<PAGE> 1
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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, 1994
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. [X]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF
REGISTRANT WAS $1,103,881,012 AS OF FEBRUARY 28, 1995.
85,662,971
(NUMBER OF SHARES OF COMMON STOCK OUTSTANDING, NET OF TREASURY SHARES, AS OF
FEBRUARY 28, 1995)
PART III IS INCORPORATED BY REFERENCE FROM THE PROXY STATEMENT FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 18, 1995.
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<PAGE> 2
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 providing long-term
health care, including the operation of nursing facilities, sub-acute and acute
long-term transitional hospitals, institutional pharmacies and rehabilitation
therapy services. 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, 1995, the Company operated 727 nursing facilities with
78,061 licensed beds. The facilities are located in 33 states and the District
of Columbia, and range in capacity from 20 to 388 beds. At January 31, 1995, the
Company also operated 65 pharmacies and pharmacy-related outlets, 40 retirement
and congregate living projects containing 2,518 units, six transitional
hospitals containing 274 beds and four home health care entities. The Company's
facilities had average occupancy of 88.5%, 88.5% and 88.4% during the years
ended December 31, 1994, 1993 and 1992, respectively. See "Item 2. Properties."
OPERATIONS (Effective January 1, 1995)
The Company's nursing facility and certain rehabilitation operations are
primarily operated by Beverly Health and Rehabilitation Services, Inc. ("BHRS"),
a wholly-owned subsidiary of Beverly Enterprises, Inc. and formerly known as
Beverly California Corporation. The nursing facilities are grouped into seven
regions, each headed by a Vice President of Operations. Each of the Vice
Presidents of Operations supervises from seven to sixteen area managers within
their assigned regions. Each area manager is responsible for five to seventeen
facilities. Each facility provides routine and higher acuity nursing care, as
well as ancillary services, and 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 over 200 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.
The Company's six acute long-term transitional hospitals are operated by
American Transitional Hospitals, Inc. ("ATH"), an indirect wholly-owned
subsidiary of Beverly Enterprises, Inc. Each transitional hospital is operated
under the immediate supervision of a licensed administrator. ATH also operates
eight nursing facilities that provide a more complex level of sub-acute care
than the Company's other nursing facilities.
The Company's institutional pharmacy business is operated by Pharmacy
Corporation of America ("PCA"), a wholly-owned subsidiary of Beverly
Enterprises, Inc. PCA provides pharmaceuticals and related supplies and services
to the Company's nursing facilities and transitional hospitals, as well as to
unaffiliated long-term care companies and other entities. See Part II, Item
8 -- Note 2 of Notes to Consolidated Financial Statements for a discussion of
certain pharmacy acquisitions.
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<PAGE> 3
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 actions
could adversely affect the revenues of the Company.
The Company receives payments 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; and
(iii) private and other patients, including commercial insurers and managed care
payors. The following table sets forth the approximate percentage of patient
days and room and board revenues derived from the indicated sources of payment,
as well as ancillary and other revenues which are derived from all sources of
payment, for the periods indicated:
<TABLE>
<CAPTION>
MEDICAID MEDICARE PRIVATE
------------------ ------------------ ------------------
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, 1994...... 68% 47% 12% 11% 20% 16% 26%
December 31, 1993...... 69% 50% 11% 11% 20% 16% 23%
</TABLE>
Consistent with the long-term care 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, board and custodial care and include occupational,
physical, speech, respiratory and IV therapy, as well as, sales of
pharmaceuticals and other services. Such services are currently provided
primarily to Medicare and private pay patients, consistent with the trend in
health care of providing a broader range of services in a lower cost setting,
such as the Company's nursing facilities. Although the Company is pursuing
further growth of ancillary revenues, through acquisitions as well as internal
expansion of specialty services such as rehabilitation and sales of
pharmaceuticals, 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
patient care 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 (eg. depreciation and interest, fair
rental allowance or rental expense). In some states, cost-based reimbursement is
subject to retrospective adjustment through cost report settlement. In other
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
2
<PAGE> 4
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 1994, payments
are based upon facility-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. Another reimbursement change currently under
discussion includes a change in the Medicare system of reimbursement for certain
therapy services. No assurance can be given that the future funding of Medicaid
and Medicare programs will remain at levels comparable to the present levels.
Health care system reform continues to be a high priority for the federal
and certain state governments. Although no comprehensive health care reform
legislation has been implemented, the active discussion and issues raised by the
Clinton Administration, Congress and various other groups have impacted the
health care delivery system. Pressures to contain costs and cover a larger
percentage of the population have heightened public awareness and scrutiny over
the health care market. Reform proposals still under consideration include
insurance market reforms to increase the availability of group health insurance
to small businesses, requirements that all businesses offer health coverage to
their employees and the creation of a single government health insurance plan
that would cover all citizens. These proposals, as well as industry and other
groups' recommendations, will likely impact the form and content of any future
health care reform legislation. As a result, the Company is unable to predict
the type of legislation or regulations that may be adopted and their impact on
the Company. There can be no assurance that any health care reform or other
changes within the health care market will not adversely affect the Company's
financial position, results of operations or cash flows.
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,
3
<PAGE> 5
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 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, 1995, the Company operated 727 nursing facilities in 33
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 and rehabilitation 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 sub-acute 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 sub-acute and specialty services.
EMPLOYEES
At December 31, 1994, the Company had approximately 82,000 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
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<PAGE> 6
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."
Currently, the Company is not experiencing a nursing shortage. Periodically
in the past, however, the health care industry, including the Company's
long-term care facilities, has experienced a shortage of nurses to staff health
care operations. 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 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 corporate-wide 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 corporate-wide and other extraordinary remedies
sought by the NLRB and the unions were inappropriate.
The NLRB instituted two subsequent consolidated administrative proceedings
against the Company alleging the commission of additional unfair labor practices
under the Act at 31 of the Company's facilities. Such proceedings are in various
stages of litigation. The Company is vigorously defending the proceedings and
believes that the request for a corporate-wide remedy is wholly without merit.
ITEM 2. PROPERTIES.
At January 31, 1995, the Company operated 727 nursing facilities and 40
retirement and congregate living projects in 33 states and the District of
Columbia. Most of the Company's 314 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. Certain of the nursing facilities and retirement
centers owned by the Company are 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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<PAGE> 7
The following is a summary of the Company's nursing home facilities,
retirement and congregate living projects, transitional hospitals, pharmacies
and home health centers at January 31, 1995:
<TABLE>
<CAPTION> RETIREMENT AND
CONGREGATE HOME
NURSING HOME LIVING TRANSITIONAL HEALTH
FACILITIES PROJECTS HOSPITALS PHARMACIES CENTERS
----------------- -------------- ----------------- ---------- ------
TOTAL TOTAL
LICENSED TOTAL LICENSED
LOCATION NUMBER BEDS NUMBER UNITS NUMBER BEDS NUMBER NUMBER
------------------------------ ------ -------- ------ ----- ------ -------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alabama....................... 21 2,621 1 24 -- -- 2 --
Arizona....................... 3 480 1 77 1 48 -- --
Arkansas...................... 38 4,550 3 49 -- -- 1 --
California.................... 78 8,130 2 307 -- -- 6 3
Colorado...................... -- -- -- -- -- -- 1 --
Connecticut................... 7 1,055 -- -- -- -- 3 --
District of Columbia.......... 1 355 -- -- -- -- -- --
Florida....................... 66 7,932 7 751 -- -- 8 --
Georgia....................... 23 2,656 2 48 -- -- 4 --
Hawaii........................ 2 396 -- -- -- -- -- --
Idaho......................... 4 329 -- -- -- -- -- --
Illinois...................... 10 819 1 249 -- -- -- 1
Indiana....................... 72 5,755 2 226 1 40 2 --
Kansas........................ 30 1,992 3 39 -- -- 2 --
Kentucky...................... 8 1,049 -- -- -- -- 1 --
Louisiana..................... 1 200 -- -- -- -- 1 --
Maryland...................... 4 585 1 16 -- -- 4 --
Massachusetts................. 25 2,420 -- -- -- -- 3 --
Michigan...................... 2 206 -- -- -- -- -- --
Minnesota..................... 37 3,280 2 28 -- -- 1 --
Mississippi................... 22 2,504 -- -- -- -- 1 --
Missouri...................... 34 3,457 3 101 -- -- 1 --
Nebraska...................... 24 2,201 1 16 -- -- -- --
New Jersey.................... 1 150 -- -- -- -- -- --
North Carolina................ 12 1,514 1 16 -- -- 2 --
Ohio.......................... 14 1,584 3 425 -- -- 1 --
Oklahoma...................... -- -- -- -- 1 32 -- --
Oregon........................ -- -- -- -- -- -- 2 --
Pennsylvania.................. 42 4,881 3 55 -- -- 2 --
South Carolina................ 3 302 -- -- -- -- -- --
South Dakota.................. 17 1,236 -- -- -- -- -- --
Tennessee..................... 8 1,066 2 59 -- -- 2 --
Texas......................... 52 6,516 -- -- 3 154 11 --
Virginia...................... 17 2,353 2 32 -- -- -- --
Washington.................... 13 1,214 -- -- -- -- 2 --
West Virginia................. 3 318 -- -- -- -- -- --
Wisconsin..................... 33 3,955 -- -- -- -- 2 --
--- ------ -- ----- -- --- -- --
727 78,061 40 2,518 6 274 65 4
=== ====== == ===== == === == ==
CLASSIFICATION
------------------------------
Owned......................... 409 44,776 32 1,791 1 69 65 4
Leased........................ 314 32,882 4 217 5 205 -- --
Managed....................... 4 403 4 510 -- -- -- --
--- ------ -- ----- -- --- -- --
727 78,061 40 2,518 6 274 65 4
=== ====== == ===== == === == ==
</TABLE>
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<PAGE> 8
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, 1994.
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 20, 1995.
<TABLE>
<CAPTION>
NAME POSITION AGE
------------------------------- ------------------------------------------------------ -------
<S> <C> <C>
David R. Banks(3).............. Chairman of the Board, President, Chief
Executive Officer and Director 58
Boyd W. Hendrickson............ Executive Vice President and President of BHRS 50
Ronald C. Kayne................ Executive Vice President and President of PCA 56
T. Jerald Moore................ Executive Vice President and President of Beverly Managed
Care, Inc. 54
Robert W. Pommerville.......... Executive Vice President, General Counsel and Secretary 54
Bobby W. Stephens.............. Executive Vice President--Development 50
Robert D. Woltil............... Executive Vice President, Finance and Chief Financial
Officer 40
Eugene B. Clarke............... Senior Vice President--Quality Assurance 54
Robert C. Crosby............... Senior Vice President and President of ATH 56
Schuyler Hollingsworth, Jr..... Senior Vice President and Treasurer 48
Mark D. Wortley................ Senior Vice President and President of Spectra 39
Scott M. Tabakin............... Vice President, Controller and Chief Accounting Officer 36
Beryl F. Anthony, Director
Jr.(2)(4)(5)................. 57
Curt F. Bradbury(1)(2)(3)...... Director 45
James R. Greene(1)(4).......... Director 73
Edith E. Holiday............... Director 43
Jon E. M. Jacoby(1)(3)(5)...... Director 56
Risa J. Lavizzo-Mourey, M.D.... Director 40
Louis W. Menk(2)(4)............ Director 76
Marilyn R. Seymann............. Director 52
Will K. Weinstein(3)(5)........ Director 54
</TABLE>
---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Finance Committee.
(4) Member of the Quality Assurance 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.
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<PAGE> 9
Mr. Hendrickson joined the Company in 1988 as a Division President. He was
elected Vice President of Marketing in May 1989, Executive Vice President of
Operations and Marketing in February 1990 and President of Beverly Health and
Rehabilitation Services, Inc. ("BHRS") in January 1995.
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") 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 and was elected President of Beverly Managed Care, Inc. in January
1995. Mr. Moore was employed at Aetna Life and Casualty from 1963 to 1992 and
was elected Senior Vice President in 1990.
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, Senior Vice President in March 1990
and Executive Vice President in February 1995.
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. Crosby joined the Company in 1994 with the acquisition of ATH. He was
elected Senior Vice President of the Company and President of ATH in September
1994. Mr. Crosby was Chairman of the Board, President and Chief Executive
Officer of ATH from 1992 to 1994 and President and Chief Executive Officer of
StatCorp, Inc. from 1989 to 1991.
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. Wortley joined the Company as Senior Vice President and President of
Spectra Health and Rehabilitation Services, Inc. ("Spectra"), a wholly-owned
subsidiary of the Company, in September 1994. From 1988 to 1994, Mr. Wortley was
an officer of Therapy Management Innovations, which provides rehabilitation
consulting services to the Company under contract.
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 LLP, 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. He has been
a director of the Company since January 1993.
Mr. Bradbury served as Chairman, Chief Executive Officer and a director of
Worthen Banking Corporation until February 28, 1995. 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. Bradbury
will not stand for reelection at the Company's Annual Meeting of Stockholders to
be held on May 18, 1995.
8
<PAGE> 10
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 a number of mutual funds of Alliance Capital Management Corporation,
Buck Engineering Company and Bank Leumi. He has been a director of the Company
since January 1991.
Ms. Holiday is an attorney. She served as White House Liaison for the
Cabinet to all federal agencies during the Bush administration. Prior to that,
Ms. Holiday served as General Counsel of the U.S. Treasury Department, as well
as its Assistant Secretary of Treasury for Public Affairs and Public Liaison.
She is a director of Amerada Hess Corporation, Bessemer Trust Company, N.A.,
Bessemer Trust Company of New Jersey, Hercules Incorporated and H.J. Heinz
Company. She has been a director of the Company since March 16, 1995.
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. Mr. Jacoby is a director of the American Classic Voyages Company, Delta and
Pine Land Company, Inc., Medicus Systems, Inc. and Southwestern Life
Corporation. He has been a director of the Company since February 1987.
Dr. Lavizzo-Mourey is Director of the Institute of Aging, Chief of the
Division of Geriatric Medicine and Associate Executive Vice President for health
policy at the University of Pennsylvania, Ralston-Penn Center. From 1992 to
1994, Dr. Lavizzo-Mourey was in the Senior Executive Service in the Agency for
Health Care Policy and Research, U.S. Public Health Service of the Department of
Health and Human Services. She is a director of Medicus Systems, Inc., and has
been a director of the Company since March 16, 1995.
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.
Ms. Seymann is President and Chief Executive Officer of M One, Inc., a
management and information systems consulting firm specializing in the financial
services industry. From 1990 to 1993, Ms. Seymann was Director and Vice Chairman
of the Federal Housing Finance Board. Prior to that, she served as Managing
Director of Andersen Asset Based Services, a unit of Arthur Andersen LLP. From
1986 to 1990, Ms. Seymann was Executive Vice President of Chase Bank of Arizona
and served as President, Private Banking of Chase Trust Company from 1987 to
1990. She has been a director of the Company since March 16, 1995.
Mr. Weinstein has been Managing Partner of Genesis Merchant Group, the sole
General Partner of Genesis Merchant Group Securities, and its predecessor,
W.I.G. Securities, since 1989, and was President of W.I.G., 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.
During 1994, there were ten meetings of the Board of Directors. Each
director attended 90% or more of the meetings of the Board and committees on
which he served.
In 1994, directors, other than Mr. Banks, received a retainer fee of
$22,000 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 $18,000 under such plan during the year ended December 31, 1994.
During 1994, the Company's Nonemployee Directors' Stock Option Plan (the
"Nonemployee Directors' Plan") was approved. Such plan became effective June 1,
1994 and will remain in effect until May 31, 2004,
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<PAGE> 11
subject to earlier termination by the Board of Directors. There are 200,000
shares of the Company's $.10 par value common stock ("Common Stock") authorized
for issuance, subject to certain adjustments, under the Nonemployee Directors'
Plan. The Nonemployee Directors' Plan provides that 2,500 nonqualified stock
options be granted to each nonemployee director on June 1 of each year until the
plan is terminated, subject to the availability of shares. The first of such
grants was made June 1, 1994 to each of the six nonemployee directors. Such
nonqualified stock options are granted at a purchase price equal to fair market
value on the date of grant, become exercisable one year after date of grant and
expire ten years after date of grant.
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 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, 1994 related to this plan was approximately $1,790,000.
At December 31, 1994, there were approximately 5,800 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.
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<PAGE> 12
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 as reported on the New York Stock
Exchange composite tape.
<TABLE>
<CAPTION>
PRICES
-----------------
HIGH LOW
---- ----
<S> <C> <C>
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.......................................... $16 1/8 $12 3/8
Second Quarter......................................... 14 1/4 12 1/8
Third Quarter.......................................... 15 5/8 11 3/4
Fourth Quarter......................................... 15 7/8 13 3/4
1995
First Quarter (through March 20)....................... $14 3/4 $12 1/2
</TABLE>
The Company is subject to certain restrictions under its banking
arrangements related to the payment of cash dividends on its Common Stock.
During 1994 and 1993, no cash dividends were paid on the Company's Common Stock
and no future dividends are currently planned.
At March 20, 1995, there were 7,738 record holders of the Common Stock.
