ITEM 1. BUSINESS.
GENERAL
References herein to the Company include Beverly Enterprises, Inc. and its wholly-owned subsidiaries.
The business of the Company consists principally of operating nursing facilities, including subacute units, pharmacies and pharmacy-related outlets. Additional operations include retirement and congregate living projects and home health care entities.
The Company is the largest operator of nursing facilities in the United States. At January 31, 1994, the Company operated 774 nursing facilities with 82,680 licensed beds. The facilities are located in 34 states and the District of Columbia, and range in capacity from 20 to 388 beds with average occupancy of 88.6%, 88.4% and 88.2% during the years ended December 31, 1993, 1992 and 1991, respectively. In addition, at January 31, 1994, the Company operated 23 subacute units, 41 pharmacies and pharmacy-related outlets, 42 retirement and congregate living projects containing 2,554 units and five home health care entities. See "Item 2.
ITEM 2. PROPERTIES.
At January 31, 1994, the Company operated 774 nursing facilities and 42 retirement and congregate living projects in 34 states and the District of Columbia. Most of the Company's 351 leased nursing facilities are subject to "net" leases which require the Company to pay all taxes, insurance and maintenance costs. Most of the Company's leases have original terms from ten to fifteen years and contain at least one renewal option, which could extend the original term of the leases by five to fifteen years. Many of the Company's leases also contain purchase options. The Company considers its physical properties to be in good operating condition and suitable for the purposes for which they are being used. A substantial portion of the nursing facilities and retirement centers owned by the Company is included in the collateral securing the obligations under its various banking arrangements. See "Part II, Item 8 -- Note 4 of Notes to Consolidated Financial Statements."
The following is a summary of the Company's nursing home facilities, retirement and congregate living projects, pharmacies and home health centers at January 31, 1994:
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(1) The Company is currently negotiating the disposition of all of its nursing home facilities in the state of Oregon as part of its continuing efforts under the 1992 restructuring program. See "Part II, Item 8 -- Note 2 of Notes to Consolidated Financial Statements."
ITEM 3.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders during the last quarter of its fiscal year ended December 31, 1993.
EXECUTIVE OFFICERS AND DIRECTORS
The table below sets forth, as to each executive officer and director of the Company, his name, positions with the Company and age. Each executive officer and director of the Company holds office until a successor is elected, or until the earliest of death, resignation or removal. Each executive officer is elected or appointed by the Board of Directors. The information below is given as of March 15, 1994.
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(1) Member of the Finance Committee.
(2) Member of the Quality Assurance Committee.
(3) Member of the Audit Committee.
(4) Member of the Compensation Committee.
(5) Member of the Nominating Committee.
Mr. Banks has been President and a director of the Company since 1979 and has served as Chief Executive Officer since May 1989 and Chairman of the Board since March 1990. Mr. Banks is a director of Nationwide Health Properties, Inc., Ralston Purina Company, Wal-Mart Stores, Inc., Wellpoint Health Networks, Inc., and trustee for the University of the Ozarks and Occidental College.
Mr. Hendrickson joined the Company in 1988 as a Division President. He was elected Vice President of Marketing in May 1989, and Executive Vice President of Operations and Marketing in February 1990. Mr. Hendrickson was President and Chief Operating Officer of Care Enterprises Inc., from 1984 to 1987, and
Chairman of the Board and Chief Operating Officer of Hallmark Health Services, Inc. from 1987 through 1988.
Mr. Kayne joined the Company in 1979. He was elected Vice President of Professional Services in 1983, Vice President of the Company and President of Pharmacy Corporation of America ("PCA"), a wholly-owned subsidiary of the Company, in 1985, and Executive Vice President of the Company in February 1990.
Mr. Moore joined the Company as Executive Vice President -- Managed Care in December 1992. Mr. Moore was employed at Aetna Life and Casualty from 1963 to 1992 and was elected Senior Vice President in 1990.
Mr. Stephens joined the Company as a staff accountant in 1969. He was elected Assistant Vice President in 1978, Vice President of the Company and President of the Company's Central Division in 1980, and Executive Vice President -- Development in February 1990. Mr. Stephens is a director of City National Bank in Fort Smith, Arkansas, Beverly Japan Corporation, Western Arkansas Counseling and Guidance Center, Inc. and Harbortown Properties, Inc.
Mr. Woltil joined the Company in 1982 as Technical Accounting Manager. From 1984 to 1990 he served in various financial positions. He was elected Vice President -- Financial Planning and Control in January 1990, Senior Vice President and Chief Financial Officer in March 1992 and Executive Vice President, Finance in January 1993.
Mr. Clarke joined the Company in 1987 as a Director of Government Program Compliance. He was elected Vice President in 1989 and Senior Vice President -- Quality Assurance in December 1991. Mr. Clarke is a director of St. Edward Mercy Medical Center.
Mr. Hollingsworth joined the Company in June 1985 as Assistant Treasurer. He was elected Treasurer in 1988, Vice President in 1990 and Senior Vice President in March 1992. Mr. Hollingsworth is a director of Sparks Regional Medical Center.
Mr. Pommerville first joined the Company in 1970 and left in 1976. Mr. Pommerville rejoined the Company as Vice President and General Counsel in 1984 and was elected Secretary in February 1990 and Senior Vice President in March 1990.
Mr. Small joined the Company in January 1986 as Reimbursement Manager, was promoted to Division Controller in September 1986, Director of Finance for the California Region in 1989, and elected Vice President -- Reimbursement in September 1990.
Mr. Tabakin joined the Company in October 1992 as Vice President, Controller and Chief Accounting Officer. From 1980 to 1992, Mr. Tabakin was with Ernst & Young, in Norfolk, Virginia.
Mr. Anthony served as a member of the United States Congress and was Chairman of the Democratic Congressional Campaign Committee from 1987 through 1990. In 1993, he became a partner in the Winston & Strawn law firm. Mr. Anthony serves as a director of Anthony Forest Products Company. He has been a director of the Company since January 1993.
Mr. Bradbury is Chairman, President, Chief Executive Officer and a director of Worthen Banking Corporation. He joined Worthen in 1985 as Assistant to the President, and prior thereto was a Vice President in the Corporate Finance Department of Stephens Inc., and Manager of its Bank Services Division. He has been a director of the Company since July 1989.
Mr. Greene's principal occupation has been that of a director and consultant to various U.S. and international businesses since 1986. He is a director of ASARCO, Inc., a number of mutual funds of Alliance Capital Management Corporation, American Reliance Group Inc., Buck Engineering Company and Bank Leumi. He has been a director of the Company since January 1991.
Mr. Jacoby is Executive Vice President, Chief Financial Officer and a director of Stephens Group, Inc. Mr. Jacoby has held the indicated positions with Stephens Group, Inc. since 1986, and prior to that time, served as Manager of the Corporate Finance Department and Assistant to the President of Stephens Inc.
Mr. Jacoby is a director of Medicus Systems, Inc., the Delta Queen Steamboat Company and Delta and Pine Land Company, Inc. He has been a director of the Company since February 1987.
Mr. Menk is Chairman of Black Mountain Gas Company. He retired in 1982 as Chairman and Chief Executive Officer of International Harvester Company, the predecessor to Navistar International Corporation. He has been a director of the Company since July 1989.
Mr. Weinstein has been Managing Partner of Genesis Merchant Group, a holding company for Genesis Merchant Group Securities, since 1989 and was President of WIG, Inc. from 1987 to 1989. From 1982 to 1987, Mr. Weinstein was Managing Partner of Montgomery Securities. Mr. Weinstein is a director of DHL Corporation. He has been a director of the Company since March 1989.
Mr. Joe T. Ford, Chairman, President and Chief Executive Officer of ALLTEL Corporation, and a director of The Dial Corp and LDDS Communications, Inc., was a director of the Company since January 1991. On February 28, 1994, Mr. Ford resigned from the Company's Board of Directors.
In connection with the issuance of the Series A preferred stock to Stephens Group, Inc., the Company agreed to use its best efforts to cause a designee of Stephens Group, Inc. to be elected to the Company's Board of Directors so long as Stephens Group, Inc. owned 500,000 of the Series A preferred stock and was the sole owner of all outstanding Series A preferred stock. Mr. Jacoby is the designee of Stephens Group, Inc. pursuant to such agreement. The Series A preferred stock was redeemed on January 3, 1994.
During 1993, there were six meetings of the Board of Directors. Each director attended 75% or more of the meetings of the Board and committees on which he served.
In 1993, directors, other than Mr. Banks, received a retainer fee of $18,000 for serving on the Board and an additional fee of $1,000 for each Board or committee meeting attended. Mr. Banks, the current Chairman of the Board, President and Chief Executive Officer of the Company, received no additional cash compensation for serving on the Board or its committees.
