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As Of Filer Filing For·On·As Docs:Size 11/04/19 Chemed Corp 10-Q 9/30/19 85:15M |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 1.49M
2: EX-31.1 Certification -- §302 - SOA'02 HTML 31K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 31K
4: EX-31.3 Certification -- §302 - SOA'02 HTML 31K
5: EX-32.1 Certification -- §906 - SOA'02 HTML 26K
6: EX-32.2 Certification -- §906 - SOA'02 HTML 27K
7: EX-32.3 Certification -- §906 - SOA'02 HTML 26K
42: R1 Document And Entity Information HTML 78K
75: R2 Consolidated Balance Sheets HTML 125K
64: R3 Consolidated Balance Sheets (Parenthetical) HTML 38K
17: R4 Consolidated Statements Of Income HTML 86K
44: R5 Consolidated Statements Of Cash Flows HTML 127K
76: R6 Consolidated Statements Of Changes In Stockholders HTML 53K
Equity
65: R7 Consolidated Statements Of Changes In Stockholders HTML 26K
Equity (Parenthetical)
14: R8 Basis Of Presentation HTML 53K
46: R9 Revenue Recognition HTML 523K
63: R10 Segments HTML 86K
71: R11 Earnings Per Share HTML 176K
49: R12 Long-Term Debt And Lines Of Credit HTML 48K
20: R13 Other Operating Expenses/(Income) HTML 75K
62: R14 Other Income - Net HTML 80K
70: R15 Leases HTML 162K
48: R16 Stock-Based Compensation Plans HTML 31K
18: R17 Retirement Plans HTML 50K
61: R18 Legal And Regulatory Matters HTML 48K
72: R19 Concentration Of Risk HTML 29K
40: R20 Cash Overdrafts And Cash Equivalents HTML 28K
31: R21 Financial Instruments HTML 102K
60: R22 Capital Stock Repurchase Plan Transactions HTML 79K
85: R23 Recent Accounting Standards HTML 28K
38: R24 Acquisitions HTML 259K
30: R25 Revenue Recognition (Tables) HTML 465K
59: R26 Segments (Tables) HTML 85K
84: R27 Earnings Per Share (Tables) HTML 171K
41: R28 Long-Term Debt And Lines of Credit (Tables) HTML 38K
29: R29 Other Operating Expenses/(Income) (Tables) HTML 72K
13: R30 Other Income - Net (Tables) HTML 78K
45: R31 Leases (Tables) HTML 155K
73: R32 Retirement Plans (Tables) HTML 48K
66: R33 Financial Instruments (Tables) HTML 99K
15: R34 Capital Stock Repurchase Plan Transactions HTML 76K
(Tables)
47: R35 Acquisitions (Tables) HTML 250K
74: R36 Basis Of Presentation (Narrative) (Details) HTML 51K
67: R37 Revenue Recognition (Narrative) (Details) HTML 81K
16: R38 Revenue Recognition (Schedule Of Patient Care HTML 74K
Service Revenue) (Details)
43: R39 Revenue Recognition (Schedule Of Disaggregated HTML 40K
Revenue) (Details)
26: R40 Segments (Service Revenues And Sales And After-Tax HTML 38K
Earnings By Business Segment) (Details)
36: R41 Earnings Per Share (Narrative) (Details) HTML 26K
80: R42 Earnings Per Share (Schedule Of Computation Of HTML 55K
Earnings Per Share) (Details)
53: R43 Long-Term Debt And Lines of Credit (Narrative) HTML 49K
(Details)
27: R44 Long-Term Debt And Lines of Credit (Financial Debt HTML 31K
Covenants) (Details)
37: R45 Other Operating Expenses/(Income) (Narrative) HTML 28K
(Details)
81: R46 Other Operating Expenses/(Income) (Schedule Of HTML 30K
Other Operating Expenses/(Income)) (Details)
54: R47 Other Income - Net (Schedule Of Other Income - HTML 33K
Net) (Details)
28: R48 Leases (Narrative) (Details) HTML 49K
35: R49 Leases (Components Of Balance Sheet Information HTML 33K
Related To Leases) (Details)
51: R50 Leases (Components Of Lease Expense) (Details) HTML 31K
23: R51 Leases (Components Of Cash Flow Information HTML 34K
Related To Leases) (Details)
69: R52 Leases (Summary Of Maturity Of Operating Lease HTML 44K
Liabilities) (Details)
79: R53 Leases (Summary Of Future Minimum Rental Payments HTML 44K
And Sublease Rentals To Be Received Under
Operating Leases) (Details)
50: R54 Stock-Based Compensation Plans (Narrative) HTML 36K
(Details)
22: R55 Retirement Plans (Schedule Of Expenses For HTML 27K
Retirement, Profit-Sharing Plans, Excess Benefit
Plans And Other Similar Plans) (Details)
68: R56 Legal And Regulatory Matters (Narrative) (Details) HTML 39K
78: R57 Concentration Of Risk (Narrative) (Details) HTML 34K
52: R58 Cash Overdrafts And Cash Equivalents (Narrative) HTML 25K
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21: R59 Financial Instruments (Narrative) (Details) HTML 28K
58: R60 Financial Instruments (Carrying Value, Fair Value HTML 34K
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83: R61 Capital Stock Repurchase Plan Transactions HTML 27K
(Narrative) (Details)
33: R62 Capital Stock Repurchase Plan Transactions HTML 32K
(Schedule Of Capital Stock Repurchases) (Details)
25: R63 Acquisitions (Narrative) (Details) HTML 55K
57: R64 Acquisitions (Schedule Of Business Acquisitions) HTML 62K
(Details)
82: R65 Acquisitions (Schedule Of Franchise Revenue, HTML 53K
Valuation And Amortization Of Reacquired Franchise
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32: R66 Acquisitions (Schedule Of Amortization Of Acquired HTML 28K
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24: R67 Acquisitions (Schedule Of Business Acquisitions HTML 34K
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55: R68 Acquisitions (Schedule Of Movement In Goodwill) HTML 36K
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| che-20190930x10q |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM i 10-Q
(Mark One)
i x Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended i September 30, 2019
i o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: i 1-8351
i CHEMED CORPORATION
(Exact name of registrant as specified in its charter)
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i Delaware |
| i 31-0791746 |
(State or other jurisdiction of incorporation or organization) |
| (IRS Employer Identification No.) |
i 255 E. Fifth Street, i Suite 2600, i Cincinnati, i Ohio |
| i 45202 |
(Address of principal executive offices) |
| (Zip code) |
( i 513) i 762-6690 (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.
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Yes | x | No | o |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
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Yes | x | No | o |
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).
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i Large Accelerated Filer | x |
| Accelerated Filer | o |
| Non-accelerated Filer | o |
| Smaller Reporting Company | i o |
Emerging growth company i o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended the extended transition period for complying with a new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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Yes | o | No | i x | |||
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class | Trading Symbol | Name of Each Exchange on which Registered | Amount | Date | |
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i Capital Stock $1 Par Value | i CHE | i New York Stock Exchange | i 16,009,258 Shares | ||
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SUBSIDIARY COMPANIES
Index
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| Page No. |
PART I. FINANCIAL INFORMATION: |
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Item 1. Financial Statements |
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3 | |
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4 | |
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5 | |
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Unaudited Consolidated Statements of Changes in Stockholders’ Equity- |
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6 | |
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8 | |
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 25 |
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Item 3. Quantitative and Qualitative Disclosures about Market Risk | 43 |
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43 | |
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PART II. OTHER INFORMATION |
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43 | |
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43 | |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 44 |
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44 | |
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44 | |
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44 | |
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45 | |
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EX – 31.1 |
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EX – 31.2 |
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EX – 31.3 |
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EX – 32.1 |
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EX – 32.2 |
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EX – 32.3 EX – 101 EX – 104 |
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PART I. FINANCIAL INFORMATION | |||||
Item 1. Financial Statements | |||||
CHEMED CORPORATION AND SUBSIDIARY COMPANIES | |||||
UNAUDITED CONSOLIDATED BALANCE SHEETS | |||||
(in thousands, except share and per share data) | |||||
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ASSETS |
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Current assets |
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Cash and cash equivalents | $ | i 9,066 |
| $ | i 4,831 |
Accounts receivable |
| i 114,480 |
|
| i 119,504 |
Inventories |
| i 7,354 |
|
| i 5,705 |
Prepaid income taxes |
| i 10,745 |
|
| i 10,646 |
Prepaid expenses |
| i 26,150 |
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| i 19,154 |
Total current assets |
| i 167,795 |
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| i 159,840 |
Investments of deferred compensation plans |
| i 73,714 |
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| i 65,624 |
Properties and equipment, at cost, less accumulated depreciation of $ i i 264,075 / (2018 - $ i 248,370) |
| i 172,932 |
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| i 162,033 |
Lease right of use asset |
| i 103,286 |
|
| - |
Identifiable intangible assets less accumulated amortization of $ i 34,651 (2018 - $ i 33,283) |
| i 129,276 |
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| i 68,253 |
Goodwill |
| i 576,600 |
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| i 510,570 |
Other assets |
| i 8,982 |
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| i 9,209 |
Total Assets | $ | i 1,232,585 |
| $ | i 975,529 |
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LIABILITIES |
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Current liabilities |
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Accounts payable | $ | i 44,027 |
| $ | i 50,150 |
Accrued insurance |
| i 47,726 |
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| i 46,095 |
Accrued compensation |
| i 75,208 |
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| i 63,329 |
Accrued legal |
| i 7,283 |
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| i 1,857 |
Short-term lease liability |
| i 33,761 |
|
| - |
Other current liabilities |
| i 43,496 |
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| i 30,239 |
Total current liabilities |
| i 251,501 |
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| i 191,670 |
Deferred income taxes |
| i 15,512 |
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| i 21,598 |
Long-term debt |
| i 130,000 |
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| i 89,200 |
Deferred compensation liabilities |
| i 73,335 |
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| i 64,616 |
Long-term lease liability |
| i 82,012 |
|
| - |
Other liabilities |
| i 7,845 |
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| i 17,111 |
Total Liabilities |
| i 560,205 |
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| i 384,195 |
Commitments and contingencies (Note 11) |
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STOCKHOLDERS' EQUITY |
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Capital stock - authorized i i 80,000,000 / shares $ i i 1 / par; issued i 35,737,995 shares (2018 - i 35,311,418 shares) |
| i 35,738 |
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| i 35,311 |
Paid-in capital |
| i 841,837 |
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| i 774,358 |
Retained earnings |
| i 1,365,303 |
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| i 1,225,617 |
Treasury stock - i 19,808,981 shares (2018 - i 19,438,358 shares) |
| ( i 1,572,844) |
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| ( i 1,446,296) |
Deferred compensation payable in Company stock |
| i 2,346 |
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| i 2,344 |
Total Stockholders' Equity |
| i 672,380 |
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| i 591,334 |
Total Liabilities and Stockholders' Equity | $ | i 1,232,585 |
| $ | i 975,529 |
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See accompanying Notes to Unaudited Consolidated Financial Statements. | |||||
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CHEMED CORPORATION AND SUBSIDIARY COMPANIES | |||||||||||
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME | |||||||||||
(in thousands, except per share data) | |||||||||||
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| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Service revenues and sales | $ | i 480,613 |
| $ | i 444,151 |
| $ | i 1,416,231 |
| $ | i 1,325,140 |
Cost of services provided and goods sold (excluding depreciation) |
| i 328,183 |
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| i 305,312 |
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| i 973,771 |
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| i 915,589 |
Selling, general and administrative expenses |
| i 76,836 |
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| i 67,177 |
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| i 222,421 |
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| i 204,474 |
Depreciation |
| i 10,147 |
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| i 9,657 |
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| i 29,744 |
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| i 28,642 |
Amortization |
| i 441 |
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| i 35 |
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| i 1,366 |
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| i 96 |
Other operating expenses |
| i 78 |
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| i 257 |
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| i 9,001 |
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| i 88 |
Total costs and expenses |
| i 415,685 |
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| i 382,438 |
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| i 1,236,303 |
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| i 1,148,889 |
Income from operations |
| i 64,928 |
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| i 61,713 |
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| i 179,928 |
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| i 176,251 |
Interest expense |
| ( i 1,041) |
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| ( i 1,082) |
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| ( i 3,402) |
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| ( i 3,813) |
Other income - net |
| i 3,036 |
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| i 2,300 |
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| i 5,488 |
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| i 4,356 |
Income before income taxes |
| i 66,923 |
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| i 62,931 |
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| i 182,014 |
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| i 176,794 |
Income taxes |
| ( i 7,976) |
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| ( i 11,682) |
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| ( i 27,671) |
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| ( i 25,578) |
Net income | $ | i 58,947 |
| $ | i 51,249 |
| $ | i 154,343 |
| $ | i 151,216 |
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Earnings Per Share: |
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Net income | $ | i 3.69 |
| $ | i 3.19 |
| $ | i 9.68 |
| $ | i 9.41 |
Average number of shares outstanding |
| i 15,970 |
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| i 16,074 |
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| i 15,952 |
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| i 16,070 |
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Diluted Earnings Per Share: |
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Net income | $ | i 3.56 |
| $ | i 3.06 |
| $ | i 9.35 |
| $ | i 8.98 |
Average number of shares outstanding |
| i 16,555 |
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| i 16,772 |
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| i 16,514 |
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| i 16,830 |
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Cash Dividends Per Share | $ | i 0.32 |
| $ | i 0.30 |
| $ | i 0.92 |
| $ | i 0.86 |
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See accompanying Notes to Unaudited Consolidated Financial Statements. | |||||||||||
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CHEMED CORPORATION AND SUBSIDIARY COMPANIES | |||||
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||
(in thousands) | |||||
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| Nine Months Ended September 30, | ||||
| 2019 |
| 2018 | ||
Cash Flows from Operating Activities |
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Net income | $ | i 154,343 |
| $ | i 151,216 |
Adjustments to reconcile net income to net cash provided |
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by operating activities: |
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Depreciation and amortization |
| i 31,110 |
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| i 28,738 |
Stock option expense |
| i 10,729 |
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| i 9,360 |
Benefit for deferred income taxes |
| ( i 6,085) |
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| ( i 1,344) |
Litigation settlement |
| i 6,000 |
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| - |
Noncash long-term incentive compensation |
| i 4,184 |
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| i 4,176 |
Asset impairment loss |
| i 2,266 |
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| - |
Noncash directors' compensation |
| i 767 |
|
| i 766 |
Amortization of debt issuance costs |
| i 229 |
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| i 361 |
Amortization of restricted stock awards |
| - |
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| i 446 |
Changes in operating assets and liabilities: |
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Decrease in accounts receivable |
| i 10,558 |
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| i 4,637 |
Increase in inventories |
| ( i 1,649) |
|
| ( i 429) |
Increase in prepaid expenses |
| ( i 6,836) |
|
| ( i 1,518) |
Increase in accounts payable and other current liabilities |
| i 28,622 |
|
| i 12,182 |
Net change in lease assets and liabilities |
| i 1,311 |
|
| - |
Change in current income taxes |
| ( i 81) |
|
| i 23,858 |
Increase in other assets |
| ( i 8,145) |
|
| ( i 9,441) |
Increase in other liabilities |
| i 9,045 |
|
| i 7,190 |
Other sources |
| i 1,277 |
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| i 410 |
Net cash provided by operating activities |
| i 237,645 |
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| i 230,608 |
Cash Flows from Investing Activities |
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Business combinations |
| ( i 138,010) |
|
| ( i 12,875) |
Capital expenditures |
| ( i 39,753) |
|
| ( i 36,554) |
Other sources |
| i 101 |
|
| i 480 |
Net cash used by investing activities |
| ( i 177,662) |
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| ( i 48,949) |
Cash Flows from Financing Activities |
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Proceeds from revolving line of credit |
| i 400,700 |
|
| i 428,150 |
Payments on revolving line of credit |
| ( i 359,900) |
|
| ( i 324,350) |
Purchases of treasury stock |
| ( i 71,926) |
|
| ( i 121,976) |
Capital stock surrendered to pay taxes on stock-based compensation |
| ( i 26,108) |
|
| ( i 24,763) |
Proceeds from exercise of stock options |
| i 23,383 |
|
| i 23,079 |
Dividends paid |
| ( i 14,657) |
|
| ( i 13,850) |
Change in cash overdrafts payable |
| ( i 7,535) |
|
| ( i 15,307) |
Payments on other long-term debt |
| - |
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| ( i 75,000) |
Debt issuance costs |
| - |
|
| ( i 985) |
Other sources/(uses) |
| i 295 |
|
| ( i 319) |
Net cash used by financing activities |
| ( i 55,748) |
|
| ( i 125,321) |
Increase in Cash and Cash Equivalents |
| i 4,235 |
|
| i 56,338 |
Cash and cash equivalents at beginning of year |
| i 4,831 |
|
| i 11,121 |
Cash and cash equivalents at end of period | $ | i 9,066 |
| $ | i 67,459 |
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See accompanying Notes to Unaudited Consolidated Financial Statements. | |||||
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CHEMED CORPORATION AND SUBSIDIARY COMPANIES | |||||||||||||||||
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY | |||||||||||||||||
(in thousands, except per share data) | |||||||||||||||||
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For the three months ended September 30, 2019 and 2018: |
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| Deferred |
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| Compensation |
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| Treasury |
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| Payable in |
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| Capital |
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| Paid-in |
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| Retained |
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| Stock- |
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| Company |
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| Stock |
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| Capital |
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| Earnings |
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| at Cost |
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| Stock |
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| Total |
Balance at June 30, 2019 |
| i 35,591 |
|
| i 817,255 |
|
| i 1,311,446 |
|
| ( i 1,548,138) |
|
| i 2,415 |
|
| i 618,569 |
Net income |
| - |
|
| - |
|
| i 58,947 |
|
| - |
|
| - |
|
| i 58,947 |
Dividends paid ($ i 0.32 per share) |
| - |
|
| - |
|
| ( i 5,090) |
|
| - |
|
| - |
|
| ( i 5,090) |
Stock awards and exercise of stock options |
| i 147 |
|
| i 24,660 |
|
| - |
|
| ( i 24,775) |
|
| - |
|
| i 32 |
Other |
| - |
|
| ( i 78) |
|
| - |
|
| i 69 |
|
| ( i 69) |
|
| ( i 78) |
Balance at September 30, 2019 | $ | i 35,738 |
| $ | i 841,837 |
| $ | i 1,365,303 |
| $ | ( i 1,572,844) |
| $ | i 2,346 |
| $ | i 672,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Treasury |
|
| Payable in |
|
|
|
|
| Capital |
|
| Paid-in |
|
| Retained |
|
| Stock- |
|
| Company |
|
|
|
|
| Stock |
|
| Capital |
|
| Earnings |
|
| at Cost |
|
| Stock |
|
| Total |
Balance at June 30, 2018 |
| i 35,141 |
|
| i 744,228 |
|
| i 1,129,289 |
|
| ( i 1,354,538) |
|
| i 2,271 |
|
| i 556,391 |
Net income |
| - |
|
| - |
|
| i 51,249 |
|
| - |
|
| - |
|
| i 51,249 |
Dividends paid ($ i 0.28 per share) |
| - |
|
| - |
|
| ( i 4,834) |
|
| - |
|
| - |
|
| ( i 4,834) |
Stock awards and exercise of stock options |
| i 70 |
|
| i 10,679 |
|
| - |
|
| ( i 8,331) |
|
| - |
|
| i 2,418 |
Purchases of treasury stock |
| - |
|
| - |
|
| - |
|
| ( i 37,672) |
|
| - |
|
| ( i 37,672) |
Other |
| - |
|
| i 356 |
|
| i 245 |
|
| ( i 36) |
|
| i 36 |
|
| i 601 |
Balance at September 30, 2018 | $ | i 35,211 |
| $ | i 755,263 |
| $ | i 1,175,949 |
| $ | ( i 1,400,577) |
| $ | i 2,307 |
| $ | i 568,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Notes to Consolidated Financial Statements are integral parts of these statements. | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHEMED CORPORATION AND SUBSIDIARY COMPANIES | |||||||||||||||||
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY | |||||||||||||||||
(in thousands, except per share data) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2019 and 2018: |
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Treasury |
|
| Payable in |
|
|
|
|
| Capital |
|
| Paid-in |
|
| Retained |
|
| Stock- |
|
| Company |
|
|
|
|
| Stock |
|
| Capital |
|
| Earnings |
|
| at Cost |
|
| Stock |
|
| Total |
Balance at December 31, 2018 |
| i 35,311 |
|
| i 774,358 |
|
| i 1,225,617 |
|
| ( i 1,446,296) |
|
| i 2,344 |
|
| i 591,334 |
Net income |
| - |
|
| - |
|
| i 154,343 |
|
| - |
|
| - |
|
| i 154,343 |
Dividends paid ($ i 0.92 per share) |
| - |
|
| - |
|
| ( i 14,657) |
|
| - |
|
| - |
|
| ( i 14,657) |
Stock awards and exercise of stock options |
| i 427 |
|
| i 67,149 |
|
| - |
|
| ( i 54,620) |
|
| - |
|
| i 12,956 |
Purchases of treasury stock |
| - |
|
| - |
|
| - |
|
| ( i 71,926) |
|
| - |
|
| ( i 71,926) |
Other |
| - |
|
| i 330 |
|
| - |
|
| ( i 2) |
|
| i 2 |
|
| i 330 |
Balance at September 30, 2019 | $ | i 35,738 |
| $ | i 841,837 |
| $ | i 1,365,303 |
| $ | ( i 1,572,844) |
| $ | i 2,346 |
| $ | i 672,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Treasury |
|
| Payable in |
|
|
|
|
| Capital |
|
| Paid-in |
|
| Retained |
|
| Stock- |
|
| Company |
|
|
|
|
| Stock |
|
| Capital |
|
| Earnings |
|
| at Cost |
|
| Stock |
|
| Total |
Balance at December 31, 2017 |
| i 34,732 |
|
| i 695,797 |
|
| i 1,038,955 |
|
| ( i 1,231,332) |
|
| i 2,202 |
|
| i 540,354 |
Net income |
| - |
|
| - |
|
| i 151,216 |
|
| - |
|
| - |
|
| i 151,216 |
Dividends paid ($ i 0.86 per share) |
| - |
|
| - |
|
| ( i 13,850) |
|
| - |
|
| - |
|
| ( i 13,850) |
Stock awards and exercise of stock options |
| i 479 |
|
| i 59,749 |
|
| - |
|
| ( i 47,164) |
|
| - |
|
| i 13,064 |
Purchases of treasury stock |
| - |
|
| - |
|
| - |
|
| ( i 121,976) |
|
| - |
|
| ( i 121,976) |
Other |
| - |
|
| ( i 283) |
|
| ( i 372) |
|
| ( i 105) |
|
| i 105 |
|
| ( i 655) |
Balance at September 30, 2018 | $ | i 35,211 |
| $ | i 755,263 |
| $ | i 1,175,949 |
| $ | ( i 1,400,577) |
| $ | i 2,307 |
| $ | i 568,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Notes to Consolidated Financial Statements are integral parts of these statements. | |||||||||||||||||
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
Notes to Unaudited Consolidated Financial Statements
i 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, 2018 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 state 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 audited Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2018.
