-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, MZOQPeH3gRFUoUjXfDP8jHtx6MbqeVlNMnWHJAQ3hTmbe7eQg6Zv/zXkaE26KiI8 uBfmXYKkOr3SZbket5Ouug== 0000950134-94-000634.txt : 19940602 0000950134-94-000634.hdr.sgml : 19940602 ACCESSION NUMBER: 0000950134-94-000634 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940527 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BEVERLY ENTERPRISES INC /DE/ CENTRAL INDEX KEY: 0000812305 STANDARD INDUSTRIAL CLASSIFICATION: 8051 IRS NUMBER: 954100309 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-09550 FILM NUMBER: 94531218 BUSINESS ADDRESS: STREET 1: 1200 S WALDRON RD #155 CITY: FORT SMITH STATE: AR ZIP: 72903 BUSINESS PHONE: 5014526712 10-K/A 1 AMENDMENT NO. 1 TO FORM 10-K YEAR ENDED 12-31-93 1 - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A AMENDMENT NO. 1 (MARK ONE) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) COMMISSION FILE NUMBER: 1-9550 BEVERLY ENTERPRISES, INC. (Exact name of Registrant as specified in its charter) DELAWARE 95-4100309 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1200 SOUTH WALDRON ROAD, NO. 155 FORT SMITH, ARKANSAS 72903 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (501) 452-6712 Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ----------------------------------------------------------------------------- Common Stock, $.10 par value New York Stock Exchange Pacific Stock Exchange $2.75 Cumulative Convertible Exchangeable New York Stock Exchange Preferred Stock, $1 par value Pacific Stock Exchange 7 5/8% Convertible Subordinated Debentures New York Stock Exchange due March 15, 2003 Zero Coupon Notes due July 16, 2003 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE INDICATE BY CHECK MARK WHETHER REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. ( ) THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF REGISTRANT WAS $1,243,687,308 AS OF FEBRUARY 28, 1994. 83,002,050 (NUMBER OF SHARES OF COMMON STOCK OUTSTANDING, NET OF TREASURY SHARES, AS OF FEBRUARY 28, 1994) PART III IS INCORPORATED BY REFERENCE FROM THE PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 19, 1994. - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- 2 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
PAGE ---- Report of Ernst & Young, Independent Auditors......................................... 19 Consolidated Balance Sheets........................................................... 20 Consolidated Statements of Operations................................................. 21 Consolidated Statements of Stockholders' Equity....................................... 22 Consolidated Statements of Cash Flows................................................. 23 Notes to Consolidated Financial Statements............................................ 24 Supplementary Data (Unaudited) -- Quarterly Financial Data............................ 40
18 3 REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS The Board of Directors and Stockholders Beverly Enterprises, Inc. We have audited the accompanying consolidated balance sheets of Beverly Enterprises, Inc. as of December 31, 1993 and 1992, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1993. Our audits also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Beverly Enterprises, Inc. at December 31, 1993 and 1992, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. As discussed in Note 7 to the consolidated financial statements, in 1992 the Company changed its method of accounting for income taxes. Little Rock, Arkansas February 4, 1994 19 4 BEVERLY ENTERPRISES, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) ASSETS
DECEMBER 31, ------------------------- 1993 1992 ---------- ---------- Current assets: Cash and cash equivalents....................................... $ 73,773 $ 49,597 Accounts receivable -- patient, less allowance for doubtful accounts: 1993 -- $19,561; 1992 -- $17,383................... 340,249 316,471 Accounts receivable -- nonpatient, less allowance for doubtful accounts: 1993 -- $343; 1992 -- $823......................... 6,329 8,691 Notes receivable................................................ 4,617 7,183 Operating supplies.............................................. 62,915 64,683 Deferred income taxes........................................... 27,050 37,481 Prepaid expenses and other...................................... 33,817 35,174 ---------- ---------- Total current assets.................................... 548,750 519,280 Property and equipment, net....................................... 1,153,370 1,041,655 Other assets: Notes receivable, less allowance for doubtful notes: 1993 -- $10,440; 1992 -- $7,364.............................. 41,689 42,806 Designated and restricted funds................................. 44,948 54,285 Goodwill, net................................................... 72,209 72,308 Operating and leasehold rights and licenses, net................ 25,819 30,660 Other, net...................................................... 106,745 93,476 ---------- ---------- Total other assets...................................... 291,410 293,535 ---------- ---------- $1,993,530 $1,854,470 ---------- ---------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................................................ $ 119,212 $ 115,031 Accrued wages and related liabilities........................... 126,909 109,962 Accrued interest................................................ 9,519 11,085 Accrued restructuring costs..................................... 34,310 48,053 Other accrued liabilities....................................... 64,058 68,734 Current portion of long-term obligations........................ 42,873 29,389 ---------- ---------- Total current liabilities............................... 396,881 382,254 Long-term obligations............................................. 706,695 712,712 Deferred income taxes payable..................................... 72,765 78,488 Other liabilities and deferred items.............................. 78,180 87,271 Commitments and contingencies Stockholders' equity: Preferred stock: Series A, shares issued and outstanding: 999,999............. 100,000 80,000 Funds designated for the redemption of Series A preferred stock....................................................... (100,000) -- Series B, shares issued and outstanding: 3,000,000........... 150,000 -- Common stock, shares issued: 1993 -- 85,845,400; 1992 -- 78,307,040........................................... 8,585 7,831 Additional paid-in capital...................................... 578,239 536,528 Retained earnings............................................... 42,320 9,521 Treasury stock, at cost: 3,977,800 shares....................... (40,135) (40,135) ---------- ---------- Total stockholders' equity.............................. 739,009 593,745 ---------- ---------- $1,993,530 $1,854,470 ---------- ---------- ---------- ----------
See accompanying notes. 20 5 BEVERLY ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31, -------------------------------------- 1993 1992 1991 --------- --------- --------- Net operating revenues................................. $2,870,758 $2,596,731 $2,300,909 Interest income........................................ 15,123 14,475 19,995 --------- --------- --------- Total revenues............................... 2,885,881 2,611,206 2,320,904 Costs and expenses: Operating and administrative: Wages and related................................. 1,585,226 1,479,673 1,354,890 Other............................................. 1,062,162 915,566 767,512 Interest............................................. 62,413 62,582 68,574 Depreciation and amortization........................ 86,127 88,001 88,346 Restructuring costs.................................. -- 57,000 -- --------- --------- --------- Total costs and expenses..................... 2,795,928 2,602,822 2,279,322 --------- --------- --------- Income before provision for income taxes, extraordinary charge and cumulative effect of change in accounting for income taxes..................................... 89,953 8,384 41,582 Provision for income taxes............................. 29,684 4,203 12,410 --------- --------- --------- Income before extraordinary charge and cumulative effect of change in accounting for income taxes...... 60,269 4,181 29,172 Extraordinary charge, net of income taxes of $1,155 in 1993 and $5,415 in 1992.............................. (2,345) (8,835) -- Cumulative effect of change in accounting for income taxes................................................ -- (5,454) -- --------- --------- --------- Net income (loss)...................................... $ 57,924 $ (10,108) $ 29,172 --------- --------- --------- --------- --------- --------- Income (loss) per share of common stock: Before redemption premium on Series A preferred stock, extraordinary charge and cumulative effect of change in accounting for income taxes.......... $ .71 $ .04 $ .37 Redemption premium on Series A preferred stock....... (.26) -- -- --------- --------- --------- Before extraordinary charge and cumulative effect of change in accounting for income taxes............. .45 .04 .37 Extraordinary charge................................. (.03) (.12) -- Cumulative effect of change in accounting for income taxes...................................... -- (.07) -- --------- --------- --------- Net income (loss).................................... $ .42 $ (.15) $ .37 --------- --------- --------- --------- --------- --------- Shares used to compute per share amounts............... 78,807 75,285 78,818 --------- --------- --------- --------- --------- ---------
