BEVERLY ENTERPRISES INC /DE/, 10-K, 1994-03-18

BEVERLY ENTERPRISES INC /DE/
10-K, 1994-03-18
SKILLED NURSING CARE FACILITIES

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

<TABLE>
<S> <C>
(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 DECEMBER 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NUMBER: 1-9550
</TABLE>

BEVERLY ENTERPRISES, INC.
(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 95-4100309
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1200 SOUTH WALDRON ROAD, NO. 155
FORT SMITH, ARKANSAS 72903
(Address of principal executive offices) (Zip Code)
</TABLE>

Registrant's telephone number, including area code: (501) 452-6712

Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
-----------------------------------------------------------------------------
<S> <C>
Common Stock, $.10 par value New York Stock Exchange
Pacific Stock Exchange
$2.75 Cumulative Convertible Exchangeable New York Stock Exchange
Preferred Stock, $1 par value Pacific Stock Exchange
7 5/8% Convertible Subordinated Debentures New York Stock Exchange
due March 15, 2003
Zero Coupon Notes due July 16, 2003 New York Stock Exchange
</TABLE>

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 REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [ ]

THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF
REGISTRANT WAS $1,243,687,308 AS OF FEBRUARY 28, 1994.

83,002,050
(NUMBER OF SHARES OF COMMON STOCK OUTSTANDING, NET OF TREASURY SHARES, AS OF
FEBRUARY 28, 1994)

PART III IS INCORPORATED BY REFERENCE FROM THE PROXY STATEMENT FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 19, 1994.
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PART I

ITEM 1. BUSINESS.

GENERAL

References herein to the Company include Beverly Enterprises, Inc. and its
wholly-owned subsidiaries.

The business of the Company consists principally of operating nursing
facilities, including subacute units, pharmacies and pharmacy-related outlets.
Additional operations include retirement and congregate living projects and home
health care entities.

The Company is the largest operator of nursing facilities in the United
States. At January 31, 1994, the Company operated 774 nursing facilities with
82,680 licensed beds. The facilities are located in 34 states and the District
of Columbia, and range in capacity from 20 to 388 beds with average occupancy of
88.6%, 88.4% and 88.2% during the years ended December 31, 1993, 1992 and 1991,
respectively. In addition, at January 31, 1994, the Company operated 23 subacute
units, 41 pharmacies and pharmacy-related outlets, 42 retirement and congregate
living projects containing 2,554 units and five home health care entities. See
"Item 2. Properties."

OPERATIONS

The Company's operations are grouped into eight regions each headed by a
Vice President of Operations. Each of the Vice Presidents of Operations
supervises from seven to fourteen area managers within their assigned regions.
Each area manager is responsible for two to fifteen facilities. Each facility is
operated under the immediate supervision of a licensed administrator and a
registered nurse acting as director of nursing services, with the part-time
assistance of a consulting physician acting as medical director or advisory
physician. The facility administrators are directly responsible to area managers
for the performance of their facilities.

The Company has a Quality Assurance ("QA") program to ensure quality care
is maintained in each of its nursing facilities. The QA department is headed by
a Senior Vice President who reports directly to the Chief Executive Officer and
to an independent quality assurance committee of the Board of Directors. The
Company's nationwide QA network is made up of approximately 250 health care
professionals including registered nurses, dietitians, social workers and other
specialists. These specialists visit each of the Company's nursing facilities
several times each year to conduct quality reviews and consultations. In
addition, a select QA team visits each facility annually to conduct a detailed
survey that requires several days of inspection, review and training.

GOVERNMENTAL REGULATION AND REIMBURSEMENT

The Company's nursing facilities are subject to compliance with various
federal, state and local health care statutes and regulations. Compliance with
state licensing requirements imposed upon all health care facilities is a
prerequisite for the operation of the facilities and for participation in
government-sponsored health care funding programs, such as Medicaid and
Medicare. Medicaid is a medical assistance program for the indigent, operated by
individual states with the financial participation of the federal government.
Medicare is a health insurance program for the aged and certain other
chronically disabled individuals, operated by the federal government. Changes in
the reimbursement policies of such funding programs as a result of budget cuts
by federal and state governments or other legislative and regulatory action
could adversely affect the revenues of the Company.

The Company receives payment for services rendered to patients from (i)
each of the states in which its nursing facilities are located under the
Medicaid program; (ii) the federal government under the Medicare program; (iii)
the Veterans Administration; and (iv) private insurers and patients. The
following table sets forth the approximate percentage of patient days and room
and board revenues derived from the indicated

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sources of payment, as well as ancillary and other revenues which are derived
from all sources of payment, for the periods indicated:

<TABLE>
<CAPTION>
PRIVATE AND
MEDICAID MEDICARE VETERANS
------------------ ------------------ ------------------
ROOM AND ROOM AND ROOM AND
PATIENT BOARD PATIENT BOARD PATIENT BOARD ANCILLARY AND
DAYS REVENUES DAYS REVENUES DAYS REVENUES OTHER REVENUES
------- -------- ------- -------- ------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended:
December 31, 1993...... 69% 50% 11% 11% 20% 16% 23%
December 31, 1992...... 70% 54% 10% 11% 20% 17% 18%
</TABLE>

Consistent with the nursing home industry in general, changes in the mix of
the Company's patient population among the Medicaid, Medicare and private
categories can significantly affect the profitability of the Company's
operations. Although the level of cost reimbursement for Medicare patients
typically generates the highest revenue per patient day, profitability is not
proportionally increased due to the additional costs associated with the
required higher level of nursing care and other services for such patients. In
most states, private patients constitute the most profitable category and
Medicaid patients constitute the least profitable category.

The Company has experienced significant growth in ancillary revenues over
the past several years. Ancillary revenues are derived from providing services
to residents beyond room and board care and include occupational, physical,
speech, respiratory and IV therapy, as well as, sales of pharmaceutical products
and other services. Such revenues currently relate primarily to Medicare and
private pay residents and are consistent with the trend of providing a broader
range of services in the Company's nursing facilities. Although the Company is
pursuing further growth of ancillary revenues, through expansion of specialty
services such as rehabilitation and subacute care, there can be no assurance
that such growth will continue.

Medicaid programs are currently in existence in all of the states in which
the Company operates nursing facilities. While these programs differ in certain
respects from state to state, they are all subject to federally-imposed
requirements, and at least 50% of the funds available under these programs is
provided by the federal government under a matching program.

Medicare and most state Medicaid programs utilize a cost-based
reimbursement system for nursing facilities which reimburses facilities for the
reasonable direct and indirect allowable costs incurred in providing routine
services (as defined by the programs) plus, in certain states, efficiency
incentives or a return on equity, subject to certain cost ceilings. These costs
normally include allowances for administrative and general costs as well as the
costs of property and equipment (depreciation and interest, fair rental
allowance or rental expense). In certain states, cost-based reimbursement is
subject to retrospective adjustment through cost report settlement, and for
certain states, payments made to a facility on an interim basis that are
subsequently determined to be less than or in excess of allowable costs may be
adjusted through future payments to the affected facility and to other
facilities owned by the same owner. State Medicaid reimbursement programs vary
as to methodology used to determine the level of allowable costs which are
reimbursed to operators.

Arkansas, California, Louisiana and Texas provide for reimbursement at a
flat daily rate, as determined by the responsible state agency. In all other
states with a Medicaid program in which the Company operated in 1993, payments
are based upon specific cost reimbursement formulas established by the
applicable state. The Medicaid and Medicare programs each contain specific
requirements which must be adhered to by health care facilities in order to
qualify under the programs.

Governmental funding for health care programs is subject to statutory and
regulatory changes, administrative rulings, interpretations of policy,
intermediary determinations and governmental funding restrictions, all of which
may materially increase or decrease program reimbursement to health care
facilities. Congress has consistently attempted to curb the growth of federal
spending on such programs. Recent actions include limitations on payments to
hospitals and nursing homes under the Medicaid and Medicare programs,
limitations on payments for physicians' services and elimination of funding for
health planning agencies. No

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assurance can be given that the future funding of Medicaid and Medicare programs
will remain at levels comparable to the present levels.

On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993
("OBRA - 93") was signed into law. OBRA - 93 includes certain changes in the
Medicare program effective October 1, 1993, including, among other things, the
elimination of the return on equity provision of the program. The Company cannot
currently predict the future impact this change will have on its financial
condition and results of operations; however, for the nine months ended
September 30, 1993 (prior to the effective date of OBRA - 93) and for the year
ended December 31, 1992, the Company recognized pre-tax income of approximately
$8,900,000 for each of such periods as a result of the Medicare return on equity
provision. In addition, OBRA - 93 increased corporate income tax rates by one
percent retroactive to January 1, 1993. This rate change did not have a material
effect on the Company's financial position or results of operations in 1993 and
is not expected to have a material effect in the future.

The Clinton Administration has made health care reform one of its top
priorities. The White House Task Force on Health Care Reform studied the issue
of health care reform and presented its report and recommendations to the
Administration. The Administration proposed legislation to Congress in October
1993. Various other legislative and industry groups are studying numerous health
care issues, including access, delivery and financing of long-term health care.
These and other groups' recommendations will likely impact the form and content
of future health care reform legislation. As a result, the Company is unable to
predict the type of legislation or regulations that may be adopted affecting the
long-term care industry and their impact on the Company. There can be no
assurance that any health care reform will not adversely affect the Company's
financial position or results of operations.

In addition to the requirements to be met by the Company's facilities for
participation in the Medicaid and Medicare programs, the Company's health care
facilities are subject to annual licensing and other regulatory requirements of
state and local authorities. In order to maintain such operator's licenses, the
nursing facilities must meet certain statutory and administrative requirements.
These requirements relate to the condition of the facilities and the adequacy
and condition of the equipment used therein, the quality and adequacy of
personnel, and the quality of medical care. Such requirements are subject to
change. There can be no assurance that, in the future, the Company will be able
to maintain such licenses for its facilities or that the Company will not be
required to expend significant sums in order to do so.

The Company believes that its facilities are in substantial compliance with
the various Medicaid and Medicare regulatory requirements currently applicable
to them. In the ordinary course of its business, however, the Company receives
notices of deficiencies for failure to comply with various regulatory
requirements. The Company reviews such notices and takes appropriate corrective
action. In most cases, the Company and the reviewing agency will agree upon the
steps to be taken to bring the facility into compliance with regulatory
requirements. In some cases or upon repeat violations, the reviewing agency may
take a number of adverse actions against a facility. These adverse actions can
include the imposition of fines, temporary suspension of admission of new
patients to the facility, decertification from participation in the Medicaid or
Medicare programs and, in extreme circumstances, revocation of a facility's
license.

The Medicaid and Medicare programs provide criminal penalties for entities
that knowingly and willfully offer, pay, solicit or receive remuneration in
order to induce business that is reimbursed under these programs. The illegal
remuneration provisions of the Social Security Act, also known as the
"anti-kickback" statute, prohibit remuneration intended to induce the
purchasing, leasing, ordering or arranging for any good, facility, service or
item paid by Medicaid or Medicare programs. The violation of the illegal
remuneration provisions is a felony and can result in the imposition of fines of
up to $25,000 per occurrence. In addition, certain states in which the Company's
facilities are located have enacted statutes which prohibit the payment of
kickbacks, bribes and rebates for the referral of patients. The Social Security
Act also imposes criminal and civil penalties for making false claims to the
Medicaid and Medicare programs for services not rendered or for misrepresenting
actual services rendered in order to obtain higher reimbursement. The Medicare
program has published certain "Safe Harbor" regulations which describe various
criteria and guidelines for transactions which are deemed to be in compliance
with the anti-remuneration provisions. Although the Company has contractual

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arrangements with some health care providers, management believes it is in
compliance with the anti-kickback statute and other provisions of the Social
Security Act and with the state statutes. However, there can be no assurance
that government officials responsible for enforcing these statutes will not
assert that the Company or certain transactions in which it is involved are in
violation of these statutes.

In certain circumstances, conviction of abusive or fraudulent behavior with
respect to one facility may subject other facilities under common control or
ownership to disqualification from participation in Medicaid and Medicare
programs. In addition, some federal and state regulations provide that all
facilities under common control or ownership licensed to do business within a
state are subject to delicensure if any one or more of such facilities is
delicensed.

While federal regulations do not provide states with grounds to curtail
funding of their Medicaid cost reimbursement programs due to state budget
deficiencies, states have nevertheless curtailed funding in such circumstances
in the past. No assurance can be given that states will not do so in the future
or that the future funding of Medicaid programs will remain at levels comparable
to the present levels. 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 the states reimburse nursing facilities at rates which are
reasonable and adequate. Nursing facility operators, such as the Company, have
utilized and should continue to be able to utilize the federal courts to require
states to comply with their legal obligation to adequately fund Medicaid
programs.

COMPETITION

As of January 31, 1994, the Company operated 774 nursing facilities in 34
states and the District of Columbia. The Company's competitive position varies
from facility to facility, from community to community and from state to state.
Some of the significant competitive factors for the placing of patients in a
nursing facility include quality of care, reputation, physical appearance of
facilities, services offered, family preferences, physician services and price.
The care provided to Medicaid and Medicare patients is subject to significant
governmental regulations.

The Company's nursing facilities supplement and compete with services
provided by general hospitals and home health care entities. The resident or the
resident's family is more often directly involved in the selection of a
particular nursing facility than in the choice of a general hospital. The
Company competes with other long-term care providers, as well as acute care
hospitals and rehabilitation facilities, in providing subacute and specialty
services. The resident or the resident's family, as well as physicians,
hospitals, case managers and insurance providers, often direct the selection of
a particular facility for subacute and specialty services.

EMPLOYEES

At December 31, 1993, the Company had approximately 89,000 employees. The
Company is subject to both federal minimum wage and applicable federal and state
wage and hour laws and maintains various employee benefit plans.

In recent years, the Company has experienced increases in its labor costs
primarily due to higher wages and greater benefits intended to attract and
retain qualified personnel, increased staffing levels in its nursing facilities
due to greater patient acuity and the hiring of therapists on staff. The Company
expects labor costs to increase in the future; however, it is anticipated that
any increase in costs will generally result in higher patient rates in
subsequent periods, subject to the time lag in most states, of up to 18 months,
between increases in reimbursable costs and the receipt of related reimbursement
rate increases. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Operating Results."

Periodically in the past, the health care industry, including the Company's
long-term care facilities, has experienced a shortage of nurses to staff health
care operations. Currently, the Company is not experiencing a nursing shortage.
The Company competes with other health care providers for nursing personnel and
a nursing shortage could force the Company to pay higher salaries and make
greater use of registry (temporary nursing

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and related personnel). A lack of qualified nursing personnel might also require
the Company to reduce its census or admit patients requiring a lower level of
care, both of which could adversely affect operating results.

Approximately 10% of the Company's employees are represented by various
labor unions. The Company cannot predict the effect of continued union
representation or organizational activities on its future operations.

On January 29, 1993, the National Labor Relations Board ("NLRB") found that
the Company had violated the National Labor Relations Act (the "Act") at 32 of
its facilities prior to 1989 and issued a nationwide order requiring that the
Company cease and desist from such violations and that it take certain remedial
actions. The Company viewed the NLRB's order as incorrect and overly broad and
appealed to the U.S. Court of Appeals. On February 28, 1994, the U.S. Court of
Appeals for the Second Circuit upheld the Company's appeal and reversed several
of the NLRB's findings, holding that the violations were minimal in nature and
number and that the nationwide or extraordinary remedies sought by the NLRB and
the unions were inappropriate.

The NLRB has instituted new administrative proceedings against the Company
alleging the commission of new unfair labor practices under the Act. The NLRB is
aggregating all complaints filed anywhere in the country into consolidated
proceedings in its continuing attempt to obtain a nationwide remedy against the
Company. The Company is vigorously defending the proceedings and believes that
the request for a national remedy is wholly without merit.

ITEM 2. PROPERTIES.

At January 31, 1994, the Company operated 774 nursing facilities and 42
retirement and congregate living projects in 34 states and the District of
Columbia. Most of the Company's 351 leased nursing facilities are subject to
"net" leases which require the Company to pay all taxes, insurance and
maintenance costs. Most of the Company's leases have original terms from ten to
fifteen years and contain at least one renewal option, which could extend the
original term of the leases by five to fifteen years. Many of the Company's
leases also contain purchase options. The Company considers its physical
properties to be in good operating condition and suitable for the purposes for
which they are being used. A substantial portion of the nursing facilities and
retirement centers owned by the Company is included in the collateral securing
the obligations under its various banking arrangements. See "Part II, Item
8 -- Note 4 of Notes to Consolidated Financial Statements."

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The following is a summary of the Company's nursing home facilities,
retirement and congregate living projects, pharmacies and home health centers at
January 31, 1994:

<TABLE>
<CAPTION>
NURSING HOME RETIREMENT AND
FACILITIES CONGREGATE HOME
----------------- LIVING PROJECTS HEALTH
TOTAL ------------------ PHARMACIES CENTERS
LICENSED NUMBER OF ---------- ------
LOCATION NUMBER BEDS NUMBER UNITS NUMBER NUMBER
- ------------------------------------------ ------ -------- ------ --------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Alabama................................... 21 2,623 1 24 2 --
Arizona................................... 3 480 1 77 -- --
Arkansas.................................. 38 4,515 3 49 1 --
California................................ 78 8,141 2 307 6 3
Connecticut............................... 7 1,063 -- -- -- --
District of Columbia...................... 1 355 -- -- -- --
Florida................................... 64 7,740 7 751 7 --
Georgia................................... 24 2,756 2 54 2 --
Hawaii.................................... 2 396 -- -- -- --
Idaho..................................... 4 329 -- -- -- --
Illinois.................................. 10 851 1 249 -- 1
Indiana................................... 72 5,741 2 226 1 1
Kansas.................................... 30 1,994 3 39 1 --
Kentucky.................................. 8 1,049 -- -- 1 --
Louisiana................................. 1 216 -- -- -- --
Maryland.................................. 4 585 1 16 1 --
Massachusetts............................. 25 2,420 -- -- -- --
Michigan.................................. 2 206 -- -- -- --
Minnesota................................. 37 3,280 2 28 1 --
Mississippi............................... 22 2,486 -- -- 1 --
Missouri.................................. 35 3,577 3 101 1 --
Nebraska.................................. 24 2,206 1 16 -- --
New Jersey................................ 1 150 -- -- -- --
North Carolina............................ 12 1,514 1 16 2 --
Ohio...................................... 14 1,584 3 425 1 --
Oregon(1)................................. 11 1,052 -- -- 2 --
Pennsylvania.............................. 42 4,913 3 61 2 --
South Carolina............................ 3 302 -- -- -- --
South Dakota.............................. 17 1,236 1 16 -- --
Tennessee................................. 8 1,060 2 59 2 --
Texas..................................... 86 9,779 1 8 4 --
Virginia.................................. 18 2,478 2 32 -- --
Washington................................ 15 1,410 -- -- 1 --
West Virginia............................. 3 318 -- -- -- --
Wisconsin................................. 32 3,875 -- -- 2 --
-- -- --
------ -------- ---------
774 82,680 42 2,554 41 5
-- -- --
-- -- --
------ -------- ---------
------ -------- ---------
CLASSIFICATION
- ------------------------------------------
Owned..................................... 419 45,384 33 1,807 41 5
Leased.................................... 351 36,893 5 237 -- --
Managed................................... 4 403 4 510 -- --
-- -- --
------ -------- ---------
774 82,680 42 2,554 41 5
-- -- --
-- -- --
------ -------- ---------
------ -------- ---------
</TABLE>

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(1) The Company is currently negotiating the disposition of all of its nursing
home facilities in the state of Oregon as part of its continuing efforts
under the 1992 restructuring program. See "Part II, Item 8 -- Note 2 of
Notes to Consolidated Financial Statements."

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ITEM 3. LEGAL PROCEEDINGS.

There are various lawsuits and regulatory actions pending against the
Company arising in the normal course of business, some of which seek punitive
damages. The Company does not believe that the ultimate resolution of these
matters will have a material adverse effect on the Company's financial position
or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of the Company's security holders
during the last quarter of its fiscal year ended December 31, 1993.

EXECUTIVE OFFICERS AND DIRECTORS

The table below sets forth, as to each executive officer and director of
the Company, his name, positions with the Company and age. Each executive
officer and director of the Company holds office until a successor is elected,
or until the earliest of death, resignation or removal. Each executive officer
is elected or appointed by the Board of Directors. The information below is
given as of March 15, 1994.

<TABLE>
<CAPTION>
NAME POSITION AGE
- ------------------------------ -------------------------------------------------------- ----
<S> <C> <C>
David R. Banks(1)(5).......... Chairman of the Board, President, Chief Executive
Officer
and Director 57
Boyd W. Hendrickson........... Executive Vice President -- Operations and Marketing 49
Ronald C. Kayne............... Executive Vice President and President of PCA 55
T. Jerald Moore............... Executive Vice President -- Managed Care 53
Bobby W. Stephens............. Executive Vice President -- Development 49
Robert D. Woltil.............. Executive Vice President, Finance and Chief Financial
Officer 39
Eugene B. Clarke.............. Senior Vice President -- Quality Assurance 53
Schuyler Hollingsworth, Jr.... Senior Vice President and Treasurer 47
Robert W. Pommerville......... Senior Vice President, General Counsel and Secretary 53
Philip W. Small............... Vice President -- Reimbursement 37
Scott M. Tabakin.............. Vice President, Controller and Chief Accounting Officer 35
Beryl F. Anthony, Jr.(2)(5)... Director 56
Curt F. Bradbury(1)(3)........ Director 44
James R. Greene(2)(3)......... Director 72
Jon E. M. Jacoby(1)(4)(5)..... Director 55
Louis W. Menk(2)(4)........... Director 75
Will K. Weinstein(1).......... Director 53
</TABLE>

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(1) Member of the Finance Committee.

(2) Member of the Quality Assurance Committee.

(3) Member of the Audit Committee.

(4) Member of the Compensation Committee.

(5) Member of the Nominating Committee.

Mr. Banks has been President and a director of the Company since 1979 and
has served as Chief Executive Officer since May 1989 and Chairman of the Board
since March 1990. Mr. Banks is a director of Nationwide Health Properties, Inc.,
Ralston Purina Company, Wal-Mart Stores, Inc., Wellpoint Health Networks, Inc.,
and trustee for the University of the Ozarks and Occidental College.

