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Exhibit 99.1

EXTENDICARE

2002 Annual
Information Form

|                              |  |             
|----------------------------- |  | ------------
|Health Care is Our BusinessTM |  | May 16, 2003





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TABLE OF CONTENTS

|                                                                                                                  |                                                  |  |       |    | 
|----------------------------------------------------------------------------------------------------------------- | ------------------------------------------------ |  | ----- | -- | 
|                                                                                                                  |                                                  |  | Page 
|                                                                                                                  |                                                  |  |      
|Documents Incorporated by Reference                                                                               |                                                  |  | 1     |   
|Cautionary Notice Regarding Forward-looking Statements                                                            |                                                  |  | 1     |   
|Incorporation and Reorganization                                                                                  |                                                  |  | 2     |   
|Corporate Overview                                                                                                |                                                  |  | 2     |   
|Subsidiary Companies                                                                                              |                                                  |  | 2     |   
|Business of the Company                                                                                           |                                                  |  | 3     |   
|                                                                                                                  | General                                          |  |       | 3  | 
|                                                                                                                  | Long-term Care Industry Overview                 |  |       | 3  | 
|                                                                                                                  | Competitive Strengths                            |  |       | 5  | 
|                                                                                                                  | Business Strategy                                |  |       | 7  | 
|                                                                                                                  | Operations                                       |  |       | 10 | 
|                                                                                                                  | Quality of Care                                  |  |       | 14 | 
|                                                                                                                  | Marketing                                        |  |       | 14 | 
|                                                                                                                  | Competition                                      |  |       | 15 | 
|                                                                                                                  | Management, Financial Controls and Cost Controls |  |       | 16 | 
|                                                                                                                  | Insurance                                        |  |       | 16 | 
|                                                                                                                  | Sources of Revenue                               |  |       | 17 | 
|                                                                                                                  | Properties                                       |  |       | 21 | 
|                                                                                                                  | Government Regulations                           |  |       | 21 | 
|                                                                                                                  | Employees                                        |  |       | 28 | 
|                                                                                                                  | Investment in Crown Life Insurance Company       |  |       | 28 | 
|Selected Financial Information                                                                                    |                                                  |  | 30    |   
|Comparability of Selected Financial Information                                                                   |                                                  |  | 31    |   
|                                                                                                                  | Acquisitions                                     |  |       | 31 | 
|                                                                                                                  | Construction                                     |  |       | 31 | 
|                                                                                                                  | Asset Disposals, Impairment and Other Items      |  |       | 31 | 
|                                                                                                                  | Share Capital Transactions                       |  |       | 33 | 
|Dividend Record                                                                                                   |                                                  |  | 33    |   
|Market for Securities                                                                                             |                                                  |  | 34    |   
|Additional Information                                                                                            |                                                  |  | 34    |   
|Directors and Officers                                                                                            |                                                  |  | 35    |   
|Supplementary
Information  Reconciliation of Canadian and United States
Generally Accepted Accounting Principles |                                                  |  | A - 1 |   





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DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated by reference in this Extendicare Inc.
2002 Annual Information Form:



| |  | the Management Information and Proxy Circular of Extendicare Inc. dated March 14, 2003;                                                                                                           
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the Managements Discussion and Analysis, found on pages 17 through 35 of the 2002 Annual Report of Extendicare Inc.,
including a discussion of Business Risks and Uncertainties on page 32; and
| 
| |  | the Consolidated Financial Statements and Auditors Report to the Shareholders of Extendicare Inc., found on pages 36
through 61 of the 2002 Annual Report of Extendicare Inc.                    

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

Information provided by the Company from time to time, including this Annual
Information Form and the documents incorporated herein by reference, contains
or may contain forward-looking statements concerning the Companys operations,
economic performance and financial condition, including the Companys business
strategy. Forward-looking statements can be identified because they generally
contain the words anticipate, believe, estimate, expect, objective,
project, or a similar expression.

Forward-looking statements reflect managements beliefs and assumptions and are
based on information currently available to the Company. They are not
guarantees of future performance and involve known and unknown risks,
uncertainties and other factors that may cause actual results, performance or
achievements of the Company to differ materially from those expressed or
implied in the statements. In addition to the assumptions and other factors
referred to specifically in connection with these statements, such factors are
identified in the Companys public filings with Canadian and United States
securities regulators and include, but are not limited to, the following:
changes in the health care industry in general and the long-term care industry
in particular because of political and economic influences; changes in
regulations governing the industry and the Companys compliance with such
regulations; changes in government funding levels for health care services;
resident care litigations and other claims asserted against the Company; the
Companys ability to attract and retain qualified personnel; the availability
and terms of capital to fund the Companys capital expenditures; changes in
competition; and demographic changes.

Given these risks and uncertainties, readers are cautioned not to place undue
reliance on the Companys forward-looking statements.

1
Extendicare 2002 Annual Information Form





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INCORPORATION AND REORGANIZATION

In this Annual Information Form, unless the context indicates otherwise, a
reference to Extendicare or the Company means Extendicare Inc. and its
subsidiaries. The Extendicare Inc. legal entity is not itself a provider of
services or products. Extendicare Inc., which commenced operations in 1968, was
continued under the Canada Business Corporations Act by Articles of Continuance
that have been amended to change the capital structure and the name of the
Company. The registered and principal office of Extendicare Inc. is located at
3000 Steeles Avenue East, Markham, Ontario, Canada L3R 9W2.

CORPORATE OVERVIEW

EXTENDICARE INC.

|                                  |  |                       
|--------------------------------- |  | ----------------------
|EXTENDICARE HEALTH SERVICES, INC. |  | (100%) (UNITED STATES)

nursing, assisted living and retirement centres; rehabilitative therapy and group purchasing services


|                          |  |                
|------------------------- |  | ---------------
|EXTENDICARE (CANADA) INC. |  | (100%) (CANADA)

nursing and retirement centres; home health care through ParaMed Home Health Care and hospital management


|                                |  |                       
|------------------------------- |  | ----------------------
|LAURIER INDEMNITY COMPANY, LTD. |  | (100%) (BERMUDA)      
|LAURIER INDEMNITY COMPANY       |  | (100%) (UNITED STATES)

property and casualty insurance for United States health care operations


SUBSIDIARY COMPANIES

The following is a list of the material direct and indirect subsidiaries of
Extendicare Inc.:

|                                             |  |               |  |                                 |     | 
|-------------------------------------------- |  | ------------- |  | ------------------------------- | --- | 
|                                             |  | Jurisdiction  |  | Percentage of Voting Securities
|                                             |  | of            |  | Owned Directly or Indirectly   
|Name                                         |  | Incorporation |  | by Extendicare                 
|                                             |  |               |  |                                
|Extendicare (Canada) Inc.                    |  | Canada        |  |                                 | 100 | 
|159524 Canada Inc. (note)                    |  | Canada        |  |                                 | 100 | 
|New Orchard Lodge Limited                    |  | Canada        |  |                                 | 100 | 
|Extendicare of Indiana, Inc.                 |  | Delaware      |  |                                 | 100 | 
|Extendicare Health Facilities Holdings, Inc. |  | Delaware      |  |                                 | 100 | 
|Extendicare Health Services, Inc.            |  | Delaware      |  |                                 | 100 | 
|Extendicare Homes, Inc.                      |  | Delaware      |  |                                 | 100 | 
|Northern Health Facilities, Inc.             |  | Delaware      |  |                                 | 100 | 
|Fir Lane Terrace Convalescent Center, Inc.   |  | Washington    |  |                                 | 100 | 
|Arbors at Toledo, Inc.                       |  | Ohio          |  |                                 | 100 | 
|Laurier Indemnity Company                    |  | Georgia       |  |                                 | 100 | 
|Laurier Indemnity Company, Ltd.              |  | Bermuda       |  |                                 | 100 | 

|      |  |                                                                                                                                         
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------
|Note: |  | Extendicare Inc., through 159524 Canada Inc., owned a 34.8% common
equity interest in Crown Life Insurance Company at December 31, 2002.

2
Extendicare 2002 Annual Information Form





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BUSINESS OF THE COMPANY

GENERAL

Extendicare Inc., through its subsidiaries, operated 277 long-term care
facilities in North America, with capacity for 29,175 residents as of December
31, 2002. As well, through its operations in the United States, Extendicare
offers medical specialty services, such as subacute care and rehabilitative
therapy, while home health care services are provided in Canada. Of the
Companys total revenue for 2002, 73.4% was derived from operations in the
United States.

The Companys operations, which are conducted through wholly owned subsidiaries
in the United States and Canada, are organized regionally and have management
that is experienced and knowledgeable with respect to each countrys long-term
health care environment.

The following table identifies the number of nursing centres, assisted living
and retirement centres, and hospital units operated by Extendicares
subsidiaries, Extendicare Health Services, Inc. (EHSI) in the United States and
Extendicare (Canada) Inc. (ECI) in Canada at December 31, 2002:

|                                       |  |               |     |          |  |            |        |          |  |            |    |          |  |  |        |  |  |  |     |  |  |  |        | 
|-------------------------------------- |  | ------------- | --- | -------- |  | ---------- | ------ | -------- |  | ---------- | -- | -------- |  |  | ------ |  |  |  | --- |  |  |  | ------ | 
|                                       |  | United States |     | Canada   |  | Total     
|                                       |  |               |     |          |  |           
|                                       |  | No. of        |     | Resident |  | No. of     |        | Resident |  | No. of     |    | Resident
|                                       |  | Facilities    |     | Capacity |  | Facilities |        | Capacity |  | Facilities |    | Capacity
|                                       |  |               |     |          |  |            |        |          |  |            |    |         
|Nursing centres                        |  |               | 156 |          |  |            | 16,357 |          |  |            | 73 |          |  |  | 9,886  |  |  |  | 229 |  |  |  | 26,243 | 
|Assisted living and
retirement centres |  |               | 41  |          |  |            | 1,912  |          |  |            | 6  |          |  |  | 900    |  |  |  | 47  |  |  |  | 2,812  | 
|Hospital units                         |  |               |    |          |  |            |       |          |  |            | 1  |          |  |  | 120    |  |  |  | 1   |  |  |  | 120    | 
|                                       |  |               |     |          |  |            |        |          |  |            |    |          |  |  |        |  |  |  |     |  |  |  |        | 
|Total                                  |  |               | 197 |          |  |            | 18,269 |          |  |            | 80 |          |  |  | 10,906 |  |  |  | 277 |  |  |  | 29,175 | 
|                                       |  |               |     |          |  |            |        |          |  |            |    |          |  |  |        |  |  |  |     |  |  |  |        | 

LONG-TERM CARE INDUSTRY OVERVIEW

Extendicare believes that in North America the long-term care industry is
changing as a result of several fundamental factors, which it believes it can
capitalize on. These factors include:

Aging Population

The aging of the population is a leading driver of demand for long-term care
services. According to the U.S. Census Bureau, there are approximately 35
million Americans aged 65 or older, representing 12.4% of the total U.S.
population. The U.S. Centers for Medicare and Medicaid Services (CMS) has
projected that the annual growth rate through 2020 for persons over 65 will be
1.8%, and 2.6% for persons over 85. In 2000, approximately 1.6 million or 4.5%
of all persons in the U.S. aged 65 and over were living in a nursing facility.

According to Statistics Canada, the population of seniors (persons over 80
years of age) is expected to increase at a greater rate than the general
Canadian population over the period between 2001 and 2026 (an average increase
of 3.7% per annum for seniors versus 0.7% for the general population). This
result is believed to be due to several factors including the progression of
the baby boom generation through the demographic cycle and longer life spans.
The average age of nursing home residents is in the low to mid-eighties.

3
Extendicare 2002 Annual Information Form





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Supply/Demand Imbalance

Acquisition and construction of additional nursing facilities are subject to
certain restrictions on supply, including government legislated moratoriums on
new capacity or licensing restrictions limiting the growth of services.
Governments limit new supply in order to maintain the financial health of the
industry and to ensure funding costs are kept under control. Such restrictions
on supply, coupled with an aging population, cause a decline in the
availability of long-term beds for persons 85 years of age or older.

In Canada, there has been a shift to awarding new beds in order to meet the
increasing demand, particularly in Ontario where a program was implemented to
add 20,000 long-term care beds between 1998 and 2004.

Advances in medical technology are enabling the treatment of certain medical
conditions outside the hospital setting. As a result, patients requiring a
higher degree of monitoring, more intensive and specialized medical care,
24-hour per day nursing, and a comprehensive array of rehabilitative therapies
are increasing. Extendicare believes that such specialty care can be provided
in long-term care facilities at a significantly lower cost than in traditional
acute care and rehabilitation hospitals.

Cost Containment Pressures

As the number of people over age 65 continues to grow and as advances in
medicine and technology continue to increase life expectancies, health care
costs are expected to rise faster than the availability of resources from
government-sponsored health care programs. In response to such rising costs,
governmental and private pay sources have adopted cost containment measures
that encourage reduced lengths of stay in acute care hospitals. As a result,
many patients are discharged despite a continuing need for nursing or specialty
health care services, including therapy. This trend has increased demand for
skilled nursing care, home health care, outpatient therapy, hospices and
assisted living facilities. Extendicare believes that long-term care companies
that have information systems to process clinical and financial data, possess
an integrated network and that are capable of providing a broad range of
services, will be in a good position to contract with managed care or other
payers.

Changing Family Dynamics

As a result of the growing number of two-income families, immediate family has
become less of a primary source of care giving for the elderly. At the same
time, two-income families are better able to provide financial support for
elderly parents to receive the care they need in a nursing or assisted living
facility. In the United States for example, the parent support ratio (the ratio
of individuals over 85 to those 50 to 64 of age) has increased from 3:100 in
1950 to 10:100 in 2000, and is expected to reach 29:100 by the year 2050. The
expected increase is partly due to the fact that, by 1990, approximately 26% of
the baby boom was childless.

COMPETITIVE STRENGTHS

The Companys competitive strengths, which it has capitalized on over the past
several years, are:

Leading Provider of Long-term Care Services

Extendicare is among the largest providers of long-term care services in North
America, based upon the number of beds operated. EHSI is among the 10 largest
long-term care operators in the United States. In Canada, ECI is the second
largest private-sector operator of long-term care facilities and through
ParaMed Home Health Care, is the largest private sector provider of home health
care services. The long-term care industry is highly fragmented. For instance,
in the U.S. the 10 largest nursing facility companies account for 18.5% of the
total facility beds. In Ontario, ECIs largest market, the Company operates
approximately 16% of the long-term care beds.

The scope of the Companys operations allows it to achieve economies of scale
and to pass these savings on to third parties, through the provision of
purchasing, and information technology support services.

4
Extendicare 2002 Annual Information Form





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Significant Facility Ownership

Extendicare owns rather than leases a majority of its properties, unlike a
number of other long-term care providers. As of December 31, 2002, Extendicare
owned 211 facilities, or 92.5% of the facilities the Company operated,
excluding those it managed. The Company believes that ownership increases its
operating flexibility by allowing the Company to: refurbish facilities to meet
changing consumer demands; add assisted living and retirement facilities
adjacent to its nursing facilities; adjust licensed capacity to avoid
occupancy-based rate penalties; divest facilities and exit markets at its
discretion; and more directly control its occupancy costs.

The following table depicts ownership and management of facilities operated by
EHSI and ECI at December 31, 2002:

|               |  |               |     |          |  |            |        |          |  |            |    |          |  |  |        |  |  |  |     |  |  |  |        | 
|-------------- |  | ------------- | --- | -------- |  | ---------- | ------ | -------- |  | ---------- | -- | -------- |  |  | ------ |  |  |  | --- |  |  |  | ------ | 
|               |  | United States |     | Canada   |  | Total     
|               |  |               |     |          |  |           
|               |  | No. of        |     | Resident |  | No. of     |        | Resident |  | No. of     |    | Resident
|               |  | Facilities    |     | Capacity |  | Facilities |        | Capacity |  | Facilities |    | Capacity
|               |  |               |     |          |  |            |        |          |  |            |    |         
|Owned          |  |               | 164 |          |  |            | 14,726 |          |  |            | 47 |          |  |  | 6,312  |  |  |  | 211 |  |  |  | 21,038 | 
|Leased (1) (2) |  |               | 11  |          |  |            | 1,131  |          |  |            | 6  |          |  |  | 769    |  |  |  | 17  |  |  |  | 1,900  | 
|Managed        |  |               | 22  |          |  |            | 2,412  |          |  |            | 27 |          |  |  | 3,825  |  |  |  | 49  |  |  |  | 6,237  | 
|               |  |               |     |          |  |            |        |          |  |            |    |          |  |  |        |  |  |  |     |  |  |  |        | 
|Total          |  |               | 197 |          |  |            | 18,269 |          |  |            | 80 |          |  |  | 10,906 |  |  |  | 277 |  |  |  | 29,175 | 
|               |  |               |     |          |  |            |        |          |  |            |    |          |  |  |        |  |  |  |     |  |  |  |        | 



|(1) |  | In the United States the average remaining life of the leases, including
renewal options exercisable solely by EHSI, ranges from one to ten years,
the average being four years. EHSI retains an option to purchase the
leased property for five of the 11 leased facilities.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The six leased facilities in Canada are operated by ECI under a 25-year
capital lease arrangement.                                                                                                                                                                           

Focus on Core Business

The Company focuses on its core skilled nursing facility operations, while
continuing to grow its complementary long-term care services. Nursing and
assisted living revenues represent 88.4% of total revenues of the Company for
the year 2002.

