Washington, D.C. 20549
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act). | Large accelerated filer | ☒ | | Accelerated filer | ☐ | | Non-accelerated filer | ☐ | | Smaller reporting company | ☐ | | | | | | | | | | | Emerging growth company ☐ | | | | |
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Class | | Amount | | Date | | | | | | Capital Stock $1 Par Value | | 16,223,92715,991,878 Shares | | SeptemberJune 30, 20162017 |
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
Index
| | | | | Page No. | PART I. FINANCIAL INFORMATION: | | | | | | | | | | | | | | | | | | | | | | | | | | | 15 | | | | 31 | | | | 31 | | | PART II. OTHER INFORMATION | | | 31 | | | | 31 | | | | 32 | | | | 32 | | | | 32 | | | | 32 | | | | 33 | EX – 31.1 | | EX – 31.2 | | EX – 31.3 | | EX – 32.1 | | EX – 32.2 | | EX – 32.3 | | EX – 101.INS | | EX – 101.SCH | | EX – 101.CAL | | EX – 101.DEF | | EX – 101.LAB | | EX – 101.PRE | |
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) | | | | | | | | | | | | | | | | | | | | | | | | | June 30, 2017 | | | December 31, 2016 | | ASSETS | | | | | | | Current assets | | | | | | | Cash and cash equivalents | | $ | 13,753 | | | $ | 15,310 | | Accounts receivable less allowances of $16,193 (2016 - $14,236) | | | 117,906 | | | | 132,021 | | Inventories | | | 5,618 | | | | 5,755 | | Prepaid income taxes | | | 4,537 | | | | 3,709 | | Prepaid expenses | | | 14,678 | | | | 13,105 | | Total current assets | | | 156,492 | | | | 169,900 | | Investments of deferred compensation plans | | | 58,579 | | | | 54,389 | | Properties and equipment, at cost, less accumulated depreciation of $222,332 (2016 - $211,290) | | | 140,209 | | | | 121,302 | | Identifiable intangible assets less accumulated amortization of $32,827 (2016 - $33,225) | | | 54,737 | | | | 55,065 | | Goodwill | | | 472,897 | | | | 472,366 | | Deferred income taxes | | | 20,593 | | | | 8 | | Other assets | | | 6,767 | | | | 7,029 | | Total Assets | | $ | 910,274 | | | $ | 880,059 | | | | | | | | | | | LIABILITIES | | | | | | | | | Current liabilities | | | | | | | | | Accounts payable | | $ | 49,154 | | | $ | 39,586 | | Current portion of long-term debt | | | 10,000 | | | | 8,750 | | Income taxes | | | 3,815 | | | | - | | Accrued insurance | | | 44,905 | | | | 47,960 | | Accrued compensation | | | 48,082 | | | | 53,979 | | Accrued legal | | | 92,502 | | | | 1,805 | | Other current liabilities | | | 20,142 | | | | 19,752 | | Total current liabilities | | | 268,600 | | | | 171,832 | | Deferred income taxes | | | - | | | | 14,291 | | Long-term debt | | | 115,000 | | | | 100,000 | | Deferred compensation liabilities | | | 57,811 | | | | 54,288 | | Other liabilities | | | 15,780 | | | | 15,549 | | Total Liabilities | | | 457,191 | | | | 355,960 | | Commitments and contingencies (Note 11) | | | | | | | | | STOCKHOLDERS' EQUITY | | | | | | | | | Capital stock - authorized 80,000,000 shares $1 par; issued 34,470,426 shares (2016 - 34,270,104 shares) | | | 34,470 | | | | 34,270 | | Paid-in capital | | | 661,553 | | | | 639,703 | | Retained earnings | | | 957,941 | | | | 958,149 | | Treasury stock - 18,563,720 shares (2016 - 18,083,527) | | | (1,203,077 | ) | | | (1,110,536 | ) | Deferred compensation payable in Company stock | | | 2,196 | | | | 2,513 | | Total Stockholders' Equity | | | 453,083 | | | | 524,099 | | Total Liabilities and Stockholders' Equity | | $ | 910,274 | | | $ | 880,059 | | | | | | | | | | | | | See accompanying notes to unaudited consolidated financial statements. | |
CHEMED CORPORATION AND SUBSIDIARY COMPANIES | | UNAUDITED CONSOLIDATED STATEMENTS OF INCOME | | (in thousands, except per share data) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | Service revenues and sales | | $ | 415,059 | | | $ | 390,409 | | | $ | 820,923 | | | $ | 780,798 | | Cost of services provided and goods sold (excluding depreciation) | | | 285,852 | | | | 276,255 | | | | 570,992 | | | | 554,690 | | Selling, general and administrative expenses | | | 68,654 | | | | 62,628 | | | | 138,112 | | | | 121,673 | | Depreciation | | | 8,833 | | | | 8,581 | | | | 17,726 | | | | 17,005 | | Amortization | | | 32 | | | | 91 | | | | 78 | | | | 183 | | Other operating expenses | | | 90,636 | | | | 4,491 | | | | 91,509 | | | | 4,491 | | Total costs and expenses | | | 454,007 | | | | 352,046 | | | | 818,417 | | | | 698,042 | | Income/(loss) from operations | | | (38,948 | ) | | | 38,363 | | | | 2,506 | | | | 82,756 | | Interest expense | | | (1,121 | ) | | | (971 | ) | | | (2,116 | ) | | | (1,813 | ) | Other income/(expense) - net | | | 1,653 | | | | 3,217 | | | | 4,116 | | | | 293 | | Income/(loss) before income taxes | | | (38,416 | ) | | | 40,609 | | | | 4,506 | | | | 81,236 | | Income taxes | | | 16,760 | | | | (15,724 | ) | | | 3,682 | | | | (31,511 | ) | Net income/(loss) | | $ | (21,656 | ) | | $ | 24,885 | | | $ | 8,188 | | | $ | 49,725 | | | | | | | | | | | | | | | | | | | Earnings/(Loss) Per Share | | | | | | | | | | | | | | | | | Net income/(loss) | | $ | (1.35 | ) | | $ | 1.51 | | | $ | 0.51 | | | $ | 3.00 | | Average number of shares outstanding | | | 16,010 | | | | 16,443 | | | | 16,114 | | | | 16,583 | | | | | | | | | | | | | | | | | | | Diluted Earnings/(Loss) Per Share | | | | | | | | | | | | | | | | | Net income/(loss) | | $ | (1.35 | ) | | $ | 1.48 | | | $ | 0.49 | | | $ | 2.93 | | Average number of shares outstanding | | | 16,010 | | | | 16,831 | | | | 16,758 | | | | 16,999 | | | | | | | | | | | | | | | | | | | Cash Dividends Per Share | | $ | 0.26 | | | $ | 0.24 | | | $ | 0.52 | | | $ | 0.48 | | | | | | | | | | | | | | | | | | | See accompanying notes to unaudited consolidated financial statements. | |
PART I. FINANCIAL INFORMATION | | Item 1. Financial Statements | | CHEMED CORPORATION AND SUBSIDIARY COMPANIES | | UNAUDITED CONSOLIDATED BALANCE SHEET | | (in thousands, except share and per share data) | | | | | | | | | | | | | | | | | | | | | | | | | September 30, 2016 | | | December 31, 2015 | | ASSETS | | | | | | | Current assets | | | | | | | Cash and cash equivalents | | $ | 21,285 | | | $ | 14,727 | | Accounts receivable less allowances of $14,340 (2015 - $13,244) | | | 86,006 | | | | 106,262 | | Inventories | | | 6,101 | | | | 6,314 | | Prepaid income taxes | | | 5,069 | | | | 10,653 | | Prepaid expenses | | | 14,498 | | | | 12,852 | | Total current assets | | | 132,959 | | | | 150,808 | | Investments of deferred compensation plans | | | 55,158 | | | | 49,481 | | Properties and equipment, at cost, less accumulated depreciation of $208,674 (2015 - $201,094) | | | 119,994 | | | | 117,370 | | Identifiable intangible assets less accumulated amortization of $33,141 (2015 - $32,866) | | | 55,067 | | | | 55,111 | | Goodwill | | | 472,418 | | | | 472,322 | | Other assets | | | 6,880 | | | | 7,233 | | Total Assets | | $ | 842,476 | | | $ | 852,325 | | | | | | | | | | | LIABILITIES | | | | | | | | | Current liabilities | | | | | | | | | Accounts payable | | $ | 42,844 | | | $ | 43,695 | | Current portion of long-term debt | | | 8,125 | | | | 7,500 | | Accrued insurance | | | 46,233 | | | | 43,972 | | Accrued compensation | | | 48,391 | | | | 52,817 | | Accrued legal | | | 1,495 | | | | 1,233 | | Other current liabilities | | | 20,369 | | | | 22,119 | | Total current liabilities | | | 167,457 | | | | 171,336 | | Deferred income taxes | | | 15,586 | | | | 21,041 | | Long-term debt | | | 102,500 | | | | 83,750 | | Deferred compensation liabilities | | | 54,455 | | | | 49,467 | | Other liabilities | | | 15,276 | | | | 13,478 | | Total Liabilities | | | 355,274 | | | | 339,072 | | Commitments and contingencies (Note 11) | | | | | | | | | STOCKHOLDERS' EQUITY | | | | | | | | | Capital stock - authorized 80,000,000 shares $1 par; issued 34,173,782 shares (2015 - 33,985,316 shares) | | | 34,174 | | | | 33,985 | | Paid-in capital | | | 625,961 | | | | 603,006 | | Retained earnings | | | 930,184 | | | | 865,845 | | Treasury stock - 18,049,933 shares (2015 - 17,187,540) | | | (1,105,620 | ) | | | (991,978 | ) | Deferred compensation payable in Company stock | | | 2,503 | | | | 2,395 | | Total Stockholders' Equity | | | 487,202 | | | | 513,253 | | Total Liabilities and Stockholders' Equity | | $ | 842,476 | | | $ | 852,325 | | | | | | | | | | | See accompanying notes to unaudited consolidated financial statements. | |
CHEMED CORPORATION AND SUBSIDIARY COMPANIES | | UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS | | (in thousands) | | | | | | | | Six Months Ended June 30, | | | | 2017 | | | 2016 | | Cash Flows from Operating Activities | | | | | | | Net income | | $ | 8,188 | | | $ | 49,725 | | Adjustments to reconcile net income to net cash provided | | | | | | | | | by operating activities: | | | | | | | | | Depreciation and amortization | | | 17,804 | | | | 17,188 | | Provision for uncollectible accounts receivable | | | 8,250 | | | | 8,124 | | Stock option expense | | | 6,055 | | | | 4,840 | | Benefit for deferred income taxes | | | (34,876 | ) | | | (4,244 | ) | Potential litigation settlement | | | 90,000 | | | | - | | Noncash early retirement expense | | | - | | | | 1,747 | | Amortization of restricted stock awards | | | 638 | | | | 974 | | Noncash directors' compensation | | | 766 | | | | 541 | | Noncash long-term incentive compensation | | | 1,783 | | | | 196 | | Amortization of debt issuance costs | | | 258 | | | | 260 | | Changes in operating assets and liabilities: | | | | | | | | | Decrease/(increase) in accounts receivable | | | 5,804 | | | | (839 | ) | Decrease in inventories | | | 137 | | | | 194 | | Increase in prepaid expenses | | | (1,573 | ) | | | (2,605 | ) | Decrease in accounts payable and other current liabilities | | | (6,931 | ) | | | (4,879 | ) | Increase in income taxes | | | 2,982 | | | | 3,109 | | Increase in other assets | | | (4,152 | ) | | | (3,636 | ) | Increase in other liabilities | | | 3,754 | | | | 4,145 | | Excess tax benefit on share-based compensation | | | - | | | | (1,383 | ) | Other sources/(uses) | | | 1,437 | | | | (9 | ) | Net cash provided by operating activities | | | 100,324 | | | | 73,448 | | Cash Flows from Investing Activities | | | | | | | | | Capital expenditures | | | (28,133 | ) | | | (19,983 | ) | Business combinations | | | (525 | ) | | | - | | Other sources | | | 87 | | | | 214 | | Net cash used by investing activities | | | (28,571 | ) | | | (19,769 | ) | Cash Flows from Financing Activities | | | | | | | | | Proceeds from long-term debt | | | 135,800 | | | | 92,400 | | Payments on revolving line of credit | | | (115,800 | ) | | | (32,400 | ) | Purchases of treasury stock | | | (85,063 | ) | | | (94,337 | ) | Change in cash overdrafts payable | | | (1,090 | ) | | | (5,440 | ) | Proceeds from exercise of stock options | | | 10,398 | | | | 3,533 | | Capital stock surrendered to pay taxes on stock-based compensation | | | (5,716 | ) | | | (5,163 | ) | Dividends paid | | | (8,396 | ) | | | (8,039 | ) | Payments on other long-term debt | | | (3,750 | ) | | | (3,750 | ) | Excess tax benefit on share-based compensation | | | - | | | | 1,383 | | Other sources | | | 307 | | | | 881 | | Net cash used by financing activities | | | (73,310 | ) | | | (50,932 | ) | Increase/(Decrease) in Cash and Cash Equivalents | | | (1,557 | ) | | | 2,747 | | Cash and cash equivalents at beginning of year | | | 15,310 | | | | 14,727 | | Cash and cash equivalents at end of period | | $ | 13,753 | | | $ | 17,474 | | | | | | | | | | | See accompanying notes to unaudited consolidated financial statements. | |
CHEMED CORPORATION AND SUBSIDIARY COMPANIES | | UNAUDITED CONSOLIDATED STATEMENT OF INCOME | | (in thousands, except per share data) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | | 2016 | | | 2015 | | | 2016 | | | 2015 | | Service revenues and sales | | $ | 392,607 | | | $ | 386,226 | | | $ | 1,173,405 | | | $ | 1,144,799 | | Cost of services provided and goods sold (excluding depreciation) | | | 281,658 | | | | 272,089 | | | | 836,348 | | | | 811,637 | | Selling, general and administrative expenses | | | 59,373 | | | | 55,788 | | | | 181,046 | | | | 173,267 | | Depreciation | | | 8,614 | | | | 8,075 | | | | 25,619 | | | | 24,189 | | Amortization | | | 91 | | | | 146 | | | | 274 | | | | 407 | | Other operating expenses | | | - | | | | - | | | | 4,491 | | | | - | | Total costs and expenses | | | 349,736 | | | | 336,098 | | | | 1,047,778 | | | | 1,009,500 | | Income from operations | | | 42,871 | | | | 50,128 | | | | 125,627 | | | | 135,299 | | Interest expense | | | (1,018 | ) | | | (908 | ) | | | (2,831 | ) | | | (2,846 | ) | Other income/(expense) - net | | | 1,640 | | | | (2,355 | ) | | | 1,933 | | | | (1,256 | ) | Income before income taxes | | | 43,493 | | | | 46,865 | | | | 124,729 | | | | 131,197 | | Income taxes | | | (16,664 | ) | | | (18,032 | ) | | | (48,175 | ) | | | (50,852 | ) | Net income | | $ | 26,829 | | | $ | 28,833 | | | $ | 76,554 | | | $ | 80,345 | | | | | | | | | | | | | | | | | | | Earnings Per Share | | | | | | | | | | | | | | | | | Net income | | $ | 1.66 | | | $ | 1.71 | | | $ | 4.66 | | | $ | 4.76 | | Average number of shares outstanding | | | 16,166 | | | | 16,865 | | | | 16,443 | | | | 16,887 | | | | | | | | | | | | | | | | | | | Diluted Earnings Per Share | | | | | | | | | | | | | | | | | Net income | | $ | 1.62 | | | $ | 1.65 | | | $ | 4.54 | | | $ | 4.61 | | Average number of shares outstanding | | | 16,559 | | | | 17,422 | | | | 16,851 | | | | 17,430 | | | | | | | | | | | | | | | | | | | Cash Dividends Per Share | | $ | 0.26 | | | $ | 0.24 | | | $ | 0.74 | | | $ | 0.68 | | | | | | | | | | | | | | | | | | | See accompanying notes to unaudited consolidated financial statements. | |
| | | | | | | CHEMED CORPORATION AND SUBSIDIARY COMPANIES | | UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS | | (in thousands) | | | | | | | | Nine Months Ended September 30, | | | | 2016 | | | 2015 | | Cash Flows from Operating Activities | | | | | | | Net income | | $ | 76,554 | | | $ | 80,345 | | Adjustments to reconcile net income to net cash provided | | | | | | | | | by operating activities: | | | | | | | | | Depreciation and amortization | | | 25,893 | | | | 24,596 | | Provision for uncollectible accounts receivable | | | 12,132 | | | | 11,100 | | Stock option expense | | | 6,259 | | | | 3,600 | | Benefit for deferred income taxes | | | (5,530 | ) | | | (2,694 | ) | Noncash early retirement expense | | | 1,747 | | | | - | | Amortization of restricted stock awards | | | 1,415 | | | | 1,488 | | Noncash long-term incentive compensation | | | 837 | | | | 3,755 | | Noncash directors' compensation | | | 541 | | | | 540 | | Amortization of debt issuance costs | | | 390 | | | | 392 | | Changes in operating assets and liabilities: | | | | | | | | | Decrease/(increase) in accounts receivable | | | 8,061 | | | | (10,110 | ) | Decrease/(increase) in inventories | | | 213 | | | | (373 | ) | Decrease/(increase) in prepaid expenses | | | (1,646 | ) | | | 68 | | Increase/(decrease) in accounts payable and other current liabilities | | | (5,471 | ) | | | 5,416 | | Increase in income taxes | | | 8,587 | | | | 3,049 | | Increase in other assets | | | (5,694 | ) | | | (605 | ) | Increase in other liabilities | | | 6,835 | | | | 524 | | Excess tax benefit on share-based compensation | | | (2,974 | ) | | | (8,474 | ) | Other sources | | | 204 | | | | 467 | | Net cash provided by operating activities | | | 128,353 | | | | 113,084 | | Cash Flows from Investing Activities | | | | | | | | | Capital expenditures | | | (29,708 | ) | | | (30,194 | ) | Business combinations, net of cash acquired | | | - | | | | (6,614 | ) | Other sources/(uses) | | | (114 | ) | | | 396 | | Net cash used by investing activities | | | (29,822 | ) | | | (36,412 | ) | Cash Flows from Financing Activities | | | | | | | | | Proceeds from revolving line of credit | | | 110,200 | | | | 103,200 | | Purchases of treasury stock | | | (102,313 | ) | | | (36,682 | ) | Payments on revolving line of credit | | | (85,200 | ) | | | (108,200 | ) | Dividends paid | | | (12,215 | ) | | | (11,542 | ) | Capital stock surrendered to pay taxes on stock-based compensation | | | (7,051 | ) | | | (11,226 | ) | Payments on other long-term debt | | | (5,625 | ) | | | (4,375 | ) | Proceeds from exercise of stock options | | | 4,625 | | | | 11,193 | | Excess tax benefit on share-based compensation | | | 2,974 | | | | 8,474 | | Increase/(decrease) in cash overdrafts payable | | | 2,092 | | | | (1,745 | ) | Other sources/(uses) | | | 540 | | | | (1,451 | ) | Net cash used by financing activities | | | (91,973 | ) | | | (52,354 | ) | Increase in Cash and Cash Equivalents | | | 6,558 | | | | 24,318 | | Cash and cash equivalents at beginning of year | | | 14,727 | | | | 14,132 | | Cash and cash equivalents at end of period | | $ | 21,285 | | | $ | 38,450 | | | | | | | | | | | See accompanying notes to unaudited consolidated financial statements. | |
CHEMED CORPORATION AND SUBSIDIARY COMPANIES Notes to Unaudited Consolidated Financial Statements
1. Basis of Presentation
As used herein, the terms "We," "Company" and "Chemed" refer to Chemed Corporation or Chemed Corporation and its consolidated subsidiaries.
We have prepared the accompanying unaudited consolidated financial statements of Chemed in accordance with Rule 10-01 of SEC Regulation S-X. Consequently, we have omitted certain disclosures required under generally accepted accounting principles in the United States (“GAAP”) for complete financial statements. The December 31, 20152016 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, 2015.2016.
TAXES ON INCOMEEARNINGS PER SHARE
In November 2015,March 2016, the FinancialFASB issued Accounting Standards Board (“FASB”) issued ASUUpdate “ASU No. 2015-172016-09 - Compensation – Stock Compensation” which simplifiesis part of the balance sheetFASB’s Simplification Initiative. The object of this initiative is to identify, evaluate, and improve areas of GAAP. The areas of simplification in this initiative involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification requiredof awards as either equity or liabilities, and classification on the statement of cash flows. The guidance was effective for deferred tax balances. It allows for a company’s deferred tax assets and liabilities to be netted into a noncurrent account, either asset or liability, by jurisdiction. The ASU is required to be adopted for annual periodsfiscal years beginning after December 15, 2016 and the interim periods within that annual period. Early adoption is permitted. Companies have the choice to adopt prospectively or retrospectively. In order to simplify our balance sheet classification required for deferred tax balances, we2016. We adopted the applicable provisions of ASU for our annual balance sheet as of December 31, 20152016-09 on a prospective basis. Prior periods have not been retrospectively adjusted. We do not believe thatThe impact of this change results in a material comparability issue between yearsASU on our balance sheet
CLASSIFICATION ADJUSTMENTS
Duringfinancial statements for the threequarter ended June 30, 2017 was to decrease our income tax expense by $2.6 million as the result of excess tax benefits on stock based compensation being recorded on the statements of income. This, combined with the required change in diluted share count, resulted in an increase to basic and ninediluted earnings per share of $0.17. The impact of this ASU on our financial statements for the six months ended SeptemberJune 30, 2016, we classified $441,000 and $1.4 million respectively of non-cash restricted stock award amortization in selling, general and administrative expenses. We also recorded a classification adjustment of $592,000 and $1.5 million2017 was to decrease amortizationour income tax expense by $6.3 million as the result of excess tax benefits on stock based compensation being recorded on the statements of income. This, combined with the required change in diluted share count, resulted in an increase to basic earnings per share by $0.39 and an increase selling, general and administrative expenses in our Consolidated Statement of Incometo diluted earnings per share by $0.38.