Mr. Hendrickson joined the Company in 1988 as a Division President. He was
elected Vice President of Marketing in May 1989, and Executive Vice President of
Operations and Marketing in February 1990. Mr. Hendrickson was President and
Chief Operating Officer of Care Enterprises Inc., from 1984 to 1987, and

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Chairman of the Board and Chief Operating Officer of Hallmark Health Services,
Inc. from 1987 through 1988.

Mr. Kayne joined the Company in 1979. He was elected Vice President of
Professional Services in 1983, Vice President of the Company and President of
Pharmacy Corporation of America ("PCA"), a wholly-owned subsidiary of the
Company, in 1985, and Executive Vice President of the Company in February 1990.

Mr. Moore joined the Company as Executive Vice President -- Managed Care in
December 1992. Mr. Moore was employed at Aetna Life and Casualty from 1963 to
1992 and was elected Senior Vice President in 1990.

Mr. Stephens joined the Company as a staff accountant in 1969. He was
elected Assistant Vice President in 1978, Vice President of the Company and
President of the Company's Central Division in 1980, and Executive Vice
President -- Development in February 1990. Mr. Stephens is a director of City
National Bank in Fort Smith, Arkansas, Beverly Japan Corporation, Western
Arkansas Counseling and Guidance Center, Inc. and Harbortown Properties, Inc.

Mr. Woltil joined the Company in 1982 as Technical Accounting Manager. From
1984 to 1990 he served in various financial positions. He was elected Vice
President -- Financial Planning and Control in January 1990, Senior Vice
President and Chief Financial Officer in March 1992 and Executive Vice
President, Finance in January 1993.

Mr. Clarke joined the Company in 1987 as a Director of Government Program
Compliance. He was elected Vice President in 1989 and Senior Vice
President -- Quality Assurance in December 1991. Mr. Clarke is a director of St.
Edward Mercy Medical Center.

Mr. Hollingsworth joined the Company in June 1985 as Assistant Treasurer.
He was elected Treasurer in 1988, Vice President in 1990 and Senior Vice
President in March 1992. Mr. Hollingsworth is a director of Sparks Regional
Medical Center.

Mr. Pommerville first joined the Company in 1970 and left in 1976. Mr.
Pommerville rejoined the Company as Vice President and General Counsel in 1984
and was elected Secretary in February 1990 and Senior Vice President in March
1990.

Mr. Small joined the Company in January 1986 as Reimbursement Manager, was
promoted to Division Controller in September 1986, Director of Finance for the
California Region in 1989, and elected Vice President -- Reimbursement in
September 1990.

Mr. Tabakin joined the Company in October 1992 as Vice President,
Controller and Chief Accounting Officer. From 1980 to 1992, Mr. Tabakin was with
Ernst & Young, in Norfolk, Virginia.

Mr. Anthony served as a member of the United States Congress and was
Chairman of the Democratic Congressional Campaign Committee from 1987 through
1990. In 1993, he became a partner in the Winston & Strawn law firm. Mr. Anthony
serves as a director of Anthony Forest Products Company. He has been a director
of the Company since January 1993.

Mr. Bradbury is Chairman, President, Chief Executive Officer and a director
of Worthen Banking Corporation. He joined Worthen in 1985 as Assistant to the
President, and prior thereto was a Vice President in the Corporate Finance
Department of Stephens Inc., and Manager of its Bank Services Division. He has
been a director of the Company since July 1989.

Mr. Greene's principal occupation has been that of a director and
consultant to various U.S. and international businesses since 1986. He is a
director of ASARCO, Inc., a number of mutual funds of Alliance Capital
Management Corporation, American Reliance Group Inc., Buck Engineering Company
and Bank Leumi. He has been a director of the Company since January 1991.

Mr. Jacoby is Executive Vice President, Chief Financial Officer and a
director of Stephens Group, Inc. Mr. Jacoby has held the indicated positions
with Stephens Group, Inc. since 1986, and prior to that time, served as Manager
of the Corporate Finance Department and Assistant to the President of Stephens
Inc.

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Mr. Jacoby is a director of Medicus Systems, Inc., the Delta Queen Steamboat
Company and Delta and Pine Land Company, Inc. He has been a director of the
Company since February 1987.

Mr. Menk is Chairman of Black Mountain Gas Company. He retired in 1982 as
Chairman and Chief Executive Officer of International Harvester Company, the
predecessor to Navistar International Corporation. He has been a director of the
Company since July 1989.

Mr. Weinstein has been Managing Partner of Genesis Merchant Group, a
holding company for Genesis Merchant Group Securities, since 1989 and was
President of WIG, Inc. from 1987 to 1989. From 1982 to 1987, Mr. Weinstein was
Managing Partner of Montgomery Securities. Mr. Weinstein is a director of DHL
Corporation. He has been a director of the Company since March 1989.

Mr. Joe T. Ford, Chairman, President and Chief Executive Officer of ALLTEL
Corporation, and a director of The Dial Corp and LDDS Communications, Inc., was
a director of the Company since January 1991. On February 28, 1994, Mr. Ford
resigned from the Company's Board of Directors.

In connection with the issuance of the Series A preferred stock to Stephens
Group, Inc., the Company agreed to use its best efforts to cause a designee of
Stephens Group, Inc. to be elected to the Company's Board of Directors so long
as Stephens Group, Inc. owned 500,000 of the Series A preferred stock and was
the sole owner of all outstanding Series A preferred stock. Mr. Jacoby is the
designee of Stephens Group, Inc. pursuant to such agreement. The Series A
preferred stock was redeemed on January 3, 1994.

During 1993, there were six meetings of the Board of Directors. Each
director attended 75% or more of the meetings of the Board and committees on
which he served.

In 1993, directors, other than Mr. Banks, received a retainer fee of
$18,000 for serving on the Board and an additional fee of $1,000 for each Board
or committee meeting attended. Mr. Banks, the current Chairman of the Board,
President and Chief Executive Officer of the Company, received no additional
cash compensation for serving on the Board or its committees.

During 1993, the Retirement Plan for Outside Directors was approved and
implemented whereby, upon retirement, as defined, each director is eligible to
receive an amount equal to the annual retainer fee for each year of service on
the Board up to a maximum of ten years, with no survivor benefits. These
benefits are paid on a monthly basis beginning on the date of retirement. The
Company paid $10,500 under such plan during the year ended December 31, 1993.

EMPLOYEE STOCK PURCHASE PLAN

The Beverly Enterprises 1988 Employee Stock Purchase Plan (as amended and
restated) enables all full-time employees having completed one year of
continuous service to purchase shares of the Company's $.10 par value common
stock at the current market price through payroll deductions. The Company makes
contributions in the amount of 30% of the participant's contribution. Each
participant specifies the amount to be withheld from earnings per two-week pay
period, subject to certain limitations. The total charge to the Company's
statement of operations for the year ended December 31, 1993 related to this
plan was approximately $1,493,000. At December 31, 1993, there were
approximately 4,600 participants in the plan.

Merrill Lynch & Co., Merrill Lynch World Headquarters, North Tower, World
Financial Center, New York, New York 10281, was appointed broker to open and
maintain an account in each participant's name and to purchase shares of common
stock on the New York Stock Exchange for each participant.

9
<PAGE> 11

PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.

The Company's common stock is listed on the New York and Pacific Stock
Exchanges. The table below sets forth, for the periods indicated, the range of
high and low sales prices of the common stock.

<TABLE>
<CAPTION>
PRICES
------------------
HIGH LOW
---- -----
<S> <C> <C>
1992
First Quarter......................................... $10 1/8 $ 8 3/8
Second Quarter........................................ 8 3/4 7 1/8
Third Quarter......................................... 9 5/8 7 5/8
Fourth Quarter........................................ 13 1/8 8 3/8
1993
First Quarter......................................... $14 3/4 $ 9 1/2
Second Quarter........................................ 12 7/8 10 3/8
Third Quarter......................................... 13 3/8 9 1/4
Fourth Quarter........................................ 13 3/4 10
1994
First Quarter (through March 11)...................... $16 $12 3/8
</TABLE>

The Company is subject to certain restrictions under its banking
arrangements related to the payment of cash dividends on its common stock.
During 1993 and 1992, no cash dividends were paid on the Company's common stock
and none are anticipated to be paid during 1994.

At March 11, 1994, there were 7,295 record holders of the common stock.

10
<PAGE> 12

ITEM 6. SELECTED FINANCIAL DATA.

The following table of selected financial data should be read in
conjunction with the Company's consolidated financial statements and related
notes thereto included elsewhere in this Annual Report on Form 10-K.

<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
1993 (1) 1992 (1) 1991 1990 1989
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net operating revenues............................. $ 2,870,758 $ 2,596,731 $ 2,300,909 $ 2,113,358 $ 2,103,503
Interest income.................................... 15,123 14,475 19,995 24,367 22,459
----------- ----------- ----------- ----------- -----------
Total revenues................................. 2,885,881 2,611,206 2,320,904 2,137,725 2,125,962
Costs and expenses:
Operating and administrative:
Wages and related.............................. 1,585,226 1,479,673 1,354,890 1,256,342 1,263,670
Other.......................................... 1,062,162 915,566 767,512 710,678 698,455
Interest......................................... 62,413 62,582 68,574 83,198 95,003
Depreciation and amortization.................... 86,127 88,001 88,346 67,288 72,640
Restructuring costs.............................. -- 57,000 -- -- 128,104
----------- ----------- ----------- ----------- -----------
Total costs and expenses....................... 2,795,928 2,602,822 2,279,322 2,117,506 2,257,872
----------- ----------- ----------- ----------- -----------
Income (loss) before provision for (benefit from)
income taxes, extraordinary charge and cumulative
effect of change in accounting for income
taxes............................................ 89,953 8,384 41,582 20,219 (131,910)
Provision for (benefit from) income taxes.......... 29,684 4,203 12,410 7,279 (27,701)
----------- ----------- ----------- ----------- -----------
Income (loss) before extraordinary charge and
cumulative effect of change in accounting for
income taxes..................................... 60,269 4,181 29,172 12,940 (104,209)
Extraordinary charge, net of income taxes of $1,155
in 1993 and $5,415 in 1992....................... (2,345) (8,835) -- -- --
Cumulative effect of change in accounting for
income taxes..................................... -- (5,454) -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss).................................. $ 57,924 $ (10,108) $ 29,172 $ 12,940 $ (104,209)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Income (loss) per share of common stock:
Before redemption premium on Series A preferred
stock, extraordinary charge and cumulative
effect of change in accounting for income
taxes.......................................... $ .71 $ .04 $ .37 $ .19 $ (1.96)
Redemption premium on Series A preferred stock... (.26) -- -- -- --
----------- ----------- ----------- ----------- -----------
Before extraordinary charge and cumulative effect
of change in accounting for income taxes....... .45 .04 .37 .19 (1.96)
Extraordinary charge............................. (.03) (.12) -- -- --
Cumulative effect of change in accounting for
income taxes................................... -- (.07) -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss)................................ $ .42 $ (.15) $ .37 $ .19 $ (1.96)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Shares used to compute per share amounts........... 78,807,000 75,285,000 78,818,000 63,751,000 53,603,000
CONSOLIDATED BALANCE SHEET DATA:
Total assets....................................... $ 1,993,530 $ 1,854,470 $ 1,673,445 $ 1,623,333 $ 1,639,228
Current portion of long-term obligations........... $ 42,873 $ 29,389 $ 35,589 $ 50,893 $ 263,156
Long-term obligations, excluding current portion... $ 706,695 $ 712,712 $ 628,017 $ 694,647 $ 599,452
Stockholders' equity............................... $ 739,009 $ 593,745 $ 599,109 $ 498,223 $ 440,081
OTHER DATA:
Patient days....................................... 29,019,000 29,323,000 29,322,000 30,131,000 33,363,000
Average occupancy percentage....................... 88.6% 88.4% 88.2% 87.3% 87.2%
Number of beds..................................... 85,001 89,298 90,228 91,414 96,268
Number of employees................................ 89,000 93,000 93,000 92,000 96,000
</TABLE>

- ---------------------

(1) The Company reported restructuring costs, extraordinary charge and
cumulative effect of change in accounting for income taxes in 1992, and
reported a redemption premium and extraordinary charge in 1993. See Notes
to Consolidated Financial Statements.

11
<PAGE> 13

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

OPERATING RESULTS

Twelve Months 1993 Compared to Twelve Months 1992

Net income was $57,924,000 for the twelve months ended December 31, 1993,
compared to a net loss of $10,108,000 for the same period in 1992. Income before
income taxes and extraordinary charge for 1993 was $89,953,000 compared to
income before income taxes, extraordinary charge and cumulative effect of a
change in accounting for income taxes in 1992 of $8,384,000. The results for
1992 included a $57,000,000 pre-tax restructuring charge related to a program to
discontinue the Company's operations of certain facilities.

During 1993, the Company recorded a $2,345,000 extraordinary charge, net of
income taxes, related to the acceleration of unamortized debt issue costs
associated with certain debt that was repaid with a portion of the net proceeds
from issuance of the Series B preferred stock (as defined herein) as well as
certain bond refundings. During 1992, the Company recorded $8,835,000 of
extraordinary charges, net of income taxes, related to the acceleration of
unamortized debt issue costs associated with the repayment of certain debt. In
addition, during 1992, the Company adopted Financial Accounting Standards
Statement No. 109, "Accounting for Income Taxes," which resulted in the
recording of a $5,454,000 cumulative effect adjustment.

The Company's annual effective tax rate was 33% for the twelve months ended
December 31, 1993, compared to 50% for the same period in 1992. The higher
annual effective tax rate in 1992 resulted from the $57,000,000 pre-tax charge
mentioned above which reduced the Company's pre-tax income to a level where the
impact of permanent tax differences and state income taxes had a more
significant impact on the effective tax rate. In addition, the 1993 annual
effective tax rate was lower than the statutory rate primarily due to the
utilization of certain tax credit carryforwards.

Net operating revenues and operating and administrative costs increased
approximately $274,000,000 and $252,100,000, respectively, for the twelve months
ended December 31, 1993, as compared to the same period in 1992. These increases
consist of the following: increases in net operating revenues and operating and
administrative costs for facilities which the Company operated during each of
the twelve-month periods ended December 31, 1993 and 1992 ("same facility
operations") of approximately $265,700,000 and $261,700,000, respectively;
increases in net operating revenues and operating and administrative costs of
approximately $71,400,000 and $64,000,000, respectively, due to the acquisition
of 14 facilities in 1993 and 16 facilities in 1992; and decreases in net
operating revenues and operating and administrative costs of approximately
$63,100,000 and $73,600,000, respectively, due to the disposition of, or lease
terminations on, 43 facilities in 1993 and 23 facilities in 1992.

The increase in net operating revenues for same facility operations for the
twelve months ended December 31, 1993, as compared to the same period in 1992,
was due to the following: approximately $143,200,000 due to increased ancillary
revenues as a result of providing additional ancillary services to the Company's
private and Medicare patients; approximately $103,200,000 due primarily to
increases in Medicaid room and board rates, and to a lesser extent, private and
Medicare room and board rates; approximately $12,900,000 due to an improvement
in the Company's patient mix; and approximately $11,900,000 due to increases in
pharmacy revenues and various other items. The Company's Medicare, private and
Medicaid census for same facility operations was 11%, 19%, and 69%,
respectively, for the twelve months ended December 31, 1993, compared to 10%,
19%, and 70%, respectively, for the same period in 1992. These increases in net
operating revenues were partially offset by approximately $5,500,000 due to one
less calendar day during 1993, as compared to 1992.

The increase in operating and administrative costs for same facility
operations for the twelve months ended December 31, 1993, as compared to the
same period in 1992, was due to the following: approximately $106,700,000 due to
increased wages and related expenses principally due to higher wages and greater
benefits intended to attract and retain qualified personnel and the hiring of
therapists on staff as opposed to contracting for their services; approximately
$117,100,000 due to additional ancillary costs (excluding wages and related
expenses) associated with the increase in ancillary services provided to the
Company's private and Medicare

12
<PAGE> 14

patients; approximately $15,100,000 due to an increase in the provision for
reserves on patient, notes and other receivables primarily as a result of an
increase in the Company's private and Medicare revenues, as well as, reductions
in the provision for doubtful notes in 1992 due to the reacquisition of certain
facilities, which did not recur in 1993; approximately $5,300,000 due to
increases in supplies and other variable costs required to meet the needs of the
Company's higher-acuity patients; and approximately $17,500,000 due primarily to
increases in pharmacy-related costs, utilities and property-related expenses,
which include taxes (other than income and payroll taxes), insurance and various
other items.

Ancillary revenues are derived from providing services to residents beyond
room and board care. These services include occupational, physical, speech,
respiratory and IV therapy, as well as, sales of pharmaceutical products and
other services. The Company's overall ancillary revenues for the twelve months
ended December 31, 1993 were $618,804,000 and represented 22% of total revenues,
as compared to $458,281,000 of ancillary revenues for the same period in 1992
which represented 18% of total 1992 revenues. Although the Company is pursuing
further growth of ancillary revenues, through expansion of specialty services,
such as rehabilitation and subacute care, there can be no assurance that such
growth will continue. Growth in ancillary revenues, as well as increases in
Medicare census, have also resulted in higher costs for the Company due to the
higher acuity services being provided to these patients. The Company's overall
ancillary costs, excluding wages and related expenses, were $347,515,000 for the
twelve months ended December 31, 1993, compared to $248,156,000 for the same
period in 1992.

Although there was no significant overall fluctuation in interest income or
interest expense in 1993 as compared to 1992, several offsetting items
influenced these amounts. Interest income increased approximately $1,300,000 due
to interest earned on $100,000,000 of the net proceeds from issuance of the
Series B preferred stock, which was significantly offset by lower investment
yield rates and a decrease in the Company's notes receivable. Interest expense
increased approximately $2,000,000 due to the issuance and assumption of long-
term obligations in conjunction with the acquisitions of certain nursing
facilities, which was significantly offset by the repayment of approximately
$45,000,000 of debt with a portion of the net proceeds from issuance of the
Series B preferred stock and the conversion of approximately $46,000,000 in
principal amount of the Company's 9% Debentures (as defined herein) into common
stock. Depreciation and amortization expense decreased approximately $1,900,000
as compared to the same period in 1992 primarily due to the disposition of, or
lease terminations on, certain nursing facilities and a reduction in debt issue
costs associated with the repayment of certain debt, partially offset by
additional depreciation and amortization on acquired facilities.

The Company's future operating performance will continue to be affected by
the issues facing the nursing home industry as a whole, including the
maintenance of occupancy, the availability of nursing personnel, the adequacy of
funding of governmental reimbursement programs, the demand for nursing home care
and the nature of any health care reform measures that may be taken by the
federal government, as discussed below, as well as by any state governments. The
Company's ability to control costs, including its wages and related expenses
which continue to rise and represent the largest component of the Company's
operating and administrative expenses, will also significantly impact its future
operating results.

As a general matter, increases in the Company's operating costs result in
higher patient rates under Medicaid programs in subsequent periods. However, the
Company's results of operations will continue to be affected by the time lag in
most states between increases in reimbursable costs and the receipt of related
reimbursement rate increases. Medicaid rate increases, adjusted for inflation,
are generally based upon changes in costs for a full calendar year period. The
time lag before such costs are reflected in permitted rates varies from state to
state, with a substantial portion of the increases taking effect up to 18 months
after the related cost increases.

13
<PAGE> 15

each of such periods as a result of the Medicare return on equity provision. In
addition, OBRA - 93 increased corporate income tax rates by one percent
retroactive to January 1, 1993. This rate change did not have a material effect
on the Company's financial position or results of operations in 1993 and is not
expected to have a material effect in the future.

The Clinton Administration has made health care reform one of its top
priorities. The White House Task Force on Health Care Reform studied the issue
of health care reform and presented its report and recommendations to the
Administration. The Administration proposed health care reform legislation to
Congress in October 1993. Various other legislative and industry groups continue
to study numerous health care issues, including access, delivery and financing
of long-term health care. These and other groups' recommendations will likely
impact the form and content of future health care reform legislation. As a
result, the Company is unable to predict the type of legislation or regulations
that may be adopted affecting the long-term care industry and their impact on
the Company. There can be no assurance that any health care reform will not
adversely affect the Company's financial position or results of operations.

The Company does not provide significant postretirement health care, life
insurance or other benefits to employees. Accordingly, the requirements of
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," did not materially impact the
Company's consolidated financial position or results of operations. The Company
does not provide significant postemployment health care, life insurance or other
benefits to employees. Accordingly, the requirements of Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits," will not materially impact the Company's consolidated financial
position or results of operations when implemented in 1994.

Twelve Months 1992 Compared to Twelve Months 1991

Net loss was $10,108,000 for the twelve months ended December 31, 1992, as
compared to net income of $29,172,000 for the same period in 1991. During the
fourth quarter of 1992, the Company recorded a $57,000,000 pre-tax restructuring
charge related to a program to discontinue the Company's operation of 33 nursing
facilities with historically poor financial performance, and to replace,
relocate or sell certain other assets (the "1992 restructuring program"). Income
before income taxes, extraordinary charge and cumulative effect of a change in
accounting for income taxes for the twelve months ended December 31, 1992 was
$8,384,000 compared to $41,582,000 for the same period in 1991, and income
before extraordinary charge and cumulative effect of a change in accounting for
income taxes was $4,181,000 for 1992, compared to $29,172,000 in 1991. These
reductions, as compared to the prior year, resulted from the $57,000,000 pre-tax
restructuring charge discussed above.

During the first quarter of 1992, the Company recorded a $4,523,000
extraordinary charge, net of income taxes, related to the acceleration of
unamortized debt issue costs associated with certain debt that was repaid with
the proceeds of a $100,000,000 Bank Credit Facility (as defined herein). At the
end of the fourth quarter of 1992, the Company obtained substantial commitments
to refinance the remaining debt outstanding under a 1990 credit agreement.
Accordingly, in the fourth quarter of 1992, the Company recorded a $4,312,000
extraordinary charge, net of income taxes, related to the acceleration of
unamortized debt issue costs associated with the early extinguishment of such
remaining debt.