See accompanying notes. 21 6 BEVERLY ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 --------------------------------------------------------------------- ADDITIONAL RETAINED PREFERRED COMMON PAID-IN EARNINGS TREASURY STOCK STOCK CAPITAL (DEFICIT) STOCK TOTAL --------- ------ ---------- -------- -------- --------- Balances at December 31, 1990............ $ 80,000 $6,995 $ 455,906 $ (4,543) $(40,135) $ 498,223 Issuance of 6,900,000 common shares.... -- 690 69,041 -- -- 69,731 Employee stock transactions, net....... -- 76 5,907 -- -- 5,983 Preferred stock dividends.............. -- -- -- (4,000) -- (4,000) Net income............................. -- -- -- 29,172 -- 29,172 --------- ------ ---------- -------- -------- --------- Balances at December 31, 1991............ 80,000 7,761 530,854 20,629 (40,135) 599,109 Employee stock transactions, net....... -- 70 5,674 -- -- 5,744 Preferred stock dividends.............. -- -- -- (1,000) -- (1,000) Net loss............................... -- -- -- (10,108) -- (10,108) --------- ------ ---------- -------- -------- --------- Balances at December 31, 1992............ 80,000 7,831 536,528 9,521 (40,135) 593,745 Issuance of 3,000,000 shares of Series B preferred stock................... 150,000 -- (5,500) -- -- 144,500 Funds designated for the redemption of Series A preferred stock............ (100,000) -- -- -- -- (100,000) Redemption premium on Series A preferred stock..................... 20,000 -- -- (20,000) -- -- Conversion of 9% Debentures into common shares.............................. -- 713 43,770 -- -- 44,483 Employee stock transactions, net....... -- 41 3,441 -- -- 3,482 Preferred stock dividends.............. -- -- -- (5,125) -- (5,125) Net income............................. -- -- -- 57,924 -- 57,924 --------- ------ ---------- -------- -------- --------- Balances at December 31, 1993............ $ 150,000(1) $8,585 $ 578,239 $ 42,320 $(40,135) $ 739,009 --------- ------ ---------- -------- -------- --------- --------- ------ ---------- -------- -------- ---------
- - --------------- (1) Amount represents the liquidation value of the Series B preferred stock. The Series A preferred stock was outstanding at December 31, 1993 with funds designated for its redemption. The Series A preferred stock was redeemed on January 3, 1994. See accompanying notes. 22 7 BEVERLY ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ---------------------------------- 1993 1992 1991 --------- --------- -------- Cash flows from operating activities: Net income (loss)......................................... $ 57,924 $ (10,108) $ 29,172 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization.......................... 86,127 88,001 88,346 Provision for reserves and discounts on patient, notes and other receivables, net........................... 20,767 3,869 25,223 Extraordinary charge................................... 3,500 14,250 -- (Gains) losses on dispositions of facilities and other assets, net.......................................... (3,667) 772 97 Deferred taxes, including cumulative effect of a change in accounting for income taxes....................... 4,708 (14,674) (2,699) Net increase (decrease) in insurance reserves.......... (3,037) 4,398 7,078 Restructuring costs.................................... -- 57,000 -- Changes in operating assets and liabilities, net of acquisitions and dispositions: Accounts receivable -- patient....................... (40,783) (74,654) (22,943) Operating supplies................................... 847 2,719 (6,793) Prepaid expenses and other receivables............... 5,247 (2,840) 3,627 Accounts payable and other accrued expenses.......... 7,792 41,862 (6,008) Income taxes payable................................. 366 (8,119) 11,239 Other, net........................................... (8,914) (3,910) 2,574 --------- --------- -------- Total adjustments................................. 72,953 108,674 99,741 --------- --------- -------- Net cash provided by operating activities......... 130,877 98,566 128,913 Cash flows from investing activities: Payments for acquisitions, net of cash acquired........... (49,973) (50,723) (19,695) Proceeds from dispositions of facilities and other assets................................................. 9,952 10,087 487 Payments on notes receivable.............................. 6,604 10,308 17,403 Capital expenditures...................................... (83,995) (68,398) (52,068) Construction in progress, net............................. (11,369) (9,211) (8,160) Other..................................................... (16,792) (15,566) (1,347) --------- --------- -------- Net cash used for investing activities............ (145,573) (123,503) (63,380) Cash flows from financing activities: Proceeds from issuance of Series B preferred stock, net... 144,500 -- -- Funds designated for the redemption of Series A preferred stock.................................................. (100,000) -- -- Proceeds from issuance of long-term obligations........... 100,541 151,196 45,478 Repayments of long-term obligations....................... (99,899) (106,756) (152,930) Proceeds from issuance of common stock, net............... -- -- 69,731 Deferred financing costs.................................. (10,290) (10,286) (7,596) Dividends paid on preferred stock......................... (3,063) (1,000) (4,000) Proceeds from exercise of stock options................... 2,537 3,535 3,295 Proceeds from (deposits to) designated funds, net......... 4,546 972 (504) --------- --------- -------- Net cash provided by (used for) financing activities...................................... 38,872 37,661 (46,526) --------- --------- -------- Net increase in cash and cash equivalents................... 24,176 12,724 19,007 Cash and cash equivalents at beginning of year.............. 49,597 36,873 17,866 --------- --------- -------- Cash and cash equivalents at end of year.................... $ 73,773 $ 49,597 $ 36,873 --------- --------- -------- --------- --------- -------- Supplemental schedule of cash flow information: Cash paid during the year for: Interest (net of amount capitalized)................... $ 63,979 $ 63,541 $ 67,558 Income taxes (net of refunds).......................... 17,226 32,233 3,045
See accompanying notes. 23 8 BEVERLY ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation References herein to the Company include Beverly Enterprises, Inc. and its wholly-owned subsidiaries. The consolidated financial statements of the Company, which provides long-term health care including the operation of nursing facilities and subacute units, pharmacies, retirement living projects, and home health care centers, include the accounts of the Company and all of its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Cash and Cash Equivalents Cash and cash equivalents include time deposits and certificates of deposit with original maturities of three months or less. Property and Equipment Property and equipment is stated at cost less accumulated depreciation or, where appropriate, the present value of the related capital lease obligations less accumulated amortization. Depreciation and amortization are computed by the straight-line method over the estimated useful lives of the assets. Intangible Assets Operating and leasehold rights and licenses (stated at cost less accumulated amortization of $23,059,000 in 1993 and $24,314,000 in 1992) are being amortized over the lives of the related assets (principally 40 years) and leases (principally 10 to 15 years), using the straight-line method. Goodwill (stated at cost less accumulated amortization of $21,183,000 in 1993 and $19,248,000 in 1992) is being amortized over 40 years or, if applicable, the life of the lease using the straight-line method. On an ongoing basis, the Company reviews the valuation and amortization of intangible assets. As part of this ongoing review, the Company takes into consideration any events or circumstances that could impair the carrying value of such assets. Insurance The Company insures general liability and workers' compensation risks, in most states, through insurance policies with third parties, some of which may be subject to reinsurance agreements between the insurer and Beverly Indemnity, Ltd., a wholly-owned subsidiary of Beverly California Corporation, which is a wholly-owned subsidiary of the Company. The liabilities for estimated incurred losses are discounted at 10% in 1993 and 1992 to their present value based on expected loss payment patterns determined by independent actuaries. The discounted insurance liabilities are included in the consolidated balance sheet captions as follows (in thousands):