INCOME TAXES The effective tax rate for the three and nine monthssix month periods ended SeptemberJune 30, 2015 respectively related to non-cash restricted stock award amortization. This classification adjustment does not impact income2017 was 43.6% (income tax benefit on pre-tax loss) and 81.7% (income tax benefit on pre-tax income), respectively. These rates differ from operations, income before income taxes, net income, and earnings per share, net cash provided by operating activities or our Consolidated Balance Sheet. We believe the impactUS statutory tax rates primarily as the result of the classification adjustments are immaterialadoption of ASU 2016-09 described above. The remaining difference relates to our consolidated financial statementsnormal, small permanent differences between book and tax income having a larger than normal impact on our effective rate due to a lower absolute dollar value of pretax income (loss). These permanent differences generally do not significantly impact our effective rate. However, as described fully in footnote 11, we recorded a charge during the quarter for all periods presented.potential litigation settlement of $90.0 million causing a decrease in pretax income (increase in pretax loss).
2. Revenue Recognition
Both the VITAS segment and the Roto-Rooter segment recognize service revenues and sales when the earnings process has been completed. Generally, this occurs when services are provided or products are shipped. VITAS recognizes revenue at the estimated realizable amount due from third-party payers. Medicare payments are subject to certain limitations, as described below.
We actively monitor each of our hospice programs, by provider number, as to their specific admission, discharge rate and median length of stay data in an attempt to determine whether they are likely to exceed the annual per-beneficiary Medicare cap (“Medicare cap”). Should we determine that revenues for a program are likely to exceed the Medicare cap based on projected trends, we attempt to institute corrective action to influence the patient mix or to increase patient admissions. However, should we project our corrective action will not prevent that program from exceeding its Medicare cap, we estimate the amount of revenue recognized during the period that will require repayment to the Federal government under the Medicare cap and record the amount as a reduction to patient revenue.
In 2013, the U.S. government implemented automatic budget reductions of 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 $2.1$2.2 million is owed for Medicare cap in three programs arising during the 2013, 2014 and 2015 measurement periods. The amounts were 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 demand the $2.1$2.2 million under their “as if” methodology. We have not recorded a reserve as of SeptemberJune 30, 20162017 for $1.9 million of the potential exposure. We have appealed CMS’s methodology change with the appropriate regulatory appeal board.
During the three and six months ended June 30, 2016, respectively, no Medicare cap was recorded.
During the three and ninesix months Septemberended June 30, 2016,2017, respectively, we recorded $228,000 in Medicare$247,000 for two programs cap liability related to one program’s projectedfor the 2013, 2014 and 2015 measurement period liability. This liability was relatedperiods of the amount recorded, $105,000 relates to the CMS’s methodology changesequestration issue described above.
During the first nine months ended September 30, 2015, we recorded $165,000 Medicare cap reversal of amounts recorded in the fourth quarter of 2014 for one program’s projected 2015 measurement period liability. The fourth quarter of 2014 was part of the 2015 Medicare cap year.
Shown below is the Medicare cap liability activity for the fiscal periods ended (in thousands):
| | September 30, | | | June 30, | | | | 2016 | | | 2015 | | | 2017 | | | 2016 | | Beginning balance January 1, | | $ | 1,165 | | | $ | 6,112 | | | $ | 235 | | | $ | 1,165 | | 2015 measurement period | | | 228 | | | | (165 | ) | | Prior measurement periods | | | | 247 | | | | - | | Payments | | | (1,158 | ) | | | (4,782 | ) | | | - | | | | (618 | ) | Ending balance September 30, | | $ | 235 | | | $ | 1,165 | | | Ending balance June 30, | | | $ | 482 | | | $ | 547 | |
Vitas provides charity care, in certain circumstances, to patients without charge when management of the hospice program determines, at the time services are performed, that the patient cannot afford payment. There is no revenue or associated accounts receivable in the accompanying consolidated financial statements related to charity care. The cost of charity care is calculated by taking the ratio of charity care days to total days of care and multiplying by total cost of care. The cost of charity care is as follows (in thousands): | Three months ended September 30, | | | Nine months ended September 30, | | | 2016 | | 2015 | | | 2016 | | | 2015 | | $ | 1,711 | | $ | 1,929 | | | $ | 5,231 | | | $ | 5,788 | |
Three months ended June 30, | | Six months ended June 30, | | 2017 | | 2016 | | 2017 | | 2016 | | | $ | 1,761 | | | $ | 1,715 | | | $ | 3,698 | | | $ | 3,521 | |
3. Segments
Service revenues and sales and after-tax earnings by business segment are as follows (in thousands):
| | Three months ended September 30, | | | Nine months ended September 30, | | | Three months ended June 30, | | | Six months ended June 30, | | | | 2016 | | | 2015 | | | 2016 | | | 2015 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | Service Revenues and Sales | | | | | | | | | | | | | | | | | | | | | | | | | VITAS | | $ | 282,865 | | | $ | 285,008 | | | $ | 839,131 | | | $ | 831,081 | | | $ | 284,710 | | | $ | 278,739 | | | $ | 567,026 | | | $ | 556,266 | | Roto-Rooter | | | 109,742 | | | | 101,218 | | | | 334,274 | | | | 313,718 | | | | 130,349 | | | | 111,670 | | | | 253,897 | | | | 224,532 | | Total | | $ | 392,607 | | | $ | 386,226 | | | $ | 1,173,405 | | | $ | 1,144,799 | | | $ | 415,059 | | | $ | 390,409 | | | $ | 820,923 | | | $ | 780,798 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | After-tax Earnings | | | | | | | | | | | | | | | | | | After-tax Income/(Loss) | | | | | | | | | | | | | | | | | | VITAS | | $ | 20,903 | | | $ | 25,723 | | | $ | 58,538 | | | $ | 66,839 | | | $ | (32,254 | ) | | $ | 18,550 | | | $ | (11,657 | ) | | $ | 37,637 | | Roto-Rooter | | | 12,855 | | | | 10,961 | | | | 39,216 | | | | 35,122 | | | | 17,058 | | | | 13,341 | | | | 31,682 | | | | 26,359 | | Total | | | 33,758 | | | | 36,684 | | | | 97,754 | | | | 101,961 | | | | (15,196 | ) | | | 31,891 | | | | 20,025 | | | | 63,996 | | Corporate | | | (6,929 | ) | | | (7,851 | ) | | | (21,200 | ) | | | (21,616 | ) | | | (6,460 | ) | | | (7,006 | ) | | | (11,837 | ) | | | (14,271 | ) | Net income | | $ | 26,829 | | | $ | 28,833 | | | $ | 76,554 | | | $ | 80,345 | | | $ | (21,656 | ) | | $ | 24,885 | | | $ | 8,188 | | | $ | 49,725 | |
We report corporate administrative expenses and unallocated investing and financing income and expense not directly related to either segment as “Corporate”.
4. EarningsEarnings/(Loss) per Share
EarningsEarnings/(loss) per share (“EPS”/”LPS”) 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):
| | Net Income | | | | | | | | | | | For the Three Months Ended September 30, | | Income | | | Shares | | | Earnings per Share | | | | | | Net Income/(Loss) | | For the Three Months Ended June 30, | | | Income/(Loss) | | | Shares | | | Earnings/(Loss) per Share | | 2017 | | | | | | | | | | | Loss | | | $ | (21,656 | ) | | | 16,010 | | | $ | (1.35 | ) | Dilutive stock options | | | | - | | | | - | | | | | | Nonvested stock awards | | | | - | | | | - | | | | | | Diluted loss | | | $ | (21,656 | ) | | | 16,010 | | | $ | (1.35 | ) | | | | | | | | | | | | | | | 2016 | | | | | | | | | | | | | | | | | | | | | | Earnings | | $ | 26,829 | | | | 16,166 | | | $ | 1.66 | | | $ | 24,885 | | | | 16,443 | | | $ | 1.51 | | Dilutive stock options | | | - | | | | 294 | | | | | | | | - | | | | 289 | | | | | | Nonvested stock awards | | | - | | | | 99 | | | | | | | | - | | | | 99 | | | | | | Diluted earnings | | $ | 26,829 | | | | 16,559 | | | $ | 1.62 | | | $ | 24,885 | | | | 16,831 | | | $ | 1.48 | | | | | | | | | | | | | | | | 2015 | | | | | | | | | | | | | | Earnings | | $ | 28,833 | | | | 16,865 | | | $ | 1.71 | | | Dilutive stock options | | | - | | | | 399 | | | | | | | Nonvested stock awards | | | - | | | | 158 | | | | | | | Diluted earnings | | $ | 28,833 | | | | 17,422 | | | $ | 1.65 | | |
| | Net Income | | | Net Income | | For the Nine Months Ended September 30, | | Income | | | Shares | | | Earnings per Share | | | For the Six Months Ended June 30, | | | Income | | | Shares | | | Earnings per Share | | 2017 | | | | | | | | | | | Earnings | | | $ | 8,188 | | | | 16,114 | | | $ | 0.51 | | Dilutive stock options | | | | - | | | | 557 | | | | | | Nonvested stock awards | | | | - | | | | 87 | | | | | | Diluted earnings | | | $ | 8,188 | | | | 16,758 | | | $ | 0.49 | | | | | | | | | | | | | | | | 2016 | | | | | | | | | | | | | | | | | | | | | | Earnings | | $ | 76,554 | | | | 16,443 | | | $ | 4.66 | | | $ | 49,725 | | | | 16,583 | | | $ | 3.00 | | Dilutive stock options | | | - | | | | 296 | | | | | | | | - | | | | 297 | | | | | | Nonvested stock awards | | | - | | | | 112 | | | | | | | | - | | | | 119 | | | | | | Diluted earnings | | $ | 76,554 | | | | 16,851 | | | $ | 4.54 | | | $ | 49,725 | | | | 16,999 | | | $ | 2.93 | | | | | | | | | | | | | | | | 2015 | | | | | | | | | | | | | | Earnings | | $ | 80,345 | | | | 16,887 | | | $ | 4.76 | | | Dilutive stock options | | | - | | | | 391 | | | | | | | Nonvested stock awards | | | - | | | | 152 | | | | | | | Diluted earnings | | $ | 80,345 | | | | 17,430 | | | $ | 4.61 | | |
For the three and nine-month periodsmonths ended SeptemberJune 30, 2016, 418,0002017, all stock options and nonvested stock awards have been excluded in the calculation of dilutive earnings per share as they be would anti-dilutive due to the net loss for the period.
For the six month period ended June 30, 2017, there were no stock options excluded from the computation of diluted earnings per share because they would have been anti-dilutive.
For the three and nine-monthssix month periods ended SeptemberJune 30, 2015, no2016, 418,000 stock options were excluded from the computation of diluted earnings per share because they would have been anti-dilutive.
5. Long-Term Debt
On June 30, 2014, we replaced our existing credit agreement with the Third Amended and Restated Credit Agreement (“2014 Credit Agreement”). Terms of the 2014 Credit Agreement consist of a five-year, $350 million revolving credit facility and a $100 million term loan. The 2014 Credit Agreement has a floating interest rate that is currentlygenerally LIBOR plus a tiered additional rate which varies based on our current leverage ratio. The interest rate as of June 30, 2017 is LIBOR plus 113 basis points.
The debt outstanding as of SeptemberJune 30, 20162017 consists of the following:
Revolver | | $ | 25,000 | | Term loan | | | 85,625 | | Total | | | 110,625 | | Current portion of long-term debt | | | (8,125 | ) | Long-term debt | | $ | 102,500 | |
| | | | Revolver | | $ | 45,000 | | Term loan | | | 80,000 | | Total | | | 125,000 | | Current portion of long-term debt | | | (10,000 | ) | Long-term debt | | $ | 115,000 | |
Scheduled principal payments of the term loan are as follows:
| 2016 | | $ | 1,875 | | | 2017 | | | 8,750 | | | 2018 | | | 10,000 | | | 2019 | | | 65,000 | | | | | $ | 85,625 | |
| 2017 | | $ | 5,000 | | | 2018 | | | 10,000 | | | 2019 | | | 65,000 | | | | | $ | 80,000 | |
The 2014 Credit Agreement contains the following quarterly financial covenants:
Description | | Requirement | | | | Leverage Ratio (Consolidated Indebtedness/Consolidated Adj. EBITDA) | | < 3.50 to 1.00 | | | | Fixed Charge Coverage Ratio (Consolidated Free Cash Flow/Consolidated Fixed Charges) | | > 1.50 to 1.00 | | | | Annual Operating Lease Commitment | | < $50.0 million |
We are in compliance with all debt covenants as of SeptemberJune 30, 2016.2017. We have issued $37.4$36.1 million in standby letters of credit as of SeptemberJune 30, 20162017 mainly for insurance purposes. Issued letters of credit reduce our available credit under the 2014 Credit Agreement. As of SeptemberJune 30, 2016,2017, we have approximately $287.6$268.9 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility.
6. Other Operating Expenses | | Three months ended June 30, | | | Six months ended June 30, | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | | | | | | | | | | | | | Potential litigation settlement | | $ | 90,000 | | | $ | - | | | $ | 90,000 | | | $ | - | | Program closure expense | | | 636 | | | | - | | | | 1,509 | | | | - | | Retirement expenses | | | - | | | | 4,491 | | | | - | | | | 4,491 | | Total other operating expenses | | $ | 90,636 | | | $ | 4,491 | | | $ | 91,509 | | | $ | 4,491 | |
During the nine-monthsthree and six months ended SeptemberJune 30, 2017, the Company recorded $90 million for a potential litigation settlement. See footnote 11 for further discussion.
During the three and six months ended June 30, 2017, the Company recorded $636,000 and $1.5 million, respectively, related to the closure of three Alabama programs at VITAS.
During the three and six months ended June 30, 2016, the Company recorded early retirement related costs and accelerated stock-based compensation expense of approximately $4.5 million pretax and $2.8 million after-tax, related to the early retirement of VITAS’ former Chief Executive Officer. The accrual was calculated in accordance with the terms of his employment agreement.
7. Other Income/(Expense) – Net
Other income/(expense) -- net comprises the following (in thousands): | | Three months ended September 30, | | | Nine months ended September 30, | | | Three months ended June 30, | | | Six months ended June 30, | | | | 2016 | | | 2015 | | | 2016 | | | 2015 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | Market value adjustment on assets held in | | | | | | | | | | | | | | | | | | | | | | | | | deferred compensation trust | | $ | 1,656 | | | $ | (2,328 | ) | | $ | 1,857 | | | $ | (880 | ) | | $ | 1,587 | | | $ | 3,188 | | | $ | 4,202 | | | $ | 201 | | Loss on disposal of property and equipment | | | (134 | ) | | | (116 | ) | | | (224 | ) | | | (131 | ) | | | (98 | ) | | | (57 | ) | | | (334 | ) | | | (90 | ) | Interest income - net | | | 119 | | | | 77 | | | | 301 | | | | 207 | | | Interest income | | | | 161 | | | | 85 | | | | 245 | | | | 182 | | Other - net | | | (1 | ) | | | 12 | | | | (1 | ) | | | (452 | ) | | | 3 | | | | 1 | | | | 3 | | | | - | | Total other income/(expense) - net | | $ | 1,640 | | | $ | (2,355 | ) | | $ | 1,933 | | | $ | (1,256 | ) | | $ | 1,653 | | | $ | 3,217 | | | $ | 4,116 | | | $ | 293 | |
8. Stock-Based Compensation Plans
On February 19, 2016,17, 2017, the Compensation/Incentive Committee of the Board of Directors (“CIC”) granted 9,5417,304 Performance Stock Units (“PSUs”) contingent upon the achievement of certain total shareholders return (“TSR”) targets as compared to the TSR of a group of peer companies for the three-year period ending December 31, 2018,2019, the date at which such awards vest. The cumulative compensation cost of the TSR-based PSU award to be recorded over the three year service period is $1.4$1.7 million.
On February 19, 2016,17, 2017, the CIC also granted 9,5417,304 PSUs contingent upon the achievement of certain earnings per share (“EPS”) targets for the three-year period ending December 31, 2018.2019. At the end of each reporting period, the Company estimates the number of shares that it believes will ultimately be earned and records that 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 three year service period is $557,000.$1.3 million.
9. Independent Contractor Operations
The Roto-Rooter segment sublicenses with 69 independent contractors to operate certain plumbing repair, excavation, water restoration and drain cleaning businesses in lesser-populated areas of the United States and Canada. We had notes receivable from our independent contractors as of SeptemberJune 30, 20162017 totaling $1.6$1.4 million (December 31, 20152016 - $1.8$1.7 million). In most cases these loans are fully or partially secured by equipment owned by the contractor. The interest rates on the loans range from 0% to 7% per annum and the remaining terms of the loans range from 2.5 months to 5.4 years at SeptemberJune 30, 2016.2017. We recorded the following from our independent contractors (in thousands): | Three months ended September 30, | | Nine months ended September 30, | | | Three months ended June 30, | | | Six months ended June 30, | | | 2016 | | 2015 | | 2016 | | 2015 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | Revenues | | $ | 9,823 | | | $ | 9,119 | | | $ | 29,451 | | | $ | 28,110 | | | $ | 11,151 | | | $ | 9,770 | | | $ | 22,176 | | | $ | 19,629 | | Pretax profits | | | 5,835 | | | | 5,435 | | | | 18,015 | | | | 16,653 | | | Pretax income | | | | 6,742 | | | | 6,024 | | | | 13,431 | | | | 12,180 | |
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. Expenses for the Company’s retirement and profit-sharing plans, excess benefit plans and other similar plans are as follows (in thousands):
| Three months ended September 30, | | | Nine months ended September 30, | | | 2016 | | 2015 | | | 2016 | | | 2015 | | $ | 4,423 | | $ | 458 | | | $ | 10,809 | | | $ | 7,636 | |
Three months ended June 30, | | Six months ended June 30, | | 2017 | | 2016 | | 2017 | | 2016 | | | $ | 4,551 | | | $ | 5,861 | | | $ | 10,709 | | | $ | 6,387 | |
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, 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. ItOther than as described below with respect to U.S. v. Vitas, 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 May 2, 2013, the government filed a False Claims Act complaint against the Company and certain of its hospice-related subsidiaries in the U.S. District Court for the Western District of Missouri, United States v. VITAS Hospice Services, LLC, et al., No. 4:13-cv-00449-BCW (the “2013 Action”). Prior to that date, the Company received various qui tam lawsuits and subpoenas from the U.S. Department of Justice and OIG that have been previously disclosed. The 2013 Action alleges that, since at least 2002, VITAS, and since 2004, the Company, submitted or caused the submission of false claims to the Medicare program by (a) billing Medicare for continuous home care services when the patients were not eligible, the services were not provided, or the medical care was inappropriate, and (b) billing Medicare for patients who were not eligible for the Medicare hospice benefit because they did not have a life expectancy of six months or less if their illnesses ran their normal course. This complaint seeks treble damages, statutory penalties, and the costs of the action, plus interest. The defendants filed a motion to dismiss on September 24, 2013. On September 30, 2014, the Court denied the motion, except to the extent that claims were filed before July 24, 2002. On November 13, 2014, the government filed a Second Amended Complaint. The Second Amended Complaint changed and supplemented some of the allegations, but did not otherwise expand the causes of action or the nature of the relief sought against VITAS. VITAS filed its Answer to the Second Amended Complaint on August 11, 2015. The CompanyThis case is not ablein the discovery phase. Based on recent case developments, including recent mediation discussions with the U.S. Department of Justice, we believe it probable that this matter will be settled, to reasonably estimateinclude payments of $55.8 million after-tax ($90.0 million pretax) including attorneys’ fees. A final settlement will require the probability of lossparties to resolve several outstanding issues, and to draft and negotiate definitive documentation. There can be no assurance that such a final definitive settlement will be reached on these, or range of loss at this time.
other, terms. For additional procedural history of this litigation, please refer to our prior quarterly and annual filings. The net costs incurred related to U.S. v. Vitas and related regulatory matters were $599,000$2.1 million and $1.2 million for the quarters ended SeptemberJune 30, 20162017 and 2015,2016, respectively. For the ninesix months ended SeptemberJune 30, 20162017 and 2015,2016, the net costs were $4.1$4.2 million and $3.8$3.5 million respectively.
In November 2013, two shareholder derivative lawsuits were filed againstNet income/(loss) for the Company’sthree and six months ended June 30, 2017 includes the $55.8 million of after-tax expense ($90 million pre-tax) for the accrual of such potential litigation settlement. As required by U.S. Generally Accepted Accounting Principles, the Company accrues for contingent loss claims in its financial statements when it is probable that a liability has been incurred and the amount can be reasonably estimated.