Effective January 1, 1992, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by
Financial Accounting Standards Statement No. 109, "Accounting for Income Taxes."
As permitted by the Statement, the Company elected not to restate the financial
statements of prior years. The cumulative effect as of January 1, 1992 of
adopting the Statement was to increase net loss for the year ended December 31,
1992 by $5,454,000. The Company's annual effective tax rate was 50% for the
twelve months ended December 31, 1992 as compared to 30% for the same period in
1991. The higher annual effective tax rate in 1992 primarily resulted from the
$57,000,000 pre-tax charge discussed above which reduced the Company's pre-tax
income to a level where the impact of permanent tax differences and state income
taxes had a more significant impact on the effective tax rate. In addition, the

14
<PAGE> 16

1991 annual effective tax rate was lower than the statutory rate due to various
items including a settlement of certain tax issues related to the audit of prior
years' tax returns by the Internal Revenue Service.

Net operating revenues and operating and administrative costs increased
approximately $295,800,000 and $272,800,000, respectively, for the twelve months
ended December 31, 1992, as compared to the same period in 1991. These increases
consist of the following: increases in net operating revenues and operating and
administrative costs for facilities which the Company operated during each of
the twelve-month periods ended December 31, 1992 and 1991 ("same facility
operations") of approximately $281,800,000 and $263,400,000, respectively;
increases in net operating revenues and operating and administrative costs of
approximately $64,500,000 and $55,800,000, respectively, due to the acquisition
of 16 facilities in 1992 and 35 facilities in 1991; and decreases in net
operating revenues and operating and administrative costs of approximately
$50,500,000 and $46,400,000, respectively, due to the disposition of, or lease
terminations on, 23 facilities in 1992 and 28 facilities in 1991.

The increase in net operating revenues for same facility operations for the
twelve months ended December 31, 1992, as compared to the same period in 1991,
was due to the following: approximately $140,200,000 due to increased ancillary
revenues as a result of providing additional ancillary services to the Company's
private and Medicare patients; approximately $119,500,000 due primarily to
increases in Medicaid patient rates, and to a lesser extent, private and
Medicare patient rates; approximately $21,800,000 due to an improvement in the
Company's patient mix principally due to an increase in Medicare census;
approximately $5,100,000 due to one additional calendar day for the twelve
months ended December 31, 1992, as compared to the same period in 1991; and
approximately $6,200,000 due to various other items. The Company's Medicare,
private and Medicaid census for same facility operations was 10%, 19% and 70%,
respectively, for the twelve months ended December 31, 1992, as compared to 7%,
20%, and 72%, respectively, for the same period in 1991. The Company's average
occupancy for same facility operations was 88.6% for the twelve months ended
December 31, 1992 as compared to 88.5% for the same period in 1991. The
increases in net operating revenues were partially offset by approximately
$11,000,000 of Medicare and Medicaid adjustments during the twelve months ended
December 31, 1991, which did not recur in the twelve months ended December 31,
1992.

The increase in operating and administrative costs for same facility
operations for the twelve months ended December 31, 1992, as compared to the
same period in 1991, was due to the following: approximately $117,600,000 due to
increased wages and related expenses principally due to higher wages and greater
benefits intended to attract and retain qualified personnel, increased staffing
levels in the Company's nursing facilities to cover increased patient acuity,
and the hiring of therapists on staff as opposed to contracting for their
services, including a partial offset due to a decrease in registry (temporary
personnel) costs for the same period of approximately $5,600,000; approximately
$72,400,000 due to increases in contracted professional services primarily as a
result of additional ancillary services such as physical therapy provided to the
Company's private and Medicare patients; approximately $58,100,000 due to
increases in supplies and other variable costs primarily due to additional
supplies required to meet the needs of the Company's patients, including a
partial offset of approximately $11,800,000 due to reductions in the provision
for doubtful notes which primarily resulted from the reacquisition of certain
facilities; and approximately $15,300,000 due primarily to increases in
property-related expenses, including rent, taxes (other than income and payroll
taxes), insurance and various other items.

Interest expense decreased approximately $6,000,000 as compared to the same
period in 1991 primarily due to declining interest rates on the Company's
variable rate debt, and to a lesser extent the repurchase of Senior Secured
Notes and the repayment of indebtedness under a 1990 credit agreement as a
result of the sale of common stock on April 4, 1991. Interest income decreased
approximately $5,500,000 as compared to the same period in 1991 primarily due to
lower investment yield rates and decreases in notes receivable and invested
funds.

15
<PAGE> 17

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1993, the Company had approximately $73,773,000 in cash and
cash equivalents and net working capital of approximately $151,869,000. The
Company anticipates that approximately $25,368,000 of its existing cash at
December 31, 1993, while not legally restricted, will be utilized for funding
insurance claims, and the Company does not expect to use such cash for other
purposes. The Company had $50,000,000 of unused commitments under its Bank
Revolving Credit Facility and $15,000,000 of unused commitments under its
Commercial Paper Program as of December 31, 1993.

Net cash provided by operating activities for the year ended December 31,
1993, was approximately $130,877,000, an increase of approximately $32,311,000
from the prior year primarily as a result of certain income tax payments made
during the twelve months ended December 31, 1992 which did not recur in 1993 and
an increase in deferred taxes in 1993 over 1992. The Company also experienced an
increase in collections on accounts receivable in 1993 as compared to 1992,
which amount was primarily used to pay accounts payable and other accrued
expenses. Net cash provided by financing activities during the year ended
December 31, 1993 was approximately $38,872,000. The Company repaid
approximately $99,899,000 of long-term obligations primarily with approximately
$45,000,000 of the net proceeds from the Preferred Stock offering (as discussed
below), a portion of the proceeds from a $20,000,000 Senior Secured Term Loan
Facility, a portion of the proceeds from issuance of $50,000,000 of First
Mortgage Bonds (as discussed below) and a portion of the proceeds from issuance
of $25,000,000 of 8.75% Notes (as discussed below). Net cash used for investing
activities during the year ended December 31, 1993 was approximately
$145,573,000. The Company primarily used cash generated from operations to fund
capital expenditures and construction totaling approximately $95,364,000 and
primarily used proceeds from the issuance of long-term obligations to fund the
acquisition of nursing facilities, including certain previously leased
facilities.

In April 1993, the Company registered with the Securities and Exchange
Commission $100,000,000 aggregate principal amount of First Mortgage Bonds (the
"First Mortgage Bonds Registration Statement") which are to be offered from time
to time as separate series in amounts, at prices and on terms to be determined
at the time of sale. Pursuant to such registration, the Company issued two
series of First Mortgage Bonds in 1993. On April 22, 1993, the Company issued
$20,000,000 aggregate principal amount of 8.75% First Mortgage Bonds (the
"Series A Bonds") due July 1, 2008. On July 22, 1993, the Company issued
$30,000,000 aggregate principal amount of 8.625% First Mortgage Bonds (the
"Series B Bonds") due October 1, 2008. In November 1993, the Company filed a
Registration Statement with the Securities and Exchange Commission to amend the
First Mortgage Bonds Registration Statement to allow the Company to issue senior
unsecured notes, subordinated unsecured notes, or other evidences of
indebtedness, as well as First Mortgage Bonds, (collectively, the "Debt
Securities") for the remaining $50,000,000 available under the First Mortgage
Bonds Registration Statement. On December 22, 1993, the Company issued
$25,000,000 aggregate principal amount of 8.75% Notes (the "8.75% Notes"), which
are unsecured obligations of the Company, due December 31, 2003. The Company
used the net proceeds from issuance of the Series A Bonds, the Series B Bonds
and the 8.75% Notes to finance the purchase of nine nursing facilities, to
finance construction of a new nursing facility, to refinance certain existing
indebtedness with respect to 20 nursing facilities, which debt had a weighted
average annual interest rate of 12.1%, and for general corporate purposes.

On August 5, 1993, the Company completed the sale of 3,000,000 shares of
$2.75 Cumulative Convertible Exchangeable Preferred Stock (the "Series B
preferred stock") through a public offering (the "Preferred Stock offering") for
net proceeds of approximately $145,000,000. On January 3, 1994, the Company used
approximately $100,000,000 of such net proceeds to redeem all of the Company's
cumulative convertible preferred stock (the "Series A preferred stock"). The
Series A preferred stock dividend rate was scheduled to increase from 1% to 10%
on January 1, 1994. The remainder of the net proceeds was used to repay
approximately $45,000,000 of the Term Loan under the Bank Credit Facility. The
$20,000,000 excess (the "redemption premium") paid above the $80,000,000
original recorded value of the Series A preferred stock was charged to the
Company's retained earnings during the twelve months ended December 31, 1993.
Although such amount did not impact the Company's net income, for accounting
purposes the $20,000,000 redemption premium was treated as a reduction to income
available to common stockholders in the calculation of earnings per share for
the twelve-month period ended December 31, 1993.

16
<PAGE> 18

During the twelve months ended December 31, 1993, the Board of Directors
approved the redemption of approximately $46,000,000 in principal amount of the
Company's 9% convertible subordinated debentures (the "9% Debentures"). By the
close of business on August 18, 1993, all of the 9% Debentures had been
converted to common stock of the Company. Outstanding shares of the Company's
common stock increased by approximately 7,131,800 shares as a result of the
conversion of the 9% Debentures. Primarily as a result of the Preferred Stock
offering and the use of the net proceeds therefrom, and the conversion of the 9%
Debentures into shares of the Company's common stock, the Company's debt to
equity ratio improved to 1 to 1 at December 31, 1993, as compared to 1.2 to 1 at
December 31, 1992.

In January 1994, the Company sold or subleased 27 nursing facilities (2,344
beds) in the state of Texas for cash proceeds of approximately $31,000,000. In
addition, on January 26, 1994, an option grant for 1,000,000 common shares at
$12.00 per share was exercised in full and the Company received $12,000,000 in
cash proceeds. The Company intends to file a Registration Statement with the
Securities and Exchange Commission to register such 1,000,000 shares.

The Company believes that working capital from operations, borrowings under
its banking arrangements and Commercial Paper Program, proceeds from issuance of
Debt Securities, refinancings of certain existing indebtedness, and proceeds
from the sale of facilities and the exercise of the option grant discussed above
will be adequate to repay its debts due within one year of approximately
$42,873,000, to make normal recurring capital additions and improvements for the
twelve months ending December 31, 1994 of approximately $100,000,000, to make
selective acquisitions, including the purchase of previously-leased facilities,
and to meet working capital requirements.

17
<PAGE> 19

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young, Independent Auditors......................................... 19
Consolidated Balance Sheets........................................................... 20
Consolidated Statements of Operations................................................. 21
Consolidated Statements of Stockholders' Equity....................................... 22
Consolidated Statements of Cash Flows................................................. 23
Notes to Consolidated Financial Statements............................................ 24
Supplementary Data (Unaudited) -- Quarterly Financial Data............................ 40
</TABLE>

18
<PAGE> 20

REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Beverly Enterprises, Inc.

We have audited the accompanying consolidated balance sheets of Beverly
Enterprises, Inc. as of December 31, 1993 and 1992, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1993. Our audits also included the
financial statement schedules listed in the Index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Beverly Enterprises, Inc. at December 31, 1993 and 1992, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1993, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic consolidated financial statements taken
as a whole, present fairly, in all material respects, the information set forth
therein.

As discussed in Note 7 to the consolidated financial statements, in 1992
the Company changed its method of accounting for income taxes.

Little Rock, Arkansas
February 4, 1994

19
<PAGE> 21

BEVERLY ENTERPRISES, INC.

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1993 1992
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $ 73,773 $ 49,597
Accounts receivable -- patient, less allowance for doubtful
accounts: 1993 -- $19,561; 1992 -- $17,383................... 340,249 316,471
Accounts receivable -- nonpatient, less allowance for doubtful
accounts: 1993 -- $343; 1992 -- $823......................... 6,329 8,691
Notes receivable................................................ 4,617 7,183
Operating supplies.............................................. 62,915 64,683
Deferred income taxes........................................... 27,050 37,481
Prepaid expenses and other...................................... 33,817 35,174
---------- ----------
Total current assets.................................... 548,750 519,280
Property and equipment, net....................................... 1,153,370 1,041,655
Other assets:
Notes receivable, less allowance for doubtful notes:
1993 -- $10,440; 1992 -- $7,364.............................. 41,689 42,806
Designated and restricted funds................................. 44,948 54,285
Goodwill, net................................................... 72,209 72,308
Operating and leasehold rights and licenses, net................ 25,819 30,660
Other, net...................................................... 106,745 93,476
---------- ----------
Total other assets...................................... 291,410 293,535
---------- ----------
$1,993,530 $1,854,470
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ $ 119,212 $ 115,031
Accrued wages and related liabilities........................... 126,909 109,962
Accrued interest................................................ 9,519 11,085
Accrued restructuring costs..................................... 34,310 48,053
Other accrued liabilities....................................... 64,058 68,734
Current portion of long-term obligations........................ 42,873 29,389
---------- ----------
Total current liabilities............................... 396,881 382,254
Long-term obligations............................................. 706,695 712,712
Deferred income taxes payable..................................... 72,765 78,488
Other liabilities and deferred items.............................. 78,180 87,271
Commitments and contingencies
Stockholders' equity:
Preferred stock:
Series A, shares issued and outstanding: 999,999............. 100,000 80,000
Funds designated for the redemption of Series A preferred
stock....................................................... (100,000) --
Series B, shares issued and outstanding: 3,000,000........... 150,000 --
Common stock, shares issued: 1993 -- 85,845,400;
1992 -- 78,307,040........................................... 8,585 7,831
Additional paid-in capital...................................... 578,239 536,528
Retained earnings............................................... 42,320 9,521
Treasury stock, at cost: 3,977,800 shares....................... (40,135) (40,135)
---------- ----------
Total stockholders' equity.............................. 739,009 593,745
---------- ----------
$1,993,530 $1,854,470
---------- ----------
---------- ----------
</TABLE>

See accompanying notes.

20
<PAGE> 22

BEVERLY ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Net operating revenues................................. $2,870,758 $2,596,731 $2,300,909
Interest income........................................ 15,123 14,475 19,995
--------- --------- ---------
Total revenues............................... 2,885,881 2,611,206 2,320,904
Costs and expenses:
Operating and administrative:
Wages and related................................. 1,585,226 1,479,673 1,354,890
Other............................................. 1,062,162 915,566 767,512
Interest............................................. 62,413 62,582 68,574
Depreciation and amortization........................ 86,127 88,001 88,346
Restructuring costs.................................. -- 57,000 --
--------- --------- ---------
Total costs and expenses..................... 2,795,928 2,602,822 2,279,322
--------- --------- ---------
Income before provision for income taxes, extraordinary
charge and cumulative effect of change in accounting
for income taxes..................................... 89,953 8,384 41,582
Provision for income taxes............................. 29,684 4,203 12,410
--------- --------- ---------
Income before extraordinary charge and cumulative
effect of change in accounting for income taxes...... 60,269 4,181 29,172
Extraordinary charge, net of income taxes of $1,155 in
1993 and $5,415 in 1992.............................. (2,345) (8,835) --
Cumulative effect of change in accounting for income
taxes................................................ -- (5,454) --
--------- --------- ---------
Net income (loss)...................................... $ 57,924 $ (10,108) $ 29,172
--------- --------- ---------
--------- --------- ---------
Income (loss) per share of common stock:
Before redemption premium on Series A preferred
stock, extraordinary charge and cumulative effect
of change in accounting for income taxes.......... $ .71 $ .04 $ .37
Redemption premium on Series A preferred stock....... (.26) -- --
--------- --------- ---------
Before extraordinary charge and cumulative effect of
change in accounting for income taxes............. .45 .04 .37
Extraordinary charge................................. (.03) (.12) --
Cumulative effect of change in accounting for
income taxes...................................... -- (.07) --
--------- --------- ---------
Net income (loss).................................... $ .42 $ (.15) $ .37
--------- --------- ---------
--------- --------- ---------
Shares used to compute per share amounts............... 78,807 75,285 78,818
--------- --------- ---------
--------- --------- ---------
</TABLE>

See accompanying notes.

21
<PAGE> 23

BEVERLY ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
--------------------------------------------------------------------
ADDITIONAL RETAINED
PREFERRED COMMON PAID-IN EARNINGS TREASURY
STOCK STOCK CAPITAL (DEFICIT) STOCK TOTAL
--------- ------ ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1990............ $ 80,000 $6,995 $ 455,906 $ (4,543) $(40,135) $ 498,223
Issuance of 6,900,000 common shares.... -- 690 69,041 -- -- 69,731
Employee stock transactions, net....... -- 76 5,907 -- -- 5,983
Preferred stock dividends.............. -- -- -- (4,000) -- (4,000)
Net income............................. -- -- -- 29,172 -- 29,172
--------- ------ ---------- -------- -------- ---------
Balances at December 31, 1991............ 80,000 7,761 530,854 20,629 (40,135) 599,109
Employee stock transactions, net....... -- 70 5,674 -- -- 5,744
Preferred stock dividends.............. -- -- -- (1,000) -- (1,000)
Net loss............................... -- -- -- (10,108) -- (10,108)
--------- ------ ---------- -------- -------- ---------
Balances at December 31, 1992............ 80,000 7,831 536,528 9,521 (40,135) 593,745
Issuance of 3,000,000 shares of Series
B preferred stock................... 150,000 -- (5,500) -- -- 144,500
Funds designated for the redemption of
Series A preferred stock............ (100,000) -- -- -- -- (100,000)
Redemption premium on Series A
preferred stock..................... 20,000 -- -- (20,000) -- --
Conversion of 9% Debentures into common
shares.............................. -- 713 43,770 -- -- 44,483
Employee stock transactions, net....... -- 41 3,441 -- -- 3,482
Preferred stock dividends.............. -- -- -- (5,125) -- (5,125)
Net income............................. -- -- -- 57,924 -- 57,924
--------- ------ ---------- -------- -------- ---------
Balances at December 31, 1993............ $ 150,000(1) $8,585 $ 578,239 $ 42,320 $(40,135) $ 739,009
--------- ------ ---------- -------- -------- ---------
--------- ------ ---------- -------- -------- ---------
</TABLE>

- ---------------

(1) Amount represents the liquidation value of the Series B preferred stock. The
Series A preferred stock was outstanding at December 31, 1993 with funds
designated for its redemption. The Series A preferred stock was redeemed on
January 3, 1994.

See accompanying notes.

22
<PAGE> 24

BEVERLY ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
--------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 57,924 $ (10,108) $ 29,172
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 86,127 88,001 88,346
Provision for reserves and discounts on patient, notes
and other receivables, net........................... 20,767 3,869 25,223
Extraordinary charge................................... 3,500 14,250 --
(Gains) losses on dispositions of facilities and other
assets, net.......................................... (3,667) 772 97
Deferred taxes, including cumulative effect of a change
in accounting for income taxes....................... 4,708 (14,674) (2,699)
Net increase (decrease) in insurance reserves.......... (3,037) 4,398 7,078
Restructuring costs.................................... -- 57,000 --
Changes in operating assets and liabilities, net of
acquisitions and dispositions:
Accounts receivable -- patient....................... (40,783) (74,654) (22,943)
Operating supplies................................... 847 2,719 (6,793)
Prepaid expenses and other receivables............... 5,247 (2,840) 3,627
Accounts payable and other accrued expenses.......... 7,792 41,862 (6,008)
Income taxes payable................................. 366 (8,119) 11,239
Other, net........................................... (8,914) (3,910) 2,574
--------- --------- --------
Total adjustments................................. 72,953 108,674 99,741
--------- --------- --------
Net cash provided by operating activities......... 130,877 98,566 128,913
Cash flows from investing activities:
Payments for acquisitions, net of cash acquired........... (49,973) (50,723) (19,695)
Proceeds from dispositions of facilities and other
assets................................................. 9,952 10,087 487
Payments on notes receivable.............................. 6,604 10,308 17,403
Capital expenditures...................................... (83,995) (68,398) (52,068)
Construction in progress, net............................. (11,369) (9,211) (8,160)
Other..................................................... (16,792) (15,566) (1,347)
--------- --------- --------
Net cash used for investing activities............ (145,573) (123,503) (63,380)
Cash flows from financing activities:
Proceeds from issuance of Series B preferred stock, net... 144,500 -- --
Funds designated for the redemption of Series A preferred
stock.................................................. (100,000) -- --
Proceeds from issuance of long-term obligations........... 100,541 151,196 45,478
Repayments of long-term obligations....................... (99,899) (106,756) (152,930)
Proceeds from issuance of common stock, net............... -- -- 69,731
Deferred financing costs.................................. (10,290) (10,286) (7,596)
Dividends paid on preferred stock......................... (3,063) (1,000) (4,000)
Proceeds from exercise of stock options................... 2,537 3,535 3,295
Proceeds from (deposits to) designated funds, net......... 4,546 972 (504)
--------- --------- --------
Net cash provided by (used for) financing
activities...................................... 38,872 37,661 (46,526)
--------- --------- --------
Net increase in cash and cash equivalents................... 24,176 12,724 19,007
Cash and cash equivalents at beginning of year.............. 49,597 36,873 17,866
--------- --------- --------
Cash and cash equivalents at end of year.................... $ 73,773 $ 49,597 $ 36,873
--------- --------- --------
--------- --------- --------
Supplemental schedule of cash flow information:
Cash paid during the year for:
Interest (net of amount capitalized)................... $ 63,979 $ 63,541 $ 67,558
Income taxes (net of refunds).......................... 17,226 32,233 3,045
</TABLE>

See accompanying notes.

23
<PAGE> 25

BEVERLY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

References herein to the Company include Beverly Enterprises, Inc. and its
wholly-owned subsidiaries. The consolidated financial statements of the Company,
which provides long-term health care including the operation of nursing
facilities and subacute units, pharmacies, retirement living projects, and home
health care centers, include the accounts of the Company and all of its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

Cash and Cash Equivalents

Cash and cash equivalents include time deposits and certificates of deposit
with original maturities of three months or less.

Property and Equipment

Property and equipment is stated at cost less accumulated depreciation or,
where appropriate, the present value of the related capital lease obligations
less accumulated amortization. Depreciation and amortization are computed by the
straight-line method over the estimated useful lives of the assets.

Intangible Assets

Operating and leasehold rights and licenses (stated at cost less
accumulated amortization of $23,059,000 in 1993 and $24,314,000 in 1992) are
being amortized over the lives of the related assets (principally 40 years) and
leases (principally 10 to 15 years), using the straight-line method. Goodwill
(stated at cost less accumulated amortization of $21,183,000 in 1993 and
$19,248,000 in 1992) is being amortized over 40 years or, if applicable, the
life of the lease using the straight-line method. On an ongoing basis, the
Company reviews the valuation and amortization of intangible assets. As part of
this ongoing review, the Company takes into consideration any events or
circumstances that could impair the carrying value of such assets.

