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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 1-10989
VENCOR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 61-1055020
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3300 PROVIDIAN CENTER
400 WEST MARKET STREET
LOUISVILLE, KY 40202
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
(502) 596-7300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OF COMMON STOCK OUTSTANDING AT MARCH 31, 1997
---------------------------- -----------------------------
Common stock, $.25 par value 69,025,884 shares
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1 of 16
VENCOR, INC.
FORM 10-Q
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Statement of Income--for the three
months ended
March 31, 1997 and 1996....................................... 3
Condensed Consolidated Balance Sheet--March 31, 1997 and
December 31, 1996............................................. 4
Condensed Consolidated Statement of Cash Flows--for the three
months ended
March 31, 1997 and 1996....................................... 5
Notes to Condensed Consolidated Financial Statements........... 6
Management's Discussion and Analysis of Financial Condition and
Item 2. Results of Operations......................................... 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................... 14
2
VENCOR, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1997 1996
-------- --------
Revenues.................................................. $680,696 $626,337
-------- --------
Salaries, wages and benefits.............................. 396,573 372,318
Supplies.................................................. 66,033 62,108
Rent...................................................... 18,948 19,167
Other operating expenses.................................. 109,786 94,155
Depreciation and amortization............................. 24,372 24,793
Interest expense.......................................... 10,660 12,480
Investment income......................................... (1,567) (3,578)
-------- --------
624,805 581,443
-------- --------
Income from operations before income taxes................ 55,891 44,894
Provision for income taxes................................ 21,909 17,284
-------- --------
Income from operations.................................... 33,982 27,610
Extraordinary loss on extinguishment of debt, net of
income tax benefit....................................... (2,259) -
-------- --------
Net income............................................ $ 31,723 $ 27,610
======== ========
Earnings per common and common equivalent share:
Primary:
Income from operations.................................. $ 0.48 $ 0.39
Extraordinary loss on extinguishment of debt............ (0.03) -
-------- --------
Net income............................................ $ 0.45 $ 0.39
======== ========
Fully diluted:
Income from operations.................................. $ 0.48 $ 0.39
Extraordinary loss on extinguishment of debt............ (0.03) -
-------- --------
Net income............................................ $ 0.45 $ 0.39
======== ========
Shares used in computing earnings per common and common
equivalent share:
Primary.................................................. 70,207 71,455
Fully diluted............................................ 70,621 71,455
See accompanying notes.
3
VENCOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
1997 1996
---------- ------------
ASSETS
Current assets:
Cash and cash equivalents............................ $ 111,315 $ 112,466
Accounts and notes receivable less allowance for loss
of
$40,218--March 31 and $23,915--December 31.......... 584,253 420,758
Inventories.......................................... 32,848 24,939
Income taxes......................................... 70,596 67,808
Other................................................ 41,997 35,162
---------- ----------
841,009 661,133
Property and equipment, at cost....................... 1,792,342 1,609,770
Accumulated depreciation.............................. (438,460) (416,608)
---------- ----------
1,353,882 1,193,162
Intangible assets less accumulated amortization of
$25,245--March 31
and $25,218--December 31............................. 374,573 31,608
Other................................................. 91,242 82,953
---------- ----------
$2,660,706 $1,968,856
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 130,157 $ 103,518
Salaries, wages and other compensation............... 176,957 111,366
Other accrued liabilities............................ 85,690 71,434
Long-term debt due within one year................... 20,515 54,692
---------- ----------
413,319 341,010
Long-term debt........................................ 1,286,843 710,507
Deferred credits and other liabilities................ 89,790 84,053
Minority interests in equity of consolidated entities. 37,271 36,195
Stockholders' equity:
Common stock, $.25 par value; authorized 180,000
shares;
issued 72,727 shares--March 31 and 72,615 shares--
December 31......................................... 18,182 18,154
Capital in excess of par value....................... 717,808 713,527
Retained earnings.................................... 182,593 150,870
---------- ----------
918,583 882,551
Common treasury stock; 3,701 shares--March 31 and
3,730 shares--December 31........................... (85,100) (85,460)
---------- ----------
833,483 797,091
---------- ----------
$2,660,706 $1,968,856
========== ==========
See accompanying notes.
