SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
VENCOR, INC.
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(Name of Registrant as Specified In Its Charter)
VENCOR, INC.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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or Item 22(a)(2) of Schedule 14A.
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or the Form or Schedule and the date of its filing.
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Notes:
VENCOR, INC.
3300 Providian Center
400 West Market Street
Louisville, Kentucky 40202
March 30, 1996
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders to be
held at 9:00 a.m. on Wednesday, May 15, 1996, at the Hyatt Regency, 320 West
Jefferson Street, Louisville, Kentucky.
The Board of Directors appreciates your interest in the Company. Regardless
of whether you plan to attend the meeting, it is important that your shares be
represented. Please sign, date and mail the enclosed proxy in the envelope
provided at your earliest convenience.
Sincerely,
LOGO
W. Bruce Lunsford
Chairman of the Board,
President and Chief Executive Officer
VENCOR, INC.
3300 PROVIDIAN CENTER
400 WEST MARKET STREET
LOUISVILLE, KENTUCKY 40202
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 15, 1996
To the Stockholders of VENCOR, INC.:
The Annual Meeting of Stockholders of Vencor, Inc. will be held on
Wednesday, May 15, 1996 at the Hyatt Regency, 320 West Jefferson Street,
Louisville, Kentucky, at 9:00 a.m. (EDT), for the following purposes:
(1) To fix the number of directors at ten and to elect a board of ten
directors;
(2) To consider and approve amendments to the 1987 Incentive Compensation
Program; and
(3) To transact such other business as may properly come before the meeting.
Only stockholders of record at the close of business on March 21, 1996, will
be entitled to vote at the meeting and any adjournments thereof.
IT IS IMPORTANT THAT YOU VOTE YOUR SHARES. PLEASE SIGN AND DATE YOUR PROXY
AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
W. Bruce Lunsford
Chairman of the Board,
President and Chief Executive Officer
VENCOR, INC.
3300 PROVIDIAN CENTER
400 WEST MARKET STREET
LOUISVILLE, KENTUCKY 40202
(502) 596-7300
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
MAY 15, 1996
GENERAL INFORMATION
The Annual Meeting of Stockholders (the "Annual Meeting") of Vencor, Inc.
(the "Company") will be held at 9:00 a.m., EDT on Wednesday, May 15, 1996, at
the Hyatt Regency, 320 West Jefferson Street, Louisville, Kentucky. This Proxy
Statement is being furnished in connection with the solicitation of proxies by
the Board of Directors of the Company to be used at the Annual Meeting and at
any adjournments thereof.
Only stockholders of record at the close of business on March 21, 1996, are
entitled to vote at the meeting or any adjournments thereof. A list of all
stockholders entitled to vote at the Annual Meeting will be available for
inspection by any stockholder for any purpose reasonably related to the Annual
Meeting during ordinary business hours for a period of ten days prior to the
Annual Meeting at the Company's principal executive offices at 3300 Providian
Center, 400 West Market Street, Louisville, Kentucky. At the record date,
70,162,454 shares of the Company's common stock, par value $.25 per share
("Common Stock") were outstanding. Each share of Common Stock entitles the
owner to one vote. A majority of the outstanding shares present in person or
by proxy is required to constitute a quorum to transact business at the
meeting. Abstentions and broker non-votes will be counted as present for
purposes of determining whether a quorum exists, but as not voted for purposes
of determining the approval of any matter submitted to the stockholders for a
vote.
If the proxy is properly signed, returned to the Company and not revoked, it
will be voted in accordance with the instructions contained therein. Unless
contrary instructions are given, the proxy will be voted (1) in favor of the
nominees for director named in the Proxy Statement, (2) in favor of the
amendments to the Company's 1987 Incentive Compensation Program, and (3) in
the discretion of the proxy holders on such other business as may properly
come before the Annual Meeting. An admission ticket will be required in order
to attend the Annual Meeting. The enclosed proxy specifies the manner in which
an admission ticket for the Annual Meeting may be obtained.
A person giving the enclosed proxy has the power to revoke it at any time
before it is exercised. However, such revocation must be made in writing and
received by the General Counsel of the Company at its principal executive
offices at 3300 Providian Center, 400 West Market Street, Louisville, Kentucky
40202 at or before the time and date of the Annual Meeting. A stockholder may
also attend the Annual Meeting and vote in person, in which event any prior
proxy given by the stockholder will be automatically revoked.
The cost of soliciting proxies by the Board of Directors will be borne by
the Company. Such solicitation will be made by mail and in addition may be
made personally or by telephone by directors, officers and employees of the
Company, none of whom will receive additional compensation for these services.
The Company's regularly retained investor relations firm, Corporate
Communications, Inc., may also solicit proxies by telephone and mail. Forms of
proxies and proxy materials will also be distributed through brokers,
custodians and other like parties to the beneficial owners of Common Stock.
The Company will reimburse such parties for their reasonable out-of-pocket
expenses incurred in connection with the distribution.
The Company intends to first distribute this Proxy Statement and the
materials accompanying it on or about March 30, 1996. The Annual Report of the
Company for the year ended December 31, 1995 accompanies this Proxy Statement.
The consolidated financial statements of the Company for the year ended
December 31, 1995 are included as Exhibit B to this Proxy Statement.
ELECTION OF DIRECTORS
Management recommends that the number of directors be set at ten and that
ten directors be elected at the Annual Meeting. Each director elected at the
Annual Meeting will serve, subject to the provisions of the Bylaws, until his
or her successor is duly elected and qualified. The names of the nominees
proposed for election as directors, all of whom are presently directors of the
Company, together with certain information concerning the nominees, are set
forth below:
NOMINEES FOR DIRECTORS
WILLIAM C. BALLARD JR. (age 55) has been a director of the Company since
1988. From 1981 to 1992, he served as Executive Vice President--Finance and
Administration of Humana Inc., a provider of healthcare services. Since 1992,
Mr. Ballard has been of counsel to the law firm of Greenebaum Doll & McDonald
PLLC. Mr. Ballard is a director of Mid-America Bancorp, United Healthcare
Corp., LG&E Energy Corp. and American Safety Razor Inc. (1) (3)
MICHAEL R. BARR (age 46), a founder of the Company, physical therapist and
certified respiratory therapist, has served as Chief Operating Officer and
Executive Vice President of the Company since February 1996. From November
1995 to February 1996, he was Executive Vice President of the Company and
Chief Executive Officer of the Company's Hospital Division. Mr. Barr served as
Vice President, Operations from 1985 to November 1995. He has been a director
of the Company since 1985. Mr. Barr is a director of Colorado MEDtech, Inc., a
medical products and equipment company.
WALTER F. BERAN (age 69) has served as a director of the Company since
September 1995. Since September 1986, Mr. Beran has served as Chairman of the
Pacific Alliance Group, a merger and acquisition services firm. Previously,
Mr. Beran served as Vice Chairman and Western Regional Managing Partner of the
accounting firm of Ernst & Whinney (now Ernst & Young) from 1971 until his
retirement in September 1986. Mr. Beran also serves as a director of Arco
Chemical Company, Pacific Scientific Company and Fleetwood Enterprises, Inc.
(3)
DONNA R. ECTON (age 48) has served as a director of the Company since 1992.
She has been Chairman, President and Chief Executive Officer of Business Mail
Express, Inc., an expedited mail services company, since 1995. From 1991 to
1994, she was President and Chief Executive Officer of Van Houten North
America, Inc. and Andes Candies Inc., confectionery products businesses. Ms.
Ecton is a director of Barnes Group, Inc., a diversified manufacturing,
aerospace and distribution company; PETsMART, Inc., a pet supplies retailer;
H&R Block, Inc.; and Tandy Corporation. (3)
GREG D. HUDSON (age 47) has served as a director of the Company since 1991.
He has been President of Hudson Chevrolet-Oldsmobile, Inc. since 1988. (2)
WILLIAM H. LOMICKA (age 58) has served as a director of the Company since
1987. Since 1989, he has served as President of Mayfair Capital Inc., a
private investment firm. Mr. Lomicka serves as a director of Regal Cinemas
Inc., a regional motion picture exhibitor; Advocat, Inc., an operator of
nursing facilities and retirement centers; and Trans Adviser Funds, Inc., an
open-end investment company. (1) (3)
W. BRUCE LUNSFORD (age 48), a founder of the Company, certified public
accountant and attorney, has served as Chairman of the Board, President and
Chief Executive Officer of the Company since the Company commenced operations
in 1985. Mr. Lunsford is a director of National City Corporation, a bank
holding
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company; Churchill Downs Incorporated; and Res-Care, Inc., a provider of
residential training and support services for persons with developmental
disabilities and certain vocational training services. (1)
W. EARL REED, III (age 44), a certified public accountant, has served as a
director of the Company since 1987. He has been Chief Financial Officer and
Executive Vice President of the Company since November 1995. From 1987 to
November 1995, Mr. Reed served as Vice President, Finance and Development, of
the Company.
R. GENE SMITH (age 61), a founder of the Company, has served as a director
of the Company since 1985 and Vice Chairman of the Board since 1987. From 1987
to 1995, Mr. Smith was President of New Jersey Blockbuster, Ltd., which held
the Blockbuster Video franchise for northern New Jersey. Since 1988, Mr. Smith
has been Chairman of the Board of Taco Tico, Inc., an operator of Mexican
fast-food restaurants. Since 1993, Mr. Smith has been Managing General Partner
of Direct Programming Services, a digital satellite system company. (1)(2)
JACK O. VANCE (age 71) has been a director of the Company since September
1995. Mr. Vance has been the Managing Director of Management Research, Inc., a
company formed by him, since 1990. Previously, Mr. Vance served as a director
of McKinsey & Company and Managing Director of such firm's Los Angeles office
until his retirement in December 1989. Mr. Vance also serves as a director of
International Rectifier Corp., International Technology Corporation and
SEMTECH. (2)
The information given in this Proxy Statement concerning the nominees is
based upon statements made or confirmed to the Company by or on behalf of such
nominees, except to the extent certain information appears in its records.
Directors' ages are given as of January 1, 1996.
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(1) Member of the Executive Committee, of which W. Bruce Lunsford is Chairman.
(2) Member of the Executive Compensation Committee, of which R. Gene Smith is
Chairman.
(3) Member of the Audit Committee, of which William H. Lomicka is Chairman.
SHARES OF COMMON STOCK OF THE COMPANY COVERED BY PROXIES EXECUTED AND
RECEIVED IN THE ACCOMPANYING FORM WILL BE VOTED FOR THE ELECTION AS DIRECTORS
OF ALL OF THE NOMINEES, UNLESS OTHERWISE SPECIFIED ON THE PROXY. The Board of
Directors does not contemplate that any of the nominees will be unable to
accept election as a director. However, in the event that one or more nominees
are unable or unwilling to accept or are unavailable to serve, the persons
named in the proxies or their substitutes will have authority, according to
their judgment, to vote or refrain from voting for other individuals as
directors.
CERTAIN INFORMATION CONCERNING THE BOARD OF DIRECTORS
During 1995, the Board of Directors of the Company held six regular and two
special meetings. The Company has an Executive Compensation Committee and an
Audit Committee. The Company does not have a nominating or similar committee.
The Executive Compensation Committee held one meeting in 1995. The functions
of the Executive Compensation Committee are to establish annual salary levels,
approve fringe benefits and administer any special compensation plans or
programs for executive officers of the Company.
The Audit Committee held four meetings during 1995. The Audit Committee
reviews the adequacy of the Company's system of internal controls and
accounting practices. In addition, the Audit Committee reviews the scope of
the annual audit of the Company's auditors, Ernst & Young LLP, prior to its
commencement, and reviews the types of services for which the Company retains
Ernst & Young LLP.
3
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS, DIRECTORS AND OFFICERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock by (a) each person known to
the Company to be the beneficial owner of more than five percent of the
outstanding Common Stock, (b) each director or nominee for director of the
Company, (c) each of the five most highly compensated executive officers of
the Company and (d) all of the Company's directors and executive officers as
of January 15, 1996, as a group.
NAME OF INDIVIDUAL OR COMMON STOCK PERCENT
NUMBER IN GROUP BENEFICIALLY OWNED/1,2/ OF CLASS
--------------------- ----------------------- --------
William C. Ballard Jr........................... 28,907/3/ *
Michael R. Barr................................. 401,028/4/ *
Walter F. Beran................................. 11,971 *
Bruce L. Busby.................................. 886,393/5/ 1.3%
Donna R. Ecton.................................. 5,868/6/ *
Jill L. Force................................... 43,338/7/ *
Greg D. Hudson.................................. 189,829/8/ *
Thomas T. Ladt.................................. 76,715/9/ *
William H. Lomicka.............................. 55,694 *
W. Bruce Lunsford............................... 2,260,382/10/ 3.2%
W. Earl Reed, III............................... 291,564 *
R. Gene Smith................................... 1,725,517/11/ 2.5%
Jack O. Vance................................... 8,186/12/ *
All executive officers and directors as a group
(17 persons).................................... 6,374,840 9.0%
FMR Corp........................................ 5,088,694/13/ 7.4%
Firstar Investment Research & Management
Company......................................... 3,947,100/14/ 5.5%
Putnam Investments, Inc......................... 4,177,563/15/ 5.8%
Tenet Healthcare Corporation.................... 8,301,067/16/ 11.8%
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(*) Less than 1%
(1) Beneficial ownership of shares, for purposes of this Proxy Statement, as
determined in accordance with applicable Securities and Exchange
Commission rules, includes shares as to which a person has or shares
voting power and/or investment power. Beneficial ownership is given as of
January 15, 1996, except as otherwise noted below.
(2) Except as set forth in the accompanying footnotes, the named persons have
sole voting power and sole investment power over the shares beneficially
owned by them. The number of shares shown does not include the interest of
certain persons in shares held by family members in their own right, or in
shares held for their benefit in the Company's 401(k) Plan. The numbers
shown include the shares which may be acquired by them through the
exercise of options, which are exercisable as of, or within 60 days after,
January 15, 1996, under the Company's stock option plans as follows: Mr.