1993 1992 -------- -------- Accrued wages and related liabilities.......................... $ 31,665 $ 28,882 Other accrued liabilities...................................... 5,152 5,478 Other liabilities and deferred items........................... 65,387 72,667 -------- -------- $102,204 $107,027 -------- -------- -------- --------
On an undiscounted basis, the total insurance liabilities as of December 31, 1993 and 1992 were $132,333,000 and $137,605,000, respectively. As of December 31, 1993, the Company has deposited approximately $50,365,000 in funds that are restricted for the payment of insured claims. These funds are 24 9 BEVERLY ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) invested primarily in United States government securities with maturity dates ranging primarily from one to five years and are carried at cost, which approximates market value, and are included in the consolidated balance sheet captions "Prepaid expenses and other" and "Designated and restricted funds." In addition, the Company anticipates that approximately $25,368,000 of its existing cash at December 31, 1993, while not legally restricted, will be utilized for funding insurance claims and the Company does not expect to use such cash for other purposes. Revenues The Company's revenues are derived primarily from providing long-term health care services. Approximately 80.1% in 1993, 79.9% in 1992 and 78.8% in 1991 of the Company's room and board revenues were derived from funds under federal and state medical assistance programs, and approximately $267,035,000, $249,413,000 and $196,082,000 of the Company's patient accounts receivable at December 31, 1993, 1992, and 1991, respectively, are due from such programs. These revenues and receivables are reported at their estimated net realizable amounts and are subject to audit and retroactive adjustment. Provisions for estimated third-party payor settlements are provided in the period the related services are rendered and are adjusted in the period of settlement. Concentration of Credit Risk The Company has significant accounts receivable, notes receivable and other assets whose collectibility or realizability is dependent upon the performance of certain governmental programs, primarily Medicaid and Medicare. These receivables and other assets represent the only concentration of credit risk for the Company. The Company does not believe there are significant credit risks associated with these governmental programs. The Company believes that an adequate provision has been made for the possibility of these receivables and other assets proving uncollectible and continually monitors and adjusts these allowances as necessary. Earnings per share Primary earnings per share for the year ended December 31, 1993 was computed by dividing net income after deduction of preferred stock dividends and the $20,000,000 redemption premium on the Series A preferred stock, discussed below, by the weighted average number of shares of common stock outstanding during the period and the weighted average number of shares issuable upon exercise of stock options, calculated using the treasury stock method. Fully diluted earnings per share for the year ended December 31, 1993 was computed as above and assumed conversion of the Company's 9% convertible subordinated debentures and other notes. Conversion of the Company's 7.625% convertible subordinated debentures would have an anti-dilutive effect and, therefore, was not assumed. During the year ended December 31, 1993, the Company charged retained earnings for the $20,000,000 excess (the "redemption premium") to be paid to redeem the Company's cumulative convertible preferred stock (the "Series A preferred stock") above its $80,000,000 original recorded value. Although this amount did not impact the Company's net income, for accounting purposes the $20,000,000 redemption premium was treated as a reduction to income available to common stockholders in the calculation of earnings per share for the year ended December 31, 1993. Primary and fully diluted earnings per share for the year ended December 31, 1992 were computed by dividing net income after deduction of preferred stock dividends by the weighted average number of shares of common stock outstanding during the period and the weighted average number of shares issuable upon exercise of stock options, calculated using the treasury stock method. 25 10 BEVERLY ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Primary earnings per share for the year ended December 31, 1991 was computed by dividing net income by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding during the period. Common stock equivalents included the Company's Series A preferred stock and the weighted average number of shares issuable upon exercise of stock options, calculated using the treasury stock method. Fully diluted earnings per share for the year ended December 31, 1991 was computed as above and assumed conversion of the Company's other notes. Conversion of the Company's 7.625% and 9% convertible subordinated debentures would have an anti-dilutive effect and, therefore, were not assumed. Other Certain prior year amounts have been reclassified to conform with the 1993 presentation. 2. ACQUISITIONS AND DISPOSITIONS During the year ended December 31, 1992, the Company recognized a $57,000,000 pre-tax restructuring charge related to a program to discontinue the Company's operation of 33 nursing facilities with historically poor financial performance, and to replace, relocate or sell certain other assets (the "1992 restructuring program"). This charge included the estimated operating losses to be incurred by these 33 facilities during the anticipated period required to implement the program. Certain transactions which were reserved as part of the 1992 restructuring program were not completed by the originally anticipated one-year implementation period; however, the Company anticipates that the remaining transactions will be substantially completed during the first six months of 1994. The Company evaluates the reserves established in connection with the remaining transactions on a regular basis, and believes the current reserves are adequate. During the year ended December 31, 1993, the Company acquired three nursing facilities (328 beds) and leasehold interests in eight nursing facilities (829 beds) and one retirement living project (69 units), all of which were previously managed by the Company, in addition to one nursing facility (60 beds) and one retirement living project (187 units) not previously operated by the Company. The acquisitions of such facilities, and certain other assets, were accounted for as purchases and were consummated with approximately $6,915,000 cash, approximately $18,232,000 assumed and acquired debt, approximately $858,000 of security and other deposits and approximately $454,000 reduction in receivables. In addition, the Company acquired 25 nursing facilities (2,706 beds) and two retirement living projects (435 units), which were previously leased by the Company, for approximately $38,381,000 cash (including approximately $5,000,000 borrowed under the Company's revolving credit agreement), approximately $5,541,000 issuance of debt, approximately $42,285,000 assumed and acquired debt and approximately $2,313,000 of security and other deposits. The operations of these facilities were immaterial to the Company's financial position and results of operations. During the year ended December 31, 1993, the Company sold or terminated the leases on 40 nursing facilities (4,511 beds) (20 of such facilities were included in the 33 facilities discussed above) and three retirement living projects (230 units) (two of which were included in the 33 facilities discussed above). The Company recognized pre-tax losses of approximately $3,769,000 as a result of these dispositions, which was primarily included in the $57,000,000 pre-tax restructuring charge discussed above. In addition, the Company sold certain other assets for pre-tax gains of approximately $4,850,000. Dispositions of such facilities and other assets were consummated for approximately $9,583,000 cash and approximately $5,460,000 assumption of debt. The operations of these facilities were immaterial to the Company's financial position and results of operations. 