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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 1-9550

BEVERLY ENTERPRISES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 62-1691861
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

1000 BEVERLY WAY
FORT SMITH, ARKANSAS 72919
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (501) 201-2000

INDICATE BY CHECK MARK WHETHER REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO
BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT REGISTRANT WAS REQUIRED
TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR
THE PAST 90 DAYS.

YES X NO
--- ---

SHARES OF REGISTRANT'S COMMON STOCK, $.10 PAR VALUE, OUTSTANDING,
EXCLUSIVE OF TREASURY SHARES, AT APRIL 28, 2000 -- 101,321,056

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BEVERLY ENTERPRISES, INC.

FORM 10-Q

MARCH 31, 2000

TABLE OF CONTENTS

PART I -- FINANCIAL INFORMATION

PAGE
----

Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets................................................. 2
Condensed Consolidated Statements of Income........................................... 3
Condensed Consolidated Statements of Cash Flows....................................... 4
Notes to Condensed Consolidated Financial Statements.................................. 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................... 9

PART II -- OTHER INFORMATION

Item 1. Legal Proceedings............................................................................ 13
Item 6. Exhibits and Reports on Form 8-K............................................................. 14

PART I

BEVERLY ENTERPRISES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

MARCH 31, 2000 AND DECEMBER 31, 1999

(DOLLARS IN THOUSANDS)

MARCH 31, DECEMBER 31,
2000 1999
----------- -----------
(UNAUDITED) (NOTE)

ASSETS
Current assets:
Cash and cash equivalents ..................................................... $ 20,185 $ 24,652
Accounts receivable - patient, less allowance for doubtful accounts:
2000 - $62,507; 1999 - $64,398 ............................................. 349,980 319,097
Accounts receivable - nonpatient, less allowance for doubtful accounts:
2000 - $1,252; 1999 - $1,057 ............................................... 26,848 30,890
Notes receivable, less allowance for doubtful notes: 2000 - $627 ............. 20,274 16,930
Operating supplies ............................................................ 31,787 32,276
Deferred income taxes ......................................................... 53,209 54,932
Prepaid expenses and other .................................................... 16,408 15,019
----------- -----------
Total current assets .................................................... 518,691 493,796
Property and equipment, net of accumulated depreciation and amortization:
2000 - $757,469; 1999 - $743,337 .............................................. 1,099,289 1,110,065
Other assets:
Goodwill, net ................................................................. 229,281 229,639
Other, less allowance for doubtful accounts and
notes: 2000 - $5,188; 1999 - $5,970 .......................................... 145,534 149,380
----------- -----------
Total other assets ...................................................... 374,815 379,019
----------- -----------
$ 1,992,795 $ 1,982,880
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable .............................................................. $ 94,534 $ 93,168
Accrued wages and related liabilities ......................................... 89,186 92,514
Accrued interest .............................................................. 9,465 14,138
Other accrued liabilities ..................................................... 114,257 154,182
Current portion of long-term debt ............................................. 72,599 34,052
----------- -----------
Total current liabilities ............................................... 380,041 388,054
Long-term debt ................................................................... 756,057 746,164
Deferred income taxes payable .................................................... 30,607 28,956
Other liabilities and deferred items ............................................. 183,060 178,582
Commitments and contingencies
Stockholders' equity:
Preferred stock, shares authorized: 25,000,000 ............................... -- --
Common stock, shares issued: 2000 - 110,382,356; 1999 - 110,382,356 .......... 11,038 11,038
Additional paid-in capital .................................................... 875,455 875,637
Accumulated deficit ........................................................... (133,168) (139,429)
Accumulated other comprehensive income ........................................ 762 1,061
Treasury stock, at cost: 2000 - 9,061,300 shares; 1999 - 7,886,800 shares .... (111,057) (107,183)
----------- -----------
Total stockholders' equity .............................................. 643,030 641,124
----------- -----------
$ 1,992,795 $ 1,982,880
=========== ===========

NOTE: The balance sheet at December 31, 1999 has been derived from the audited
consolidated financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.

See accompanying notes.