Ballard--23,907 shares; Mr. Barr--60,266 shares; Ms. Ecton--4,218 shares;
Ms. Force--25,876 shares; Mr. Hudson--7,031 shares; Mr. Ladt--24,188
shares; Mr. Lomicka--23,907 shares; Mr. Lunsford--179,159 shares; Mr.
Reed--289,689 shares; and Mr. Smith--23,907 shares. The number of shares
shown does not include shares which may be issued to executive officers
upon the satisfaction of performance goals. See "Long-Term Incentive
Awards in 1995."
(3) Includes an aggregate of 3,000 shares held by charitable remainder trusts
for the benefit of family members.
(4) Excludes 44,744 shares held in trust for his minor children and 4,000
shares held in trust for other family members.
(5) Mr. Busby resigned as a director and executive officer of the Company as
of March 1, 1996.
(6) Excludes 763 phantom stock units held under the Company's Non-Employee
Directors Deferred Compensation Plan.
4
(7) Includes 5,625 shares held by Ms. Force jointly with her spouse. Also
includes 2,812 shares held in her spouse's individual retirement account
and 1,400 shares held by her spouse as custodian for their children. Ms.
Force shares voting and investment power with her spouse with regard to
these shares.
(8) Includes 159,983 shares with respect to which Mr. Hudson shares voting and
investment power with his wife, 562 shares held by a trust of which Mr.
Hudson is a co-trustee, 4,959 shares held by his gift trust, 1,923 shares
held by a trust for the benefit of Mr. Hudson and his siblings, and 15,371
shares held in trust with respect to which Mr. Hudson has the power to
withdraw the shares from the trusts. Excludes 1,428 phantom stock units
held under the Company's Non-Employee Directors Deferred Compensation
Plan.
(9) Includes 7,029 shares held by his spouse as custodian for his children and
20,058 shares held by his spouse. With respect to these 27,087 shares, Mr.
Ladt shares voting and investment power with his spouse.
(10) Includes 71,412 shares held by a private foundation with respect to which
Mr. Lunsford has sole voting power and shared investment power. Excludes
15,465 shares held in trust for the benefit of his children.
(11) Includes 36,250 shares held by a private foundation with respect to which
Mr. Smith shares voting and investment power, and 140,625 shares held by
a limited partnership with respect to which he has sole voting and
investment power.
(12) Includes 8,120 shares held in the Vance Family Trust of which Mr. Vance
is the trustee and 66 shares held by Mr. Vance as custodian for his
grandchildren.
(13) The ownership given for FMR Corp. is based on information contained in
the Schedule 13G dated February 14, 1996, filed by FMR Corp. with the
Securities and Exchange Commission. The address of FMR Corp. is 82
Devonshire Street, Boston, Massachusetts 02109.
(14) The ownership given for Firstar Investment Research & Management Company
is based on information contained in the Schedule 13G dated February 13,
1996, filed by Firstar Investment Research & Management Company with the
Securities and Exchange Commission. Firstar Investment Research &
Management Company's address is 777 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202.
(15) The ownership given for Putnam Investments, Inc. is based on information
contained in the Schedule 13G dated January 15, 1996, filed by Putnam
Investments, Inc. on behalf of itself, The Putnam Advisory Company, Inc.
and Putnam Investment Management, Inc. Putnam Investment, Inc.'s address
is One Post Office Square, Boston, Massachusetts 02109.
(16) The ownership given for Tenet Healthcare Corporation is based on
information contained in the Schedule 13G dated January 10, 1996, filed
by Tenet Healthcare Corporation and certain subsidiaries with the
Securities and Exchange Commission. The address of Tenet Healthcare
Corporation and such subsidiaries is 2700 Colorado Avenue, Santa Monica,
California 90404.
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
EXECUTIVE COMPENSATION PHILOSOPHY
The Executive Compensation Committee of the Board of Directors is composed
entirely of outside directors. The Committee is responsible for setting and
administering the policies and programs that govern both annual compensation
and stock ownership programs for the executive officers of the Company. The
Company's executive compensation policy is based on principles designed to
ensure that an appropriate relationship exists between executive pay and
corporate performance, while at the same time motivating and retaining
executive officers.
EXECUTIVE COMPENSATION COMPONENTS
The key components of the Company's compensation program are base salary, an
annual incentive award and equity participation. These components are
administered with the goal of providing total compensation that
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is competitive in the marketplace, rewards successful financial performance
and aligns executive officers' interests with those of stockholders. The
Executive Compensation Committee reviews each component of executive
compensation on an annual basis.
BASE SALARY. Base salaries for executive officers are set near the minimum
levels believed by the Executive Compensation Committee to be sufficient to
attract and retain qualified executive officers. Base pay increases are
provided to executive officers based on an evaluation of each executive's
performance, as well as the performance of the corporation as a whole. While
the Committee does not establish a specific formula or target to determine
base salaries, the Committee considers the financial performance of the
Company as compared to companies included in the Standard & Poor's Hospital
Management Composite Index ("Hospital Index"). In this regard, the Committee
primarily considers earnings growth and to a lesser degree asset growth. The
Committee also considers the success of the executive officers in developing
and executing the Company's strategic plans, developing management employees
and exercising leadership. The Executive Compensation Committee believes that
executive officer base salaries for 1995 were lower than the average base
salaries paid by companies included in the Hospital Index.
ANNUAL INCENTIVE. The Executive Compensation Committee believes that a
significant proportion of total cash compensation for executive officers
should be subject to attainment of specific Company earnings criteria. This
approach creates a direct incentive for executive officers to achieve desired
performance goals and places a significant percentage of each executive
officer's compensation at risk. Consequently, at the beginning of each year,
the Executive Compensation Committee establishes potential bonuses for
executive officers based on the Company's achievement of certain earnings per
share criteria. The Executive Compensation Committee established annual
bonuses for 1995 equal to 50% of base salaries contingent upon the Company's
full achievement of such predetermined earnings per share criteria. The
Committee established the potential bonuses and earnings per share criteria
based on the Committee's judgment as to desirable financial results for the
Company and the appropriate percentage of compensation which should be based
on the attainment of such results.
EQUITY PARTICIPATION THROUGH OPTIONS AND PERFORMANCE SHARES. The Executive
Compensation Committee believes that equity participation is a key component
of its executive compensation program. Stock options are granted to executive
officers primarily based on the officer's actual and potential contribution to
the Company's growth and profitability and the practices of companies such as
those included in the Hospital Index. Option grants are designed to retain
executive officers and motivate them to enhance stockholder value by aligning
the financial interests of executive officers with those of stockholders.
Stock options also provide an effective incentive for management to create
shareholder value over the long term since the full benefit of the
compensation package cannot be realized unless an appreciation in the price of
the Company's Common Stock occurs over a number of years.
Options to purchase 149,500 shares of the Company's Common Stock were
granted to the Company's five most highly compensated executive officers in
July 1995 with an exercise price equal to the fair market value of the
underlying Common Stock at the date of grant ($28.50). These options vest
cumulatively in four annual installments of 25% and expire ten years from the
date of grant. The Committee granted this number of options based on its
judgment that this number is appropriate and desirable considering these
executive officers' actual and potential contribution to the Company. The
assessment of actual and potential contribution was based on the Committee's
subjective evaluation of each executive officer's ability, skills, efforts and
leadership.
On September 28, 1995, The Hillhaven Corporation merged into the Company
(the "Merger"). In November 1995, options to purchase 300,000 shares of the
Company's Common Stock were granted to the Company's five most highly
compensated executive officers with an exercise price equal to the fair market
value of the underlying Common Stock at the date of grant ($26.875). These
options also vest cumulatively in four annual installments of 25% and expire
ten years from the date of grant.
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In November 1995, the Committee authorized performance share agreements with
its five most highly compensated executive officers providing for the
potential issuance, over a period of five years in annual installments, of a
maximum of 300,000 shares of the Company's Common Stock. The first performance
period expired on December 31, 1995. The Committee determined on January 17,
1996 that the performance goals (based on earnings per share) had been met for
this period and the five most highly compensated executive officers of the
Company were allocated a total of 60,000 shares of the Company's Common Stock.
Any future entitlement to performance shares is contingent upon the
satisfaction of performance goals, as set forth in the performance share
agreements.
The Committee granted these additional options and entered into the
performance share agreements in recognition of the significant efforts
expended by management to consummate the Merger and position the Company as a
leading provider of long-term healthcare focused on the needs of the elderly.
Moreover, based on the increased complexity and size of the Company's
operations following the Merger, the Committee desired to link a more
substantial amount of potential compensation to the Company's achievement of
its long-term goals.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Consistent with the executive compensation policy and components described
above, the Executive Compensation Committee determined the salary, bonus and
stock options received by W. Bruce Lunsford, Chairman of the Board, President
and Chief Executive Officer of the Company, for services rendered in 1995. Mr.
Lunsford received a base salary of $500,000 for 1995. The Committee believes
that this base salary was below average base salaries paid to chief executive
officers of companies included in the Hospital Index. Mr. Lunsford earned a
$250,000 bonus under the Company's 1987 Incentive Compensation Program. Mr.
Lunsford received the bonus payable for the Company's surpassing the maximum
earnings per share goal specified in advance by the Executive Compensation
Committee. Mr. Lunsford also received options to purchase 70,000 shares of the
Company's Common Stock in July 1995. The Committee determined the number of
options granted to Mr. Lunsford based on its judgment that this number was
appropriate and desirable in light of his actual and potential contribution to
the Company. The assessment of actual and potential contribution was based on
the Committee's subjective evaluation of Mr. Lunsford's abilities, skills,
efforts and leadership.
Based on the successful consummation of the Merger and the vision,
leadership and effort demonstrated by Mr. Lunsford in connection with the
Merger, the Committee awarded Mr. Lunsford options for an additional 160,000
shares of the Company's Common Stock in November 1995. The Committee also
authorized an agreement with Mr. Lunsford providing for the issuance of a
maximum of 160,000 performance shares over a period of five years in five
annual installments, contingent upon the satisfaction of annual performance
standards. The Committee believed it was in the best interests of the Company
to tie a significant additional amount of Mr. Lunsford's potential
compensation to the Company's long-term performance. On January 17, 1996, the
Committee determined that the performance goals for 1995 had been met and
32,000 performance shares were allocated to Mr. Lunsford. The actual delivery
of 23,500 of the 32,000 shares was deferred to preserve the Company's ability
under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") to deduct compensation paid to Mr. Lunsford.
OMNIBUS BUDGET RECONCILIATION ACT OF 1993
Under the Omnibus Budget Reconciliation Act of 1993 ("OBRA"), publicly held
companies may not deduct compensation paid to certain executive officers to
the extent that such compensation exceeds $1 million in any year for each such
officer. The Company will continue its efforts to preserve tax deductibility
of compensation where it is reasonable and feasible to do so.
EXECUTIVE COMPENSATION COMMITTEE
R. Gene Smith, Chairman
Greg D. Hudson
Jack O. Vance
7
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth the compensation paid by the Company to each
of the Company's five most highly compensated executive officers, including
the Chairman of the Board, President and Chief Executive Officer.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------- ------------
BONUS
-----------------------
OPTIONS
NAME AND PERFORMANCE (NO. OF ALL OTHER
PRINCIPAL POSITION YEAR SALARY CASH/1/ SHARES/2/ SHARES)/3/ COMPENSATION/4/
------------------ ---- -------- -------- ----------- ------------ ---------------
W. Bruce Lunsford 1995 $500,000 $250,000 $1,088,000 230,0006 $4,500
Chairman of the Board, 1994 368,000 684,000/5/ - 60,000/7/ 4,500
President and Chief 1993 350,000 175,000 - 60,000 7,075
Executive Officer
Michael R. Barr 1995 $225,000 $112,500 $272,000 65,000 $4,500
Chief Operating Officer 1994 189,000 144,500/5/ - 22,500/7/ 4,500
and Executive Vice 1993 180,000 90,000 - 22,500 5,399
President
W. Earl Reed, III 1995 $225,000 $112,500 $272,000 65,000 $4,500
Chief Financial Officer
and 1994 189,000 144,500/5/ - 22,500/7/ 4,500
Executive Vice President 1993 180,000 90,000 - 22,500 5,399
Thomas T. Ladt8 1995 $150,000 $75,000 $238,000 52,500 $4,500
Executive Vice 1994 120,000 60,000 - 10,500/7/ 1,800
President, Operations 1993 110,000 58,000 - 6,000 3,185
Jill L. Force9 1995 $125,000 $62,500 $170,000 37,000 $3,984
Vice President, General 1994 105,000 24,000 - 7,500/7/ 3,879
Counsel and Secretary 1993 100,000 17,500 - 4,500 3,513
- --------
(1) Except as otherwise specified below, the amounts shown represent cash
bonuses awarded under the Company's 1987 Incentive Compensation Program
which were based on the Company's profitability.
(2) Amounts in this column represent the fair market value, on the date of
allocation to the recipient, of the following performance shares allocated
upon satisfaction of 1995 performance goals: Mr. Lunsford--32,000 shares;
Mr. Barr--8,000 shares; Mr. Reed--8,000 shares; Mr. Ladt--7,000 shares;
and Ms. Force--5,000 shares.
(3) All amounts have been adjusted to reflect the Company's 3-for-2 stock
split distributed on October 25, 1994.
(4) Amounts in this column represent contributions by the Company for the
benefit of the named persons pursuant to the Company's Retirement Savings
Plan.
(5) Includes a special bonus paid as follows in recognition of management's
completion of a self-tender offer in the last quarter of 1993: Mr.
Lunsford--$500,000; Mr. Barr--$50,000; and Mr. Reed--$50,000.
(6) Of these options, options for 130,000 shares are contingent upon
stockholder approval of amendments to the 1987 Incentive Compensation
Program. See "Proposal to Adopt Amendments to the Company's 1987 Incentive
Compensation Program."
(7) In addition, options were granted to purchase shares of a wholly owned
subsidiary, Ventech Systems, Inc., as follows: Mr. Lunsford--120,000
shares; Mr. Barr--40,000 shares; Mr. Reed--40,000 shares; Mr. Ladt--18,000
shares; and Ms. Force--10,000 shares.