The Company and certain current and former directors as well as certain of itsand officers both of which are covered by the Company’s commercial insurance. On November 6, 2013, KBC Asset Management NV filed suitdefendants in the United States District Court for the District of Delaware, KBC Asset Management NV, derivatively on behalf of Chemed Corp. v. McNamara, et al., No. 13 Civ. 1854 (LPS) (D. Del.). On November 14, 2013, Mildred A. North filed suit in the United States District Court for the Southern District of Ohio, North, derivatively on behalf of Chemed Corp. v. Kevin McNamara, et al., No. 13 Civ. 833 (MRB) (S.D. Ohio). Those proceedings were subsequently consolidated in the District of Delaware under the captiona case captioned In re Chemed Corp. Shareholder and Derivative Litigation, No. 13 Civ. 1854 (LPS) (CJB) (D. Del.), by Order of the United States District Court for the District of Delaware datedwhich was consolidated on February 2, 2015. Also on
On February 2, 2015, the Court appointed Plaintiff KBC Asset Management NV the sole lead plaintiff and its counsel, the sole lead and liaison counsel.
On March 3, 2015, Lead Plaintiff KBC designated its Complaint as the operative complaint in the consolidated proceedings.proceedings and defendants renewed a previously filed motion to dismiss those claims and allegations. The consolidated Complaint named Kevin McNamara, Joel Gemunder, Patrick Grace, Thomas Hutton, Walter Krebs, Andrea Lindell, Thomas Rice, Donald Saunders, Arthur Tucker, Jr., George Walsh III, Frank Wood, Timothy O’Toole, David Williams and Ernest Mrozek asfourteen individual defendants, together with the Company as nominal defendant. The Complaint alleges a claim for breach of fiduciary duty against the individual defendants andfor allegedly permitting the Company to submit false claims to the U.S. government. The Complaint seeks (a) a declaration that the individual defendants breached their fiduciary duties to the Company; (b) an order requiring those defendants to pay compensatory damages, restitution and exemplary damages, in unspecified amounts, to the Company; (c) an order directing the Company to implement new policies and procedures; and (d) costs and disbursements incurred in bringing the action, including attorneys’ fees. Also on March 3, 2015, defendants renewed their previously-filed motion to dismiss those claims and allegations, which motion the court referred to Magistrate Judge Burke.
On December 23, 2015, Magistrate Judge Burke issued a Report and Recommendation recommending that (1) defendants’ motion to dismiss be granted; (2) plaintiff be given 14 days from the date of affirmance by the district court to file an amended complaint addressing deficiencies with regard to their duty of loyalty claim; and (3) failure to do so should give rise to dismissal with prejudice. On January 11, 2016, Lead Plaintiff KBC filed Objections to the Report and Recommendation. Defendants’ responses to those Objections were filed on January 28, 2016.On May 12, 2016, the courtCourt issued a Memorandum Order (1) overruling Lead Plaintiff KBC’s Objections to the Report and Recommendation; (2) adopting the Report and Recommendation; (3) granting Chemed’s motion to dismiss;dismiss, and (4) dismissing Lead Plaintiff KBC’s Complaint without prejudice to KBC’s opportunity to file within 30 days of the date of the court’sCourt’s Order (i.e., by June 13, 2016) an amended Complaint addressing the deficiencies in its duty of loyalty claim. Lead Plaintiff KBC did not file an amended Complaint within the time specified by the court—i.e.,Court.
However, on or before June 13, 2016.
However, on that date (June 13, 2016),2016, counsel for Chemed shareholder Michael Kvint filed a letter with the courtCourt requesting a two-week extension (1) to file a motion to substitute Mr. Kvint as Lead Plaintiff,lead plaintiff, in place of Lead Plaintiff KBC;KBC and (2) in that capacity, to file an amended Complaint. Alternatively, counsel for Mr. Kvint requested that any dismissal of the action be with prejudice to KBC only. On June 14, 2016, Chemed filed a reply letter with the court,Court, reserving its rights to oppose any motion filed by Mr. Kvint and, if warranted, to oppose any other actions taken by Mr. Kvint to proceed with the action (including by filing an untimely amended Complaint). On June 21, 2016, the courtCourt entered an Oral Order providing Mr. Kvint until June 30, 2016 to file a Motion to Substitute and Motion for Leave to File an Amended Complaint. On that date, Mr. Kvint filed, under seal, a Motion Toto Substitute Plaintiff and File Amended Complaint, and attached a Proposed Amended Complaint. ChemedMr. Kvint’s motion was fully briefed by the parties. On April 25, 2017, Magistrate Judge Burke issued a Report and Recommendation recommending that the Court permit Mr. Kvint to intervene as Lead Plaintiff and grant leave to amend the complaint to replead the duty of loyalty claim only. On May 16, 2017, Chief Judge Stark signed an Order adopting that Report and Recommendation. Plaintiff Kvint filed a Corrected Amended Complaint on May 30, 2017. On July 25, 2017, the Court entered an order permitting Defendants to file a Motion to Dismiss the Corrected Amended Complaint on or before August 14, 2017, with Plaintiff’s Answering Brief in Oppositionopposition to Mr. Kvint’ motionthe Motion to Dismiss to be filed on July 18, 2016. Mr. Kvint filed aor before October 16, 2017, and Defendants’ Reply Brief in Supportsupport of his motionthe Motion to Dismiss to be filed on Julyor before November 13, 2017. As the Company has previously disclosed, the legal fees and costs associated with defending against this lawsuit are presently being paid by insurance. For additional procedural history of this litigation, please refer to our prior quarterly and annual filings.
Jordan Seper, (“Seper”) a Registered Nurse at VITAS' Inland Empire program from May 12, 2014 to March 21, 2015, filed a lawsuit in San Francisco Superior Court on September 26, 2016. She alleged VITAS Healthcare Corp of CA (“VITAS CA”) (1) failed to provide minimum wage for all hours worked; (2) failed to provide overtime for all hours worked; (3) failed to provide a second meal period; (4) failed to provide rest breaks; (5) failed to indemnify for necessary expenditures; (6) failed to timely pay wages due at time of separation; and (7) engaged in unfair business practices. Seper seeks a state-wide class action of current and former non-exempt employees employed with VITAS in California within the four years preceding the filing of the lawsuit. She seeks court determination that this action may be maintained as a class action for the entire California class and subclasses, designation as class representative, declaratory relief, injunctive relief, damages (including wages for regular or overtime hours allegedly worked but not paid, premium payments for missed meal or rest periods, and unreimbursed expenses), all applicable penalties associated with each claim, pre and post-judgment interest, and attorneys' fees and costs. Seper served VITAS CA with the lawsuit, 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 on October 13, 2016.
On November 14, 2016, the Parties filed a Stipulation to transfer the venue of the lawsuit from San Francisco to Los Angeles. The Los Angeles Superior Court Complex Division accepted transfer of the case on December 6, 2016 and stayed the case. On December 16, 2016, VITAS CA filed its Answer and served written discovery on Seper.
Jiwan Chhina ("Chhina"), hired by VITAS as a Home Health Aide on February 5, 2002, is currently a Licensed Vocational Nurse for VITAS' San Diego program. On September 27, 2016, Chhina filed a lawsuit in San Diego Superior Court, alleging (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. Chhina seeks to pursue these claims in the form of a state-wide class action of current and former non-exempt employees employed with VITAS in California within the four years preceding the filing of the lawsuit. He seeks court determination that this action may be maintained as a class action for the entire California class and subclasses, designation as class representative, declaratory relief, injunctive relief, damages (including wages for regular or overtime hours allegedly worked but not paid, premium payments for missed meal or rest periods, and unreimbursed expenses), all applicable penalties associated with each claim, pre-judgment interest, and attorneys' fees and costs. Chhina served VITAS CA with the lawsuit, Jiwann 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 on November 3, 2016. On August 2,December 1, 2016, ChemedVITAS filed a Request for Oral Argument. The parties await a response from the Court.its Answer and served written discovery on Chhina.
The Court in Seper lifted the stay at the Initial Status Conference on May 11, 2017. At the Conference, Seper’s counsel informed the Court that he was in contact with Jiwan Chhina’s counsel to consolidate the two cases. The Court set a Further Status Conference for July 13, 2017 expressly to receive a status update on the consolidation efforts. If the cases are consolidated and proceed under the jurisdiction of the Los Angeles Superior Court Complex Division, the Chhina case in the San Diego Superior Court would then be dismissed. The Parties have agreed to stay further discovery efforts pending the issue of consolidation of the two cases. Counsel for Seper and counsel for Chhina are currently preparing a joint Amended Complaint.
The Company is not able to reasonably estimate the probability of loss or range of loss for either of these lawsuits at this time. 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, responding to the subpoenas and dealing with the various regulatory agencies and opposing parties can adversely affect us through defense costs, potential payments, 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.
12. Concentration of Risk
During the quarter VITAS had pharmacy services agreements with twoone service providersprovider to provide specified pharmacy services for VITAS and its hospice patients. VITAS made purchases from twothis provider of these providers of $9.5 million$8.2 and $26.9$17.0 million for the three and nine month periodssix months ended SeptemberJune 30, 2016,2017, respectively. Vitas made purchases from one of thesetwo providers of $9.5$8.5 and $28.3$17.4 million for the three and nine month periodssix months ended September 15, 2015,June 30, 2016, respectively. Purchases from these providers were approximately 90% of all pharmacy services used by VITAS.VITAS during each quarter presented.
13. Cash Overdrafts and Cash Equivalents
IncludedThere are $7.5 million in cash overdrafts payable included in accounts payable at SeptemberJune 30, 2016 is cash overdrafts payable of $11.4 million2017 (December 31, 20152016 - $9.3$8.6 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. We had $52,000$79,000 in cash equivalents as of SeptemberJune 30, 2016.2017. There was $76,000$72,000 in cash equivalents as of December 31, 2015. The weighted average rate2016.
Included in properties and equipment and accounts payable on the balance sheet at June 30, 2017 is $10.8 million of returnunpaid commitments related to the purchase of transportation equipment. This amount will be paid in July 2017 and is not reflected in capital expenditures in the statement of cash flows. Unpaid commitments to purchase properties and equipment for our cash equivalents was 0.48% at September 30, 2016 and 0.20% at December 31, 2015.comparable periods is not material.
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. available
The following shows the carrying value, fair value and the hierarchy for our financial instruments as of June 30, 2017 (in thousands): | | | Fair Value Measure | | | Carrying Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Mutual fund investments of deferred | | | | | | | | | compensation plans held in trust | | $ | 58,579 | | | $ | 58,579 | | | $ | - | | | $ | - | | Total debt | | | 125,000 | | | | - | | | | 125,000 | | | | - | |
The following shows the carrying value, fair value and the hierarchy for our financial instruments as of December 31, 2016 (in thousands):
| | | Fair Value Measure | | | Carrying Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Mutual fund investments of deferred | | | | | | | | | compensation plans held in trust | | $ | 54,389 | | | $ | 54,389 | | | $ | - | | | $ | - | | Total debt | | | 108,750 | | | | - | | | | 108,750 | | | | - | |
For cash and cash equivalents, accounts receivable and accounts payable, the carrying amount is a reasonable estimate of fair value because of the liquidity and short-term nature of these instruments.
The following shows the carrying value, fair value and the hierarchy for As further described in Footnote 5, our financial instruments as of
September 30, 2016 (in thousands):
| | | | | Fair Value Measure | | | | Carrying Value | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | Mutual fund investments of deferred | | | | | | | | | | | | | compensation plans held in trust | | $ | 55,158 | | | $ | 55,158 | | | $ | - | | | $ | - | | Long-term debt | | | 110,625 | | | | - | | | | 110,625 | | | | - | |
The following shows the carrying value, fair value and the hierarchy for our financial instruments as of December 31, 2015 (in thousands):
| | | | | Fair Value Measure | | | | Carrying Value | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | Mutual fund investments of deferred | | | | | | | | | | | | | compensation plans held in trust | | $ | 49,481 | | | $ | 49,481 | | | $ | - | | | $ | - | | Long-term debt | | | 91,250 | | | | - | | | | 91,250 | | | | - | |
For the mutual fund investments carrying value is fair value. All outstanding long-term debt is at aand current portion of long-term debt have floating interest rates that are reset at short-term intervals, generally 30 or 60 days. The interest rate tied to LIBOR. Therefore,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 amount is a reasonable estimation of fair value.
15. Capital Stock Repurchase Plan Transactions
We repurchased the following capital stock for the three and ninesix months ended SeptemberJune 30, 20162017 and 2015:2016: | | Three months ended September 30, | | | Nine months ended September 30, | | | Three months ended June 30, | | | Six months ended June 30, | | | | 2016 | | | 2015 | | | 2016 | | | 2015 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total cost of repurchased shares (in thousands): | | $ | - | | | $ | 18,230 | | | $ | 102,313 | | | $ | 47,992 | | | $ | 30,801 | | | $ | 49,853 | | | $ | 85,063 | | | $ | 102,313 | | Shares repurchased | | | - | | | | 135,765 | | | | 780,134 | | | | 385,765 | | | | 150,000 | | | | 380,134 | | | | 450,000 | | | | 780,134 | | Weighted average price per share | | $ | - | | | $ | 134.28 | | | $ | 131.15 | | | $ | 124.41 | | | $ | 205.34 | | | $ | 131.15 | | | $ | 189.03 | | | $ | 131.15 | |
In March 2016,2017, the Board of Directors authorized an additional $100.0 million for stock repurchase under Chemed’s existing share repurchase program. We currently have $50.265.1 million of authorization remaining under this share repurchase plan.
16. Recent Accounting Statements
In May 2014, the FASB issued Accounting Standards Update “ASU No. 2014-09 – Revenue from Contracts with Customers” which provides additional guidance to clarify the principles for recognizing revenue. The standard isand subsequent amendments are intended to develop a common revenue standard for removing inconsistencies and weaknesses, improve comparability, provide more useful information to users through improved disclosure requirements, and simplify the preparation of financial statements. As a result, thisThis guidance and subsequent amendments are effective for fiscal years beginning after December 15, 2017. We are in the process of analyzing various contractual arrangements with customers at each subsidiary. We believe that it is likely, as a result of adopting the ASU that certain expenses currently evaluatingincluded in bad debt expense will be shown as contractual allowances (i.e. net revenue). We currently do not have an estimate of the impactmagnitude of this ASU on our existing revenue recognition policies and disclosures.
In August 2014, the FASB issued Accounting Standards Update No. 2014-15, “ASU No. 2014-15 - Presentation of Financial Statements-Going Concern”. ASU 2014-15 is intended to define management's responsibility to evaluate whether there is substantial doubt about an organization's ability to continue aspotential impact. We anticipate a going concern and to provide related footnote disclosures. This guidance is effective for us for the annual period ending December 31, 2016 and interim periods thereafter. We do not expect themodified retrospective adoption of this standard to have a material impact on our consolidated financial position, results of operations or cash flows.the ASU.
In February 2016, the FASB issued Accounting Standards Update “ASU No. 2016-02 – Leases” which introduces 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. The guidance is effective for fiscal years beginning after December 15, 2018. We are currently evaluating the impact of this ASU on our financial statements, existing lease recognition policies and disclosures.
In March 2016, the FASB issued Accounting Standards Update “ASU No. 2016-09 - Compensation – Stock Compensation” which is part of the FASB’s Simplification Initiative. The object of this initiative is to identify, evaluate, and improve areas of GAAP. The areas of simplification in this initiative involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2016. The impact of this ASU on our financial statements in 2017 and later years could be material, dependent upon the volatility of our stock price. This price volatility could materially increase or decrease the amount of the income tax benefit related to stock compensation recognized in the income statement and the classification of such benefit in the statement of cash flows. Adoption of this statement will not materially impact our statement of financial position.
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 statement of cash flows. The primary purpose of ASU 2016-15 is to reduce diversity in practice related to eight specific cash flow issues. The guidance in this ASU is effective for fiscal years beginning after December 15, 2017. Early adoption is permitted and must be applied retrospectively. We have analyzed the impact of ASU 2016-15 on our statement of cash flows and do not expect it to have a material effect.
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.
17. Goodwill
Shown below is movement in Goodwill (in thousands):
| | Vitas | | | Roto-Rooter | | | Total | | | Vitas | | | Roto-Rooter | | | Total | | Balance at December 31, 2014 | | $ | 328,301 | | | $ | 138,421 | | | $ | 466,722 | | | Balance at December 31, 2016 | | | $ | 328,301 | | | $ | 144,065 | | | $ | 472,366 | | Business combinations | | | - | | | | 5,944 | | | | 5,944 | | | | - | | | | 481 | | | | 481 | | Foreign currency adjustments | | | - | | | | (344 | ) | | | (344 | ) | | | - | | | | 50 | | | | 50 | | Balance at December 31, 2015 | | $ | 328,301 | | | $ | 144,021 | | | $ | 472,322 | | | Foreign currency adjustments | | | - | | | | 96 | | | | 96 | | | Balance at September 30, 2016 | | $ | 328,301 | | | $ | 144,117 | | | $ | 472,418 | | | Balance at June 30, 2017 | | | $ | 328,301 | | | $ | 144,596 | | | $ | 472,897 | |
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): | | | | | | | | | | | | | | | Three months ended September 30, | | | Nine months ended September 30, | | | Three months ended June 30, | | | Six months ended June 30, | | | | 2016 | | | 2015 | | | 2016 | | | 2015 | | | | 2017 | | | | 2016 | | | | 2017 | | | | 2016 | | Service revenues and sales | | $ | 392,607 | | | $ | 386,226 | | | $ | 1,173,405 | | | $ | 1,144,799 | | | $ | 415,059 | | | $ | 390,409 | | | $ | 820,923 | | | $ | $780,798 | | Net income | | $ | 26,829 | | | $ | 28,833 | | | $ | 76,554 | | | $ | 80,345 | | | Diluted EPS | | $ | 1.62 | | | $ | 1.65 | | | $ | 4.54 | | | $ | 4.61 | | | Net income/(loss) | | | $ | (21,656 | ) | | $ | 24,885 | | | $ | 8,188 | | | $ | $49,725 | | Diluted EPS/(LPS) | | | $ | (1.35 | ) | | $ | 1.48 | | | $ | 0.49 | | | $ | $2.93 | | Adjusted net income | | $ | 28,643 | | | $ | 30,934 | | | $ | 86,625 | | | $ | 87,481 | | | $ | 35,907 | | | $ | 30,228 | | | $ | 66,402 | | | $ | $57,982 | | Adjusted diluted EPS | | $ | 1.73 | | | $ | 1.78 | | | $ | 5.14 | | | $ | 5.02 | | | $ | 2.15 | | | $ | 1.80 | | | $ | 3.96 | | | $ | $3.41 | | Adjusted EBITDA | | $ | 57,387 | | | $ | 59,410 | | | $ | 170,391 | | | $ | 169,948 | | | $ | 68,497 | | | $ | 58,523 | | | $ | 128,316 | | | $ | $113,003 | | Adjusted EBITDA as a % of revenue | | | 14.6 | % | | | 15.4 | % | | | 14.5 | % | | | 14.8 | % | | | 16.5 | % | | | 15.0 | % | | | 15.6 | % | | | 14.5 | % |
Adjusted net income, adjusted diluted EPS, earnings before interest, taxes and depreciation and amortization (“EBITDA”), Adjusted EBITDA and Adjusted EBITDA as a % of revenue are not measures derived in accordance with 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 27-29.29-31.
Net income/(loss) for the three and six months ended June 30, 2017 includes $55.8 million ($3.49 per share) of after-tax expense ($90 million pre-tax) for the accrual of a potential litigation settlement related to the May 2, 2013 complaint filed against the Company by the U.S. Department of Justice. As required by U.S. Generally Accepted Accounting Principles, the Company accrues for contingent loss claims in its financial statements when it is probable that a liability has been incurred and the amount can be reasonably estimated. Based on recent case developments, including recent mediation discussions with the U.S. Department of Justice, the Company believes that it probable that this matter will be settled, and that such settlement will include settlement payments and relator attorney fees, by the Company of approximately the accrued amount. However, the achievement of a final, definitive settlement will require the parties to resolve several outstanding issues (and draft and negotiate related definitive documentation), and there can be no assurance that such a final, definitive settlement will be reached and agreed on these or other terms.
For the three months ended SeptemberJune 30, 2016, the increase in consolidated service revenues and sales was driven by an 8.4% increase at Roto-Rooter and a 0.8% decrease at VITAS. The increase in service revenues at Roto-Rooter was driven by an increase in all major service lines. The decrease in service revenues at VITAS was primarily a result of Medicare reimbursement rates increasing 0.6%, a 3.0% increase in days of care, offset by acuity mix shift which negatively impacted revenue 1.7% and changes in Medicare hospice reimbursement which negatively impacted revenue 2.1%. Consolidated net income decreased 7.0% mainly due to decreased revenue and gross profit margin at VITAS. Diluted EPS decreased 1.5% as a result of the decrease in net income offset by a lower number of shares outstanding. Adjusted EBITDA as a percent of revenue decreased 0.8% when compared to the prior year quarter mainly as a result of the decrease in net income. See page 30 for additional VITAS operating metrics.
For the nine months ended September 30, 2016,2017, the increase in consolidated service revenues and sales was driven by a 6.6%16.7% increase at Roto-Rooter and a 1.0%2.1% increase at VITAS. The increase in service revenues at Roto-Rooter was driven by an increase in all major service lines.lines, of Roto-Rooter’s total revenue increase 46.9% is related to water restoration. The increase in service revenues at VITAS was primarily a result of Medicare reimbursement rates increasing 0.6%1.7%, a 4.7%2.8% increase in days of care,average daily census, offset by acuity mix shift which negatively impacted revenue 1.8% and changes in Medicare hospice reimbursement which negatively impacted revenue 2.1%. Consolidated net income decreased 4.7% mainly due to other operating expenses related2.5% when compared to the early retirement of VITAS’ Chief Executive Officer. Diluted EPS decreased 1.8% as a result of the decrease in net income offset by a lower number of shares outstanding.prior year period. Adjusted EBITDA as a percent of revenue decreased 0.3%increased 150 basis points when compared to the prior year.year quarter mainly as a result of the increase in adjusted net income. See page 3032 for additional VITAS operating metrics.
