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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
OR
[ ] 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 1-10989
VENCOR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 61-1055020
(STATE OR OTHER JURISDICTION (I.R.S.
OF INCORPORATION OR EMPLOYER
ORGANIZATION) IDENTIFICATION
NO.)
3300 PROVIDIAN CENTER
400 WEST MARKET STREET
LOUISVILLE, KY 40202
(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICES)
(502) 569-7300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 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
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
CLASS OF COMMON STOCK OUTSTANDING AT OCTOBER 31, 1995
--------------------------------------------------- -------------------------------
Common stock, $.25 par value....................... 64,856,313 shares
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2
VENCOR, INC.
FORM 10-Q
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Statement of Operations -- for the quarters and nine
months ended September 30, 1995 and 1994.................................. 3
Condensed Consolidated Balance Sheet -- September 30, 1995 and December 31,
1994...................................................................... 4
Condensed Consolidated Statement of Cash Flows -- for the nine months ended
September 30, 1995 and 1994............................................... 5
Notes to Condensed Consolidated Financial Statements........................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................... 18
Item 2. Changes in Securities....................................................... 18
Item 4. Submission of Matters to a Vote of Security Holders......................... 19
Item 6. Exhibits and Reports on Form 8-K............................................ 20
2
3
VENCOR, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
QUARTERS NINE MONTHS
------------------- -----------------------
1995 1994 1995 1994
-------- -------- ---------- ----------
Revenues........................................... $575,339 $519,117 $1,705,831 $1,501,521
-------- -------- ---------- ----------
Salaries, wages and benefits....................... 347,251 300,452 999,512 857,447
Supplies........................................... 47,868 41,083 138,266 119,212
Rent............................................... 20,225 19,727 59,575 59,867
Other operating expenses........................... 105,335 93,353 309,217 274,247
Depreciation and amortization...................... 23,263 20,545 66,940 58,898
Interest expense................................... 15,169 15,532 47,798 48,073
Interest income.................................... (3,304) (3,310) (10,032) (9,875)
Nonrecurring transactions.......................... 103,868 - 109,423 2,500
-------- -------- ---------- ----------
659,675 487,382 1,720,699 1,410,369
-------- -------- ---------- ----------
Income (loss) from operations before
income taxes..................................... (84,336) 31,735 (14,868) 91,152
Provision for income taxes......................... (21,449) 11,220 5,760 31,590
-------- -------- ---------- ----------
Income (loss) from operations...................... (62,887) 20,515 (20,628) 59,562
Extraordinary loss on early extinguishment of debt,
net of income tax benefit........................ (19,196) (58) (21,987) (229)
-------- -------- ---------- ----------
Net income (loss)........................ (82,083) 20,457 (42,615) 59,333
Preferred stock dividend requirements and other
items............................................ (1,692) (1,719) (5,280) (5,960)
Gain on redemption of preferred stock.............. 10,176 - 10,176 -
-------- -------- ---------- ----------
Income (loss) available to common
stockholders........................... $(73,599) $ 18,738 $ (37,719) $ 53,373
======== ======== ========== ==========
Earnings (loss) per common and common equivalent
share:
Primary:
Income (loss) from operations.................... $ (.91) $ .32 $ (.27) $ .94
Extraordinary loss on early extinguishment of
debt.......................................... (.32) - (.37) -
-------- -------- ---------- ----------
Net income (loss)................................ $ (1.23) $ .32 $ (.64) $ .94
======== ======== ========== ==========
Fully diluted:
Income (loss) from operations.................... $ (.91) $ .31 $ (.27) $ .90
Extraordinary loss on early extinguishment of
debt.......................................... (.32) - (.37) -
-------- -------- ---------- ----------
Net income (loss)................................ $ (1.23) $ .31 $ (.64) $ .90
======== ======== ========== ==========
Shares used in computing earnings (loss) per common
and common equivalent share:
Primary.......................................... 60,011 57,822 59,139 56,667
Fully diluted.................................... 60,011 69,804 59,139 68,699
See accompanying notes.
3
4
VENCOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 76,872 $ 39,018
Accounts and notes receivable less allowance for loss of
$16,135 -- September 30 and $12,856 -- December 31............ 316,152 272,119
Inventories...................................................... 25,565 23,387
Income taxes..................................................... 66,526 24,736
Other............................................................ 22,641 27,018
---------- ----------
507,756 386,278
---------- ----------
Property and equipment, at cost.................................... 1,492,192 1,367,455
Accumulated depreciation........................................... (344,582) (284,964)
---------- ----------
1,147,610 1,082,491
Notes receivable less allowance for loss of $15,329 -- September 30
and $15,409 -- December 31....................................... 79,478 84,133
Intangible assets less accumulated amortization of
$28,308 -- September 30 and $32,439 -- December 31............... 46,106 51,492
Other.............................................................. 62,942 51,811
---------- ----------
$ 1,843,892 $1,656,205
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ 82,595 $ 76,575
Accrued salaries, wages and other compensation................... 91,417 72,130
Other accrued liabilities........................................ 91,627 57,393
Income taxes..................................................... - 7,612
Long-term debt due within one year............................... 9,588 43,489
---------- ----------
275,227 257,199
---------- ----------
Long-term debt..................................................... 922,165 746,212
Deferred credits and other liabilities............................. 55,172 56,340
Stockholders' equity:
Preferred stock, $1.00 par value; 1,000,000 shares authorized;
98,402 shares issued and outstanding at December 31........... - 15
Common stock, $.25 par value; 180,000,000 shares authorized;
64,856,313 and 59,178,119 issued at September 30 and
December 31................................................... 16,214 14,794
Capital in excess of par value................................... 535,556 472,661
Retained earnings................................................ 75,300 136,614
---------- ----------
627,070 624,084
Common stock held in treasury and trust; (2,085,025 shares --
September 30 and 2,173,798 shares -- December 31)............. (35,742) (27,630)
---------- ----------
591,328 596,454
---------- ----------
$ 1,843,892 $1,656,205
========== ==========
See accompanying notes.