4
VENCOR, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
(IN THOUSANDS)
1997 1996
-------- -------
Cash flows from operating activities:
Net income................................................. $ 31,723 $27,610
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 24,372 24,793
Deferred income taxes..................................... - 885
Extraordinary loss on extinguishment of debt.............. 3,672 -
Other..................................................... 2,216 5,752
Changes in operating assets and liabilities:
Accounts and notes receivable............................ (39,364) (38,827)
Inventories and other assets............................. (6,200) 554
Accounts payable......................................... 16,568 15,112
Income taxes............................................. 19,737 10,122
Other accrued liabilities................................ 7,303 (8,021)
-------- -------
Net cash provided by operating activities............... 60,027 37,980
-------- -------
Cash flows from investing activities:
Purchase of property and equipment......................... (60,887) (27,052)
Acquisition of TheraTx, Incorporated....................... (336,458) -
Acquisition of healthcare businesses and previously leased
facilities................................................ (9,652) -
Sale of assets............................................. 10,342 396
Collection of notes receivable............................. 420 1,875
Net change in investments.................................. (1,234) (314)
Other...................................................... (749) (7,019)
-------- -------
Net cash used in investing activities................... (398,218) (32,114)
-------- -------
Cash flows from financing activities:
Net change in borrowings under revolving lines of credit... 344,950 4,100
Issuance of long-term debt................................. 868 1,363
Repayment of long-term debt................................ (5,079) (6,019)
Payment of deferred financing costs........................ (4,225) -
Issuance of common stock................................... 604 900
Other...................................................... (78) (73)
-------- -------
Net cash provided by financing activities............... 337,040 271
-------- -------
Change in cash and cash equivalents......................... (1,151) 6,137
Cash and cash equivalents at beginning of period............ 112,466 35,182
-------- -------
Cash and cash equivalents at end of period.................. $111,315 $41,319
======== =======
Supplemental information:
Interest payments.......................................... $ 12,520 $12,466
Income tax payments........................................ 1,210 6,529
See accompanying notes.
5
VENCOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--REPORTING ENTITY
Vencor, Inc. ("Vencor" or the "Company") operates an integrated network of
healthcare services in forty-six states primarily focused on the needs of the
elderly. At March 31, 1997, Vencor operated 38 hospitals (3,325 licensed beds),
314 nursing centers (40,942 licensed beds), a contract services business
("Vencare") which provides respiratory and rehabilitation therapies, medical
services and pharmacy management services to nursing centers and other
healthcare providers, and through its affiliate, Atria Communities, Inc.
("Atria"), 25 assisted and independent living communities with 3,226 units.
On March 21, 1997, Vencor completed the acquisition of TheraTx, Incorporated
("TheraTx"), a provider of rehabilitation and respiratory therapy management
services and operator of nursing centers (the "TheraTx Merger") in a cash-for-
stock transaction. See Note 5.
NOTE 2--BASIS OF PRESENTATION
The TheraTx Merger has been accounted for by the purchase method.
Accordingly, the accompanying condensed consolidated financial statements
include the operations of TheraTx since March 21, 1997.
The accompanying condensed consolidated financial statements do not include
all of the disclosures normally required by generally accepted accounting
principles or those normally required in annual reports on Form 10-K.
Accordingly, these financial statements should be read in conjunction with the
audited consolidated financial statements of Vencor for the year ended December
31, 1996 filed with the Securities and Exchange Commission on Form 10-K.
The accompanying condensed consolidated financial statements have been
prepared in accordance with Vencor's customary accounting practices and have
not been audited. Management believes that the financial information included
herein reflects all adjustments necessary for a fair presentation of interim
results and that all such adjustments are of a normal and recurring nature.
Certain prior year amounts have been reclassified to conform with the current
year presentation.
NOTE 3--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 first quarter revenues by payor type follows (dollars in
thousands):
1997 1996
-------- --------
Medicare.............................................. $233,133 $196,728
Medicaid.............................................. 199,506 199,835
Private and other..................................... 259,777 238,015
-------- --------
692,416 634,578
Elimination........................................... (11,720) (8,241)
-------- --------
$680,696 $626,337
======== ========
NOTE 4--EARNINGS PER SHARE
The computation of earnings per common and common equivalent share 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.