26 11 BEVERLY ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 2. ACQUISITIONS AND DISPOSITIONS -- (CONTINUED) In January 1994, the Company sold or subleased 27 nursing facilities (2,344 beds) in the state of Texas for cash proceeds of approximately $31,000,000. The sale and sublease of these nursing facilities will not have a material impact on the Company's financial position or results of operations, and the operations of these facilities were immaterial to the Company. During the year ended December 31, 1992, the Company acquired 15 nursing facilities (1,669 beds), one retirement living project (24 units) and other assets, accounted for as purchases. The acquisitions were consummated with approximately $6,112,000 cash, approximately $25,639,000 issuance of debt, approximately $20,221,000 assumed and acquired debt and approximately $13,230,000 reduction in notes receivable, which the Company previously took as partial payment for the original sale of certain of the nursing facilities and interest receivable thereon. In addition, the Company acquired 14 nursing facilities (1,450 beds), which were previously leased by the Company, for approximately $12,809,000 cash, approximately $8,340,000 issuance of debt, approximately $11,325,000 assumed and acquired debt and approximately $841,000 of security and other deposits. In addition, the Company sold or terminated the leases on 22 nursing facilities (2,379 beds) (five of such facilities were included in the 33 facilities discussed above) and one retirement living project (77 units) (which was included in the 33 facilities discussed above) for approximately $1,282,000 cash and approximately $4,610,000 notes. The Company recognized pre-tax losses of approximately $5,394,000 as a result of these dispositions, a portion of which was included in the $57,000,000 pre-tax restructuring charge discussed above. The operations of these facilities were immaterial to the Company's financial position and results of operations. During the year ended December 31, 1991, the Company acquired 35 nursing facilities (2,963 beds), accounted for as purchases, including 16 leased facilities, and other assets. The acquisitions were consummated with approximately $5,265,000 cash, approximately $26,777,000 assumed and acquired debt, approximately $1,682,000 security deposits and approximately $21,956,000 reduction in notes receivable, which the Company previously took as partial payment for the original sale of certain of the nursing facilities. In addition, the Company acquired seven nursing facilities (841 beds), which were previously leased by the Company, for approximately $14,521,000 cash and approximately $630,000 of security deposits. The Company sold or terminated the leases on 28 nursing facilities (3,775 beds) for approximately $1,155,000 cash and approximately $601,000 notes and recognized pre-tax losses of approximately $7,450,000 as a result of these dispositions, a portion of which was included in the $128,104,000 pre-tax restructuring charges taken as a result of an asset disposition program in 1989. The operations of these facilities were immaterial to the Company's financial position and results of operations. 3. PROPERTY AND EQUIPMENT Following is a summary of property and equipment and related accumulated depreciation and amortization by major classifications at December 31 (in thousands):
TOTAL OWNED LEASED ---------------------- ---------------------- ------------------ 1993 1992 1993 1992 1993 1992 --------- --------- --------- --------- ------- ------- Land, buildings and improvements................ $1,371,499 $1,241,638 $1,313,082 $1,182,174 $58,417 $59,464 Furniture and equipment......................... 293,379 266,977 286,762 259,322 6,617 7,655 Construction in progress........................ 33,103 22,285 33,103 22,285 -- -- ---------- ---------- ---------- ---------- ------- ------- 1,697,981 1,530,900 1,632,947 1,463,781 65,034 67,119 Less accumulated depreciation and amortization.................................. 544,611 489,245 505,387 450,054 39,224 39,191 ---------- ---------- ---------- ---------- ------- ------- $1,153,370 $1,041,655 $1,127,560 $1,013,727 $25,810 $27,928 ---------- ---------- ---------- ---------- ------- ------- ---------- ---------- ---------- ---------- ------- -------
27 12 BEVERLY ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 3. PROPERTY AND EQUIPMENT -- (CONTINUED) The Company provides depreciation and amortization using the straight-line method over the following estimated useful lives: land improvements -- 5 to 15 years; buildings -- 35 to 40 years; building improvements -- 5 to 20 years; leasehold improvements -- 5 to 20 years or term of lease, if less; furniture and equipment -- 5 to 15 years. Capitalized lease assets are amortized over the remaining initial terms of the leases. Depreciation and amortization expense related to property and equipment for the years ended December 31, 1993, 1992 and 1991 was $71,730,000, $68,214,000 and $65,051,000, respectively. 4. LONG-TERM OBLIGATIONS Long-term obligations consist of the following at December 31 (dollars in thousands except per share amounts):
1993 1992 -------- -------- Notes and mortgages, less imputed interest: 1993 -- $625; 1992 -- $812, due in installments through the year 2020, at effective interest rates of 3.32% to 13.00%, a portion of which is secured by property, equipment and other assets with a net book value of $252,955 at December 31, 1993..................................................... $147,491 $170,773 Industrial development revenue bonds, less imputed interest: 1993 -- $239; 1992 -- $481, due in installments through the year 2019, at effective interest rates of 2.40% to 11.50%, a portion of which is secured by property and other assets with a net book value of $278,000 at December 31, 1993.................................................. 278,794 236,586 Term loan under the Bank Credit Facility due in quarterly installments from June 1995 through March 24, 1999................................. 55,000 100,000 Term loan under the Nippon Credit Agreement due in quarterly installments from June 1996 through March 3, 2000..................... 20,000 -- Term loan due in quarterly installments through December 31, 1993 (refinanced on March 3, 1993)......................................... -- 13,208 Senior secured notes, face amount, less unamortized discount: 1993 -- $106; 1992 -- $135............................................ 17,644 17,615 8 3/4% First Mortgage Bonds (Series A) due July 1, 2008, secured by first mortgages on eight nursing facilities with an aggregate net book value of $17,194 at December 31, 1993................................. 20,000 -- 8 5/8% First Mortgage Bonds (Series B) due October 1, 2008, secured by first mortgages on 11 nursing facilities with an aggregate net book value of $30,213 at December 31, 1993................................. 30,000 -- 8 3/4% Notes due December 31, 2003, unsecured........................... 25,000 -- Commercial paper, face amount less unamortized discount: 1993 -- $188; 1992 -- $126, with effective interest rates from 3.25% to 3.45%, secured by eligible receivables of selected nursing facilities of $74,282 at December 31, 1993.......................................... 49,812 49,874 7.625% convertible subordinated debentures due March 15, 2003, convertible at $20.47 per share....................................... 67,924 67,924 9.00% convertible subordinated debentures due August 15, 2000, convertible at $6.45 per share........................................ -- 46,000 Zero coupon notes, face amount, less unamortized discount: 1993 -- $1,589; 1992 -- $1,880, maturing July 16, 2003, anticipated to be due September 30, 1994, convertible into 13.32 common shares per $1 note.................................................................. 1,428 1,462 -------- -------- 713,093 703,442 Present value of capital lease obligations, less imputed interest: 1993 -- $1,329; 1992 -- $1,465, at effective interest rates of 7.50% to 13.00%............................................................. 36,475 38,659 -------- -------- 749,568 742,101 Less amounts due within one year........................................ 42,873 29,389 -------- -------- $706,695 $712,712 -------- -------- -------- --------