(8) Mr. Ladt first became an executive officer of the Company in December
1993.
(9) Ms. Force first became an executive officer of the Company in November
1995.
8
On November 15, 1995, the Company entered into Change-in-Control Severance
Agreements with certain of its key employees, including its five most highly
compensated executive officers. These agreements provide for the payment of
severance benefits under certain circumstances. These benefits become payable
at any time within two years of a change in control of the Company if: (1) the
Company terminates the employee without cause; (2) the employee terminates
employment with the Company for good reason (as defined in the agreement) or
within either of two 30-day periods commencing 30 days after the change in
control and one year after the change in control, respectively. The benefits
to be afforded the Company's five most highly compensated executive officers
include: (1) a cash payment equal to two times base salary and bonus and (2)
continuation of health, life and disability insurance coverage for two years.
COMPENSATION OF DIRECTORS
During 1995, directors not employed by the Company received $1,500 for each
board meeting they attended. Non-employee directors also received $500 for
each committee meeting they personally attended which was scheduled in
conjunction with a board meeting and $1,000 for each committee meeting
independently scheduled. In addition, non-employee directors received a $1,500
retainer for each calendar quarter they served as a director. As of January 1,
1996, (1) the amount of the quarterly retainer increased to $2,500, (2) the
fee for each board meeting attended increased to $2,000 and (3) the fee for
each committee meeting attended was set at $1,000.
Pursuant to the Company's Non-Employee Directors Deferred Compensation Plan,
a non-employee director may defer in stock or cash the receipt of fees which
would otherwise be paid to the director for services on the board and its
committees. Directors who choose to defer fees may elect to have the deferred
amounts invested 100% in shares of the Company's Common Stock ("Share
Election") or to accumulate and earn interest ("Cash Election"). If a Share
Election is made, the director's deferral account is credited with 110% of the
compensation otherwise payable to the director. As of the end of each calendar
quarter, such deferred amounts are converted into share equivalents of the
Company's Common Stock based on the fair market value of the Common Stock on
that date. If a Cash Election is made, the deferred amounts earn interest at a
floating rate of interest, compounded annually.
Directors not employed by the Company receive options pursuant to the Stock
Option Plan for Non-Employee Directors (the "Directors Plan"). The Company
issues, on each January 1, to each of the Company's non-employee directors an
option to purchase 2,813 shares of Common Stock with an exercise price equal
to the fair market value of Common Stock on the date the option is granted.
Accordingly, in 1995, the Company issued options with respect to an aggregate
of 14,065 shares to the five persons who were non-employee directors on
January 1, 1995. All options become exercisable in four equal annual
installments, beginning on the first anniversary of the date of grant.
9
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning options to purchase
shares of the Company's Common Stock granted in 1995 to the Company's five
most highly compensated executive officers, including the Chairman of the
Board, President and Chief Executive Officer.
% OF TOTAL
OPTIONS
GRANTED TO GRANT
OPTIONS EMPLOYEES EXERCISE PRICE EXPIRATION DATE PRESENT
NAME GRANTED\1\ IN 1995 PER SHARE/2/ DATE VALUE/3/
---- ---------- ---------- ------------------ ------------------ ------------
W. Bruce Lunsford....... 230,000/4/ 15.1% 160,000 at $26.875/4/ 160,000 on 11/15/05 $2,210,048
70,000 at $28.50 70,000 on 7/11/05 860,363
Michael R. Barr......... 65,000 4.3% 40,000 at $26.875 40,000 on 11/15/05 552,512
25,000 at $28.50 25,000 on 7/11/05 307,273
W. Earl Reed, III....... 65,000 4.3% 40,000 at $26.875 40,000 on 11/15/05 552,512
25,000 at $28.50 25,000 on 7/11/05 307,273
Thomas T. Ladt.......... 52,500 3.4% 35,000 at $26.875 35,000 on 11/15/05 483,448
17,500 at $28.50 17,500 on 7/11/05 215,091
Jill L. Force........... 37,000 2.4% 25,000 at $26.875 25,000 on 11/15/05 345,320
12,000 at $28.50 12,000 on 7/11/05 147,491
- --------
(1) All options shown in the above table become exercisable in four equal
annual installments, beginning on the first anniversary of the date of
grant. All options become fully exercisable upon a change in control of
the Company.
(2) All options were granted at fair market value (closing price on the New
York Stock Exchange on the date of grant). The exercise price and any tax
withholding obligations related to exercise may be paid by delivery of
shares of Common Stock.
(3) The Company used the Black-Scholes model of option valuation to determine
grant date present value. The present value calculation for the options
granted on July 11, 1995 is based on, among other things, the following
assumptions: (a) a .26 expected volatility factor, (b) a 6.64% risk-free
interest rate, (c) no dividend yield, (d) expected term of ten years, (e)
a 10% adjustment for non-transferability, and (f) a 1% adjustment based on
risk of forfeiture. The present value calculation for the options granted
on November 15, 1995 is based on, among other things, the following
assumptions: (a) a .25 expected volatility factor, (b) a 5.9% risk-free
interest rate, (c) no dividend yield, (d) expected term of ten years, (e)
a 10% adjustment for non-transferability, and (f) a 1% adjustment for risk
of forfeiture. The Company does not advocate or necessarily agree that the
Black-Scholes model can properly determine the value of an option. There
is no assurance that the value, if any, realized by the option holder will
be at or near the value estimated under the Black-Scholes model.
(4) Of these options, options for 130,000 shares are contingent upon
stockholder approval of amendments to the 1987 Incentive Compensation
Program. See "Proposal to Adopt Amendments to the Company's 1987 Incentive
Compensation Program."
10
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Company's
five most highly compensated executive officers (including the Chairman of the
Board, President and Chief Executive Officer) concerning the exercise of
options during 1995 and unexercised options held as of December 31, 1995.
AGGREGATE OPTION EXERCISES IN 1995 AND YEAR-END OPTION VALUES
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT 12/31/95 AT 12/31/95/2/
ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED1 EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- ---------- ----------- ------------- ----------- -------------
W. Bruce Lunsford....... 91,408 $2,070,952 179,159 319,249 $2,995,923 $2,380,881
Michael R. Barr......... 10,000 276,820 60,266 98,749 952,869 778,251
W. Earl Reed, III....... - - 289,689 98,749 8,153,754 778,251
Thomas T. Ladt.......... - - 24,188 64,875 458,996 425,443
Jill L. Force........... - - 25,876 46,000 576,401 304,410
- --------
(1) These amounts represent the market value of the underlying Common Stock on
the date of exercise, less the applicable exercise price.
(2) These amounts were calculated by subtracting the exercise price from the
market value of the underlying Common Stock as of year-end. The market
value of the Common Stock was $32.50 per share as of December 29, 1995
(the last trading date in 1995) based on the closing price per share on
the New York Stock Exchange.
LONG-TERM INCENTIVE AWARDS IN 1995
In 1995, the Company entered into agreements ("Performance Agreements")
whereby the Company may issue the following maximum number ("Maximum Annual
Amount") of shares for each year of a five-year period, beginning in 1995, to
its five most highly compensated executive officers: W. Bruce Lunsford--32,000
shares, Michael R. Barr--8,000 shares, W. Earl Reed, III--8,000 shares, Thomas
T. Ladt--7,000 shares, and Jill L. Force--5,000 shares. The receipt of shares
is contingent upon the satisfaction of performance goals. However, upon a
change in control of the Company, as defined, the performance periods will
lapse and all unearned performance shares will become fully vested and
issuable. Upon the satisfaction of 1995 performance goals, these persons
received the Maximum Annual Amount for 1995. See "Summary Compensation Table."
The shares shown in the following chart represent the maximum number of shares
which may be issued for the remaining four annual performance periods under
the Performance Agreements. The Committee has established three levels of
performance goals for 1996. Upon the attainment of the minimum, medium or
maximum performance goals for 1996, the Company's five most highly compensated
executive officers would each receive 33.3%, 66.7% or 100%, respectively, of
their Maximum Annual Amount.
NAME NUMBER OF SHARES PERFORMANCE PERIODS
---- ---------------- -------------------
W. Bruce Lunsford.......................... 128,000 1996-1999
Michael R. Barr............................ 32,000 1996-1999
W. Earl Reed, III.......................... 32,000 1996-1999
Thomas T. Ladt............................. 28,000 1996-1999
Jill L. Force.............................. 20,000 1996-1999
11
PERFORMANCE GRAPH
The following graph summarizes the cumulative total return to holders of the
Company's Common Stock from December 31, 1990 to December 31, 1995, compared
to the cumulative total return on the Standard & Poor's 500 Stock Index and
the Standard & Poor's Hospital Management Composite Index.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG VENCOR, INC.
S&P 500 INDEX AND S&P HOSPITAL MANAGEMENT
PERFORMANCE GRAPH APPEARS HERE
S&P
Measurement Period S&P HOSPITAL
(Fiscal Year Covered) VENCOR INC. 500 INDEX MANAGEMENT
- --------------------- --------------- --------- ----------
1990 $100 $100 $100
1991 $405 $130 $89
1992 $407 $140 $69
1993 $334 $155 $104
1994 $468 $157 $110
1995 $546 $215 $154
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As of December 31, 1995, the following persons served on the Executive
Compensation Committee of the Company's Board of Directors: R. Gene Smith,
Greg D. Hudson and Jack O. Vance. Although R. Gene Smith serves as Vice
Chairman of the Board, none of the Executive Compensation Committee members
are employees of the Company.
William C. Ballard Jr. is of counsel to the firm of Greenebaum Doll &
McDonald PLLC, which provided legal services to the Company in 1995 and is
expected to provide legal services to the Company in 1996.
In 1989, the Company adopted a policy which provides that any transaction
between the Company and any of its officers, directors or affiliates must be
approved by the disinterested members of the Company's Board of Directors and
must be on terms no less favorable to the Company than those available from
unaffiliated parties.
CERTAIN TRANSACTIONS WITH MANAGEMENT
The Merger was consummated on September 28, 1995. Following the Merger,
three directors of Hillhaven became directors of the Company: Walter F. Beran,
Bruce L. Busby and Jack O. Vance. Mr. Busby resigned as a director of the
Company on March 1, 1996. Two executive officers of Hillhaven became executive
officers of the Company. Mr. Busby served as Chief Executive Officer of the
Company's Nursing Center Division from September 1995 to March 1, 1996.
Jeffrey M. McKain served as President of the Company's Nursing Center Division
from September 1995 to February 1, 1996.
12
In connection with the Merger: (1) all outstanding options to purchase
Hillhaven common stock ("Hillhaven Options") and all investment options to
purchase PIP Convertible Debentures granted under Hillhaven's Performance
Investment Plan ("PIP Options") were deemed vested and cancelled in
consideration of the issuance to the holder of Vencor Common Stock; and (2)
all Hillhaven performance share awards were converted into Vencor performance
share awards ("Performance Awards") covering a number of shares computed by
multiplying the number of shares covered by the Hillhaven performance share
award by the product of 0.75 and the ratio applicable to the conversion of
outstanding Hillhaven shares in the Merger. Mr. Busby received 11,598 shares
of Vencor Common Stock upon cancellation of his Hillhaven Options, 296,065
shares of Vencor Common Stock upon cancellation of his PIP Options and, in
1996, 245,437 shares of Vencor Common Stock pursuant to the Performance
Awards. Mr. McKain received 10,680 shares of Vencor Common Stock upon
cancellation of his Hillhaven Options, 88,515 shares of Vencor Common Stock
upon cancellation of his PIP Options and, in 1996, 105,187 shares of Vencor
Common Stock pursuant to his Performance Award. In 1996, Mr. Busby and Mr.
McKain also received $900,000 and $464,000, respectively, of severance
compensation in accordance with preexisting severance agreements as a result
of the Merger and their subsequent resignations from positions with the
Company. Upon Mr. McKain's resignation as an officer of the Company, Mr.
McKain and the Company entered into an arrangement whereby Mr. McKain would
act as a consultant to the Company for up to four months beginning February 1,
1996, for a fee of $35,000 per month.
The Company also agreed, in connection with the Merger, to fulfill
Hillhaven's obligations under Hillhaven's Directors' Retirement Plan with
respect to each of Hillhaven's outside directors, including Mr. Beran and Mr.
Vance. Under the Directors' Retirement Plan, each Hillhaven outside director
will receive an annual retirement payment of $25,440 for a period of ten years
following the Merger. Moreover, as a result of the Merger, the options
outstanding under the Hillhaven Directors' Stock Plan were fully vested. These
directors' options were cancelled in the Merger and Vencor Common Stock was
issued to the directors in consideration of their cancellation. In connection
with the cancellation of their directors' options, Mr. Beran and Mr. Vance
each received 5,670 shares of Vencor Common Stock.
PROPOSAL TO ADOPT AMENDMENTS TO THE COMPANY'S 1987 INCENTIVE COMPENSATION
PROGRAM
The Board of Directors has adopted, and recommends that stockholders
approve, amendments to the Company's 1987 Incentive Compensation Program (the
"Plan"). These amendments are being made to address certain tax deductibility
limits imposed by the Omnibus Budget Reconciliation Act of 1993 ("OBRA") and
to preserve for the Company the tax deduction for certain compensation paid
thereunder. The amendments are set forth in Exhibit A to this Proxy Statement.
The Plan was approved by the Company's Board of Directors and stockholders
in 1987. The Plan provides for the award of a variety of economic incentives
(the "Incentives") to the Company's employees, including stock awards,
performance shares, restricted stock, cash awards, stock options and stock
appreciation rights ("SARs"). The basic features of the Plan and the proposed
amendments are described below.
ELIGIBLE EMPLOYEES
Employees of the Company are eligible to receive Incentives under the Plan
when designated by the committee responsible for administering the Plan (the
"Committee"). The Committee is composed of "outside directors" within the
meaning of Section 162(m) of the Code. At December 31, 1995, the Company had
approximately 60,000 employees. The Committee may designate eligible employees
individually or by groups or categories as the Committee deems appropriate.