4
5
VENCOR, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
(IN THOUSANDS)
1995 1994
--------- ---------
Cash flows from operating activities:
Net income (loss).................................................. $ (42,615) $ 59,333
Adjustments to reconcile net income (loss) to net cash provided by
operations:
Depreciation and amortization................................... 66,940 58,898
Deferred income taxes........................................... (20,030) 4,115
Extraordinary loss on early extinguishment of debt.............. 35,058 375
Nonrecurring transactions....................................... 114,311 2,500
Other........................................................... 13,867 (372)
Changes in operating assets and liabilities:
Accounts and notes receivable................................. (63,132) (41,843)
Inventories and other assets.................................. (2,367) 2,678
Accounts payable.............................................. 15,673 8,867
Other accrued liabilities..................................... (3,144) 8,572
-------- --------
Net cash provided by operating activities....................... 114,561 103,123
-------- --------
Cash flows from investing activities:
Purchase of property and equipment................................. (102,271) (82,420)
Acquisition of healthcare facilities............................... (45,257) (28,246)
Proceeds from sales of property and equipment...................... 674 5,422
Collection of notes receivable..................................... 2,870 8,487
Change in investments.............................................. 160 14,571
Other.............................................................. (6,849) 7,871
-------- --------
Net cash used in investing activities........................... (150,673) (74,315)
-------- --------
Cash flows from financing activities:
Net change in borrowings under revolving lines of credit........... 68,750 4,000
Borrowings of long-term debt....................................... 656,421 15,054
Reduction of long-term debt........................................ (610,029) (52,489)
Proceeds from public offering of common stock...................... 66,494 -
Other issuances of common stock.................................... 6,588 535
Redemption of preferred stock...................................... (91,268) -
Payment of dividends............................................... (2,779) (2,301)
Other.............................................................. (20,211) (25,204)
-------- --------
Net cash provided by (used in) financing activities............. 73,966 (60,405)
-------- --------
Net increase (decrease) in cash and cash equivalents................. 37,854 (31,597)
Cash and cash equivalents at beginning of period..................... 39,018 60,930
-------- --------
Cash and cash equivalents at end of period........................... $ 76,872 $ 29,333
======== ========
Supplemental information:
Interest payments.................................................. $ 50,813 $ 48,772
Income tax payments................................................ 61,878 26,540
See accompanying notes.
5
6
VENCOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- REPORTING ENTITY
Vencor, Inc. ("Vencor") operates an integrated network of healthcare
services primarily focused on the needs of the elderly. At September 30, 1995,
Vencor operated 35 hospitals, 311 nursing centers, a contract services business
("Vencare") which provides respiratory therapy and subacute services primarily
to nursing centers, 56 retail and institutional pharmacy outlets and 23
retirement communities with 3,122 apartments.
On September 28, 1995, Vencor consummated a merger with The Hillhaven
Corporation ("Hillhaven") in a tax-free, stock-for-stock transaction (the
"Hillhaven Merger"). See Note 4.
Prior to its merger with Vencor, Hillhaven consummated a merger with
Nationwide Care, Inc. ("Nationwide") on June 30, 1995 in a tax-free,
stock-for-stock transaction (the "Nationwide Merger"). See Note 5.
NOTE 2 -- BASIS OF PRESENTATION
The Hillhaven and Nationwide Mergers have been accounted for by the
pooling-of-interests method. Accordingly, the accompanying condensed
consolidated financial statements give retroactive effect to these transactions
and include the combined operations of Vencor, Hillhaven and Nationwide for all
periods presented. In addition, the historical financial information of
Hillhaven and Nationwide (previously reported on fiscal years ending May 31 and
September 30, respectively) have been recast to conform to Vencor's annual
reporting period ending December 31.
The accompanying condensed consolidated financial statements do not include
all of the disclosures normally required by generally accepted accounting
principles or those normally required in annual reports on Form 10-K.
Accordingly, the reader of these financial statements may wish to refer to the
audited consolidated financial statements of Vencor (Form 10-K/A for the year
ended December 31, 1994) and Hillhaven (Form 8-K dated September 1, 1995 for the
year ended May 31, 1995) filed with the Securities and Exchange Commission.
The accompanying condensed consolidated financial statements have been
prepared in accordance with Vencor's customary accounting practices and have not
been audited. Management believes that the financial information included herein
reflects all adjustments necessary for a fair presentation of interim results
and, except as discussed in Note 6, all such adjustments are of a normal and
recurring nature.
NOTE 3 -- EARNINGS PER SHARE
The computation of earnings per common and common equivalent share give
retroactive effect to the Hillhaven and Nationwide Mergers and is based upon the
weighted average number of common shares outstanding. In addition, the 1994
computations also included the dilutive effect of common stock equivalents
(consisting primarily of stock options) and convertible debt securities.
In connection with the Hillhaven Merger, Vencor realized a gain of
approximately $10.2 million upon the cash redemption of Hillhaven preferred
stock. Although the gain had no effect on net income, 1995 third quarter and
nine-month net loss per share was reduced by $.17.
NOTE 4 -- HILLHAVEN MERGER
On September 27, 1995, the stockholders of both Vencor and Hillhaven
approved the Hillhaven Merger, effective September 28, 1995. In accordance with
the merger agreement, each outstanding share of Hillhaven common stock was
converted on a tax-free basis into 0.935 of a share of Vencor common stock. All
outstanding shares of Hillhaven preferred stock were redeemed in exchange for
cash aggregating $91.3 million plus accrued dividends.
The Hillhaven Merger has been accounted for as a pooling of interests and,
accordingly, the condensed consolidated financial statements give retroactive
effect to the combined operations of Vencor and Hillhaven
6
7
VENCOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(including Nationwide) for all periods presented. Summarized operating results
of the separate entities for periods prior to the Hillhaven Merger follow
(dollars in thousands):
NONRECURRING
VENCOR HILLHAVEN TRANSACTIONS ELIMINATION CONSOLIDATED
-------- ---------- ------------ ----------- ------------
Third quarter:
1995:
Revenues.......................... $150,139 $ 452,280 $(24,500) $(2,580) $ 575,339
Income (loss) from operations..... 11,605 15,383 (89,875) - (62,887)
Net income (loss)................. 10,750 (2,958) (89,875) - (82,083)
1994:
Revenues.......................... $103,483 $ 415,724 $ - $ (90) $ 519,117
Income from operations............ 8,330 12,185 - - 20,515
Net income........................ 8,330 12,127 - - 20,457
Nine months:
1995:
Revenues.......................... $411,233 $1,322,873 $(24,500) $(3,775) $ 1,705,831
Income (loss) from operations..... 31,566 41,367 (93,561) - (20,628)
Net income (loss)................. 30,711 20,235 (93,561) - (42,615)
1994:
Revenues.......................... $288,980 $1,212,631 $ - $ (90) $ 1,501,521
Income from operations............ 21,532 39,542 (1,512) - 59,562
Net income........................ 21,532 39,313 (1,512) - 59,333
NOTE 5 -- NATIONWIDE MERGER
Prior to its merger with Vencor, Hillhaven completed the Nationwide Merger
on June 30, 1995. In connection therewith, 4,675,000 shares of common stock
(effected for the Hillhaven Merger exchange ratio) were issued on a tax-free
basis in exchange for all of the outstanding shares of Nationwide.