Insurance

The Company insures general liability and workers' compensation risks, in
most states, through insurance policies with third parties, some of which may be
subject to reinsurance agreements between the insurer and Beverly Indemnity,
Ltd., a wholly-owned subsidiary of Beverly California Corporation, which is a
wholly-owned subsidiary of the Company. The liabilities for estimated incurred
losses are discounted at 10% in 1993 and 1992 to their present value based on
expected loss payment patterns determined by independent actuaries. The
discounted insurance liabilities are included in the consolidated balance sheet
captions as follows (in thousands):

<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Accrued wages and related liabilities.......................... $ 31,665 $ 28,882
Other accrued liabilities...................................... 5,152 5,478
Other liabilities and deferred items........................... 65,387 72,667
-------- --------
$102,204 $107,027
-------- --------
-------- --------
</TABLE>

On an undiscounted basis, the total insurance liabilities as of December
31, 1993 and 1992 were $132,333,000 and $137,605,000, respectively. As of
December 31, 1993, the Company has deposited approximately $50,365,000 in funds
that are restricted for the payment of insured claims. These funds are

24
<PAGE> 26

BEVERLY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

invested primarily in United States government securities with maturity dates
ranging primarily from one to five years and are carried at cost, which
approximates market value, and are included in the consolidated balance sheet
captions "Prepaid expenses and other" and "Designated and restricted funds." In
addition, the Company anticipates that approximately $25,368,000 of its existing
cash at December 31, 1993, while not legally restricted, will be utilized for
funding insurance claims and the Company does not expect to use such cash for
other purposes.

Revenues

The Company's revenues are derived primarily from providing long-term
health care services. Approximately 80.1% in 1993, 79.9% in 1992 and 78.8% in
1991 of the Company's room and board revenues were derived from funds under
federal and state medical assistance programs, and approximately $267,035,000,
$249,413,000 and $196,082,000 of the Company's patient accounts receivable at
December 31, 1993, 1992, and 1991, respectively, are due from such programs.
These revenues and receivables are reported at their estimated net realizable
amounts and are subject to audit and retroactive adjustment. Provisions for
estimated third-party payor settlements are provided in the period the related
services are rendered and are adjusted in the period of settlement.

Concentration of Credit Risk

The Company has significant accounts receivable, notes receivable and other
assets whose collectibility or realizability is dependent upon the performance
of certain governmental programs, primarily Medicaid and Medicare. These
receivables and other assets represent the only concentration of credit risk for
the Company. The Company does not believe there are significant credit risks
associated with these governmental programs. The Company believes that an
adequate provision has been made for the possibility of these receivables and
other assets proving uncollectible and continually monitors and adjusts these
allowances as necessary.

Earnings per share

Primary earnings per share for the year ended December 31, 1993 was
computed by dividing net income after deduction of preferred stock dividends and
the $20,000,000 redemption premium on the Series A preferred stock, discussed
below, by the weighted average number of shares of common stock outstanding
during the period and the weighted average number of shares issuable upon
exercise of stock options, calculated using the treasury stock method. Fully
diluted earnings per share for the year ended December 31, 1993 was computed as
above and assumed conversion of the Company's 9% convertible subordinated
debentures and other notes. Conversion of the Company's 7.625% convertible
subordinated debentures would have an anti-dilutive effect and, therefore, was
not assumed. During the year ended December 31, 1993, the Company charged
retained earnings for the $20,000,000 excess (the "redemption premium") to be
paid to redeem the Company's cumulative convertible preferred stock (the "Series
A preferred stock") above its $80,000,000 original recorded value. Although this
amount did not impact the Company's net income, for accounting purposes the
$20,000,000 redemption premium was treated as a reduction to income available to
common stockholders in the calculation of earnings per share for the year ended
December 31, 1993.

Primary and fully diluted earnings per share for the year ended December
31, 1992 were computed by dividing net income after deduction of preferred stock
dividends by the weighted average number of shares of common stock outstanding
during the period and the weighted average number of shares issuable upon
exercise of stock options, calculated using the treasury stock method.

25
<PAGE> 27

BEVERLY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Primary earnings per share for the year ended December 31, 1991 was
computed by dividing net income by the weighted average number of shares of
common stock and dilutive common stock equivalents outstanding during the
period. Common stock equivalents included the Company's Series A preferred stock
and the weighted average number of shares issuable upon exercise of stock
options, calculated using the treasury stock method. Fully diluted earnings per
share for the year ended December 31, 1991 was computed as above and assumed
conversion of the Company's other notes. Conversion of the Company's 7.625% and
9% convertible subordinated debentures would have an anti-dilutive effect and,
therefore, were not assumed.

Other

Certain prior year amounts have been reclassified to conform with the 1993
presentation.

2. ACQUISITIONS AND DISPOSITIONS

During the year ended December 31, 1992, the Company recognized a
$57,000,000 pre-tax restructuring charge related to a program to discontinue the
Company's operation of 33 nursing facilities with historically poor financial
performance, and to replace, relocate or sell certain other assets (the "1992
restructuring program"). This charge included the estimated operating losses to
be incurred by these 33 facilities during the anticipated period required to
implement the program. Certain transactions which were reserved as part of the
1992 restructuring program were not completed by the originally anticipated
one-year implementation period; however, the Company anticipates that the
remaining transactions will be substantially completed during the first six
months of 1994. The Company evaluates the reserves established in connection
with the remaining transactions on a regular basis, and believes the current
reserves are adequate.

During the year ended December 31, 1993, the Company acquired three nursing
facilities (328 beds) and leasehold interests in eight nursing facilities (829
beds) and one retirement living project (69 units), all of which were previously
managed by the Company, in addition to one nursing facility (60 beds) and one
retirement living project (187 units) not previously operated by the Company.
The acquisitions of such facilities, and certain other assets, were accounted
for as purchases and were consummated with approximately $6,915,000 cash,
approximately $18,232,000 assumed and acquired debt, approximately $858,000 of
security and other deposits and approximately $454,000 reduction in receivables.
In addition, the Company acquired 25 nursing facilities (2,706 beds) and two
retirement living projects (435 units), which were previously leased by the
Company, for approximately $38,381,000 cash (including approximately $5,000,000
borrowed under the Company's revolving credit agreement), approximately
$5,541,000 issuance of debt, approximately $42,285,000 assumed and acquired debt
and approximately $2,313,000 of security and other deposits. The operations of
these facilities were immaterial to the Company's financial position and results
of operations.

During the year ended December 31, 1993, the Company sold or terminated the
leases on 40 nursing facilities (4,511 beds) (20 of such facilities were
included in the 33 facilities discussed above) and three retirement living
projects (230 units) (two of which were included in the 33 facilities discussed
above). The Company recognized pre-tax losses of approximately $3,769,000 as a
result of these dispositions, which was primarily included in the $57,000,000
pre-tax restructuring charge discussed above. In addition, the Company sold
certain other assets for pre-tax gains of approximately $4,850,000. Dispositions
of such facilities and other assets were consummated for approximately
$9,583,000 cash and approximately $5,460,000 assumption of debt. The operations
of these facilities were immaterial to the Company's financial position and
results of operations.

26
<PAGE> 28

BEVERLY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

2. ACQUISITIONS AND DISPOSITIONS -- (CONTINUED)

In January 1994, the Company sold or subleased 27 nursing facilities (2,344
beds) in the state of Texas for cash proceeds of approximately $31,000,000. The
sale and sublease of these nursing facilities will not have a material impact on
the Company's financial position or results of operations, and the operations of
these facilities were immaterial to the Company.

During the year ended December 31, 1992, the Company acquired 15 nursing
facilities (1,669 beds), one retirement living project (24 units) and other
assets, accounted for as purchases. The acquisitions were consummated with
approximately $6,112,000 cash, approximately $25,639,000 issuance of debt,
approximately $20,221,000 assumed and acquired debt and approximately
$13,230,000 reduction in notes receivable, which the Company previously took as
partial payment for the original sale of certain of the nursing facilities and
interest receivable thereon. In addition, the Company acquired 14 nursing
facilities (1,450 beds), which were previously leased by the Company, for
approximately $12,809,000 cash, approximately $8,340,000 issuance of debt,
approximately $11,325,000 assumed and acquired debt and approximately $841,000
of security and other deposits. In addition, the Company sold or terminated the
leases on 22 nursing facilities (2,379 beds) (five of such facilities were
included in the 33 facilities discussed above) and one retirement living project
(77 units) (which was included in the 33 facilities discussed above) for
approximately $1,282,000 cash and approximately $4,610,000 notes. The Company
recognized pre-tax losses of approximately $5,394,000 as a result of these
dispositions, a portion of which was included in the $57,000,000 pre-tax
restructuring charge discussed above. The operations of these facilities were
immaterial to the Company's financial position and results of operations.

During the year ended December 31, 1991, the Company acquired 35 nursing
facilities (2,963 beds), accounted for as purchases, including 16 leased
facilities, and other assets. The acquisitions were consummated with
approximately $5,265,000 cash, approximately $26,777,000 assumed and acquired
debt, approximately $1,682,000 security deposits and approximately $21,956,000
reduction in notes receivable, which the Company previously took as partial
payment for the original sale of certain of the nursing facilities. In addition,
the Company acquired seven nursing facilities (841 beds), which were previously
leased by the Company, for approximately $14,521,000 cash and approximately
$630,000 of security deposits. The Company sold or terminated the leases on 28
nursing facilities (3,775 beds) for approximately $1,155,000 cash and
approximately $601,000 notes and recognized pre-tax losses of approximately
$7,450,000 as a result of these dispositions, a portion of which was included in
the $128,104,000 pre-tax restructuring charges taken as a result of an asset
disposition program in 1989. The operations of these facilities were immaterial
to the Company's financial position and results of operations.

3. PROPERTY AND EQUIPMENT

Following is a summary of property and equipment and related accumulated
depreciation and amortization by major classifications at December 31 (in
thousands):

<TABLE>
<CAPTION>
TOTAL OWNED LEASED
---------------------- ---------------------- ------------------
1993 1992 1993 1992 1993 1992
--------- --------- --------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Land, buildings and improvements................ $1,371,499 $1,241,638 $1,313,082 $1,182,174 $58,417 $59,464
Furniture and equipment......................... 293,379 266,977 286,762 259,322 6,617 7,655
Construction in progress........................ 33,103 22,285 33,103 22,285 -- --
--------- --------- --------- --------- ------- -------
1,697,981 1,530,900 1,632,947 1,463,781 65,034 67,119
Less accumulated depreciation and
amortization.................................. 544,611 489,245 505,387 450,054 39,224 39,191
--------- --------- --------- --------- ------- -------
$1,153,370 $1,041,655 $1,127,560 $1,013,727 $25,810 $27,928
--------- --------- --------- --------- ------- -------
--------- --------- --------- --------- ------- -------
</TABLE>

27
<PAGE> 29

BEVERLY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

3. PROPERTY AND EQUIPMENT -- (CONTINUED)
The Company provides depreciation and amortization using the straight-line
method over the following estimated useful lives: land improvements -- 5 to 15
years; buildings -- 35 to 40 years; building improvements -- 5 to 20 years;
leasehold improvements -- 5 to 20 years or term of lease, if less; furniture and
equipment -- 5 to 15 years. Capitalized lease assets are amortized over the
remaining initial terms of the leases.

Depreciation and amortization expense related to property and equipment for
the years ended December 31, 1993, 1992 and 1991 was $71,730,000, $68,214,000
and $65,051,000, respectively.

4. LONG-TERM OBLIGATIONS

Long-term obligations consist of the following at December 31 (dollars in
thousands except per share amounts):

<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Notes and mortgages, less imputed interest: 1993 -- $625; 1992 -- $812,
due in installments through the year 2020, at effective interest rates
of 3.32% to 13.00%, a portion of which is secured by property,
equipment and other assets with a net book value of $252,955 at
December 31, 1993..................................................... $147,491 $170,773
Industrial development revenue bonds, less imputed interest:
1993 -- $239; 1992 -- $481, due in installments through the year 2019,
at effective interest rates of 2.40% to 11.50%, a portion of which is
secured by property and other assets with a net book value of $278,000
at December 31, 1993.................................................. 278,794 236,586
Term loan under the Bank Credit Facility due in quarterly installments
from June 1995 through March 24, 1999................................. 55,000 100,000
Term loan under the Nippon Credit Agreement due in quarterly
installments from June 1996 through March 3, 2000..................... 20,000 --
Term loan due in quarterly installments through December 31, 1993
(refinanced on March 3, 1993)......................................... -- 13,208
Senior secured notes, face amount, less unamortized discount:
1993 -- $106; 1992 -- $135............................................ 17,644 17,615
8 3/4% First Mortgage Bonds (Series A) due July 1, 2008, secured by
first mortgages on eight nursing facilities with an aggregate net book
value of $17,194 at December 31, 1993................................. 20,000 --
8 5/8% First Mortgage Bonds (Series B) due October 1, 2008, secured by
first mortgages on 11 nursing facilities with an aggregate net book
value of $30,213 at December 31, 1993................................. 30,000 --
8 3/4% Notes due December 31, 2003, unsecured........................... 25,000 --
Commercial paper, face amount less unamortized discount: 1993 -- $188;
1992 -- $126, with effective interest rates from 3.25% to 3.45%,
secured by eligible receivables of selected nursing facilities of
$74,282 at December 31, 1993.......................................... 49,812 49,874
7.625% convertible subordinated debentures due March 15, 2003,
convertible at $20.47 per share....................................... 67,924 67,924
9.00% convertible subordinated debentures due August 15, 2000,
convertible at $6.45 per share........................................ -- 46,000
Zero coupon notes, face amount, less unamortized discount:
1993 -- $1,589; 1992 -- $1,880, maturing July 16, 2003, anticipated to
be due September 30, 1994, convertible into 13.32 common shares per $1
note.................................................................. 1,428 1,462
-------- --------
713,093 703,442
Present value of capital lease obligations, less imputed interest:
1993 -- $1,329; 1992 -- $1,465, at effective interest rates of 7.50%
to 13.00%............................................................. 36,475 38,659
-------- --------
749,568 742,101
Less amounts due within one year........................................ 42,873 29,389
-------- --------
$706,695 $712,712
-------- --------
-------- --------
</TABLE>

28
<PAGE> 30

BEVERLY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

4. LONG-TERM OBLIGATIONS -- (CONTINUED)
By December 31, 1992, the Company had obtained substantial commitments to
refinance the remaining debt outstanding under a 1990 credit agreement.
Accordingly, in 1992, the Company recorded a $4,312,000 extraordinary charge,
net of income taxes, related to the acceleration of unamortized debt issue costs
associated with the early extinguishment of this debt. On March 3, 1993, the
Company closed such refinancing and entered into a $20,000,000 Credit Agreement
(the "Nippon Credit Agreement") and a $135,000,000 Credit Agreement (the "Morgan
Credit Agreement"). The Nippon Credit Agreement provides for a seven-year term
loan (the "Nippon Term Loan"). The proceeds from the Nippon Term Loan were used
to repay the remaining balance outstanding under a term loan provided by the
1990 credit agreement, and to fund, among other things, the purchase of certain
previously-leased facilities. The Morgan Credit Agreement originally provided
for a $35,000,000 Working Capital Revolving Credit Facility (the "Revolver") and
a $100,000,000 Letter of Credit Facility (the "LOC Facility"). Effective
September 30, 1993, the Morgan Credit Agreement was amended to increase the
Revolver to $50,000,000 and to decrease the LOC Facility to $85,000,000. The
Revolver and the LOC Facility replaced the Company's revolving credit facility
and letter of credit facility originally entered into under the 1990 credit
agreement. The Nippon Term Loan bears interest at the Prime Rate, as defined,
plus 1.50% or Adjusted LIBOR plus 2.50%, at the Company's option, and requires
interest-only payments for the first three years. Amounts outstanding under the
Revolver bear interest at Adjusted LIBOR plus 1.25% or the Base Rate, as
defined, plus .25%, at the Company's option, until maturity on February 15,
1996. At December 31, 1993, there were no outstanding borrowings under the
Revolver. The Company pays certain commitment fees and commissions with respect
to the Revolver and the LOC Facility.

The Nippon Credit Agreement is secured by a mortgage interest in 13 nursing
facilities with a net book value totaling approximately $16,392,000 at December
31, 1993, and a security interest in certain personal property. The Morgan
Credit Agreement is secured by a mortgage interest in 61 nursing facilities with
net book value totaling approximately $78,836,000 at December 31, 1993, a
security interest in certain personal property and a security interest in the
stock of substantially all of the Company's operating subsidiaries. These credit
agreements each impose on the Company certain financial tests and certain
restrictive covenants.

During 1992, the Company executed a $100,000,000 Bank Credit Facility (the
"Bank Credit Facility") which provides for a seven-year term loan (the "Term
Loan"). The Company incurred an extraordinary charge in 1992 of $4,523,000, net
of income taxes, related to the acceleration of unamortized debt issue costs
associated with the early extinguishment of certain debt that was repaid with a
portion of the proceeds from the Bank Credit Facility. A portion of the net
proceeds from the Preferred Stock offering (as discussed below) was used to
repay approximately $45,000,000 of the Term Loan during 1993. Accordingly, in
1993, the Company recorded a $2,345,000 extraordinary charge, net of income
taxes, related to the acceleration of unamortized debt issue costs associated
with such debt as well as certain bond refundings. The Term Loan bears interest
at Adjusted LIBOR plus 2.50% or the Prime Rate, as defined, plus 1.50%, at the
Company's option, and requires interest-only payments for the first three years.
The Bank Credit Facility is secured by a mortgage interest in 68 nursing
facilities and retirement centers with net book value totaling approximately
$130,358,000 at December 31, 1993, and a security interest in certain personal
property and imposes on the Company certain financial tests and restrictive
covenants.

As of December 31, 1993, the Company had $17,750,000 of fixed rate senior
secured notes (the "Senior Secured Notes") outstanding which were previously
issued in conjunction with a refinancing in 1990. The Senior Secured Notes have
interest payable semi-annually at 14.25%, require a sinking fund payment on
December 15, 1996 and mature on December 15, 1997. The Senior Secured Notes are
secured by a mortgage interest in 20 nursing facilities with net book value
totaling approximately $28,156,000 at December 31, 1993,

29
<PAGE> 31

BEVERLY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

4. LONG-TERM OBLIGATIONS -- (CONTINUED)

and a security interest in certain personal property and impose on the Company
certain financial tests and certain restrictive covenants.

As of December 31, 1993, $50,000,000 was outstanding under the Company's
Commercial Paper Program, pursuant to which eligible receivables of selected
nursing facilities are sold to Beverly Funding Corporation ("Beverly Funding"),
a wholly-owned subsidiary of the Company. The commercial paper has due dates
ranging primarily from one to three months, and is backed by a commercial paper
liquidity facility due December 31, 1995. The Company's maximum borrowing level
under the program is $65,000,000. At December 31, 1993, Beverly Funding had
total assets of approximately $75,951,000 which cannot be used to satisfy claims
of the Company or any of its subsidiaries.

30
<PAGE> 32

BEVERLY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

4. LONG-TERM OBLIGATIONS -- (CONTINUED)

Maturities and sinking fund requirements of long-term obligations,
including capital leases, for the years ending December 31 are as follows (in
thousands):

<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 THEREAFTER TOTAL
------- ------- ------- ------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Future minimum lease payments....................... $ 6,800 $ 6,659 $ 5,852 $ 5,502 $ 5,059 $ 39,333 $ 69,205
Less interest....................................... 3,656 3,326 3,006 2,711 2,424 17,607 32,730
------- ------- ------- ------- ------- ---------- --------
Net present value of future minimum lease
payments.......................................... 3,144 3,333 2,846 2,791 2,635 21,726 36,475
Notes, mortgages, bonds and debentures.............. 39,729 80,037 69,841 66,233 65,529 391,724 713,093
------- ------- ------- ------- ------- ---------- --------
$42,873 $83,370 $72,687 $69,024 $68,164 $413,450 $749,568
------- ------- ------- ------- ------- ---------- --------
------- ------- ------- ------- ------- ---------- --------
</TABLE>

Many of the capital and operating leases contain at least one renewal
option (which could extend the term of the leases by five to fifteen years),
purchase options, escalation clauses and provisions for payments by the Company
of real estate taxes, insurance and maintenance costs.

The industrial development revenue bonds were originally issued prior to
1985 primarily for the construction or acquisition of nursing facilities. The
funds generated from certain of the initial bond issues are designated for
facility construction and are maintained in interest bearing accounts
(designated funds) until used. Bond reserve funds are also included in
designated funds. These funds are invested primarily in certificates of deposit
and in United States government securities and are carried at cost, which
approximates market value. Net capitalized interest relating to construction was
not material in 1993, 1992 or 1991.

5. COMMITMENTS AND CONTINGENCIES

The future minimum rental commitments required by all noncancelable
operating leases with initial or remaining terms in excess of one year as of
December 31, 1993, are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1994............................................................. $ 88,317
1995............................................................. 81,528
1996............................................................. 70,455
1997............................................................. 55,123
1998............................................................. 47,228
Thereafter....................................................... 82,222
--------
$424,873
--------
--------
</TABLE>

Total future minimum rental commitments above include approximately
$24,606,000 of minimum sublease rentals due in the future under noncancelable
subleases. Rent expense on operating leases for the years ended December 31 was
as follows: 1993 -- $133,567,000; 1992 -- $138,623,000; 1991 -- $140,330,000.
Sublease rent income was approximately $3,226,000, $3,289,000 and $2,592,000 for
the years ended December 31, 1993, 1992 and 1991, respectively. Contingent rent,
based primarily on revenues, was approximately $20,000,000, $19,000,000 and
$17,800,000 for the years ended December 31, 1993, 1992 and 1991, respectively.

Effective August 1, 1992, the Company entered into an agreement to
outsource its management information systems functions for a period of seven
years, with an option to renew based on mutual agreement

31
<PAGE> 33

BEVERLY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

5. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)

among the parties. The future minimum commitments required under such agreement
as of December 31, 1993, are as follows: 1994 -- $7,941,000; 1995 -- $7,941,000;
1996 -- $7,941,000; 1997 -- $7,941,000; 1998 -- $7,941,000;
thereafter -- $4,632,000. The Company incurred approximately $10,179,000 under
such agreement during the year ended December 31, 1993.