Over the past several years, Extendicare has successfully identified and
disposed of business segments that did not fit within its core business and
facilities located in states with unacceptable litigation risks. The Company
intends to continue to focus on owning and managing long-term care facilities.
In addition, management will continue to review the performance of its current
facilities and exit markets or sell facilities that do not meet its performance
goals. At the present time, the Company has no significant divestiture plans.

During 2000, EHSI was successful in selling or leasing its 32 owned and
operated Florida facilities through a series of five separate transactions.
During 2000, EHSI also sold its seven outpatient therapy clinics. In 2001, EHSI
sold two of the leased facilities in Florida to the lessee, who had an option
to purchase the homes.

In October 2001, in order to further reduce its exposure to excessive general
and professional liability claims and litigation, EHSI ceased its nursing
operations in Texas by leasing four owned facilities and subleasing the
remaining 13 facilities to a third-party operator.

In December 2001, ECI sold its investment in Accident Injury Management Clinics
Inc. (AIM), a rehabilitation therapy business operating in Ontario.

5
Extendicare 2002 Annual Information Form





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Geographic Diversity

In the United States, EHSI operates facilities located in specific markets
across 15 states throughout the Northeast, Midwest, South and Northwest
regions. No state contains more than 18% of EHSIs facilities or 19% of its
beds. Each state is unique in terms of its competitive dynamics as well as
political and regulatory environment. Each state administers its own Medicaid
program, which constitutes a significant portion of EHSIs revenue. EHSIs
diversified market scope limits its exposure to events or trends that may occur
in any one individual state, including changes in any states Medicaid
reimbursement program and in regional and local economic conditions and
demographics.

ECI operates in five provinces across Canada. A substantial portion of ECIs
revenue is government funded, and each province administers its own health care
programs. Ontario represents ECIs largest market, accounting for 75% of the
nursing and assisted living beds operated at year end, and 81.1% of ParaMeds
home health care hours provided in 2002.

Management Focus on Key Performance Drivers

The Company believes that its senior management, as well as its field
personnel, are proficient at focusing on the key areas that drive revenues,
profits and cash flows. Extendicares senior management have identified three
critical drivers of operating and financial performance, which are: improving
census, particularly increasing U.S. Medicare census; expediting billing and
collections; and controlling labour costs.

In the United States, EHSIs average occupancy rate for skilled nursing
facilities was 90.3% in 2002, or 2.8 percentage points higher than the 87.5%
occupancy rate for 2001. The percentage of EHSIs Medicare residents to total
nursing residents was 13.4% in 2002, or 2.0 percentage points higher than the
comparable percentage for 2001, which was 11.4%.

Through consistent emphasis on admissions protocols, attention to older and
larger account balances and proactive collection efforts at regional and head
offices, Extendicare has improved its accounts receivable management. Days of
revenues outstanding have dropped from approximately 55 days in 1998 to 40 days
as of December 31, 2002.

In Canada, where the supply of long-term care beds historically has been
severely restricted, nursing home operators typically enjoy high occupancy
levels. ECIs average occupancy, excluding the impact of filling new homes
during the year, was 98.2% in 2002, compared to 98.1% in the prior year.

Dual U.S. Medicare and Medicaid Certification

Extendicare has certified substantially all of its beds in the United States
for the provision of care to both Medicare and Medicaid patients. Management
believes that dual certification increases the likelihood of higher occupancy
rates by increasing the availability of beds to patients who require a specific
bed certification. In addition, dual certification allows EHSIs facilities to
easily shift patients from one level of care and reimbursement to another
without physically moving the patient.

Experienced and Proven Management Team

Extendicares management has demonstrated competency in dealing with major
changes, particularly with regards to the challenging U.S. environment, where
the Medicare program shifted to a prospective payment system, or PPS, which
significantly reduced funding levels. Management identified early on, and
successfully implemented strategies, to exit the Florida and Texas nursing home
markets in light of the extremely litigious environments in those states.
During 2002, management was successful in issuing new debt in the U.S. enabling
the Company to refinance its U.S. senior bank debt. In Ontario, where the
government introduced a program to add 20,000 new long-term care beds by 2004,
management submitted successful bids, resulting in Extendicare being one of the
top contenders. During these challenging times, the Company has retained
substantially all of its executive and operating management team.

6
Extendicare 2002 Annual Information Form





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BUSINESS STRATEGY

United States

Provide Quality, Clinically Based Services

EHSI engages in outcomes management, forecasting and continuous quality
improvement processes at the facility, regional and corporate level. In
recognition of increased state regulatory oversight, EHSI has an internal team
of field-based quality validation specialists who are responsible for mirroring
the regulatory survey process and regularly communicating with its outcomes
management specialists in corporate office. On-site data is integrated with
clinical indicators, facility human resource data and state regulatory outcomes
to provide a detailed picture of problems, challenges and successes in
achieving performance at all levels of the organization. This information pool
allows management to determine best practices for duplication in similarly
situated facilities. EHSI emphasizes these programs when marketing its services
to acute care providers, community organizations and physicians in the
communities it serves.

Increase Medicare Census

EHSI continues to develop and implement strategies and capabilities to attract
residents, with a focus on increasing Medicare census. For 2002, Medicare
payments represented approximately 26% of its total net revenues, up from 22%
in 1999. Senior management has worked with regional and local management teams
to develop strategies to continue to increase this percentage. Strategies, such
as focused marketing efforts, standardized admissions protocols, streamlined
admitting procedures, the dual certification of beds and improved management
communication have driven this improvement. In addition to increasing the
profitability of nursing facilities, higher Medicare census expands the market
for ancillary services, such as therapy.

Leverage Presence in Small Urban Markets

EHSI geographically clusters its long-term care facilities and services in
small urban markets in order to improve operating efficiencies and to offer its
customers a broad range of long-term care and related health services,
including assisted living facilities. It is anticipated that future expansion
of owned nursing facilities will come from the selective acquisition and
construction of facilities in areas that are in close proximity to existing
facilities, where management is experienced in dealing with the regulatory and
reimbursement environments, where the facility can participate as an active
member of the nursing facility association and where the facilitys reputation
is established.

Expand Management and Consulting Services

EHSI seeks to increase the number of management and consulting contracts with
third parties. EHSI has knowledge and expertise in both the operational and
administrative aspects of the long-term care sector. Management believes that
the increasingly complex and administratively burdensome nature of the
long-term care sector, coupled with EHSIs commitment and reputation as a
leading quality operator, will result in demand for new contracts. Management
believes this strategy is a logical extension of EHSIs business model and
competencies and will drive growth without requiring substantial capital
expenditures.

Increase Operating Efficiency

EHSI is focused on reducing operating costs by improving its communications
systems, streamlining documentation and strengthening the formalization of
procedures to approve expenditures. EHSI is reducing duplication of roles at
the corporate and regional levels. EHSI continuously seeks to improve its
utilization of regional resources by adding management and consulting contracts
to its existing regions, thereby enabling the Company to spread the semi-fixed
costs of its regional structure over a wider number of facilities.

7
Extendicare 2002 Annual Information Form





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Proactively Manage Facility Asset Portfolio

EHSI continually reviews its asset portfolio for: physical condition; the needs
of the marketplace; financial performance and long-term outlook. When a
facility does not meet EHSIs performance criteria or risk level within the
marketplace, such as litigation risk beyond acceptable limits, EHSI sells that
facility or exits that marketplace. Over the past four years, EHSI has disposed
of a number of facilities and exited two states, while improving the
performance of the balance of its asset portfolio.

Canada

In Canada, the Companys strategy is to expand long-term care operations
through construction of facilities and by increasing contracts for the
development and management of facilities for third parties. In 1998, the
Ontario Government launched a program to add 20,000 new nursing home beds in
the Province, which was the first expansion of long-term care beds in Ontario
in over a decade. The initial phase was a tender for 6,000 new beds. As a
result of the new beds it was awarded, ECI opened eight new facilities in
Ontario with capacity for 1,101 residents. This total included 905 new
long-term care beds, 120 beds transferred from existing ECI facilities and 76
assisted living units attached to two of the new facilities. Four of the
facilities opened in 2001, two in 2002, and the remaining two in February 2003.
In 2001, ECI obtained from Borealis Long-Term Care Facilities Inc., a wholly
owned subsidiary of the Ontario Municipal Employees Retirement System,
financing of $125.4 million to build the eight new facilities. ECI is operating
the facilities for Borealis during the 25-year capital lease arrangement at a
financing cost of approximately 8.0%.

On May 12, 2000, under the second phase of Ontarios new long-term bed program,
ECI, in partnership with the Halton Healthcare Services Corporation, was
selected to build one 128-bed long-term care facility. Extendicare is
responsible for the development and construction of the new facility and will
operate the hospitals beds under a long-term management agreement when it
opens in 2003.

In May 2001, under the third and final phase of the Provinces program, ECI was
awarded a further 256 long-term care beds for two new nursing homes.
Construction for these two facilities is in progress and one facility will open
later in 2003 and the other in 2004. In addition, ECI has received approval for
the transfer of 96 long-term care beds that had been awarded to the Halton
Healthcare Services Corporation and plans to use these beds, together with 34
existing beds, to develop a new 130-bed facility for completion in 2003. ECI is
in the process of securing financing for these three projects.

Under its expansion program, the Ontario Government is funding a portion of the
construction costs over a 20-year period. Approximately $101.0 million will be
received by ECI for the new long-term care beds and certain redeveloped ECI
beds.

In addition, another 199 new beds was awarded with partners whereby ECI will
develop and manage a 128-bed facility that is scheduled for completion after
2003 and the remaining 71 beds will be added to facilities that ECI already
manages. ECI had one of the highest success rates in winning awards to own or
manage new nursing home beds under the multi-year Ontario Government program.
In Canada, comparing 2002 with 1998 at December 31, the total number of
long-term care beds that Extendicare owned and leased has increased from 6,363
beds to 7,081 beds.

To capitalize on ECIs expertise in developing and managing long-term care
facilities, the Company is continuing to focus on a wide range of health care
partnership opportunities, involving public, private and not-for-profit
organizations through the provision of management and consulting contracts. It
significantly increased these contracts for third parties in Ontario in 2002,
including: in January, a long-term contract to manage a 200-bed facility
developed in partnership with the West Park Healthcare Centre, a hospital; a
two-year extension of a contract to manage a 105-bed facility and a development
contract for adding 55 new beds to that facility; a contract to manage another
hospitals existing 150-bed facility and the redevelopment of the building,
including 42 new beds; an appointment by the Ministry of Health and Long Term
Care (MOHLTC) to manage a 206-bed nursing home; and an appointment by a trustee
in bankruptcy to manage 14 nursing and retirement facilities with a capacity of
2,191 beds. Finally, ECI added a
management contract for three nursing facilities with 304 beds in Manitoba.
ECI-managed facilities increased from 10 in 2001 (981 beds) to 27 in 2002
(3,825 beds).

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At December 31, 2002, ECI managed six public sector facilities and twenty-one
facilities for private owners, including 14 for a trustee in a bankruptcy
proceeding. ECI is the largest private health care organization in Canada with
partnerships involving the public hospital sector.

OPERATIONS

United States

Extendicares United States health care operations are conducted through EHSI
and its subsidiaries. Based upon the number of beds operated, EHSI is one of
the largest providers of long-term care facilities and related services in the
United States. Through its network of geographically clustered facilities, EHSI
offers a continuum of health care services, including skilled nursing care,
assisted living care and related medical specialty services, including subacute
care and rehabilitative therapy.

Nursing Care

EHSI provides a broad range of long-term nursing care, including skilled
nursing services, subacute care and rehabilitative therapy services assisting
patients recovering from acute illness or injury. EHSI also provides nursing
care and therapy services to persons who do not require the more extensive and
specialized services of a hospital. The Companys nursing facilities employ
registered nurses, licensed practical nurses, therapists, certified nursing
assistants and qualified health care aides who provide care as prescribed by
each residents attending physician. All nursing facilities provide daily
dietary services, social services and recreational activities, as well as basic
services such as housekeeping and laundry.

Assisted Living and Retirement Centres

In its assisted living facilities, EHSI provides residential accommodations,
activities, meals, security, housekeeping, and assistance in the activities of
daily living to seniors who require some support, but not the level of nursing
care provided in a nursing facility. An assisted living facility enhances the
value of an existing nursing facility where the two facilities operate side by
side. This allows EHSI to better serve the communities in which it operates by
providing a broader continuum of services. Most of EHSIs assisted living
facilities are within close proximity to its nursing facilities. EHSIs
retirement centres provide activities, security, transportation, special
amenities, comfortable apartments, housekeeping services and meals.

Management and Selected Consulting Services

EHSI uses its long-term care operating expertise to provide to third parties
either full management services through Partners Health Group, LLC, or selected
consulting services through Fiscal Services Group, LLC, two wholly owned
subsidiaries of EHSI. Contracts are structured on a fee-for-service basis and
generally have terms ranging from one to five years. Such services are
available because EHSI employs experienced professionals who have considerable
expertise in both the operational and administration aspects of the long-term
care industry. On a regional level, EHSI provides consultants in the areas of
nursing, dietary, laundry and housekeeping to long-term care operators under a
consulting or full management services basis. Equally, through its head office
support group, EHSI can provide professionals to assist other operators in the
areas of cost reimbursement and accounting services.

In addition Virtual Care Provider, Inc. (VCP), a wholly owned subsidiary of
Extendicare, provides information technology services on a fee-for-service
basis to third parties, in conjunction with EHSIs management and consulting
services.

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Group Purchasing

United Professional Services, Inc., a wholly owned subsidiary of EHSI, provides
purchasing services for nursing facilities in numerous states in addition to
the facilities owned and managed by EHSI. The purchasing group offers
substantial cost reductions for its members through contractual volume-based
arrangements made with a variety of industry suppliers for food, supplies and
capital equipment.

Rehabilitative Therapy Services

EHSI operates rehabilitative therapy clinics within its wholly owned
subsidiary, The Progressive Step Corporation (ProStep). As of December 31,
2002, ProStep operated 22 clinics: ten in Pennsylvania, one in Ohio, two in
Texas and nine in Wisconsin. These clinics provide services to outpatients
requiring physical, occupational and/or speech-language therapy. In addition,
the Pennsylvania clinics provide respiratory, psychological and social
services.

EHSI provides rehabilitative therapy services on an inpatient and outpatient
basis. EHSI has expanded all of its nursing facilities therapy units, with
some facilities offering 1,500 to 5,000 square feet of therapy space. These
programs provide patient-centred, outcome-oriented subacute and rehabilitative
care. At the majority of its facilities, EHSI employs physical, occupational
and/or speech-language therapists.

Expansion

Plans for expanding EHSIs operations are developed from sources such as:
personal contacts in the long-term care industry; information made available
through state and nationally based associations; and investment and financing
firms and brokers. All acquisitions and the undertaking of new contracts for
management and consulting services involve a process of due diligence in which
the operational, building and financial aspects of the undertaking are
investigated.

In 2003 and 2004, EHSI plans to build additions to seven of its facilities in
Wisconsin, Kentucky and Pennsylvania, consisting of 96 assisted living, 30
independent living and 38 skilled nursing beds.

Canada

Extendicares Canadian health care operations are conducted through ECI and its
subsidiaries. ECI is the second largest private-sector operator of long-term
care facilities and the largest private-sector provider of home health care
services in Canada. It operates nursing and retirement centres in Ontario and
the four western provinces, manages an Ontario hospital chronic-care unit and
provides a wide range of related services to the residents of these facilities.
ECIs home health care operations are in Ontario and Alberta.