6
VENCOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4--EARNINGS PER SHARE (CONTINUED)
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 "Earnings Per Share," which will require Vencor to change the current
method of computing earnings per common share and restate all prior periods.
Statement No. 128 is required to be adopted on December 31, 1997 and requires,
among other things, that the calculation of primary earnings per common share
exclude the dilutive effect of common stock options. The change in the
calculation method is not expected to have a material impact on previously
reported earnings per common share.
NOTE 5--THERATX MERGER
On March 21, 1997, the TheraTx Merger was consummated following a cash
tender offer in which Vencor paid $17.10 for each outstanding share of TheraTx
common stock. A summary of the TheraTx Merger follows (dollars in thousands):
Fair value of assets acquired................................... $629,847
Fair value of liabilities assumed............................... 278,474
--------
Net assets acquired........................................... 351,373
Cash received from acquired entity.............................. (14,915)
--------
Net cash paid................................................. $336,458
========
The purchase price paid in excess of the fair value of identifiable net
assets acquired (to be amortized over forty years by the straight-line method)
aggregated $332 million.
The pro forma effect of the TheraTx Merger assuming that the transaction
occurred on January 1, 1996 follows (dollars in thousands, except per share
amounts):
THREE MONTHS
ENDED MARCH 31,
-----------------
1997 1996
-------- --------
Revenues............................................... $774,724 $718,746
Income from operations................................. 32,991 28,187
Net income............................................. 30,732 28,187
Earnings per common and common equivalent share:
Primary:
Income from operations............................... $ 0.47 $ 0.39
Net income .......................................... 0.44 0.39
Fully diluted:
Income from operations............................... $ 0.47 $ 0.39
Net income .......................................... 0.44 0.39
Pro forma income from operations for the first quarter of 1997 includes
costs incurred by TheraTx in connection with the TheraTx Merger which reduced
net income by $2.3 million or $0.03 per common share.
NOTE 6--LONG-TERM DEBT
In connection with the TheraTx Merger, Vencor entered into a new five-year
bank credit facility (the "Vencor Credit Facility") aggregating $1.75 billion
on March 31, 1997, replacing a $1 billion bank credit facility. Interest is
payable at rates up to either (i) the prime rate or the daily federal funds
rate plus 1/2%, (ii) LIBOR plus 11/16% or (iii) the bank certificate of
deposit rate plus 13/16%. The Vencor Credit Facility is collateralized by the
capital stock of certain subsidiaries and intercompany borrowings and contains
covenants which require, among other things, maintenance of certain financial
ratios and limit amounts of additional debt and repurchases of common stock.
Outstanding borrowings under the Vencor Credit Facility aggregated $1 billion
at March 31, 1997.
7
VENCOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 6--LONG-TERM DEBT (CONTINUED)
The agreement related to the TheraTx $100 million 8% Convertible
Subordinated Notes Due 2002 (the "TheraTx Notes") assumed in connection with
the TheraTx Merger requires that Vencor offer to purchase, at the option of
the noteholders, all outstanding TheraTx Notes at face value plus accrued
interest (the "Repurchase Offering"). The Repurchase Offering was initiated on
March 31, 1997 and expires on April 30, 1997.
During the first quarter of 1997, the Company recorded an after-tax charge
of $2.3 million in connection with the refinancing of the bank credit
agreements of both Vencor and TheraTx.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BACKGROUND INFORMATION
Vencor is one of the nation's largest providers of healthcare services
focused primarily on the needs of the elderly. At March 31, 1997, Vencor
operated 38 hospitals (3,325 licensed beds), 314 nursing centers (40,942
licensed beds) and Vencare contract services which provided respiratory and
rehabilitation therapies, medical services and pharmacy management services
under approximately 4,900 contracts to nursing centers and other healthcare
providers. The Company also operated 25 assisted and independent living
communities with 3,226 units through its Atria affiliate.
On March 21, 1997, the TheraTx Merger was completed. Accordingly, the
accompanying condensed consolidated financial statements and financial and
operating data included herein include the operations of TheraTx since the
date of acquisition. See Note 5 of the Notes to Condensed Consolidated
Financial Statements.