LEASE ACCOUNTING
In February 2016, the FASB issued Accounting Standards Update “ASU No. 2016-02 Leases” which introduced a lessee model that brings most leases onto the balance sheets and updates lessor accounting to align with changes in the lessee model and the revenue recognition standard. This standard is also referred to as Accountings Standards Codification No.842 (“ASC 842”). We adopted ASC 842 effective January 1, 2019, using the optional transition method requiring leases existing at, or entered into after, January 1, 2019 to be recognized and measured. The transition method selected does not require adjustments to prior period amounts, which continue to be reflected in accordance with historical accounting. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard which among other things, allowed us to carry forward the historical lease classification.
Chemed and each of its operating subsidiaries are service companies. As such, real estate leases comprise the largest lease obligation (and conversely, right of use asset) in our lease portfolio. VITAS has leased office space, as well as space for inpatient units (“IPUs”) and/or contract beds within hospitals. Roto-Rooter mainly has leased office space.
Roto-Rooter purchases equipment and leases it to certain of its independent contractors. We analyzed these leases in accordance with ASC 842 and determined they are operating leases. As a result, Roto-Rooter will continue to capitalize the equipment underlying these leases, depreciate the equipment and recognize rental income.
Adoption of the new standard resulted in right of use assets and lease liabilities of $ i 87.8 million and $ i 98.7 million, respectively, as of March 31, 2019. In determining the liability, we used our incremental borrowing rate based on the information available at the time of adoption, since the rate implicit in the leases cannot be readily determined. At January 1, 2019, the weighted average rate was i 3.47%. The standard did not materially impact our consolidated net income or cash flows. We did not book a cumulative effect adjustment upon adoption of the standard.
CLOUD COMPUTING
On January 1, 2019, we early adopted ASU No. 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract”. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software. We adopted the ASU on a prospective basis.
As of September 30, 2019, we have i two cloud computing arrangements that are service contracts. Roto-Rooter is implementing a system to assist in technician dispatch and VITAS is implementing a new human resources system. We have capitalized approximately $ i 4.8 million related to implementation of these projects which are included in prepaid assets in the accompanying balance sheets. There has been i no amortization expense associated with the asset, as the software has not yet been placed in service. We anticipate amortizing the assets over the original term of the arrangements plus renewal options that are reasonably certain of being exercised.
NON-EMPLOYEE STOCK COMPENSATION
In June 2018, the FASB issued Accounting Standards Update “ASU No. 2018-07 – Compensation – Stock Compensation”. The ASU expands the scope of current guidance to include all share-based payment arrangements related to the acquisition of goods and services from both non-employees and employees. The guidance in the ASU is effective for the Company in all fiscal years beginning after December 15, 2018. Adoption of this standard had no material impact on our Consolidated Financial Statements.
CASH FLOW CLASSIFICATION
In August 2016, the FASB issued Accounting Standards Update “ASU No. 2016-15 – Cash Flow Classification” which amends guidance on the classification of certain cash receipts and payments in the Statements of Cash Flows. The primary purpose of ASU 2016-15 was to reduce diversity in practice related to eight specific cash flow issues. The guidance in this ASU was effective for fiscal years beginning after December 15, 2017. We adopted this ASU as of January 1, 2018. There was no material effect to our Statements of Cash Flow.
INCOME TAXES
Our effective income tax rate was i 11.9% in the third quarter of 2019 compared to i 18.6% during the third quarter of 2018. Excess tax benefit on stock options reduced our income tax expenses by $ i 8.8 million and $ i 3.1 million, respectively for the quarters ended September 30, 2019 and 2018.
Our effective income tax rate was i 15.2% for the first nine months of 2019 compared to i 14.5% during the first nine months of 2018. Excess tax benefit on stock options reduced our income tax expenses by $ i 18.7 million and $ i 18.6 million, respectively for the first nine months ended September 30, 2019 and 2018.
NON-CASH TRANSACTIONS
Included in the accompanying Consolidated Balance Sheets are $ i 1.1 million and $ i 3.2 million of capitalized property and equipment which were not paid for as of September 30, 2019 and December 31, 2018, respectively. These amounts have been excluded from capital expenditures in the accompanying Consolidated Statements of Cash Flow. There are no material non-cash amounts included in interest expense for any period presented.
BUSINESS COMBINATIONS
We account for acquired businesses using the acquisition method of accounting. All assets acquired and liabilities assumed are recorded at their respective fair values at the date of acquisition. The determination of fair value involves estimates and the use of valuation techniques when market value is not readily available. We use various techniques to determine fair value in accordance with accepted valuation models, primarily the income approach. The significant assumptions used in developing fair values include, but are not limited to, revenue growth rates, the amount and timing of future cash flows, discount rates, useful lives, royalty rates and future tax rates. The excess of purchase price over the fair value of assets and liabilities acquired is recorded as goodwill. See footnote 17 for discussion of recent acquisitions.
i 2. Revenue Recognition
In May 2014, the FASB issued Accounting Standards Update “ASU No. 2014-09 – Revenue from Contracts with Customers.” The standard and subsequent amendments are theoretically intended to develop a common revenue standard for removing inconsistencies and weaknesses, improve comparability, provide for more useful information to users through improved disclosure requirements and simplify the preparation of financial statements. The standard is also referred to as Accounting Standards Codification No. 606 (“ASC 606”). We adopted ASC 606 effective January 1, 2018. The required disclosures of ASC 606 and impact of adoption are discussed below for each of our operating subsidiaries.
VITAS
Service revenue for VITAS is reported at the amount that reflects the ultimate consideration we expect to receive in exchange for providing patient care. These amounts are due from third-party payors, primarily commercial health insurers and government programs (Medicare and Medicaid), and include variable consideration for revenue adjustments due to settlements of audits and reviews, as well as certain hospice-specific revenue capitations. Amounts are generally billed monthly or subsequent to patient discharge. Subsequent changes in the transaction price initially recognized are not significant.
Hospice services are provided on a daily basis and the type of service provided is determined based on a physician’s determination of each patient’s specific needs on that given day. Reimbursement rates for hospice services are on a per diem basis regardless of the type of service provided or the payor. Reimbursement rates from government programs are established by the appropriate governmental agency and are standard across all hospice providers. Reimbursement rates from health insurers are negotiated with each payor and generally structured to closely mirror the Medicare reimbursement model. The types of hospice services provided and associated reimbursement model for each are as follows:
Routine Home Care occurs when a patient receives hospice care in their home, including a nursing home setting. The routine home care rate is paid for each day that a patient is in a hospice program and is not receiving one of the other categories of hospice care. For Medicare patients, the routine home care rate reflects a two-tiered rate, with a higher rate for the first i 60 days of a hospice patient’s care and a lower rate for days i 61 and after. In addition, there is a Service Intensity Add-on payment which covers direct home care visits conducted by a registered nurse or social worker in the last i seven days of a hospice patient’s life, reimbursed up to i 4 hours per day in 15 minute increments at the continuous home care rate.
General Inpatient Care occurs when a patient requires services in a controlled setting for a short period of time for pain control or symptom management which cannot be managed in other settings. General inpatient care services must be provided in a Medicare or Medicaid certified hospital or long-term care facility or at a freestanding inpatient hospice facility with the required registered nurse staffing.
Continuous Home Care is provided to patients while at home, including a nursing home setting, during periods of crisis when intensive monitoring and care, primarily nursing care, is required in order to achieve palliation or management of acute medical symptoms. Continuous home care requires a minimum of i 8 hours of care within a 24-hour day, which begins at midnight. The care must be predominantly nursing care provided by either a registered nurse or licensed nurse practitioner. While the published Medicare continuous home care rates are daily rates, Medicare pays for continuous home care in 15 minute increments. This 15 minute rate is calculated by dividing the daily rate by 96.
Respite Care permits a hospice patient to receive services on an inpatient basis for a short period of time in order to provide relief for the patient’s family or other caregivers from the demands of caring for the patient. A hospice can receive payment for respite care for a given patient for up to five consecutive days at a time, after which respite care is reimbursed at the routine home care rate.
Each level of care represents a separate promise under the contract of care and is provided independently for each patient contingent upon the patient’s specific medical needs as determined by a physician. However, the clinical criteria used to determine a patient’s level of care is consistent across all patients, given that, each patient is subject to the same payor rules and regulations. As a result, we have concluded that each level of care is capable of being distinct and is distinct in the context of the contract. Furthermore, we have determined that each level of care represents a stand ready service provided as a series of either days or hours of patient care. We believe that the performance obligations for each level of care meet criteria to be satisfied over time. VITAS recognizes revenue based on the service output. VITAS believes this to be the most faithful depiction of the transfer of control of services as the patient simultaneously receives and consumes the benefits provided by our performance. Revenue is recognized on a daily or hourly basis for each patient in accordance with the reimbursement model for each type of service. VITAS’ performance obligations relate to contracts with an expected duration of less than one year. Therefore, VITAS has elected to apply the optional exception provided in ASC 606 and is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The unsatisfied or partially satisfied performance obligations referred to above relate to bereavement services provided to patients’ families for at least i 12 months after discharge.
Care is provided to patients regardless of their ability to pay. Patients who meet our criteria for charity care are provided care without charge. There is no revenue or associated accounts receivable in the accompanying Consolidated Financial Statements related to charity care. The cost of providing charity care during the quarters ended September 30, 2019 and 2018 was $ i 2.3 million and $ i 2.0 million, respectively. The cost of providing charity care during the first nine months ended September 30, 2019 and 2018 was $ i 6.6 million and $ i 6.2 million, respectively. The cost of charity care is included in cost of services provided and goods sold and is calculated by taking the ratio of charity care days to total days of care and multiplying by the total cost of care.
Generally, patients who are covered by third-party payors are responsible for related deductibles and coinsurance which vary in amount. VITAS also provides service to patients without a reimbursement source and may offer those patients discounts from standard charges. VITAS estimates the transaction price for patients with deductibles and coinsurance, along with those uninsured patients, based on historical experience and current conditions. The estimate of any contractual adjustments, discounts or implicit price concessions reduces the amount of revenue initially recognized. Subsequent changes
to the estimate of the transaction price are recorded as adjustments to patient service revenue in the period of change. Subsequent changes that are determined to be the result of an adverse change in the patients’ ability to pay (i.e. change in credit risk) are recorded as bad debt expense. VITAS has no material adjustments related to subsequent changes in the estimate of the transaction price or subsequent changes as the result of an adverse change in the patient’s ability to pay for any period reported.
Laws and regulations concerning government programs, including Medicare and Medicaid, are complex and subject to varying interpretation. Medicare and Medicaid programs have broad authority to audit and review compliance with such laws and regulations, and impose payment suspensions when merited. Additionally, the contracts we have with commercial health insurance payors provide for retroactive audit and review of claims. Settlement with third party payors for retroactive adjustments due to audits, reviews or investigations are considered variable consideration and are included in the determination of the estimated transaction price for providing patient care. The variable consideration is estimated based on the terms of the payment agreement, existing correspondence from the payor and our historical settlement activity. These estimates are adjusted in future periods, as new information becomes available.
We are subject to certain limitations on Medicare payments for services which are considered variable consideration, as follows:
Inpatient Cap. If the number of inpatient care days any hospice program provides to Medicare beneficiaries exceeds i 20% of the total days of hospice care such program provided to all Medicare patients for an annual period beginning September 28, the days in excess of the 20% figure may be reimbursed only at the routine homecare rate. None of VITAS’ hospice programs exceeded the payment limits on inpatient services during the three and nine months ended September 30, 2019 and 2018.
Medicare Cap. We are also subject to a Medicare annual per-beneficiary cap (“Medicare cap”). Compliance with the Medicare cap is measured in one of two ways based on a provider election. The “streamlined” method compares total Medicare payments received under a Medicare provider number with respect to services provided to all Medicare hospice care beneficiaries in the program or programs covered by that Medicare provider number with the product of the per-beneficiary cap amount and the number of Medicare beneficiaries electing hospice care for the first time from that hospice program or programs from September 28 through September 27 of the following year. At September 30, 2019, all our programs except one are using the “streamlined” method.
The “proportional” method compares the total Medicare payments received under a Medicare provider number with respect to services provided to all Medicare hospice care beneficiaries in the program or programs covered by the Medicare provider number between September 28 and September 27 of the following year with the product of the per beneficiary cap amount and a pro-rated number of Medicare beneficiaries receiving hospice services from that program during the same period. The pro-rated number of Medicare beneficiaries is calculated based on the ratio of days the beneficiary received hospice services during the measurement period to the total number of days the beneficiary received hospice services.
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 revenues are likely to exceed the annual per-beneficiary 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 actions, which include changes to the patient mix and increased patient admissions. However, should we project our corrective action will not prevent that program from exceeding its Medicare cap, we estimate revenue recognized during the government fiscal year that will require repayment to the Federal government under the Medicare cap and record an adjustment to revenue of an amount equal to a ratable portion of our best estimate for the year.
In 2013, the U.S. government implemented automatic budget reductions of i 2.0% for all government payees, including hospice benefits paid under the Medicare program. In 2015, CMS determined that the Medicare cap should be calculated “as if” sequestration did not occur. As a result of this decision, VITAS has received notification from our third-party intermediary that an additional $ i 6.7 million is owed for Medicare cap in three programs arising during the 2013 through 2019 measurement periods. The amounts are automatically deducted from our semi-monthly PIP payments. We do not believe that CMS is authorized under the sequestration authority or the statutory methodology for establishing the Medicare cap to the amounts they have withheld and intend to withhold under their current “as if” methodology. We have appealed CMS’s methodology change.