Nursing, Assisted Living and Retirement Care Services

ECIs nursing centres are designed for people who cannot be cared for at home
or in another setting, due to frailty or other physical limitations. In
addition to providing accommodation and meals, residents receive assistance
with activities of daily living and continuing care. Programs and services are
offered for those with behavioural needs. At December 31, 2002, ECI operated
for itself 52 nursing centres providing care to 6,932 residents in five
provinces. ECIs 46 owned nursing centres (6,239 beds) qualify for
accreditation funding and it is in the process of seeking accreditation for its
six new nursing facilities (693 beds), which are operated under capital lease
arrangements.

Assisted living care, in comfortable private accommodations, provides staff to
support activities of daily living, such as personal care, meals, reminders to
take medication, and housekeeping. ECI operated for itself two 36-unit assisted
living wings attached to its nursing centres.

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Retirement centres provide comfortable suites, housekeeping services, meals,
activities, security, transportation and special amenities. Residents are
typically very active and live independently. ECI owned and operated for itself
one retirement centre (73 units).

Management and Consulting

In Canada, Extendicare manages long-term care centres and a hospital
chronic-care unit for not-for-profit boards and private organizations seeking
to improve management practices, levels of care and operating efficiencies.
Most of these contracts include management, accounting and purchasing services,
staff training, reimbursement assistance, and where applicable, the
implementation of ECI policies and procedures. ECI also is experienced in
overseeing the design, construction, development and management of long-term
care and chronic care centres.

ECI, as a skilled manager and operator of facilities for third parties,
increased its managed portfolio during 2002 by 13 nursing centres (2,195 beds
or 289%) and 4 retirement centres (649 beds or 636%). At December 31, 2002, ECI
managed one publicly owned hospital unit (120 beds), one municipally owned home
for the aged (80 beds), three nursing facilities owned by hospitals (466 beds)
and one nursing facility on behalf of the MOHLTC (206 beds). ECI also managed
sixteen nursing centres (2,202 beds), and five retirement centres (751 units),
which are privately owned (including 10 nursing facilities and four retirement
centres for a receiver as part of a bankruptcy action). ECI believes there will
continue to be more opportunities to provide facility management and consulting
services to the public and private sectors.

Home Health Care Services

Through ParaMed Home Health Care (ParaMed), ECI is the largest private-sector
home health care company in Canada and provided 5.4 million hours of care and
support services during 2002 to clients of all ages through 32 branch offices
located in Alberta, British Columbia and Ontario. ParaMeds professional and
para-professional staff is skilled in providing complex nursing care,
occupational, physical and speech therapy, and home support.

Due to the softening funding levels and hours of service in the British
Columbia home health care market, ParaMed decided, in November 2002, to
wind-down its operations in that Province by March 31, 2003. In January 2003,
ParaMed sold its Vancouver operation to another service provider and has now
closed its other four B.C. branches.

Ontario is ParaMeds largest market, representing approximately 79% of its
revenue in 2002. Due to budget constraints of the Ontario government agencies,
the Community Care Access Centres (CCAC), which contract for the services,
providers of home health care services experienced reductions in their volumes
beginning mid-2001 and continuing for most of 2002. For ParaMed, this resulted
in lower volumes during 2002, compared to 2001 of approximately 1.3 million
hours. The Company believes the situation in Ontario has stabilized based on
the small increase in volumes experienced in the final quarter of 2002 and thus
far in 2003.

ParaMed has operated successfully under the competitive Request for Proposal
(RFP) process put in place in 1997 for all government-funded service volumes
and expects to remain competitive in the bidding for future contracts while
maintaining the quality of its service, despite pricing pressures from awarding
agencies. In its ongoing steps to continually improve the quality of care,
ParaMed has introduced a program of Outcome Based Care in early 2003, which
involves establishing goals at the outset of each patients care and monitoring
progress throughout treatment.

The Canadian federal government appears to be committed to home health care as
a means of improving the health care system, as reflected in two major reports
issued in 2002 by Senator Michael Kirby and former Saskatchewan Premier Roy
Romanow. ParaMed is studying the content of these reports in order to ready
itself for any changes or opportunities that may arise for the home health care
industry when the recommendations in the reports are implemented.

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Group Purchasing Services

Through its LTC Group Purchasing division (LTC), ECI offers cost-effective
purchasing contracts in the areas of food, capital equipment, furnishings,
cleaning and nursing supplies, and office products. LTC clients also receive
rotating menus, including therapeutic modifications as well as monthly
educational packages. Including the Companys Canadian facilities, LTC provides
purchasing services to facilities housing more than 28,000 residents in Canada.

QUALITY OF CARE

Extendicares commitment to excellence emphasizes the corporate philosophy of
treating residents with dignity and respect, a philosophy that is implemented
and monitored through rigorous standards that management and staff at all
levels periodically assess and update.

In the United States, at the regional level, the area directors of care
management lead a department that is primarily responsible for implementing
care and service standards, policies and procedures, auditing care and service
delivery systems, and providing direction and training for all levels of the
staff within the nursing facilities and assisted living facilities. The area
directors of care management are responsible for developing these programs and
standards for all professional disciplines and services provided to EHSIs
customers, including nursing, dietary, social services, activities, ethical
practices, mental health services, behaviour management, quality validation and
continuous quality improvement.

In Canada, each nursing centre has an advisory board composed of family members
of residents. These boards work with administrators to develop ideas on how to
provide for the needs of residents. In addition, regional directors are
primarily responsible for implementing care and service standards, policies and
procedures, auditing care and service delivery systems, and providing direction
and training for all levels of the staff within the nursing and assisted living
facilities. Continuous Quality Improvement programs ensure that quality of care
and services are adhered to in all aspects of resident care.

Training of employees at all levels is an integral part of the Companys
ongoing efforts to improve and maintain quality services. In the United States,
each newly employed nursing facility administrator and assisted living facility
manager or director of nursing is required to attend a week of company-provided
training to ensure that he or she has an understanding of all aspects of
nursing facility operations, including clinical, management and business
operations. EHSI conducts additional training for these individuals and all
other staff on a regional or local basis. In Canada, each new facility
administrator participates in an extensive orientation program covering nursing
centre management.

MARKETING

United States

Most of EHSIs long-term care facilities are located in smaller communities.
EHSI focuses its marketing efforts predominantly at the local level, believing
that the selection of a long-term care facility is strongly influenced by
word-of-mouth and referrals from physicians, hospital discharge planners,
community leaders, neighbours and family members. The administrator of each
long-term care facility is therefore, a key element of EHSIs marketing
strategy. Each administrator is responsible for developing relationships with
potential referral sources. They are supported by a regional team of marketing
personnel, who establish the overall marketing strategy, develop relationships
with health maintenance organizations (HMO) and preferred provider
organizations (PPO), and provide marketing direction with training and
community-specific promotional materials. EHSI aims to be the provider of
choice in the communities it serves. EHSIs same-facility nursing home average
occupancy increased to 90.3% from the 2001 level of 87.8%. Medicare census
improved to 13.4% of total nursing census in 2002 from 11.4% in 2001.

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Canada

It is expected that by the end of 2003, approximately two-thirds of the 20,000
new beds in Ontario, promised under the Governments 1998 program, will be
operational in communities throughout the Province. In order to maintain its
current occupancy levels with the influx of these new beds, ECI continues major
upgrades for some of its facilities that are located in markets with new bed
openings. This is in addition to regular maintenance programs at all ECI owned
facilities. Also, in conjunction with its Director of Sales and Marketing, ECI
continually develops strategies to market its long-term care facilities in each
community. The management team at each facility is responsible for marketing
the facility locally and is supported by a regional team and the Director of
Sales and Marketing. Occupancy remained strong in ECIs Canadian facilities and
excluding new facility openings, averaged over 98% for 2002, comparable to the
previous year.

COMPETITION

United States

The long-term care industry in the United States is highly competitive with
companies offering a variety of similar services. EHSI faces competition both
locally and regionally from other health care providers, including for-profit
and not-for-profit organizations, hospital-based nursing units, rehabilitation
hospitals, home health agencies, medical supplies and services agencies and
rehabilitative therapy providers. The newer assisted living facilities can
attract those former private pay nursing facility admissions that require a
lesser degree of care. Significant competitive factors, which determine the
placement of residents in nursing and assisted living centres, include quality
of care, services offered, reputation, physical appearance, location and, in
the case of private pay residents, cost of the services. EHSI focuses its
marketing efforts on word-of-mouth reputation and referrals from each
communitys medical and health care professionals.

EHSIs group purchasing operation competes with other similar operations
ranging from small local operators to companies that are national in scope and
distribution capability.

EHSI competes with other providers in the acquisition and development of
additional facilities. Some of those competitors may accept a lower rate of
return and therefore, present significant price competition. Also, tax-exempt
not-for-profit organizations may finance acquisitions and capital expenditures
on a tax-exempt basis or receive charitable contributions that are unavailable
to EHSI.

Canada

ECIs competitors in the long-term care industry include private and
public-sector operators. In addition to Extendicare, there is only one other
publicly traded operator in Canada. The home health care sector has both
for-profit and not-for-profit providers, with ParaMed being the largest
private-sector operator.

MANAGEMENT, FINANCIAL CONTROLS AND COST CONTROLS

Extendicare believes that strong management is essential to its success. Its
senior officers, including the senior officers of ECI and EHSI, have on average
23 years of experience in the health care industry and 15 years of service with
the Company. The members of its Board of Directors have served Extendicare on
average more than 15 years.

The financial controls of Extendicare are centralized in Milwaukee, Wisconsin
for the United States and Markham, Ontario for Canada. Within each country,
supervision is provided through regional offices.

Centralized accounting systems record each nursing centres results. Costs are
shown on a per patient day basis, along with comparisons to budgets. Senior
operating and financial management monitor costs on a monthly basis.

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INSURANCE

Insurance coverage for resident care liability and other risks has become
increasingly difficult to obtain. The Company self-insures for certain risks
related to general and professional liability, auto liability, employers
liability, health benefits and workers compensation in certain states for its
United States operations. The Company obtains reinsurance coverage in amounts
and with such coverage and deductibles as management deems appropriate, based
on the nature and risks of its business, historical experiences, availability
and industry standards.

Of the risks that the Company self-insures, general and professional liability
claims are the most volatile and significant. The Company self-insures its
general and professional liability risks through Laurier Indemnity Company,
Ltd., which is domiciled in Bermuda, and Laurier Indemnity Company, which is
domiciled in the United States. The Company has experienced in past years,
adverse claims development. Consequently, as of January 1, 2000 the Companys
per claim retained risk increased significantly for resident care liability
costs, mainly due to the level of risk associated with the Florida and Texas
operations. In 2001, EHSI no longer operated nursing and assisted living
facilities in the State of Florida and as of October 1, 2001 ceased nursing
operations in the State of Texas, thereby reducing the level of exposure to
future litigation in these litigious states. Changes in the Companys level of
retained risk, and other significant assumptions that underlie managements
estimates of self-insured liabilities, could have a material effect on the
future carrying value of the self-insured liabilities as well as the Companys
operating results and liquidity.

The accrual for self-insured liabilities includes estimates of the cost of
reported claims and claims incurred but not reported and also reflects
estimates of loss based on assumptions made by management, including
consideration of actuarial projections. The Company invests funds to support
the accrual for self-insured liabilities and believes that it has sufficient
cash resources to meet its estimated current claims payment obligations.

SOURCES OF REVENUE

United States

EHSI derives revenues by providing health care services in its network of
facilities, including long-term care services covering nursing care, assisted
living and related medical services such as subacute care and rehabilitative
therapy. EHSI also derives nursing and assisted living facility revenues by
providing routine and ancillary services for its facilities residents and
earns outpatient therapy revenues by providing such services to outside third
parties at its clinics.

EHSI generates its revenue from Medicare, Medicaid and private pay sources. The
Medicare and Medicaid payers set maximum reimbursement levels for payments for
nursing services and products. The health care policies and programs of these
agencies have been subject to changes in payment methodologies during the past
several years. There can be no assurance that future changes will not reduce
reimbursement for nursing services from these sources.

The following table sets forth the sources of revenue by percentage of total
revenue.

|            |  |                         |      |      |  |      |      |  |  |  |      | 
|----------- |  | ----------------------- | ---- | ---- |  | ---- | ---- |  |  |  | ---- | 
|            |  | Years ended December 31
|            |  |                        
|            |  | 2002                    |      | 2001 |  | 2000
|            |  |                         |      |      |  |     
|            |  |                         |      |      |  | (%)  |      |  |  | 
|Medicare    |  |                         | 25.7 |      |  |      | 23.8 |  |  |  | 24.5 | 
|Medicaid    |  |                         | 49.8 |      |  |      | 50.9 |  |  |  | 50.8 | 
|Private pay |  |                         | 24.5 |      |  |      | 25.3 |  |  |  | 24.7 | 

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Medicare, Including Legislative Actions Affecting Revenues

Medicare is a federally funded health-insurance program providing coverage for
persons aged 65 or older and certain disabled persons, which provides
reimbursement for inpatient services for hospitals, nursing facilities and
certain other health care providers and patients requiring daily professional
skilled nursing and other rehabilitative care (Part A Medicare) and services
for suppliers of certain medical items, outpatient services and doctors
services (Part B Medicare). Medicare pays for the first 20 days of stay in a
skilled nursing facility in full and the next 80 days above a daily coinsurance
amount, after the individual has qualified for Medicare coverage by a three-day
hospital stay.

Prior to October 1, 2002, the incremental Medicare relief packages received
from the Balanced Budget Refinement Act and the Benefits Improvement and
Protection Act provided a total of US$2.7 billion in temporary Medicare funding
enhancements to the long-term care industry. These funding enhancements fell
into two categories. The first was Legislative Add-ons, which included a
16.66% add-on to the nursing component of the Resource Utilization Groupings
III (RUGs) rate and the 4% base adjustment. The second category was RUGs
Refinements, which involved an initial 20% add-on for 15 RUGs categories
identified as having high intensity, non-therapy ancillary services. The 20%
add-on from three RUGs categories was subsequently redistributed to 14
rehabilitation categories at an add-on rate of 6.7% each.

The Legislative Add-ons expired on September 30, 2002 and EHSIs Medicare
funding has been reduced. Based upon the Medicare case mix and patient days
over the nine-month period ended September 30, 2002, EHSI estimates that it
received, on average US$31.22 per patient day related to the Legislative
Add-ons. The loss of this funding was partially offset by a 2.6% inflationary
increase (market basket increase) in Medicare rates received by long-term
care providers beginning on October 1, 2002. The combined impact of these
changes in the fourth quarter of 2002 was a net decline in EHSIs average rate
of US$23.64 per patient day, which based upon the Medicare case mix and patient
days for the year ended December 31, 2002, amounts to lower annualized revenue
of approximately $23.0 million (US$14.7 million) going forward.

On April 23, 2002 CMS announced that it would delay the refinement of the RUGs
categories, thereby extending related funding enhancements for at least one
year to September 30, 2003. In the February 2003 budget, President Bush
proposed additional funding to extend the RUGs Refinements to September 30,
2004. Although the budget has not been passed, CMS has stated its agreement
with extending the RUGs Refinements to September 30, 2004. EHSI estimates that
it received, on average, US$24.40 per patient day in 2002 related to the RUGs
Refinements. Based upon the Medicare case mix and patient days for the year
ended December 31, 2002, this amounts to annualized revenue of approximately
$23.8 million (US$15.1 million) going forward. A decision to discontinue all or
part of the enhancements could have a significant adverse impact on the
Company.

In the February 2003 budget, President Bush proposed plans for reductions in
the annual market basket increase for skilled nursing facilities effective from
October 1, 2003 to October 1, 2007. If this budget is passed, it will mean
reductions in the annual market basket increase for the industry of US$60.0
million beginning October 2003; US$140.0 million beginning October 2004;
US$240.0 million beginning October 2005; US$350.0 million beginning October
2006; and US$470.0 million beginning October, 2007.

In January 2003, CMS announced that the moratorium on implementing payment caps
for outpatient Part B therapy services, which was scheduled to take effect on
January 1, 2003, would be extended until July 1, 2003. While the impact of a
payment cap cannot be reasonably estimated based on the information available
at this time, it would reduce EHSIs therapy revenue.

