8-K/A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K/A

AMENDMENT NO. 1 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported) July 30, 2004

BEVERLY ENTERPRISES, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	1-9550	62-1691861
(State or Other Jurisdiction	(Commission	(I.R.S. Employer
of Incorporation)	File Number)	Identification No.)

One Thousand Beverly Way
Fort Smith, Arkansas	72919
(Address of Principal Executive Offices)	(Zip Code)
Registrant’s telephone number including area code	(479) 201-2000

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

	Item 2.01. Acquisition or Disposition of Assets
	Item 9.01. Financial Statements and Exhibits
SIGNATURE
EXHIBIT INDEX
Consent of BDO Seidman, LLP
Audited Combined Financial Statements
Unaudited Interim Condensed Combined Financial Statements
Unaudited Pro Forma Condensed Combined Financial Information

Item 2.01. Acquisition or Disposition of Assets.

     On July 30, 2004, Beverly Enterprises, Inc. (“Beverly” or the “Company”) acquired, through its indirect wholly-owned subsidiary, Hospice Preferred Choice, Inc. (“Hospice Preferred Choice”), substantially all of the assets of Hospice USA, LLC (“Hospice USA”) and its affiliates (collectively, the “Sellers”). The Sellers were privately held companies that provided hospice services in Mississippi, Alabama and Tennessee through 18 agencies.

     This Form 8-K/A amends the Current Report on Form 8-K filed August 13, 2004 to include Item 9.01 Financial Statements and Exhibits.

Item 9.01. Financial Statements and Exhibits.

     (a) Financial Statements of Businesses Acquired.

     Audited combined financial statements of the Sellers for the fiscal years ended December 31, 2003 and 2002 and unaudited interim combined financial statements of the Sellers as of and for the six months ended June 30, 2004 and 2003 are filed as Exhibits 99.1 and 99.2 hereto.

     (b) Pro Forma Financial Information

Unaudited pro forma condensed combined financial statements of Beverly and the Sellers are filed as Exhibit 99.3 hereto.

     (c) Exhibits

2.1	—	Asset Purchase Agreement, dated as of May 27, 2004, by and among Hospice USA, LLC and the Affiliated Sellers named therein and Hospice Preferred Choice, Inc. (incorporated by reference to Exhibit 10.6 to Beverly Enterprises, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004)
2.2	—	First Amendment to Asset Purchase Agreement, dated as of July 30, 2004, by and among Hospice USA, LLC and the Affiliated Sellers named therein and Hospice Preferred Choice, Inc. (incorporated by reference to Exhibit 10.7 to Beverly Enterprises, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004)
23.1†	—	Consent of BDO Seidman, LLP, Independent Registered Public Accounting Firm
99.1†	—	Audited combined financial statements of Hospice USA, LLC and Affiliates for the fiscal years ended December 31, 2003 and 2002
99.2†	—	Unaudited interim condensed combined financial statements of Hospice USA, LLC and Affiliates as of and for the six months ended June 30, 2004 and 2003
99.3†	—	Unaudited pro forma condensed combined financial information of Beverly and Hospice USA, LLC

† Filed herewith.

2

SIGNATURE

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

Dated: September 23, 2004	BEVERLY ENTERPRISES, INC.
	By:	/s/ Pamela H. Daniels
		Pamela H. Daniels
		Senior Vice President, Controller and
		Chief Accounting Officer

3

EXHIBIT INDEX

Exhibit No.		Exhibit
2.1	—	Asset Purchase Agreement, dated as of May 27, 2004, by and among Hospice USA, LLC and the Affiliated Sellers named therein and Hospice Preferred Choice, Inc. (incorporated by reference to Exhibit 10.6 to Beverly Enterprises, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004)
2.2	—	First Amendment to Asset Purchase Agreement, dated as of July 30, 2004, by and among Hospice USA, LLC and the Affiliated Sellers named therein and Hospice Preferred Choice, Inc. (incorporated by reference to Exhibit 10.7 to Beverly Enterprises, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004)
23.1†	—	Consent of BDO Seidman, LLP, Independent Registered Public Accounting Firm
99.1†	—	Audited combined financial statements of Hospice USA, LLC and Affiliates for the fiscal years ended December 31, 2003 and 2002
99.2†	—	Unaudited interim condensed combined financial statements of Hospice USA, LLC and Affiliates as of and for the six months ended June 30, 2004 and 2003
99.3†	—	Unaudited pro forma condensed combined financial information of Beverly and Hospice USA, LLC

† Filed herewith.

4

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

Beverly Enterprises, Inc.
Ft. Smith, Arkansas

We hereby consent to the incorporation by reference in the following Registration Statements and amendments thereto

Form S-3 No. 333-52708 Registration for Face-amount Certificate Companies
Form S-3 No. 333-109663 Registration adding Securities to prior Form S-3 Registration
Form S-8 No. 333-117113 Non-Employee Directors’ Stock Option Plan
Form S-8 No. 333-117112 1997 Long-Term Incentive Plan
Form S-8 No. 333-41671 Non-Employee Director Deferred Compensation Plan
Form S-8 No. 333-41669 1997 Long-Term Incentive Plan
Form S-8 No. 333-66026 1997 Long-Term Incentive Plan
Form S-8 No. 333-41673 Executive Deferred Compensation Plan
Form S-8 No. 333-42131 Non-Employee Directors’ Stock Option Plan
Form S-8 No. 333-66018 Non-Employee Directors’ Stock Option Plan
Form S-8 No. 333-54734 Stock Grant Plan
Form S-8 No. 333-101318 Executive Deferred Compensation Plan
Form S-8 No. 333-87290 Non-Employee Director Deferred Compensation Plan
Form S-8 No. 333-13892 401(k) SavingsPlus Plan

of Beverly Enterprises, Inc. of our report dated March 19, 2004, relating to the combined financial statements of Hospice USA, LLC and Affiliates for the fiscal years ended December 31, 2003, and 2002 in this Amendment No. 1 to Current Report on Form 8-K.

