<PAGE> 1
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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 SEPTEMBER 30, 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.)
ONE THOUSAND 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 OCTOBER 30, 2000 -- 103,696,621
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<PAGE> 2
BEVERLY ENTERPRISES, INC.
FORM 10-Q
SEPTEMBER 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I -- FINANCIAL INFORMATION
PAGE
----
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets..................... 2
Condensed Consolidated Statements of Operations........... 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..................... 10
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings................................................ 16
Item 5. Other Information................................................ 18
Item 6. Exhibits and Reports on Form 8-K................................. 18
</TABLE>
1
<PAGE> 3
PART I
BEVERLY ENTERPRISES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED) (NOTE)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................................... $ 14,414 $ 24,652
Accounts receivable - patient, less allowance for doubtful accounts:
2000 - $68,002; 1999 - $64,398 ........................................... 350,749 319,097
Accounts receivable - nonpatient, less allowance for doubtful accounts:
2000 - $851; 1999 - $1,057 ............................................... 26,095 30,890
Notes receivable, less allowance for doubtful notes: 2000 - $627 ........... 14,139 16,930
Operating supplies .......................................................... 30,174 32,276
Deferred income taxes ....................................................... 34,402 54,932
Prepaid expenses and other .................................................. 18,688 15,019
----------- -----------
Total current assets .................................................. 488,661 493,796
Property and equipment, net of accumulated depreciation and amortization:
2000 - $782,174; 1999 - $743,337 ............................................ 1,082,763 1,110,065
Other assets:
Goodwill, net ............................................................... 230,297 229,639
Other, less allowance for doubtful accounts and notes:
2000 - $3,527; 1999 - $5,970 ............................................. 142,142 149,380
----------- -----------
Total other assets .................................................... 372,439 379,019
----------- -----------
$ 1,943,863 $ 1,982,880
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................ $ 112,184 $ 93,168
Accrued wages and related liabilities ....................................... 91,852 92,514
Accrued interest ............................................................ 12,847 14,138
Other accrued liabilities ................................................... 106,632 154,182
Current portion of long-term debt ........................................... 61,633 34,052
----------- -----------
Total current liabilities ............................................. 385,148 388,054
Long-term debt ................................................................. 718,008 746,164
Deferred income taxes payable .................................................. 4,834 28,956
Other liabilities and deferred items ........................................... 205,240 178,582
Commitments and contingencies
Stockholders' equity:
Preferred stock, shares authorized: 25,000,000 .............................. -- --
Common stock, shares issued: 2000 - 112,757,921; 1999 - 110,382,356 ........ 11,276 11,038
Additional paid-in capital .................................................. 875,911 875,637
Accumulated deficit ......................................................... (147,117) (139,429)
Accumulated other comprehensive income ...................................... 1,620 1,061
Treasury stock, at cost: 2000 - 9,061,300 shares; 1999 - 7,886,800 shares .. (111,057) (107,183)
----------- -----------
Total stockholders' equity ............................................ 630,633 641,124
----------- -----------
$ 1,943,863 $ 1,982,880
=========== ===========
</TABLE>
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.