In February 2003, CMS announced a plan to reduce reimbursement levels for
uncollectible Part A co-insurance. Under current law, skilled nursing
facilities are reimbursed 100% for any bad debts incurred. The plan is to
reduce the reimbursement levels from the current 100% to 90% beginning October
1, 2003; 80% beginning October 1, 2004; and 70% beginning October 1, 2005.
This is consistent with the reimbursement policy applicable to hospitals. EHSI
estimates that should this plan be implemented, the impact on net earnings
would be $1.6 million (US$1.0 million) in 2004, increasing to $3.9 million
(US$2.5 million) in 2006.

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Medicaid

Medicaid is a state-administered program financed by state funds and matching
federal funds, providing health insurance coverage for certain persons in
financial need, regardless of age, and which may supplement Medicare benefits
for financially needy persons aged 65 or older. Medicaid reimbursement formulas
are established by each state with the approval of the federal government in
accordance with federal guidelines. The states in which EHSI operates currently
use cost-based or price-based reimbursement systems. These formulas may be
categorized as prospective or retrospective in nature. Under a prospective
cost-based system, per diem rates are established based upon the historical
cost of providing services during a prior year, adjusted to reflect factors
such as inflation and any additional service required to be performed. Many of
the prospective payment systems under which EHSI operates contain an acuity
measurement system, which adjusts rates based on the care needs of the
resident. Retrospective systems operate similar to the pre-PPS Medicare program
where nursing facilities are paid on an interim basis for services provided,
subject to adjustments based on allowable costs, which are generally submitted
on an annual basis. The price-based or modified price-based systems pay a
provider at a certain payment rate irrespective of the providers cost to
deliver the care.

Private Pay

Private pay revenue consists of revenues from individuals, private insurance
companies, HMOs, PPOs, other charge-based payment sources, HMO Medicare risk
plans, Blue Cross and the Department of Veterans Affairs.

Assisted Living Facilities

Assisted living facility revenue is primarily derived from private pay
residents at rates EHSI establishes based upon the services it provides and
market conditions in the area of operation. Approximately 38 states provide or
have approval to provide Medicaid reimbursement for services in assisted living
facilities covering board and care. An additional six states plan to add
Medicaid coverage of services in the near future.

Canada

In Canada, the fees charged by ECI for its nursing centres are regulated by
provincial authorities, which often set the rates following consultation with
the applicable provinces long-term care association. Provincial programs fund
a substantial portion of these fees, with the remainder paid by individuals. In
some provinces, the government has delegated authority with respect to funding
to regional health authorities, as is the case in Alberta, Saskatchewan,
Manitoba and British Columbia.

Ontario is ECIs largest market for both its long-term care and home health
care services. Their combined revenues represented over 70% of ECIs total
revenue in 2002. Funding for Ontario nursing centres is based on reimbursement
for the level of care provided. The provincial government allocates funds, or
envelopes, for services such as nursing, programs, food and accommodation.
The cost of providing nursing, programs and food is reimbursed in accordance
with scheduled rates. Any deviation in actual costs from scheduled rates is
either at ECIs cost (if actual costs exceed scheduled rates) or is returned to
the government (if actual costs are below scheduled rates). ECI receives a
fixed amount per resident day for accommodation and may retain any excess over
costs incurred. Supplemental funds are available if the nursing centre is
accredited by the Canadian Council on Health Services Accreditation. All of
ECIs existing owned nursing centres qualify for the accreditation funding
except for any new facilities, which ECI is proceeding to have accredited.

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On July 31, 2002, the Government of Ontario announced a funding increase of
$100.0 million to enhance the delivery of nursing and personal care services.
Effective August 1, 2002, Ontario long-term care providers received a funding
increase of $7.20 per resident per day, based on a case mix index of 100. The
increase included $6.33 of flow-through funding for enhanced resident care
through additional nursing staff and other measures. Accordingly, while this
portion of the funding increased ECIs revenues, it did not affect earnings
levels. The remaining increase of $0.87 will improve earnings to the extent
that it is not offset by increased nursing home operating costs. Based on the
level of ECIs Ontario operations at the end of 2002 (approximately 1.6 million
resident days per year), the increase represents additional annual revenue of
about $11.5 million going forward, including approximately $10.0 million for
incremental nursing staff and related costs.

In 1998, the MOHLTC introduced a new funding policy to support the costs of the
construction of new beds and the renovation of existing long-term care
facilities by 2006. The funding policy coincided with the introduction of new
long-term care facility design standards upon which new compliance premiums had
been announced. The policy ranks existing facilities into four categories
(based on their design standards) for which they may qualify for compliance
funding. The program was revised in 2002 to provide for more flexibility under
which existing facilities could be completely rebuilt or upgraded in order to
qualify for funding. The revised program now has three options that allow for
such items as: alternative site scenarios; transitional support through
renovation; design flexibility; and possible new bed allocations. A provider
may be eligible for different funding levels under these options as follows:
the existing redevelopment option (rebuilding or major renovation to 1998
standards) for funding of up to $10.35 per bed per day over a 20-year period;
the new retrofit option for between $7.00 and $10.35 per bed per day for a
20-year period; and the new upgrade option for up to $1.00 per bed per day.
ECIs post-1998 newly constructed nursing centres are receiving construction
funding of $10.35 per bed per day. As each facility opens, a receivable from
the government is recorded, which is applied to reduce the cost of
construction. With respect to ECIs other Ontario facilities, those built prior
to 1998, all but two were receiving compliance funding at the $1.00 per bed per
day level, as at December 31, 2002. The Company has plans to upgrade the other
two facilities.

Provincial funding for ECIs nursing centres in Alberta, the next highest
revenue source province for ECI, is based on a funding system similar to that
in Ontario. In the three other Western Provinces in which ECI operates,
Manitoba and British Columbia set funding on a per patient day basis with
annual adjustments and Saskatchewan funds on a monthly rate per resident basis.

Extendicares Canadian home health care operations, conducted through ParaMed,
received in 2002 approximately 89% of its revenue from contracts tendered by
locally administered provincial agencies. The remainder of the revenue was
received from private pay clients in 2002.

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PROPERTIES

The following table lists by state and province the nursing centres, assisted
living and retirement centres, and hospital units owned, leased and managed by
ECI and EHSI at December 31, 2002:

|                    |  |                 |     |                    |  |                 |        |          |  |                   |    |          |  |            |       |          |  |  |   |  |  |  |     |  |  |  |     |  |  |  |        | 
|------------------- |  | --------------- | --- | ------------------ |  | --------------- | ------ | -------- |  | ----------------- | -- | -------- |  | ---------- | ----- | -------- |  |  | - |  |  |  | --- |  |  |  | --- |  |  |  | ------ | 
|                    |  |                 |     |                    |  |                 |        |          |  | Assisted Living & |    |          |  |            |       |          |  |  |   |  |  |  |     |  |  | 
|                    |  | Nursing Centres |     | Retirement Centres |  | Hospitals Units |        | Total   
|                    |  |                 |     |                    |  |                 |        |         
|                    |  | No. of          |     | Resident           |  | No. of          |        | Resident |  | No. of            |    | Resident |  | No. of     |       | Resident
|State/Province      |  | Facilities      |     | Capacity           |  | Facilities      |        | Capacity |  | Facilities        |    | Capacity |  | Facilities |       | Capacity
|                    |  |                 |     |                    |  |                 |        |          |  |                   |    |          |  |            |       |         
|Pennsylvania        |  |                 | 27  |                    |  |                 | 3,165  |          |  |                   | 8  |          |  |            | 298   |          |  |  |  |  |  |  |    |  |  |  | 35  |  |  |  | 3,463  | 
|Massachusetts       |  |                 | 5   |                    |  |                 | 606    |          |  |                   |   |          |  |            |      |          |  |  |  |  |  |  |    |  |  |  | 5   |  |  |  | 606    | 
|Delaware            |  |                 | 1   |                    |  |                 | 120    |          |  |                   |   |          |  |            |      |          |  |  |  |  |  |  |    |  |  |  | 1   |  |  |  | 120    | 
|                    |  |                 |     |                    |  |                 |        |          |  |                   |    |          |  |            |       |          |  |  |   |  |  |  |     |  |  |  |     |  |  |  |        | 
|Ohio                |  |                 | 29  |                    |  |                 | 3,052  |          |  |                   | 3  |          |  |            | 165   |          |  |  |  |  |  |  |    |  |  |  | 32  |  |  |  | 3,217  | 
|West Virginia       |  |                 | 1   |                    |  |                 | 120    |          |  |                   |   |          |  |            |      |          |  |  |  |  |  |  |    |  |  |  | 1   |  |  |  | 120    | 
|                    |  |                 |     |                    |  |                 |        |          |  |                   |    |          |  |            |       |          |  |  |   |  |  |  |     |  |  |  |     |  |  |  |        | 
|Wisconsin           |  |                 | 24  |                    |  |                 | 2,220  |          |  |                   | 10 |          |  |            | 443   |          |  |  |  |  |  |  |    |  |  |  | 34  |  |  |  | 2,663  | 
|Minnesota           |  |                 | 10  |                    |  |                 | 1,232  |          |  |                   | 1  |          |  |            | 60    |          |  |  |  |  |  |  |    |  |  |  | 11  |  |  |  | 1,292  | 
|                    |  |                 |     |                    |  |                 |        |          |  |                   |    |          |  |            |       |          |  |  |   |  |  |  |     |  |  |  |     |  |  |  |        | 
|Indiana             |  |                 | 17  |                    |  |                 | 1,812  |          |  |                   | 3  |          |  |            | 133   |          |  |  |  |  |  |  |    |  |  |  | 20  |  |  |  | 1,945  | 
|Kentucky            |  |                 | 18  |                    |  |                 | 1,510  |          |  |                   | 1  |          |  |            | 39    |          |  |  |  |  |  |  |    |  |  |  | 19  |  |  |  | 1,549  | 
|                    |  |                 |     |                    |  |                 |        |          |  |                   |    |          |  |            |       |          |  |  |   |  |  |  |     |  |  |  |     |  |  |  |        | 
|Washington          |  |                 | 15  |                    |  |                 | 1,486  |          |  |                   | 8  |          |  |            | 381   |          |  |  |  |  |  |  |    |  |  |  | 23  |  |  |  | 1,867  | 
|Oregon              |  |                 | 3   |                    |  |                 | 192    |          |  |                   | 2  |          |  |            | 102   |          |  |  |  |  |  |  |    |  |  |  | 5   |  |  |  | 294    | 
|Idaho               |  |                 | 2   |                    |  |                 | 179    |          |  |                   |   |          |  |            |      |          |  |  |  |  |  |  |    |  |  |  | 2   |  |  |  | 179    | 
|                    |  |                 |     |                    |  |                 |        |          |  |                   |    |          |  |            |       |          |  |  |   |  |  |  |     |  |  |  |     |  |  |  |        | 
|Louisiana           |  |                 | 3   |                    |  |                 | 567    |          |  |                   |   |          |  |            |      |          |  |  |  |  |  |  |    |  |  |  | 3   |  |  |  | 567    | 
|Arkansas            |  |                 | 1   |                    |  |                 | 96     |          |  |                   | 3  |          |  |            | 181   |          |  |  |  |  |  |  |    |  |  |  | 4   |  |  |  | 277    | 
|Texas               |  |                 |    |                    |  |                 |       |          |  |                   | 2  |          |  |            | 110   |          |  |  |  |  |  |  |    |  |  |  | 2   |  |  |  | 110    | 
|                    |  |                 |     |                    |  |                 |        |          |  |                   |    |          |  |            |       |          |  |  |   |  |  |  |     |  |  |  |     |  |  |  |        | 
|Total United
States |  |                 | 156 |                    |  |                 | 16,357 |          |  |                   | 41 |          |  |            | 1,912 |          |  |  |  |  |  |  |    |  |  |  | 197 |  |  |  | 18,269 | 
|                    |  |                 |     |                    |  |                 |        |          |  |                   |    |          |  |            |       |          |  |  |   |  |  |  |     |  |  |  |     |  |  |  |        | 
|Ontario             |  |                 | 47  |                    |  |                 | 7,166  |          |  |                   | 6  |          |  |            | 900   |          |  |  | 1 |  |  |  | 120 |  |  |  | 54  |  |  |  | 8,186  | 
|Alberta             |  |                 | 15  |                    |  |                 | 1,229  |          |  |                   |   |          |  |            |      |          |  |  |  |  |  |  |    |  |  |  | 15  |  |  |  | 1,229  | 
|Saskatchewan        |  |                 | 5   |                    |  |                 | 654    |          |  |                   |   |          |  |            |      |          |  |  |  |  |  |  |    |  |  |  | 5   |  |  |  | 654    | 
|Manitoba            |  |                 | 5   |                    |  |                 | 762    |          |  |                   |   |          |  |            |      |          |  |  |  |  |  |  |    |  |  |  | 5   |  |  |  | 762    | 
|British Columbia    |  |                 | 1   |                    |  |                 | 75     |          |  |                   |   |          |  |            |      |          |  |  |  |  |  |  |    |  |  |  | 1   |  |  |  | 75     | 
|                    |  |                 |     |                    |  |                 |        |          |  |                   |    |          |  |            |       |          |  |  |   |  |  |  |     |  |  |  |     |  |  |  |        | 
|Total Canada        |  |                 | 73  |                    |  |                 | 9,886  |          |  |                   | 6  |          |  |            | 900   |          |  |  | 1 |  |  |  | 120 |  |  |  | 80  |  |  |  | 10,906 | 
|                    |  |                 |     |                    |  |                 |        |          |  |                   |    |          |  |            |       |          |  |  |   |  |  |  |     |  |  |  |     |  |  |  |        | 
|Total               |  |                 | 229 |                    |  |                 | 26,243 |          |  |                   | 47 |          |  |            | 2,812 |          |  |  | 1 |  |  |  | 120 |  |  |  | 277 |  |  |  | 29,175 | 
|                    |  |                 |     |                    |  |                 |        |          |  |                   |    |          |  |            |       |          |  |  |   |  |  |  |     |  |  |  |     |  |  |  |        | 

In addition, EHSI operated 22
rehabilitative clinics as follows: Pennsylvania 
10; Wisconsin  9; Texas  2; and Ohio  1.

ParaMed provided its services through 32 locations, substantially all of which
were leased, as follows: Ontario  25; Alberta  2; and British Columbia  5.
The 5 locations in British Columbia were sold and/or ceased operations as of
March 31, 2003.

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GOVERNMENT REGULATIONS

United States

The provision of institutional care through nursing facilities is subject to
regulation by various federal, state and local government authorities in the
United States. Although EHSI believes its operations comply with the laws
governing its industry, EHSI cannot guarantee that it will be in absolute
compliance with all regulations at all times. Failure to comply may result in
significant penalties, including exclusion from the Medicare and Medicaid
programs, which could have a material adverse effect on EHSIs business.
Management cannot give assurance that governmental authorities will not impose
additional restrictions on EHSIs activities that might adversely affect its
business.

General Regulatory Requirements

Nursing facilities, assisted living facilities, and other health care
businesses are subject to licensure and other state and local regulatory
requirements. In addition, in order for a nursing facility to be approved for
payment under the Medicare and Medicaid reimbursement programs, it must meet
the participation requirements of the Social Security Act and related
regulations. The regulatory requirements for nursing facility licensure and
participation in Medicare and Medicaid generally prescribe standards relating
to provision of services, resident rights, staffing, employee training,
physical environment and administration. Nursing and assisted living facilities
generally are subject to unannounced annual inspections by state or local
authorities for purposes of licensure and for purposes of certification under
Medicare and Medicaid, in the case of nursing facilities. These surveys will
also confirm that nursing facilities continue to meet Medicare and Medicaid
participation standards. All of EHSIs nursing facilities are licensed under
applicable state laws. In addition, all of EHSIs nursing facilities are
certified to participate in either the Medicare program or the Medicaid
program, or both.

Environmental Laws and Regulations

Some federal and state laws govern the handling and disposal of medical,
infectious and hazardous waste. If an entity fails to comply with those laws or
the related regulations, the entity could be subject to fines, criminal
penalties and other enforcement actions. EHSI has developed policies for the
handling and disposal of medical, infectious and hazardous waste to assure that
each of its facilities complies with those laws and regulations. EHSI incurs
on-going operational costs and capital expenditures to remain in compliance
with those laws and regulations; however, the capital expenditures to remain in
compliance have not been material to EHSI. EHSI believes that it substantially
complies with applicable laws and regulations governing these requirements.

