Exhibit 99.2
ODYSSEY HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, 2010 | December 31, 2009 | |||||||
(In thousands, except share amounts) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 164,501 | $ | 128,632 | ||||
Accounts receivable from patient services, net of allowance for uncollectible accounts of $11,903 and $12,462 at June 30, 2010 and December 31, 2009, respectively | 102,984 | 110,593 | ||||||
Income taxes receivable | 4,023 | 352 | ||||||
Deferred tax assets | 10,219 | 10,235 | ||||||
Prepaid expenses and other current assets | 5,770 | 6,017 | ||||||
Total current assets | 287,497 | 255,829 | ||||||
Property and equipment, net of accumulated depreciation | 19,064 | 20,700 | ||||||
Deferred loan costs, net | 2,669 | 3,033 | ||||||
Long-term investments | — | 12,425 | ||||||
Intangibles, net of accumulated amortization | 19,155 | 19,251 | ||||||
Goodwill | 192,390 | 191,766 | ||||||
Total assets | $ | 520,775 | $ | 503,004 | ||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 3,586 | $ | 4,016 | ||||
Accrued compensation | 27,675 | 31,729 | ||||||
Accrued nursing home costs | 17,347 | 18,144 | ||||||
Accrued Medicare cap contractual adjustments | 13,690 | 18,798 | ||||||
Income taxes payable | — | 1,504 | ||||||
Other accrued expenses | 44,681 | 42,683 | ||||||
Current maturities of long-term debt | 33,340 | 38,675 | ||||||
Total current liabilities | 140,319 | 155,549 | ||||||
Long-term debt, less current maturities | 77,128 | 76,527 | ||||||
Deferred tax liability | 15,261 | 15,171 | ||||||
Other liabilities | 2,687 | 4,597 | ||||||
Commitments and contingencies | — | — | ||||||
Equity: | ||||||||
Odyssey stockholders’ equity: | ||||||||
Common stock, $.001 par value: | 39 | 39 | ||||||
Additional paid-in capital | 131,849 | 125,716 | ||||||
Retained earnings | 221,808 | 194,431 | ||||||
Accumulated other comprehensive loss, net of income taxes | (763 | ) | (1,481 | ) | ||||
Treasury stock, at cost, 5,347,072 shares held at June 30, 2010 and December 31, 2009 | (69,954 | ) | (69,954 | ) | ||||
Total Odyssey stockholders’ equity | 282,979 | 248,751 | ||||||
Noncontrolling interests | 2,401 | 2,409 | ||||||
Total equity | 285,380 | 251,160 | ||||||
Total liabilities and equity | $ | 520,775 | $ | 503,004 | ||||
The accompanying notes are an integral part of these financial statements.
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ODYSSEY HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||
Net patient service revenue | $ | 176,227 | $ | 170,295 | $ | 347,723 | $ | 337,827 | ||||||||
Operating expenses: | ||||||||||||||||
Direct hospice care | 98,032 | 99,444 | 194,433 | 197,899 | ||||||||||||
General and administrative — hospice care | 31,913 | 34,131 | 64,607 | 67,931 | ||||||||||||
General and administrative — support center | 19,110 | 16,841 | 34,911 | 32,646 | ||||||||||||
Provision for uncollectible accounts | 877 | 2,506 | 2,410 | 4,869 | ||||||||||||
Depreciation | 1,673 | 1,731 | 3,418 | 2,860 | ||||||||||||
Amortization | 38 | 70 | 96 | 141 | ||||||||||||
Income from continuing operations before other income (expense) | 24,584 | 15,572 | 47,848 | 31,481 | ||||||||||||
Other income (expense): | ||||||||||||||||
Interest income | 103 | 121 | 170 | 287 | ||||||||||||
Interest expense | (1,434 | ) | (1,606 | ) | (2,872 | ) | (3,491 | ) | ||||||||
(1,331 | ) | (1,485 | ) | (2,702 | ) | (3,204 | ) | |||||||||
Income from continuing operations before provision for income taxes | 23,253 | 14,087 | 45,146 | 28,277 | ||||||||||||
Provision for income taxes | 8,975 | 5,065 | 17,090 | 10,347 | ||||||||||||
Income from continuing operations | 14,278 | 9,022 | 28,056 | 17,930 | ||||||||||||
Loss from discontinued operations, net of income taxes | (71 | ) | (422 | ) | (197 | ) | (475 | ) | ||||||||
Net income | 14,207 | 8,600 | 27,859 | 17,455 | ||||||||||||
Less: Net income attributable to noncontrolling interests | 229 | 81 | 482 | 217 | ||||||||||||
Net income attributable to Odyssey stockholders | $ | 13,978 | $ | 8,519 | $ | 27,377 | $ | 17,238 | ||||||||
Income (loss) per common share: | ||||||||||||||||
Basic: | ||||||||||||||||
Continuing operations attributable to Odyssey stockholders | $ | 0.42 | $ | 0.27 | $ | 0.82 | $ | 0.54 | ||||||||
Discontinued operations attributable to Odyssey stockholders | — | (0.01 | ) | — | (0.02 | ) | ||||||||||
Net income attributable to Odyssey stockholders | $ | 0.42 | $ | 0.26 | $ | 0.82 | $ | 0.52 | ||||||||
Diluted: | ||||||||||||||||
Continuing operations attributable to Odyssey stockholders | $ | 0.41 | $ | 0.27 | $ | 0.81 | $ | 0.54 | ||||||||
Discontinued operations attributable to Odyssey stockholders | — | (0.01 | ) | (0.01 | ) | (0.02 | ) | |||||||||
Net income attributable to Odyssey stockholders | $ | 0.41 | $ | 0.26 | $ | 0.80 | $ | 0.52 | ||||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 33,624 | 32,905 | 33,485 | 32,853 | ||||||||||||
Diluted | 34,465 | 33,059 | 34,114 | 33,020 | ||||||||||||
Amounts attributable to Odyssey stockholders: | ||||||||||||||||
Income from continuing operations, net of tax | 14,049 | 8,941 | 27,574 | 17,713 | ||||||||||||
Loss from discontinued operations, net of tax | (71 | ) | (422 | ) | (197 | ) | (475 | ) | ||||||||
Net income | $ | 13,978 | $ | 8,519 | $ | 27,377 | $ | 17,238 | ||||||||
The accompanying notes are an integral part of these financial statements.
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ODYSSEY HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited)
Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income/(Loss) | Treasury Stock | Noncontrolling Interests | Total Stockholders’ Equity | ||||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||||||||||
Balance at January 1, 2010 | 38,550 | $ | 39 | $ | 125,716 | $ | 194,431 | $ | (1,481 | ) | $ | (69,954 | ) | $ | 2,409 | $ | 251,160 | |||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||
Net income | — | — | — | 27,377 | — | — | 482 | 27,859 | ||||||||||||||||||||
Unrealized gain on interest rate swaps, net of income taxes | — | — | — | — | 355 | — | — | 355 | ||||||||||||||||||||
Unrealized gain on auction rate securities, net of income taxes | — | — | — | — | 363 | — | — | 363 | ||||||||||||||||||||
Total comprehensive income, net of income taxes | 28,577 | |||||||||||||||||||||||||||
Transactions between Odyssey and noncontrolling interests | — | — | — | — | — | — | (490 | ) | (490 | ) | ||||||||||||||||||
Share-based compensation | 307 | — | 3,357 | — | — | — | — | 3,357 | ||||||||||||||||||||
Income tax benefit on share-based compensation | — | — | 2,438 | — | — | — | — | 2,438 | ||||||||||||||||||||
Shares redeemed for employee tax withholdings | — | — | (2,122 | ) | — | — | — | — | (2,122 | ) | ||||||||||||||||||
Exercise of stock options | 175 | — | 2,460 | — | — | — | — | 2,460 | ||||||||||||||||||||
Balance at June 30, 2010 | 39,032 | $ | 39 | $ | 131,849 | $ | 221,808 | $ | (763 | ) | $ | (69,954 | ) | $ | 2,401 | $ | 285,380 | |||||||||||
The accompanying notes are an integral part of these financial statements.