During 1993, the Retirement Plan for Outside Directors was approved and implemented whereby, upon retirement, as defined, each director is eligible to receive an amount equal to the annual retainer fee for each year of service on the Board up to a maximum of ten years, with no survivor benefits. These benefits are paid on a monthly basis beginning on the date of retirement. The Company paid $10,500 under such plan during the year ended December 31, 1993.
EMPLOYEE STOCK PURCHASE PLAN
The Beverly Enterprises 1988 Employee Stock Purchase Plan (as amended and restated) enables all full-time employees having completed one year of continuous service to purchase shares of the Company's $.10 par value common stock at the current market price through payroll deductions. The Company makes contributions in the amount of 30% of the participant's contribution. Each participant specifies the amount to be withheld from earnings per two-week pay period, subject to certain limitations. The total charge to the Company's statement of operations for the year ended December 31, 1993 related to this plan was approximately $1,493,000. At December 31, 1993, there were approximately 4,600 participants in the plan.
Merrill Lynch & Co., Merrill Lynch World Headquarters, North Tower, World Financial Center, New York, New York 10281, was appointed broker to open and maintain an account in each participant's name and to purchase shares of common stock on the New York Stock Exchange for each participant.
PART II
ITEM 5.
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.
The Company is subject to certain restrictions under its banking arrangements related to the payment of cash dividends on its common stock. During 1993 and 1992, no cash dividends were paid on the Company's common stock and none are anticipated to be paid during 1994.
At March 11, 1994, there were 7,295 record holders of the common stock.
ITEM 6.
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.
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(1) The Company reported restructuring costs, extraordinary charge and cumulative effect of change in accounting for income taxes in 1992, and reported a redemption premium and extraordinary charge in 1993. See Notes to Consolidated Financial Statements.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
OPERATING RESULTS
Twelve Months 1993 Compared to Twelve Months 1992
Net income was $57,924,000 for the twelve months ended December 31, 1993, compared to a net loss of $10,108,000 for the same period in 1992. Income before income taxes and extraordinary charge for 1993 was $89,953,000 compared to income before income taxes, extraordinary charge and cumulative effect of a change in accounting for income taxes in 1992 of $8,384,000. The results for 1992 included a $57,000,000 pre-tax restructuring charge related to a program to discontinue the Company's operations of certain facilities.
During 1993, the Company recorded a $2,345,000 extraordinary charge, net of income taxes, related to the acceleration of unamortized debt issue costs associated with certain debt that was repaid with a portion of the net proceeds from issuance of the Series B preferred stock (as defined herein) as well as certain bond refundings. During 1992, the Company recorded $8,835,000 of extraordinary charges, net of income taxes, related to the acceleration of unamortized debt issue costs associated with the repayment of certain debt. In addition, during 1992, the Company adopted Financial Accounting Standards Statement No. 109, "Accounting for Income Taxes," which resulted in the recording of a $5,454,000 cumulative effect adjustment.
The Company's annual effective tax rate was 33% for the twelve months ended December 31, 1993, compared to 50% for the same period in 1992. The higher annual effective tax rate in 1992 resulted from the $57,000,000 pre-tax charge mentioned above which reduced the Company's pre-tax income to a level where the impact of permanent tax differences and state income taxes had a more significant impact on the effective tax rate. In addition, the 1993 annual effective tax rate was lower than the statutory rate primarily due to the utilization of certain tax credit carryforwards.
Net operating revenues and operating and administrative costs increased approximately $274,000,000 and $252,100,000, respectively, for the twelve months ended December 31, 1993, as compared to the same period in 1992. These increases consist of the following: increases in net operating revenues and operating and administrative costs for facilities which the Company operated during each of the twelve-month periods ended December 31, 1993 and 1992 ("same facility operations") of approximately $265,700,000 and $261,700,000, respectively; increases in net operating revenues and operating and administrative costs of approximately $71,400,000 and $64,000,000, respectively, due to the acquisition of 14 facilities in 1993 and 16 facilities in 1992; and decreases in net operating revenues and operating and administrative costs of approximately $63,100,000 and $73,600,000, respectively, due to the disposition of, or lease terminations on, 43 facilities in 1993 and 23 facilities in 1992.
The increase in net operating revenues for same facility operations for the twelve months ended December 31, 1993, as compared to the same period in 1992, was due to the following: approximately $143,200,000 due to increased ancillary revenues as a result of providing additional ancillary services to the Company's private and Medicare patients; approximately $103,200,000 due primarily to increases in Medicaid room and board rates, and to a lesser extent, private and Medicare room and board rates; approximately $12,900,000 due to an improvement in the Company's patient mix; and approximately $11,900,000 due to increases in pharmacy revenues and various other items. The Company's Medicare, private and Medicaid census for same facility operations was 11%, 19%, and 69%, respectively, for the twelve months ended December 31, 1993, compared to 10%, 19%, and 70%, respectively, for the same period in 1992. These increases in net operating revenues were partially offset by approximately $5,500,000 due to one less calendar day during 1993, as compared to 1992.
The increase in operating and administrative costs for same facility operations for the twelve months ended December 31, 1993, as compared to the same period in 1992, was due to the following: approximately $106,700,000 due to increased wages and related expenses principally due to higher wages and greater benefits intended to attract and retain qualified personnel and the hiring of therapists on staff as opposed to contracting for their services; approximately $117,100,000 due to additional ancillary costs (excluding wages and related expenses) associated with the increase in ancillary services provided to the Company's private and Medicare
patients; approximately $15,100,000 due to an increase in the provision for reserves on patient, notes and other receivables primarily as a result of an increase in the Company's private and Medicare revenues, as well as, reductions in the provision for doubtful notes in 1992 due to the reacquisition of certain facilities, which did not recur in 1993; approximately $5,300,000 due to increases in supplies and other variable costs required to meet the needs of the Company's higher-acuity patients; and approximately $17,500,000 due primarily to increases in pharmacy-related costs, utilities and property-related expenses, which include taxes (other than income and payroll taxes), insurance and various other items.
Ancillary revenues are derived from providing services to residents beyond room and board care. These services include occupational, physical, speech, respiratory and IV therapy, as well as, sales of pharmaceutical products and other services. The Company's overall ancillary revenues for the twelve months ended December 31, 1993 were $618,804,000 and represented 22% of total revenues, as compared to $458,281,000 of ancillary revenues for the same period in 1992 which represented 18% of total 1992 revenues. Although the Company is pursuing further growth of ancillary revenues, through expansion of specialty services, such as rehabilitation and subacute care, there can be no assurance that such growth will continue. Growth in ancillary revenues, as well as increases in Medicare census, have also resulted in higher costs for the Company due to the higher acuity services being provided to these patients. The Company's overall ancillary costs, excluding wages and related expenses, were $347,515,000 for the twelve months ended December 31, 1993, compared to $248,156,000 for the same period in 1992.
Although there was no significant overall fluctuation in interest income or interest expense in 1993 as compared to 1992, several offsetting items influenced these amounts. Interest income increased approximately $1,300,000 due to interest earned on $100,000,000 of the net proceeds from issuance of the Series B preferred stock, which was significantly offset by lower investment yield rates and a decrease in the Company's notes receivable. Interest expense increased approximately $2,000,000 due to the issuance and assumption of long- term obligations in conjunction with the acquisitions of certain nursing facilities, which was significantly offset by the repayment of approximately $45,000,000 of debt with a portion of the net proceeds from issuance of the Series B preferred stock and the conversion of approximately $46,000,000 in principal amount of the Company's 9% Debentures (as defined herein) into common stock. Depreciation and amortization expense decreased approximately $1,900,000 as compared to the same period in 1992 primarily due to the disposition of, or lease terminations on, certain nursing facilities and a reduction in debt issue costs associated with the repayment of certain debt, partially offset by additional depreciation and amortization on acquired facilities.
The Company's future operating performance will continue to be affected by the issues facing the nursing home industry as a whole, including the maintenance of occupancy, the availability of nursing personnel, the adequacy of funding of governmental reimbursement programs, the demand for nursing home care and the nature of any health care reform measures that may be taken by the federal government, as discussed below, as well as by any state governments. The Company's ability to control costs, including its wages and related expenses which continue to rise and represent the largest component of the Company's operating and administrative expenses, will also significantly impact its future operating results.
As a general matter, increases in the Company's operating costs result in higher patient rates under Medicaid programs in subsequent periods. However, the Company's results of operations will continue to be affected by the time lag in most states between increases in reimbursable costs and the receipt of related reimbursement rate increases. Medicaid rate increases, adjusted for inflation, are generally based upon changes in costs for a full calendar year period. The time lag before such costs are reflected in permitted rates varies from state to state, with a substantial portion of the increases taking effect up to 18 months after the related cost increases.