11
<PAGE> 13
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,
-----------------------------------------------------------------------
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net operating revenues............................. $ 2,969,239 $ 2,884,451 $ 2,607,756 $ 2,308,307 $ 2,117,868
Interest income.................................... 14,578 15,269 14,502 20,048 24,455
----------- ----------- ----------- ----------- -----------
Total revenues................................. 2,983,817 2,899,720 2,622,258 2,328,355 2,142,323
Costs and expenses:
Operating and administrative:
Wages and related.............................. 1,600,580 1,593,410 1,486,191 1,358,639 1,258,758
Other.......................................... 1,114,916 1,069,536 921,750 770,748 712,586
Interest......................................... 64,792 66,196 70,943 79,243 86,991
Depreciation and amortization.................... 88,734 82,938 80,226 78,057 63,566
Restructuring costs.............................. -- -- 57,000 -- --
----------- ----------- ----------- ----------- -----------
Total costs and expenses....................... 2,869,022 2,812,080 2,616,110 2,286,687 2,121,901
----------- ----------- ----------- ----------- -----------
Income before provision for income taxes,
extraordinary charge and cumulative effect of
change in accounting for income taxes............ 114,795 87,640 6,148 41,668 20,422
Provision for income taxes......................... 37,882 29,684 4,203 12,430 7,279
----------- ----------- ----------- ----------- -----------
Income before extraordinary charge and cumulative
effect of change in accounting for income
taxes............................................ 76,913 57,956 1,945 29,238 13,143
Extraordinary charge, net of income taxes of $1,188
in 1994, $1,155 in 1993 and $5,415 in 1992....... (2,412) (2,345) (8,835) -- --
Cumulative effect of change in accounting for
income taxes..................................... -- -- (5,454) -- --
----------- ----------- ----------- ----------- -----------
Net income (loss).................................. $ 74,501 $ 55,611 $ (12,344) $ 29,238 $ 13,143
========== ========== ========== ========== ==========
Net income (loss) applicable to common shares...... $ 66,251 $ 31,173 $ (13,344) $ 29,238 $ 12,143
========== ========== ========== ========== ==========
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.......................................... $ .79 $ .66 $ .01 $ .36 $ .18
Redemption premium on Series A preferred stock... -- (.25) -- -- --
----------- ----------- ----------- ----------- -----------
Before extraordinary charge and cumulative effect
of
change in accounting for income taxes.......... .79 .41 .01 .36 .18
Extraordinary charge............................. (.03) (.03) (.11) -- --
Cumulative effect of change in accounting for
income taxes................................... -- -- (.07) -- --
----------- ----------- ----------- ----------- -----------
Net income (loss)................................ $ .76 $ .38 $ (.17) $ .36 $ .18
========== ========== ========== ========== ==========
Shares used to compute per share amounts........... 87,087,000 81,207,000 77,685,000 81,218,000 66,151,000
CONSOLIDATED BALANCE SHEET DATA:
Total assets....................................... $ 2,322,578 $ 2,000,804 $ 1,859,361 $ 1,677,851 $ 1,625,781
Current portion of long-term obligations........... $ 60,199 $ 43,125 $ 30,466 $ 35,846 $ 50,918
Long-term obligations, excluding current portion... $ 918,018 $ 706,917 $ 712,896 $ 629,245 $ 694,689
Stockholders' equity............................... $ 827,244 $ 742,862 $ 593,505 $ 600,443 $ 499,490
OTHER DATA:
Patient days....................................... 26,766,000 29,041,000 29,341,000 29,334,000 30,139,000
Average occupancy percentage....................... 88.5% 88.5% 88.4% 88.1% 87.3%
Number of nursing home beds........................ 78,058 85,001 89,298 90,228 91,414
Number of employees................................ 82,000 89,000 93,000 93,000 92,000
</TABLE>
12
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OPERATING RESULTS
1994 Compared to 1993
Net income was $74,501,000 for the year ended December 31, 1994, as
compared to net income of $55,611,000, as restated per discussion below, for the
same period in 1993. Net income for 1994 includes a $2,412,000 extraordinary
charge, net of income taxes, related to the acceleration of unamortized deferred
financing costs related to the refinancings of the Company's Commercial Paper
Program and Morgan Credit Agreement, as well as certain bond refundings. Net
income for 1993 includes a $2,345,000 extraordinary charge, net of income taxes,
related to the acceleration of unamortized deferred financing costs associated
with certain debt that was repaid or refinanced in 1993. During the third
quarter of 1994, the Company completed the merger of American Transitional
Hospitals, Inc. ("ATH") in exchange for 2,400,000 shares of Common Stock. The
merger was accounted for as a pooling of interests and, accordingly, the
Company's consolidated financial statements have been restated ("as restated")
to reflect ATH's financial position, results of operations and cash flows for
each period prior to the merger. The merger of ATH was not material to the
Company's financial position or results of operations.
The Company's annual effective tax rate was 33% for the year ended December
31, 1994, compared to 34%, as restated, for the same period in 1993. The 1994
and 1993 annual effective tax rates were lower than the statutory rate primarily
due to the utilization of certain tax credit carryforwards, partially offset by
the impact of state income taxes. The Company expects its annual effective tax
rate for 1995 to increase to approximately 38% due to the utilization of a
substantial portion of certain tax credit carryforwards in 1994 and prior years.
Net operating revenues and operating and administrative costs increased
approximately $84,800,000 and $52,600,000, respectively, for the year ended
December 31, 1994, as compared to the same period in 1993. 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 years ended December 31, 1994 and 1993 ("same facility operations") of
approximately $215,200,000 and $176,900,000, respectively; increases in net
operating revenues and operating and administrative costs of approximately
$34,800,000 and $35,200,000, respectively, related to the operations of ATH, the
acquisition of three nursing facilities in 1993 and the acquisitions of
Insta-Care and Synetic in 1994; and decreases in net operating revenues and
operating and administrative costs of approximately $165,200,000 and
$159,500,000, respectively, due to the disposition of, or lease terminations on,
77 facilities in 1994 and 43 facilities in 1993.
The increase in net operating revenues for same facility operations for the
year ended December 31, 1994, as compared to the same period in 1993, was due to
the following: approximately $114,100,000 due primarily to increases in Medicaid
room and board rates, and to a lesser extent, private and Medicare room and
board rates; approximately $95,800,000 due to increased ancillary revenues as a
result of providing additional ancillary services to the Company's Medicare and
private-pay patients; approximately $7,600,000 due to a shift in the Company's
patient mix to a higher Medicare census; and approximately $21,000,000 due
primarily to an increase in pharmacy-related revenues and various other items.
The Company's Medicare, private and Medicaid census for same facility operations
was 12%, 19%, and 68%, respectively, for the year ended December 31, 1994, as
compared to 11%, 19%, and 69%, respectively, for the same period in 1993. These
increases in net operating revenues were partially offset by approximately
$23,300,000 due to a decrease in same facility occupancy to 89.2% for the year
ended December 31, 1994, as compared to 90.2% for the same period in 1993.
The increase in operating and administrative costs for same facility
operations for the year ended December 31, 1994, as compared to the same period
in 1993, was due to the following: approximately $88,700,000 due to increased
wages and related expenses principally due to higher wages and greater benefits
intended to attract and retain qualified personnel, the hiring of therapists on
staff as opposed to contracting for their services, and increased staffing
levels in the Company's nursing facilities to cover higher acuity patients;
approximately $62,400,000 due to additional ancillary costs (excluding wages and
related expenses)
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<PAGE> 15
associated with the increase in ancillary services provided to the Company's
Medicare and private-pay patients; approximately $5,200,000 due primarily to an
increase in supplies purchased to meet the needs of the Company's higher acuity
patients; and approximately $20,600,000 due primarily to increases in pharmacy-
related costs and various other items.
Ancillary revenues are derived from providing services to residents beyond
room, board and custodial care. These services include occupational, physical,
speech, respiratory and IV therapy, as well as sales of pharmaceuticals and
other services. The Company's overall ancillary revenues for the year ended
December 31, 1994 were $728,408,000 and represented 24.5% of net operating
revenues, as compared to $618,804,000 of ancillary revenues for the same period
in 1993 which represented 21.5% of 1993 net operating revenues. Although the
Company is pursuing further growth of ancillary revenues through expansion of
specialty services, such as rehabilitation and sales of pharmaceuticals, 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 $384,480,000 for the year ended December 31, 1994, compared to
$347,951,000 for the same period in 1993.
Interest expense for the year ended December 31, 1994 decreased
approximately $1,400,000 as compared to the same period in 1993 primarily due to
the following: repayment of approximately $45,000,000 of debt in 1993 with a
portion of the 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%
convertible subordinated debentures into shares of Common Stock in 1993, net of
additional interest related to the issuance or assumption of approximately
$243,000,000 of long-term obligations during 1994 in conjunction with certain
acquisitions. Depreciation and amortization expense for the year ended December
31, 1994 increased approximately $5,800,000 as compared to the same period in
1993 primarily due to acquisitions, the opening of newly constructed facilities
and over $100,000,000 of capital additions and improvements, partially offset by
a decrease due to the disposition of or lease terminations on certain
facilities.
The Company's future operating performance will continue to be affected by
the issues facing the long-term health care industry as a whole, including the
maintenance of occupancy, its ability to continue to expand higher margin
business from Medicare, managed care and private-pay payors, the availability of
nursing and therapy 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.
Health care system reform continues to be a high priority for the federal
and certain state governments. Although no comprehensive health care reform
legislation has been implemented, the active discussion and issues raised by the
Clinton Administration, Congress and various other groups have impacted the
health care delivery system. Pressures to contain costs and cover a larger
percentage of the population have heightened public awareness and scrutiny over
the health care market. Reform proposals still under consideration include
insurance market reforms to increase the availability of group health insurance
to small businesses, requirements that all businesses offer health insurance
coverage to their employees and the creation of a single governmental health
insurance plan that would cover all citizens. These proposals, as well as
industry and other groups' recommendations, will likely impact the form and
content of any future health care reform legislation. As a result, the Company
is unable to predict the type of legislation or regulations that may be
14
<PAGE> 16
adopted and their impact on the Company. There can be no assurance that any
health care reform or other changes within the health care market will not
adversely affect the Company's future financial position, results of operations
or cash flows.
The Company does not provide significant postemployment health care, life
insurance or other benefits to employees. Accordingly, implementation of the
requirements of Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits," during 1994 did not materially impact
the Company's consolidated financial position or results of operations. On an
ongoing basis, the Company reviews the carrying value of its notes receivable in
light of any events or circumstances that indicate they may be impaired and
makes adjustments to the allowance for doubtful notes as deemed necessary.
Therefore, the Company does not expect the requirements of Statement of
Financial Accounting Standards No. 114 "Accounting by Creditors for Impairment
of a Loan," to materially impact the Company's consolidated financial position
or results of operations when implemented in 1995.
1993 Compared to 1992
Net income was $55,611,000, as restated, for the year ended December 31,
1993, compared to a net loss of $12,344,000, as restated, for the same period in
1992. Income before income taxes and extraordinary charge for 1993 was
$87,640,000, as restated, compared to income before income taxes, extraordinary
charge and cumulative effect of a change in accounting for income taxes in 1992
of $6,148,000, as restated. The results for 1992 included a $57,000,000 pre-tax
restructuring charge, discussed below.
During 1993, the Company recorded a $2,345,000 extraordinary charge, net of
income taxes, related to the acceleration of unamortized deferred financing
costs associated with certain debt that was repaid with a portion of the net
proceeds from issuance of the Series B preferred stock, 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
deferred financing 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.
During 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"). The
$57,000,000 pre-tax restructuring charge was comprised of the following:
$28,000,000 related to the anticipated loss on disposal of 33 nursing
facilities; $12,200,000 related to operating losses on such 33 nursing
facilities during the anticipated one-year disposal period; $6,500,000
write-down to net realizable value of four facilities expected to be replaced;
$3,000,000 write-down of corporate headquarters; and $7,300,000 related to
relocation, severance and other costs associated with the centralization of the
Company's accounting, finance and management information systems functions.
The Company's annual effective tax rate was 34% for the year ended December
31, 1993, as restated, compared to 68%, as restated, 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 $276,700,000 and $255,000,000, respectively, for the year 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 years 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
$74,100,000 and $66,900,000, respectively, related to ATH operations and 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
15
<PAGE> 17
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
year 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-related 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 year 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 year 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 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,
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 and various other items.
The Company's overall ancillary revenues for the year ended December 31,
1993, were $618,804,000, as restated, and represented 21.5% of net operating
revenues, as compared to $458,281,000, as restated, of ancillary revenues for
the same period in 1992 which represented 17.6% of 1992 net operating revenues.
The Company's overall ancillary costs, excluding wages and related expenses,
were $347,951,000, as restated, for the year ended December 31, 1993, compared
to $249,509,000, as restated, for the same period in 1992.
Although there was no significant overall fluctuation in interest income in
1993 as compared to 1992, several offsetting items influenced the amounts.
Interest income for the year ended December 31, 1993 increased approximately
$800,000 primarily 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 decreased approximately $4,700,000 primarily due to the
repayment of approximately $45,000,000 of debt with a portion of the net
proceeds from issuance of the Series B preferred stock, the conversion of
approximately $46,000,000 in principal amount of the Company's 9% Debentures
into common stock and a reduction in deferred financing costs associated with
the repayment of certain debt. Depreciation and amortization expense for the
year ended December 31, 1993 increased approximately $2,700,000 as compared to
the same period in 1992 primarily due to the acquisition of facilities and over
$80,000,000 of capital additions and improvements in 1993.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1994, the Company had approximately $67,964,000 in cash and
cash equivalents and net working capital of approximately $242,712,000. The
Company anticipates that approximately $32,709,000 of its existing cash at
December 31, 1994, while not legally restricted, will be utilized to fund
certain workers' compensation and general liability claims, and the Company does
not expect to use such cash for other purposes. The Company had approximately
$103,000,000 of unused commitments under its Revolver/LOC Facility (as defined
herein) as of December 31, 1994.
Net cash provided by operating activities for the year ended December 31,
1994 decreased approximately $34,769,000 to $94,220,000 as compared to
$128,989,000 for 1993, primarily due to an increase in accounts
16
<PAGE> 18
receivable -- patient. This increase was primarily the result of an increase in
Medicare census and changes in certain Medicare billing requirements which
lengthened the billing period for such receivables by 30 days or more. Net cash
used for investing activities was approximately $317,553,000 and net cash
provided by financing activities was approximately $214,239,000 for the year
ended December 31, 1994. The Company primarily used cash generated from
operations to fund capital expenditures and construction totaling approximately
$108,653,000. The Company received cash proceeds of approximately $71,000,000
from the sale or sublease of 58 nursing facilities in Texas, $12,000,000 from
the exercise of an option for 1,000,000 shares of Common Stock at $12 per share,
and approximately $309,308,000 from the issuance of long-term obligations. Such
proceeds were primarily used to repay approximately $98,340,000 of long-term
obligations and to fund acquisitions of approximately $267,227,000. In April
1994, the Company filed a Registration Statement on Form S-3 with the Securities
and Exchange Commission to register the 1,000,000 shares of Common Stock issued
under the exercise of the option. Such registration did not result in any
additional proceeds to the Company.
In December 1994, the Company entered into an agreement to acquire Pharmacy
Management Services, Inc. ("PMSI") in exchange for shares of Common Stock. PMSI
is a leading nationwide provider of medical cost containment and managed care
services to workers' compensation payors and claimants. On February 13, 1995,
the Company filed a Registration Statement on Form S-4 with the Securities and
Exchange Commission to register 14,959,209 shares of Common Stock, all or a
portion of which will be used for such acquisition. The Company anticipates that
the acquisition will be accounted for as a pooling of interests. The transaction
is subject to the satisfaction of certain conditions, including receipt of PMSI
stockholder approval.
In November 1994, Pharmacy Corporation of America ("PCA"), a wholly-owned
subsidiary of the Company, completed the previously announced purchase of
Insta-Care Holdings, Inc., ("Insta-Care") for cash of approximately
$112,000,000, as well as other costs incurred totaling approximately $6,000,000.
Insta-Care provides pharmaceutical dispensing services in six states to
approximately 65,000 patients in nursing homes and correctional facilities. In
December 1994, PCA completed the previously announced purchase of three
institutional pharmacy subsidiaries of Synetic, Inc., ("Synetic") for cash of
approximately $107,300,000, as well as other costs incurred totaling
approximately $5,700,000. The Synetic businesses provide pharmaceutical
dispensing services in New England and Indiana to approximately 45,000 patients
in various institutions, including nursing homes, transitional care facilities,
correctional facilities and group homes.
In December 1994, the Company replaced its commercial paper program with
$50,000,000 of medium term notes (the "Medium Term Notes"). The Medium Term
Notes bear interest at adjusted LIBOR, as defined, plus .35%. The Medium Term
Notes are secured by eligible receivables of selected nursing facilities which
are sold to Beverly Funding Corporation ("Beverly Funding"), a wholly-owned
subsidiary of the Company.
In November 1994, the Company executed a $375,000,000 Credit Agreement (the
"1994 Credit Agreement") which provides for a $225,000,000 Term Loan (the "1994
Term Loan") and a $150,000,000 Revolver/Letter of Credit Facility (the
"Revolver/LOC Facility"). The proceeds from the 1994 Term Loan were used to
consummate the pharmacy acquisitions discussed above. The Revolver/LOC Facility
replaced the Company's revolving credit facility and letter of credit facility
originally entered into in 1993. Currently, the 1994 Term Loan and any Revolver
borrowings bear interest at adjusted LIBOR plus 1%, the Prime Rate, as defined,
or the adjusted CD rate, as defined, plus 1 1/8%, at the Company's option. Such
interest rates may be adjusted quarterly based on certain financial ratio
calculations. The 1994 Term Loan requires quarterly principal and interest
payments through October 1999.
In September 1994, the Board of Directors of the Company adopted a
Stockholder Rights Plan (the "Plan"). The Plan provides for the distribution of
one Common Stock Purchase Right (the "Rights") for each share of Common Stock
outstanding at the close of business on November 2, 1994. Under certain
circumstances, the Rights become exercisable to purchase shares of Common Stock,
or securities of an acquiring entity, at one-half of market value. The Rights
are designed to protect stockholders in the event of an unsolicited attempt to
acquire the Company and to deal with the possibility of unilateral actions by
hostile
17
<PAGE> 19
acquirors. These Rights are redeemable at the option of the Company at $.01 per
Right. The issuance of the Rights has no dilutive effect on the Company's
earnings per share.
In May 1994, the Company entered into a $25,000,000 promissory note which
bears interest at the rate of 7 3/4% per annum (the "7 3/4% Note"), the proceeds
from which were used to repay higher interest rate debt. The 7 3/4% Note is due
in equal quarterly installments of approximately $708,000, including principal
and interest with a balloon payment due in June 2001. In addition, the Company
has amended certain of its credit agreements in 1994 to change various
restrictive covenants, release certain collateral and adjust the interest rate
calculations.
In 1993, the Company registered with the Securities and Exchange Commission
$100,000,000 aggregate principal amount of certain debt securities ("Debt
Securities"), 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. During
1993, the Company issued $20,000,000 of 8 3/4% First Mortgage Bonds, $30,000,000
of 8 5/8% First Mortgage Bonds and $25,000,000 of 8 3/4% Notes under such
registration. As of December 31, 1994, $25,000,000 of aggregate principal amount
of Debt Securities under such registration remained unissued.