The Company is contingently liable for approximately $71,674,000 of
long-term obligations maturing on various dates through 2019, as well as annual
interest of approximately $6,155,000 principally related to the Company's sale
of nursing facilities and retirement living projects. In addition, the Company
has working capital guarantees resulting from the disposition of facilities
totaling $3,000,000. The Company operates the facilities or projects related to
approximately $53,292,000 of the principal amount for which it is contingently
liable, pursuant to long-term agreements accounted for as operating leases or
management contracts. In addition, the Company is contingently liable for
various operating leases that were assumed by purchasers and are secured by the
rights thereto.

6. STOCKHOLDERS' EQUITY

The Company had 300,000,000 shares of authorized $.10 par value common
stock at December 31, 1993 and 1992. The Company is subject to certain
restrictions under its banking arrangements related to the payment of cash
dividends on its common stock.

The Company had 25,000,000 shares of authorized $1 par value preferred
stock at December 31, 1993 and 1992, a portion of which has been issued as
described below. The Board of Directors has authority, without further
stockholder action, to set rights, privileges and preferences for any unissued
shares of preferred stock.

In December 1986, the Company issued 999,999 shares of its preferred stock
("the Series A preferred stock") with a stated and liquidation value of $100 per
share to a wholly-owned subsidiary of Stephens Group, Inc. On January 3, 1994,
the Company used approximately $100,000,000 of the net proceeds from the
Preferred Stock offering (as defined below) to redeem the Series A preferred
stock. The Series A preferred stock dividend rate was scheduled to increase from
1% to 10% on January 1, 1994.

On August 5, 1993, the Company completed the sale of 3,000,000 shares of
$2.75 Cumulative Convertible Exchangeable Preferred Stock (the "Series B
preferred stock"), with a liquidation value of $50 per share through a public
offering (the "Preferred Stock offering"). As of December 31, 1993, the Series B
preferred stock is convertible into 11,252,813 shares of the Company's common
stock. The holders of the Series B preferred stock are entitled to receive out
of legally available funds, when and as declared by the Company's Board of
Directors, quarterly cash dividends equal to $2.75 per share (aggregate of
$8,250,000 per annum). Except as required by law, holders of the Series B
preferred stock have no voting rights unless dividends on the Series B preferred
stock have not been paid in an aggregate amount equal to at least six full
quarters (whether or not consecutive), in which case holders of the Series B
preferred stock will be entitled to elect two additional directors to the
Company's Board of Directors to serve until such dividend arrearage is
eliminated. The Company paid all required quarterly dividends on the Series B
preferred stock during 1993. The Series B preferred stock is exchangeable, in
whole or in part (but in no more than two parts), at the option of the Company,
on any dividend payment date beginning November 1, 1995, for the Company's
5 1/2%

32
<PAGE> 34

BEVERLY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

6. STOCKHOLDERS' EQUITY -- (CONTINUED)

Convertible Subordinated Debentures due August 1, 2018 (the "5 1/2%
Debentures"), at the rate of $50 principal amount of 5 1/2% Debentures for each
share of the Series B preferred stock. The Series B preferred stock is
redeemable at any time on and after August 1, 1996, in whole or in part, only at
the option of the Company, initially at a redemption price of $51.925 per share,
and thereafter at prices decreasing ratably annually to $50 per share on and
after August 1, 2003, plus accrued and unpaid dividends. The Series B preferred
stock is not a common stock equivalent and is accounted for only in the
computation of fully diluted earnings per share.

During 1993, the Beverly Enterprises, Inc. 1993 Long-Term Incentive Stock
Plan was approved. Such plan, as amended and restated (the "1993 Incentive Stock
Plan"), became effective July 1, 1993 and will remain in effect until June 30,
2003, subject to the earlier termination by the Board of Directors. The Company
has 3,000,000 common shares authorized for issuance, subject to certain
adjustments, under the 1993 Incentive Stock Plan in the form of nonqualified
stock options, incentive stock options, restricted stock, performance awards and
other stock unit awards. Incentive stock options must be granted at a purchase
price equal to market price at date of grant. Nonqualified stock options may be
granted at no less than 85% of market price on the date of grant. All grants
made at less than market price must be in lieu of cash payments. All options are
exercisable no sooner than one year from the grant date and expire 10 years from
the grant date. Restricted stock awards are outright stock grants which have a
minimum vesting period of one year for performance-based awards, and three years
for other awards. Performance awards and other stock unit awards will be granted
based on the achievement of certain performance or other goals and will carry
certain restrictions, as defined. The Compensation Committee of the Board of
Directors is responsible for administering the 1993 Incentive Stock Plan and
will have complete discretion in determining the number of shares or units to be
granted, setting performance goals and applying other restrictions to awards, as
needed, under the plan.

The Company has 2,400,000 common shares authorized for issuance under its
1985 Beverly Nonqualified Stock Option Plan. Under the plan, options are granted
at a purchase price equal to market price at date of grant, become exercisable
no sooner than one year after date of grant and expire no later than twelve
years after date of grant, as determined by a committee appointed by the Board
of Directors. In addition to options, the plan provides for outright grants of
common stock, subject to forfeiture provisions. As a condition precedent to the
release of such shares, the employee must be continuously employed with the
Company from and after the date of grant and remain employed on share release
dates. Commencing one year after the grant date, the shares will be released in
accordance with a schedule determined at the time of grant.

During 1991, the Company terminated its Amended and Restated 1981 Beverly
Incentive Stock Option Plan and its Amended and Restated 1981 Beverly Stock
Option Plan. No new options or restricted shares may be granted under these
plans. The terminations of these plans did not affect any of the options or
restricted shares previously granted pursuant to the plans.

33
<PAGE> 35

BEVERLY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

6. STOCKHOLDERS' EQUITY -- (CONTINUED)

The following table summarizes stock option and restricted stock data
relative to the Company's 1981, 1985 and 1993 option plans for the years ended
December 31:

<TABLE>
<CAPTION>
1993 1992 1991
------------------------------ --------------------------- ---------------------------
NUMBER PRICE NUMBER OF PRICE NUMBER PRICE
OF SHARES PER SHARE SHARES PER SHARE OF SHARES PER SHARE
--------- --------------- --------- --------------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning
of year............................. 3,483,334 $4.38 to $18.63 4,310,924 $4.25 to $18.63 4,822,961 $4.25 to $18.63
Changes during the year:
Granted............................. 952,000 $9.63 to $13.25 181,000 $7.88 to $11.50 887,400 $8.13 to $11.00
Exercised........................... (329,459) $4.38 to $12.00 (726,606) $4.25 to $ 8.75 (762,335) $4.38 to $ 8.75
Cancelled........................... (116,464) $4.38 to $18.63 (281,984) $4.38 to $18.63 (637,102) $4.38 to $18.63
--------- --------- ---------
Options outstanding at end of year.... 3,989,411(1) $4.38 to $18.63 3,483,334 $4.38 to $18.63 4,310,924 $4.25 to $18.63
--------- --------- ---------
--------- --------- ---------
Options available for grant........... 2,162,800 146,000 168,600
--------- --------- ---------
--------- --------- ---------
Restricted stock outstanding at
beginning
of year............................. 513,000 699,000 885,000
Changes during the year:
Granted............................. 96,000 72,000 27,000
Vested.............................. (162,800) (171,000) (174,000)
Forfeited........................... (14,400) (87,000) (39,000)
--------- --------- ---------
Restricted stock outstanding at end
of year............................. 431,800 513,000 699,000
--------- --------- ---------
--------- --------- ---------
</TABLE>

- ---------------

(1) Includes 2,108,743 options exercisable at December 31, 1993.

As of December 31, 1993, the Company had 1,000,000 common shares authorized
for issuance under a separate option grant at an option price of $12.00 per
share. On January 26, 1994, such option was exercised in full and the Company
received $12,000,000 in cash proceeds from such transaction. The Company intends
to file a Registration Statement with the Securities and Exchange Commission to
register such 1,000,000 shares.

The Beverly Enterprises 1988 Employee Stock Purchase Plan (as amended and
restated) enables all full-time employees having completed one year of
continuous service to purchase the Company's common shares at the current market
price through payroll deductions. The Company makes contributions in the amount
of 30% of the participant's contribution. Each participant specifies the amount
to be withheld from earnings per two-week pay period, subject to certain
limitations. The total charges to the Company's consolidated statements of
operations for the years ended December 31, 1993, 1992 and 1991 related to this
plan were approximately $1,493,000, $1,102,000, and $850,000, respectively.

7. INCOME TAXES

34
<PAGE> 36

BEVERLY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

7. INCOME TAXES -- (CONTINUED)

The provision for taxes on income before extraordinary charge and
cumulative effect of change in accounting for income taxes consists of the
following for the years ended December 31 (in thousands):

<TABLE>
<CAPTION>
DEFERRED
LIABILITY METHOD METHOD
-------------------- --------
1993 1992 1991
------- -------- --------
<S> <C> <C> <C>
Federal:
Current............................................ $19,115 $ 20,945 $ 11,894
Deferred........................................... 3,373 (17,245) (3,074)
State:
Current............................................ 4,327 3,386 3,215
Deferred........................................... 2,869 (2,883) 375
------- -------- --------
$29,684 $ 4,203 $ 12,410
------- -------- --------
------- -------- --------
</TABLE>

The Company's annual effective tax rate was 33% for the year ended December
31, 1993, as compared to 50% for the same period in 1992. The Company's annual
effective tax rate in 1993 is lower than the statutory rate primarily due to the
utilization of certain tax credit carryforwards. In addition, the higher annual
effective tax rate in 1992 primarily resulted from the $57,000,000 pre-tax
charge (as discussed herein) which reduced the Company's pre-tax income to a
level where the impact of permanent tax differences and state income taxes had a
more significant impact on the effective tax rate.

A reconciliation of the provision for income taxes computed at the
statutory rate to the Company's annual effective tax rate is summarized as
follows (dollars in thousands):

<TABLE>
<CAPTION>
LIABILITY METHOD DEFERRED METHOD
---------------------------------- ---------------
1993 1992 1991
--------------- -------------- ---------------
AMOUNT % AMOUNT % AMOUNT %
------- --- ------ --- ------- ---
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory rate........................ $31,484 35 $2,851 34 $14,138 34
Targeted jobs tax credits.................... (4,949) (5) -- -- (2,970) (7)
State provision.............................. 4,346 5 332 4 2,369 6
Accounting limitation on deferred tax
benefit.................................... -- -- -- -- (2,886) (7)
Amortization of intangibles.................. 964 1 952 11 2,561 6
Provision for IRS examination................ (3,243) (4) -- -- (2,055) (5)
Statutory tax rate change.................... 1,096 1 -- -- -- --
Other........................................ (14) -- 68 1 1,253 3
------- --- ------ --- ------- ---
$29,684 33 $4,203 50 $12,410 30
------- --- ------ --- ------- ---
------- --- ------ --- ------- ---
</TABLE>

In accordance with Statement No. 109, deferred income taxes for 1993 and
1992 reflect the impact of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes

35
<PAGE> 37

BEVERLY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

7. INCOME TAXES -- (CONTINUED)

and the amounts used for income tax purposes. The tax effects of temporary
differences giving rise to the Company's deferred tax assets and liabilities at
December 31, 1993 and 1992 are as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1992
--------------------- ---------------------
ASSET LIABILITY ASSET LIABILITY
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Insurance reserves............................ $ 47,728 $ -- $ 45,426 $ --
Targeted jobs tax credit carryforwards........ 29,118 -- 26,683 --
Alternative minimum tax credit
carryforwards............................... 17,602 -- 17,390 --
Provision for dispositions.................... 30,188 5,679 32,457 2,459
Depreciation and amortization................. 7 135,095 19 125,981
Operating supplies............................ -- 14,386 -- 15,568
Other......................................... 28,523 28,623 29,329 30,693
-------- -------- -------- --------
153,166 183,783 151,304 174,701
Valuation allowance........................... (15,097) -- (17,611) --
-------- -------- -------- --------
$138,069 $183,783 $133,693 $174,701
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>

At December 31, 1993, the Company had targeted jobs tax credit
carryforwards of $29,118,000 for income tax purposes which expire in years 2003
through 2008. For financial reporting purposes, the targeted jobs tax credit
carryforwards have been utilized to offset existing net taxable temporary
differences reversing during the carryforward periods. However, due to taxable
losses in prior years, future taxable income has not been assumed and a
valuation allowance of $15,097,000 and $17,611,000 for the years ended December
31, 1993 and 1992, respectively, has been recognized to offset the deferred tax
assets related to those carryforwards. The valuation allowance decreased
$2,514,000 from January 1, 1993 due to the utilization of targeted jobs tax
credits.

The components of the benefit from deferred income taxes for the year ended
December 31, 1991 are as follows (in thousands):

<TABLE>
<S> <C>
Depreciation....................................................... $ 692
Amortization....................................................... 479
Deferred gain on sale of facilities................................ 539
Restructuring charges.............................................. 6,008
Change in insurance reserves....................................... 2,180
Allowance for bad debts............................................ (418)
Notes receivable discount.......................................... (369)
General business credit carryforwards.............................. (2,970)
Accounting limitation on deferred tax benefit...................... (2,886)
Provision for IRS examination...................................... (2,055)
Alternative minimum tax credit..................................... (9,833)
Federal net operating loss......................................... 6,553
Other.............................................................. (619)
-------
$(2,699)
-------
-------
</TABLE>

The caption "Prepaid expenses and other" includes prepaid federal and state
income taxes of $5,279,000 at December 31, 1992.

36
<PAGE> 38

BEVERLY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

8. RELATED PARTY TRANSACTIONS

During 1993 and 1992, the Company declared and paid all required quarterly
dividends to the holder of its Series A preferred stock which amounted to
$1,000,000 per year. During 1991, the Company declared and paid all current
dividends and all dividends in arrears to such preferred shareholder which
amounted to $4,000,000. An affiliate of the Company's Series A preferred
shareholder provides certain investment services relating to the disposition of
certain assets of the Company, and has provided underwriting and placement
services on the Company's public and private offerings. The Company did not
require such services in 1993 and 1992. Fees paid by the Company for such
services amounted to approximately $1,421,000 for the year ended December 31,
1991.

As of December 31, 1991, an affiliate of the Company's Series A preferred
shareholder held $5,000,000 of the Company's 14.25% fixed rate Senior Secured
Notes which were repurchased in February 1992 for $5,850,000.

9. FAIR VALUES OF FINANCIAL INSTRUMENTS

Financial Accounting Standards Statement No. 107, "Disclosures about Fair
Value of Financial Instruments," requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet, for
which it is practicable to estimate that value. In cases where quoted market
prices are not available, fair values are based on estimates using present value
or other valuation techniques. Those techniques are significantly affected by
the assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. Statement No. 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company. The following methods and
assumptions were used by the Company in estimating its fair value disclosures
for financial instruments:

Cash and Cash Equivalents

The carrying amount reported in the consolidated balance sheets for cash
and cash equivalents approximates its fair value.

Notes Receivable (Including Current Portion)

For variable-rate notes that reprice frequently and with no significant
change in credit risk, fair values are based on carrying values. The fair values
for other loans are estimated using discounted cash flow analyses, using
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality.

Investment in a Real Estate Mortgage Investment Conduit (REMIC)

The fair value of the Company's REMIC investment, which is included in the
consolidated balance sheet caption "Other, net," is based on information
obtained from the REMIC servicer.

Invested Funds Designated for the Redemption of Series A preferred stock

The carrying amounts reported in the consolidated balance sheets for these
invested funds approximate their fair value.

37
<PAGE> 39

BEVERLY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

9. FAIR VALUES OF FINANCIAL INSTRUMENTS -- (CONTINUED)

Long-term Obligations (Including Current Portion)

The carrying amounts of the Company's Commercial Paper, Term Loan, Bank
Term Loan and certain other variable-rate borrowings approximate their fair
values. The fair values of the remaining long-term obligations are estimated
using discounted cash flow analyses, based on the Company's incremental
borrowing rates for similar types of borrowing arrangements.

The carrying amounts and estimated fair values of the Company's financial
instruments at December 31, 1993 and 1992 are as follows (in thousands):

<TABLE>
<CAPTION>
1993 1992
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents........................ $ 73,773 $ 73,773 $ 49,597 $ 49,597
Notes receivable, net (including current
portion)....................................... 46,306 49,000 49,989 51,000
REMIC investment................................. 24,918 22,000 22,727 22,000
Invested funds designated for the redemption of
Series A preferred stock....................... 100,000 100,000 -- --
Long-term obligations (including current
portion)....................................... 749,568 788,000 742,101 797,000
</TABLE>

It was not practicable to estimate the fair value of the Company's
off-balance-sheet guarantees (See Note 5). In order to consummate certain
dispositions and other transactions, the Company has agreed to guarantee the
debt assumed or acquired by the purchaser or the performance under a lease, by
the lessor. The Company does not charge a fee for entering into such agreements.

10. ADDITIONAL INFORMATION

Effective July 31, 1987, Beverly Enterprises, a California corporation
("Beverly California"), became a wholly-owned subsidiary of Beverly Enterprises,
Inc., a Delaware corporation ("Beverly Delaware"). Beverly Delaware (the parent)
provides financial, administrative and legal services to Beverly California for
which Beverly California is charged management fees.

The following summarized financial information is being reported because
Beverly California's 7.625% convertible subordinated debentures due March 2003
and its zero coupon notes (collectively, the "Debt Securities") and the Senior
Secured Notes are publicly held. Beverly Delaware is co-obligor of these Debt
Securities and guarantor of the Senior Secured Notes. Summary financial
information for Beverly California is as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1993 DECEMBER 31, 1992 DECEMBER 31, 1991
----------------- ----------------- -----------------
<S> <C> <C> <C>
Total revenues...................... $2,885,777 $2,612,249 $2,321,780
Total costs and expenses............ 2,796,122 2,604,249 2,280,474
Income before extraordinary charge
and cumulative effect of change in
accounting for income taxes....... 60,069 3,990 28,978
Net income (loss)................... 57,724 (10,299) 28,978
</TABLE>

<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1993 DECEMBER 31, 1992
----------------- -----------------
<S> <C> <C>
Current assets...................... $ 468,441 $ 442,739
Long-term assets.................... 1,483,400 1,377,583
Current liabilities................. 392,244 379,366
Long-term liabilities............... 838,673 868,756
</TABLE>

38
<PAGE> 40

BEVERLY ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

10. ADDITIONAL INFORMATION -- (CONTINUED)

In addition to Beverly Delaware, one of its direct wholly-owned
subsidiaries and each of Beverly California's material wholly-owned subsidiaries
(collectively, the "Subsidiary Guarantors") have guaranteed the obligations of
Beverly California under the Senior Secured Notes. Separate financial statements
of Beverly California and the Subsidiary Guarantors are not considered to be
material to holders of the Senior Secured Notes since the guaranty of each of
the Subsidiary Guarantors is joint and several and full and unconditional
(except that liability thereunder is limited to an aggregate amount equal to the
largest amount that would not render its obligations thereunder subject to
avoidance under Section 548 of the Bankruptcy Code of 1978, as amended, or any
comparable provisions of applicable state law) and the aggregate net assets,
earnings and equity of the Subsidiary Guarantors and Beverly California
together, after adjustment for intercompany management fees, are substantially
equivalent to the net assets, earnings and equity of Beverly Delaware on a
consolidated basis.

39
<PAGE> 41

BEVERLY ENTERPRISES, INC.

SUPPLEMENTARY DATA (UNAUDITED)
QUARTERLY FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)

The following is a summary of the quarterly results of operations for the
years ended December 31, 1993 and 1992. Operating results for the first quarter
of 1992 have been restated to reflect the cumulative effect of a change in
accounting for income taxes.

<TABLE>
<CAPTION>
1993 1992
----------------------------------------------------- -----------------------------------------------------
1ST 2ND 3RD 4TH TOTAL 1ST 2ND 3RD 4TH TOTAL
-------- -------- -------- -------- --------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues.... $694,525 $718,162 $736,271 $736,923 $2,885,881 $613,394 $627,992 $676,936 $692,884 $2,611,206
-------- -------- -------- -------- --------- -------- -------- -------- -------- ----------
-------- -------- -------- -------- --------- -------- -------- -------- -------- ----------
Income (loss)
before provision
for (benefit
from) income
taxes,
extraordinary
charge and
cumulative
effect of change
in accounting
for income
taxes........... $ 15,458 $ 21,696 $ 27,771 $ 25,028 $ 89,953 $ 10,398 $ 17,520 $ 20,367 $(39,901) $ 8,384
Provision for
(benefit from)
income taxes.... 5,101 7,160 9,164 8,259 29,684 3,431 5,782 6,721 (11,731) 4,203
-------- -------- -------- -------- --------- -------- -------- -------- -------- ---------
Income (loss)
before
extraordinary
charge and
cumulative
effect of change
in accounting
for income
taxes........... 10,357 14,536 18,607 16,769 60,269 6,967 11,738 13,646 (28,170) 4,181
Extraordinary
charge.......... -- -- (2,345) -- (2,345) (4,523) -- -- (4,312) (8,835)
Cumulative effect
of change in
accounting for
income taxes.... -- -- -- -- -- (5,454) -- -- -- (5,454)
-------- -------- -------- -------- --------- -------- -------- -------- -------- ---------
Net income
(loss).......... $ 10,357 $ 14,536 $ 16,262 $ 16,769 $ 57,924 $ (3,010) $ 11,738 $ 13,646 $(32,482) $ (10,108)
-------- -------- -------- -------- --------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- --------- -------- -------- -------- -------- ---------
Income (loss) per
share of common
stock:
Before
redemption
premium on
Series A
preferred
stock,
extraordinary
charge and
cumulative
effect of
change in
accounting for
income
taxes......... $ .13 $ .18 $ .22 $ .17 $ .71 $ .09 $ .15 $ .17 $ (.38) $ .04
Redemption
premium on
Series A
preferred
stock......... -- -- (.26) -- (.26) -- -- -- -- --
-------- -------- -------- -------- --------- -------- -------- -------- -------- ---------
Before
extraordinary
charge and
cumulative
effect of
change in
accounting for
income
taxes......... .13 .18 (.04) .17 .45 .09 .15 .17 (.38) .04
Extraordinary
charge........ -- -- (.03) -- (.03) (.06) -- -- (.06) (.12)
Cumulative
effect of
change in
accounting for
income
taxes......... -- -- -- -- -- (.07) -- -- -- (.07)
-------- -------- -------- -------- --------- -------- -------- -------- -------- ---------
Net income
(loss)........ $ .13 $ .18 $ (.07) $ .17 $ .42 $ (.04) $ .15 $ .17 $ (.44) $ (.15)
-------- -------- -------- -------- --------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- --------- -------- -------- -------- -------- ---------
Common stock price
range:
High............ $ 14.75 $ 12.88 $ 13.38 $ 13.75 $ 10.13 $ 8.75 $ 9.63 $ 13.13
Low............. $ 9.50 $ 10.38 $ 9.25 $ 10.00 $ 8.38 $ 7.13 $ 7.63 $ 8.38
</TABLE>

The annual effective tax rates for 1993 and 1992 were 33% and 50%,
respectively. The Company's annual effective tax rate in 1993 is lower than the
statutory rate primarily due to the utilization of certain tax credit
carryforwards. In addition, the higher annual effective tax rate in 1992
primarily resulted from the $57,000,000 pre-tax charge (as discussed herein)
which reduced the Company's pre-tax income to a level where the impact of
permanent tax differences and state income taxes had a more significant impact
on the effective tax rate.