2
<PAGE> 4
BEVERLY ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net operating revenues ..................................... $ 665,284 $ 637,396 $ 1,966,625 $ 1,903,748
Interest income ............................................ 605 935 2,079 3,290
----------- ----------- ----------- -----------
Total revenues ................................... 665,889 638,331 1,968,704 1,907,038
Costs and expenses:
Operating and administrative:
Wages and related ................................... 398,906 379,306 1,182,463 1,149,882
Provision for insurance and related items ........... 65,189 15,387 100,350 42,739
Other ............................................... 185,530 182,010 555,883 534,747
Interest ............................................... 20,011 20,001 59,942 54,029
Depreciation and amortization .......................... 24,457 25,669 75,171 74,511
Special charges related to settlements of federal
government investigations ............................ -- -- -- 202,447
Workforce reductions and other unusual items ........... 4,627 -- 4,627 --
Year 2000 remediation .................................. -- 3,423 -- 10,672
----------- ----------- ----------- -----------
Total costs and expenses ......................... 698,720 625,796 1,978,436 2,069,027
----------- ----------- ----------- -----------
Income (loss) before provision for (benefit from) income
taxes .................................................. (32,831) 12,535 (9,732) (161,989)
Provision for (benefit from) income taxes .................. (10,360) 4,638 (2,044) (59,936)
----------- ----------- ----------- -----------
Net income (loss) .......................................... $ (22,471) $ 7,897 $ (7,688) $ (102,053)
=========== =========== =========== ===========
Income (loss) per share of common stock:
Basic and diluted:
Net income (loss) per share of common stock ......... $ (0.22) $ 0.08 $ (0.08) $ (1.00)
=========== =========== =========== ===========
Shares used to compute basic net income (loss)
per share ........................................ 102,473 102,495 102,027 102,490
=========== =========== =========== ===========
Shares used to compute diluted net income (loss)
per share ........................................ 102,473 102,715 102,027 102,490
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
3
<PAGE> 5
BEVERLY ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss .................................................................... $ (7,688) $ (102,053)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization ............................................. 75,171 74,511
Provision for reserves on patient, notes and other receivables, net ....... 32,241 20,345
Amortization of deferred financing costs .................................. 1,910 2,562
Special charges related to settlements of federal government investigations -- 202,447
Workforce reductions and other unusual items .............................. 4,627 --
(Gains) losses on dispositions of facilities and other assets, net ........ (2,629) 4,002
Deferred taxes ............................................................ (4,294) (62,122)
Net increase in insurance related accounts ................................ 44,556 4,008
Changes in operating assets and liabilities, net of acquisitions and
dispositions:
Accounts receivable - patient ........................................... (66,195) (8,927)
Operating supplies ...................................................... 1,386 (495)
Prepaid expenses and other receivables .................................. (4,921) 523
Accounts payable and other accrued expenses ............................. (31,517) (35,110)
Income taxes payable .................................................... (70) 21,545
Other, net .............................................................. (7,436) (2,549)
----------- -----------
Total adjustments ..................................................... 42,829 220,740
----------- -----------
Net cash provided by operating activities ............................. 35,141 118,687
Cash flows from investing activities:
Capital expenditures ...................................................... (58,556) (69,007)
Proceeds from dispositions of facilities and other assets ................. 18,810 41,044
Payments for acquisitions, net of cash acquired ........................... (1,722) (5,927)
Collections on notes receivable ........................................... 5,787 16,589
Other, net ................................................................ (5,280) (27,886)
----------- -----------
Net cash used for investing activities ............................... (40,961) (45,187)
Cash flows from financing activities:
Revolver borrowings ....................................................... 1,197,000 854,000
Repayments of Revolver borrowings ......................................... (1,167,000) (975,000)
Proceeds from issuance of long-term debt .................................. -- 125,820
Repayments of long-term debt .............................................. (30,755) (75,602)
Purchase of common stock for treasury ..................................... (3,874) --
Proceeds from exercise of stock options ................................... 16 129
Deferred financing costs .................................................. (164) (2,963)
Proceeds from designated funds, net ....................................... 359 300
----------- -----------
Net cash used for financing activities ................................ (4,418) (73,316)
----------- -----------
Net (decrease) increase in cash and cash equivalents ........................... (10,238) 184
Cash and cash equivalents at beginning of period ............................... 24,652 17,278
----------- -----------
Cash and cash equivalents at end of period ..................................... $ 14,414 $ 17,462
=========== ===========
Supplemental schedule of cash flow information:
Cash paid (received) during the period for:
Interest, net of amounts capitalized ...................................... $ 59,323 $ 52,014
Income tax payments (refunds), net ........................................ 2,320 (19,359)
</TABLE>
See accompanying notes.