Also during 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. On January 3, 1994, the Company
used approximately $100,000,000 of the net proceeds from such offering 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 Company believes that its existing cash and cash equivalents, working
capital from operations, borrowings under its banking arrangements, issuance of
Debt Securities and refinancings of certain existing indebtedness will be
adequate to repay its debts due within one year of approximately $60,199,000, to
make normal recurring capital additions and improvements for the twelve months
ending December 31, 1995 of approximately $118,000,000, to make selective
acquisitions, including the purchase of previously leased facilities, and to
meet working capital requirements.
18
<PAGE> 20
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... 20
Consolidated Balance Sheets........................................................... 21
Consolidated Statements of Operations................................................. 22
Consolidated Statements of Stockholders' Equity....................................... 23
Consolidated Statements of Cash Flows................................................. 24
Notes to Consolidated Financial Statements............................................ 25
Supplementary Data (Unaudited) -- Quarterly Financial Data............................ 41
</TABLE>
19
<PAGE> 21
REPORT OF ERNST & YOUNG LLP, 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, 1994 and 1993, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1994. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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, 1994 and 1993, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents 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.
ERNST & YOUNG LLP
Little Rock, Arkansas
February 3, 1995
20
<PAGE> 22
BEVERLY ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1993
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $ 67,964 $ 77,058
Accounts receivable -- patient, less allowance for doubtful
accounts:
1994 -- $28,293; 1993 -- $19,999............................. 438,743 341,151
Accounts receivable -- nonpatient, less allowance for doubtful
accounts:
1994 -- $302; 1993 -- $343................................... 10,896 6,366
Notes receivable................................................ 5,028 4,617
Operating supplies.............................................. 60,243 63,009
Deferred income taxes........................................... 35,098 27,050
Prepaid expenses and other...................................... 34,365 34,997
---------- ----------
Total current assets......................................... 652,337 554,248
Property and equipment, net....................................... 1,200,623 1,154,478
Other assets:
Notes receivable, less allowance for doubtful notes:
1994 -- $6,429; 1993 -- $10,440.............................. 41,677 41,689
Designated and restricted funds................................. 41,939 44,948
Goodwill, net................................................... 245,990 72,209
Operating and leasehold rights and licenses, net................ 23,336 25,819
Other, net...................................................... 116,676 107,413
---------- ----------
Total other assets........................................... 469,618 292,078
---------- ----------
$2,322,578 $2,000,804
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ $ 117,001 $ 120,076
Accrued wages and related liabilities........................... 132,066 127,251
Accrued interest................................................ 10,828 9,519
Accrued restructuring costs..................................... -- 34,310
Other accrued liabilities....................................... 85,110 64,923
Current portion of long-term obligations........................ 60,199 43,125
Income taxes payable............................................ 4,421 625
---------- ----------
Total current liabilities.................................... 409,625 399,829
Long-term obligations............................................. 918,018 706,917
Deferred income taxes payable..................................... 81,117 72,765
Other liabilities and deferred items.............................. 86,574 78,431
Commitments and contingencies
Stockholders' equity:
Preferred stock:
Series B, shares issued and outstanding: 3,000,000........... 150,000 150,000
Series A, shares issued and outstanding: 999,999............. -- 100,000
Funds designated for the redemption of Series A preferred
stock....................................................... -- (100,000)
Common stock, shares issued: 1994 -- 89,620,822;
1993 -- 88,245,400........................................... 8,962 8,825
Additional paid-in capital...................................... 609,762 590,909
Retained earnings............................................... 98,655 33,263
Treasury stock, at cost: 3,972,208 shares....................... (40,135) (40,135)
---------- ----------
Total stockholders' equity................................... 827,244 742,862
---------- ----------
$2,322,578 $2,000,804
========= =========
</TABLE>
See accompanying notes.
21
<PAGE> 23
BEVERLY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Net operating revenues................................. $2,969,239 $2,884,451 $2,607,756
Interest income........................................ 14,578 15,269 14,502
--------- --------- ---------
Total revenues............................... 2,983,817 2,899,720 2,622,258
Costs and expenses:
Operating and administrative:
Wages and related................................. 1,600,580 1,593,410 1,486,191
Other............................................. 1,114,916 1,069,536 921,750
Interest............................................. 64,792 66,196 70,943
Depreciation and amortization........................ 88,734 82,938 80,226
Restructuring costs.................................. -- -- 57,000
--------- --------- ---------
Total costs and expenses..................... 2,869,022 2,812,080 2,616,110
--------- --------- ---------
Income before provision for income taxes, extraordinary
charge and cumulative effect of change in accounting
for income taxes..................................... 114,795 87,640 6,148
Provision for income taxes............................. 37,882 29,684 4,203
--------- --------- ---------
Income before extraordinary charge and cumulative
effect of change in accounting for income taxes...... 76,913 57,956 1,945
Extraordinary charge, net of income taxes of $1,188 in
1994, $1,155 in 1993 and $5,415 in 1992.............. (2,412) (2,345) (8,835)
Cumulative effect of change in accounting for income
taxes................................................ -- -- (5,454)
--------- --------- ---------
Net income (loss)...................................... $ 74,501 $ 55,611 $ (12,344)
========= ========= =========
Net income (loss) applicable to common shares.......... $ 66,251 $ 31,173 $ (13,344)
========= ========= =========
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.......... $ .79 $ .66 $ .01
Redemption premium on Series A preferred stock....... -- (.25) --
--------- --------- ---------
Before extraordinary charge and cumulative effect of
change in accounting for income taxes............. .79 .41 .01
Extraordinary charge................................. (.03) (.03) (.11)
Cumulative effect of change in accounting for income
taxes............................................. -- -- (.07)
--------- --------- ---------
Net income (loss).................................... $ .76 $ .38 $ (.17)
========= ========= =========
Shares used to compute per share amounts............... 87,087 81,207 77,685
========= ========= =========
</TABLE>
See accompanying notes.
22
<PAGE> 24
BEVERLY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN RETAINED TREASURY
STOCK STOCK CAPITAL EARNINGS STOCK TOTAL
--------- ------ ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1991............ $ 80,000 $8,001 $ 534,657 $ 17,920 $(40,135) $ 600,443(1)
Employee stock transactions, net....... -- 70 5,696 -- -- 5,766
Preferred stock dividends.............. -- -- -- (1,000) -- (1,000)
Issuance of ATH preferred stock(1)..... -- -- 640 -- -- 640
Accretion of amounts due upon
redemption of ATH preferred
stock(1)............................ -- -- 584 (584) -- --
Net loss............................... -- -- -- (12,344) -- (12,344)
--------- ------ ---------- -------- -------- ---------
Balances at December 31, 1992............ 80,000 8,071 541,577 3,992 (40,135) 593,505
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
stock............................... -- 713 43,770 -- -- 44,483
Employee stock transactions, net....... -- 41 3,441 -- -- 3,482
Preferred stock dividends.............. -- -- -- (5,125) -- (5,125)
Issuance of ATH preferred stock(1)..... -- -- 6,406 -- -- 6,406
Accretion of amounts due upon
redemption of ATH preferred stock
(1)................................. -- -- 1,218 (1,218) -- --
Cancellation of ATH preferred stock
(1)................................. -- -- (3) 3 -- --
Net income............................. -- -- -- 55,611 -- 55,611
--------- ------ ---------- -------- -------- ---------
Balances at December 31, 1993............ 150,000 8,825 590,909 33,263 (40,135) 742,862
Exercise of stock option grant......... -- 100 11,900 -- -- 12,000
Employee stock transactions, net....... -- 37 4,830 -- -- 4,867
Preferred stock dividends.............. -- -- -- (8,250) -- (8,250)
Issuance of ATH preferred stock(1)..... -- -- 1,264 -- -- 1,264
Accretion of amounts due upon
redemption of ATH preferred
stock(1)............................ -- -- 859 (859) -- --
Net income............................. -- -- -- 74,501 -- 74,501
--------- ------ ---------- -------- -------- ---------
Balances at December 31, 1994............ $ 150,000 $8,962 $ 609,762 $ 98,655 $(40,135) $ 827,244
========= ====== ======== ======== ======== =========
</TABLE>
---------------
(1) Amounts were recorded by ATH prior to its merger with the Company in
September 1994. Total stockholders' equity at December 31, 1991 increased
$1,334,000 due to the restatement for ATH.
See accompanying notes.
23
<PAGE> 25
BEVERLY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
--------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 74,501 $ 55,611 $(12,344)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 88,734 82,938 80,226
Provision for reserves and discounts on patient, notes
and
other receivables, net............................... 14,107 21,363 4,446
Amortization of deferred financing costs............... 4,241 3,743 8,226
Extraordinary charge................................... 3,600 3,500 14,250
(Gains) losses on dispositions of facilities and other
assets, net.......................................... (9,749) (3,667) 794
Deferred taxes, including cumulative effect of a change
in accounting for income taxes....................... (2,031) 4,708 (14,674)
Net increase (decrease) in insurance reserves.......... 8,342 (3,037) 4,398
Restructuring costs.................................... -- -- 57,000
Changes in operating assets and liabilities, net of
acquisitions
and dispositions:
Accounts receivable -- patient....................... (76,320) (40,695) (74,360)
Operating supplies................................... (2,777) 847 2,719
Prepaid expenses and other receivables............... 1,597 5,357 (2,820)
Accounts payable and other accrued expenses.......... (2,809) 6,866 42,703
Income taxes payable................................. 7,332 366 (8,119)
Other, net........................................... (14,548) (8,911) (4,026)
--------- --------- --------
Total adjustments................................. 19,719 73,378 110,763
--------- --------- --------
Net cash provided by operating activities......... 94,220 128,989 98,419
Cash flows from investing activities:
Payments for acquisitions, net of cash acquired........... (267,227) (49,973) (49,694)
Proceeds from dispositions of facilities and other
assets................................................. 77,211 9,952 10,087
Payments on notes receivable.............................. 7,966 6,604 10,308
Capital expenditures...................................... (103,343) (84,173) (68,597)
Construction in progress, net............................. (5,310) (11,369) (9,211)
Other, net................................................ (26,850) (18,167) (15,566)
--------- --------- --------
Net cash used for investing activities............ (317,553) (147,126) (122,673)
Cash flows from financing activities:
Proceeds from issuance of long-term obligations........... 309,308 100,541 151,196
Repayments of long-term obligations....................... (98,340) (101,016) (106,980)
Proceeds from issuance of Series B preferred stock, net... -- 144,500 --
Funds designated for the redemption of Series A preferred
stock.................................................. -- (100,000) --
Deferred financing costs.................................. (7,653) (10,290) (10,286)
Dividends paid on preferred stock......................... (8,250) (3,063) (1,000)
Proceeds from exercise of stock options................... 14,509 2,537 3,558
Proceeds from issuance of ATH preferred stock............. 1,264 6,406 --
Proceeds from designated funds, net....................... 3,401 4,546 972
--------- --------- --------
Net cash provided by financing activities......... 214,239 44,161 37,460
--------- --------- --------
Net increase (decrease) in cash and cash equivalents........ (9,094) 26,024 13,206
Cash and cash equivalents at beginning of year.............. 77,058 51,034 37,828
--------- --------- --------
Cash and cash equivalents at end of year.................... $ 67,964 $ 77,058 $ 51,034
========= ========= ========
Supplemental schedule of cash flow information:
Cash paid during the year for:
Interest (net of amount capitalized)................... $ 59,242 $ 64,035 $ 63,659
Income taxes (net of refunds).......................... 31,501 17,226 32,233
</TABLE>
See accompanying notes.
24
<PAGE> 26
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
References herein to the Company include Beverly Enterprises, Inc. and its
wholly-owned subsidiaries. The Company provides long-term health care including
the operation of nursing facilities, sub-acute and acute long-term transitional
hospitals, pharmacies, retirement living projects and home health care centers.
The consolidated financial statements of the Company 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 $21,899,000 in 1994 and $23,059,000 in 1993) 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 $24,171,000 in 1994 and
$21,183,000 in 1993) 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 carrying value of its
intangible assets in light of any events or circumstances that indicate they may
be impaired or that the amortization period may need to be adjusted. If such
circumstances suggest the intangible value cannot be recovered, calculated based
on undiscounted cash flows over the remaining amortization period, the carrying
value of the intangible will be reduced by such shortfall. As of December 31,
1994, the Company does not believe there is any indication that the carrying
value or the amortization period of its intangibles needs to be adjusted.
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 not covered by third party insurance are discounted at 10% in 1994 and
1993 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>
1994 1993
-------- --------
<S> <C> <C>
Accrued wages and related liabilities.......................... $ 33,111 $ 31,665
Other accrued liabilities...................................... 8,324 5,152
Other liabilities and deferred items........................... 75,370 65,387
-------- --------
$116,805 $102,204
======== ========
</TABLE>
25
<PAGE> 27
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
On an undiscounted basis, the total insurance liabilities as of December
31, 1994 and 1993 were $146,830,000 and $132,333,000, respectively. As of
December 31, 1994, the Company has deposited approximately $50,092,000 in funds
(the "Beverly Indemnity funds") that are restricted for the payment of insured
claims. In addition, the Company anticipates that approximately $32,709,000 of
its existing cash at December 31, 1994, while not legally restricted, will be
utilized to fund certain workers' compensation and general liability 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% of the Company's net operating revenues
for 1994, 1993 and 1992 were derived from funds under federal and state medical
assistance programs, and approximately 78%, 83% and 82% of the Company's net
patient accounts receivable at December 31, 1994, 1993 and 1992, 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
Net income (loss) applicable to common shares is computed by deducting
preferred stock dividends (including the $20,000,000 redemption premium on the
Series A preferred stock in 1993, as discussed below) from net income (loss),
when dilutive. Earnings per share for the years ended December 31, 1994, 1993
and 1992 were computed by dividing net income (loss) applicable to common shares
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. 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 applicable to common shares in the
calculation of earnings per share for the year ended December 31, 1993.
Other
Prior year amounts have been restated to reflect the pooling of interests
of American Transitional Hospitals, Inc. ("ATH"), as discussed in Note 2.
Certain prior year amounts have been reclassified to conform with the 1994
presentation.
26
<PAGE> 28
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
2. ACQUISITIONS AND DISPOSITIONS
During the year ended December 31, 1994, the Company purchased 19
previously leased nursing facilities (2,202 beds), one previously leased
retirement living center (20 units), and certain other assets, for approximately
$43,600,000 cash, approximately $1,000,000 issuance of debt, approximately
$16,900,000 assumed and acquired debt and approximately $1,400,000 security and
other deposits. Also during such period, the Company sold, subleased or
terminated the leases on 77 nursing facilities (7,192 beds) (13 of such
facilities were included in the 1992 restructuring program discussed below) and
certain other assets for cash proceeds of approximately $80,200,000,
approximately $700,000 of notes receivable and approximately $40,000 of assumed
debt. The operations of these facilities were immaterial to the Company's
financial position and results of operations.
During the third quarter of 1994, the Company issued 2,400,000 shares of
Common Stock for all of the outstanding stock of ATH. ATH operates licensed
hospitals specializing in long-term acute care and transitional acute care to
medically complex, chronically ill patients. The merger was accounted for as a
pooling of interests and, accordingly the Company's consolidated financial
statements have been restated to reflect ATH's financial position, results of
operations and cash flows for each period prior to the merger. All transactions
between the Company and ATH prior to the merger have been eliminated in the
restated consolidated financial statements. The merger of ATH was not material
to the Company's financial position or results of operations.
In November 1994, Pharmacy Corporation of America ("PCA"), a wholly-owned
subsidiary of the Company, completed the previously announced acquisition of
Insta-Care Holdings, Inc., ("Insta-Care") for cash of approximately
$112,000,000, as well as other costs incurred totaling approximately $6,000,000.
Insta-Care provides pharmaceutical dispensing services in six states to
approximately 65,000 patients in nursing homes and correctional facilities. In
December 1994, PCA completed the previously announced acquisition of three
institutional pharmacy subsidiaries of Synetic, Inc., ("Synetic") for cash of
approximately $107,300,000, as well as other costs incurred totaling
approximately $5,700,000. The Synetic businesses provide pharmaceutical
dispensing services in New England and Indiana to approximately 45,000 patients
in various institutions, including nursing homes, transitional care facilities,
correctional facilities and group homes. These acquisitions were accounted for
as purchases.
In December 1994, the Company entered into an agreement to acquire Pharmacy
Management Services, Inc. ("PMSI") in exchange for shares of Common Stock. PMSI
is a leading nationwide provider of medical cost containment and managed care
services to workers' compensation payors and claimants. In February 1995, the
Company filed a Registration Statement on Form S-4 with the Securities and
Exchange Commission to register 14,959,209 shares of Common Stock, all or a
portion of which will be used for such acquisition. The Company anticipates that
the acquisition will be accounted for as a pooling of interests. The transaction
is subject to the satisfaction of certain conditions, including receipt of PMSI
stockholder approval.
Summarized below are the unaudited pro forma consolidated results of
operations for the Company for the years ended December 31, 1994 and 1993,
assuming the following transactions had occurred as of January 1, 1993: (i) the
Insta-Care and Synetic acquisitions and (ii) the merger with PMSI, assuming
approximately 10,300,000 shares of Common Stock were issued to effect such
merger. These unaudited pro forma consolidated results of operations have been
prepared for comparative purposes only and do not purport to be indicative of
what would have occurred had these transactions been made at January 1, 1993, or
of results which may occur in the future.
27
<PAGE> 29
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
2. ACQUISITIONS AND DISPOSITIONS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1994 1993
--------------------- ---------------------
INSTA-CARE INSTA-CARE
INSTA-CARE SYNETIC & INSTA-CARE SYNETIC &
& SYNETIC PMSI & SYNETIC PMSI
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues................................ $3,157,966 $3,271,222 $3,083,799 $3,193,891
Income before provision for income taxes
and extraordinary charge.............. 113,485 120,067 85,765 90,611
Income before extraordinary charge...... 76,035 80,291 56,677 59,459
Income per share before extraordinary
charge................................ .78 .74 .40 .38
</TABLE>
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 below) and three retirement living
projects (230 units) (two of which were included in the 33 facilities discussed
below). 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 below. 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.