The Committee must individually approve participation by officers of the
Company and any performance objectives relating to such officers.
Participation by, and any performance objectives relating to, other employees
may be approved by groups or categories and the Committee may delegate
authority to designate participants who are not officers and to set or modify
such targets, provided that such delegation does not jeopardize the Company's
tax deduction for such compensation.
13
TYPES OF INCENTIVES
Stock Awards, Restricted Stock and Performance Shares. A stock award
consists of the transfer by the Company to an employee of shares of Common
Stock, without other payment therefor, as additional compensation for services
to the Company. Restricted stock consists of shares of Common Stock which are
sold or transferred by the Company to an employee at a price which may be
below their fair market value or for no payment, but subject to restrictions
on their sale or other transfer by the employee. Performance shares are awards
payable in shares of Common Stock, provided certain levels of performance
standards are met. The proposed Plan amendments provide that the Committee
will determine the performance goals for the calendar year based on business
criteria which may include net income, earnings per share or return on equity
for the Company, or net income or return on equity for a division, region,
subsidiary or other unit of the Company (the "Performance Goals"). The
Committee may establish more than one level of performance criteria such that
a portion of the maximum number of performance shares is allocated if a level
(other than the highest level) is attained. The Committee determines the
number of performance shares to be granted and any restrictions on sale or
transfer of the performance shares. If the Plan amendments to be voted on by
stockholders at the Annual Meeting are approved, the maximum number of
performance shares which may be allocated to a participant in a calendar year
will be limited to 150,000 shares.
Cash Bonuses. The Company may pay cash bonuses to employees pursuant to the
Plan as additional compensation for services to the Company. The proposed Plan
amendments provide that the payment of a cash award under the Plan will depend
on the achievement of all or a portion of the Performance Goal(s). The
Committee will determine the amount of any cash awards and applicable
Performance Goal(s). If the Plan amendments to be considered by stockholders
at the Annual Meeting are approved, the maximum amount of a cash bonus which
may be granted to any participant during a calendar year will be $500,000.
Stock Options and SARs. The Committee may grant stock options and SARs under
the Plan. The Committee determines the number and purchase price of the shares
of Common Stock subject to an option, the term of each option and the time or
times during its term when the option becomes exercisable. No stock option
will be issued with an exercise price below fair market value on the date of
grant. The term of a stock option may not exceed ten years from the date of
grant. SARs constitute a right to receive, without payment to the Company, a
number of shares of Common Stock, cash or any combination thereof, with a
value equal to the appreciation of the shares to which the SAR relates,
determined in accordance with the Plan. The Company has granted options to W.
Bruce Lunsford for a total of 230,000 shares in 1995, of which options for
130,000 shares are contingent upon stockholder approval of the proposed
amendments. Mr. Lunsford's 1995 option grants included a special grant made in
recognition of the consummation of the Merger with The Hillhaven Corporation.
The Company did not grant options to any other employee in 1995 for more than
100,000 shares. The Plan currently provides that options for no more than
100,000 shares and no more than 100,000 SARs may be awarded to any participant
in any calendar year. If the Plan amendments to be voted on by stockholders at
the Annual Meeting are approved, the maximum number of stock options that may
be awarded to any participant in any calendar year will be limited to options
for no more than 250,000 shares.
MODIFICATION OF AWARDS
The Board may amend or discontinue the Plan at any time without stockholder
approval. No such amendment or discontinuance, however, may (a) increase the
number of shares of Common Stock which may be issued to all participants under
the Plan, (b) materially modify the requirements as to eligibility for
participation under the Plan or (c) materially increase the benefits accruing
to participants.
DURATION
The Plan will remain in effect until all Incentives granted under the Plan
have either been satisfied by the issuance of shares of Common Stock or the
payment of cash or have been terminated under the terms of the
14
Plan. In addition, the Plan will remain effective until all Plan-related
restrictions on shares of Common Stock issued under the Plan have lapsed. All
incentive stock options must be granted before May 27, 1997, ten years from
the date on which the Board adopted the Plan. All other Incentives must be
granted prior to June 18, 1997, the tenth anniversary of the date the
stockholders approved the Plan.
OBRA DEDUCTIBILITY LIMITS
Under OBRA, publicly held companies may not deduct compensation paid to
certain executive officers to the extent that such compensation exceeds $1
million in any one year for each such officer. The Code provides an exception
for certain types of compensation which are: (1) subject to the attainment of
an objective performance goal, (2) made under a plan administered by outside
directors, and (3) made pursuant to a plan approved by stockholders which
includes certain parameters for performance-based compensation. The purpose of
the proposed amendments is to qualify certain awards under the Plan for the
exception in the Code.
All of the Incentives which are subject to the $1 million per year
limitation satisfy the second requirement because the Plan is administered by
outside directors. The provisions relating to options and SARs were previously
amended so that they satisfy all three requirements. However, these provisions
limited the options to be granted to any one employee in a calendar year to
options for 100,000 shares. In order to satisfy the requirements of OBRA with
respect to performance shares and cash awards, and to increase the maximum
number of options issuable to an employee, the Board has adopted and
recommends that the stockholders approve amendments to (i) require the meeting
of certain performance goals before performance shares are issued or cash
bonuses are paid, (ii) specify that no more than 150,000 performance shares
and no more than $500,000 in cash bonuses be allocated to any single employee
in any year, and (iii) specify that options for no more than 250,000 shares
may be issued to any one employee in any calendar year (beginning with 1995).
Approval of the amendments by stockholders is intended to qualify performance
shares and cash awards granted in accordance with the Plan as exempt
compensation under OBRA, thus preserving the Company's tax deduction if and
when performance shares or cash awards are given to an employee. The proposed
amendment also provides that the Committee may reduce an award but shall be
precluded from increasing an award. The stock awards and restricted stock
which may be granted under the Plan are not, and assuming the proposed
amendments are adopted will not be, exempt from the OBRA deduction limitation.
The affirmative vote of the holders of a majority of the shares of Common
Stock present, in person or by proxy, at the Annual Meeting is required for
the approval of the above-described amendments to the Plan. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENTS. SHARES OF COMMON
STOCK COVERED BY PROXIES EXECUTED AND RECEIVED IN THE ACCOMPANYING FORM WILL
BE VOTED IN FAVOR OF THE AMENDMENTS, UNLESS OTHERWISE SPECIFIED ON THE PROXY.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and persons who own more than 10% of the
Company's Common Stock to file initial stock ownership reports and reports of
changes in ownership with the Securities and Exchange Commission and the New
York Stock Exchange. Based on a review of these reports and on written
representations from the reporting persons that no other reports were
required, the Company believes that applicable Section 16(a) reporting
requirements were complied with for all transactions which occurred in 1995.
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Ernst & Young LLP, Louisville, Kentucky, has been retained by
the Company as independent certified public accountants to audit the financial
statements of the Company. Representatives of Ernst & Young LLP will be
present at the Annual Meeting and will be afforded the opportunity to make a
statement if they desire to do so and to respond to appropriate questions.
15
STOCKHOLDER PROPOSALS
Any stockholder proposal intended to be presented at the next Annual Meeting
of Stockholders must be received by the Company by November 29, 1996 in order
to be considered for inclusion in the Company's proxy material for such
meeting.
OTHER MATTERS
The only matters to be considered at the Annual Meeting or any adjournment
thereof, so far as known to the Board of Directors, are those set forth in the
Notice of Meeting and routine matters incident to the conduct of the Annual
Meeting. However, if any other matters should properly come before the Annual
Meeting or any adjournment thereof, it is the intention of the persons named
in the accompanying form of proxy, or their substitutes, to vote said proxy in
accordance with their judgment in such matters.
By Order of the Board of
Directors,
LOGO
W. Bruce Lunsford
Chairman of the Board,
President and Chief
Executive Officer
Louisville, Kentucky
March 30, 1996
16
EXHIBIT A
AMENDMENTS TO THE VENCOR, INC. 1987 INCENTIVE COMPENSATION PROGRAM
Section 2 of the Program is amended by adding the following new Section 2.3:
"2.3 Certification. The Committee shall certify the Performance
Goal(s) (as defined herein) for awards of performance shares and cash
bonuses under this Program have been satisfied prior to the
determination and payment of any such incentive in accordance with the
Program."
Section 3 of the Program is amended by adding at the end of the fourth
sentence thereof the following:
"Notwithstanding the foregoing, the Committee may not delegate its
responsibilities hereunder if such delegation would jeopardize
compliance with the "outside directors" requirements (or any other
applicable requirement) under section 162(m) of the Code. The Committee
shall establish Performance Goal(s) applicable to a particular fiscal
year within ninety (90) days of the commencement of such fiscal year,
provided that the outcome of the Performance Goal(s) is substantially
uncertain at the time of their adoption. Each Performance Goal
applicable to a fiscal year shall identify one or more business
criteria that is to be monitored during the fiscal year. Such business
criteria may include net income, earnings per share or return on equity
for Vencor, or net income or return on equity for a division, region,
subsidiary or other unit of Vencor. The Committee shall determine the
target level(s) of performance that must be achieved with respect to
each criteria that is identified in a Performance Goal in order for a
Performance Goal to be treated as attained in whole or in part. The
Committee may base Performance Goal(s) on one or more of the foregoing
business criteria. In the event Performance Goal(s) are based on more
than one business criteria, the Committee may determine to make a grant
of an Incentive upon attainment of the Performance Goal(s) relating to
any one or more of such criteria."
The second sentence of Section 6.2 of the Program is amended by deleting the
number "100,000" and substituting therefor the number "250,000."
The first three sentences of Section 9.1 of the Program are hereby deleted
and the following is substituted therefor:
"The maximum number of performance shares which may be allocated to a
participant during any calendar year shall be 150,000 shares, subject
to adjustment as provided in Section 11.6. If the Performance Goal(s)
are achieved in full, and the participant remains employed with the
Company as of the end of the relevant performance period, the
participant will be allocated shares of Common Stock equal to that
number of performance shares initially awarded to that participant for
the relevant performance period. Each award of performance shares may
provide for the allocation of fewer performance shares in the event of
partial fulfillment of Performance Goal(s)."
The second and fourth sentences of Section 10 of the Program are hereby
deleted and the following is added after the first sentence of such Section:
"The maximum amount of a cash award which may be granted to a
participant during any calendar year under the Program shall not be
greater than $500,000. Payment of a cash award will depend on meeting
Performance Goal(s). Each award of cash may provide for lesser payments
in the event of partial fulfillment of Performance Goal(s)."
A new section, Section 11.14, is hereby added after Section 11.13 and shall
read as follows:
"11.14 Modification of Award(s). The Committee may determine to reduce
any award under this Program but the Committee shall be precluded from
increasing such award(s) without stockholder approval."
A-1
EXHIBIT B
VENCOR, INC.
INDEX TO CONSOLIDATED FINANCIAL INFORMATION
PAGE
-----
Selected Financial Data.................................................. F-2
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... F-3
Report of Independent Auditors........................................... F-7
Consolidated Financial Statements:
Consolidated Statement of Operations for the years ended December 31,
1995, 1994 and 1993.................................................... F-8
Consolidated Balance Sheet, December 31, 1995 and 1994.................. F-9
Consolidated Statement of Stockholders' Equity for the years ended
December 31, 1995, 1994
and 1993............................................................... F-10
Consolidated Statement of Cash Flows for the years ended December 31,
1995, 1994 and 1993.................................................... F-11
Notes to Consolidated Financial Statements.............................. F-12
Quarterly Consolidated Financial Information (Unaudited)................ F-23
Financial Statement Schedule (a):
Schedule II--Valuation and Qualifying Accounts for the years ended
December 31, 1995, 1994 and 1993....................................... F-24
- --------
(a) All other schedules have been omitted because the required information is
not present or not present in material amounts.
F-1
VENCOR, INC.