4
<PAGE> 6
BEVERLY ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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-month and nine-month periods ended September 30, 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-month and nine-month periods ended September 30, 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 75% and 73% of the Company's net operating revenues for the
three months ended September 30, 2000 and 1999, respectively, and approximately
74% and 72% of the Company's net operating revenues for the nine months ended
September 30, 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 audits, reviews or 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-month and nine-month periods ended September 30
(in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NUMERATOR:
Numerator for basic and diluted income (loss) per share
from continuing operations ........................... $ (22,471) $ 7,897 $ (7,688) $(102,053)
========= ========= ========= =========
DENOMINATOR:
Denominator for basic income (loss) per share - weighted
average shares ....................................... 102,473 102,495 102,027 102,490
Effect of dilutive securities:
Employee stock options ............................... -- 220 -- --
--------- --------- --------- ---------
Denominator for diluted income (loss) per share -
weighted average shares and assumed conversions ...... 102,473 102,715 102,027 102,490
========= ========= ========= =========
Basic and diluted income (loss) per share .............. $ (0.22) $ 0.08 $ (0.08) $ (1.00)
========= ========= ========= =========
</TABLE>
5
<PAGE> 7
BEVERLY ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 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 (loss), net of income taxes, consist of the
following for the three-month and nine-month periods ended September 30 (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss) .................................... $ (22,471) $ 7,897 $ (7,688) $(102,053)
Net unrealized gains on available-for-sale securities,
net of income taxes ................................ 356 324 559 276
--------- --------- --------- ---------
Comprehensive income (loss) .......................... $ (22,115) $ 8,221 $ (7,129) $(101,777)
========= ========= ========= =========
</TABLE>
Accumulated other comprehensive income, net of income taxes, is comprised
of net unrealized gains on available-for-sale securities of $1,620,000 and
$1,061,000 at September 30, 2000 and December 31, 1999, respectively.
(2) 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 believes that adequate provision has
been made in the financial statements for liabilities that may arise out of
patient care services. Such provisions are made based upon the results of
independent actuarial valuations and other information available, including
management's best judgements and estimates. However, such provision and
liability have been difficult to predict and have been escalating in recent
periods. As a result of a recently completed study by an independent actuarial
firm, the Company recorded a pre-tax charge during the third quarter of 2000 of
approximately $44,400,000 related to increasing reserves for patient care
liability costs, primarily in the state of Florida. There can be no assurance
that such provision and liability will not require material adjustment in future
periods.
Also during the third quarter of 2000, the Company recorded a pre-tax
charge of approximately $4,600,000. Approximately $2,600,000 of such amount
related to severance agreements associated with three executives of the Company.
Substantially all of the $2,600,000 will be paid by year-end. In addition,
approximately $2,000,000 related to the write-off of an investment held in a
physician practice management company.
(3) The provision for (benefit from) income taxes for the three-month and
nine-month periods ended September 30, 2000 and 1999 were based on estimated
annual effective tax rates of 21% 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. In addition,
the estimated annual effective tax rate for 2000 was impacted by the pre-tax
charges totaling approximately $49,000,000 (as discussed above) which reduced
the Company's pre-tax income to a level where the impact of permanent tax
differences and state income taxes had a more significant impact on the
effective tax rate. The Company's net deferred tax assets at September 30, 2000
will be realized primarily through the reversal of temporary taxable differences
and future taxable income. Accordingly, the Company does not believe
6
<PAGE> 8
BEVERLY ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
that a deferred tax valuation allowance is necessary at September 30, 2000. The
provision for (benefit from) income taxes consists of the following for the
three-month and nine-month periods ended September 30 (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Federal:
Current ............. $ (216) $ -- $ -- $ --
Deferred ............ (12,167) 3,168 (5,881) (56,044)
State:
Current ............. 1,773 (169) 2,250 2,186
Deferred ............ 250 1,639 1,587 (6,078)
-------- -------- -------- --------
$(10,360) $ 4,638 $ (2,044) $(59,936)
======== ======== ======== ========
</TABLE>
(4) During the nine months ended September 30, 2000, the Company acquired
seven nursing facilities (1,210 beds) and certain other assets for cash of
approximately $1,400,000, closing and other costs of approximately $1,500,000
and write-off of notes receivable of approximately $900,000. The acquisitions of
such facilities and other assets were accounted for as purchases. Also during
such period, the Company sold, closed or terminated the leases on 34 nursing
facilities (3,710 beds) and certain other assets for cash proceeds of
approximately $19,100,000 and notes receivable of approximately $100,000. 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 nine months ended September 30, 2000, of approximately $2,600,000 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.