On January 1, 2016, CMS implementedFor the six months ended June 30, 2017, the increase in consolidated service revenues and sales was driven by a refinement13.1% increase at Roto-Rooter and a 1.9% increase at VITAS. The increase in service revenues at Roto-Rooter was driven by an increase in all major service lines, of Roto-Rooter’s total revenue increase 49.0% was related to water restoration. The increase in service revenues at VITAS was primarily a result of Medicare reimbursement rates increasing 1.7%, a 3.2% increase in average daily census, offset by acuity mix shift which negatively impacted revenue when compared to the Medicare hospice reimbursement per diem. This rebasing eliminatedprior year period. Adjusted EBITDA as a percent of revenue increased 110 basis points when compared to the single tier per diemprior year quarter mainly as a result of the increase in adjusted net income. See page 32 for routine home care (RHC) and replaced it with a two-tiered rate, with a higher rate for the first 60 days of a hospice patient’s care, and a lower rate for days 61 and after. In addition, CMS added a Service Intensity Add-on (SIA) payment which provides for reimbursement of care provided by a registered nurse or social worker for RHC patients within seven days prior to death. The reimbursement for continuous care, inpatient care and respite care are not impacted by this rebasing.additional VITAS operating metrics.
The two tiered national per diem rate for RHC is $186.84 for the first 60 days and $146.83 for RHC beyond 60 days. An individual hospice’s actual per diem rate is adjusted for differences in geographic cost of living. We estimate rebasing in 2016 would be revenue neutral to a hospice if it has 37.6% of total RHC days-of-care provided to patients in their first 60 days of admission and 62.4% of total RHC days-of-care provided to patients after the 60days.
Historically, VITAS had a 32/68 aggregate Days-of-Care ratio. High acuity care historically has represented 6% to 7% of VITAS’ total days-of-care. VITAS high acuity days-of-care provided to patients within the first 60 days of admission represented approximately 15% of days-of-care provided to patients in the first 60 days of admission. This results in a VITAS RHC Days-of-Care ratio of approximately 29/71.
For the three and nine months ended September 30, 2016, VITAS had a 25/75 RHC Days-of-Care ratio and generated approximately $1.3 million and $3.3 million in SIA payments, respectively. This resulted in 2.0% less revenue than under the previous Medicare reimbursement methodology.
VITAS expects its full-year 20162017 revenue growth, prior to Medicare cap, to be in the range of 1.0%2.0% to 2.0%3.0%. Admissions and Average Daily Census in 2016 is2017 are estimated to expand approximately 4.5%3.0% to 5.0%. Adjusted EBITDA margin, prior to Medicare cap, is estimated to be 14.0%15.0% to 14.5%15.5%. This guidance includes $1.25$2.5 million for Medicare cap billing limitations. Roto-Rooter expects full-year 20162017 revenue growth of 5.0%12.0% to 5.5%13.0%. The revenue estimate is a based upon increased job pricing of approximately 1.0%2.0% and continued growth in water restoration services. Adjusted EBITDA margin for 20162017 is estimated in the range of 21.0%22.0% to 21.3%22.5%. We anticipate that our operating income and cash flows will be sufficient to operate our businesses and meet any commitments for the foreseeable future.
Financial Condition Liquidity and Capital Resources Material changes in the balance sheet accounts from December 31, 20152016 to SeptemberJune 30, 20162017 include the following:
● | A $20.3 million decrease in accounts receivable due mainly to timing of Medicare and Medicaid payments. |
A $14.1 million decrease in accounts receivable due mainly to timing of Medicare and Medicaid payments. ● | A $5.6 million decrease in prepaid income taxes due to timing of payments. |
An $18.9 million increase in properties plant and equipment mainly due to the purchase of transportation equipment during the quarter. ● | A $5.7 million increase in investments of deferred compensation plans related to participant contributions and market valuation gains. |
A $20.6 million increase in deferred taxes associated with amounts recorded for a potential litigation settlement. ● | A $2.3 million increase in accrued insurance due to timing of insurance payments. |
A $9.6 million increase in accounts payable mainly due to transportation equipment accrued but not paid at June 30, 2017. ● | A $4.4 million decrease in accrued compensation due to timing of payments of incentive compensation. |
A $5.9 million decrease in accrued compensation due to the payments of cash bonuses accrued in 2016. ● | A $5.5 million decrease in deferred income taxes due to changes in various temporary differences including accrued expenses. |
A $90.7 million increase in accrued legal due to a potential litigation settlement. ● | A $5.0 million increase in deferred compensation liabilities related to market valuation gains, participant contributions reduced by payouts to participants. |
A $16.3 million increase in long-term debt due to borrowings on our revolving line of credit. ● | A $19.4 million increase in long-term debt due to borrowings on our revolving line of credit. |
Net cash provided by operating activities increased $15.3$26.9 million mainly as a result of a $14.3 million increase in net income excluding potential litigation settlement and a $6.6 million decrease in accounts receivable due to the timing of payments. Management continually evaluatesreceivable. The potential litigation settlement recorded is non-cash at June 30, 2017 and does not impact net cash utilization alternatives, including share repurchase, debt repurchase, acquisitions and increased dividends to determine the most beneficial use of available capital resources.
We have issued $37.4 million in standby letters of credit as of September 30, 2016, mainly for insurance purposes. Issued letters of credit reduce our available credit under the revolving credit agreement. As of September 30, 2016, we have approximately $287.6 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.provided by operating activities.
Significant changes in our accounts receivable balances are typically driven mainly by the timing of payments received from the Federal government at our VITAS subsidiary. We typically receive a payment in excess of $35.0$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.
We have issued $36.1 million in standby letters of credit as of June 30, 2017, mainly for insurance purposes. Issued letters of credit reduce our available credit under the revolving credit agreement. As of June 30, 2017, we have approximately $268.9 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 SeptemberJune 30, 20162017 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, 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. ItOther than as described below with respect to U.S. v. Vitas, 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 May 2, 2013, the government filed a False Claims Act complaint against the Company and certain of its hospice-related subsidiaries in the U.S. District Court for the Western District of Missouri, United States v. VITAS Hospice Services, LLC, et al., No. 4:13-cv-00449-BCW (the “2013 Action”). Prior to that date, the Company received various qui tam lawsuits and subpoenas from the U.S. Department of Justice and OIG that have been previously disclosed. The 2013 Action alleges that, since at least 2002, VITAS, and since 2004, the Company, submitted or caused the submission of false claims to the Medicare program by (a) billing Medicare for continuous home care services when the patients were not eligible, the services were not provided, or the medical care was inappropriate, and (b) billing Medicare for patients who were not eligible for the Medicare hospice benefit because they did not have a life expectancy of six months or less if their illnesses ran their normal course. This complaint seeks treble damages, statutory penalties, and the costs of the action, plus interest. The defendants filed a motion to dismiss on September 24, 2013. On September 30, 2014, the Court denied the motion, except to the extent that claims were filed before July 24, 2002. On November 13, 2014, the government filed a Second Amended Complaint. The Second Amended Complaint changed and supplemented some of the allegations, but did not otherwise expand the causes of action or the nature of the relief sought against VITAS. VITAS filed its Answer to the Second Amended Complaint on August 11, 2015. The CompanyThis case is not ablein the discovery phase. Based on recent case developments, including recent mediation discussions with the U.S. Department of Justice, we believe it probable that this matter will be settled, to reasonably estimateinclude payments of $55.8 million after-tax ($90.0 million pretax) including attorneys’ fees. A final settlement will require the probability of lossparties to resolve several outstanding issues, and to draft and negotiate definitive documentation. There can be no assurance that such a final definitive settlement will be reached on these, or range of loss at this time.
other, terms. For additional procedural history of this litigation, please refer to our prior quarterly and annual filings. The net costs incurred related to U.S. v. Vitas and related regulatory matters were $599,000$2.1 million and $1.2 million for the quarters ended SeptemberJune 30, 20162017 and 2015,2016, respectively. For the ninesix months ended SeptemberJune 30, 20162017 and 2015,2016, the net costs were $4.1$4.2 million and $3.8$3.5 million respectively.
In November 2013, two shareholder derivative lawsuits were filed againstNet income/(loss) for the Company’sthree and six months ended June 30, 2017 includes the $55.8 million of after-tax expense ($90 million pre-tax) for the accrual of such potential litigation settlement. As required by U.S. Generally Accepted Accounting Principles, the Company accrues for contingent loss claims in its financial statements when it is probable that a liability has been incurred and the amount can be reasonably estimated.
The Company and certain current and former directors as well as certain of itsand officers both of which are covered by the Company’s commercial insurance. On November 6, 2013, KBC Asset Management NV filed suitdefendants in the United States District Court for the District of Delaware, KBC Asset Management NV, derivatively on behalf of Chemed Corp. v. McNamara, et al., No. 13 Civ. 1854 (LPS) (D. Del.). On November 14, 2013, Mildred A. North filed suit in the United States District Court for the Southern District of Ohio, North, derivatively on behalf of Chemed Corp. v. Kevin McNamara, et al., No. 13 Civ. 833 (MRB) (S.D. Ohio). Those proceedings were subsequently consolidated in the District of Delaware under the captiona case captioned In re Chemed Corp. Shareholder and Derivative Litigation, No. 13 Civ. 1854 (LPS) (CJB) (D. Del.), by Order of the United States District Court for the District of Delaware datedwhich was consolidated on February 2, 2015. Also on
On February 2, 2015, the Court appointed Plaintiff KBC Asset Management NV the sole lead plaintiff and its counsel, the sole lead and liaison counsel.
On March 3, 2015, Lead Plaintiff KBC designated its Complaint as the operative complaint in the consolidated proceedings.proceedings and defendants renewed a previously filed motion to dismiss those claims and allegations. The consolidated Complaint named Kevin McNamara, Joel Gemunder, Patrick Grace, Thomas Hutton, Walter Krebs, Andrea Lindell, Thomas Rice, Donald Saunders, Arthur Tucker, Jr., George Walsh III, Frank Wood, Timothy O’Toole, David Williams and Ernest Mrozek asfourteen individual defendants, together with the Company as nominal defendant. The Complaint alleges a claim for breach of fiduciary duty against the individual defendants andfor allegedly permitting the Company to submit false claims to the U.S. government. The Complaint seeks (a) a declaration that the individual defendants breached their fiduciary duties to the Company; (b) an order requiring those defendants to pay compensatory damages, restitution and exemplary damages, in unspecified amounts, to the Company; (c) an order directing the Company to implement new policies and procedures; and (d) costs and disbursements incurred in bringing the action, including attorneys’ fees. Also on March 3, 2015, defendants renewed their previously-filed motion to dismiss those claims and allegations, which motion the court referred to Magistrate Judge Burke.
On December 23, 2015, Magistrate Judge Burke issued a Report and Recommendation recommending that (1) defendants’ motion to dismiss be granted; (2) plaintiff be given 14 days from the date of affirmance by the district court to file an amended complaint addressing deficiencies with regard to their duty of loyalty claim; and (3) failure to do so should give rise to dismissal with prejudice. On January 11, 2016, Lead Plaintiff KBC filed Objections to the Report and Recommendation. Defendants’ responses to those Objections were filed on January 28, 2016.On May 12, 2016, the courtCourt issued a Memorandum Order (1) overruling Lead Plaintiff KBC’s Objections to the Report and Recommendation; (2) adopting the Report and Recommendation; (3) granting Chemed’s motion to dismiss;dismiss, and (4) dismissing Lead Plaintiff KBC’s Complaint without prejudice to KBC’s opportunity to file within 30 days of the date of the court’sCourt’s Order (i.e., by June 13, 2016) an amended Complaint addressing the deficiencies in its duty of loyalty claim. Lead Plaintiff KBC did not file an amended Complaint within the time specified by the court—i.e., on or before June 13, 2016.
However, on that date (JuneJune 13, 2016),2016, counsel for Chemed shareholder Michael Kvint filed a letter with the courtCourt requesting a two-week extension (1) to file a motion to substitute Mr. Kvint as Lead Plaintiff,lead plaintiff, in place of Lead Plaintiff KBC;KBC and (2) in that capacity, to file an amended Complaint. Alternatively, counsel for Mr. Kvint requested that any dismissal of the action be with prejudice to KBC only. On June 14, 2016, Chemed filed a reply letter with the court,Court, reserving its rights to oppose any motion filed by Mr. Kvint and, if warranted, to oppose any other actions taken by Mr. Kvint to proceed with the action (including by filing an untimely amended Complaint). On June 21, 2016, the courtCourt entered an Oral Order providing Mr. Kvint until June 30, 2016 to file a Motion to Substitute and Motion for Leave to File an Amended Complaint. On that date, Mr. Kvint filed, under seal, a Motion to Substitute Plaintiff and File Amended Complaint, and attached a Proposed Amended Complaint. ChemedMr. Kvint’s motion was fully briefed by the parties. On April 25, 2017, Magistrate Judge Burke issued a Report and Recommendation recommending that the Court permit Mr. Kvint to intervene as Lead Plaintiff and grant leave to amend the complaint to replead the duty of loyalty claim only. On May 16, 2017, Chief Judge Stark signed an Order adopting that Report and Recommendation. Plaintiff Kvint filed a Corrected Amended Complaint on May 30, 2017. On July 25, 2017, the Court entered an order permitting Defendants to file a Motion to Dismiss the Corrected Amended Complaint on or before August 14, 2017, with Plaintiff’s Answering Brief in Oppositionopposition to Mr. Kvint’s motionthe Motion to Dismiss to be filed on July 18, 2016. Mr. Kvint filed aor before October 16, 2017, and Defendants’ Reply Brief in Supportsupport of his motionthe Motion to Dismiss to be filed on Julyor before November 13, 2017. As the Company has previously disclosed, the legal fees and costs associated with defending against this lawsuit are presently being paid by insurance. For additional procedural history of this litigation, please refer to our prior quarterly and annual filings.
Jordan Seper, (“Seper”) a Registered Nurse at VITAS' Inland Empire program from May 12, 2014 to March 21, 2015, filed a lawsuit in San Francisco Superior Court on September 26, 2016. She alleged VITAS Healthcare Corp of CA (“VITAS CA”) (1) failed to provide minimum wage for all hours worked; (2) failed to provide overtime for all hours worked; (3) failed to provide a second meal period; (4) failed to provide rest breaks; (5) failed to indemnify for necessary expenditures; (6) failed to timely pay wages due at time of separation; and (7) engaged in unfair business practices. Seper seeks a state-wide class action of current and former non-exempt employees employed with VITAS in California within the four years preceding the filing of the lawsuit. She seeks court determination that this action may be maintained as a class action for the entire California class and subclasses, designation as class representative, declaratory relief, injunctive relief, damages (including wages for regular or overtime hours allegedly worked but not paid, premium payments for missed meal or rest periods, and unreimbursed expenses), all applicable penalties associated with each claim, pre and post-judgment interest, and attorneys' fees and costs. Seper served VITAS CA with the lawsuit, 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 on October 13, 2016. On November 14, 2016, the Parties filed a Stipulation to transfer the venue of the lawsuit from San Francisco to Los Angeles. The Los Angeles Superior Court Complex Division accepted transfer of the case on December 6, 2016 and stayed the case. On December 16, 2016, VITAS CA filed its Answer and served written discovery on Seper.
Jiwan Chhina ("Chhina"), hired by VITAS as a Home Health Aide on February 5, 2002, is currently a Licensed Vocational Nurse for VITAS' San Diego program. On September 27, 2016, Chhina filed a lawsuit in San Diego Superior Court, alleging (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. Chhina seeks to pursue these claims in the form of a state-wide class action of current and former non-exempt employees employed with VITAS in California within the four years preceding the filing of the lawsuit. He seeks court determination that this action may be maintained as a class action for the entire California class and subclasses, designation as class representative, declaratory relief, injunctive relief, damages (including wages for regular or overtime hours allegedly worked but not paid, premium payments for missed meal or rest periods, and unreimbursed expenses), all applicable penalties associated with each claim, pre-judgment interest, and attorneys' fees and costs. Chhina served VITAS CA with the lawsuit, Jiwann 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 on November 3, 2016. On August 2,December 1, 2016, ChemedVITAS filed its Answer and served written discovery on Chhina.
The Court in Seper lifted the stay at the Initial Status Conference on May 11, 2017. At the Conference, Seper’s counsel informed the Court that he was in contact with Jiwan Chhina’s counsel to consolidate the two cases. The Court set a RequestFurther Status Conference for Oral Argument.July 13, 2017 expressly to receive a status update on the consolidation efforts. If the cases are consolidated and proceed under the jurisdiction of the Los Angeles Superior Court Complex Division, the Chhina case in the San Diego Superior Court would then be dismissed. The parties awaitParties have agreed to stay further discovery efforts pending the issue of consolidation of the two cases. Counsel for Seper and counsel for Chhina are currently preparing a response fromjoint Amended Complaint.
The Company is not able to reasonably estimate the Court.probability of loss or range of loss for either of these lawsuits at this time.
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, responding to the subpoenas and dealing with the various regulatory agencies and opposing parties can adversely affect us through defense costs, potential payments, 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 SeptemberJune 30, 20162017 versus 20152016 - Consolidated Results Our service revenues and sales for the thirdsecond quarter of 20162017 increased 1.7%6.3% versus services and sales revenues for the thirdsecond quarter of 2015.2016. Of this increase, a $2.1$6.0 million decreaseincrease was attributable to VITAS and $8.5$18.7 million increase was attributable to Roto-Rooter. The following chart shows the components of those changes (in thousands): | | | | | | | | | | | | | | | | | | Increase/(Decrease) | | | Increase/(Decrease) | | | | Amount | | | Percent | | | Amount | | | Percent | | VITAS | | | | | | | | | | | | | Routine homecare | | $ | 2,396 | | | | 1.1 | | | $ | 11,978 | | | | 5.5 | | Continuous care | | | (3,890 | ) | | | (10.3 | ) | | | (3,271 | ) | | | (9.4 | ) | General inpatient | | | (421 | ) | | | (1.7 | ) | | | (2,489 | ) | | | (10.2 | ) | Medicare cap | | | (228 | ) | | | - | | | | (247 | ) | | | - | | Roto-Rooter | | | | | | | | | | | | | | | | | Plumbing | | | 2,916 | | | | 6.5 | | | | 6,469 | | | | 13.3 | | Drain cleaning | | | 1,389 | | | | 4.1 | | | | 1,599 | | | | 4.4 | | Water restoration | | | 3,773 | | | | 46.3 | | | | 8,763 | | | | 72.1 | | Contractor operations | | | 704 | | | | 7.7 | | | | 1,381 | | | | 14.1 | | Other | | | (258 | ) | | | (5.0 | ) | | | 467 | | | | 9.5 | | Total | | $ | 6,381 | | | | 1.7 | | | $ | 24,650 | | | | 6.3 | |
The decreaseincrease in VITAS’ revenues for the thirdsecond quarter of 2017 versus the second quarter of 2016 versus the third quarterwas comprised of 2015 was a primarily a result ofan average net Medicare reimbursement ratesrate increasing approximately 0.6%1.7%, a 3.0%2.8% increase in days of care offset by acuity mix shift which negatively impacted revenue 1.7% and changes in Medicare hospice reimbursement which negatively impacted revenue 2.1%.2.5% when compared to the prior year period.
Days of care during the quarter ended SeptemberJune 30 were as follows:
| | Days of Care | | | Increase/(Decrease) | | | Days of Care | | | Increase/(Decrease) | | | | 2016 | | | 2015 | | | Percent | | | 2017 | | | 2016 | | | Percent | | | | | | | | | | | | | | | | | | | | | Routine homecare | | | 1,407,623 | | | | 1,357,688 | | | | 3.7 | | | | 1,417,840 | | | | 1,366,985 | | | | 3.7 | | Continuous care | | | 46,582 | | | | 51,652 | | | | (9.8 | ) | | | 43,108 | | | | 47,775 | | | | (9.8 | ) | General inpatient | | | 36,241 | | | | 37,121 | | | | (2.4 | ) | | | 31,251 | | | | 36,833 | | | | (15.2 | ) | Total days of care | | | 1,490,446 | | | | 1,446,461 | | | | 3.0 | | | | 1,492,199 | | | | 1,451,593 | | | | 2.8 | |
Over 90% of VITAS’ service revenues for the period were from Medicare and Medicaid.
The increase in plumbing revenues for the thirdsecond quarter of 20162017 versus 20152016 is attributable to a 0.1% increase in job count and a 6.4% increase in a combination of price and service mix shift. Drain cleaning revenues for the third quarter of 2016 versus 2015 reflect a 1.0% decrease in the number of jobs performed combined with an10.6% increase in price and service mix shift as well as a 2.7% increase in job count. Drain cleaning revenues for the second quarter of 5.1%.2017 versus 2016 reflect a 6.4% increase in price and service mix shift offset by a 2.0% decrease in job count. Water restoration for the thirdsecond quarter of 2017 versus 2016 versus 2015 increased 46.3%72.1% as a result of continued expansion of this service offering intoin all Roto-Rooter locations. Contractor operations increased 7.7% and Other Roto-Rooter revenue decreased 5.0%.14.1% mainly due to their expansion into water restoration.