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ODYSSEY HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Operating Activities: | ||||||||
Net income attributable to Odyssey stockholders | $ | 27,377 | $ | 17,238 | ||||
Adjustments to reconcile net income to net cash provided by operating activities and discontinued operations: | ||||||||
Loss from discontinued operations, net of income taxes | 197 | 475 | ||||||
Net income attributable to noncontrolling interests | 482 | 217 | ||||||
Loss on disposal of property and equipment | 3 | — | ||||||
Depreciation and amortization | 3,514 | 3,001 | ||||||
Amortization of deferred loan costs | 364 | 364 | ||||||
Share-based compensation expense | 3,357 | 2,455 | ||||||
Deferred income taxes | (321 | ) | 3,624 | |||||
Provision for uncollectible accounts | 2,410 | 4,869 | ||||||
Changes in operating assets and liabilities, net of acquisitions: | ||||||||
Accounts receivable from patient services | 5,193 | (3,414 | ) | |||||
Prepaid expenses and other current assets | (3,590 | ) | 692 | |||||
Accounts payable, accrued nursing home costs, accrued Medicare cap contractual adjustments and other accrued expenses | (13,421 | ) | (7,991 | ) | ||||
Net cash provided by operating activities and discontinued operations | 25,565 | 21,530 | ||||||
Investing Activities: | ||||||||
Cash paid for acquisitions, net of cash acquired | (566 | ) | (205 | ) | ||||
Sales of auction rate securities | 13,000 | — | ||||||
Purchases of property and equipment, net | (1,804 | ) | (3,351 | ) | ||||
Net cash provided by (used in) investing activities | 10,630 | (3,556 | ) | |||||
Financing Activities: | ||||||||
Proceeds from exercise of stock options | 2,460 | 43 | ||||||
Cash paid for partnership distributions | (490 | ) | (148 | ) | ||||
Tax benefit (expense) from share-based compensation | 2,438 | (8 | ) | |||||
Payments on credit facility | (4,734 | ) | (3,197 | ) | ||||
Net cash used in financing activities | (326 | ) | (3,310 | ) | ||||
Net increase in cash and cash equivalents | 35,869 | 14,664 | ||||||
Cash and cash equivalents, beginning of period | 128,632 | 56,043 | ||||||
Cash and cash equivalents, end of period | $ | 164,501 | $ | 70,707 | ||||
The accompanying notes are an integral part of these financial statements.
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ODYSSEY HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three and Six Months Ended June 30, 2010 and 2009
1. Description of Business
Odyssey HealthCare, Inc. and its subsidiaries (the “Company”) provide hospice care, with a goal of improving the quality of life of terminally ill patients and their families. Hospice services focus on palliative care for patients with life-limiting illnesses, which is care directed at managing pain and other discomforting symptoms and addressing the psychosocial and spiritual needs of patients and their families. The Company provides for all medical, psychosocial care and certain other support services related to the patient’s terminal illness.
The Company was incorporated on August 29, 1995 in the state of Delaware and, as of June 30, 2010, had 92 Medicare-certified hospice providers serving patients and their families in 30 states, with significant operations in Texas, California and Arizona.
2. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and with the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements of the Company. In the opinion of management, these financial statements reflect all adjustments of a normal recurring nature necessary for the fair presentation of the Company’s financial position, results of operations and cash flows for the interim periods presented in conformity with GAAP. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2009 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 10, 2010 and the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2010 filed with the SEC on May 6, 2010. Interim results are not necessarily indicative of the results that may be expected for a full year or any other interim period.
The Company’s consolidated financial statements include the accounts and operations of the Company and its subsidiaries and noncontrolling interests in which it owns more than a 50 percent interest. All material balances and transactions between the consolidated entities have been eliminated. Noncontrolling interests, previously shown as minority interests, are reported below net income under the heading “Net income attributable to noncontrolling interests” in the consolidated statements of income and shown as a component of equity in the consolidated balance sheets.
Certain amounts reported in previous years have been reclassified to conform to the 2010 presentation. These reclassifications include the presentation of “income taxes payable” in the consolidated balance sheets and the presentation of “tax benefit from share-based compensation” in the consolidated statements of cash flows. In the period that a component of an entity has been disposed of or classified as held for sale, the results of operations for current and prior periods are reclassified in a single caption titled “discontinued operations.”
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Management estimates include an allowance for uncollectible accounts, accrued compensation, accrued Medicare cap contractual allowances, other contractual allowances, accrued nursing home costs, accrued workers’ compensation, accrued patient care costs, accrued income taxes, accrued professional fees, accrued legal settlements, goodwill and intangible asset impairment and share-based compensation expense related to
5
performance based awards. Actual results could differ from those estimates and such differences could be material.
Subsequent Events
The Company has evaluated subsequent events for recognition and disclosure in the financial statements and has determined that no additional disclosures are necessary.
3. Merger with Gentiva Health Services, Inc.
On May 23, 2010, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Gentiva Health Services, Inc., a Delaware corporation (“Gentiva”), and GTO Acquisition Corp., a Delaware corporation wholly-owned by Gentiva (“Merger Sub”). Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation and as a subsidiary wholly-owned by Gentiva (the “Merger”). Upon consummation of the Merger, each issued and outstanding share of the Company’s common stock, par value $0.001 per share, will be converted into the right to receive $27.00 in cash, without interest and subject to any applicable withholding of taxes.
Consummation of the Merger was subject to customary conditions, including adoption of the Merger Agreement by the Company’s stockholders and the absence of legal restraints. Each party’s obligation to consummate the Merger was also subject to the accuracy of the representations and warranties of the other party (subject to certain qualifications and exceptions) and the performance in all material respects of the other party’s covenants under the Merger Agreement, including, with respect to the Company, customary covenants regarding operation of the business of the Company prior to closing. The applicable 30-day waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 expired on July 6, 2010.
The Merger Agreement included a “go-shop” process during which the Company was permitted to encourage and solicit proposals for a competing transaction from third parties from May 23, 2010 through 11:59 p.m., Central time, on June 22, 2010. Odyssey conducted the “go-shop” process with the assistance of Goldman, Sachs & Co. (“Goldman”), the Company’s financial advisor, in connection with the Merger. During the “go-shop” period, Goldman held discussions on behalf of the Company with potential buyers but did not receive any alternative acquisition proposals.
The Merger Agreement contains certain termination rights for both the Company and Gentiva. The right of the Company to terminate the Merger Agreement to accept a superior proposal is subject to the right of Gentiva to match any such proposal and the payment of a termination fee to Gentiva of $28.9 million.
The parties have agreed that the Merger Agreement is subject to specific performance in the event of breach by any party.
The Company established Friday, July 2, 2010 as the record date for determining stockholders entitled to vote at the special meeting of stockholders which was held on Monday, August 9, 2010. At the special meeting, stockholders of record considered and voted upon a proposal (i) to approve the Merger and adopt the Merger Agreement and (ii) to adjourn the special meeting.
The Merger was consummated on August 17, 2010. On such date, each issued and outstanding share of Odyssey common stock was converted into the right to receive $27.00 in cash, without interest. The aggregate amount payable by Gentiva to holders of the Company’s common stock and holders of stock options and restricted stock units issued under the Company’s compensation plans was approximately $964 million. In addition, all amounts outstanding under the Company’s existing credit facility were repaid and the credit facility was terminated.
The Company incurred approximately $2.1 million in expenses during both the three and six month periods ended June 30, 2010, related to the proposed Merger, which are included in “general and administrative—support center” on the Company’s consolidated statements of income.
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For further information related to the Merger, see the Company’s Definitive Proxy Statement on Schedule 14A as filed with the SEC on July 9, 2010. The foregoing description of the Merger Agreement is not complete and is qualified in its entirety by reference to the Merger Agreement filed as an exhibit to the Company’s Form 8-K filing on May 24, 2010.
4. Recent Accounting Pronouncements
In June 2009, the FASB issued a new accounting pronouncement regarding variable interest entities (formerly SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”). This pronouncement, located under FASB ASC Topic 810, “Consolidation,” was issued to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. ASC Topic 810 requires an enterprise to perform an ongoing analysis to determine whether the enterprise has a controlling financial interest in a variable interest entity. The Company adopted this pronouncement effective beginning on January 1, 2010. The adoption of this pronouncement did not have any impact on the Company’s financial statements.
In January 2010, the FASB issued Accounting Standards Update No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820)—Improving Disclosures about Fair Value Measurements.” This update requires a number of new disclosures including disclosure of significant transfers in or out of Level 1 and Level 2 and the reasons for such transfers, an entity’s policy for determining when transfers between levels are recognized, the valuation techniques and inputs used in determining the fair value of assets or liabilities classified as Level 2 or Level 3 and requires the changes in Level 3 fair value measurements to be disclosed separately rather than net. In addition, this update seeks to improve transparency by requiring fair value measurement disclosures for each class of assets and liabilities. The Company adopted this pronouncement effective beginning on January 1, 2010. The adoption of this pronouncement did not have any impact on the Company’s financial statements as it contains only disclosure requirements.
5. Discontinued Operations
The Company conducts an ongoing strategic review of its hospice programs and evaluates whether to sell or close certain hospice programs based on this strategic review. No programs were held for sale as of June 30, 2010 or December 31, 2009.
During the second quarter of 2009, the Company recorded a pretax loss of approximately $0.6 million, which was a result of the writedown of assets from $2.1 million to $1.5 million for the Oklahoma City program, including the related inpatient unit. The Company completed the sale of the Oklahoma City program, including the related inpatient unit, on July 13, 2009. The Oklahoma City program and inpatient unit were located in the Company’s South Central region. Net proceeds from the sale were approximately $1.5 million. The $1.5 million received in net proceeds were paid to the Company’s lenders as a mandatory prepayment of principal under the Company’s credit agreement.