(5) During the first quarter of 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. 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 operating results per share for the
three-month and nine-month periods ended September 30, 2000 would have been
immaterial. The Company has no current plans to continue such repurchases.
In addition, during the third quarter of 2000, the Company offered all
employees holding stock options granted prior to February 2000 the opportunity
to exchange all or part of such stock options for shares of restricted stock.
Such program resulted in the issuance of approximately 2,400,000 shares of
restricted stock in exchange for approximately 4,800,000 stock options. Had the
Company issued these additional shares prior to January 1, 2000, the Company's
operating results per share would have been unchanged for the three-month period
ended September 30, 2000 and would have been reduced by $.01 per share, to a net
loss of $.07 per share, for the nine-month period ended September 30, 2000.
(6) 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").
7
<PAGE> 9
BEVERLY ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
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 disposed of seven of these nursing facilities
during the nine months ended September 30, 2000 and expects to dispose of the
remainder by year-end.
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 $11,900,000 during
the nine months ended September 30, 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"). (See "Part II, Item 1. Legal
Proceedings" for a description of the procedural status of the Class Action).
Due to the preliminary state of the Class Action, 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"). (See "Part II, Item 1. Legal
Proceedings" for a description of the procedural status of the Derivative
Actions). 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.
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.
8
<PAGE> 10
BEVERLY ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
(7) 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):
<TABLE>
<CAPTION>
BEVERLY
BEVERLY CARE
HEALTHCARE ALLIANCE ALL OTHER (1) TOTALS
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Three months ended September 30, 2000
Revenues from external customers .... $ 611,425 $ 51,555 $ 2,304 $ 665,284
Intercompany revenues ............... -- 33,005 2,869 35,874
Interest income ..................... 61 37 507 605
Interest expense .................... 6,656 46 13,309 20,011
Depreciation and amortization ....... 19,537 3,486 1,434 24,457
Pre-tax income (loss) ............... 30,422 1,258 (64,511) (32,831)
Total assets ........................ 1,510,605 325,603 107,655 1,943,863
Capital expenditures ................ 14,878 1,134 1,781 17,793
Three months ended September 30, 1999
Revenues from external customers .... $ 580,961 $ 55,128 $ 1,307 $ 637,396
Intercompany revenues ............... -- 34,263 2,937 37,200
Interest income ..................... 61 20 854 935
Interest expense .................... 7,933 107 11,961 20,001
Depreciation and amortization ....... 20,537 3,401 1,731 25,669
Pre-tax income (loss) ............... 26,643 4,279 (18,387) 12,535
Total assets ........................ 1,543,726 327,219 99,127 1,970,072
Capital expenditures ................ 16,401 2,491 (1,324) 17,568
Nine months ended September 30, 2000
Revenues from external customers .... $ 1,806,538 $ 154,107 $ 5,980 $ 1,966,625
Intercompany revenues ............... -- 102,151 8,764 110,915
Interest income ..................... 159 98 1,822 2,079
Interest expense .................... 20,304 203 39,435 59,942
Depreciation and amortization ....... 59,308 11,153 4,710 75,171
Pre-tax income (loss) ............... 73,017 7,424 (90,173) (9,732)
Total assets ........................ 1,510,605 325,603 107,655 1,943,863
Capital expenditures ................ 46,655 5,698 6,203 58,556
Nine months ended September 30, 1999
Revenues from external customers .... $ 1,716,246 $ 184,337 $ 3,165 $ 1,903,748