On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993 ("OBRA - 93") was signed into law. OBRA - 93 includes certain changes in the Medicare program effective October 1, 1993, including, among other things, the elimination of the return on equity provision of the program. The Company cannot currently predict the future impact this change will have on its financial condition and results of operations; however, for the nine months ended September 30, 1993 (prior to the effective date of OBRA - 93) and for the year ended December 31, 1992, the Company recognized pre-tax income of approximately $8,900,000 for
each of such periods as a result of the Medicare return on equity provision. In addition, OBRA - 93 increased corporate income tax rates by one percent retroactive to January 1, 1993. This rate change did not have a material effect on the Company's financial position or results of operations in 1993 and is not expected to have a material effect in the future.
The Clinton Administration has made health care reform one of its top priorities. The White House Task Force on Health Care Reform studied the issue of health care reform and presented its report and recommendations to the Administration. The Administration proposed health care reform legislation to Congress in October 1993. Various other legislative and industry groups continue to study numerous health care issues, including access, delivery and financing of long-term health care. These and other groups' recommendations will likely impact the form and content of future health care reform legislation. As a result, the Company is unable to predict the type of legislation or regulations that may be adopted affecting the long-term care industry and their impact on the Company. There can be no assurance that any health care reform will not adversely affect the Company's financial position or results of operations.
The Company does not provide significant postretirement health care, life insurance or other benefits to employees. Accordingly, the requirements of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," did not materially impact the Company's consolidated financial position or results of operations. The Company does not provide significant postemployment health care, life insurance or other benefits to employees. Accordingly, the requirements of Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits," will not materially impact the Company's consolidated financial position or results of operations when implemented in 1994.
Twelve Months 1992 Compared to Twelve Months 1991
Net loss was $10,108,000 for the twelve months ended December 31, 1992, as compared to net income of $29,172,000 for the same period in 1991. During the fourth quarter of 1992, the Company recorded a $57,000,000 pre-tax restructuring charge related to a program to discontinue the Company's operation of 33 nursing facilities with historically poor financial performance, and to replace, relocate or sell certain other assets (the "1992 restructuring program"). Income before income taxes, extraordinary charge and cumulative effect of a change in accounting for income taxes for the twelve months ended December 31, 1992 was $8,384,000 compared to $41,582,000 for the same period in 1991, and income before extraordinary charge and cumulative effect of a change in accounting for income taxes was $4,181,000 for 1992, compared to $29,172,000 in 1991. These reductions, as compared to the prior year, resulted from the $57,000,000 pre-tax restructuring charge discussed above.
During the first quarter of 1992, the Company recorded a $4,523,000 extraordinary charge, net of income taxes, related to the acceleration of unamortized debt issue costs associated with certain debt that was repaid with the proceeds of a $100,000,000 Bank Credit Facility (as defined herein). At the end of the fourth quarter of 1992, the Company obtained substantial commitments to refinance the remaining debt outstanding under a 1990 credit agreement. Accordingly, in the fourth quarter of 1992, the Company recorded a $4,312,000 extraordinary charge, net of income taxes, related to the acceleration of unamortized debt issue costs associated with the early extinguishment of such remaining debt.
Effective January 1, 1992, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by Financial Accounting Standards Statement No. 109, "Accounting for Income Taxes." As permitted by the Statement, the Company elected not to restate the financial statements of prior years. The cumulative effect as of January 1, 1992 of adopting the Statement was to increase net loss for the year ended December 31, 1992 by $5,454,000. The Company's annual effective tax rate was 50% for the twelve months ended December 31, 1992 as compared to 30% for the same period in 1991. The higher annual effective tax rate in 1992 primarily resulted from the $57,000,000 pre-tax charge discussed above which reduced the Company's pre-tax income to a level where the impact of permanent tax differences and state income taxes had a more significant impact on the effective tax rate. In addition, the
1991 annual effective tax rate was lower than the statutory rate due to various items including a settlement of certain tax issues related to the audit of prior years' tax returns by the Internal Revenue Service.
Net operating revenues and operating and administrative costs increased approximately $295,800,000 and $272,800,000, respectively, for the twelve months ended December 31, 1992, as compared to the same period in 1991. These increases consist of the following: increases in net operating revenues and operating and administrative costs for facilities which the Company operated during each of the twelve-month periods ended December 31, 1992 and 1991 ("same facility operations") of approximately $281,800,000 and $263,400,000, respectively; increases in net operating revenues and operating and administrative costs of approximately $64,500,000 and $55,800,000, respectively, due to the acquisition of 16 facilities in 1992 and 35 facilities in 1991; and decreases in net operating revenues and operating and administrative costs of approximately $50,500,000 and $46,400,000, respectively, due to the disposition of, or lease terminations on, 23 facilities in 1992 and 28 facilities in 1991.
The increase in net operating revenues for same facility operations for the twelve months ended December 31, 1992, as compared to the same period in 1991, was due to the following: approximately $140,200,000 due to increased ancillary revenues as a result of providing additional ancillary services to the Company's private and Medicare patients; approximately $119,500,000 due primarily to increases in Medicaid patient rates, and to a lesser extent, private and Medicare patient rates; approximately $21,800,000 due to an improvement in the Company's patient mix principally due to an increase in Medicare census; approximately $5,100,000 due to one additional calendar day for the twelve months ended December 31, 1992, as compared to the same period in 1991; and approximately $6,200,000 due to various other items. The Company's Medicare, private and Medicaid census for same facility operations was 10%, 19% and 70%, respectively, for the twelve months ended December 31, 1992, as compared to 7%, 20%, and 72%, respectively, for the same period in 1991. The Company's average occupancy for same facility operations was 88.6% for the twelve months ended December 31, 1992 as compared to 88.5% for the same period in 1991. The increases in net operating revenues were partially offset by approximately $11,000,000 of Medicare and Medicaid adjustments during the twelve months ended December 31, 1991, which did not recur in the twelve months ended December 31, 1992.
The increase in operating and administrative costs for same facility operations for the twelve months ended December 31, 1992, as compared to the same period in 1991, was due to the following: approximately $117,600,000 due to increased wages and related expenses principally due to higher wages and greater benefits intended to attract and retain qualified personnel, increased staffing levels in the Company's nursing facilities to cover increased patient acuity, and the hiring of therapists on staff as opposed to contracting for their services, including a partial offset due to a decrease in registry (temporary personnel) costs for the same period of approximately $5,600,000; approximately $72,400,000 due to increases in contracted professional services primarily as a result of additional ancillary services such as physical therapy provided to the Company's private and Medicare patients; approximately $58,100,000 due to increases in supplies and other variable costs primarily due to additional supplies required to meet the needs of the Company's patients, including a partial offset of approximately $11,800,000 due to reductions in the provision for doubtful notes which primarily resulted from the reacquisition of certain facilities; and approximately $15,300,000 due primarily to increases in property-related expenses, including rent, taxes (other than income and payroll taxes), insurance and various other items.
Interest expense decreased approximately $6,000,000 as compared to the same period in 1991 primarily due to declining interest rates on the Company's variable rate debt, and to a lesser extent the repurchase of Senior Secured Notes and the repayment of indebtedness under a 1990 credit agreement as a result of the sale of common stock on April 4, 1991. Interest income decreased approximately $5,500,000 as compared to the same period in 1991 primarily due to lower investment yield rates and decreases in notes receivable and invested funds.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1993, the Company had approximately $73,773,000 in cash and cash equivalents and net working capital of approximately $151,869,000. The Company anticipates that approximately $25,368,000 of its existing cash at December 31, 1993, while not legally restricted, will be utilized for funding insurance claims, and the Company does not expect to use such cash for other purposes. The Company had $50,000,000 of unused commitments under its Bank Revolving Credit Facility and $15,000,000 of unused commitments under its Commercial Paper Program as of December 31, 1993.
Net cash provided by operating activities for the year ended December 31, 1993, was approximately $130,877,000, an increase of approximately $32,311,000 from the prior year primarily as a result of certain income tax payments made during the twelve months ended December 31, 1992 which did not recur in 1993 and an increase in deferred taxes in 1993 over 1992. The Company also experienced an increase in collections on accounts receivable in 1993 as compared to 1992, which amount was primarily used to pay accounts payable and other accrued expenses. Net cash provided by financing activities during the year ended December 31, 1993 was approximately $38,872,000. The Company repaid approximately $99,899,000 of long-term obligations primarily with approximately $45,000,000 of the net proceeds from the Preferred Stock offering (as discussed below), a portion of the proceeds from a $20,000,000 Senior Secured Term Loan Facility, a portion of the proceeds from issuance of $50,000,000 of First Mortgage Bonds (as discussed below) and a portion of the proceeds from issuance of $25,000,000 of 8.75% Notes (as discussed below). Net cash used for investing activities during the year ended December 31, 1993 was approximately $145,573,000. The Company primarily used cash generated from operations to fund capital expenditures and construction totaling approximately $95,364,000 and primarily used proceeds from the issuance of long-term obligations to fund the acquisition of nursing facilities, including certain previously leased facilities.