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 below) and one retirement living project
(77 units) (which was included in the 33 facilities discussed below) 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
28
<PAGE> 30
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
2. ACQUISITIONS AND DISPOSITIONS -- (CONTINUED)
restructuring charge discussed below. The operations of these facilities were
immaterial to the Company's financial position and results of operations.
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"). The $57,000,000 pre-tax restructuring charge was
comprised of the following: $28,000,000 related to the anticipated loss on
disposal of 33 nursing facilities; $12,200,000 related to operating losses on
such 33 nursing facilities during the anticipated one-year disposal period;
$6,500,000 write-down to net realizable value of four facilities expected to be
replaced; $3,000,000 write-down of corporate headquarters; and $7,300,000
related to relocation, severance and other costs associated with the
centralization of the Company's accounting, finance and management information
systems functions.
The $34,310,000 balance of accrued restructuring costs remaining at
December 31, 1993, the date at which the 1992 restructuring program was
anticipated to be completed, was as follows: $17,510,000 related to the
anticipated loss on disposal of nursing facilities; $750,000 related to
operating losses on such facilities; $5,750,000 write-down to net realizable
value of facilities to be replaced; $3,000,000 write-down of corporate
headquarters; and $7,300,000 related to relocation, severance and other costs.
The 1992 restructuring program was not completed in the anticipated one-year
period due primarily to the additional time required for potential purchasers to
obtain financing and regulatory approvals, and extra time management needed to
ensure each transaction was carried out in the best interest of the Company.
During 1994, the Company decided not to pursue the sale of two of the
original 33 facilities and recognized a $2,400,000 credit to operations
resulting from such decision. By December 31, 1994, the 1992 restructuring
program was complete.
3. PROPERTY AND EQUIPMENT
Following is a summary of property and equipment and related accumulated
depreciation and amortization, by major classification, at December 31 (in
thousands):
<TABLE>
<CAPTION>
TOTAL OWNED LEASED
---------------------- ---------------------- ------------------
1994 1993 1994 1993 1994 1993
--------- --------- --------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Land, buildings and improvements................ $1,413,359 $1,372,023 $1,355,199 $1,313,606 $58,160 $58,417
Furniture and equipment......................... 341,283 294,956 334,193 287,470 7,090 7,486
Construction in progress........................ 38,139 33,103 38,139 33,103 -- --
---------- ---------- ---------- ---------- ------- -------
1,792,781 1,700,082 1,727,531 1,634,179 65,250 65,903
Less accumulated depreciation and
amortization.................................. 592,158 545,604 550,225 506,380 41,933 39,224
---------- ---------- ---------- ---------- ------- -------
$1,200,623 $1,154,478 $1,177,306 $1,127,799 $23,317 $26,679
========== ========== ========== ========== ======= =======
</TABLE>
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, 1994, 1993 and 1992 was $77,575,000, $72,169,000
and $68,605,000, respectively.
29
<PAGE> 31
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
4. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following at December 31 (dollars in
thousands, except per share amounts):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Notes and mortgages, less imputed interest: 1994 -- $371, 1993 -- $625;
due in installments through the year 2020, at effective interest rates
of 6.33% to 12.00%, a portion of which is secured by property,
equipment and other assets with a net book value of $217,036 at
December 31, 1994..................................................... $129,805 $147,491
Industrial development revenue bonds, less imputed interest:
1994 -- $74,
1993 -- $239; due in installments through the year 2019, at effective
interest rates of 3.28% to 11.08%, a portion of which is secured by
property and other assets with a net book value of $279,933 at
December 31, 1994..................................................... 277,762 278,794
Term Loan under the 1994 Credit Agreement due in quarterly installments
through October 31, 1999.............................................. 225,000 --
Term Loan under the Bank Credit Facility due in quarterly installments
from June 1995 through March 24, 1999................................. 55,000 55,000
Nippon Term Loan under the Nippon Credit Agreement due in quarterly
installments from June 1996 through March 3, 2000..................... 20,000 20,000
Senior secured notes, face amount, less unamortized discount:
1994 -- $71, 1993 -- $106............................................. 17,679 17,644
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 $16,789 at December 31, 1994................................. 19,922 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 $29,574 at December 31, 1994................................. 29,883 30,000
8 3/4% Notes due December 31, 2003, unsecured........................... 24,975 25,000
7 3/4% Note due in quarterly installments through June 1, 2001.......... 24,548 --
Commercial paper, face amount less unamortized discount of $188,
(repaid during 1994).................................................. -- 49,812
Medium Term Notes due June 15, 2000, secured by eligible receivables of
selected nursing facilities of $72,376 at December 31, 1994........... 50,000 --
7 5/8% convertible subordinated debentures due March 15, 2003,
convertible at $20.47 per share of Common Stock....................... 67,924 67,924
Zero coupon notes, face amount, less unamortized discount:
1994 -- $1,316, 1993 -- $1,589; maturing July 16, 2003, anticipated to
be due September 30, 1995, convertible into 13.32 shares of Common
Stock per $1 note..................................................... 1,380 1,428
-------- --------
943,878 713,093
Present value of capital lease obligations, less imputed interest:
1994 -- $1,196, 1993 -- $1,329; at effective interest rates of 7.41%
to 13.00%............................................................. 34,339 36,949
-------- --------
978,217 750,042
Less amounts due within one year........................................ 60,199 43,125
-------- --------
$918,018 $706,917
======== ========
</TABLE>
On November 1, 1994, the Company executed a $375,000,000 Credit Agreement
(the "1994 Credit Agreement") which provides for a $225,000,000 Term Loan (the
"1994 Term Loan") and a $150,000,000 Revolver/Letter of Credit Facility (the
"Revolver/LOC Facility"). The proceeds from the 1994 Term Loan were used to
consummate the pharmacy acquisitions (as discussed above). The Revolver/LOC
Facility replaced the Company's revolving credit facility and letter of credit
facility originally entered into in 1993. Accordingly, the Company incurred a
$2,412,000 extraordinary charge, net of income taxes, in 1994 related to the
acceleration of unamortized deferred financing costs associated with the 1993
revolving credit facility and letter of credit facility, as well as with the
Company's commercial paper program which was replaced with
30
<PAGE> 32
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
4. LONG-TERM OBLIGATIONS -- (CONTINUED)
Medium Term Notes, as discussed below, and certain bond refundings. Currently,
the 1994 Term Loan and any Revolver borrowings bear interest at adjusted LIBOR
plus 1%, the Prime Rate, as defined, or the adjusted CD rate, as defined, plus
1 1/8%, at the Company's option. Such interest rates may be adjusted quarterly
based on certain financial ratio calculations. There were no outstanding
Revolver borrowings at December 31, 1994. The Company pays certain commitment
fees and commissions with respect to the Revolver/LOC Facility and had
approximately $103,000,000 of unused commitments under such facility at December
31, 1994. The 1994 Credit Agreement is secured by a security interest in the
stock of PCA and certain of its subsidiaries and imposes on the Company certain
financial tests and restrictive covenants.
The Company executed a $100,000,000 Bank Credit Facility (the "Bank Credit
Facility") during 1992, which provides for a seven-year term loan (the "Term
Loan"). A portion of the net proceeds from the Preferred Stock offering (as
discussed herein) 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 deferred financing costs associated with such debt, as well as
certain bond refundings. Currently, the Term Loan bears interest at adjusted
LIBOR plus 7/8% or the Prime Rate, as defined, at the Company's option, and
requires interest-only payments through September 1996. Such interest rates may
be adjusted quarterly based on certain financial ratio calculations. The Bank
Credit Facility is secured by a mortgage interest in 25 nursing facilities and
retirement centers with a net book value totaling approximately $54,176,000 at
December 31, 1994, and a security interest in certain personal property and
imposes on the Company certain financial tests and restrictive covenants.
The Nippon Credit Agreement, entered into in March 1993, provides for a
seven-year term loan (the "Nippon Term Loan"). Currently, the Nippon Term Loan
bears interest at adjusted LIBOR plus 7/8% or the Prime Rate, as defined, at
the Company's option, and requires interest-only payments through February 1996.
Such interest rates may be adjusted quarterly based on certain financial ratio
calculations. The Nippon Credit Agreement is secured by a mortgage interest in
eight nursing facilities with a net book value totaling approximately
$12,435,000 at December 31, 1994.
As of December 31, 1994, 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 1/4%, 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 $26,086,000 at December 31, 1994, and a security interest
in certain personal property and impose on the Company certain financial tests
and certain restrictive covenants.
In May 1994, the Company entered into a $25,000,000 promissory note (the
"7 3/4% Note"), the proceeds from which were used to repay higher interest rate
debt. The 7 3/4% Note is secured by a mortgage interest in 11 nursing facilities
and one retirement center with a net book value totaling approximately
$19,854,000 at December 31, 1994, and a security interest in certain personal
property.
In December 1994, the Company replaced its commercial paper program with
$50,000,000 of medium term notes (the "Medium Term Notes"). The Medium Term
Notes bear interest at LIBOR, as defined, plus .35%. Pursuant to the Medium Term
Notes agreement, eligible receivables of selected nursing facilities are sold to
Beverly Funding Corporation ("Beverly Funding"), a wholly-owned subsidiary of
the Company. At December 31, 1994, Beverly Funding had total assets of
approximately $83,000,000 which cannot be used to satisfy claims of the Company
or any of its subsidiaries.
31
<PAGE> 33
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
4. LONG-TERM OBLIGATIONS -- (CONTINUED)
In 1993, the Company registered with the Securities and Exchange Commission
$100,000,000 aggregate principal amount of certain debt securities ("Debt
Securities"), 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. During
1993, the Company issued $20,000,000 of 8 3/4% First Mortgage Bonds, $30,000,000
of 8 5/8% First Mortgage Bonds and $25,000,000 of 8 3/4% Notes under such
registration. As of December 31, 1994, $25,000,000 of aggregate principal amount
of Debt Securities under such registration remained unissued.
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>
1995 1996 1997 1998 1999 THEREAFTER TOTAL
------- -------- -------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Future minimum lease payments................... $ 6,996 $ 6,183 $ 5,567 $ 5,016 $ 4,344 $ 35,104 $ 63,210
Less interest................................... 3,303 2,996 2,684 2,397 2,128 15,363 28,871
------- -------- -------- -------- -------- ---------- --------
Net present value of future minimum lease
payments...................................... 3,693 3,187 2,883 2,619 2,216 19,741 34,339
Notes, mortgages, bonds and debentures.......... 56,506 107,700 116,593 128,693 98,612 435,774 943,878
------- -------- -------- -------- -------- ---------- --------
$60,199 $110,887 $119,476 $131,312 $100,828 $455,515 $978,217
======= ======== ======== ======== ======== ========= ========
</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. Bond
reserve funds are 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 1994, 1993 or 1992.
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, 1994, are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1995............................................................. $ 88,299
1996............................................................. 77,077
1997............................................................. 60,975
1998............................................................. 48,451
1999............................................................. 35,284
Thereafter....................................................... 51,098
--------
$361,184
========
</TABLE>
Total future minimum rental commitments are net of approximately
$20,873,000 of minimum sublease rentals due in the future under noncancelable
subleases. Rent expense on operating leases, net of sublease rent income, for
the years ended December 31 was as follows: 1994 -- $127,187,000;
1993 -- $135,262,000; 1992 -- $140,168,000. Sublease rent income was
approximately $5,410,000, $3,226,000 and $3,289,000 for the years ended December
31, 1994, 1993 and 1992, respectively. Contingent rent, based primarily on
revenues,
32
<PAGE> 34
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
5. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
was approximately $22,000,000, $20,000,000 and $19,000,000 for the years ended
December 31, 1994, 1993 and 1992, respectively.
In 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 among the parties. The future minimum
commitments required under such agreement as of December 31, 1994, are as
follows: 1995 -- $7,941,000; 1996 -- $7,941,000; 1997 -- $7,941,000;
1998 -- $7,941,000; 1999 -- $4,632,000. The Company incurred approximately
$8,906,000, $10,179,000 and $3,960,000 under such agreement during the years
ended December 31, 1994, 1993 and 1992, respectively.
The Company is contingently liable for approximately $68,505,000 of
long-term obligations maturing on various dates through 2019, as well as annual
interest and letter of credit fees of approximately $5,943,000. Such contingent
liabilities principally arose from 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 $47,147,000
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 ("Common Stock") at December 31, 1994 and 1993. 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, 1994 and 1993, 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.
In September 1994, the Board of Directors of the Company adopted a
Stockholder Rights Plan (the "Rights Plan"). The Rights Plan provides for the
distribution of one Common Stock Purchase Right (the "Rights") for each share of
Common Stock outstanding at the close of business on November 2, 1994. Under
certain circumstances, the Rights become exercisable to purchase shares of
Common Stock, or securities of an acquiring entity, at one-half of market value.
The Rights are designed to protect stockholders in the event of an unsolicited
attempt to acquire the Company and to deal with the possibility of unilateral
actions by hostile acquirors. These Rights are redeemable at the option of the
Company at $.01 per Right. The issuance of the Rights has no dilutive effect on
the Company's earnings per share.
33
<PAGE> 35
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
6. STOCKHOLDERS' EQUITY -- (CONTINUED)
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 1994 and 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% 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 1994, the Company's Nonemployee Directors' Stock Option Plan (the
"Nonemployee Directors' Plan") was approved. Such plan became effective June 1,
1994 and will remain in effect until May 31, 2004, subject to earlier
termination by the Board of Directors. There are 200,000 shares of Common Stock
authorized for issuance, subject to certain adjustments, under the Nonemployee
Directors' Plan. The Nonemployee Directors' Plan provides that 2,500
nonqualified stock options be granted to each nonemployee director on June 1 of
each year until the plan is terminated, subject to the availability of shares.
Such nonqualified stock options are granted at a purchase price equal to fair
market value on the date of grant, become exercisable one year after date of
grant and expire ten years after date of grant.
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 shares of Common Stock 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 on the 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, including
phantom units, 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, in setting performance goals and in applying
other restrictions to awards, as needed, under the plan.
34
<PAGE> 36
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
6. STOCKHOLDERS' EQUITY -- (CONTINUED)
The Company has 2,400,000 shares of Common Stock authorized for issuance
under its 1985 Nonqualified Stock Option Plan. Under the plan, options are
granted at a purchase price equal to market price on the 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.
The following table summarizes stock option, restricted stock and other
stock units data relative to the Company's 1985 Nonqualified Stock Option Plan,
the 1993 Incentive Stock Plan and the Nonemployee Directors' Plan for the years
ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------- --------------------------- ---------------------------
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............................... 3,989,411 $ 4.38 to $18.63 3,483,334 $4.38 to $18.63 4,310,924 $4.25 to $18.63
Changes during the year:
Granted.......................... 635,000 $12.13 to $15.25 952,000 $9.63 to $13.25 181,000 $7.88 to $11.50
Exercised........................ (374,918) $ 4.38 to $15.00 (329,459) $4.38 to $12.00 (726,606) $4.25 to $ 8.75
Cancelled........................ (143,221) $ 4.38 to $18.63 (116,464) $4.38 to $18.63 (281,984) $4.38 to $18.63
--------- --------- ---------
Options outstanding at end of year... 4,106,272(1) $ 4.38 to $18.63 3,989,411 $4.38 to $18.63 3,483,334 $4.38 to $18.63
========= ========= =========
Options available for grant.......... 1,735,318 2,162,800 146,000
========= ========= =========
Restricted stock outstanding at
beginning of year.................. 431,800 513,000 699,000
Changes during the year:
Granted.......................... 14,553 96,000 72,000
Vested........................... (167,000) (162,800) (171,000)
Forfeited........................ (12,000) (14,400) (87,000)
--------- --------- ---------
Restricted stock outstanding at end
of year............................ 267,353 431,800 513,000
========= ========= =========
Phantom units outstanding at
beginning of year.................. --
Changes during the year:
Granted.......................... 44,529
---------
Phantom units outstanding at end of
year............................... 44,529
=========
</TABLE>
---------------
(1) Includes 2,269,356 options exercisable at December 31, 1994.
During 1994, in conjunction with the merger of ATH, the Company assumed
ATH's 1993 Nonqualified Stock Option Plan (the "ATH Plan") and issued options to
purchase shares of the Company's Common Stock in exchange for each option then
outstanding under the ATH Plan. During 1994, 451 of such options were exercised
at a price of $.83 per share. At December 31, 1994, there were 114,452 options
outstanding under such plan at a price of $.83 per share, of which 32,608 were
exercisable. In addition, the Company signed an option agreement with an officer
of ATH and issued options to purchase shares of the Company's Common Stock in
exchange for each option to purchase shares of ATH stock previously held by such
officer. At December 31, 1994, there were 38,548 options outstanding under such
agreement at a price of $.83 per share, all of which were exercisable. In
September 1994, the Company filed a Registration Statement with the
35
<PAGE> 37
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
6. STOCKHOLDERS' EQUITY -- (CONTINUED)
Securities and Exchange Commission to register the shares issued subject to
these plans. Also during 1994, in conjunction with the acquisition of
Insta-Care, the Company issued options to purchase shares of its Common Stock in
exchange for each option then outstanding under the Insta-Care Holdings, Inc.
First Employees Stock Option Plan (the "Insta-Care Plan"). At December 31, 1994,
there were 116,169 options outstanding under the Insta-Care Plan at prices
ranging from $1.54 to $2.12 per share, none of which were exercisable. No
options are available for grant under the ATH Plan or the Insta-Care Plan.
As of December 31, 1993, the Company had 1,000,000 shares of Common Stock
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. In April
1994, the Company filed a Registration Statement on Form S-3 with the Securities
and Exchange Commission to register such 1,000,000 shares. Such registration did
not result in any additional proceeds to the Company.
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 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 charges to the Company's consolidated statements of
operations for the years ended December 31, 1994, 1993 and 1992 related to this
plan were approximately $1,790,000, $1,493,000 and $1,102,000, 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."