The consolidated gross margin was 28.3%31.1% in the thirdsecond quarter of 20162017 as compared with 29.6%29.2% in the thirdsecond quarter of 2015.2016. On a segment basis, VITAS’ gross margin was 20.7%22.8% in the thirdsecond quarter of 20162017 as compared with 23.3%21.5%, in the thirdsecond quarter of 2015.2016. The declineincrease in VITAS gross margin is mainly the result of lower revenues in the high acuity service-lines. There are generally higher fixed costs associated with high-acuity care.labor and ancillary cost management. The Roto-Rooter segment’s gross margin was 47.8%49.3% for the thirdsecond quarter of 20162017 compared with 47.1%48.5% in the thirdsecond quarter of 2015.2016. The increase in Roto-Rooter gross margin is the result mainly of higher revenues, particularly in water restoration, allowing more fixed costs to be covered.
Selling, general and administrative expenses (“SG&A”) comprise (in thousands):
| | Three months ended September 30, | | | Three months ended June 30, | | | | 2016 | | | 2015 | | | 2017 | | | 2016 | | SG&A expenses before market value adjustments of deferred compensation | | | | | | | | | | | | | plans, long-term incentive compensation, and OIG investigation expenses | | $ | 56,475 | | | $ | 55,601 | | | $ | 64,018 | | | $ | 57,771 | | Long-term incentive compensation | | | 643 | | | | 1,364 | | | Expenses related to OIG investigation | | | 599 | | | | 1,151 | | | | 2,093 | | | | 1,170 | | Impact of market value adjustments related to assets held in deferred | | | | | | | | | | | | | | | | | compensation trusts | | | 1,656 | | | | (2,328 | ) | | | 1,587 | | | | 3,188 | | Long-term incentive compensation | | | | 956 | | | | 499 | | Total SG&A expenses | | $ | 59,373 | | | $ | 55,788 | | | $ | 68,654 | | | $ | 62,628 | |
SG&A expenses before long-term incentive compensation, expenses related to OIG investigation and the impact of market value adjustments related to assets held in deferred compensation trusts for the thirdsecond quarter of 20162017 were up 1.6%10.8% when compared to the thirdsecond quarter of 2015.2016. This increase was mainly a result of the increase in variable expenses caused by increased revenue, particularly in the Roto-Rooter segment, increased advertising expense at Roto-Rooter and normal salary increases in 2017.
Other operating expenses were $90.6 million in the second quarter of 2017 due to $90.0 million related to a potential litigation settlement and $636,000 due to the closure of the programs in one state at Vitas. $4.5 million related to early retirement expenses were included in other operating expenses in the second quarter of 2016.
Other income/(expense) - net comprise (in thousands): | | Three months ended September 30, | | | | 2016 | | | 2015 | | Market value adjustment on assets held in | | | | | | | deferred compensation trusts | | $ | 1,656 | | | $ | (2,328 | ) | Loss on disposal of property and equipment | | | (134 | ) | | | (116 | ) | Interest income - net | | | 119 | | | | 77 | | Other | | | (1 | ) | | | 12 | | Total other income/(expense) - net | | $ | 1,640 | | | $ | (2,355 | ) |
| | Three months ended June 30, | | | | 2017 | | | 2016 | | Market value adjustment on assets held in | | | | | | | deferred compensation trusts | | $ | 1,587 | | | $ | 3,188 | | Interest income | | | 161 | | | | 85 | | Loss on disposal of property and equipment | | | (98 | ) | | | (57 | ) | Other | | | 3 | | | | 1 | | Total other income/(expense) - net | | $ | 1,653 | | | $ | 3,217 | |
Our effective income tax rate was 38.3%43.6% in the thirdsecond quarter of 20162017 (tax benefit) compared to 38.5%38.7% (tax expense) during the thirdsecond quarter of 2015.2016. The change in the effective income tax rate is a result of the adoption of ASU No. 2016-09 – Compensation – Stock Compensation in 2017 which requires that the excess tax benefits from stock based compensation now be recorded in the income tax provision on the statements of income.
Net income for both periods included the following after-tax items/adjustments that reduced(reduced) or increased after-tax earnings (in thousands): | | | | | | | | | Three months ended June 30, | | | | 2017 | | | 2016 | | VITAS | | | | | | | Potential litigation settlement | | $ | (55,800 | ) | | $ | - | | Expenses related to OIG investigation | | | (1,292 | ) | | | (722 | ) | Program closure expenses | | | (385 | ) | | | - | | Medicare cap sequestration adjustment | | | (65 | ) | | | - | | Early retirement expenses | | | - | | | | (2,840 | ) | Roto-Rooter | | | | | | | | | Expenses related to litigation settlements | | | (129 | ) | | | (27 | ) | Corporate | | | | | | | | | Excess tax benefits on stock compensation | | | 2,643 | | | | - | | Stock option expense | | | (1,931 | ) | | | (1,440 | ) | Long-term incentive compensation | | | (604 | ) | | | (316 | ) | Expenses related to securities litigation | | | - | | | | 2 | | Total | | $ | (57,563 | ) | | $ | (5,343 | ) |
| | Three months ended September 30, | | | | 2016 | | | 2015 | | VITAS | | | | | | | Expenses related to OIG investigation | | $ | (370 | ) | | $ | (711 | ) | Medicare cap sequestration adjustment | | | (141 | ) | | | - | | Roto-Rooter | | | | | | | | | Acquisition expenses | | | - | | | | (18 | ) | Corporate | | | | | | | | | Stock option expense | | | (897 | ) | | | (509 | ) | Long-term incentive compensation | | | (406 | ) | | | (863 | ) | Total | | $ | (1,814 | ) | | $ | (2,101 | ) |
Three months ended SeptemberJune 30, 20162017 versus 20152016 - Segment Results
The change in after-tax earningsnet income/(loss) for the thirdsecond quarter of 20162017 versus the thirdsecond quarter of 20152016 is due to (in thousands):
| | Increase/(Decrease) | | | Increase/(Decrease) | | | | Amount | | | Percent | | | Amount | | | Percent | | VITAS | | $ | (4,820 | ) | | | (18.7 | ) | | $ | (50,804 | ) | | | (273.9 | ) | Roto-Rooter | | | 1,894 | | | | 17.3 | | | | 3,717 | | | | 27.9 | | Corporate | | | 922 | | | | 11.7 | | | | 546 | | | | 7.8 | | | | $ | (2,004 | ) | | | (7.0 | ) | | $ | (46,541 | ) | | | (187.0 | ) |
VITAS’ after-tax earnings were negatively impacted in 2016 compared to 2015 bynet loss was the result of a $2.1$55.8 million decrease in revenue, and a $5.9 million increase in cost of services provided and goods sold. After-tax earnings as a percent of revenue in the third quarter of 2016 were 7.4%, a decrease of 1.6% over the third quarter of 2015.(after-tax) potential litigation settlement.
Roto-Rooter’s after-tax earnings werenet income was positively impacted in 20162017 compared to 20152016 primarily by a $3.7an $8.8 million revenue increase in Roto-Rooter’s water restoration line of business, a $2.9$6.5 million increase in plumbing revenue and a $1.4$3.4 million increase in sewer and drain cleaning revenue.all other revenue types. After-tax earnings as a percent of revenue at Roto-Rooter in 2016 were 11.7%the second quarter of 2017 was 13.1% as compared to 10.8%11.9% in 2015.the second quarter of 2016.
The improvement at Corporate is due mainly to the impact of the adoption of ASU 2016-09 which positively impacted the Company’s tax provision by approximately $2.6 million.
Results of Operations NineSix months ended SeptemberJune 30, 20162017 versus 20152016 - Consolidated Results
Our service revenues and sales for the first ninesix months of 20162017 increased 2.5%5.1% versus services and sales revenues for the first ninesix months of 2015.2016. Of this increase, $8.1a $10.8 million increase was attributable to VITAS and $20.6$29.4 million increase was attributable to Roto-Rooter. The following chart shows the components of those changes (in thousands):
| | | | | | | | | | | | | | | | | | Increase/(Decrease) | | | Increase/(Decrease) | | | | Amount | | | Percent | | | Amount | | | Percent | | VITAS | | | | | | | | | | | | | Routine homecare | | $ | 18,610 | | | | 2.9 | | | $ | 22,665 | | | | 5.2 | | Continuous care | | | (7,538 | ) | | | (6.6 | ) | | | (7,575 | ) | | | (10.5 | ) | General inpatient | | | (2,629 | ) | | | (3.4 | ) | | | (4,083 | ) | | | (8.2 | ) | Medicare cap | | | (393 | ) | | | (238.2 | ) | | | (247 | ) | | | - | | Roto-Rooter | | | | | | | | | | | | | | | | | Plumbing | | | 6,997 | | | | 5.1 | | | | 9,591 | | | | 9.9 | | Drain cleaning | | | 3,822 | | | | 3.7 | | | | 2,011 | | | | 2.8 | | Water restoration | | | 8,770 | | | | 31.6 | | | | 14,388 | | | | 58.5 | | Contractor operations | | | 1,342 | | | | 4.8 | | | | 2,548 | | | | 13.0 | | Other | | | (375 | ) | | | (2.4 | ) | | | 827 | | | | 8.1 | | Total | | $ | 28,606 | | | | 2.5 | | | $ | 40,125 | | | | 5.1 | |
The increase in VITAS’ revenues for the first ninesix months of 2017 versus the first six months of 2016 versus the first nine monthswas comprised of 2015 was a primarily a result ofan average net Medicare reimbursement ratesrate increasing approximately 0.6%1.7%, a 4.7%2.6% increase in days of care offset by acuity mix shift which negatively impacted revenue 1.8% and changes in Medicare hospice reimbursement which negatively impacted revenue 2.1%.when compared to the prior year period.
Days of care during the first ninesix months ended SeptemberJune 30 were as follows:
| | | | | | | | | | | | | Days of Care | | | Increase/(Decrease) | | | Days of Care | | | Increase/(Decrease) | | | | 2016 | | | 2015 | | | Percent | | | 2017 | | | 2016 | | | Percent | | | | | | | | | | | | | | | | | | | | | Routine homecare | | | 4,109,775 | | | | 3,899,900 | | | | 5.4 | | | | 2,798,388 | | | | 2,702,152 | | | | 3.6 | | Continuous care | | | 145,327 | | | | 155,742 | | | | (6.7 | ) | | | 88,525 | | | | 98,745 | | | | (10.3 | ) | General inpatient | | | 111,323 | | | | 115,700 | | | | (3.8 | ) | | | 65,236 | | | | 75,082 | | | | (13.1 | ) | Total days of care | | | 4,366,425 | | | | 4,171,342 | | | | 4.7 | | | | 2,952,149 | | | | 2,875,979 | | | | 2.6 | |
Over 90% of VITAS’ service revenues for the period were from Medicare and Medicaid.
The increase in plumbing revenues for the first ninesix months of 20162017 versus 20152016 is attributable to a 0.3% decrease in job count and a 5.4% increase in a combination of price and service mix shift. Drain cleaning revenues for the first nine months of 2016 versus 2015 reflect a 0.1% decrease in the number of jobs performed offset by an9.5% increase in price and service mix shift as well as a 0.4% increase in job count. Drain cleaning revenues for the first six months of 3.8%.2017 versus 2016 reflect a 6.4% increase in price and service mix shift offset by a 3.6% decrease in job count. Water restoration for the first ninesix months of 2017 versus 2016 versus 2015 increased 31.6%58.5% as a result of continued expansion of this service offering into otherin all Roto-Rooter locations. Contractor operations increased 4.8% and Other Roto-Rooter revenue decreased 2.4%.13.0% mainly due to their expansion into water restoration.
The consolidated gross margin was 28.7%30.4% in the first ninesix months of 20162017 as compared with 29.1%29.0% in the first ninesix months of 2015.2016. On a segment basis, VITAS’ gross margin was 21.1%22.1% in the first ninesix months of 20162017 as compared with 22.2%21.3%, in the first ninesix months of 2015.2016. The declineincrease in VITASVITAS’ gross margin is mainly the result of lower revenues in the high acuity service-lines. There are generally higher fixed costs associated with high acuity care.labor and ancillary cost management. The Roto-Rooter segment’s gross margin was 48.0%49.0% for the first ninesix months of 20162017 compared with 47.5%48.0% in the first ninesix months of 2015.2016. The increase in the Roto-Rooter gross margin is the result mainly of higher revenues, particularly in water restoration, allowing more fixed costs to be covered.
Selling, general and administrative expenses (“SG&A”) comprise (in thousands):
| | Nine months ended September 30, | | | Six months ended June 30, | | | | 2016 | | | 2015 | | | 2017 | | | 2016 | | SG&A expenses before market value adjustments of deferred compensation | | | | | | | | | | | | | plans, long-term incentive compensation, and OIG investigation expenses | | $ | 174,183 | | | $ | 166,555 | | | $ | 127,750 | | | $ | 117,708 | | Long-term incentive compensation | | | 901 | | | | 3,755 | | | Expenses related to OIG investigation | | | 4,105 | | | | 3,837 | | | | 4,243 | | | | 3,506 | | Impact of market value adjustments related to assets held in deferred | | | | | | | | | | | | | | | | | compensation trusts | | | 1,857 | | | | (880 | ) | | | 4,202 | | | | 201 | | Long-term incentive compensation | | | | 1,917 | | | | 258 | | Total SG&A expenses | | $ | 181,046 | | | $ | 173,267 | | | $ | 138,112 | | | $ | 121,673 | |
SG&A expenses before long-term incentive compensation, expenses related to OIG investigation and the impact of market gains/(losses) ofvalue adjustments related to assets held in deferred compensation planstrusts for the first ninesix months of 20162017 were up 4.6%8.5% when compared to the first ninesix months of 2015. The2016. This increase was mainly a result of the increase in variable expenses caused by increased revenue, as well asparticularly in the in the Roto-Rooter segment, increased advertising expense at Roto-Rooter and normal salary increases and higher bad debt expense in our VITAS segment in 2016. 2017.
-21-Other operating expenses were $91.5 million during the first six months of 2017 related to a $90.0 million potential litigation settlement and $1.5 million related to the closure of the programs in one state at Vitas. During the first six months of 2016, the Company recorded $4.5 million related to early retirement expenses.
Other income/(expense) - net comprise (in thousands):
| | Nine months ended September 30, | | | Six months ended June 30, | | | | 2016 | | | 2015 | | | 2017 | | | 2016 | | Market value adjustment on assets held in | | | | | | | | | | | | | deferred compensation trusts | | $ | 1,857 | | | $ | (880 | ) | | $ | 4,202 | | | $ | 201 | | Loss on disposal of property and equipment | | | (224 | ) | | | (131 | ) | | | (334 | ) | | | (90 | ) | Interest income - net | | | 301 | | | | 207 | | | Interest income | | | | 245 | | | | 182 | | Other | | | (1 | ) | | | (452 | ) | | | 3 | | | | - | | Total other income/(expense) - net | | $ | 1,933 | | | $ | (1,256 | ) | | $ | 4,116 | | | $ | 293 | |
Our effective income tax rate was 38.6%81.7% in the first ninesix months of 20162017 compared to 38.8% forduring the first ninesix months of 2015.2016. The change in the effective income tax rate is due to the adoption of ASU No. 2016-09 – Compensation – Stock Compensation which requires that the excess tax benefits from stock based compensation now be recorded in the income tax provision on the statements of income.
Net income for both periods included the following after-tax items/adjustments that reduced(reduced) or increased after-tax earnings (in thousands):
| | Nine Months Ended September 30, | | | Six Months Ended June 30, | | | | 2016 | | | 2015 | | | 2017 | | | 2016 | | VITAS | | | | | | | | | | | | | Legal expenses of OIG investigation | | $ | (2,535 | ) | | $ | (2,369 | ) | | Potential litigation settlement | | | $ | (55,800 | ) | | $ | - | | Expenses related to OIG investigation | | | | (2,620 | ) | | | (2,165 | ) | Program closure expenses | | | | (898 | ) | | | - | | Medicare cap sequestration adjustment | | | | (65 | ) | | | - | | Early retirement expenses | | | (2,840 | ) | | | - | | | | - | | | | (2,840 | ) | Medicare cap sequestration adjustment | | | (141 | ) | | | - | | | Roto-Rooter | | | | | | | | | | | | | | | | | Expenses related to litigation settlements | | | (27 | ) | | | (3 | ) | | | (129 | ) | | | (27 | ) | Acquisition expenses | | | - | | | | (98 | ) | | Corporate | | | | | | | | | | | | | | | | | Excess tax benefits on stock compensation | | | | 6,338 | | | | - | | Stock option expense | | | (3,958 | ) | | | (2,268 | ) | | | (3,828 | ) | | | (3,061 | ) | Long-term incentive compensation | | | (570 | ) | | | (2,375 | ) | | | (1,212 | ) | | | (164 | ) | Expenses of securities litigation | | | - | | | | (23 | ) | | Total | | $ | (10,071 | ) | | $ | (7,136 | ) | | $ | (58,214 | ) | | $ | (8,257 | ) |
NineSix months ended SeptemberJune 30, 20162017 versus 20152016 - Segment Results
The change in after-tax earningsnet income/(loss) for the first ninesix months of 20162017 versus the first ninesix months of 20152016 is due to (in thousands):
| | Increase/(Decrease) | | Increase/(Decrease) | | | | Amount | | | Percent | | Amount | | | Percent | | VITAS | | $ | (8,301 | ) | | | (12.4 | ) | | $ | (49,294 | ) | | | (131.0 | ) | Roto-Rooter | | | 4,094 | | | | 11.7 | | | | 5,323 | | | | 20.2 | | Corporate | | | 416 | | | | 1.9 | | | | 2,434 | | | | 17.1 | | | | $ | (3,791 | ) | | | (4.7 | ) | | $ | (41,537 | ) | | | (83.5 | ) |
VITAS’ after-tax earnings were negatively impacted in 2016 compared to 2015 by a $2.8 million increase in other operating expense related to2017 net loss was the early retirement of the Chief Executive Officer of Vitas and a $15.6 million increase in cost of services provided and goods sold. Gross margin decreased mainly as a result of lower revenues in the high acuity service lines. After-tax earnings as a percent of revenue in the first nine months of 2016 were 7.0%, a decrease of 1.0% over the first nine months of 2015.$55.8 million (after-tax) potential ligation settlement.
Roto-Rooter’s after-tax earnings werenet income was positively impacted in 20162017 compared to 20152016 primarily by an $8.8a $14.4 million revenue increase in Roto-Rooter’s water restoration line of business, a $7.0$9.6 million increase in plumbing revenue and a $3.8$5.4 million increase in sewer and drain cleaning revenue. Gross margin improved mainly as a result of mix shift in Roto-Rooter’s lines of business. SG&A decreased as a percent of sales due mainly to leveraging fixed costs.all other revenue types. After-tax earnings as a percent of revenue at Roto-Rooter in the first nine months of 20162017 were 11.7%12.5% as compared to 11.2%11.7% in 2016.