The Nationwide Merger has been accounted for as a pooling of interests and,
accordingly, the condensed consolidated financial statements give retroactive
effect to the combined operations of Hillhaven and
7
8
VENCOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Nationwide for all periods presented. Summarized operating results of the
separate entities for periods prior to the Nationwide Merger follow (dollars in
thousands):
NONRECURRING
HILLHAVEN NATIONWIDE TRANSACTIONS CONSOLIDATED
---------- ---------- ------------ ------------
Six months ended June 30, 1995:
Revenues.............................. $ 803,793 $ 66,800 $ - $ 870,593
Income from operations................ 23,837 2,147 (3,686) 22,298
Net income (loss)..................... 23,459 (266) (3,686) 19,507
Quarter ended September 30, 1994:
Revenues.............................. $ 384,615 $ 31,109 $ - $ 415,724
Income (loss) from operations......... 12,257 (72) - 12,185
Net income (loss)..................... 12,199 (72) - 12,127
Nine months ended September 30, 1994:
Revenues.............................. $1,120,503 $ 92,128 $ - $ 1,212,631
Income from operations................ 35,931 3,611 (1,512) 38,030
Net income............................ 35,702 3,611 (1,512) 37,801
NOTE 6 -- NONRECURRING TRANSACTIONS
In the third quarter of 1995, Vencor recorded pretax charges aggregating
$128.4 million primarily in connection with the Hillhaven Merger. The charges
included (i) $23.2 million of investment advisory and professional fees, (ii)
$53.8 million of employee benefit plan and severance costs, (iii) $26.9 million
of losses associated with the planned disposition of certain nursing center
properties and (iv) $24.5 million of losses to reflect Vencor's change in
estimates of accrued revenues recorded in connection with certain prior-year
nursing center third-party reimbursement issues (recorded as a reduction of
revenues).
Operating results for the nine months ended September 30, 1995 include
pretax charges of $5.5 million recorded in the second quarter related to the
Nationwide Merger.
In February 1994, Vencor recorded a pretax charge of $2.5 million in
connection with the prior disposition of certain nursing centers.
NOTE 7 -- LONG-TERM DEBT
Concurrent with the consummation of the Hillhaven Merger, Vencor entered
into a five and one-half year $1 billion senior credit facility (the "Credit
Facility") comprised of a $400 million term loan and a $600 million revolving
credit facility. The Credit Facility was established to finance the redemption
of Hillhaven preferred stock, repay certain higher rate debt and borrowings
under prior revolving credit agreements discussed below, and provide sufficient
credit for future expansion. Interest is payable at rates up to either (i) the
prime rate plus 1/4% or daily federal funds rate plus 3/4%, (ii) LIBOR plus
1 1/4% or (iii) the bank certificate of deposit rate plus 1 3/8%. Outstanding
borrowings under the $400 million term loan are payable in various installments
beginning in 1997 through 2001. The Credit Facility contains customary covenants
which include limitations on additional debt and repurchases of common stock,
and maintenance of certain financial ratios. Outstanding borrowings under the
Credit Facility aggregated $557.8 million at September 30, 1995.
During the third quarter of 1995, Vencor refinanced $344.2 million of
Hillhaven higher rate debt and repaid $112.5 million of outstanding borrowings
under prior revolving credit agreements. After-tax losses associated with these
activities totaled $19.2 million or $.32 per share. Vencor incurred an
additional after-tax
8
9
VENCOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
loss of $2.7 million in the second quarter of 1995 primarily in connection with
the refinancing of certain Nationwide long-term debt.
NOTE 8 -- CONTINGENCIES
In January 1995, Horizon Healthcare Corporation ("Horizon") proposed a
transaction in which holders of Hillhaven common stock would receive common
stock of Horizon valued by Horizon at $28. Horizon also had entered into an
agreement with Tenet Healthcare Corporation ("Tenet"), a Hillhaven stockholder,
pursuant to which Tenet indicated that it was supportive of Horizon's proposal.
A formal proposal was presented by Horizon to Hillhaven and was rejected by a
special committee (the "Special Committee") of the Hillhaven Board of Directors
for, among other reasons, the belief that the arrangements between Horizon and
Tenet had caused Horizon to become the "beneficial owner" of Tenet's Hillhaven
common stock. Because Nevada law prohibits a merger for three years between
Hillhaven and any person acquiring beneficial ownership or more than 10% of
Hillhaven common stock without prior Hillhaven approval, the Horizon proposal
could not be consummated. The Special Committee authorized Hillhaven to commence
litigation seeking a determination that Horizon could not effect a merger with
Hillhaven in compliance with Nevada law.
On February 6, 1995, Hillhaven filed a complaint against Horizon in the
United States District Court for the District of Nevada seeking injunctive and
declaratory relief that a business combination between Horizon and Hillhaven is
prohibited by the Nevada statute regarding business combinations with interested
stockholders (NRS Sections 78.411 through 78.444) by reason of Horizon's
arrangements with Tenet. On February 27, 1995, Horizon filed an answer and a
counterclaim alleging that, among other things, Hillhaven and all of its
directors (other than Messrs. de Wetter and Andersons) had breached their
fiduciary duties to Hillhaven's stockholders in connection with their
consideration of Horizon's acquisition proposal and certain actions recently
taken by Hillhaven, including the formation of a grantor trust and the amendment
of Hillhaven's rights plan. The counterclaim seeks injunctive and declaratory
relief and compensatory and punitive damages in unspecified amounts. The parties
to this action have stipulated to a dismissal; however, such dismissal has not
yet been entered by the Court.
Hillhaven and its directors are named as defendants in a number of putative
class action complaints filed on behalf of Hillhaven's stockholders in Nevada
state court (the "Nevada State Court Actions") and California state court (the
"California State Court Actions"). These complaints raise allegations that
Hillhaven's directors breached their fiduciary duties to Hillhaven's
stockholders in connection with the consideration of Horizon's acquisition
proposal and certain corporate actions also cited in Horizon's counterclaim.
These actions seek declaratory and injunctive relief and, in California,
compensatory damages in unspecified amounts. The plaintiffs in the Nevada State
Court Actions moved to dismiss their complaints, which dismissal was opposed by
Hillhaven and its directors. In addition, Tenet filed a complaint against
Hillhaven and two of its directors, Mr. Busby and Mr. Marker (the "Tenet
Actions"), in the state court of California seeking declaratory and injunctive
relief and alleging, among other things, that they breached their fiduciary
duties to Tenet and Hillhaven's other stockholders in connection with their
consideration of Horizon's acquisition proposal and certain other corporate
actions cited in the Horizon and putative class action complaints. The Service
Employees International Union (AFL-CIO) and Joann Sforza, a Hillhaven employee
and union member, are seeking to intervene as party plaintiffs in the Tenet
Action and in one of the putative class actions brought on behalf of Hillhaven's
stockholders, alleging that their interests as stockholders and employees of
Hillhaven are not adequately represented. Management has opposed this
intervention and believes these actions are without merit.
