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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended March 31, 1995.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period.
COMMISSION FILE NUMBER: 1-10989
VENCOR, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 61-1055020
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3300 PROVIDIAN CENTER
400 WEST MARKET STREET
LOUISVILLE, KENTUCKY 40202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502) 569-7300
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 twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of the Registrant's common stock, $.25 par
value, at May 3, 1995 was 27,892,939.
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VENCOR, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
INTRODUCTION 3
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at
March 31, 1995 and December 31, 1994 4
Condensed Consolidated Statements of Operations
for the three months ended March 31, 1995 and 1994 5
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1995 and 1994 6
Notes to Condensed Consolidated Financial Statements
-- March 31, 1995 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
SIGNATURES 12
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INTRODUCTION
This report on Form 10-Q/A (Amendment No. 1) is being filed with the
Securities and Exchange Commission (the "Commission") to amend Items 1 and 2 of
the Quarterly Report on Form 10-Q of Vencor, Inc. (the "Company") for the three
months ended March 31, 1995.
The above-referenced items appear in their entirety in this report and
have been amended in response to the Commission's review of the Company's first
quarter 1995 Form 10-Q filing.
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PART I. FINANCIAL INFORMATION
ITEM 1
VENCOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 December 31
1995 1994
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(Unaudited) (Note)
(In thousands)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 5,736 $ 3,055
Accounts receivable, less allowance for doubtful
accounts of $2,337,000 in 1995 and $1,478,000 in 1994 108,045 98,246
Inventories 5,249 4,751
Other current assets 21,212 19,572
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Total Current Assets 140,242 125,624
Property and equipment, less accumulated depreciation of
$44,877,000 in 1995 and $40,074,000 in 1994 262,625 239,820
Investments available for acquistions and general corporate purposes 25,906
Other Assets 26,831 24,928
-------- --------
Total Assets $455,604 $390,372
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 18,870 $ 19,536
Accrued compensation and benefits 18,890 19,353
Income taxes payable 12,008 7,199
Accrued interest 3,450 1,725
Current portion of long-term debt 399 904
-------- --------
Total Current Liabilities 53,617 48,717
Deferred Credits and Other Liabilities 16,994 16,029
Long-Term Debt
6% Convertible Subordinated Notes due 2002 114,992 115,000
Other long-term debt, net of current portion 8,897 26,899
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Total Long-Term Debt 123,889 141,899
Shareholders' Equity
Preferred Stock, par value $1.00 per share;
authorized 1,000,000 in 1995 and 1994; none issued
and outstanding
Common Stock, par value $.25 per share; authorized
60,000,000 in 1995 and 1994; issued
30,007,332 in 1995 and 27,739,246 in 1994 7,501 6,934
Paid-in capital 184,012 116,806
Retained Earnings 96,764 87,617
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288,277 211,357
Less cost of Common Stock held in treasury (2,137,352
shares in 1995 and 2,173,799 in 1994) 27,173 27,630
-------- --------
Total Shareholders' Equity 261,104 183,727
-------- --------
Total Liabilities and Shareholders' Equity $455,604 $390,372
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
Note: The balance sheet at December 31, 1994 has been derived
from the audited financial statements at that date.
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VENCOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31
---------------------
1995 1994
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<S> <C> <C>
NET REVENUES
Net revenues $119,614 $86,305
Other revenues 817 658
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Total Net Revenues 120,431 86,963
EXPENSES
Hospital operating expenses 91,251 66,532
Corporate general and
administrative expenses 6,333 4,697
Depreciation and amortization 5,701 4,088
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Total operating expenses 103,285 75,317
Interest 2,147 1,773
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Total Expenses 105,432 77,090
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Income Before Income Taxes 14,999 9,873
Income Taxes 5,851 3,953
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Net Income $ 9,148 $ 5,920
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Net Income per share
Primary $ 0.34 $ 0.23
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Fully diluted $ 0.31 $ 0.23
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Shares used in per share calculation
Primary 27,288 25,470
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Fully diluted 31,711 25,470
======== =======
</TABLE>
See notes to condensed consolidated financial statements.
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VENCOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31
-----------------------
1995 1994
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OPERATING ACTIVITIES
Net income $ 9,148 $ 5,920
Adjustments to reconcile net income to net
cash provided from operating activities:
Other adjustments to net income 8,055 5,461
Changes in operating assets and liabilities (5,172) (5,412)
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Net Cash Provided by Operating Activities 12,031 5,969
INVESTING ACTIVITIES
Property and equipment additions (22,088) (9,043)
Net assets of acquired facilities (8,180) (16,366)
Net cash change in investments available for
acquistions and general corporate purposes (25,906) 14,961
Net change in short-term investments 0 (7,136)
Other assets (1,559) (3,453)
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Net Cash Used in Investing Activities (57,733) (21,037)
FINANCING ACTIVITIES
Net proceeds from equity offering 66,494
Net decrease in long-term debt (18,515) (145)
Net proceeds from shareholders' equity transactions 404 75
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Net Cash Provided by (Used in) Financing Activities 48,383 (70)
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Increase (Decrease) in Cash 2,681 (15,138)
Cash and Cash Equivalents at Beginning of Year 3,055 16,011
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Cash and Cash Equivalents at End of Period $ 5,736 $ 873
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
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VENCOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1995
Note 1
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three month
period ended March 31, 1995 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1995. For further information,
refer to the financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1994.
Note 2
The Company insures for medical malpractice losses through claims-made
policies, and provides an estimated reserve for deductibles for outstanding
claims and incurred but not reported claims (IBNR). In the opinion of
management, insurance coverage and estimated reserves for outstanding and IBNR
claims are adequate to cover significant losses, if any. Should the
claims-made policies not be renewed or replaced with equivalent insurance,
claims based on occurrences during their terms but reported subsequently will
be uninsured. The Company intends to continue to carry such insurance.
Note 3
The Company's Board of Directors approved a 3-for-2 stock split on
September 29, 1994. The new shares were distributed on October 25, 1994 to
stockholders of record at the close of business on October 10, 1994.
Retroactive recognition has been given for all share and per share amounts in
the accompanying financial statements.
Note 4
In January 1995, the Company's revolving credit agreement was amended
to increase the principal amount available from $100,000,000 to $200,000,000.
During the quarter ended March, 1995, the Company purchased two
facilities (principally land, building and equipment), one of which it formerly
had been managing, and purchased a company which operates two hospices.
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Note 4 Continued
On April 23, 1995, the Company and The Hillhaven Corporation
("Hillhaven") entered into a definitive merger agreement pursuant to which the
Company would acquire Hillhaven. Hillhaven's common stockholders will, subject
to the terms and conditions of the agreement, receive for each share of their
Hillhaven common stock a number (the "Conversion Number") of shares of Company
common stock (and associated preferred stock purchase rights) determined by
dividing $32.25 by the average closing price on the New York Stock Exchange of
Company common stock for the ten consecutive trading days ending with the
second trading day immediately preceding the effective time of the transaction
(the "Average Company Price"), provided, that the Conversion Number will not be
less than .768 or more than .977. In the event that the Conversion Number
multiplied by the Average Company Price is less than $31.00, then the Company
may elect to increase the Conversion Number to the amount required to arrive at
$31.00 and if the Company does not do so, Hillhaven may terminate the merger
agreement. The transaction will be accounted for as a pooling of interests and
will be a tax-free reorganization. The merger agreement is subject to certain
regulatory approvals, as well as approval by the shareholders of each company.
For additional information concerning this transaction, see the current reports
on Form 8-K dated April 23, 1995 and May 5, 1995 filed by the Company with the
Securities and Exchange Commission.
8
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
I. RESULTS OF OPERATIONS
Three Months Ended March 31, 1995 Compared to March 31, 1994
Net revenues for the three months ended March 31, 1995 increased to
$120,431,000 from $86,963,000, an increase of 38.5%. Net patient revenues
increased to $119,614,000 from $86,305,000. Of the $33,309,000 increase in net
patient revenues, $11,964,000 was attributable to a higher patient census and
payment rates at the hospitals that were in operation during both periods and
$13,855,000 was attributable to increased net revenues from expansion of the
Company's Vencare program. The remaining increase in net revenues related
primarily to hospitals opened since March 31, 1994.
Net revenues from non-government sources (e.g., commercial insurance
companies, HMOs, PPOs, contract services) increased 54.4% from $31,506,000 in
1994 to $48,649,000 in 1995. Non-government net revenues as a percentage of
total net revenues increased from 36% to 40%. This increase is primarily
attributable to the increase in revenues derived from expansion of the
Company's Vencare program.
Net revenues from the Company's Vencare program, which includes contract,
subacute and other respiratory care services at nursing homes, management of
hospital respiratory therapy departments and hospice services, increased to
$19,286,000, or 16.1% of net patient revenues for the three months ended March
31, 1995 compared to $5,431,000, or 6.3% of net patient revenues for the three
months ended March 31, 1994.
Total expenses for the period increased from $77,090,000 to $105,432,000,
an increase of 36.8%. Of the $28,342,000 increase, $14,340,000, or 50.6%, was
due to higher operating expenses at those hospitals that were in operation
during both periods, primarily due to increased patient census, and the costs
related to the Company's Vencare program. The number of hospitals in operation
increased 9.7% from 31 at March 31, 1994 to 34 at March 31, 1995. Patient days
increased 13.0% from 100,124 in the first quarter of 1994 to 113,165 in the
same period of 1995. The remaining increase in expenses related primarily to
operating expenses of new facilities.
Corporate general and administrative expenses increased 34.8% from
$4,697,000 to $6,333,000. For 1994 and 1995, these expenses were 5.4% and 5.3%
of net revenues, respectively.
Depreciation and amortization increased 39.5% from $4,088,000 in 1994 to
$5,701,000 in 1995, as the Company purchased and renovated additional hospital
facilities. Net depreciable assets were $191,142,000 and $137,396,000 at March
31, 1995 and 1994, respectively.
The Company recorded interest expense of $2,147,000 in 1995 and $1,773,000
in 1994 relating primarily to its 6% convertible notes.
9
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II. LIQUIDITY AND CAPITAL RESOURCES
Three Months Ended March 31, 1995 Compared to March 31, 1994
Historically, the Company has financed its growth and operations
principally through the issuance of equity and debt securities, bank borrowings
and cash flow from operations.
The Company uses capital for the acquisition and renovation of new
hospital facilities, property and equipment additions and the acquisition of
businesses. During the year ended December 31, 1994, the Company used capital
of approximately $100,000,000 for these purposes. The Company expects to use a
similar amount of capital for these purposes in 1995. During the first quarter
of 1995, the Company expended capital of approximately $30 million for these
purposes.
In January 1995, the Company's revolving credit agreement was amended to
increase the principal amount available from $100,000,000 to $200,000,000. At
March 31, 1995, the Company had an outstanding balance of $8,000,000 under this
line of credit.
On February 22, 1995, the Company sold 2,200,000 shares of Common Stock in
a public offering. The net proceeds totaled approximately $66,494,000.
Approximately $33 million of the proceeds were used to reduce the Company's
outstanding indebtedness under its revolving credit agreement. The balance of
the net proceeds is being held in investments for further acquisition purposes
and renovation of new hospital facilities and property and equipment additions.
Working capital was $86,625,000 and $65,364,000 as of March 31, 1995 and
March 31, 1994, respectively. Cash, cash equivalents and short-term
investments totaled $5,736,000 and $873,000 at March 31, 1995, and March 31,
1994, respectively.
The Company's principal source of liquidity, in addition to its cash and
credit resources, is payments received on accounts receivable. Net patient
accounts receivable increased 46.5% from $73,749,000 at March 31, 1994 to
$108,045,000 at March 31, 1995. Accounts receivable days outstanding were 81
at March 31, 1995 and 77 at March 31, 1994. This increase is primarily
attributable to the growth of the Vencare program. Payments for Vencare
contract services are generally not received as promptly as those from other
payors.
The Company intends to continue to expand its hospital operations by
purchasing or leasing approximately 10 to 12 additional hospitals over the next
two to three years and converting them into intensive care hospitals. The
Company also expects to enter into at least 200 additional respiratory and
subacute care services contracts during each of the next two to three years.
The Company expects to finance its liquidity, capital expenditure and expansion
programs using the proceeds of its February 1995 equity offering, as well as
funds generated from internal operations, funds available under its revolving
credit agreement or additional borrowings.
10
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As described in Note 4 to the March 31, 1995 Condensed Consolidated
Financial Statements, the Company has entered into a definitive merger
agreement to acquire The Hillhaven Corporation ("Hillhaven"). As described in
that note, the Company will issue shares of its common stock to the common
stockholders of Hillhaven. In addition, the acquisition of Hillhaven will
require that the Company assume or refinance Hillhaven's indebtedness, which at
February 28, 1995 aggregated approximately $590 million. The Company expects
to enter into a new credit facility with commercial bank lenders for this
purpose. For additional information concerning this transaction, see the
current reports on Form 8-K dated April 23, 1995 and May 5, 1995 and filed by
the Company with the Securities and Exchange Commission. The Company is
continuing to explore and develop opportunities for related healthcare
businesses.
Net cash provided by operating activities was $12,031,000 in 1995 compared
to $5,969,000 in 1994.
Net cash used in investing activities was $57,733,000 in 1995 compared to
$21,037,000 in 1994. Cash used in investing activities in 1994 and 1995 was
primarily attributable to the purchase of additional hospital facilities as
well as renovation costs of newly acquired and existing hospital facilities.
Net cash used in investing activities in 1995 also includes the investment of
$26 million in short-term obligations as a result of the Company's February
1995 stock offering.
Net cash provided by financing activities for the three months ended March
31, 1995 was $48,383,000 compared to net cash used in financing activities of
$70,000 for the same period last year. Cash provided by financing activities
in 1995 was primarily due to the Company's February 1995 common stock offering,
offset by payments to reduce the Company's long-term debt.
11
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SIGNATURES
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.
VENCOR, INC.
Date August 11, 1995 By /s/ W. Earl Reed, III
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W. Earl Reed, III
Vice President, Finance and Development
(Principal Financial and Accounting Officer)
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