/s/BDO Seidman, LLP

Memphis, Tennessee
September 23, 2004

EX-99.1

Exhibit 99.1

Hospice USA, LLC and Affiliates

Combined Financial Statements
For the Years Ended December 31, 2003 and 2002

Hospice USA, LLC and Affiliates

Contents

Independent Auditors’ Report	3
Combined Financial Statements
Balance Sheets	4
Statements of Income and Changes in Members’ Equity	5
Statements of Cash Flows	6
Summary of Accounting Policies	7-10
Notes to Combined Financial Statements	11-15

2

Independent Auditors’ Report

Hospice USA, LLC and Affiliates
Memphis, Tennessee

We have audited the accompanying combined balance sheets of Hospice USA, LLC and certain affiliates (the “Company”) as of December 31, 2003 and 2002, and the related combined statements of income and changes in members’ equity and cash flows for the years then ended. These combined financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these combined financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audits to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of Hospice USA, LLC and certain affiliates at December 31, 2003 and 2002, and the results of their combined operations and their combined cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ BDO SEIDMAN, LLP

March 19, 2004

3

Hospice USA, LLC and Affiliates

Combined Balance Sheets

December 31,	2003		2002
Assets (Note 4)
Current
Cash and cash equivalents	$	2,437,739	$	649,758
Trade accounts receivable, net of allowance for possible losses of $224,000 and $177,000, respectively (Note 7)		5,331,406		3,000,116
Due from related parties (Note 2)		164,199		135,020
Prepaid expenses and other current assets		403,473		211,144
Total current assets		8,336,817		3,996,038
Property and equipment, net (Notes 3 and 4)		1,424,139		1,010,043
Goodwill, net (Note 1)		1,985,115		185,002
Other intangibles (Note 1)		20,000		—
Other assets		23,419		12,554
	$	11,789,490	$	5,203,637
Liabilities and Members’ Equity
Current liabilities
Accounts payable	$	41,455	$	37,175
Accrued expenses and other current liabilities		3,419,687		1,573,337
Current maturities of long-term debt (Note 4)		443,168		231,858
Total current liabilities		3,904,310		1,842,370
Long-term debt, less current maturities (Note 4)		1,786,130		76,809
Total liabilities		5,690,440		1,919,179
Commitments and contingencies (Notes 5, 7, 8, 9 and 10)
Members’ equity		6,099,050		3,284,458
	$	11,789,490	$	5,203,637

See accompanying summary of accounting policies and notes to combined financial statements.

4

Hospice USA, LLC and Affiliates

Combined Statements of Income and Changes in Members’ Equity

Year ended December 31,	2003			2002
Revenues
Net patient service revenues	$	28,411,643		$	19,318,281
Other		12,460			7,258
Operating revenues		28,424,103			19,325,539
Costs and expenses
Pharmacy		1,719,166			1,361,860
Medical equipment and supplies		993,787			826,510
Patient care mileage		1,088,687			894,773
Nursing home care		361,379			804,463
Inpatient costs		634,835			347,869
Other patient expenses		837,971			645,006
Wages		10,367,831			7,369,820
Payroll taxes		845,325			618,878
Other employee costs		1,088,620			539,390
Travel and entertainment		188,330			124,393
Office supplies		258,281			164,802
Rent		480,321			356,557
Depreciation		290,677			191,196
Bad debts		106,318			62,832
Other administrative costs		1,503,836			1,117,420
Total costs and expenses		15,129,539			10,545,288
Net income		7,658,739			3,899,770
Members’ equity, beginning of period		3,284,458			1,364,995
Distributions		(4,844,147	)		(1,980,307	)
Members’ equity, end of period	$	6,099,050		$	3,284,458

See accompanying summary of accounting policies and notes to combined financial statements.

5

Hospice USA, LLC and Affiliates

Combined Statements of Cash Flows

Year ended December 31,	2003			2002
Cash flows from operating activities
Net income	$	7,658,739		$	3,899,770
Adjustments to reconcile net income to net cash used for operating activities:
Depreciation		290,677			191,196
Loss on sale of equipment		22,447			9,029
Provision for possible losses		80,093			52,308
Net changes in assets and liabilities affecting operating activities:
Accounts receivable		(2,242,617	)		(1,849,525	)
Prepaid expenses		(203,194	)		(75,329	)
Accounts payable and accrued expenses		1,850,630			(92,238	)
Net cash provided by operating activities		7,456,775			2,135,211
Cash flows from investing activities
Business acquisition (Note 1)		(1,320,000	)		—
Purchase of property and equipment		(750,539	)		(469,131	)
Proceeds from sale of equipment		23,319			3,600
Advances to related companies, net		(29,179	)		(109,624	)
Net cash used in investing activities		(2,076,399	)		(575,155	)
Cash flows from financing activities
Principal payments on long-term debt		(288,222	)		(457,586	)
Payment of member distributions		(4,844,147	)		(1,980,307	)
Proceeds from the issuance of debt		1,539,974			435,857
Net cash used in financing activities		(3,592,395	)		(2,002,036	)
Net increase (decrease) in cash		1,787,981			(441,980	)
Cash and cash equivalents, beginning of period		649,758			1,091,738
Cash, and cash equivalents, at end of period	$	2,437,739		$	649,758

See accompanying summary of accounting policies and notes to combined financial statements.

6

Hospice USA, LLC and Affiliates

Summary of Accounting Policies

Business and Basis of Presentation

The combined financial statements include the financial statements of Hospice USA, LLC and the below affiliated entities, related primarily by common ownership (together “the Company”). Significant intercompany transactions have been eliminated. The companies are in the business of providing Hospice care to terminally ill patients.