BEVERLY ENTERPRISES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS ENDED MARCH 31, 2000 AND 1999

(UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

2000 1999
-------- --------

Net operating revenues ..................................... $646,102 $633,601
Interest income ............................................ 825 1,428
-------- --------
Total revenues ....................................... 646,927 635,029

Costs and expenses:
Operating and administrative:
Wages and related ...................................... 389,716 387,130
Provision for insurance and related items .............. 20,513 13,502
Other .................................................. 181,646 178,904
Interest ................................................. 19,618 16,983
Depreciation and amortization ............................ 25,336 24,242
Year 2000 remediation .................................... -- 2,986
Investigation costs ...................................... -- 1,905
-------- --------
Total costs and expenses ............................. 636,829 625,652
-------- --------

Income before provision for income taxes ................... 10,098 9,377
Provision for income taxes ................................. 3,837 3,470
-------- --------

Net income ................................................. $ 6,261 $ 5,907
======== ========

Net income per share of common stock:
Basic and diluted:
Net income per share of common stock ................... $ 0.06 $ 0.06
======== ========

Shares used to compute basic net income per share ...... 102,281 102,480
======== ========

Shares used to compute diluted net income per share .... 102,402 102,693
======== ========

See accompanying notes.

BEVERLY ENTERPRISES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2000 AND 1999

(UNAUDITED)

(IN THOUSANDS)

2000 1999
--------- ---------

Cash flows from operating activities:
Net income .............................................................................. $ 6,261 $ 5,907
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ......................................................... 25,336 24,242
Provision for reserves on patient, notes and other receivables, net ................... 5,564 5,155
Amortization of deferred financing costs .............................................. 624 549
Losses (gains) on dispositions of facilities and other assets, net .................... (2,162) 1,957
Deferred taxes ........................................................................ 3,567 2,241
Net increase (decrease) in insurance related accounts ................................. 5,660 (831)
Changes in operating assets and liabilities, net of acquisitions and dispositions:
Accounts receivable - patient ....................................................... (36,590) (15,516)
Operating supplies .................................................................. 503 32
Prepaid expenses and other receivables .............................................. (1,973) (1,442)
Accounts payable and other accrued expenses ......................................... (42,142) (1,647)
Income taxes payable ................................................................ (23) 24,786
Other, net .......................................................................... (858) (1,078)
--------- ---------
Total adjustments ................................................................. (42,494) 38,448
--------- ---------
Net cash provided by (used for) operating activities .............................. (36,233) 44,355
Cash flows from investing activities:
Proceeds from dispositions of facilities and other assets ............................. 9,926 38,835
Payments for acquisitions, net of cash acquired ....................................... (1,263) (3,521)
Capital expenditures .................................................................. (19,982) (25,173)
Collections on notes receivable ....................................................... 294 8,905
Other, net ............................................................................ (2,352) (10,036)
--------- ---------
Net cash provided by (used for) investing activities .............................. (13,377) 9,010
Cash flows from financing activities:
Revolver borrowings ................................................................... 539,000 403,000
Repayments of Revolver borrowings ..................................................... (485,000) (498,000)
Proceeds from issuance of long-term debt .............................................. -- 65,000
Repayments of long-term debt .......................................................... (5,649) (21,449)
Purchase of common stock for treasury ................................................. (3,289) --
Proceeds from exercise of stock options ............................................... -- 129
Deferred financing costs .............................................................. (38) (270)
Proceeds from designated funds, net ................................................... 119 61
--------- ---------
Net cash provided by (used for) financing activities .............................. 45,143 (51,529)
--------- ---------
Net increase (decrease) in cash and cash equivalents ....................................... (4,467) 1,836
Cash and cash equivalents at beginning of period ........................................... 24,652 17,278
--------- ---------
Cash and cash equivalents at end of period ................................................. $ 20,185 $ 19,114
========= =========

Supplemental schedule of cash flow information:
Cash paid (received) during the period for:
Interest, net of amounts capitalized .................................................. $ 23,667 $ 19,441
Income tax payments (refunds), net .................................................... 293 (23,557)

See accompanying notes.

BEVERLY ENTERPRISES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2000

(UNAUDITED)

(1) The condensed consolidated financial statements have been prepared by
the Company, without audit. In management's opinion, they include all normal
recurring adjustments necessary for a fair presentation of the results of
operations for the three months ended March 31, 2000 and 1999 in accordance with
the rules and regulations of the Securities and Exchange Commission. Although
certain information and footnote disclosures required by generally accepted
accounting principles have been condensed or omitted, the Company believes that
the disclosures in these condensed consolidated financial statements are
adequate to make the information presented not misleading. These condensed
consolidated financial statements should be read along with the Company's 1999
Annual Report on Form 10-K filed with the Securities and Exchange Commission.
The results of operations for the three months ended March 31, 2000 are not
necessarily indicative of the results for a full year. Unless otherwise stated,
the Company means Beverly Enterprises, Inc. and its consolidated subsidiaries.