Where fully diluted earnings per share would be anti-dilutive, primary
earnings per share were used.

40
<PAGE> 42

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.

Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held May 19, 1994, to be
filed pursuant to Regulation 14A.

ITEM 11. EXECUTIVE COMPENSATION.

Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held May 19, 1994, to be
filed pursuant to Regulation 14A.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held May 19, 1994, to be
filed pursuant to Regulation 14A.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held May 19, 1994, to be
filed pursuant to Regulation 14A.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) 1 and 2. The Consolidated Financial Statements and Consolidated Financial
Statement Schedules

The consolidated financial statements and consolidated financial statement
schedules listed in the accompanying index to consolidated financial statements
and financial statement schedules are filed as part of this annual report.

3. Exhibits

The exhibits listed in the accompanying index to exhibits are filed as part
of this annual report.

(b) Reports on Form 8-K

The Company filed Current Reports on Form 8-K and Form 8-K/A, each dated
January 4, 1994, which reported under Item 5 that the Company's Registration
Statement No. 33-50965 became effective on November 17, 1993, and filed under
Item 7 the Underwriting Agreement dated December 21, 1993, and the First
Supplemental Indenture for the Notes dated December 30, 1993, pursuant to such
Registration Statement.

41
<PAGE> 43

BEVERLY ENTERPRISES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES

(ITEM 14(A))

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. Consolidated financial statements:
Report of Ernst & Young, Independent Auditors....................................... 19
Consolidated Balance Sheets at December 31, 1993 and 1992........................... 20
Consolidated Statements of Operations for each of the three years in the period
ended December 31, 1993............................................................. 21
Consolidated Statements of Stockholders' Equity for each of the three years in the
period ended December 31, 1993...................................................... 22
Consolidated Statements of Cash Flows for each of the three years in the period
ended December 31, 1993............................................................. 23
Notes to Consolidated Financial Statements.......................................... 24
Supplementary Data (Unaudited) -- Quarterly Financial Data.......................... 40
</TABLE>

2. Consolidated financial statement schedules for each of the three years in
the period ended
December 31, 1993:

<TABLE>
<S> <C> <C> <C>
II -- Amounts Receivable from Related Parties and Underwriters, Promoters, and
Employees Other than Related Parties..................................... 43
V -- Property and Equipment................................................... 44
VI -- Accumulated Depreciation and Amortization of Property and Equipment...... 45
VIII -- Valuation and Qualifying Accounts........................................ 47
X -- Supplementary Income Statement Information............................... 48
</TABLE>

Consolidated financial statement schedule as of December 31, 1993:

<TABLE>
<S> <C> <C> <C>
VII -- Guarantees of Securities of Other Issuers................................ 46
</TABLE>

All other schedules are omitted because the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements and notes thereto.

42
<PAGE> 44

BEVERLY ENTERPRISES, INC.

SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS AND EMPLOYEES
OTHER THAN RELATED PARTIES

YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

<TABLE>
<CAPTION>
DEDUCTIONS BALANCE AT
------------------------ DECEMBER 31,
BALANCE AT AMOUNTS AMOUNTS ---------------------
NAME OF DEBTOR JANUARY 1, ADDITIONS COLLECTED WRITTEN-OFF CURRENT NONCURRENT DATE DUE
- ------------------------------------ ---------- --------- --------- ----------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1993:
Jeffrey Larkin(2)................. $ 150,000 $ -- $150,000 $ -- $ -- $ -- Repaid
---------- --------- --------- ----------- -------- ----------
---------- --------- --------- ----------- -------- ----------
1992:
Robert W. Pommerville(2).......... $ 222,000 $ -- $222,000 $ -- $ -- $ -- Repaid
Jeffrey Larkin(2)................. 150,000 -- -- -- -- 150,000 On Demand
---------- --------- --------- ----------- -------- ----------
$ 372,000 $ -- $222,000 $ -- $ -- $150,000
---------- --------- --------- ----------- -------- ----------
---------- --------- --------- ----------- -------- ----------
1991:
Larry B. Cornish(1)............... $ 861,037 $ -- $861,037 (a) $ -- $ -- $ -- Repaid
Robert W. Pommerville(2).......... 222,000 -- -- -- -- 222,000 February 1993
Jeffrey Larkin(2)................. 150,000 -- -- -- -- 150,000 On Demand
---------- --------- --------- ----------- -------- ----------
$1,233,037 $ -- $861,037 $ -- $ -- $372,000
---------- --------- --------- ----------- -------- ----------
---------- --------- --------- ----------- -------- ----------
</TABLE>

- ---------------

All employee loans are non-interest bearing and are payable in full on date due.

(1) Unsecured.

(2) Amount represents an equity interest in debtor's personal residence and can
be repurchased by the debtor at face value at any time during the option
period. At the end of this period, the cost to debtor to repurchase the
Company's interest will be based upon a fair market value appraisal
(exercise of purchase option).

(a) Includes a $15,070 reduction in the amount owed to the debtor under a
consulting agreement.

43
<PAGE> 45

BEVERLY ENTERPRISES, INC.

SCHEDULE V -- PROPERTY AND EQUIPMENT

YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

(IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING ADDITIONS SALES AND TRANSFERS AT END
CLASSIFICATION OF YEAR AT COST RETIREMENTS IN (OUT) OF YEAR
- -------------------------------------- ---------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
1993:
Land, buildings and improvements.... $1,241,638 $ 124,899 $27,105 $ 32,067 $1,371,499
Furniture and equipment............. 266,977 29,927 10,308 6,783 293,379
Construction in progress............ 22,285 50,342 674 (38,850) 33,103
---------- --------- ----------- --------- ----------
$1,530,900 $ 205,168 $38,087 $ -- $1,697,981
---------- --------- ----------- --------- ----------
---------- --------- ----------- --------- ----------
1992:
Land, buildings and improvements.... $1,128,943 $ 110,943 $21,317 $ 23,069 $1,241,638
Furniture and equipment............. 240,607 29,910 7,058 3,518 266,977
Construction in progress............ 13,627 35,798 553 (26,587) 22,285
---------- --------- ----------- --------- ----------
$1,383,177 $ 176,651 $28,928 $ -- $1,530,900
---------- --------- ----------- --------- ----------
---------- --------- ----------- --------- ----------
1991:
Land, buildings and improvements.... $1,043,348 $ 77,570 $ 4,719 $ 12,744 $1,128,943
Furniture and equipment............. 218,811 22,966 2,478 1,308 240,607
Construction in progress............ 6,807 22,406 1,534 (14,052) 13,627
---------- --------- ----------- --------- ----------
$1,268,966 $ 122,942 $ 8,731 $ -- $1,383,177
---------- --------- ----------- --------- ----------
---------- --------- ----------- --------- ----------
</TABLE>

44
<PAGE> 46

BEVERLY ENTERPRISES, INC.

SCHEDULE VI -- ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY AND EQUIPMENT

YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

(IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE
BEGINNING CHARGED TO SALES AND AT END
CLASSIFICATION OF YEAR OPERATIONS RETIREMENTS OF YEAR
- ---------------------------------------------------- ---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
1993:
Buildings and improvements........................ $ 309,896 $ 51,291 $ 8,488 $352,699
Furniture and equipment........................... 179,349 20,439 7,876 191,912
---------- ---------- ----------- --------
$ 489,245 $ 71,730 $16,364 $544,611
---------- ---------- ----------- --------
---------- ---------- ----------- --------
1992:
Buildings and improvements........................ $ 275,947 $ 48,075 $14,126 $309,896
Furniture and equipment........................... 164,657 20,139 5,447 179,349
---------- ---------- ----------- --------
$ 440,604 $ 68,214 $19,573 $489,245
---------- ---------- ----------- --------
---------- ---------- ----------- --------
1991:
Buildings and improvements........................ $ 235,350 $ 45,122 $ 4,525 $275,947
Furniture and equipment........................... 146,935 19,929 2,207 164,657
---------- ---------- ----------- --------
$ 382,285 $ 65,051 $ 6,732 $440,604
---------- ---------- ----------- --------
---------- ---------- ----------- --------
</TABLE>

45
<PAGE> 47

BEVERLY ENTERPRISES, INC.

SCHEDULE VII -- GUARANTEES OF SECURITIES OF OTHER ISSUERS

DECEMBER 31, 1993

<TABLE>
<CAPTION>
TOTAL
PRINCIPAL
AMOUNT
GUARANTEED
AND
NAME OF ISSUER OF SECURITIES GUARANTEED BY OUTSTANDING
PERSON FOR WHICH STATEMENT IS FILED (IN THOUSANDS)
- ------------------------------------------------------------------------------- --------------
<S> <C>
Encore Nursing Center Partners, Ltd. -- 85..................................... $ 15,103
Ohio Housing Finance Agency.................................................... 10,700
Okaloosa County, Florida....................................................... 9,325
Monroe County Industrial Development Authority................................. 4,405
Bexar County Health Facilities Development Corporation......................... 4,400
Housing and Redevelopment Authority of the City of Kansas City, Missouri....... 3,925
Washington County Industrial Development Authority............................. 3,570
The Industrial Development Authority of the County of Maricopa................. 3,500
Industrial Development Authority of the City of Apache Junction, Arizona....... 2,900
Lee County Industrial Development Authority.................................... 2,550
Kewanee Convalescent Center.................................................... 2,550
Four Chaplains Convalescent Center, Inc........................................ 1,839
City of Tonganoxie, Kansas..................................................... 1,800
Madison County, North Carolina................................................. 1,700
BankOne, Arizona, N.A.......................................................... 1,620
Pike County, Kentucky.......................................................... 1,290
First American Health Care, Inc................................................ 497
--------------
$ 71,674
--------------
--------------
</TABLE>

The guarantees detailed above include principal amounts of industrial
development revenue bonds, lines of credit and mortgages. Such guaranteed
long-term obligations mature on various dates through 2019. The annual aggregate
amount of interest guaranteed (including fees for letters of credit issued in
connection with the bonds) is approximately $6,155,000. In addition, the Company
has working capital guarantees resulting from the disposition of facilities
totaling $3,000,000. The guaranteed obligations relate principally either to the
Company's sale of nursing facilities and retirement living projects or to bonds
issued for the construction of retirement living projects or nursing facilities.
Consistent with the long-term care industry, the operators of the facilities for
which the Company guarantees obligations are dependent on their participation in
certain governmental programs. The Company operates the facilities or projects
related to approximately $53,292,000 of the principal amount for which it is
contingently liable, pursuant to long-term agreements accounted for as operating
leases or management agreements. In addition, the Company is contingently liable
for various operating leases that were assumed by purchasers and are secured by
the rights thereto.

46
<PAGE> 48

BEVERLY ENTERPRISES, INC.

SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONS
---------------------------
CHARGED DUE TO
BALANCE AT (CREDITED) ACQUISITIONS BALANCE
BEGINNING TO CHARGED TO AND AT END
DESCRIPTION OF YEAR OPERATIONS RESTRUCTURING WRITE-OFFS DISPOSITIONS OTHER OF YEAR
- ---------------------------------- ---------- ---------- ------------- ---------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Allowance for doubtful accounts:
Accounts
receivable -- patient....... $ 17,383 $ 21,090 $ -- $(20,971) $ 2,125 $ (66) $19,561
Accounts
receivable -- nonpatient.... 5,030 305 -- (701) -- (4,291) 343
Notes receivable.............. 7,364 (628) -- (653) -- 4,357 10,440
---------- ---------- ------------- ---------- ------------ ------- -------
$ 29,777 $ 20,767 $ -- $(22,325) $ 2,125 $ -- $30,344
---------- ---------- ------------- ---------- ------------ ------- -------
---------- ---------- ------------- ---------- ------------ ------- -------
Accrued restructuring costs..... $ 48,053 $ -- $ -- $ -- $(11,713) $(2,030) $34,310
---------- ---------- ------------- ---------- ------------ ------- -------
---------- ---------- ------------- ---------- ------------ ------- -------
Valuation allowance on deferred
tax assets.................... $ 17,611 $ (2,514) $ -- $ -- $ -- $ -- $15,097
---------- ---------- ------------- ---------- ------------ ------- -------
---------- ---------- ------------- ---------- ------------ ------- -------
Year ended December 31, 1992:
Allowance for doubtful accounts:
Accounts
receivable -- patient....... $ 20,604 $ 11,714 $ -- $(15,653) $ 718 $ -- $17,383
Accounts
receivable -- nonpatient.... 6,565 (1,065) -- (470) -- -- 5,030*
Notes receivable.............. 10,788 (6,780) -- (584) 2,500 1,440 7,364
---------- ---------- ------------- ---------- ------------ ------- -------
$ 37,957 $ 3,869 $ -- $(16,707) $ 3,218 $ 1,440 $29,777
---------- ---------- ------------- ---------- ------------ ------- -------
---------- ---------- ------------- ---------- ------------ ------- -------
Accrued restructuring costs..... $ -- $ -- $57,000 $ (4,234) $ (4,713) $ -- $48,053
---------- ---------- ------------- ---------- ------------ ------- -------
---------- ---------- ------------- ---------- ------------ ------- -------
Valuation allowance on deferred
tax assets.................... $ 15,148 $ 2,463 $ -- $ -- $ -- $ -- $17,611
---------- ---------- ------------- ---------- ------------ ------- -------
---------- ---------- ------------- ---------- ------------ ------- -------
Year ended December 31, 1991:
Allowance for doubtful accounts:
Accounts
receivable -- patient....... $ 17,145 $ 16,560 $ -- $(14,961) $ 1,860 $ -- $20,604
Accounts
receivable -- nonpatient.... 1,938 3,689 -- (62) -- 1,000 6,565*
Notes receivable.............. 12,029 4,974 -- (1,249) (4,966) -- 10,788
---------- ---------- ------------- ---------- ------------ ------- -------
$ 31,112 $ 25,223 $ -- $(16,272) $ (3,106) $ 1,000 $37,957
---------- ---------- ------------- ---------- ------------ ------- -------
---------- ---------- ------------- ---------- ------------ ------- -------
Net assets held for sale........ $ 9,387 $ 550 $ -- $ -- $ (9,303) $ (634) $ --
---------- ---------- ------------- ---------- ------------ ------- -------
---------- ---------- ------------- ---------- ------------ ------- -------
</TABLE>

- ---------------

* Includes amounts classified in long-term other assets as well as current
assets.

47
<PAGE> 49

BEVERLY ENTERPRISES, INC.

SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION

YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

(IN THOUSANDS)

<TABLE>
<CAPTION>
DESCRIPTION 1993 1992 1991
- -------------------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Taxes, other than income and payroll.......................... $39,247 $38,031 $31,885
Amortization of intangibles and other assets.................. 14,397 19,787 23,295
</TABLE>

Amounts for maintenance and repairs and advertising costs are not presented
as such amounts are less than 1% of total revenues.

48
<PAGE> 50

BEVERLY ENTERPRISES, INC.

INDEX TO EXHIBITS

(ITEM 14(A))

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation of Beverly Enterprises (incorporated
by reference to Exhibit 4.1 to Beverly Enterprises' Current Report on Form
8-K dated July 31, 1987)
3.2 By-Laws of Beverly Enterprises (incorporated by reference to Exhibit 3 to
Beverly Enterprises' Quarterly Report on Form 10-Q for the quarter ended
June 30, 1992)
3.3 Certificate of Designation of Cumulative Convertible Preferred Stock of
Beverly Enterprises (incorporated by reference to Exhibit 4.3 to Beverly
Enterprises' Current Report on Form 8-K dated July 31, 1987)
4.1 Indenture dated as of December 27, 1990 (the "Senior Secured Note
Indenture"), among Beverly California, Beverly Enterprises and Yasuda Bank
and Trust Company (U.S.A.) with respect to Senior Secured Floating Rate
Notes due 1995 and 14 1/4% Senior Secured Fixed Rate Notes due 1997
(incorporated by reference to Exhibit 4.1 to the Registration Statement on
Form S-4 of Beverly California, Beverly Enterprises and the Registrants
set forth on the Table of Additional Co-Registrants filed on February 8,
1991 (File No. 33-38954))
4.2 Supplemental Indenture No. 1, dated as of September 20, 1991, to the
Senior Secured Note Indenture (incorporated by reference to Exhibit 4.1 to
Beverly Enterprises' Quarterly Report on Form 10-Q for the quarter ended
September 30, 1991)
4.3 Supplemental Indenture No. 2, dated as of September 26, 1991, to the
Senior Secured Note Indenture (incorporated by reference to Exhibit 4.2 to
Beverly Enterprises' Quarterly Report on Form 10-Q for the quarter ended
September 30, 1991)
4.4 Supplemental Indenture No. 3, dated as of March 11, 1992, to the Senior
Secured Note Indenture (incorporated by reference to Exhibit 4 to Beverly
Enterprises' Quarterly Report on Form 10-Q for the quarter ended March 31,
1992)
4.5 Supplemental Indenture No. 4, dated as of July 21, 1993, to the Senior
Secured Note Indenture (incorporated by reference to Exhibit 4.5 to
Beverly Enterprises' Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993)
4.6 Subsidiary Guaranty dated as of December 27, 1990 by Beverly Enterprises,
Beverly California and the Subsidiary Guarantors listed therein
(incorporated by reference to Exhibit 4.3 to the Registration Statement on
Form S-4 of Beverly California, Beverly Enterprises and the Registrants
set forth on the Table of Additional Co-Registrants filed on February 8,
1991 (File No. 33-38954))
4.7 Subsidiary Guaranty dated as of April 1, 1991 by Beverly Enterprises,
Beverly California and the Subsidiary Guarantors listed therein
(incorporated by reference to Exhibit 4.5 to Beverly Enterprises' Annual
Report on Form 10-K for the year ended December 31, 1991)
4.8 Subsidiary Guaranty dated as of October 31, 1991 by Beverly Enterprises,
Beverly California and Northshore Rehab Association, Inc. as Subsidiary
Guarantor (incorporated by reference to Exhibit 4.6 to Beverly
Enterprises' Annual Report on Form 10-K for the year ended December 31,
1991)
4.9 Subsidiary Guaranty dated as of December 30, 1991 by Beverly Enterprises,
Beverly California and Beverly Indemnity, Inc. as Subsidiary Guarantor
(incorporated by reference to Exhibit 4.7 to Beverly Enterprises' Annual
Report on Form 10-K for the year ended December 31, 1991)
</TABLE>

49
<PAGE> 51

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -----------
<S> <C>
4.10 Indenture dated as of August 1, 1993 between Beverly Enterprises and
Chemical Bank, as Trustee with respect to Beverly Enterprises' 5 1/2%
Convertible Subordinated Debentures due August 1, 2018, issuable upon
exchange of Beverly Enterprises' $2.75 Cumulative Convertible Exchangeable
Preferred Stock (the "Subordinated Debenture Indenture") (incorporated by
reference to Exhibit 4.10 to Beverly Enterprises' Quarterly Report on Form
10-Q for the quarter ended June 30, 1993)
4.11 Certificate of Designation of Cumulative Convertible Preferred Stock of
Beverly Enterprises (incorporated by reference to Exhibit 4.3 to Beverly
Enterprises' Current Report on Form 8-K dated July 31, 1987)
4.12 Certificate of Designation, Powers, Preferences and Rights, and the
Qualifications, Limitations or Restrictions Thereof, of the Series of
Preferred Stock to be designated $2.75 Cumulative Convertible Exchangeable
Preferred Stock of Beverly Enterprises (the "$2.75 Certificate of
Designation")(incorporated by reference to Exhibit 4.12 to Beverly
Enterprises' Quarterly Report on Form 10-Q for the quarter ended June 30,
1993)
4.13 Indenture dated as of April 1, 1993 (the "First Mortgage Bond Indenture"),
among Beverly Enterprises, Delaware Trust Company, as Corporate Trustee,
and Richard N. Smith, as Individual Trustee, with respect to First
Mortgage Bonds (incorporated by reference to Exhibit 4.1 to Beverly
Enterprises' Quarterly Report on Form 10-Q for the quarter ended March 31,
1993)
4.14 First Supplemental Indenture dated as of April 1, 1993 to the First
Mortgage Bond Indenture, with respect to 8 3/4% First Mortgage Bonds
(Series A) due 2008 (incorporated by reference to Exhibit 4.2 to Beverly
Enterprises' Quarterly Report on Form 10-Q for the quarter ended March 31,
1993)
4.15 Second Supplemental Indenture dated as of July 1, 1993 to the First
Mortgage Bond Indenture, with respect to 8 5/8% First Mortgage Bonds
(Series B) due 2008 (replaces Exhibit 4.1 to Beverly Enterprises' Current
Report on Form 8-K dated July 15, 1993)(incorporated by reference to
Exhibit 4.15 to Beverly Enterprises' Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993)
4.16 Indenture dated as of December 30, 1993 (the "Notes Indenture"), between
Beverly Enterprises, Inc. and Boatmen's Trust Company, as Trustee, with
respect to the Notes (incorporated by reference to Exhibit 4.2 to Beverly
Enterprises' Registration Statement on Form S-3 filed on November 9, 1993
(File No. 33-50965))
4.17 First Supplemental Indenture dated as of December 30, 1993 to the Notes
Indenture, with respect to 8.75% Notes due 2003 (incorporated by reference
to Exhibit 4.4 to Beverly Enterprises' Current Report on Form 8-K dated
January 4, 1994)
In accordance with item 601(b)(4)(iii) of Regulation S-K, certain
instruments pertaining to Beverly Enterprises' long-term obligations have
not been filed; copies thereof will be furnished to the Securities and
Exchange Commission upon request.
10.1* Amended and Restated 1981 Beverly Stock Option Plan (incorporated by
reference to Post-Effective Amendment No. 2 on Form S-8 to Beverly
Enterprises' Registration Statement on Form S-4 filed on July 31, 1987
(File No. 33-13243))
10.2* Amended and Restated 1981 Beverly Incentive Stock Option Plan
(incorporated by reference to Post-Effective Amendment No. 2 on Form S-8
to Beverly Enterprises' Registration Statement on Form S-4 filed on July
31, 1987 (File No. 33-13243))
10.3* 1985 Beverly Nonqualified Stock Option Plan (incorporated by reference to
Post-Effective Amendment No. 2 on Form S-8 to Beverly Enterprises'
Registration Statement on Form S-4 filed on July 31, 1987 (File No.
33-13243))
</TABLE>