In April 1993, the Company registered with the Securities and Exchange Commission $100,000,000 aggregate principal amount of First Mortgage Bonds (the "First Mortgage Bonds Registration Statement") which are to be offered from time to time as separate series in amounts, at prices and on terms to be determined at the time of sale. Pursuant to such registration, the Company issued two series of First Mortgage Bonds in 1993. On April 22, 1993, the Company issued $20,000,000 aggregate principal amount of 8.75% First Mortgage Bonds (the "Series A Bonds") due July 1, 2008. On July 22, 1993, the Company issued $30,000,000 aggregate principal amount of 8.625% First Mortgage Bonds (the "Series B Bonds") due October 1, 2008. In November 1993, the Company filed a Registration Statement with the Securities and Exchange Commission to amend the First Mortgage Bonds Registration Statement to allow the Company to issue senior unsecured notes, subordinated unsecured notes, or other evidences of indebtedness, as well as First Mortgage Bonds, (collectively, the "Debt Securities") for the remaining $50,000,000 available under the First Mortgage Bonds Registration Statement. On December 22, 1993, the Company issued $25,000,000 aggregate principal amount of 8.75% Notes (the "8.75% Notes"), which are unsecured obligations of the Company, due December 31, 2003. The Company used the net proceeds from issuance of the Series A Bonds, the Series B Bonds and the 8.75% Notes to finance the purchase of nine nursing facilities, to finance construction of a new nursing facility, to refinance certain existing indebtedness with respect to 20 nursing facilities, which debt had a weighted average annual interest rate of 12.1%, and for general corporate purposes.
On August 5, 1993, the Company completed the sale of 3,000,000 shares of $2.75 Cumulative Convertible Exchangeable Preferred Stock (the "Series B preferred stock") through a public offering (the "Preferred Stock offering") for net proceeds of approximately $145,000,000. On January 3, 1994, the Company used approximately $100,000,000 of such net proceeds to redeem all of the Company's cumulative convertible preferred stock (the "Series A preferred stock"). The Series A preferred stock dividend rate was scheduled to increase from 1% to 10% on January 1, 1994. The remainder of the net proceeds was used to repay approximately $45,000,000 of the Term Loan under the Bank Credit Facility. The $20,000,000 excess (the "redemption premium") paid above the $80,000,000 original recorded value of the Series A preferred stock was charged to the Company's retained earnings during the twelve months ended December 31, 1993. Although such amount did not impact the Company's net income, for accounting purposes the $20,000,000 redemption premium was treated as a reduction to income available to common stockholders in the calculation of earnings per share for the twelve-month period ended December 31, 1993.
During the twelve months ended December 31, 1993, the Board of Directors approved the redemption of approximately $46,000,000 in principal amount of the Company's 9% convertible subordinated debentures (the "9% Debentures"). By the close of business on August 18, 1993, all of the 9% Debentures had been converted to common stock of the Company. Outstanding shares of the Company's common stock increased by approximately 7,131,800 shares as a result of the conversion of the 9% Debentures. Primarily as a result of the Preferred Stock offering and the use of the net proceeds therefrom, and the conversion of the 9% Debentures into shares of the Company's common stock, the Company's debt to equity ratio improved to 1 to 1 at December 31, 1993, as compared to 1.2 to 1 at December 31, 1992.
In January 1994, the Company sold or subleased 27 nursing facilities (2,344 beds) in the state of Texas for cash proceeds of approximately $31,000,000. In addition, on January 26, 1994, an option grant for 1,000,000 common shares at $12.00 per share was exercised in full and the Company received $12,000,000 in cash proceeds. The Company intends to file a Registration Statement with the Securities and Exchange Commission to register such 1,000,000 shares.
The Company believes that working capital from operations, borrowings under its banking arrangements and Commercial Paper Program, proceeds from issuance of Debt Securities, refinancings of certain existing indebtedness, and proceeds from the sale of facilities and the exercise of the option grant discussed above will be adequate to repay its debts due within one year of approximately $42,873,000, to make normal recurring capital additions and improvements for the twelve months ending December 31, 1994 of approximately $100,000,000, to make selective acquisitions, including the purchase of previously-leased facilities, and to meet working capital requirements.
ITEM 8.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
The Board of Directors and Stockholders Beverly Enterprises, Inc.
We have audited the accompanying consolidated balance sheets of Beverly Enterprises, Inc. as of December 31, 1993 and 1992, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1993. Our audits also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Beverly Enterprises, Inc. at December 31, 1993 and 1992, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
As discussed in Note 7 to the consolidated financial statements, in 1992 the Company changed its method of accounting for income taxes.
Little Rock, Arkansas February 4, 1994
BEVERLY ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
ASSETS
See accompanying notes.
BEVERLY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
See accompanying notes.
BEVERLY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
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(1) Amount represents the liquidation value of the Series B preferred stock. The Series A preferred stock was outstanding at December 31, 1993 with funds designated for its redemption. The Series A preferred stock was redeemed on January 3, 1994.
See accompanying notes.
BEVERLY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
See accompanying notes.
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
References herein to the Company include Beverly Enterprises, Inc. and its wholly-owned subsidiaries. The consolidated financial statements of the Company, which provides long-term health care including the operation of nursing facilities and subacute units, pharmacies, retirement living projects, and home health care centers, include the accounts of the Company and all of its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents include time deposits and certificates of deposit with original maturities of three months or less.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation or, where appropriate, the present value of the related capital lease obligations less accumulated amortization. Depreciation and amortization are computed by the straight-line method over the estimated useful lives of the assets.
Intangible Assets
Operating and leasehold rights and licenses (stated at cost less accumulated amortization of $23,059,000 in 1993 and $24,314,000 in 1992) are being amortized over the lives of the related assets (principally 40 years) and leases (principally 10 to 15 years), using the straight-line method. Goodwill (stated at cost less accumulated amortization of $21,183,000 in 1993 and $19,248,000 in 1992) is being amortized over 40 years or, if applicable, the life of the lease using the straight-line method. On an ongoing basis, the Company reviews the valuation and amortization of intangible assets. As part of this ongoing review, the Company takes into consideration any events or circumstances that could impair the carrying value of such assets.
Insurance
The Company insures general liability and workers' compensation risks, in most states, through insurance policies with third parties, some of which may be subject to reinsurance agreements between the insurer and Beverly Indemnity, Ltd., a wholly-owned subsidiary of Beverly California Corporation, which is a wholly-owned subsidiary of the Company. The liabilities for estimated incurred losses are discounted at 10% in 1993 and 1992 to their present value based on expected loss payment patterns determined by independent actuaries. The discounted insurance liabilities are included in the consolidated balance sheet captions as follows (in thousands):
On an undiscounted basis, the total insurance liabilities as of December 31, 1993 and 1992 were $132,333,000 and $137,605,000, respectively. As of December 31, 1993, the Company has deposited approximately $50,365,000 in funds that are restricted for the payment of insured claims. These funds are
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
invested primarily in United States government securities with maturity dates ranging primarily from one to five years and are carried at cost, which approximates market value, and are included in the consolidated balance sheet captions "Prepaid expenses and other" and "Designated and restricted funds." In addition, the Company anticipates that approximately $25,368,000 of its existing cash at December 31, 1993, while not legally restricted, will be utilized for funding insurance claims and the Company does not expect to use such cash for other purposes.
Revenues
The Company's revenues are derived primarily from providing long-term health care services. Approximately 80.1% in 1993, 79.9% in 1992 and 78.8% in 1991 of the Company's room and board revenues were derived from funds under federal and state medical assistance programs, and approximately $267,035,000, $249,413,000 and $196,082,000 of the Company's patient accounts receivable at December 31, 1993, 1992, and 1991, respectively, are due from such programs. These revenues and receivables are reported at their estimated net realizable amounts and are subject to audit and retroactive adjustment. Provisions for estimated third-party payor settlements are provided in the period the related services are rendered and are adjusted in the period of settlement.
Concentration of Credit Risk
The Company has significant accounts receivable, notes receivable and other assets whose collectibility or realizability is dependent upon the performance of certain governmental programs, primarily Medicaid and Medicare. These receivables and other assets represent the only concentration of credit risk for the Company. The Company does not believe there are significant credit risks associated with these governmental programs. The Company believes that an adequate provision has been made for the possibility of these receivables and other assets proving uncollectible and continually monitors and adjusts these allowances as necessary.