Company

Rice Enterprises, LLC
American Home Medical Equipment, LLC
New Horizon Hospice of Tennessee, LLC (Acquired 12/1/03)
Hospice South of Marshall County, LLC
Hospice South of Corinth, LLC
Hospice South of Meridian, LLC
Hospice South of New Albany, LLC
Hospice South of Philadelphia, LLC
Hospice South of Senatobia, LLC
Hospice South of Birmingham, LLC
Hospice South of Demopolis, LLC
Hospice South of Hamilton, LLC
Hospice South of Jackson, LLC
Hospice South of Mobile, LLC
Hospice South of Decatur, LLC
Hospice South of Monroeville, LLC
Hospice South of Russellville, LLC
Hospice South of Tennessee, LLC
Hospice South of Memphis, LLC

Patient Service Revenue

Patient service revenue is reported at the estimated net realizable amounts from patients, third-party payors and others for services rendered based on established billing rates, less contractual allowances, for patients covered by Medicaid and other contractual programs.

7

Hospice USA, LLC and Affiliates

Summary of Accounting Policies

Accounts Receivable

The Company has significant accounts receivable whose collectibility or realizability is dependent upon the performance of certain governmental programs, primarily Medicaid and Medicare. The Company does not believe there are significant credit risks associated with these governmental programs. The Company believes that an adequate provision has been made for the possibility of these receivables and other assets proving uncollectible and continually monitors and adjusts these allowances as necessary.

Allowance for Doubtful Accounts

The Company records an allowance for doubtful accounts based on specifically identified amounts that it believes may be uncollectible. The Company also records an additional allowance based on certain percentages of their aged receivables, which are determined based on historical experience and management’s assessment of the general financial conditions affecting the Company’s customer base. If actual collection experience changes, revisions to the allowance may be required. After all attempts to collect a receivable have failed, the receivable is written off against the allowance.

Property, Equipment and Depreciation

Property and equipment are recorded at cost. Depreciation is computed using the straight-line method for financial reporting purposes over the assets’ estimated useful lives as follows:

	Years
Furniture and equipment		5-20
Leasehold improvements		5-25
Automobiles		4

Expenditures for major renewals and betterments that extend the useful life of assets are capitalized. Maintenance and repair costs are charged to expense as incurred. Upon sale or retirement, the asset cost and related accumulated depreciation are eliminated from the respective accounts, and any resulting gain or loss is included in income.

The carrying values of long-lived assets are periodically reviewed by the Company and impairments would be recognized if the

8

Hospice USA, LLC and Affiliates

Summary of Accounting Policies

expected future operating non-discounted cash flows derived from an asset were less than its carrying value.

Goodwill

Goodwill is recognized for the excess of the purchase price over the fair value of tangible and identifiable intangible net assets of businesses acquired. In accordance with Statement of Financial Accounting Standards No. 141, Business Combinations, the Company assessed goodwill for impairment at the end of each period presented.

Income Taxes

The Company has elected to be treated as a pass-through entity for federal and state income tax reporting purposes. As such, its taxable income will be included in the income tax returns of the respective members.

Use of Estimates

The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Financial Instruments

Financial instruments consist primarily of accounts receivable, accounts payable, accrued liabilities and long-term debt. The carrying amounts of financial instruments are estimated by management to approximate their respective fair values.

New Accounting Pronouncements

In January 2003, the FASB issued Financial Accounting Standards Board Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (“FIN 46”). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated support from other parties. FIN 46 is effective immediately for all new variable interest entities created or

9

Hospice USA, LLC and Affiliates

Summary of Accounting Policies

acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provision of FIN 46 must be applied for the first interim or annual period beginning after December 15, 2003. The Company is currently assessing the impact FIN 46 will have on the Company’s financial statements.

10

Hospice USA, LLC and Affiliates

Notes to Combined Financial Statements

1. Acquisition

In November of 2003, the Company purchased substantially all of the assets of Friendship Hospice of Nashville, Inc. (the “Seller”). As a result of the acquisition, effective December 1, 2003, the Company began the operations of New Horizon Hospice of Tennessee, LLC. The purchase was funded using $20,000 cash, a $1.3 million note payable to Union Planters Bank (the “Union Planters Bank Note”), and a $780,000 non-interest bearing note payable to the Seller (the “Seller Note”), discounted by the Company using an imputed interest rate of 5% to $688,879 (see Note 4). The purchase price was allocated to the following assets based upon their estimated fair values:

Accounts receivable	$	169,333
Furniture and equipment		19,434
Non-compete agreement		20,000
Goodwill		1,800,112
	$	2,008,879

In conjunction with the purchase, the sellers agreed to a non-compete agreement. The related asset is being amortized over its five-year term on a straight-line basis.

2. Related Party Transactions

At December 31, 2003 and 2002, the Company had receivables due from companies under common ownership of $164,199 and $135,020, respectively. Such receivables relate mainly to the payment of expenses by the Company on behalf of the companies under common ownership. Such amounts are offset by payments received by the Company on behalf of the companies under common ownership.

The Company’s two members are also executive officers of the Company. These officers/members are not paid a salary, but are compensated through profit distributions. Accordingly, no compensation expense related to the executive management services rendered by these two officers has been recorded in the accompanying financial statements.

