<PAGE> 1
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
(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
BEVERLY ENTERPRISES, INC.
(Exact name of Registrant as specified in its charter)
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)
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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<PAGE> 2
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> 3
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> 4
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> 5
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> 6
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> 7
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> 8
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> 9
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> 10
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> 11
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> 12
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> 13
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> 14
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.
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.
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.
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
Series A preferred stock. The remainder of the net proceeds was used to repay
approximately $45,000,000 of the Term Loan under the Bank Credit Facility. Had
the Preferred Stock offering been completed prior to January 1, 1993, and the
net proceeds from the offering applied as discussed above, the pro forma net
income per share for the twelve months ended December 31, 1993 would have been
$.66.
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.
30
<PAGE> 15
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> 16
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.
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 consolidated
financial position or results of operations.
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> 17
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> 18
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
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.
34
<PAGE> 19
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> 20
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> 21
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. Fees paid by the
Company for such services amounted to approximately $2,180,000 and $1,421,000
for the years ended December 31, 1993 and 1991, respectively. The Company did
not require such services in 1992.
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> 22
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> 23
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> 24
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> 25
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BEVERLY ENTERPRISES, INC.
Registrant
Dated: May 27, 1994 By: /s/ SCOTT M. TABAKIN
------------------------------
Scott M. Tabakin
Vice President, Controller and
Chief Accounting Officer
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG, INDEPENDENT AUDITORS
We consent to the use of our report dated February 4, 1994, included in the
Annual Report on Form 10-K of Beverly Enterprises, Inc. for the year ended
December 31, 1993, with respect to the consolidated financial statements, as
amended, included in this Form 10-K/A filed with the Securities and Exchange
Commission as Amendment No. 1 to such Annual Report.
/s/ ERNST & YOUNG
Little Rock, Arkansas
May 26, 1994