Earnings per share
Primary earnings per share for the year ended December 31, 1993 was computed by dividing net income after deduction of preferred stock dividends and the $20,000,000 redemption premium on the Series A preferred stock, discussed below, by the weighted average number of shares of common stock outstanding during the period and the weighted average number of shares issuable upon exercise of stock options, calculated using the treasury stock method. Fully diluted earnings per share for the year ended December 31, 1993 was computed as above and assumed conversion of the Company's 9% convertible subordinated debentures and other notes. Conversion of the Company's 7.625% convertible subordinated debentures would have an anti-dilutive effect and, therefore, was not assumed. During the year ended December 31, 1993, the Company charged retained earnings for the $20,000,000 excess (the "redemption premium") to be paid to redeem the Company's cumulative convertible preferred stock (the "Series A preferred stock") above its $80,000,000 original recorded value. Although this amount did not impact the Company's net income, for accounting purposes the $20,000,000 redemption premium was treated as a reduction to income available to common stockholders in the calculation of earnings per share for the year ended December 31, 1993.
Primary and fully diluted earnings per share for the year ended December 31, 1992 were computed by dividing net income after deduction of preferred stock dividends by the weighted average number of shares of common stock outstanding during the period and the weighted average number of shares issuable upon exercise of stock options, calculated using the treasury stock method.
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Primary earnings per share for the year ended December 31, 1991 was computed by dividing net income by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding during the period. Common stock equivalents included the Company's Series A preferred stock and the weighted average number of shares issuable upon exercise of stock options, calculated using the treasury stock method. Fully diluted earnings per share for the year ended December 31, 1991 was computed as above and assumed conversion of the Company's other notes. Conversion of the Company's 7.625% and 9% convertible subordinated debentures would have an anti-dilutive effect and, therefore, were not assumed.
Other
Certain prior year amounts have been reclassified to conform with the 1993 presentation.
2. ACQUISITIONS AND DISPOSITIONS
During the year ended December 31, 1992, the Company recognized a $57,000,000 pre-tax restructuring charge related to a program to discontinue the Company's operation of 33 nursing facilities with historically poor financial performance, and to replace, relocate or sell certain other assets (the "1992 restructuring program"). This charge included the estimated operating losses to be incurred by these 33 facilities during the anticipated period required to implement the program. Certain transactions which were reserved as part of the 1992 restructuring program were not completed by the originally anticipated one-year implementation period; however, the Company anticipates that the remaining transactions will be substantially completed during the first six months of 1994. The Company evaluates the reserves established in connection with the remaining transactions on a regular basis, and believes the current reserves are adequate.
During the year ended December 31, 1993, the Company acquired three nursing facilities (328 beds) and leasehold interests in eight nursing facilities (829 beds) and one retirement living project (69 units), all of which were previously managed by the Company, in addition to one nursing facility (60 beds) and one retirement living project (187 units) not previously operated by the Company. The acquisitions of such facilities, and certain other assets, were accounted for as purchases and were consummated with approximately $6,915,000 cash, approximately $18,232,000 assumed and acquired debt, approximately $858,000 of security and other deposits and approximately $454,000 reduction in receivables. In addition, the Company acquired 25 nursing facilities (2,706 beds) and two retirement living projects (435 units), which were previously leased by the Company, for approximately $38,381,000 cash (including approximately $5,000,000 borrowed under the Company's revolving credit agreement), approximately $5,541,000 issuance of debt, approximately $42,285,000 assumed and acquired debt and approximately $2,313,000 of security and other deposits. The operations of these facilities were immaterial to the Company's financial position and results of operations.
During the year ended December 31, 1993, the Company sold or terminated the leases on 40 nursing facilities (4,511 beds) (20 of such facilities were included in the 33 facilities discussed above) and three retirement living projects (230 units) (two of which were included in the 33 facilities discussed above). The Company recognized pre-tax losses of approximately $3,769,000 as a result of these dispositions, which was primarily included in the $57,000,000 pre-tax restructuring charge discussed above. In addition, the Company sold certain other assets for pre-tax gains of approximately $4,850,000. Dispositions of such facilities and other assets were consummated for approximately $9,583,000 cash and approximately $5,460,000 assumption of debt. The operations of these facilities were immaterial to the Company's financial position and results of operations.
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
2. ACQUISITIONS AND DISPOSITIONS -- (CONTINUED)
In January 1994, the Company sold or subleased 27 nursing facilities (2,344 beds) in the state of Texas for cash proceeds of approximately $31,000,000. The sale and sublease of these nursing facilities will not have a material impact on the Company's financial position or results of operations, and the operations of these facilities were immaterial to the Company.
During the year ended December 31, 1992, the Company acquired 15 nursing facilities (1,669 beds), one retirement living project (24 units) and other assets, accounted for as purchases. The acquisitions were consummated with approximately $6,112,000 cash, approximately $25,639,000 issuance of debt, approximately $20,221,000 assumed and acquired debt and approximately $13,230,000 reduction in notes receivable, which the Company previously took as partial payment for the original sale of certain of the nursing facilities and interest receivable thereon. In addition, the Company acquired 14 nursing facilities (1,450 beds), which were previously leased by the Company, for approximately $12,809,000 cash, approximately $8,340,000 issuance of debt, approximately $11,325,000 assumed and acquired debt and approximately $841,000 of security and other deposits. In addition, the Company sold or terminated the leases on 22 nursing facilities (2,379 beds) (five of such facilities were included in the 33 facilities discussed above) and one retirement living project (77 units) (which was included in the 33 facilities discussed above) for approximately $1,282,000 cash and approximately $4,610,000 notes. The Company recognized pre-tax losses of approximately $5,394,000 as a result of these dispositions, a portion of which was included in the $57,000,000 pre-tax restructuring charge discussed above. The operations of these facilities were immaterial to the Company's financial position and results of operations.
During the year ended December 31, 1991, the Company acquired 35 nursing facilities (2,963 beds), accounted for as purchases, including 16 leased facilities, and other assets. The acquisitions were consummated with approximately $5,265,000 cash, approximately $26,777,000 assumed and acquired debt, approximately $1,682,000 security deposits and approximately $21,956,000 reduction in notes receivable, which the Company previously took as partial payment for the original sale of certain of the nursing facilities. In addition, the Company acquired seven nursing facilities (841 beds), which were previously leased by the Company, for approximately $14,521,000 cash and approximately $630,000 of security deposits. The Company sold or terminated the leases on 28 nursing facilities (3,775 beds) for approximately $1,155,000 cash and approximately $601,000 notes and recognized pre-tax losses of approximately $7,450,000 as a result of these dispositions, a portion of which was included in the $128,104,000 pre-tax restructuring charges taken as a result of an asset disposition program in 1989. The operations of these facilities were immaterial to the Company's financial position and results of operations.
3. PROPERTY AND EQUIPMENT
Following is a summary of property and equipment and related accumulated depreciation and amortization by major classifications at December 31 (in thousands):
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
3. PROPERTY AND EQUIPMENT -- (CONTINUED) The Company provides depreciation and amortization using the straight-line method over the following estimated useful lives: land improvements -- 5 to 15 years; buildings -- 35 to 40 years; building improvements -- 5 to 20 years; leasehold improvements -- 5 to 20 years or term of lease, if less; furniture and equipment -- 5 to 15 years. Capitalized lease assets are amortized over the remaining initial terms of the leases.
Depreciation and amortization expense related to property and equipment for the years ended December 31, 1993, 1992 and 1991 was $71,730,000, $68,214,000 and $65,051,000, respectively.
4. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following at December 31 (dollars in thousands except per share amounts):
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
4. LONG-TERM OBLIGATIONS -- (CONTINUED) By December 31, 1992, the Company had obtained substantial commitments to refinance the remaining debt outstanding under a 1990 credit agreement. Accordingly, in 1992, the Company recorded a $4,312,000 extraordinary charge, net of income taxes, related to the acceleration of unamortized debt issue costs associated with the early extinguishment of this debt. On March 3, 1993, the Company closed such refinancing and entered into a $20,000,000 Credit Agreement (the "Nippon Credit Agreement") and a $135,000,000 Credit Agreement (the "Morgan Credit Agreement"). The Nippon Credit Agreement provides for a seven-year term loan (the "Nippon Term Loan"). The proceeds from the Nippon Term Loan were used to repay the remaining balance outstanding under a term loan provided by the 1990 credit agreement, and to fund, among other things, the purchase of certain previously-leased facilities. The Morgan Credit Agreement originally provided for a $35,000,000 Working Capital Revolving Credit Facility (the "Revolver") and a $100,000,000 Letter of Credit Facility (the "LOC Facility"). Effective September 30, 1993, the Morgan Credit Agreement was amended to increase the Revolver to $50,000,000 and to decrease the LOC Facility to $85,000,000. The Revolver and the LOC Facility replaced the Company's revolving credit facility and letter of credit facility originally entered into under the 1990 credit agreement. The Nippon Term Loan bears interest at the Prime Rate, as defined, plus 1.50% or Adjusted LIBOR plus 2.50%, at the Company's option, and requires interest-only payments for the first three years. Amounts outstanding under the Revolver bear interest at Adjusted LIBOR plus 1.25% or the Base Rate, as defined, plus .25%, at the Company's option, until maturity on February 15, 1996. At December 31, 1993, there were no outstanding borrowings under the Revolver. The Company pays certain commitment fees and commissions with respect to the Revolver and the LOC Facility.