By stipulation of the parties, the proceedings in the Tenet Action have
been dismissed with prejudice. No schedule has been established with respect to
further proceedings in the Nevada State Court Actions and the California State
Court Actions.
9
10
VENCOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 9 -- STOCKHOLDERS' EQUITY
On September 27, 1995, Vencor common stockholders voted to increase the
number of authorized shares of common stock from 60,000,000 to 180,000,000 and
increase the number of common shares issuable under certain employee benefit
plans from 3,162,562 to 6,900,000.
NOTE 10 -- SUBSEQUENT EVENTS
In October 1995, Vencor called for redemption its $115 million 6%
Convertible Subordinated Notes (the "6% Notes") and $75 million 7.75%
Convertible Debentures (the "7.75% Debentures") which were convertible into
Vencor common stock at the rate of $26.00 and $17.96 per share, respectively. In
November 1995, $80.6 million principal amount of the 6% Notes was converted into
approximately 3,098,000 shares of common stock and the remainder was redeemed in
exchange for cash equal to 104.2% of face value plus accrued interest. All
outstanding 7.75% Debentures were converted into approximately 4,161,000 shares
of common stock. These transactions will have no material effect on earnings per
common and common equivalent share.
On October 30, 1995, Vencor entered into certain interest rate swap
agreements to eliminate the impact of changes in interest rates on $400 million
of floating rate debt outstanding under the Credit Facility. The agreements
expire in April 1997 ($100 million), October 1997 ($200 million) and April 1998
($100 million) and provide for fixed rates at 5.7%.
10
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
HILLHAVEN AND NATIONWIDE MERGERS
The Hillhaven Merger was consummated on September 28, 1995. At the time of
the Hillhaven Merger, Hillhaven operated 311 nursing centers, 56 retail and
institutional pharmacies and 23 retirement communities with 3,122 apartments.
Annualized revenues approximated $1.7 billion.
Prior to its merger with Vencor, Hillhaven completed the Nationwide Merger
on June 30, 1995. At the time of the Nationwide Merger, Nationwide operated 23
nursing centers containing 3,257 licensed beds and four retirement communities
with 442 apartments. Annualized revenues approximated $125 million.
As discussed in the Notes to Condensed Consolidated Financial Statements,
the Hillhaven and Nationwide Mergers have been accounted for by the
pooling-of-interests method. Accordingly, the accompanying condensed
consolidated financial statements and financial and operating data included
herein give retroactive effect to these transactions and include the combined
operations of Vencor, Hillhaven and Nationwide for all periods presented. In
addition, the historical financial information and operating data of Hillhaven
and Nationwide (previously reported on fiscal years ending May 31 and September
30, respectively) have been recast to conform to Vencor's annual reporting
period ending December 31.
RESULTS OF OPERATIONS
Vencor operates an integrated network of healthcare services focused
primarily on the needs of the elderly through the operation of hospitals,
nursing centers and ancillary services businesses which include Vencare,
pharmacies and retirement communities. A summary of revenues follows (dollars in
thousands):
QUARTERS NINE MONTHS
-------------------- % ------------------------ %
1995 1994 CHANGE 1995 1994 CHANGE
-------- -------- ------ ---------- ---------- ------
Hospitals...................... $119,705 $ 91,972 30.2 $ 337,036 $ 263,076 28.1
-------- -------- ---------- ----------
Nursing centers:
Long-term care............... 271,274 262,498 3.3 793,789 757,684 4.8
Subacute care and medical
rehabilitation............ 125,952 98,675 27.6 361,124 276,162 30.8
-------- -------- ---------- ----------
397,226 361,173 10.0 1,154,913 1,033,846 11.7
Nonrecurring transactions.... (24,500) - (24,500) -
-------- -------- ---------- ----------
372,726 361,173 3.2 1,130,413 1,033,846 9.3
-------- -------- ---------- ----------
Ancillary services:
Vencare...................... 30,434 11,511 164.4 74,197 25,904 186.4
Pharmacies................... 43,406 46,230 (6.1) 133,741 149,163 (10.3)
Retirement communities....... 11,648 8,321 40.0 34,219 29,622 15.5
-------- -------- ---------- ----------
85,488 66,062 29.4 242,157 204,689 18.3
-------- -------- ---------- ----------
Elimination.................... (2,580) (90) (3,775) (90)
-------- -------- ---------- ----------
$575,339 $519,117 10.8 $1,705,831 $1,501,521 13.6
======== ======== ========= =========
Excluding the effect of nonrecurring transactions, revenues grew 16% and
15% for the third quarter and nine months ended September 30, 1995,
respectively, compared to the same periods last year due primarily to growth in
hospital patient days, nursing center subacute and medical rehabilitation care
and Vencare contracts. Hospital patient days rose 27% to 124,475 in the third
quarter of 1995 and 21% to 362,326 for the nine-month period as a result of both
acquisitions and same-store growth. Nursing center patient days related to
subacute and medical rehabilitation care increased 16% to 419,499 in the third
quarter and 14% to 1,234,010 for the nine-month period. The number of Vencare
contracts at September 30, 1995 totaled 1,917 compared to 795 at September 30,
1994.
11
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
In the third quarter of 1995, Vencor recorded pretax charges aggregating
$128.4 million ($89.9 million net of tax) primarily in connection with the
Hillhaven Merger. The charges included (i) $23.2 million of investment advisory
and professional fees, (ii) $53.8 million of employee benefit plan and severance
costs, (iii) $26.9 million of losses associated with the planned disposition of
certain nursing center properties and (iv) $24.5 million of losses to reflect
Vencor's change in estimates of accrued revenues recorded in connection with
certain prior-year nursing center third-party reimbursement issues. Operating
results for the nine months ended September 30, 1995 include pretax charges of
$5.5 million ($3.7 million net of tax) recorded in the second quarter related
primarily to the Nationwide Merger. In February 1994, Vencor recorded a pretax
charge of $2.5 million ($1.5 million net of tax) in connection with the prior
disposition of certain nursing centers.
For the third quarter and nine months ended September 30, 1995, losses from
operations totaled $62.9 million and $20.6 million, respectively, compared to
income of $20.5 million and $59.6 million for the respective periods in 1994.