11

Hospice USA, LLC and Affiliates

Notes to Combined Financial Statements

3. Property and Equipment

Major classes of property and equipment are summarized as follows:

December 31,	2003			2002
Furniture and equipment	$	1,718,351		$	1,200,702
Leasehold improvements		10,659			—
Automobiles		428,051			306,860
		2,157,061			1,507,562
Less accumulated depreciation		(732,922	)		(497,519	)
Net property and equipment	$	1,424,139		$	1,010,043

4. Long-term Debt

Long-term debt consists of the following:

December 31,	2003			2002
Union Planters Bank Note, bearing interest at prime (4% at December 31, 2003), payable in monthly installments of $21,667, with a final balloon payment of approximately $660,000 due in December 2006	$	1,297,833		$	—
Uncollateralized non-interest bearing Seller Note, payable in monthly installments of $13,000 through December 2008, discounted using an estimated interest rate of 5%		688,879			—
Installment notes with interest rates ranging from 0% to 8.5% due through January 2008, collateralized by automobiles		242,586			148,376
Unsecured note payable to shareholder bearing interest at 10%, interest payable monthly, paid during the year ended December 31, 2003		—			160,291
		2,229,298			308,667
Less current maturities		(443,168	)		(231,858	)
Long-term debt	$	1,786,130		$	76,809

12

Hospice USA, LLC and Affiliates

Notes to Combined Financial Statements

The Union Planters Bank Note is collateralized by substantially all of the assets of the Company and contains financial covenants mainly relating to debt coverage and tangible net worth to be measured first on June 30, 2004.

The installment notes are secured by automobiles with a net book value of approximately $276,000 at December 31, 2003.

During 2002, the Company maintained a $500,000 line of credit with a financial institution. At December 31, 2002, there was no outstanding balance on this line of credit. Advances bore interest at variable rates ranging between 5% and 6% during the year. The annual line was scheduled to expire during June of 2002, however, after June 2002 the bank kept the line open without requiring the Company to sign a new agreement. This line of credit was closed during April 2003 when new lines of credit with a different financial institution were obtained.

Hospice USA, LLC entered into two lines of credit with a financial institution during the year ending December 31, 2003. The first agreement contained a $2,000,000 line of credit secured by a blanket lien on the assets of the Tennessee operations. This line bore interest at prime (4% at December 31, 2003), however, this line of credit was never used. During March 2003 this line of credit was closed. The Company has a $500,000 line of credit secured by a blanket lien on the assets of the Tennessee operations. This line bears interest at prime plus 4% (8% as of December 31, 2003). As of December 31, 2003, there was no balance outstanding. The line is scheduled to expire on July 1, 2004.

13

Hospice USA, LLC and Affiliates

Notes to Combined Financial Statements

Required principal payments on long-term debt for the next five years are as follows:

Year ended December 31,
2004	$	443,168
2005		428,501
2006		1,038,165
2007		165,965
2008		153,499
	$	2,229,298

5. Operating Leases

The Company leases a substantial portion of its operating facilities. Future minimum payments under noncancellable operating leases that have initial or remaining terms in excess of one year at December 31, 2003 are as follows:

Year ended December 31,
2004	$	378,711
2005		330,055
2006		251,244
2007		194,305
2008		165,242
Thereafter		—
	$	1,319,557

Rent expense was $480,321 and $356,557 under operating leases for the years ended December 31, 2003 and 2002, respectively.

6. Supplemental Cash Flow Information

For purposes of the statements of cash flow, cash consists of cash on hand, demand deposit accounts and short-term investments in certificates of deposit with initial maturities of three months or less.

14

Hospice USA, LLC and Affiliates

Notes to Combined Financial Statements

Cash paid for interest totaled approximately $19,000 and $33,000 for the years ended December 31, 2003 and 2002, respectively.

During 2003, the Company purchased a business through the issuance of long-term debt (see Note 1).

7. Risks and Uncertainties

The Company has significant accounts receivable whose collectibility or realizability is dependent upon the performance of certain governmental  programs, primarily Medicare. During the years ended December 31, 2003 and 2002 the Company earned approximately 92% of its revenue from patients under the Medicare program. Medicare reimbursement for hospice care is generally made based on predetermined daily rates. There are no retroactive adjustments other than the application of a statutory “cap” on overall payments and the limitation on payments for inpatient care. Amounts due from Medicare amounted to approximately $3,081,000 and $2,041,000 as of December 31, 2003 and 2002, respectively. The Company does not believe there are significant credit risks associated with these governmental programs. The Company believes that an adequate provision has been made for the possibility of receivables proving uncollectible and appropriate liabilities have been recorded for potential retroactive adjustments. The Company continually monitors and adjusts these allowances and accruals as necessary.

8. Employee Benefit Plan

The Company sponsors a 401(k) Profit Sharing Plan (the “Plan”) with other entities under common ownership, which is a defined contribution plan offered to all employees of the related group. Employer contributions are discretionary based on the Company’s operating results. No employer contributions were made during the years ended December 31, 2003 or 2002.

9. Contingencies

The Company, in the normal course of business, is subject to litigation on general business issues. In the opinion of management, such litigation will not have a material adverse effect on the Company.

15

Hospice USA, LLC and Affiliates

Notes to Combined Financial Statements

The Company is required to comply with laws governing the transmission and privacy of health information. HIPAA requires compliance with certain standards for the exchange of individually identifiable health information within the Company and with third parties, such as payors, business associates and patients. These include standards for common healthcare transactions, such as claims information, plan eligibility, payment information and the use of electronic signatures, unique identifiers for providers, employers, and health plan, security, and privacy.

Sanctions for failing to comply with the HIPAA health information practices provisions include criminal penalties and civil sanctions. The security standards went into effect in April 2003, with a compliance date in April 2005 for most covered entities. The Company cannot ensure that all of the parties with whom it does business will be in compliance with HIPAA. If the Company fails to comply with these standards, it could be subject to criminal penalties and civil sanctions, which could have an adverse effect on the Company’s financial condition and results of operations.

Management is aware of all of the above issues and has developed strategies to minimize the risks and limit the impact of the changing environment to ensure the ongoing success of the Company.

10. Credit Risk

The Company accumulates, from time to time, bank balances in excess of the insurance provided by federal insurance authorities. At December 31, 2003 and 2002, such excess balances totaled approximately $2,363,000 and $765,000, respectively.