RESULTS OF OPERATIONS
A summary of revenues follows (dollars in thousands):
FIRST QUARTER
------------------ %
1997 1996 CHANGE
-------- -------- ------
Hospitals...................................... $154,900 $130,047 19.1
Nursing centers................................ 404,253 392,983 2.9
Vencare........................................ 119,046 98,937 20.3
Atria.......................................... 14,217 12,611 12.7
-------- --------
692,416 634,578 9.1
Elimination.................................... (11,720) (8,241)
-------- --------
$680,696 $626,337 8.7
======== ========
Hospital revenue increases in the first quarter of 1997 resulted primarily
from an increase in patient days and improved patient mix. Hospital patient
days rose 9% to 159,853 from 146,015 in the same period last year. Non-
Medicaid patient days (for which payment rates are generally higher than
Medicaid) increased 13% to 138,148 in the first quarter of 1997, while
Medicaid patient days declined 10% to 21,705.
During the fourth quarter of 1996, the Company entered into an agreement to
sell 34 underperforming or non-strategic nursing centers. At March 31, 1997,
25 of these centers had been sold; the remainder are expected to be sold
pending certain regulatory approvals. In connection with the TheraTx Merger,
Vencor acquired 26 nursing centers on March 21, 1997. Excluding the effect of
these sales and acquisitions, nursing center revenues increased 4%, while
patient days declined 2%. The increase in same-store nursing center revenues
resulted primarily from price increases and a 1% increase in Medicare patient
days.
Excluding the effect of sales and acquisitions, nursing center revenue
growth was adversely impacted by a 7% decline in private patient days in the
first quarter of 1997. In an effort to attract increased volumes of Medicare
and private pay patients, the Company is implementing a plan to expend
approximately $200 million over the next two years to improve existing
facilities and expand the range of services provided to accommodate higher
acuity patients.
Vencare revenues include approximately $7.7 million related to contract
rehabilitation therapy and certain other ancillary service businesses acquired
as part of the TheraTx Merger. Excluding the TheraTx Merger, Vencare revenues
grew 13% in the first quarter of 1997 primarily as a result of growth in the
volume of contracts. Vencare ancillary service contracts in effect at March
31, 1997 totaled 4,946 compared to 4,244 at March 31, 1996.
Pharmacy revenues (included in Vencare operation) declined to $41.5 million
in the first quarter of 1997 from $43.4 million in the same period last year.
The decline was primarily attributable to the effects of the restructuring of
the institutional pharmacy business initiated in the fourth quarter of 1996
and the sale of the retail pharmacy outlets in January 1997.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
During the first quarter of 1997, Atria added four facilities containing 284
units. Revenues related to facilities operated in both periods rose 6%
primarily due to price increases and growth in ancillary services.
First quarter 1997 income from operations totaled $34.0 million ($0.48 per
fully diluted share), up 23% from $27.6 million ($0.39 per fully diluted
share) for the same period in 1996. The increase was primarily attributable to
growth in hospital operations and the continuing effect of merger synergies
achieved in 1996 in connection with the acquisition of The Hillhaven
Corporation. The operating results of TheraTx since the date of acquisition
had no effect on first quarter 1997 net income.
During the first quarter of 1997, the Company recorded an after-tax charge
of $2.3 million ($0.03 per share) in connection with the refinancing of the
bank credit agreements of both Vencor and TheraTx.
LIQUIDITY
Cash provided by operations totaled $60 million for the first quarter of
1997 compared to $38 million for the same period of 1996. The increase was
primarily attributable to growth in income from operations, reductions in
income tax payments and growth in other accrued liabilities.
Days of revenues in account receivable increased to 65 at March 31, 1997
compared to 54 at December 31, 1996. Growth in accounts receivable was
primarily related to the restructuring of Vencor's pharmacy operations (which
began in the fourth quarter of 1996) and growth in rehabilitation contracts
acquired in the TheraTx Merger. The collection cycle for rehabilitation
therapy contracts typically requires in excess of three months.