Federal regulations established by the Occupational Safety and Health
Administration imposes additional requirements on EHSI with regard to
protecting employees from exposure to blood borne pathogens. EHSI believes that
it has policies and procedures in place to preclude valid, material actions by
this regulatory body.

Health Insurance Portability and Accountability Act (HIPAA)

In the United States, the administrative simplification provisions of HIPAA
mandate a set of interlocking regulations that will establish the uniform
coding conventions and record formats across all payer types for all electronic
transactions central to the processing of all health care claims and health
plan enrollments. These standards will allow entities within the health care
system to exchange medical, billing and other information and to process
transactions in a more timely and cost effective manner. These new transactions
and code sets must be implemented by October 2003. Also, new privacy standards
went into effect on April 14, 2003 that will require operational changes
throughout the health care industry in the handling of all patient information.
The privacy standards are designed to protect the privacy of patients medical
information. The security standards, which were issued in February 2003, will
require compliance by April 21, 2005. All standards are required to be fully
implemented within two years of final issuance, with civil and criminal
penalties established for non-compliance. EHSI has established a work task
force to review
and implement the standards required by the legislation and is currently on
schedule to comply with the requirements.

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Nursing Facility Regulation

CMS has established regulations to implement survey, certification and
enforcement procedures. The survey process is intended to review the actual
provision of care and services, with an emphasis on resident outcomes to
determine whether the care provided meets the assessed needs of the individual
residents. Surveys generally are conducted on an unannounced annual basis by
state survey agencies. Remedies are assessed for deficiencies based upon the
scope and severity of the cited deficiencies. The regulations specify that the
remedies are intended to motivate facilities to return to compliance and to
facilitate the removal of chronically poor-performing facilities from the
program. Remedies range from: directed plans of correction, directed in-service
training and state monitoring for minor deficiencies; denial of Medicare or
Medicaid reimbursement for existing residents or new admissions and civil
monetary penalties up to US$3,000 per day for deficiencies that do not
immediately jeopardize resident health and safety; and, appointment of
temporary management, termination from the program and civil monetary penalties
of up to US$10,000 for one or more deficiencies that immediately jeopardize
resident health or safety. The regulations allow state survey agencies to
identify alternative remedies that must be approved by CMS prior to
implementation.

Facilities with acceptable regulatory histories generally are given an
opportunity to correct deficiencies by a date certain, usually within six
months. CMS will continue payments and refrain from imposing sanctions, unless
the facility does not return to compliance. Facilities with deficiencies that
immediately jeopardize resident health and safety and those that are classified
as poor performing facilities are not given an opportunity to correct their
deficiencies prior to the assessment of remedies. From time to time, EHSI
receives notices from federal and state regulatory agencies alleging
deficiencies for failing to comply with all components of the regulations.
While EHSI does not always agree with the positions taken by the agencies, it
reviews all such notices and takes corrective action when appropriate. Due to
the fact that the regulatory process provides EHSI with limited appeal rights,
many alleged deficiencies are not challenged even if EHSI does not agree with
the allegation.

While EHSI tries to comply with all applicable regulatory requirements, from
time to time some of its nursing facilities have been sanctioned as a result of
deficiencies alleged by CMS or state survey agencies. In November 2000, EHSI
operated one facility in Indiana that lost its certification under the Medicare
and Medicaid programs, but that facility has since been recertified under both
programs. EHSI cannot give assurance that it will not be sanctioned and
penalized in the future.

CMS has launched the Nursing Home Quality Initiative pilot program with the
states of Colorado, Florida, Maryland, Ohio, Rhode Island and Washington. This
program, which is designed to provide consumers with comparative information
about nursing home quality measures, will rate every nursing home operating in
these states on nine quality of care indicators. These quality of care
indicators include such measures as percentages of patients with infections,
bedsores and unplanned weight loss. This comparative data is available to the
public on the Centers website and is expected to be published in local
newspapers. Based upon the success of the pilot, CMS has announced its
intention to roll out the program nationwide to all other states. EHSI believes
that it has appropriate systems and mechanisms in place to monitor care and
service delivery. EHSI expects that any of its facilities that may not
substantially comply with the regulations will ultimately substantially comply.
EHSI cannot predict whether it will comply in the future and could be adversely
affected if a substantial portion of its facilities were determined to not
comply with applicable regulations. EHSI currently operates nursing homes in
two of the pilot program states, Ohio and Washington.

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Restrictions on Acquisitions and Construction

Acquisition and construction of additional nursing facilities are subject to
state regulation. Most of the states in which EHSI currently operates have
adopted laws to regulate expansion of skilled nursing facilities. Certificate
of need laws generally require that a state agency approve certain acquisitions
or physical plant changes and determine that a need exists prior to the
addition of beds or services, the implementation of the physical plant changes
or the incurrence of capital expenditures exceeding a prescribed amount. Some
states also prohibit, restrict or delay the issuance of certificates of need.
In addition, in most states the reduction of beds or the closure of a facility
requires the approval of the appropriate state regulatory agency. EHSIs
nursing facility expansions comply with all state regulations regarding
expansion. Prior to engaging in any regulated expansion project, EHSI has
obtained certificates of need, if required by law. If EHSI decides to reduce
beds or close a facility, it could be adversely affected by a failure to obtain
or a delay in obtaining such approval. To the extent that a certificate of need
or other similar approvals are required for expansion of operations, either
through facility acquisitions, construction of new facilities or additions to
existing facilities, or expansion or provision of new services or other
changes, EHSIs expansion proposals could be adversely affected by an inability
to obtain the necessary approvals, changes in the standards applicable to such
approvals and possible delays and expenses associated with obtaining such
approvals.

Acquisition, construction and operation of assisted living facilities are
subject to less stringent regulation than nursing facilities and, in the
absence of uniform federal regulations, states develop their own regulations.
However, since 1999 the term assisted living facility has been defined in 29
state regulations and statutes, and approximately half of the remaining states
have regulations currently in effect or have proposed regulations regarding
assisted living facilities. Virtually every state has a licensure process,
registration process or some other form of regulation that may apply to
assisted living providers. If an assisted living provider supplies services
that meet the definition of a licensed level of care in the state, the provider
must be licensed. Licensure regulations can apply to admission and discharge
criteria and the variety and type of services provided. Many states require
that buyers submit building plans and receive state approval prior to
construction. However, the approval process is different from the certificate
of need procedure, as it is more of a clearance process than a demand formula.
Assisted living facilities must meet a stringent set of building construction
and design regulations including the Life Safety Code (NFPA101). State
regulators conduct inspections of assisted living facilities on a periodic
basis similar to their inspections of nursing facilities in most cases. EHSIs
assisted living facilities are compliant in all material respects with
applicable state licensure, building construction and design regulations.

Regulation of Fraud and Related Matters

Because EHSI participates in federal and state health care programs, it is
subject to a variety of federal and state laws that are intended to prevent
health care fraud and abuse. These laws are punishable by criminal and/or civil
sanctions, including, in some instances, exclusion from participation in
federal health programs, including Medicare, Medicaid and Department of
Veterans Affairs health programs. These laws, which include, but are not
limited to, anti-kickback laws, false claims laws, physician self-referral laws
and federal criminal health care fraud laws, are discussed in further detail
below. Management believes that both EHSI and its subsidiaries have been and
continue to be in substantial compliance with all of these laws as they apply
to its companies.

EHSI believes its billing practices, operations and compensation and financial
arrangements with referral sources and others materially comply with applicable
federal and state requirements. However, EHSI cannot give assurance that a
governmental authority will not interpret such requirements in a manner
inconsistent with EHSIs interpretation and application. If EHSI fails to
comply, even inadvertently, with any of these requirements, EHSI could be
required to alter its operations and/or refund payments to the government. In
addition, EHSI could be subject to significant penalties. Even if EHSI
successfully defends against any action against it for violating these laws or
regulations, EHSI would likely be forced to incur significant legal expenses
and divert managements attention from the operation of its business. Any of
these actions, individually or in the aggregate, could have a material adverse
effect on EHSIs business and
financial results. EHSI cannot reasonably predict whether enforcement
activities will increase at the federal or state level or the effect of such on
its business.

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The illegal remuneration provisions of the Social Security Act make it a felony
to solicit, receive, offer to pay or pay any kickback, bribe or rebate in
return for referring a resident for any item or service or in return for
purchasing, leasing, ordering, recommending or arranging for any good,
facility, service or item, for which payment may be made under the federal
health care programs. A violation of the illegal remuneration statute may
result in the imposition of criminal penalties, including imprisonment for up
to five years, the imposition of a fine of up to US$25,000, civil penalties and
exclusion from participating in federal health programs.

Recognizing that the law is broad and may technically prohibit beneficial
arrangements, the Office of Inspector General of the Department of Health and
Human Services developed regulations addressing those types of business
arrangements that will not be subject to scrutiny under the law. These safe
harbours describe activities that may technically violate the act, but which
are not to be considered illegal when carried on in conformance with the
regulations. For example, the safe harbours cover activities such as
contracting with physicians or other individuals that have the potential to
refer business to EHSI that would ultimately be billed to a federal health
program. Failure to qualify for safe harbour protection does not mean that an
arrangement is illegal. Rather, the arrangement must be analyzed under the
anti-kickback statute to determine whether there is an intent to pay or receive
remuneration in return for referrals. Conduct and business arrangements that do
not fully satisfy one of the safe harbours may result in increased scrutiny by
government enforcement authorities. In addition, some states have anti-kickback
laws that may apply regardless of whether a federal health care program is
involved. Although EHSIs business arrangements may not always satisfy all the
criteria of a safe harbour, EHSI believes that its operations are in material
compliance with federal and state anti-kickback laws.

Under the federal Stark II law, physicians are prohibited from making a
referral to an entity for the furnishing of designated health services,
including therapy services, for which Medicare or Medicaid may pay, if the
physician, or an immediate family member of the physician, has a financial
relationship, including ownership interests and compensation arrangements, with
that entity, and the relationship fails to meet a statutory or regulatory
exception to the rule. The penalties for violating this act include denial of
payment, additional financial penalties and exclusion from participating in
federal health programs. In addition, a number of states have enacted their own
versions of self-referral laws.

The Federal False Claims Act and similar state statutes prohibit presenting a
false or misleading claim for payment under a federal program. Violations can
result in significant civil penalties, treble damages and exclusion from
participation in federal programs. Liability arises, primarily, when an entity
knowingly submits a false claim for reimbursement to the federal government.
However, enforcement over the past few years has expanded the traditional scope
of this act to cover quality of care issues, especially in the skilled nursing
facility context. In addition to the civil provisions of the False Claims Act,
the federal government can use several other criminal statutes to prosecute
persons who submit false or fraudulent claims for payment to the federal
government.

Federal law provides that practitioners, providers and related persons may not
participate in most federal health care programs, including the Medicare and
Medicaid programs, if the individual or entity has been convicted of a criminal
offence related to the delivery of an item or service under these programs or
if the individual or entity has been convicted, under state or federal law, of
a criminal offence relating to neglect or abuse of residents in connection with
the delivery of a health care item or service. Other individuals or entities
may be, but are not required to be, excluded from such programs under certain
circumstances, including the following: any conviction related to fraud,
obstruction of an investigation or related to a controlled substance; licensure
revocation or suspension; exclusion or suspension from state or federal health
care programs; filing claims for excessive charges or unnecessary services or
failure to furnish medically necessary services; ownership or control by an
individual who has been excluded from the Medicaid and/or Medicare programs,
against whom a civil monetary penalty related to the Medicaid and/or Medicare
programs has been assessed or who has been convicted of the crimes described in
this paragraph; and the transfer of ownership or control interest in an entity
to an immediate family or household member in anticipation of, or following, a
conviction, assessment or exclusion.

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Cross Decertification and De-Licensure

In some circumstances, if one facility is convicted of abusive or fraudulent
behaviour, then other facilities under common control or ownership may be
decertified from participating in Medicaid or Medicare programs. Executive
Order 12549 prohibits any corporation or facility from participating in federal
contracts if it or its principals have been barred, suspended or are
ineligible or have been voluntarily excluded from participating in federal
contracts. In addition, some state regulations provide that all facilities
under common control or ownership licensed within a state may be de-licensed if
any one or more of the facilities are de-licensed. To date, none of the
facilities of either EHSI or its subsidiaries have experienced any
cross-decertification or de-licensure.

Office of the Inspector General

In 1995, a major anti-fraud demonstration project, Operation Restore Trust
was announced by the Office of the Inspector General, which guaranteed funding
for fraud and abuse activities and coordinated efforts among multiple federal
and state agencies. A primary purpose for the operation is to scrutinize the
activities of health care providers who are reimbursed under the Medicare and
Medicaid programs. Initial investigation efforts have focused on skilled
nursing facilities, home health and hospice agencies, and durable medical
equipment suppliers in Texas, Florida, New York, Illinois and California. In
May 1997, the Department of Health and Human Services announced that the
operation would be expanded in the future to include several other states and
other types of health care services, with the intent that it will ultimately be
a nationwide operation. Over the longer term, the operations enforcement
actions could include criminal prosecutions, suit for civil penalties, and/or
Medicare, Medicaid or federal health care program exclusions. While EHSI does
not believe that it is the target of any such investigation under Operation
Restore Trust, there can be no assurance that substantial amounts will not be
expended by EHSI to cooperate with any such investigation or to defend
allegations that may arise from an investigation. If a government agency finds
that any of EHSIs practices failed to comply with the anti-fraud provisions,
EHSI could be materially adversely affected.

New Initiatives

There are ongoing initiatives at the federal and state levels for comprehensive
reforms affecting the payment for and availability of health care services.
Aspects of some of these health care initiatives, such as the termination of
Medicare funding improvements and limitations on Medicare coverage, other
pressures to contain health care costs by Medicare, Medicaid and other payers,
as well as increased operational requirements in the administration of
Medicaid, could adversely affect EHSI. EHSI cannot predict the ultimate
content, timing or effect of any health care reform legislation, nor can it
estimate the impact of potential legislation on the Company.

Corporate Compliance Program

EHSIs Corporate Compliance Program was developed to assure that EHSI achieved
its goal of providing a high level of care and service in a manner consistent
with all applicable state and federal laws and regulations, and EHSIs internal
standards of conduct. EHSIs Corporate Compliance Program incorporates the
elements included in the guidance issued by the Office of the Inspector
General. EHSIs employees must acknowledge their responsibility to comply with
relevant laws, regulations and policies, including its compliance program. EHSI
has a Corporate Compliance Officer responsible for administering the Corporate
Compliance Program who reports to the Board of Extendicare and EHSIs Chief
Executive Officer.

Canada

In Canada, provincial legislation and regulations closely control all aspects
of operation and funding of nursing facilities, including the fee structure,
the adequacy of physical facilities, standards of care and accommodation,
equipment and personnel. In some provinces, the government has delegated
responsibility for the funding and administration of long-term care programs to
regional health authorities.

23
Extendicare 2002 Annual Information Form





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##### 



In most provinces, a license must be obtained from the applicable provincial
ministry of health in order to operate a nursing centre. There is almost a
universal restriction upon the issuance of new licenses across the country
because of the funding implications for governments. When new licenses are
issued, it is in response to a deficiency of long-term care beds in a
particular region, and some form of public competition for the license is
required. There are also provincial regulations regarding the sale and transfer
of existing licenses, and while such sales are regular occurrences, authorities
take steps to determine the adequacy and bona fidesof the new operator. In
addition to, or in some cases in place of, the licensure procedure, operators
in some provinces, such as Alberta and Ontario, are required to sign service
contracts with the provincial government or regional health authority. These
contracts spell out in detail the services to be provided and the remuneration
to be received. Nursing centre licenses and service contracts are required to
be renewed annually, and do not represent any guarantee of continued operation
beyond the term of the license or contract. While it is possible for
authorities to revoke a license or cancel a service contract due to inadequate
performance by the operator, such actions are rare in Canada and would usually
be preceded by a series of warnings, notices and other sanctions. ECI has never
had such a license or service contract revoked.

While ECI endeavours to comply with all regulatory requirements in its Canadian
nursing facilities, it is not unusual for stringent inspection procedures to
identify deficiencies in operations. Every effort is made to correct legitimate
problem areas that have been identified.

The environmental laws to which the Company is subject in Canada are similar in
effect to the applicable environmental laws in the United States.