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
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>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Federal:
Current............................................. $31,523 $19,115 $20,945
Deferred............................................ (2,824) 3,373 (17,245)
State:
Current............................................. 8,390 4,327 3,386
Deferred............................................ 793 2,869 (2,883)
------- ------- -------
$37,882 $29,684 $ 4,203
======= ======= =======
</TABLE>
The Company's annual effective tax rates for the years ended December 31,
1994, 1993 and 1992 were 33%, 34% and 68%, respectively. The Company's annual
effective tax rates for 1994 and 1993 were lower than the federal statutory rate
primarily due to the utilization of certain tax credit carryforwards, partially
offset by the impact of state income taxes. 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.
36
<PAGE> 38
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
7. INCOME TAXES -- (CONTINUED)
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>
1994 1993 1992
---------------- --------------- ---------------
AMOUNT % AMOUNT % AMOUNT %
-------- --- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory rate..................... $ 40,178 35 $30,674 35 $ 2,090 34
Targeted jobs tax credits................. (16,199) (14) (4,949) (5) -- --
State tax provision, net.................. 6,130 5 4,346 5 332 4
Amortization of intangibles............... 940 1 964 1 952 11
Effect of ATH merger...................... -- -- 810 1 761 18
Other..................................... 6,833 6 (2,161) (3) 68 1
-------- --- ------- --- ------- ---
$ 37,882 33 $29,684 34 $ 4,203 68
======== === ======= == ======= ==
</TABLE>
In accordance with Statement No. 109, deferred income taxes for 1994, 1993
and 1992 reflect the impact of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes 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,
1994 and 1993 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
--------------------- ---------------------
ASSET LIABILITY ASSET LIABILITY
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Insurance reserves............................ $ 50,061 $ -- $ 47,728 $ --
Targeted jobs tax credit carryforwards........ 21,658 -- 29,118 --
Alternative minimum tax credit
carryforwards............................... 16,758 -- 17,602 --
Provision for dispositions.................... 31,775 5,766 30,188 5,679
Depreciation and amortization................. 6 147,451 7 135,095
Operating supplies............................ -- 12,815 -- 14,386
Other......................................... 24,565 24,612 28,523 28,624
-------- -------- -------- --------
144,823 190,644 153,166 183,784
Valuation allowance........................... (198) -- (15,097) --
-------- -------- -------- --------
$144,625 $190,644 $138,069 $183,784
======== ======== ======== ========
</TABLE>
At December 31, 1994, the Company had targeted jobs tax credit
carryforwards of $21,658,000 for income tax purposes which expire in years 2004
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 $198,000 and $15,097,000 for the years ended December 31,
1994 and 1993, respectively, has been recognized to offset the deferred tax
assets related to those carryforwards. The valuation allowance decreased
$14,899,000 from January 1, 1994 due to the utilization of targeted jobs tax
credits.
8. RELATED PARTY TRANSACTIONS
On January 3, 1994, the Company redeemed the Series A preferred stock and
paid the holder of such stock approximately $18,000 of interest for the two days
it remained outstanding in 1994. 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. An affiliate of the Company's
former Series A preferred
37
<PAGE> 39
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
8. RELATED PARTY TRANSACTIONS -- (CONTINUED)
stockholder provides investment services relating to certain of the Company's
acquisitions and dispositions 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 $745,000 and $2,180,000 for the
years ended December 31, 1994 and 1993, respectively. The Company did not
require such services in 1992.
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.
Beverly Indemnity Funds
The fair value of the Beverly Indemnity funds is based on information
obtained from the trustee and the manager of such funds. Such funds are included
in the consolidated balance sheet captions "Prepaid expenses and other" and
"Designated and restricted funds" based on when the corresponding claims are
expected to be paid. These funds are invested primarily in United States
government securities with maturity dates ranging primarily from one to five
years. The Company intends to hold such securities to maturity.
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. The Company intends to hold such investment to
maturity.
Invested Funds Designated for the Redemption of Series A preferred stock
The carrying amount reported in the consolidated balance sheet at December
31, 1993 for these invested funds approximates their fair value.
38
<PAGE> 40
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
9. FAIR VALUES OF FINANCIAL INSTRUMENTS -- (CONTINUED)
Long-term Obligations (Including Current Portion)
The carrying amounts of the Company's 1994 Term Loan, Term Loan under the
Bank Credit Facility, Nippon Term Loan, Commercial Paper, Medium Term Notes 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, 1994 and 1993 are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents........................ $ 67,964 $ 67,964 $ 77,058 $ 77,058
Notes receivable, net (including current
portion)....................................... 46,705 47,000 46,306 49,000
Beverly Indemnity funds.......................... 50,092 48,480 50,365 51,840
REMIC investment................................. 25,780 24,000 24,918 22,000
Invested funds designated for the redemption of
Series A preferred stock....................... -- -- 100,000 100,000
Long-term obligations (including current
portion)....................................... 978,217 941,000 750,042 788,000
</TABLE>
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. It was not practicable to estimate
the fair value of the Company's off-balance sheet guarantees (see Note 5) since
the Company does not charge a fee for entering into such agreements and
contracting with a financial institution to estimate such amounts could not be
done without incurring excessive costs. In addition, unlike the Company, a
financial institution would not be in a position to assume the underlying
obligations and operate the nursing facilities collateralizing the obligations,
which would significantly impact the calculation of the fair value of such
off-balance sheet guarantees.
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, 1994 DECEMBER 31, 1993 DECEMBER 31, 1992
----------------- ----------------- -----------------
<S> <C> <C> <C>
Total revenues...................... $2,985,107 $2,899,616 $2,623,301
Total costs and expenses............ 2,870,529 2,812,274 2,617,537
Income before extraordinary charge
and cumulative effect of change in
accounting for income taxes....... 76,767 57,756 1,754
Net income (loss)................... 74,777 55,411 (12,535)
</TABLE>
39
<PAGE> 41
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
10. ADDITIONAL INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- -----------------
<S> <C> <C>
Current assets.............................. $ 577,307 $ 473,939
Long-term assets............................ 1,695,216 1,485,176
Current liabilities......................... 402,463 395,192
Long-term liabilities....................... 1,071,276 839,058
</TABLE>
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.
Effective January 1, 1995, Beverly California changed its name to Beverly
Health and Rehabilitation Services, Inc. ("BHRS") and spun-off certain of its
wholly-owned subsidiaries to Beverly Delaware in an effort to better focus
management's attention on specific services delivered by the Company within the
long-term health care arena. Such subsidiaries include, among others, PCA, ATH,
Beverly Indemnity, Ltd., and Beverly REMIC Depositor, Inc., all of which are
Subsidiary Guarantors.
40
<PAGE> 42
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, 1994 and 1993.
<TABLE>
<CAPTION>
1994 1993
----------------------------------------------------- -----------------------------------------------------
1ST 2ND 3RD 4TH TOTAL 1ST 2ND 3RD 4TH TOTAL
-------- -------- -------- -------- --------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues.... $720,425 $728,144 $766,667 $768,581 $2,983,817 $698,008 $721,770 $739,549 $740,393 $2,899,720
======== ======== ======== ======== ========= ======== ======== ======== ======== =========
Income before
provision for
income taxes and
extraordinary
charge.......... $ 22,559 $ 28,406 $ 35,069 $ 28,761 $ 114,795 $ 15,059 $ 21,281 $ 26,886 $ 24,414 $ 87,640
Provision for
income taxes.... 7,444 9,374 11,573 9,491 37,882 5,101 7,160 9,164 8,259 29,684
-------- -------- -------- -------- --------- -------- -------- -------- -------- ---------
Income before
extraordinary
charge.......... 15,115 19,032 23,496 19,270 76,913 9,958 14,121 17,722 16,155 57,956
Extraordinary
charge.......... -- -- -- (2,412) (2,412) -- -- (2,345) -- (2,345)
-------- -------- -------- -------- --------- -------- -------- -------- -------- ---------
Net income........ $ 15,115 $ 19,032 $ 23,496 $ 16,858 $ 74,501 $ 9,958 $ 14,121 $ 15,377 $ 16,155 $ 55,611
======== ======== ======== ======== ========= ======== ======== ======== ======== =========
Net income
applicable to
common shares... $ 13,052 $ 16,970 $ 23,496 $ 14,796 $ 66,251 $ 9,958 $ 14,121 $ (6,248) $ 14,092 $ 31,173
======== ======== ======== ======== ========= ======== ======== ======== ======== =========
Income (loss) per
share of common
stock:
Before
redemption
premium on
Series A
preferred
stock and
extraordinary
charge........ $ .15 $ .19 $ .24 $ .20 $ .79 $ .12 $ .16 $ .20 $ .16 $ .66
Redemption
premium on
Series A
preferred
stock......... -- -- -- -- -- -- -- (.25) -- (.25)
-------- -------- -------- -------- --------- -------- -------- -------- -------- ---------
Before
extraordinary
charge........ .15 .19 .24 .20 .79 .12 .16 (.05) .16 .41
Extraordinary
charge........ -- -- -- (.03) (.03) -- -- (.03) -- (.03)
-------- -------- -------- -------- --------- -------- -------- -------- -------- ---------
Net income
(loss)........ $ .15 $ .19 $ .24 $ .17 $ .76 $ .12 $ .16 $ (.08) $ .16 $ .38
======== ======== ======== ======== ========= ======== ======== ======== ======== =========
Common stock price
range:
High............ $ 16.13 $ 14.25 $ 15.63 $ 15.88 $ 14.75 $ 12.88 $ 13.38 $ 13.75
Low............. $ 12.38 $ 12.13 $ 11.75 $ 13.75 $ 9.50 $ 10.38 $ 9.25 $ 10.00
</TABLE>
During the third quarter of 1994, the Company issued 2,400,000 shares of
its Common Stock for all of the outstanding stock of ATH. Such transaction was
accounted for as a pooling of interests and, accordingly the Company's
consolidated financial statements have been restated to reflect ATH's financial
position, results of operations and cash flows for each period prior to the
merger.
The annual effective tax rates for 1994 and 1993 were 33% and 34%, as
restated, respectively. The Company's annual effective tax rates in 1994 and
1993 were lower than the federal statutory rate primarily due to the utilization
of certain tax credit carryforwards, partially offset by the impact of state
income taxes.
Where fully diluted earnings per share would be anti-dilutive, primary
earnings per share was used.
41
<PAGE> 43
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 on May 18, 1995, 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 on May 18, 1995, 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 on May 18, 1995, 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 on May 18, 1995, 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 Schedule
The consolidated financial statements and consolidated financial statement
schedule 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 incorporated
by reference herein or are filed as part of this annual report.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K, dated November 2, 1994,
which reported under Item 5 that on September 29, 1994, the Board of Directors
of the Company declared a dividend of one common stock purchase right for each
share of Common Stock outstanding at the close of business on November 2, 1994,
and described the Company's Stockholder Rights Plan.
The Company filed a Current Report on Form 8-K, dated December 14, 1994,
which reported under Item 5 the acquisitions of Insta-Care and Synetic and the
execution of the 1994 Credit Agreement and filed under Item 7 the stock purchase
agreements related to such acquisitions. On February 10, 1995, the Company filed
an amendment on Form 8-K/A, which reported under Item 5 the proposed merger with
PMSI and filed under Item 7 the unaudited pro forma combined financial
statements giving effect to the proposed merger and the acquisitions of
Insta-Care and Synetic.
(c) Exhibits
See the accompanying index to exhibits referenced in Item 14(a)(3) above
for a list of exhibits incorporated herein by reference or filed as part of this
annual report.
(d) Financial Statement Schedule
See the accompanying index to consolidated financial statements and
financial statement schedules referenced in Item 14(a)1 and 2, above.
42
<PAGE> 44
BEVERLY ENTERPRISES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
(ITEM 14(A))
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Consolidated financial statements:
Report of Ernst & Young LLP, Independent Auditors................................... 20
Consolidated Balance Sheets at December 31, 1994 and 1993........................... 21
Consolidated Statements of Operations for each of the three years in the period
ended December 31, 1994............................................................. 22
Consolidated Statements of Stockholders' Equity for each of the three years in the
period ended December 31, 1994...................................................... 23
Consolidated Statements of Cash Flows for each of the three years in the period
ended December 31, 1994............................................................. 24
Notes to Consolidated Financial Statements.......................................... 25
Supplementary Data (Unaudited) -- Quarterly Financial Data.......................... 41
2. Consolidated financial statement schedule for each of the three years in the
period ended December 31, 1994:
II -- Valuation and Qualifying Accounts............................................ 44
</TABLE>
All other statements and schedules are omitted because they are either not
applicable or the items do not exceed the various disclosure levels.
43
<PAGE> 45
BEVERLY ENTERPRISES, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN THOUSANDS)
(ITEM 14(D))
<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, 1994:
Allowance for doubtful
accounts:
Accounts
receivable -- patient... $ 19,999 $ 18,124 $ -- $ (20,109) $ 10,339 $ (60) $28,293
Accounts
receivable -- nonpatient... 343 233 -- (334) -- 2,560 2,802 *
Notes receivable.......... 10,440 (4,250) -- (58) -- 297 6,429
---------- ---------- ------------- --------- ------------ -------- -------
$ 30,782 $ 14,107 $ -- $ (20,501) $ 10,339 $ 2,797 $37,524
========= ========= =========== ========= ========== ======== =======
Accrued restructuring
costs..................... $ 34,310 $ (2,400) $ -- $ -- $(15,684) $(16,226)(1) $ --
========= ========= =========== ========= ========== ======== =======
Valuation allowance on
deferred tax assets....... $ 15,097 $(14,899) $ -- $ -- $ -- $ -- $ 198
========= ========= =========== ========= ========== ======== =======
Year ended December 31, 1993:
Allowance for doubtful
accounts:
Accounts
receivable -- patient... $ 18,074 $ 21,686 $ -- $ (21,820) $ 2,125 $ (66) $19,999
Accounts
receivable -- nonpatient... 5,030 305 -- (701) -- (4,291) 343
Notes receivable.......... 7,364 (628) -- (653) -- 4,357 10,440
---------- ---------- ------------- --------- ------------ -------- -------
$ 30,468 $ 21,363 $ -- $ (23,174) $ 2,125 $ -- $30,782
========= ========= =========== ========= ========== ======== =======
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... $ 20,699 $ 12,291 $ -- $ (16,211) $ 1,295 $ -- $18,074
Accounts
receivable -- nonpatient... 6,565 (1,065) -- (470) -- -- 5,030 *
Notes receivable.......... 10,788 (6,780) -- (584) 2,500 1,440 7,364
---------- ---------- ------------- --------- ------------ -------- -------
$ 38,052 $ 4,446 $ -- $ (17,265) $ 3,795 $ 1,440 $30,468
========= ========= =========== ========= ========== ======== =======
Accrued restructuring
costs..................... $ -- $ -- $57,000 $ (4,234) $ (4,713) $ -- $48,053
========= ========= =========== ========= ========== ======== =======
Valuation allowance on
deferred tax assets....... $ 15,148 $ 2,463 $ -- $ -- $ -- $ -- $17,611
========= ========= =========== ========= ========== ======== =======
</TABLE>
---------------
* Includes amounts classified in long-term other assets as well as current
assets.
(1) Primarily relates to costs of relocating certain administrative, operational
and management information system support functions.
44
<PAGE> 46
BEVERLY ENTERPRISES, INC.
INDEX TO EXHIBITS
(ITEM 14(A)(3))
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------------------------------------------------------------------------------------
<C> <S>
3.1 Restated Certificate of Incorporation of Beverly Enterprises, Inc.
(incorporated by reference to Exhibit 4.1 to Beverly Enterprises, Inc.'s
Current Report on Form 8-K dated July 31, 1987)
3.2 By-Laws of Beverly Enterprises, Inc. (incorporated by reference to Exhibit
3 to Beverly Enterprises, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992)
4.1 Indenture dated as of December 27, 1990 (the "Senior Secured Note
Indenture"), among Beverly California, Beverly Enterprises, Inc. 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, Inc. 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, Inc.'s 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, Inc.'s 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, Inc.'s 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, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993)
4.6 Supplemental Indenture No. 5, dated as of November 1, 1994, to the Senior
Secured Note Indenture (incorporated by reference to Exhibit 4.6 to
Beverly Enterprises, Inc.'s Registration Statement on Form S-4 filed on
February 13, 1995 (File No. 33-57663))
4.7 Supplemental Indenture No. 6, dated as of December 30, 1994, to the Senior
Secured Note Indenture (incorporated by reference to Exhibit 4.7 to
Beverly Enterprises, Inc.'s Registration Statement on Form S-4 filed on
February 13, 1995 (File No. 33-57663))
4.8 Subsidiary Guaranty dated as of December 27, 1990 by Beverly Enterprises,
Inc., Beverly California Corporation and the Subsidiary Guarantors listed
therein (incorporated by reference to Exhibit 4.3 to the Registration
Statement on Form S-4 of Beverly California Corporation, Beverly
Enterprises, Inc. and the Registrants set forth on the Table of Additional
Co-Registrants filed on February 8, 1991 (File No. 33-38954))
4.9 Subsidiary Guaranty dated as of April 1, 1991 by Beverly Enterprises,
Inc., Beverly California Corporation and the Subsidiary Guarantors listed
therein (incorporated by reference to Exhibit 4.5 to Beverly Enterprises,
Inc.'s Annual Report on Form 10-K for the year ended December 31, 1991)
4.10 Subsidiary Guaranty dated as of October 31, 1991 by Beverly Enterprises,
Inc., Beverly California Corporation and the Subsidiary Guarantors listed
therein (incorporated by reference to Exhibit 4.6 to Beverly Enterprises,
Inc.'s Annual Report on Form 10-K for the year ended December 31, 1991)
</TABLE>
45
<PAGE> 47
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------------------------------------------------------------------------------------
<C> <S>
4.11 Subsidiary Guaranty dated as of December 30, 1991 by Beverly Enterprises,
Inc., Beverly California Corporation and Beverly Indemnity, Inc. as
Subsidiary Guarantor (incorporated by reference to Exhibit 4.7 to Beverly
Enterprises, Inc.'s Annual Report on Form 10-K for the year ended December
31, 1991)
4.12 Indenture dated as of August 1, 1993 between Beverly Enterprises, Inc. and
Chemical Bank, as Trustee, with respect to Beverly Enterprises, Inc.'s
5 1/2% Convertible Subordinated Debentures due August 1, 2018, issuable
upon exchange of Beverly Enterprises, Inc.'s $2.75 Cumulative Convertible
Exchangeable Preferred Stock (the "Subordinated Debenture Indenture")
(incorporated by reference to Exhibit 4.10 to Beverly Enterprises, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended June 30, 1993)
4.13 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, Inc. (the "$2.75 Certificate of
Designation") (incorporated by reference to Exhibit 4.12 to Beverly
Enterprises, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993)
4.14 Indenture dated as of April 1, 1993 (the "First Mortgage Bond Indenture"),
among Beverly Enterprises, Inc. 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, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
March 31, 1993)
4.15 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, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
March 31, 1993)
4.16 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, Inc.'s
Current Report on Form 8-K dated July 15, 1993)(incorporated by reference
to Exhibit 4.15 to Beverly Enterprises, Inc.'s Quarterly Report on Form
10-Q for the quarter ended June 30, 1993)
4.17 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, Inc.'s Registration Statement on Form S-3 filed on November
9, 1993 (File No. 33-50965))
4.18 First Supplemental Indenture dated as of December 30, 1993 to the Notes
Indenture, with respect to 8 3/4% Notes due 2003 (incorporated by
reference to Exhibit 4.4 to Beverly Enterprises, Inc.'s Current Report on
Form 8-K dated January 4, 1994)
4.19 Rights Agreement dated as of September 29, 1994, between Beverly
Enterprises, Inc. and The Bank of New York, as Rights Agent (incorporated
by reference to Exhibit 1 to Beverly Enterprises' Registration Statement
on Form 8-A filed on October 18, 1994)
In accordance with item 601(b)(4)(iii) of Regulation S-K, certain
instruments pertaining to Beverly Enterprises, Inc.'s 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 Incentive Stock Option Plan
(incorporated by reference to Post-Effective Amendment No. 2 on Form S-8
to Beverly Enterprises, Inc.'s Registration Statement on Form S-4 filed on
July 31, 1987 (File No. 33-13243))
</TABLE>
46
<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------------------------------------------------------------------------------------
<C> <S>
10.2* 1985 Beverly Nonqualified Stock Option Plan (incorporated by reference to
Post-Effective Amendment No. 2 on Form S-8 to Beverly Enterprises, Inc.'s
Registration Statement on Form S-4 filed on July 31, 1987 (File No.