In connection with the TheraTx Merger, Vencor entered into the $1.75 billion
Vencor Credit Facility, replacing a $1 billion bank credit facility. At March
31, 1997, available borrowings under the Vencor Credit Facility approximated
$662 million. Since the completion of the initial public offering of Atria in
August 1996 (the "IPO"), Atria has maintained a $200 million bank credit
facility (the "Atria Credit Facility") to finance its expansion and
development program. At March 31, 1997, amounts available under the Atria
Credit Facility aggregated $110 million.
Working capital totaled $427.7 million at March 31, 1997 compared to $320.1
million at December 31, 1996. Cash and cash equivalents at March 31, 1997
includes $50 million related to Atria, a substantial portion of which will be
used to finance Atria's development and expansion program. Management believes
that cash flows from operations and amounts available under the Vencor Credit
Facility and the Atria Credit Facility are sufficient to meet the Company's
future expected liquidity needs.
As discussed in Note 6 of the Notes to Condensed Consolidated Financial
Statements, Vencor initiated the Repurchase Offering on March 31, 1997 in
connection with the refinancing of the TheraTx Notes. The Repurchase Offering
is expected to be financed through borrowings under the Vencor Credit
Facility. The Company expects to incur an after-tax loss of approximately $2
million in connection with the Repurchase Offering.
CAPITAL RESOURCES
Excluding acquisitions, capital expenditures totaled $60.9 million for the
first quarter of 1997 compared to $27.1 million for the same period of 1996.
Planned capital expenditures in 1997 (excluding acquisitions) are expected to
approximate $200 million to $250 million and include significant expenditures
related to nursing center improvements and the expansion of Atria's assisted
and independent living business. Management believes that its capital
expenditure program is adequate to expand, improve and equip existing
facilities. At March 31, 1997, the estimated cost to complete and equip
construction in progress approximated $60 million.
The net purchase price of the TheraTx Merger approximated $336 million and
was financed primarily through borrowings under the Vencor Credit Facility.
See Note 5 of the Notes to Condensed Consolidated Financial Statements for a
discussion of the TheraTx Merger.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
CAPITAL RESOURCES (CONTINUED)
Vencor also expended $9.7 million for the acquisition of new and previously
leased facilities in the first quarter of 1997, of which approximately $8
million related to the acquisition of two assisted living facilities.
Management intends to acquire additional hospitals, nursing centers and
ancillary service businesses in the future.
Capital expenditures were financed primarily through internally generated
funds and, in the first quarter of 1997, from borrowings under the Vencor
Credit Facility and proceeds from the IPO. Vencor intends to finance a
substantial portion of its capital expenditures with internally generated
funds, long-term debt and, with respect to Atria, proceeds from the IPO.
Sources of capital include available borrowings under the Vencor Credit
Facility, the Atria Credit Facility, public or private debt and equity.
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 total revenues were 34% and 31% for the
three months ended March 31, 1997 and 1996, respectively, while Medicaid
percentages of revenues approximated 29% and 31% for the respective periods.
On March 28, 1997, the Health Care Financing Administration ("HCFA") issued
a proposed rule to change Medicare reimbursement guidelines for therapy
services provided by Vencare (including the rehabilitation contract therapy
business acquired as part of the TheraTx Merger). Under the proposed rule,
HCFA would revise the current salary equivalency guidelines for physical
therapy and respiratory therapy services and establish new salary equivalency
guidelines for speech and occupational therapy services. The proposed
guidelines are based on a blend of data from wage rates for hospitals and
skilled nursing facilities, and include salary, fringe benefits and expense
factors. Rates are defined by specific geographic market areas, based upon a
modified version of the hospital wage index. Following a 60-day comment
period, HCFA will consider comments and issue a final rule. The new guidelines
will not become effective until 60 days after publication of the final rule in
the Federal Register. While the Company cannot predict when the final
regulation will be issued, or if changes will be made to the proposed
guidelines, management believes that the imposition of salary equivalency
guidelines on speech and occupational therapy services, as proposed, would not
significantly decrease Vencare operating margins or have a material adverse
effect on the Company's contract services business.