Intercompany revenues ............... -- 105,191 8,553 113,744
Interest income ..................... 169 50 3,071 3,290
Interest expense .................... 21,246 334 32,449 54,029
Depreciation and amortization ....... 60,020 9,806 4,685 74,511
Pre-tax income (loss) ............... 84,710 16,248 (262,947) (161,989)
Total assets ........................ 1,543,726 327,219 99,127 1,970,072
Capital expenditures ................ 55,902 8,773 4,332 69,007
</TABLE>
----------
(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. For the three-month and nine-month periods ended
September 30, 2000, such amounts also include pre-tax charges totaling
approximately $49,000,000, primarily related to increasing reserves for
patient care liability costs. For the three-month and nine-month periods
ended September 30, 1999, such amounts also include Year 2000 remediation
costs, and for the nine-month period special charges related to settlements
of federal government investigations.
9
<PAGE> 11
BEVERLY ENTERPRISES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 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 and the
application of such methodologies by the government and its fiscal
intermediaries;
(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 predict future reserves related to patient care liabilities;
(6) the ability to attract and retain qualified personnel;
(7) the availability and terms of capital to fund acquisitions and capital
improvements;
(8) the competitive environment in which the Company operates;
(9) the ability to maintain and increase census levels; and
(10) 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
set forth updates to the payment rates used under the Medicare prospective
payment system ("PPS") for skilled nursing facilities to be effective October 1,
2000. After a 60-day comment period, and further research into the anticipated
effects of the proposed changes, on July 31, 2000, HCFA issued a final rule.
Such final rule indefinitely postpones any refinements to the Resource
Utilization Grouping-III ("RUG-III") system, and provides for the continuance of
Medicare payment relief set forth in the Balanced Budget Refinement Act of 1999,
including the 4% increase in the federal adjusted per diem rates for all 44 RUG
categories, and the 20% upward adjustment in the federal adjusted per diem rate
for 15 RUG categories.
10
<PAGE> 12
BEVERLY ENTERPRISES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
The federal government is expected to pass legislation during the fourth
quarter of 2000 which will provide additional Medicare payment relief to
healthcare providers. The Company cannot currently estimate the impact such
payment relief will have on its consolidated financial position, results of
operations or cash flows. In addition, such legislation is expected to include
an increase in the federal minimum wage. The Company does not expect there to be
a material impact on its wage rates resulting from any increases in the minimum
wage levels, since a substantial portion of the Company's associates earn in
excess of the current minimum wage levels.
PATIENT CARE LIABILITIES
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. The Company believes
that adequate provision has been made in the financial statements for
liabilities that may arise out of patient care services. Such provisions are
made based upon the results of independent actuarial valuations and other
information available, including management's best judgements and estimates.
However, such provision and liability have been difficult to predict and have
been escalating in recent periods. As a result of a recently completed study by
an independent actuarial firm, the Company recorded a pre-tax charge during the
third quarter of 2000 of approximately $44,400,000 related to increasing
reserves for patient care liability costs, primarily in the state of Florida.
There can be no assurance that such provision and liability will not require
material adjustment in future periods.