EMPLOYEES

Extendicare currently employs approximately 37,600 people, including
approximately: 4,600 registered and licensed practical nurses; 13,400 nursing
assistants; 1,800 therapists; 6,500 dietary, domestic, maintenance and other
staff; 8,500 Canadian home care professionals and other staff; and 2,800
administrative employees who work at corporate and regional offices and
facilities. In Canada, there are 53 collective agreements covering
approximately 8,000 employees belonging to 16 different unions, operating under
five different collective bargaining legislative jurisdictions. In the United
States, there are 36 collective agreements among seven unions covering
approximately 2,200 employees. The Company believes that its relationship with
its employees generally is good.

INVESTMENT IN CROWN LIFE INSURANCE COMPANY

Extendicare Inc., through 159524 Canada Inc., owned a 34.8% (1,113,690 shares)
common equity interest in Crown Life Insurance Company (Crown Life) at December
31, 2002. Extendicare accounts for its investment in Crown Life on an equity
basis. The Company regards its investment in Crown Life as a non-core asset.

Dividends on common shares from Crown Life are at the discretion of its
directors. During 2002, Extendicare received cash dividends of $22.0 million or
$19.75 per common share and in 2001 received cash dividends of $22.6 million or
$20.30 per common share.

In December 2000, Crown Life completed its acquisition of the common shares not
held by its two principal shareholders, HARO Financial Company and Extendicare.
As a result of the buy-out of the minority shareholders, Crown Lifes common
shares were de-listed from the Toronto Stock Exchange on January 15, 2001.

24
Extendicare 2002 Annual Information Form





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##### 



Effective January 1, 1999, Crown Life sold or indemnity reinsured substantially
all of its insurance operations to The Canada Life Assurance Company (Canada
Life). Crown Life has provided Canada Life with an option to acquire
substantially all of Crown Lifes remaining insurance business at any time
after January 1, 2004 (or at any time after June 30, 2000 if certain litigation
is resolved and Crown Lifes ratio of regulatory capital available to
regulatory capital required is less than 125%). Crown Life has an option to
require Canada Life to make such acquisition at any time after January 1, 2004.
In the event of an acquisition after January 1, 2004, Crown Life is required to
transfer qualified invested assets equal to policy liabilities at such time to
Canada Life.

Canada Life also has an option to make an offer to acquire all outstanding
common shares of Crown Life: (i) at any time after January 1, 2004 if the
financial exposure related to certain litigation and policyholder claims can be
quantified; or (ii) at any time after June 30, 2000 if certain litigation and
policyholder claims are resolved and Crown Lifes ratio of regulatory capital
available to regulatory capital required is less than 125%; or (iii) at any
time by agreement with Crown Lifes two common shareholders. Crown Lifes
common shareholders have agreed to accept such offer. Such offer is to be based
on the value of assets supporting Crown Lifes common shareholders equity at
the time of the offer. Crown Lifes common shareholders have the right to
require Canada Life to make such offer at any time after January 1, 2004 if the
financial exposure related to certain litigation and policyholder claims can be
quantified. Crown Life retains the right to distribute to shareholders or
otherwise dispose of assets supporting common shareholders equity prior to any
acquisition by Canada Life of Crown Lifes common shares pursuant to such
offer.

Crown Life has assets of $1.1 billion. Based in Regina, Saskatchewan, Crown
Life is focusing on the development of its investment management activities.
Crown Lifes remaining insurance business, which is primarily in the United
States, is administered by Canada Life Assurance Company under an
administrative services agreement.

25
Extendicare 2002 Annual Information Form





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##### 



SELECTED FINANCIAL INFORMATION

|                                                        |               |                                               |                         |           |      |  |           |           |  |  |           |           | 
|------------------------------------------------------- | ------------- | --------------------------------------------- | ----------------------- | --------- | ---- |  | --------- | --------- |  |  | --------- | --------- | 
|                                                        |               |                                               | Years ended December 31
|                                                        |               |                                               |                        
|                                                        |               |                                               | 2002                    |           | 2001 |  | 2000     
|                                                        |               |                                               |                         |           |      |  |          
|                                                        |               | (thousands of dollars unless otherwise noted)
|Income
Statement Data:                                  |               |                                              
|Revenue                                                 |               |                                               |                         |           |      |  |           |           |  |  |           |          
|Nursing and assisted living centres                     |               |                                               |                         |           |      |  |           |           |  |  |           |          
|                                                        | United States |                                               |                         | 1,236,565 |      |  |           | 1,187,547 |  |  |           | 1,346,033 | 
|                                                        | Canada        |                                               |                         | 315,907   |      |  |           | 279,559   |  |  |           | 266,671   | 
|Outpatient therapy  United States                      |               |                                               | 16,144                  |           |      |  | 14,733    |           |  |  | 14,430    |          
|Home health  Canada                                    |               |                                               | 146,034                 |           |      |  | 171,809   |           |  |  | 161,323   |          
|Other                                                   |               |                                               | 41,024                  |           |      |  | 50,863    |           |  |  | 18,949    |          
|                                                        |               |                                               |                         |           |      |  |           |           |  |  |           |          
|                                                        |               |                                               | 1,755,674               |           |      |  | 1,704,511 |           |  |  | 1,807,406 |          
|Operating and administrative costs                      |               |                                               | 1,571,214               |           |      |  | 1,549,152 |           |  |  | 1,687,408 |          
|                                                        |               |                                               |                         |           |      |  |           |           |  |  |           |          
|Earnings before undernoted                              |               |                                               | 184,460                 |           |      |  | 155,359   |           |  |  | 119,998   |          
|Lease costs                                             |               |                                               | 24,119                  |           |      |  | 28,202    |           |  |  | 27,529    |          
|Depreciation and amortization                           |               |                                               | 68,989                  |           |      |  | 71,547    |           |  |  | 75,002    |          
|Interest, net                                           |               |                                               | 62,047                  |           |      |  | 65,248    |           |  |  | 78,484    |          
|Loss from asset disposals, impairment and other items   |               |                                               | 6,689                   |           |      |  | 50,082    |           |  |  | 42,747    |          
|                                                        |               |                                               |                         |           |      |  |           |           |  |  |           |          
|Earnings (loss) before income taxes                     |               |                                               | 22,616                  |           |      |  | (59,720   | )         |  |  | (103,764  | )        
|Income taxes (recovery)                                 |               |                                               | 11,202                  |           |      |  | (12,659   | )         |  |  | (36,916   | )        
|Minority interests                                      |               |                                               |                        |           |      |  | 83        |           |  |  | 257       |          
|                                                        |               |                                               |                         |           |      |  |           |           |  |  |           |          
|Earnings (loss) from health care                        |               |                                               | 11,414                  |           |      |  | (47,144   | )         |  |  | (67,105   | )        
|Share of earnings of Crown Life                         |               |                                               | 7,520                   |           |      |  | 10,738    |           |  |  | 7,827     |          
|                                                        |               |                                               |                         |           |      |  |           |           |  |  |           |          
|Net earnings (loss)                                     |               |                                               | 18,934                  |           |      |  | (36,406   | )         |  |  | (59,278   | )        
|                                                        |               |                                               |                         |           |      |  |           |           |  |  |           |          
|Basic and diluted earnings (loss) per share             |               |                                               | 0.26                    |           |      |  | (0.52     | )         |  |  | (0.81     | )        
|Operating Statistics:                                   |               |                                               |                         |           |      |  |           |           |  |  |           |          
|Number of facilities (end of period)                    |               |                                               | 277                     |           |      |  | 261       |           |  |  | 274       |          
|Resident capacity (end of period)                       |               |                                               | 29,175                  |           |      |  | 26,339    |           |  |  | 27,052    |          
|Average occupancy rate (percentage)                     |               |                                               | 92.0                    |           |      |  | 90.0      |           |  |  | 89.9      |          
|U.S. payer source as a percentage of total U.S. revenue |               |                                               |                         |           |      |  |           |           |  |  |           |          
|                                                        | Private Pay   |                                               |                         | 24        |      |  |           | 25        |  |  |           | 25        | 
|                                                        | Medicare      |                                               |                         | 26        |      |  |           | 24        |  |  |           | 24        | 
|                                                        | Medicaid      |                                               |                         | 50        |      |  |           | 51        |  |  |           | 51        | 
|Property and equipment capital expenditures             |               |                                               | 53,145                  |           |      |  | 45,377    |           |  |  | 46,292    |          
|EBITDA
margin(1) (percentage)                           |               |                                               | 9.1                     |           |      |  | 7.5       |           |  |  | 5.1       |          
|Balance Sheet Data (at period end):                     |               |                                               |                         |           |      |  |           |           |  |  |           |          
|Assets                                                  |               |                                               |                         |           |      |  |           |           |  |  |           |          
|Cash and short-term investments                         |               |                                               | 56,815                  |           |      |  | 26,491    |           |  |  | 10,181    |          
|Working capital(2)                                      |               |                                               | (38,950                 | )         |      |  | (68,426   | )         |  |  | 1,295     |          
|Total health care assets                                |               |                                               | 1,688,328               |           |      |  | 1,604,302 |           |  |  | 1,588,345 |          
|Investment in Crown Life, equity basis                  |               |                                               | 121,508                 |           |      |  | 135,944   |           |  |  | 147,407   |          
|Total assets                                            |               |                                               | 1,809,836               |           |      |  | 1,740,246 |           |  |  | 1,735,752 |          
|Long-term debt                                          |               |                                               | 846,734                 |           |      |  | 788,354   |           |  |  | 802,426   |          
|Shareholders equity                                    |               |                                               | 358,026                 |           |      |  | 350,696   |           |  |  | 381,437   |          



|(1) |  | Earnings before interest, taxes, depreciation, amortization and loss
from asset disposals, impairment and other items (EBITDA) divided by
revenue.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Certain items have been reclassified which reduce working capital for
the years 2001 and 2000.                                                    

26
Extendicare 2002 Annual Information Form





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##### 



COMPARABILITY OF SELECTED FINANCIAL INFORMATION

Factors affecting the comparability of financial data of the Company include
the following significant acquisitions, construction, asset disposals and other
major changes in the business.

ACQUISITIONS

On October 1, 2002, EHSI exercised its right to acquire seven nursing
facilities that EHSI previously leased, for $28.2 million (US$17.9 million).
Three of the facilities are located in Ohio and four are in Indiana,
representing a total of 902 licensed beds. The purchase price consisted of
US$7.4 million in cash and a US$10.5 million 10-year note, which bears interest
at a rate to be determined by arbitration (currently being accrued at 10.5%).

CONSTRUCTION

As part of the Government of Ontario program to add new long-term care beds,
ECI has completed as of December 31, 2002, or will complete in 2003/2004 the
following:

2001
Opened four new nursing facilities with capacity of 502 beds, including
licences for 40 beds transferred from an existing facility and one new 38-unit
assisted living wing.

2002
Opened two new nursing facilities with capacity of 267 beds including one
38-unit assisted living wing.

2003
In February 2003, opened two new nursing facilities with capacity of 332 beds,
including licences for 80 beds transferred from an existing facility. Two more
nursing facilities with capacity of 258 beds, including licences for 34
existing beds, will be opened later in 2003, and a 128-bed facility is
scheduled to open in 2004.

ASSET DISPOSALS, IMPAIRMENT AND OTHER ITEMS

2000
During 2000, the Company sold or leased all of its long-term care operations in
the State of Florida through separate transactions. In two transactions, two
facilities (239 beds) were sold for US$6.3 million. The Company disposed of 11
nursing centres (1,435 beds) and four assisted living centres (135 units) for
initial cash proceeds of US$30.0 million and contingent consideration in the
form of a series of notes, which have an aggregate potential value of up to
US$30.0 million. These notes have a maximum term of 3.5 years and may be
retired at any time by the purchaser through the subsequent sale or refinancing
of the facilities. The remaining facilities in the State of Florida were leased
to two separate operators, and under the terms of the lease agreements, the
lessees have the option to acquire the facilities at pre-determined prices.

The Company disposed of two facilities in other jurisdictions in the United
States for US$2.7 million.

The Company recorded a provision for impairment of assets of $31.6 million
related to assets in the United States. In addition, in the United States, the
Company recorded a provision of $3.6 million primarily related to the closure
of two nursing facilities and one assisted living facility, severance costs of
$1.6 million related to the divestiture of Florida operations, and the
write-off of deferred financing costs related to the early extinguishment of
term debt.

27
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##### 



2001
During the year, the Company made provisions totalling $20.3 million related to
ceased operations. These were comprised of a provision of $3.1 million (US$2.0
million) related to the closure and/or sale of three nursing properties, a loss
of $2.8 million (US$1.8 million) related to the transfer of Texas nursing
operations, and $14.5 million (US$9.4 million) in provisions for previously
ceased operations, primarily for the Florida nursing homes.

The Company also recorded charges of $1.3 million related to interest on past
years tax re-assessments and a write-off of deferred financing costs from the
early retirement of debt.

On December 7, 2001, ECI sold its investment in AIM, a rehabilitative therapy
business, resulting in a pre-tax gain of $1.1 million. Gross proceeds from the
sale of $3.5 million were comprised of cash of $2.2 million and notes
receivable of $1.3 million.

At the end of September, EHSI ceased operating its nursing homes in Texas
consisting of 17 facilities (1,421 beds) through lease agreements with a
third-party operator that has an option to purchase the properties. In addition
to the loss described above on transfer of the assets, a provision of $2.6
million (US$1.7 million) was recorded for impairment of the remaining Texas
properties related to leasehold rights and leasehold improvements.

In September, based upon an independent actuarial review, the Company recorded
an additional provision of $27.0 million for resident care liability costs
related to the Companys ceased Florida operations for years prior to 2001.

In April, EHSI sold two leased facilities in Florida to Tandem Health Care,
Inc. (Tandem). Tandem had operated the facilities since December 31, 2000 under
lease agreements with purchase options. Gross proceeds received were $17.5
million (US$11.4 million, comprised of cash of US$7.0 million, an interest
bearing five-year note for US$2.5 million and US$1.9 million in cumulative
dividend preferred shares). The sale resulted in a $3.3 million (US$2.2
million) pre-tax gain that was deferred until the balance of the purchase
options held by Tandem on the remaining leased facilities were completed. The
Company applied US$4.0 million of the net cash proceeds to reduce its term bank
debt.

2002
In November, as a result of continuing unfavourable business conditions,
management approved a plan to leave the British Columbia home health care
market by winding down its ParaMed B.C. business by March 31, 2003. The Company
has accrued exit costs of $1.6 million, consisting of $1.1 million for labour
related expenses and $0.5 million for operating lease penalties and other
costs.

In December, ECI recorded a reduction of $1.5 million of provisions for labour
costs that were no longer required due to certain events within the year.

In June, EHSI wrote off deferred financing costs, including a charge from the
termination of the swap agreement, of $4.5 million related to the previous
credit facility, which was retired from the proceeds of the issuance of the
9.5% Senior Notes due 2010.

In May, Tandem exercised its option to purchase seven Florida properties that
it leased from EHSI for gross proceeds of $45.0 million (US$28.6 million,
consisting of cash proceeds of US$15.6 million and five-year, 8.5% notes
receivable of US$13.0 million). This transaction, together with the deferred
gain from the April 2001 transaction with Tandem, as discussed above, resulted
in a pre-tax gain of $6.2 million. The May transaction also resulted in the
conversion of US$1.9 million in preferred shares received in the April 2001
transaction to US$1.9 million notes, due April 2006. Also in May, EHSI recorded
a provision for closure and exit costs related to Florida divested operations
of $8.3 million, concerning the settlement of cost report issues and supplier
and employee claims.

28
Extendicare 2002 Annual Information Form





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##### 



SHARE CAPITAL TRANSACTIONS

During 2002, under the terms of a Normal Course Issuer Bid, the Company
purchased and cancelled 1,472,300 Subordinate Voting Shares at a cost of
$6,992,000 (2001  1,744,900 shares at a cost of $8,237,000) and 212,900
Multiple Voting Shares at a cost of $1,084,000 (2001 224,600 shares at a cost
of $1,571,000). The shares purchased and cancelled during 2002 included 20,000
Subordinate Voting Shares purchased under the current Bid at a cost of $85,600.
The current Bid, which commenced November 27, 2002, will terminate for each
class of shares on the earlier of November 26, 2003 and the dates on which a
total of 4,700,000 Subordinate Voting Shares, 620,000 Multiple Voting Shares
and 38,200 Class II Preferred Shares, Series 1, have been purchased and
cancelled by the Company pursuant to the Bid.