OTHER INFORMATION
Various lawsuits and claims arising in the ordinary course of business are
pending against Vencor. Resolution of 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 Vencor Credit Facility and the Atria Credit Facility contain customary
covenants which require, among other things, maintenance of certain financial
ratios and limit amounts of additional debt and repurchases of common stock.
Vencor was in compliance with all such covenants at March 31, 1997.
As discussed in Note 4 of the Notes to Condensed Consolidated Financial
Statements, on December 31, 1997, Vencor will be required to change the method
of computing earnings per common share on a retroactive basis. The change in
calculation method is not expected to have a material impact on previously
reported earnings per common share.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1996 QUARTERS FIRST
-------------------------------------- QUARTER
FIRST SECOND THIRD FOURTH YEAR 1997
-------- -------- -------- -------- ---------- --------
Revenues................ $626,337 $634,554 $650,551 $666,341 $2,577,783 $680,696
-------- -------- -------- -------- ---------- --------
Salaries, wages and
benefits............... 372,318 366,705 372,524 379,391 1,490,938 396,573
Supplies (a)............ 62,108 64,075 64,967 70,471 261,621 66,033
Rent.................... 19,167 19,102 19,681 19,845 77,795 18,948
Other operating expenses
(a).................... 94,155 100,797 105,275 105,570 405,797 109,786
Depreciation and
amortization........... 24,793 24,846 24,787 25,107 99,533 24,372
Interest expense........ 12,480 12,141 11,884 9,417 45,922 10,660
Investment income....... (3,578) (3,300) (3,132) (2,193) (12,203) (1,567)
Non-recurring
transactions........... - - - 125,200 125,200 -
-------- -------- -------- -------- ---------- --------
581,443 584,366 595,986 732,808 2,494,603 624,805
-------- -------- -------- -------- ---------- --------
Income (loss) from
operations before
income taxes........... 44,894 50,188 54,565 (66,467) 83,180 55,891
Provision for income
taxes.................. 17,284 19,323 21,007 (22,439) 35,175 21,909
-------- -------- -------- -------- ---------- --------
Income (loss) from
operations............. 27,610 30,865 33,558 (44,028) 48,005 33,982
Extraordinary loss on
extinguishment of debt,
net of income tax
benefit................ - - - - - (2,259)
-------- -------- -------- -------- ---------- --------
Net income (loss)... $ 27,610 $ 30,865 $ 33,558 $(44,028) $ 48,005 $ 31,723
======== ======== ======== ======== ========== ========
Earnings (loss) per
common and common
equivalent share:
Primary:
Income (loss) from
operations........... $ 0.39 $ 0.43 $ 0.48 $ (0.64) $ 0.68 $ 0.48
Extraordinary loss on
extinguishment of
debt................. - - - - - ( 0.03)
-------- -------- -------- -------- ---------- --------
Net income (loss)... $ 0.39 $ 0.43 $ 0.48 $ (0.64) $ 0.68 $ 0.45
======== ======== ======== ======== ========== ========
Fully diluted:
Income (loss) from
operations........... $ 0.39 $ 0.43 $ 0.48 $ (0.64) $ 0.68 $ 0.48
Extraordinary loss on
extinguishment of
debt................. - - - - - ( 0.03)
-------- -------- -------- -------- ---------- --------
Net income (loss)... $ 0.39 $ 0.43 $ 0.48 $ (0.64) $ 0.68 $ 0.45
======== ======== ======== ======== ========== ========
Shares used in computing
earnings (loss) per
common and common
equivalent share:
Primary............... 71,455 71,373 70,028 68,874(b) 70,702 70,207
Fully diluted......... 71,455 71,373 70,028 68,874(b) 70,702 70,621
- --------
(a) Certain prior year amounts have been reclassified to conform with the
current year presentation.