The improvement at Corporate is due mainly to the first nine monthsimpact of 2015.the adoption of ASU 2016-09 which positively impacted the Company’s tax provision by approximately $6.3 million. CHEMED CORPORATION AND SUBSIDIARY COMPANIES | | CONSOLIDATING STATEMENT OF INCOME | | FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2016 | | (in thousands)(unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | VITAS | | | Roto-Rooter | | | Corporate | | | Chemed Consolidated | | 2016 (a) | | | | | | | | | | | | | Service revenues and sales | | $ | 282,865 | | | $ | 109,742 | | | $ | - | | | $ | 392,607 | | Cost of services provided and goods sold | | | 224,410 | | | | 57,248 | | | | - | | | | 281,658 | | Selling, general and administrative expenses | | | 21,775 | | | | 28,635 | | | | 8,963 | | | | 59,373 | | Depreciation | | | 4,751 | | | | 3,731 | | | | 132 | | | | 8,614 | | Amortization | | | 14 | | | | 77 | | | | - | | | | 91 | | Total costs and expenses | | | 250,950 | | | | 89,691 | | | | 9,095 | | | | 349,736 | | Income/(loss) from operations | | | 31,915 | | | | 20,051 | | | | (9,095 | ) | | | 42,871 | | Interest expense | | | (59 | ) | | | (78 | ) | | | (881 | ) | | | (1,018 | ) | Intercompany interest income/(expense) | | | 1,810 | | | | 800 | | | | (2,610 | ) | | | - | | Other income/(expense)—net | | | (1 | ) | | | (14 | ) | | | 1,655 | | | | 1,640 | | Income/(expense) before income taxes | | | 33,665 | | | | 20,759 | | | | (10,931 | ) | | | 43,493 | | Income taxes | | | (12,762 | ) | | | (7,904 | ) | | | 4,002 | | | | (16,664 | ) | Net income/(loss) | | $ | 20,903 | | | $ | 12,855 | | | $ | (6,929 | ) | | $ | 26,829 | | | | | | | | | | | | | | | | | | | (a) The following amounts are included in net income (in thousands): | |
| | VITAS | | | Roto-Rooter | | | Corporate | | | Chemed Consolidated | | Pretax benefit/(cost): | | | | | | | | | | | | | Stock option expense | | $ | - | | | $ | - | | | $ | (1,419 | ) | | $ | (1,419 | ) | Long-term incentive compensation | | | - | | | | - | | | | (643 | ) | | | (643 | ) | Medicare cap sequestration adjustment | | | (228 | ) | | | - | | | | - | | | | (228 | ) | Expenses related to OIG investigation | | | (599 | ) | | | - | | | | - | | | | (599 | ) | Total | | $ | (827 | ) | | $ | - | | | $ | (2,062 | ) | | $ | (2,889 | ) | | | | | | | | | | | | | | | |
| | VITAS | | | Roto-Rooter | | | Corporate | | | Chemed Consolidated | | After-tax benefit/(cost): | | | | | | | | | | | | | Stock option expense | | $ | - | | | $ | - | | | $ | (897 | ) | | $ | (897 | ) | Long-term incentive compensation | | | - | | | | - | | | | (406 | ) | | | (406 | ) | Medicare cap sequestration adjustment | | | (141 | ) | | | - | | | | - | | | | (141 | ) | Expenses related to OIG investigation | | | (370 | ) | | | - | | | | - | | | | (370 | ) | Total | | $ | (511 | ) | | $ | - | | | $ | (1,303 | ) | | $ | (1,814 | ) |
CHEMED CORPORATION AND SUBSIDIARY COMPANIES | | CONSOLIDATING STATEMENT OF INCOME | | FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2015 | | (in thousands)(unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | Chemed | | | | VITAS | | | Roto-Rooter | | | Corporate | | | Consolidated | | 2015 (a) | | | | | | | | | | | | | Service revenues and sales | | $ | 285,008 | | | $ | 101,218 | | | $ | - | | | $ | 386,226 | | Cost of services provided and goods sold | | | 218,528 | | | | 53,561 | | | | - | | | | 272,089 | | Selling, general and administrative expenses | | | 22,367 | | | | 27,523 | | | | 5,898 | | | | 55,788 | | Depreciation | | | 4,631 | | | | 3,300 | | | | 144 | | | | 8,075 | | Amortization | | | 60 | | | | 86 | | | | - | | | | 146 | | Total costs and expenses | | | 245,586 | | | | 84,470 | | | | 6,042 | | | | 336,098 | | Income/(loss) from operations | | | 39,422 | | | | 16,748 | | | | (6,042 | ) | | | 50,128 | | Interest expense | | | (54 | ) | | | (80 | ) | | | (774 | ) | | | (908 | ) | Intercompany interest income/(expense) | | | 1,979 | | | | 858 | | | | (2,837 | ) | | | - | | Other income/(expense)—net | | | (11 | ) | | | (15 | ) | | | (2,329 | ) | | | (2,355 | ) | Income/(expense) before income taxes | | | 41,336 | | | | 17,511 | | | | (11,982 | ) | | | 46,865 | | Income taxes | | | (15,613 | ) | | | (6,550 | ) | | | 4,131 | | | | (18,032 | ) | Net income/(loss) | | $ | 25,723 | | | $ | 10,961 | | | $ | (7,851 | ) | | $ | 28,833 | | | | | | | | | | | | | | | | | | | (a) The following amounts are included in net income (in thousands): | | | | | | | | | | | | | | | | | |
| | VITAS | | | Roto-Rooter | | | Corporate | | | Chemed Consolidated | | Pretax benefit/(cost): | | | | | | | | | | | | | Stock option expense | | $ | - | | | $ | - | | | $ | (813 | ) | | $ | (813 | ) | Long-term incentive compensation | | | - | | | | - | | | | (1,364 | ) | | | (1,364 | ) | Acquisition expenses | | | - | | | | (30 | ) | | | - | | | | (30 | ) | Expenses related to OIG investigation | | | (1,151 | ) | | | - | | | | - | | | | (1,151 | ) | Total | | $ | (1,151 | ) | | $ | (30 | ) | | $ | (2,177 | ) | | $ | (3,358 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | VITAS | | | Roto-Rooter | | | Corporate | | | Chemed Consolidated | | After-tax benefit/(cost): | | | | | | | | | | | | | Stock option expense | | $ | - | | | $ | - | | | $ | (509 | ) | | $ | (509 | ) | Long-term incentive compensation | | | - | | | | - | | | | (863 | ) | | | (863 | ) | Acquisition expenses | | | - | | | | (18 | ) | | | - | | | | (18 | ) | Expenses related to OIG investigation | | | (711 | ) | | | - | | | | - | | | | (711 | ) | Total | | $ | (711 | ) | | $ | (18 | ) | | $ | (1,372 | ) | | $ | (2,101 | ) |
CHEMED CORPORATION AND SUBSIDIARY COMPANIES | | CONSOLIDATING STATEMENT OF INCOME | | FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 | | (in thousands)(unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | Chemed | | | | VITAS | | | Roto-Rooter | | | Corporate | | | Consolidated | | 2016 (a) | | | | | | | | | | | | | Service revenues and sales | | $ | 839,131 | | | $ | 334,274 | | | $ | - | | | $ | 1,173,405 | | Cost of services provided and goods sold | | | 662,371 | | | | 173,977 | | | | - | | | | 836,348 | | Selling, general and administrative expenses | | | 69,197 | | | | 87,890 | | | | 23,959 | | | | 181,046 | | Depreciation | | | 14,346 | | | | 10,860 | | | | 413 | | | | 25,619 | | Amortization | | | 41 | | | | 233 | | | | - | | | | 274 | | Other operating expenses | | | 4,491 | | | | - | | | | - | | | | 4,491 | | Total costs and expenses | | | 750,446 | | | | 272,960 | | | | 24,372 | | | | 1,047,778 | | Income/(loss) from operations | | | 88,685 | | | | 61,314 | | | | (24,372 | ) | | | 125,627 | | Interest expense | | | (176 | ) | | | (264 | ) | | | (2,391 | ) | | | (2,831 | ) | Intercompany interest income/(expense) | | | 5,840 | | | | 2,614 | | | | (8,454 | ) | | | - | | Other income/(expense)—net | | | 76 | | | | (2 | ) | | | 1,859 | | | | 1,933 | | Income/(expense) before income taxes | | | 94,425 | | | | 63,662 | | | | (33,358 | ) | | | 124,729 | | Income taxes | | | (35,887 | ) | | | (24,446 | ) | | | 12,158 | | | | (48,175 | ) | Net income/(loss) | | $ | 58,538 | | | $ | 39,216 | | | $ | (21,200 | ) | | $ | 76,554 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (a) The following amounts are included in net income (in thousands): | | | | | | | | | |
| | | | | | | | | | | Chemed | | | | VITAS | | | Roto-Rooter | | | Corporate | | | Consolidated | | Pretax benefit/(cost): | | | | | | | | | | | | | Stock option expense | | $ | - | | | $ | - | | | $ | (6,259 | ) | | $ | (6,259 | ) | Medicare cap sequestration adjustment | | | (228 | ) | | | - | | | | - | | | | (228 | ) | Long-term incentive compensation | | | - | | | | - | | | | (901 | ) | | | (901 | ) | Early retirement expenses | | | (4,491 | ) | | | - | | | | - | | | | (4,491 | ) | Expenses related to litigation settlements | | | - | | | | (44 | ) | | | - | | | | (44 | ) | Expenses related to OIG investigation | | | (4,105 | ) | | | - | | | | - | | | | (4,105 | ) | Total | | $ | (8,824 | ) | | $ | (44 | ) | | $ | (7,160 | ) | | $ | (16,028 | ) | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Chemed | | | | VITAS | | | Roto-Rooter | | | Corporate | | | Consolidated | | After-tax benefit/(cost): | | | | | | | | | | | | | Stock option expense | | $ | - | | | $ | - | | | $ | (3,958 | ) | | $ | (3,958 | ) | Medicare cap sequestration adjustment | | | (141 | ) | | | - | | | | - | | | | (141 | ) | Long-term incentive compensation | | | - | | | | - | | | | (570 | ) | | | (570 | ) | Early retirement expenses | | | (2,840 | ) | | | - | | | | - | | | | (2,840 | ) | Expenses related to litigation settlements | | | - | | | | (27 | ) | | | - | | | | (27 | ) | Expenses related to OIG investigation | | | (2,535 | ) | | | - | | | | - | | | | (2,535 | ) | Total | | $ | (5,516 | ) | | $ | (27 | ) | | $ | (4,528 | ) | | $ | (10,071 | ) |
CHEMED CORPORATION AND SUBSIDIARY COMPANIES | | CONSOLIDATING STATEMENT OF INCOME | | FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 | | (in thousands)(unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | Chemed | | | | VITAS | | | Roto-Rooter | | | Corporate | | | Consolidated | | 2015 (a) | | | | | | | | | | | | | Service revenues and sales | | $ | 831,081 | | | $ | 313,718 | | | $ | - | | | $ | 1,144,799 | | Cost of services provided and goods sold | | | 646,801 | | | | 164,836 | | | | - | | | | 811,637 | | Selling, general and administrative expenses | | | 66,792 | | | | 84,620 | | | | 21,855 | | | | 173,267 | | Depreciation | | | 14,141 | | | | 9,598 | | | | 450 | | | | 24,189 | | Amortization | | | 180 | | | | 227 | | | | - | | | | 407 | | Total costs and expenses | | | 727,914 | | | | 259,281 | | | | 22,305 | | | | 1,009,500 | | Income/(loss) from operations | | | 103,167 | | | | 54,437 | | | | (22,305 | ) | | | 135,299 | | Interest expense | | | (164 | ) | | | (274 | ) | | | (2,408 | ) | | | (2,846 | ) | Intercompany interest income/(expense) | | | 5,461 | | | | 2,501 | | | | (7,962 | ) | | | - | | Other income/(expense)—net | | | (395 | ) | | | 19 | | | | (880 | ) | | | (1,256 | ) | Income/(expense) before income taxes | | | 108,069 | | | | 56,683 | | | | (33,555 | ) | | | 131,197 | | Income taxes | | | (41,230 | ) | | | (21,561 | ) | | | 11,939 | | | | (50,852 | ) | Net income/(loss) | | $ | 66,839 | | | $ | 35,122 | | | $ | (21,616 | ) | | $ | 80,345 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (a) The following amounts are included in net income (in thousands): | | | | | | | | | |
| | | | | | | | | | | Chemed | | | | VITAS | | | Roto-Rooter | | | Corporate | | | Consolidated | | Pretax benefit/(cost): | | | | | | | | | | | | | Stock option expense | | $ | - | | | $ | - | | | $ | (3,600 | ) | | $ | (3,600 | ) | Long-term incentive compensation | | | - | | | | - | | | | (3,755 | ) | | | (3,755 | ) | Expenses related to litigation settlements | | | - | | | | (5 | ) | | | - | | | | (5 | ) | Expenses related to securities litigation | | | - | | | | - | | | | (37 | ) | | | (37 | ) | Acquisition expenses | | | - | | | | (161 | ) | | | - | | | | (161 | ) | Expenses related to OIG investigation | | | (3,837 | ) | | | - | | | | - | | | | (3,837 | ) | Total | | $ | (3,837 | ) | | $ | (166 | ) | | $ | (7,392 | ) | | $ | (11,395 | ) | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Chemed | | | | VITAS | | | Roto-Rooter | | | Corporate | | | Consolidated | | After-tax benefit/(cost): | | | | | | | | | | | | | Stock option expense | | $ | - | | | $ | - | | | $ | (2,268 | ) | | $ | (2,268 | ) | Long-term incentive compensation | | | - | | | | - | | | | (2,375 | ) | | | (2,375 | ) | Expenses related to litigation settlements | | | - | | | | (3 | ) | | | - | | | | (3 | ) | Expenses related to securities litigation | | | - | | | | - | | | | (23 | ) | | | (23 | ) | Acquisition expenses | | | - | | | | (98 | ) | | | - | | | | (98 | ) | Expenses related to OIG investigation | | | (2,369 | ) | | | - | | | | - | | | | (2,369 | ) | Total | | $ | (2,369 | ) | | $ | (101 | ) | | $ | (4,666 | ) | | $ | (7,136 | ) |
CHEMED CORPORATION AND SUBSIDIARY COMPANIES | | CONSOLIDATING STATEMENT OF INCOME | | FOR THE THREE MONTHS ENDED JUNE 30, 2017 | | (in thousands)(unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | Chemed | | | | VITAS | | | Roto-Rooter | | | Corporate | | | Consolidated | | 2017 (a) | | | | | | | | | | | | | Service revenues and sales | | $ | 284,710 | | | $ | 130,349 | | | $ | - | | | $ | 415,059 | | Cost of services provided and goods sold | | | 219,769 | | | | 66,083 | | | | - | | | | 285,852 | | Selling, general and administrative expenses | | | 24,531 | | | | 33,763 | | | | 10,360 | | | | 68,654 | | Depreciation | | | 4,741 | | | | 4,070 | | | | 22 | | | | 8,833 | | Amortization | | | - | | | | 32 | | | | - | | | | 32 | | Other operating expenses | | | 90,636 | | | | - | | | | - | | | | 90,636 | | Total costs and expenses | | | 339,677 | | | | 103,948 | | | | 10,382 | | | | 454,007 | | Income/(loss) from operations | | | (54,967 | ) | | | 26,401 | | | | (10,382 | ) | | | (38,948 | ) | Interest expense | | | (53 | ) | | | (87 | ) | | | (981 | ) | | | (1,121 | ) | Intercompany interest income/(expense) | | | 2,826 | | | | 1,346 | | | | (4,172 | ) | | | - | | Other income/(expense)—net | | | 71 | | | | (4 | ) | | | 1,586 | | | | 1,653 | | Income/(expense) before income taxes | | | (52,123 | ) | | | 27,656 | | | | (13,949 | ) | | | (38,416 | ) | Income taxes | | | 19,869 | | | | (10,598 | ) | | | 7,489 | | | | 16,760 | | Net income/(loss) | | $ | (32,254 | ) | | $ | 17,058 | | | $ | (6,460 | ) | | $ | (21,656 | ) | | | | | | | | | | | | | | | | | | (a) The following amounts are included in net income (in thousands): | |
Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA | | | | | | | | | | | | | | | Chemed Corporation and Subsidiary Companies | | | | | (in thousands) | | | | | | | | | | Chemed | | For the three months ended September 30, 2016 | VITAS | | Roto-Rooter | | Corporate | | Consolidated | | | | | | | | | | | | | | | Net income/(loss) | | $ | 20,903 | | | $ | 12,855 | | | $ | (6,929 | ) | | $ | 26,829 | | Add/(deduct): | | | | | | | | | | | | | | | | | Interest expense | | | 59 | | | | 78 | | | | 881 | | | | 1,018 | | Income taxes | | | 12,762 | | | | 7,904 | | | | (4,002 | ) | | | 16,664 | | Depreciation | | | 4,751 | | | | 3,731 | | | | 132 | | | | 8,614 | | Amortization | | | 14 | | | | 77 | | | | - | | | | 91 | | EBITDA | | | 38,489 | | | | 24,645 | | | | (9,918 | ) | | | 53,216 | | Add/(deduct): | | | | | | | | | | | | | | | | | Intercompany interest expense/(income) | | | (1,810 | ) | | | (800 | ) | | | 2,610 | | | | - | | Interest income | | | (108 | ) | | | (11 | ) | | | - | | | | (119 | ) | Expenses related to litigation settlements | | | 1,149 | | | | - | | | | - | | | | 1,149 | | Expenses related to OIG investigation | | | 599 | | | | - | | | | - | | | | 599 | | Medicare cap sequestration adjustment | | | 228 | | | | - | | | | - | | | | 228 | | Amortization of stock awards | | | 85 | | | | 76 | | | | 279 | | | | 440 | | Advertising cost adjustment | | | - | | | | (188 | ) | | | - | | | | (188 | ) | Stock option expense | | | - | | | | - | | | | 1,419 | | | | 1,419 | | Long-term incentive compensation | | | - | | | | - | | | | 643 | | | | 643 | | Adjusted EBITDA | | $ | 38,632 | | | $ | 23,722 | | | $ | (4,967 | ) | | $ | 57,387 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Chemed | | For the three months ended September 30, 2015 | VITAS | | Roto-Rooter | | Corporate | | Consolidated | | | | | | | | | | | | | | | | | | | Net income/(loss) | | $ | 25,723 | | | $ | 10,961 | | | $ | (7,851 | ) | | $ | 28,833 | | Add/(deduct): | | | | | | | | | | | | | | | | | Interest expense | | | 54 | | | | 80 | | | | 774 | | | | 908 | | Income taxes | | | 15,613 | | | | 6,550 | | | | (4,131 | ) | | | 18,032 | | Depreciation | | | 4,631 | | | | 3,300 | | | | 144 | | | | 8,075 | | Amortization | | | 60 | | | | 86 | | | | - | | | | 146 | | EBITDA | | | 46,081 | | | | 20,977 | | | | (11,064 | ) | | | 55,994 | | Add/(deduct): | | | | | | | | | | | | | | | | | Intercompany interest expense/(income) | | | (1,979 | ) | | | (858 | ) | | | 2,837 | | | | - | | Interest income | | | (68 | ) | | | (9 | ) | | | - | | | | (77 | ) | Amortization of stock awards | | | 126 | | | | 86 | | | | 379 | | | | 591 | | Expenses related to OIG investigation | | | 1,151 | | | | - | | | | - | | | | 1,151 | | Advertising cost adjustment | | | - | | | | (456 | ) | | | - | | | | (456 | ) | Acquisition Expenses | | | - | | | | 30 | | | | - | | | | 30 | | Long-term incentive compensation | | | - | | | | - | | | | 1,364 | | | | 1,364 | | Stock option expense | | | - | | | | - | | | | 813 | | | | 813 | | Adjusted EBITDA | | $ | 45,311 | | | $ | 19,770 | | | $ | (5,671 | ) | | $ | 59,410 | |
| | | | | | | | | | | Chemed | | | | VITAS | | | Roto-Rooter | | | Corporate | | | Consolidated | | Pretax benefit/(cost): | | | | | | | | | | | | | Potential litigation settlement | | $ | (90,000 | ) | | $ | - | | | $ | - | | | $ | (90,000 | ) | Medicare cap sequestration adjustment | | | (105 | ) | | | - | | | | - | | | | (105 | ) | Stock option expense | | | - | | | | - | | | | (3,054 | ) | | | (3,054 | ) | Long-term incentive compensation | | | - | | | | - | | | | (956 | ) | | | (956 | ) | Expenses related to litigation setlements | | | - | | | | (213 | ) | | | - | | | | (213 | ) | Program closure expenses | | | (636 | ) | | | - | | | | - | | | | (636 | ) | Expenses related to OIG investigation | | | (2,093 | ) | | | - | | | | - | | | | (2,093 | ) | Total | | $ | (92,834 | ) | | $ | (213 | ) | | $ | (4,010 | ) | | $ | (97,057 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Chemed | | | | VITAS | | | Roto-Rooter | | | Corporate | | | Consolidated | | After-tax benefit/(cost): | | | | | | | | | | | | | | | | | Potential litigation settlement | | $ | (55,800 | ) | | $ | - | | | $ | - | | | $ | (55,800 | ) | Medicare cap sequestration adjustment | | | (65 | ) | | | - | | | | - | | | | (65 | ) | Stock option expense | | | - | | | | - | | | | (1,931 | ) | | | (1,931 | ) | Long-term incentive compensation | | | - | | | | - | | | | (604 | ) | | | (604 | ) | Expenses related to litigation setlements | | | - | | | | (129 | ) | | | - | | | | (129 | ) | Program closure expenses | | | (385 | ) | | | - | | | | - | | | | (385 | ) | Expenses related to OIG investigation | | | (1,292 | ) | | | - | | | | - | | | | (1,292 | ) | Excess tax benefits on stock compensation | | | - | | | | - | | | | 2,643 | | | | 2,643 | | Total | | $ | (57,542 | ) | | $ | (129 | ) | | $ | 108 | | | $ | (57,563 | ) |