7
Net revenue and losses for these entities and the write-down of assets sold were included in the consolidated statement of operations as “Loss from discontinued operations, net of income taxes,” for all periods presented. The amounts are as follows (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net patient service revenue | $ | (10 | ) | $ | 1,053 | $ | (72 | ) | $ | 2,122 | ||||||
Pre-tax loss from operations | $ | (115 | ) | $ | (684 | ) | $ | (320 | ) | $ | (769 | ) | ||||
Benefit for income taxes | 44 | 262 | 123 | 294 | ||||||||||||
Loss from discontinued operations, net of income taxes | $ | (71 | ) | $ | (422 | ) | $ | (197 | ) | $ | (475 | ) | ||||
Loss per diluted share | $ | — | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | |||||
Loss from discontinued operations (net of income taxes) for the three and six months ended June 30, 2010, represent the extinguishment of an office lease and Medicare cap contractual adjustments related to programs that were discontinued during 2008 and 2007.
6. Equity Incentive Plans
On January 4, 2010, the Company issued grants related to 106,036 time-based restricted stock units (“RSUs”) to certain employees for $1.7 million, which represents the fair value of the awards based on the closing price of the stock of $15.82 per share on the date of grant, which was January 4, 2010. This amount is being recognized as share-based compensation expense on a straight-line basis over the four-year period following the date of grant, which is based on the four-year vesting schedule applicable to the grant.
On January 4, 2010, the Company granted incentive-based RSUs to certain employees. The total number and vesting of the incentive-based RSUs eligible for each award recipient is based upon the Company attaining certain specified earnings per share (“EPS”) from continuing operations targets for 2010. Provided the award recipient remains an employee continuously from the date of grant through the applicable vesting date, one-fourth of the incentive-based RSUs eligible for vesting for each award recipient, based on the satisfaction of the applicable EPS target, will vest on the date the Compensation Committee certifies that the EPS target for 2010 has been met. The remaining three-fourths of the incentive-based RSUs eligible for vesting for each award recipient, based on the satisfaction of the applicable EPS target, will vest in three equal, annual installments beginning on January 4, 2012. As of June 30, 2010, the Company determined that it was probable that 318,108 of the incentive-based RSUs will be earned and eligible to vest based on a certain EPS target. The fair value of these incentive-based RSUs is $5.0 million, which represents the closing price of the stock of $15.82 per share on the date of grant, which was January 4, 2010. This amount is being recognized as share-based compensation expense on a straight-line basis over the four-year period following the date of grant, which is in accordance with the four-year vesting schedule applicable to the grant.
On February 10, 2010, the Company issued grants related to 26,550 time-based RSUs to certain employees for $0.4 million, which represents the fair value of the awards based on the closing price of the stock of $15.13 per share on the date of grant, which was February 10, 2010. This amount is being recognized as share-based compensation expense on a straight-line basis over the four-year period following the date of grant, which is based on the four-year vesting schedule applicable to the grant.
On February 10, 2010, the Company granted incentive-based RSUs to certain employees. The total number and vesting of the incentive-based RSUs eligible for each award recipient is based upon the Company attaining certain specified EPS from continuing operations targets for 2010, earnings before interest, taxes, depreciation and amortization (“EBITDA”) targets or other individual performance targets for 2010. Provided the award recipient remains an employee continuously from the date of grant through the applicable vesting date,
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one-fourth of the incentive-based RSUs eligible for vesting for each award recipient, based on the satisfaction of the applicable performance target, will vest on the date the Company’s Chief Executive Officer and Chief Financial Officer certify that the applicable targets for 2010 have been met. The remaining three-fourths of the incentive-based RSUs eligible for vesting for each award recipient, based on the satisfaction of the applicable performance target, will vest in three equal, annual installments beginning on February 10, 2012. As of June 30, 2010, the Company determined that it was probable that 53,100 of the incentive-based RSUs will be earned and eligible to vest based on certain performance targets. The fair value of these incentive-based RSUs is $0.8 million, which represents the closing price of the stock of $15.13 per share on the date of grant. This amount is being recognized as share-based compensation expense on a straight-line basis over the four-year period following the date of grant, which is in accordance with the four-year vesting schedule applicable to the grant.
On April 15, 2010, the Company issued grants related to 45,000 time-based RSUs to certain employees for $0.9 million, which represents the fair value of the awards based on the closing price of the stock of $19.13 per share on the date of grant, which was April 15, 2010. This amount is being recognized as share-based compensation expense on a straight-line basis over the four-year period following the date of grant, which is based on the four-year vesting schedule applicable to the grant.
On May 7, 2010, the Company issued grants related to 20,800 time-based restricted stock awards (“RSAs”) to its non-employee directors for $0.4 million, which represents the fair value of the awards based on the closing price of the stock of $18.98 per share on the date of grant, which was May 7, 2010. This amount is being recognized as share-based compensation expense on a straight-line basis over the one-year period following the date of grant, which is based on the one-year vesting schedule applicable to the grant.
The Company recorded $1.8 million and $1.4 million in share-based compensation expense for the three months ended June 30, 2010 and 2009, respectively. Share-based compensation expense was $3.4 million and $2.5 million for the six months ended June 30, 2010 and 2009, respectively. The pending Merger had no impact on share-based compensation expense recorded during the three and six months ended June 30, 2010. Upon consummation of the Merger, all options, RSUs and RSAs would vest and be converted into the right to receive $27.00 in cash per share, without interest and subject to any applicable withholding of taxes.
7. Long-term Investments
During the second quarter of 2010, the Company successfully liquidated all of its tax exempt auction rate securities (“ARS”) at par for $13.0 million. At December 31, 2009, the Company had ARS with a fair-value totaling $12.4 million, which were classified as long-term investments on the Company’s consolidated balance sheet. To estimate the fair value of the ARS each quarter, the Company prepared a discounted cash flow analysis which is based on an income approach. At the liquidation date, the Company increased the value of the ARS by $0.6 million (before taxes) to bring the fair value back up to the par value. For further discussion on this valuation methodology and the inputs used, see note “13. Fair Value of Financial Instruments.” Changes in the fair value of the ARS are recognized, net of tax, in accumulated other comprehensive income (loss). See note “14. Comprehensive Income.”
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8. Earnings Per Share
The following table presents the calculation of basic and diluted net income attributable to Odyssey stockholders per common share:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Numerator: | ||||||||||||||||
Numerator for net income per share | ||||||||||||||||
Income from continuing operations | $ | 14,278 | $ | 9,022 | $ | 28,056 | $ | 17,930 | ||||||||
Loss from discontinued operations, net of income taxes | (71 | ) | (422 | ) | (197 | ) | (475 | ) | ||||||||
Less: net income attributable to noncontrolling interests | 229 | 81 | 482 | 217 | ||||||||||||
Net income attributable to Odyssey stockholders | $ | 13,978 | $ | 8,519 | $ | 27,377 | $ | 17,238 | ||||||||
Denominator: | ||||||||||||||||
Weighted average common shares outstanding—basic | 33,624 | 32,905 | 33,485 | 32,853 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Employee stock options and unvested restricted stock awards | 841 | 154 | 629 | 167 | ||||||||||||
Weighted average common shares outstanding—diluted | 34,465 | 33,059 | 34,114 | 33,020 | ||||||||||||
Income (loss) per common share: | ||||||||||||||||
Basic: | ||||||||||||||||
Continuing operations attributable to Odyssey stockholders | $ | 0.42 | $ | 0.27 | $ | 0.82 | $ | 0.54 | ||||||||
Discontinued operations attributable to Odyssey stockholders | — | (0.01 | ) | — | (0.02 | ) | ||||||||||
Net income attributable to Odyssey stockholders | $ | 0.42 | $ | 0.26 | $ | 0.82 | $ | 0.52 | ||||||||
Diluted: | ||||||||||||||||
Continuing operations attributable to Odyssey stockholders | $ | 0.41 | $ | 0.27 | $ | 0.81 | $ | 0.54 | ||||||||
Discontinued operations attributable to Odyssey stockholders | — | (0.01 | ) | (0.01 | ) | (0.02 | ) | |||||||||
Net income attributable to Odyssey stockholders | $ | 0.41 | $ | 0.26 | $ | 0.80 | $ | 0.52 | ||||||||
For the three months ended June 30, 2010 and 2009, options outstanding of 125,248 and 1,580,485 were not included in the computation of diluted earnings per share because either the exercise prices of the options were greater than the average market price of the common stock or the total assumed proceeds under the treasury stock method resulted in negative incremental shares, and thus the inclusion would have been anti-dilutive. For the six months ended June 30, 2010 and 2009 anti-dilutive options outstanding were 264,184 and 1,580,485, respectively. In addition, there were 153,310 anti-dilutive shares relating to restricted stock awards that were not included in the computation of diluted earnings per share for the three and six months ended June 30, 2009. There were no anti-dilutive shares relating to restricted stock awards for the three and six months ended June 30, 2010.