28 13 BEVERLY ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 4. LONG-TERM OBLIGATIONS -- (CONTINUED) By December 31, 1992, the Company had obtained substantial commitments to refinance the remaining debt outstanding under a 1990 credit agreement. Accordingly, in 1992, the Company recorded a $4,312,000 extraordinary charge, net of income taxes, related to the acceleration of unamortized debt issue costs associated with the early extinguishment of this debt. On March 3, 1993, the Company closed such refinancing and entered into a $20,000,000 Credit Agreement (the "Nippon Credit Agreement") and a $135,000,000 Credit Agreement (the "Morgan Credit Agreement"). The Nippon Credit Agreement provides for a seven-year term loan (the "Nippon Term Loan"). The proceeds from the Nippon Term Loan were used to repay the remaining balance outstanding under a term loan provided by the 1990 credit agreement, and to fund, among other things, the purchase of certain previously-leased facilities. The Morgan Credit Agreement originally provided for a $35,000,000 Working Capital Revolving Credit Facility (the "Revolver") and a $100,000,000 Letter of Credit Facility (the "LOC Facility"). Effective September 30, 1993, the Morgan Credit Agreement was amended to increase the Revolver to $50,000,000 and to decrease the LOC Facility to $85,000,000. The Revolver and the LOC Facility replaced the Company's revolving credit facility and letter of credit facility originally entered into under the 1990 credit agreement. The Nippon Term Loan bears interest at the Prime Rate, as defined, plus 1.50% or Adjusted LIBOR plus 2.50%, at the Company's option, and requires interest-only payments for the first three years. Amounts outstanding under the Revolver bear interest at Adjusted LIBOR plus 1.25% or the Base Rate, as defined, plus .25%, at the Company's option, until maturity on February 15, 1996. At December 31, 1993, there were no outstanding borrowings under the Revolver. The Company pays certain commitment fees and commissions with respect to the Revolver and the LOC Facility. The Nippon Credit Agreement is secured by a mortgage interest in 13 nursing facilities with a net book value totaling approximately $16,392,000 at December 31, 1993, and a security interest in certain personal property. The Morgan Credit Agreement is secured by a mortgage interest in 61 nursing facilities with net book value totaling approximately $78,836,000 at December 31, 1993, a security interest in certain personal property and a security interest in the stock of substantially all of the Company's operating subsidiaries. These credit agreements each impose on the Company certain financial tests and certain restrictive covenants. During 1992, the Company executed a $100,000,000 Bank Credit Facility (the "Bank Credit Facility") which provides for a seven-year term loan (the "Term Loan"). The Company incurred an extraordinary charge in 1992 of $4,523,000, net of income taxes, related to the acceleration of unamortized debt issue costs associated with the early extinguishment of certain debt that was repaid with a portion of the proceeds from the Bank Credit Facility. A portion of the net proceeds from the Preferred Stock offering (as discussed below) was used to repay approximately $45,000,000 of the Term Loan during 1993. Accordingly, in 1993, the Company recorded a $2,345,000 extraordinary charge, net of income taxes, related to the acceleration of unamortized debt issue costs associated with such debt as well as certain bond refundings. The Term Loan bears interest at Adjusted LIBOR plus 2.50% or the Prime Rate, as defined, plus 1.50%, at the Company's option, and requires interest-only payments for the first three years. The Bank Credit Facility is secured by a mortgage interest in 68 nursing facilities and retirement centers with net book value totaling approximately $130,358,000 at December 31, 1993, and a security interest in certain personal property and imposes on the Company certain financial tests and restrictive covenants. As of December 31, 1993, the Company had $17,750,000 of fixed rate senior secured notes (the "Senior Secured Notes") outstanding which were previously issued in conjunction with a refinancing in 1990. The Senior Secured Notes have interest payable semi-annually at 14.25%, require a sinking fund payment on December 15, 1996 and mature on December 15, 1997. The Senior Secured Notes are secured by a mortgage interest in 20 nursing facilities with net book value totaling approximately $28,156,000 at December 31, 1993, 29 14 BEVERLY ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 4. LONG-TERM OBLIGATIONS -- (CONTINUED) and a security interest in certain personal property and impose on the Company certain financial tests and certain restrictive covenants. In April 1993, the Company registered with the Securities and Exchange Commission $100,000,000 aggregate principal amount of First Mortgage Bonds (the "First Mortgage Bonds Registration Statement") which are to be offered from time to time as separate series in amounts, at prices and on terms to be determined at the time of sale. Pursuant to such registration, the Company issued two series of First Mortgage Bonds in 1993. On April 22, 1993, the Company issued $20,000,000 aggregate principal amount of 8.75% First Mortgage Bonds (the "Series A Bonds") due July 1, 2008. On July 22, 1993, the Company issued $30,000,000 aggregate principal amount of 8.625% First Mortgage Bonds (the "Series B Bonds") due October 1, 2008. In November 1993, the Company filed a Registration Statement with the Securities and Exchange Commission to amend the First Mortgage Bonds Registration Statement to allow the Company to issue senior unsecured notes, subordinated unsecured notes, or other evidences of indebtedness, as well as First Mortgage Bonds, (collectively, the "Debt Securities") for the remaining $50,000,000 available under the First Mortgage Bonds Registration Statement. On December 22, 1993, the Company issued $25,000,000 aggregate principal amount of 8.75% Notes (the "8.75% Notes"), which are unsecured obligations of the Company, due December 31, 2003. The Company used the net proceeds from issuance of the Series A Bonds, the Series B Bonds and the 8.75% Notes to finance the purchase of nine nursing facilities, to finance construction of a new nursing facility, to refinance certain existing indebtedness with respect to 20 nursing facilities, which debt had a weighted average annual interest rate of 12.1%, and for general corporate purposes. As of December 31, 1993, $50,000,000 was outstanding under the Company's Commercial Paper Program, pursuant to which eligible receivables of selected nursing facilities are sold to Beverly Funding Corporation ("Beverly Funding"), a wholly-owned subsidiary of the Company. The commercial paper has due dates ranging primarily from one to three months, and is backed by a commercial paper liquidity facility due December 31, 1995. The Company's maximum borrowing level under the program is $65,000,000. At December 31, 1993, Beverly Funding had total assets of approximately $75,951,000 which cannot be used to satisfy claims of the Company or any of its subsidiaries. On August 5, 1993, the Company completed the sale of 3,000,000 shares of $2.75 Cumulative Convertible Exchangeable Preferred Stock (the "Series B preferred stock") through a public offering (the "Preferred Stock offering") for net proceeds of approximately $145,000,000. On January 3, 1994, the Company used approximately $100,000,000 of such net proceeds to redeem all of the Company's Series A preferred stock. The remainder of the net proceeds was used to repay approximately $45,000,000 of the Term Loan under the Bank Credit Facility. Had the Preferred Stock offering been completed prior to January 1, 1993, and the net proceeds from the offering applied as discussed above, the pro forma net income per share for the twelve months ended December 31, 1993 would have been $.66. During the twelve months ended December 31, 1993, the Board of Directors approved the redemption of approximately $46,000,000 in principal amount of the Company's 9% convertible subordinated debentures (the "9% Debentures"). By the close of business on August 18, 1993, all of the 9% Debentures had been converted to common stock of the Company. Outstanding shares of the Company's common stock increased by approximately 7,131,800 shares as a result of the conversion of the 9% Debentures. 30 15 BEVERLY ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 4. LONG-TERM OBLIGATIONS -- (CONTINUED) Maturities and sinking fund requirements of long-term obligations, including capital leases, for the years ending December 31 are as follows (in thousands):
1994 1995 1996 1997 1998 THEREAFTER TOTAL ------- ------- ------- ------- ------- ---------- -------- Future minimum lease payments....................... $ 6,800 $ 6,659 $ 5,852 $ 5,502 $ 5,059 $ 39,333 $ 69,205 Less interest....................................... 3,656 3,326 3,006 2,711 2,424 17,607 32,730 ------- ------- ------- ------- ------- ---------- -------- Net present value of future minimum lease payments.......................................... 3,144 3,333 2,846 2,791 2,635 21,726 36,475 Notes, mortgages, bonds and debentures.............. 39,729 80,037 69,841 66,233 65,529 391,724 713,093 ------- ------- ------- ------- ------- ---------- -------- $42,873 $83,370 $72,687 $69,024 $68,164 $413,450 $749,568 ------- ------- ------- ------- ------- ---------- -------- ------- ------- ------- ------- ------- ---------- --------
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):