Excluding the effect of nonrecurring transactions, third quarter income from
operations increased 32% to $27.0 million ($.38 per share - fully diluted) from
$20.5 million ($.31 per share), and 19% to $72.9 million ($1.04 per share) from
$61.1 million ($.92 per share) for the respective nine-month periods. The
improvement in both periods resulted primarily from revenue growth and operating
efficiencies associated with increased volume of services.
LIQUIDITY
Cash provided by operations totaled $114.6 million for the nine months
ended September 30, 1995 compared to $103.1 million last year due primarily to
growth in income from operations before nonrecurring transactions. Cash payments
in September 1995 related to nonrecurring transactions reduced cash flows from
operations by approximately $20 million. In addition, certain nonrecurring
transaction costs for merger-related fees and employee benefits will reduce cash
flows from operations for the remainder of 1995 and 1996.
Concurrent with the consummation of the Hillhaven Merger, Vencor
established the Credit Facility to finance the redemption of Hillhaven preferred
stock, repay certain Hillhaven higher rate debt and borrowings under prior
revolving credit agreements and provide sufficient credit for future expansion.
At September 30, 1995, available borrowings under the Credit Facility
approximated $348 million.
Working capital totaled $232.5 million at September 30, 1995 compared to
$129.1 million at December 31, 1994. Management believes that cash flows from
operations and amounts available under the Credit Facility are sufficient to
meet future expected liquidity needs.
CAPITAL RESOURCES
Excluding acquisitions, capital expenditures totaled $102.3 million for the
nine months ended September 30, 1995 compared to $82.4 million for the same
period of 1994. Planned capital expenditures in 1995 (excluding acquisitions)
are expected to approximate $150 million. Management believes that its capital
expenditure program is adequate to expand, improve and equip existing
facilities.
Vencor also expended $45.3 million and $28.2 million for acquisitions
during the respective nine-month periods of 1995 and 1994, of which $36.1
million and $24.2 million related to additional hospital facilities. Management
intends to acquire additional hospitals and nursing centers in the future.
Capital expenditures in both 1995 and 1994 were financed primarily through
internally generated funds and, in 1995, from the public offering of 2,200,000
shares of common stock, the proceeds from which aggregated $66.5 million. Vencor
intends to finance all capital expenditures with internally generated and
borrowed funds. Sources of capital include available borrowings under the Credit
Facility, public or private debt and equity.
12
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
CAPITAL RESOURCES (CONTINUED)
As discussed in Note 10 of the Notes to Condensed Consolidated Financial
Statements, Vencor called for redemption all of its outstanding convertible debt
securities in October 1995, resulting in the issuance of approximately 7,259,000
shares of common stock. Approximately $34.4 million of the convertible
securities were redeemed in exchange for cash equal to 104.2% of face value plus
accrued interest. These transactions will not have a material effect on earnings
per common and common equivalent share. Had these transactions occurred on
September 30, 1995, the ratio of debt to debt plus stockholders' equity would
have improved from 61.2% to 51.0%.
As discussed in Note 10 of the Notes to Condensed Consolidated Financial
Statements, Vencor entered into certain interest rate swap agreements on October
30, 1995 to eliminate the impact of changes in interest rates on $400 million of
floating rate debt outstanding under the Credit Facility. The agreements expire
in April 1997 ($100 million), October 1997 ($200 million) and April 1998 ($100
million) and provide for fixed rates at 5.7%.
HEALTH CARE LEGISLATION
Congress is currently considering various proposals which would reduce
expenditures under certain government health and welfare programs, including
Medicare and Medicaid. Management cannot predict whether such proposals will be
adopted, or if adopted, what effect, if any, such proposals would have on its
business.
For the nine months ended September 30, 1995, Medicare and Medicaid
revenues as a percentage of Vencor's hospital revenues approximated 58% and 11%,
respectively, while revenues from such programs approximated 29% and 45%,
respectively, of Vencor's nursing center revenues.
OTHER INFORMATION
Various lawsuits and claims arising in the ordinary course of business are
pending against Vencor. As discussed in Note 8 of the Notes to Condensed
Consolidated Financial Statements, Vencor is a party to certain litigation
involving the proposed acquisition of Hillhaven by Horizon in January 1995.
Resolution of such litigation and other loss contingencies is not expected to
have a material adverse effect on Vencor's financial position or results of
operations.
The Credit Facility contains customary covenants which include limitations
on additional debt and repurchases of common stock, and maintenance of certain
financial ratios. Vencor was in compliance with all such covenants at September
30, 1995.
13
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1995 QUARTERS
----------------------------------
FIRST SECOND THIRD NINE MONTHS
-------- -------- -------- -----------
Revenues.................................... $552,178 $578,314 $575,339 $1,705,831
-------- -------- -------- ----------
Salaries, wages and benefits................ 321,806 330,455 347,251 999,512
Supplies.................................... 43,516 46,882 47,868 138,266
Rent........................................ 19,579 19,771 20,225 59,575
Other operating expenses.................... 99,247 104,635 105,335 309,217
Depreciation and amortization............... 21,170 22,507 23,263 66,940
Interest expense............................ 15,458 17,171 15,169 47,798
Interest income............................. (3,180) (3,548) (3,304) (10,032)
Nonrecurring transactions................... - 5,555 103,868 109,423
-------- -------- -------- ----------
517,596 543,428 659,675 1,720,699
-------- -------- -------- ----------
Income (loss) from operations before
income taxes................................ 34,582 34,886 (84,336) (14,868)
Provision for income taxes.................... 13,410 13,799 (21,449) 5,760
-------- -------- -------- ----------
Income (loss) from operations................. 21,172 21,087 (62,887) (20,628)
Extraordinary loss on early extinguishment of
debt, net of income taxes................... (66) (2,725) (19,196) (21,987)
-------- -------- -------- ----------
Net income (loss)................... 21,106 18,362 (82,083) (42,615)
Preferred stock dividend requirements......... (1,793) (1,795) (1,692) (5,280)
Gain on redemption of preferred stock......... - - 10,176 10,176
-------- -------- -------- ----------
Income (loss) available to common
stockholders...................... $ 19,313 $ 16,567 $(73,599) $ (37,719)
======== ======== ======== ==========
Earnings (loss) per common and common
equivalent share:
Primary:
Income (loss) from operations............ $ .33 $ .32 $ (.91) $ (.27)
Extraordinary loss on early
extinguishment of debt................. - (.05) (.32) (.37)
-------- -------- -------- ----------
Net income (loss)................... $ .33 $ .27 $ (1.23) $ (.64)
======== ======== ======== ==========