During the quarter ended September 30, 2019, we recorded $ i 1.3 million in net Medicare cap revenue reduction related to four programs for the 2019 government fiscal year. During the quarter ended September 30, 2018, we recorded $ i 2.0 million in net Medicare cap revenue reduction related to two programs for the 2018 government fiscal year.
During the first nine months ended September 30, 2019, we recorded $ i 7.1 million in net Medicare cap revenue reduction related to four programs for the 2019 government fiscal year. Additionally, we recorded $ i 847,000 related to adjustments of prior year cap liabilities. During the nine months ended September 30, 2018, we recorded $ i 487,000 in net Medicare cap revenue reduction related to two programs for the 2018 government fiscal year and $ i 181,000 related to adjustments of prior year cap liabilities. The Medicare cap liability of $ i 11.8 million and $ i 6.4 million as of September 30, 2019 and December 31, 2018 is included in other current liabilities on the Consolidated Financial Statements.
For VITAS’ patients in the nursing home setting in which Medicaid pays the nursing home room and board, VITAS serves as a pass-through between Medicaid and the nursing home. We are responsible for paying the nursing home for that patient’s room and board. Medicaid reimburses us for i 95% of the amount we have paid. This results in a i 5% net expense for VITAS related to nursing home room and board. This transaction creates a performance obligation in that VITAS is facilitating room and board being delivered to our patient. As a result, the 5% net expense is recognized as a contra-revenue account under ASC 606 in the accompanying financial statements.
i The composition of patient care service revenue by payor and level of care for the quarter ended September 30, 2019 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Medicare |
| Medicaid |
| Commercial |
| Total | ||||
Routine home care | $ | i 255,856 |
| $ | i 12,332 |
|
| i 6,558 |
| $ | i 274,746 |
Continuous care |
| i 26,423 |
|
| i 1,549 |
|
| i 1,474 |
|
| i 29,446 |
Inpatient care |
| i 20,038 |
|
| i 1,976 |
|
| i 1,585 |
|
| i 23,599 |
| $ | i 302,317 |
| $ | i 15,857 |
| $ | i 9,617 |
| $ | i 327,791 |
|
|
|
|
|
|
|
|
|
|
|
|
All other revenue - self-pay, respite care, etc. |
|
|
|
|
|
|
|
|
|
| i 2,356 |
Subtotal |
|
|
|
|
|
|
|
|
| $ | i 330,147 |
Medicare cap adjustment |
|
|
|
|
|
|
|
|
|
| ( i 1,317) |
Implicit price concessions |
|
|
|
|
|
|
|
|
|
| ( i 4,236) |
Room and board, net |
|
|
|
|
|
|
|
|
|
| ( i 2,846) |
Net revenue |
|
|
|
|
|
|
|
|
| $ | i 321,748 |
The composition of patient care service revenue by payor and level of care for the quarter ended September 30, 2018 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| Medicare |
| Medicaid |
| Commercial |
| Total | ||||
Routine home care | $ | i 239,590 |
| $ | i 11,984 |
| $ | i 5,560 |
| $ | i 257,134 |
Continuous care |
| i 27,391 |
|
| i 1,539 |
|
| i 1,455 |
|
| i 30,385 |
Inpatient care |
| i 16,287 |
|
| i 1,998 |
|
| i 1,332 |
|
| i 19,617 |
| $ | i 283,268 |
| $ | i 15,521 |
| $ | i 8,347 |
| $ | i 307,136 |
|
|
|
|
|
|
|
|
|
|
|
|
All other revenue - self-pay, respite care, etc. |
|
|
|
|
|
|
|
|
|
| i 2,104 |
Subtotal |
|
|
|
|
|
|
|
|
| $ | i 309,240 |
Medicare cap adjustment |
|
|
|
|
|
|
|
|
|
| ( i 1,950) |
Implicit price concessions |
|
|
|
|
|
|
|
|
|
| ( i 2,957) |
Room and board, net |
|
|
|
|
|
|
|
|
|
| ( i 2,569) |
Net revenue |
|
|
|
|
|
|
|
|
| $ | i 301,764 |
The composition of patient care service revenue by payor and level of care for the nine months ended September 30, 2019 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| Medicare |
| Medicaid |
| Commercial |
| Total | ||||
Routine home care | $ | i 745,835 |
| $ | i 35,913 |
| $ | i 18,311 |
| $ | i 800,059 |
Continuous care |
| i 83,372 |
|
| i 4,744 |
|
| i 4,360 |
|
| i 92,476 |
Inpatient care |
| i 58,309 |
|
| i 6,241 |
|
| i 4,513 |
|
| i 69,063 |
| $ | i 887,516 |
| $ | i 46,898 |
| $ | i 27,184 |
| $ | i 961,598 |
|
|
|
|
|
|
|
|
|
|
|
|
All other revenue - self-pay, respite care, etc. |
|
|
|
|
|
|
|
|
|
| i 6,598 |
Subtotal |
|
|
|
|
|
|
|
|
| $ | i 968,196 |
Medicare cap adjustment |
|
|
|
|
|
|
|
|
|
| ( i 7,915) |
Implicit price concessions |
|
|
|
|
|
|
|
|
|
| ( i 10,904) |
Room and board, net |
|
|
|
|
|
|
|
|
|
| ( i 8,098) |
Net revenue |
|
|
|
|
|
|
|
|
| $ | i 941,279 |
The composition of patient care service revenue by payor and level of care for the nine months ended September 30, 2018 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| Medicare |
| Medicaid |
| Commercial |
| Total | ||||
Routine home care | $ | i 696,248 |
| $ | i 35,283 |
| $ | i 17,015 |
| $ | i 748,546 |
Continuous care |
| i 82,604 |
|
| i 4,570 |
|
| i 4,490 |
|
| i 91,664 |
Inpatient care |
| i 52,174 |
|
| i 5,899 |
|
| i 3,730 |
|
| i 61,803 |
| $ | i 831,026 |
| $ | i 45,752 |
| $ | i 25,235 |
| $ | i 902,013 |
|
|
|
|
|
|
|
|
|
|
|
|
All other revenue - self-pay, respite care, etc. |
|
|
|
|
|
|
|
|
|
| i 5,844 |
Subtotal |
|
|
|
|
|
|
|
|
| $ | i 907,857 |
Medicare cap adjustment |
|
|
|
|
|
|
|
|
|
| ( i 668) |
Implicit price concessions |
|
|
|
|
|
|
|
|
|
| ( i 8,749) |
Room and board, net |
|
|
|
|
|
|
|
|
|
| ( i 7,863) |
Net revenue |
|
|
|
|
|
|
|
|
| $ | i 890,577 |
|
|
|
|
|
|
|
|
|
|
|
|
Roto-Rooter
Roto-Rooter provides plumbing, drain cleaning, water restoration and other related services to both residential and commercial customers primarily in the United States. Services are provided through a network of company-owned branches, independent contractors and franchisees. Service revenue for Roto-Rooter is reported at the amount that reflects the ultimate consideration we expect to receive in exchange for providing services.
Roto-Rooter owns and operates branches focusing mainly on large population centers in the United States. Roto-Rooter’s primary lines of business in company-owned branches consist of plumbing, sewer and drain cleaning, excavation and water restoration. For purposes of ASC 606 analysis, plumbing, sewer and drain cleaning, and excavation have been combined into one portfolio and are referred to as “short-term core services”. Water restoration is analyzed as a separate portfolio. The following describes the key characteristics of these portfolios:
Short-term Core Services are plumbing, drain and sewer cleaning and excavation services. These services are provided to both commercial and residential customers. The duration of services provided in this category range from a few hours to a few days. There are no significant warranty costs or on-going obligations to the customer once a service has been completed. For residential customers, payment is received at the time of job completion before the Roto-Rooter technician leaves the residence. Commercial customers may be granted credit subject to internally designated authority limits and credit check guidelines. If credit is granted, payment terms are generally i 30 days or less.
Each job in this category is a distinct service with a distinct performance obligation to the customer. Revenue is recognized at the completion of each job. Variable consideration consists of pre-invoice discounts and post-invoice discounts. Pre-invoice discounts are given in the form of coupons or price concessions. Post-invoice discounts consist of credit memos
generally granted to resolve customer service issues. Variable consideration is estimated based on historical activity and recorded at the time service is completed.
Water Restoration Services involve the remediation of water and humidity after a flood. These services are provided to both commercial and residential customers. The duration of services provided in this category generally ranges from i 3 to i 5 days. There are no significant warranties or on-going obligations to the customer once service has been completed. The majority of these services are paid by the customer’s insurance company. Variable consideration relates primarily to allowances taken by insurance companies upon payment. Variable consideration is estimated based on historical activity and recorded at the time service is completed.
For both short-term core services and water restoration services, Roto-Rooter satisfies its performance obligation at a point in time. The services provided generally involve fixing plumbing, drainage or flood-related issues at the customer’s property. At the time service is complete, the customer acknowledges its obligation to pay for service and its satisfaction with the service performed. This provides evidence that the customer has accepted the service and Roto-Rooter is now entitled to payment. As such, Roto-Rooter recognizes revenue for these services upon completion of the job and receipt of customer acknowledgement. Roto-Rooter’s performance obligations for short-term core services and water restoration services relate to contracts with an expected duration of less than a year. Therefore, Roto-Rooter has elected to apply the optional exception provided in ASC 606 and is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. Roto-Rooter does not have significant unsatisfied or partially unsatisfied performance obligations at the time of initial revenue recognition for short-term core or water restoration services.
Roto-Rooter owns the rights to certain territories and contracts with independent third-parties to operate the territory under Roto-Rooter’s registered trademarks. Such contracts are for a specified term but cancellable by either party without penalty with i 90 days’ advance notice. Under the terms of these arrangements, Roto-Rooter provides certain back office support and advertising along with a limited license to use Roto-Rooter’s registered trademarks. The independent contractor is responsible for all day-to-day management of the business including staffing decisions and pricing of services provided. All performance obligations of Roto-Rooter cease at the termination of the arrangement.
Independent contractors pay Roto-Rooter a standard fee calculated as a percentage of their weekly labor sales. The primary value for the independent contractors under these arrangements is the right to use Roto-Rooter’s registered trademarks. Roto-Rooter recognizes revenue from independent contractors over-time (weekly) as the independent contractor’s labor sales are completed. Payment from independent contractors is also received on a weekly basis. The use of Roto-Rooter’s registered trademarks and advertising provides immediate value to the independent contractor as a result of Roto-Rooter’s nationally recognized brand. Therefore, over-time recognition provides the most faithful depiction of the transfer of services as the customer simultaneously receives and consumes the benefits provided. There is no significant variable consideration related to these arrangements.
Roto-Rooter has licensed the rights to operate under Roto-Rooter’s registered trademarks in other territories to franchisees. Each such contract is for a i 10 year term but cancellable by Roto-Rooter for cause with i 60 day advance notice without penalty. The franchisee may cancel the contract for any reason with 60 days advance notice without penalty. Under the terms of the contract, Roto-Rooter provides national advertising and consultation on various aspects of operating a Roto-Rooter business along with the right to use Roto-Rooter’s registered trademarks. The franchisee is responsible for all day- to-day management of the business including staffing decisions, pricing of services provided and local advertising spend and placement. All performance obligations of Roto-Rooter cease at the termination of the arrangement.
Franchisees pay Roto-Rooter a standard monthly fee based on the population within the franchise territory. The standard fee is revised on a yearly basis based on changes in the Consumer Price Index for All Urban Consumers. The primary value for the franchisees under this arrangement is the right to use Roto-Rooter’s registered trademarks. Roto-Rooter recognizes revenue from franchisees over-time (monthly). Payment from franchisees is also received on a monthly basis. The use of Roto-Rooter’s registered trademarks and advertising provides immediate value to the franchisees as a result of Roto-Rooter’s nationally recognized brand. Therefore, over-time recognition provides the most faithful depiction of the transfer of services as the customer simultaneously receives and consumes the benefits provided. There is no significant variable consideration related to these arrangements.
i
The composition of disaggregated revenue for the third quarter is as follows (in thousands):
|
|
|
|
|
|
| |||||
| 2019 |
| 2018 | ||
Short-term core service jobs | $ | i 115,135 |
| $ | i 102,346 |
Water restoration |
| i 25,738 |
|
| i 25,001 |
Contractor revenue |
| i 14,342 |
|
| i 12,219 |
Franchise fees |
| i 1,819 |
|
| i 1,593 |
All other |
| i 2,791 |
|
| i 2,876 |
Subtotal | $ | i 159,825 |
| $ | i 144,035 |
Implicit price concessions and credit memos |
| ( i 960) |
|
| ( i 1,648) |
Net revenue | $ | i 158,865 |
| $ | i 142,387 |
|
|
|
|
|
|
The composition of disaggregated revenue for the first nine months is as follows (in thousands):
|
|
|
|
|
|
| |||||
| 2019 |
| 2018 | ||
Short-term core service jobs | $ | i 341,337 |
| $ | i 311,518 |
Water restoration |
| i 81,629 |
|
| i 77,502 |
Contractor revenue |
| i 42,931 |
|
| i 36,950 |
Franchise fees |
| i 5,063 |
|
| i 4,758 |
All other |
| i 8,773 |
|
| i 9,032 |
Subtotal | $ | i 479,733 |
| $ | i 439,760 |
Implicit price concessions and credit memos |
| ( i 4,781) |
|
| ( i 5,197) |
Net revenue | $ | i 474,952 |
| $ | i 434,563 |
Initial Adoption of ASC 606
The Company utilized the modified retrospective method of adoption for all contracts. The Company has consistently applied the accounting policies to all periods presented in the Consolidated Financial Statements. Sales tax collected from customers at Roto-Rooter is excluded from revenue under ASC 606 and prior revenue standards.
i 3. Segments
Service revenues and sales by business segment are shown in Footnote 2. After-tax earnings by business segment are as follows (in thousands):
i
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| Three months ended September 30, |
| Nine months ended September 30, | ||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
After-tax Income/(Loss) |
|
|
|
|
|
|
|
|
|
|
|
VITAS | $ | i 39,773 |
| $ | i 35,921 |
| $ | i 106,400 |
| $ | i 99,720 |
Roto-Rooter |
| i 26,140 |
|
| i 24,563 |
|
| i 76,302 |
|
| i 72,799 |
Total |
| i 65,913 |
|
| i 60,484 |
|
| i 182,702 |
|
| i 172,519 |
Corporate |
| ( i 6,966) |
|
| ( i 9,235) |
|
| ( i 28,359) |
|
| ( i 21,303) |
Net income | $ | i 58,947 |
| $ | i 51,249 |
| $ | i 154,343 |
| $ | i 151,216 |
We report corporate administrative expenses and unallocated investing and financing income and expense not directly related to either segment as “Corporate”.
i 4. Earnings per Share
Earnings per share (“EPS”) are computed using the weighted average number of shares of capital stock outstanding. Earnings and diluted earnings per share are computed as follows (in thousands, except per share data):
i
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net Income | |||||
For the Three Months Ended September 30, |
| Income |
| Shares |
| Earnings per Share | |||
2019 |
|
|
|
|
|
|
|
|
|
| Earnings |
| $ | i 58,947 |
| i 15,970 |
| $ | i 3.69 |
| Dilutive stock options |
|
| - |
| i 500 |
|
|
|
| Nonvested stock awards |
|
| - |
| i 85 |
|
|
|
| Diluted earnings |
| $ | i 58,947 |
| i 16,555 |
| $ | i 3.56 |
|
|
|
|
|
|
|
|
|
|
2018 |
|
|
|
|
|
|
|
|
|
| Earnings |
| $ | i 51,249 |
| i 16,074 |
| $ | i 3.19 |
| Dilutive stock options |
|
| - |
| i 613 |
|
|
|
| Nonvested stock awards |
|
| - |
| i 85 |
|
|
|
| Diluted earnings |
| $ | i 51,249 |
| i 16,772 |
| $ | i 3.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net Income | |||||
For the Nine Months Ended September 30, |
| Income |
| Shares |
| Earnings per Share | |||
2019 |
|
|
|
|
|
|
|
|
|
| Earnings |
| $ | i 154,343 |
| i 15,952 |
| $ | i 9.68 |
| Dilutive stock options |
|
| - |
| i 484 |
|
|
|
| Nonvested stock awards |
|
| - |
| i 78 |
|
|
|
| Diluted earnings |
| $ | i 154,343 |
| i 16,514 |
| $ | i 9.35 |
|
|
|
|
|
|
|
|
|
|
2018 |
|
|
|
|
|
|
|
|
|
| Earnings |
| $ | i 151,216 |
| i 16,070 |
| $ | i 9.41 |
| Dilutive stock options |
|
| - |
| i 662 |
|
|
|
| Nonvested stock awards |
|
| - |
| i 98 |
|
|
|
| Diluted earnings |
| $ | i 151,216 |
| i 16,830 |
| $ | i 8.98 |
For the three months ended September 30, 2019, there were i no stock options excluded in the computation of dilutive earnings per share because they would have been anti-dilutive.
For the nine months ended September 30, 2019, there were i 246,000 stock options excluded in the computation of dilutive earnings per share because they would have been anti-dilutive.
For the three and nine month periods ended September 30, 2018, there were i i no / stock options excluded in the computation of dilutive earnings per share because they would have been anti-dilutive.
i 5. Long-Term Debt and Lines of Credit
On June 20, 2018, we replaced our existing credit agreement with the Fourth Amended and Restated Credit Agreement (“2018 Credit Agreement”). Terms of the 2018 Credit Agreement consist of a i five year, $ i 450 million revolving credit facility and a $ i 150 million expansion feature, which may consist of term loans or additional revolving commitments. The interest rate at the inception of the agreement is LIBOR plus i 100 basis points. The 2018 Credit Agreement has a floating interest rate that is generally LIBOR plus a tiered additional rate which varies based on our current leverage ratio. The amount outstanding as of September 30, 2019 is $ i 130.0 million.
Debt issuance costs associated with the prior credit agreement were not written off as the lenders and their relative percentages participation in the facility did not change. With respect to the 2018 Credit Agreement, deferred financing costs were $ i 1.0 million.