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9. Goodwill and Intangible Assets
The table below sets forth the changes in the carrying amount of goodwill by segment for the six months ended June 30, 2010 (in thousands):
Northeast | Southeast | South Central | Midwest | Texas | Mountain | West | South | Southwest | Total | |||||||||||||||||||||||
January 1, 2010 | $ | 9,370 | $ | 8,910 | $ | 24,572 | $ | 22,598 | $ | 37,567 | $ | 44,888 | $ | 7,630 | $ | 12,913 | $ | 23,318 | $ | 191,766 | ||||||||||||
Acquisitions | — | — | — | 624 | — | — | — | — | — | 624 | ||||||||||||||||||||||
Transfers | — | 6,091 | 6,822 | — | — | (44,888 | ) | 36,552 | (12,913 | ) | 8,336 | — | ||||||||||||||||||||
June 30, 2010 | $ | 9,370 | $ | 15,001 | $ | 31,394 | $ | 23,222 | $ | 37,567 | $ | — | $ | 44,182 | $ | — | $ | 31,654 | $ | 192,390 | ||||||||||||
During the first quarter of 2010, the Company reorganized its operating segments to better align its hospice programs. As a result, the Company reallocated goodwill within its segments based on the relative fair value the hospice programs that make up the segment. In determining the fair value of a hospice program, the Company used multiples of EBITDA, which the Company believes correlates with what a market participant would be willing to pay for that program in the current market. Goodwill was then transferred from the old segment to the new segment based on the relative fair value of the hospice program transferred.
Intangible assets as of June 30, 2010 and December 31, 2009 consisted of the following:
June 30, 2010 | December 31, 2009 | |||||||||||
Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||
Non-competition agreements | $ | 2,305 | $ | 2,214 | $ | 2,305 | $ | 2,185 | ||||
Licenses | 11,195 | — | 11,195 | — | ||||||||
Trademarks | 7,235 | — | 7,235 | — | ||||||||
Other | 1,188 | 554 | 1,188 | 487 | ||||||||
Totals | $ | 21,923 | $ | 2,768 | $ | 21,923 | $ | 2,672 | ||||
Intangible assets amortization expense was approximately $38,000 and $70,000 for the three months ended June 30, 2010 and 2009, respectively, and approximately $0.1 million for both the six months ended June 30, 2010 and 2009. Estimated intangible assets amortization expense is $0.1 million for 2010, 2011, 2012, 2013, and 2014. Actual future amortization expense could differ from these estimated amounts as a result of future acquisitions and other factors.
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10. Other Accrued Expenses
Other accrued expenses at June 30, 2010 and December 31, 2009 were as follows:
June 30, 2010 | December 31, 2009 | |||||
(in thousands) | ||||||
Workers’ compensation | $ | 11,207 | $ | 10,172 | ||
Inpatient | 6,902 | 6,705 | ||||
Deferred rent | 5,624 | 5,821 | ||||
Pharmacy | 799 | 851 | ||||
Medical supplies and durable medical equipment | 2,983 | 3,691 | ||||
Property taxes | 474 | 357 | ||||
Medical director fees | 770 | 671 | ||||
Professional fees | 4,179 | 3,721 | ||||
Interest | 1,096 | 1,123 | ||||
Interest rate swap liabilities | 1,177 | — | ||||
Accounts receivable credit balances | 4,509 | 2,338 | ||||
Other | 4,961 | 7,233 | ||||
$ | 44,681 | $ | 42,683 | |||
11. Borrowings
At June 30, 2010, the Company had a credit agreement with General Electric Capital Corporation and various other lenders that provides the Company with a $130.0 million term loan (the “Term Loan”) and a $30.0 million revolving line of credit. The Term Loan was primarily used to pay a portion of the purchase price and costs incurred with respect to the acquisition of VistaCare, Inc. (“VistaCare”). The revolving line of credit may be used to fund future acquisitions, working capital, capital expenditures and for general corporate purposes. The borrowing capacity under the revolving line of credit is reduced by any outstanding letters of credit. At June 30, 2010, outstanding letters of credit totaled $9.9 million and are used as collateral for the Company’s self-insured insurance policies. As of June 30, 2010, the borrowing capacity under the revolving line of credit was $20.1 million, of which no amounts were drawn.
Borrowings under the Term Loan and revolving line of credit bear interest at an applicable margin above an Index Rate (based on the higher of the prime rate or 50 basis points over the federal funds rate) or above LIBOR. At both June 30, 2010 and December 31, 2009, the applicable term loan margin and the applicable revolver margin for LIBOR loans were 2.50% and for Index Rate loans were 1.50%. These margins are based on the Company’s leverage ratio and can vary from 2.50% to 3.25% for LIBOR loans and 1.50% to 2.25% for Index Rate loans.
In April 2008, the Company entered into two interest rate swap agreements described in note “12. Derivative Instruments and Hedging Activity” that effectively convert a notional amount of $60.0 million of floating rate borrowings to fixed rate borrowings.
Borrowings outstanding at June 30, 2010 were $110.5 million and carried a weighted-average interest rate of 4.4%, including the effect of the interest rate swaps. At June 30, 2010, $47.3 million of the Term Loan carried interest at LIBOR plus 2.50% (2.85%) while $40.0 million of the Term Loan carried interest at a fixed rate of 5.45% and $20.0 million of the Term Loan carried interest at a fixed rate of 5.92% as a result of interest rate swap agreements. The remaining $3.2 million of the Term Loan carried interest at the Index Rate plus 1.50% (4.75%).
Borrowings outstanding at December 31, 2009 were $115.2 million and carried a weighted-average interest rate of 4.3%, including the effect of the interest rate swaps. At December 31, 2009, $53.6 million of the Term
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Loan carried interest at LIBOR plus 2.50% (2.73%) while $40.0 million of the Term Loan carried interest at a fixed rate of 5.45% and $20.0 million of the Term Loan carried interest at a fixed rate of 5.92% as a result of interest rate swap agreements. The remaining $1.6 million of the Term Loan carried interest at the Index Rate plus 1.50% (4.75%).
The final installment of the Term Loan will be due on February 28, 2014 and the revolving line of credit will expire on February 28, 2013. The revolving line of credit has an unused facility fee of 0.25% per annum. In connection with the acquisition of VistaCare, all of the subsidiaries of VistaCare (together with the Company, and certain of the Company’s subsidiaries, including VistaCare, the “Odyssey Obligors”) have become guarantors of the obligations under the credit agreement and have granted security interests in substantially all of their existing and after-acquired personal property. The Term Loan and the revolving line of credit are secured by substantially all of the Odyssey Obligors’ existing and after-acquired personal property, including the stock of certain subsidiaries owned by the Odyssey Obligors but not party to the credit agreement. The Odyssey Obligors are subject to affirmative and negative covenants under the credit agreement, including financial covenants consisting of a maximum leverage ratio and a minimum fixed charge coverage ratio. At both June 30, 2010 and December 31, 2009, the Company was in compliance with its financial covenants. The Company is subject to mandatory prepayments of principal based on cash proceeds received from the sale of partnership interests and property. During the third quarter of 2009, the Company paid $1.5 million related to mandatory prepayments of principal, which were based on cash proceeds received from the sale of the Oklahoma City program. In addition, the Company is subject to an annual excess cash flow requirement, which may result in the Company having to make additional principal payments on its Term Loan. This amount is calculated and payable at the end of each year based on full year financial results. Based on current and projected financial performance, the Company anticipates having to make an excess cash flow payment of approximately $20.7 million for the year ending December 31, 2010, which has been classified as a current liability on the Company’s consolidated balance sheet as of June 30, 2010. For the year ended December 31, 2009, the Company was obligated to make an excess cash flow payment of $29.3 million. During the first quarter of 2010, the Company’s lenders agreed to waive the required 2009 excess cash flow payment. This waiver allowed the Company to keep $29.3 million of excess cash on hand to fund its growth. There is no assurance such waiver can be obtained in the future. In the future, the Company may be required to make additional mandatory prepayments of principal which could be significant.
12. Derivative Instruments and Hedging Activity
The Company entered into an interest rate swap agreement during April 2008, which effectively converts a notional amount of $40.0 million of floating rate borrowings to fixed rate borrowings. The term of the interest rate swap expires in April 2011. Under the terms of the interest rate swap agreement, the Company receives from the counterparty interest on the $40.0 million notional amount based on three-month LIBOR and pays to the counterparty a fixed rate of 2.95%. The Company entered into a second interest rate swap agreement in April 2008, which effectively converts a notional amount of $20.0 million of floating rate borrowings to fixed rate borrowings. The term of the second interest rate swap also expires in April 2011. Under the terms of the interest rate swap agreement, the Company receives from the counterparty interest on the $20.0 million notional amount based on three-month LIBOR and pays to the counterparty a fixed rate of 3.42%. The Company accounts for the interest rate swaps as a cash flow hedge. These swaps effectively converted $60.0 million of the Company’s variable-rate borrowings to fixed-rate borrowings beginning in April 2008 and through April 2011. The Company believes the interest rate swaps will be highly effective in achieving the Company’s goal of minimizing the volatility of cash flows associated with changes in interest rates on its variable debt.
