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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 SEPTEMBER 30, 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 OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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 SEPTEMBER 30, 1997
---------------------------- ---------------------------------
Common stock, $.25 par value 69,745,314 shares
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1 of 21
VENCOR, INC.
FORM 10-Q
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Statement of Income -- for the quarter
and nine months ended September 30, 1997 and 1996.............. 3
Condensed Consolidated Balance Sheet -- September 30, 1997 and
December 31, 1996.............................................. 4
Condensed Consolidated Statement of Cash Flows -- for the nine
months ended
September 30, 1997 and 1996.................................... 5
Notes to Condensed Consolidated Financial Statements............ 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 11
Item 3. Quantitative and Qualitative Disclosure About Market Risk....... 20
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................ 20
2
VENCOR, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
QUARTER NINE MONTHS
------------------ ----------------------
1997 1996 1997 1996
-------- -------- ---------- ----------
Revenues.......................... $844,740 $650,551 $2,303,731 $1,911,442
-------- -------- ---------- ----------
Salaries, wages and benefits...... 479,962 372,524 1,326,341 1,111,547
Supplies.......................... 81,148 64,967 224,509 191,150
Rent.............................. 23,954 19,681 64,685 57,950
Other operating expenses.......... 131,977 105,275 360,698 300,227
Depreciation and amortization..... 33,385 24,787 87,236 74,426
Interest expense.................. 34,773 11,884 66,107 36,505
Investment income................. (1,759) (3,132) (5,072) (10,010)
-------- -------- ---------- ----------
783,440 595,986 2,124,504 1,761,795
-------- -------- ---------- ----------
Income from operations before
income taxes..................... 61,300 54,565 179,227 149,647
Provision for income taxes........ 24,398 21,007 71,333 57,614
-------- -------- ---------- ----------
Income from operations............ 36,902 33,558 107,894 92,033
Extraordinary loss on
extinguishment of debt,
net of income tax benefit........ (346) - (4,195) -
-------- -------- ---------- ----------
Net income..................... $ 36,556 $ 33,558 $ 103,699 $ 92,033
======== ======== ========== ==========
Earnings per common and common
equivalent share:
Primary:
Income from operations.......... $ 0.52 $ 0.48 $ 1.52 $ 1.30
Extraordinary loss on
extinguishment of debt......... (0.01) - (0.06) -
-------- -------- ---------- ----------
Net income..................... $ 0.51 $ 0.48 $ 1.46 $ 1.30
======== ======== ========== ==========
Fully diluted:
Income from operations.......... $ 0.52 $ 0.48 $ 1.52 $ 1.30
Extraordinary loss on
extinguishment of debt......... (0.01) - (0.06) -
-------- -------- ---------- ----------
Net income..................... $ 0.51 $ 0.48 $ 1.46 $ 1.30
======== ======== ========== ==========
Shares used in computing earnings
per common and
common equivalent share:
Primary.......................... 71,266 70,028 70,857 70,800
Fully diluted.................... 71,277 70,028 71,043 70,800
See accompanying notes.
3
VENCOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 73,995 $ 112,466
Accounts and notes receivable less allowance for
loss of
$46,850 -- September 30 and $23,915 -- December
31................................................ 664,857 420,758
Inventories........................................ 35,731 24,939
Income taxes....................................... 103,363 67,808
Other.............................................. 50,408 35,162
---------- ----------
928,354 661,133
Property and equipment, at cost..................... 1,910,212 1,609,770
Accumulated depreciation............................ (459,616) (416,608)
---------- ----------
1,450,596 1,193,162
Intangible assets less accumulated amortization of
$31,895 -- September 30
and $25,218 -- December 31......................... 720,040 31,608
Investments in affiliates........................... 175,915 7,965
Other............................................... 73,302 74,988
---------- ----------
$3,348,207 $1,968,856
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 109,801 $ 103,518
Salaries, wages and other compensation............. 150,570 111,366
Other accrued liabilities.......................... 140,244 71,434
Long-term debt due within one year................. 27,385 54,692
---------- ----------
428,000 341,010
Long-term debt...................................... 1,890,279 710,507
Deferred credits and other liabilities.............. 77,969 84,053
Minority interest in equity of consolidated
entities........................................... 3,048 36,195
Stockholders' equity:
Common stock, $.25 par value; authorized 180,000
shares;
issued 73,168 shares -- September 30 and 72,615
shares -- December 31............................ 18,292 18,154
Capital in excess of par value..................... 757,671 713,527
Retained earnings.................................. 254,569 150,870
---------- ----------
1,030,532 882,551
Common treasury stock; 3,423 shares -- September 30
and
3,730 shares -- December 31....................... (81,621) (85,460)
---------- ----------
948,911 797,091
---------- ----------
$3,348,207 $1,968,856
========== ==========
See accompanying notes.