The 2018 Credit Agreement contains the following quarterly financial covenants:
i
|
|
|
|
|
|
Description |
| Requirement |
|
|
|
Leverage Ratio (Consolidated Indebtedness/Consolidated Adj. EBITDA) |
| < i 3.50 to i 1.00 |
|
|
|
Fixed Charge Coverage Ratio (Consolidated Free Cash Flow/Consolidated Fixed Charges) |
| > i 1.50 to i 1.00 |
|
|
|
We are in compliance with all debt covenants as of September 30, 2019. We have issued $ i 37.9 million in standby letters of credit as of September 30, 2019, mainly for insurance purposes. Issued letters of credit reduce our available credit under the 2018 Credit Agreement. As of September 30, 2019, we have approximately $ i 282.1 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility.
i 6. Other Operating Expenses/(Income)
i
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended September 30, |
| Nine months ended September 30, | ||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
Litigation settlement | $ | - |
| $ | - |
| $ | i 6,000 |
| $ | ( i 204) |
Transportation equipment sold |
| - |
|
| - |
|
| i 2,266 |
|
| - |
Loss on disposal of fixed assets |
| i 78 |
|
| i 257 |
|
| i 735 |
|
| i 292 |
Total other operating expenses | $ | i 78 |
| $ | i 257 |
| $ | i 9,001 |
| $ | i 88 |
During the nine months ended September 30, 2019, the Company recorded $ i 6.0 million for a potential legal settlement, which includes the settlement amount, estimated employment taxes and other litigation costs. See footnote 11 for further discussion.
i 7. Other Income – Net
Other income – net comprises the following (in thousands):
i
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended September 30, |
| Nine months ended September 30, | ||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Market value adjustment on assets held in |
|
|
|
|
|
|
|
|
|
| |
deferred compensation trust | $ | i 2,886 |
| $ | i 2,189 |
| $ | i 5,094 |
| $ | i 3,827 |
Interest income |
| i 173 |
|
| i 111 |
|
| i 387 |
|
| i 529 |
Other - net |
| ( i 23) |
|
| - |
|
| i 7 |
|
| - |
Total other income - net | $ | i 3,036 |
| $ | i 2,300 |
| $ | i 5,488 |
| $ | i 4,356 |
i 8. Leases
Chemed and each of its operating subsidiaries are service companies. As such, real estate leases comprise the largest lease obligation (and conversely, right of use asset) in our lease portfolio. VITAS has leased office space, as well as space for IPUs and/or contract beds within hospitals. Roto-Rooter has leased office space. Our leases have remaining terms of under i 1 year to i 10 years, some of which include options to extend the lease for i up to 5 years, and some of which include options to terminate the lease i within 1 year.
We made a policy election to exclude leases with a lease term less than 12 months from being recorded on the balance sheet. We adopted the practical expedient related to the combining of lease and non-lease components, which allows us to account for the lease and non-lease components as a single lease component.
Adoption of the new standard resulted in right of use assets and lease liabilities of approximately $ i 87.8 million and $ i 98.7 million, respectively, as of March 31, 2019. In determining the liability, we used our incremental borrowing rate based on the information available at the time of adoption, since the rate implicit in the leases cannot be readily determined. At
January 1, 2019, the weighted average rate was i 3.47%. The standard did not materially impact our consolidated net income or cash flows. We did not book a cumulative effect adjustment upon adoption of the standard.
We do not currently have any finance leases, all lease information disclosed is related to operating leases.
The components of balance sheet information related to leases were as follows:
i
|
|
|
| As of | |
| 2019 | |
Assets |
|
|
Operating lease assets | $ | i 103,286 |
|
|
|
Liabilities |
|
|
Current operating leases |
| i 33,761 |
Noncurrent operating leases |
| i 82,012 |
Total operating lease liabilities | $ | i 115,773 |
The components of lease expense were as follows:
i
|
|
|
|
|
|
| Three months ended |
| Nine months ended | ||
| 2019 |
| 2019 | ||
Lease Expense (a) |
|
|
|
|
|
Operating lease expense | $ | i 12,728 |
| $ | i 35,181 |
Sublease income |
| - |
|
| ( i 6) |
Net lease expense | $ | i 12,728 |
| $ | i 35,175 |
(a)Includes short-term leases and variable lease costs, which are immaterial. Included in both cost of services provided and goods sold and selling, general and administrative expenses.
The components of cash flow information related to leases were as follows:
i
|
|
|
|
|
|
| Three months ended |
| Nine months ended | ||
| 2019 |
| 2019 | ||
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
Operating cash flows from leases | $ | i 10,605 |
| $ | i 30,237 |
|
|
|
|
|
|
Leased assets obtained in exchange for new operating lease liabilities | $ | i 22,946 |
| $ | i 38,890 |
|
|
|
|
|
|
|
|
|
|
Weighted Average Remaining Lease Term |
|
|
|
Operating leases |
| i 4.63 | years |
|
|
|
|
Weighted Average Discount Rate |
|
|
|
Operating leases |
| i 3.38 | % |
|
|
|
Maturity of Operating Lease Liabilities (in thousands) |
|
|
|
|
|
2019 | $ | i 37,852 |
2020 |
| i 28,242 |
2021 |
| i 21,181 |
2022 |
| i 13,976 |
2023 |
| i 9,642 |
Thereafter |
| i 15,125 |
Total lease payments | $ | i 126,018 |
Less: interest |
| ( i 9,381) |
Less: future lease obligations not yet commenced |
| ( i 864) |
Total liability recognized on the balance sheet | $ | i 115,773 |
The following is a summary of future minimum rental payments under operating leases that have initial noncancelable terms in excess of one year at December 31, 2018:
i
|
|
|
Maturity of Operating Lease Liabilities (in thousands) |
|
|
|
|
|
2019 | $ | i 26,791 |
2020 |
| i 24,152 |
2021 |
| i 19,669 |
2022 |
| i 13,851 |
2023 |
| i 8,179 |
Thereafter |
| i 10,974 |
Total lease payments | $ | i 103,616 |
For leases commencing prior to 2019, minimum rental payments exclude payments to landlords for real estate taxes and common area maintenance. Operating lease payments include $ i 2.3 million related to extended lease terms that are reasonably certain of being exercised and exclude $ i 864,000 lease payments for leases signed but not yet commenced.
i 9. Stock-Based Compensation Plans
On February 22, 2019, the Compensation/Incentive Committee of the Board of Directors (“CIC”) granted i 6,864 Performance Stock Units (“PSUs”) contingent upon the achievement of certain total shareholder return (“TSR”) targets as compared to the TSR of a group of peer companies for the i three year period ending December 31, 2021, the date at which such awards vest. The cumulative compensation cost of the TSR-based PSU award to be recorded over the i three year service period is $ i 3.0 million.
On February 22, 2019, the CIC also granted i 6,864 PSUs contingent upon the achievement of certain earnings per share (“EPS”) targets for the i three year period ending December 31, 2021. At the end of each reporting period, the Company estimates the number of shares that it believes will ultimately be earned and records the corresponding expense over the service period of the award. We currently estimate the cumulative compensation cost of the EPS-based PSUs to be recorded over the i three year service period is $ i 2.2 million.
i 10. Retirement Plans
All of the Company’s plans that provide retirement and similar benefits are defined contribution plans. These expenses include the impact of market gains and losses on assets held in deferred compensation plans and are recorded in selling, general and administrative expenses. Expenses for the Company’s retirement and profit-sharing plans, excess benefit plans and other similar plans are as follows (in thousands):
i
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
| Nine months ended September 30, | ||||||||
2019 |
| 2018 |
| 2019 |
| 2018 | ||||
$ | i 6,445 |
| $ | i 5,463 |
| $ | i 17,155 |
| $ | i 15,436 |
i 11. Legal and Regulatory Matters
The VITAS segment of the Company’s business operates in a heavily-regulated industry. As a result, the Company is subjected to inquiries and investigations by various government agencies, which can result in penalties including repayment obligations, funding withholding, or debarment, as well as to lawsuits, including qui tam actions. The following sections describe the various ongoing material lawsuits and investigations of which the Company is currently aware. Other than as described below, it is not possible at this time for us to estimate either the timing or outcome of any of those matters, or whether any potential loss, or range of potential losses, is probable or reasonably estimable.
Regulatory Matters and Litigation
On October 30, 2017, the Company entered into a settlement agreement (the “Settlement Agreement”) to resolve civil litigation under the False Claims Act brought by the United States Department of Justice (“DOJ”) on behalf of the OIG and various relators concerning VITAS, filed in the U.S. District Court of the Western District of Missouri (the “2013 Action”). The Company denied any violation of law and agreed to settlement without admission of wrongdoing.
In connection with the settlement VITAS and certain of its subsidiaries entered into a corporate integrity agreement (“CIA”) on October 30, 2017. The CIA formalizes various aspects of VITAS’ already existing Compliance Program and contains requirements designed to document compliance with federal healthcare program requirements. It has a term of i five years during which it imposes monitoring, reporting, certification, oversight, screening and training obligations, certain of which had previously been implemented by VITAS. It also requires VITAS to engage an Independent Review Organization to perform audit and review functions and to prepare reports regarding compliance with federal healthcare programs. In the event of breach of the CIA, VITAS could become liable for payment of stipulated penalties or could be excluded from participation in federal healthcare programs.
The Company has also entered into a settlement agreement that, once approved by the Los Angeles County Superior Court, will resolve state-wide wage and hour class action claims raised in four separate cases: (1) Jordan A. Seper on behalf of herself and others similarly situated v. VITAS Healthcare Corporation of California, a Delaware corporation; VITAS Healthcare Corp of CA, a business entity unknown; and DOES 1 to 100, inclusive; Los Angeles Superior Court Case Number BC 642857 (“Seper”); (2) Jiwan Chhina v. VITAS Health Services of California, Inc., a California corporation; VITAS Healthcare Corporation of California, a Delaware corporation; VITAS Healthcare Corporation of California, a Delaware corporation dba VITAS Healthcare Inc.; and DOES 1 to 100, inclusive; San Diego Superior Court Case Number 37-2015-00033978-CU-OE-CTL (“Chhina”) (which was subsequently merged with Seper); (3) Chere Phillips and Lady Moore v. VITAS Healthcare Corporation of California, Sacramento County Superior Court, Case No. 34-2017-0021-2755; and (4) Williams v. VITAS Healthcare Corporation of California, Alameda County Superior Court Case No. RG 17853886. These actions were brought by both current and former employees including a registered nurse, a licensed vocational nurse (LVN), home health aides and a social worker. Each action stated multiple claims generally including (1) failure to pay minimum wage for all hours worked; (2) failure to provide overtime for all hours worked; (3) failure to pay wages for all hours at the regular rate; (4) failure to provide meal periods; (5) failure to provide rest breaks; (6) failure to provide complete and accurate wage statements; (7) failure to pay for all reimbursement expenses; (8) unfair business practices; and (9) violation of the California Private Attorneys General Act. The cases generally asserted claims on behalf of classes defined to include all current and former non-exempt employees employed with VITAS in California within the i four years preceding the filing of each lawsuit. For additional procedural history of these cases, please refer to our prior quarterly and annual filings.
The Seper and Chhina cases were consolidated in Los Angeles County Superior Court; Chhina was dismissed as a separate action and joined with Seper in the filing of amended complaint on August 28, 2018, in which both Chhina and Seper were identified as named plaintiffs. Discovery in the remaining cases was stayed as to class claims and each court was advised of the pendency of the consolidated Seper/Chhina action. The parties engaged in a mediation process beginning in October 2018 and concluded with an agreement in March 2019. The settlement amount, subject to court approval, is $ i 5.75 million plus employment taxes. As of September 30, 2019, $ i 6.0 million was accrued in the accompanying Consolidated Balance Sheet. The definition of the class to participate in the settlement is intended to cover claims raised in the consolidated Seper/Chhina matter, claims raised in Phillips and Moore, as well as any class claims in Williams. The parties have filed a motion for preliminary approval of the settlement and notice to class members and eventual final approval and payment. The hearing on this approval motion is December 2, 2019
Alfred Lax (“Lax”), a current employee of Roto-Rooter Services Company (“RRSC”), was hired in the RRSC’s Menlo Park branch in 2007. On November 30, 2018, Lax filed a class action lawsuit in Santa Clara County Superior Court alleging (1) failure to provide or compensate for required rest breaks; (2) failure to properly pay for all hours worked; (3) failure to provide accurate wage statements; (4) failure to reimburse for work-related expenses; and (5) unfair business practices. Lax has stated these claims as a representative of a class defined as all service technicians employed by RRSC in California during the i four years preceding the filing of the complaint. He seeks a determination that the action may proceed and be maintained
as a class action and for compensatory and statutory damages (premium payments for missed rest periods, uncompensated rest periods, wages for time allegedly not paid such as travel time, repair time, and vehicle maintenance time, and unreimbursed expenses), penalties and restitutions, pre- and post-judgement interest and attorneys’ fees and costs. The lawsuit, Alfred Lax, on behalf of himself and all others similarly situated v. Roto-Rooter Services Company, and Does 1 through 50 inclusive; Santa Clara County Superior Court Case Number 18CV338652, was received by RRSC on December 11, 2018 and RRSC timely filed its answer denying the claims.
The Company is not able to reasonably estimate the probability of loss or range of loss for any of these lawsuits at this time, with the exception of Seper/Chhina, Phillips and Moore and the class claims in Williams.
The Company intends to defend vigorously against the allegations in each of the above lawsuits. Regardless of the outcome of any of the preceding matters, dealing with the various regulatory agencies and opposing parties can adversely affect us through defense costs, potential payments, withholding of governmental funding, diversion of management time, and related publicity. Although the Company intends to defend them vigorously, there can be no assurance that those suits will not have a material adverse effect on the Company.
i 12. Concentration of Risk
During the quarter VITAS had pharmacy services agreements with i one service provider to provide specified pharmacy services for VITAS and its hospice patients. VITAS made purchases from this provider of $ i 7.0 and $ i 8.0 million for the three months ended September 30, 2019 and 2018, respectively. VITAS made purchases from this provider of $ i 21.3 and $ i 24.1 million for the first nine months ended September 30, 2019 and 2018, respectively. Purchases from this provider represent more than i i i i 90 / / / % of all pharmacy services purchased by VITAS during each period presented.
i 13. Cash Overdrafts and Cash Equivalents
There are $ i 6.2 million in cash overdrafts payable included in accounts payable at September 30, 2019 (December 31, 2018 - $ i 13.8 million).
From time to time throughout the year, we invest excess cash in money market funds with major commercial banks. We closely monitor the creditworthiness of the institutions with which we invest our overnight funds. The amount invested was not material for each balance sheet date presented.
i 14. Financial Instruments
FASB’s authoritative guidance on fair value measurements 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.
i The following shows the carrying value, fair value and the hierarchy for our financial instruments as of September 30, 2019 (in thousands):
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| Fair Value Measure | ||||||
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| Carrying Value |
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| Quoted Prices in Active Markets for Identical Assets (Level 1) |
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| Significant Other Observable Inputs (Level 2) |
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| Significant Unobservable Inputs (Level 3) |
Mutual fund investments of deferred |
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compensation plans held in trust | $ | i 73,714 |
| $ | i 73,714 |
| $ | - |
| $ | - |
Total debt |
| i 130,000 |
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| - |
|
| i 130,000 |
|
| - |
The following shows the carrying value, fair value and the hierarchy for our financial instruments as of December 31, 2018 (in thousands):
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| Fair Value Measure | ||||||
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| Carrying Value |
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| Quoted Prices in Active Markets for Identical Assets (Level 1) |
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| Significant Other Observable Inputs (Level 2) |
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| Significant Unobservable Inputs (Level 3) |
Mutual fund investments of deferred |
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compensation plans held in trust | $ | i 65,624 |
| $ | i 65,624 |
| $ | - |
| $ | - |
Total debt |
| i 89,200 |
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| - |
|
| i 89,200 |
|
| - |
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. As further described in Footnote 5, our outstanding long-term debt and current portion of long-term debt have floating interest rates that are reset at short-term intervals, generally i 30 or i 60 days. The interest rate we pay also includes an additional amount based on our current leverage ratio. As such, we believe our borrowings reflect significant nonperformance risks, mainly credit risk. Based on these factors, we believe the fair value of our long-term debt and current portion of long-term debt approximate the carrying value.
i 15. Capital Stock Repurchase Plan Transactions
We repurchased the following capital stock for the three and nine months ended September 30, 2019 and 2018:
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| Three months ended September 30, |
| Nine months ended September 30, | ||||||||
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| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
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Total cost of repurchased shares (in thousands) |
| $ | - |
| $ | i 37,672 |
| $ | i 71,926 |
| $ | i 121,976 |
Shares repurchased |
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| - |
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| i 120,622 |
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| i 219,009 |
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| i 430,622 |
Weighted average price per share |
| $ | - |
| $ | i 312.31 |
| $ | i 328.41 |
| $ | i 283.26 |
In February 2019, the Board of Directors authorized an additional $ i 150.0 million for stock repurchase under Chemed’s existing share repurchase program. We currently have $ i 124.7 million of authorization remaining under this share repurchase plan.
i 16. Recent Accounting Standards
In January 2017, the FASB issued Accounting Standards Update “ASU No. 2017-4 – Intangibles – Goodwill and Other”. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. The guidance in the ASU is effective for the Company in fiscal years beginning after December 15, 2019. Early adoption is permitted. We anticipate adoption of this standard will have no impact on our Consolidated Financial Statements.
In June 2016, FASB issued Accounting Standards Update “ASU No. 2016-13 - Measurement of Credit Losses on Financial Instruments”. The ASU requires the use of the current expected credit loss model to measure impairments of financial assets. The ASU is effective for the Company for fiscal years beginning after December 15, 2019. Management does not expect the adoption to have a material effect on the Consolidated Financial Statements.
i 17. Acquisitions
On August 2, 2019, we entered into an Asset Purchase Agreement (the “Agreement”) to purchase substantially all of the assets of HSW RR, Inc., a Delaware corporation (“HSW”) and certain related assets of its affiliates, for $ i 120 million, subject to a working capital adjustment. HSW owned and operated fourteen Roto-Rooter franchises mainly in the southwestern section of the United States, including Los Angeles, Dallas and Phoenix. Included in the assets purchased were the assets of Western Drain Supply, Inc., a plumbing supply company. The purchase was made using a combination of cash on-hand and borrowings under Chemed’s existing $ i 450 million revolving credit facility. On September 16, 2019, we completed the acquisition.