FASB ASC Topic 815, “Derivatives and Hedging” (formerly SFAS No. 133—“Accounting for Derivative Instruments and Hedging Activities”), requires companies to recognize all derivative instruments as either assets or liabilities at fair value on the balance sheet. In accordance with ASC Topic 815, the Company has designated this derivative instrument as a cash flow hedge. As such, changes in the fair value of the derivative instrument are recorded as a component of other comprehensive income or loss (“OCI”) to the extent of effectiveness. The ineffective portion of the change in fair value of the derivative instrument is recognized in interest expense.
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The Company is exposed to credit losses in the event of nonperformance by the counterparties to the two interest rate swap agreements. Management believes that the counterparties are creditworthy and anticipates that the counterparties and the Company will satisfy all obligations under the contracts. As of June 30, 2010, the Company does not expect any amounts to be reclassified within the next twelve months to earnings from accumulated other comprehensive loss related to these cash flow hedges, however, if the pending Merger is completed all amounts due under the Company’s existing credit facility will be paid in full and the interest rate swaps will be terminated. In the event of an early termination of the interest rate swaps, a payment equal to the mark-to-market liability on the date of termination and any accrued interest will be owed by the Company. The termination would require the Company to reclassify any amounts relating to these cash flow hedges from accumulated other comprehensive loss to earnings.
The fair values of the Company’s interest rate swap agreements as presented in the consolidated balance sheets are as follows (in thousands):
Liability Derivatives | ||||||||||
June 30, 2010 | December 31, 2009 | |||||||||
Balance Sheet | Fair Value | Balance Sheet | Fair Value | |||||||
Derivatives designated as hedging instruments: | ||||||||||
Interest rate swap agreements | Other Accrued Expenses | $ | 1,177 | Other Liabilities | $ | 1,747 | ||||
The effect of the interest rate swap agreements on the Company’s consolidated comprehensive loss, net of related taxes, for the three months ended June 30, is as follows (in thousands):
Amount of Income/(Loss) Recognized in Other Comprehensive Income/(Loss) | Income/(Loss) Reclassified from Accumulated Other Comprehensive Loss to Earnings (effective portion) | |||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||
Derivatives designated as cash flow hedges: | ||||||||||||
Interest rate swap agreements | $ | 249 | $ | 165 | $ | — | $ | — | ||||
The effect of the interest rate swap agreements on the Company’s consolidated comprehensive loss, net of related taxes, for the six months ended June 30, is as follows (in thousands):
Amount of Income/(Loss) Recognized in Other Comprehensive Income/(Loss) | Income/(Loss) Reclassified from Accumulated Other Comprehensive Loss to Earnings (effective portion) | |||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||
Derivatives designated as cash flow hedges: | ||||||||||||
Interest rate swap agreements | $ | 355 | $ | 112 | $ | — | $ | — | ||||
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13. Fair Value of Financial Instruments
The fair value of financial instruments is the amount at which the instrument could be exchanged in a current transaction between willing parties. The fair values of the long-term debt are estimated using discounted cash flow analysis, based on the Company’s incremental borrowing rates for similar types of borrowing arrangements. Management estimates that the carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, long-term debt and certain other assets are not materially different from their fair values.
The Company categorizes its assets and liabilities recorded at fair value based upon the following fair value hierarchy established by the FASB:
• | Level 1 valuations use quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date. An active market is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
• | Level 2 valuations use inputs other than actively quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include: (a) quoted prices for similar assets or liabilities in active markets, (b) quoted prices for identical or similar assets or liabilities in markets that are not active, (c) inputs other than quoted prices that are observable for the asset or liability such as interest rates and yield curves observable at commonly quoted intervals and (d) inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
• | Level 3 valuations use unobservable inputs for the asset or liability. Unobservable inputs are used to the extent observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. |
The table below sets forth our fair value hierarchy for our interest rate swaps measured at fair value as of June 30, 2010 (in thousands):
Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||
Liabilities: | ||||||||||||
Interest rate swaps | $ | — | $ | — | $ | 1,177 | $ | 1,177 |
The table below sets forth our fair value hierarchy for our ARS and interest rate swaps measured at fair value as of December 31, 2009 (in thousands):
Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||
Asset: | ||||||||||||
Auction rate securities | $ | — | $ | — | $ | 12,425 | $ | 12,425 | ||||
Liabilities: | ||||||||||||
Interest rate swaps | $ | — | $ | — | $ | 1,747 | $ | 1,747 |
To estimate the fair value of the ARS each quarter, the Company prepared a discounted cash flow analysis which is based on an income approach. The significant inputs used in the analysis include the following: par value of the ARS, maturity period, coupon rate, discount rate and liquidity risk premium rate. The Company used a maturity period of one year, which is when the Company estimated it would be able to liquidate these ARS at
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par. The coupon rate represents the interest rate being earned on the ARS as of the end of the most recent quarter. The discount rate is a combination of the coupon rate and liquidity risk premium rate and was used to reflect the current reduced liquidity of these ARS. The liquidity risk premium rate was calculated based on the U.S. treasury yields applicable to the ARS maturity dates as of the end of the most recent quarter. Changes in the fair value of the ARS were recognized, net of tax in accumulated other comprehensive income (loss). The ARS were liquidated at par during the second quarter of 2010. See note “14. Comprehensive Income.”
Also, at June 30, 2010, the Company had liabilities related to its interest rate swaps of approximately $1.2 million, before income taxes, that were measured at fair value on a recurring basis using the Level 3 valuation methodology. The fair value of the interest rate swaps were derived using a valuation model based on an income approach that calculates the present value of the anticipated future cash flows for both the floating and fixed legs of the swaps utilizing the contractual terms of the swap agreements and observable market-based inputs. The significant contractual inputs used in the valuation model include the following: period to maturity, amortization schedule and the fixed payment rate. The significant market-based inputs used in the valuation model include the following: interest rate curve, risk premium, implied volatility rate and spread for credit risks to evaluate the likelihood of default by the Company or its counterparties.
There were no significant transfers between Levels 1 and 2 during the six months ended June 30, 2010. In the event of a transfer, the Company’s policy is to recognize the transfer on the actual date of the event or change in circumstances that caused the transfer. The Company’s cash and cash equivalents are measured at fair value using the Level 1 valuation methodology.
The following table presents the changes in fair value of the Company’s Level 3 assets and liabilities for the three months ended June 30, 2010 (in thousands):
Significant Unobservable Inputs (Level 3) | ||||||||
ARS | Interest Rate Swaps | |||||||
Balance at April 1, 2010 | $ | 12,434 | $ | (1,578 | ) | |||
Unrealized gain included in other comprehensive income (loss), before tax | 566 | 401 | ||||||
Sales of ARS | (13,000 | ) | — | |||||
Balance at June 30, 2010 | $ | — | $ | (1,177 | ) | |||
The following table presents the changes in fair value of the Company’s Level 3 assets and liabilities for the six months ended June 30, 2010 (in thousands):
Significant Unobservable Inputs (Level 3) | ||||||||
ARS | Interest Rate Swaps | |||||||
Balance at January 1, 2010 | $ | 12,425 | $ | (1,747 | ) | |||
Unrealized gain included in other comprehensive income (loss), before tax | 575 | 570 | ||||||
Sales of ARS (transfer to Level 1) | (13,000 | ) | — | |||||
Balance at June 30, 2010 | $ | — | $ | (1,177 | ) | |||
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14. Comprehensive Income
The FASB established guidelines for reporting changes in equity during a period from transactions and other events and circumstances from non-owner sources. Comprehensive income attributable to Odyssey stockholders includes the net change in the fair value of ARS and interest rate swaps, net of income tax, and is included as a component of Odyssey stockholders’ equity.
The components of comprehensive income, net of income tax, are as follows (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||
Net income | $ | 14,207 | $ | 8,600 | $ | 27,859 | $ | 17,455 | ||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||
Unrealized gain on interest rate swaps(1) | 249 | 165 | 355 | 112 | ||||||||||
Unrealized gain (loss) on ARS(2) | 355 | (74 | ) | 363 | (153 | ) | ||||||||
Total other comprehensive income (loss), net of tax | 604 | 91 | 718 | (41 | ) | |||||||||
Comprehensive income | 14,811 | 8,691 | 28,577 | 17,414 | ||||||||||
Less: comprehensive income attributable to noncontrolling interests | 229 | 81 | 482 | 217 | ||||||||||
Comprehensive income attributable to Odyssey stockholders | $ | 14,582 | $ | 8,610 | $ | 28,095 | $ | 17,197 | ||||||
(1) | Unrealized gain on interest rate swaps is recorded net of tax expense of $0.2 million for both the three and six months ended June 30, 2010 and $0.1 million for both the three and six months ended June 30, 2009. |
(2) | Unrealized gain (loss) on ARS is recorded net of tax expense (benefit) of $0.2 million for both the three and six months ended June 30, 2010 and $(0.1) million for both the three and six months ended June 30, 2009. |
The components of accumulated other comprehensive income (loss), net of income taxes, are as follows (in thousands):
As of June 30, 2010 | As of December 31, 2009 | |||||||
Unrealized loss on interest rate swaps | $ | (763 | ) | $ | (1,118 | ) | ||
Unrealized loss on ARS | — | (363 | ) | |||||
Accumulated other comprehensive loss | $ | (763 | ) | $ | (1,481 | ) | ||
15. Effective Income Tax Rate
The Company’s provision for income taxes consists of current and deferred federal and state income tax expenses. The Company’s effective tax rate for the three months ended June 30, 2010 and 2009 was 39.0% and 36.2%, respectively. The Company’s effective tax rate for the six months ended June 30, 2010 and 2009 was 38.3% and 36.9%, respectively. The increase in the effective tax rate is related to a higher percentage of taxable earnings due to the Company’s increasing income before taxes and a decrease in employment related federal tax credits. The Company estimates that its effective tax rate for 2010 will be in the range of 38.0% to 38.5%.