OPERATING RESULTS
THIRD QUARTER 2000 COMPARED TO THIRD QUARTER 1999
RESULTS OF OPERATIONS
Net loss for the third quarter of 2000 was $22,471,000, compared to net
income of $7,897,000 for the same period in 1999. Net loss for the third quarter
of 2000 included a pre-tax charge of approximately $44,400,000 related to
increasing reserves for patient care liability costs, primarily in the state of
Florida (as discussed above). In addition, net loss for the third quarter of
2000 included a pre-tax charge of approximately $4,600,000. Approximately
$2,600,000 of such amount related to severance agreements associated with three
executives of the Company. Substantially all of the $2,600,000 will be paid by
year-end. In addition, approximately $2,000,000 related to the write-off of an
investment held in a physician practice management company.
The Company had estimated annual effective tax rates of 21% and 37% in 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. In addition, the estimated annual effective tax
rate for 2000 was impacted by the pre-tax charges totaling approximately
$49,000,000 (as discussed above) which reduced the Company's pre-tax income to a
level where the impact of permanent tax differences and state income taxes had a
more significant impact on the effective tax rate. The Company's net deferred
tax assets at September 30, 2000 will be realized primarily through the reversal
of temporary taxable differences and future taxable income. Accordingly, the
Company does not believe that a deferred tax valuation allowance is necessary at
September 30, 2000.
11
<PAGE> 13
BEVERLY ENTERPRISES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
NET OPERATING REVENUES
The Company reported net operating revenues of $665,284,000 during the
third quarter of 2000 compared to $637,396,000 for the same period in 1999.
Approximately 92% and 91% of the Company's total net operating revenues for the
quarters ended September 30, 2000 and 1999, respectively, were derived from
services provided by the Company's Beverly Healthcare segment. The increase in
net operating revenues of approximately $27,900,000 for the third quarter of
2000, as compared to the same period in 1999, consists of the following: an
increase of approximately $36,300,000 due to facilities which the Company
operated during each of the quarters ended September 30, 2000 and 1999 ("same
facility operations"); an increase of approximately $12,700,000 due to
acquisitions; partially offset by a decrease of approximately $21,100,000 due to
dispositions.
The increase in net operating revenues of approximately $36,300,000 from
same facility operations for the third quarter of 2000, as compared to the same
period in 1999, was due to the following: approximately $33,800,000 primarily
due to an increase in Medicaid, Medicare and private rates; and approximately
$9,100,000 due to various other items; partially offset by a decrease of
approximately $4,200,000 due to lower revenues from home care services; and
approximately $2,400,000 decrease due to a decline in same facility occupancy to
87.6% for the third quarter of 2000, as compared to 87.7% for the same period in
1999.
Net operating revenues increased approximately $12,700,000 for the third
quarter of 2000, as compared to the same period in 1999, due to acquisitions
which occurred during the nine months ended September 30, 2000 and the year
ended December 31, 1999. During the nine months ended September 30, 2000, the
Company acquired seven nursing facilities (1,210 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.
Net operating revenues decreased approximately $21,100,000 for the third
quarter of 2000, as compared to the same period in 1999, due to dispositions
that occurred during the nine months ended September 30, 2000 and the year ended
December 31, 1999. During the nine months ended September 30, 2000, the Company
sold, closed or terminated the leases on 34 nursing facilities (3,710 beds) and
certain other assets. 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 nine months ended September 30,
2000, of approximately $2,600,000 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 $649,625,000
during the third quarter of 2000 compared to $576,703,000 for the same period in
1999. The increase of approximately $72,900,000 consists of the following: an
increase of approximately $81,300,000 due to same facility operations; an
increase of approximately $14,800,000 due to acquisitions; partially offset by a
decrease of approximately $23,200,000 due to dispositions. (See "Net Operating
Revenues" for a discussion of acquisitions and dispositions).
12
<PAGE> 14
BEVERLY ENTERPRISES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
The increase in operating and administrative expenses of approximately
$81,300,000 from same facility operations for the third quarter of 2000, as
compared to the same period in 1999, was primarily due to the following:
approximately $49,800,000 due to an increase in the Company's provision for
insurance and related items (See "Patient Care Liabilities"); approximately
$25,000,000 due to increase in wages and related expenses primarily due to an
increase in the Company's weighted average wage rate, as well as an increased
use of registry personnel; and approximately $4,300,000 due to an increase in
contracted services.
NINE MONTHS 2000 COMPARED TO NINE MONTHS 1999
RESULTS OF OPERATIONS
Net loss was $7,688,000 for the nine months ended September 30, 2000,
compared to net loss of $102,053,000 for the same period in 1999. Net loss for
the nine months ended September 30, 2000 included pre-tax charges totaling
approximately $49,000,000 primarily related to increasing reserves for patient
care liability costs (as discussed above). Net loss for the nine months ended
September 30, 1999 included special pre-tax charges of approximately
$202,400,000 related to the settlements of, and investigation costs related to,
the Allocation Investigations (See "Part II, Item 1. Legal Proceedings").
NET OPERATING REVENUES
The Company reported net operating revenues of $1,966,625,000 during the
nine months ended September 30, 2000 compared to $1,903,748,000 for the same
period in 1999. Approximately 92% and 90% of the Company's total net operating
revenues for the nine months ended September 30, 2000 and 1999, respectively,
were derived from services provided by the Company's Beverly Healthcare segment.
The increase in net operating revenues of approximately $62,900,000 for the nine
months ended September 30, 2000, as compared to the same period in 1999, was
primarily due to facilities which the Company operated during each of the nine
months ended September 30, 2000 and 1999 ("same facility operations"). The
impact of acquisitions on the Company's net operating revenues was offset by the
impact of dispositions for the nine months ended September 30, 2000, as compared
to the same period in 1999. (See above for a discussion of acquisitions and
dispositions).
The increase in net operating revenues of approximately $62,900,000 from
same facility operations for the nine months ended September 30, 2000, as
compared to the same period in 1999, was due to the following: approximately
$76,800,000 primarily due to an increase in Medicaid, Medicare and private
rates; approximately $5,900,000 due to one additional calendar day during the
nine months ended September 30, 2000, as compared to the same period in 1999;
and approximately $8,700,000 increase due to various other items; partially
offset by a decrease of approximately $20,500,000 due to lower revenues from
home care and outpatient rehabilitation services; and approximately $8,000,000
decrease due to a decline in same facility occupancy to 87.5% for the nine
months ended September 30, 2000, as compared to 88.1% for the same period in
1999.
13
<PAGE> 15
BEVERLY ENTERPRISES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
OPERATING AND ADMINISTRATIVE EXPENSES
The Company reported operating and administrative expenses of
$1,838,696,000 during the nine months ended September 30, 2000 compared to
$1,727,368,000 for the same period in 1999. The increase of approximately
$111,300,000 consists of the following: an increase of approximately
$114,800,000 due to same facility operations; an increase of approximately
$40,900,000 due to acquisitions; partially offset by a decrease of approximately
$44,400,000 due to dispositions. (See above for a discussion of acquisitions and
dispositions).
The increase in operating and administrative expenses of approximately
$114,800,000 from same facility operations for the nine months ended September
30, 2000, as compared to the same period in 1999, was primarily due to the
following: approximately $57,600,000 due to an increase in the Company's
provision for insurance and related items (See "Patient Care Liabilities");
approximately $37,100,000 due to an increase in wages and related expenses
primarily due to an increase in the Company's weighted average wage rate, as
well as an increased use of registry personnel; and approximately $7,500,000 due
to an increase in contracted services. The Company's weighted average wage rate
and use of registry personnel increased for the nine months ended September 30,
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.