Generally accepted accounting principles require management to make
estimates and assumptions when preparing financial statements that affect: (1)
the reported amounts of assets and liabilities at the date of the financial
statements; and (2) the reported amounts of revenues and expenses during the
reporting period. They also require management to make estimates and assumptions
regarding any contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.

Approximately 74% and 71% of the Company's net operating revenues for the
three months ended March 31, 2000 and 1999, respectively, were derived from
funds under the Medicare and Medicaid programs. The Company accrues for
revenues when services are provided at standard charges adjusted to amounts
estimated to be received under governmental programs and other third-party
contractual arrangements. These revenues are reported at their estimated net
realizable amounts and are subject to audit and retroactive adjustment.
Retroactive adjustments are considered in the recognition of revenues on an
estimated basis in the period the related services are rendered, and such
amounts are adjusted in future periods as adjustments become known or as cost
reporting years are no longer subject to such audits, reviews and
investigations. Due to the complexity of the laws and regulations governing the
Medicare and Medicaid programs, there is at least a reasonable possibility that
recorded estimates will change by a material amount in the near term.

The following table sets forth the calculation of basic and diluted
earnings per share for the three months ended March 31 (in thousands):

2000 1999
-------- --------

NUMERATOR:
Numerator for basic and diluted earnings per share from
continuing operations ......................................... $ 6,261 $ 5,907
======== ========

DENOMINATOR:
Denominator for basic earnings per share - weighted average
shares ........................................................ 102,281 102,480
Effect of dilutive securities:
Employee stock options ......................................... 121 213
-------- --------

Denominator for diluted earnings per share - adjusted weighted
average shares and assumed conversions ........................ 102,402 102,693
======== ========

Basic and diluted earnings per share .............................. $ 0.06 $ 0.06
======== ========

BEVERLY ENTERPRISES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2000

(UNAUDITED)

Comprehensive income (loss) includes net income (loss), as well as charges
and credits to stockholders' equity not included in net income (loss). The
components of comprehensive income, net of income taxes, consist of the
following for the three months ended March 31 (in thousands):

2000 1999
------- -------

Net income .................................................... $ 6,261 $ 5,907
Net unrealized losses on available-for-sale securities,
net of income taxes ......................................... (299) (447)
------- -------
Comprehensive income .......................................... $ 5,962 $ 5,460
======= =======

Accumulated other comprehensive income, net of income taxes, is made up of
net unrealized gains on available-for-sale securities of $762,000 and
$1,061,000 at March 31, 2000 and December 31, 1999, respectively.

(2) The provisions for income taxes for the three months ended March 31,
2000 and 1999 were based on estimated annual effective tax rates of 38% and 37%,
respectively. The Company's estimated annual effective tax rates for 2000 and
1999 were different than the federal statutory rate primarily due to the impact
of state income taxes, amortization of nondeductible goodwill and the benefit of
certain tax credits. The provisions for income taxes consist of the following
for the three months ended March 31 (in thousands):

2000 1999
------ ------

Federal:
Current......................................................... $ 88 $ 792
Deferred ....................................................... 2,949 2,025

State:
Current ........................................................ 182 437
Deferred ....................................................... 618 216
------ ------
$3,837 $3,470
====== ======

(3) During the three months ended March 31, 2000, the Company purchased one
nursing facility (140 beds) and certain other assets for cash of approximately
$1,200,000 and closing and other costs of approximately $100,000. The
acquisitions of such facility and other assets were accounted for as purchases.
Also during such period, the Company sold or terminated the leases on four
nursing facilities (465 beds) for cash proceeds of approximately $9,900,000. The
Company did not operate three of these nursing facilities (297 beds) which were
leased to another nursing home operator in a prior year transaction. The Company
recognized net pre-tax gains, which were included in net operating revenues
during the first quarter of 2000, of approximately $2,200,000 as a result of
these dispositions. The operations of these facilities and certain other assets
were immaterial to the Company's consolidated financial position and results of
operations.

(4) During the three months ended March 31, 2000, the Company repurchased
approximately 1,200,000 shares of its outstanding Common Stock under a stock
repurchase program at a cost of approximately $3,900,000 (approximately $600,000
of which was paid in April 2000). The repurchases were financed primarily
through borrowings under the Company's Revolver/Letter of Credit Facility. Had
the Company repurchased these additional shares prior to January 1, 2000, the
impact on the Company's results of operations for the three months ended March
31, 2000 would have been immaterial.

BEVERLY ENTERPRISES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2000

(UNAUDITED)

(5) On February 3, 2000, the Company entered into a series of separate
agreements with the U.S. Department of Justice and the Office of Inspector
General (the "OIG") of the Department of Health and Human Services, which
settled the federal government's investigations of the Company relating to its
allocation to the Medicare program of certain nursing labor costs in its skilled
nursing facilities from 1990 to 1998 (the "Allocation Investigations").