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The total provision for income taxes remains unchanged; however, the Company’s effective tax rate as calculated from the balances shown on the consolidated statements of income have changed as net income attributable to noncontrolling interests is no longer included as a deduction in the determination of income from continuing operations. The reconciliation of the effective income tax rate is as follows for the periods presented.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||
Statutory state and federal income tax rate | 39.0 | % | 36.2 | % | 38.3 | % | 36.9 | % | ||||
Less: net income attributable to noncontrolling interests | 0.4 | 0.3 | 0.4 | 0.3 | ||||||||
Effective income tax rate for controlling interest | 38.6 | % | 35.9 | % | 37.9 | % | 36.6 | % |
16. Contingencies
On February 14, 2008, the Company received a letter from the Medicaid Fraud Control Unit of the Texas Attorney General’s office notifying the Company that it is conducting an investigation concerning Medicaid hospice services provided by the Company, including the Company’s practices with respect to patient admission and retention, and requesting medical records of approximately 50 patients served by the Company’s programs in the State of Texas. Based on the preliminary stage of this investigation and the limited information that the Company has at this time, the Company cannot predict the outcome of this investigation, the Texas Attorney General’s views of the issues being investigated, any actions that the Texas Attorney General may take or the impact, if any, that the investigation may have on the Company’s business, results of operations, liquidity or capital resources. The Company believes that it is in material compliance with the rules and regulations applicable to the Texas Medicaid hospice program.
On May 5, 2008, the Company received a letter from the United States Department of Justice (“DOJ”) notifying the Company that it is conducting an investigation of VistaCare and requesting that the Company provide certain information and documents related to its investigation of claims submitted by VistaCare to Medicare, Medicaid and TRICARE from January 1, 2003 through March 6, 2008, the date the Company completed the acquisition of VistaCare. The Company was informed that the DOJ and the Medicaid Fraud Control Unit of the Texas Attorney General’s Office are reviewing allegations that VistaCare may have billed the federal Medicare, Medicaid and TRICARE programs for hospice services that were not reasonably or medically necessary or performed as claimed. The basis of the investigation is aqui tam lawsuit filed in the United States District Court for the Northern District of Texas by a former employee of VistaCare. The lawsuit was unsealed on October 5, 2009 and an amended complaint was served on the Company on January 28, 2010. The unsealed amended compliant also contained allegations regarding alleged violations of State laws in the States of Indiana, Massachusetts, Nevada, and New Mexico. In connection with the unsealing of the complaint, the DOJ filed a notice with the court declining to intervene in thequi tam action at this time. The Texas Attorney General also filed a notice of non-intervention with the court. While these actions should not be viewed as a final assessment by the DOJ or the Texas Attorney General of the merits of thisqui tam action, the Company considers them to be positive developments. The Company continues to cooperate with the DOJ and the Texas Attorney General in their investigation of VistaCare. Based on the limited information that the Company has at this time, it cannot predict the outcome of thequi tam lawsuit or the related investigation, the DOJ’s or the Texas Attorney General’s views of the issues being investigated other than the DOJ’s and the Texas Attorney General’s notice declining to intervene in thequi tam action at this time, any actions that the DOJ or the Texas Attorney General may take or the impact, if any, that the investigation may have on the Company’s business, results of operations, liquidity or capital resources.
On January 5, 2009, the Company received a letter from the Georgia State Health Care Fraud Control Unit notifying the Company that it is conducting an investigation concerning Medicaid hospice services provided by VistaCare from 2003 through 2007, including VistaCare’s practices of providing or making available services related to patients’ terminal illnesses, and requesting certain documents. The Company is cooperating with the
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Georgia State Health Care Fraud Control Unit and has complied with the document request. Based on the preliminary stage of this investigation and the limited information that the Company has at this time, the Company cannot predict the outcome of the investigation, the Georgia State Health Care Fraud Control Unit’s views of the issues being investigated, any actions that the Georgia State Health Care Fraud Control Unit may take or the impact, if any, that the investigation may have on the Company’s business, results of operations, liquidity or capital resources.
On February 2, 2009, the Company received a subpoena from the United States Department of Health and Human Services Office of Inspector General (“OIG”) requesting certain documents related to the United States Department of Justice’s (“DOJ”) and the OIG’s investigation of the Company’s provision of continuous care services to Medicare patients from January 1, 2004 through February 2, 2009. On September 9, 2009, the Company received a second subpoena from the OIG requesting medical records for certain Medicare patients who had been provided continuous care services by the Company during the same time period. The Company is cooperating with the DOJ and OIG and is in the process of complying with the subpoena requests. Based on the preliminary stage of this investigation and the limited information that the Company has at this time the Company cannot predict the outcome of the investigation, the OIG’s views of the issues being investigated, any actions that the OIG may take or the impact, if any, that the investigation may have on the Company’s business, results of operations, liquidity or capital resources.
On March 5, 2009, the Company received a notice submitted on behalf of Ronaldo Ramos to the California Labor & Workforce Development Agency regarding his intent to file a claim for penalties pursuant to the California Private Attorney General Act for alleged violations of the California Labor Code. Ramos is a former employee of the Company and alleges that he and others similarly situated were improperly paid for on-call hours. His notice indicates that he intends to seek to recover unpaid wages, overtime, penalties, punitive damages, interest, and attorney’s fees. The Company is not aware of him filing a lawsuit. The Company believes that it has complied with all regulations at issue, and it intends to vigorously defend against the claims asserted. Because the matter is in its early stage, the Company cannot at this time estimate an amount or range of potential loss in the event of an unfavorable outcome.
The Company has been named in a collective action lawsuit filed on January 25, 2010, in the United States District Court Southern District of Texas Houston Division by Bobby Blevins, a former employee, alleging failure to pay overtime to a purported class of similarly situated hourly-paid current and former nurse employees. The plaintiff seeks to recover unpaid overtime compensation, damages and attorney fees. The Company believes that it has complied with all regulations at issue, and intends to vigorously defend against the claims asserted. Because of the early stage of this suit, the Company cannot at this time estimate an amount or range of potential loss in the event of an unfavorable outcome.
On February 23, 2010, the Company received an administrative subpoena for records from the OIG requesting various documents and certain patient records of one of its hospice programs relating to services performed from January 1, 2006 through December 31, 2009. The Company is cooperating with the OIG and has completed its subpoena production. Because of the preliminary stage of this investigation and the limited information that the Company has at this time the Company cannot predict the outcome of the investigation, the OIG’s views of the issues being investigated, any actions that the OIG may take or the impact, if any, that the investigation may have on the Company’s business, results of operations, liquidity or capital resources.
Three lawsuits have been filed in connection with the Merger. The first, filed on May 27, 2010, is captionedPompano Beach Police & Firefighters’ Retirement System v. Odyssey Healthcare, Inc., et al., Cause No. CC-10-03561-E in the County Court at Law No. 5 in Dallas County, Texas. The second, filed on June 9, 2010, is captionedEric Hemminger, et al. v. Richard Burnham, et al., Cause No. DC-10-06982, in the 14th Judicial District Court, Dallas County, Texas. The third, filed on July 7, 2010, is captionedHansen v. Odyssey Healthcare, Inc., et al., Case 3:10-cv-01305-G in the United States District Court for the Northern District of Texas. All three suits name the Company, the members of the Company’s board of directors, Gentiva, and
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Merger Sub as defendants. All three lawsuits are brought by purported stockholders of the Company, both individually and on behalf of a putative class of stockholders, alleging that the Company’s board of directors breached its fiduciary duties in connection with the Merger by failing to maximize stockholder value, and that the Company and Gentiva aided and abetted the purported breaches. ThePompano Beach Police and Firefighters suit seeks additional proxy disclosures regarding the Merger. The petitions each seek equitable relief, including, among other things, to enjoin consummation of the Merger, rescission of the Merger Agreement, and an award of all costs of the action, including reasonable attorneys’ fees. The Company believes none of the suits have merit.
From time to time, the Company may be involved in other litigation and regulatory matters relating to claims that arise in the ordinary course of its business. Although the ultimate liability for these matters cannot be determined, based on the information currently available to the Company, the Company does not believe that the resolution of these other litigation and regulatory matters to which the Company is currently a party will have a material adverse effect on the Company’s business, results of operations or liquidity.