YEAR ENDING DECEMBER 31, - - ------------ 1994............................................................. $ 88,317 1995............................................................. 81,528 1996............................................................. 70,455 1997............................................................. 55,123 1998............................................................. 47,228 Thereafter....................................................... 82,222 -------- $424,873 -------- --------
Total future minimum rental commitments above include approximately $24,606,000 of minimum sublease rentals due in the future under noncancelable subleases. Rent expense on operating leases for the years ended December 31 was as follows: 1993 -- $133,567,000; 1992 -- $138,623,000; 1991 -- $140,330,000. Sublease rent income was approximately $3,226,000, $3,289,000 and $2,592,000 for the years ended December 31, 1993, 1992 and 1991, respectively. Contingent rent, based primarily on revenues, was approximately $20,000,000, $19,000,000 and $17,800,000 for the years ended December 31, 1993, 1992 and 1991, respectively. Effective August 1, 1992, the Company entered into an agreement to outsource its management information systems functions for a period of seven years, with an option to renew based on mutual agreement 31 16 BEVERLY ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 5. COMMITMENTS AND CONTINGENCIES -- (CONTINUED) among the parties. The future minimum commitments required under such agreement as of December 31, 1993, are as follows: 1994 -- $7,941,000; 1995 -- $7,941,000; 1996 -- $7,941,000; 1997 -- $7,941,000; 1998 -- $7,941,000; thereafter -- $4,632,000. The Company incurred approximately $10,179,000 under such agreement during the year ended December 31, 1993. The Company is contingently liable for approximately $71,674,000 of long-term obligations maturing on various dates through 2019, as well as annual interest of approximately $6,155,000 principally related to the Company's sale of nursing facilities and retirement living projects. In addition, the Company has working capital guarantees resulting from the disposition of facilities totaling $3,000,000. The Company operates the facilities or projects related to approximately $53,292,000 of the principal amount for which it is contingently liable, pursuant to long-term agreements accounted for as operating leases or management contracts. In addition, the Company is contingently liable for various operating leases that were assumed by purchasers and are secured by the rights thereto. There are various lawsuits and regulatory actions pending against the Company arising in the normal course of business, some of which seek punitive damages. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on the Company's consolidated financial position or results of operations. 6. STOCKHOLDERS' EQUITY The Company had 300,000,000 shares of authorized $.10 par value common stock at December 31, 1993 and 1992. The Company is subject to certain restrictions under its banking arrangements related to the payment of cash dividends on its common stock. The Company had 25,000,000 shares of authorized $1 par value preferred stock at December 31, 1993 and 1992, a portion of which has been issued as described below. The Board of Directors has authority, without further stockholder action, to set rights, privileges and preferences for any unissued shares of preferred stock. In December 1986, the Company issued 999,999 shares of its preferred stock ("the Series A preferred stock") with a stated and liquidation value of $100 per share to a wholly-owned subsidiary of Stephens Group, Inc. On January 3, 1994, the Company used approximately $100,000,000 of the net proceeds from the Preferred Stock offering (as defined below) to redeem the Series A preferred stock. The Series A preferred stock dividend rate was scheduled to increase from 1% to 10% on January 1, 1994. On August 5, 1993, the Company completed the sale of 3,000,000 shares of $2.75 Cumulative Convertible Exchangeable Preferred Stock (the "Series B preferred stock"), with a liquidation value of $50 per share through a public offering (the "Preferred Stock offering"). As of December 31, 1993, the Series B preferred stock is convertible into 11,252,813 shares of the Company's common stock. The holders of the Series B preferred stock are entitled to receive out of legally available funds, when and as declared by the Company's Board of Directors, quarterly cash dividends equal to $2.75 per share (aggregate of $8,250,000 per annum). Except as required by law, holders of the Series B preferred stock have no voting rights unless dividends on the Series B preferred stock have not been paid in an aggregate amount equal to at least six full quarters (whether or not consecutive), in which case holders of the Series B preferred stock will be entitled to elect two additional directors to the Company's Board of Directors to serve until such dividend arrearage is eliminated. The Company paid all required quarterly dividends on the Series B preferred stock during 1993. The Series B preferred stock is exchangeable, in whole or in part (but in no more than two parts), at the option of the Company, on any dividend payment date beginning November 1, 1995, for the Company's 5 1/2% 32 17 BEVERLY ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 6. STOCKHOLDERS' EQUITY -- (CONTINUED) Convertible Subordinated Debentures due August 1, 2018 (the "5 1/2% Debentures"), at the rate of $50 principal amount of 5 1/2% Debentures for each share of the Series B preferred stock. The Series B preferred stock is redeemable at any time on and after August 1, 1996, in whole or in part, only at the option of the Company, initially at a redemption price of $51.925 per share, and thereafter at prices decreasing ratably annually to $50 per share on and after August 1, 2003, plus accrued and unpaid dividends. The Series B preferred stock is not a common stock equivalent and is accounted for only in the computation of fully diluted earnings per share. During 1993, the Beverly Enterprises, Inc. 1993 Long-Term Incentive Stock Plan was approved. Such plan, as amended and restated (the "1993 Incentive Stock Plan"), became effective July 1, 1993 and will remain in effect until June 30, 2003, subject to the earlier termination by the Board of Directors. The Company has 3,000,000 common shares authorized for issuance, subject to certain adjustments, under the 1993 Incentive Stock Plan in the form of nonqualified stock options, incentive stock options, restricted stock, performance awards and other stock unit awards. Incentive stock options must be granted at a purchase price equal to market price at date of grant. Nonqualified stock options may be granted at no less than 85% of market price on the date of grant. All grants made at less than market price must be in lieu of cash payments. All options are exercisable no sooner than one year from the grant date and expire 10 years from the grant date. Restricted stock awards are outright stock grants which have a minimum vesting period of one year for performance-based awards, and three years for other awards. Performance awards and other stock unit awards will be granted based on the achievement of certain performance or other goals and will carry certain restrictions, as defined. The Compensation Committee of the Board of Directors is responsible for administering the 1993 Incentive Stock Plan and will have complete discretion in determining the number of shares or units to be granted, setting performance goals and applying other restrictions to awards, as needed, under the plan. The Company has 2,400,000 common shares authorized for issuance under its 1985 Beverly Nonqualified Stock Option Plan. Under the plan, options are granted at a purchase price equal to market price at date of grant, become exercisable no sooner than one year after date of grant and expire no later than twelve years after date of grant, as determined by a committee appointed by the Board of Directors. In addition to options, the plan provides for outright grants of common stock, subject to forfeiture provisions. As a condition precedent to the release of such shares, the employee must be continuously employed with the Company from and after the date of grant and remain employed on share release dates. Commencing one year after the grant date, the shares will be released in accordance with a schedule determined at the time of grant. During 1991, the Company terminated its Amended and Restated 1981 Beverly Incentive Stock Option Plan and its Amended and Restated 1981 Beverly Stock Option Plan. No new options or restricted shares may be granted under these plans. The terminations of these plans did not affect any of the options or restricted shares previously granted pursuant to the plans. 33 18 BEVERLY ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 6. STOCKHOLDERS' EQUITY -- (CONTINUED) The following table summarizes stock option and restricted stock data relative to the Company's 1981, 1985 and 1993 option plans for the years ended December 31:
1993 1992 1991 ------------------------------ --------------------------- --------------------------- NUMBER PRICE NUMBER OF PRICE NUMBER PRICE OF SHARES PER SHARE SHARES PER SHARE OF SHARES PER SHARE --------- --------------- --------- --------------- --------- --------------- Options outstanding at beginning of year............................. 3,483,334 $4.38 to $18.63 4,310,924 $4.25 to $18.63 4,822,961 $4.25 to $18.63 Changes during the year: Granted............................. 952,000 $9.63 to $13.25 181,000 $7.88 to $11.50 887,400 $8.13 to $11.00 Exercised........................... (329,459) $4.38 to $12.00 (726,606) $4.25 to $ 8.75 (762,335) $4.38 to $ 8.75 Cancelled........................... (116,464) $4.38 to $18.63 (281,984) $4.38 to $18.63 (637,102) $4.38 to $18.63 --------- --------- --------- Options outstanding at end of year.... 3,989,411(1) $4.38 to $18.63 3,483,334 $4.38 to $18.63 4,310,924 $4.25 to $18.63 --------- --------- --------- --------- --------- --------- Options available for grant........... 2,162,800 146,000 168,600 --------- --------- --------- --------- --------- --------- Restricted stock outstanding at beginning of year............................. 513,000 699,000 885,000 Changes during the year: Granted............................. 96,000 72,000 27,000 Vested.............................. (162,800) (171,000) (174,000) Forfeited........................... (14,400) (87,000) (39,000) --------- --------- --------- Restricted stock outstanding at end of year............................. 431,800 513,000 699,000 --------- --------- --------- --------- --------- ---------
- - --------------- (1) Includes 2,108,743 options exercisable at December 31, 1993. As of December 31, 1993, the Company had 1,000,000 common shares authorized for issuance under a separate option grant at an option price of $12.00 per share. On January 26, 1994, such option was exercised in full and the Company received $12,000,000 in cash proceeds from such transaction. The Company intends to file a Registration Statement with the Securities and Exchange Commission to register such 1,000,000 shares. The Beverly Enterprises 1988 Employee Stock Purchase Plan (as amended and restated) enables all full-time employees having completed one year of continuous service to purchase the Company's common shares at the current market price through payroll deductions. The Company makes contributions in the amount of 30% of the participant's contribution. Each participant specifies the amount to be withheld from earnings per two-week pay period, subject to certain limitations. The total charges to the Company's consolidated statements of operations for the years ended December 31, 1993, 1992 and 1991 related to this plan were approximately $1,493,000, $1,102,000, and $850,000, respectively. 7. INCOME TAXES Effective January 1, 1992, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by Financial Accounting Standards Statement No. 109, "Accounting for Income Taxes." As permitted by the Statement, the Company elected not to restate the financial statements of prior years. The cumulative effect as of January 1, 1992 of adopting the Statement was to increase net loss for the year ended December 31, 1992 by $5,454,000. 34 19 BEVERLY ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 7. INCOME TAXES -- (CONTINUED) The provision for taxes on income before extraordinary charge and cumulative effect of change in accounting for income taxes consists of the following for the years ended December 31 (in thousands):
DEFERRED LIABILITY METHOD METHOD -------------------- -------- 1993 1992 1991 ------- -------- -------- Federal: Current............................................ $19,115 $ 20,945 $ 11,894 Deferred........................................... 3,373 (17,245) (3,074) State: Current............................................ 4,327 3,386 3,215 Deferred........................................... 2,869 (2,883) 375 ------- -------- -------- $29,684 $ 4,203 $ 12,410 ------- -------- -------- ------- -------- --------
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):
LIABILITY METHOD DEFERRED METHOD ---------------------------------- --------------- 1993 1992 1991 --------------- -------------- --------------- AMOUNT % AMOUNT % AMOUNT % ------- --- ------ --- ------- --- Tax at statutory rate........................ $31,484 35 $2,851 34 $14,138 34 Targeted jobs tax credits.................... (4,949) (5) -- -- (2,970) (7) State provision.............................. 4,346 5 332 4 2,369 6 Accounting limitation on deferred tax benefit.................................... -- -- -- -- (2,886) (7) Amortization of intangibles.................. 964 1 952 11 2,561 6 Provision for IRS examination................ (3,243) (4) -- -- (2,055) (5) Statutory tax rate change.................... 1,096 1 -- -- -- -- Other........................................ (14) -- 68 1 1,253 3 ------- --- ------ --- ------- --- $29,684 33 $4,203 50 $12,410 30 ------- --- ------ --- ------- --- ------- --- ------ --- ------- ---
In accordance with Statement No. 109, deferred income taxes for 1993 and 1992 reflect the impact of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes 35 20 BEVERLY ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 7. INCOME TAXES -- (CONTINUED) and the amounts used for income tax purposes. The tax effects of temporary differences giving rise to the Company's deferred tax assets and liabilities at December 31, 1993 and 1992 are as follows (in thousands):
DECEMBER 31, 1993 DECEMBER 31, 1992 --------------------- --------------------- ASSET LIABILITY ASSET LIABILITY -------- -------- -------- -------- Insurance reserves............................ $ 47,728 $ -- $ 45,426 $ -- Targeted jobs tax credit carryforwards........ 29,118 -- 26,683 -- Alternative minimum tax credit carryforwards............................... 17,602 -- 17,390 -- Provision for dispositions.................... 30,188 5,679 32,457 2,459 Depreciation and amortization................. 7 135,095 19 125,981 Operating supplies............................ -- 14,386 -- 15,568 Other......................................... 28,523 28,623 29,329 30,693 -------- -------- -------- -------- 153,166 183,783 151,304 174,701 Valuation allowance........................... (15,097) -- (17,611) -- -------- -------- -------- -------- $138,069 $183,783 $133,693 $174,701 -------- -------- -------- -------- -------- -------- -------- --------
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): Depreciation....................................................... $ 692 Amortization....................................................... 479 Deferred gain on sale of facilities................................ 539 Restructuring charges.............................................. 6,008 Change in insurance reserves....................................... 2,180 Allowance for bad debts............................................ (418) Notes receivable discount.......................................... (369) General business credit carryforwards.............................. (2,970) Accounting limitation on deferred tax benefit...................... (2,886) Provision for IRS examination...................................... (2,055) Alternative minimum tax credit..................................... (9,833) Federal net operating loss......................................... 6,553 Other.............................................................. (619) ------- $(2,699) ------- -------
The caption "Prepaid expenses and other" includes prepaid federal and state income taxes of $5,279,000 at December 31, 1992. 36 21 BEVERLY ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 8. RELATED PARTY TRANSACTIONS During 1993 and 1992, the Company declared and paid all required quarterly dividends to the holder of its Series A preferred stock which amounted to $1,000,000 per year. During 1991, the Company declared and paid all current dividends and all dividends in arrears to such preferred shareholder which amounted to $4,000,000. An affiliate of the Company's Series A preferred shareholder provides certain investment services relating to the disposition of certain assets of the Company, and has provided underwriting and placement services on the Company's public and private offerings. Fees paid by the Company for such services amounted to approximately $2,180,000 and $1,421,000 for the years ended December 31, 1993 and 1991, respectively. The Company did not require such services in 1992. As of December 31, 1991, an affiliate of the Company's Series A preferred shareholder held $5,000,000 of the Company's 14.25% fixed rate Senior Secured Notes which were repurchased in February 1992 for $5,850,000. 