As of April 30, 2003, under the current Bid, 444,700 Subordinate Voting Shares
were purchased and cancelled at a cost of $1,327,000 of which 424,700 shares at
a cost of $1,242,000 were acquired during 2003. In addition, 249,500 Multiple
Voting Shares were purchased and cancelled at a cost of $978,000 under the
current Bid, during 2003.

DIVIDEND RECORD

Preferred share dividends paid per share by Extendicare in each of the past
three fiscal years are as follows:

|     |  |                  |        |          |  |               |        |          |  |  |        |  |  |  |       | 
|---- |  | ---------------- | ------ | -------- |  | ------------- | ------ | -------- |  |  | ------ |  |  |  | ----- | 
|     |  | Preferred Shares
|     |  |                 
|     |  | Class I          |        |          |  |              
|     |  |                  |        | Class II
|     |  | Series 2         |        | Series 3 |  | Series 4      |        | Series 1
|     |  |                  |        |          |  |               |        |         
|     |  |                  |        |          |  | ($ per share) |        |          |  | 
|2002 |  |                  | 0.7549 |          |  |               | 0.9900 |          |  |  | 0.7653 |  |  |  | 0.828 | 
|2001 |  |                  | 1.1990 |          |  |               | 1.0500 |          |  |  | 1.2159 |  |  |  | 1.280 | 
|2000 |  |                  | 1.2334 |          |  |               | 1.2300 |          |  |  | 1.2507 |  |  |  | 1.421 | 

No dividends are currently being paid on the Subordinate Voting Shares and
Multiple Voting Shares.

MARKET FOR SECURITIES

The Class I Preferred Shares, Series 2, Series 3 and Series 4; Class II
Preferred Shares, Series 1; Subordinate Voting Shares; and Multiple Voting
Shares of Extendicare are listed on the Toronto Stock Exchange and the
Subordinate Voting Shares are listed on the New York Stock Exchange.

29
Extendicare 2002 Annual Information Form





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##### 



ADDITIONAL INFORMATION

Extendicare shall provide to any person or company, upon request to the
Corporate Secretary of the Company, the following:



|(1) |  | when the securities of the Company are in the course of a distribution
pursuant to a short form prospectus or a preliminary short form
prospectus, which has been filed in respect of a distribution of its
securities:
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (i)   |  | one copy of the 2002 Annual Information Form of the Company,
together with one copy of any document, or the pertinent pages of any
document, incorporated therein by reference;                                                                                                                                                        
| | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii)  |  | one copy of the Consolidated Financial Statements and Auditors
Report to the Shareholders of the Company for the financial year ended
December 31, 2002, together with one copy of any interim financial
statements of the Company subsequent to the Consolidated Financial
Statements for the financial year ended December 31, 2002;
|
| | (iii) |  | one copy of the Management Information and Proxy Circular of the
Company dated March 14, 2003 for the annual meeting of shareholders
held on May 8, 2003; and                                                                                                                                                                          
|
| | (iv)  |  | one copy of any other documents that are incorporated by
reference into the preliminary short form prospectus or the short form
prospectus; or                                                                                                                                                                                         



|(2) |  | at any other time, one copy of the documents referred to in paragraphs
(1) (i), (ii) and (iii) above, provided that the Company may require the
payment of a reasonable charge from such a person or company who is not a
holder of securities of the Company where the documents are furnished by
the Company pursuant to this paragraph (2).
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Additional information, including remuneration and indebtedness of directors
and executive officers, principal holders of the Companys Multiple Voting and
Subordinate Voting Shares, options to purchase securities and interests of
insiders in material transactions, where applicable, is contained in the
Management Information and Proxy Circular of the Company for the annual meeting
of shareholders held on May 8, 2003. Additional financial information is
provided in the Companys Consolidated Financial Statements for the financial
year ended December 31, 2002 contained in Extendicares 2002 Annual Report to
shareholders. A copy of such documents may be obtained from the Corporate
Secretary upon request at 3000 Steeles Avenue East, Markham, Ontario L3R 9W2,
Tel: (905) 470-5534. In addition, these documents are available for viewing or
printing on the Companys Website at www.extendicare.com.

30
Extendicare 2002 Annual Information Form





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##### 



DIRECTORS AND OFFICERS

The following table sets out the full name, municipality of residence, current
positions with Extendicare and principal occupations for the past five years of
each of the directors and officers of Extendicare:

|                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |               
|------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------
|                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | Directors    
|                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | Term Expires  
|Name, Current Positions with                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | (Annual       
|Extendicare and Municipality of                                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | Meeting)/     
|Residence                                                                            |  | Principal Occupation for Past Five Years                                                                                                                                                                                                                                                                                                                                                                                                               |  | Director Since
|                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |               
|David J. Hennigar(CG)
Director, Chairman
Bedford, Nova Scotia                        |  | Chairman, Annapolis Group Inc. (real estate
development and holding company); Chairman,
High Liner Foods Incorporated (value added
food processor); and Chairman, Acadian
Securities Inc. (investment dealer)                                                                                                                                                                                                                                          |  | 2004/1980     
|                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |               
|H. Michael Burns(CG)(IS)
Director, Deputy Chairman
Maple, Ontario                    |  | Corporate Director                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | 2005/1978     
|                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |               
|Frederick B. Ladly(CG)(HR)(QS)
Director, Deputy Chairman
Fallbrook, Ontario          |  | Vice-Chairman, Crown Life Insurance Company;
Deputy Chairman, Extendicare                                                                                                                                                                                                                                                                                                                                                                              |  | 2004/1986     
|                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |               
|Mel Rhinelander
Director, President and
Chief Executive Officer
Milwaukee, Wisconsin |  | President and Chief Executive Officer of
Extendicare since August 2000; Chairman and
Chief Executive Officer of both Extendicare
Health Services Inc. (EHSI) and Extendicare
(Canada) Inc. (ECI) since August 2000; during
1999, Mr. Rhinelander was appointed President
of Extendicare and Chief Executive Officer of
both EHSI and ECI; prior thereto he has served
as a senior executive in various capacities
for Extendicare and its subsidiaries |  | 2006/2000     
|                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |               
|Derek H. L. Buntain(A)(HR)(IS)
Director 
Grand Cayman, Cayman Islands                |  | President of The Dundee Bank (private bank
serving international clients); and President
and Chief Executive Officer, Goodman & Company
(Bermuda) Limited (investment counsel)                                                                                                                                                                                                                                                                         |  | 2005/1995     
|                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |               
|Sir Graham Day(CG)(HR)
Director 
Hantsport, Nova Scotia                              |  | Chairman, Sobeys Inc. (national food
distributor) since September 2001; and
Counsel, Stewart McKelvey Stirling Scales
(barristers and solicitors)                                                                                                                                                                                                                                                                                                      |  | 2004/1989     
|                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |               
|George S. Dembroski(A)(IS)
Director
Toronto, Ontario                                 |  | Corporate Director                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | 2005/1995     
|                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |               
|David M. Dunlap(A)(HR)(QS)
Director
Township of King, Ontario                        |  | Chairman, G.F. Thompson Co. Ltd. (manufacturer)                                                                                                                                                                                                                                                                                                                                                                                                        |  | 2006/1980     

31

Extendicare 2002 Annual Information Form





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|                                                                                                   |  |                                                                                                                                                                                                              |  |               
|-------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------
|                                                                                                   |  |                                                                                                                                                                                                              |  | Directors    
|                                                                                                   |  |                                                                                                                                                                                                              |  | Term Expires  
|Name, Current Positions with                                                                       |  |                                                                                                                                                                                                              |  | (Annual       
|Extendicare and Municipality of                                                                    |  |                                                                                                                                                                                                              |  | Meeting)/     
|Residence                                                                                          |  | Principal Occupation for Past Five Years                                                                                                                                                                     |  | Director Since
|                                                                                                   |  |                                                                                                                                                                                                              |  |               
|George A. Fierheller(A)(IS)
Director
Toronto, Ontario                                              |  | President, Four Halls Inc. (investment and
consulting company)                                                                                                                                               |  | 2006/1981     
|                                                                                                   |  |                                                                                                                                                                                                              |  |               
|Dr. Seth B. Goldsmith(CG)(QS)
Director
Hollywood, Florida                                          |  | Attorney and Professor Emeritus at the
University of Massachusetts                                                                                                                                           |  | 2006/1995     
|                                                                                                   |  |                                                                                                                                                                                                              |  |               
|Michael J. L. Kirby(CG)(HR)(QS)
Director
Nepean, Ontario                                           |  | Senator of the Parliament of Canada                                                                                                                                                                          |  | 2005/1987     
|                                                                                                   |  |                                                                                                                                                                                                              |  |               
|Alvin G. Libin(A)
Director
Calgary, Alberta                                                        |  | President and Chief Executive Officer of Balmon
Holdings Ltd. (investment company)                                                                                                                           |  | 2005/1984     
|                                                                                                   |  |                                                                                                                                                                                                              |  |               
|J. Thomas MacQuarrie, Q.C.(A)(HR)
Director 
Halifax, Nova Scotia                                   |  | Senior Partner, Stewart McKelvey Stirling
Scales (barristers and solicitors)                                                                                                                                 |  | 2004/1980     
|                                                                                                   |  |                                                                                                                                                                                                              |  |               
|Mark W. Durishan
Vice-President, Finance, and Chief
Financial Officer
Milwaukee, Wisconsin         |  | Executive of Extendicare since August 1999;
prior thereto, Senior Vice President for
Finance and Operations, Blue Cross and Blue
Shield of Minnesota                                                         |  |               
|                                                                                                   |  |                                                                                                                                                                                                              |  |               
|Philip W. Small
Senior Vice-President, Strategic
Planning and Investor Relations
Mequon, Wisconsin |  | Executive of Extendicare since June 2001; prior
thereto, Executive Vice President, Strategic
Planning and Operations Support and acting
Chief Financial Officer, Beverly Enterprises
Corporation of Arkansas |  |               
|                                                                                                   |  |                                                                                                                                                                                                              |  |               
|Jillian E. Fountain
Corporate Secretary
Toronto, Ontario                                           |  | Executive of Extendicare                                                                                                                                                                                     |  |               

|       |  |                                               |      |  |                                        
|------ |  | --------------------------------------------- | ---- |  | ---------------------------------------
|Notes: |  |                                               |      |  |                                        
|       |  |                                               |      |  |                                        
|(A)    |  | Member of Audit Committee                     | (HR) |  | Member of Human Resources Committee    
|(CG)   |  | Member of Corporate Governance and Nominating | (IS) |  | Member of Information Systems Committee
|       |  | Committee                                     | (QS) |  | Quality Standards Committee            

At April 30, 2003, the directors and officers of Extendicare as a group
beneficially owned, directly or indirectly, or exercised control or direction
over 1,374,193 Subordinate Voting Shares and 8,696,158 Multiple Voting Shares
of Extendicare (representing 2.42% and 70.66% of the outstanding Subordinate
Voting Shares and Multiple Voting Shares, respectively, and representing 49.14%
of the combined votes).

32

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SUPPLEMENTARY INFORMATION

RECONCILIATION OF CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

A - 1

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AUDITORS REPORT ON SUPPLEMENTARY INFORMATION

The Board of Directors of Extendicare Inc.

Under date of February 20, 2003, we reported on the consolidated balance sheets
of Extendicare Inc. (the Company) as at December 31, 2002 and 2001, and the
consolidated statements of earnings (loss), shareholders equity and cash flows
for each of the years in the three-year period ended December 31, 2002, as
incorporated by reference in the Companys 2002 Annual Information Form dated
May 16, 2003, included in the Annual Report on Form 40-F. In connection with
our audits of the aforementioned consolidated financial statements, we also
have audited the related supplemental note entitled Reconciliation of Canadian
and United States Generally Accepted Accounting Principles as set forth in the
Annual Information Form. This supplemental note is the responsibility of the
Companys management. Our responsibility is to express an opinion on this
supplemental note based on our audits.

In our opinion, such supplemental note, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein as at December 31,
2002 and 2001 and for each of the years in the three-year period ended December
31, 2002.

/s/ KPMGLLP
Chartered Accountants

Toronto, Canada
February 20, 2003

Comments by Shareholders Auditors for U.S. Readers
On Canada  U.S. Reporting Difference

In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when there is a
change in accounting principles that has a material effect on the comparability
of the Companys consolidated financial statements, such as the changes
described in note 1 (d) (foreign currency translation), notes 1(h) and 5
(goodwill and other intangible assets), and notes 1(n) and 10 (stock-based
compensation) to the consolidated financial statements. Our report to the
shareholders dated February 20, 2003 is expressed in accordance with Canadian
reporting standards, which do not require a reference to such a change in
accounting principles in the auditors report when the change is properly
accounted for and adequately disclosed in the financial statements.

/s/ KPMGLLP
Chartered Accountants

Toronto, Canada
February 20, 2003

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SUPPLEMENTARY INFORMATION

RECONCILIATION OF CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(in thousands of Canadian dollars, except per share amounts)

GENERAL

The following supplementary information is provided in accordance with the
United States Securities Exchange Act of 1934 as required for companies
reporting on Form 40-F under the Multijurisdictional Disclosure System.

The areas of material difference between Canadian and United States GAAP and
their impact on the consolidated financial statements of the Company are
described below.

The application of United States GAAP would have the following effect on the
net earnings (loss) as reported:

|                                                                                                                          |                                                                      |  |        |        |      |  |         |        |   |  |         |        |  
|------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- |  | ------ | ------ | ---- |  | ------- | ------ | - |  | ------- | ------ | -
|                                                                                                                          |                                                                      |  | 2002   |        | 2001 |  | 2000   
|                                                                                                                          |                                                                      |  |        |        |      |  |        
|Earnings (loss) from health care for the year as reported in accordance
with Canadian GAAP                                |                                                                      |  | 11,414 |        |      |  | (47,144 | )      |   |  | (67,105 | )     
|Application of hedge accounting for derivatives, net of income taxes (E)                                                  |                                                                      |  | (644   | )      |      |  |        |        |   |  |        |       
|Reclassification of early retirement of debt costs to extraordinary item (A)                                              |                                                                      |  | 4,486  |        |      |  | 115     |        |   |  | 1,039   |       
|Reclassification of income taxes related to early retirement of
debt costs to extraordinary item (A)                      |                                                                      |  | (1,795 | )      |      |  | (46     | )      |   |  | (382    | )     
|                                                                                                                          |                                                                      |  |        |        |      |  |         |        |   |  |         |       
|Earnings (loss) from health care before extraordinary item for the year as
reported in accordance with United States GAAP |                                                                      |  | 13,461 |        |      |  | (47,075 | )      |   |  | (66,448 | )     
|                                                                                                                          |                                                                      |  |        |        |      |  |         |        |   |  |         |       
|Share of earnings of Crown Life for the year as reported in accordance
with Canadian GAAP                                 |                                                                      |  | 7,520  |        |      |  | 10,738  |        |   |  | 7,827   |       
|Application of United States GAAP (B)                                                                                     |                                                                      |  | 24,680 |        |      |  | (5,873  | )      |   |  | 15,497  |       
|                                                                                                                          |                                                                      |  |        |        |      |  |         |        |   |  |         |       
|Share of earnings of Crown Life for the year as reported in accordance
with United States GAAP                            |                                                                      |  | 32,200 |        |      |  | 4,865   |        |   |  | 23,324  |       
|                                                                                                                          |                                                                      |  |        |        |      |  |         |        |   |  |         |       
|Earnings (loss) before extraordinary item for the year as reported in
accordance with United States GAAP                  |                                                                      |  | 45,661 |        |      |  | (42,210 | )      |   |  | (43,124 | )     
|Reclassification of early retirement of debt costs, net of income taxes,
to extraordinary item (A)                        |                                                                      |  | (2,691 | )      |      |  | (69     | )      |   |  | (657    | )     
|                                                                                                                          |                                                                      |  |        |        |      |  |         |        |   |  |         |       
|Earnings (loss) for the year as reported in accordance with
United States GAAP                                            |                                                                      |  | 42,970 |        |      |  | (42,279 | )      |   |  | (43,781 | )     
|                                                                                                                          |                                                                      |  |        |        |      |  |         |        |   |  |         |       
|Other comprehensive income (loss), net of tax (C):                                                                        |                                                                      |  |        |        |      |  |         |        |   |  |         |       
|                                                                                                                          | Foreign currency translation adjustments                             |  |        | (1,511 | )    |  |         | 16,212 |   |  |         | 13,599 |  
|                                                                                                                          | Unrealized gains (losses) on invested assets                         |  |        | 2,475  |      |  |         | (2,863 | ) |  |         | 9,334  |  
|                                                                                                                          | Cumulative effect of change in accounting for hedging activities (E) |  |        |       |      |  |         | (292   | ) |  |         |       |  
|                                                                                                                          | Net current period change in derivative gains (losses) (E)           |  |        | 1,530  |      |  |         | (1,419 | ) |  |         |       |  
|                                                                                                                          | Minimum pension liability adjustments (F)                            |  |        | (2,516 | )    |  |         |       |   |  |         |       |  
|                                                                                                                          |                                                                      |  |        |        |      |  |         |        |   |  |         |       
|Other comprehensive income (loss)                                                                                         |                                                                      |  | (22    | )      |      |  | 11,638  |        |   |  | 22,933  |       
|                                                                                                                          |                                                                      |  |        |        |      |  |         |        |   |  |         |       
|Comprehensive earnings (loss) as reported in accordance with
United States GAAP                                           |                                                                      |  | 42,948 |        |      |  | (30,641 | )      |   |  | (20,848 | )     
|                                                                                                                          |                                                                      |  |        |        |      |  |         |        |   |  |         |       
|Per share amounts in accordance with United States GAAP                                                                   |                                                                      |  |        |        |      |  |         |        |   |  |         |       
|                                                                                                                          | Earnings (loss) before extraordinary item                            |  |        | 0.64   |      |  |         | (0.60  | ) |  |         | (0.60  | )
|                                                                                                                          | Basic and diluted earnings (loss)                                    |  |        | 0.60   |      |  |         | (0.60  | ) |  |         | (0.61  | )