On i July 1, 2019, we completed the acquisition of a Roto-Rooter franchise and the related assets in Oakland, CA for $ i 18.0 million in cash.
The acquisitions were made as a continuation of Roto-Rooter’s strategy to re-acquire franchises in large markets in the United States. The allocation of the fair value of the acquired business was based upon a preliminary valuation. Mainly as a result of the timing of the HSW acquisition, our estimates and assumptions are subject to change as we obtain additional information for our estimates during the fourth quarter of 2019. The primary areas of the allocation of the fair value consideration transferred that are not yet finalized relate to the fair value of working capital. The allocation for the two acquisitions completed in the third quarter of 2019 is as follows (in thousands):
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| HSW |
| Oakland |
| Total | |||
Goodwill | $ | i 55,448 |
| $ | i 10,535 |
| $ | i 65,983 |
Reacquired franchise rights |
| i 52,980 |
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| i 6,190 |
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| i 59,170 |
Property, plant, and equipment |
| i 5,699 |
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| i 675 |
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| i 6,374 |
Working capital |
| i 3,574 |
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| i 22 |
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| i 3,596 |
Customer relationships |
| i 2,220 |
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| i 500 |
|
| i 2,720 |
Non-compete agreements |
| i 140 |
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| i 100 |
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| i 240 |
Other assets and liabilities - net |
| ( i 96) |
|
| i 23 |
|
| ( i 73) |
| $ | i 119,965 |
| $ | i 18,045 |
| $ | i 138,010 |
Reacquired franchise rights, included in identifiable intangibles on the Consolidated Balance Sheets, are amortized over the period remaining in each individual franchise agreement. The average amortization period for reacquired franchise rights for the acquisitions made in the third quarter of 2019 is i 7.4 years.
The franchise fee revenue, the valuation of reacquired franchise rights and amortization for the acquired franchises are as follows:
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| Annualized |
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| Valuation |
| Amortization of |
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| 2018 Franchise |
| of Reacquired |
| Reacquired |
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| Revenue |
| Franchise Rights |
| Franchise Rights |
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HSW | $ | i 1,782 |
| $ | i 52,980 |
| $ | i 7,258 |
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Oakland |
| i 95 |
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| i 6,190 |
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| i 825 |
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Subtotal |
| i 1,877 |
| $ | i 59,170 |
| $ | i 8,083 |
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All other franchise territories |
| i 4,505 |
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| $ | i 6,382 |
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Amortization of acquired and cancelled franchise agreements comprises the following (in thousands):
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Three months ended September 30, |
| Nine months ended September 30, | ||||||||
2019 |
| 2018 |
| 2019 |
| 2018 | ||||
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$ | i 331 |
| $ | - |
| $ | i 1,103 |
| $ | - |
Customer relationships, included in identifiable intangibles on the Consolidated Balance Sheets, are amortized over an average amortization period of i 20.4 years. Non-compete agreements are amortized over the period of the agreement. The average amortization period for non-compete agreements for the transactions made in the third quarter of 2019 is i 4.0 years.
Goodwill is assessed for impairment on a yearly basis as of October 1. The primary factor that contributed to the purchase price resulting in the recognition of goodwill is operational efficiencies expected as a result of consolidating stand- alone franchises and Roto-Rooter’s network of nationwide branches. All goodwill recognized is deductible for tax purposes.
The revenue and earnings included in the Company’s results of financial operation since the acquisition date of the transactions completed in the third quarter of 2019 are not material.
During 2018, we completed i four business combinations of former franchisees within the Roto-Rooter segment for $ i 42.2 million in cash to increase our market penetration. The VITAS segment completed i one business combination in Florida for $ i 11.0 million to increase our market penetration.
The pro forma revenue and earnings of the Company, as if all acquisitions made in fiscal 2018 and 2019 were completed on January 1, 2018, are as follows (in thousands, except per share data):
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| Three months ended September 30, |
| Nine months ended September 30, | ||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
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Service revenues and sales | $ | i 500,108 |
| $ | i 472,090 |
| $ | i 1,479,859 |
| $ | i 1,420,535 |
Net income | $ | i 62,154 |
| $ | i 56,408 |
| $ | i 164,562 |
| $ | i 166,640 |
Earnings per share | $ | i 3.89 |
| $ | i 3.51 |
| $ | i 10.32 |
| $ | i 10.37 |
Diluted earnings per share | $ | i 3.75 |
| $ | i 3.36 |
| $ | i 9.96 |
| $ | i 9.90 |
There are no material pro forma adjustments directly attributable to the acquisition included in the reported pro-forma revenue and earnings.
Shown below is movement in Goodwill (in thousands):
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| VITAS |
| Roto-Rooter |
| Total | |||
Balance at December 31, 2018 | $ | i 333,331 |
| $ | i 177,239 |
| $ | i 510,570 |
Business combinations |
| - |
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| i 65,983 |
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| i 65,983 |
Foreign currency adjustments |
| - |
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| i 47 |
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| i 47 |
Balance at September 30, 2019 | $ | i 333,331 |
| $ | i 243,269 |
| $ | i 576,600 |
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 teams 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, drain cleaning, water restoration and other related 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 (in thousands except per share amounts):
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| Three months ended September 30, |
| Nine months ended September 30, |
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| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
Service revenues and sales | $ | 480,613 |
| $ | 444,151 |
| $ | 1,416,231 |
| $ | 1,325,140 |
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Net income | $ | 58,947 |
| $ | 51,249 |
| $ | 154,343 |
| $ | 151,216 |
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Diluted EPS | $ | 3.56 |
| $ | 3.06 |
| $ | 9.35 |
| $ | 8.98 |
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Adjusted net income | $ | 57,213 |
| $ | 51,456 |
| $ | 160,603 |
| $ | 144,465 |
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Adjusted diluted EPS | $ | 3.46 |
| $ | 3.07 |
| $ | 9.73 |
| $ | 8.58 |
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Adjusted EBITDA | $ | 86,907 |
| $ | 77,740 |
| $ | 246,794 |
| $ | 224,189 |
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Adjusted EBITDA as a % of revenue |
| 18.1 | % |
| 17.5 | % |
| 17.4 | % |
| 16.9 | % |
Adjusted net income, adjusted diluted EPS, earnings before interest, taxes and depreciation and amortization (“EBITDA”), Adjusted EBITDA and Adjusted EBITDA as a percent of revenue are not measures derived in accordance with US GAAP. We provide non-GAAP measures to help readers evaluate our operating results and to compare our operating performance with that of similar companies that have different capital structures. Our non-GAAP measures should not be considered in isolation or as a substitute for comparable measures presented in accordance with GAAP. A reconciliation of our non-GAAP measures is presented on pages 39-41.
For the three months ended September 30, 2019, the increase in consolidated service revenues and sales was driven by a 11.6% increase at Roto-Rooter and a 6.6% increase at VITAS. The increase in service revenues at Roto-Rooter was driven by an increase in all major service lines. The increase in service revenues at VITAS is comprised primarily of a 0.5% geographically weighted average Medicare reimbursement rate increase, a 6.3% increase in days of care, and a $633,000 decrease in Medicare cap revenue reduction. This growth was partially offset by acuity mix shift, fluctuations in net room and board and contractual adjustments, the combination of which negatively impacted revenue growth approximately 0.4%, when compared to the prior-year period. See page 42 for additional VITAS operating metrics.
For the nine months ended September 30, 2019, the increase in consolidated service revenues and sales was driven by an 9.3% increase at Roto-Rooter and a 5.7% increase at VITAS. The increase in service revenues at Roto-Rooter was driven by an increase in all major service lines. The increase in service revenues at VITAS is comprised primarily of a 0.5% geographically weighted average Medicare reimbursement rate increase, a 6.3% increase in days of care, offset by $7.9 million in Medicare cap revenue reduction. The first nine months of 2018 included a reversal of prior Medicare cap expense of $668,000 million. See page 42 for additional VITAS operating metrics.
In February 2016, the FASB issued Accounting Standards Update “ASU No. 2016-02 Leases” which introduced a lessee model that brings most leases on to the balance sheets and updates lessor accounting to align with changes in the lessee model and the revenue recognition standard. This standard is also referred to as Accountings Standards Codification No.842 (“ASC 842”). We adopted ASC 842 effective January 1, 2019, using the optional transition method requiring leases existing at, or entered into after, January 1, 2019 to be recognized and measured. The transition method selected does not require adjustments to prior period amounts, which continue to be reflected in accordance with historical accounting. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard which among other things, allowed us to carry forward the historical lease classification.
Chemed and each of its operating subsidiaries are service companies. As such, real estate leases comprise the largest lease obligation (and conversely, right of use asset) in our lease portfolio. VITAS has leased office space, as well as space for inpatient units (“IPUs”) and/or contract beds within hospitals. Roto-Rooter mainly has leased office space.
Roto-Rooter purchases equipment and leases it to certain of its independent contractors. We analyzed these leases in accordance with ASC 842 and determined they are operating leases. As a result, Roto-Rooter will continue to capitalize the equipment underlying these leases, depreciate the equipment and recognize rental income.
Adoption of the new standard resulted in right of use assets and lease liabilities of $87.8 million and $98.7 million, respectively, as of March 31, 2019. In determining the liability, we used our incremental borrowing rate based on the information available at the time of adoption, since the rate implicit in the leases cannot be readily determined. At January 1, 2019, the weighted average rate was 3.47%. The standard did not materially impact our consolidated net income or cash flows. We did not book a cumulative effect adjustment upon adoption of the standard.
On August 2, 2019, we entered into an Asset Purchase Agreement (the “Agreement”) to purchase substantially all of the assets of HSW RR, Inc., a Delaware corporation (“HSW”) and certain related assets of its affiliates, for $120 million, subject to a working capital adjustment. HSW owned and operated fourteen Roto-Rooter franchises mainly in the southwestern section of the United States, including Los Angeles, Dallas and Phoenix. Included in the assets purchased were the assets of Western Drain Supply, Inc., a plumbing supply company. The purchase was made using a combination of cash on-hand and borrowings under Chemed’s existing $450 million revolving credit facility. On September 16, 2019, we completed the acquisition.
On July 1, 2019, we completed the acquisition of a Roto-Rooter franchise and the related assets in Oakland, CA for $18.0 million in cash.
Reacquired franchise rights, included in identifiable intangibles on the Consolidated Balance Sheets, are amortized over the period remaining in each individual franchise agreement. The average amortization period for reacquired franchise rights for the acquisitions made in the third quarter of 2019 is 7.4 years.
The franchise fee revenue, the valuation of reacquired franchise rights and amortization for the acquired franchises are as follows:
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| Multiple of Annual |
| Annualized | |||
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| Valuation |
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| Franchise Fees |
| Amortization of | ||
| 2018 Franchise |
| of Reacquired |
| to Reacquired |
| Reacquired | ||||
| Revenue |
| Franchise Rights |
| Franchise Rights |
| Franchise Rights | ||||
HSW | $ | 1,782 |
| $ | 52,980 |
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| 29.7 | yrs | $ | 7,258 |
Oakland |
| 95 |
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| 6,190 |
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| 65.2 |
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| 825 |
Subtotal |
| 1,877 |
| $ | 59,170 |
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| 31.5 | yrs | $ | 8,083 |
All other franchise territories |
| 4,505 |
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| $ | 6,382 |
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Amortization of acquired and cancelled franchise agreements comprises the following (in thousands):
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Three months ended September 30, |
| Nine months ended September 30, | ||||||||
2019 |
| 2018 |
| 2019 |
| 2018 | ||||
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$ | 331 |
| $ | - |
| $ | 1,103 |
| $ | - |
Financial Condition
Liquidity and Capital Resources
Material changes in the balance sheet accounts from December 31, 2018 to September 30, 2019 include the following:
·A $10.9 million increase in properties and equipment mainly due to business combinations.
·A $103.3 million increase in lease right of use assets due to the adoption of ASC 842.
·A $61.0 million increase in identifiable intangibles due to business combinations.
·A $66.0 million increase in goodwill due to business combinations.
·An $11.9 increase in accrued compensation primarily due to timing of month end payroll at VITAS.
·A $33.8 million and $82.2 million increase in short-term and long-term lease liability, respectively, due to the adoption of ASC 842.
·A $13.2 million increase in other current liabilities mainly due to a $5.4 million increase in accrued medicare cap, $2.5 million in increased accrued administrative expenses and a $2.2 million increase in accrued acquisition expenses.
·A $40.8 million increase in long-term debt due mainly to business combinations.
·A $126.6 million increase in treasury stock due mainly to stock repurchases.
Net cash provided by operating activities increased $7.0 million from September 30, 2018 to September 30, 2019. Significant changes in our accounts receivable balances are typically driven by the timing of payments received from the Federal government at our VITAS subsidiary. We typically receive a payment in excess of $40.0 million from the Federal government from hospice services every other Friday. The timing of period end will have a significant impact on the accounts receivable at VITAS. These changes generally normalize over a two year period, as cash flow variations in one year are offset in the following year.
Management continually evaluates cash utilization alternatives, including share repurchase, debt repurchase, acquisitions and increased dividends to determine the most beneficial use of available capital resources.
On June 20, 2018, we replaced our existing credit agreement with the Fourth Amended and Restated Credit Agreement (“2018 Credit Agreement”). Terms of the 2018 Credit Agreement consist of a five year, $450 million revolving credit facility and a $150 million expansion feature, which may consist of term loans or additional revolving commitments. The revolving credit facility has a five year maturity with principal payments due at maturity. The interest rate at the inception of the agreement is LIBOR plus 100 basis points. The 2018 Credit Agreement has a floating interest rate that is generally LIBOR plus a tiered additional rate which varies based on our current leverage ratio.
We have issued $37.9 million in standby letters of credit as of September 30, 2019, mainly for insurance purposes. Issued letters of credit reduce our available credit under the revolving credit agreement. As of September 30, 2019, we have approximately $282.1 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility. 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. We are in compliance with all financial and other debt covenants as of September 30, 2019 and anticipate remaining in compliance throughout the foreseeable future.
The VITAS segment of the Company’s business operates in a heavily-regulated industry. As a result, the Company is subjected to inquiries and investigations by various government agencies, which can result in penalties including repayment obligations, funding withholding, or debarment, as well as to lawsuits, including qui tam actions. The following sections describe the various ongoing material lawsuits and investigations of which the Company is currently aware. Other than as described below, it is not possible at this time for us to estimate either the timing or outcome of any of those matters, or whether any potential loss, or range of potential losses, is probable or reasonably estimable.
On October 30, 2017, the Company entered into a settlement agreement (the “Settlement Agreement”) to resolve civil litigation under the False Claims Act brought by the United States Department of Justice (“DOJ”) on behalf of the OIG and
various relators concerning VITAS, filed in the U.S. District Court of the Western District of Missouri (the “2013 Action”). The Company denied any violation of law and agreed to settlement without admission of wrongdoing.
In connection with the settlement VITAS and certain of its subsidiaries entered into a corporate integrity agreement (“CIA”) on October 30, 2017. The CIA formalizes various aspects of VITAS’ already existing Compliance Program and contains requirements designed to document compliance with federal healthcare program requirements. It has a term of five years during which it imposes monitoring, reporting, certification, oversight, screening and training obligations, certain of which had previously been implemented by VITAS. It also requires VITAS to engage an Independent Review Organization to perform audit and review functions and to prepare reports regarding compliance with federal healthcare programs. In the event of breach of the CIA, VITAS could become liable for payment of stipulated penalties or could be excluded from participation in federal healthcare programs.
The Company has also entered into a settlement agreement that, once approved by the Los Angeles County Superior Court, will resolve state-wide wage and hour class action claims raised in four separate cases: (1) Jordan A. Seper on behalf of herself and others similarly situated v. VITAS Healthcare Corporation of California, a Delaware corporation; VITAS Healthcare Corp of CA, a business entity unknown; and DOES 1 to 100, inclusive; Los Angeles Superior Court Case Number BC 642857 (“Seper”); (2) Jiwan Chhina v. VITAS Health Services of California, Inc., a California corporation; VITAS Healthcare Corporation of California, a Delaware corporation; VITAS Healthcare Corporation of California, a Delaware corporation dba VITAS Healthcare Inc.; and DOES 1 to 100, inclusive; San Diego Superior Court Case Number 37-2015-00033978-CU-OE-CTL (“Chhina”) (which was subsequently merged with Seper); (3) Chere Phillips and Lady Moore v. VITAS Healthcare Corporation of California, Sacramento County Superior Court, Case No. 34-2017-0021-2755; and (4) Williams v. VITAS Healthcare Corporation of California, Alameda County Superior Court Case No. RG 17853886. These actions were brought by both current and former employees including a registered nurse, a licensed vocational nurse (LVN), home health aides and a social worker. Each action stated multiple claims generally including (1) failure to pay minimum wage for all hours worked; (2) failure to provide overtime for all hours worked; (3) failure to pay wages for all hours at the regular rate; (4) failure to provide meal periods; (5) failure to provide rest breaks; (6) failure to provide complete and accurate wage statements; (7) failure to pay for all reimbursement expenses; (8) unfair business practices; and (9) violation of the California Private Attorneys General Act. The cases generally asserted claims on behalf of classes defined to include all current and former non-exempt employees employed with VITAS in California within the four years preceding the filing of each lawsuit. For additional procedural history of these cases, please refer to our prior quarterly and annual filings.
The Seper and Chhina cases were consolidated in Los Angeles County Superior Court; Chhina was dismissed as a separate action and joined with Seper in the filing of amended complaint on August 28, 2018, in which both Chhina and Seper were identified as named plaintiffs. Discovery in the remaining cases was stayed as to class claims and each court was advised of the pendency of the consolidated Seper/Chhina action. The parties engaged in a mediation process beginning in October 2018 and concluded with an agreement in March 2019. The settlement amount, subject to court approval, is $5.75 million plus employment taxes. As of September 30, 2019, $6.0 million was accrued in the accompanying Consolidated Balance Sheet. The definition of the class to participate in the settlement is intended to cover claims raised in the consolidated Seper/Chhina matter, claims raised in Phillips and Moore, as well as any class claims in Williams. The parties have filed a motion for preliminary approval of the settlement and notice to class members and eventual final approval and payment. The hearing on this approval motion is December 2, 2019.