Fully diluted:
Income (loss) from operations............ $ .31 $ .30 $ (.91) $ (.27)
Extraordinary loss on early
extinguishment of debt................. - (.04) (.32) (.37)
-------- -------- -------- ----------
Net income (loss)................... $ .31 $ .26 $ (1.23) $ (.64)
======== ======== ======== ==========
Shares used in computing earnings (loss) per
common and common equivalent share:
Primary..................................... 58,981 60,673 60,011 59,139
Fully diluted............................... 70,826 72,454 60,011 59,139
14
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1994 QUARTERS
-----------------------------------------------
FIRST SECOND THIRD FOURTH YEAR
-------- -------- -------- -------- ----------
Revenues........................... $479,822 $502,582 $519,117 $531,306 $2,032,827
-------- -------- -------- -------- ----------
Salaries, wages and benefits....... 275,050 281,945 300,452 309,734 1,167,181
Supplies........................... 37,605 40,524 41,083 42,841 162,053
Rent............................... 20,141 19,999 19,727 19,504 79,371
Other operating expenses........... 90,316 90,578 93,353 92,374 366,621
Depreciation and amortization...... 18,426 19,927 20,545 20,621 79,519
Interest expense................... 15,339 17,202 15,532 14,755 62,828
Interest income.................... (3,267) (3,298) (3,310) (3,251) (13,126)
Nonrecurring transactions.......... 2,500 - - (7,040) (4,540)
-------- -------- -------- -------- ----------
456,110 466,877 487,382 489,538 1,899,907
-------- -------- -------- -------- ----------
Income from operations before
income taxes..................... 23,712 35,705 31,735 41,768 132,920
Provision for income taxes......... 8,105 12,265 11,220 15,191 46,781
-------- -------- -------- -------- ----------
Income from operations............. 15,607 23,440 20,515 26,577 86,139
Extraordinary loss on early
extinguishment of debt, net of
income taxes..................... (15) (156) (58) (12) (241)
-------- -------- -------- -------- ----------
Net income............... 15,592 23,284 20,457 26,565 85,898
Preferred stock dividend
requirements and other items..... (2,374) (1,867) (1,719) (1,793) (7,753)
-------- -------- -------- -------- ----------
Income available to
common stockholders.... $ 13,218 $ 21,417 $ 18,738 $ 24,772 $ 78,145
======== ======== ======== ======== ==========
Earnings per common and common
equivalent share:
Primary.......................... $ .24 $ .38 $ .32 $ .43 $ 1.37
Fully diluted.................... $ .24 $ .35 $ .31 $ .38 $ 1.28
Shares used in computing earnings
per common and common equivalent
share:
Primary.......................... 54,923 57,222 57,822 58,003 57,037
Fully diluted.................... 66,986 69,169 69,804 69,931 69,014
15
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
OPERATING DATA
(UNAUDITED)
1995 QUARTERS
----------------------------------------
FIRST SECOND THIRD NINE MONTHS
---------- ---------- ---------- -----------
REVENUES:
Hospitals................................. $ 101,145 $ 116,186 $ 119,705 $ 337,036
-------- -------- -------- ----------
Nursing centers:
Long-term care.......................... 261,145 261,370 271,274 793,789
Subacute medical and rehabilitation..... 114,668 120,504 125,952 361,124
Nonrecurring transactions............... - - (24,500) (24,500)
-------- -------- -------- ----------
375,813 381,874 372,726 1,130,413
-------- -------- -------- ----------
Ancillary services:
Vencare................................. 19,286 24,477 30,434 74,197
Pharmacies.............................. 45,123 45,212 43,406 133,741
Retirement communities.................. 11,156 11,415 11,648 34,219
-------- -------- -------- ----------
75,565 81,104 85,488 242,157
-------- -------- -------- ----------
Elimination............................... (345) (850) (2,580) (3,775)
-------- -------- -------- ----------
$ 552,178 $ 578,314 $ 575,339 $1,705,831
======== ======== ======== ==========
HOSPITAL DATA:
End of period data:
Number of hospitals..................... 34 36 35
Number of licensed beds................. 2,859 3,275 3,214
Patient revenue mix %:
Medicare................................ 58.6 57.2 57.9 57.9
Medicaid................................ 11.3 11.6 11.2 11.4
Private and other....................... 30.1 31.2 30.9 30.7
Patient days:
Medicare................................ 74,742 80,236 79,282 234,260
Medicaid................................ 14,609 19,330 21,014 54,953
Private and other....................... 23,814 25,120 24,179 73,113
-------- -------- -------- ----------
113,165 124,686 124,475 362,326
======== ======== ======== ==========
NURSING CENTER DATA:
End of period data:
Number of nursing centers............... 310 311 311
Number of licensed beds................. 39,418 39,509 39,513
Patient revenue mix %:
Medicare................................ 28.8 29.1 28.9 29.0
Medicaid................................ 45.0 44.6 45.3 45.0
Private and other....................... 26.2 26.3 25.8 26.0
Patient days:
Long-term care.......................... 2,700,250 2,710,176 2,758,760 8,169,186
Subacute medical and rehabilitation..... 402,261 412,250 419,499 1,234,010
-------- -------- -------- ----------
3,102,511 3,122,426 3,178,259 9,403,196
======== ======== ======== ==========
ANCILLARY SERVICES DATA:
End of period data:
Number of Vencare contracts............. 1,093 1,703 1,917
Number of pharmacy outlets.............. 57 55 56
Number of retirement communities........ 23 23 23
Number of retirement community
apartments........................... 3,122 3,122 3,122
16
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
OPERATING DATA (CONTINUED)
(UNAUDITED)
1994 QUARTERS
---------------------------------------------
FIRST SECOND THIRD FOURTH YEAR
--------- --------- --------- --------- ----------
REVENUES:
Hospitals................................ $ 81,532 $ 89,572 $ 91,972 $ 98,035 $ 361,111
-------- -------- -------- ---------- ----------
Nursing centers:
Long-term care......................... 244,942 250,244 262,498 259,908 1,017,592
Subacute medical and rehabilitation.... 88,056 89,431 98,675 106,935 383,097
-------- -------- -------- ---------- ----------
332,998 339,675 361,173 366,843 1,400,689
-------- -------- -------- ---------- ----------
Ancillary services:
Vencare................................ 5,431 8,962 11,511 13,003 38,907
Pharmacies............................. 50,116 52,817 46,230 43,941 193,104
Retirement communities................. 9,745 11,556 8,321 9,768 39,390
-------- -------- -------- ---------- ----------
65,292 73,335 66,062 66,712 271,401
-------- -------- -------- ---------- ----------
Elimination.............................. - - (90) (284) (374)
-------- -------- -------- ---------- ----------
$ 479,822 $ 502,582 $ 519,117 $ 531,306 $2,032,827
======== ======== ======== ========== ==========
HOSPITAL DATA:
End of period data:
Number of hospitals.................... 31 31 33 33
Number of licensed beds................ 2,316 2,316 2,511 2,511
Patient revenue mix %:
Medicare............................... 57.2 55.9 55.9 57.0 56.5
Medicaid............................... 10.6 10.2 11.8 11.7 11.1
Private and other...................... 32.2 33.9 32.3 31.3 32.4
Patient days:
Medicare............................... 63,299 63,026 59,616 65,370 251,311
Medicaid............................... 15,282 14,276 15,222 15,407 60,187
Private and other...................... 21,543 24,244 23,254 23,084 92,125
-------- -------- -------- ---------- ----------
100,124 101,546 98,092 103,861 403,623
======== ======== ======== ========== ==========
NURSING CENTER DATA:
End of period data:
Number of nursing centers.............. 310 311 311 310
Number of licensed beds................ 39,615 39,506 39,508 39,423
Patients revenue mix %:
Medicare............................... 24.5 24.4 25.3 26.7 25.3
Medicaid............................... 48.3 48.0 47.6 46.6 47.6
Private and other...................... 27.2 27.6 27.1 26.7 27.1
Patient days:
Long-term care......................... 2,759,488 2,785,050 2,837,119 2,802,735 11,184,392
Subacute medical and rehabilitation.... 355,482 365,009 363,138 385,995 1,469,624
-------- -------- -------- ---------- ----------
3,114,970 3,150,059 3,200,257 3,188,730 12,654,016
======== ======== ======== ========== ==========
ANCILLARY SERVICES DATA:
End of period data:
Number of Vencare contracts............ 496 630 795 948
Number of pharmacy outlets............. 85 71 61 60
Number of retirement communities....... 23 22 22 22
Number of retirement community
apartments.......................... 3,092 2,992 2,992 3,049
17
18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In January 1995, Horizon Healthcare Corporation ("Horizon") proposed a
transaction in which holders of Hillhaven common stock would receive common
stock of Horizon valued by Horizon at $28. Horizon also had entered into an
agreement with Tenet Healthcare Corporation ("Tenet"), a Hillhaven stockholder,
pursuant to which Tenet indicated that it was supportive of Horizon's proposal.
A formal proposal was presented by Horizon to Hillhaven and was rejected by a
special committee (the "Special Committee") of the Hillhaven Board of Directors
for, among other reasons, the belief that the arrangements between Horizon and
Tenet had caused Horizon to become the "beneficial owner" of Tenet's Hillhaven
common stock. Because Nevada law prohibits a merger for three years between
Hillhaven and any person acquiring beneficial ownership or more than 10% of
Hillhaven common stock without prior Hillhaven approval, the Horizon proposal
could not be consummated. The Special Committee authorized Hillhaven to commence
litigation seeking a determination that Horizon could not effect a merger with
Hillhaven in compliance with Nevada law.
On February 6, 1995, Hillhaven filed a complaint against Horizon in the
United States District Court for the District of Nevada seeking injunctive and
declaratory relief that a business combination between Horizon and Hillhaven is
prohibited by the Nevada statute regarding business combinations with interested
stockholders (NRS Sections 78.411 through 78.444) by reason of Horizon's
arrangements with Tenet. On February 27, 1995, Horizon filed an answer and a
counterclaim alleging that, among other things, Hillhaven and all of its
directors (other than Messrs. de Wetter and Andersons) had breached their
fiduciary duties to Hillhaven's stockholders in connection with their
consideration of Horizon's acquisition proposal and certain actions recently
taken by Hillhaven, including the formation of a grantor trust and the amendment
of Hillhaven's rights plan. The counterclaim seeks injunctive and declaratory
relief and compensatory and punitive damages in unspecified amounts. The parties
to this action have stipulated to a dismissal; however, such dismissal has not
yet been entered by the Court.
Hillhaven and its directors are named as defendants in a number of putative
class action complaints filed on behalf of Hillhaven's stockholders in Nevada
state court (the "Nevada State Court Actions") and California state court (the
"California State Court Actions"). These complaints raise allegations that
Hillhaven's directors breached their fiduciary duties to Hillhaven's
stockholders in connection with the consideration of Horizon's acquisition
proposal and certain corporate actions also cited in Horizon's counterclaim.
These actions seek declaratory and injunctive relief and, in California,
compensatory damages in unspecified amounts. The plaintiffs in the Nevada State
Court Actions moved to dismiss their complaints, which dismissal was opposed by
Hillhaven and its directors. In addition, Tenet filed a complaint against
Hillhaven and two of its directors, Mr. Busby and Mr. Marker (the "Tenet
Actions"), in the state court of California seeking declaratory and injunctive
relief and alleging, among other things, that they breached their fiduciary
duties to Tenet and Hillhaven's other stockholders in connection with their
consideration of Horizon's acquisition proposal and certain other corporate
actions cited in the Horizon and putative class action complaints. The Service
Employees International Union (AFL-CIO) and Joann Sforza, a Hillhaven employee
and union member, are seeking to intervene as party plaintiffs in the Tenet
Action and in one of the putative class actions brought on behalf of Hillhaven's
stockholders, alleging that their interests as stockholders and employees of
Hillhaven are not adequately represented. Hillhaven has opposed this
intervention and believes these actions are without merit.
By stipulation of the parties, the proceedings in the Tenet Action have
been dismissed with prejudice. No schedule has been established with respect to
further proceedings in the Nevada State Court Actions and the California State
Court Actions.
ITEM 2. CHANGES IN SECURITIES
Vencor, Hillhaven and State Street Bank and Trust Company, as Trustee,
entered into a Supplemental Indenture as of September 27, 1995 (the
"Supplemental Indenture"), whereby Vencor assumed the
18
19
PART II. OTHER INFORMATION (CONTINUED)
ITEM 2. CHANGES IN SECURITIES (CONTINUED)
obligations of Hillhaven under the Indenture dated as of September 2, 1992,
relating to Hillhaven's 10 1/8% Senior Subordinated Notes due 2001 (the
"Indenture") and amended the Indenture to:
(i) eliminate covenants contained in the Indenture relating to: (a)
maintenance of corporate existence, (b) payment of taxes, (c) maintenance
of properties, (d) maintenance of insurance, (e) limitation on the
incurrence of debt by Vencor and its subsidiaries, (f) limitation on
restricted payments, (g) limitation on the issuance of preferred stock by
subsidiaries of Vencor, (h) limitation on restrictions on distributions
from subsidiaries of Vencor, (i) limitation on liens securing pari passu
indebtedness and subordinated indebtedness of Vencor and its subsidiaries,
(j) the provision of Vencor financial statements, (k) limitation on
transactions with affiliates, (l) limitation on issuance of guarantees by
subsidiaries of Vencor and (m) limitation on other senior subordinated
debt;
(ii) modify the covenant contained in the Indenture relating to
statements by officers of Vencor as to compliance with conditions and
covenants and statements by officers of Vencor as to defaults;
(iii) modify the provision in the Indenture relating to mergers or
transfer of assets by eliminating (a) the pro forma no-default requirement,
(b) the consolidated net worth requirement and (c) the additional debt
incurrence provisions;
(iv) modify the provision of the Indenture concerning events of
default by eliminating as an event of default any breach of a covenant or
agreement which was deleted as described in paragraph (i) above and by
eliminating as events of default certain defaults under other loan
agreements and certain judgments against Vencor or its subsidiaries; and
(v) make certain conforming and other changes.