(b) Excludes the dilutive effect of common stock equivalents.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
OPERATING DATA
(UNAUDITED)
1996 QUARTERS FIRST
---------------------------------------------- QUARTER
FIRST SECOND THIRD FOURTH YEAR 1997
---------- ---------- ---------- ---------- ---------- ----------
REVENUES (IN THOUSANDS):
Hospitals............... $ 130,047 $ 138,612 $ 144,228 $ 138,381 $ 551,268 $ 154,900
Nursing centers (a)..... 392,983 393,642 409,258 419,258 1,615,141 404,253
Vencare (a)............. 98,937 100,625 95,804 103,702 399,068 119,046
Atria................... 12,611 12,837 13,038 13,360 51,846 14,217
---------- ---------- ---------- ---------- ---------- ----------
634,578 645,716 662,328 674,701 2,617,323 692,416
Elimination............. (8,241) (11,162) (11,777) (8,360) (39,540) (11,720)
---------- ---------- ---------- ---------- ---------- ----------
$ 626,337 $ 634,554 $ 650,551 $ 666,341 $2,577,783 $ 680,696
========== ========== ========== ========== ========== ==========
HOSPITAL DATA:
End of period data:
Number of hospitals.... 36 37 37 38 38
Number of licensed
beds.................. 3,225 3,265 3,265 3,325 3,325
Revenue mix %:
Medicare............... 57 60 58 62 59 64
Medicaid............... 13 12 14 10 12 10
Private and other...... 30 28 28 28 29 26
Patient days:
Medicare............... 94,087 95,680 90,224 95,137 375,128 106,646
Medicaid............... 24,152 23,898 26,280 23,191 97,521 21,705
Private and other...... 27,776 28,735 27,716 29,268 113,495 31,502
---------- ---------- ---------- ---------- ---------- ----------
146,015 148,313 144,220 147,596 586,144 159,853
========== ========== ========== ========== ========== ==========
NURSING CENTER DATA:
End of period data:
Number of nursing
centers............... 311 310 313 313 314
Number of licensed
beds.................. 39,510 39,378 39,640 39,619 40,942
Revenue mix %:
Medicare............... 30 30 29 30 30 32
Medicaid............... 44 44 45 45 44 43
Private and other...... 26 26 26 25 26 25
Patient days:
Medicare............... 405,049 396,568 383,458 377,570 1,562,645 406,642
Medicaid............... 2,011,158 2,012,524 2,082,664 2,085,104 8,191,450 1,962,287
Private and other...... 711,313 698,389 705,783 697,183 2,812,668 663,575
---------- ---------- ---------- ---------- ---------- ----------
3,127,520 3,107,481 3,171,905 3,159,857 12,566,763 3,032,504
========== ========== ========== ========== ========== ==========
ANCILLARY SERVICES DATA:
End of period data:
Number of Vencare
contracts (b)......... 4,244 4,295 4,150 4,346 4,946
Number of Atria
communities........... 22 22 22 21 25
Number of Atria units.. 3,022 3,022 3,022 2,942 3,226
- --------
(a) Certain prior year amounts have been reclassified to conform with the
current year presentation.
(b) Restated to reflect the integration of the institutional pharmacy business
into Vencare in the fourth quarter of 1996.
13
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
2.1 Agreement and Plan of Merger dated as of February 9, 1997 among
TheraTx, the Company and Peach Acquisition Corp. ("Peach"). Exhibit
(c)(1) to the Company's and Peach's Statement on Schedule 14D-1, dated
February 14, 1997 (Comm. File No. 1-10989) is hereby incorporated by
reference.
2.2 Amendment No. 1 to Agreement and Plan of Merger dated as of February
28, 1997 among TheraTx, the Company and Peach. Exhibit (c)(3) of
Amendment No. 2 to the Company's and Peach's Statement on Schedule 14D-
1, dated March 3, 1997 (Comm. File No. 1-10989) is hereby incorporated
by reference.
4.1 $1.75 billion Credit Agreement dated as of March 17, 1997, amended as
of March 31, 1997, among the Company, the various banks party hereto,
the Swingline Bank party, the LC Issuing Banks party hereto, the
Managing Agents and Co-Agents party hereto, Morgan Guaranty Trust
Company of New York, as Documentation Agent and Collateral Agent, and
Nationsbank, N.A., as Administrative Agent.
4.2 Amendment No. 1 to $200 million Credit Agreement dated as of January
15, 1997 among Atria Communities, Inc., as borrower, the lending
institutions named therein, PNC Bank, National Association, as
Administrative Agent, PNC Bank, Kentucky, Inc., as Managing Agent, and
National City Bank of Kentucky, as Documentation Agent.
