UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

Commission file number 1-9550

Beverly Enterprises, Inc.

(Exact name of Registrant as specified in its charter)

One Thousand Beverly Way

Fort Smith, Arkansas 72919

(Address of principal executive offices)

Registrant’s telephone number, including area code:

(479) 201-2000

Registrant’s website:

www.beverlycorp.com

      Indicate by check mark whether the 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 þ          No o

      Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes þ          No o

      Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes o          No þ

Shares of Registrant’s Common Stock, $.10 par value, outstanding, exclusive of

treasury shares, at October 31, 2005 — 109,532,108

FORWARD LOOKING STATEMENTS

      References throughout this document to the Company include Beverly Enterprises, Inc. and its wholly owned subsidiaries (“BEI”). In accordance with the Securities and Exchange Commission (“SEC”) “Plain English” guidelines, this Quarterly Report on Form 10-Q has been written in the first person. In this document, the words “we,” “our,” “ours” and “us” refer only to BEI and its wholly owned subsidiaries and not to any other person.

      This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” or words of similar meaning and include, but are not limited to, statements about our expected future business and financial performance. Forward-looking statements are based on management’s current expectations and assumptions, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially from these expectations and assumptions due to changes in, among other things, political, economic, business, competitive, market, regulatory, demographic and other factors. In addition, our results of operations and financial condition, cash flows and liquidity may be adversely impacted by the ongoing sales process (see Item 1. — Note 4). The sales process may impact our ability to attract and retain customers, management and employees and will result in the incurrence of significant advisory fees, legal fees and other expenses. We undertake no obligation to publicly update or revise any forward-looking information, whether as a result of new information, future developments or otherwise.

      You should also refer to “Item 1. Business” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2004 for a discussion of various governmental regulations and other operating factors relating to the healthcare industry and the risks inherent in them. You should carefully consider the risks described and referred to in the annual report before making any investment decisions regarding our securities. There may be additional risks that we do not presently know of or that we currently deem immaterial. If any of these risks actually occur, our business, financial condition, results of operations or cash flows could be materially and adversely affected. In that case, the trading price of our common stock and the value of our other outstanding securities could decline, and you may lose all or part of your investment. Given these risks and uncertainties, we can give no assurances that any forward-looking statements, which speak only as of the date of this report will, in fact, transpire, and, therefore, we caution you not to place undue reliance on them.

BEVERLY ENTERPRISES, INC.

FORM 10-Q

September 30, 2005

TABLE OF CONTENTS

PART I

ITEM 1. FINANCIAL STATEMENTS.

BEVERLY ENTERPRISES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

See accompanying notes.

BEVERLY ENTERPRISES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

See accompanying notes.

BEVERLY ENTERPRISES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

See accompanying notes.

BEVERLY ENTERPRISES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2005

(Unaudited)

      We have prepared these condensed consolidated financial statements without audit. In management’s opinion, these condensed consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of our results of operations for the three-month and nine-month periods ended September 30, 2005 and 2004, our cash flows for the nine months ended September 30, 2005 and 2004, and our financial condition at September 30, 2005 and December 31, 2004, in accordance with the rules and regulations of the SEC. Although certain information and footnote disclosures required by accounting principles generally accepted in the United States have been condensed or omitted, we believe 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 our Annual Report on Form 10-K for the fiscal year ended December 31, 2004, filed with the SEC. Our results of operations for the three-month and nine-month periods ended September 30, 2005 are not necessarily indicative of the results for a full year.

      The accompanying condensed consolidated financial statements have been restated for all periods presented to reflect the reclassification of our California nursing facilities as held and used (see Note 5).

      Generally accepted accounting principles in the United States require management to make estimates and assumptions when preparing financial statements that affect:

      They also require management to make estimates and assumptions regarding contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.

      Our revenues are derived primarily from providing long-term healthcare services. Approximately 80% of our revenues for each of the three-month and nine-month periods ended September 30, 2005 and 2004, were derived from federal and state medical assistance programs (primarily Medicare and Medicaid). We record revenues when services are provided at standard charges adjusted to amounts estimated to be received under governmental programs and other third-party contractual arrangements based on contractual terms and historical experience. These revenues are reported at their estimated net realizable amounts and are subject to audit and retroactive adjustment.

      All providers participating in the Medicare and Medicaid programs are required to meet certain financial cost reporting requirements. Federal and state regulations generally require the submission of annual cost reports covering revenues, costs and expenses associated with the services provided to Medicare beneficiaries and Medicaid recipients. Annual cost reports are subject to routine audits and retroactive adjustments. These audits often require several years to reach the final determination of amounts due to, or by, us under these programs.