The Nippon Credit Agreement is secured by a mortgage interest in 13 nursing facilities with a net book value totaling approximately $16,392,000 at December 31, 1993, and a security interest in certain personal property. The Morgan Credit Agreement is secured by a mortgage interest in 61 nursing facilities with net book value totaling approximately $78,836,000 at December 31, 1993, a security interest in certain personal property and a security interest in the stock of substantially all of the Company's operating subsidiaries. These credit agreements each impose on the Company certain financial tests and certain restrictive covenants.
During 1992, the Company executed a $100,000,000 Bank Credit Facility (the "Bank Credit Facility") which provides for a seven-year term loan (the "Term Loan"). The Company incurred an extraordinary charge in 1992 of $4,523,000, net of income taxes, related to the acceleration of unamortized debt issue costs associated with the early extinguishment of certain debt that was repaid with a portion of the proceeds from the Bank Credit Facility. A portion of the net proceeds from the Preferred Stock offering (as discussed below) was used to repay approximately $45,000,000 of the Term Loan during 1993. Accordingly, in 1993, the Company recorded a $2,345,000 extraordinary charge, net of income taxes, related to the acceleration of unamortized debt issue costs associated with such debt as well as certain bond refundings. The Term Loan bears interest at Adjusted LIBOR plus 2.50% or the Prime Rate, as defined, plus 1.50%, at the Company's option, and requires interest-only payments for the first three years. The Bank Credit Facility is secured by a mortgage interest in 68 nursing facilities and retirement centers with net book value totaling approximately $130,358,000 at December 31, 1993, and a security interest in certain personal property and imposes on the Company certain financial tests and restrictive covenants.
As of December 31, 1993, the Company had $17,750,000 of fixed rate senior secured notes (the "Senior Secured Notes") outstanding which were previously issued in conjunction with a refinancing in 1990. The Senior Secured Notes have interest payable semi-annually at 14.25%, require a sinking fund payment on December 15, 1996 and mature on December 15, 1997. The Senior Secured Notes are secured by a mortgage interest in 20 nursing facilities with net book value totaling approximately $28,156,000 at December 31, 1993,
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
4. LONG-TERM OBLIGATIONS -- (CONTINUED)
and a security interest in certain personal property and impose on the Company certain financial tests and certain restrictive covenants.
In April 1993, the Company registered with the Securities and Exchange Commission $100,000,000 aggregate principal amount of First Mortgage Bonds (the "First Mortgage Bonds Registration Statement") which are to be offered from time to time as separate series in amounts, at prices and on terms to be determined at the time of sale. Pursuant to such registration, the Company issued two series of First Mortgage Bonds in 1993. On April 22, 1993, the Company issued $20,000,000 aggregate principal amount of 8.75% First Mortgage Bonds (the "Series A Bonds") due July 1, 2008. On July 22, 1993, the Company issued $30,000,000 aggregate principal amount of 8.625% First Mortgage Bonds (the "Series B Bonds") due October 1, 2008. In November 1993, the Company filed a Registration Statement with the Securities and Exchange Commission to amend the First Mortgage Bonds Registration Statement to allow the Company to issue senior unsecured notes, subordinated unsecured notes, or other evidences of indebtedness, as well as First Mortgage Bonds, (collectively, the "Debt Securities") for the remaining $50,000,000 available under the First Mortgage Bonds Registration Statement. On December 22, 1993, the Company issued $25,000,000 aggregate principal amount of 8.75% Notes (the "8.75% Notes"), which are unsecured obligations of the Company, due December 31, 2003. The Company used the net proceeds from issuance of the Series A Bonds, the Series B Bonds and the 8.75% Notes to finance the purchase of nine nursing facilities, to finance construction of a new nursing facility, to refinance certain existing indebtedness with respect to 20 nursing facilities, which debt had a weighted average annual interest rate of 12.1%, and for general corporate purposes.
As of December 31, 1993, $50,000,000 was outstanding under the Company's Commercial Paper Program, pursuant to which eligible receivables of selected nursing facilities are sold to Beverly Funding Corporation ("Beverly Funding"), a wholly-owned subsidiary of the Company. The commercial paper has due dates ranging primarily from one to three months, and is backed by a commercial paper liquidity facility due December 31, 1995. The Company's maximum borrowing level under the program is $65,000,000. At December 31, 1993, Beverly Funding had total assets of approximately $75,951,000 which cannot be used to satisfy claims of the Company or any of its subsidiaries.
On August 5, 1993, the Company completed the sale of 3,000,000 shares of $2.75 Cumulative Convertible Exchangeable Preferred Stock (the "Series B preferred stock") through a public offering (the "Preferred Stock offering") for net proceeds of approximately $145,000,000. On January 3, 1994, the Company used approximately $100,000,000 of such net proceeds to redeem all of the Company's Series A preferred stock. The remainder of the net proceeds was used to repay approximately $45,000,000 of the Term Loan under the Bank Credit Facility. Had the Preferred Stock offering been completed prior to January 1, 1993, and the net proceeds from the offering applied as discussed above, the pro forma net income per share for the twelve months ended December 31, 1993 would have been $.66.
During the twelve months ended December 31, 1993, the Board of Directors approved the redemption of approximately $46,000,000 in principal amount of the Company's 9% convertible subordinated debentures (the "9% Debentures"). By the close of business on August 18, 1993, all of the 9% Debentures had been converted to common stock of the Company. Outstanding shares of the Company's common stock increased by approximately 7,131,800 shares as a result of the conversion of the 9% Debentures.
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
4. LONG-TERM OBLIGATIONS -- (CONTINUED)
Maturities and sinking fund requirements of long-term obligations, including capital leases, for the years ending December 31 are as follows (in thousands):
Many of the capital and operating leases contain at least one renewal option (which could extend the term of the leases by five to fifteen years), purchase options, escalation clauses and provisions for payments by the Company of real estate taxes, insurance and maintenance costs.
The industrial development revenue bonds were originally issued prior to 1985 primarily for the construction or acquisition of nursing facilities. The funds generated from certain of the initial bond issues are designated for facility construction and are maintained in interest bearing accounts (designated funds) until used. Bond reserve funds are also included in designated funds. These funds are invested primarily in certificates of deposit and in United States government securities and are carried at cost, which approximates market value. Net capitalized interest relating to construction was not material in 1993, 1992 or 1991.
5. COMMITMENTS AND CONTINGENCIES
The future minimum rental commitments required by all noncancelable operating leases with initial or remaining terms in excess of one year as of December 31, 1993, are as follows (in thousands):
Total future minimum rental commitments above include approximately $24,606,000 of minimum sublease rentals due in the future under noncancelable subleases. Rent expense on operating leases for the years ended December 31 was as follows: 1993 -- $133,567,000; 1992 -- $138,623,000; 1991 -- $140,330,000. Sublease rent income was approximately $3,226,000, $3,289,000 and $2,592,000 for the years ended December 31, 1993, 1992 and 1991, respectively. Contingent rent, based primarily on revenues, was approximately $20,000,000, $19,000,000 and $17,800,000 for the years ended December 31, 1993, 1992 and 1991, respectively.
Effective August 1, 1992, the Company entered into an agreement to outsource its management information systems functions for a period of seven years, with an option to renew based on mutual agreement
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
5. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
among the parties. The future minimum commitments required under such agreement as of December 31, 1993, are as follows: 1994 -- $7,941,000; 1995 -- $7,941,000; 1996 -- $7,941,000; 1997 -- $7,941,000; 1998 -- $7,941,000; thereafter -- $4,632,000. The Company incurred approximately $10,179,000 under such agreement during the year ended December 31, 1993.
The Company is contingently liable for approximately $71,674,000 of long-term obligations maturing on various dates through 2019, as well as annual interest of approximately $6,155,000 principally related to the Company's sale of nursing facilities and retirement living projects. In addition, the Company has working capital guarantees resulting from the disposition of facilities totaling $3,000,000. The Company operates the facilities or projects related to approximately $53,292,000 of the principal amount for which it is contingently liable, pursuant to long-term agreements accounted for as operating leases or management contracts. In addition, the Company is contingently liable for various operating leases that were assumed by purchasers and are secured by the rights thereto.