CONSOLIDATING STATEMENT OF INCOME | | FOR THE THREE MONTHS ENDED JUNE 30, 2016 | | (in thousands)(unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | Chemed | | | | VITAS | | | Roto-Rooter | | | Corporate | | | Consolidated | | 2016 (a) | | | | | | | | | | | | | Service revenues and sales | | $ | 278,739 | | | $ | 111,670 | | | $ | - | | | $ | 390,409 | | Cost of services provided and goods sold | | | 218,694 | | | | 57,561 | | | | - | | | | 276,255 | | Selling, general and administrative expenses | | | 22,638 | | | | 29,448 | | | | 10,542 | | | | 62,628 | | Depreciation | | | 4,814 | | | | 3,628 | | | | 139 | | | | 8,581 | | Amortization | | | 14 | | | | 77 | | | | - | | | | 91 | | Other operating expenses | | | 4,491 | | | | - | | | | - | | | | 4,491 | | Total costs and expenses | | | 250,651 | | | | 90,714 | | | | 10,681 | | | | 352,046 | | Income/(loss) from operations | | | 28,088 | | | | 20,956 | | | | (10,681 | ) | | | 38,363 | | Interest expense | | | (59 | ) | | | (92 | ) | | | (820 | ) | | | (971 | ) | Intercompany interest income/(expense) | | | 1,927 | | | | 866 | | | | (2,793 | ) | | | - | | Other income/(expense)—net | | | 38 | | | | (12 | ) | | | 3,191 | | | | 3,217 | | Income/(expense) before income taxes | | | 29,994 | | | | 21,718 | | | | (11,103 | ) | | | 40,609 | | Income taxes | | | (11,444 | ) | | | (8,377 | ) | | | 4,097 | | | | (15,724 | ) | Net income/(loss) | | $ | 18,550 | | | $ | 13,341 | | | $ | (7,006 | ) | | $ | 24,885 | | | | | | | | | | | | | | | | | | | (a) The following amounts are included in net income (in thousands): | | | | | | | | | | | | | | | | Chemed | | | | VITAS | | | Roto-Rooter | | | Corporate | | | Consolidated | | Pretax benefit/(cost): | | | | | | | | | | | | | | | | | Early retirement expenses | | $ | (4,491 | ) | | $ | - | | | $ | - | | | $ | (4,491 | ) | Stock option expense | | | - | | | | - | | | | (2,277 | ) | | | (2,277 | ) | Long-term incentive compensation | | | - | | | | - | | | | (499 | ) | | | (499 | ) | Expenses related to securities litigation | | | - | | | | - | | | | 3 | | | | 3 | | Expenses related to litigation settlements | | | - | | | | (44 | ) | | | - | | | | (44 | ) | Expenses related to OIG investigation | | | (1,170 | ) | | | - | | | | - | | | | (1,170 | ) | Total | | $ | (5,661 | ) | | $ | (44 | ) | | $ | (2,773 | ) | | $ | (8,478 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Chemed | | | | VITAS | | | Roto-Rooter | | | Corporate | | | Consolidated | | After-tax benefit/(cost): | | | | | | | | | | | | | | | | | Early retirement expenses | | $ | (2,840 | ) | | $ | - | | | $ | - | | | $ | (2,840 | ) | Stock option expense | | | - | | | | - | | | | (1,440 | ) | | | (1,440 | ) | Long-term incentive compensation | | | - | | | | - | | | | (316 | ) | | | (316 | ) | Expenses related to securities litigation | | | - | | | | - | | | | 2 | | | | 2 | | Expenses related to litigation settlements | | | - | | | | (27 | ) | | | - | | | | (27 | ) | Expenses related to OIG investigation | | | (722 | ) | | | - | | | | - | | | | (722 | ) | Total | | $ | (3,562 | ) | | $ | (27 | ) | | $ | (1,754 | ) | | $ | (5,343 | ) |
Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA | | | | | | | | | | | | | | | Chemed Corporation and Subsidiary Companies | | | | | (in thousands) | | | | | | | | | | Chemed | | For the nine months ended September 30, 2016 | VITAS | | Roto-Rooter | | Corporate | | Consolidated | | | | | | | | | | | | | | | Net income/(loss) | | $ | 58,538 | | | $ | 39,216 | | | $ | (21,200 | ) | | $ | 76,554 | | Add/(deduct): | | | | | | | | | | | | | | | | | Interest expense | | | 176 | | | | 264 | | | | 2,391 | | | | 2,831 | | Income taxes | | | 35,887 | | | | 24,446 | | | | (12,158 | ) | | | 48,175 | | Depreciation | | | 14,346 | | | | 10,860 | | | | 413 | | | | 25,619 | | Amortization | | | 41 | | | | 233 | | | | - | | | | 274 | | EBITDA | | | 108,988 | | | | 75,019 | | | | (30,554 | ) | | | 153,453 | | Add/(deduct): | | | | | | | | | | | | | | | | | Intercompany interest expense/(income) | | | (5,840 | ) | | | (2,614 | ) | | | 8,454 | | | | - | | Interest income | | | (256 | ) | | | (45 | ) | | | - | | | | (301 | ) | Early retirement expenses | | | 4,491 | | | | - | | | | - | | | | 4,491 | | Expenses related to OIG investigation | | | 4,105 | | | | - | | | | - | | | | 4,105 | | Stock award amortization | | | 302 | | | | 230 | | | | 883 | | | | 1,415 | | Medicare cap sequestration adjustment | | | 228 | | | | - | | | | - | | | | 228 | | Expenses related to litigation settlements | | | 1,149 | | | | 44 | | | | - | | | | 1,193 | | Advertising cost adjustment | | | - | | | | (1,353 | ) | | | - | | | | (1,353 | ) | Stock option expense | | | - | | | | - | | | | 6,259 | | | | 6,259 | | Long-term incentive compensation | | | - | | | | - | | | | 901 | | | | 901 | | Adjusted EBITDA | | $ | 113,167 | | | $ | 71,281 | | | $ | (14,057 | ) | | $ | 170,391 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Chemed | | For the nine months ended September 30, 2015 | VITAS | | Roto-Rooter | | Corporate | | Consolidated | | | | | | | | | | | | | | | | | | | Net income/(loss) | | $ | 66,839 | | | $ | 35,122 | | | $ | (21,616 | ) | | $ | 80,345 | | Add/(deduct): | | | | | | | | | | | | | | | | | Interest expense | | | 164 | | | | 274 | | | | 2,408 | | | | 2,846 | | Income taxes | | | 41,230 | | | | 21,561 | | | | (11,939 | ) | | | 50,852 | | Depreciation | | | 14,141 | | | | 9,598 | | | | 450 | | | | 24,189 | | Amortization | | | 180 | | | | 227 | | | | - | | | | 407 | | EBITDA | | | 122,554 | | | | 66,782 | | | | (30,697 | ) | | | 158,639 | | Add/(deduct): | | | | | | | | | | | | | | | | | Intercompany interest expense/(income) | | | (5,461 | ) | | | (2,501 | ) | | | 7,962 | | | | - | | Interest income | | | (179 | ) | | | (27 | ) | | | (1 | ) | | | (207 | ) | Expenses related to OIG investigation | | | 3,837 | | | | - | | | | - | | | | 3,837 | | Acquisition expenses | | | - | | | | 161 | | | | - | | | | 161 | | Advertising cost adjustment | | | - | | | | (1,367 | ) | | | - | | | | (1,367 | ) | Stock award amortization | | | 343 | | | | 181 | | | | 964 | | | | 1,488 | | Expenses related to litigation settlements | | | - | | | | 5 | | | | - | | | | 5 | | Long-term incentive compensation | | | - | | | | - | | | | 3,755 | | | | 3,755 | | Stock option expense | | | - | | | | - | | | | 3,600 | | | | 3,600 | | Expenses related to securities litigation | | | - | | | | - | | | | 37 | | | | 37 | | Adjusted EBITDA | | $ | 121,094 | | | $ | 63,234 | | | $ | (14,380 | ) | | $ | 169,948 | |
CHEMED CORPORATION AND SUBSIDIARY COMPANIES | | CONSOLIDATING STATEMENT OF INCOME | | FOR THE SIX MONTHS ENDED JUNE 30, 2017 | | (in thousands)(unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Chemed | | | | VITAS | | | Roto-Rooter | | | Corporate | | | Consolidated | | 2017 (a) | | | | | | | | | | | | | Service revenues and sales | | $ | 567,026 | | | $ | 253,897 | | | $ | - | | | $ | 820,923 | | Cost of services provided and goods sold | | | 441,446 | | | | 129,546 | | | | - | | | | 570,992 | | Selling, general and administrative expenses | | | 48,825 | | | | 67,223 | | | | 22,064 | | | | 138,112 | | Depreciation | | | 9,519 | | | | 8,054 | | | | 153 | | | | 17,726 | | Amortization | | | 14 | | | | 64 | | | | - | | | | 78 | | Other operating expenses | | | 91,509 | | | | - | | | | - | | | | 91,509 | | Total costs and expenses | | | 591,313 | | | | 204,887 | | | | 22,217 | | | | 818,417 | | Income/(loss) from operations | | | (24,287 | ) | | | 49,010 | | | | (22,217 | ) | | | 2,506 | | Interest expense | | | (108 | ) | | | (185 | ) | | | (1,823 | ) | | | (2,116 | ) | Intercompany interest income/(expense) | | | 5,528 | | | | 2,656 | | | | (8,184 | ) | | | - | | Other income/(expense)—net | | | (9 | ) | | | (77 | ) | | | 4,202 | | | | 4,116 | | Income/(expense) before income taxes | | | (18,876 | ) | | | 51,404 | | | | (28,022 | ) | | | 4,506 | | Income taxes | | | 7,219 | | | | (19,722 | ) | | | 16,185 | | | | 3,682 | | Net income/(loss) | | $ | (11,657 | ) | | $ | 31,682 | | | $ | (11,837 | ) | | $ | 8,188 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (a) The following amounts are included in net income (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Chemed | | | | | VITAS | | | | Roto-Rooter | | | | Corporate | | | | Consolidated | | Pretax benefit/(cost): | | | | | | | | | | | | | | | | | Potential litigation settlement | | $ | (90,000 | ) | | $ | - | | | $ | - | | | $ | (90,000 | ) | Medicare cap sequestration adjustments | | | (105 | ) | | | - | | | | - | | | | (105 | ) | Stock option expense | | | - | | | | - | | | | (6,055 | ) | | | (6,055 | ) | Long-term incentive compensation | | | - | | | | - | | | | (1,917 | ) | | | (1,917 | ) | Expenses related to litigation settlements | | | - | | | | (213 | ) | | | - | | | | (213 | ) | Program closure expenses | | | (1,509 | ) | | | - | | | | - | | | | (1,509 | ) | Expenses related to OIG investigation | | | (4,243 | ) | | | - | | | | - | | | | (4,243 | ) | Total | | $ | (95,857 | ) | | $ | (213 | ) | | $ | (7,972 | ) | | $ | (104,042 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | After-tax benefit/(cost): | | | | | | | | | | | | | | | Chemed | | | | | VITAS | | | | Roto-Rooter | | | | Corporate | | | | Consolidated | | | | | | | | | | | | | | | | | | | Potential litigation settlement | | $ | (55,800 | ) | | $ | - | | | $ | - | | | $ | (55,800 | ) | Medicare cap sequestration adjustments | | | (65 | ) | | | - | | | | - | | | | (65 | ) | Stock option expense | | | - | | | | - | | | | (3,828 | ) | | | (3,828 | ) | Long-term incentive compensation | | | - | | | | - | | | | (1,212 | ) | | | (1,212 | ) | Expenses related to litigation settlements | | | - | | | | (129 | ) | | | - | | | | (129 | ) | Program closure expenses | | | (898 | ) | | | - | | | | - | | | | (898 | ) | Expenses related to OIG investigation | | | (2,620 | ) | | | - | | | | - | | | | (2,620 | ) | Excess tax benefits on stock compensation | | | - | | | | - | | | | 6,338 | | | | 6,338 | | Total | | $ | (59,383 | ) | | $ | (129 | ) | | $ | 1,298 | | | $ | (58,214 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | CHEMED CORPORATION AND SUBSIDIARY COMPANIES | | CONSOLIDATING STATEMENT OF INCOME | | FOR THE SIX MONTHS ENDED JUNE 30, 2016 | | (in thousands)(unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Chemed | | | | | VITAS | | | | Roto-Rooter | | | | Corporate | | | | Consolidated | | 2016 (a) | | | | | | | | | | | | | | | | | Service revenues and sales | | $ | 556,266 | | | $ | 224,532 | | | $ | - | | | $ | 780,798 | | Cost of services provided and goods sold | | | 437,960 | | | | 116,730 | | | | - | | | | 554,690 | | Selling, general and administrative expenses | | | 47,422 | | | | 59,255 | | | | 14,996 | | | | 121,673 | | Depreciation | | | 9,595 | | | | 7,129 | | | | 281 | | | | 17,005 | | Amortization | | | 27 | | | | 156 | | | | - | | | | 183 | | Other operating expenses | | | 4,491 | | | | - | | | | - | | | | 4,491 | | Total costs and expenses | | | 499,495 | | | | 183,270 | | | | 15,277 | | | | 698,042 | | Income/(loss) from operations | | | 56,771 | | | | 41,262 | | | | (15,277 | ) | | | 82,756 | | Interest expense | | | (117 | ) | | | (186 | ) | | | (1,510 | ) | | | (1,813 | ) | Intercompany interest income/(expense) | | | 4,030 | | | | 1,813 | | | | (5,843 | ) | | | - | | Other income/(expense)—net | | | 78 | | | | 12 | | | | 203 | | | | 293 | | Income/(expense) before income taxes | | | 60,762 | | | | 42,901 | | | | (22,427 | ) | | | 81,236 | | Income taxes | | | (23,125 | ) | | | (16,542 | ) | | | 8,156 | | | | (31,511 | ) | Net income/(loss) | | $ | 37,637 | | | $ | 26,359 | | | $ | (14,271 | ) | | $ | 49,725 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (a) The following amounts are included in net income (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Chemed | | | | | VITAS | | | | Roto-Rooter | | | | Corporate | | | | Consolidated | | Pretax benefit/(cost): | | | | | | | | | | | | | | | | | Stock option expense | | $ | - | | | $ | - | | | $ | (4,840 | ) | | $ | (4,840 | ) | Long-term incentive compensation | | | - | | | | - | | | | (258 | ) | | | (258 | ) | Early retirement expenses | | | (4,491 | ) | | | - | | | | - | | | | (4,491 | ) | Expenses related to litigation settlements | | | - | | | | (44 | ) | | | - | | | | (44 | ) | Expenses related to OIG investigation | | | (3,506 | ) | | | - | | | | - | | | | (3,506 | ) | Total | | $ | (7,997 | ) | | $ | (44 | ) | | $ | (5,098 | ) | | $ | (13,139 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Chemed | | | | | VITAS | | | | Roto-Rooter | | | | Corporate | | | | Consolidated | | After-tax benefit/(cost): | | | | | | | | | | | | | | | | | Stock option expense | | $ | - | | | $ | - | | | $ | (3,061 | ) | | $ | (3,061 | ) | Long-term incentive compensation | | | - | | | | - | | | | (164 | ) | | | (164 | ) | Early retirement expenses | | | (2,840 | ) | | | - | | | | - | | | | (2,840 | ) | Expenses related to litigation settlements | | | - | | | | (27 | ) | | | - | | | | (27 | ) | Expenses related to OIG investigation | | | (2,165 | ) | | | - | | | | - | | | | (2,165 | ) | Total | | $ | (5,005 | ) | | $ | (27 | ) | | $ | (3,225 | ) | | $ | (8,257 | ) | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA | | | | | | | | | | | | | | | Chemed Corporation and Subsidiary Companies | | | | | (in thousands) | | | | | | | | | | | Chemed | | For the three months ended June 30, 2017 | | VITAS | | | Roto-Rooter | | | Corporate | | | Consolidated | | | | | | | | | | | | | | | Net income/(loss) | | $ | (32,254 | ) | | $ | 17,058 | | | $ | (6,460 | ) | | $ | (21,656 | ) | Add/(deduct): | | | | | | | | | | | | | | | | | Interest expense | | | 53 | | | | 87 | | | | 981 | | | | 1,121 | | Income taxes | | | (19,869 | ) | | | 10,598 | | | | (7,489 | ) | | | (16,760 | ) | Depreciation | | | 4,741 | | | | 4,070 | | | | 22 | | | | 8,833 | | Amortization | | | - | | | | 32 | | | | - | | | | 32 | | EBITDA | | | (47,329 | ) | | | 31,845 | | | | (12,946 | ) | | | (28,430 | ) | Add/(deduct): | | | | | | | | | | | | | | | | | Intercompany interest expense/(income) | | | (2,826 | ) | | | (1,346 | ) | | | 4,172 | | | | - | | Interest income | | | (149 | ) | | | (12 | ) | | | - | | | | (161 | ) | Potential litigation settlement | | | 90,000 | | | | - | | | | - | | | | 90,000 | | Expenses related to OIG investigation | | | 2,093 | | | | - | | | | - | | | | 2,093 | | Program closure expenses | | | 636 | | | | - | | | | - | | | | 636 | | Medicare cap sequestration adjustment | | | 105 | | | | - | | | | - | | | | 105 | | Amortization of stock awards | | | 71 | | | | 66 | | | | 166 | | | | 303 | | Advertising cost adjustment | | | - | | | | (272 | ) | | | - | | | | (272 | ) | Expenses related to litigation settlements | | | - | | | | 213 | | | | - | | | | 213 | | Stock option expense | | | - | | | | - | | | | 3,054 | | | | 3,054 | | Long-term incentive compensation | | | - | | | | - | | | | 956 | | | | 956 | | Adjusted EBITDA | | $ | 42,601 | | | $ | 30,494 | | | $ | (4,598 | ) | | $ | 68,497 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Chemed | | For the three months ended June 30, 2016 | | | VITAS | | | | Roto-Rooter | | | | Corporate | | | | Consolidated | | | | | | | | | | | | | | | | | | | Net income/(loss) | | $ | 18,550 | | | $ | 13,341 | | | $ | (7,006 | ) | | $ | 24,885 | | Add/(deduct): | | | | | | | | | | | | | | | | | Interest expense | | | 59 | | | | 92 | | | | 820 | | | | 971 | | Income taxes | | | 11,444 | | | | 8,377 | | | | (4,097 | ) | | | 15,724 | | Depreciation | | | 4,814 | | | | 3,628 | | | | 139 | | | | 8,581 | | Amortization | | | 14 | | | | 77 | | | | - | | | | 91 | | EBITDA | | | 34,881 | | | | 25,515 | | | | (10,144 | ) | | | 50,252 | | Add/(deduct): | | | | | | | | | | | | | | | | | Intercompany interest expense/(income) | | | (1,927 | ) | | | (866 | ) | | | 2,793 | | | | - | | Interest income | | | (69 | ) | | | (16 | ) | | | - | | | | (85 | ) | Expenses related to OIG investigation | | | 1,170 | | | | - | | | | - | | | | 1,170 | | Amortization of stock awards | | | 85 | | | | 74 | | | | 276 | | | | 435 | | Early retirement expenses | | | 4,491 | | | | - | | | | - | | | | 4,491 | | Expenses related to litigation settlements | | | - | | | | 44 | | | | - | | | | 44 | | Expenses related to securities litigation | | | - | | | | - | | | | (3 | ) | | | (3 | ) | Advertising cost adjustment | | | - | | | | (557 | ) | | | - | | | | (557 | ) | Stock option expense | | | - | | | | - | | | | 2,277 | | | | 2,277 | | Long-term incentive compensation | | | - | | | | - | | | | 499 | | | | 499 | | Adjusted EBITDA | | $ | 38,631 | | | $ | 24,194 | | | $ | (4,302 | ) | | $ | 58,523 | |
RECONCILIATION OF ADJUSTED NET INCOME | | (in thousands, except per share data)(unaudited) | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | | 2016 | | | 2015 | | | 2016 | | | 2015 | | Net income as reported | | $ | 26,829 | | | $ | 28,833 | | | $ | 76,554 | | | $ | 80,345 | | | | | | | | | | | | | | | | | | | Add/(deduct) after-tax cost of: | | | | | | | | | | | | | | | | | Stock option expense | | | 897 | | | | 509 | | | | 3,958 | | | | 2,268 | | Long-term incentive compensation | | | 406 | | | | 863 | | | | 570 | | | | 2,375 | | Expenses of OIG investigation | | | 370 | | | | 711 | | | | 2,535 | | | | 2,369 | | Medicare cap sequestration adjustment | | | 141 | | | | - | | | | 141 | | | | - | | Early retirement expenses | | | - | | | | - | | | | 2,840 | | | | - | | Expenses related to litigation settlements | | | - | | | | - | | | | 27 | | | | 3 | | Expenses related to securities settlements | | | - | | | | - | | | | - | | | | 23 | | Acquisition expenses | | | - | | | | 18 | | | | - | | | | 98 | | Adjusted net income | | $ | 28,643 | | | $ | 30,934 | | | $ | 86,625 | | | $ | 87,481 | | | | | | | | | | | | | | | | | | | Diluted Earnings Per Share As Reported | | | | | | | | | | | | | | | | | Net income | | $ | 1.62 | | | $ | 1.65 | | | $ | 4.54 | | | $ | 4.61 | | Average number of shares outstanding | | | 16,559 | | | | 17,422 | | | | 16,851 | | | | 17,430 | | | | | | | | | | | | | | | | | | | Adjusted Diluted Earnings Per Share | | | | | | | | | | | | | | | | | Adjusted net income | | $ | 1.73 | | | $ | 1.78 | | | $ | 5.14 | | | $ | 5.02 | | Adjusted average number of shares outstanding | | | 16,559 | | | | 17,422 | | | | 16,851 | | | | 17,430 | |
| | | | | | | | | | | | | Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA | | | | | | | | | | | | | | | Chemed Corporation and Subsidiary Companies | | | | | (in thousands) | | | | | | | | | | Chemed | | For the six months ended June 30, 2017 | VITAS | | Roto-Rooter | | Corporate | | Consolidated | | | | | | | | | | | | | | | Net income/(loss) | | $ | (11,657 | ) | | $ | 31,682 | | | $ | (11,837 | ) | | $ | 8,188 | | Add/(deduct): | | | | | | | | | | | | | | | | | Interest expense | | | 108 | | | | 185 | | | | 1,823 | | | | 2,116 | | Income taxes | | | (7,219 | ) | | | 19,722 | | | | (16,185 | ) | | | (3,682 | ) | Depreciation | | | 9,519 | | | | 8,054 | | | | 153 | | | | 17,726 | | Amortization | | | 14 | | | | 64 | | | | - | | | | 78 | | EBITDA | | | (9,235 | ) | | | 59,707 | | | | (26,046 | ) | | | 24,426 | | Add/(deduct): | | | | | | | | | | | | | | | | | Intercompany interest expense/(income) | | | (5,528 | ) | | | (2,656 | ) | | | 8,184 | | | | - | | Interest income | | | (219 | ) | | | (26 | ) | | | - | | | | (245 | ) | Potential litigation settlements | | | 90,000 | | | | - | | | | - | | | | 90,000 | | Medicare cap sequestration adjustment | | | 105 | | | | - | | | | - | | | | 105 | | Program closure expenses | | | 1,509 | | | | - | | | | - | | | | 1,509 | | Expenses related to OIG investigation | | | 4,243 | | | | - | | | | - | | | | 4,243 | | Stock award amortization | | | 148 | | | | 136 | | | | 354 | | | | 638 | | Advertising cost adjustment | | | - | | | | (545 | ) | | | - | | | | (545 | ) | Expenses related to litigation settlements | | | - | | | | 213 | | | | - | | | | 213 | | Stock option expense | | | - | | | | - | | | | 6,055 | | | | 6,055 | | Long-term incentive compensation | | | - | | | | - | | | | 1,917 | | | | 1,917 | | Adjusted EBITDA | | $ | 81,023 | | | $ | 56,829 | | | $ | (9,536 | ) | | $ | 128,316 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Chemed | | For the six months ended June 30, 2016 | VITAS | | Roto-Rooter | | Corporate | | Consolidated | | | | | | | | | | | | | | | | | | | Net income/(loss) | | $ | 37,637 | | | $ | 26,359 | | | $ | (14,271 | ) | | $ | 49,725 | | Add/(deduct): | | | | | | | | | | | | | | | | | Interest expense | | | 117 | | | | 186 | | | | 1,510 | | | | 1,813 | | Income taxes | | | 23,125 | | | | 16,542 | | | | (8,156 | ) | | | 31,511 | | Depreciation | | | 9,595 | | | | 7,129 | | | | 281 | | | | 17,005 | | Amortization | | | 27 | | | | 156 | | | | - | | | | 183 | | EBITDA | | | 70,501 | | | | 50,372 | | | | (20,636 | ) | | | 100,237 | | Add/(deduct): | | | | | | | | | | | | | | | | | Intercompany interest expense/(income) | | | (4,030 | ) | | | (1,813 | ) | | | 5,843 | | | | - | | Interest income | | | (148 | ) | | | (34 | ) | | | - | | | | (182 | ) | Expenses related to OIG investigation | | | 3,506 | | | | - | | | | - | | | | 3,506 | | Early retirement expenses | | | 4,491 | | | | - | | | | - | | | | 4,491 | | Advertising cost adjustment | | | - | | | | (1,165 | ) | | | - | | | | (1,165 | ) | Stock award amortization | | | 216 | | | | 155 | | | | 603 | | | | 974 | | Expenses related to litigation settlements | | | - | | | | 44 | | | | - | | | | 44 | | Long-term incentive compensation | | | - | | | | - | | | | 258 | | | | 258 | | Stock option expense | | | - | | | | - | | | | 4,840 | | | | 4,840 | | Adjusted EBITDA | | $ | 74,536 | | | $ | 47,559 | | | $ | (9,092 | ) | | $ | 113,003 | |
CHEMED CORPORATION AND SUBSIDIARY COMPANIES | | OPERATING STATISTICS FOR VITAS SEGMENT | | (unaudited) | | | | | | Three Months Ended September 30, | | | Nine Months Ended September 30, | | OPERATING STATISTICS | | 2016 | | | 2015 | | | 2016 | | | 2015 | | Net revenue ($000) | | | | | | | | | | | | | Homecare | | $ | 225,348 | | | $ | 222,952 | | | $ | 659,477 | | | $ | 640,867 | | Inpatient | | | 23,850 | | | | 24,271 | | | | 73,856 | | | | 76,485 | | Continuous care | | | 33,895 | | | | 37,785 | | | | 106,026 | | | | 113,564 | | Total before Medicare cap allowance | | $ | 283,093 | | | $ | 285,008 | | | $ | 839,359 | | | $ | 830,916 | | Medicare cap allowance | | | (228 | ) | | | - | | | | (228 | ) | | | 165 | | Total | | $ | 282,865 | | | $ | 285,008 | | | $ | 839,131 | | | $ | 831,081 | | Net revenue as a percent of total before Medicare cap allowances | | | | | | | | | | | | | | | | | Homecare | | | 79.6 | % | | | 78.2 | % | | | 78.6 | % | | | 77.1 | % | Inpatient | | | 8.4 | | | | 8.5 | | | | 8.8 | | | | 9.2 | | Continuous care | | | 12.0 | | | | 13.3 | | | | 12.6 | | | | 13.7 | | Total before Medicare cap allowance | | | 100.0 | | | | 100.0 | | | | 100.0 | | | | 100.0 | | Medicare cap allowance | | | (0.1 | ) | | | - | | | | - | | | | - | | Total | | | 99.9 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | Average daily census (days) | | | | | | | | | | | | | | | | | Homecare | | | 12,223 | | | | 11,607 | | | | 11,972 | | | | 11,259 | | Nursing home | | | 3,077 | | | | 3,150 | | | | 3,028 | | | | 3,026 | | Routine homecare | | | 15,300 | | | | 14,757 | | | | 15,000 | | | | 14,285 | | Inpatient | | | 394 | | | | 404 | | | | 406 | | | | 424 | | Continuous care | | | 507 | | | | 561 | | | | 530 | | | | 571 | | Total | | | 16,201 | | | | 15,722 | | | | 15,936 | | | | 15,280 | | Total Admissions | | | 16,157 | | | | 16,131 | | | | 49,205 | | | | 50,082 | | Total Discharges | | | 15,690 | | | | 15,949 | | | | 48,403 | | | | 48,979 | | Average length of stay (days) | | | 87.7 | | | | 78.6 | | | | 85.2 | | | | 78.9 | | Median length of stay (days) | | | 16.0 | | | | 16.0 | | | | 16.0 | | | | 15.0 | | ADC by major diagnosis | | | | | | | | | | | | | | | | | Cerebro | | | 32.9 | % | | | 28.8 | % | | | 32.2 | % | | | 28.6 | % | Neurological | | | 20.7 | | | | 22.9 | | | | 21.3 | | | | 23.3 | | Cancer | | | 15.5 | | | | 16.6 | | | | 15.3 | | | | 16.7 | | Cardio | | | 17.1 | | | | 17.4 | | | | 17.3 | | | | 17.5 | | Respiratory | | | 7.8 | | | | 7.9 | | | | 7.8 | | | | 7.9 | | Other | | | 6.0 | | | | 6.4 | | | | 6.1 | | | | 6.0 | | Total | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | Admissions by major diagnosis | | | | | | | | | | | | | | | | | Cerebro | | | 21.2 | | | | 18.7 | % | | | 20.9 | % | | | 18.8 | % | Neurological | | | 11.0 | | | | 12.5 | | | | 11.0 | | | | 12.3 | | Cancer | | | 33.3 | | | | 33.3 | | | | 31.9 | | | | 32.1 | | Cardio | | | 14.4 | | | | 14.5 | | | | 15.3 | | | | 15.3 | | Respiratory | | | 9.0 | | | | 9.2 | | | | 10.1 | | | | 10.0 | | Other | | | 11.1 | | | | 11.8 | | | | 10.8 | | | | 11.5 | | Total | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | Direct patient care margins | | | | | | | | | | | | | | | | | Routine homecare | | | 51.4 | % | | | 53.7 | % | | | 51.8 | % | | | 52.9 | % | Inpatient | | | (2.4 | ) | | | 3.8 | | | | 2.7 | | | | 6.1 | | Continuous care | | | 12.2 | | | | 15.7 | | | | 13.7 | | | | 16.1 | | Homecare margin drivers (dollars per patient day) | | | | | | | | | | | | | | | | | Labor costs | | $ | 56.53 | | | $ | 54.92 | | | $ | 56.51 | | | $ | 56.14 | | Combined drug, HME and medical supplies | | | 16.30 | | | | 16.12 | | | | 15.90 | | | | 16.18 | | Inpatient margin drivers (dollars per patient day) | | | | | | | | | | | | | | | | | Labor costs | | $ | 360.35 | | | $ | 355.30 | | | $ | 346.61 | | | $ | 347.52 | | Continuous care margin drivers (dollars per patient day) | | | | | | | | | | | | | | | | | Labor costs | | $ | 618.15 | | | $ | 596.39 | | | $ | 609.08 | | | $ | 591.26 | | Bad debt expense as a percent of revenues | | | 1.2 | % | | | 1.0 | % | | | 1.2 | % | | | 1.0 | % | Accounts receivable -- Days of revenue outstanding- excluding unapplied Medicare payments | | | 38.4 | | | | 38.1 | | | n.a. | | | n.a. | | Accounts receivable -- Days of revenue outstanding- including unapplied Medicare payments | | | 20.7 | | | | 32.3 | | | n.a. | | | n.a. | |
RECONCILIATION OF ADJUSTED NET INCOME | | (in thousands, except per share data)(unaudited) | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | Net income/(loss) as reported | | $ | (21,656 | ) | | $ | 24,885 | | | $ | 8,188 | | | $ | 49,725 | | | | | | | | | | | | | | | | | | | Add/(deduct) after-tax cost of: | | | | | | | | | | | | | | | | | Potential litigation settlement | | | 55,800 | | | | - | | | | 55,800 | | | | - | | Excess tax benefits on stock compensation | | | (2,643 | ) | | | - | | | | (6,338 | ) | | | - | | Stock option expense | | | 1,931 | | | | 1,440 | | | | 3,828 | | | | 3,061 | | Expenses of OIG investigation | | | 1,292 | | | | 722 | | | | 2,620 | | | | 2,165 | | Long-term incentive compensation | | | 604 | | | | 316 | | | | 1,212 | | | | 164 | | Program closure expenses | | | 385 | | | | - | | | | 898 | | | | - | | Expenses related to litigation settlements | | | 129 | | | | 27 | | | | 129 | | | | 27 | | Medicare cap sequestration adjustment | | | 65 | | | | - | | | | 65 | | | | - | | Early retirement expenses | | | - | | | | 2,840 | | | | - | | | | 2,840 | | Expenses related to securities settlements | | | - | | | | (2 | ) | | | - | | | | - | | Adjusted net income | | $ | 35,907 | | | $ | 30,228 | | | $ | 66,402 | | | $ | 57,982 | | | | | | | | | | | | | | | | | | | Diluted Earnings Per Share As Reported | | | | | | | | | | | | | | | | | Net income/(loss) | | $ | (1.35 | ) | | $ | 1.48 | | | $ | 0.49 | | | $ | 2.93 | | Average number of shares outstanding | | | 16,010 | | | | 16,831 | | | | 16,758 | | | | 16,999 | | | | | | | | | | | | | | | | | | | Adjusted Diluted Earnings Per Share | | | | | | | | | | | | | | | | | Adjusted net income | | $ | 2.15 | | | $ | 1.80 | | | $ | 3.96 | | | $ | 3.41 | | Adjusted average number of shares outstanding | | | 16,702 | | | | 16,831 | | | | 16,758 | | | | 16,999 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | CHEMED CORPORATION AND SUBSIDIARY COMPANIES | | OPERATING STATISTICS FOR VITAS SEGMENT | | (unaudited) | | | | Three Months Ended June 30, | | | Six Months Ended June 30, | | OPERATING STATISTICS | | 2017 | | | 2016 | | | 2017 | | | 2016 | | Net revenue ($000) | | | | | | | | | | | | | Homecare | | $ | 231,258 | | | $ | 219,280 | | | $ | 456,794 | | | $ | 434,129 | | Inpatient | | | 22,000 | | | | 24,489 | | | | 45,923 | | | | 50,006 | | Continuous care | | | 31,699 | | | | 34,970 | | | | 64,556 | | | | 72,131 | | Total before Medicare cap allowance | | $ | 284,957 | | | $ | 278,739 | | | $ | 567,273 | | | $ | 556,266 | | Medicare cap allowance | | | (247 | ) | | | - | | | | (247 | ) | | | - | | Total | | $ | 284,710 | | | $ | 278,739 | | | $ | 567,026 | | | $ | 556,266 | | Net revenue as a percent of total before Medicare cap allowances | | | | | | | | | | | | | | | | | Homecare | | | 81.2 | % | | | 78.7 | % | | | 80.5 | % | | | 78.0 | % | Inpatient | | | 7.7 | | | | 8.8 | | | | 8.1 | | | | 9.0 | | Continuous care | | | 11.1 | | | | 12.5 | | | | 11.4 | | | | 13.0 | | Total before Medicare cap allowance | | | 100.0 | | | | 100.0 | | | | 100.0 | | | | 100.0 | | Medicare cap allowance | | | (0.1 | ) | | | - | | | | - | | | | - | | Total | | | 99.9 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | Average daily census (days) | | | | | | | | | | | | | | | | | Homecare | | | 12,446 | | | | 12,007 | | | | 12,368 | | | | 11,844 | | Nursing home | | | 3,135 | | | | 3,015 | | | | 3,093 | | | | 3,003 | | Routine homecare | | | 15,581 | | | | 15,022 | | | | 15,461 | | | | 14,847 | | Inpatient | | | 343 | | | | 405 | | | | 360 | | | | 412 | | Continuous care | | | 474 | | | | 525 | | | | 489 | | | | 543 | | Total | | | 16,398 | | | | 15,952 | | | | 16,310 | | | | 15,802 | | Total Admissions | | | 16,311 | | | | 16,180 | | | | 33,874 | | | | 33,048 | | Total Discharges | | | 16,124 | | | | 15,960 | | | | 33,344 | | | | 32,707 | | Average length of stay (days) | | | 85.2 | | | | 84.2 | | | | 87.1 | | | | 83.9 | | Median length of stay (days) | | | 16.0 | | | | 16.0 | | | | 16.0 | | | | 16.0 | | ADC by major diagnosis | | | | | | | | | | | | | | | | | Cerebro | | | 34.8 | % | | | 31.9 | % | | | 34.7 | % | | | 31.7 | % | Neurological | | | 19.5 | | | | 21.3 | | | | 19.6 | | | | 21.7 | | Cardio | | | 16.5 | | | | 17.6 | | | | 16.5 | | | | 17.4 | | Cancer | | | 14.9 | | | | 15.2 | | | | 15.0 | | | | 15.3 | | Respiratory | | | 7.9 | | | | 7.8 | | | | 7.9 | | | | 7.8 | | Other | | | 6.4 | | | | 6.2 | | | | 6.3 | | | | 6.1 | | Total | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | Admissions by major diagnosis | | | | | | | | | | | | | | | | | Cerebro | | | 21.4 | | | | 20.5 | % | | | 21.7 | % | | | 20.7 | % | Neurological | | | 10.7 | | | | 10.8 | | | | 10.8 | | | | 11.0 | | Cancer | | | 31.5 | | | | 31.6 | | | | 30.4 | | | | 31.1 | | Cardio | | | 15.1 | | | | 15.7 | | | | 15.1 | | | | 15.7 | | Respiratory | | | 10.2 | | | | 10.2 | | | | 11.0 | | | | 10.6 | | Other | | | 11.1 | | | | 11.2 | | | | 11.0 | | | | 10.9 | | Total | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | Direct patient care margins | | | | | | | | | | | | | | | | | Routine homecare | | | 52.8 | % | | | 51.9 | % | | | 52.1 | % | | | 52.0 | % | Inpatient | | | 3.7 | | | | 4.6 | | | | 4.8 | | | | 5.1 | | Continuous care | | | 18.0 | | | | 13.8 | | | | 16.8 | | | | 14.5 | | Homecare margin drivers (dollars per patient day) | | | | | | | | | | | | | | | | | Labor costs | | $ | 56.55 | | | $ | 56.29 | | | $ | 57.58 | | | $ | 56.50 | | Combined drug, HME and medical supplies | | | 14.51 | | | | 15.92 | | | | 14.82 | | | | 15.69 | | Inpatient margin drivers (dollars per patient day) | | | | | | | | | | | | | | | | | Labor costs | | $ | 377.13 | | | $ | 341.29 | | | $ | 373.41 | | | $ | 339.98 | | Continuous care margin drivers (dollars per patient day) | | | | | | | | | | | | | | | | | Labor costs | | $ | 583.87 | | | $ | 610.58 | | | $ | 587.39 | | | $ | 604.80 | | Bad debt expense as a percent of revenues | | | 1.1 | % | | | 1.2 | % | | | 1.1 | % | | | 1.3 | % | Accounts receivable -- Days of revenue outstanding- excluding unapplied Medicare payments | | | 34.5 | | | | 37.7 | | | n.a. | | | n.a. | | Accounts receivable -- Days of revenue outstanding- including unapplied Medicare payments | | | 28.0 | | | | 26.6 | | | 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”"forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The words “believe”"believe", “expect”"expect", “hope”"hope", “anticipate”"anticipate", “plan”"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’sChemed'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’sCompany's primary market risk exposure relates to interest rate risk exposure through its variable interest line of credit. At SeptemberJune 30, 2016,2017, the Company had $110.6$125.0 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’sCompany'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. There has been no change in our internal control over financial reporting that occurred during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION Item 1. Legal Proceedings
For information regarding the Company’sCompany's legal proceedings, see note 10, 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’sCompany'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 ninesix months of 2016:2017:
| | 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, 2016 | | | - | | | $ | - | | | | 6,535,584 | | | $ | 52,485,644 | | February 1 through February 29, 2016 | | | 153,997 | | | | 129.22 | | | | 6,689,581 | | | | 32,585,505 | | March 1 through March 31, 2016 | | | 246,003 | | | | 132.35 | | | | 6,935,584 | | | $ | 100,025,990 | | | | | | | | | | | | | | | | | | | First Quarter Total | | | 400,000 | | | $ | 131.15 | | | | | | | | | | | | | | | | | | | | | | | | | | | April 1 through April 30, 2016 | | | - | | | $ | - | | | | 6,935,584 | | | $ | 100,025,990 | | May 31 through May 31, 2016 | | | 93,607 | | | | 127.15 | | | | 7,029,191 | | | | 88,123,961 | | June 1 through June 30, 2016 | | | 286,527 | | | | 132.45 | | | | 7,315,718 | | | $ | 50,173,009 | | | | | | | | | | | | | | | | | | | Second Quarter Total | | | 380,134 | | | $ | 131.15 | | | | | | | | | | | | | | | | | | | | | | | | | | | July 1 through July 31, 2016 | | | - | | | $ | - | | | | 7,315,718 | | | $ | 50,173,009 | | August 1 through August 31, 2016 | | | - | | | | - | | | | 7,315,718 | | | | 50,173,009 | | September 1 through September 30, 2016 | | | - | | | | - | | | | 7,315,718 | | | $ | 50,173,009 | | | | | | | | | | | | | | | | | | | Third Quarter Total | | | - | | | $ | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | On March 14, 2016 our Board of Directors authorized an additional $100 million under the February 2011 Repurchase Program. | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | 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, 2017 | | | - | | | $ | - | | | | 7,315,718 | | | $ | 50,173,009 | | February 1 through February 28, 2017 | | | 104,358 | | | | 178.39 | | | | 7,420,076 | | | | 31,556,555 | | March 1 through March 31, 2017 | | | 195,642 | | | | 182.20 | | | | 7,615,718 | | | $ | 95,910,768 | | | | | | | | | | | | | | | | | | | First Quarter Total | | | 300,000 | | | $ | 180.87 | | | | | | | | | | | | | | | | | | | | | | | | | | | April 1 through April 30, 2017 | | | - | | | $ | - | | | | 7,615,718 | | | $ | 95,910,768 | | May 31 through May 31, 2017 | | | 150,000 | | | | 205.34 | | | | 7,765,718 | | | | 65,109,586 | | June 1 through June 30, 2017 | | | - | | | | - | | | | 7,765,718 | | | $ | 65,109,586 | | | | | | | | | | | | | | | | | | | Second Quarter Total | | | 150,000 | | | $ | 205.34 | | | | | | | | | | | | | | | | | | | | | | | | | | | On March 13, 2017 our Board of Directors authorized an additional $100 million under the February 2011 Repurchase | | Program. | | | | | | | | | | | | | | | | |
Item 3. Defaults Upon Senior Securities
NoneNone.
Item 4. Mine Safety Disclosures
NoneNone.
Item 5. Other Information
None.
| | | | | | Exhibit No. | | Description | | | | 31.1 | | Certification by Kevin J. McNamara pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act of 1934. | | | | 31.2 | | Certification by David P. Williams pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act of 1934. | | | | 31.3 | | Certification by Arthur V. Tucker, Jr.Michael D. Witzeman pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act of 1934. | | | | 32.1 | | Certification by Kevin J. McNamara pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | 32.2 | | Certification by David P. Williams pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | 32.3 | | Certification by Arthur V. Tucker, Jr.Michael D. Witzeman pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | 101.INS | | XBRL Instance Document | | | | 101.SCH | | XBRL Taxonomy Extension Schema | | | | 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase | | | | 101.DEF | | XBRL Taxonomy Extension Definition Linkbase | | | | 101.LAB | | XBRL Taxonomy Extension Label Linkbase | | | | 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase | | | | | | |
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | | | | | | | | | | | | | Chemed Corporation | | | | | | | (Registrant) | | | | | | | | | | | | | | | Dated: | | November 1, 2016July 31, 2017 | | By: | | /s/ Kevin J. McNamara | | | | | | | Kevin J. McNamara | | | | | | | (President and Chief Executive Officer) | | | | | | | | | | | | | | | Dated: | | November 1, 2016July 31, 2017 | | By: | | /s/ David P. Williams | | | | | | | David P. Williams | | | | | | | (Executive Vice President and Chief Financial Officer) | | | | | | | | | | | | | | | Dated: | | November 1, 2016July 31, 2017 | | By: | | /s/ Arthur V. Tucker, Jr.Michael D. Witzeman | | | | | | | Arthur V. Tucker, Jr.Michael D. Witzeman | | | | | | | (Vice President and Controller) |
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