INTEREST EXPENSE, NET
Interest income decreased to $2,079,000 for the nine months ended September
30, 2000, as compared to $3,290,000 for the same period in 1999 primarily due to
the payoff of various notes receivable. Interest expense increased to
$59,942,000 for the nine months ended September 30, 2000, as compared to
$54,029,000 for the same period in 1999 primarily due to imputed interest on the
civil settlement of approximately $4,700,000 and an increase in Revolver
borrowings resulting from the $30,000,000 civil and criminal settlements paid
late in the first quarter of 2000.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense increased to $75,171,000 for the nine
months ended September 30, 2000, as compared to $74,511,000 for the same period
in 1999. Such increase was affected by approximately $3,100,000 increase due to
capital additions and improvements, as well as acquisitions; partially offset by
a decrease of approximately $2,400,000 due to dispositions of, or lease
terminations on, certain facilities.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had approximately $14,400,000 in cash
and cash equivalents, approximately $103,500,000 of net working capital and
approximately $197,300,000 of unused commitments under its Revolver/Letter of
Credit Facility.
14
<PAGE> 16
BEVERLY ENTERPRISES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
Net cash provided by operating activities for the nine months ended
September 30, 2000 was approximately $35,200,000. Such amount was reduced by
$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 nine months ended
September 30, 2000. Net cash used for investing and financing activities were
approximately $41,000,000 and $4,400,000, respectively, for the nine months
ended September 30, 2000. The Company received net cash proceeds of
approximately $18,800,000 from dispositions of facilities and other assets and
approximately $5,800,000 from collections on notes receivable. Such net cash
proceeds, along with $30,000,000 of net borrowings under the Revolver/Letter of
Credit Facility, were used to fund capital expenditures totaling approximately
$58,600,000, to repay approximately $30,800,000 of long-term debt, and to
repurchase shares of Common Stock for approximately $3,900,000.
At September 30, 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. The 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 such date.
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 $61,600,000, 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 September 30, 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.
15
<PAGE> 17
PART II
BEVERLY ENTERPRISES, INC.
OTHER INFORMATION
SEPTEMBER 30, 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").
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 disposed of seven of these nursing facilities
during the nine months ended September 30, 2000 and expects to dispose of the
remainder by year-end.
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. Such
installments began during the first quarter of 2000. 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"). 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.
16
<PAGE> 18
BEVERLY ENTERPRISES, INC.
OTHER INFORMATION (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
James L. Laurita v. David R. Banks, et al., Case No. 17348NC, 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. The parties have agreed to
stay the consolidated action pending the outcome of the motion to dismiss in the
Class Action. 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 removed to federal district court. 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 filed a motion to dismiss the consolidated derivative complaint
and a motion to strike portions thereof on July 21, 2000. The parties have
agreed to stay the consolidated action pending the outcome of the motion to
dismiss in the Class Action, but the stipulation has not been entered by the
Court. 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.
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.
17
<PAGE> 19
BEVERLY ENTERPRISES, INC.
OTHER INFORMATION (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
ITEM 5. OTHER INFORMATION
During October 2000, the Company's Board of Directors elected James W.
McLane as a director. From 1997 until early 2000, Mr. McLane was President and
Chief Operating Officer of NovaCare, Inc. He previously served as Executive Vice
President of Aetna Life and Casualty and as Chief Executive Officer of Aetna
Health Plans. Prior to joining Aetna in 1991, Mr. McLane worked for 17 years in
positions of increasing responsibility with Citicorp's investment banking and
global insurance businesses. From 1969 to 1974, he held senior positions in the
Executive Branch of the federal government as Executive Assistant to the
Secretary of the Department of Health, Education and Welfare, as Staff Assistant
to the President, and as Deputy Director of the Cost of Living Council.
ITEM 6(a). EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
27.1 Financial Data Schedule for the nine months ended September 30,
2000
ITEM 6(b). REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the third
quarter ended September 30, 2000.
18
<PAGE> 20
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: October 31, 2000 By: /s/ PAMELA H. DANIELS
---------------------------------
Pamela H. Daniels
Senior Vice President, Controller
and Chief Accounting Officer
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27.1 Financial Data Schedule for the nine months
ended September 30,2000.
</TABLE>