50
<PAGE> 52

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -----------
<S> <C>
10.4* Amended and Restated Beverly Enterprises, Inc. 1993 Long-Term Incentive
Stock Plan (incorporated by reference to Beverly Enterprises' Registration
Statement on Form S-8 filed on June 30, 1993 (File No. 33-65242))
10.5* Retirement Plan for Outside Directors (incorporated by reference to
Exhibit 10.5 to Beverly Enterprises' Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993)
10.6* Executive Medical Reimbursement Plan (incorporated by reference to Exhibit
10.5 to Beverly Enterprises' Annual Report on Form 10-K for the year ended
December 31, 1987)
10.7* Amended and Restated Beverly Enterprises, Inc. Executive Life Insurance
Plan and Summary Plan Description
10.8* Executive Physicals Policy (incorporated by reference to Exhibit 10.8 to
Beverly Enterprises' Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993)
10.9* Amended and Restated Deferred Compensation Plan effective July 18, 1991
(incorporated by reference to Exhibit 10.6 to Beverly Enterprises' Annual
Report on Form 10-K for the year ended December 31, 1991)
10.10* Executive Retirement Plan (incorporated by reference to Exhibit 10.9 to
Beverly Enterprises' Annual Report on Form 10-K for the year ended
December 31, 1987)
10.11* Amendment No. 1, effective as of July 1, 1991, to the Executive Retirement
Plan (incorporated by reference to Exhibit 10.8 to Beverly Enterprises'
Annual Report on Form 10-K for the year ended December 31, 1991)
10.12* Amendment No. 2, effective as of December 12, 1991, to the Executive
Retirement Plan (incorporated by reference to Exhibit 10.9 to Beverly
Enterprises' Annual Report on Form 10-K for the year ended December 31,
1991)
10.13* Amendment No. 3, effective as of July 31, 1992, to the Executive
Retirement Plan (incorporated by reference to Exhibit 10.10 to Beverly
Enterprises' Annual Report on Form 10-K for the year ended December 31,
1992)
10.14* Form of Indemnification Agreement between Beverly Enterprises and its
officers, directors and certain of its employees (incorporated by
reference to Exhibit 19.14 to Beverly Enterprises' Quarterly Report on
Form 10-Q for the quarter ended June 30, 1987)
10.15* Form of request by Beverly Enterprises to certain of its officers or
directors relating to indemnification rights (incorporated by reference to
Exhibit 19.5 to Beverly Enterprises' Quarterly Report on Form 10-Q for the
quarter ended September 30, 1987)
10.16* Form of request by Beverly Enterprises to certain of its officers or
employees relating to indemnification rights (incorporated by reference to
Exhibit 19.6 to Beverly Enterprises' Quarterly Report on Form 10-Q for the
quarter ended September 30, 1987)
10.17* Agreement dated December 29, 1986 between Beverly Enterprises and Stephens
Inc. (incorporated by reference to Exhibit 10.20 to Beverly Enterprises'
Registration Statement on Form S-1 filed on January 18, 1990 (File No.
33-33052))
10.18* Severance Plan for Corporate and Regional Employees effective December 1,
1989 (incorporated by reference to Exhibit 10.21 to Amendment No. 1 to
Beverly Enterprises' Registration Statement on Form S-1 filed on February
26, 1990 (File No. 33-33052))
10.19* Form of Restricted Stock Performance Agreement dated June 28, 1990 under
the 1985 Beverly Nonqualified Stock Option Plan (incorporated by reference
to Exhibit 10.22 to Beverly Enterprises' Registration Statement on Form
S-1 filed on July 30, 1990 (File No. 33-36109))
</TABLE>

51
<PAGE> 53

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -----------
<S> <C>
10.20* Form of Agreement Concerning Benefits Upon Severance dated as of September
1, 1990 between Beverly Enterprises and certain officers of Beverly
Enterprises (incorporated by reference to Exhibit 10.23 to Beverly
Enterprises' Registration Statement on Form S-1 filed on July 30, 1990
(File No. 33-36109))
10.21* Beverly Enterprises Company Car Policy effective May 1, 1988 (incorporated
by reference to Exhibit 10.18 to Beverly Enterprises' Annual Report on
Form 10-K for the year ended December 31, 1992)
10.22* First Amendment to Agreement Concerning Benefits Upon Severence dated as
of April 25, 1993 between Beverly Enterprises and Ronald C. Kayne
10.23 Master Lease Document -- General Terms and Conditions dated December 30,
1985 for Leases between Beverly California and various subsidiaries
thereof as lessees and Beverly Investment Properties, Inc. as lessor
(incorporated by reference to Exhibit 10.12 to Beverly California's Annual
Report on Form 10-K for the year ended December 31, 1985)
10.24 Agreement dated as of December 29, 1986 among Beverly California, Beverly
Enterprises -- Texas, Inc., Stephens Inc. and Real Properties, Inc.
(incorporated by reference to Exhibit 28 to Beverly California's Current
Report on Form 8-K dated December 30, 1986) and letter agreement dated as
of July 31, 1987 among Beverly Enterprises, Beverly California, Beverly
Enterprises -- Texas, Inc. and Stephens Inc. with reference thereto
(incorporated by reference to Exhibit 19.13 to Beverly Enterprises'
Quarterly Report on Form 10-Q for the quarter ended June 30, 1987)
10.25 Credit Agreement, dated as of March 24, 1992, among Beverly Enterprises,
Inc., Beverly California Corporation, the Lenders listed therein, Bank of
Montreal as Co-Agent, and The Long Term Credit Bank of Japan, Ltd. Los
Angeles Agency as Agent (the "LTCB Credit Agreement") (incorporated by
reference to Exhibit 10.2 to Beverly Enterprises' Quarterly Report on Form
10-Q for the quarter ended March 31, 1992)
10.26 Amendment No. 1 dated as of April 7, 1992 to the LTCB Credit Agreement
(incorporated by reference to Exhibit 10.3 to Beverly Enterprises'
Quarterly Report on Form 10-Q for the quarter ended March 31, 1992)
10.27 Second Amendment dated as of May 11, 1992 to the LTCB Credit Agreement
(incorporated by reference to Exhibit 10.23 to Beverly Enterprises' Annual
Report on Form 10-K for the year ended December 31, 1992)
10.28 Third Amendment dated as of March 1, 1993 to the LTCB Credit Agreement
(incorporated by reference to Exhibit 10.24 to Beverly Enterprises' Annual
Report on Form 10-K for the year ended December 31, 1992)
10.29 Master Sale and Servicing Agreement dated as of December 1, 1990 among
Beverly Funding Corporation, Beverly California, the wholly-owned
subsidiaries of Beverly Enterprises listed therein, Beverly Enterprises
and certain wholly-owned subsidiaries of Beverly Enterprises which may
become parties thereto (incorporated by reference to Exhibit 10.27 to the
Registration Statement on Form S-4 of Beverly California, Beverly
Enterprises and the Registrants set forth on the Table of Additional
Co-Registrants filed on February 8, 1991 (File No. 33-38954))
10.30 First Omnibus Amendment to Liquidity Agreement, Depository Agreement,
Pledge and Security Agreement and Master Sale and Servicing Agreement
dated as of July 1, 1991 (incorporated by reference to Exhibit 10.1 to
Beverly Enterprises' Quarterly Report on Form 10-Q for the quarter ended
September 30, 1991)
</TABLE>

52
<PAGE> 54

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -----------
<S> <C>
10.31 Second Amendment to Master Sale and Servicing Agreement dated as of March
1, 1992 (incorporated by reference to Exhibit 10.4 to Beverly Enterprises'
Quarterly Report on Form 10-Q for the quarter ended March 31, 1992)
10.32 Second Omnibus Amendment to Master Sale and Servicing Agreement, Pledge
Agreement and Selling Subsidiary Agreements dated as of September 28,
1992, among Beverly Funding Corporation, Beverly California Corporation,
Beverly Enterprises, Inc., the wholly-owned subsidiaries of Beverly
Enterprises, Inc. listed on the signature pages and the Banks listed on
the signature pages (incorporated by reference to Exhibit 10 to Beverly
Enterprises' Quarterly Report on Form 10-Q for the quarter ended September
30, 1992)
10.33 Credit Agreement dated as of March 2, 1993 among Beverly Enterprises,
Inc., Beverly California Corporation, the Lenders listed therein, and the
Nippon Credit Bank, Ltd. Los Angeles Agency as Agent (the "Nippon Credit
Agreement") (incorporated by reference to Exhibit 10.29 to Beverly
Enterprises' Annual Report on Form 10-K for the year ended December 31,
1992)
10.34 Credit Agreement dated as of March 1, 1993 among Beverly California
Corporation, Beverly Enterprises, Inc., the Banks listed therein, Morgan
Guaranty Trust Company of New York as Issuing Bank and Agent (the "Morgan
Credit Agreement") (incorporated by reference to Exhibit 10.30 to Beverly
Enterprises' Annual Report on Form 10-K for the year ended December 31,
1992)
10.35 First Amendment dated as of May 3, 1993 to the Morgan Credit Agreement
(incorporated by reference to Exhibit 10.34 to Beverly Enterprises'
Quarterly Report on Form 10-Q for the quarter ended September 30, 1993)
10.36 Second Amendment dated as of September 30, 1993 to the Morgan Credit
Agreement (incorporated by reference to Exhibit 10.35 to Beverly
Enterprises' Quarterly Report on Form 10-Q for the quarter ended September
30, 1993)
10.37 Data Processing Agreement, dated as of August 1, 1992, by and between
Systematics Telecommunications Services, Inc. and Beverly California
Corporation (incorporated by reference to Exhibit 10 to Beverly
Enterprises' Quarterly Report on Form 10-Q for the quarter ended June 30,
1992)
11.1 Computation of Net Income (Loss) Per Share for the years ended December
31, 1993, 1992, 1991, 1990 and 1989
22.1 Subsidiaries of Registrant
23.1 Consent of Ernst & Young, Independent Auditors
</TABLE>

- ---------------
* Exhibits 10.1 through 10.22 are the management contracts, compensatory plans,
contracts and arrangements in which any director or named executive officer
participates.

53
<PAGE> 55

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.

BEVERLY ENTERPRISES, INC.
Registrant

Dated: March 17, 1994 By: DAVID R. BANKS
-------------------------------
David R. Banks
Chairman of the Board, President,
Chief Executive Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Registrant
and in the capacities and on the dates indicated:

<TABLE>
<S> <C> <C>
DAVID R. BANKS Chairman of the Board, March 17, 1994
---------------------------------- President, Chief Executive
David R. Banks Officer and Director

ROBERT D. WOLTIL Executive Vice President, March 17, 1994
---------------------------------- Finance and Chief
Robert D. Woltil Financial Officer

SCOTT M. TABAKIN Vice President, Controller March 17, 1994
---------------------------------- and Chief Accounting
Scott M. Tabakin Officer

BERYL F. ANTHONY, JR. Director March 17, 1994
----------------------------------
Beryl F. Anthony, Jr.

CURT F. BRADBURY Director March 17, 1994
----------------------------------
Curt F. Bradbury

JAMES R. GREENE Director March 17, 1994
----------------------------------
James R. Greene

JON E. M. JACOBY Director March 17, 1994
----------------------------------
Jon E. M. Jacoby

LOUIS W. MENK Director March 17, 1994
----------------------------------
Louis W. Menk

WILL K. WEINSTEIN Director March 17, 1994
----------------------------------
Will K. Weinstein

</TABLE>

<PAGE> 1

EXHIBIT 10.7

BEVERLY ENTERPRISES, INC.
EXECUTIVE LIFE INSURANCE PLAN AND
SUMMARY PLAN DESCRIPTION

(As Amended and Restated Effective as of December 31, 1993)

1. PURPOSE

The Purpose of the Executive Life Insurance Plan is to secure and
retain key personnel who will be responsible for the future growth and
success of the company.

2. DEFINITION

Unless the context clearly indicates otherwise, the following terms,
when used in the Plan, shall have the meanings set forth in this
section 2.

a. "Plan" shall mean the Beverly Enterprises, Inc. Executive Life
Insurance Plan as set forth herein and in the insurance
policies issued hereunder and by this reference incorporated
herein, as the same may be amended from time to time.

b. "Company" shall mean Beverly Enterprises, Inc. and its
participating subsidiaries.

c. "Board of Directors" shall mean the Board of Directors of
Beverly Enterprises, Inc.

d. "Committee" shall mean the Committee appointed by the Board of
Directors to administer the Plan. The duties of the Committee
will be assigned to the Compensation Committee of the Board.
The Committee shall be a named fiduciary and Plan
Administrator hereunder and, to the extent not delegated to
the insurance company, have complete discretion and authority
to interpret the Plan and decide all questions of eligibility
and benefits.

e. "Employee" means those persons who are employees of the
Company under the definitional provisions of Section 422 of
the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.

3. THE PLAN

It is the current intent of the Company to provide qualified
participating individuals with renewable individual term life
insurance during their employment by the Company, if available at
preferred, standard, or smoker rates from the carrier then being used
to provide such policies. It is also the current intent of the
Company to continue to pay the premium for such insurance for the
individual, to the extent he is vested herein, after retirement or
termination. Such a continuance of the insurance in its full amount
after retirement is conditioned on the individual being fully vested
and over age
<PAGE> 2
59 at the time of his retirement from the Company. The Plan is a
non-qualified employee welfare benefit plan governed by the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").

4. BENEFITS

The amount of insurance benefits shall be set from time to time, and
may be changed at any time, at the sole discretion of the Company.
Benefits hereunder are payable solely from the proceeds of insurance
policies purchased hereunder, and neither the Company, Board of
Directors, nor Committee shall be liable or responsible for any such
benefits. Rather, a participant or his beneficiary may look solely to
the insurance policy(ies) purchased on behalf of the participant for
benefits under this Plan. In the event of any conflict between the
terms of this document and the actual insurance policy(ies), the
insurance policy(ies) shall govern.

5. ADMINISTRATION OF THE PLAN

The Plan shall be administered by the Compensation Committee which
shall consist of two or more members of the Board of Directors. The
Committee shall have complete authority in its discretion to determine
the individuals to whom life insurance coverage under the Plan shall
be granted as well as the amount of each policy, and to increase or
decrease such amounts from time to time as the Committee in it sole
discretion deems appropriate. In making such determinations, the
Committee may take into account the nature of the services rendered by
the respective Employees, their present and potential contributions to
the Company's success, and such other factors as the Committee in its
discretion shall deem relevant. For purposes of processing and paying
all benefit claims hereunder and with respect to the provision of full
and fair review of claim denials, the insurance company issuing the
policies under the Plan shall also be a named fiduciary with authority
and discretion to decide all benefit rights under such policies.

6. ELIGIBILITY

All Plan grants shall be subject to the following provisions:

a. Only Company Employees appointed by the Board of Directors
shall be eligible.

b. The Employee must be willing to submit to a physical
examination in accordance with requirements of the insurance
company issuing the policies.

c. The Employee must be insurable at normal rates (as determined
by the Company in its sole discretion) according to the Health
Requirements of the insurance company.

<PAGE> 3
7. VESTING

a. Except as provided below, an Employee shall begin to vest in
his benefits hereunder only after he has both attained age 50
and completed at least 10 years of service with the Company.
Thereafter, the Employee shall vest at the rate of 10% per
year of service, such that he will be 100% vested only after
both completing at least 20 years of service and attaining age
59. For example, an Employee covered by a $100,000 policy who
leaves the Company at age 55, after having worked for the
Company since age 35, would be 60% vested and have a retiree
policy of $60,000. Employees vest only for whole years of
service with the Company completed at the time of their
retirement or termination. No partial years shall be counted.

b. Notwithstanding the above, Employees shall retain their vested
percentage earned as of December 31, 1993 under the terms of
the Plan in effect immediately prior to this amendment and
restatement. Employees who have attained age 50 but not
completed at least 10 years of service as of December 31, 1993
shall have their vested percentage hereunder frozen as of
December 31, 1993 until they are entitled to further vesting
under the terms of paragraph (a) above. In addition,
Employees who have both attained age 50 and completed at least
10 years of service as of December 31, 1993, but who are
vested in a larger percentage under the prior terms of the
Plan than they would be under these amended and restated
terms, shall also have their vested percentage frozen as of
December 31, 1993 until they would be entitled to a larger
vested benefit under the provisions of paragraph (a) above.

c. Notwithstanding anything to the contrary herein, the
provisions of paragraph (a) and (b) of this Section 7 (other
than the last two sentences of paragraph (a)) shall not apply
to those Employees who as of December 31, 1993 hold the title
of Executive Vice President or above. Instead, such Employees
will continue to vest at the rate of 10% per year of service
starting at age 50 and will be 100% vested at age 59. For
example, an Executive Vice President covered by a $300,000
policy who leaves the Company at age 54, after having worked
for the Company since age 49, would be 50% vested and have a
retiree policy of $150,000. An Executive Vice President who
joined the Company after age 50 and who later became a
participant herein will be vested at 10% per year of his
employment, not limited to being vested at 10% per year of his
participation in the Plan. For example, a person joins the
Company in 1984 at age 50 and is granted participation in the
Plan in 1992. The Employee (assuming he qualifies as an
Executive Vice President on or before December 31, 1993) is
90% vested upon being granted participation in the Plan and
will be fully vested in 1993 on reaching age 59.

3
<PAGE> 4
8. GENERAL PROVISIONS

a. Nothing in the Plan or in any instrument executed pursuant
thereto shall confer upon any Employee any right to continue
in the employ of the Company or shall affect the right of the
Company to terminate the employment of an Employee with or
without cause.

b. The Board of Directors or Committee may terminate, suspend or
amend the Plan at any time and in any manner.

c. The Plan became effective in November 1979, and was amended
and restated effective as of December 31, 1993.

d. The Company may withhold from the participant's wages or
salary the appropriate amount of taxes for the value of
coverage provided or premiums paid each year hereunder.

9. BENEFICIARY DESIGNATION

Except as otherwise required by community property laws, divorce
decrees or property settlement agreements, participants may name
anyone they wish (including concurrently and/or consecutively) as
beneficiaries of their insurance benefits hereunder by filing a
written designation with the appropriate insurance company on a form
prescribed or approved by such insurance company. Such designations
may be changed at any time by executing and filing a new beneficiary
designation form hereunder.

10. ASSIGNMENT AND ALIENATION

To the fullest extent permitted by law, benefits under the Plan cannot
be involuntarily assigned, alienated, sold, pledged, encumbered, or
anticipated. Similarly, Plan benefits are not subject to claims of
creditors, attachment, garnishment, or other legal or equitable
process.

11. INSURANCE PROVISIONS

This Plan generally offers term life insurance benefits only, and does
not promise or guarantee any permanent insurance or cash value. The
Plan itself is not an insurance policy, although one or more insurance
policies will be purchased to fund benefits hereunder. Except to the
extent required by such insurance policies, this Plan shall not be
subject to any state insurance laws or regulations.

12. PARTICIPANT RIGHTS

As a participant in the Plan, you have certain rights under the
Employee Retirement Income Security Act of 1974 (ERISA).

This document constitutes both the Plan instrument (together with the
actual insurance policies) and the "Summary Plan Description" which
explains the provisions of the Plan.

4
<PAGE> 5
You may examine, without charge, at the Plan Administrator's Office
and other locations, all relevant Plan documents, insurance contracts,
and items which have been filed with the Department of Labor.

You may request copies of the above items by writing to the Plan
Administrator. A reasonable charge can be made for such copies.

You have the right to receive a written explanation of why any claim
for a benefit is denied in whole or in part and to have such claim
reviewed.

"Fiduciaries", the people responsible for the Plan's operation, must
act prudently and solely in your best interest as a Plan participant.

No one, including your employer, may take action or otherwise
discriminate against you solely for the purpose of preventing you from
obtaining a benefit or from exercising your rights under ERISA.

A Plan participant may file suit in a Federal court for cause, such as
failure of the Plan Administrator to provide any of the information
described above, or breach of fiduciary responsibility by the Plan
Administrator. Any person being sued has the right to countersue for
cause. The court may required the unsuccessful party in any such
suits to pay all legal costs.

If you have any questions regarding your rights, you should contact
your Plan Administrator. You may also contact an area office of the
U.S. Labor Management Services Administration, Department of Labor.

13. FILING A CLAIM

Upon your death, if your named beneficiary is otherwise eligible, he
or she may request to begin receiving benefits under the Plan by
completing the appropriate claims form and returning them to the
applicable insurance company.

14. CLAIM REVIEW PROCEDURE

If an application for Plan benefits is denied in whole or in part, the
claimant will be notified in writing 90 days after receipt of his or
her claim. In some instances, the Company or insurance company may
require an additional 90 days to process the claim. When additional
time is needed, the claimant will be notified of the special
circumstances requiring the extension. The extension may not exceed a
total of 180 days from the date the claim was originally filed.

If additional information is necessary to process the claim, the
claimant will be notified of the items needed in order to resubmit the
claim.

5
<PAGE> 6
Any notice of denial of the claim for benefits will include the
specific reasons for denial and references to the relevant Plan
provisions and/or insurance policy provisions on which the denial was
based.

Within 60 days after receiving a denial, the claimant or his or her
authorized representative may appeal the decision by (1) requesting a
review by writing the insurance company, (2) reviewing pertinent Plan
documents and (3) submitting issues and comments in writing.

A decision on appeal will normally be given within 60 days of the
receipt of the appeals request. If special circumstances warrant an
extension, then the decision will be made no later than 120 days after
receipt of the appeal.