16

EX-99.2

Exhibit 99.2

Hospice USA, LLC and Affiliates

Combined Condensed Financial Statements
For the Six Months Ended June 30, 2004 and 2003
(unaudited)

Hospice USA, LLC and Affiliates

Contents

Combined Condensed Financial Statements
Balance Sheets	3
Statements of Income and Changes in Members’ Equity	4
Statements of Cash Flows	5
Summary of Accounting Policies	6-9
Notes to Combined Financial Statements	10-11

2

Hospice USA, LLC and Affiliates

Combined Condensed Balance Sheets

	June 30, 2004		December 31,
	(Unaudited)		2003
Assets
Current
Cash and cash equivalents	$	3,245,585	$	2,437,739
Trade accounts receivable, net of allowance for possible losses of $338,000 and $224,000 respectively (Note 3)		4,845,486		5,331,406
Due from related parties (Note 1)		461,807		164,199
Prepaid expenses and other current assets		199,653		403,473
Total current assets		8,752,531		8,336,817
Property and equipment, net		1,480,318		1,424,139
Goodwill, net		1,985,115		1,985,115
Other intangibles		20,000		20,000
Other assets		23,620		23,419
	$	12,261,584	$	11,789,490
Liabilities and Members’ Equity
Current liabilities
Accounts payable	$	194,089	$	41,455
Accrued expenses and other current liabilities		4,567,817		3,419,687
Current maturities of long-term debt		481,952		443,168
Total current liabilities		5,243,858		3,904,310
Long-term debt, less current maturities		1,611,691		1,786,130
Total liabilities		6,855,549		5,690,440
Commitments and contingencies (Notes 3 and 4)
Members’ equity, net		5,406,035		6,099,050
	$	12,261,584	$	11,789,490

See accompanying summary of accounting policies and notes to unaudited combined financial statements.

3

Hospice USA, LLC and Affiliates

Combined Condensed Statements of Income and Changes in Members’ Equity

Six Months ended June 30,	2004 (unaudited)			2003 (unaudited)
Revenues
Net patient service revenues	$	15,817,254		$	13,403,115
Other		10,794			4,275
Operating revenues		15,828,048			13,407,390
Costs and expenses
Pharmacy		976,801			777,379
Medical equipment and supplies		682,386			312,826
Patient care mileage		770,568			518,839
Nursing home care		163,684			164,346
Inpatient costs		187,799			292,075
Other patient expenses		478,737			431,028
Wages		6,490,719			4,793,851
Payroll taxes		574,103			416,887
Other employee costs		634,657			539,404
Travel and entertainment		124,140			87,382
Office supplies		97,433			85,084
Rent		352,594			220,184
Depreciation		181,896			160,599
Bad debts		277,521			15,353
Other administrative costs		1,394,697			693,412
Total costs and expenses		10,127,760			7,012,156
Net income		2,440,313			3,898,741
Members’ equity, beginning of period		6,099,050			3,284,458
Distributions		(3,133,328	)		(2,830,422	)
Members’ equity, end of period	$	5,406,035		$	4,352,777

See accompanying summary of accounting policies and notes to unaudited combined financial statements.

4

Hospice USA, LLC and Affiliates

Combined Condensed Statements of Cash Flows

	2004			2003
Six months ended June 30,	(unaudited)			(unaudited)
Cash flows from operating activities
Net income	$	2,440,313		$	3,898,741
Adjustments to reconcile net income to net cash used for operating activities:
Depreciation		181,896			160,599
Provision for possible losses		277,521			15,353
Net changes in assets and liabilities affecting operating activities:
Accounts receivable		208,399			(372,678	)
Prepaid expenses		203,619			102,654
Accounts payable and accrued expenses		1,300,764			645,354
Net cash provided by operating activities		4,612,512			4,450,023
Cash flows from investing activities
Purchase of property and equipment		(242,846	)		(467,791	)
Proceeds from sale of equipment		—			32,955
Advances to related companies, net		(297,608	)		(14,017	)
Net cash used in investing activities		(540,454	)		(448,853	)
Cash flows from financing activities
Principal payments on long-term debt		(219,344	)		(237,518	)
Payment of member distributions		(3,133,328	)		(2,830,422	)
Proceeds from the issuance of debt		88,460			219,975
Net cash used in financing activities		(3,264,212	)		(2,847,965	)
Net increase (decrease) in cash		807,846			1,153,205
Cash and cash equivalents, beginning of period		2,437,739			649,758
Cash, and cash equivalents, at end of period	$	3,245,585		$	1,802,963

See accompanying summary of accounting policies and notes to unaudited combined financial statements.

5

Hospice USA, LLC and Affiliates

Summary of Accounting Policies

Business and Basis of Presentation

We have prepared these condensed combined financial statements without audit. In management’s opinion, these condensed combined financial statements include all normal recurring adjustments necessary for a fair presentation of the results of operations for the six months ended June 30, 2004 and 2003. Although certain information and footnote disclosures required by generally accepted accounting principles in the United States have been condensed or omitted, we believe that the disclosures in these condensed combined financial statements are adequate to make the information presented not misleading. These condensed combined financial statements should be read along with our Combined Financial Statements for the year ended December 31, 2003. Our results of operations for the six months ended June 30, 2004 are not necessarily indicative of the results for a full year.

The combined financial statements include the financial statements of Hospice USA, LLC and the below affiliated entities, related primarily by common ownership (together “the Company”). Significant intercompany transactions have been eliminated.

Company

Rice Enterprises, LLC

American Home Medical Equipment, LLC

New Horizon Hospice of Tennessee, LLC

Hospice South of Marshall County, LLC

Hospice South of Corinth, LLC

Hospice South of Meridian, LLC

Hospice South of New Albany, LLC

Hospice South of Philadelphia, LLC

Hospice South of Senatobia, LLC

Hospice South of Birmingham, LLC

Hospice South of Demopolis, LLC

Hospice South of Hamilton, LLC

Hospice South of Jackson, LLC

Hospice South of Mobile, LLC

6

Hospice USA, LLC and Affiliates

Summary of Accounting Policies

Company

Hospice South of Decatur, LLC

Hospice South of Monroeville, LLC

Hospice South of Russellville, LLC

Hospice South of Tennessee, LLC

Hospice South of Memphis, LLC

Hospice South of Clarksville, LLC

Patient Service Revenue

Patient service revenue is reported at the estimated net realizable amounts from patients, third-party payors and others for services rendered based on established billing rates, less contractual allowances, for patients covered by Medicaid and other contractual programs.