4
VENCOR, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
(IN THOUSANDS)
1997 1996
---------- ----------
Cash flows from operating activities:
Net income............................................ $ 103,699 $ 92,033
Adjustments to reconcile net income to net cash
provided by operating
activities:
Depreciation and amortization........................ 87,236 74,426
Extraordinary loss on extinguishment of debt......... 6,829 -
Deferred income taxes................................ 14,028 651
Other................................................ (11,461) 8,809
Changes in operating assets and liabilities:
Accounts and notes receivable....................... (86,020) (40,364)
Inventories and other assets........................ (3,462) 2,020
Accounts payable.................................... (10,395) 14,634
Income taxes........................................ 48,209 44,019
Other accrued liabilities........................... 9,552 (30,823)
---------- ----------
Net cash provided by operating activities.......... 158,215 165,405
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment.................... (202,145) (85,437)
Acquisition of TheraTx, Incorporated.................. (357,149) -
Acquisition of Transitional Hospitals Corporation..... (607,871) -
Acquisition of other healthcare businesses and
previously leased facilities......................... (36,630) (26,236)
Sale of assets........................................ 44,613 9,103
Collection of notes receivable........................ 3,428 54,589
Net change in investments............................. (4,595) (445)
Other................................................. (17,023) (1,590)
---------- ----------
Net cash used in investing activities.............. (1,177,372) (50,016)
---------- ----------
Cash flows from financing activities:
Net change in borrowings under revolving lines of
credit............................................... 388,500 1,000
Issuance of long-term debt............................ 734,630 7,865
Repayment of long-term debt........................... (129,444) (24,377)
Payment of deferred financing costs................... (21,425) (1,816)
Public offering of common stock....................... - 53,089
Issuances of common stock............................. 8,631 1,379
Repurchase of common stock............................ - (43,681)
Other................................................. (206) (46)
---------- ----------
Net cash provided by (used in) financing
activities........................................ 980,686 (6,587)
---------- ----------
Change in cash and cash equivalents.................... (38,471) 108,802
Cash and cash equivalents at beginning of period....... 112,466 35,182
---------- ----------
Cash and cash equivalents at end of period............. $ 73,995 $ 143,984
========== ==========
Supplemental information:
Interest payments..................................... $ 50,499 $ 38,692
Income tax payments................................... 10,940 23,553
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 46 states primarily focused on the needs of the
elderly. At September 30, 1997, Vencor operated 60 long-term acute care
hospitals (5,302 licensed beds), 310 nursing centers (40,608 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"), 37 assisted and independent living
communities with 3,890 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"), pursuant to a
cash tender offer. See Note 5.
On June 24, 1997, Vencor acquired substantially all of the outstanding
common stock of Transitional Hospitals Corporation ("Transitional"), an
operator of 19 long-term acute care hospitals, pursuant to a cash tender
offer. Vencor completed the merger of its wholly owned subsidiary with and
into Transitional on August 26, 1997 (the "Transitional Merger"). See Note 6.
NOTE 2 -- BASIS OF PRESENTATION
The TheraTx Merger and Transitional Merger have been accounted for by the
purchase method, which requires that the accounts of acquired entities be
included with those of Vencor since the acquisition of a controlling interest.
Accordingly, the accompanying condensed consolidated financial statements
include the operations of TheraTx and Transitional since March 21, 1997 and
June 24, 1997, respectively.
In July 1997, Atria issued 6.9 million shares of its common stock in a
public offering (the "Atria Offering"). Atria intends to use the net proceeds
from the Atria Offering, approximately $91 million, to finance the development
and acquisition of assisted living communities and for general corporate
purposes. The Company now owns approximately 43% of the outstanding common
stock of Atria. Accordingly, the operations of Atria, which were consolidated
with those of the Company prior to the Atria Offering, have been accounted for
under the equity method since July 1, 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 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.
6
VENCOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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 revenues by payor type follows (dollars in thousands):
QUARTER NINE MONTHS
------------------ ----------------------
1997 1996 1997 1996
-------- -------- ---------- ----------
Medicare...................... $304,291 $206,270 $ 783,558 $ 607,753
Medicaid...................... 216,942 212,978 623,316 611,835
Private and other............. 341,890 243,080 945,782 723,034
-------- -------- ---------- ----------
863,123 662,328 2,352,656 1,942,622
Elimination................... (18,383) (11,777) (48,925) (31,180)
-------- -------- ---------- ----------
$844,740 $650,551 $2,303,731 $1,911,442
======== ======== ========== ==========
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.
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................................... $627,789
Fair value of liabilities assumed............................... 255,725
--------
Net assets acquired........................................... 372,064
Cash received from acquired entity.............................. (14,915)
--------
Net cash paid................................................. $357,149
========
The purchase price paid in excess of the fair value of identifiable net
assets acquired (to be amortized over 40 years by the straight-line method)
aggregated $312 million.
7
VENCOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 6 -- TRANSITIONAL MERGER
On June 24, 1997, Vencor acquired approximately 95% of the outstanding
shares of common stock of Transitional through a cash tender offer in which
Vencor paid $16.00 per common share. Vencor completed the merger of its wholly
owned subsidiary with and into Transitional on August 26, 1997. A summary of
the Transitional Merger follows (dollars in thousands):
Fair value of assets acquired................................... $710,114
Fair value of liabilities assumed............................... 49,369
--------
Net assets acquired........................................... 660,745
Cash received from acquired entity.............................. (52,874)
--------
Net cash paid................................................. $607,871
========
The purchase price paid in excess of the fair value of identifiable net
assets acquired (to be amortized over 40 years by the straight-line method)
aggregated $335 million.
NOTE 7 -- PRO FORMA INFORMATION
The pro forma effect of the TheraTx Merger and Transitional Merger assuming
that the transactions occurred on January 1, 1996 follows (dollars in
thousands, except per share amounts):
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1997 1996
---------- ----------
Revenues........................................... $2,552,001 $2,589,385
Income from operations............................. 71,212 115,167
Net income......................................... 67,017 115,167
Earnings per common and common equivalent share:
Primary:
Income from operations........................... $ 1.01 $ 1.63
Net income....................................... 0.95 1.63
Fully diluted:
Income from operations........................... $ 1.00 $ 1.63
Net income....................................... 0.94 1.63
For both periods presented, pro forma financial data have been derived by
combining the financial results of Vencor and TheraTx (based upon nine month
reporting periods ending on September 30) and Transitional (based upon nine
month reporting periods ending on August 31).
Pro forma income from operations for 1997 includes costs incurred by both
TheraTx and Transitional in connection with the acquisitions which reduced net
income by $29.7 million. Pro forma income from operations for 1996 include a
gain on the sale of Transitional's United Kingdom psychiatric hospitals
aggregating $33 million.
8
VENCOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 8 -- 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 $1.0 billion bank credit facility. On June 24,
1997, the Vencor Credit Facility was amended to increase the amount of the
credit to $2.0 billion. Interest is payable, depending on certain leverage
ratios and the period of borrowing, at rates up to either (i) the prime rate
plus 1/2% or the daily federal funds rate plus 1%, (ii) LIBOR plus 1 1/8% or
(iii) the bank certificate of deposit rate plus 1 1/4%. 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 approximated $1.1 billion at September 30, 1997.
On July 21, 1997, Vencor completed the private placement of $750 million
aggregate principal amount of 8 5/8% Senior Subordinated Notes due 2007 (the
"Notes"). The Notes were issued at 99.575% of face value and are not callable
by the Company until 2002. The net proceeds of the offering were used to
reduce outstanding borrowings under the Vencor Credit Facility. In connection
with the issuance of the Notes, the Company initiated an offer on October 8,
1997 to exchange the Notes for publicly registered Notes having identical
terms and conditions.
In connection with the TheraTx Merger and the Transitional Merger, Vencor
refinanced a substantial portion of its long-term debt. These transactions
resulted in after-tax losses of $2.3 million, $1.6 million and $346,000 in the
first, second and third quarters of 1997, respectively.
The Company 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. The agreements expire in varying
amounts through April 1998 and provide for fixed rates at 5.7% plus 3/8% to 1
1/8%. In addition, the Company entered into interest rate swap agreements in
May 1997 on $300 million of floating rate debt. These agreements expire in
$100 million increments in May 1999, November 1999 and May 2000, and provide
for fixed rates at 6.4% plus 3/8% to 1 1/8%. The fair values of the swap
agreements are not recognized in the condensed consolidated financial
statements.
NOTE 9 -- LITIGATION
The Company's subsidiary, American X-Rays, Inc. ("AXR"), is the defendant in
a qui tam lawsuit which was filed in the United States District Court for the
Eastern District of Arkansas and served on the Company on July 7, 1997. The
United States Department of Justice intervened in the suit which was brought
under the Federal Civil False Claims Act. AXR provides portable X-ray services
to nursing facilities (including those operated by the Company) and other
healthcare providers. The Company acquired an interest in AXR when The
Hillhaven Corporation was merged into the Company in September 1995 and
purchased the remaining interest in AXR in February 1996. The suit alleges
that AXR submitted false claims to the Medicare and Medicaid programs. In
conjunction with the qui tam action, the United States Attorney's office for
the Eastern District of Arkansas also is conducting a criminal investigation
into the allegations contained in the qui tam complaint. The Company is
cooperating fully in the investigation.
On June 19, 1997, a class action lawsuit was filed in the United States
District Court for the District of Nevada on behalf of a class consisting of
all persons who sold shares of Transitional during the period from February
26, 1997 through May 4, 1997, inclusive. The complaint alleges that
Transitional purchased shares of
9
VENCOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 9 -- LITIGATION (CONTINUED)
its common stock from members of the investing public after it had received a
written offer to acquire all of Transitional's common stock and without making
the required disclosure that such an offer had been made. The complaint
further alleges that defendants disclosed that there were "expressions of
interest" in acquiring Transitional when, in fact, at that time, the
negotiations had reached an advanced stage with actual firm offers at
substantial premiums to the trading price of Transitional's stock having been
made which were actively being considered by Transitional's Board of
Directors. The complaint asserts claims pursuant to Sections 10(b) and 20(a)
of the Securities Exchange Act of 1934, as amended, and common law principles
of negligent misrepresentation and names as defendants Transitional as well as
certain former senior executives and directors of Transitional. The Company is
vigorously defending this action.
On June 6, 1997, Transitional announced that it had been advised that it is
a target of a grand jury investigation being conducted by the United States
Attorney's Office for the District of Massachusetts arising from activities of
Transitional's formerly owned dialysis business. The investigation involves an
alleged illegal arrangement in the form of a partnership which existed from
June 1987 to June 1992 between Damon Corporation and Transitional.
Transitional spun off its dialysis business, now called Vivra Incorporated, on
September 1, 1989. The Company is cooperating fully in the investigation.
NOTE 10 -- ASSET DISPOSITIONS
On September 15, 1997, Vencor announced that Behavioral Healthcare
Corporation ("BHC") had entered into a definitive agreement to merge with a
subsidiary of Charter Behavioral Health Systems ("CBHS"). Vencor acquired a
61% ownership interest in BHC as part of the Transitional Merger. Vencor's
proceeds from the transaction, expected to approximate $140 million, will be
used to reduce outstanding borrowings.
Under the terms of the agreement, CBHS will acquire all of the issued and
outstanding capital stock of BHC for cash. This transaction, which is subject
to acceptable financing, due diligence by CBHS and certain regulatory
approvals, is expected to close during the fourth quarter of 1997.
On September 30, and October 1, 1997, Vencor completed the sale of certain
non-strategic assets acquired in connection with the TheraTx Merger. Proceeds
from these transactions of approximately $40 million were used to reduce
outstanding borrowings in October 1997.
For accounting purposes, no gain or loss will be recorded as a result of
these dispositions. The underlying valuation of the Company's investment in
such assets, which will be determined from the dispositions, will be adjusted
by the purchase method of accounting applied in connection with the respective
acquisition.
NOTE 11 -- SUBSEQUENT EVENT
On October 23, 1997, the Board of Directors authorized the repurchase of up
to 3,000,000 shares of Vencor common stock.
10
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 September 30, 1997, Vencor
operated 60 long-term acute care hospitals (5,302 licensed beds), 310 nursing
centers (40,608 licensed beds) and Vencare contract services which provided
respiratory and rehabilitation therapies, medical services and pharmacy
management services under approximately 4,160 contracts to nursing centers and
other healthcare providers. The Company also operated 37 assisted and
independent living communities with 3,890 units through its Atria affiliate.
On March 21, 1997, the TheraTx Merger was completed. TheraTx primarily
provided rehabilitation and respiratory therapy management services and
operated 26 nursing centers with annualized revenues approximating $425
million. See Note 5 of the Notes to Condensed Consolidated Financial
Statements.
On June 24, 1997, Vencor acquired a controlling interest in Transitional and,
on August 26, 1997, completed the Transitional Merger. Transitional primarily
operated 19 long-term acute care hospitals with annualized revenues
approximating $350 million. See Note 6 of the Notes to Condensed Consolidated
Financial Statements.
In July 1997, the Atria Offering was completed. The Company now owns
approximately 43% of the outstanding common stock of Atria. Accordingly, the
operations of Atria, which were consolidated with those of the Company prior to
the Atria Offering, have been accounted for under the equity method since July
1, 1997.
RESULTS OF OPERATIONS
A summary of revenues follows (dollars in thousands):
QUARTER NINE MONTHS
------------------ % ---------------------- %
1997 1996 CHANGE 1997 1996 CHANGE
-------- -------- ------ ---------- ---------- ------
Hospitals............... $233,993 $144,228 62.2 $ 554,687 $ 412,887 34.3
Nursing centers......... 445,943 409,258 9.0 1,282,521 1,195,883 7.2
Vencare................. 183,187 95,804 91.2 484,249 295,366 63.9
Atria................... - 13,038 31,199 38,486
-------- -------- ---------- ----------
863,123 662,328 30.3 2,352,656 1,942,622 21.1
Elimination............. (18,383) (11,777) (48,925) (31,180)
-------- -------- ---------- ----------
$844,740 $650,551 29.8 $2,303,731 $1,911,442 20.5
======== ======== ========== ==========
Hospital revenue increases in both the third quarter and nine months ended
September 30, 1997 resulted primarily from an increase in patient days,
improved patient mix and, in the third quarter of 1997, the effect of the
Transitional Merger. Revenues and patient days attributable to the Transitional
Merger were $65 million and 64,900, respectively. Hospital patient days rose
52% in the third quarter to 219,244 and 24% in the nine month period to
542,424, compared to 144,220 and 438,548 for the respective periods last year.
Non-Medicaid patient days (for which payment rates are generally higher than
Medicaid) increased 65% in the third quarter to 194,905 from 117,940 last year
and 30% for the nine month period to 473,210 from 364,218. Medicaid patient
days declined 7% in both the third quarter and nine month period to 24,339 and
69,214 from 26,280 and 74,330, respectively.
During the fourth quarter of 1996, the Company entered into an agreement to
sell 34 underperforming or non-strategic nursing centers. At September 30,
1997, 28 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
sales and acquisitions, nursing center revenues increased 4% in both the third
quarter and nine month period, while patient days declined 2% in both the third
quarter and nine month period compared to last year. The increase in same-store
nursing center revenues resulted primarily from price increases.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Excluding the effect of sales and acquisitions, nursing center revenue
growth was adversely impacted by a 5% and 6% decline in private patient days
in the third quarter and first nine months of 1997, respectively. In an effort
to attract increased volumes of Medicare and private pay patients, the Company
is implementing a plan to expend approximately $200 million by the end of 1998
to improve existing facilities and expand the range of services provided to
accommodate higher acuity patients.
Vencare revenues for the third quarter and nine months ended September 30,
1997 include approximately $68 million and $143 million, respectively, 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 19% in the third quarter and 17% for the nine
months primarily as a result of growth in volume of ancillary services
provided per contract. Vencare ancillary service contracts in effect at
September 30, 1997 totaled 4,160 compared to 4,150 at September 30, 1996.
During 1997, the Company terminated approximately 700 contracts which did not
meet certain growth criteria and eliminated approximately 670 contracts by
combining previously separate pharmacy, enteral and infusion therapy
contracts. These transactions did not materially impact Vencare operating
results.
Pharmacy revenues (included in Vencare operations) declined 1% to $42
million in the third quarter of 1997 from $43 million in the same period last
year and 3% in the nine month period to $127 million from $130 million. 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.
Third quarter 1997 income from operations totaled $36.9 million ($0.52 per
fully diluted share), up 10% from $33.6 million ($0.48 per fully diluted
share) for the same period in 1996. For the nine month period, income from
operations rose 17% to $107.9 million from $92.0 million in 1996. The increase
in both periods was primarily attributable to growth in hospital and Vencare
operations and the continuing effect of merger synergies achieved in 1996 in
connection with the acquisition of The Hillhaven Corporation.
The earnings growth rate in the third quarter of 1997 was less than those
reported for the first two quarters of 1997 primarily due to the dilution
associated with the Transitional Merger and the issuance of the Notes in July
1997, the proceeds from which were used to repay bank debt averaging 6 3/4%.
On October 22, 1997, in connection with the third quarter earnings release,
the Company also announced that it expects fourth quarter earnings to
approximate $0.40 to $0.45 per share. Excluding the effect of non-recurring
charges, the Company reported earnings per share of $0.51 in the fourth
quarter of 1996.
The downward revision in the earnings estimate is based primarily on
management's recently completed analysis of the Balanced Budget Act of 1997
(the "Budget Act") and the expected impact of such legislation on both its
business and the long-term healthcare industry in general. As the long-term
care industry transitions to the new Medicare prospective payment system
(scheduled to be implemented on July 1, 1998), management believes that the
volume of ancillary services provided per patient day to nursing center
patients could decline and that sales of new contracts are likely to slow from
historical levels. Accordingly, management expects that revenue growth rates
in its Vencare contract services business may moderate, which could result in
declining operating margins in the short term. In addition, in an effort to
more rapidly execute its integrated network strategy, the Company expects to
accelerate expenditures for marketing its full-service Vencare ancillary
service products and implementing its clinical and financial information
systems beyond previously anticipated levels. Costs associated with these
actions are expected to negatively impact earnings for the remainder of this
year and into 1998. See "Healthcare Legislation."
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY
Cash provided by operations totaled $158.2 million for the first nine months
of 1997 compared to $165.4 million for the same period of 1996. Despite growth
in operating income, cash flows of 1997 were adversely impacted by growth in
accounts receivable. Days of revenues in accounts receivable increased to 69
at September 30, 1997 compared to 54 at December 31, 1996. Growth in accounts
receivable was primarily related to (i) growth in rehabilitation contracts
resulting from the TheraTx Merger (collection periods for which typically
require in excess of three months), (ii) delays associated with the conversion
of Transitional hospital financial systems and (iii) timing of Medicare lump
sum advances. Management has initiated certain procedures to reduce accounts
receivable days from current levels.
In connection with the TheraTx Merger, Vencor entered into the $1.75 billion
Vencor Credit Facility, replacing a $1.0 billion bank credit facility. On June
24, 1997, the Vencor Credit Facility was amended to increase the amount of the
credit to $2.0 billion. At September 30, 1997, available borrowings under the
Vencor Credit Facility approximated $855 million. As discussed in Note 8 of
the Notes to Condensed Consolidated Financial Statements, Vencor completed a
$750 million private placement of long-term debt on July 21, 1997. The net
proceeds of the offering were used to reduce outstanding borrowings under the
Vencor Credit Facility.
Working capital totaled $500.4 million at September 30, 1997 compared to
$320.1 million at December 31, 1996. Management believes that cash flows from
operations and amounts available under the Vencor Credit Facility are
sufficient to meet the Company's future expected liquidity needs.
At September 30, 1997, the Company's ratio of debt to debt and equity
totaled 67%. As discussed in Note 11 of the Notes to Condensed Consolidated
Financial Statements, the Board of Directors authorized the repurchase of up
to 3,000,000 shares of Vencor common stock. The Company expects to finance the
repurchase from available borrowings under the Vencor Credit Facility.
Proceeds from the sale of certain non-strategic assets acquired from TheraTx
and Transitional will be used to repay long-term debt. See Note 10 of the
Notes to Condensed Consolidated Financial Statements.
CAPITAL RESOURCES
Excluding acquisitions, capital expenditures totaled $202.1 million for the
first nine months of 1997 (including $23 million related to Atria) compared to
$85.4 million for the same period of 1996. Planned capital expenditures in
1997 (excluding amounts for acquisitions) related to hospitals, nursing
centers and Vencare are expected to approximate $230 million and include
significant expenditures related to nursing center improvements. Management
believes that its capital expenditure program is adequate to expand, improve
and equip existing facilities. At September 30, 1997, the estimated cost to
complete and equip construction in progress approximated $75 million.
During 1997, Vencor expended approximately $357 million and $608 million in
connection with the TheraTx Merger and the Transitional Merger, respectively.
These acquisitions were financed primarily through the issuance of long-term
debt. See Notes 5 and 6 of the Notes to Condensed Consolidated Financial
Statements for a discussion of these acquisitions.
Vencor also expended $36.6 million for the acquisition of new and previously
leased facilities in the first nine months of 1997 compared to $26.2 million
in the same period in 1996. Subject to certain limitations related to
management's plans to reduce long-term debt discussed above, the Company
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 1997, from proceeds from the issuance of the Notes and
borrowings under the Vencor Credit Facility. Vencor intends to finance a
substantial portion of its capital expenditures with internally generated
funds and long-term debt. Sources of capital include available borrowings
under the Vencor Credit Facility, public or private debt and equity.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
HEALTHCARE LEGISLATION
The Budget Act, enacted in August 1997, contains extensive changes to the
Medicare and Medicaid programs intended to reduce payments under those
programs by $115 billion and $13 billion, respectively, over the next five
years. Under the Budget Act, annual growth rates for Medicare were reduced
from over 10% to approximately 7.5% for the next five years based on specific
program baseline projections from the last five years. Virtually all spending
reductions will come from providers and changes in program components. The
Budget Act affects reimbursement systems for each of the Company's operating
units.
The Budget Act will reduce payments to many of the Company's facilities,
including, but not limited to, payments made to the Company's hospitals, by
reducing incentive payments pursuant to the Tax Equity and Fiscal
Responsibility Act of 1982 (TEFRA), reducing allowable costs for capital
expenditures and bad debts and reducing payments for services to patients
transferred from a prospective payment system hospital. The Budget Act also
requires the establishment of a prospective payment system for nursing centers
for cost reporting periods beginning on or after July 1, 1998. During the
first three years, the per diem rates for nursing centers will be based on a
blend of facility-specific costs and Federal costs. Thereafter, the per diem
rates will be based solely on Federal costs. The rates for such services have
not been established or published. The prospective payment system also will
cover ancillary services provided to nursing center patients under the
Company's Vencare contract services business. The Budget Act also requires the
establishment of an interim prospective payment system for home health
services for cost reporting periods beginning on or after October 1, 1997. The
interim system will establish per visit limits and per beneficiary annual
limits. A permanent prospective payment system for home health services will
be established by October 1, 1999.
In March 1997, the Health Care Financing Administration ("HCFA") issued a
proposed rule to change Medicare reimbursement guidelines for therapy services
provided by the Company (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 speech and
occupational therapy services. The proposed guidelines are based on a blend of
data from wage rates for hospitals and nursing facilities, and include salary,
fringe benefit and expense factors. Rates are defined by specific geographic
market areas, based upon a modified version of the hospital wage index. HCFA
is considering comments but has not issued a final rule at this time. The
Company cannot predict when the final regulation will be issued or if changes
will be made to the proposed guidelines.
There also continue to be state legislative proposals that would impose more
limitations on government and private payments to providers of healthcare
services such as the Company. Many states have enacted or are considering
enacting measures that are designed to reduce their Medicaid expenditures and
to make certain changes to private healthcare insurance. Some states also are
considering regulatory changes that include a moratorium on the designation of
additional long-term care hospitals and changes in Medicaid reimbursement
system for long-term care hospitals. There are also a number of legislative
proposals including cost caps and the establishment of Medicaid prospective
payment systems for nursing centers. Moreover, by repealing the Boren
Amendment, the Budget Act eases the restrictions on the states' ability to
reduce their Medicaid reimbursement levels.
There can be no assurance that the Budget Act, proposed salary equivalency
rates, future healthcare legislation or other changes in the administration or
interpretation of governmental healthcare programs will not have a material
adverse effect on the Company's financial condition, results of operations or
liquidity.
Medicare revenues as a percentage of total revenues were 33% and 31% for the
nine months ended September 30, 1997 and 1996, respectively, while Medicaid
percentages of revenues approximated 27% and 31% for the respective periods.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
OTHER INFORMATION
On June 11, 1997, the Company announced that it had entered into a strategic
alliance with CNA Financial Corporation ("CNA") to develop and market a long-
term care insurance product. Under this arrangement, CNA will offer a long-
term care insurance product which features as a benefit certain discounts for
services provided by members of the Company's network of long-term care
providers. Members of this network will act as preferred providers of care to
covered insureds. CNA will be responsible for underwriting, marketing and
distributing the product through its national distribution network and will
provide administrative insurance product support. The Company will reinsure
50% of the risk through a newly formed wholly owned insurance company and will
provide utilization review services. Management believes that the alliance
with CNA will not have a material impact on the Company's liquidity, financial
position or results of operations in 1997.
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. See Note 9 of the Notes to
Condensed Consolidated Financial Statements.
The Vencor Credit Facility contains 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 September 30, 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.
Disclosures set forth in this Item 2 include forward-looking statements. The
Company cautions investors that any forward-looking statements made by the
Company are not guarantees of future performance. Numerous factors exist
which, in some cases have affected, and in the future could cause results to
differ materially from these expectations. These statements involve risks and
uncertainties concerning the implementation and interpretation of the
healthcare reform legislation and other factors as detailed from time to time
in the Company's filings with the Securities and Exchange Commission,
including its Current Report on Form 8-K dated October 21, 1997.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1997 QUARTERS
----------------------------
NINE
FIRST SECOND THIRD MONTHS
-------- -------- -------- ----------
Revenues............................ $680,696 $778,295 $844,740 $2,303,731
-------- -------- -------- ----------
Salaries, wages and benefits........ 396,573 449,806 479,962 1,326,341
Supplies............................ 66,033 77,328 81,148 224,509
Rent................................ 18,948 21,783 23,954 64,685
Other operating expenses............ 109,786 118,935 131,977 360,698
Depreciation and amortization....... 24,372 29,479 33,385 87,236
Interest expense.................... 10,660 20,674 34,773 66,107
Investment income................... (1,567) (1,746) (1,759) (5,072)
-------- -------- -------- ----------
624,805 716,259 783,440 2,124,504
-------- -------- -------- ----------
Income from operations before income
taxes.............................. 55,891 62,036 61,300 179,227
Provision for income taxes.......... 21,909 25,026 24,398 71,333
-------- -------- -------- ----------
Income from operations.............. 33,982 37,010 36,902 107,894
Extraordinary loss on extinguishment
of debt,
net of income tax benefit.......... (2,259) (1,590) (346) (4,195)
-------- -------- -------- ----------
Net income....................... $ 31,723 $ 35,420 $ 36,556 $ 103,699
======== ======== ======== ==========
Earnings per common and common
equivalent share:
Primary:
Income from operations............ $ 0.48 $ 0.52 $ 0.52 $ 1.52
Extraordinary loss on
extinguishment of debt........... (0.03) (0.02) (0.01) (0.06)
-------- -------- -------- ----------
Net income....................... $ 0.45 $ 0.50 $ 0.51 $ 1.46
======== ======== ======== ==========
Fully diluted:
Income from operations............ $ 0.48 $ 0.52 $ 0.52 $ 1.52
Extraordinary loss on
extinguishment of debt........... (0.03) (0.02) (0.01) (0.06)
-------- -------- -------- ----------
Net income....................... $ 0.45 $ 0.50 $ 0.51 $ 1.46
======== ======== ======== ==========
Shares used in computing earnings
per common
and common equivalent share:
Primary............................ 70,207 71,016 71,266 70,857
Fully diluted...................... 70,621 71,144 71,277 71,043
16
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 SECOND THIRD FOURTH YEAR
-------- -------- -------- -------- ----------
Revenues................ $626,337 $634,554 $650,551 $666,341 $2,577,783
-------- -------- -------- -------- ----------
Salaries, wages and
benefits............... 372,318 366,705 372,524 379,391 1,490,938
Supplies (a)............ 62,108 64,075 64,967 70,471 261,621
Rent.................... 19,167 19,102 19,681 19,845 77,795
Other operating expenses
(a).................... 94,155 100,797 105,275 105,570 405,797
Depreciation and
amortization........... 24,793 24,846 24,787 25,107 99,533
Interest expense........ 12,480 12,141 11,884 9,417 45,922
Investment income....... (3,578) (3,300) (3,132) (2,193) (12,203)
Non-recurring
transactions........... - - - 125,200 125,200
-------- -------- -------- -------- ----------
581,443 584,366 595,986 732,808 2,494,603
-------- -------- -------- -------- ----------
Income (loss) from
operations before
income taxes........... 44,894 50,188 54,565 (66,467) 83,180
Provision for income
taxes.................. 17,284 19,323 21,007 (22,439) 35,175
-------- -------- -------- -------- ----------
Net income (loss)..... $ 27,610 $ 30,865 $ 33,558 $(44,028) $ 48,005
======== ======== ======== ======== ==========
Earnings (loss) per
common and common
equivalent share:
Primary................ $ 0.39 $ 0.43 $ 0.48 $ (0.64) $ 0.68
Fully diluted.......... $ 0.39 $ 0.43 $ 0.48 $ (0.64) $ 0.68
Shares used in computing
earnings (loss) per
common and common
equivalent share:
Primary................ 71,455 71,373 70,028 68,874 (b) 70,702
Fully diluted.......... 71,455 71,373 70,028 68,874 (b) 70,702
- --------
(a) Certain prior year amounts have been reclassified to conform with the
current year presentation.
(b) Excludes the dilutive effect of common stock equivalents.
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
OPERATING DATA
(UNAUDITED)
1997 QUARTERS
----------------------------------
NINE
FIRST SECOND THIRD MONTHS
---------- ---------- ---------- ----------
REVENUES (IN THOUSANDS):
Hospitals....................... $ 154,900 $ 165,794 $ 233,993 $ 554,687
Nursing centers................. 404,253 432,325 445,943 1,282,521
Vencare......................... 119,046 182,016 183,187 484,249
Atria........................... 14,217 16,982 - 31,199
---------- ---------- ---------- ----------
692,416 797,117 863,123 2,352,656
Elimination..................... (11,720) (18,822) (18,383) (48,925)
---------- ---------- ---------- ----------
$ 680,696 $ 778,295 $ 844,740 $2,303,731
========== ========== ========== ==========
HOSPITAL DATA:
End of period data:
Number of hospitals............ 38 58 60
Number of licensed beds........ 3,325 5,107 5,302
Revenue mix %:
Medicare....................... 64 61 65 63
Medicaid....................... 10 9 8 9
Private and other.............. 26 30 27 28
Patient days:
Medicare....................... 106,646 107,799 152,640 367,085
Medicaid....................... 21,705 23,170 24,339 69,214
Private and other.............. 31,502 32,358 42,265 106,125
---------- ---------- ---------- ----------
159,853 163,327 219,244 542,424
========== ========== ========== ==========
NURSING CENTER DATA:
End of period data:
Number of nursing centers...... 314 311 310
Number of licensed beds........ 40,942 40,869 40,608
Revenue mix %:
Medicare....................... 32 32 33 32
Medicaid....................... 43 42 42 43
Private and other.............. 25 26 25 25
Patient days:
Medicare....................... 406,642 417,336 400,798 1,224,776
Medicaid....................... 1,962,287 2,039,999 2,078,236 6,080,522
Private and other.............. 663,575 734,593 729,289 2,127,457
---------- ---------- ---------- ----------
3,032,504 3,191,928 3,208,323 9,432,755
========== ========== ========== ==========
ANCILLARY SERVICES DATA:
End of period data:
Number of Vencare contracts.... 4,946 4,524 4,160
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
OPERATING DATA (CONTINUED)
(UNAUDITED)
1996 QUARTERS
------------------------------------------
FIRST SECOND THIRD FOURTH YEAR
--------- --------- --------- --------- ----------
REVENUES (IN THOUSANDS):
Hospitals............... $ 130,047 $ 138,612 $ 144,228 $ 138,381 $ 551,268
Nursing centers (a)..... 392,983 393,642 409,258 419,258 1,615,141
Vencare (a)............. 98,937 100,625 95,804 103,702 399,068
Atria................... 12,611 12,837 13,038 13,360 51,846
--------- --------- --------- --------- ----------
634,578 645,716 662,328 674,701 2,617,323
Elimination............. (8,241) (11,162) (11,777) (8,360) (39,540)
--------- --------- --------- --------- ----------
$ 626,337 $ 634,554 $ 650,551 $ 666,341 $2,577,783
========= ========= ========= ========= ==========
HOSPITAL DATA:
End of period data:
Number of hospitals.... 36 37 37 38
Number of licensed
beds.................. 3,225 3,265 3,265 3,325
Revenue mix %:
Medicare............... 57 60 58 62 59
Medicaid............... 13 12 14 10 12
Private and other...... 30 28 28 28 29
Patient days:
Medicare............... 94,087 95,680 90,224 95,137 375,128
Medicaid............... 24,152 23,898 26,280 23,191 97,521
Private and other...... 27,776 28,735 27,716 29,268 113,495
--------- --------- --------- --------- ----------
146,015 148,313 144,220 147,596 586,144
========= ========= ========= ========= ==========
NURSING CENTER DATA:
End of period data:
Number of nursing
centers............... 311 310 313 313
Number of licensed
beds.................. 39,510 39,378 39,640 39,619
Revenue mix %:
Medicare............... 30 30 29 30 30
Medicaid............... 44 44 45 45 44
Private and other...... 26 26 26 25 26
Patient days:
Medicare............... 405,049 396,568 383,458 377,570 1,562,645
Medicaid............... 2,011,158 2,012,524 2,082,664 2,085,104 8,191,450
Private and other...... 711,313 698,389 705,783 697,183 2,812,668
--------- --------- --------- --------- ----------
3,127,520 3,107,481 3,171,905 3,159,857 12,566,763
========= ========= ========= ========= ==========
ANCILLARY SERVICES DATA:
End of period data:
Number of Vencare
contracts (b)......... 4,244 4,295 4,150 4,346
- --------
(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.
19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
4.1 Form of 8 5/8% Senior Subordinated Notes due 2007. Exhibit 4.1 to
the Current Report on Form
8-K of the Company dated July 21, 1997 (Comm. File No. 1-10989) is
hereby incorporated by reference.
4.2 Indenture dated as of July 21, 1997 between the Company and The
Bank of New York, as Trustee. Exhibit 4.2 to the Current Report on
Form 8-K of the Company dated July 21, 1997 (Comm. File No. 1-
10989) is hereby incorporated by reference.
10.1 Registration Rights Agreement dated as of July 21, 1997 by and
among the Company, J.P.
Morgan Securities, Inc., NationsBanc Capital Markets, Inc.,
Goldman, Sachs & Co. and Merrill
Lynch, Pierce, Fenner & Smith, Inc. Exhibit 99.1 to the Current
Report on Form 8-K of the
Company dated July 21, 1997 (Comm. File No. 1-10989) is hereby
incorporated by reference.
11 Statement Re: Computation of earnings per common and common
equivalent share for the
quarter and nine months ended September 30, 1997 and 1996.
27 Financial Data Schedule (included only in filing submitted under
the Electronic Data
Gathering, Analysis and Retrieval system).
(B) REPORTS ON FORM 8-K:
The Company filed on July 3, 1997 a Current Report on Form 8-K dated June
19, 1997 reporting the completion of the tender offer for Transitional
Hospitals Corporation. The Company also filed on August 11, 1997 a Current
Report on Form 8-K/A dated June 19, 1997 which included pro forma financial
statements relating to the acquisition of Transitional Hospitals Corporation.
In addition, the Company filed on July 31, 1997 a Current Report on Form 8-K
dated July 21, 1997 reporting the completion of the private placement of $750
million aggregate principal amount of its 8 5/8% Senior Subordinated Notes due
2007.
20
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.
/s/ W. BRUCE LUNSFORD
Date: October 23, 1997 ________________________________
- ---------------------- W. Bruce Lunsford Chairman of the
Board, President and Chief
Executive Officer
/s/ W. EARL REED, III
Date: October 23, 1997 ________________________________
- ---------------------- W. Earl Reed, III
Executive Vice President and Chief
Financial Officer (Principal
Financial Officer)
21