SELECTED FINANCIAL DATA
AS OF AND FOR THE YEARS ENDED DECEMBER 31
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND STATISTICS)
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
OPERATIONS:
Revenues................ $2,323,956 $2,032,827 $1,727,436 $1,575,225 $1,425,629
---------- ---------- ---------- ---------- ----------
Salaries, wages and
benefits............... 1,360,018 1,167,181 985,163 921,508 847,261
Supplies................ 188,754 162,053 126,473 117,940 110,566
Rent.................... 79,476 79,371 74,323 85,942 112,196
Other operating
expenses............... 416,969 366,621 330,014 299,813 268,465
Depreciation and
amortization........... 89,478 79,519 69,126 56,408 39,179
Interest expense........ 60,918 62,828 73,559 62,532 48,364
Investment income....... (13,444) (13,126) (16,056) (12,820) (17,013)
Non-recurring
transactions........... 109,423 (4,540) 5,769 113,265 -
---------- ---------- ---------- ---------- ----------
2,291,592 1,899,907 1,648,371 1,644,588 1,409,018
---------- ---------- ---------- ---------- ----------
Income (loss) from
operations before
income taxes........... 32,364 132,920 79,065 (69,363) 16,611
Provision for income
taxes.................. 24,001 46,781 10,089 12,051 7,138
---------- ---------- ---------- ---------- ----------
Income (loss) from
operations............. 8,363 86,139 68,976 (81,414) 9,473
Reinstatement of
discontinued
operations............. - - - 24,743 4,379
Extraordinary gain
(loss) on
extinguishment of debt,
net of
income taxes .......... (23,252) (241) (2,217) 380 -
Cumulative effect on
prior years of a change
in accounting
for income taxes....... - - (1,103) - -
---------- ---------- ---------- ---------- ----------
Net income (loss).... $ (14,889) $ 85,898 $ 65,656 $ (56,291) $ 13,852
========== ========== ========== ========== ==========
Earnings (loss) per
common and common
equivalent share:
Primary:
Income (loss) from
operations............ $ .21 $ 1.37 $ 1.22 $ (1.57) $ .19
Reinstatement of
discontinued
operations............ - - - .47 .09
Extraordinary gain
(loss) on
extinguishment of
debt.................. (.37) - (.04) .01 -
Cumulative effect on
prior years of a
change in accounting
for income taxes...... - - (.02) - -
---------- ---------- ---------- ---------- ----------
Net income (loss).... $ (.16) $ 1.37 $ 1.16 $ (1.09) $ .28
========== ========== ========== ========== ==========
Fully diluted:
Income (loss) from
operations............ $ .29 $ 1.28 $ 1.22 $ (1.57) $ .19
Reinstatement of
discontinued
operations............ - - - .47 .09
Extraordinary gain
(loss) on
extinguishment of
debt.................. (.32) - (.04) .01 -
Cumulative effect on
prior years of a
change in accounting
for income taxes...... - - (.02) - -
---------- ---------- ---------- ---------- ----------
Net income (loss).... $ (.03) $ 1.28 $ 1.16 $ (1.09) $ .28
========== ========== ========== ========== ==========
Shares used in
computing earnings
(loss) per common and
common equivalent
share:
Primary................ 62,318 57,037 54,555 52,820 49,138
Fully diluted.......... 71,967 69,014 60,640 52,820 49,138
FINANCIAL POSITION:
Working capital......... $ 239,666 $ 129,079 $ 114,339 $ 114,695 $ 150,392
Assets.................. 1,912,454 1,656,205 1,563,350 1,515,812 1,004,093
Long-term debt.......... 778,100 746,212 784,801 988,998 481,080
Stockholders' equity.... 772,064 596,454 485,550 283,791 302,074
OPERATING DATA:
Number of hospitals..... 36 33 26 18 14
Number of hospital
licensed beds.......... 3,263 2,511 2,198 1,717 1,250
Number of hospital
patient days........... 489,612 403,623 293,367 223,483 150,564
Number of nursing
centers................ 311 310 325 369 380
Number of nursing center
licensed beds.......... 39,480 39,423 40,759 45,419 46,808
Number of nursing center
patient days........... 12,569,600 12,654,016 12,770,435 13,709,222 14,563,082
Number of Vencare
contracts.............. 2,008 948 128 - -
Number of pharmacy
outlets................ 55 60 88 131 118
Number of retirement
centers................ 23 22 24 29 29
Number of retirement
center apartments...... 3,122 3,049 3,254 3,565 3,514
F-2
VENCOR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Selected Financial Data on page F-2 and the consolidated financial
statements included in this Proxy Statement set forth certain data with
respect to the financial position, results of operations and cash flows of
Vencor, Inc. ("Vencor") which should be read in conjunction with the following
discussion and analysis.
HILLHAVEN AND NATIONWIDE MERGERS
The merger with The Hillhaven Corporation ("Hillhaven") (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 a merger with
Nationwide Care, Inc. ("Nationwide") (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 Consolidated Financial Statements, the
Hillhaven and Nationwide Mergers have been accounted for by the pooling-of-
interests method. Accordingly, the accompanying 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.
ANTICIPATED MERGER SYNERGIES AND IMPLEMENTATION OF NETWORK STRATEGY
As a result of the Hillhaven Merger, Vencor has become one of the nation's
largest diversified healthcare providers, offering a broad continuum of
specialized respiratory, rehabilitation and pharmacy services through its
network of hospitals, nursing centers, Vencare contract services,
institutional and retail pharmacies, and retirement communities.
Management believes that Vencor will achieve significant operational
synergies in connection with the Hillhaven Merger through (i) growth in
revenues from increased patient referrals and expansion of ancillary services
within the integrated continuum of healthcare services and (ii) reductions in
operating costs from the elimination of duplicative services, improved
purchasing power of the combined entity, and refinancing of higher rate long-
term debt. The estimated effect of these synergies could increase pretax
income approximately $100 million per year by 1997.
There can be no assurances, however, that Vencor will successfully develop
and expand its long-term care networks. The Hillhaven Merger substantially
changed the nature, scope and size of Vencor's business, and significant
efforts required to integrate the operations and management of the combined
entity could have an adverse effect on Vencor's ability to realize the
operating synergies described above.
F-3
RESULTS OF OPERATIONS
A summary of revenues follows (dollars in thousands):
1995 1994
-------------------- -------------------- 1993
AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT
---------- -------- ---------- -------- ----------
Hospitals................. $ 456,486 26.4 $ 361,111 29.5 $ 278,826
---------- ---------- ----------
Nursing centers:
Long-term care........... 1,073,413 5.5 1,017,592 3.1 987,271
Subacute medical and re-
habilitation care....... 492,912 28.7 383,097 64.3 233,133
---------- ---------- ----------
1,566,325 11.8 1,400,689 14.8 1,220,404
Non-recurring transac-
tions................... (24,500) - -
---------- ---------- ----------
1,541,825 10.1 1,400,689 14.8 1,220,404
---------- ---------- ----------
Ancillary services:
Vencare.................. 110,350 183.6 38,907 1,041.3 3,409
Pharmacies............... 178,363 (7.6) 193,104 (0.9) 194,935
Retirement communities... 46,371 17.7 39,390 31.9 29,862
---------- ---------- ----------
335,084 23.5 271,401 18.9 228,206
---------- ---------- ----------
Elimination............... (9,439) (374) -
---------- ---------- ----------
$2,323,956 14.3 $2,032,827 17.7 $1,727,436
========== ========== ==========
Hospital revenue increases in both 1995 and 1994 resulted from the
acquisition of facilities in each of the last two years and growth in same-
store patient days. Hospital patient days rose 21% to 489,612 in 1995 and 38%
to 403,623 in 1994.
Excluding the effect of non-recurring transactions, nursing center revenue
increases resulted primarily from significant growth in subacute medical and
rehabilitation therapy services. Patient days related to these services grew
16% to 1,699,500 in 1995 and 37% to 1,469,624 in 1994. Patient days related to
long-term and custodial care declined 3% to 10,870,100 in 1995 and 4% to
11,184,392 in 1994.
Growth in ancillary services revenues in both 1995 and 1994 was primarily
attributable to the expansion of the Vencare contract services business.
Vencare, which commenced operations in 1993, provides respiratory and
rehabilitation therapy services and subacute care primarily to nursing
centers. The number of Vencare contracts grew from 128 at the end of 1993 to
948 and 2,008 at December 31, 1994 and 1995, respectively.
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
charges 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 1995 also include pretax charges of $5.5 million
($3.7 million net of tax) recorded in the second quarter related primarily to
the Nationwide Merger.
Non-recurring transactions related primarily to sales of assets and nursing
center restructuring activities increased pretax income by $4.5 million ($2.7
million net of tax) in 1994. Operating results in 1993 include a pretax charge
of $5.8 million ($3.7 million net of tax) related to the restructuring of
certain nursing centers held for sale. In addition, provision for income taxes
includes a credit of approximately $19 million related to deferred income
taxes.
Income from operations for 1995 totaled $8.3 million, compared to $86.1
million and $69 million for 1994 and 1993, respectively. Excluding the effect
of non-recurring transactions, 1995 income from operations increased 22% to
$101.9 million ($1.45 per share--fully diluted) and 55% to $83.4 million
($1.24 per share-- fully diluted) in 1994. The improvement in both periods
resulted primarily from growth in (i) hospital patient
F-4
days, (ii) Vencare contracts and (iii) higher margin subacute and
rehabilitation therapy services in the nursing center business.
For more information concerning the provision for income taxes as well as
information regarding differences between effective income tax rates and
statutory rates, see Note 6 of the Notes to Consolidated Financial Statements.
LIQUIDITY
Cash provided by operations totaled $113.6 million for 1995 compared to $133
million for 1994 and $105.2 million for 1993. Cash payments in 1995 related to
non-recurring transactions reduced cash flows from operations by approximately
$32 million. In addition, certain non-recurring transaction costs for employee
benefits and consolidation activities related to the Hillhaven Merger are
expected to reduce cash flows from operations in 1996. Growth in cash flows in
1994 was primarily attributable to growth in net income.
During each of the past three years, cash flows from operations have been
adversely impacted by growth in the outstanding days of revenues in accounts
receivable. Growth in accounts receivable has been primarily related to the
integration of acquired hospital facilities and delays in payments from
certain state Medicaid programs and managed care health plans. Management
believes that these factors will continue to have an adverse effect on cash
flows from operations in 1996.
Concurrent with the consummation of the Hillhaven Merger, Vencor established
a $1 billion credit facility (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 December 31, 1995, available borrowings under
the Credit Facility approximated $300 million.
Working capital totaled $239.7 million at December 31, 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 $136.9 million for 1995
compared to $111.5 million for 1994 and $74.1 million for 1993. Planned
capital expenditures in 1996 (excluding acquisitions) are expected to
approximate $175 million and include significant expenditures related to the
expansion of Vencor's retirement community and assisted living operations.
Management believes that its capital expenditure program is adequate to
expand, improve and equip existing facilities.
Vencor also expended $59.3 million, $36.4 million and $44.1 million for
acquisitions of new facilities (and related healthcare businesses) and
previously leased nursing centers during 1995, 1994 and 1993, respectively, of
which $44.2 million, $32.4 million and $25.1 million related to additional
hospital and related ancillary facilities. Management intends to acquire
additional hospitals, nursing centers and related healthcare businesses in the
future.
Capital expenditures during the last three years were financed primarily
through internally generated funds and, in 1995, from the public offering of
2.2 million shares of common stock, the proceeds from which aggregated $66.5
million. Vencor intends to finance a substantial portion of its capital
expenditures with internally generated and borrowed funds. Sources of capital
include available borrowings under the Credit Facility, public or private debt
and equity.
As discussed in Note 8 of the Notes to Consolidated Financial Statements,
Vencor called for redemption all of its outstanding convertible debt
securities in the fourth quarter of 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 had no material effect
on earnings per common and common equivalent share. Had these transactions
occurred on December 31, 1994, the ratio of debt to debt plus stockholders'
equity would have improved from approximately 57% to 46%.
F-5
As discussed in Note 8 of the Notes to Consolidated Financial Statements,
Vencor entered into certain interest rate swap agreements in the fourth
quarter of 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% plus 1/2% to
1 1/4%.
HEALTH CARE LEGISLATION
Congress is currently considering various proposals which could 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.
Medicare revenues as a percentage of consolidated revenues were 30%, 27% and
21% for 1995, 1994 and 1993, respectively, while Medicaid percentages of
revenues approximated 33%, 36% and 41% for the respective periods.
OTHER INFORMATION
Various lawsuits and claims arising in the ordinary course of business are
pending against Vencor. As discussed in Note 10 of the Notes to Consolidated
Financial Statements, Vencor is a party to certain litigation involving the
proposed acquisition of Hillhaven by Horizon Health Corporation in January
1995. Resolution of such litigation and other loss contingencies is not
expected to have a material adverse effect on Vencor's liquidity, financial
position or results of operations.
The Credit Facility contains covenants which require maintenance of certain
financial ratios and limit amounts of additional debt and purchases of common
stock. Vencor was in compliance with all such covenants at December 31, 1995.
The Financial Accounting Standards Board issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of," effective for fiscal years beginning after December 15,
1995. The provisions of this statement, which will be adopted in 1996, are not
expected to have a material impact on the consolidated financial statements.
F-6
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Vencor, Inc.
We have audited the accompanying consolidated balance sheet of Vencor, Inc.
as of December 31, 1995 and 1994, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1995. Our audits also included the financial
statement schedule listed in the index to Item 14(a) of Form 10-K. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Vencor, Inc. at December 31, 1995 and 1994, and the consolidated results of
its operations and cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in Note 6 to the consolidated financial statements, effective
January 1, 1993, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
LOGO
Louisville, Kentucky
March 1, 1996
F-7
VENCOR, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1995 1994 1993
---------- ---------- ----------
Revenues.................................. $2,323,956 $2,032,827 $1,727,436
---------- ---------- ----------
Salaries, wages and benefits.............. 1,360,018 1,167,181 985,163
Supplies.................................. 188,754 162,053 126,473
Rent...................................... 79,476 79,371 74,323
Other operating expenses.................. 416,969 366,621 330,014
Depreciation and amortization............. 89,478 79,519 69,126
Interest expense.......................... 60,918 62,828 73,559
Investment income......................... (13,444) (13,126) (16,056)
Non-recurring transactions................ 109,423 (4,540) 5,769
---------- ---------- ----------
2,291,592 1,899,907 1,648,371
---------- ---------- ----------
Income from operations before income
taxes.................................... 32,364 132,920 79,065
Provision for income taxes................ 24,001 46,781 10,089
---------- ---------- ----------
Income from operations.................... 8,363 86,139 68,976
Extraordinary loss on extinguishment of
debt, net of income tax
benefit of $14,839 in 1995, $125 in 1994
and $1,279 in 1993....................... (23,252) (241) (2,217)
Cumulative effect on prior years of a
change in accounting
for income taxes......................... - - (1,103)
---------- ---------- ----------
Net income (loss)..................... (14,889) 85,898 65,656
Preferred stock dividend requirements and
other items.............................. (5,280) (7,753) (2,344)
Gain on redemption of preferred stock..... 10,176 - -
---------- ---------- ----------
Income (loss) available to common
stockholders......................... $ (9,993) $ 78,145 $ 63,312
========== ========== ==========
Earnings (loss) per common and common
equivalent share:
Primary:
Income from operations.................. $ .21 $ 1.37 $ 1.22
Extraordinary loss on extinguishment of
debt................................... (.37) - (.04)
Cumulative effect on prior years of a
change in accounting
for income taxes....................... - - (.02)
---------- ---------- ----------
Net income (loss)..................... $ (.16) $ 1.37 $ 1.16
========== ========== ==========
Fully diluted:
Income from operations.................. $ .29 $ 1.28 $ 1.22
Extraordinary loss on extinguishment of
debt................................... (.32) - (.04)
Cumulative effect on prior years of a
change in accounting
for income taxes....................... - - (.02)
---------- ---------- ----------
Net income (loss)..................... $ (.03) $ 1.28 $ 1.16
========== ========== ==========
Shares used in computing earnings (loss)
per common and common equivalent share:
Primary............................... 62,318 57,037 54,555
Fully diluted......................... 71,967 69,014 60,640
See accompanying notes.
F-8
VENCOR, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1995 1994
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents............................. $ 35,182 $ 39,018
Accounts and notes receivable less allowance for loss
of $16,785--1995
and $12,856--1994.................................... 360,147 272,119
Inventories........................................... 24,862 23,387
Income taxes.......................................... 77,997 24,736
Other................................................. 26,491 27,018
---------- ----------
524,679 386,278
Property and equipment, at cost:
Land.................................................. 111,232 94,514
Buildings............................................. 992,992 913,266
Equipment............................................. 403,338 302,133
Construction in progress (estimated cost to complete
and equip after December 31, 1995--$32,000).......... 44,731 57,542
---------- ----------
1,552,293 1,367,455
Accumulated depreciation.............................. (362,199) (284,964)
---------- ----------
1,190,094 1,082,491
Notes receivable less allowance for loss of $15,305--
1995 and $15,409--1994................................ 78,090 84,133
Intangible assets less accumulated amortization of
$22,149--1995 and $32,439--1994....................... 42,580 51,492
Other.................................................. 77,011 51,811
---------- ----------
$1,912,454 $1,656,205
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 99,887 $ 76,575
Salaries, wages and other compensation................ 99,937 72,130
Other accrued liabilities............................. 75,617 57,393
Income taxes.......................................... - 7,612
Long-term debt due within one year.................... 9,572 43,489
---------- ----------
285,013 257,199
Long-term debt......................................... 778,100 746,212
Deferred credits and other liabilities................. 77,277 56,340
Contingencies
Stockholders' equity:
Preferred stock, $1.00 par value; authorized 1,000
shares; issued and outstanding 98 shares--1994....... - 15
Common stock, $.25 par value; authorized 180,000
shares;
issued 72,158 shares--1995 and 59,178 shares--1994... 18,040 14,794
Capital in excess of par value........................ 684,377 472,661
Retained earnings..................................... 102,865 136,614
---------- ----------
805,282 624,084
Common treasury stock; 2,025 shares--1995 and 2,174
shares--1994......................................... (33,218) (27,630)
---------- ----------
772,064 596,454
---------- ----------
$1,912,454 $1,656,205
========== ==========
See accompanying notes.
F-9
VENCOR, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SHARES PAR VALUE
--------------------------- -----------------
COMMON CAPITAL IN RETAINED COMMON
PREFERRED COMMON TREASURY PREFERRED COMMON EXCESS OF EARNINGS TREASURY
STOCK STOCK STOCK STOCK STOCK PAR VALUE (DEFICIT) STOCK TOTAL
--------- ------- -------- --------- ------- ---------- --------- -------- --------
Balances, December 31,
1992................... 35 52,925 (621) $ 5 $13,231 $314,410 $(43,439) $ (416) $283,791
Adjustments to reflect
change in fiscal year
of
acquired entities:
Net income............ 41,862 41,862
Issuance of preferred
stock................ 122 18 119,982 120,000
Other................. 39 9 9,915 (2,070) 7,854
---- ------- ------ ---- ------- -------- -------- -------- --------
Balances, December 31,
1992, as adjusted...... 157 52,964 (621) 23 13,240 444,307 (3,647) (416) 453,507
Net income............. 65,656 65,656
Cash dividends on
preferred stock
($82.50 per share) and
provision for
redemption value...... (2,888) (47) (2,935)
Cash dividends paid by
acquired entities..... (3,613) (3,613)
Issuance of common
stock in connection
with employee benefit
plans................. 244 16 62 1,142 158 1,362
Issuance of stock by
acquired entities..... 5,024 909 5,933
Purchase of common
stock................. (2,388) (37,455) (37,455)
Other.................. 3,442 (347) 3,095
---- ------- ------ ---- ------- -------- -------- -------- --------
Balances, December 31,
1993................... 157 53,208 (2,993) 23 13,302 451,027 58,911 (37,713) 485,550
Net income............. 85,898 85,898
Cash dividends on
preferred stock
($82.50 per share) and
provision for
redemption value...... (3,066) (3,066)
In-kind dividend on
preferred stock....... 4 2 4,506 (4,508) -
Issuance of common
stock in connection
with employee benefit
plans................. 360 121 89 5,458 1,518 7,065
Issuance of common
stock in connection
with acquisitions..... 698 9,089 8,565 17,654
Exercise of common
stock purchase
warrants.............. 5,610 1,403 61,897 63,300
Tender of preferred
stock in connection
with
exercise of common
stock purchase
warrants.............. (63) (10) (63,290) (63,300)
Other.................. 3,974 (621) 3,353
---- ------- ------ ---- ------- -------- -------- -------- --------
Balances, December 31,
1994................... 98 59,178 (2,174) 15 14,794 472,661 136,614 (27,630) 596,454
Net loss............... (14,889) (14,889)
Cash dividends on
preferred stock
($67.98 per share) and
provision for
redemption value...... (2,380) (2,380)
In-kind dividend on
preferred stock....... 3 2,900 (2,900) -
Issuance of common
stock in connection
with employee benefit
plans................. 664 (150) 166 24,111 (11,098) 13,179
Issuance of common
stock in connection
with acquisitions..... 439 (3,227) 5,498 2,271
Increase in value of
common stock purchase
warrants of acquired
entities.............. 9,810 (9,810) -
Public offering of
common stock.......... 2,200 550 65,944 66,494
Conversion of long-term
debt.................. 7,260 1,815 149,645 151,460
Issuance of common
stock to grantor
trust................. 3,927 (3,927) 982 87,297 (88,279) -
Hillhaven merger:
Issuance of common
stock and related
income
tax benefits.......... 2,732 683 51,561 52,244
Termination of grantor
trust................. (3,786) 3,786 (946) (87,146) 88,279 187
Redemption of preferred
stock................. (101) (15) (91,253) (91,268)
Other.................. (17) 1 (4) 2,074 (3,770) 12 (1,688)
---- ------- ------ ---- ------- -------- -------- -------- --------
Balances, December 31,
1995................... - 72,158 (2,025) $ - $18,040 $684,377 $102,865 $(33,218) $772,064
==== ======= ====== ==== ======= ======== ======== ======== ========
See accompanying notes.
F-10
VENCOR, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
1995 1994 1993
--------- -------- ---------
Cash flows from operating activities:
Net income (loss)............................. $ (14,889) $ 85,898 $ 65,656
Adjustments to reconcile net income (loss) to
net cash
provided by operating activities:
Depreciation and amortization................ 89,478 79,519 69,126
Deferred income taxes........................ (23,570) 5,526 (11,594)
Extraordinary loss on extinguishment of
debt........................................ 38,091 366 3,496
Change in accounting for income taxes........ - - 1,103
Non-recurring transactions................... 102,166 2,500 -
Other........................................ 14,809 (1,575) (4,979)
Change in operating assets and liabilities:
Accounts and notes receivable............... (107,761) (63,247) (25,203)
Inventories and other assets................ (3,478) 12,385 (5,296)
Accounts payable............................ 22,157 4,718 2,788
Other accrued liabilities................... (3,366) 6,946 10,142
--------- -------- ---------
Net cash provided by operating
activities............................... 113,637 133,036 105,239
--------- -------- ---------
Cash flows from investing activities:
Purchase of property and equipment............ (136,893) (111,486) (74,111)
Acquisition of healthcare businesses and
previously leased facilities................. (59,343) (36,391) (44,055)
Sale of assets................................ 899 6,530 22,341
Collection of notes receivable................ 4,715 8,965 22,590
Net change in investments..................... (12,779) 14,046 79,778
Other......................................... (8,241) 3,032 (12,926)
--------- -------- ---------
Net cash used in investing activities..... (211,642) (115,304) (6,383)
--------- -------- ---------
Cash flows from financing activities:
Net change in borrowings under revolving lines
of credit.................................... 161,600 21,000 (13,000)
Issuance of long-term debt.................... 438,052 18,599 137,149
Repayment of long-term debt................... (474,896) (75,124) (153,456)
Public offering of common stock............... 66,494 - -
Other issuances of common stock............... 6,520 1,289 430
Purchase of common stock...................... - - (37,455)
Redemption of preferred stock................. (91,268) - -
Payment of dividends.......................... (2,779) (3,070) (6,501)
Other......................................... (9,554) (2,338) (2,376)
--------- -------- ---------
Net cash provided by (used in) financing
activities............................... 94,169 (39,644) (75,209)
--------- -------- ---------
Change in cash and cash equivalents............ (3,836) (21,912) 23,647
Adjustment to reflect change in fiscal year of
acquired entities............................. - - (30,388)
Cash and cash equivalents at beginning of
period........................................ 39,018 60,930 67,671
--------- -------- ---------
Cash and cash equivalents at end of period..... $ 35,182 $ 39,018 $ 60,930
========= ======== =========
Supplemental information:
Interest payments............................. $ 69,916 $ 59,733 $ 66,285
Income tax payments........................... 42,218 37,332 19,072
See accompanying notes.
F-11
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ACCOUNTING POLICIES
REPORTING ENTITY
Vencor, Inc. ("Vencor") operates an integrated network of healthcare
services in forty-one states primarily focused on the needs of the elderly. At
December 31, 1995, Vencor operated 36 hospitals (3,263 licensed beds), 311
nursing centers (39,480 licensed beds), a contract services business
("Vencare") which provides respiratory therapy and subacute medical services
primarily to nursing centers, 55 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 2.
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 3.
BASIS OF PRESENTATION
The consolidated financial statements include all subsidiaries. Significant
intercompany transactions have been eliminated.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and include amounts
based upon the estimates and judgements of management. Actual amounts may
differ from these estimates.
The Hillhaven and Nationwide Mergers have been accounted for by the pooling-
of-interests method. Accordingly, the consolidated financial statements
included herein give retroactive effect to these transactions and include the
combined operations of Vencor, Hillhaven and Nationwide for all periods
presented.
For the years 1995 and 1994, the historical financial information of
Hillhaven and Nationwide (previously reported for fiscal years ending May 31
and September 30, respectively) have been recast to conform to Vencor's annual
reporting period ending December 31. For 1993, Hillhaven and Nationwide
financial data for the year ended May 31, 1993 and September 30, 1993,
respectively, have been combined with Vencor's calendar year information.
REVENUES
Revenues are recorded based upon estimated amounts due from patients and
third-party payors for healthcare services provided, including anticipated
settlements under reimbursement agreements with Medicare, Medicaid and other
third-party payors.
A summary of revenues by payor type follows (dollars in thousands):
1995 1994 1993
---------- ---------- ----------
Medicare..................................... $ 691,297 $ 554,443 $ 365,046
Medicaid..................................... 776,278 731,491 714,147
Private and other............................ 865,820 747,267 648,243
---------- ---------- ----------
2,333,395 2,033,201 1,727,436
Elimination.................................. (9,439) (374) -
---------- ---------- ----------
$2,323,956 $2,032,827 $1,727,436
========== ========== ==========
F-12
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments with an original
maturity of three months or less. Carrying values of cash and cash equivalents
approximate fair value due to the short-term nature of these instruments.
ACCOUNTS RECEIVABLE
Accounts receivable consist primarily of amounts due from the Medicare and
Medicaid programs, other government programs, managed care health plans,
commercial insurance companies and individual patients.
INVENTORIES
Inventories consist primarily of medical supplies and are stated at the
lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Depreciation expense, computed by the straight-line method, was $79.7
million in 1995, $71.6 million in 1994 and $61.1 million in 1993. Depreciation
rates for buildings range generally from 20 to 45 years. Estimated useful
lives of equipment vary from 5 to 15 years.
The Financial Accounting Standards Board issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of", effective for fiscal years beginning after December 15,
1995. The provisions of this statement, which will be adopted in 1996, are not
expected to have a material impact on the consolidated financial statements.
INTANGIBLE ASSETS
Intangible assets consist primarily of costs in excess of the fair value of
identifiable net assets of acquired entities and are amortized using the
straight-line method over periods ranging from 10 to 15 years. Noncompete
agreement and debt issuance costs are amortized based upon the lives of the
respective contracts or loans.
PROFESSIONAL LIABILITY RISKS
Provisions for loss for professional liability risks are based upon
actuarially determined estimates. To the extent that subsequent claims
information varies from management's estimates, earnings are charged or
credited.
EARNINGS PER COMMON SHARE
Share and per share amounts have been retroactively restated to reflect a
three-for-two stock split distributed in October 1994.
The computation of earnings per common and common equivalent share gives
retroactive effect to the Hillhaven and Nationwide Mergers and is based upon
the weighted average number of common shares outstanding adjusted for the
dilutive effect of common stock equivalents (consisting primarily of stock
options) and convertible debt securities.
During 1995 all convertible debt securities were redeemed in exchange for
cash or converted into Vencor common stock. Accordingly, the computation of
fully diluted earnings per common share assumes that the equivalent number of
common shares underlying such debt securities were outstanding during the
entire year even though the result thereof is antidilutive.
F-13
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER COMMON SHARE (CONTINUED)
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, fully diluted earnings
per common and common equivalent share were increased by $.14.
NOTE 2--HILLHAVEN MERGER
On September 27, 1995, the stockholders of both Vencor and Hillhaven
approved the Hillhaven Merger, effective September 28, 1995. In connection
with the Hillhaven Merger, each share of Hillhaven common stock was converted
on a tax-free basis into 0.935 of a share of Vencor common stock, resulting in
the issuance of approximately 31,651,000 Vencor common shares.
The Hillhaven Merger has been accounted for as a pooling of interests, and
accordingly, the consolidated financial statements give retroactive effect to
the Hillhaven Merger and include the combined operations of Vencor and
Hillhaven for all periods presented. The following is a summary of the results
of operations of the separate entities for periods prior to the Hillhaven
Merger (dollars in thousands):
NON-RECURRING
VENCOR HILLHAVEN TRANSACTIONS ELIMINATION CONSOLIDATED
-------- ---------- ------------- ----------- ------------
Nine months ended Sep-
tember 30,
1995 (unaudited):
Revenues.............. $411,233 $1,322,873 $(24,500) $(3,775) $1,705,831
Income (loss) from op-
erations............. 31,566 41,367 (93,561) - (20,628)
Net income (loss)..... 30,711 20,235 (93,561) - (42,615)
1994:
Revenues.............. $400,018 $1,633,183 $ - $ (374) $2,032,827
Income from opera-
tions................ 31,416 51,976 2,747 - 86,139
Net income............ 31,416 51,735 2,747 - 85,898
1993:
Revenues.............. $282,235 $1,445,201 $ - $ - $1,727,436
Income from opera-
tions................ 22,924 30,718 15,334 - 68,976
Net income............ 22,924 27,398 15,334 - 65,656
As discussed in Note 1, financial data for Hillhaven and Nationwide for the
year ended May 31, 1993 and September 30, 1993, respectively, have been
combined with Vencor's 1993 calendar year information. Summarized operating
results for Hillhaven and Nationwide for the respective periods not included
in the accompanying consolidated statement of operations follow (dollars in
thousands):
Hillhaven:
Seven months ended December 31, 1993 (unaudited):
Revenues............................................................ $859,603
Income from operations.............................................. 41,435
Net income.......................................................... 40,422
Nationwide:
Three months ended December 31, 1993 (unaudited):
Revenues............................................................ $ 29,272
Income from operations.............................................. 1,440
Net income.......................................................... 1,440
F-14
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--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 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 consolidated financial statements give retroactive effect to
the Nationwide Merger and include the combined operations of Hillhaven and
Nationwide for all periods presented. The following is a summary of the
results of operations of the separate entities for periods prior to the
Nationwide Merger (dollars in thousands):
NON-RECURRING
HILLHAVEN NATIONWIDE TRANSACTIONS CONSOLIDATED
---------- ---------- ------------- ------------
Six months ended June 30,
1995 (unaudited):
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
1994:
Revenues................... $1,509,729 $123,454 $ - $1,633,183
Income from operations..... 47,178 4,798 2,747 54,723
Net income................. 46,937 4,798 2,747 54,482
1993:
Revenues................... $1,378,466 $ 66,735 $ - $1,445,201
Income from operations..... 25,573 5,145 15,334 46,052
Net income................. 23,905 3,493 15,334 42,732
NOTE 4--NON-RECURRING TRANSACTIONS
1995
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 charges 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).
Pretax charges aggregating $5.5 million were recorded in the second quarter
primarily in connection with the Nationwide Merger.
1994
In the first quarter of 1994, Vencor recorded a pretax charge of $2.5
million in connection with the prior disposition of certain nursing centers.
Operating results in the fourth quarter of 1994 include a pretax gain of $7
million on the sale of assets.
1993
Operating results include a pretax charge of $5.8 million related to the
restructuring of certain nursing centers held for sale. As disclosed in Note
6, provision for income taxes includes a credit of approximately $19 million
related to deferred income taxes.
F-15
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--BUSINESS COMBINATIONS OTHER THAN HILLHAVEN AND NATIONWIDE
Vencor has acquired a number of healthcare facilities (including certain
previously leased facilities) and other related businesses, substantially all
of which have been accounted for by the purchase method. Accordingly, the
aggregate purchase price of these transactions has been allocated to tangible
and identifiable intangible assets acquired and liabilities assumed based upon
their respective fair values. The consolidated financial statements include
the operations of acquired entities since the respective acquisition dates.
The pro forma effect of these acquisitions on Vencor's results of operations
prior to consummation was not significant.
The following is a summary of acquisitions consummated during the last three
years under the purchase method of accounting (dollars in thousands):
1995 1994 1993
-------- -------- --------
Fair value of assets acquired..................... $ 78,893 $ 54,045 $ 72,687
Fair value of liabilities assumed................. (16,475) - (28,632)
-------- -------- --------
Net assets acquired............................. 62,418 54,045 44,055
Cash received from acquired entities.............. (804) - -
Issuance of common stock.......................... (2,271) (17,654) -
-------- -------- --------
Net cash paid for acquisitions.................. $ 59,343 $ 36,391 $ 44,055
======== ======== ========
The purchase price paid in excess of the fair value of identifiable net
assets of acquired entities aggregated $9.7 million in 1995, $8.3 million in
1994 and $2.8 million in 1993.
NOTE 6--INCOME TAXES
Provision for income taxes consists of the following (dollars in thousands):
1995 1994 1993
-------- ------- --------
Current:
Federal......................................... $ 40,008 $34,697 $ 17,281
State........................................... 7,563 6,558 4,402
-------- ------- --------
47,571 41,255 21,683
Deferred.......................................... (23,570) 5,526 (11,594)
-------- ------- --------
$ 24,001 $46,781 $ 10,089
======== ======= ========
Reconciliation of federal statutory rate to effective income tax rate
follows:
1995 1994 1993
-------- ------- --------
Federal statutory rate............................ 35.0% 35.0% 35.0%
State income taxes, net of federal income tax ben-
efit............................................. 4.3 4.0 2.7
Merger costs...................................... 34.6 - -
Targeted jobs tax credits......................... - (4.5) -
Valuation allowance............................... - - (24.0)
Other items, net.................................. .3 .7 (.9)
-------- ------- --------
Effective income tax rate....................... 74.2% 35.2% 12.8%
======== ======= ========
F-16
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--INCOME TAXES (CONTINUED)
Effective January 1, 1993, Vencor adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", which
requires, among other things, recognition of deferred income taxes using the
liability method rather than the deferred method. The cumulative effect of
this change reduced net income by $1.1 million.
A summary of deferred income taxes by source included in the consolidated
balance sheet at December 31 follows (dollars in thousands):
1995 1994
------------------- -------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------- ----------- ------- -----------
Depreciation............................ $ - $40,912 $ - $35,982
Insurance............................... 10,269 - 10,429 -
Doubtful accounts....................... 26,723 - 12,003 -
Property................................ 10,148 - - -
Compensation............................ 19,133 - 11,424 -
Other................................... 16,127 8,584 16,631 4,395
------- ------- ------- -------
$82,400 $49,496 $50,487 $40,377
======= ======= ======= =======
Management believes that the deferred tax assets in the table above will
ultimately be realized. Management's conclusion is based primarily on the
existence of sufficient taxable income within the allowable carryback periods
to realize the tax benefits of deductible temporary differences recorded at
December 31, 1995.
Deferred income taxes totaling $54.7 million and $24.7 million at December
31, 1995 and 1994, respectively, are included in other current assets.
Noncurrent deferred income taxes, included principally in deferred credits and
other liabilities, totaled $21.8 million and $14.6 million at December 31,
1995 and 1994, respectively.
NOTE 7--PROFESSIONAL LIABILITY RISKS
Vencor has insured a substantial portion of its nursing center professional
liability risks through a wholly owned insurance subsidiary since June 1,
1994. Provisions for such risks underwritten by the subsidiary were $11.1
million for 1995 and $6.9 million for 1994.
Amounts funded for the payment of claims and expenses incident thereto,
included principally in cash and cash equivalents and other assets, aggregated
$17.5 million and $9.4 million at December 31, 1995 and 1994, respectively.
Allowances for professional liability risks, included principally in deferred
credits and other liabilities, were $15.9 million and $9.1 million at December
31, 1995 and 1994, respectively.
F-17
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--LONG-TERM DEBT
CAPITALIZATION
A summary of long-term debt at December 31 follows (dollars in thousands):
1995 1994
-------- --------
Senior collateralized debt, 4.3% to 12.3% (rates generally
floating) payable
in periodic installments through 2025..................... $174,157 $194,654
Bank revolving credit agreements due 2001 (floating rates
averaging 6.9%)........................................... 205,600 44,000
Bank term loans (floating rates averaging 6.9%) payable in
periodic
installments through 2001................................. 400,000 173,100
10 1/8% Senior Subordinated Notes due 2001................. 3,289 174,453
12 1/2% Senior Subordinated Notes due 2000................. - 8,258
6% Convertible Subordinated Notes due 2002................. - 115,000
7 3/4% Convertible Subordinated Debentures due 2002........ - 74,750
Other...................................................... 4,626 5,486
-------- --------
Total debt, average life of seven years (rates averaging
6.4%).................................................... 787,672 789,701
Amounts due within one year................................ (9,572) (43,489)
-------- --------
Long-term debt............................................ $778,100 $746,212
======== ========
CREDIT FACILITY
Concurrent with the consummation of the Hillhaven Merger, Vencor entered
into a five and one-half year $1 billion credit facility (the "Credit
Facility") comprising 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 the 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. The Credit Facility is collateralized
by the capital stock of certain subsidiaries and contains covenants which
require maintenance of certain financial ratios and limit amounts of
additional debt and purchases of common stock.
REFINANCING ACTIVITIES
During 1995 Vencor recorded $23.3 million of after-tax losses from
refinancing of long-term debt, substantially all of which was incurred in
connection with the Hillhaven Merger. Amounts refinanced in 1995 included $171
million of 10 1/8% Senior Subordinated Notes due 2001 (the "10 1/8% Notes"),
$112 million of outstanding borrowings under prior revolving credit
agreements, and $173 million of other senior debt.
In the fourth quarter of 1995, Vencor called for redemption its $115 million
of 6% Convertible Subordinated Notes due 2002 (the "6% Notes") and $75 million
of 7 3/4% Convertible Subordinated Debentures due 2002 (the "7 3/4%
Debentures") which were convertible into Vencor common stock at the rate of
$26.00 and $17.96 per share, respectively. Approximately $80.6 million
principal amount of the 6% Notes were converted into approximately 3,098,000
shares of common stock and the remainder were redeemed in exchange for cash
equal to 104.2% of face value plus accrued interest. All outstanding 7 3/4%
Debentures were converted into approximately 4,161,000 shares of common stock.
These transactions had no material effect on earnings per common and common
equivalent share.
F-18
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--LONG-TERM DEBT (CONTINUED)
REFINANCING ACTIVITIES (CONTINUED)
In September 1993 Vencor substantially modified its relationship with a
significant stockholder, Tenet Healthcare Corporation ("Tenet"), through a
recapitalization plan in which Vencor (i) purchased from Tenet twenty-three
previously leased nursing centers for $111.8 million, (ii) repaid $147.2
million of debt owed to Tenet, (iii) released Tenet from guarantees related to
$400 million of debt and limited amounts payable to Tenet under remaining
guarantee commitments and (iv) eliminated Tenet's obligation to provide
additional financing to Vencor. The recapitalization was financed through (i)
issuance to Tenet of $120 million of Series D Preferred Stock, (ii) $175
million of borrowings under a secured bank term loan, (iii) issuance of $175
million of the 10 1/8% Notes, (iv) $30 million of borrowings under an accounts
receivable-backed credit facility and (v) payment of $39 million in cash.
OTHER INFORMATION
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% plus 1/2% to
1 1/4%.
Maturities of long-term debt in years 1997 through 2000 are $54 million, $79
million, $103 million and $153 million, respectively.
The estimated fair value of Vencor's long-term debt was $777 million and
$819 million at December 31, 1995 and 1994, respectively, compared to carrying
amounts aggregating $788 million and $790 million. The estimate of fair value
includes the effect of the interest rate swap agreement and is based upon the
quoted market prices for the same or similar issues of long-term debt, or on
rates available to Vencor for debt of the same remaining maturities.
NOTE 9--LEASES
Vencor leases real estate and equipment under cancelable and non-cancelable
arrangements. Future minimum payments and related sublease income under non-
cancelable operating leases are as follows (dollars in thousands):
MINIMUM SUBLEASE
PAYMENTS INCOME
-------- --------
1996.......................................................... $46,409 $ 7,548
1997.......................................................... 40,011 7,106
1998.......................................................... 32,708 6,077
1999.......................................................... 26,677 5,049
2000.......................................................... 23,998 4,888
Thereafter.................................................... 59,051 10,280
Sublease income aggregated $13.7 million, $13.2 million and $10.4 million
for 1995, 1994 and 1993, respectively.
NOTE 10--CONTINGENCIES
Management continually evaluates contingencies based upon the best available
evidence. In addition, allowances for loss are provided currently for disputed
items that have continuing significance, such as certain third-party
reimbursements and deductions that continue to be claimed in current cost
reports and tax returns.
F-19
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--CONTINGENCIES (CONTINUED)
Management believes that allowances for loss have been provided to the
extent necessary and that its assessment of contingencies is reasonable.
Management believes that resolution of contingencies will not materially
affect Vencor's liquidity, financial position or results of operations.
Principal contingencies are described below:
Revenues--Certain third-party payments are subject to examination by
agencies administering the programs. Vencor is contesting certain issues
raised in audits of prior year cost reports.
Professional liability risks--Vencor has provided for loss for professional
liability risks based upon actuarially determined estimates. Actual
settlements may differ from the provisions for loss.
Interest rate swap agreements--Vencor is a party to certain agreements which
reduce the impact of changes in interest rates on $400 million of its floating
rate long-term debt. In the event of nonperformance by other parties to these
agreements, Vencor may incur a loss to the extent that market rates exceed
contract rates.
Guarantees of indebtedness--Letters of credit and guarantees of indebtedness
aggregated $28 million at December 31, 1995.
Income taxes--Vencor is contesting adjustments proposed by the Internal
Revenue Service for 1991.
Litigation--Various suits and claims arising in the ordinary course of
business are pending against Vencor.
Vencor and certain former Hillhaven officers and directors are parties to
various legal actions brought by Horizon Health Corporation ("Horizon") and
certain Hillhaven stockholders in connection with Horizon's proposed
acquisition of Hillhaven initiated in January 1995.
F-20
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--CAPITAL STOCK
In September 1995 Vencor common stockholders voted to increase the number of
authorized shares of common stock from 60 million to 180 million and increase
the number of common shares issuable under certain employee benefit plans from
approximately 3.2 million to 6.9 million. At December 31, 1995, approximately
6 million shares of common stock were reserved for issuance under Vencor's
stock compensation plans.
Vencor has plans under which options to purchase common stock may be granted
to officers, employees and certain directors. Options have been granted at not
less than market price on the date of grant. Exercise provisions vary, but
most options are exercisable in whole or in part beginning one to four years
after grant and ending ten years after grant. Activity in the plans is
summarized below:
SHARES
UNDER OPTION PRICE
OPTION PER SHARE
--------- ----------------
Balances, December 31, 1992........................ 1,535,588 $ .53 to $24.13
Granted.......................................... 358,350 14.17 to 24.25
Exercised........................................ (211,066) .53 to 16.80
Canceled or expired.............................. (22,046) 4.97 to 22.09
---------
Balances, December 31, 1993........................ 1,660,826 .53 to 24.25
Granted.......................................... 536,239 11.53 to 22.75
Exercised........................................ (102,230) .53 to 22.09
Canceled or expired.............................. (48,185) 5.35 to 22.09
---------
Balances, December 31, 1994........................ 2,046,650 .53 to 24.25
Granted.......................................... 1,537,820 11.50 to 32.50
Exercised........................................ (593,918) .53 to 29.14
Canceled or expired.............................. (51,151) 5.35 to 28.50
---------
Balances, December 31, 1995........................ 2,939,401 $ .53 to $32.50
=========
At December 31, 1995, options for 1,021,168 shares were exercisable. Shares
of common stock available for future grants were 2,470,066 at December 31,
1995 and 1,805,263 at December 31, 1994.
In 1993 Vencor adopted a Shareholder Rights Plan under which common
stockholders have the right to purchase Series A Preferred Stock in the event
of accumulation of or tender offer for 15% or more of Vencor's common stock.
The rights will expire in 2003 unless redeemed earlier by Vencor.
NOTE 12--EMPLOYEE BENEFIT PLANS
Vencor maintains defined contribution retirement plans covering employees
who meet certain minimum eligibility requirements. Benefits are determined as
a percentage of a participant's contributions and are generally vested based
upon length of service. Retirement plan expense was $9.7 million for 1995, $7
million for 1994 and $5.9 million for 1993. Amounts equal to retirement plan
expense are funded annually.
F-21
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--ACCRUED LIABILITIES
A summary of other accrued liabilities at December 31 follows (dollars in
thousands):
1995 1994
------- -------
Interest.................................................... $ 3,582 $10,843
Taxes other than income..................................... 22,000 18,111
Patient accounts............................................ 13,319 10,101
Merger costs................................................ 19,071 -
Other....................................................... 17,645 18,338
------- -------
$75,617 $57,393
======= =======
NOTE 14--SPIN-OFF AND RELATED TRANSACTIONS
Hillhaven became an independent public company in January 1990 as a result
of a spin-off transaction with Tenet (formerly National Medical Enterprises,
Inc.). The following is a summary of significant transactions with Tenet.
Financing--Certain long-term debt was financed by Tenet at the time of the
spin-off. As part of the recapitalization discussed in Note 8, Hillhaven
repaid all debt due Tenet in the aggregate amount of $147.2 million. In
addition, debt which had been guaranteed by Tenet totaling $266.7 million was
also retired. Interest expense paid to Tenet totaled $7.1 million in 1993.
Debt guarantees--Tenet and Hillhaven are parties to a guarantee agreement
under which Hillhaven pays a fee to Tenet in consideration for Tenet's
guarantee of certain Hillhaven obligations. Such fees totaled $3.8 million in
1995, $5 million in 1994 and $9.6 million in 1993.
Insurance--Prior to June 1, 1994, substantially all of the professional and
general liability risks of Hillhaven were insured by a subsidiary of Tenet.
Provisions for loss were $3.1 million in 1994 and $7.3 million in 1993.
Leases--At the time of the spin-off, 115 nursing centers were leased by
Hillhaven from Tenet. By the end of 1993, all such properties had been
purchased by Hillhaven. Interest expense related to these leases totaled $19.9
million in 1993. Vencor also leases certain nursing centers from a joint
venture in which Tenet has a minority interest. Lease payments to the joint
venture aggregated $9.9 million, $9.3 million and $9.7 million for 1995, 1994
and 1993, respectively.
Equity ownership--At December 31, 1995, Tenet owned 8,301,067 shares of
Vencor common stock. Prior to the Hillhaven Merger, Tenet also owned all of
the outstanding Series C and Series D Preferred Stock.
Management agreements--Fees paid by Tenet for management, consulting and
advisory services in connection with the operations of seven nursing centers
owned or leased by Tenet aggregated $2.7 million in 1995, $2.5 million in 1994
and $2.4 million in 1993.
NOTE 15--FAIR VALUE DATA
A summary of fair value data at December 31 follows (dollars in thousands):
1995 1994
----------------- -----------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
Cash and cash equivalents............... $ 35,182 $ 35,182 $ 39,018 $ 39,018
Notes receivable........................ 88,729 89,992 85,071 78,171
Long-term debt, including amounts due
within one year........................ 787,672 777,090 789,701 819,439
F-22
VENCOR, INC.
QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1995
--------------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
Revenues....................... $552,178 $578,314 $575,339 $618,125
Net income (loss):
Income (loss) from operations
(a).......................... 21,172 21,087 (62,887) 28,991
Extraordinary loss on extin-
guishment of debt............ (66) (2,725) (19,196) (1,265)
Net income (loss)........... 21,106 18,362 (82,083) 27,726
Per common share:
Primary earnings (loss):
Income (loss) from opera-
tions....................... .33 .32 (.91) .43
Extraordinary loss on extin-
guishment of debt........... - (.05) (.32) (.02)
Net income (loss)........... .33 .27 (1.23) .41
Fully diluted earnings (loss):
Income (loss) from operations
(a)......................... .31 .30 (.91) .41
Extraordinary loss on extin-
guishment of debt........... - (.04) (.32) (.02)
Net income (loss)........... .31 .26 (1.23) .39
Market prices (b):
High......................... 37 38 36 1/8 33 3/4
Low.......................... 27 1/8 28 1/2 28 1/4 26
1994
--------------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
Revenues....................... $479,822 $502,582 $519,117 $531,306
Net income:
Income from operations (c).... 15,607 23,440 20,515 26,577
Extraordinary loss on extin-
guishment of debt............ (15) (156) (58) (12)
Net income.................. 15,592 23,284 20,457 26,565
Per common share:
Primary earnings:
Income from operations....... .24 .38 .32 .43
Extraordinary loss on extin-
guishment of debt........... - - - -
Net income.................. .24 .38 .32 .43
Fully diluted earnings:
Income from operations (c)... .24 .35 .31 .38
Extraordinary loss on extin-
guishment of debt........... - - - -
Net income.................. .24 .35 .31 .38
Market prices (b):
High......................... 24 7/8 24 30 3/8 30 5/8
Low.......................... 19 1/8 20 22 3/8 25 3/4
- --------
(a) Second quarter results include $3.7 million ($.05 per share) of costs
related to the Nationwide Merger. Third quarter loss includes $89.9 million
($1.50 per share) of costs related to the Hillhaven Merger. See Note 4 of
the Notes to Consolidated Financial Statements.
(b) Vencor common stock is traded on the New York Stock Exchange (ticker
symbol--VC).
(c) First quarter results include $1.5 million ($.02 per share) of costs
incurred in connection with the prior disposition of certain nursing
centers. Fourth quarter results include a $4.2 million ($.06 per share)
gain on the sale of assets. See Note 4 of the Notes to Consolidated
Financial Statements.
F-23
VENCOR, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER DEDUCTIONS AT END
OF PERIOD EXPENSES ACCOUNTS OR PAYMENTS OF PERIOD
---------- ---------- ---------- ----------- ---------
Allowances for loss on
accounts and notes
receivable:
Year ended December
31, 1993............. $ 22,803 $ 4,735 $ - $ (6,222) $21,316
Year ended December
31, 1994............. 21,316 9,055 (344)(a) (1,762) 28,265
Year ended December
31, 1995............. 28,265 7,851 - (4,026) 32,090
Allowances for loss on
assets held for
disposition:
Year ended December
31, 1993............. $103,074 $ - $ - $(46,428) $56,646
Year ended December
31, 1994............. 56,646 - (56,646)(a)(b) - -
Year ended December
31, 1995............. - 26,900(c) - - 26,900
- --------
(a) Adjustment to reflect change in fiscal year of acquired entities.
(b) Includes $54.6 million related to reinstatement of assets previously held
for disposition.
(c) Reflects provision for loss associated with the planned disposition of
certain nursing center properties recorded in connection with the
Hillhaven Merger.
F-24
EXHIBIT 11
VENCOR, INC.
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1995 1994 1993
-------- ------- -------
PRIMARY EARNINGS (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE:
Earnings (loss):
Income from operations........................... $ 8,363 $86,139 $68,976
Preferred stock dividend requirements............ (5,280) (7,574) (2,344)
Gain on redemption of preferred stock............ 10,176 - -
Other............................................ - (179) -
-------- ------- -------
Income from operations available to common
stockholders.................................... 13,259 78,386 66,632
Extraordinary loss on extinguishment of debt, net
of income
tax benefit..................................... (23,252) (241) (2,217)
Cumulative effect on prior years of a change in
accounting
for income taxes................................ - - (1,103)
-------- ------- -------
Income (loss) available to common
stockholders.................................. $ (9,993) $78,145 $63,312
======== ======= =======
Shares used in the computation:
Weighted average common shares outstanding....... 61,196 55,522 51,985
Dilutive effect of common stock equivalents...... 1,122 1,515 2,570
-------- ------- -------
Shares used in computing earnings (loss) per
common
and common equivalent share................... 62,318 57,037 54,555
======== ======= =======
Primary earnings (loss) per common and common
equivalent share:
Income from operations........................... $ .21 $ 1.37 $ 1.22
Extraordinary loss on extinguishment of debt..... (.37) - (.04)
Cumulative effect on prior years of a change in
accounting
for income taxes................................ - - (.02)
-------- ------- -------
Net income (loss).............................. $ (.16) $ 1.37 $ 1.16
======== ======= =======
EXHIBIT 11
VENCOR, INC.
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1995 1994 1993
-------- ------- -------
FULLY DILUTED EARNINGS (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE:
Earnings (loss):
Income from operations available to common
stockholders..................................... $ 13,259 $78,386 $66,632
Interest addback on convertible securities, net of
income taxes..................................... 7,380 10,127 7,056
-------- ------- -------
Adjusted income from operations available to
common stockholders.............................. 20,639 88,513 73,688
Extraordinary loss on extinguishment of debt, net
of income
tax benefit...................................... (23,252) (241) (2,217)
Cumulative effect on prior years of a change in
accounting
for income taxes................................. - - (1,103)
-------- ------- -------
Income (loss) available to common stockholders.. $ (2,613) $88,272 $70,368
======== ======= =======
Shares used in the computation:
Weighted average common shares outstanding........ 61,196 55,522 51,985
Dilutive effect of common stock equivalents and
other dilutive securities (a).................... 10,771 13,492 8,655
-------- ------- -------
Shares used in computing earnings (loss) per
common
and common equivalent share.................... 71,967 69,014 60,640
======== ======= =======
Fully diluted earnings (loss) per common and common
equivalent share:
Income from operations............................ $ .29 $ 1.28 $ 1.22
Extraordinary loss on extinguishment of debt...... (.32) - (.04)
Cumulative effect on prior years of a change in
accounting
for income taxes................................. - - (.02)
-------- ------- -------
Net income (loss)............................... $ (.03) $ 1.28 $ 1.16
======== ======= =======
- --------
(a) During 1995 all convertible debt securities were redeemed in exchange for
cash or converted into Vencor common stock. Accordingly, the computation
of fully diluted earnings per common share assumes that the equivalent
number of common shares underlying such debt securities were outstanding
during the entire year even though the result thereof is antidilutive.
VENCOR, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
MAY 15, 1996
The undersigned hereby appoints W. Bruce Lunsford and W. Earl Reed, III, and
each of them, his or her attorneys and agents, with full power of substitution
to vote as Proxy for the undersigned, as herein stated, at the Annual Meeting
of Stockholders of Vencor, Inc. to be held at the Hyatt Regency, 320 West
Jefferson Street, Louisville, Kentucky, on Wednesday, May 15, 1996, at 9:00
a.m. (EDT), and at any adjournments thereof, according to the number of votes
the undersigned would be entitled to vote if personally present on the
proposals set forth below and in accordance with their discretion on any other
matters that may properly come before the meeting or any adjournments thereof.
The Board of Directors recommends a vote FOR the following proposals:
1. ELECTION OF DIRECTORS
FOR [_] the election of William C. Ballard Jr., Michael R. Barr, Walter F.
Beran, Donna R. Ecton, Greg D. Hudson, William H. Lomicka, W. Bruce Lunsford,
W. Earl Reed, III, R. Gene Smith and Jack O. Vance as directors, or WITHHOLD
AUTHORITY [_] to vote for all nominees in such election.
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH THE NOMINEE'S NAME ABOVE.
2.AMENDMENTS TO 1987 INCENTIVE COMPENSATION PROGRAM
Approval of Amendments to the Incentive Compensation Program to Address OBRA
Tax Deductibility Limits
[_] FOR [_] AGAINST [_] ABSTAIN
THE SHARES COVERED BY THIS PROXY WILL BE VOTED AS
SPECIFIED. IF NO SPECIFICATION IS MADE, THE PROXY WILL
BE VOTED IN FAVOR OF THE FOREGOING PROPOSALS.
PLEASE FILL IN DATE, SIGN AND RETURN THIS PROXY IN THE
ACCOMPANYING ENVELOPE.
Date: ___ , 1996
-------------------------- --------------------------
Signature Signature
(if held jointly)
Signatures of
stockholders should
correspond exactly
with the names
shown on the proxy
card. Attorneys,
trustees, execu-
tors, administra-
tors, guardians and
others signing in a
representative ca-
pacity should des-
ignate their full
titles.
If you plan to at-
tend the Annual
Meeting of Stock-
holders in person,
you will need an
admission ticket.
Please check the
following box if
you want an admis-
sion ticket mailed
to you. [_]