There are various lawsuits and regulatory actions pending against the Company arising in the normal course of business, some of which seek punitive damages. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on the Company's consolidated financial position or results of operations.
6. STOCKHOLDERS' EQUITY
The Company had 300,000,000 shares of authorized $.10 par value common stock at December 31, 1993 and 1992. The Company is subject to certain restrictions under its banking arrangements related to the payment of cash dividends on its common stock.
The Company had 25,000,000 shares of authorized $1 par value preferred stock at December 31, 1993 and 1992, a portion of which has been issued as described below. The Board of Directors has authority, without further stockholder action, to set rights, privileges and preferences for any unissued shares of preferred stock.
In December 1986, the Company issued 999,999 shares of its preferred stock ("the Series A preferred stock") with a stated and liquidation value of $100 per share to a wholly-owned subsidiary of Stephens Group, Inc. On January 3, 1994, the Company used approximately $100,000,000 of the net proceeds from the Preferred Stock offering (as defined below) to redeem the Series A preferred stock. The Series A preferred stock dividend rate was scheduled to increase from 1% to 10% on January 1, 1994.
On August 5, 1993, the Company completed the sale of 3,000,000 shares of $2.75 Cumulative Convertible Exchangeable Preferred Stock (the "Series B preferred stock"), with a liquidation value of $50 per share through a public offering (the "Preferred Stock offering"). As of December 31, 1993, the Series B preferred stock is convertible into 11,252,813 shares of the Company's common stock. The holders of the Series B preferred stock are entitled to receive out of legally available funds, when and as declared by the Company's Board of Directors, quarterly cash dividends equal to $2.75 per share (aggregate of $8,250,000 per annum). Except as required by law, holders of the Series B preferred stock have no voting rights unless dividends on the Series B preferred stock have not been paid in an aggregate amount equal to at least six full quarters (whether or not consecutive), in which case holders of the Series B preferred stock will be entitled to elect two additional directors to the Company's Board of Directors to serve until such dividend arrearage is eliminated. The Company paid all required quarterly dividends on the Series B preferred stock during 1993. The Series B preferred stock is exchangeable, in whole or in part (but in no more than two parts), at the option of the Company, on any dividend payment date beginning November 1, 1995, for the Company's 5 1/2%
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
6. STOCKHOLDERS' EQUITY -- (CONTINUED)
Convertible Subordinated Debentures due August 1, 2018 (the "5 1/2% Debentures"), at the rate of $50 principal amount of 5 1/2% Debentures for each share of the Series B preferred stock. The Series B preferred stock is redeemable at any time on and after August 1, 1996, in whole or in part, only at the option of the Company, initially at a redemption price of $51.925 per share, and thereafter at prices decreasing ratably annually to $50 per share on and after August 1, 2003, plus accrued and unpaid dividends. The Series B preferred stock is not a common stock equivalent and is accounted for only in the computation of fully diluted earnings per share.
During 1993, the Beverly Enterprises, Inc. 1993 Long-Term Incentive Stock Plan was approved. Such plan, as amended and restated (the "1993 Incentive Stock Plan"), became effective July 1, 1993 and will remain in effect until June 30, 2003, subject to the earlier termination by the Board of Directors. The Company has 3,000,000 common shares authorized for issuance, subject to certain adjustments, under the 1993 Incentive Stock Plan in the form of nonqualified stock options, incentive stock options, restricted stock, performance awards and other stock unit awards. Incentive stock options must be granted at a purchase price equal to market price at date of grant. Nonqualified stock options may be granted at no less than 85% of market price on the date of grant. All grants made at less than market price must be in lieu of cash payments. All options are exercisable no sooner than one year from the grant date and expire 10 years from the grant date. Restricted stock awards are outright stock grants which have a minimum vesting period of one year for performance-based awards, and three years for other awards. Performance awards and other stock unit awards will be granted based on the achievement of certain performance or other goals and will carry certain restrictions, as defined. The Compensation Committee of the Board of Directors is responsible for administering the 1993 Incentive Stock Plan and will have complete discretion in determining the number of shares or units to be granted, setting performance goals and applying other restrictions to awards, as needed, under the plan.
The Company has 2,400,000 common shares authorized for issuance under its 1985 Beverly Nonqualified Stock Option Plan. Under the plan, options are granted at a purchase price equal to market price at date of grant, become exercisable no sooner than one year after date of grant and expire no later than twelve years after date of grant, as determined by a committee appointed by the Board of Directors. In addition to options, the plan provides for outright grants of common stock, subject to forfeiture provisions. As a condition precedent to the release of such shares, the employee must be continuously employed with the Company from and after the date of grant and remain employed on share release dates. Commencing one year after the grant date, the shares will be released in accordance with a schedule determined at the time of grant.
During 1991, the Company terminated its Amended and Restated 1981 Beverly Incentive Stock Option Plan and its Amended and Restated 1981 Beverly Stock Option Plan. No new options or restricted shares may be granted under these plans. The terminations of these plans did not affect any of the options or restricted shares previously granted pursuant to the plans.
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
6. STOCKHOLDERS' EQUITY -- (CONTINUED)
The following table summarizes stock option and restricted stock data relative to the Company's 1981, 1985 and 1993 option plans for the years ended December 31:
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(1) Includes 2,108,743 options exercisable at December 31, 1993.
As of December 31, 1993, the Company had 1,000,000 common shares authorized for issuance under a separate option grant at an option price of $12.00 per share. On January 26, 1994, such option was exercised in full and the Company received $12,000,000 in cash proceeds from such transaction. The Company intends to file a Registration Statement with the Securities and Exchange Commission to register such 1,000,000 shares.
The Beverly Enterprises 1988 Employee Stock Purchase Plan (as amended and restated) enables all full-time employees having completed one year of continuous service to purchase the Company's common shares at the current market price through payroll deductions. The Company makes contributions in the amount of 30% of the participant's contribution. Each participant specifies the amount to be withheld from earnings per two-week pay period, subject to certain limitations. The total charges to the Company's consolidated statements of operations for the years ended December 31, 1993, 1992 and 1991 related to this plan were approximately $1,493,000, $1,102,000, and $850,000, respectively.
7. INCOME TAXES
Effective January 1, 1992, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by Financial Accounting Standards Statement No. 109, "Accounting for Income Taxes." As permitted by the Statement, the Company elected not to restate the financial statements of prior years. The cumulative effect as of January 1, 1992 of adopting the Statement was to increase net loss for the year ended December 31, 1992 by $5,454,000.
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
7. INCOME TAXES -- (CONTINUED)
The provision for taxes on income before extraordinary charge and cumulative effect of change in accounting for income taxes consists of the following for the years ended December 31 (in thousands):
The Company's annual effective tax rate was 33% for the year ended December 31, 1993, as compared to 50% for the same period in 1992. The Company's annual effective tax rate in 1993 is lower than the statutory rate primarily due to the utilization of certain tax credit carryforwards. In addition, the higher annual effective tax rate in 1992 primarily resulted from the $57,000,000 pre-tax charge (as discussed herein) which reduced the Company's pre-tax income to a level where the impact of permanent tax differences and state income taxes had a more significant impact on the effective tax rate.
A reconciliation of the provision for income taxes computed at the statutory rate to the Company's annual effective tax rate is summarized as follows (dollars in thousands):
In accordance with Statement No. 109, deferred income taxes for 1993 and 1992 reflect the impact of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
7. INCOME TAXES -- (CONTINUED)
and the amounts used for income tax purposes. The tax effects of temporary differences giving rise to the Company's deferred tax assets and liabilities at December 31, 1993 and 1992 are as follows (in thousands):
At December 31, 1993, the Company had targeted jobs tax credit carryforwards of $29,118,000 for income tax purposes which expire in years 2003 through 2008. For financial reporting purposes, the targeted jobs tax credit carryforwards have been utilized to offset existing net taxable temporary differences reversing during the carryforward periods. However, due to taxable losses in prior years, future taxable income has not been assumed and a valuation allowance of $15,097,000 and $17,611,000 for the years ended December 31, 1993 and 1992, respectively, has been recognized to offset the deferred tax assets related to those carryforwards. The valuation allowance decreased $2,514,000 from January 1, 1993 due to the utilization of targeted jobs tax credits.
The components of the benefit from deferred income taxes for the year ended December 31, 1991 are as follows (in thousands):
The caption "Prepaid expenses and other" includes prepaid federal and state income taxes of $5,279,000 at December 31, 1992.