The agreements consist of: (1) a Plea Agreement; (2) a Civil Settlement
Agreement; (3) a Corporate Integrity Agreement; and (4) an agreement concerning
the disposition of 10 nursing facilities. Under the Plea Agreement, a subsidiary
of the Company pled guilty to one count of mail fraud and 10 counts of making
false statements to Medicare and paid a criminal fine of $5,000,000 during the
first quarter of 2000. The Company expects to dispose of these 10 nursing
facilities during the third quarter of 2000.

Under the separate Civil Settlement Agreement, the Company paid the federal
government $25,000,000 during the first quarter of 2000 and will reimburse the
federal government $145,000,000 through withholdings from the Company's biweekly
Medicare periodic interim payments in equal installments over eight years. The
Company's cash flow was negatively impacted by approximately $2,800,000 during
the first quarter of 2000, and it is anticipated that cash flows from operations
will decline approximately $18,100,000 per year as a result of the reduction in
Medicare periodic interim payments. In addition, the Company agreed to resubmit
certain Medicare filings to reflect reduced labor costs.

The Company also entered into a Corporate Integrity Agreement with the OIG,
which requires the Company to monitor on an ongoing basis its compliance with
the requirements of the federal healthcare programs. Such agreement addresses
the Company's obligations to ensure that it complies with the requirements for
participation in the federal healthcare programs, and includes the Company's
functional and training obligations, audit and review requirements,
recordkeeping and reporting requirements, as well as penalties for
breach/noncompliance of the agreement.

On July 6, 1999, an amended complaint was filed by the plaintiffs in a
previously disclosed purported class action lawsuit pending against the Company
and certain of its officers in the United States District Court for the Eastern
District of Arkansas (the "Class Action"). Plaintiffs filed a second amended
complaint on September 9, 1999 which asserted claims under Section 10(b)
(including Rule 10b-5 promulgated thereunder) and under Section 20 of the
Securities Exchange Act of 1934 arising from practices that were the subject of
the Allocation Investigations. The defendants filed a motion to dismiss that
complaint on October 8, 1999. Oral argument on this motion was held on April 6,
2000. Due to the preliminary state of the Class Action and the fact the second
amended complaint does not allege damages with any specificity, the Company is
unable at this time to assess the probable outcome of the Class Action or the
materiality of the risk of loss. However, the Company believes that it acted
lawfully with respect to plaintiff investors and will vigorously defend the
Class Action. However, there can be no assurances that the Company will not
experience an adverse effect on its consolidated financial position, results of
operations or cash flows as a result of these proceedings.

In addition, since July 29, 1999, eight derivative lawsuits have been filed
in the federal and state courts of Arkansas, California and Delaware
(collectively, the "Derivative Actions"). The Derivative Actions each name the
Company's directors as defendants, as well as the Company as a nominal
defendant. Some actions also name as defendants certain of the Company's
officers. The Derivative Actions each allege breach of fiduciary duties to the
Company and its stockholders arising primarily out of the Company's alleged
exposure to loss due to the Class Action and the Allocation Investigations. Due
to the preliminary state of the Derivative Actions and the fact the complaints
do not allege damages with any specificity, the Company is unable at this time
to assess the probable outcome of the Derivative Actions or the materiality of
the risk of loss. However, the Company believes that it acted lawfully with
respect to the allegations of the Derivative Actions and will vigorously defend
the Derivative Actions. However, there can be no assurances that the Company
will not experience an adverse effect on its consolidated financial position,
results of operations or cash flows as a result of these proceedings.

BEVERLY ENTERPRISES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2000

(UNAUDITED)

There are various other lawsuits and regulatory actions pending against the
Company arising in the normal course of business, some of which seek punitive
damages that are generally not covered by insurance. The Company does not
believe that the ultimate resolution of such other matters will have a material
adverse effect on the Company's consolidated financial position or results of
operations.

(6) Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" provides disclosure
guidelines for segments of a company based on a management approach to defining
operating segments.