4.3 Amendment No. 2 to $200 million Credit Agreement dated as of March 27,
1997 among Atria Communities, Inc., as borrower, the lending
institutions named therein, PNC Bank, National Association, as
Administrative Agent, PNC Bank, Kentucky, Inc., as Managing Agent, and
National City Bank of Kentucky, as Documentation Agent.
4.4 Indenture dated February 15, 1995 between TheraTx and The First
National Bank of Boston, as Trustee. Exhibit 4.5 to Amendment No. 1 to
the Annual Report on Form 10-K of TheraTx for the year ended December
31, 1994 (Comm. File No. 0-24292) is hereby incorporated by reference.
4.5 First Supplemental Indenture, dated as of March 21, 1997, between
TheraTx and State Street Bank and Trust Company, as successor trustee.
Exhibit 4.2 to the Annual Report on Form 10-K for TheraTx for the year
ended December 31, 1996 (Comm. File No. 0-24292) is hereby incorporated
by reference.
4.6 Form of 8% Convertible Subordinated Note of TheraTx due 2002. Exhibit
4.5.1 to the Registration Statement on Form S-1 of TheraTx (Reg. No.
33-92402) is hereby incorporated by reference.
10.1 TheraTx, Incorporated Amended and Restated 1994 Stock Option/Stock
Issuance Plan, as amended. Exhibit 10.7 to the Registration Statement
on Form S-1 of TheraTx (Reg. No. 33-92402) is hereby incorporated by
reference.
10.2 Amendment to the TheraTx, Incorporated Amended and Restated 1994 Stock
Option/Stock Issuance Plan. Exhibit 4.7 to the Company's Registration
Statement on Form S-8 (Reg. No. 333-25519) is hereby incorporated by
reference.
10.3 TheraTx, Incorporated 1996 Stock Option/Stock Issuance Plan. Exhibit
99.1 to the Registration Statement on Form S-8 of TheraTx (Reg. No.
333-15171) is hereby incorporated by reference.
10.4 1989 Amended and Restated Stock Option Plan of Helian Health Group,
Inc. ("Helian"). Exhibit 10.47 to the Registration Statement on Form S-
8 of Helian (Reg. No. 33-31520), Amendment No. 2 thereto filed November
21, 1989 and Post-Effective Amendment No. 1 and No. 2 thereto filed
November 22, 1990 and January 16, 1991, is hereby incorporated by
reference.
10.5 Form of Indemnification Agreement for directors of TheraTx. Exhibit
10.13 to the Registration Statement on Form S-1 of TheraTx (Reg. No.
33-78786) is hereby incorporated by reference.
14
PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
(A) EXHIBITS (CONTINUED):
10.6 Amendment No. 1 to Parent Guaranty dated as of March 27, 1997 among
Atria Communities, Inc., as Borrower, Vencor, Inc., as Parent
Guarantor, First Healthcare Corporation, Northwest Health Care, Inc.,
Medisave Pharmacies, Inc., Nationwide Care, Inc., TheraTx,
Incorporated, Vencor Hospitals Illinois, Inc., Vencor Hospitals South,
Inc., Vencor Hospitals East, Inc., Vencor Hospitals California, Inc.,
Vencor Hospitals Texas, Ltd., Ventech Systems, Inc., Pasatiempo
Development Corp., VCI Specialty Services, Inc., and Vencor
Properties, Inc., as Supporting Guarantors, and PNC Bank, National
Association, as Administrative Agent.
11 Statement Re: Computation of earnings per common and common equivalent
share for the three months ended March 31, 1997 and 1996.
27 Financial Data Schedule (included only in filings submitted under the
Electronic Data Gathering Analysis and Retrieval ("EDGAR") system).
(B) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the three months ended March 31,
1997.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VENCOR, INC.
Date: April 23, 1997 /s/ W. BRUCE LUNSFORD
----------------------------------
W. Bruce Lunsford
Chairman of the Board, President
and Chief Executive Officer
Date: April 23, 1997 /s/ W. EARL REED, III
----------------------------------
W. Earl Reed, III
Executive Vice President and Chief
Financial Officer (Principal
Financial Officer)
16