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
8. RELATED PARTY TRANSACTIONS
During 1993 and 1992, the Company declared and paid all required quarterly dividends to the holder of its Series A preferred stock which amounted to $1,000,000 per year. During 1991, the Company declared and paid all current dividends and all dividends in arrears to such preferred shareholder which amounted to $4,000,000. An affiliate of the Company's Series A preferred shareholder provides certain investment services relating to the disposition of certain assets of the Company, and has provided underwriting and placement services on the Company's public and private offerings. The Company did not require such services in 1993 and 1992. Fees paid by the Company for such services amounted to approximately $1,421,000 for the year ended December 31, 1991.
As of December 31, 1991, an affiliate of the Company's Series A preferred shareholder held $5,000,000 of the Company's 14.25% fixed rate Senior Secured Notes which were repurchased in February 1992 for $5,850,000.
9. FAIR VALUES OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Statement No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Statement No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:
Cash and Cash Equivalents
The carrying amount reported in the consolidated balance sheets for cash and cash equivalents approximates its fair value.
Notes Receivable (Including Current Portion)
For variable-rate notes that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.
Investment in a Real Estate Mortgage Investment Conduit (REMIC)
The fair value of the Company's REMIC investment, which is included in the consolidated balance sheet caption "Other, net," is based on information obtained from the REMIC servicer.
Invested Funds Designated for the Redemption of Series A preferred stock
The carrying amounts reported in the consolidated balance sheets for these invested funds approximate their fair value.
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
9. FAIR VALUES OF FINANCIAL INSTRUMENTS -- (CONTINUED)
Long-term Obligations (Including Current Portion)
The carrying amounts of the Company's Commercial Paper, Term Loan, Bank Term Loan and certain other variable-rate borrowings approximate their fair values. The fair values of the remaining long-term obligations are estimated using discounted cash flow analyses, based on the Company's incremental borrowing rates for similar types of borrowing arrangements.
The carrying amounts and estimated fair values of the Company's financial instruments at December 31, 1993 and 1992 are as follows (in thousands):
It was not practicable to estimate the fair value of the Company's off-balance-sheet guarantees (See Note 5). In order to consummate certain dispositions and other transactions, the Company has agreed to guarantee the debt assumed or acquired by the purchaser or the performance under a lease, by the lessor. The Company does not charge a fee for entering into such agreements.
10. ADDITIONAL INFORMATION
Effective July 31, 1987, Beverly Enterprises, a California corporation ("Beverly California"), became a wholly-owned subsidiary of Beverly Enterprises, Inc., a Delaware corporation ("Beverly Delaware"). Beverly Delaware (the parent) provides financial, administrative and legal services to Beverly California for which Beverly California is charged management fees.
The following summarized financial information is being reported because Beverly California's 7.625% convertible subordinated debentures due March 2003 and its zero coupon notes (collectively, the "Debt Securities") and the Senior Secured Notes are publicly held. Beverly Delaware is co-obligor of these Debt Securities and guarantor of the Senior Secured Notes. Summary financial information for Beverly California is as follows (in thousands):
BEVERLY ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
10. ADDITIONAL INFORMATION -- (CONTINUED)
In addition to Beverly Delaware, one of its direct wholly-owned subsidiaries and each of Beverly California's material wholly-owned subsidiaries (collectively, the "Subsidiary Guarantors") have guaranteed the obligations of Beverly California under the Senior Secured Notes. Separate financial statements of Beverly California and the Subsidiary Guarantors are not considered to be material to holders of the Senior Secured Notes since the guaranty of each of the Subsidiary Guarantors is joint and several and full and unconditional (except that liability thereunder is limited to an aggregate amount equal to the largest amount that would not render its obligations thereunder subject to avoidance under Section 548 of the Bankruptcy Code of 1978, as amended, or any comparable provisions of applicable state law) and the aggregate net assets, earnings and equity of the Subsidiary Guarantors and Beverly California together, after adjustment for intercompany management fees, are substantially equivalent to the net assets, earnings and equity of Beverly Delaware on a consolidated basis.
BEVERLY ENTERPRISES, INC.
SUPPLEMENTARY DATA (UNAUDITED) QUARTERLY FINANCIAL DATA (IN THOUSANDS EXCEPT PER SHARE DATA)
The following is a summary of the quarterly results of operations for the years ended December 31, 1993 and 1992. Operating results for the first quarter of 1992 have been restated to reflect the cumulative effect of a change in accounting for income taxes.
The annual effective tax rates for 1993 and 1992 were 33% and 50%, respectively. The Company's annual effective tax rate in 1993 is lower than the statutory rate primarily due to the utilization of certain tax credit carryforwards. In addition, the higher annual effective tax rate in 1992 primarily resulted from the $57,000,000 pre-tax charge (as discussed herein) which reduced the Company's pre-tax income to a level where the impact of permanent tax differences and state income taxes had a more significant impact on the effective tax rate.
Where fully diluted earnings per share would be anti-dilutive, primary earnings per share were used.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
Incorporated herein by reference from the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held May 19, 1994, to be filed pursuant to Regulation 14A.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated herein by reference from the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held May 19, 1994, to be filed pursuant to Regulation 14A.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated herein by reference from the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held May 19, 1994, to be filed pursuant to Regulation 14A.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated herein by reference from the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held May 19, 1994, to be filed pursuant to Regulation 14A.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1 and 2. The Consolidated Financial Statements and Consolidated Financial Statement Schedules
The consolidated financial statements and consolidated financial statement schedules listed in the accompanying index to consolidated financial statements and financial statement schedules are filed as part of this annual report.
3. Exhibits
The exhibits listed in the accompanying index to exhibits are filed as part of this annual report.
(b) Reports on Form 8-K
The Company filed Current Reports on Form 8-K and Form 8-K/A, each dated January 4, 1994, which reported under Item 5 that the Company's Registration Statement No. 33-50965 became effective on November 17, 1993, and filed under Item 7 the Underwriting Agreement dated December 21, 1993, and the First Supplemental Indenture for the Notes dated December 30, 1993, pursuant to such Registration Statement.
BEVERLY ENTERPRISES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
(ITEM 14(A))
2. Consolidated financial statement schedules for each of the three years in the period ended December 31, 1993:
Consolidated financial statement schedule as of December 31, 1993:
All other schedules are omitted because the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto.
BEVERLY ENTERPRISES, INC.
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
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All employee loans are non-interest bearing and are payable in full on date due.
(1) Unsecured.
(2) Amount represents an equity interest in debtor's personal residence and can be repurchased by the debtor at face value at any time during the option period. At the end of this period, the cost to debtor to repurchase the Company's interest will be based upon a fair market value appraisal (exercise of purchase option).
(a) Includes a $15,070 reduction in the amount owed to the debtor under a consulting agreement.
BEVERLY ENTERPRISES, INC.
SCHEDULE V -- PROPERTY AND EQUIPMENT
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS)
BEVERLY ENTERPRISES, INC.
SCHEDULE VI -- ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS)
BEVERLY ENTERPRISES, INC.
SCHEDULE VII -- GUARANTEES OF SECURITIES OF OTHER ISSUERS
DECEMBER 31, 1993
The guarantees detailed above include principal amounts of industrial development revenue bonds, lines of credit and mortgages. Such guaranteed long-term obligations mature on various dates through 2019. The annual aggregate amount of interest guaranteed (including fees for letters of credit issued in connection with the bonds) is approximately $6,155,000. In addition, the Company has working capital guarantees resulting from the disposition of facilities totaling $3,000,000. The guaranteed obligations relate principally either to the Company's sale of nursing facilities and retirement living projects or to bonds issued for the construction of retirement living projects or nursing facilities. Consistent with the long-term care industry, the operators of the facilities for which the Company guarantees obligations are dependent on their participation in certain governmental programs. The Company operates the facilities or projects related to approximately $53,292,000 of the principal amount for which it is contingently liable, pursuant to long-term agreements accounted for as operating leases or management agreements. In addition, the Company is contingently liable for various operating leases that were assumed by purchasers and are secured by the rights thereto.
BEVERLY ENTERPRISES, INC.
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS)
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* Includes amounts classified in long-term other assets as well as current assets.
BEVERLY ENTERPRISES, INC.
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS)
Amounts for maintenance and repairs and advertising costs are not presented as such amounts are less than 1% of total revenues.
BEVERLY ENTERPRISES, INC.
INDEX TO EXHIBITS
(ITEM 14(A))
- --------------- * Exhibits 10.1 through 10.22 are the management contracts, compensatory plans, contracts and arrangements in which any director or named executive officer participates.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BEVERLY ENTERPRISES, INC. Registrant
Dated: March 17, 1994 By: DAVID R. BANKS ------------------------------- David R. Banks Chairman of the Board, President, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Registrant and in the capacities and on the dates indicated: