<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended March 31, 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, May 3, 1995 was 27,892,939.
<PAGE> 2
VENCOR, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at
March 31, 1995 and December 31, 1994 3
Condensed Consolidated Statements of Operations
for the three months ended March 31, 1995 and 1994 4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1995 and 1994 5
Notes to Condensed Consolidated Financial Statements
-- March 31, 1995 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1
VENCOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 December 31
1995 1994
----------- -----------
(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
-------- --------
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
======== ========
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
-------- --------
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
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
-------- --------
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.
3
<PAGE> 4
VENCOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------
1995 1994
-------- -------
<S> <C> <C>
NET REVENUES
- ------------
Net revenues $119,614 $86,305
Other revenues 817 658
-------- -------
Total Net Revenues 120,431 86,963
EXPENSES
- --------
Operating expenses 91,251 66,532
Corporate general and
administrative expenses 6,333 4,697
Depreciation and amortization 5,701 4,088
Interest 2,147 1,773
-------- -------
Total Expenses 105,432 77,090
-------- -------
Income Before Income Taxes 14,999 9,873
Income Taxes 5,851 3,953
-------- -------
Net Income $ 9,148 $ 5,920
-------- -------
Net Income per share
Primary $ 0.34 $ 0.23
======== =======
Fully diluted $ 0.31 $ 0.23
======== =======
Shares used in per share calculation
Primary 27,288 25,470
======== =======
Fully diluted 31,711 25,470
======== =======
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
VENCOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31
-----------------------
1995 1994
-------- --------
<S> <C> <C>
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)
-------- --------
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)
-------- --------
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
-------- --------
Net Cash Provided by (Used in) Financing Activities 48,383 (70)
-------- --------
Increase (Decrease) in Cash 2,681 (15,138)
Cash and Cash Equivalents at Beginning of Year 3,055 16,011
-------- --------
Cash and Cash Equivalents at End of Period $ 5,736 $ 873
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
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 to shareholders, which are incorporated by reference
into 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, which, in the opinion of management, are adequate to cover losses, if
any. Should the claims-made policies not be renewed or replaced with
equivalent insurance, claims based upon occurrences during their terms but
reported subsequently will be uninsured. The Company intends to continue to
carry such insurance. The Company accrues its best estimate of losses as
determinable.
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.
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.
6
<PAGE> 7
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 change in payor mix 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.
Patient days for the three months ended March 31, 1995
increased to 113,165 from 100,124 for the three months ended March 31,
1994, an increase of 13.0%. Of the 13,041 increase in patient days,
75.8% was attributable to a higher census at those hospitals in
operation during both periods.
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.
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.
7
<PAGE> 8
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
used 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 this expansion program 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.
8
<PAGE> 9
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.
9
<PAGE> 10
PART II. OTHER INFORMATION
<TABLE>
<S> <C> <C>
Item 1. Legal Proceedings None
Item 2. Changes in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
(4.3) Other Instruments Defining the Rights of Security
Holders
(11) Statement Re Computation of Earnings Per Share
(27) Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during
the quarter ended March 31, 1995.
</TABLE>
10
<PAGE> 11
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.
Registrant
Date May 11, 1995 By /s/ W. Bruce Lunsford, Esq.
-------------------- -------------------------------------
W. Bruce Lunsford, Esq.
Chairman of the Board,
President and Chief Executive Officer
Date May 11, 1995 By /s/ W. Earl Reed, III
-------------------- ---------------------------------------
W. Earl Reed, III
Vice President, Finance and Development
11
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
No. Description
- -- -----------
<S> <C>
4.3 Other Instruments Defining the Rights of Security Holders
11 Statement Re Computation of Earnings Per Share
27 Financial Data Schedule (for SEC use only)
</TABLE>
<PAGE> 1
EXHIBIT (4.3) -- OTHER INSTRUMENTS DEFINING THE RIGHTS OF SECURITY
HOLDERS
Copies of debt instruments relating to debt which represents less than
10% of total assets will be furnished to the Commission upon request.
<PAGE> 1
EXHIBIT (11) -- STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
The earnings per share amounts in the statements of operations have been
computed in accordance with a Staff Accounting Bulletin (SAB) of the Securities
and Exchange Commission. Earnings per share are based on the weighted average
number of common shares and common share equivalents outstanding. Common share
equivalents include dilutive stock options using the treasury stock method
(computed at the average market price during the periods indicated).
The weighted average number of common shares and common stock
equivalents used in the computation of earnings per share is as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------
1995 1994
------ ------
In thousands except
per share amounts
<S> <C> <C>
PRIMARY:
Weighted average of shares outstanding 26,394 24,795
Incremental shares from use of treasury stock method for stock
options at the average market prices for the periods indicated 894 675
------- -------
Totals 27,288 25,470
======= =======
Net Income $ 9,148 $ 5,920
------- -------
Per share amount $ 0.34 $ 0.23
======= =======
FULLY DILUTED:
Weighted average of shares outstanding 26,394 24,795
Incremental shares from use of treasury stock method for stock
options at the market prices for the periods indicated 894 675
Assumed conversion of 6% convertible debentures 4,423
------- -------
Totals 31,711 25,470
======= =======
Net income $ 9,148 $ 5,920
Add 6% convertible notes interest, net of reimbursement and
income tax effect 679 0
------- -------
Totals $ 9,827 $ 5,920
======= =======
Per share amount $ 0.31 $ 0.23
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 31, 1995 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31,
1995 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 5,736
<SECURITIES> 0
<RECEIVABLES> 110,382
<ALLOWANCES> 2,337
<INVENTORY> 5,249
<CURRENT-ASSETS> 140,242
<PP&E> 307,502
<DEPRECIATION> 44,877
<TOTAL-ASSETS> 455,604
<CURRENT-LIABILITIES> 53,617
<BONDS> 123,889
<COMMON> 7,501
0
0
<OTHER-SE> 280,776
<TOTAL-LIABILITY-AND-EQUITY> 455,604
<SALES> 119,614
<TOTAL-REVENUES> 120,431
<CGS> 0
<TOTAL-COSTS> 91,251
<OTHER-EXPENSES> 11,875
<LOSS-PROVISION> 159
<INTEREST-EXPENSE> 2,147
<INCOME-PRETAX> 14,999
<INCOME-TAX> 5,851
<INCOME-CONTINUING> 9,148
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,148
<EPS-PRIMARY> .34
<EPS-DILUTED> .31
</TABLE>