33-13243))
10.3* Amended and Restated Beverly Enterprises, Inc. 1993 Long-Term Incentive
Stock Plan (the "1993 Plan") (as amended by Amendment No. 1) (incorporated
by reference to Exhibit 10.4 to Beverly Enterprises, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended June 30, 1994)
10.4* Beverly Enterprises, Inc. Annual Incentive Plan (incorporated by reference
to Exhibit 10.4 to Beverly Enterprises, Inc.'s Registration Statement on
Form S-4 filed on February 13, 1995 (File No. 33-57663))
10.5* Form of Other Stock Unit Agreement under the 1993 Plan (incorporated by
reference to Exhibit 10.5 to Beverly Enterprises, Inc.'s Registration
Statement on Form S-4 filed on February 13, 1995 (File No. 33-57663))
10.6* Retirement Plan for Outside Directors (incorporated by reference to
Exhibit 10.5 to Beverly Enterprises, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993)
10.7* Beverly Enterprises, Inc. Non-Employee Directors' Stock Option Plan
(incorporated by reference to Exhibit 4.1 to Beverly Enterprises, Inc.'s
Registration Statement on Form S-8 filed on September 21, 1994 (File No.
33-55571))
10.8* Executive Medical Reimbursement Plan (incorporated by reference to Exhibit
10.5 to Beverly Enterprises, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1987)
10.9* Amended and Restated Beverly Enterprises, Inc. Executive Life Insurance
Plan and Summary Plan Description (the "Executive Life Plan")
(incorporated by reference to Exhibit 10.7 to Beverly Enterprises, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1993)
10.10* Amendment No. 1, effective September 29, 1994, to the Executive Life Plan
(incorporated by reference to Exhibit 10.10 to Beverly Enterprises, Inc.'s
Registration Statement on Form S-4 filed on February 13, 1995 (File No.
33-57663))
10.11* Executive Physicals Policy (incorporated by reference to Exhibit 10.8 to
Beverly Enterprises, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993)
10.12* Amended and Restated Deferred Compensation Plan effective July 18, 1991
(incorporated by reference to Exhibit 10.6 to Beverly Enterprises, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1991)
10.13* Amendment No. 1, effective September 29, 1994, to the Deferred
Compensation Plan (incorporated by reference to Exhibit 10.13 to Beverly
Enterprises, Inc.'s Registration Statement on Form S-4 filed on February
13, 1995 (File No. 33-57663))
10.14* Executive Retirement Plan (incorporated by reference to Exhibit 10.9 to
Beverly Enterprises, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1987)
10.15* Amendment No. 1, effective as of July 1, 1991, to the Executive Retirement
Plan (incorporated by reference to Exhibit 10.8 to Beverly Enterprises,
Inc.'s Annual Report on Form 10-K for the year ended December 31, 1991)
10.16* Amendment No. 2, effective as of December 12, 1991, to the Executive
Retirement Plan (incorporated by reference to Exhibit 10.9 to Beverly
Enterprises, Inc.'s Annual Report on Form 10-K for the year ended December
31, 1991)
</TABLE>
47
<PAGE> 49
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------------------------------------------------------------------------------------
<C> <S>
10.17* Amendment No. 3, effective as of July 31, 1992, to the Executive
Retirement Plan (incorporated by reference to Exhibit 10.10 to Beverly
Enterprises, Inc.'s Annual Report on Form 10-K for the year ended December
31, 1992)
10.18* Amendment No. 4, effective as of January 1, 1993, to the Executive
Retirement Plan
10.19* Amendment No. 5, effective as of September 29, 1994, to the Executive
Retirement Plan
10.20* Form of Indemnification Agreement between Beverly Enterprises, Inc. and
its officers, directors and certain of its employees (incorporated by
reference to Exhibit 19.14 to Beverly Enterprises, Inc.'s Quarterly Report
on Form 10-Q for the quarter ended June 30, 1987)
10.21* Form of request by Beverly Enterprises, Inc. to certain of its officers or
directors relating to indemnification rights (incorporated by reference to
Exhibit 19.5 to Beverly Enterprises, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended September 30, 1987)
10.22* Form of request by Beverly Enterprises, Inc. to certain of its officers or
employees relating to indemnification rights (incorporated by reference to
Exhibit 19.6 to Beverly Enterprises, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended September 30, 1987)
10.23* Agreement dated December 29, 1986 between Beverly Enterprises, Inc. and
Stephens Inc. (incorporated by reference to Exhibit 10.20 to Beverly
Enterprises, Inc.'s Registration Statement on Form S-1 filed on January
18, 1990 (File No. 33-33052))
10.24* 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, Inc. Registration Statement on Form S-1 filed on
February 26, 1990 (File No. 33-33052))
10.25* 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, Inc.'s Registration Statement on
Form S-1 filed on July 30, 1990 (File No. 33-36109))
10.26* Form of Agreement Concerning Benefits Upon Severance dated as of September
1, 1990 between Beverly Enterprises, Inc. and certain officers of Beverly
Enterprises, Inc. (incorporated by reference to Exhibit 10.23 to Beverly
Enterprises, Inc.'s Registration Statement on Form S-1 filed on July 30,
1990 (File No. 33-36109))
10.27* First Amendment to Agreement Concerning Benefits Upon Severence dated as
of April 25, 1993 between Beverly Enterprises, Inc. and Ronald C. Kayne
(incorporated by reference to Exhibit 10.22 to Beverly Enterprises, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1993)
10.28* Form of Employment Agreement, made as of September 29, 1994, between
Beverly Enterprises, Inc. and David R. Banks
10.29* Form of Change In Control Severance Agreement, made as of September 29,
1994, between Beverly Enterprises, Inc. and its Executive Vice Presidents
(incorporated by reference to Exhibit 10.29 to Beverly Enterprises, Inc.'s
Registration Statement on Form S-4 filed on February 13, 1995 (File No.
33-57663))
10.30* Form of Change In Control Severence Agreement, made as of September 29,
1994, between Beverly Enterprises, Inc. and certain of its officers
(incorporated by reference to Exhibit 10.30 to Beverly Enterprises, Inc.'s
Registration Statement on Form S-4 filed on February 13, 1995 (File No.
33-57663))
</TABLE>
48
<PAGE> 50
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------------------------------------------------------------------------------------
<C> <S>
10.31* Beverly Enterprises Company Car Policy effective May 1, 1988 (incorporated
by reference to Exhibit 10.18 to Beverly Enterprises, Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1992)
10.32* American Transitional Hospitals, Inc. 1993 Nonqualified Stock Option Plan
assumed by Beverly Enterprises, Inc. (incorporated by reference to Exhibit
10.39 to Beverly Enterprises, Inc.'s Registration Statement on Form S-4
(Amendment No. 1) filed on August 5, 1994 (File No. 33-54501))
10.33* Stock Option Agreement between Beverly Enterprises, Inc. and Robert C.
Crosby dated September 2, 1994 (incorporated by reference to Exhibit 4.4
to Beverly Enterprises, Inc.'s Registration Statement on Form S-8 filed on
September 21, 1994 (File No. 33-55571))
10.34 Master Lease Document -- General Terms and Conditions dated December 30,
1985 for Leases between Beverly California Corporation and various
subsidiaries thereof as lessees and Beverly Investment Properties, Inc. as
lessor (incorporated by reference to Exhibit 10.12 to Beverly California
Corporation's Annual Report on Form 10-K for the year ended December 31,
1985)
10.35 Agreement dated as of December 29, 1986 among Beverly California
Corporation, Beverly Enterprises -- Texas, Inc., Stephens Inc. and Real
Properties, Inc. (incorporated by reference to Exhibit 28 to Beverly
California Corporation's Current Report on Form 8-K dated December 30,
1986) and letter agreement dated as of July 31, 1987 among Beverly
Enterprises, Inc., Beverly California Corporation, Beverly
Enterprises -- Texas, Inc. and Stephens Inc. with reference thereto
(incorporated by reference to Exhibit 19.13 to Beverly Enterprises, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended June 30, 1987)
10.36 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, Inc.'s Quarterly Report
on Form 10-Q for the quarter ended March 31, 1992)
10.37 Amendment No. 1 dated as of April 7, 1992 to the LTCB Credit Agreement
(incorporated by reference to Exhibit 10.3 to Beverly Enterprises, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended March 31, 1992)
10.38 Second Amendment dated as of May 11, 1992 to the LTCB Credit Agreement
(incorporated by reference to Exhibit 10.23 to Beverly Enterprises, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1992)
10.39 Third Amendment dated as of March 1, 1993 to the LTCB Credit Agreement
(incorporated by reference to Exhibit 10.24 to Beverly Enterprises, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1992)
10.40 Seventh Amendment dated as of May 2, 1994 to the LTCB Credit Agreement
(incorporated by reference to Exhibit 10.31 to Beverly Enterprises, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended June 30, 1994)
10.41 Eighth Amendment dated as of November 1, 1994, to the LTCB Credit
Agreement (incorporated by reference to Exhibit 10.41 to Beverly
Enterprises, Inc.'s Registration Statement on Form S-4 filed on February
13, 1995 (File No. 33-57663))
10.42 Ninth Amendment dated as of November 9, 1994 to the LTCB Credit Agreement
(incorporated by reference to Exhibit 10.42 to Beverly Enterprises, Inc.'s
Registration Statement on Form S-4 filed on February 13, 1995 (File No.
33-57663))
</TABLE>
49
<PAGE> 51
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------------------------------------------------------------------------------------
<C> <S>
10.43 Tenth Amendment dated as of December 6, 1994 to the LTCB Credit Agreement
(incorporated by reference to Exhibit 10.43 to Beverly Enterprises, Inc.'s
Registration Statement on Form S-4 filed on February 13, 1995 (File No.
33-57663))
10.44 First Amendment and Restatement dated as of December 1, 1994 to Master
Sale and Servicing Agreement dated as of December 1, 1990 among Beverly
Funding Corporation, Beverly California Corporation, the wholly-owned
subsidiaries of Beverly Enterprises, Inc. listed therein, Beverly
Enterprises, Inc. and certain wholly-owned subsidiaries of Beverly
Enterprises, Inc. which may become parties thereto (incorporated by
reference to Exhibit 10.44 to Beverly Enterprises, Inc.'s Registration
Statement on Form S-4 filed on February 13, 1995 (File No. 33-57663))
10.45 Trust Indenture dated as of December 1, 1994 from Beverly Funding
Corporation, as Issuer, to Chemical Bank, as Trustee (the "Chemical
Indenture") (incorporated by reference to Exhibit 10.45 to Beverly
Enterprises, Inc.'s Registration Statement on Form S-4 filed on February
13, 1995 (File No. 33-57663))
10.46 Series Supplement dated as of December 1, 1994 to the Chemical Indenture
(incorporated by reference to Exhibit 10.46 to Beverly Enterprises, Inc.'s
Registration Statement on Form S-4 filed on February 13, 1995 (File No.
33-57663))
10.47 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, Inc.'s Annual Report on Form 10-K for the year ended December
31, 1992)
10.48 Second Amendment dated as of May 19, 1994 to the Nippon Credit Agreement
(incorporated by reference to Exhibit 10.37 to Beverly Enterprises, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended June 30, 1994)
10.49 Third Amendment dated as of November 1, 1994 to the Nippon Credit
Agreement (incorporated by reference to Exhibit 10.49 to Beverly
Enterprises, Inc.'s Registration Statement on Form S-4 filed on February
13, 1995 (File No. 33-57663))
10.50 Fourth Amendment dated as of November 9, 1994 to the Nippon Credit
Agreement (incorporated by reference to Exhibit 10.50 to Beverly
Enterprises, Inc.'s Registration Statement on Form S-4 filed on February
13, 1995 (File No. 33-57663))
10.51 Credit Agreement dated as of November 1, 1994 among Beverly California
Corporation, Beverly Enterprises, Inc., the Banks listed therein, and
Morgan Guaranty Trust Company of New York, as Issuing Bank and as Agent
(the "Morgan Credit Agreement") (incorporated by reference to Exhibit
10.51 to Beverly Enterprises, Inc.'s Registration Statement on Form S-4
filed on February 13, 1995 (File No. 33-57663))
10.52 First Amendment dated as of December 30, 1994 to the Morgan Credit
Agreement (incorporated by reference to Exhibit 10.52 to Beverly
Enterprises, Inc.'s Registration Statement on Form S-4 filed on February
13, 1995 (File No. 33-57663))
10.53 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, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
June 30, 1992)
10.54 Form of Employment Agreement to be executed by Robert C. Crosby and ATH at
the time ATH became a wholly-owned subsidiary of Beverly Enterprises, Inc.
(incorporated by reference to Exhibit 10.38 to Beverly Enterprises, Inc.'s
Registration Statement on Form S-4 filed on July 8, 1994 (File No.
33-54501))
</TABLE>
50
<PAGE> 52
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------------------------------------------------------------------------------------
<C> <S>
10.55 Form of Irrevocable Trust Agreement for the Beverly Enterprises, Inc.
Executive Benefits Plan (incorporated by reference to Exhibit 10.55 to
Beverly Enterprises, Inc.'s Registration Statement on Form S-4 filed on
February 13, 1995 (File No. 33-57663))
11.1 Computation of Net Income (Loss) Per Share for the years ended December
31, 1994, 1993, 1992, 1991 and 1990
21.1 Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
27.1 Financial Data Schedule for the year ended December 31, 1994
</TABLE>
---------------
* Exhibits 10.1 through 10.33 are the management contracts, compensatory plans,
contracts and arrangements in which any director or named executive officer
participates.
51
<PAGE> 53
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 30, 1995 By: /s/ 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>
/s/ DAVID R. BANKS Chairman of the Board, March 30, 1995
---------------------------- President, Chief Executive
David R. Banks Officer and Director
/s/ ROBERT D. WOLTIL Executive Vice President, March 30, 1995
---------------------------- Finance and Chief
Robert D. Woltil Financial Officer
/s/ SCOTT M. TABAKIN Vice President, Controller March 30, 1995
---------------------------- and Chief Accounting Officer
Scott M. Tabakin
/s/ BERYL F. ANTHONY, JR. Director March 30, 1995
----------------------------
Beryl F. Anthony, Jr.
/s/ CURT F. BRADBURY Director March 30, 1995
----------------------------
Curt F. Bradbury
/s/ JAMES R. GREENE Director March 30, 1995
----------------------------
James R. Greene
EDITH E. HOLIDAY Director March 30, 1995
----------------------------
Edith E. Holiday
/s/ JON E. M. JACOBY Director March 30, 1995
----------------------------
Jon E. M. Jacoby
RISA J. LAVIZZO-MOUREY Director March 30, 1995
----------------------------
Risa J. Lavizzo-Mourey
/s/ LOUIS W. MENK Director March 30, 1995
----------------------------
Louis W. Menk
MARILYN R. SEYMANN Director March 30, 1995
----------------------------
Marilyn R. Seymann
/s/ WILL K. WEINSTEIN Director March 30, 1995
----------------------------
Will K. Weinstein
</TABLE>
52
<PAGE> 1
Exhibit 10.18
AMENDMENT NO 4
BEVERLY ENTERPRISES, INC.
EXECUTIVE RETIREMENT PLAN
WHEREAS, Beverly Enterprises, Inc. (hereinafter referred to as
the "Company") established the Beverly Enterprises, Inc. Executive Retirement
Plan (hereinafter referred to as the "Plan") effective as of January 1, 1988;
and
WHEREAS, the Company reserved the right in Article VIII of the
Plan to amend said Plan by action of its Board of Directors; and
WHEREAS, the Company is now desirous of amending said Plan in
order to make certain changes therein regarding eligibility for Company
matching contributions;
NOW, THEREFORE, the Plan is amended, effective January 1,
1993, in the following respects:
1. The first sentence of Section 5.1 is hereby
amended as follows:
"Subject to the requirements and restrictions of this Article
V, and subject also to the amendment or termination of the Plan, as of the
last day of each Plan Year, the Company may, in its sole discretion, depending
on profits, determine to make a matching contribution on behalf of each
Participant who (a) has contributed at least two percent (2%) of his
Compensation for the Plan Year, (b) is employed by the Company as of
December 1 of such year, or who retired during such Plan Year at or over
age 59-1/2 with at least 10 Years of Service, and (c) has not withdrawn any
funds that were used to calculate the company match from the Plan during the
Plan Year."
IN WITNESS WHEREOF, the Company has caused this Amendment No.
4 to the Plan to be executed by its President and its corporate seal to be
affixed by the Secretary, both duly authorized, effective the 1st day of
January, 1993, but executed this 9th day of December, 1993.
Attest: (SEAL) BEVERLY ENTERPRISES, INC.
________________________ By_________________________
Secretary President
<PAGE> 1
Exhibit 10.19
AMENDMENT NO. 5
TO THE
BEVERLY ENTERPRISES, INC.
EXECUTIVE RETIREMENT PLAN
WHEREAS, Beverly Enterprises, Inc. (hereinafter referred to as
the "Company") established the Beverly Enterprises, Inc. Executive Retirement
Plan (hereinafter referred to as the "Plan") effective as of January 1, 1988;
and
WHEREAS, the Company reserved the right in Article VIII of the
Plan to amend said Plan by action of its Board of Directors; and
WHEREAS, the Company is now desirous of amending said Plan in
order to provide for a Company Contribution in the Plan Year in which
Participants terminate employment on or after a Change in Control of the
Company, provided they have a right to severance benefits under either the
Company's Change in Control Severance Agreement, Severance Program for
Executives, or an Employment Contract;
NOW, THEREFORE, the Plan is amended, effective as of September
29, 1994, in the following respects:
1. A new Section 5.5 is hereby added to the Plan
to read as follows:
"5.5 CHANGE OF CONTROL CONTRIBUTION. Notwithstanding
anything to the contrary herein, if, on or after a Change of Control of the
Company (as hereinafter defined), a Participant's employment is terminated
under circumstances in which he would be entitled to a severance benefit under
either the Company's Change in Control Severance Agreement, Severance Program
for Executives, or an individual Employment Contract, then, for the Plan Year
of such Participant's termination, the Company shall make a matching
contribution hereunder on behalf of such Participant equal to the greater of
(a) the amount it would have made had the Participant's employment not
terminated, or (b) the percentage contribution the Company made last year for
Participants, in each case based on the Participant's annualized Compensation
for such current Plan Year, the percentage of his Compensation he was
contributing to the Plan as of his termination date, and the number of Years of
Service the Participant would have completed as of the last day of such Plan
Year had his employment not terminated. The portion of the Company's matching
contribution based on the preceding year's contribution rate shall be paid out
immediately upon the Participant's termination of employment, and any
additional contribution based on the excess of the current year's contribution
rate over such preceding year's contribution rate shall be paid out at the end
of such Plan Year.
For purposes of this Section, a "Change of Control" shall be
deemed to have taken place if: (i) any person, corporation, or other entity or
group, including any
<PAGE> 2
"group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
other than any employee benefit plan of the Company, becomes the beneficial
owner of shares of the Company having 30 percent or more of the total number of
votes that may be cast for the election of Directors of the Company; (ii) as
the result of, or in connection with, any contested election for the Board of
Directors of the Company, or any tender or exchange offer, merger or other
business combination, or sale of assets, or any combination of the foregoing (a
"Transaction"), the persons who were Directors of the Company before the
Transaction shall cease to constitute a majority of the Board of Directors of
the Company or any successor to the Company or its assets, or (iii) at any time
a the Company shall consolidate with, or merge with, any other Person and the
Company shall not be the continuing or surviving corporation, b any Person
shall consolidate with, or merge with, the Company, and the Company shall be
the continuing or surviving corporation and in connection therewith, all or
part of the outstanding Company stock shall be changed into or exchanged for
stock or other securities of any other Person or cash or any other property, c
the Company shall be a party to a statutory share exchange with any other
Person after which the Company is a subsidiary of any other Person, or d the
Company shall sell or otherwise transfer 50% or more of the assets or earning
power of the Company and its subsidiaries (taken as a whole) to any Person or
Persons."
IN WITNESS WHEREOF, the Company has caused this Amendment No.
5 to the Plan to be executed by its duly authorized officer effective as of
September 29, 1994, but executed this _____ day of December, 1994.
BEVERLY ENTERPRISES, INC.
By:__________________________
Its: ________________________
<PAGE> 1
EXHIBIT 10.28
EMPLOYMENT CONTRACT
AGREEMENT made as of September 29, 1994 between BEVERLY ENTERPRISES,
INC., a Delaware corporation (the "Company"), and David R. Banks (the
"Executive").
WHEREAS, the Company desires to assure itself of the management
services of the Executive by directly engaging the Executive as the President
and Chief Executive Officer of the Company;
WHEREAS, the Executive currently serves as Chairman of the Company's
Board of Directors;
WHEREAS, the Company recognizes that the Executive's contribution to
the Company's growth and success has been and continues to be substantial;
WHEREAS, the Company wishes to encourage the Executive to remain with
and devote full time and attention to the business affairs of the Company and
wishes to provide income protection to the Executive for a period of time in
the event of a Change in Control;
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. Definitions.
(a) "Base Salary" shall mean the Executive's regular
annual rate of base pay, as set forth in Paragraph 4(a), as of the
date in question.
(b) The "Benefit Multiplier" shall be equal to 1.0
except that if Executive's Termination of Employment is pursuant to
Paragraphs 6(b) or 6(c) it shall be equal to 3.0.
(c) The "Benefit Period" shall be the period of years
equal to the Benefit Multiplier which follows the Executive's
Termination of Employment.
(d) "Cause" shall mean the Executive's (i) convic-
tion of a crime involving moral turpitude or theft or embezzlement
of property from the Company or (ii) willful misconduct or willful
failure substantially to perform the duties of his position, but
only if such has continued after receipt of notice from the Company's
Board of Directors and such reasonable cure period as is set forth
in such notice.
(e) A "Change of Control" shall be deemed to have taken
place if: (i) any person, corporation, or other entity or group,
including any "group" as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, other than any employee benefit plan then
maintained by the Company, becomes the beneficial owner of shares of
the Company having 30 percent or more of the total number of votes
that may be cast for the election of Directors of the Company; (ii) as
the result of, or in connection with, any contested election for the
Board of Directors of the Company, or any tender or exchange offer,
merger or other business combination or sale of assets, or any
combination of the foregoing (a "Transaction"), the persons who were
Directors of the Company before the Transaction shall cease to
constitute a
<PAGE> 2
majority of the Board of Directors of the Company or any successor to
the Company or its assets, or (iii) at any time (a) the Company shall
consolidate with, or merge with, any other Person and the Company
shall not be the continuing or surviving corporation, (b) any Person
shall consolidate with, or merge with, the Company, and the Company
shall be the continuing or surviving corporation and in connection
therewith, all or part of the outstanding Company stock shall be
changed into or exchanged for stock or other securities of any other
Person or cash or any other property, (c) the Company shall be a party
to a statutory share exchange with any other Person after which the
Company is a subsidiary of any other Person, or d the Company shall
sell or otherwise transfer 50% or more of the assets or earning power
of the Company and its subsidiaries (taken as a whole) to any Person
or Persons.
(f) The "Change in Control Date" shall mean the date
immediately prior to the effectiveness of the Change in Control.
(g) The "Committee" shall mean the Compensation
Committee of the Company's Board of Directors.
(h) The "Competitive Businesses" shall mean any of the
health care businesses in which the Company is engaged on the
execution date of this Agreement.
(i) The Executive shall have "Good Reason" to terminate
employment if: (i) the Executive's duties, responsibilities or
authority as an employee are materially reduced or diminished
from those in effect on the Change in Control Date without the
Executive's consent; (ii) the Executive's compensation or benefits are
reduced (other than pursuant to a uniform reduction applicable to all
executives of the Company); or (iii) the Company requires that the
Executive's employment be based other than at Fort Smith, Arkansas,
without his consent.
(j) "Person" shall have the meaning ascribed to such
term in Section 3(a)(9) of the Securities Exchange Act of 1934 and
used in Sections 13(d) and 14(d) thereof, including a "group" as
defined in Section 13(d).
(k) "Target Bonus" shall mean the target bonus (100%
level) established for the Executive for the year in question under
the Company's "Annual Incentive Plan."
(l) "Termination of Employment" shall mean the
termination of the Executive's employment by the Company other than
such a termination in connection with an offer of immediate
reemployment by a successor or assign of the Company or purchaser of
the Company or its assets under terms and conditions which would not
permit the Executive to terminate his employment for Good Reason.
2. Term. The initial term of this Agreement shall be for
the period commencing on September 29, 1994 (the "Effective Date") and ending
after a period of three years. The Term shall be automatically extended by one
additional day for each day beyond the Effective Date of this Agreement that
the Executive remains employed by the Company until such time as the Company
elects to cease such extension by giving written notice of such to the
Executive. (In such event, the Agreement shall thus terminate on the third
anniversary of the effective date of such notice).
2
<PAGE> 3
3. Position and Duties. During the Term, the Executive
shall serve, as an employee, as the President and Chief Executive Officer of
the Company and shall have such duties, functions, responsibilities and
authority as are consistent with the Executive's position as the senior
executive officer in charge of the general management, business and affairs of
the Company. Executive also currently serves as Chairman of the Company's Board
of Directors.
4. Compensation and Related Matters.
(a) Annual Base Salary. The Executive shall receive
a Base Salary at a rate of $540,000 per annum through December 31,
1994 and thereafter at any such greater rate as is determined by the
Committee.
(b) Benefits. During the Term, the Executive shall be
entitled to all of the following and any other benefits and
perquisites offered by the Company to executives generally:
(i) Participate in the Company's present and
future stock option, restricted stock, phantom stock and
other similar equity-based incentive plans, pursuant to
their terms;
(ii) Participate in the Company's Employee Stock
Purchase Plan, pursuant to its terms;
(iii) Retain his interest in the Company's
terminated Deferred Compensation Plan pursuant to its terms
with the Executive's units 100% vested, locked in at the
Company's stock price on July 17, 1991, and credited with
interest (with quarterly compounding) at a rate to be
determined, from time to time, by the Committee;
(iv) Participate in the Company's Executive
Retirement Plan, pursuant to its terms;
(v) $600,000 of individual life insurance
coverage under the Company's Executive Life Insurance Plan,
which coverage shall be 70% vested as of the date hereof, and
shall vest an additional 10% on January 1, 1995 and each of
the next two annual anniversaries thereof so long as
Executive is employed by the Company on any of such dates;
(vi) $125,000 (or such greater amount as the
Company may make available to its senior executives
generally) of group term life insurance coverage;
(vii) $100,000 (or such greater amount as the
Company may make available to its senior executives
generally) of business travel accident insurance coverage
when traveling on Company business;
(viii) Participate in the Company's Medical Plan,
and Dental Plan, pursuant to their terms, except that the
premium cost for such shall be treated as a benefit under
the Company's Executive Medical Reimbursement Plan, described
3
<PAGE> 4
below, (and therefore there shall be no payroll deduction as
a condition of coverage in the Medical Plan and Dental Plan);
(ix) Participate in the Company's Executive Medical
Reimbursement Plan (with a maximum benefit of $11,500 (or
such greater amount as the Company may make available to
its senior executives generally), a portion of which shall be
deemed applied to the payment of premiums under the Company's
Medical Plan and Dental Plan as described above), pursuant to
its terms;
(x) Participate in the Company's group Long-Term
Disability Plan, at the maximum benefit level, pursuant to
its terms;
(xi) 4 weeks of paid vacation;
(xii) An annual car allowance of $7500 (or such
greater amount as the Company may make available to its
senior executives generally);
(xiii) Participate in or receive benefits under any
other employee benefit plan or other arrangement made
available by the Company to any of its employees,
subject to and on a basis consistent with the terms,
conditions and overall administration of such plan or
arrangement.
(c) Annual Bonus. As additional compensation for
services rendered, the Executive shall be eligible to receive an annual
bonus in cash pursuant to the Company's Annual Incentive Plan.
(d) Expenses. The Company shall promptly reimburse
the Executive for all reasonable travel and other business expenses
incurred by the Executive in the performance of his duties to the
Company hereunder.
5. Competition.
(a) Executive shall not, at any time during the
period of his employment with the Company, or, if his Termination of
Employment is for Cause or without Good Reason, during the two year
period following his Termination of Employment with the Company
("Non-Compete Period"), without the prior written consent of the Board,
directly or indirectly engage in, or have any interest in, or manage or
operate any person, firm, corporation, partnership or business (whether
as director, officer, employee, agent, representative, partner,
security holder, consultant or otherwise) that engages in any of the
Competitive Businesses in any State of the United States or any foreign
country in which the Company is then engaged in any of such businesses;
provided, however, that Executive shall be permitted to acquire a stock
interest in such a corporation provided such stock is publicly traded
and the stock so acquired is not more than one percent of the
outstanding shares of such corporation, and provided further, that
Executive may engage in a business that is a non-competitive supplier
to the Company or that is a customer of Company products or services.
4
<PAGE> 5
(b) The Executive covenants that a breach of
subparagraph (a) above would immediately and irreparably harm the
Company and that a remedy at law would be inadequate to compensate the
Company for its losses by reason of such breach and therefore that the
Company shall, in addition to any other rights and remedies available
under this Agreement, at law or otherwise, be entitled to an injunction
to be issued by any court of competent jurisdiction enjoining and
restraining the Executive from committing any violation of subparagraph
(a) above, and the Executive hereby consents to the issuance of such
injunction.
6. Eligibility for Severance Benefits. The Executive shall
be eligible for the benefits described in Paragraph 7 (the "Severance
Benefits") if:
(a) during the Term, the Executive has a
Termination of Employment initiated (i) by the Company without Cause or
(ii) by the Executive for Good Reason, and, in either case, subsection
(c) does not apply,
(b) during the Term there has been a Change in
Control and during the 31 day period commencing on the first day of the
13th calendar month following the Change in Control Date (e.g. the
period April 1, 1996 - May 1, 1996, inclusive, for a Change in Control
which is effective in the month of March, 1995), the Executive has a
Termination of Employment initiated by the Executive without Good
Reason, or
(c) during the Term there has been a Change in
Control and during the two year period commencing on the Change in
Control Date the Executive has a Termination of Employment which is
initiated by the Company without Cause or by the Executive for Good
Reason.
7. Severance Benefit. Upon satisfaction of the
requirements set forth in Paragraph 6, and subject to Paragraph 8, the
Executive shall be entitled to the following Severance Benefits:
(a) Cash Payment. The Executive shall be entitled to
receive an amount of cash equal to the Benefit Multiplier times the
greater of
(i) the sum of the Executive's Base Salary as
in effect upon the Termination of Employment, and the
greater of
(A) the Executive's Target Bonus as in
effect upon the Termination of Employment or,
(B) the Executive's actual bonus under the
Company's "Annual Incentive Plan" for the year prior to
the year of the Executive's Termination of Employment,
(ii) the sum of the Executive's Base Salary as
in effect on the Change in Control Date, and the greater of
(A) the Executive's Target Bonus as in
effect upon the Change in Control Date or,
5
<PAGE> 6
(B) the Executive's actual bonus under the
Company's "Annual Incentive Plan" for the year prior to
the Change in Control Date.
The payment shall be made in a single lump sum within ten days following
the Executive's Termination of Employment.
(b) Long-Term Incentive Award; Equity-Based Compensa-
tion. The Executive's interest under all of the Company's long-term
incentive plans shall be fully vested. Any and all (i) options to
purchase Company stock and (ii) restricted stock of the Company, owned
by the Executive shall be fully vested.
(c) Continuation of Benefits.
(i) For the Benefit Period the Executive shall be
treated as if he had continued to be an executive employee
for all purposes under the Company's Medical Plan,
Executive Medical Reimbursement Plan and Dental Plan (as
described in Paragraph 4(b)). Following this period the
Executive shall be entitled to receive continuation coverage
under part 6 of Title I of ERISA ("COBRA Benefits") treating
the end of this period as a termination of the Executive's
employment (other than for gross misconduct).
(ii) The Company shall fully vest and maintain in
force, at its own expense, for the remainder of the
Executive's life, the life insurance in effect under the
Company's Executive Life Insurance Plan (as described in
Paragraph 4(b)) as of the Change in Control Date or as of the
date of Termination of Employment, whichever is greater.
(d) Relocation Benefit; Office.
(i) If, within three years after the Executive's
Termination of Employment with the Company, the Executive
gives the Company written notice that he desires to
relocate within the continental United States, the Company
will reimburse the Executive for any reasonable relocation
expenses (in accordance with the Company's general relocation
policy for executives as then in effect, or, at the
Executive's election, as in effect on the Change in Control
Date) in connection with such relocation.
(ii) For the lesser of the Benefit Period or the
date Executive commences such full-time employment, the
Company shall provide Executive with first-class office space
of not more than 800 square feet in a city to be selected by
the Executive and approved by the Company (with such approval
not to be unreasonably withheld).
(e) Executive Retirement Plan. For the year of the
Executive's Termination of Employment, the Company will make the con-
tribution to the Retirement Plan, that it would have made if the
Executive had not had a Termination of Employment, but in no event
less than the percentage contribution it made for the Executive in
the immediately preceding year (and increased to take account of the
additional year of service), in each case
6
<PAGE> 7
taking account of the Executive's annualized rate of "Compensation" (as
defined in the Retirement Plan) and the percentage of such Compensation
that the Executive is contributing to the Retirement Plan, as of the date
of Termination of Employment, and the Company's matching contribution rate
for such year (or, if greater, the preceding year). The portion of the
Company's matching contribution which is based on the preceding year's
contribution percentage shall be paid to the Executive immediately upon his
Termination of Employment and any additional contribution shall be paid as
soon as it is determined.
(f) Disability. For the Benefit Period, the Company shall provide
long-term disability insurance benefits coverage to Executive equivalent to
the coverage that the Executive would have had had he remained employed
under the Company's Long-Term Disability Plan as described in Paragraph
4(b) applicable to Executive on the date of Termination of Employment, or,
at the Executive's election, the plan applicable to Executive as of the
Change in Control Date. Should Executive become disabled during such
period, Executive shall be entitled to receive such benefits, and for such
duration, as the applicable plan provides.
(g) Plan Amendments. The Company shall adopt such amendments to its
employee benefit plans as are necessary to effectuate the provisions of
this Agreement.
8. Golden Parachute Limitation. If, in the written opinion
of a Big 6 accounting firm engaged by the Company for this purpose, which
opinion is concurred with by an expert engaged by the Executive (at the
Company's expense), the aggregate of the benefit payments under Paragraph 7
would cause the payment of one or more of such benefits to constitute an
"excess parachute payment" as defined in Section 280G(b) of the Internal
Revenue Code, then such benefits or payments shall be reduced, in whole or in
part, in a manner designated by the Executive, in such manner that, in such
opinion, none of such benefits would constitute an "excess parachute payment."
Any dispute concerning the application of this paragraph shall be resolved
pursuant to Paragraph 10.
9. Waiver of Other Severance Benefits. The benefits
payable pursuant to this Agreement are in lieu of any other severance benefits
which may otherwise be payable to the Executive upon termination following a
Change in Control (including, without limitation, any benefits to which
Executive might otherwise have been entitled under the "Agreement Concerning
Benefits Upon Severance" dated as of September 1, 1990 to which Executive and
the Company are parties), except those benefits which are to be made available
to the Executive as required by applicable law.
10. Disputes. Any dispute or controversy arising under, out
of, in connection with or in relation to this Agreement shall, at the election
and upon written demand of either party, be finally determined and settled by
binding arbitration in the city of Fort Smith, Arkansas in accordance with the
Labor Arbitration rules and procedures of the American Arbitration Association,
and judgment upon the award may be entered in any court having jurisdiction
thereof. The Company shall pay all costs of the arbitration and all reasonable
attorney's and accountant's fees of the Executive in connection therewith.
7
<PAGE> 8
11. Successors; Binding Agreement. This Agreement shall
not be terminated by the voluntary or involuntary dissolution of the Company or
by any merger or consolidation where the Company is not the surviving
corporation, or upon any transfer of all or substantially all of the Company's
assets, or any other Change in Control. In the event of such merger or
consolidation or transfer of assets, or other Change in Control, the provisions
of this Agreement shall be binding upon and shall inure to the benefit of the
surviving corporation or corporation to which such assets shall be transferred.
12. Notices. Any notice, request, claim, demand, document
and other communication hereunder to any party shall be effective upon receipt
(or refusal of receipt) and shall be in writing and delivered personally or
sent by telex, telecopy, or certified or registered mail, postage prepaid, or
other similar means of communication, as follows:
(a) If to the Company, addressed to its principal
executive offices to the attention of its Secretary;
(b) If to the Executive, to him at the address set
forth below under the Executive's signature; or at any such other
address as either party shall have specified by notice in writing
to the other.
13. Amendments; Waivers. This Agreement may not be
modified, amended, or terminated except by an instrument in writing, signed by
the Executive and by a duly authorized representative of the Board of
Directors. By an instrument in writing similarly executed, either party may
waive compliance by the other party with any provision of this Agreement that
such other party was or is obligated to comply with or perform; provided,
however, that such waiver shall not operate as a waiver of, or estoppel with
respect to, any other or subsequent failure. No failure to exercise and no
delay in exercising any right, remedy, or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, remedy,
or power hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, or power provided herein or by law or in
equity.
14. Entire Agreement. This Agreement sets forth the entire
agreement of the parties hereto in respect of the subject matter contained
herein and supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto. The parties further
intend that this Agreement shall constitute the complete and exclusive
statement of its terms and that no extrinsic evidence whatsoever may be
introduced in any judicial, administrative, or other legal proceeding involving
this Agreement.
15. Severability; Enforcement. If any provision of this
Agreement, or the application thereof to any person, place, or circumstance
shall be held by a court of competent jurisdiction to be invalid, unenforceable
or void, the remainder of this Agreement and such provisions as applied to
other persons, places and circumstances shall remain in full force and effect.
8
<PAGE> 9
16. Indemnification. The Company shall indemnify, defend,
and hold the Executive harmless from and against any liability, damages, costs,
or expenses (including attorney's fees) in connection with any claim, cause of
action, investigation, litigation, or proceeding involving him by reason of his
having been an officer, director, employee, or agent of the Company, unless it
is judicially determined that the Executive was guilty of gross negligence or
willful misconduct. The Company also agrees to maintain adequate directors and
officers liability insurance for the benefit of Executive for the term of this
Agreement and for at least three years thereafter.
17. Anti-Assignment and Alienation. This Agreement is
personal in nature and cannot be assigned or transferred except as provided in
Paragraph 11 hereof. No right, benefit or interest hereunder shall be subject
to anticipation, alienation, sale, assignment, encumbrance, charge, pledge,
hypothecation or set-off in respect of any claim, debt or obligation or to
execution, attachment, levy or similar process, or assignment by operation of
law, except as otherwise provided herein. Any attempt, voluntary or
involuntary, to effect any action prohibited by this Paragraph shall be null,
void and of no effect.
9
<PAGE> 10
18. Governing Law. This Agreement shall be interpreted,
administered and enforced in accordance with the law of the State of Arkansas,
except to the extent pre-empted by Federal law.
The parties have duly executed this Agreement as of the date
first written above.
BEVERLY ENTERPRISES, INC. EXECUTIVE
By:
------------------ ------------------
Robert W. Pommerville David R. Banks
Senior Vice President, 3421 Free Ferry Road
General Counsel and Fort Smith, AR 72903
Secretary
By:
------------------
Christine Murray
Assistant Secretary
5111 Rogers Avenue, Suite 40A
Fort Smith, AR 72919
Attention: Secretary
<PAGE> 1
EXHIBIT 11.1
BEVERLY ENTERPRISES, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
PRIMARY:
Income before redemption premium on Series A preferred stock,
extraordinary
charge and cumulative effect of change in accounting for
income taxes................................................ $ 76,913 $ 57,956 $ 1,945 $29,238 $ 13,143
Redemption premium on Series A preferred stock................ -- (20,000) -- -- --
-------- -------- -------- ------- ---------
Income before extraordinary charge and cumulative effect of
change
in accounting for income taxes.............................. $ 76,913 $ 37,956 $ 1,945 $29,238 $ 13,143
Extraordinary charge.......................................... (2,412) (2,345) (8,835) -- --
Cumulative effect of change in accounting for income taxes.... -- -- (5,454) -- --
-------- -------- -------- ------- ---------
Net income (loss)............................................. $ 74,501 $ 35,611 $(12,344) $29,238 $ 13,143
Preferred stock dividends..................................... (8,250) (4,438) (1,000) -- (1,000)
-------- -------- -------- ------- ---------
Net income (loss) applicable to common shares................. $ 66,251 $ 31,173 $(13,344) $29,238 $ 12,143
======== ======== ======== ======= =========
Applicable common shares:
Weighted average outstanding shares during the period....... 85,430 79,735 76,224 73,972 65,478
Assumed conversion of Series A preferred stock.............. --(b) --(a) --(a) 5,300 --(a)
Weighted average shares issuable upon exercise of common
stock equivalents outstanding (principally stock options)
using the "treasury stock" method......................... 1,657 1,472 1,461 1,946 673
-------- -------- -------- ------- ---------
Total....................................................... 87,087 81,207 77,685 81,218 66,151
======== ======== ======== ======= =========
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............................... $ .79 $ .66 $ .01 $ .36 $ .18
Redemption premium on Series A preferred stock.............. -- (.25) -- -- --
-------- -------- -------- ------- ---------
Before extraordinary charge and cumulative effect of change
in accounting for income taxes............................ .79 .41 .01 .36 .18
Extraordinary charge........................................ (.03) (.03) (.11) -- --
Cumulative effect of change in accounting for income
taxes..................................................... -- -- (.07) -- --
-------- -------- -------- ------- ---------
Net income (loss) per share of common stock................. $ .76 $ .38 $ (.17) $ .36 $ .18
======== ======== ======== ======= =========
FULLY DILUTED:
Income before redemption premium on Series A preferred stock,
extraordinary charge and cumulative effect of change in
accounting for income taxes................................. $ 76,913 $ 57,956 $ 1,945 $29,238 $ 13,143
Reduction of interest and amortization expenses resulting from
assumed conversion of 7 5/8% convertible subordinated
debentures.................................................. --(a) --(a) --(a) --(a) --(a)
Reduction of interest and amortization expenses resulting from
assumed conversion of 9% convertible subordinated
debentures.................................................. --(c) 2,711 --(a) --(a) --(a)
Reduction of interest and amortization expenses resulting from
assumed conversion of zero coupon and other notes........... --(a) 116 --(a) 63 --(a)
Less applicable income taxes.................................. -- (933) -- (19) --
-------- -------- -------- ------- ---------
Adjusted income before redemption premium on Series A
preferred stock, extraordinary charge and cumulative effect
of change in accounting for income taxes.................... $ 76,913 $ 59,850 $ 1,945 $29,282 $ 13,143
Redemption premium on Series A preferred stock................ -- (20,000) -- -- --
-------- -------- -------- ------- ---------
Adjusted income before extraordinary charge and cumulative
effect of change in accounting for income taxes............. 76,913 39,850 1,945 29,282 13,143
Extraordinary charge.......................................... (2,412) (2,345) (8,835) -- --
Cumulative effect of change in accounting for income taxes.... -- -- (5,454) -- --
-------- -------- -------- ------- ---------
Adjusted net income (loss).................................... $ 74,501 $ 37,505 $(12,344) $29,282 $ 13,143
Preferred stock dividends..................................... -- (4,438) (1,000) -- (1,000)
-------- -------- -------- ------- ---------
Adjusted net income (loss) applicable to common shares........ $ 74,501 $ 33,067 $(13,344) $29,282 $ 12,143
======== ======== ======== ======= =========
Applicable common shares:
Weighted average outstanding shares during the period....... 85,430 79,735 76,224 73,972 65,478
Assumed conversion of Series A preferred stock.............. --(b) --(a) --(a) 5,300 --(a)
Assumed conversion of Series B preferred stock.............. 11,253 --(a) -- -- --
Weighted average shares issuable upon exercise of common
stock equivalents outstanding (principally stock options)
using the "treasury stock" method......................... 1,745 1,678 1,791 2,095 936
Assumed conversion of 7 5/8% convertible subordinated
debentures................................................ --(a) --(a) --(a) --(a) --(a)
Assumed conversion of 9% convertible subordinated
debentures................................................ --(c) 4,322 --(a) --(a) --(a)
Assumed conversion of zero coupon and other notes........... --(a) 19 --(a) 70 --(a)
-------- -------- -------- ------- ---------
Total....................................................... 98,428 85,754 78,015 81,437 66,414
======== ======== ======== ======= =========
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............................... $ .78 $ .65 $ .01 $ .36 $ .18
Redemption premium on Series A preferred stock.............. -- (.24) -- -- --
-------- -------- -------- ------- ---------
Before extraordinary charge and cumulative effect of change
in accounting for income taxes............................ .78 .41 .01 .36 .18
Extraordinary charge........................................ (.02) (.02) (.11) -- --
Cumulative effect of change in accounting for income
taxes..................................................... -- -- (.07) -- --
-------- -------- -------- ------- ---------
Net income (loss) per share of common stock................. $ .76 $ .39 $ (.17) $ .36 $ .18
======== ======== ======== ======= =========
</TABLE>
---------------
(a) Conversion would be anti-dilutive and is therefore not assumed in the
computation of earnings per share of common stock.
(b) The Series A preferred stock was redeemed in January 1994.
(c) The 9% convertible subordinated debentures were converted to common stock
during the third quarter of 1993.
<PAGE> 1
EXHIBIT 21.1
BEVERLY ENTERPRISES, INC. AND SUBSIDIARIES
SUBSIDIARY SCHEDULE
JANUARY 27, 1995
<TABLE>
<CAPTION>
STATE OF
CORPORATION INCORPORATION
------------------------------------------------------------------ -----------------
<S> <C>
A.B.C. Health Equipment Corp...................................... New York
AdviNet, Inc...................................................... Delaware
AGI-Camelot, Inc.................................................. Missouri
AGI-McDonald County Health Care, Inc.............................. Missouri
Alliance Health Services, Inc..................................... Delaware
Alliance Home Health Care, Inc.................................... Connecticut
Amco Medical Service, Inc......................................... Texas
American Transitional Care Centers of Texas, Inc.................. Texas
American Transitional Care Dallas-Fort Worth, Inc................. Texas
American Transitional Health Care, Inc............................ Delaware
American Transitional Hospitals, Inc.............................. Delaware
American Transitional Hospitals of Indiana, Inc................... Indiana
American Transitional Hospitals of Oklahoma, Inc.................. Oklahoma
American Transitional Hospitals of Tennessee, Inc................. Tennessee
ATH Del Oro, Inc.................................................. Texas
ATH Heights, Inc.................................................. Texas
ATH Oklahoma City, Inc............................................ Oklahoma
ATH Tucson, Inc................................................... Arizona
Beverly Acquisition Corporation................................... Delaware
Beverly Health and Rehabilitation Services, Inc................... 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
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
</TABLE>
<PAGE> 2
EXHIBIT 21.1
BEVERLY ENTERPRISES, INC. AND SUBSIDIARIES
SUBSIDIARY SCHEDULE (CONTINUED)
JANUARY 27, 1995
<TABLE>
<CAPTION>
STATE OF
CORPORATION INCORPORATION
------------------------------------------------------------------ -----------------
<S> <C>
Beverly Enterprises -- Mississippi, Inc........................... California
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
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 Holdings I, Inc........................................... Delaware
Beverly Indemnity, Ltd............................................ Vermont
Beverly Managed Care, Inc......................................... Delaware
Beverly Manor Inc. of Hawaii...................................... California
Beverly Real Estate Holdings, Inc................................. Delaware
Beverly REMIC Depositor, Inc...................................... California
Beverly Savana Cay Manor, Inc..................................... California
Brownstone Pharmacy, Inc.......................................... Connecticut
Columbia-Valley Nursing Home, Inc................................. Ohio
Commercial Management, Inc........................................ Iowa
Computran Systems, Inc............................................ Oregon
Continental Care Centers of Council Bluffs, Inc................... Iowa
DD Wholesale, Inc................................................. Massachusetts
Dunnington Drug, Inc.............................................. Delaware
</TABLE>
<PAGE> 3
EXHIBIT 21.1
BEVERLY ENTERPRISES, INC. AND SUBSIDIARIES
SUBSIDIARY SCHEDULE (CONTINUED)
JANUARY 27, 1995
<TABLE>
<CAPTION>
STATE OF
CORPORATION INCORPORATION
------------------------------------------------------------------ -----------------
<S> <C>
Dunnington RX Services of Rhode Island, Inc....................... Rhode Island
Dunnington RX Services of Massachusetts, Inc...................... Massachusetts
Forest City Building Ltd.......................................... Missouri
Hallmark Convalescent Homes, Inc.................................. Michigan
Healthcare Prescription Services, Inc............................. Indiana
Home Medical Systems, Inc......................................... Delaware
Hospice Preferred Choice, Inc..................................... Delaware
Hospital Facilities Corporation................................... California
Insta-Care Holdings, Inc.......................................... Florida
Insta-Care Pharmacy Services Corporation.......................... Texas
Kenwood View Nursing Home, Inc.................................... Kansas
Liberty Nursing Homes, Inc........................................ Virginia
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
Nursing Home Operators, Inc....................................... Ohio
Omni Med B, Inc................................................... Connecticut
Peterson Health Care, Inc......................................... Florida
Pharmacy Corporation of America................................... California
Pharmacy Dynamics Group, Inc...................................... Florida
Phymedsco, Inc.................................................... West Virginia
Salem No. 1, Inc.................................................. Missouri
South Alabama Nursing Home, Inc................................... Alabama
South Dakota -- Beverly Enterprises, Inc.......................... California
Spectra Health and Rehabilitation Services, Inc................... Delaware
Synergos, Inc..................................................... California
Synergos -- North Hollywood, Inc.................................. California
Synergos -- Pleasant Hill, Inc.................................... California
Synergos -- Scottsdale, Inc....................................... Arizona
Taylor County Health Facility, Inc................................ Florida
Vantage Healthcare Corporation.................................... Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-55571, 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
Nonemployee Directors' Stock Option Plan and certain ATH Option Plans, 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
3, 1995, with respect to the consolidated financial statements and schedule of
Beverly Enterprises, Inc. included in this Annual Report (Form 10-K) for the
year ended December 31, 1994.
ERNST & YOUNG LLP
Little Rock, Arkansas
March 29, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN ITS ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 67,964
<SECURITIES> 0
<RECEIVABLES> 483,262<F1>
<ALLOWANCES> 28,595<F2>
<INVENTORY> 60,243
<CURRENT-ASSETS> 652,337
<PP&E> 1,792,781
<DEPRECIATION> 592,158
<TOTAL-ASSETS> 2,322,578
<CURRENT-LIABILITIES> 409,625
<BONDS> 918,018
<COMMON> 8,962
0
150,000
<OTHER-SE> 668,282
<TOTAL-LIABILITY-AND-EQUITY> 2,322,578
<SALES> 2,969,239
<TOTAL-REVENUES> 2,983,817
<CGS> 0
<TOTAL-COSTS> 2,715,496
<OTHER-EXPENSES> 88,734
<LOSS-PROVISION> 0<F3>
<INTEREST-EXPENSE> 64,792
<INCOME-PRETAX> 114,795
<INCOME-TAX> 37,882
<INCOME-CONTINUING> 76,913
<DISCONTINUED> 0
<EXTRAORDINARY> (2,412)
<CHANGES> 0
<NET-INCOME> 74,501
<EPS-PRIMARY> .76
<EPS-DILUTED> .76
<FN>
<F1>Excludes $48,106 of long-term notes receivable.
<F2>Excludes $6,429 of allowance for long-term notes receivable.
<F3>Included in Total costs and expenses line.
</FN>
</TABLE>