6
<PAGE> 7
PLAN DIRECTORY

Listed below is other pertinent information concerning the Plan:
Sponsor for ERISA purposes: Beverly Enterprises, Inc. - 1200 South Waldron
Road, Suite 155, Ft. Smith, Arkansas 72903 - TEL. (800) 666-9996.

Plan Administrator: The Beverly Enterprises, Inc. Executive Life Insurance
Plan Administration Committee, c/o Human Resources Dept., Beverly Enterprises,
Inc., 1200 South Waldron Road, Suite 155, Ft. Smith, Arkansas 72903; TEL. (800)
666-9996. The Plan Administrator is the named fiduciary of the Plan under
ERISA for all purposes except claims processing, payment, denial and appeal, in
which case the named fiduciary is the insurance company issuing the policy in
question.

The Plan Administrator may designate individuals or committees to serve as its
agent in discharging all or any part of its function as Plan Administrator.
Further, the Plan Administrator may appoint another person or entity to serve
as third party administrator to process claims or to discharge such other
functions as the Plan Administrator may determine.

Agent for Service of Legal Process: Senior Director, Benefits, Compensation,
and Corporate Personnel, Beverly Enterprises, Inc., - 1200 South Waldron,
Suite 155, Ft. Smith, Arkansas 72903 - TEL. (800) 666-9996.

Sponsor Identification Number: 95-3744256

Plan Fiscal Year: January 1 to December 31

Plan Number: 507

Participating employers: A complete list of participating employers
is available upon written request to the
Plan Administrator and is available for
examination.

DA932220.116

<PAGE> 1

EXHIBIT 10.22

FIRST AMENDMENT TO
AGREEMENT CONCERNING BENEFITS UPON SEVERANCE

First Amendment dated April 25, 1993 to that certain Agreement
Concerning Benefits Upon Severance (the "Agreement") dated as of September 1,
1990 between Beverly Enterprises, Inc., a Delaware corporation (the "Company")
and Ronald C. Kayne (the "Executive").

WHEREAS, the Company has requested that the Executive relocate from
Fort Smith, Arkansas to Boulder, Colorado to take full-time charge of the
operations of the Pharmacy Corporation of America as the President of that
corporation, which is a wholly-owned subsidiary of the Company.

WHEREAS, the Executive has retained his title as Executive Vice
President of the Company, even though the specific duties relative to
administration are no longer assigned to him, and the Executive will function
primarily as President of Pharmacy Corporation of America ("PCA").

WHEREAS, the Executive moved back to Boulder, Colorado from Fort
Smith, Arkansas in May, 1991, as requested by the Company.

WHEREAS, the Executive and the Company desire to amend the Agreement
to reflect these changes.

NOW, THEREFORE, in consideration of the mutual agreements and
understandings set forth herein and for other good and valuable consideration,
the receipt and adequacy of which is hereby acknowledged, the Company and the
Executive hereby agree as follows:

1. The Company and the Executive agree that the Executive will be
compensated fully for the costs of his move from Fort Smith, Arkansas to
Boulder, Colorado pursuant to the relocation policies of the Company. In full
settlement of the Company's entire obligation pursuant to said relocation
policies, Executive shall be paid the sum of Seventy-Nine Thousand Two Hundred
Nineteen Dollars ($79,219) which shall be Executive's to keep irrespective of
the actual costs of his removal to Colorado.

The following language is hereby deleted from Paragraph 2(a) of the
Agreement:

"The Executive shall also be reimbursed by the Company for any
reasonable relocation expenses incurred by the Executive in not more
than one move to a location which is more than fifty (50) miles from
Fort Smith, Arkansas and within the continental United States within
12 months after the date of his termination or election, such
reimbursement to be in accordance with the Company's general
relocation policy, as it may be amended from time to time during the
course of this Agreement."

2. The last sentence of Paragraph 3 of the Agreement, beginning
with the phrase "A "Material Change" . . . and ending with the phrase . . . of
the Company." is hereby deleted from the Agreement. The following language is
substituted in place thereof:
<PAGE> 2
"A "Material Change" in the terms of employment of the
Executive shall be deemed to have taken place if : (i) the Executive's
duties are materially changed or reduced from those in effect on the
date hereof, with Executive serving as an Executive Vice President of
the Company and as President of PCA, the Company's wholly-owned
subsidiary, and with the Executive working out of PCA's headquarters
in Boulder, Colorado, without the Executive's consent; or (ii) the
Executive's salary is reduced (other than pursuant to a uniform
reduction applicable to all Executives of the Company). The
Executive's voluntary termination of his employment with the Company
which would entitle him to all severance benefits described in Section
2(a) hereof in the event of a "Change in Control" of the Company or in
the event of a "Material Change" in the terms of employment of the
Executive must occur within ninety (90) days of the date of the
occurrence giving Executive the right to voluntarily terminate and
receive the benefits of this Agreement."

3. Executive hereby agrees to the changes in his terms of
employment which have been described in the recital paragraphs and Paragraph 2
of this First Amendment.

Except as expressly amended or modified herein, the terms and
conditions of the Agreement remain in full force and effect.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above set forth.

BEVERLY ENTERPRISES, INC. EXECUTIVE
a Delaware corporation

By /s/ DAVID R. BANKS /s/ RONALD C. KAYNE
David R. Banks Ronald C. Kayne
Chairman, President and 3000 Puma
Chief Executive Officer Estes Park, CO 80517

By /s/ ROBERT W. POMMERVILLE
Robert W. Pommerville
Senior Vice President, General
Counsel and Secretary

1200 South Waldron Road, Suite 155
Fort Smith, AR 72903
Attention: President or Chairman
of the Board of Directors

-2-

<PAGE> 1
BEVERLY ENTERPRISES, INC.

EXHIBIT 11.1

COMPUTATION OF NET INCOME (LOSS) PER SHARE
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
-------- -------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
PRIMARY:
Income (loss) before redemption premium on Series A preferred
stock, extraordinary charge and cumulative effect of change in
accounting for income taxes...................................... $ 60,269 $ 4,181 $29,172 $12,940 $(104,209)
Redemption premium on Series A preferred stock..................... (20,000) -- -- -- --
-------- -------- ------- ------- ---------
Income (loss) before extraordinary charge and cumulative effect of
change
in accounting for income taxes................................... $ 40,269 $ 4,181 $29,172 $12,940 $(104,209)
Extraordinary charge............................................... (2,345) (8,835) -- -- --
Cumulative effect of change in accounting for income taxes......... -- (5,454) -- -- --
-------- -------- ------- ------- ---------
Net income (loss).................................................. $ 37,924 $(10,108) $29,172 $12,940 $(104,209)
Preferred stock dividends.......................................... (4,438) (1,000) -- (1,000) (1,000)
-------- -------- ------- ------- ---------
Net income (loss) applicable to common shares...................... $ 33,486 $(11,108) $29,172 $11,940 $(105,209)
-------- -------- ------- ------- ---------
-------- -------- ------- ------- ---------
Applicable common shares:
Weighted average outstanding shares during the period............ 77,335 73,824 71,572 63,078 54,019
Assumed conversion of Series A preferred stock................... --(a) --(a) 5,300 --(a) --(a)
Weighted average shares issuable upon exercise of common stock
equivalents outstanding (principally stock options) using the
"treasury stock" method........................................ 1,472 1,461 1,946 673 --(a)
Contingent shares................................................ -- -- -- -- (416)
-------- -------- ------- ------- ---------
Total............................................................ 78,807 75,285 78,818 63,751 53,603
-------- -------- ------- ------- ---------
-------- -------- ------- ------- ---------
Income (loss) per share of common stock:
Before redemption premium on Series A preferred stock,
extraordinary charge and cumulative effect of change in
accounting for income taxes.................................... $ 0.71 $ 0.04 $ 0.37 $ 0.19 $ (1.96)
Redemption premium on Series A preferred stock................... (0.26) -- -- -- --
-------- -------- ------- ------- ---------
Before extraordinary charge and cumulative effect of change in
accounting
for income taxes............................................... 0.45 0.04 0.37 0.19 (1.96)
Extraordinary charge............................................. (0.03) (0.12) -- -- --
Cumulative effect of change in accounting for income taxes....... -- (0.07) -- -- --
-------- -------- ------- ------- ---------
Net income (loss) per share of common stock...................... $ 0.42 $ (0.15) $ 0.37 $ 0.19 $ (1.96)
-------- -------- ------- ------- ---------
-------- -------- ------- ------- ---------
FULLY DILUTED:
Income (loss) before redemption premium on Series A preferred
stock, extraordinary charge and cumulative effect of change in
accounting for income taxes...................................... $ 60,269 $ 4,181 $29,172 $12,940 $(104,209)
Reduction of interest and amortization expenses resulting from
assumed conversion
of 7.625% convertible subordinated debentures.................... --(a) --(a) --(a) --(a) --(a)
Reduction of interest and amortization expenses resulting from
assumed conversion
of 9% convertible subordinated debentures........................ 2,711 --(a) --(a) --(a) --(a)
Reduction of interest and amortization expenses resulting from
assumed conversion
of zero coupon and other notes................................... 116 --(a) 63 --(a) --(a)
Less applicable income taxes....................................... (933) -- (19) -- --
-------- -------- ------- ------- ---------
Adjusted income (loss) before redemption premium on Series A
preferred stock, extraordinary charge and cumulative effect of
change in accounting for income taxes............................ $ 62,163 $ 4,181 $29,216 $12,940 $(104,209)
Redemption premium on Series A preferred stock..................... (20,000) -- -- -- --
-------- -------- ------- ------- ---------
Adjusted income (loss) before extraordinary charge and cumulative
effect of change in accounting for income taxes.................. 42,163 4,181 29,216 12,940 (104,209)
Extraordinary charge............................................... (2,345) (8,835) -- -- --
Cumulative effect of change in accounting for income taxes......... -- (5,454) -- -- --
-------- -------- ------- ------- ---------
Adjusted net income (loss)......................................... $ 39,818 $(10,108) $29,216 $12,940 $(104,209)
Preferred stock dividends.......................................... (4,438) (1,000) -- (1,000) (1,000)
-------- -------- ------- ------- ---------
Adjusted net income (loss) applicable to common shares............. $ 35,380 $(11,108) $29,216 $11,940 $(105,209)
-------- -------- ------- ------- ---------
-------- -------- ------- ------- ---------
Applicable common shares:
Weighted average outstanding shares during the period............ 77,335 73,824 71,572 63,078 54,019
Assumed conversion of Series A preferred stock................... --(a) --(a) 5,300 --(a) --(a)
Assumed conversion of Series B preferred stock................... --(a) -- -- -- --
Weighted average shares issuable upon exercise of common stock
equivalents outstanding (principally stock options) using the
"treasury stock" method........................................ 1,678 1,791 2,095 936 --(a)
Assumed conversion of 7.625% convertible subordinated
debentures..................................................... --(a) --(a) --(a) --(a) --(a)
Assumed conversion of 9% convertible subordinated debentures..... 4,322 --(a) --(a) --(a) --(a)
Assumed conversion of zero coupon and other notes................ 19 --(a) 70 --(a) --(a)
Contingent shares................................................ -- -- -- -- (416)
-------- -------- ------- ------- ---------
Total............................................................ 83,354 75,615 79,037 64,014 53,603
-------- -------- ------- ------- ---------
-------- -------- ------- ------- ---------
Income (loss) per share of common stock:
Before redemption premium on Series A preferred stock,
extraordinary charge and cumulative effect of change in
accounting for income taxes.................................... $ 0.69 $ 0.04 $ 0.37 $ 0.19 $ (1.96)
Redemption premium on Series A preferred stock................... (0.24) -- -- -- --
-------- -------- ------- ------- ---------
Before extraordinary charge and cumulative effect of change in
accounting
for income taxes............................................... 0.45 0.04 0.37 0.19 (1.96)
Extraordinary charge............................................. (0.03) (0.12) -- -- --
Cumulative effect of change in accounting for income taxes....... -- (0.07) -- -- --
-------- -------- ------- ------- ---------
Net income (loss) per share of common stock...................... $ 0.42 $ (0.15) $ 0.37 $ 0.19 $ (1.96)
-------- -------- ------- ------- ---------
-------- -------- ------- ------- ---------
</TABLE>

- ---------------
(a) Conversion would be anti-dilutive and is therefore not assumed in the
computation of primary or fully diluted net income (loss) per share of
common stock.

<PAGE> 1

EXHIBIT 22.1

BEVERLY ENTERPRISES, INC. AND SUBSIDIARIES
SUBSIDIARY SCHEDULE
MARCH 14, 1994

<TABLE>
<CAPTION>
STATE OF
CORPORATION INCORPORATION
- ----------- -------------
<S> <C>
A.B.C. HEALTH EQUIPMENT CORP. NEW YORK
A-1 HOME MEDICAL SERVICES, INC. OHIO
AMCO MEDICAL SERVICE, INC. TEXAS
AGI - CAMELOT, INC. MISSOURI
AGI - MCDONALD COUNTY HEALTH CARE, INC. MISSOURI
AGI - VILLA CAPRI MANOR, INC. MISSOURI
BEVERLY CALIFORNIA CORPORATION CALIFORNIA
BEVERLY ENTERPRISES - ALABAMA, INC. CALIFORNIA
BEVERLY ENTERPRISES - ARIZONA, INC. CALIFORNIA
BEVERLY ENTERPRISES - ARKANSAS, INC. CALIFORNIA
BEVERLY ENTERPRISES - CALIFORNIA, INC. CALIFORNIA
BEVERLY ENTERPRISES - COLORADO, INC. CALIFORNIA
BEVERLY ENTERPRISES - CONNECTICUT, INC. CALIFORNIA
BEVERLY ENTERPRISES - DELAWARE, INC. CALIFORNIA
BEVERLY ENTERPRISES - DISTRIBUTION SERVICES, INC. CALIFORNIA
BEVERLY ENTERPRISES - DISTRICT OF COLUMBIA, INC. CALIFORNIA
BEVERLY ENTERPRISES - FLORIDA, INC. CALIFORNIA
</TABLE>

1
<PAGE> 2
EXHIBIT 22.1

BEVERLY ENTERPRISES, INC. AND SUBSIDIARIES
SUBSIDIARY SCHEDULE
MARCH 14, 1994

<TABLE>
<CAPTION>
STATE OF
CORPORATION INCORPORATION
- ----------- -------------
<S> <C>
BEVERLY ENTERPRISES - GARDEN TERRACE, INC. CALIFORNIA
BEVERLY ENTERPRISES - GEORGIA, INC. CALIFORNIA
BEVERLY ENTERPRISES - HAWAII, INC. CALIFORNIA
BEVERLY ENTERPRISES - IDAHO, INC. CALIFORNIA
BEVERLY ENTERPRISES - ILLINOIS, INC. CALIFORNIA
BEVERLY ENTERPRISES - INDIANA, INC. CALIFORNIA
BEVERLY ENTERPRISES - IOWA, INC. CALIFORNIA
BEVERLY ENTERPRISES - KANSAS, INC. CALIFORNIA
BEVERLY ENTERPRISES - KENTUCKY, INC. CALIFORNIA
BEVERLY ENTERPRISES - LOUISIANA, INC. CALIFORNIA
BEVERLY ENTERPRISES - MAINE, INC. CALIFORNIA
BEVERLY ENTERPRISES - MARYLAND, INC. CALIFORNIA
BEVERLY ENTERPRISES - MASSACHUSETTS, INC. CALIFORNIA
BEVERLY ENTERPRISES - MICHIGAN, INC. CALIFORNIA
BEVERLY ENTERPRISES - MINNESOTA, INC. CALIFORNIA
BEVERLY ENTERPRISES - MISSISSIPPI, INC. CALIFORNIA
</TABLE>

2
<PAGE> 3
EXHIBIT 22.1

BEVERLY ENTERPRISES, INC. AND SUBSIDIARIES
SUBSIDIARY SCHEDULE
MARCH 14, 1994

<TABLE>
<CAPTION>
STATE OF
CORPORATION INCORPORATION
- ----------- -------------
<S> <C>
BEVERLY ENTERPRISES - MISSOURI, INC. CALIFORNIA
BEVERLY ENTERPRISES - MONTANA, INC. CALIFORNIA
BEVERLY ENTERPRISES - NEBRASKA, INC. CALIFORNIA
BEVERLY ENTERPRISES - NEVADA, INC. CALIFORNIA
BEVERLY ENTERPRISES - NEW HAMPSHIRE, INC. CALIFORNIA
BEVERLY ENTERPRISES - NEW JERSEY, INC. CALIFORNIA
BEVERLY ENTERPRISES - NEW MEXICO, INC. CALIFORNIA
BEVERLY ENTERPRISES - NORTH CAROLINA, INC. CALIFORNIA
BEVERLY ENTERPRISES - NORTH DAKOTA, INC. CALIFORNIA
BEVERLY ENTERPRISES - OHIO, INC. CALIFORNIA
BEVERLY ENTERPRISES - OKLAHOMA, INC. CALIFORNIA
BEVERLY ENTERPRISES - OREGON, INC. CALIFORNIA
BEVERLY ENTERPRISES - PENNSYLVANIA, INC. CALIFORNIA
BEVERLY ENTERPRISES - RHODE ISLAND, INC. CALIFORNIA
BEVERLY ENTERPRISES - SOUTH CAROLINA, INC. CALIFORNIA
BEVERLY ENTERPRISES - TENNESSEE, INC. CALIFORNIA
BEVERLY ENTERPRISES, TEXAS, INC. CALIFORNIA
</TABLE>

3
<PAGE> 4
EXHIBIT 22.1

BEVERLY ENTERPRISES, INC. AND SUBSIDIARIES
SUBSIDIARY SCHEDULE
MARCH 14, 1994

<TABLE>
<CAPTION>
STATE OF
CORPORATION INCORPORATION
- ----------- -------------
<S> <C>
BEVERLY ENTERPRISES - UTAH, INC. CALIFORNIA
BEVERLY ENTERPRISES - VERMONT, INC. CALIFORNIA
BEVERLY ENTERPRISES - VIRGINIA, INC. CALIFORNIA
BEVERLY ENTERPRISES - WASHINGTON, INC. CALIFORNIA
BEVERLY ENTERPRISES - WEST VIRGINIA, INC. CALIFORNIA
BEVERLY ENTERPRISES - WISCONSIN, INC. CALIFORNIA
BEVERLY ENTERPRISES - WYOMING, INC. CALIFORNIA
BEVERLY ENTERPRISES CANADA (1988), INC. CANADA
BEVERLY ENTERPRISES JAPAN LIMITED CALIFORNIA
BEVERLY ENTERPRISES MEDICAL EQUIPMENT CORPORATION CALIFORNIA
BEVERLY ENTERPRISES REHABILITATION CORPORATION CALIFORNIA
BEVERLY ENTERPRISES, INC. DELAWARE
BEVERLY FUNDING CORPORATION DELAWARE
BEVERLY INDEMNITY, LTD. VERMONT
BEVERLY MANOR INC. OF HAWAII CALIFORNIA
BEVERLY REMIC DEPOSITOR, INC. CALIFORNIA
BEVERLY SAVANA CAY MANOR, INC. CALIFORNIA
</TABLE>

4
<PAGE> 5
EXHIBIT 22.1

BEVERLY ENTERPRISES, INC. AND SUBSIDIARIES
SUBSIDIARY SCHEDULE
MARCH 14, 1994

<TABLE>
<CAPTION>
STATE OF
CORPORATION INCORPORATION
- ----------- -------------
<S> <C>
COLUMBIA - VALLEY NURSING HOME, INC. OHIO
COMMERCIAL MANAGEMENT, INC. IOWA
COMPUTRAN SYSTEMS, INC. OREGON
CONTINENTAL CARE CENTERS OF COUNCIL BLUFFS, INC. IOWA
FOREST CITY BUILDING LTD. MISSOURI
FRAIBERG & SMITH HOME MEDICAL SYSTEMS, INC. OHIO
HALLMARK CONVALESCENT HOMES, INC. MICHIGAN
HOME MEDICAL SYSTEMS, INC. DELAWARE
HOSPITAL FACILITIES CORPORATION CALIFORNIA
KENWOOD VIEW NURSING HOME, INC. KANSAS
LIBERTY NURSING HOMES, INCORPORATED VIRGINIA
LUNG CARE, INC. CALIFORNIA
LUNG CARE, INC. MICHIGAN
MEDICAL ARTS HEALTH FACILITY OF LAWRENCEVILLE, INC. GEORGIA
MEDICAL HEALTH INDUSTRIES, INC. DELAWARE
MODERNCARE OF LUMBERTON, INC. NORTH CAROLINA
NEBRASKA CITY S-C-H, INC. NEBRASKA
</TABLE>

5
<PAGE> 6
EXHIBIT 22.1

BEVERLY ENTERPRISES, INC. AND SUBSIDIARIES
SUBSIDIARY SCHEDULE
MARCH 14, 1994

<TABLE>
<CAPTION>
STATE OF
CORPORATION INCORPORATION
- ----------- -------------
<S> <C>
NURSING HOME OPERATORS, INC. OHIO
NSC HOME MEDICAL SYSTEM, INC. OHIO
PETERSEN HEALTH CARE, INC. FLORIDA
PHARMACY CORPORATION OF AMERICA CALIFORNIA
PHYMEDSCO, INC. WEST VIRGINIA
PULMONARY REHAB. ASSOCIATES, LTD. MICHIGAN
SALEM NO. 1, INC. MISSOURI
SOUTH ALABAMA NURSING HOME, INC. ALABAMA
SOUTH DAKOTA - BEVERLY ENTERPRISES, INC. CALIFORNIA
TAYLOR COUNTY HEALTH FACILITY, INCORPORATED FLORIDA
VANTAGE HEALTHCARE CORPORATION DELAWARE
</TABLE>

<PAGE> 1
EXHIBIT 23.1

CONSENT OF ERNST & YOUNG, INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-21505, Form S-4 No. 33-13243, Form S-8 No. 33-65242 and Form
S-3 No. 33-50965 and amendments thereto) pertaining to the Employee Stock
Purchase Plan, the 1985 Beverly Nonqualified Stock Option Plan, the 1993 Long
Term Incentive Stock Plan, and the Debt Securities of Beverly Enterprises,
Inc., and in the related Prospectuses of our report dated February 4, 1994,
with respect to the consolidated financial statements and schedules of Beverly
Enterprises, Inc. included in the Annual Report (Form 10-K) for the year ended
December 31, 1993.

ERNST & YOUNG

Little Rock, Arkansas
March 17, 1994