BEVERLY ENTERPRISES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

September 30, 2005

(Unaudited)

      Retroactive adjustments are estimated in the recording of revenues in accordance with Medicare and Medicaid plan provisions in effect during the period the related services are rendered. These amounts are adjusted in future periods as adjustments become known, as state plan provisions are retroactively changed 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 possibility that recorded estimates will change by a material amount in the near term. During the three months ended September 30, 2005, we recorded the impact of an approved retroactive Medicaid plan change for the state of California, which resulted in an increase in revenues and “Accounts receivable” of $2.3 million and an increase in provider tax expense included in “Other operating and administrative expenses” and “Other accrued liabilities” of $968,000, related to prior years. This resulted in a net increase in pre-tax income for the third quarter of 2005 of $1.4 million ($0.01 per share diluted). Also included in pre-tax income for the third quarter of 2005 is the net impact related to the first and second quarters of 2005 of $1.5 million ($0.01 per share diluted).

      For the nine-month period ended September 30, 2005, our pre-tax income increased $19.9 million ($0.16 per share diluted) as a result of the prior year impacts of retroactive Medicaid plan changes for the states of Indiana, Pennsylvania and California. All other changes in estimates related to third-party receivables resulted in an increase in revenues from continuing operations of $417,000 and $3.2 million for the three months ended September 30, 2005 and 2004, respectively, and $2.0 million and $8.3 million for the nine months ended September 30, 2005 and 2004, respectively. We believe adequate provision has been made to reflect any adjustments that could result from subsequent audits or reviews.

      Compliance with laws and regulations governing the Medicare and Medicaid programs is subject to government review and interpretation, as well as significant regulatory action including fines, penalties, and possible exclusion from the Medicare and Medicaid programs. In addition, under the Medicare program, if the federal government makes a formal demand for reimbursement, even related to contested items, payment must be made for those items before the provider is given an opportunity to appeal and resolve the issue.

BEVERLY ENTERPRISES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

September 30, 2005

(Unaudited)

      The following table sets forth the calculation of basic and diluted earnings per share from continuing operations (in thousands, except per share amounts):

      Diluted net income per share from continuing operations does not include the impact of 10,000 employee stock options outstanding for the three-month and nine-month periods ended September 30, 2005 and 1.8 million and 6.9 million for the three-month and nine-month periods ended September 30, 2004, respectively, because their effect would have been antidilutive. In accordance with Emerging Issues Task Force 04-8, The Effect of Contingently Convertible Debt on Diluted Earnings Per Share, we have included the dilutive effect of our 2.75% convertible subordinated notes, on an if-converted basis, in our calculation of diluted net income per share from continuing operations for the three-month and nine-month periods ended September 30, 2005 and 2004. On September 30, 2005, one holder converted $276,000 of our 2.75% convertible subordinated notes for 37,037 shares of our common stock.

      Our provision for insurance is based primarily upon the results of independent actuarial valuations, prepared by experienced actuaries. These independent valuations are formally prepared twice each year using the most recent trends of claims, settlements and other relevant data. In addition to the estimate of retained losses, our provision for insurance includes accruals for insurance premiums and related costs for the coverage

BEVERLY ENTERPRISES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

September 30, 2005

(Unaudited)

Note 2.                             Insurance — (Continued)

period and our estimate of any experience adjustments to premiums. Our next actuarial study is expected to be completed in January 2006 using data through September 30, 2005. Based on the foregoing, we believe that adequate provision has been made in the financial statements for liabilities that may arise out of patient care and related services provided to date.

      The following table summarizes our provision for insurance and related items (in thousands):

      Our insurance liabilities are included in the consolidated balance sheet captions as follows (in thousands):

      Our long-term other liabilities and deferred items decreased $56.2 million from December 31, 2004, and our cash flows for the nine months ended September 30, 2005, decreased $49.5 million, primarily due to payments for patient claims settlements. Total claim payments for the three months and nine months ended September 30, 2005, were in excess of the estimates derived from our last actuarial study completed in the second quarter of 2005. A portion of this amount relates to an $18.9 million class action settlement associated

BEVERLY ENTERPRISES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

September 30, 2005

(Unaudited)

with two previously disposed facilities in the state of Arkansas. This class action settlement amount, along with certain related patient care claim settlements, were funded during the third quarter of 2005 and recorded against previously recorded patient care liability reserves. Our general and professional liability expense from continuing operations increased during the third quarter of 2005, as compared to the third quarter of 2004, primarily due to the impact of these accelerated settlements on the discount provisions of the liability.

      Between each independent actuarial evaluation, the trends with respect to claims and settlements made and other relevant data may change. As a result, there is a reasonable possibility that our liabilities for patient care and related services, as determined by us and our actuaries, may be adjusted by a material amount in the near term. We cannot currently predict the impact, if any, of our current data trends on the actuarial study to be completed in January 2006.

      We recorded pre-tax charges (credits) for asset impairments, workforce reductions and other unusual items as follows (in thousands):

      The following table summarizes activity in our accruals for estimated workforce reductions and exit costs (in thousands):

      Workforce reduction and exit cost accruals are included in “Accrued wages and related liabilities” and “Other accrued liabilities” on our condensed consolidated balance sheets.

BEVERLY ENTERPRISES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

September 30, 2005

(Unaudited)

      In January 2005, a group including Formation Capital, LLC, Appaloosa Management, LP, Franklin Mutual Advisers LLC and Northbrook NBV LLC (the “Formation Capital Consortium”), publicly announced an unsolicited indication of interest in acquiring all of our outstanding common stock. Arnold M. Whitman, the Chief Executive Officer of Formation Capital, also nominated a slate of six individuals for election to our Board of Directors. Our Board of Directors unanimously rejected the Formation Capital Consortium’s proposal, and on March 22, 2005, we announced that our Board of Directors had unanimously voted to conduct an auction process, to be overseen by the independent members of the Board, to maximize value for all of our stockholders as soon as practicable through a sale of BEI.

      On April 11, 2005, we entered into a Settlement Agreement with the Formation Capital Consortium and Mr. Whitman under which, among other things, they agreed to discontinue the solicitation of proxies in connection with the Company’s April 21, 2005 Annual Meeting of Stockholders and Mr. Whitman withdrew his nominees for election to our Board of Directors and other proposals for consideration at the 2005 Annual Meeting. Concurrently, we agreed to allow the Formation Capital Consortium to participate in our on-going sales process on the same basis as all other potential buyers.

      On August 16, 2005, following two rounds of due diligence and bidding by potential buyers, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with North American Senior Care, Inc. (“NASC”), NASC Acquisition Corp., a wholly-owned subsidiary of NASC (“Merger Sub”), and SBEV Property Holdings LLC, which provides that Merger Sub will be merged with and into the Company (the “Merger”) and the holders of outstanding shares of our common stock would receive cash consideration of $12.80 per share.

      On August 19, 2005, we announced that we had received a proposal from the Formation Capital Consortium to acquire, subject to certain conditions, all of the outstanding shares of our common stock for $12.90 per share in cash. On August 23, 2005, we entered into a First Amendment to the Merger Agreement with NASC, pursuant to which NASC agreed to increase the merger consideration to $13.00 per share of our outstanding common stock. On September 22, 2005, we entered into a Second Amendment to the Merger Agreement with NASC which, among other things, granted NASC an extension of time to deliver debt commitment letters and a solvency opinion. In exchange for the extension of time, NASC paid BEI an additional $3.0 million good faith deposit, which increased the total initial good faith deposit to $10.0 million. In addition, NASC is obligated to deliver the full $60.0 million good faith deposit on an unconditional basis and to provide an unconditional $350.0 million equity commitment by November 18, 2005. NASC delivered the debt commitment letters and the solvency opinion on October 21, 2005.

      Our results of operations, financial condition and cash flows may be adversely impacted by the ongoing sales process. To date, we have incurred various costs as a result of the Formation Capital Consortium’s indication of interest, the proxy contest and the sales process, including legal fees, investment banking advisory fees and other related costs. During the first quarter of 2005, we engaged two investment banking firms to assist us in evaluating proposals, both solicited and unsolicited, to acquire us or any of our assets or businesses. Under the terms of the engagement we are required to pay fees to the two firms whether or not we are sold. In the case of a sale, the fees are a percentage of the consideration received in connection with our sale, with the percentage of compensation increasing with an increase in the sales value. If there is no sale, the firms each receive a flat fee. As a result, we recorded a liability of $19.8 million, of which $4.5 million has been paid as of September 30, 2005, with the remaining liability included in “Other accrued liabilities” on the September 30, 2005 condensed consolidated balance sheet. We have also incurred other costs related to the sales process and have recorded expenses of $16.8 million, of which $13.6 million has been paid and $3.2 million remains accrued at September 30, 2005. In addition, the sales process may impact our ability to attract and retain

BEVERLY ENTERPRISES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

September 30, 2005

(Unaudited)

customers, management and employees and may result in the incurrence of additional advisory fees, legal fees and other expenses.

Note 5.     Discontinued Operations

      During the nine months ended September 30, 2005, we recognized net pre-tax gains of $1.8 million, primarily relating to the sale of seven nursing facilities (889 beds) for cash proceeds totaling $13.3 million. These assets were part of our Nursing Facilities segment, five of which were held for sale as of December 31, 2004. In addition, we sold 10 outpatient clinics for $4.6 million, including $710,000 in cash and $3.8 million of notes receivable. These assets and related liabilities were part of our former Matrix segment and were held for sale as of December 31, 2004.

      During the quarter ended September 30, 2005, the Centers for Medicare and Medicaid Services (“CMS”) approved a Medicaid rate plan change for the state of California (see Note 1). This plan change improves the projected cash flows of our facilities in California, all of which had previously been held for sale. Based on the new cash flow projections for the facilities, during the third quarter we reassessed the fair value of these 22 properties. The expected sales proceeds for these leased assets would not provide us with sufficient proceeds to offset the present value of their expected future cash flows. Consequently, management recommended, and the Board of Directors approved, that we continue to operate the California facilities and no longer market them for sale. The impact of this decision resulted in, among other things, incremental depreciation and amortization of $1.4 million during the three months and nine months ended September 30, 2005, of which $567,000 relates to the prior year. These assets have been reclassified as held and used on our condensed consolidated balance sheets for all periods presented and are stated at the lower of carrying value less incremental depreciation.

      The remaining assets and liabilities of our former Matrix segment were included in assets and liabilities held for sale as of December 31, 2004. The asset line items from which the reclassifications were made was $2.0 million from “Current assets,” $1.2 million from “Property and equipment-net,” $332,000 from “Goodwill” and $28,000 from “Other assets.”

      The results of operations of disposed facilities and other assets in the three-month and nine-month periods ended September 30, 2005, have been reported as discontinued operations for all periods presented in the accompanying condensed consolidated statements of income. Also included in discontinued operations are the gains and losses on sales and exit costs relative to these transactions. Discontinued operations for the three-month and nine-month periods ended September 30, 2004 also include the results of operations for all facilities, clinics and businesses disposed of during 2004.

BEVERLY ENTERPRISES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

September 30, 2005

(Unaudited)

Note 5.     Discontinued Operations — (Continued)

      A summary of discontinued operations by operating segment is as follows (in thousands):

Note 6.     Long-term Debt

      As of October 1, 2005, our 2.75% convertible subordinated notes continue to be eligible for conversion into common stock. Under the indenture governing the notes, a holder may convert any of the notes into our common stock during any fiscal quarter if the sale price of our common stock for at least 20 consecutive trading days in the 30 trading days ending on the last trading day of the immediately preceding fiscal quarter exceeds 120 percent of the conversion price on that 30th trading day. On September 30, 2005, one holder converted $276,000 of our 2.75% convertible subordinated notes for 37,037 shares of our common stock.

BEVERLY ENTERPRISES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

September 30, 2005

(Unaudited)

Note 6.     Long-term Debt — (Continued)

      During June 2005, we entered into a mortgage loan for $5.2 million for the construction of a nursing facility. This loan bears interest at 30-day LIBOR plus 2.5%, requires monthly principal and interest payments and is secured by the real property and a security interest in the personal property of the nursing facility.

      Our 7⁷/8% senior subordinated notes are jointly and severally, fully and unconditionally guaranteed by most of our subsidiaries (the “Guarantor Subsidiaries”). As of September 30, 2005, the non-guarantor subsidiaries included Beverly Indemnity, Ltd., our captive insurance subsidiary, and Beverly Funding Corporation, our receivables-backed financing subsidiary (the “Non-Guarantor Subsidiaries”). Since the carrying value of the assets of the non-guarantor subsidiaries exceeds three percent of the consolidated assets of Beverly Enterprises, Inc., we are required to disclose consolidating financial statements in our periodic filings with the SEC.

BEVERLY ENTERPRISES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

September 30, 2005

(Unaudited)

Note 6.     Long-term Debt — (Continued)

      Condensed consolidating balance sheets as of September 30, 2005 for Beverly Enterprises, Inc. (parent only), the combined Guarantor Subsidiaries and the combined Non-Guarantor Subsidiaries are as follows (in thousands):

BEVERLY ENTERPRISES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

September 30, 2005

(Unaudited)

Note 6.     Long-term Debt — (Continued)

      Condensed consolidating balance sheets as of December 31, 2004 for Beverly Enterprises, Inc. (parent only), the combined Guarantor Subsidiaries and the combined Non-Guarantor Subsidiaries are as follows (in thousands):

BEVERLY ENTERPRISES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

September 30, 2005

(Unaudited)

Note 6.     Long-term Debt — (Continued)

      Condensed consolidating statements of income for the three months ended September 30, 2005 for Beverly Enterprises, Inc. (parent only), the combined Guarantor Subsidiaries and the combined Non-Guarantor Subsidiaries are as follows: