SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
X
|
Quarterly
Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31,
2009
|
|
Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
|
Commission
File Number: 1-8351
CHEMED
CORPORATION
(Exact
name of registrant as specified in its charter)
Delaware
|
|
31-0791746
|
(State
or other jurisdiction of incorporation or organization)
|
|
(IRS
Employer Identification No.)
|
2600
Chemed Center, 255 E. Fifth Street, Cincinnati, Ohio
|
|
45202
|
(Address
of principal executive offices)
|
|
(Zip
code)
|
|
(513)
762-6900
(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 periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).
Large
accelerated filer
|
X
|
|
Accelerated
filer
|
|
|
Non-accelerated
filer
|
|
|
Smaller
reporting company
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Class
|
|
Amount
|
|
Date
|
|
|
|
|
|
Capital
Stock $1 Par Value
|
|
22,583,072
Shares
|
|
March
31, 2009
|
|
|
|
|
|
CHEMED
CORPORATION AND
SUBSIDIARY
COMPANIES
Index
PART I. FINANCIAL
INFORMATION
|
Item 1. Financial
Statements
|
CHEMED
CORPORATION AND SUBSIDIARY COMPANIES
|
UNAUDITED CONSOLIDATED BALANCE SHEET
|
(in
thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
11,859
|
|
|
$
|
3,628
|
|
Accounts
receivable less allowances of $10,822 (2008 - $10,320)
|
|
|
107,364
|
|
|
|
98,076
|
|
Inventories
|
|
|
8,083
|
|
|
|
7,569
|
|
Current
deferred income taxes
|
|
|
16,692
|
|
|
|
15,392
|
|
Prepaid
expenses and other current assets
|
|
|
9,046
|
|
|
|
11,268
|
|
Total
current assets
|
|
|
153,044
|
|
|
|
135,933
|
|
Investments
of deferred compensation plans held in trust
|
|
|
22,803
|
|
|
|
22,628
|
|
Properties
and equipment, at cost, less accumulated
|
|
|
|
|
|
|
|
|
depreciation
of $104,715 (2008 - $101,689)
|
|
|
73,631
|
|
|
|
76,962
|
|
Identifiable
intangible assets less accumulated
|
|
|
|
|
|
|
|
|
amortization
of $22,275 (2008 - $21,272)
|
|
|
60,748
|
|
|
|
61,303
|
|
Goodwill
|
|
|
450,000
|
|
|
|
448,721
|
|
Other
assets
|
|
|
13,999
|
|
|
|
14,075
|
|
Total
Assets
|
|
$
|
774,225
|
|
|
$
|
759,622
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
48,883
|
|
|
$
|
52,810
|
|
Current
portion of long-term debt
|
|
|
10,070
|
|
|
|
10,169
|
|
Income
taxes
|
|
|
13,872
|
|
|
|
2,181
|
|
Accrued
insurance
|
|
|
37,840
|
|
|
|
35,994
|
|
Accrued
compensation
|
|
|
33,069
|
|
|
|
40,741
|
|
Other
current liabilities
|
|
|
14,715
|
|
|
|
12,180
|
|
Total
current liabilities
|
|
|
158,449
|
|
|
|
154,075
|
|
Deferred
income taxes
|
|
|
22,239
|
|
|
|
22,477
|
|
Long-term
debt
|
|
|
149,122
|
|
|
|
158,210
|
|
Deferred
compensation liabilities
|
|
|
22,691
|
|
|
|
22,417
|
|
Other
liabilities
|
|
|
4,581
|
|
|
|
5,612
|
|
Total
Liabilities
|
|
|
357,082
|
|
|
|
362,791
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
Capital
stock - authorized 80,000,000 shares $1 par; issued
|
|
|
|
|
|
|
|
|
29,585,826
shares (2008 - 29,514,877 shares)
|
|
|
29,586
|
|
|
|
29,515
|
|
Paid-in
capital
|
|
|
316,209
|
|
|
|
313,516
|
|
Retained
earnings
|
|
|
355,723
|
|
|
|
337,739
|
|
Treasury
stock - 7,111,514 shares (2008 - 7,100,475 shares), at
cost
|
|
|
(286,427
|
)
|
|
|
(285,977
|
)
|
Deferred
compensation payable in Company stock
|
|
|
2,052
|
|
|
|
2,038
|
|
Total
Stockholders' Equity
|
|
|
417,143
|
|
|
|
396,831
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
774,225
|
|
|
$
|
759,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to unaudited financial statements.
|
|
|
|
|
|
|
|
|
|
CHEMED
CORPORATION AND SUBSIDIARY COMPANIES
|
UNAUDITED CONSOLIDATED STATEMENT OF
INCOME
|
(in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Service
revenues and sales
|
|
$
|
294,938
|
|
|
$
|
285,268
|
|
Cost
of services provided and goods sold (excluding
depreciation)
|
|
|
207,013
|
|
|
|
205,812
|
|
Selling,
general and administrative expenses
|
|
|
45,793
|
|
|
|
42,727
|
|
Depreciation
|
|
|
5,325
|
|
|
|
5,438
|
|
Amortization
|
|
|
1,536
|
|
|
|
1,450
|
|
Other
operating expense
|
|
|
545
|
|
|
|
-
|
|
Total
costs and expenses
|
|
|
260,212
|
|
|
|
255,427
|
|
Income
from operations
|
|
|
34,726
|
|
|
|
29,841
|
|
Interest
expense
|
|
|
(2,844
|
)
|
|
|
(3,109
|
)
|
Other
expense--net
|
|
|
(276
|
)
|
|
|
(1,189
|
)
|
Income
before income taxes
|
|
|
31,606
|
|
|
|
25,543
|
|
Income
taxes
|
|
|
(12,267
|
)
|
|
|
(9,683
|
)
|
Net
income
|
|
$
|
19,339
|
|
|
$
|
15,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
Per Share
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
0.86
|
|
|
$
|
0.66
|
|
Average
number of shares outstanding
|
|
|
22,394
|
|
|
|
23,873
|
|
|
|
|
|
|
|
|
|
|
Diluted
Earnings Per Share
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
0.85
|
|
|
$
|
0.65
|
|
Average
number of shares outstanding
|
|
|
22,647
|
|
|
|
24,285
|
|
|
|
|
|
|
|
|
|
|
Cash
Dividends Per Share
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to unaudited financial statements.
|
|
|
|
|
|
|
|
|
|
CHEMED
CORPORATION AND SUBSIDIARY COMPANIES
|
|
UNAUDITED CONSOLIDATED STATEMENT OF CASH
FLOWS
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
Flows from Operating Activities
|
|
|
|
|
|
|
Net
income
|
|
$
|
19,339
|
|
|
$
|
15,860
|
|
Adjustments
to reconcile net income to net cash provided
|
|
|
|
|
|
|
|
|
by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
6,861
|
|
|
|
6,888
|
|
Provision
for uncollectible accounts receivable
|
|
|
3,071
|
|
|
|
2,002
|
|
Stock
option expense
|
|
|
2,042
|
|
|
|
1,391
|
|
Provision
for deferred income taxes
|
|
|
(1,529
|
)
|
|
|
(1,678
|
)
|
Amortization
of discount on convertible notes
|
|
|
1,612
|
|
|
|
1,612
|
|
Amortization
of debt issuance costs
|
|
|
154
|
|
|
|
154
|
|
Changes
in operating assets and liabilities, excluding
|
|
|
|
|
|
|
|
|
amounts
acquired in business combinations:
|
|
|
|
|
|
|
|
|
(Increase)/Decrease
in accounts receivable
|
|
|
(12,399
|
)
|
|
|
12,112
|
|
Increase
in inventories
|
|
|
(514
|
)
|
|
|
(843
|
)
|
Decrease
in prepaid expenses and other current assets
|
|
|
1,002
|
|
|
|
1,488
|
|
Decrease
in accounts payable and other current liabilities
|
|
|
(7,900
|
)
|
|
|
(5,679
|
)
|
Increase
in income taxes
|
|
|
13,056
|
|
|
|
6,677
|
|
Increase
in other assets
|
|
|
(203
|
)
|
|
|
(293
|
)
|
Increase
in other liabilities
|
|
|
486
|
|
|
|
532
|
|
Excess
tax benefit on share-based compensation
|
|
|
(145
|
)
|
|
|
(825
|
)
|
Other
sources
|
|
|
168
|
|
|
|
133
|
|
Net
cash provided by operating activities
|
|
|
25,101
|
|
|
|
39,531
|
|
Cash
Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(3,376
|
)
|
|
|
(3,891
|
)
|
Business
combinations, net of cash acquired
|
|
|
(1,944
|
)
|
|
|
-
|
|
Proceeds
from sales of property and equipment
|
|
|
1,360
|
|
|
|
19
|
|
Net
proceeds/(uses) from the disposition of discontinued
operations
|
|
|
(121
|
)
|
|
|
9,556
|
|
Other
uses
|
|
|
(31
|
)
|
|
|
(122
|
)
|
Net
cash provided/(used) by investing activities
|
|
|
(4,112
|
)
|
|
|
5,562
|
|
Cash
Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Purchases
of treasury stock
|
|
|
(231
|
)
|
|
|
(16,263
|
)
|
Repayment
of long-term debt
|
|
|
(10,799
|
)
|
|
|
(2,595
|
)
|
Dividends
paid
|
|
|
(1,355
|
)
|
|
|
(1,449
|
)
|
Decrease
in cash overdrafts payable
|
|
|
(342
|
)
|
|
|
(963
|
)
|
Excess
tax benefit on share-based compensation
|
|
|
145
|
|
|
|
825
|
|
Other
(uses)/sources
|
|
|
(176
|
)
|
|
|
68
|
|
Net
cash used by financing activities
|
|
|
(12,758
|
)
|
|
|
(20,377
|
)
|
Increase
in Cash and Cash Equivalents
|
|
|
8,231
|
|
|
|
24,716
|
|
Cash
and cash equivalents at beginning of year
|
|
|
3,628
|
|
|
|
4,988
|
|
Cash
and cash equivalents at end of period
|
|
$
|
11,859
|
|
|
$
|
29,704
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to unaudited financial statements.
|
|
|
|
|
|
|
|
|
|
|
CHEMED
CORPORATION AND SUBSIDIARY COMPANIES
Notes to Unaudited Financial Statements
1. Basis
of Presentation
As used herein, the terms "We,"
"Company" and "Chemed" refer to Chemed Corporation or Chemed Corporation and its
consolidated subsidiaries.
We have
prepared the accompanying unaudited consolidated financial statements of Chemed
in accordance with Rule 10-01 of SEC Regulation S-X. Consequently, we
have omitted certain disclosures required under generally accepted accounting
principles in the United States (“GAAP”) for complete financial
statements. The December 31, 2008 balance sheet data were derived
from audited financial statements but do not include all disclosures required by
GAAP. However, in our opinion, the financial statements presented
herein contain all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly our financial position, results of operations and
cash flows. These financial statements are prepared on the same basis
as and should be read in conjunction with the Consolidated Financial Statements
and related notes included in our Annual Report on Form 10-K for the year ended
December 31, 2008. Certain 2008 amounts have been restated to conform
with current period presentation related to adoption of new accounting guidance
for our convertible debt, as described in Note 5.
2. Revenue
Recognition
Both the VITAS segment and the
Roto-Rooter segment recognize service revenues and sales when the earnings
process has been completed. Generally, this occurs when services are
provided or products are delivered. VITAS recognizes revenue at the
estimated realizable amount due from third-party payers. Medicare
payments are subject to certain caps, as described below.
As of
March 31, 2009, VITAS has approximately $18.0 million in unbilled revenue
(December 31, 2008 - $13.9 million). The unbilled revenue at
VITAS relates to hospice programs currently undergoing focused medical reviews
(“FMR”). During FMR, surveyors working on behalf of the U.S. Federal
government review certain patient files for compliance with Medicare
regulations. During the time the patient file is under review, we are
unable to bill for care provided to those patients. During the past
year, the pace of FMR activity has increased industry-wide, resulting in our
significant unbilled revenue balances. We make appropriate provisions
to reduce our accounts receivable balance for potential denials of patient
service revenue due to FMR activity.
The U.S.
government revises hospice reimbursement rates on an annual basis using the
Hospice Wage Index (HWI) and the Budget Neutrality Adjustment Factor
(BNAF). The HWI is used to adjust reimbursement rates to reflect
local differences in wages. The BNAF is an estimated inflation factor
applied to the HWI. In August 2008, the U.S. government announced a
25% reduction in the BNAF for its fiscal 2009 (October 2008 through September
2009) pursuant to a three-year phase-out of the BNAF. The
February 2009 American Recovery and Reinvestment Act mandated a one year delay
in the BNAF phase-out. As a result, included in the March 31, 2009
results, is $1.95 million of revenue for the retroactive price increase related
to services provided by VITAS in the fourth quarter of 2008. The
March 31, 2009 results also include the full BNAF for services provided in the
first quarter of 2009.
We
actively monitor each of our hospice programs, by provider number, as to their
specific admission, discharge rate and median length of stay data in an attempt
to determine whether they are likely to exceed the annual per-beneficiary
Medicare cap (“Medicare cap”). Should we determine that revenues for
a program are likely to exceed the Medicare cap based on projected trends, we
attempt to institute corrective action to influence the patient mix or to
increase patient admissions. However, should we project our
corrective action will not prevent that program from exceeding its Medicare cap,
we estimate the amount of revenue recognized during the period that will require
repayment to the Federal government under the Medicare cap and record the amount
as a reduction to patient revenue. The Medicare cap measurement
period is from September 29 through September 28 of the following year for
admissions and from November 1 through October 31 of the following year for
revenue. For the 2009 measurement period, we recorded $270,000 during
the period ended March 31, 2009, which relates to one program’s projected
liability. We did not record any Medicare cap liability during the period ended
March 31, 2008.
3. Segments
Service revenues and sales and
after-tax earnings by business segment are as follows (in
thousands):
|
|
|
Three
months ended
|
|
|
|
|
March
31,
|
|
|
|
|
2009
|
|
|
2008
|
|
Service Revenues and Sales
|
|
|
|
|
|
|
VITAS
|
|
|
$
|
208,417
|
|
|
$
|
198,585
|
|
Roto-Rooter
|
|
|
|
86,521
|
|
|
|
86,683
|
|
Total
|
|
|
$
|
294,938
|
|
|
$
|
285,268
|
|
|
|
|
|
|
|
|
|
|
|
After-tax Earnings
|
|
|
|
|
|
|
|
|
VITAS
|
|
|
$
|
17,283
|
|
|
$
|
13,298
|
|
Roto-Rooter
|
|
|
|
8,276
|
|
|
|
9,095
|
|
Total
|
|
|
|
25,559
|
|
|
|
22,393
|
|
Corporate
|
|
|
|
(6,220
|
)
|
|
|
(6,533
|
)
|
Net
income
|
|
|
$
|
19,339
|
|
|
$
|
15,860
|
|
4. Earnings
per Share
Earnings
per share are computed using the weighted average number of shares of capital
stock outstanding. Earnings and diluted earnings per share for 2009
and 2008 are computed as follows (in thousands, except per share
data):
|
|
Net
Income
|
|
For
the Three Months Ended March 31,
|
|
Income
|
|
|
Shares
|
|
|
Earnings
per
Share
|
|
2009
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
$
|
19,339
|
|
|
|
22,394
|
|
|
$
|
0.86
|
|
Dilutive
stock options
|
|
|
-
|
|
|
|
216
|
|
|
|
|
|
Nonvested
stock awards
|
|
|
-
|
|
|
|
37
|
|
|
|
|
|
Diluted
earnings
|
|
$
|
19,339
|
|
|
|
22,647
|
|
|
$
|
0.85
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
$
|
15,860
|
|
|
|
23,873
|
|
|
$
|
0.66
|
|
Dilutive
stock options
|
|
|
-
|
|
|
|
377
|
|
|
|
|
|
Nonvested
stock awards
|
|
|
-
|
|
|
|
35
|
|
|
|
|
|
Diluted
earnings
|
|
$
|
15,860
|
|
|
|
24,285
|
|
|
$
|
0.65
|
|
For the
periods ended March 31, 2009 and 2008, 1,660,017 and 832,567, respectively,
stock options were excluded from the computation of diluted earnings per share
as their exercise prices were greater than the average market price for most of
the quarter.
Diluted
earnings per share may be impacted in future periods as the result of the
issuance of our 1.875% Senior Convertible Notes (the "Notes") and related
purchased call options and sold warrants. Under EITF 04-8 "The Effect
of Contingently Convertible Instruments on Diluted Earnings per Share" and EITF
90-19 "Convertible Bonds with Issuer Option to Settle for Cash upon Conversion",
we will not include any shares related to the Notes in our calculation of
diluted earnings per share until our average stock price for a quarter exceeds
the conversion price of $80.73. We would then include in our diluted
earnings per share calculation those shares issuable using the treasury stock
method. The amount of shares issuable is based upon the amount by
which the average stock price for the quarter exceeds the conversion
price. The purchased call option does not impact the calculation of
diluted earnings per share as it is always anti-dilutive. The sold warrants
become dilutive when our average stock price for a quarter exceeds the strike
price of the warrant.
The following table provides examples
of how changes in our stock price impact the number of shares that would be
included in our diluted earnings per share calculation. It also shows
the impact on the number of shares issuable upon conversion of the Notes and
settlement of the purchased call options and sold warrants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental
|
|
|
|
|
Shares
|
|
|
|
|
|
Total
Treasury
|
|
|
Shares
Due
|
|
|
|
|
|
|
|
Underlying
1.875%
|
|
|
|
|
|
Method
|
|
|
to
the Company
|
|
|
(Received)
by
|
|
Share
|
|
|
Convertible
|
|
|
Warrant
|
|
|
Incremental
|
|
|
under
Notes
|
|
|
the
Company
|
|
Price
|
|
|
Notes
|
|
|
Shares
|
|
|
Shares
(a)
|
|
|
Hedges
|
|
|
upon
Conversion (b)
|
|
$
|
80.73
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
$
|
90.73
|
|
|
|
255,243
|
|
|
|
-
|
|
|
|
255,243
|
|
|
|
(273,061
|
)
|
|
|
(17,818
|
)
|
$
|
100.73
|
|
|
|
459,807
|
|
|
|
-
|
|
|
|
459,807
|
|
|
|
(491,905
|
)
|
|
|
(32,098
|
)
|
$
|
110.73
|
|
|
|
627,423
|
|
|
|
118,359
|
|
|
|
745,782
|
|
|
|
(671,222
|
)
|
|
|
74,560
|
|
$
|
120.73
|
|
|
|
767,272
|
|
|
|
313,764
|
|
|
|
1,081,036
|
|
|
|
(820,833
|
)
|
|
|
260,203
|
|
$
|
130.73
|
|
|
|
885,726
|
|
|
|
479,274
|
|
|
|
1,365,000
|
|
|
|
(947,556
|
)
|
|
|
417,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
Represents the number of incremental shares that must be included in the
calculation of fully diluted shares
under
U.S. GAAP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b)
Represents the number of incremental shares to be issued by the Company
upon conversion of the
Notes,
assuming concurrent settlement of the note hedges and
warrants.
|
|
|
|
|
|
|
|
5. Long-Term
Debt
We are in compliance with all debt
covenants as of March 31, 2009. We have issued $25.6 million in
standby letters of credit as of March 31, 2009 for insurance
purposes. Issued letters of credit reduce our available credit under
the revolving credit agreement. As of March 31, 2009, we have
approximately $149.4 million of unused lines of credit available and eligible to
be drawn down under our revolving credit facility, excluding the expansion
feature.
In May
2008, the FASB issued Staff Position No. APB 14-1, “Accounting for Convertible
Debt Instruments that may be Settled in Cash Upon Conversion (Including Partial
Cash Settlement).” This new guidance requires all convertible
debentures classified as Instruments B or C under EITF 90-19 to separately
account for the debt and equity pieces of the instrument. At
inception of the convertible instrument, cash flows related to the convertible
instrument are to be discounted using a market rate of interest. We
adopted the new standard on January 1, 2009. The FSP was applied
retrospectively. Upon adoption, the Notes issued had a discount of
approximately $54.9 million. Retained earnings as of January 1,
2008 decreased $2.3 million as a result of the cumulative effect of
adoption.
The
following amounts are included in our consolidated balance sheet related to the
Notes:
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
Principal
amount of convertible debentures
|
|
$
|
186,956
|
|
|
$
|
186,956
|
|
Unamortized
debt discount
|
|
|
(39,834
|
)
|
|
|
(41,446
|
)
|
Carrying
amount of convertible debentures
|
|
$
|
147,122
|
|
|
$
|
145,510
|
|
|
|
|
|
|
|
|
|
|
Additional
paid in capital (net of tax)
|
|
$
|
31,310
|
|
|
$
|
31,310
|
|
The
following amounts comprise interest expense included in our consolidated income
statement for the quarters ended March 31:
|
|
2009
|
|
|
2008
|
|
Cash
interest expense
|
|
$
|
1,078
|
|
|
$
|
1,343
|
|
Non-cash
amortization of debt discount
|
|
|
1,612
|
|
|
|
1,612
|
|
Amortization
of debt costs
|
|
|
154
|
|
|
|
154
|
|
Total
interest expense
|
|
$
|
2,844
|
|
|
$
|
3,109
|
|
The
unamortized debt discount will be amortized using the effective interest method
over the remaining life of the Notes. The effective rate on the Notes
after adoption of the standard is approximately 6.875%. The gain on
extinguishment of debt recognized in 2008 upon our repurchase of a portion of
the Notes decreased by approximately $802,000 upon adoption, due to a portion of
the extinguishment being attributed to the equity component of our
Notes.
6. Other
Operating Expenses
During the first quarter of 2009, we
recorded pretax expenses of $545,000 related to the costs of a contested proxy
solicitation.
7. Other
Expense -- Net
Other expense -- net comprises the
following (in thousands):
|
|
Three
Months Ended
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
Interest
income
|
|
$
|
82
|
|
|
$
|
337
|
|
Loss
on trading investments of employee benefit trust
|
|
|
(403
|
)
|
|
|
(1,522
|
)
|
(Loss)/gain
on disposal of property and equipment
|
|
|
24
|
|
|
|
(29
|
)
|
Other
- net
|
|
|
21
|
|
|
|
25
|
|
Total
expense
|
|
$
|
(276
|
)
|
|
$
|
(1,189
|
)
|
8. Other
Current Liabilities
Other current liabilities as of March
31, 2009 and December 31, 2008 consist of the following (in
thousands):
|
|
2009
|
|
|
2008
|
|
Accrued
legal settlements
|
|
$
|
516
|
|
|
$
|
410
|
|
Accrued
divestiture expenses
|
|
|
845
|
|
|
|
837
|
|
Accrued
Medicare cap estimate
|
|
|
1,005
|
|
|
|
735
|
|
Other
|
|
|
12,349
|
|
|
|
10,198
|
|
|
|
|
|
|
|
|
|
|
Total
other current liabilities
|
|
$
|
14,715
|
|
|
$
|
12,180
|
|
9.
Stock-Based Compensation Awards
On February 19, 2009, the
Compensation/Incentive Committee of the Board of Directors (“CIC”) approved a
grant of 53,199 shares of restricted stock to certain key
employees. The restricted shares cliff vest four-years from the date
of issuance. The cumulative compensation expense related to the
restricted stock award is $2.3 million and will be recognized ratably over the
four-year vesting period. We assumed no forfeitures in determining
the cumulative compensation expense of the grant.
On
February 19, 2009, the CIC approved a grant of 508,600 stock options to certain
employees. The stock options vest ratably over three years from the
date of issuance. The cumulative compensation expense related to the
stock option grant is $7.1 million and will be recognized over the three-year
vesting period. We used the Black-Scholes option valuation method to
determine the cumulative compensation expense of the grant.
10.
Loans Receivable from Independent Contractors
The Roto-Rooter segment sublicenses
with approximately sixty-five independent contractors to operate certain
plumbing repair and drain cleaning businesses in lesser-populated areas of the
United States and Canada. We had notes receivable from our
independent contractors as of March 31, 2009 totaling $1.6 million (December 31,
2008 -$1.6 million). In most cases these loans are fully or
partially secured by equipment owned by the contractor. The interest
rates on the loans range from zero to 8% per annum and the remaining terms of
the loans range from two months to 5 years at March 31, 2009. During
the three-months ended March 31, 2009, we recorded revenues of $5.3 million
(2008 - $5.6 million) and pretax profits of $2.3 million (2008 - $2.7
million) from our independent contractors.
We have adopted the provisions of
Financial Accounting Standards Board ("FASB") Interpretation No. 46R
"Consolidation of Variable Interest Entities--an interpretation of Accounting
Research Bulletin No. 51 (revised)" ("FIN 46R") relative to our contractual
relationships with the independent contractors. FIN 46R requires the
primary beneficiary of a Variable Interest Entity ("VIE") to consolidate the
accounts of the VIE. We have evaluated our relationships with our
independent contractors based upon guidance provided in FIN 46R and have
concluded that some of the contractors who have loans payable to us may be
VIE’s. We believe consolidation, if required, of the accounts of any
VIE’s for which we might be the primary beneficiary would not materially impact
our financial position, results of operations or cash flows.
11. Pension
and Retirement Plans
All of the Company’s plans that
provide retirement and similar benefits are defined contribution
plans. Expenses for the Company’s pension and profit-sharing plans,
excess benefit plans and other similar plans were $1.5 million and
$2.3 million for the three months ended March 31, 2009 and 2008,
respectively.
12. Litigation
VITAS is party to a class action
lawsuit filed in the Superior Court of California, Los Angeles County, in
September 2006 by Bernadette Santos, Keith Knoche and Joyce White
(“Santos”). This case alleges failure to pay overtime and failure to
provide meal and rest periods to a purported class of California admissions
nurses, chaplains and sales representatives. The case seeks payment
of penalties, interest and Plaintiffs’ attorney fees. VITAS contests
these allegations. The lawsuit is in its early stages and we are
unable to estimate our potential liability, if any, with respect to these
allegations.
Regardless of outcome, defense of
litigation adversely affects us through defense costs, diversion of our time and
related publicity. In the normal course of business, we are a party
to various claims and legal proceedings. We record a reserve for
these matters when an adverse outcome is probable and the amount of the
potential liability is reasonably estimable.
13. OIG
Investigation
In April 2005, the Office of Inspector
General (“OIG”) for the Department of Health and Human Services served VITAS
with civil subpoenas relating to VITAS’ alleged failure to appropriately bill
Medicare and Medicaid for hospice services. As part of this
investigation, the OIG selected medical records for 320 past and current
patients from VITAS’ three largest programs for review. It also
sought policies and procedures dating back to 1998 covering admissions,
certifications, recertifications and discharges. During the third
quarter of 2005 and again in May 2006, the OIG requested additional information
from us. The Court dismissed a related qui tam complaint filed in
U.S. District Court for the Southern District of Florida with prejudice in July
2007. The plaintiffs appealed this dismissal, which the Court of
Appeals affirmed.
The
government continues to investigate the complaint’s allegations. In
March 2009, we received a letter from the government reiterating the basis of
their investigation. We are unable to predict the outcome of this
matter or the impact, if any, that the investigation may have on our business,
results of operations, liquidity or capital resources. Regardless of
outcome, responding to the subpoenas can adversely affect us through defense
costs, diversion of our time and related publicity.
14. Related
Party Agreement
VITAS has two pharmacy services
agreements ("Agreements") with Omnicare, Inc. and its subsidiaries (“OCR”)
whereby OCR provides specified pharmacy services for VITAS and its hospice
patients in geographical areas served by both VITAS and OCR. The
Agreements renew automatically for one-year terms. Either party may
cancel the Agreements at the end of any term by giving written notice at least
90 days prior to the end of said term. VITAS made purchases from OCR
of $7.9 million and $8.3 million for the three months ended March 31, 2009 and
2008, respectively and has accounts payable to OCR of $259,000 at
March 31, 2009.
Mr. E. L.
Hutton was non-executive Chairman of the Board and a director of the Company
until his death in March 2009. He was a director of OCR until his
retirement in the first quarter of 2008 at which time he assumed the honorary
post of Chairman Emeritus of OCR’s Board. Mr. Joel F. Gemunder,
President and Chief Executive Officer of OCR, Ms. Andrea Lindell and
Ms. Sandra Laney are directors of both OCR and the Company. Mr. Kevin J.
McNamara, President, Chief Executive Officer and a director of the Company, is a
director emeritus of OCR. We believe that the terms of these
agreements are no less favorable to VITAS than we could negotiate with an
unrelated party.
15. Cash
Overdrafts Payable
Included in accounts payable at March
31, 2009 is cash overdrafts payable of $8.5 million (December 31, 2008 -
$8.8 million).
16. Financial
Instruments
On January 1, 2008, we partially
adopted the provisions of Statement No. 157, “Fair Value Measurements” (“SFAS
157”). This statement defines a hierarchy which prioritizes the
inputs in fair value measurements. Level 1 measurements are
measurements using quoted prices in active markets for identical assets or
liabilities. Level 2 measurements use significant other observable
inputs. Level 3 measurements are measurements using significant
unobservable inputs which require a company to develop its own
assumptions. In recording the fair value of assets and liabilities,
companies must use the most reliable measurement available. There was
no impact on our financial position or results of operations upon adoption of
SFAS 157.
On January
1, 2009, the deferral period granted by FASB Staff Position 157-2 relative to
our goodwill and indefinite lived intangible assets expired. There
was no impact on our financial position or results of operations as a result of
the expiration of the deferral.
The following shows the carrying value,
fair value and SFAS 157 hierarchy for our financial instruments as
of March 31, 2009 (in thousands):
|
|
|
|
|
Fair
Value Measure
|
|
|
|
Carrying
Value
|
|
|
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Mutual
fund investments of deferred compensation plans held in
trust
|
|
$
|
7,425
|
|
|
$
|
7,425
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Long-term
debt
|
|
|
159,192
|
|
|
|
120,941
|
|
|
|
-
|
|
|
|
-
|
|
For cash
and cash equivalents, accounts receivable and accounts payable, the carrying
amount is a reasonable estimate of fair value because of the liquidity and
short-term nature of these instruments. The remaining amount of
investments of deferred compensation plans held in trust at March 31,
2009 relate to the cash surrender value of life insurance policies which are not
subject to the guidance in SFAS 157.
17. Recent
Accounting Statements
In May
2008, the FASB issued Statement of Financial Accounting Standard No. 162 “The
Hierarchy of Generally Accepted Accounting Principles” (“SFAS
162”). The purpose of this standard is to provide a consistent
framework for determining what accounting principles should be used when
preparing U.S. GAAP financial statements. SFAS 162 categorizes
accounting pronouncements in a descending order of authority. In the
instance of potentially conflicting accounting principles, the standard in the
highest category must be used. This statement will be effective 60
days after the SEC approves the Public Company Accounting and Oversight Board’s
related amendments. We believe that SFAS 162 will have no impact
on our existing accounting methods.
18. Guarantor
Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our
1.875% Notes are fully and unconditionally guaranteed on an unsecured,
jointly and severally liable basis by certain of our 100% owned
subsidiaries. The following unaudited, condensed, consolidating
financial data presents the composition of the parent company (Chemed),
the guarantor subsidiaries and the non-guarantor subsidiaries as of March
31, 2009 and December 31, 2008 for the balance sheet and the three months
ended March 31, 2009 for the income statement and the statement of cash
flows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2009
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
7,107
|
|
|
$
|
1,966
|
|
|
$
|
2,786
|
|
|
$
|
-
|
|
|
$
|
11,859
|
|
Accounts
receivable, less allowances
|
|
|
940
|
|
|
|
105,601
|
|
|
|
823
|
|
|
|
-
|
|
|
|
107,364
|
|
Intercompany
receivables
|
|
|
-
|
|
|
|
53,120
|
|
|
|
-
|
|
|
|
(53,120
|
)
|
|
|
-
|
|
Inventories
|
|
|
-
|
|
|
|
7,357
|
|
|
|
726
|
|
|
|
-
|
|
|
|
8,083
|
|
Current
deferred income taxes
|
|
|
(39
|
)
|
|
|
16,601
|
|
|
|
130
|
|
|
|
-
|
|
|
|
16,692
|
|
Prepaid
expenses and other current assets
|
|
|
475
|
|
|
|
8,364
|
|
|
|
207
|
|
|
|
-
|
|
|
|
9,046
|
|
Total
current assets
|
|
|
8,483
|
|
|
|
193,009
|
|
|
|
4,672
|
|
|
|
(53,120
|
)
|
|
|
153,044
|
|
Investments
of deferred compensation plans held in trust
|
|
|
-
|
|
|
|
-
|
|
|
|
22,803
|
|
|
|
-
|
|
|
|
22,803
|
|
Properties
and equipment, at cost, less accumulated depreciation
|
|
|
10,376
|
|
|
|
61,324
|
|
|
|
1,931
|
|
|
|
-
|
|
|
|
73,631
|
|
Identifiable
intangible assets less accumulated amortization
|
|
|
-
|
|
|
|
60,748
|
|
|
|
-
|
|
|
|
-
|
|
|
|
60,748
|
|
Goodwill
|
|
|
-
|
|
|
|
445,828
|
|
|
|
4,172
|
|
|
|
-
|
|
|
|
450,000
|
|
Other
assets
|
|
|
11,175
|
|
|
|
2,530
|
|
|
|
294
|
|
|
|
-
|
|
|
|
13,999
|
|
Investments
in subsidiaries
|
|
|
588,689
|
|
|
|
12,477
|
|
|
|
-
|
|
|
|
(601,166
|
)
|
|
|
-
|
|
Total
assets
|
|
$
|
618,723
|
|
|
$
|
775,916
|
|
|
$
|
33,872
|
|
|
$
|
(654,286
|
)
|
|
$
|
774,225
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
137
|
|
|
$
|
48,432
|
|
|
$
|
314
|
|
|
$
|
-
|
|
|
$
|
48,883
|
|
Intercompany
payables
|
|
|
47,874
|
|
|
|
-
|
|
|
|
5,246
|
|
|
|
(53,120
|
)
|
|
|
-
|
|
Current
portion of long-term debt
|
|
|
10,000
|
|
|
|
70
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,070
|
|
Income
taxes
|
|
|
(6,629
|
)
|
|
|
19,217
|
|
|
|
1,284
|
|
|
|
-
|
|
|
|
13,872
|
|
Accrued
insurance
|
|
|
1,774
|
|
|
|
36,066
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,840
|
|
Accrued
salaries and wages
|
|
|
832
|
|
|
|
31,832
|
|
|
|
405
|
|
|
|
-
|
|
|
|
33,069
|
|
Other
current liabilities
|
|
|
3,460
|
|
|
|
11,120
|
|
|
|
135
|
|
|
|
-
|
|
|
|
14,715
|
|
Total
current liabilities
|
|
|
57,448
|
|
|
|
146,737
|
|
|
|
7,384
|
|
|
|
(53,120
|
)
|
|
|
158,449
|
|
Deferred
income taxes
|
|
|
(7,873
|
)
|
|
|
38,207
|
|
|
|
(8,095
|
)
|
|
|
-
|
|
|
|
22,239
|
|
Long-term
debt
|
|
|
149,122
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
149,122
|
|
Deferred
compensation liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
22,691
|
|
|
|
-
|
|
|
|
22,691
|
|
Other
liabilities
|
|
|
2,883
|
|
|
|
1,698
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,581
|
|
Stockholders'
equity
|
|
|
417,143
|
|
|
|
589,274
|
|
|
|
11,892
|
|
|
|
(601,166
|
)
|
|
|
417,143
|
|
Total
liabilities and stockholders' equity
|
|
$
|
618,723
|
|
|
$
|
775,916
|
|
|
$
|
33,872
|
|
|
$
|
(654,286
|
)
|
|
$
|
774,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as of December 31,
2008
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
Consolidating
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
65
|
|
|
$
|
202
|
|
|
$
|
3,361
|
|
|
$
|
-
|
|
|
$
|
3,628
|
|
Accounts
receivable, less allowances
|
|
|
1,261
|
|
|
|
96,112
|
|
|
|
703
|
|
|
|
-
|
|
|
|
98,076
|
|
Intercompany
receivables
|
|
|
-
|
|
|
|
37,105
|
|
|
|
-
|
|
|
|
(37,105
|
)
|
|
|
-
|
|
Inventories
|
|
|
-
|
|
|
|
7,021
|
|
|
|
548
|
|
|
|
-
|
|
|
|
7,569
|
|
Current
deferred income taxes
|
|
|
(229
|
)
|
|
|
15,511
|
|
|
|
110
|
|
|
|
-
|
|
|
|
15,392
|
|
Prepaid
expenses and other current assets
|
|
|
2,296
|
|
|
|
7,982
|
|
|
|
990
|
|
|
|
-
|
|
|
|
11,268
|
|
Total
current assets
|
|
|
3,393
|
|
|
|
163,933
|
|
|
|
5,712
|
|
|
|
(37,105
|
)
|
|
|
135,933
|
|
Investments
of deferred compensation plans held in trust
|
|
|
-
|
|
|
|
-
|
|
|
|
22,628
|
|
|
|
-
|
|
|
|
22,628
|
|
Properties
and equipment, at cost, less accumulated depreciation
|
|
|
11,665
|
|
|
|
63,179
|
|
|
|
2,118
|
|
|
|
-
|
|
|
|
76,962
|
|
Identifiable
intangible assets less accumulated amortization
|
|
|
-
|
|
|
|
61,303
|
|
|
|
-
|
|
|
|
-
|
|
|
|
61,303
|
|
Goodwill
|
|
|
-
|
|
|
|
444,433
|
|
|
|
4,288
|
|
|
|
-
|
|
|
|
448,721
|
|
Other
assets
|
|
|
11,312
|
|
|
|
2,455
|
|
|
|
308
|
|
|
|
-
|
|
|
|
14,075
|
|
Investments
in subsidiaries
|
|
|
568,038
|
|
|
|
11,196
|
|
|
|
-
|
|
|
|
(579,234
|
)
|
|
|
-
|
|
Total
assets
|
|
$
|
594,408
|
|
|
$
|
746,499
|
|
|
$
|
35,054
|
|
|
$
|
(616,339
|
)
|
|
$
|
759,622
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
(1,688
|
)
|
|
$
|
54,175
|
|
|
$
|
323
|
|
|
$
|
-
|
|
|
$
|
52,810
|
|
Intercompany
payables
|
|
|
29,513
|
|
|
|
-
|
|
|
|
7,592
|
|
|
|
(37,105
|
)
|
|
|
-
|
|
Current
portion of long-term debt
|
|
|
10,000
|
|
|
|
169
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,169
|
|
Income
taxes
|
|
|
(1,940
|
)
|
|
|
3,909
|
|
|
|
212
|
|
|
|
-
|
|
|
|
2,181
|
|
Accrued
insurance
|
|
|
1,425
|
|
|
|
34,569
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35,994
|
|
Accrued
salaries and wages
|
|
|
3,817
|
|
|
|
36,523
|
|
|
|
401
|
|
|
|
-
|
|
|
|
40,741
|
|
Other
current liabilities
|
|
|
2,022
|
|
|
|
8,979
|
|
|
|
1,179
|
|
|
|
-
|
|
|
|
12,180
|
|
Total
current liabilities
|
|
|
43,149
|
|
|
|
138,324
|
|
|
|
9,707
|
|
|
|
(37,105
|
)
|
|
|
154,075
|
|
Deferred
income taxes
|
|
|
(7,801
|
)
|
|
|
38,310
|
|
|
|
(8,032
|
)
|
|
|
-
|
|
|
|
22,477
|
|
Long-term
debt
|
|
|
158,210
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
158,210
|
|
Deferred
compensation liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
22,417
|
|
|
|
-
|
|
|
|
22,417
|
|
Other
liabilities
|
|
|
4,019
|
|
|
|
1,593
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,612
|
|
Stockholders'
equity
|
|
|
396,831
|
|
|
|
568,272
|
|
|
|
10,962
|
|
|
|
(579,234
|
)
|
|
|
396,831
|
|
Total
liabilities and stockholders' equity
|
|
$
|
594,408
|
|
|
$
|
746,499
|
|
|
$
|
35,054
|
|
|
$
|
(616,339
|
)
|
|
$
|
759,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31,
2009
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
Continuing
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales and service revenues
|
|
$
|
-
|
|
|
$
|
289,139
|
|
|
$
|
5,799
|
|
|
$
|
-
|
|
|
$
|
294,938
|
|
Cost
of services provided and goods sold
|
|
|
-
|
|
|
|
204,029
|
|
|
|
2,984
|
|
|
|
-
|
|
|
|
207,013
|
|
Selling,
general and administrative expenses
|
|
|
5,229
|
|
|
|
40,648
|
|
|
|
(84
|
)
|
|
|
-
|
|
|
|
45,793
|
|
Depreciation
|
|
|
151
|
|
|
|
5,007
|
|
|
|
167
|
|
|
|
-
|
|
|
|
5,325
|
|
Amortization
|
|
|
531
|
|
|
|
1,005
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,536
|
|
Other
operating expense
|
|
|
545
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
545
|
|
Total
costs and expenses
|
|
|
6,456
|
|
|
|
250,689
|
|
|
|
3,067
|
|
|
|
-
|
|
|
|
260,212
|
|
Income/
(loss) from operations
|
|
|
(6,456
|
)
|
|
|
38,450
|
|
|
|
2,732
|
|
|
|
-
|
|
|
|
34,726
|
|
Interest
expense
|
|
|
(2,770
|
)
|
|
|
(80
|
)
|
|
|
6
|
|
|
|
-
|
|
|
|
(2,844
|
)
|
Other
(expense)/income - net
|
|
|
384
|
|
|
|
(277
|
)
|
|
|
(383
|
)
|
|
|
-
|
|
|
|
(276
|
)
|
Income/
(loss) before income taxes
|
|
|
(8,842
|
)
|
|
|
38,093
|
|
|
|
2,355
|
|
|
|
-
|
|
|
|
31,606
|
|
Income
tax (provision)/ benefit
|
|
|
3,270
|
|
|
|
(14,450
|
)
|
|
|
(1,087
|
)
|
|
|
-
|
|
|
|
(12,267
|
)
|
Equity
in net income of subsidiaries
|
|
|
24,911
|
|
|
|
1,605
|
|
|
|
-
|
|
|
|
(26,516
|
)
|
|
|
-
|
|
Net
income
|
|
$
|
19,339
|
|
|
$
|
25,248
|
|
|
$
|
1,268
|
|
|
$
|
(26,516
|
)
|
|
$
|
19,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
March 31, 2008
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
Continuing
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales and service revenues
|
|
$
|
-
|
|
|
$
|
278,862
|
|
|
$
|
6,406
|
|
|
$
|
-
|
|
|
$
|
285,268
|
|
Cost
of services provided and goods sold
|
|
|
-
|
|
|
|
202,704
|
|
|
|
3,108
|
|
|
|
-
|
|
|
|
205,812
|
|
Selling,
general and administrative expenses
|
|
|
4,050
|
|
|
|
38,788
|
|
|
|
(111
|
)
|
|
|
-
|
|
|
|
42,727
|
|
Depreciation
|
|
|
124
|
|
|
|
5,149
|
|
|
|
165
|
|
|
|
-
|
|
|
|
5,438
|
|
Amortization
|
|
|
441
|
|
|
|
1,009
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,450
|
|
Total
costs and expenses
|
|
|
4,615
|
|
|
|
247,650
|
|
|
|
3,162
|
|
|
|
-
|
|
|
|
255,427
|
|
Income/
(loss) from operations
|
|
|
(4,615
|
)
|
|
|
31,212
|
|
|
|
3,244
|
|
|
|
-
|
|
|
|
29,841
|
|
Interest
expense
|
|
|
(2,975
|
)
|
|
|
(133
|
)
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
(3,109
|
)
|
Other
(expense)/income - net
|
|
|
1,368
|
|
|
|
(1,056
|
)
|
|
|
(1,501
|
)
|
|
|
-
|
|
|
|
(1,189
|
)
|
Income/
(loss) before income taxes
|
|
|
(6,222
|
)
|
|
|
30,023
|
|
|
|
1,742
|
|
|
|
-
|
|
|
|
25,543
|
|
Income
tax (provision)/ benefit
|
|
|
2,610
|
|
|
|
(10,979
|
)
|
|
|
(1,314
|
)
|
|
|
-
|
|
|
|
(9,683
|
)
|
Equity
in net income of subsidiaries
|
|
|
19,472
|
|
|
|
699
|
|
|
|
-
|
|
|
|
(20,171
|
)
|
|
|
-
|
|
Net
income
|
|
$
|
15,860
|
|
|
$
|
19,743
|
|
|
$
|
428
|
|
|
$
|
(20,171
|
)
|
|
$
|
15,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31,
2009
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
Subsidiaries
|
|
|
Consolidated
|
|
Cash Flow
from Operating Activities
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash (used)/provided by operating activities
|
|
$
|
(5,656
|
)
|
|
$
|
28,627
|
|
|
$
|
2,130
|
|
|
$
|
25,101
|
|
Cash Flow
from Investing Activities
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(7
|
)
|
|
|
(3,345
|
)
|
|
|
(24
|
)
|
|
|
(3,376
|
)
|
Business
combinations, net of cash acquired
|
|
|
-
|
|
|
|
(1,944
|
)
|
|
|
-
|
|
|
|
(1,944
|
)
|
Net
payments from sale of discontinued operations
|
|
|
(121
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(121
|
)
|
Proceeds
from sale of property and equipment
|
|
|
1,256
|
|
|
|
104
|
|
|
|
-
|
|
|
|
1,360
|
|
Other
sources and uses - net
|
|
|
(77
|
)
|
|
|
46
|
|
|
|
-
|
|
|
|
(31
|
)
|
Net
cash provided/ (used) by investing activities
|
|
|
1,051
|
|
|
|
(5,139
|
)
|
|
|
(24
|
)
|
|
|
(4,112
|
)
|
Cash Flow
from Financing Activities
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in cash overdrafts payable
|
|
|
1,343
|
|
|
|
(1,685
|
)
|
|
|
-
|
|
|
|
(342
|
)
|
Change
in intercompany accounts
|
|
|
22,357
|
|
|
|
(20,011
|
)
|
|
|
(2,346
|
)
|
|
|
-
|
|
Dividends
paid to shareholders
|
|
|
(1,355
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,355
|
)
|
Purchases
of treasury stock
|
|
|
(231
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(231
|
)
|
Proceeds
from exercise of stock options
|
|
|
68
|
|
|
|
-
|
|
|
|
-
|
|
|
|
68
|
|
Realized
excess tax benefit on share based compensation
|
|
|
145
|
|
|
|
-
|
|
|
|
-
|
|
|
|
145
|
|
Net
increase/(decrease) in revolving credit
facility
|
|
|
(8,200
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,200
|
)
|
Repayment
of long-term debt
|
|
|
(2,500
|
)
|
|
|
(99
|
)
|
|
|
-
|
|
|
|
(2,599
|
)
|
Other
sources and uses - net
|
|
|
20
|
|
|
|
71
|
|
|
|
(335
|
)
|
|
|
(244
|
)
|
Net
cash provided/(used) by financing activities
|
|
|
11,647
|
|
|
|
(21,724
|
)
|
|
|
(2,681
|
)
|
|
|
(12,758
|
)
|
Net
increase/(decrease) in cash and cash equivalents
|
|
|
7,042
|
|
|
|
1,764
|
|
|
|
(575
|
)
|
|
|
8,231
|
|
Cash
and cash equivalents at beginning of year
|
|
|
65
|
|
|
|
202
|
|
|
|
3,361
|
|
|
|
3,628
|
|
Cash
and cash equivalents at end of period
|
|
$
|
7,107
|
|
|
$
|
1,966
|
|
|
$
|
2,786
|
|
|
$
|
11,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31,
2008
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
Subsidiaries
|
|
|
Consolidated
|
|
Cash Flow
from Operating Activities
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash (used)/provided by operating activities
|
|
$
|
(7,889
|
)
|
|
$
|
46,513
|
|
|
$
|
907
|
|
|
$
|
39,531
|
|
Cash Flow
from Investing Activities
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(42
|
)
|
|
|
(3,695
|
)
|
|
|
(154
|
)
|
|
|
(3,891
|
)
|
Net
proceeds from sale of discontinued operations
|
|
|
9,556
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,556
|
|
Proceeds
from sale of property and equipment
|
|
|
10
|
|
|
|
7
|
|
|
|
2
|
|
|
|
19
|
|
Other
sources and uses - net
|
|
|
(155
|
)
|
|
|
33
|
|
|
|
-
|
|
|
|
(122
|
)
|
Net
cash provided/(used) by investing activities
|
|
|
9,369
|
|
|
|
(3,655
|
)
|
|
|
(152
|
)
|
|
|
5,562
|
|
Cash Flow
from Financing Activities
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
in cash overdrafts payable
|
|
|
(332
|
)
|
|
|
(631
|
)
|
|
|
-
|
|
|
|
(963
|
)
|
Change
in intercompany accounts
|
|
|
42,838
|
|
|
|
(42,009
|
)
|
|
|
(829
|
)
|
|
|
-
|
|
Dividends
paid to shareholders
|
|
|
(1,449
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,449
|
)
|
Purchases
of treasury stock
|
|
|
(16,263
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(16,263
|
)
|
Proceeds
from exercise of stock options
|
|
|
116
|
|
|
|
-
|
|
|
|
-
|
|
|
|
116
|
|
Realized
excess tax benefit on share based compensation
|
|
|
825
|
|
|
|
-
|
|
|
|
-
|
|
|
|
825
|
|
Repayment
of long-term debt
|
|
|
(2,500
|
)
|
|
|
(95
|
)
|
|
|
-
|
|
|
|
(2,595
|
)
|
Other
sources and uses - net
|
|
|
(68
|
)
|
|
|
72
|
|
|
|
(52
|
)
|
|
|
(48
|
)
|
Net
cash provided/(used) by financing activities
|
|
|
23,167
|
|
|
|
(42,663
|
)
|
|
|
(881
|
)
|
|
|
(20,377
|
)
|
Net
increase/(decrease) in cash and cash equivalents
|
|
|
24,647
|
|
|
|
195
|
|
|
|
(126
|
)
|
|
|
24,716
|
|
Cash
and cash equivalents at beginning of period
|
|
|
3,877
|
|
|
|
(1,584
|
)
|
|
|
2,695
|
|
|
|
4,988
|
|
Cash
and cash equivalents at end of period
|
|
$
|
28,524
|
|
|
$
|
(1,389
|
)
|
|
$
|
2,569
|
|
|
$
|
29,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Executive
Summary
We operate
through our two wholly owned subsidiaries, VITAS Healthcare Corporation and
Roto-Rooter Group, Inc. VITAS focuses on hospice care that helps make
terminally ill patients’ final days as comfortable as
possible. Through its team of doctors, nurses, home health aides,
social workers, clergy and volunteers, VITAS provides direct medical services to
patients, as well as spiritual and emotional counseling to both patients and
their families. Roto-Rooter’s services are focused on providing
plumbing and drain cleaning services to both residential and commercial
customers. Through its network of company-owned branches, independent
contractors and franchisees, Roto-Rooter offers plumbing and drain cleaning
service to over 90% of the U.S. population.
The
following is a summary of the key operating results for the three months ended
March 31, 2009 and 2008 (in thousands except per share amounts):
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Consolidated
service revenues and sales
|
|
$
|
294,938
|
|
|
$
|
285,268
|
|
Consolidated
net income
|
|
$
|
19,339
|
|
|
$
|
15,860
|
|
Diluted
EPS
|
|
$
|
0.85
|
|
|
$
|
0.65
|
|
The increase in consolidated service
revenues and sales was driven by a 5% increase at VITAS while Roto-Rooter
revenues were essentially flat. The increase in service revenues at
VITAS was primarily the result of the 2008 Medicare reimbursement rate increase
of approximately 3.5%, an $1.95 million increase related to the one-year
delay in the BNAF phaseout and the related retroactive price increase
for services in the fourth quarter of 2008 and a mix shift to higher acuity
days of care. Roto-Rooter was driven by a 6.9% decrease in job count
offset with an approximate 7.9% price and mix shift increase. The
Roto-Rooter changes include the impact of acquisitions in 2008, offset by the
conversion of one company-owned branch to an independent contractor in 2009. The
Colorado Springs acquisition was integrated into our Denver branch and the net
revenues, expenses and profitability cannot be separated from the Denver branch.
The impact of these acquisitions is not material. Consolidated net
income increased mainly as a result of the increase in
revenues. Diluted EPS increased as the result of increased earnings
and a reduction of diluted share count due to our stock repurchase
program.
Vitas
expects to achieve full-year 2009 revenue growth, prior to Medicare cap, of 5.5%
to 7.0%. Admissions are estimated to increase 1.5% to 3.5%. Full
calendar year 2009 Medicare contractual billing limitations are estimated at
$4.0 million. Roto-Rooter expects to achieve full-year 2009
revenue growth of 3.0% to 4.0%. The revenue growth is a result of
increased pricing of 5.0%, a favorable mix shift to higher revenue jobs,
partially offset by a job count decline estimated at 7.0% to 9.0%. We
anticipate that our operating income and cash flows will be sufficient to
operate our businesses and meet any commitments for the foreseeable
future.
Financial
Condition
Liquidity and Capital
Resources
Material changes in the balance sheet
accounts from December 31, 2008 to March 31, 2009 include the
following:
•
|
A
$9.3 million increase in accounts receivable which results
primarily from a $4.1 million increase in unbilled revenue from
FMR activity at VITAS as well as $4.0 million related to the BNAF
adjustment. Roto-Rooter receivables are virtually unchanged
reflecting the flat revenues from the fourth quarter of
2008.
|
•
|
A
$9.1 million decrease in long-term debt which results primarily from
an $8.2 million payment on our revolving line of credit, a $2.5 million
payment on our term loan offset by $1.6 million of unamortized bond
discount.
|
Net
cash provided by operating activities decreased $14.4 million due primarily to
the increase in accounts receivable discussed above.
We have issued $25.6 million in standby
letters of credit as of March 31, 2009, for insurance
purposes. Issued letters of credit reduce our available credit under
the revolving credit agreement. As of March 31, 2009, we have
approximately $149.4 million of unused lines of credit available and eligible to
be drawn down under our revolving credit facility, excluding the expansion
feature. Management believes its liquidity and sources of capital are
satisfactory for the Company’s needs in the foreseeable future.
Commitments and
Contingencies
Collectively, the terms of our credit
agreements require us to meet various financial covenants, to be tested
quarterly. In connection therewith, we are in compliance with all
financial and other debt covenants as of March 31, 2009 and anticipate
remaining in compliance throughout 2009.
VITAS is
party to a class action lawsuit filed in the Superior Court of California, Los
Angeles County, in September 2006 by Bernadette Santos, Keith Knoche and Joyce
White (“Santos”). This case alleges failure to pay overtime and
failure to provide meal and rest periods to a purported class of California
admissions nurses, chaplains and sales representatives. The case
seeks payment of penalties, interest and Plaintiffs’ attorney
fees. VITAS contests these allegations. The lawsuit is in
its early stages and we are unable to estimate our potential liability, if any,
with respect to these allegations.
Regardless
of outcome, defense of litigation adversely affects us through defense costs,
diversion of our time and related publicity. In the normal course of
business, we are a party to various claims and legal proceedings. We
record a reserve for these matters when an adverse outcome is probable and the
amount of the potential liability is reasonably estimable.
In April
2005, the Office of Inspector General (“OIG”) for the Department of Health and
Human Services served VITAS with civil subpoenas relating to VITAS’ alleged
failure to appropriately bill Medicare and Medicaid for hospice
services. As part of this investigation, the OIG selected medical
records for 320 past and current patients from VITAS’ three largest programs for
review. It also sought policies and procedures dating back to 1998
covering admissions, certifications, recertifications and
discharges. During the third quarter of 2005 and again in May 2006,
the OIG requested additional information from us. The Court dismissed
a related qui tam complaint filed in U.S. District Court for the Southern
District of Florida with prejudice in July 2007. The plaintiffs
appealed this dismissal, which the Court of Appeals affirmed.
The
government continues to investigate the complaint’s allegations. In
March 2009, we received a letter from the government reiterating the basis of
their investigation. We are unable to predict the outcome of this
matter or the impact, if any, that the investigation may have on our business,
results of operations, liquidity or capital resources. Regardless of
outcome, responding to the subpoenas can adversely affect us through defense
costs, diversion of our time and related publicity.
R
esults of
Operations
First Quarter 2009 versus
First Quarter 2008 - Consolidated Results
Our service revenues and sales for the
first quarter of 2009 increased 3.4% versus service revenues and sales for the
first quarter of 2008. Of this increase, $9.8 million was
attributable to VITAS offset by a $162,000 decrease at Roto-Rooter
. The following chart shows the components of those changes (dollar
amounts in thousands):
|
|
|
|
Increase/(Decrease)
|
|
|
|
|
|
Amount
|
|
|
Percent
|
|
VITAS
|
|
|
|
|
|
|
|
|
|
Routine
homecare
|
|
$
|
5,458
|
|
|
|
3.9
|
%
|
|
Continuous
care
|
|
|
3,583
|
|
|
|
11.6
|
%
|
|
General
inpatient
|
|
|
(889
|
)
|
|
|
-3.4
|
%
|
|
Medicare
cap
|
|
|
(270
|
)
|
|
|
-
|
|
|
BNAF
adjustment
|
|
|
1,950
|
|
|
|
-
|
|
Roto-Rooter
|
|
|
|
|
|
|
|
|
|
|
Plumbing
|
|
|
|
2,413
|
|
|
|
6.8
|
%
|
|
Drain
cleaning
|
|
|
(2,287
|
)
|
|
|
-5.9
|
%
|
|
Other
|
|
|
|
(288
|
)
|
|
|
-2.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,670
|
|
|
|
3.4
|
%
|
The
increase in VITAS’ service revenues for the first quarter of 2009 versus the
first quarter of 2008 is primarily the result of the 2008 Medicare reimbursement
rate increase of approximately 3.5%, an $1.95 million increase for the BNAF,
related to the fourth quarter of 2008, as well as favorable mix shift to higher
acuity days of care. Average daily census (ADC) was essentially flat when
compared with the prior year period. This is a result of a 0.4%
increase in routine homecare, an increase of 5.8% in continuous care and a 7.0%
decrease in general inpatient. In excess of 90% of VITAS’ service
revenues for the period were from Medicare and Medicaid.
The increase in the plumbing revenues
for the first quarter of 2009 versus 2008 is attributable to a 15% increase in
the average price per job offset by a 7% decrease in the number of jobs
performed. Drain cleaning revenues for the first quarter of 2009
versus 2008 reflect a 7% decline in the number of jobs offset by a 2% increase
in the average price per job. The decrease in other revenues is
attributable primarily to lower sales of drain cleaning products and decreased
revenue from the independent contractor operations.
The consolidated gross margin was 29.8%
in the first quarter of 2009 as compared with 27.9% in the first quarter of
2008. On a segment basis, VITAS’ gross margin was 23.4% in the first
quarter of 2009 and 20.0% in the first quarter of 2008. VITAS’ gross
margin increased as the result of the BNAF adjustment related to fourth quarter
of 2008 (1.0% of the improvement) and continued refinements to our labor and
scheduling process. The Roto-Rooter segment’s gross margin was 45.2%
in the first quarter of 2009 and 45.8% in the first quarter of
2008.
Selling, general and administrative
expenses (“SG&A”) for the first quarter of 2009 were $45.8 million, an
increase of $3.1 million (7%) versus the first quarter of 2008. This
increase is primarily due to an increase in stock-based compensation expense
over the first quarter of 2008 as well as an increase in bad debt expense at
VITAS. This increase in bad debt expense is a result of continued FMR
activity.
Other operating expenses in the first
quarter of 2009 of $545,000 are related to the expenses of a contested
proxy solicitation.
Interest expense, substantially all of
which is incurred at Corporate, declined from $3.1 million in the first quarter
of 2008 to $2.8 million in the first quarter of 2009 due to lower interest rates
and lower outstanding debt balances. Interest expense for both
quarters was restated to include $1.6 million in additional non-cash interest
expense. Other expenses decreased from $1.2 million in the first
quarter of 2008 to $276,000 in the first quarter of 2009. This is
related to the change in realized and unrealized losses in the investments of
deferred compensation plans held in trust.
Our effective income tax rate increased
from 37.9% in the first quarter of 2008 to 38.8% in the first quarter of
2009. The increase in the effective income tax rate is due
primarily to the impact of non-deductible market gains and losses on investments
in our deferred compensation benefit trusts.
Net income for both periods included
the following after-tax special items/adjustments that increased/ (reduced)
after-tax earnings (in thousands):
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
VITAS
|
|
|
|
|
|
|
Costs
associated with the OIG investigation
|
|
$
|
(8
|
)
|
|
$
|
9
|
|
Tax
adjustments required upon expiration of statutes
|
|
|
-
|
|
|
|
322
|
|
Roto-Rooter
|
|
|
|
|
|
|
|
|
Unreserved
prior year's insurance claims
|
|
|
-
|
|
|
|
(358
|
)
|
Corporate
|
|
|
|
|
|
|
|
|
Stock
option expense
|
|
|
(1,292
|
)
|
|
|
(884
|
)
|
Costs
related to contested proxy solicitation
|
|
|
(345
|
)
|
|
|
-
|
|
Impact
of non-deductible losses and non-taxable gains on
|
|
|
|
|
|
|
|
|
investments
held in deferred compensation trusts
|
|
|
736
|
|
|
|
-
|
|
Noncash
interest expense related to change in accounting
|
|
|
|
|
|
|
|
|
for
conversion feature of the convertible notes
|
|
|
(968
|
)
|
|
|
(960
|
)
|
Total
|
|
$
|
(1,877
|
)
|
|
$
|
(1,871
|
)
|
First quarter 2009 versus
First quarter 2008 - Segment Results
The change in after-tax earnings for
the first quarter of 2009 versus the first quarter of 2008 is due to (in
thousands):
|
|
Net
Income
|
|
|
|
Increase/(Decrease)
|
|
|
|
Amount
|
|
|
Percent
|
|
VITAS
|
|
$
|
3,985
|
|
|
|
30.0
|
%
|
Roto-Rooter
|
|
|
(819
|
)
|
|
|
-9.0
|
%
|
Corporate
|
|
|
313
|
|
|
|
4.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,479
|
|
|
|
21.9
|
%
|
The following chart updates historical
unaudited financial and operating data of VITAS (dollars in thousands, except
dollars per patient day):
CHEMED
CORPORATION AND SUBSIDIARY COMPANIES
|
OPERATING
STATISTICS FOR VITAS SEGMENT
|
FOR
THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008
|
(unaudited)
|
OPERATING
STATISTICS
|
|
2009
|
|
|
2008
|
|
Net
revenue
|
|
|
|
|
|
|
|
|
|
Homecare
|
|
$
|
147,075
|
|
|
$
|
141,617
|
|
|
Inpatient
|
|
|
25,082
|
|
|
|
25,971
|
|
|
Continuous
care
|
|
|
34,580
|
|
|
|
30,997
|
|
|
|
Total
before Medicare cap allowance and 2008 BNAF
|
|
$
|
206,737
|
|
|
$
|
198,585
|
|
|
Estimated
BNAF Accrual Q4 2008
|
|
|
1,950
|
|
|
|
-
|
|
|
Medicare
cap allowance
|
|
|
(270
|
)
|
|
|
-
|
|
|
|
Total
|
|
$
|
208,417
|
|
|
$
|
198,585
|
|
Net
revenue as a percent of total
|
|
|
|
|
|
|
|
|
before
Medicare cap allowance
|
|
|
|
|
|
|
|
|
|
Homecare
|
|
|
71.1
|
%
|
|
|
71.3
|
%
|
|
Inpatient
|
|
|
12.2
|
|
|
|
13.1
|
|
|
Continuous
care
|
|
|
16.7
|
|
|
|
15.6
|
|
|
|
Total
before Medicare cap allowance and 2008 BNAF
|
|
|
100.0
|
|
|
|
100.0
|
|
|
Estimated
BNAF Accrual Q4 2008
|
|
|
0.9
|
|
|
|
-
|
|
|
Medicare
cap allowance
|
|
|
(0.1
|
)
|
|
|
-
|
|
|
|
Total
|
|
|
100.8
|
%
|
|
|
100.0
|
%
|
Average
daily census ("ADC") (days)
|
|
|
|
|
|
|
|
|
|
Homecare
|
|
|
7,477
|
|
|
|
7,154
|
|
|
Nursing
home
|
|
|
3,263
|
|
|
|
3,548
|
|
|
|
Routine
homecare
|
|
|
10,740
|
|
|
|
10,702
|
|
|
Inpatient
|
|
|
421
|
|
|
|
453
|
|
|
Continuous
care
|
|
|
567
|
|
|
|
536
|
|
|
|
Total
|
|
|
11,728
|
|
|
|
11,691
|
|
|
|
|
|
|
|
|
|
|
|
Total
Admissions
|
|
|
14,168
|
|
|
|
15,212
|
|
Total
Discharges
|
|
|
13,865
|
|
|
|
14,992
|
|
Average
length of stay (days)
|
|
|
76.6
|
|
|
|
71.5
|
|
Median
length of stay (days)
|
|
|
13.0
|
|
|
|
13.0
|
|
ADC
by major diagnosis
|
|
|
|
|
|
|
|
|
|
Neurological
|
|
|
32.5
|
%
|
|
|
32.5
|
%
|
|
Cancer
|
|
|
19.6
|
|
|
|
20.0
|
|
|
Cardio
|
|
|
12.3
|
|
|
|
13.0
|
|
|
Respiratory
|
|
|
6.7
|
|
|
|
6.9
|
|
|
Other
|
|
|
28.9
|
|
|
|
27.6
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Admissions
by major diagnosis
|
|
|
|
|
|
|
|
|
|
Neurological
|
|
|
18.6
|
%
|
|
|
19.0
|
%
|
|
Cancer
|
|
|
35.9
|
|
|
|
33.4
|
|
|
Cardio
|
|
|
11.1
|
|
|
|
11.9
|
|
|
Respiratory
|
|
|
7.6
|
|
|
|
8.5
|
|
|
Other
|
|
|
26.8
|
|
|
|
27.2
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Direct
patient care margins
|
|
|
|
|
|
|
|
|
|
Routine
homecare
|
|
|
51.5
|
%
|
|
|
49.5
|
%
|
|
Inpatient
|
|
|
17.4
|
|
|
|
19.3
|
|
|
Continuous
care
|
|
|
19.1
|
|
|
|
16.5
|
|
Homecare
margin drivers (dollars per patient day)
|
|
|
|
|
|
|
|
|
|
Labor
costs
|
|
$
|
52.82
|
|
|
$
|
52.26
|
|
|
Drug
costs
|
|
|
7.65
|
|
|
|
7.49
|
|
|
Home
medical equipment
|
|
|
6.68
|
|
|
|
6.17
|
|
|
Medical
supplies
|
|
|
2.27
|
|
|
|
2.57
|
|
Inpatient
margin drivers (dollars per patient day)
|
|
|
|
|
|
|
|
|
|
Labor
costs
|
|
$
|
271.75
|
|
|
$
|
266.18
|
|
Continuous
care margin drivers (dollars per patient day)
|
|
|
|
|
|
|
|
|
|
Labor
costs
|
|
$
|
521.30
|
|
|
$
|
509.62
|
|
Bad
debt expense as a percent of revenues
|
|
|
1.1
|
%
|
|
|
0.9
|
%
|
Accounts
receivable --
|
|
|
|
|
|
|
|
|
days
of revenue outstanding
|
|
|
68.4
|
|
|
|
45.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VITAS
has 5 large (greater than 450 ADC), 17 medium (greater than 200 but less
than 450 ADC) and 23 small (less than 200 ADC) hospice
programs. There is one continuing program as of March 31, 2009,
with Medicare cap cushion of less than 10% for the 2008
measurement period. There are two continuing programs as of
March 31, 2009, with Medicare cap cushion of less than 10% for the 2009
measurement period, including one program with a $505,000 liability
recorded at March 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
patient care margins exclude indirect patient care and administrative
costs, Medicare cap billing limitation, as well as the BNAF adjustment
that relates to the fourth quarter of
2008.
|
Recent Accounting
Statements
In May 2008, the FASB issued Statement
of Financial Accounting Standard No. 162 “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS 162”). The purpose of this standard is
to provide a consistent framework for determining what accounting principles
should be used when preparing U.S. GAAP financial statements. SFAS
162 categorizes accounting pronouncements in a descending order of
authority. In the instance of potentially conflicting accounting
principles, the standard in the highest category must be used. This
statement will be effective 60 days after the SEC approves the Public Company
Accounting and Oversight Board’s related amendments. We believe that
SFAS 162 will have no impact on our existing accounting
methods.
Safe
Harbor Statement under the Private Securities Litigation Reform Act of 1995
Regarding Forward-Looking Information
Certain
statements contained in this report are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. The words
"believe," "expect," "hope," "anticipate," "plan" and similar expressions
identify forward-looking statements, which speak only as of the date the
statement was made. These forward-looking statements are based on current
expectations and assumptions and involve various known and unknown risks,
uncertainties, contingencies and other factors, which could cause Chemed's
actual results to differ from those expressed in such forward-looking
statements. Variances in any or all of the risks, uncertainties, contingencies,
and other factors from our assumptions could cause actual results to differ
materially from these forward-looking statements and trends. In addition, our
ability to deal with the unknown outcomes of these events, many of which are
beyond our control, may affect the reliability of projections and other
financial matters. Investors are cautioned that such forward-looking statements
are subject to inherent risk and there are no assurances that the matters
contained in such statements will be achieved. Chemed does not undertake and
specifically disclaims any obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Item 3. Quantitative and Qualitative Disclosures about
Market Risk
Our primary market risk exposure
relates to interest rate risk exposure through variable interest rate
borrowings. At March 31, 2009, we had $12.0 million of variable rate
debt outstanding. A 1% change in the interest rate on our variable
interest rate borrowings would have a $120,000 full-year impact on our interest
expense. At March 31, 2009, the fair value of the Notes approximates
$138.3 million which have a face value of $187.0 million.
Item 4. Controls and Procedures
We carried out an evaluation, under the
supervision of our President and Chief Executive Officer and with the
participation of the Executive Vice President and Chief Financial Officer and
the Vice President and Controller, of the effectiveness of the design and
operation of our disclosure controls and procedures as of the end of the period
covered by this report. Based on that evaluation, the President and
Chief Executive Officer, Executive Vice President and Chief Financial Officer
and Vice President and Controller have concluded that our disclosure controls
and procedures were effective as of the end of the period covered by this
report. There has been no change in our internal control over
financial reporting that occurred during the quarter covered by this report that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART II OTHER
INFORMATION
Item 1. Legal
proceedings
For
information regarding the Company's legal proceedings, see note 12, Litigation,
and note 13, OIG Investigation, under Part I, Item I of this Quarterly Report on
Form 10-Q.
Item 1A. Risk
Factors
There have
been no material changes from the risk factors previously disclosed in the
Company's most recent Annual Report on Form 10-K.
Item 2. Unregistered
Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior
Securities
None
Item 4. Submission
of Matters to a Vote of Security Holders
None
Item 5. Other
Information
None
Item
6. Exhibits
Exhibit
No.
|
|
Description
|
|
|
|
31.1
|
|
Certification
by Kevin J. McNamara pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange
Act of 1934.
|
|
|
|
31.2
|
|
Certification
by David P. Williams pursuant to Rule 13a-14(a)/15d-14(a) of
the Exchange Act of 1934.
|
|
|
|
31.3
|
|
Certification
by Arthur V. Tucker, Jr. pursuant to Rule 13a-14(a)/15d-14(a) of the
Exchange Act of 1934.
|
|
|
|
32.1
|
|
Certification
by Kevin J. McNamara pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
32.2
|
|
Certification
by David P. Williams pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
32.3
|
|
Certification
by Arthur V. Tucker, Jr. pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
SIGNATURES
Pursuant
to the requirements of the Securities and Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
|
|
|
|
|
|
Chemed
Corporation
|
|
|
|
|
|
|
(Registrant)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dated:
|
|
April
28, 2009
|
|
By:
|
|
Kevin
J. McNamara
|
|
|
|
|
|
|
Kevin
J. McNamara
|
|
|
|
|
|
|
(President
and Chief Executive Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dated:
|
|
April
28, 2009
|
|
By:
|
|
David
P. Williams
|
|
|
|
|
|
|
David
P. Williams
|
|
|
|
|
|
|
(Executive
Vice President and Chief Financial Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dated:
|
|
April
28, 2009
|
|
By:
|
|
Arthur
V. Tucker, Jr.
|
|
|
|
|
|
|
Arthur
V. Tucker, Jr.
|
|
|
|
|
|
|
(Vice
President and Controller)
|
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