Accounts Receivable

The Company has significant accounts receivable whose collectibility or realizability is dependent upon the performance of certain governmental programs, primarily Medicaid and Medicare. The Company does not believe there are significant credit risks associated with these governmental programs. The Company believes that an adequate provision has been made for the possibility of these receivables and other assets proving uncollectible and continually monitors and adjusts these allowances as necessary.

Allowance for Doubtful Accounts

The Company records an allowance for doubtful accounts based on specifically identified amounts that it believes may be uncollectible. The Company also records an additional allowance based on certain percentages of their aged receivables, which are determined based on historical experience and management’s assessment of the general financial conditions affecting the Company’s customer base. If actual collection experience changes, revisions to the allowance may be required. After all attempts to collect a receivable have failed, the receivable is written off against the allowance.

Property, Equipment and Depreciation

Property and equipment are recorded at cost. Depreciation is computed using the straight-line method for financial reporting purposes over the assets’ estimated useful lives as follows:

7

Hospice USA, LLC and Affiliates

Summary of Accounting Policies

	Years
Furniture and equipment		5-20
Leasehold improvements		5-25
Automobiles		4

Expenditures for major renewals and betterments that extend the useful life of assets are capitalized. Maintenance and repair costs are charged to expense as incurred. Upon sale or retirement, the asset cost and related accumulated depreciation are eliminated from the respective accounts, and any resulting gain or loss is included in income.

The carrying values of long-lived assets are periodically reviewed by the Company and impairments would be recognized if the expected future operating non-discounted cash flows derived from an asset were less than its carrying value.

Goodwill

Goodwill is recognized for the excess of the purchase price over the fair value of tangible and identifiable intangible net assets of businesses acquired. In accordance with Statement of Financial Accounting Standards No. 141, Business Combinations, the Company assessed goodwill for impairment at the end of each period presented.

Income Taxes

The Company has elected to be treated as a pass-through entity for federal and state income tax reporting purposes. As such, its taxable income will be included in the income tax returns of the respective members.

Use of Estimates

The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of

8

Hospice USA, LLC and Affiliates

Summary of Accounting Policies

revenues and expenses during the reporting period. Actual results could differ from those estimates.

Financial Instruments

Financial instruments consist primarily of accounts receivable, accounts payable, accrued liabilities and long-term debt. The carrying amounts of financial instruments are estimated by management to approximate their respective fair values.

9

Hospice USA, LLC and Affiliates

Notes to Unaudited Combined Financial Statements

1. Related Party Transactions

At June 30, 2004 and December 31, 2003, the Company had receivables due from companies under common ownership of $461,807 and $164,199, respectively. Such receivables relate mainly to the payment of expenses by the Company on behalf of the companies under common ownership. Such amounts are offset by payments received by the Company on behalf of the companies under common ownership.

The Company’s two members are also executive officers of the Company. These officers/members are not paid a salary, but are compensated through profit distributions. Accordingly, no compensation expense related to the executive management services rendered by these two officers has been recorded in the accompanying financial statements.

2. Supplemental Cash Flow Information

For purposes of the statements of cash flow, cash consists of cash on hand, demand deposit accounts and short-term investments in certificates of deposit with initial maturities of three months or less.

Cash paid for interest totaled approximately $44,000 and $16,000 for the six months ended June 30, 2004 and 2003, respectively.

3. Risks and Uncertainties

The Company has significant accounts receivable whose collectibility or realizability is dependent upon the performance of certain governmental programs, primarily Medicare. During the six months ended June 30, 2004 and 2003 the Company earned approximately 92% of its revenue from patients under the Medicare program. Medicare reimbursement for hospice care is generally made based on predetermined daily rates. There are no retroactive adjustments other than the application of a statutory “cap” on overall payments and the limitation on payments for inpatient care. Amounts due from Medicare amounted to approximately $2,624,000 and $3,081,000 as of June 30, 2004 and December 31, 2003, respectively. The Company does not believe there are significant credit risks associated with these governmental programs. The Company believes that an adequate provision has been made for the possibility of receivables proving uncollectible and appropriate liabilities have been recorded for potential retroactive adjustments. The Company

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Hospice USA, LLC and Affiliates

Notes to Unaudited Combined Financial Statements

continually monitors and adjusts these allowances and accruals as necessary.

4. Contingencies

The Company, in the normal course of business, is subject to litigation on general business issues. In the opinion of management, such litigation will not have a material adverse effect on the Company.

5. Subsequent Events

On July 30, 2004 substantially all of the assets of the Company were acquired by Beverly Enterprises, Inc. through its indirect wholly-owned subsidiary, Hospice Preferred Choice, Inc. The purchase price for the assets of the Company was $69,123,152.

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EX-99.3

Exhibit 99.3

Beverly Enterprises, Inc.

Unaudited Pro Forma Condensed Combined Financial Statements

     The following unaudited pro forma condensed combined financial statements are presented to illustrate the effects of the acquisition of substantially all of the assets of Hospice USA, LLC and certain of its affiliates (collectively “Hospice USA”) on the historical financial position and operating results of the Company and Hospice USA using the purchase method of accounting in accordance with generally accepted accounting principles in the United States. The unaudited pro forma condensed combined financial statements are based upon the historical financial statements of the respective companies.

     The unaudited pro forma condensed combined balance sheet has been prepared as if the acquisition had taken place on June 30, 2004 and combines the Seller's June 30, 2004 unaudited historical combined balance sheet with Beverly’s June 30, 2004 unaudited historical condensed consolidated balance sheet.