The following table summarizes certain information for each of the
Company's operating segments (in thousands):

BEVERLY
BEVERLY CARE
HEALTHCARE ALLIANCE ALL OTHER (1) TOTALS
---------- ---------- ------------- ----------

Three months ended March 31, 2000

Revenues from external customers... $ 593,363 $ 50,937 $ 1,802 $ 646,102
Intercompany revenues ............. -- 35,505 2,880 38,385
Interest income ................... 47 30 748 825
Interest expense .................. 6,883 85 12,650 19,618
Depreciation and amortization ..... 19,897 3,696 1,743 25,336
Pre-tax income (loss) ............. 22,404 4,151 (16,457) 10,098
Total assets ...................... 1,524,956 324,984 142,855 1,992,795
Capital expenditures .............. 15,196 2,183 2,603 19,982

Three months ended March 31, 1999

Revenues from external customers... $ 568,193 $ 64,571 $ 837 $ 633,601
Intercompany revenues ............. -- 35,977 2,677 38,654
Interest income ................... 71 15 1,342 1,428
Interest expense .................. 6,612 107 10,264 16,983
Depreciation and amortization ..... 19,741 3,051 1,450 24,242
Pre-tax income (loss) ............. 30,193 2,268 (23,084) 9,377
Total assets ...................... 1,572,924 323,946 213,572 2,110,442
Capital expenditures .............. 18,646 3,565 2,962 25,173

- ------------------

(1) All Other consists of the operations of the Company's corporate
headquarters and related overhead, as well as certain non-operating
revenues and expenses and unusual items.

BEVERLY ENTERPRISES, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MARCH 31, 2000

(UNAUDITED)

GENERAL

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, and other information provided by the
Company from time to time, contains certain "forward-looking" statements as that
term is defined by the Private Securities Litigation Reform Act of 1995. All
statements regarding the Company's expected future financial position, results
of operations and cash flows, continued performance improvements, ability to
service and refinance its debt obligations, ability to finance growth
opportunities, ability to respond to changes in government regulations, and
similar statements including, without limitation, those containing words such as
"believes," "anticipates," "expects," "intends," "estimates," "plans," and other
similar expressions are forward-looking statements.

Forward-looking statements involve known and unknown risks and
uncertainties that may cause the Company's actual results in future periods to
differ materially from those projected or contemplated in the forward-looking
statements as a result of, but not limited to, the following factors:

(1) national and local economic conditions, including their effect on the
availability and cost of labor and materials;

(2) the effect of government regulations and changes in regulations governing
the healthcare industry, including the Company's compliance with such
regulations;

(3) changes in Medicare and Medicaid payment levels and methodologies;

(4) liabilities and other claims asserted against the Company, including
patient care liabilities, as well as the resolution of the Class Action and
Derivative Lawsuits (see "Part II, Item 1. Legal Proceedings");

(5) the ability to attract and retain qualified personnel;

(6) the availability and terms of capital to fund acquisitions and capital
improvements;

(7) the competitive environment in which the Company operates;

(8) the ability to maintain and increase census levels; and

(9) demographic changes.

Investors should also refer to Item 1. Business - Governmental Regulation
and Reimbursement, - Competition and - Employees in the Company's 1999 Annual
Report on Form 10-K for a discussion of various governmental regulations and
other operating factors relating to the healthcare industry and various risk
factors inherent in them. Given these risks and uncertainties, the Company can
give no assurances that these forward-looking statements will, in fact,
transpire and, therefore, cautions investors not to place undue reliance on
them.

GOVERNMENTAL REGULATION AND REIMBURSEMENT

On April 10, 2000, the Health Care Financing Administration ("HCFA") of the
Department of Health and Human Services ("HHS") published a proposed rule, which
sets forth updates to the payment rates used under the Medicare prospective
payment system ("PPS") for skilled nursing facilities effective October 1, 2000.
The proposed rule would change the skilled nursing facility PPS case-mix
methodology. It discusses options for refinements to the Resource Utilization
Grouping-III ("RUG-III") system. Adoption of these refinements would add
additional groups to the case-mix system, substantially increasing its
complexity. The proposed rule solicits comments from all interested parties over
the next 60 days, with a final rule expected to be issued before August 1, 2000.
The Company is currently analyzing the impact of this proposed rule. Although
such analysis is not yet complete, it is anticipated that the proposed new rule,
as currently contemplated, will have an adverse effect on the Company's
consolidated financial position, results of operations and cash flows.

BEVERLY ENTERPRISES, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

MARCH 31, 2000

(UNAUDITED)

OPERATING RESULTS

FIRST QUARTER 2000 COMPARED TO FIRST QUARTER 1999

RESULTS OF OPERATIONS

Net income for the first quarter of 2000 was $6,261,000, compared to net
income of $5,907,000 for the same period in 1999. Income before provision for
income taxes for the first quarter of 2000 was $10,098,000, compared to
$9,377,000 for the same period in 1999. The Company had estimated annual
effective tax rates of 38% and 37% for the quarters ended March 31, 2000 and
1999, respectively. The Company's estimated annual effective tax rates for 2000
and 1999 were different than the federal statutory rate primarily due to the
impact of state income taxes, amortization of nondeductible goodwill and the
benefit of certain tax credits.