17. Segment Information
The Company currently evaluates performance and allocates resources primarily on the basis of cost per day of care and income from continuing operations. From time to time, the Company may reorganize its operating segments to better align its hospice programs. During the first quarter of 2010, the Company reorganized the regions and restated the financial information presented below for current and prior periods. Prior periods have also been restated for the reclassification of discontinued programs to discontinued operations. The distribution by regions of the Company’s net patient service revenue, direct hospice care expenses, income (loss) from continuing operations before other income (expense) (which is used by management for operating performance review), average daily census and total assets are summarized in the following tables:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(in thousands) | ||||||||||||||||
Net patient service revenue: | ||||||||||||||||
Northeast | $ | 16,094 | $ | 15,434 | $ | 31,263 | $ | 30,843 | ||||||||
Southeast | 19,215 | 17,334 | 37,562 | 34,470 | ||||||||||||
Southwest | 18,359 | 19,182 | 36,402 | 38,967 | ||||||||||||
South Central | 29,852 | 27,621 | 57,881 | 54,140 | ||||||||||||
Texas | 32,473 | 31,866 | 64,516 | 62,520 | ||||||||||||
Midwest | 28,660 | 26,646 | 56,918 | 52,144 | ||||||||||||
West | 31,818 | 31,635 | 63,318 | 64,182 | ||||||||||||
Support Center | (244 | ) | 577 | (137 | ) | 561 | ||||||||||
$ | 176,227 | $ | 170,295 | $ | 347,723 | $ | 337,827 | |||||||||
Direct hospice care expenses: | ||||||||||||||||
Northeast | $ | 8,183 | $ | 8,766 | $ | 16,289 | $ | 17,384 | ||||||||
Southeast | 10,902 | 10,508 | 21,494 | 20,645 | ||||||||||||
Southwest | 10,130 | 11,584 | 20,382 | 23,026 | ||||||||||||
South Central | 18,128 | 17,250 | 34,796 | 33,698 | ||||||||||||
Texas | 19,190 | 19,627 | 38,377 | 38,951 | ||||||||||||
Midwest | 15,823 | 14,731 | 31,321 | 29,758 | ||||||||||||
West | 16,467 | 17,078 | 32,887 | 34,493 | ||||||||||||
Support Center | (791 | ) | (100 | ) | (1,113 | ) | (56 | ) | ||||||||
$ | 98,032 | $ | 99,444 | $ | 194,433 | $ | 197,899 | |||||||||
20
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(in thousands) | ||||||||||||||||
Income from continuing operations before other income (expense): | ||||||||||||||||
Northeast | $ | 4,903 | $ | 3,297 | $ | 8,929 | $ | 6,865 | ||||||||
Southeast | 4,864 | 2,846 | 8,859 | 5,757 | ||||||||||||
Southwest | 4,932 | 3,400 | 9,098 | 7,534 | ||||||||||||
South Central | 5,539 | 4,013 | 10,362 | 7,662 | ||||||||||||
Texas | 7,134 | 5,082 | 13,736 | 9,488 | ||||||||||||
Midwest | 7,798 | 6,909 | 15,161 | 11,479 | ||||||||||||
West | 9,516 | 7,959 | 18,736 | 16,592 | ||||||||||||
Support Center | (20,102 | ) | (17,934 | ) | (37,033 | ) | (33,896 | ) | ||||||||
$ | 24,584 | $ | 15,572 | $ | 47,848 | $ | 31,481 | |||||||||
Average Daily Census: | ||||||||||||||||
Northeast | 1,168 | 1,134 | 1,146 | 1,143 | ||||||||||||
Southeast | 1,500 | 1,392 | 1,471 | 1,375 | ||||||||||||
Southwest | 1,340 | 1,462 | 1,335 | 1,468 | ||||||||||||
South Central | 2,111 | 1,955 | 2,066 | 1,928 | ||||||||||||
Texas | 2,366 | 2,377 | 2,370 | 2,361 | ||||||||||||
Midwest | 2,047 | 1,894 | 2,036 | 1,893 | ||||||||||||
West | 2,056 | 2,054 | 2,032 | 2,059 | ||||||||||||
12,588 | 12,268 | 12,456 | 12,227 | |||||||||||||
As of June 30, 2010 | As of December 31, 2009 | |||||||
(in thousands) | ||||||||
Total Assets: | ||||||||
Northeast | $ | 20,689 | $ | 20,800 | ||||
Southeast | 27,019 | 28,995 | ||||||
Southwest | 49,555 | 53,865 | ||||||
South Central | 57,159 | 59,041 | ||||||
Texas | 63,918 | 66,128 | ||||||
Midwest | 54,345 | 54,033 | ||||||
West | 64,342 | 63,233 | ||||||
Support Center | 183,748 | 156,909 | ||||||
$ | 520,775 | $ | 503,004 | |||||
18. Supplemental Guarantor and Non-Guarantor Financial Information
Gentiva anticipates that its guarantor subsidiaries, including Odyssey and certain of its subsidiaries, will be guarantors of debt securities which will be registered under the Securities Act of 1933 upon the exchange of the Senior Notes for substantially similar registered notes. The condensed consolidating financial statements presented below are provided pursuant to Rule 3-10 of Regulation S-X. Separate financial statements of each Odyssey subsidiary guaranteeing Gentiva’s debt securities are not presented because the guarantor subsidiaries are fully and unconditionally, jointly and severally liable under the guarantees, and are 100% owned by Odyssey.
The condensed consolidating financial statements include the balance sheet as of June 30, 2010 and December 31, 2009, statements of income for the three months and six months ended June 30, 2010 and 2009 and statements of cash flows for the six months ended June 30, 2010 and 2009 of (i) Odyssey, (ii) its guarantor subsidiaries, (iii) its non-guarantor subsidiaries and (iv) the eliminations necessary to arrive at the information for Odyssey on a consolidated basis. The condensed consolidating financial statements should be read in conjunction with the accompanying consolidated financial statements of Odyssey.
21
Condensed Consolidating Balance Sheet June 30, 2010 (In thousands) | ||||||||||||||||||||
Odyssey HealthCare | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated Total | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 163,146 | $ | — | $ | 1,355 | — | $ | 164,501 | |||||||||||
Receivables, net | — | 99,548 | 3,436 | — | 102,984 | |||||||||||||||
Income taxes receivable | — | 4,023 | — | — | 4,023 | |||||||||||||||
Deferred tax assets | — | 10,219 | — | — | 10,219 | |||||||||||||||
Prepaid expenses and other current assets | — | 5,010 | 760 | — | 5,770 | |||||||||||||||
Total current assets | 163,146 | 118,800 | 5,551 | — | 287,497 | |||||||||||||||
Property and equipment, net of accumulated depreciation | — | 18,887 | 177 | — | 19,064 | |||||||||||||||
Deferred loan costs, net | — | 2,669 | — | — | 2,669 | |||||||||||||||
Intangible assets, net | — | 19,055 | 100 | — | 19,155 | |||||||||||||||
Goodwill | — | 186,327 | 6,063 | — | 192,390 | |||||||||||||||
Investment in subsidiaries | 230,301 | 6,329 | — | (236,630 | ) | — | ||||||||||||||
Total assets | $ | 393,447 | $ | 352,067 | $ | 11,891 | $ | (236,630 | ) | $ | 520,775 | |||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Accounts payable | $ | — | $ | 2,352 | $ | 1,234 | $ | — | $ | 3,586 | ||||||||||
Current maturities of long-term debt | 33,340 | — | — | — | 33,340 | |||||||||||||||
Other current liabilities | — | 101,510 | 1,883 | — | 103,393 | |||||||||||||||
Total current liabilities | 33,340 | 103,862 | 3,117 | — | 140,319 | |||||||||||||||
Long-term debt, less current maturities | 77,128 | — | — | — | 77,128 | |||||||||||||||
Deferred tax liability | — | 15,261 | — | — | 15,261 | |||||||||||||||
Other liabilities | — | 2,643 | 44 | — | 2,687 | |||||||||||||||
Total Odyssey stockholders’ equity | 282,979 | 230,301 | 6,329 | (236,630 | ) | 282,979 | ||||||||||||||
Non controlling interest | — | — | 2,401 | — | 2,401 | |||||||||||||||
Total equity | 282,979 | 230,301 | 8,730 | (236,630 | ) | 285,380 | ||||||||||||||
Total liabilities and equity | $ | 393,447 | $ | 352,067 | $ | 11,891 | $ | (236,630 | ) | $ | 520,775 | |||||||||
Condensed Consolidating Balance Sheet December 31, 2009 (In thousands) | ||||||||||||||||||||
Odyssey HealthCare | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated Total | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 128,178 | $ | — | $ | 454 | $ | — | $ | 128,632 | ||||||||||
Receivables, net | — | 107,823 | 2,770 | — | 110,593 | |||||||||||||||
Income tax receivable | — | 352 | — | — | 352 | |||||||||||||||