     The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2004 and the year ended December 31, 2003, have been prepared as if the acquisition had taken place on January 1, 2003. Since Hospice USA has a December 31 year end, the pro forma condensed combined statements of operations for the six months ended June 30, 2004 have been prepared using Beverly and Hospice USA’s unaudited condensed statements of operations for the six months ended June 30, 2004. The pro forma condensed combined statements of operations for the year ended December 31, 2003 have been prepared using Beverly’s and Hospice USA’s audited statements of operations for the year ended December 31, 2003.

     The unaudited pro forma condensed combined financial statements include adjustments to reflect the purchase price consideration and the assets and liabilities acquired from Hospice USA, as well as other adjustments based upon available information and certain assumptions that the Company’s management believes are reasonable. The allocation of the purchase price is based on a comprehensive evaluation of the fair value of Hospice USA’s tangible assets acquired and liabilities assumed, identifiable intangible assets and goodwill at the time of the consummation of the acquisition.

     These unaudited pro forma condensed combined financial statements are provided for informational purposes and do not purport to represent the actual consolidated financial position or results of operations of Beverly as if the acquisition had occurred on the dates assumed, nor are they necessarily indicative of future financial position or results of operations.

     The unaudited pro forma condensed combined financial statements should be read in conjunction with the Company’s separate historical consolidated financial statements and notes thereto included in its Quarterly and Annual Reports on Forms 10-Q and 10-K, respectively, as amended and filed with the Securities and Exchange Commission, as well as the historical financial statements and notes thereto of Hospice USA contained elsewhere in this Current Report on Form 8-K/A.

BEVERLY ENTERPRISES, INC.
Unaudited Pro Forma Condensed
Combined Balance Sheet
June 30, 2004
(Dollars in thousands)

						Pro Forma
	Beverly			Hospice USA		Adjustments					Combined
ASSETS
Current assets:
Cash and cash equivalents	$	216,463		$	3,246		(72,423	)	(a	)	$	144,040
							(3,246	)	(b	)
Accounts receivable, net of allowance for doubtful accounts		241,169			5,307		(682	)	(b	)		245,794
Notes receivable, net of allowance for doubtful notes		17,693			—		—					17,693
Operating supplies		9,249			—		—					9,249
Assets held for sale		15,051			—		—					15,051
Prepaid expenses and other		39,458			200		(200	)	(b	)		39,458
Total current assets		539,083			8,753		(76,551	)				471,285
Property and equipment, net		645,066			1,480		(150	)	(b	)		646,290
							(106	)	(c	)
Other assets:
Goodwill, net		56,473			1,985		66,686		(a	)		123,159
							(1,985	)	(b	)
Other, net of allowance for doubtful accounts and notes		82,201			44		1,990		(a	)		84,321
							(20	)	(b	)
							106		(c	)
Total other assets		138,674			2,029		66,777					207,480
	$	1,322,823		$	12,262	$	(10,030	)			$	1,325,055
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	53,978		$	194	$	—				$	54,172
Accrued wages and related liabilities		93,915			1,048		—					94,963
Accrued interest		3,395			—		—					3,395
General and professional liabilities		63,422			—		—					63,422
Federal government settlement obligations		13,728			—		—					13,728
Liabilities held for sale		611			—		—					611
Other accrued liabilities		106,319			3,520		(2,530	)	(b	)		107,309
Current portion of long-term debt		9,388			482		(244	)	(a	)		9,388
							(238	)	(b	)
Total current liabilities		344,756			5,244		(3,012	)				346,988
Long-term debt		563,800			1,612		(947	)	(a	)		563,800
							(665	)	(b	)
Other liabilities and deferred items		178,503			—		—					178,503
Commitments and contingencies
Stockholders’ equity:
Preferred stock, shares authorized: 25,000,000		—			—		—					—
Common stock, shares issued: 116,241,035		11,624			—		—					11,624
Additional paid-in capital		895,947										895,947
Member’s equity		—			5,406		(5,406	)	(d	)		—
Accumulated deficit		(563,309	)		—		—					(563,309	)
Treasury stock, at cost: 8,283,316		(108,498	)		—		—					(108,498	)
Total stockholders’ equity		235,764			5,406		(5,406	)				235,764
	$	1,322,823		$	12,262	$	(10,030	)			$	1,325,055

See accompanying notes to unaudited pro forma condensed combined financial statements.

7

BEVERLY ENTERPRISES, INC.
Unaudited Pro Forma Condensed Combined Statements of Operations
For the six months ended June 30, 2004
(In thousands, except per share amounts)

						Pro Forma
	Beverly			Hospice USA		Adjustments					Combined
Revenues	$	978,135		$	15,828	$	—				$	993,963
Costs and expenses:
Wages and related		555,672			7,700		—					563,372
Provision for insurance and related items		60,974			—		—					60,974
Other operating and administrative		259,889			5,506		—					265,395
Depreciation and amortization		30,323			182		167		(e	)		30,672
Asset impairments, workforce reductions and other unusual items		1,801			—		—					1,801
Total costs and expenses		908,659			13,388		167					922,214
Income before other income (expenses)		69,476			2,440		(167	)				71,749
Other income (expenses):
Interest expense		(23,946	)		—		—					(23,946	)
Costs related to early extinguishments of debt		(40,254	)		—		—					(40,254	)
Interest income		2,843			—		—					2,843
Net gains on dispositions		32			—		—					32
Total other expenses, net		(61,325	)		—		—					(61,325	)
Income before provision for income taxes and discontinued operations		8,151			2,440		(167	)				10,424
Provision for income taxes		2,502			—		—					2,502
Income before discontinued operations		5,649			2,440		(167	)				7,922
Discontinued operations, net of taxes of $345		(8,133	)		—		—					(8,133	)
Net income (loss)	$	(2,484	)	$	2,440	$	(167	)			$	(211	)
Net income (loss) per share of common stock:
Basic and diluted:
Before discontinued operations	$	0.05									$	0.07
Discontinued operations, net of taxes		(0.07	)									(0.07	)
Net income (loss) per share of common stock	$	(0.02	)								$	—
Shares used to compute basic net income (loss) per share		107,359										107,359
Shares used to compute diluted net income (loss) per share		108,437										108,437

See accompanying notes to unaudited pro forma condensed combined financial statements.

8

BEVERLY ENTERPRISES, INC.

Unaudited Pro Forma Condensed Combined Statements of Operations
For the year ended December 31, 2003
(In thousands, except per share amounts)

						Pro Forma
	Beverly			Hospice USA		Adjustments					Combined
Revenues	$	1,820,146		$	28,424	$	—				$	1,848,570
Costs and expenses:
Wages and related		1,087,203			12,302		—					1,099,505
Provision for insurance and related items		111,465			—		—					111,465
Other operating and administrative		470,069			8,172		—					478,241
Depreciation and amortization		59,148			291		335		(e	)		59,774
Special charge and adjustment related to California investigation settlement		(925	)		—		—					(925	)
Asset impairments, workforce reductions and other unusual items		3,825			—		—					3,825
Total costs and expenses		1,730,785			20,765		335					1,751,885
Income before other income (expenses)		89,361			7,659		(335	)				96,685
Other income (expenses):
Interest expense		(63,314	)		—		—					(63,314	)
Costs related to early extinguishments of debt		(6,634	)		—		—					(6,634	)
Interest income		5,363			—		—					5,363
Net gains on dispositions		422			—		—					422
Gains on sales of equity investments		6,686			—		—					6,686
Total other expenses, net		(57,477	)		—		—					(57,477	)
Income before provision for income taxes and discontinued operations		31,884			7,659		(335	)				39,208
Provision for income taxes		5,069			—		—					5,069
Income before discontinued operations		26,815			7,659		(335	)				34,139
Discontinued operations net of taxes of $3,378		53,653			—		—					53,653
Net income	$	80,468		$	7,659	$	(335	)			$	87,792
Net income per share of common stock:
Basic and diluted:
Before discontinued operations	$	0.25									$	0.32
Discontinued operations, net of taxes		0.50										0.50
Net income per share of common stock	$	0.75									$	0.82
Shares used to compute basic net income per share		106,582										106,582
Shares used to compute diluted net income per share		106,920										106,920

See accompanying notes to unaudited pro forma condensed combined financial statements.

9

Beverly Enterprises, Inc.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

1) Basis of pro forma presentation

     On July 30, 2004, the Company acquired, through its indirect wholly owned subsidiary, Hospice Preferred Choice, substantially all of the assets of Hospice USA for cash of approximately $69.1 million. Hospice USA is a privately held company that provides hospice services in Mississippi, Alabama and Tennessee through 18 agencies. The acquisition was accounted for as a purchase business combination under Statement of Financial Accounting Standards No. 141, “Business Combinations.” Accordingly, the estimated fair values of the assets acquired and liabilities assumed were included in the Company’s consolidated balance sheet as of July 30, 2004, the effective date of the purchase. The results of operations are included in the Company’s condensed consolidated results of operations as of and since the effective date of the purchase. There were no significant differences between the accounting policies of the Company and Hospice USA, except as discussed below.

2) Purchase Price Allocation

     The purchase price allocation is preliminary and further adjustments may be made based on a working capital settlement to be finalized during the fourth quarter of 2004. Any working capital settlement resulting in an adjustment to the purchase price will require a cash payment between Beverly and the sellers based on the finalized adjusted net book value of the Hospice USA working capital assets and liabilities.

     Beverly allocated the purchase price of $69.1 million, plus $3.3 million of legal and other professional expenses and costs directly related to the acquisition, based on the fair values of the assets acquired and liabilities assumed. The fair values of identifiable intangible assets, indefinite-lived intangible assets and goodwill are based on an independent valuation of the fair values of such assets conducted at the date of the acquisition.

     The following table summarizes the determined fair values of the assets acquired, net of the liabilities assumed, at the acquisition date.

Purchase price allocation	Amounts (in thousands)
Working capital, net	$	2,393
Property and equipment		1,224
Indentifiable intangible assets		1,290
Indefinite-lived intangible assets		700
Other assets		130
Goodwill		66,686
Total purchase price	$	72,423

10

3) Pro Forma Adjustments

(a)	To reflect the cash paid for the acquisition of $69.1 million (including $1.2 million of debt paid off at closing), plus $3.3 million of closing and other costs directly related to the acquisition, as well as the allocation of the purchase price.
(b)	Elimination of Hospice USA historical goodwill and intangibles, as well as the assets and liabilities excluded from the acquisition:

Excluded Assets and Liabilities	Amounts (in thousands)
Cash	$	3,246
Accounts receivable - Marshall County		220
Due from related parties		462
Prepaids related to insurance policies		200
Property and equipment		150
Goodwill		1,985
Intangibles		20
Current liability related to Medicare program		2,530
Long-term debt, including current portion		903

(c)	Reclassification of certain assets to be consistent with the Company’s financial statement presentation.
(d)	Elimination of Hospice USA’s equity.
(e)	Amortization of identifiable intangible assets resulting from the acquisition.

4)	Pro Forma Notes
	Based on the Company’s accounting policy, the provision for bad debt expense (included in the caption “Other operating and administrative”) would have increased $40,000 for the six-month period ending June 30, 2004 and $462,000 for the year ended December 31, 2003.
	No provisions are provided for additional income tax expense due to the availability of the Company’s net operating loss carryforwards. Further, despite Hospice USA’s practice of not compensating its executive management, who were its owners, no adjustments are required for compensation since such duties will be assumed by management already in place at the Company.

11