The foregoing summary is qualified in its entirety by reference to the
Supplemental Indenture, a copy of which is included in this report as Exhibit
4(a).
On September 28, 1995, Vencor's Certificate of Incorporation was amended to
increase the number of authorized shares of common stock from 60,000,000 shares
to 180,000,000 shares.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 27, 1995, a Special Meeting of Stockholders of Vencor was held
in Louisville, Kentucky. A summary of proposals considered and voted upon
follows:
(1) Adoption and approval of an Amended and Restated Agreement and
Plan of Merger, dated as of April 23, 1995 and as amended and restated as
of July 31, 1995, between Vencor and Hillhaven, and approval of all
transactions contemplated by such agreement (the "Merger Proposal"):
for -- 21,869,360 shares; against -- 813,679 shares; abstain -- 63,495
shares; and broker non-vote -- 107,332 shares.
(2) Approval to amend Vencor's Certificate of Incorporation to
increase the authorized number of shares of Vencor common stock from
60,000,000 to 180,000,000: for -- 21,918,939 shares; against -- 754,043
shares; and abstain -- 180,884 shares.
(3) Approval to amend Vencor's 1987 Incentive Compensation Program to
increase the number of shares of Vencor common stock which may be issued
upon the exercise of stock options and other stock and cash awards granted
under the program from 3,162,562 shares to 6,900,000 shares:
for -- 17,950,368 shares; against -- 4,574,454 shares; abstain -- 221,712
shares; and broker non-vote -- 107,332 shares.
On September 27, 1995, a Special Meeting of Stockholders of Hillhaven was
held in Tacoma, Washington. Stockholders approved the Merger Proposal as
follows:
(1) Common Stock: for -- 33,521,360 shares; against -- 74,679 shares;
and abstain -- 34,804 shares.
(2) Series C Preferred Stock: for -- 35,000 shares; no shares against
or abstaining.
(3) Series D Preferred Stock: for -- 65,430 shares; no shares against
or abstaining.
19
20
PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3 Vencor Certificate of Incorporation, including amendments dated
September 27, 1995 and September 28, 1995.
4(a) Supplemental Indenture dated September 27, 1995, among Vencor,
Hillhaven and State Street Bank and Trust Company, as Trustee,
relating to 10 1/8% Senior Subordinated Notes due 2001.
4(b) $1 Billion Credit Agreement dated September 11, 1995 (conformed
to include Amendment No. 1) among Vencor, various banks and
other financial institutions, Morgan Guaranty Trust Company of
New York, (as Documentation Agent), Nationsbank, N.A (as
Administrative Agent) and J.P. Morgan Delaware (as Collateral
Agent).
4(c) Amendment No. 2 to Credit Agreement dated as of September 11,
1995 among Vencor, Inc., the other Borrowers referred to therein
and the Banks, Co-Agents, LC Issuing Banks and Agents referred
to therein.
10 Incentive Stock Award Agreements dated September 28, 1995 by and
among Vencor, Hillhaven, Bruce L. Busby, Christopher J. Marker,
Jeffrey M. McKain and Robert F. Pacquer, respectively.
11 Statement Re: Computation of earnings per common and common
equivalent share for the quarter and nine months ended September
30, 1995 and 1994.
27 Financial Data Schedule (included only in filings submitted
under the Electronic Data Gathering Retrieval and Analysis
("EDGAR") system).
(b) Reports filed on Form 8-K:
During the quarter ended September 30, 1995, the following reports on
Form 8-K were filed by Vencor and Hillhaven:
Reports filed by Vencor:
Report dated August 11, 1995, relating to an amendment to the Rights
Agreement, dated as of July 20, 1993, between Vencor and National City
Bank, as Rights Agent (the "Rights Agreement") to modify certain provisions
in the Summary of Rights to Purchase Series A Participating Preferred
Stock.
Report dated August 22, 1995, relating to the Agreement dated as of
August 22, 1995, by and among Vencor, Hillhaven and Tenet.
Report dated September 1, 1995, which included the following financial
information: (i) selected historical financial information for both Vencor
and Hillhaven (ii) selected financial data, management's discussion and
analysis of financial condition and results of operations, and the
consolidated financial statements and financial statement schedules of
Hillhaven for each of the three years in the period ended May 31, 1995
(iii) supplemental consolidated financial statements and financial
statement schedules of Hillhaven for each of the three years in the period
ended May 31, 1995 which reflect the Nationwide Merger and (iv) unaudited
pro forma condensed combined financial information of Vencor and Hillhaven
for each of the three years ended December 31, 1994, 1993 and 1992 and the
six months ended June 30, 1995 and 1994.
20
21
PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
Reports filed by Hillhaven:
Report dated July 31, 1995 which included the combined results of
operations of Hillhaven and Nationwide for the period from July 1, 1995
through July 31, 1995.
Report dated August 11, 1995, which included the consolidated
financial statements and management's discussion and analysis of financial
condition and results of operations of Nationwide through May 31, 1995.
Report dated August 29, 1995 (amended August 30, 1995), which included
Hillhaven's supplemental audited consolidated financial statements and
related schedule for each of the three years in the period ended May 31,
1995 reflecting the Nationwide Merger.
Report dated September 27, 1995, which included the results of
operations of Hillhaven for the fiscal quarters ended August 31, 1995 and
1994. A copy of the press release announcing the quarterly earnings was
filed as an exhibit thereto.
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22
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: November 14, 1995 /s/ Bruce Lunsford, Esq.
-----------------------------------------------
W. Bruce Lunsford, Esq.
Chairman of the Board, President
and Chief Executive Officer
Date: November 14, 1995 /s/ W. Earl Reed, III
-----------------------------------------------
W. Earl Reed, III
Vice President, Finance and
and Development
22