9. FAIR VALUES OF FINANCIAL INSTRUMENTS Financial Accounting Standards Statement No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Statement No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and Cash Equivalents The carrying amount reported in the consolidated balance sheets for cash and cash equivalents approximates its fair value. Notes Receivable (Including Current Portion) For variable-rate notes that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Investment in a Real Estate Mortgage Investment Conduit (REMIC) The fair value of the Company's REMIC investment, which is included in the consolidated balance sheet caption "Other, net," is based on information obtained from the REMIC servicer. Invested Funds Designated for the Redemption of Series A preferred stock The carrying amounts reported in the consolidated balance sheets for these invested funds approximate their fair value. 37 22 BEVERLY ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 9. FAIR VALUES OF FINANCIAL INSTRUMENTS -- (CONTINUED) Long-term Obligations (Including Current Portion) The carrying amounts of the Company's Commercial Paper, Term Loan, Bank Term Loan and certain other variable-rate borrowings approximate their fair values. The fair values of the remaining long-term obligations are estimated using discounted cash flow analyses, based on the Company's incremental borrowing rates for similar types of borrowing arrangements. The carrying amounts and estimated fair values of the Company's financial instruments at December 31, 1993 and 1992 are as follows (in thousands):
1993 1992 -------------------- -------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- -------- -------- -------- Cash and cash equivalents........................ $ 73,773 $ 73,773 $ 49,597 $ 49,597 Notes receivable, net (including current portion)....................................... 46,306 49,000 49,989 51,000 REMIC investment................................. 24,918 22,000 22,727 22,000 Invested funds designated for the redemption of Series A preferred stock....................... 100,000 100,000 -- -- Long-term obligations (including current portion)....................................... 749,568 788,000 742,101 797,000
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):
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 1993 DECEMBER 31, 1992 DECEMBER 31, 1991 ----------------- ----------------- ----------------- Total revenues...................... $2,885,777 $2,612,249 $2,321,780 Total costs and expenses............ 2,796,122 2,604,249 2,280,474 Income before extraordinary charge and cumulative effect of change in accounting for income taxes....... 60,069 3,990 28,978 Net income (loss)................... 57,724 (10,299) 28,978
AS OF AS OF DECEMBER 31, 1993 DECEMBER 31, 1992 ----------------- ----------------- Current assets...................... $ 468,441 $ 442,739 Long-term assets.................... 1,483,400 1,377,583 Current liabilities................. 392,244 379,366 Long-term liabilities............... 838,673 868,756
38 23 BEVERLY ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 10. ADDITIONAL INFORMATION -- (CONTINUED) In addition to Beverly Delaware, one of its direct wholly-owned subsidiaries and each of Beverly California's material wholly-owned subsidiaries (collectively, the "Subsidiary Guarantors") have guaranteed the obligations of Beverly California under the Senior Secured Notes. Separate financial statements of Beverly California and the Subsidiary Guarantors are not considered to be material to holders of the Senior Secured Notes since the guaranty of each of the Subsidiary Guarantors is joint and several and full and unconditional (except that liability thereunder is limited to an aggregate amount equal to the largest amount that would not render its obligations thereunder subject to avoidance under Section 548 of the Bankruptcy Code of 1978, as amended, or any comparable provisions of applicable state law) and the aggregate net assets, earnings and equity of the Subsidiary Guarantors and Beverly California together, after adjustment for intercompany management fees, are substantially equivalent to the net assets, earnings and equity of Beverly Delaware on a consolidated basis. 39 24 BEVERLY ENTERPRISES, INC. SUPPLEMENTARY DATA (UNAUDITED) QUARTERLY FINANCIAL DATA (IN THOUSANDS EXCEPT PER SHARE DATA) The following is a summary of the quarterly results of operations for the years ended December 31, 1993 and 1992. Operating results for the first quarter of 1992 have been restated to reflect the cumulative effect of a change in accounting for income taxes.
1993 1992 ------------------------------------------------------ ------------------------------------------------------ 1ST 2ND 3RD 4TH TOTAL 1ST 2ND 3RD 4TH TOTAL -------- -------- -------- -------- ---------- -------- -------- -------- -------- ---------- Total revenues.... $694,525 $718,162 $736,271 $736,923 $2,885,881 $613,394 $627,992 $676,936 $692,884 $2,611,206 -------- -------- -------- -------- ---------- -------- -------- -------- -------- ---------- -------- -------- -------- -------- ---------- -------- -------- -------- -------- ---------- Income (loss) before provision for (benefit from) income taxes, extraordinary charge and cumulative effect of change in accounting for income taxes........... $ 15,458 $ 21,696 $ 27,771 $ 25,028 $ 89,953 $ 10,398 $ 17,520 $ 20,367 $(39,901) $ 8,384 Provision for (benefit from) income taxes.... 5,101 7,160 9,164 8,259 29,684 3,431 5,782 6,721 (11,731) 4,203 -------- -------- -------- -------- ---------- -------- -------- -------- -------- ---------- Income (loss) before extraordinary charge and cumulative effect of change in accounting for income taxes........... 10,357 14,536 18,607 16,769 60,269 6,967 11,738 13,646 (28,170) 4,181 Extraordinary charge.......... -- -- (2,345) -- (2,345) (4,523) -- -- (4,312) (8,835) Cumulative effect of change in accounting for income taxes.... -- -- -- -- -- (5,454) -- -- -- (5,454) -------- -------- -------- -------- ---------- -------- -------- -------- -------- ---------- Net income (loss).......... $ 10,357 $ 14,536 $ 16,262 $ 16,769 $ 57,924 $ (3,010) $ 11,738 $ 13,646 $(32,482) $ (10,108) -------- -------- -------- -------- ---------- -------- -------- -------- -------- ---------- -------- -------- -------- -------- ---------- -------- -------- -------- -------- ---------- Income (loss) per share of common stock: Before redemption premium on Series A preferred stock, extraordinary charge and cumulative effect of change in accounting for income taxes......... $ .13 $ .18 $ .22 $ .17 $ .71 $ .09 $ .15 $ .17 $ (.38) $ .04 Redemption premium on Series A preferred stock......... -- -- (.26) -- (.26) -- -- -- -- -- -------- -------- -------- -------- ---------- -------- -------- -------- -------- ---------- Before extraordinary charge and cumulative effect of change in accounting for income taxes......... .13 .18 (.04) .17 .45 .09 .15 .17 (.38) .04 Extraordinary charge........ -- -- (.03) -- (.03) (.06) -- -- (.06) (.12) Cumulative effect of change in accounting for income taxes......... -- -- -- -- -- (.07) -- -- -- (.07) -------- -------- -------- -------- ---------- -------- -------- -------- -------- ---------- Net income (loss)........ $ .13 $ .18 $ (.07) $ .17 $ .42 $ (.04) $ .15 $ .17 $ (.44) $ (.15) -------- -------- -------- -------- ---------- -------- -------- -------- -------- ---------- -------- -------- -------- -------- ---------- -------- -------- -------- -------- ---------- Common stock price range: High............ $ 14.75 $ 12.88 $ 13.38 $ 13.75 $ 10.13 $ 8.75 $ 9.63 $ 13.13 Low............. $ 9.50 $ 10.38 $ 9.25 $ 10.00 $ 8.38 $ 7.13 $ 7.63 $ 8.38
The annual effective tax rates for 1993 and 1992 were 33% and 50%, respectively. The Company's annual effective tax rate in 1993 is lower than the statutory rate primarily due to the utilization of certain tax credit carryforwards. In addition, the higher annual effective tax rate in 1992 primarily resulted from the $57,000,000 pre-tax charge (as discussed herein) which reduced the Company's pre-tax income to a level where the impact of permanent tax differences and state income taxes had a more significant impact on the effective tax rate. Where fully diluted earnings per share would be anti-dilutive, primary earnings per share were used. 40 25 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BEVERLY ENTERPRISES, INC. Registrant Dated: May 27, 1994 By: /s/ SCOTT M. TABAKIN ------------------------------ Scott M. Tabakin Vice President, Controller and Chief Accounting Officer EX-23.1 2 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG 1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG, INDEPENDENT AUDITORS We consent to the use of our report dated February 4, 1994, included in the Annual Report on Form 10-K of Beverly Enterprises, Inc. for the year ended December 31, 1993, with respect to the consolidated financial statements, as amended, included in this Form 10-K/A filed with the Securities and Exchange Commission as Amendment No. 1 to such Annual Report. /s/ ERNST & YOUNG Little Rock, Arkansas May 26, 1994 -----END PRIVACY-ENHANCED MESSAGE-----