NET OPERATING REVENUES

The Company reported net operating revenues of $646,102,000 during the
first quarter of 2000 compared to $633,601,000 for the same period in 1999.
Approximately 92% and 90% of the Company's total net operating revenues for the
quarters ended March 31, 2000 and 1999, respectively, were derived from services
provided by the Company's Beverly Healthcare segment. The increase in net
operating revenues of approximately $12,500,000 for the first quarter of 2000,
as compared to the same period in 1999, consists of the following: an increase
of approximately $10,900,000 due to acquisitions; an increase of approximately
$8,400,000 due to facilities which the Company operated during each of the
quarters ended March 31, 2000 and 1999 ("same facility operations"); partially
offset by a decrease of approximately $6,800,000 due to dispositions.

The increase in net operating revenues of approximately $10,900,000 for the
first quarter of 2000, as compared to the same period in 1999, resulting from
acquisitions which occurred during the three months ended March 31, 2000 and the
year ended December 31, 1999 are as follows. During the three months ended March
31, 2000, the Company purchased one nursing facility (140 beds) and certain
other assets. During 1999, the Company purchased three outpatient therapy
clinics, two home care centers, two nursing facilities (284 beds), one
previously leased nursing facility (190 beds) and certain other assets. The
acquisitions of these facilities and other assets were accounted for as
purchases. The operations of the acquired facilities and other assets were
immaterial to the Company's consolidated financial position and results of
operations.

The increase in net operating revenues of approximately $8,400,000 from
same facility operations for the first quarter of 2000, as compared to the same
period in 1999, was due to the following: approximately $19,300,000 primarily
due to an increase in Medicaid and private rates; approximately $6,300,000 due
to one additional calendar day during the first quarter of 2000, as compared to
the same period in 1999; and approximately $4,700,000 due to a positive shift in
the Company's patient mix; partially offset by a decrease of approximately
$9,200,000 due to lower revenues from home care and outpatient rehabilitation
services; approximately $7,500,000 decrease due to a decline in same facility
occupancy to 87.6% for the first quarter of 2000, as compared to 88.1% for the
same period in 1999; approximately $3,100,000 decrease due to Medicare rates;
and approximately $2,100,000 decrease due to various other items. The Company's
Medicare, private and Medicaid census for same facility operations was 10%, 19%
and 70%, respectively, for the first quarter of 2000, as compared to 9%, 20% and
70%, respectively, for the same period in 1999.

BEVERLY ENTERPRISES, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

MARCH 31, 2000

(UNAUDITED)

The decrease in net operating revenues of approximately $6,800,000 for the
first quarter of 2000, as compared to the same period in 1999, resulting from
dispositions that occurred during the three months ended March 31, 2000 and the
year ended December 31, 1999 are as follows. During the three months ended March
31, 2000, the Company sold or terminated the leases on four nursing facilities
(465 beds). The Company did not operate three of these nursing facilities (297
beds) which were leased to another nursing home operator in a prior year
transaction. The Company recognized net pre-tax gains, which were included in
net operating revenues during the three months ended March 31, 2000, of
approximately $2,200,000 as a result of these dispositions. During 1999, the
Company sold or terminated the leases on 12 nursing facilities (1,291 beds), one
assisted living center (10 units), 17 home care centers and certain other
assets. The Company did not operate two of these nursing facilities (166 beds)
which were leased to other nursing home operators in prior year transactions.
The Company recognized net pre-tax losses, which were included in net operating
revenues during the year ended December 31, 1999, of approximately $4,000,000 as
a result of these dispositions. The operations of the disposed facilities and
other assets were immaterial to the Company's consolidated financial position
and results of operations.

OPERATING AND ADMINISTRATIVE EXPENSES

The Company reported operating and administrative expenses of $591,875,000
during the first quarter of 2000 compared to $579,536,000 for the same period in
1999. The increase of approximately $12,300,000 consists of the following: an
increase of approximately $12,700,000 due to same facility operations; an
increase of approximately $11,100,000 due to acquisitions; partially offset by a
decrease of approximately $11,500,000 due to dispositions. (See "Net Operating
Revenues" for a discussion of acquisitions and dispositions).