Alfred Lax (“Lax”), a current employee of Roto-Rooter Services Company (“RRSC”), was hired in the RRSC’s Menlo Park branch in 2007. On November 30, 2018, Lax filed a class action lawsuit in Santa Clara County Superior Court alleging (1) failure to provide or compensate for required rest breaks; (2) failure to properly pay for all hours worked; (3) failure to provide accurate wage statements; (4) failure to reimburse for work-related expenses; and (5) unfair business practices. Lax has stated these claims as a representative of a class defined as all service technicians employed by RRSC in California during the four years preceding the filing of the complaint. He seeks a determination that the action may proceed and be maintained as a class action and for compensatory and statutory damages (premium payments for missed rest periods, uncompensated rest periods, wages for time allegedly not paid such as travel time, repair time, and vehicle maintenance time, and unreimbursed expenses), penalties and restitutions, pre- and post-judgement interest and attorneys’ fees and costs. The lawsuit, Alfred Lax, on behalf of himself and all others similarly situated v. Roto-Rooter Services Company, and Does 1 through 50 inclusive; Santa Clara County Superior Court Case Number 18CV338652, was received by RRSC on December 11, 2018 and RRSC timely filed its answer denying the claims.
The Company is not able to reasonably estimate the probability of loss or range of loss for any of these lawsuits at this time, with the exception of Seper/Chhina, Phillips and Moore, and the class claims in Williams.
The Company intends to defend vigorously against the allegations in each of the above lawsuits. Regardless of the outcome of any of the preceding matters, dealing with the various regulatory agencies and opposing parties can adversely affect us through defense costs, potential payments, withholding of governmental funding, diversion of management time, and related
publicity. Although the Company intends to defend them vigorously, there can be no assurance that those suits will not have a material adverse effect on the Company.
Results of Operations
Three months ended September 30, 2019 versus 2018 - Consolidated Results
Our service revenues and sales for the third quarter of 2019 increased 8.2% versus services and sales revenues for the third quarter of 2018. Of this increase, a $20.0 million increase was attributable to VITAS and $15.8 million increase was attributable to Roto-Rooter. The following chart shows the components of revenue by operating segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended September 30, | ||||
|
| 2019 |
| 2018 | ||
VITAS |
|
|
|
|
|
|
Routine homecare |
| $ | 274,746 |
| $ | 257,134 |
Continuous care |
|
| 29,446 |
|
| 30,385 |
General inpatient |
|
| 23,599 |
|
| 19,617 |
Other |
|
| 2,356 |
|
| 2,104 |
Medicare cap adjustment |
|
| (1,317) |
|
| (1,950) |
Room and board - net |
|
| (2,846) |
|
| (2,569) |
Implicit price concessions |
|
| (4,236) |
|
| (2,957) |
Roto-Rooter |
|
|
|
|
|
|
Drain cleaning - short term core |
|
| 45,989 |
|
| 40,852 |
Plumbing - short term core |
|
| 34,394 |
|
| 30,464 |
Subtotal |
|
| 80,383 |
|
| 71,316 |
Excavation - short term core |
|
| 34,269 |
|
| 30,534 |
Water restoration |
|
| 25,738 |
|
| 25,001 |
Contractor operations |
|
| 14,342 |
|
| 12,219 |
Outside franchisee fees |
|
| 1,819 |
|
| 1,593 |
Other - short term core |
|
| 483 |
|
| 496 |
Other |
|
| 2,791 |
|
| 2,876 |
Implicit price concessions |
|
| (960) |
|
| (1,648) |
Total |
| $ | 480,613 |
| $ | 444,151 |
Days of care at VITAS during the quarter ended September 30 were as follows:
|
|
|
|
|
|
| Days of Care |
| Increase/(Decrease) | ||
| 2019 |
| 2018 |
| Percent |
|
|
|
|
|
|
Routine homecare | 1,685,656 |
| 1,584,820 |
| 6.4 |
Continuous care | 39,670 |
| 41,462 |
| (4.3) |
General inpatient | 30,553 |
| 25,731 |
| 18.7 |
Total days of care | 1,755,879 |
| 1,652,013 |
| 6.3 |
The remaining increase in VITAS’ revenues for the third quarter of 2019 versus the third quarter of 2018 was primarily comprised of a geographically weighted average Medicare reimbursement rate increase of approximately 0.5% and by $1.3 million in Medicare cap revenue reductions compared to a Medicare cap revenue reduction of $2.0 million in 2018. Partially offset by acuity mix shift, fluctuations in net room and board and contractual adjustments, the combination of which negatively impacted revenue growth approximately 0.4%, when compared to the prior-year period. Over 90% of VITAS’ service revenues for the period were from Medicare and Medicaid.
The increase in plumbing revenues for the third quarter of 2019 versus 2018 is attributable to a 8.4% increase in price and service mix shift and an 4.5% increase in job count. The increase in excavation revenues for the third quarter of 2019 versus 2018 is attributable to a 7.8% increase in price and service mix shift and a 4.4% increase in job count. Drain cleaning revenues for the third quarter of 2019 versus 2018 reflect a 9.8% increase in price and service mix shift and a 2.8% increase in
job count. Water restoration revenue for the third quarter of 2019 versus 2018 is attributable to a 0.7% increase in price and service mix shift and a 2.3% increase in job count. Contractor operations increased 17.4% mainly due to their expansion into water restoration.
The consolidated gross margin was 31.7% in the third quarter of 2019 as compared with 31.3% in the third quarter of 2018. On a segment basis, VITAS’ gross margin was 23.1% in the third quarter of 2019 as compared with 22.8%, in the third quarter of 2018 primarily due to improved labor management and reduced ancillary costs. The Roto-Rooter segment’s gross margin was 49.2% for the third quarter of 2019 essentially equal to the third quarter of 2018.
Selling, general and administrative expenses (“SG&A”) comprise (in thousands):
|
|
|
|
|
|
| Three months ended September 30, | ||||
| 2019 |
| 2018 | ||
SG&A expenses before long-term incentive compensation and the impact of market value adjustments related to deferred compensation trusts | $ | 72,273 |
| $ | 63,754 |
Impact of market value adjustments related to assets held in deferred compensation trusts |
| 2,886 |
|
| 2,189 |
Long-term incentive compensation |
| 1,677 |
|
| 1,234 |
Total SG&A expenses | $ | 76,836 |
| $ | 67,177 |
SG&A expenses before long-term incentive compensation and the impact of market value adjustments related to deferred compensation trusts for the third quarter of 2019 were up 13.4% when compared to the third quarter of 2018. This increase was mainly a result of the increase in variable selling expenses caused by increased revenue and increased advertising expense at Roto-Rooter as well as acquisition related expenses at Roto-Rooter in the third quarter of 2019.
Our effective tax rate reconciliation is as follows:
|
|
|
|
|
|
|
|
|
|
| Three months ended September 30, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
|
|
|
|
|
|
|
|
|
Income tax provision calculated at the statutory federal rate |
| $ | 14,054 |
|
| $ | 13,216 |
|
Stock compensation tax benefits |
|
| (7,848) |
|
|
| (2,784) |
|
State and local income taxes |
|
| 1,183 |
|
|
| 1,360 |
|
Other--net |
|
| 587 |
|
|
| (110) |
|
Income tax provision |
| $ | 7,976 |
|
| $ | 11,682 |
|
Effective tax rate |
|
| 11.9 | % |
|
| 18.6 | % |
Net income for both periods included the following after-tax items/adjustments that (reduced) or increased after-tax earnings (in thousands):
|
|
|
|
|
|
| Three months ended September 30, | ||||
| 2019 |
| 2018 | ||
VITAS |
|
|
|
|
|
Medicare cap sequestration adjustment |
| (639) |
|
| (376) |
Acquisition expense |
| - |
|
| (132) |
Roto-Rooter |
|
|
|
|
|
Acquisition expense |
| (2,411) |
|
| (130) |
Amortization of acquired and cancelled franchise agreements |
| (244) |
|
| - |
Corporate |
|
|
|
|
|
Excess tax benefits on stock compensation |
| 8,792 |
|
| 3,118 |
Stock option expense |
| (2,278) |
|
| (1,674) |
Long-term incentive compensation |
| (1,486) |
|
| (1,013) |
Total | $ | 1,734 |
| $ | (207) |
Three months ended September 30, 2019 versus 2018 - Segment Results
Net income/(loss) for the third quarter of 2019 versus the third quarter of 2018 by segment (in thousands):
|
|
|
|
|
|
|
|
|
| ||
| Three months ended September 30, | ||||
| 2019 |
| 2018 | ||
VITAS | $ | 39,773 |
| $ | 35,921 |
Roto-Rooter |
| 26,140 |
|
| 24,563 |
Corporate |
| (6,966) |
|
| (9,235) |
| $ | 58,947 |
| $ | 51,249 |
VITAS’ after-tax earnings were positively impacted in 2019 compared to 2018 due to higher revenue and improved labor management and ancillary costs. After-tax earnings as a percent of revenue at VITAS in the third quarter of 2019 was 12.4% as compared to 11.9% in the third quarter of 2018.
Roto-Rooter’s net income was impacted in 2019 compared to 2018 primarily by higher revenue offset by acquisition related expenses. After-tax earnings as a percent of revenue at Roto-Rooter in the third quarter of 2019 was 16.5% as compared to 17.3% in the third quarter of 2018.
After-tax Corporate expenses for 2019 decreased 24.6% when compared to 2018 due mainly to a $5.7 million increase in the excess tax benefits on stock compensation.
Results of Operations
Nine months ended September 30, 2019 versus 2018 - Consolidated Results
Our service revenues and sales for the first nine months of 2019 increased 6.9% versus services and sales revenues for the first nine months of 2018. Of this increase, a $50.7 million increase was attributable to VITAS and $40.4 million increase was attributable to Roto-Rooter. The following chart shows the components of revenue by operating segment (in thousands):
|
|
|
|
|
|
|
|
| Nine months ended September 30, | ||||
|
| 2019 |
| 2018 | ||
VITAS |
|
|
|
|
|
|
Routine homecare |
| $ | 800,059 |
| $ | 748,546 |
Continuous care |
|
| 92,476 |
|
| 91,664 |
General inpatient |
|
| 69,063 |
|
| 61,803 |
Other |
|
| 6,598 |
|
| 5,844 |
Medicare cap adjustment |
|
| (7,915) |
|
| (668) |
Room and board - net |
|
| (8,098) |
|
| (7,863) |
Implicit price concessions |
|
| (10,904) |
|
| (8,749) |
Roto-Rooter |
|
|
|
|
|
|
Drain cleaning - short term core |
|
| 135,689 |
|
| 124,141 |
Plumbing - short term core |
|
| 100,286 |
|
| 91,813 |
Subtotal |
|
| 235,975 |
|
| 215,954 |
Excavation - short term core |
|
| 103,726 |
|
| 93,869 |
Water restoration |
|
| 81,629 |
|
| 77,502 |
Contractor operations |
|
| 42,931 |
|
| 36,950 |
Outside franchisee fees |
|
| 5,063 |
|
| 4,758 |
Other - short term core |
|
| 1,636 |
|
| 1,695 |
Other |
|
| 8,773 |
|
| 9,032 |
Implicit price concessions |
|
| (4,781) |
|
| (5,197) |
Total |
| $ | 1,416,231 |
| $ | 1,325,140 |
Days of care at VITAS during the nine months ended September 30 were as follows:
|
|
|
|
|
|
| Days of Care |
| Increase/(Decrease) | ||
| 2019 |
| 2018 |
| Percent |
|
|
|
|
|
|
Routine homecare | 4,879,161 |
| 4,592,950 |
| 6.2 |
Continuous care | 125,397 |
| 127,147 |
| (1.4) |
General inpatient | 102,336 |
| 86,372 |
| 18.5 |
Total days of care | 5,106,894 |
| 4,806,469 |
| 6.3 |
The remaining increase in VITAS’ revenues for the first nine months of 2019 versus the first nine months of 2018 was primarily comprised of a geographically weighted average Medicare reimbursement rate increase of approximately 0.5% offset by $7.9 million in Medicare cap revenue reductions compared to Medicare cap revenue reductions of $668,000 in 2018. Over 90% of VITAS’ service revenues for the period were from Medicare and Medicaid.
The increase in plumbing revenues for the first nine months of 2019 versus 2018 is attributable to a 6.8% increase in price and service mix shift and by a 2.4% increase in job count. The increase in excavation revenues for the first nine months of 2019 versus 2018 is attributable to a 10.0% increase in price and service mix shift and an increase of 0.5% in job count. Drain cleaning revenues for the first nine months of 2019 versus 2018 reflect a 7.0% increase in price and service mix shift and a 2.3% increase in job count. The increase in water restoration revenue for the first nine months of 2019 versus 2018 is attributable to a 2.3% increase in price and service mix shift and a 3.0% increase in job count. Contractor operations increased 16.2% mainly due to their expansion into water restoration.
The consolidated gross margin was 31.2% in the first nine months of 2019 as compared with 30.9% in the first nine months of 2018. On a segment basis, VITAS’ gross margin was 22.6% in the first nine months of 2019 as compared with 22.1%, in the first nine months of 2018 primarily due to improved labor management and ancillary costs. The Roto-Rooter segment’s gross margin was 48.3% for the first nine months of 2019 compared with 48.9% in the first nine months of 2018 primarily due to higher labor costs in the first half of 2019.
Selling, general and administrative expenses (“SG&A”) comprise (in thousands):
|
|
|
|
|
|
| Nine months ended September 30, | ||||
| 2019 |
| 2018 | ||
SG&A expenses before long-term incentive compensation and the impact of market value adjustments related to deferred compensation trusts | $ | 212,775 |
| $ | 196,271 |
Long-term incentive compensation |
| 4,552 |
|
| 4,376 |
Impact of market value adjustments related to assets held in deferred compensation trusts |
| 5,094 |
|
| 3,827 |
Total SG&A expenses | $ | 222,421 |
| $ | 204,474 |
SG&A expenses before long-term incentive compensation and the impact of market value adjustments related to deferred compensation trusts for the first nine months of 2019 were up 8.4% when compared to the first nine months of 2018. This increase was mainly a result of the increase in variable selling expenses caused by increased revenue and increased advertising expense at Roto-Rooter as well as acquisition related expenses at Roto-Rooter in the first nine months of 2019.
Other operating expenses increased $8.9 million from the first nine months of 2018 primarily as a result of a $6.0 million litigation settlement at VITAS and a $2.3 million impairment of transportation equipment held for sale recorded in the first nine months of 2019.
Other income - net comprise (in thousands):
|
|
|
|
|
|
| Nine months ended September 30, | ||||
| 2019 |
| 2018 | ||
Market value adjustment on assets held in deferred compensation trusts | $ | 5,094 |
| $ | 3,827 |
Interest income |
| 387 |
|
| 529 |
Other |
| 7 |
|
| - |
Total other income - net | $ | 5,488 |
| $ | 4,356 |
Our effective tax rate reconciliation is as follows:
|
|
|
|
|
|
|
|
|
|
| Nine months ended September 30, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
|
|
|
|
|
|
|
|
|
Income tax provision calculated at the statutory federal rate |
| $ | 38,223 |
|
| $ | 37,127 |
|
Stock compensation tax benefits |
|
| (16,724) |
|
|
| (16,623) |
|
State and local income taxes |
|
| 4,652 |
|
|
| 4,150 |
|
Other--net |
|
| 1,520 |
|
|
| 924 |
|
Income tax provision |
| $ | 27,671 |
|
| $ | 25,578 |
|
Effective tax rate |
|
| 15.2 | % |
|
| 14.5 | % |
|
|
|
|
|
|
|
|
|
Net income for both periods included the following after-tax items/adjustments that (reduced) or increased after-tax earnings (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, | ||||
| 2019 |
| 2018 | ||
VITAS |
|
|
|
|
|
Litigation settlement | $ | (4,476) |
| $ | 152 |
Medicare cap sequestration adjustment |
| (2,279) |
|
| (777) |
Non cash ASC 842 benefit |
| (490) |
|
| - |
Acquisition expenses |
| - |
|
| (132) |
Roto-Rooter |
|
|
|
|
|
Acquisition expenses |
| (2,482) |
|
| (130) |
Amortization of acquired and cancelled franchise agreements |
| (811) |
|
| - |
Non cash ASC 842 benefit |
| (40) |
|
| - |
Corporate |
|
|
|
|
|
Excess tax benefits on stock compensation |
| 18,737 |
|
| 18,618 |
Stock option expense |
| (8,804) |
|
| (7,465) |
Long-term incentive compensation |
| (3,915) |
|
| (3,515) |
Impairment loss on transportation equipment |
| (1,733) |
|
| - |
Non cash ASC 842 benefit |
| 124 |
|
| - |
Acquisition expenses |
| (91) |
|
| - |
Total | $ | (6,260) |
| $ | 6,751 |
Nine months ended September 30, 2019 versus 2018 - Segment Results
Net income/(loss) for the first nine months of 2019 versus the first nine months of 2018 by segment (in thousands):
|
|
|
|
|
|
|
|
|
| ||
| Nine months ended September 30, | ||||
| 2019 |
| 2018 | ||
VITAS | $ | 106,400 |
| $ | 99,720 |
Roto-Rooter |
| 76,302 |
|
| 72,799 |
Corporate |
| (28,359) |
|
| (21,303) |
| $ | 154,343 |
| $ | 151,216 |
VITAS’ after-tax earnings were positively impacted in 2019 compared to 2018 due to higher revenue offset by the impact of a litigation settlement of approximately $6.0 million ($4.5 million after-tax). After-tax earnings as a percent of revenue at VITAS in the first nine months of 2019 was 11.3% as compared to 11.2% in the first nine months of 2018.
Roto-Rooter’s net income was impacted in 2019 compared to 2018 primarily by higher revenue offset by acquisition related expenses. After-tax earnings as a percent of revenue at Roto-Rooter in the first nine months of 2019 was 16.1% as compared to 16.8% in the first nine months of 2018.
After-tax Corporate expenses for 2019 increased 33.1% when compared to 2018 due mainly to a $2.3 million ($1.7 million after-tax) impairment of transportation equipment held for sale.
|
|
|
|
|
|
|
|
|
|
|
|
CHEMED CORPORATION AND SUBSIDIARY COMPANIES | |||||||||||
CONSOLIDATING STATEMENTS OF INCOME | |||||||||||
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019 | |||||||||||
(in thousands)(unaudited) | |||||||||||
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
| Chemed | ||||
| VITAS |
| Roto-Rooter |
| Corporate |
| Consolidated | ||||
2019 (a) |
|
|
|
|
|
|
|
|
|
|
|
Service revenues and sales | $ | 321,748 |
| $ | 158,865 |
| $ | - |
| $ | 480,613 |
Cost of services provided and goods sold |
| 247,551 |
|
| 80,632 |
|
| - |
|
| 328,183 |
Selling, general and administrative expenses |
| 21,965 |
|
| 41,758 |
|
| 13,113 |
|
| 76,836 |
Depreciation |
| 5,105 |
|
| 5,003 |
|
| 39 |
|
| 10,147 |
Amortization |
| 18 |
|
| 423 |
|
| - |
|
| 441 |
Other operating expense/(income) |
| 97 |
|
| (19) |
|
| - |
|
| 78 |
Total costs and expenses |
| 274,736 |
|
| 127,797 |
|
| 13,152 |
|
| 415,685 |
Income/(loss) from operations |
| 47,012 |
|
| 31,068 |
|
| (13,152) |
|
| 64,928 |
Interest expense |
| (48) |
|
| (80) |
|
| (913) |
|
| (1,041) |
Intercompany interest income/(expense) |
| 4,618 |
|
| 2,234 |
|
| (6,852) |
|
| - |
Other income—net |
| 121 |
|
| 31 |
|
| 2,884 |
|
| 3,036 |
Income/(expense) before income taxes |
| 51,703 |
|
| 33,253 |
|
| (18,033) |
|
| 66,923 |
Income taxes |
| (11,930) |
|
| (7,113) |
|
| 11,067 |
|
| (7,976) |
Net income/(loss) | $ | 39,773 |
| $ | 26,140 |
| $ | (6,966) |
| $ | 58,947 |
|
|
|
|
|
|
|
|
|
|
|
|
(a) The following amounts are included in net income (in thousands): | |||||||||||
|
|
|
|
|
|
|
|
|
| Chemed | |
| VITAS |
| Roto-Rooter |
| Corporate |
| Consolidated | ||||
Pretax benefit/(cost): |
|
|
|
|
|
|
|
|
|
|
|
Acquisition expenses | $ | - |
| $ | (3,281) |
| $ | - |
| $ | (3,281) |
Stock option expense |
| - |
|
| - |
|
| (2,711) |
|
| (2,711) |
Long-term incentive compensation |
| - |
|
| - |
|
| (1,677) |
|
| (1,677) |
Medicare cap sequestration |
| (859) |
|
| - |
|
| - |
|
| (859) |
Amortization of acquired and cancelled franchise agreements |
| - |
|
| (331) |
|
| - |
|
| (331) |
Total | $ | (859) |
| $ | (3,612) |
| $ | (4,388) |
| $ | (8,859) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Chemed | |
| VITAS |
| Roto-Rooter |
| Corporate |
| Consolidated | ||||
After-tax benefit/(cost): |
|
|
|
|
|
|
|
|
|
|
|
Acquisition expenses | $ | - |
| $ | (2,411) |
| $ | - |
| $ | (2,411) |
Stock option expense |
| - |
|
| - |
|
| (2,278) |
|
| (2,278) |
Long-term incentive compensation |
| - |
|
| - |
|
| (1,486) |
|
| (1,486) |
Medicare cap sequestration |
| (639) |
|
| - |
|
| - |
|
| (639) |
Amortization of acquired and cancelled franchise agreements |
| - |
|
| (244) |
|
| - |
|
| (244) |
Non cash ASC 842 expenses |
| - |
|
| - |
|
| - |
|
| - |
Excess tax benefits on stock compensation |
| - |
|
| - |
|
| 8,792 |
|
| 8,792 |
Total | $ | (639) |
| $ | (2,655) |
| $ | 5,028 |
| $ | 1,734 |
|
|
|
|
|
|
|
|
|
|
|
|
CHEMED CORPORATION AND SUBSIDIARY COMPANIES | |||||||||||
CONSOLIDATING STATEMENTS OF INCOME | |||||||||||
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2018 | |||||||||||
(in thousands)(unaudited) | |||||||||||
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
| Chemed | ||||
| VITAS |
| Roto-Rooter |
| Corporate |
| Consolidated | ||||
2018 (a) |
|
|
|
|
|
|
|
|
|
|
|
Service revenues and sales | $ | 301,764 |
| $ | 142,387 |
| $ | - |
| $ | 444,151 |
Cost of services provided and goods sold |
| 233,006 |
|
| 72,306 |
|
| - |
|
| 305,312 |
Selling, general and administrative expenses |
| 20,394 |
|
| 36,112 |
|
| 10,671 |
|
| 67,177 |
Depreciation |
| 4,905 |
|
| 4,712 |
|
| 40 |
|
| 9,657 |
Amortization |
| - |
|
| 35 |
|
| - |
|
| 35 |
Other operating expenses |
| 100 |
|
| 157 |
|
| - |
|
| 257 |
Total costs and expenses |
| 258,405 |
|
| 113,322 |
|
| 10,711 |
|
| 382,438 |
Income/(loss) from operations |
| 43,359 |
|
| 29,065 |
|
| (10,711) |
|
| 61,713 |
Interest expense |
| (49) |
|
| (71) |
|
| (962) |
|
| (1,082) |
Intercompany interest income/(expense) |
| 3,306 |
|
| 1,814 |
|
| (5,120) |
|
| - |
Other income—net |
| 89 |
|
| 22 |
|
| 2,189 |
|
| 2,300 |
Income/(expense) before income taxes |
| 46,705 |
|
| 30,830 |
|
| (14,604) |
|
| 62,931 |
Income taxes |
| (10,784) |
|
| (6,267) |
|
| 5,369 |
|
| (11,682) |
Net income/(loss) | $ | 35,921 |
| $ | 24,563 |
| $ | (9,235) |
| $ | 51,249 |
|
|
|
|
|
|
|
|
|
|
|
|
(a) The following amounts are included in net income (in thousands): | |||||||||||
|
|
|
|
|
|
|
|
|
| Chemed | |
| VITAS |
| Roto-Rooter |
| Corporate |
| Consolidated | ||||
Pretax benefit/(cost): |
|
|
|
|
|
|
|
|
|
|
|
Stock option expense | $ | - |
| $ | - |
| $ | (2,055) |
| $ | (2,055) |
Long-term incentive compensation |
| - |
|
| - |
|
| (1,234) |
|
| (1,234) |
Acquisition expense |
| (177) |
|
| (177) |
|
| - |
|
| (354) |
Medicare cap sequestration adjustment |
| (503) |
|
| - |
|
| - |
|
| (503) |
Total | $ | (680) |
| $ | (177) |
| $ | (3,289) |
| $ | (4,146) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Chemed | |
| VITAS |
| Roto-Rooter |
| Corporate |
| Consolidated | ||||
After-tax benefit/(cost): |
|
|
|
|
|
|
|
|
|
|
|
Stock option expense | $ | - |
| $ | - |
| $ | (1,674) |
| $ | (1,674) |
Long-term incentive compensation |
| - |
|
| - |
|
| (1,013) |
|
| (1,013) |
Acquisition expense |
| (132) |
|
| (130) |
|
| - |
|
| (262) |
Medicare cap sequestration adjustment |
| (376) |
|
| - |
|
| - |
|
| (376) |
Excess tax benefits on stock compensation |
| - |
|
| - |
|
| 3,118 |
|
| 3,118 |
Total | $ | (508) |
| $ | (130) |
| $ | 431 |
| $ | (207) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHEMED CORPORATION AND SUBSIDIARY COMPANIES | |||||||||||
CONSOLIDATING STATEMENTS OF INCOME | |||||||||||
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 | |||||||||||
(in thousands)(unaudited) | |||||||||||
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
| Chemed | ||||
| VITAS |
| Roto-Rooter |
| Corporate |
| Consolidated | ||||
2019 (a) |
|
|
|
|
|
|
|
|
|
|
|
Service revenues and sales | $ | 941,279 |
| $ | 474,952 |
| $ | - |
| $ | 1,416,231 |
Cost of services provided and goods sold |
| 728,397 |
|
| 245,374 |
|
| - |
|
| 973,771 |
Selling, general and administrative expenses |
| 65,182 |
|
| 120,736 |
|
| 36,503 |
|
| 222,421 |
Depreciation |
| 14,644 |
|
| 14,983 |
|
| 117 |
|
| 29,744 |
Amortization |
| 53 |
|
| 1,313 |
|
| - |
|
| 1,366 |
Other operating expenses |
| 6,521 |
|
| 214 |
|
| 2,266 |
|
| 9,001 |
Total costs and expenses |
| 814,797 |
|
| 382,620 |
|
| 38,886 |
|
| 1,236,303 |
Income/(loss) from operations |
| 126,482 |
|
| 92,332 |
|
| (38,886) |
|
| 179,928 |
Interest expense |
| (150) |
|
| (273) |
|
| (2,979) |
|
| (3,402) |
Intercompany interest income/(expense) |
| 13,395 |
|
| 6,609 |
|
| (20,004) |
|
| - |
Other income—net |
| 309 |
|
| 86 |
|
| 5,093 |
|
| 5,488 |
Income/(expense) before income taxes |
| 140,036 |
|
| 98,754 |
|
| (56,776) |
|
| 182,014 |
Income taxes |
| (33,636) |
|
| (22,452) |
|
| 28,417 |
|
| (27,671) |
Net income/(loss) | $ | 106,400 |
| $ | 76,302 |
| $ | (28,359) |
| $ | 154,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) The following amounts are included in net income (in thousands): |
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
| Chemed | |
|
| VITAS |
| Roto-Rooter |
| Corporate |
| Consolidated | |||
Pretax benefit/(cost): |
|
|
|
|
|
|
|
|
|
|
|
Stock option expense | $ | - |
| $ | - |
| $ | (10,729) |
| $ | (10,729) |
Litigation settlement |
| (6,000) |
|
| - |
|
| - |
|
| (6,000) |
Long-term incentive compensation |
| - |
|
| - |
|
| (4,552) |
|
| (4,552) |
Impairment loss on transportation equipment |
| - |
|
| - |
|
| (2,266) |
|
| (2,266) |
Medicare cap sequestration adjustment |
| (3,063) |
|
| - |
|
| - |
|
| (3,063) |
Amortization of acquired and cancelled franchise agreements |
| - |
|
| (1,103) |
|
| - |
|
| (1,103) |
Non cash ASC 842 (expenses)/benefit |
| (656) |
|
| (55) |
|
| 163 |
|
| (548) |
Acquisition expenses |
| - |
|
| (3,377) |
|
| (120) |
|
| (3,497) |
Total | $ | (9,719) |
| $ | (4,535) |
| $ | (17,504) |
| $ | (31,758) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Chemed | |
|
| VITAS |
| Roto-Rooter |
| Corporate |
| Consolidated | |||
After-tax benefit/(cost): |
|
|
|
|
|
|
|
|
|
|
|
Stock option expense | $ | - |
| $ | - |
| $ | (8,804) |
| $ | (8,804) |
Litigation settlement |
| (4,476) |
|
| - |
|
| - |
|
| (4,476) |
Long-term incentive compensation |
| - |
|
| - |
|
| (3,915) |
|
| (3,915) |
Acquisition expenses |
| - |
|
| (2,482) |
|
| (91) |
|
| (2,573) |
Medicare cap sequestration adjustment |
| (2,279) |
|
| - |
|
| - |
|
| (2,279) |
Impairment loss on transportation equipment |
| - |
|
| - |
|
| (1,733) |
|
| (1,733) |
Amortization of acquired and cancelled franchise agreements |
| - |
|
| (811) |
|
| - |
|
| (811) |
Non cash ASC 842 (expenses)/benefit |
| (490) |
|
| (40) |
|
| 124 |
|
| (406) |
Excess tax benefits on stock compensation |
| - |
|
| - |
|
| 18,737 |
|
| 18,737 |
Total | $ | (7,245) |
| $ | (3,333) |
| $ | 4,318 |
| $ | (6,260) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHEMED CORPORATION AND SUBSIDIARY COMPANIES | |||||||||||
CONSOLIDATING STATEMENTS OF INCOME | |||||||||||
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 | |||||||||||
(in thousands)(unaudited) | |||||||||||
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
| Chemed | ||||
| VITAS |
| Roto-Rooter |
| Corporate |
| Consolidated | ||||
2018 (a) |
|
|
|
|
|
|
|
|
|
|
|
Service revenues and sales | $ | 890,577 |
| $ | 434,563 |
| $ | - |
| $ | 1,325,140 |
Cost of services provided and goods sold |
| 693,335 |
|
| 222,254 |
|
| - |
|
| 915,589 |
Selling, general and administrative expenses |
| 61,606 |
|
| 108,120 |
|
| 34,748 |
|
| 204,474 |
Depreciation |
| 14,753 |
|
| 13,782 |
|
| 107 |
|
| 28,642 |
Amortization |
| - |
|
| 96 |
|
| - |
|
| 96 |
Other operating expenses |
| 16 |
|
| 72 |
|
| - |
|
| 88 |
Total costs and expenses |
| 769,710 |
|
| 344,324 |
|
| 34,855 |
|
| 1,148,889 |
Income/(loss) from operations |
| 120,867 |
|
| 90,239 |
|
| (34,855) |
|
| 176,251 |
Interest expense |
| (153) |
|
| (255) |
|
| (3,405) |
|
| (3,813) |
Intercompany interest income/(expense) |
| 9,524 |
|
| 5,231 |
|
| (14,755) |
|
| - |
Other income—net |
| 469 |
|
| 60 |
|
| 3,827 |
|
| 4,356 |
Income/(expense) before income taxes |
| 130,707 |
|
| 95,275 |
|
| (49,188) |
|
| 176,794 |
Income taxes |
| (30,987) |
|
| (22,476) |
|
| 27,885 |
|
| (25,578) |
Net income/(loss) | $ | 99,720 |
| $ | 72,799 |
| $ | (21,303) |
| $ | 151,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) The following amounts are included in net income (in thousands): |
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
| Chemed | |
| VITAS |
| Roto-Rooter |
| Corporate |
| Consolidated | ||||
Pretax benefit/(cost): |
|
|
|
|
|
|
|
|
|
|
|
Stock option expense | $ | - |
| $ | - |
| $ | (9,360) |
| $ | (9,360) |
Long-term incentive compensation |
| - |
|
| - |
|
| (4,376) |
|
| (4,376) |
Medicare cap sequestration adjustment |
| (1,040) |
|
| - |
|
| - |
|
| (1,040) |
Acquisition expense |
| (177) |
|
| (177) |
|
| - |
|
| (354) |
Litigation settlement |
| 204 |
|
| - |
|
| - |
|
| 204 |
Total | $ | (1,013) |
| $ | (177) |
| $ | (13,736) |
| $ | (14,926) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Chemed | |
| VITAS |
| Roto-Rooter |
| Corporate |
| Consolidated | ||||
After-tax benefit/(cost): |
|
|
|
|
|
|
|
|
|
|
|
Stock option expense | $ | - |
| $ | - |
| $ | (7,465) |
| $ | (7,465) |
Long-term incentive compensation |
| - |
|
| - |
|
| (3,515) |
|
| (3,515) |
Medicare cap sequestration adjustment |
| (777) |
|
| - |
|
| - |
|
| (777) |
Acquisition expense |
| (132) |
|
| (130) |
|
| - |
|
| (262) |
Litigation settlement |
| 152 |
|
| - |
|
| - |
|
| 152 |
Excess tax benefits on stock compensation |
| - |
|
| - |
|
| 18,618 |
|
| 18,618 |
Total | $ | (757) |
| $ | (130) |
| $ | 7,638 |
| $ | 6,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemed Corporation and Subsidiary Companies |
|
|
| |||||||||
(in thousands) |
|
|
|
|
|
|
|
|
| Chemed | ||
For the three months ended September 30, 2019 | VITAS |
| Roto-Rooter |
| Corporate |
| Consolidated | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income/(loss) | $ | 39,773 |
| $ | 26,140 |
| $ | (6,966) |
| $ | 58,947 |
| Add/(deduct): |
|
|
|
|
|
|
|
|
|
|
|
| Interest expense |
| 48 |
|
| 80 |
|
| 913 |
|
| 1,041 |
| Income taxes |
| 11,930 |
|
| 7,113 |
|
| (11,067) |
|
| 7,976 |
| Depreciation |
| 5,105 |
|
| 5,003 |
|
| 39 |
|
| 10,147 |
| Amortization |
| 18 |
|
| 423 |
|
| - |
|
| 441 |
| EBITDA |
| 56,874 |
|
| 38,759 |
|
| (17,081) |
|
| 78,552 |
| Add/(deduct): |
|
|
|
|
|
|
|
|
|
|
|
| Intercompany interest expense/(income) |
| (4,618) |
|
| (2,234) |
|
| 6,852 |
|
| - |
| Interest income |
| (139) |
|
| (34) |
|
| - |
|
| (173) |
| Acquisition expense |
| - |
|
| 3,281 |
|
| - |
|
| 3,281 |
| Stock option expense |
| - |
|
| - |
|
| 2,711 |
|
| 2,711 |
| Long-term incentive compensation |
| - |
|
| - |
|
| 1,677 |
|
| 1,677 |
| Medicare cap sequestration adjustment |
| 859 |
|
| - |
|
| - |
|
| 859 |
| Adjusted EBITDA | $ | 52,976 |
| $ | 39,772 |
| $ | (5,841) |
| $ | 86,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Chemed | |
For the three months ended September 30, 2018 | VITAS |
| Roto-Rooter |
| Corporate |
| Consolidated | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income/(loss) | $ | 35,921 |
| $ | 24,563 |
| $ | (9,235) |
| $ | 51,249 |
| Add/(deduct): |
|
|
|
|
|
|
|
|
|
|
|
| Interest expense |
| 49 |
|
| 71 |
|
| 962 |
|
| 1,082 |
| Income taxes |
| 10,784 |
|
| 6,267 |
|
| (5,369) |
|
| 11,682 |
| Depreciation |
| 4,905 |
|
| 4,712 |
|
| 40 |
|
| 9,657 |
| Amortization |
| - |
|
| 35 |
|
| - |
|
| 35 |
| EBITDA |
| 51,659 |
|
| 35,648 |
|
| (13,602) |
|
| 73,705 |
| Add/(deduct): |
|
|
|
|
|
|
|
|
|
|
|
| Intercompany interest expense/(income) |
| (3,306) |
|
| (1,814) |
|
| 5,120 |
|
| - |
| Interest income |
| (88) |
|
| (23) |
|
| - |
|
| (111) |
| Medicare cap sequestration adjustment |
| 503 |
|
| - |
|
| - |
|
| 503 |
| Acquisition expense |
| 177 |
|
| 177 |
|
| - |
|
| 354 |
| Stock option expense |
| - |
|
| - |
|
| 2,055 |
|
| 2,055 |
| Long-term incentive compensation |
| - |
|
| - |
|
| 1,234 |
|
| 1,234 |
| Adjusted EBITDA | $ | 48,945 |
| $ | 33,988 |
| $ | (5,193) |
| $ | 77,740 |
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Chemed Corporation and Subsidiary Companies |
|
|
| ||||||||
(in thousands) |
|
|
|
|
|
|
|
|
| Chemed | |
For the nine months ended September 30, 2019 | VITAS |
| Roto-Rooter |
| Corporate |
| Consolidated | ||||
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) | $ | 106,400 |
| $ | 76,302 |
| $ | (28,359) |
| $ | 154,343 |
Add/(deduct): |
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
| 150 |
|
| 273 |
|
| 2,979 |
|
| 3,402 |
Income taxes |
| 33,636 |
|
| 22,452 |
|
| (28,417) |
|
| 27,671 |
Depreciation |
| 14,644 |
|
| 14,983 |
|
| 117 |
|
| 29,744 |
Amortization |
| 53 |
|
| 1,313 |
|
| - |
|
| 1,366 |
EBITDA |
| 154,883 |
|
| 115,323 |
|
| (53,680) |
|
| 216,526 |
Add/(deduct): |
|
|
|
|
|
|
|
|
|
|
|
Intercompany interest expense/(income) |
| (13,395) |
|
| (6,609) |
|
| 20,004 |
|
| - |
Interest income |
| (296) |
|
| (91) |
|
| - |
|
| (387) |
Stock option expense |
| - |
|
| - |
|
| 10,729 |
|
| 10,729 |
Litigation settlement |
| 6,000 |
|
| - |
|
| - |
|
| 6,000 |
Long-term incentive compensation |
| - |
|
| - |
|
| 4,552 |
|
| 4,552 |
Acquisition expenses |
| - |
|
| 3,377 |
|
| 120 |
|
| 3,497 |
Medicare cap sequestration adjustment |
| 3,063 |
|
| - |
|
| - |
|
| 3,063 |
Impairment loss on transportation equipment |
| - |
|
| - |
|
| 2,266 |
|
| 2,266 |
Non cash ASC 842 expenses/(benefit) |
| 656 |
|
| 55 |
|
| (163) |
|
| 548 |
Adjusted EBITDA | $ | 150,911 |
| $ | 112,055 |
| $ | (16,172) |
| $ | 246,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Chemed | |
For the nine months ended September 30, 2018 | VITAS |
| Roto-Rooter |
| Corporate |
| Consolidated | ||||
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) | $ | 99,720 |
| $ | 72,799 |
| $ | (21,303) |
| $ | 151,216 |
Add/(deduct): |
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
| 153 |
|
| 255 |
|
| 3,405 |
|
| 3,813 |
Income taxes |
| 30,987 |
|
| 22,476 |
|
| (27,885) |
|
| 25,578 |
Depreciation |
| 14,753 |
|
| 13,782 |
|
| 107 |
|
| 28,642 |
Amortization |
| - |
|
| 96 |
|
| - |
|
| 96 |
EBITDA |
| 145,613 |
|
| 109,408 |
|
| (45,676) |
|
| 209,345 |
Add/(deduct): |
|
|
|
|
|
|
|
|
|
|
|
Intercompany interest expense/(income) |
| (9,524) |
|
| (5,231) |
|
| 14,755 |
|
| - |
Interest income |
| (468) |
|
| (60) |
|
| - |
|
| (528) |
Stock option expense |
| - |
|
| - |
|
| 9,360 |
|
| 9,360 |
Long-term incentive compensation |
| - |
|
| - |
|
| 4,376 |
|
| 4,376 |
Medicare cap sequestration adjustment |
| 1,040 |
|
| - |
|
| - |
|
| 1,040 |
Stock award amortization |
| 107 |
|
| 100 |
|
| 239 |
|
| 446 |
Acquisition expense |
| 177 |
|
| 177 |
|
| - |
|
| 354 |
Litigation settlement |
| (204) |
|
| - |
|
| - |
|
| (204) |
Adjusted EBITDA | $ | 136,741 |
| $ | 104,394 |
| $ | (16,946) |
| $ | 224,189 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
RECONCILIATION OF ADJUSTED NET INCOME | |||||||||||
(in thousands, except per share data)(unaudited) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Net income as reported | $ | 58,947 |
| $ | 51,249 |
| $ | 154,343 |
| $ | 151,216 |
|
|
|
|
|
|
|
|
|
|
|
|
Add/(deduct) pre-tax cost of: |
|
|
|
|
|
|
|
|
|
|
|
Stock option expense |
| 2,711 |
|
| 2,055 |
|
| 10,729 |
|
| 9,360 |
Litigation settlement |
| - |
|
| - |
|
| 6,000 |
|
| (204) |
Long-term incentive compensation |
| 1,677 |
|
| 1,234 |
|
| 4,552 |
|
| 4,376 |
Acquisition expenses |
| 3,281 |
|
| 354 |
|
| 3,497 |
|
| 354 |
Medicare cap sequestration adjustment |
| 859 |
|
| 503 |
|
| 3,063 |
|
| 1,040 |
Impairment loss on transportation equipment |
| - |
|
| - |
|
| 2,266 |
|
| - |
Amortization of acquired and cancelled franchise agreements |
| 331 |
|
| - |
|
| 1,103 |
|
| - |
Non cash ASC 842 expenses |
| - |
|
| - |
|
| 548 |
|
| - |
Add/(deduct) tax impacts: |
|
|
|
|
|
|
|
|
|
|
|
Tax impact of the above pre-tax adjustments (1) |
| (1,801) |
|
| (821) |
|
| (6,761) |
|
| (3,059) |
Excess tax benefits on stock compensation |
| (8,792) |
|
| (3,118) |
|
| (18,737) |
|
| (18,618) |
Adjusted net income | $ | 57,213 |
| $ | 51,456 |
| $ | 160,603 |
| $ | 144,465 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share As Reported |
|
|
|
|
|
|
|
|
|
|
|
Net income | $ | 3.56 |
| $ | 3.06 |
| $ | 9.35 |
| $ | 8.98 |
Average number of shares outstanding |
| 16,555 |
|
| 16,772 |
|
| 16,514 |
|
| 16,830 |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Diluted Earnings Per Share |
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income | $ | 3.46 |
| $ | 3.07 |
| $ | 9.73 |
| $ | 8.58 |
Adjusted average number of shares outstanding |
| 16,555 |
|
| 16,772 |
|
| 16,514 |
|
| 16,830 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) The tax impact of pre-tax adjustments was calculated using the effective tax rate of the operating unit for which each adjustment is associated. | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
CHEMED CORPORATION AND SUBSIDIARY COMPANIES | ||||||||||||
OPERATING STATISTICS FOR VITAS SEGMENT | ||||||||||||
(unaudited) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| ||||||||
OPERATING STATISTICS | 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
Net revenue ($000) |
|
|
|
|
|
|
|
|
|
|
|
|
Homecare | $ | 274,746 |
| $ | 257,134 |
| $ | 800,059 |
| $ | 748,546 |
|
Inpatient |
| 23,599 |
|
| 19,617 |
|
| 69,063 |
|
| 61,803 |
|
Continuous care |
| 29,446 |
|
| 30,385 |
|
| 92,476 |
|
| 91,664 |
|
Other |
| 2,356 |
|
| 2,104 |
|
| 6,598 |
|
| 5,844 |
|
Subtotal | $ | 330,147 |
| $ | 309,240 |
| $ | 968,196 |
| $ | 907,857 |
|
Room and board, net |
| (2,846) |
|
| (2,569) |
|
| (8,098) |
|
| (7,863) |
|
Contractual allowances |
| (4,236) |
|
| (2,957) |
|
| (10,904) |
|
| (8,749) |
|
Medicare cap allowance |
| (1,317) |
|
| (1,950) |
|
| (7,915) |
|
| (668) |
|
Total | $ | 321,748 |
| $ | 301,764 |
| $ | 941,279 |
| $ | 890,577 |
|
Net revenue as a percent of total before Medicare cap allowances |
|
|
|
|
|
|
|
|
|
|
|
|
Homecare |
| 83.2 | % |
| 83.2 | % |
| 82.6 | % |
| 82.5 | % |
Inpatient |
| 7.1 |
|
| 6.3 |
|
| 7.1 |
|
| 6.8 |
|
Continuous care |
| 8.9 |
|
| 9.8 |
|
| 9.6 |
|
| 10.1 |
|
Other |
| 0.8 |
|
| 0.7 |
|
| 0.7 |
|
| 0.6 |
|
Subtotal |
| 100.0 |
|
| 100.0 |
|
| 100.0 |
|
| 100.0 |
|
Room and board, net |
| (0.9) |
|
| (0.8) |
|
| (0.8) |
|
| (0.9) |
|
Contractual allowances |
| (1.3) |
|
| (1.0) |
|
| (1.2) |
|
| (1.0) |
|
Medicare cap allowance |
| (0.4) |
|
| (0.6) |
|
| (0.8) |
|
| (0.1) |
|
Total |
| 97.4 | % |
| 97.6 | % |
| 97.2 | % |
| 98.0 | % |
Average daily census (days) |
|
|
|
|
|
|
|
|
|
|
|
|
Homecare |
| 14,799 |
|
| 13,791 |
|
| 14,510 |
|
| 13,515 |
|
Nursing home |
| 3,483 |
|
| 3,402 |
|
| 3,374 |
|
| 3,298 |
|
Routine homecare |
| 18,282 |
|
| 17,193 |
|
| 17,884 |
|
| 16,813 |
|
Inpatient |
| 373 |
|
| 313 |
|
| 363 |
|
| 328 |
|
Continuous care |
| 431 |
|
| 451 |
|
| 460 |
|
| 466 |
|
Total |
| 19,086 |
|
| 17,957 |
|
| 18,707 |
|
| 17,607 |
|
Total Admissions |
| 17,131 |
|
| 16,403 |
|
| 52,380 |
|
| 51,540 |
|
Total Discharges |
| 16,915 |
|
| 16,171 |
|
| 51,274 |
|
| 50,234 |
|
Average length of stay (days) |
| 92.6 |
|
| 90.0 |
|
| 91.6 |
|
| 89.0 |
|
Median length of stay (days) |
| 17.0 |
|
| 18.0 |
|
| 16.0 |
|
| 16.0 |
|
ADC by major diagnosis |
|
|
|
|
|
|
|
|
|
|
|
|
Cerebro |
| 35.7 | % |
| 36.2 | % |
| 35.9 | % |
| 36.5 | % |
Neurological |
| 20.7 |
|
| 18.8 |
|
| 20.4 |
|
| 18.7 |
|
Cancer |
| 12.9 |
|
| 13.8 |
|
| 12.9 |
|
| 13.8 |
|
Cardio |
| 16.6 |
|
| 16.4 |
|
| 16.7 |
|
| 16.4 |
|
Respiratory |
| 8.1 |
|
| 8.1 |
|
| 8.1 |
|
| 8.1 |
|
Other |
| 6.0 |
|
| 6.7 |
|
| 6.0 |
|
| 6.5 |
|
Total |
| 100.0 | % |
| 100.0 | % |
| 100.0 | % |
| 100.0 | % |
Admissions by major diagnosis |
|
|
|
|
|
|
|
|
|
|
|
|
Cerebro |
| 21.1 |
|
| 21.1 | % |
| 20.8 | % |
| 21.9 | % |
Neurological |
| 12.7 |
|
| 11.6 |
|
| 12.6 |
|
| 11.3 |
|
Cancer |
| 30.5 |
|
| 31.5 |
|
| 29.2 |
|
| 30.0 |
|
Cardio |
| 14.8 |
|
| 14.7 |
|
| 15.7 |
|
| 15.3 |
|
Respiratory |
| 10.2 |
|
| 10.3 |
|
| 11.3 |
|
| 11.0 |
|
Other |
| 10.7 |
|
| 10.8 |
|
| 10.4 |
|
| 10.5 |
|
Total |
| 100.0 | % |
| 100.0 | % |
| 100.0 | % |
| 100.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated uncollectible accounts as a percent of revenues |
| 1.3 | % |
| 1.0 | % |
| 1.1 | % |
| 1.0 | % |
Accounts receivable -- |
|
|
|
|
|
|
|
|
|
|
|
|
Days of revenue outstanding- excluding unapplied Medicare payments |
| 32.7 |
|
| 36.0 |
|
| n.a. |
|
| n.a. |
|
Days of revenue outstanding- including unapplied Medicare payments |
| 21.0 |
|
| 22.8 |
|
| n.a. |
|
| n.a. |
|
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 a new information, future events or otherwise.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company’s primary market risk exposure relates to interest rate risk exposure through its variable interest line of credit. At September 30, 2019, the Company had $130.0 million of variable rate debt outstanding. For each $10 million dollars borrowed under the credit facility, an increase or decrease of 100 basis points (1% point), increases or decreases the Company’s annual interest expense by $100,000.
The Company continually evaluates this interest rate exposure and periodically weighs the cost versus the benefit of fixing the variable interest rates through a variety of hedging techniques.
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. Except as discussed below, 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.
In the first quarter of 2019, we implemented a new lease accounting system and process in response to the adoption of ASC 842, effective January 1, 2019. These implementations resulted in changes to components of our internal control over financial reporting.
For information regarding the Company’s legal proceedings, see note 11, Legal and Regulatory Matters, under Part I, Item I of this Quarterly Report on Form 10-Q.
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
Item 2(c). Purchases of Equity Securities by Issuer and Affiliated Purchasers
The following table shows the activity related to our share repurchase program for the first nine months of 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Number |
| Weighted Average |
| Cumulative Shares |
| Dollar Amount | ||
| of Shares |
| Price Paid Per |
| Repurchased Under |
| Remaining Under | ||
| Repurchased |
| Share |
| the Program |
| The Program | ||
|
|
|
|
|
|
|
|
|
|
February 2011 Program |
|
|
|
|
|
|
|
|
|
January 1 through January 31, 2019 | - |
| $ | - |
| 8,376,864 |
| $ | 46,649,495 |
February 1 through February 28, 2019 | 91,893 |
|
| 327.84 |
| 8,468,757 |
|
| 166,522,918 |
March 1 through March 31, 2019 | 58,107 |
|
| 329.10 |
| 8,526,864 |
| $ | 147,399,943 |
|
|
|
|
|
|
|
|
|
|
First Quarter Total | 150,000 |
| $ | 328.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1 through April 30, 2019 | - |
| $ | - |
| 8,526,864 |
| $ | 147,399,943 |
May 1 through May 31, 2019 | 69,009 |
|
| 328.59 |
| 8,595,873 |
|
| 124,723,950 |
June 1 through June 30, 2019 | - |
|
| - |
| 8,595,873 |
| $ | 124,723,950 |
|
|
|
|
|
|
|
|
|
|
Second Quarter Total | 69,009 |
| $ | 328.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1 through July 31, 2019 | - |
| $ | - |
| 8,595,873 |
| $ | 124,723,950 |
August 1 through August 31, 2019 | - |
|
| - |
| 8,595,873 |
|
| 124,723,950 |
September 1 through September 30, 2019 | - |
|
| - |
| 8,595,873 |
| $ | 124,723,950 |
|
|
|
|
|
|
|
|
|
|
Third Quarter Total | - |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On February 25, 2019, our Board of Directors authorized an additional $150 million under the February 2011 Repurchase Program. | |||||||||
|
|
|
|
|
|
|
|
|
|
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
None.
|
|
|
|
|
|
Exhibit No. |
| Description |
|
|
|
| Certification by Kevin J. McNamara pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act of 1934. | |
|
|
|
| Certification by David P. Williams pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act of 1934. | |
|
|
|
| ||
|
|
|
| Certification by Kevin J. McNamara pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
|
|
|
| Certification by David P. Williams pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
|
|
|
| Certification by Michael D. Witzeman pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
|
|
|
101 |
| The following materials from Chemed Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) The Condensed Consolidated Balance Sheet, (ii) The Condensed Consolidated Statement of Income, (iii) The Condensed Consolidated Statement of Cash Flows, (iv) The Condensed Statement of Equity, and (v) Notes to the Condensed Consolidated Financial Statements. |
|
|
|
104 |
| The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in iXBRL and contained in Exhibit 101. |
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) |
|
|
|
|
|
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| (Vice President and Controller) |
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 12/31/21 | ||||
| 12/15/19 | ||||
| 12/2/19 | 4 | |||
| Filed on: | 11/4/19 | 4 | ||
| For Period end: | 9/30/19 | |||
| 9/16/19 | ||||
| 8/31/19 | ||||
| 8/2/19 | ||||
| 7/31/19 | 10-Q | |||
| 7/1/19 | ||||
| 6/30/19 | 10-Q | |||
| 5/31/19 | ||||
| 4/30/19 | ||||
| 3/31/19 | 10-Q | |||
| 2/28/19 | ||||
| 2/25/19 | 4, 8-K | |||
| 2/22/19 | 4 | |||
| 1/31/19 | ||||
| 1/1/19 | ||||
| 12/31/18 | 10-K, 11-K | |||
| 12/15/18 | ||||
| 12/11/18 | 4, UPLOAD | |||
| 11/30/18 | 4 | |||
| 9/30/18 | 10-Q | |||
| 8/28/18 | ||||
| 6/30/18 | 10-Q | |||
| 6/20/18 | 11-K, 4, 8-K, UPLOAD | |||
| 1/1/18 | ||||
| 12/31/17 | 10-K, 11-K | |||
| 12/15/17 | 4 | |||
| 10/30/17 | 4, 8-K | |||
| List all Filings | ||||