A - 3

Extendicare 2002 Annual Information Form





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The cumulative effect of these adjustments on shareholders equity is as
follows:

|                                                                |  |      |         |      |  |      |         |   |  |  |         |  
|--------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  |  | ------- | -
|                                                                |  | 2002 |         | 2001 |  | 2000
|                                                                |  |      |         |      |  |     
|Shareholders equity in accordance with Canadian GAAP           |  |      | 358,026 |      |  |      | 350,696 |   |  |  | 381,437 |  
|Application of hedge accounting for derivatives, net of tax (E) |  |      | (647    | )    |  |      |        |   |  |  |        |  
|Unrealized gains (losses) on invested assets, net of tax (E)    |  |      | (3,502  | )    |  |      | (1,296  | ) |  |  | (1,371  | )
|Unrealized gains (losses) on cash-flow hedges, net of tax (E)   |  |      | (207    | )    |  |      | (1,760  | ) |  |  |        |  
|Minimum pension liability adjustments, net of tax (F)           |  |      | (2,516  | )    |  |      |        |   |  |  |        |  
|Change in equity carrying value of Crown Life (C)               |  |      | 20,534  |      |  |      | (9,840  | ) |  |  | (433    | )
|                                                                |  |      |         |      |  |      |         |   |  |  |         |  
|Shareholders equity in accordance with United States GAAP      |  |      | 371,688 |      |  |      | 337,800 |   |  |  | 379,633 |  
|                                                                |  |      |         |      |  |      |         |   |  |  |         |  

SUMMARY OF ACCOUNTING POLICY DIFFERENCES

(A)  Extraordinary Item
Under United States GAAP the write-off of unamortized debt issue costs and the
charge for debt prepayment costs in connection with the early retirement of
long-term debt are considered to be extraordinary items and are disclosed net
of applicable taxes. Under Canadian GAAP such costs are included in net income.
The reclassification to extraordinary item, in accordance with United States
GAAP, results in the disclosure of earnings per share before extraordinary
item.

(B)  Crown Life
The areas of material difference between Canadian GAAP and United States GAAP
related to the Companys share of earnings (increase (decrease)) of Crown Life
are as follows:

|                   |  |      |        |      |  |      |        |   |  |  |        | 
|------------------ |  | ---- | ------ | ---- |  | ---- | ------ | - |  |  | ------ | 
|                   |  | 2002 |        | 2001 |  | 2000
|                   |  |      |        |      |  |     
|Policy liabilities |  |      | 1,730  |      |  |      | 1,733  |   |  |  | 4,531  | 
|Investment income  |  |      | 28,734 |      |  |      | (6,805 | ) |  |  | 7,246  | 
|Income taxes       |  |      | (5,789 | )    |  |      | (811   | ) |  |  | 3,695  | 
|Other              |  |      | 5      |      |  |      | 10     |   |  |  | 25     | 
|                   |  |      |        |      |  |      |        |   |  |  |        | 
|                   |  |      | 24,680 |      |  |      | (5,873 | ) |  |  | 15,497 | 
|                   |  |      |        |      |  |      |        |   |  |  |        | 

The cumulative effect between Canadian GAAP and United States GAAP related to
Crown Life on the Companys shareholders equity and equity carrying value of
Crown Life is as follows:

|                                                                          |  |      |         |      |  |      |         |   |  |  |         |  
|------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  |  | ------- | -
|                                                                          |  | 2002 |         | 2001 |  | 2000
|                                                                          |  |      |         |      |  |     
|Equity carrying value of Crown Life in
accordance with Canadian GAAP      |  |      | 121,508 |      |  |      | 135,944 |   |  |  | 147,407 |  
|                                                                          |  |      |         |      |  |      |         |   |  |  |         |  
|Policy liabilities                                                        |  |      | 2,717   |      |  |      | (2,424  | ) |  |  | (1,457  | )
|Invested assets                                                           |  |      | 20,000  |      |  |      | (15,929 | ) |  |  | (4,008  | )
|Income taxes                                                              |  |      | (2,183  | )    |  |      | 8,517   |   |  |  | 5,047   |  
|Other                                                                     |  |      |        |      |  |      | (4      | ) |  |  | (15     | )
|                                                                          |  |      |         |      |  |      |         |   |  |  |         |  
|                                                                          |  |      | 20,534  |      |  |      | (9,840  | ) |  |  | (433    | )
|                                                                          |  |      |         |      |  |      |         |   |  |  |         |  
|Equity carrying value of Crown Life in
accordance with United States GAAP |  |      | 142,042 |      |  |      | 126,104 |   |  |  | 146,974 |  
|                                                                          |  |      |         |      |  |      |         |   |  |  |         |  

Policy Liabilities and Deferred Acquisition Costs.Under Canadian GAAP, policy
liabilities of Crown Life are calculated using the Canadian asset liability
method under which assumptions are adjusted annually based on the expected
future experience of the company. Under United States GAAP, liabilities for
traditional life insurance products are calculated using assumptions as to
future experience, which are set at the time of policy issue. These assumptions
are not adjusted unless experience is sufficiently adverse that an overall loss
on a block of business is expected over the future duration of the business.
Universal life or investment type products are accounted for by the
retrospective deposit method under which assumptions are updated at least
annually. Under United States GAAP, costs that vary with and are primarily
related to the acquisition of insurance products are capitalized
separately as assets on the balance sheet. For traditional life products, these
costs are charged to expense in future years in proportion to the premium
revenue recognized. For universal life or investment type

A - 4

Extendicare 2002 Annual Information Form





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##### 



products, these costs
are charged to expense in future years in proportion to the emergence of
margins expected to be realized over the duration of the block of business.

Invested Assets.Under Canadian GAAP, gains and losses on invested assets of
Crown Life are amortized into income. Under United States GAAP, gains and
losses on sales of invested assets are included in income when realized.
Invested assets that are marketable securities, all of which are considered to
be available for sale, are carried at market value with unrealized gains or
losses, net of applicable taxes, included in shareholders equity. The non-land
component of investment real estate is amortized over its expected useful life.

(C)  Comprehensive Income
Under United States GAAP, Statement of Financial Accounting Standard No. 130,
Reporting Comprehensive Income (FAS 130). FAS 130 establishes rules for the
reporting and display of comprehensive income and its components. Comprehensive
income is net income, plus certain other items that are recorded directly to
shareholders equity. The Company has reported as other comprehensive income,
foreign currency translation adjustments, and unrealized gains (losses) on
invested assets and hedging activities. The amounts reported as unrealized
gains (losses) on invested assets and hedging activities are net of tax; income
tax expense (recovery) included therein amounted to $(1,380), $2,331 and $4,536
for 2002, 2001 and 2000, respectively.

(D)  Securities Available for Sale
United States GAAP requires that non-current marketable securities considered
to be available for sale be reported at fair value and the net unrealized
holding gain or loss, net of applicable taxes, be reported as a separate
component of shareholders equity. In addition, United States GAAP requires the
disclosure of information about the contractual maturities of those securities.
There is no similar requirement for Canadian GAAP. The marketable securities
within the Investments held for self-insured liabilities and Other
investments captions are all considered to be available for sale.

Investments held for self-insured liabilities include marketable securities at
December 31, 2002 and 2001 with maturities as follows:

|                                   |  |      |        |      |  |  |        | 
|---------------------------------- |  | ---- | ------ | ---- |  |  | ------ | 
|                                   |  | 2002 |        | 2001
|                                   |  |      |        |     
|Due in one year or less            |  |      | 1,338  |      |  |  |       | 
|Due after 1 year through 5 years   |  |      | 23,765 |      |  |  | 26,488 | 
|Due after 5 years through 10 years |  |      | 4,742  |      |  |  | 2,545  | 
|Due after 10 years                 |  |      | 4,059  |      |  |  | 4,304  | 
|                                   |  |      |        |      |  |  |        | 
|                                   |  |      | 33,904 |      |  |  | 33,337 | 
|Cash and money market funds        |  |      | 22,299 |      |  |  | 12,128 | 
|                                   |  |      |        |      |  |  |        | 
|                                   |  |      | 56,203 |      |  |  | 45,465 | 
|                                   |  |      |        |      |  |  |        | 

(E)  Derivative Instruments and Hedging Activities
The Company adopted on January 1, 2001, for United States GAAP reporting
purposes, Statement No. 133, Accounting for Derivative Instruments and Certain
Hedging Activities (FAS 133), which was amended in June 2000 by Statement No.
138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an Amendment of FASB Statement No. 133 (FAS 138). Under FAS 133
and FAS 138, all derivatives instruments are recognized at fair value on the
balance sheet. The Company has derivative instruments that under Canadian GAAP
are not fair valued on the balance sheet.

Under United States GAAP, changes in the fair value of a derivative that is
highly effective and that is designated and qualifies as a fair value hedge,
along with the loss or gain on the related hedged asset or liability that is
attributable to the hedged risk, are recorded in earnings. Changes in the fair
value of a derivative that is highly effective and is designated and qualifies
as a cash-flow hedge are recorded in Accumulated Other Comprehensive Income
(AOCI) until earnings are affected by the variability in cash flows of the
designated hedged item. Changes in the fair value of a derivative that is not
designated as a hedge are reported in earnings. The impact as
of January 1, 2001 arising from the adoption of the standards (relating to the
fair value of derivatives) was a liability, representing a loss charged to
comprehensive income of $292, net of tax.

The Companys interest rate swap is designated as a fair-value hedge of
fixed-rate debt obligations and changes in the fair value of the swap had no
net impact on income during 2002, as it was offset by the change in the fair
value of the hedged fixed-rate debt. A portion of the interest rate cap
qualifies as a cash-flow hedge and any

A - 5

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related change in fair value is reported
as AOCI. The remainder of the interest rate cap does not qualify as a hedging
instrument, and any related changes in fair value are reported in earnings.

The fair value of the interest rate swap at December 31, 2002 was an asset of
$8,682 and was offset by an equal liability related to the change in the market
value of the hedged item. The fair value of the interest rate cap at December
31, 2002 was a liability of $1,496 and the portion designated as a hedge was
reported as AOCI of $207, net of tax, with the remainder reported in earnings
as a loss of $644, net of tax. During 2002, the gain credited to other
comprehensive income related to derivatives was $1,530, net of tax
(2001  a
loss of $1,419, net of tax).

(F)  Minimum Pension Liability
Under United States GAAP, Statement of Financial Accounting Standard No. 87,
Employers Accounting for Pensions the Company is required to record a
minimum pension liability for pension plans representing the amount by which
the accumulated benefit obligation less the fair value of the plan assets is
greater than the associated liability recognized in the financial statements
for these plans. Under United States GAAP, these charges are recorded as a
reduction to shareholders equity, as a component of AOCI. In 2002, the Company
recorded a minimum liability of $3,679, or $2,516 net of tax to AOCI, (2001 and
2000 - nil).

(G)  Disclosure of Allowance for Doubtful Accounts
United States GAAP requires the disclosure of allowances related to accounts
and notes receivable. There is no similar requirement under Canadian GAAP.
Current accounts receivable at December 31, 2002 and 2001, were reported net of
an allowance for doubtful accounts of $16,224 and $24,475, respectively.

(H)  Disclosure of Accrued Liabilities
United States GAAP requires the separate disclosure of accrued liabilities.
There is no similar requirement under Canadian GAAP. At December 31, 2002 and
2001, accrued liabilities were $278,121 and $264,694, respectively.

(I)  New United States Accounting Standards
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
No. 143, Accounting for Asset Retirement Obligations (FAS 143). This
Statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. It applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development and/or the normal operation of a long-lived asset, except for
certain obligations of lessees. Under FAS 143, a legal obligation is an
obligation that a party is required to settle as a result of an existing or
enacted law, statute, ordinance, or written or oral contract or by legal
construction of a contract under the doctrine of promissory estoppels. FAS 143
requires that the fair value of a liability for an asset retirement obligation
be recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. The associated asset retirement costs are capitalized
as part of the carrying amount of the long-lived asset. The liability is
discounted and accretion expense is recognized using the credit-adjusted
risk-free interest rate in effect when the liability was initially recognized.
This Statement is effective for financial statements issued for fiscal years
beginning after June 15, 2002. The Company has not yet determined the impact of
implementation of FAS 143 on its consolidated financial statements.

A - 6

Extendicare 2002 Annual Information Form





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In May 2002, FASB issued Statement No. 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections
(FAS 145). The most significant provision of FAS 145 addresses the termination
of extraordinary item treatment for gains and losses on early retirement of
debt. The Company will be required to adopt the provisions of this standard
beginning on January 1, 2003 and modify the presentation of its comparative
results by recording the loss on early retirement of debt in earnings before
income taxes. This will be consistent with the current accounting under
Canadian GAAP, and therefore will eliminate a reconciling item.

In July 2002, FASB issued Statement No. 146, Accounting for Exit and Disposal
Activities (FAS 146). The provisions of FAS 146 modify the accounting for the
costs of exit and disposal activities by requiring that liabilities for these
activities be recognized when the liability is incurred. Previous accounting
literature permitted recognition of some exit and disposal liabilities at the
date of commitment to an exit plan. The provisions of this statement will be
effective for exit or disposal activities initiated after December 31, 2002.
This corresponds with Canadian GAAP accounting, and thus will not create a
reconciling item.

In November 2002, FASB issued Interpretation No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statement Nos. 5, 57 and 107,
and a rescission of FASB Interpretation No. 34 (FIN 45). FIN 45 elaborates on
the disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under guarantees issued and clarifies that a
guarantor is required to recognize, at inception of a guarantee, a liability
for the fair value of the obligation undertaken. The initial recognition and
measurement provisions of FIN 45 are applicable to guarantees issued or
modified after December 31, 2002. This differs from Canadian GAAP, which does
not require guarantors to recognize a liability for the fair value of the
obligation undertaken, but does require appropriate disclosure of the
obligations under guarantee in financial statements of interim and annual
periods beginning on or after January 1, 2003.

In January 2003, FASB issued Interpretation No. 46, Consolidation of Variable
Interest Entities, an interpretation of ARB No. 51 (FIN 46). This
Interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in FIN 46. FIN 46 applies immediately to variable
interests in variable interest entities created after January 31, 2003, and to
variable interests in variable interest entities obtained after January 31,
2003. It applies in the first fiscal year or interim period beginning after
June 15, 2003, to variable interest entities in which an enterprise holds a
variable interest that it acquired before February 1, 2003. The Company has not
yet determined the impact of the application of FIN 46 on its 2003 consolidated
financial statements. FIN 46 requires certain disclosures in financial
statements issued after January 31, 2003 if it is reasonably possible that
companies will consolidate or disclose information about variable interest
entities when the interpretation becomes effective.

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Extendicare 2002 Annual Information Form





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EXTENDICARE

Extendicare 2002 Annual Information Form