The increase in operating and administrative expenses of approximately
$12,700,000 from same facility operations for the first quarter of 2000, as
compared to the same period in 1999, was due to the following: approximately
$7,000,000 due to increases in patient care and other claims; approximately
$4,800,000 due to an increase in wages and related expenses primarily due to
increased use of registry personnel; and approximately $3,000,000 due to an
increase in contracted services; partially offset by approximately $2,100,000
decrease due to various other items. The Company's weighted average wage rate
and use of registry personnel increased for the first quarter of 2000, as
compared to the same period in 1999, both of which emphasize the increased
difficulties many of the Company's nursing facilities are having attracting
nursing aides, assistants and other personnel. The Company is addressing this
challenge through several recruiting and retention programs and training
initiatives. No assurance can be given that these programs and training
initiatives will in fact improve or stabilize the Company's ability to attract
these nursing and related personnel.

General liability and professional liability costs for the long-term care
industry, especially in the state of Florida, have become increasingly expensive
and unpredictable. The Company and most of its competitors are experiencing
substantial increases in both the number of claims and lawsuits, as well as the
size of the typical claim and lawsuit. This phenomenon is most evident in the
state of Florida, where well-intended patient rights' statutes tend to be
exploited by plaintiffs' attorneys, since the statutes allow for actual damages,
punitive damages and plaintiff attorney fees to be included in any proven
violation. The Company is taking an active role in lobbying efforts to reform
tort laws in the state of Florida. There is significant media and legislative
attention currently being placed on these issues, and the Company is hopeful
that there will be certain reforms made in the current statutes. However, there
can be no assurances that legislative changes will be made, or that any
such changes will have a positive impact on the current trend.

INTEREST EXPENSE, NET

Interest income decreased to $825,000 for the first quarter of 2000, as
compared to $1,428,000 for the same period in 1999 primarily due to the payoff
of various notes receivable during 1999. Interest expense increased to
$19,618,000 for the first quarter of 2000, as compared to $16,983,000 for the
same period in 1999 primarily due to imputed interest on the civil settlement of
approximately $2,300,000.

BEVERLY ENTERPRISES, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

MARCH 31, 2000

(UNAUDITED)

DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense increased to $25,336,000 for the
first quarter of 2000, as compared to $24,242,000 for the same period in 1999.
Such increase was affected by the following: approximately $1,400,000 increase
due to capital additions and improvements, as well as acquisitions; partially
offset by a decrease of approximately $300,000 due to dispositions of, or lease
terminations on, certain facilities.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2000, the Company had approximately $20,200,000 in cash and
cash equivalents, approximately $138,700,000 of net working capital and
approximately $165,500,000 of unused commitments under its Revolver/Letter of
Credit Facility.

Net cash used for operating activities for the first quarter of 2000 was
approximately $36,200,000. Such amount reflects the $30,000,000 in payments to
the federal government for the civil and criminal settlements (see "Part II.
Item 1. Legal Proceedings"), as well as an increase in the Company's patient
accounts receivable during the first quarter of 2000. Net cash used for
investing activities and net cash provided by financing activities were
approximately $13,400,000 and $45,100,000, respectively, for the first quarter
of 2000. The Company received net cash proceeds of approximately $9,900,000 from
the dispositions of facilities and other assets. Such net cash proceeds, along
with net borrowings under the Revolver/Letter of Credit Facility of
approximately $54,000,000, cash generated from operations and cash on hand, were
used to fund capital expenditures totaling approximately $20,000,000, to repay
approximately $5,600,000 of long-term debt, and to repurchase shares of Common
Stock for approximately $3,300,000.

At March 31, 2000, the Company leased 11 nursing facilities, one assisted
living center and its corporate headquarters under an off-balance sheet
financing arrangement subject to operating leases with the creditor. The
Company has the option to purchase the facilities at the end of the initial
lease terms at fair market value. Such financing arrangement was entered into
for the construction of these facilities and had an original commitment of
$125,000,000. In April 2000, the agreement covering this financing arrangement
was amended whereby availability under the original commitment was reduced to
$113,500,000, which equaled the total construction advances made as of the date
of the amended agreement.

The Company currently anticipates that cash flows from operations and
borrowings under its banking arrangements will be adequate to repay its debts
due within one year of approximately $72,600,000, to make normal recurring
capital additions and improvements of approximately $96,000,000, to make
selective acquisitions, including the purchase of previously leased facilities,
to construct new facilities, and to meet working capital requirements for the
twelve months ending March 31, 2001. If cash flows from operations or
availability under existing banking arrangements fall below expectations, the
Company may be required to delay capital expenditures, dispose of certain
assets, issue additional debt securities, or consider other alternatives to
improve liquidity.

PART II

BEVERLY ENTERPRISES, INC.

