Exhibit 10.7 of the Form 10-Q of Registrants
10.8 Reference is made to the Administrative Services Agreement between Hovan
Enterprises, Inc. and Alton Real Estate, Inc. and the additional Administrative
Services Agreements listed on the Schedule filed on November 29, 1993 as
Exhibit 10.8 of the Form 10-Q of Registrants.
10.9 Reference is made to the Revised and Restated Management Agreement between Rosewood
Care Center, Inc. of Alton and Hovan Enterprises, Inc. and the additional Revised
and Restated Management Agreements listed on the Schedule filed on November 29,
1993 as Exhibit 10.9 of the Form 10-Q of Registrants.
10.10 Reference is made to the Lease between Alton Real Estate, Inc. and Rosewood Care
Center, Inc. of Alton and the additional Leases listed on the Schedule filed on
November 29, 1993 as Exhibit 10.10 of the Form 10-Q of Registrants.
10.11 Reference is made to the Assignment of Management Agreement between Rosewood Care
Center, Inc. of Alton and Mercantile Bank and the additional Assignments of Management
Agreement listed on the Schedule filed on November 29, 1993 as Exhibit 10.11 of
the Form 10-Q of Registrants.
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10.12 Reference is made to the Contract between Resident and Facility filed on July 13,
1993 as Exhibit 10.12 of the Registration Statement of Registrants (No. 33-65948)
declared effective October 14, 1993.
10.13 Reference is made to the Loan Agreement among Rosewood Care Centers Capital Funding
Corporation and Alton Real Estate, Inc., Swansea Real Estate, Inc., Peoria Real
Estate, Inc., East Peoria Real Estate, Inc., Moline Real Estate, Inc., and
Galesburg Real Estate, Inc. filed on November 29, 1993 as Exhibit 10.13 of the
Form 10-Q of Registrants.
10.14 Reference is made to the Loan Guaranty Agreement filed on November 29, 1993 as
Exhibit 4.4 of the Form 10-Q of Registrants.
10.15 Reference is made to the Letter of Credit issued by Sun Bank, National Association
to Mercantile Bank of St. Louis N.A. as Trustee under the Trust Indenture on December
6, 1993 and substituted for the cash in the Debt Service Reserve Fund on December 9,
1993, filed on February 11, 1994 as Exhibit 10.15 on the Form 10-Q of the Registrants.
10.16 Reference is made to the renewal of the Letter of Credit filed on February 11, 1994
as Exhibit 10.15 on the Form 10-Q of the Registrants, which renewal was filed on
February 14, 1995 as Exhibit 10.16 of the Form 10-Q of the Registrants.
10.17 Reference is made to the renewal of the Letter of Credit filed on February 11, 1994
as Exhibit 10.15 on the Form 10-Q of the Registrants, which renewal was filed on
February 13, 1996 as Exhibit 10.17 of the Form 10-Q of the Registrants.
27 Financial Data Schedule
99.1 Reference is made to the Amended and Restated License Agreement filed on September
28, 1994 as Exhibit 99.1 of the Form 10-K of the Registrants.
99.2 Reference is made to the Medicare Provider Agreement between The Secretary of
Health and Human Services and Rosewood Care Center, Inc. of Swansea filed on
July 13, 1993 as Exhibit 99.2 of the Registration Statement of Registrants (No.
33-65948) declared effective October 14, 1993.
99.3 Reference is made to the Medicare Provider Agreement between The Secretary of
Health and Human Services and Rosewood Care Center, Inc. of Alton filed on July
13, 1993 as Exhibit 99.3 of the Registration Statement of Registrants (No.
33-65948) declared effective October 14, 1993.
99.4 Reference is made to the Medicare Provider Agreement between The Secretary of
Health and Human Services and
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Rosewood Care Center, Inc. of East Peoria filed on July 13, 1993 as Exhibit
99.4 of the Registration Statement of Registrants (No. 33-65948) declared
effective October 14, 1993.
99.5 Reference is made to the Medicare Provider Agreement between The Secretary of
Health and Human Services and Rosewood Care Center, Inc. of Peoria filed on
July 13, 1993 as Exhibit 99.5 of the Registration Statement of Registrants (No.
33-65948) declared effective October 14, 1993.
99.6 Reference is made to the Medicare Provider Agreement between The Secretary of
Health and Human Services and Rosewood Care Center, Inc. of Galesburg filed on
July 13, 1993 as Exhibit 99.6 of the Registration Statement of Registrants (No.
33-65948) declared effective October 14, 1993.
99.7 Reference is made to the Medicare Provider Agreement between The Secretary of
Health and Human Services and Rosewood Care Center, Inc. of Moline filed on
July 13, 1993 as Exhibit 99.7 of the Registration Statement of Registrants (No.
33-65948) declared effective October 14, 1993.
99.8 Reference is made to the Medicaid Provider Agreement between The Illinois
Department of Public Aid and Rosewood Care Center, Inc. of Swansea filed on
July 13, 1993 as Exhibit 99.8 of the Registration Statement of Registrants (No.
33-65948) declared effective October 14, 1993.
99.9 Reference is made to the Medicaid Provider Agreement between The Illinois
Department of Public Aid and Rosewood Care Center, Inc. of Alton filed on July
13, 1993 as Exhibit 99.9 of the Registration Statement of Registrants (No.
33-65948) declared effective October 14, 1993.
99.10 Reference is made to the Medicaid Provider Agreement between The Illinois
Department of Public Aid and Rosewood Care Center, Inc. of East Peoria filed on
July 13, 1993 as Exhibit 99.10 of the Registration Statement of Registrants
(No. 33-65948) declared effective October 14, 1993.
99.11 Reference is made to the Medicaid Provider Agreement between The Illinois
Department of Public Aid and Rosewood Care Center, Inc. of Peoria filed on July
13, 1993 as Exhibit 99.11 of the Registration Statement of Registrants (No.
33-65948) declared effective October 14, 1993.
99.12 Reference is made to the Medicaid Provider Agreement between The Illinois
Department of Public Aid and Rosewood Care Center, Inc. of Galesburg filed on
July 13, 1993 as Exhibit 99.12 of the Registration Statement of Registrants
(No. 33-65948) declared effective October 14, 1993.
99.13 Reference is made to the Medicaid Provider Agreement between The Illinois
Department of Public Aid and Rosewood Care Center, Inc. of Moline filed on
July 13, 1993 as
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Exhibit 99.13 of the Registration Statement of Registrants (No. 33-65948)
declared effective October 14, 1993.
99.14 Reference is made to the Lease Agreement filed on September 28, 1994 as Exhibit
99.14 of the Form 10-K of the Registrants.
99.15 Reference is made to the Revised and Restated Grant and Declaration of Easements
filed on September 28, 1994 as Exhibit 99.15 of the Form 10-K of the Registrants.
99.16 Reference is made to the Managed Care Agreement between Rosewood Care Center, Inc.
of Moline, Heritage National Health Plan, Inc., John Deere Family Health Plan and Deere
and Company filed on May 15, 1995 as Exhibit 99.16 of the Form 10-Q of the
Registrants.
99.17 Skilled Nursing Facility Agreement between Health Care Service Corporation and
Rosewood Care Center, et.al.
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