OTHER INFORMATION

MARCH 31, 2000

(UNAUDITED)

ITEM 1. LEGAL PROCEEDINGS

On February 3, 2000, the Company entered into a series of separate
agreements with the U.S. Department of Justice and the Office of Inspector
General (the "OIG") of the Department of Health and Human Services, which
settled the federal government's investigations of the Company relating to its
allocation to the Medicare program of certain nursing labor costs in its skilled
nursing facilities from 1990 to 1998 (the "Allocation Investigations").

In addition, since July 29, 1999, eight derivative lawsuits have been filed
in the federal and state courts of Arkansas, California and Delaware
(collectively, the "Derivative Actions"). Norman M. Lyons v. David R. Banks, et
al., Case No. OT99-4041, was filed in the Chancery Court of Pulaski County,
Arkansas (4th Division) on or about July 29, 1999 and the parties filed an
Agreed Motion to Stay the proceedings on January 17, 2000; Alfred Badger, Jr.
v. David R. Banks, et al., Case No. OT99-4353, was filed in the Chancery Court
of Pulaski County, Arkansas (1st Division) on or about August 17, 1999 and
voluntarily dismissed on November 30, 1999. On November 1, 1999, the defendants
filed a motion to dismiss the Lyons and Badger actions. James L. Laurita v.
David R. Banks, et al., Case No. 17348NC,

PART II

BEVERLY ENTERPRISES, INC.

OTHER INFORMATION (CONTINUED)

MARCH 31, 2000

(UNAUDITED)

was filed in the Delaware Chancery Court on or about August 2, 1999; Kenneth
Abbey v. David R. Banks, et al., Case No. 17352NC, was filed in the Delaware
Chancery Court on or about August 4, 1999; Alan Friedman v. David R. Banks, et
al., Case No. 17355NC, was filed in the Delaware Chancery Court on or about
August 9, 1999. The Laurita, Abbey and Friedman actions were subsequently
consolidated by order of the Delaware Chancery Court. On or about October 1,
1999, the defendants moved to dismiss the Laurita, Abbey and Friedman actions.
Elles Trading Company v. David R. Banks, et al., was filed in the Superior Court
for San Francisco County, California on or about August 4, 1999, and the
plaintiffs filed a notice of voluntary dismissal on February 3, 2000. Kushner v.
David R. Banks, et al., Case No. LR-C-98-646, was filed in the United States
District Court for the Eastern District of Arkansas (Western Division) on
September 30, 1999. Richardson v. David R. Banks, et al., Case No. LR-C-99-826,
was filed in the United States District Court for the Eastern District of
Arkansas (Western Division) on November 4, 1999. The Kushner and Richardson
actions were ordered to be consolidated as In Re Beverly Enterprises, Inc.
Derivative Litigation and by agreed motion, Plaintiffs filed an amended,
consolidated complaint on April 21, 2000. Defendants' answer is due June 27,
2000. The Derivative Actions each name the Company's directors as defendants, as
well as the Company as a nominal defendant. The Badger and Lyons actions also
name as defendants certain of the Company's officers. The Derivative Actions
each allege breach of fiduciary duties to the Company and its stockholders
arising primarily out of the Company's alleged exposure to loss due to the Class
Action and the Allocation Investigations. The Lyons, Badger and Richardson
actions also assert claims for abuse of control and constructive fraud arising
from the same allegations, and the Richardson action also claims unjust
enrichment. Due to the preliminary state of the Derivative Actions and the fact
the complaints do not allege damages with any specificity, the Company is unable
at this time to assess the probable outcome of the Derivative Actions or the
materiality of the risk of loss. However, the Company believes that it acted
lawfully with respect to the allegations of the Derivative Actions and will
vigorously defend the Derivative Actions. However, there can be no assurances
that the Company will not experience an adverse effect on its consolidated
financial position, results of operations or cash flows as a result of these
proceedings.

ITEM 6(a). EXHIBITS

EXHIBIT
NUMBER DESCRIPTION

27.1 Financial Data Schedule for the three months ended March 31, 2000

ITEM 6(b). REPORTS ON FORM 8-K

No reports on Form 8-K were filed by the Company during the quarter ended
March 31, 2000.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

BEVERLY ENTERPRISES, INC.
Registrant

Dated: May 15, 2000 By: /s/ PAMELA H. DANIELS
-------------------------------------
Pamela H. Daniels
Senior Vice President, Controller
and Chief Accounting Officer

15
17

INDEX TO EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
------ -----------

27.1 Financial Data Schedule for the three months ended March 31, 2000