Deferred tax assets | — | 10,235 | — | — | 10,235 | |||||||||||||||
Prepaid expenses and other current assets | — | 3,920 | 2,097 | — | 6,017 | |||||||||||||||
Total current assets | 128,178 | 122,330 | 5,321 | — | 255,829 | |||||||||||||||
Property and equipment, net of accumulated depreciation | — | 20,509 | 191 | — | 20,700 | |||||||||||||||
Deferred loan costs, net | — | 3,033 | — | — | 3,033 | |||||||||||||||
Long term investments | — | 12,425 | — | — | 12,425 | |||||||||||||||
Intangible assets, net | — | 19,151 | 100 | — | 19,251 | |||||||||||||||
Goodwill | — | 186,017 | 5,749 | — | 191,766 | |||||||||||||||
Investment in subsidiaries | 235,775 | 6,194 | — | (241,969 | ) | — | ||||||||||||||
Total assets | $ | 363,953 | $ | 369,659 | $ | 11,361 | $ | (241,969 | ) | $ | 503,004 | |||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Accounts payable | $ | — | $ | 2,914 | $ | 1,102 | $ | — | $ | 4,016 | ||||||||||
Current maturities of long-term debt | 38,675 | — | — | — | 38,675 | |||||||||||||||
Other current liabilities | — | 111,254 | 1,604 | — | 112,858 | |||||||||||||||
Total current liabilities | 38,675 | 114,168 | 2,706 | — | 155,549 | |||||||||||||||
Long-term debt, less current maturities | 76,527 | — | — | — | 76,527 | |||||||||||||||
Deferred tax liability | — | 15,171 | — | — | 15,171 | |||||||||||||||
Other liabilities | — | 4,545 | 52 | — | 4,597 | |||||||||||||||
Total Odyssey stockholders’ equity | 248,751 | 235,775 | 6,194 | (241,969 | ) | 248,751 | ||||||||||||||
Non controlling interest | — | — | 2,409 | — | 2,409 | |||||||||||||||
Total equity | 248,751 | 235,775 | 8,603 | (241,969 | ) | 251,160 | ||||||||||||||
Total liabilities and equity | $ | 363,953 | $ | 369,659 | $ | 11,361 | $ | (241,969 | ) | $ | 503,004 | |||||||||
Condensed Consolidating Statement of Income For the Three Months Ended June 30, 2010 (In thousands) | ||||||||||||||||||||
Odyssey HealthCare | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated Total | ||||||||||||||||
Net patient service revenue | $ | — | $ | 170,557 | $ | 5,670 | $ | — | $ | 176,227 | ||||||||||
Operating expenses: | ||||||||||||||||||||
Direct hospice care | — | 94,718 | 3,314 | — | 98,032 | |||||||||||||||
General and administrative — hospice care | — | 30,753 | 1,160 | — | 31,913 | |||||||||||||||
General and administrative — support center | — | 18,753 | 357 | — | 19,110 | |||||||||||||||
Provision for uncollectible accounts | — | 877 | — | — | 877 | |||||||||||||||
Depreciation | — | 1,643 | 30 | — | 1,673 | |||||||||||||||
Amortization | — | 38 | — | — | 38 | |||||||||||||||
Income from continuing operations before other income (expense) | — | 23,775 | 809 | — | 24,584 | |||||||||||||||
Interest expense, net | (1,319 | ) | — | (12 | ) | — | (1,331 | ) | ||||||||||||
Equity in earnings of subsidiaries | 14,771 | 250 | — | | (15,021 | ) | — | |||||||||||||
Income from continuing operations before income taxes | 13,452 | 24,025 | 797 | (15,021 | ) | 23,253 | ||||||||||||||
Income tax benefit (provision) | 526 | (9,183 | ) | (318 | ) | — | (8,975 | ) | ||||||||||||
Income from continuing operations | 13,978 | 14,842 | 479 | (15,021 | ) | 14,278 | ||||||||||||||
Loss from discontinued operations, net of income taxes | — | (71 | ) | — | — | (71 | ) | |||||||||||||
Net income | 13,978 | 14,771 | 479 | (15,021 | ) | 14,207 | ||||||||||||||
Less: Net income attributable to noncontrolling interests | — | — | 229 | — | 229 | |||||||||||||||
Net income attributable to Odyssey shareholders | $ | 13,978 | $ | 14,771 | $ | 250 | $ | (15,021 | ) | $ | 13,978 | |||||||||
Condensed Consolidating Statement of Income For the Three Months Ended June 30, 2009 (In thousands) | ||||||||||||||||||||
Odyssey HealthCare | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated Total | ||||||||||||||||
Net patient service revenue | $ | — | $ | 165,441 | $ | 4,854 | $ | — | $ | 170,295 | ||||||||||
Operating expenses: | ||||||||||||||||||||
Direct hospice care | — | 96,515 | 2,929 | — | 99,444 | |||||||||||||||
General and administrative — hospice care | — | 33,068 | 1,063 | — | 34,131 | |||||||||||||||
General and administrative — support center | — | 16,533 | 308 | — | 16,841 | |||||||||||||||
Provision for uncollectible accounts | — | 2,612 | (106 | ) | — | 2,506 | ||||||||||||||
Depreciation | — | 1,698 | 33 | — | 1,731 | |||||||||||||||
Amortization | — | 70 | — | — | 70 | |||||||||||||||
Income from continuing operations before other income (expense) | — | 14,945 | 627 | — | 15,572 | |||||||||||||||
Interest expense, net | (1,432 | ) | — | (53 | ) | — | (1,485 | ) | ||||||||||||
Equity in earnings of subsidiaries | 9,380 | 264 | — | (9,644 | ) | — | ||||||||||||||
Income from continuing operations before income taxes | 7,948 | 15,209 | 574 | (9,644 | ) | 14,087 | ||||||||||||||
Income tax benefit (provision) | 571 | (5,407 | ) | (229 | ) | — | (5,065 | ) | ||||||||||||
Income from continuing operations | 8,519 | 9,802 | 345 | (9,644 | ) | 9,022 | ||||||||||||||
Loss from discontinued operations, net of income taxes | — | (422 | ) | — | — | (422 | ) | |||||||||||||
Net income | 8,519 | 9,380 | 345 | (9,644 | ) | 8,600 | ||||||||||||||
Less: Net income attributable to noncontrolling interests | — | — | 81 | — | 81 | |||||||||||||||
Net income attributable to Odyssey shareholders | $ | 8,519 | $ | 9,380 | $ | 264 | $ | (9,644 | ) | $ | 8,519 | |||||||||
Condensed Consolidating Statement of Income For the Six Months Ended June 30, 2010 (In thousands) | ||||||||||||||||||||
Odyssey HealthCare | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated Total | ||||||||||||||||
Net patient service revenue | $ | — | $ | 336,410 | $ | 11,313 | $ | — | $ | 347,723 | ||||||||||
Operating expenses: | ||||||||||||||||||||
Direct hospice care | — | 187,884 | 6,549 | — | 194,433 | |||||||||||||||
General and administrative — hospice care | — | 62,414 | 2,193 | — | 64,607 | |||||||||||||||
General and administrative — support center | — | 34,203 | 708 | — | 34,911 | |||||||||||||||
Provision for uncollectible accounts | — | 2,348 | 62 | — | 2,410 | |||||||||||||||
Depreciation | — | 3,353 | 65 | — | 3,418 | |||||||||||||||
Amortization | — | 96 | — | — | 96 | |||||||||||||||
Income from continuing operations before other income (expense) | — | 46,112 | 1,736 | — | 47,848 | |||||||||||||||
Interest expense, net | (2,678 | ) | — | (24 | ) | — | (2,702 | ) | ||||||||||||
Equity in earnings of subsidiaries | 28,986 | 547 | — | (29,533 | ) | — | ||||||||||||||
Income from continuing operations before income taxes | 26,308 | 46,659 | 1,712 | (29,533 | ) | 45,146 | ||||||||||||||
Income tax benefit (provision) | 1,069 | (17,476 | ) | (683 | ) | (17,090 | ) | |||||||||||||
Income from continuing operations | 27,377 | 29,183 | 1,029 | (29,533 | ) | 28,056 | ||||||||||||||
Loss from discontinued operations, net of income taxes | — | (197 | ) | — | — | (197 | ) | |||||||||||||
Net income | 27,377 | 28,986 | 1,029 | (29,533 | ) | 27,859 | ||||||||||||||
Less: Net income attributable to noncontrolling interests | — | — | 482 | — | 482 | |||||||||||||||
Net income attributable to Odyssey shareholders | $ | 27,377 | $ | 28,986 | $ | 547 | $ | (29,533 | ) | $ | 27,377 | |||||||||
22
Condensed Consolidating Statement of Income For the Six Months Ended June 30, 2009 (In thousands) | ||||||||||||||||||||
Odyssey HealthCare | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated Total | ||||||||||||||||
Net patient service revenue | $ | — | $ | 327,993 | $ | 9,834 | $ | — | $ | 337,827 | ||||||||||
Operating expenses: | ||||||||||||||||||||
Direct hospice care | — | 191,959 | 5,940 | — | 197,899 | |||||||||||||||
General and administrative — hospice care | — | 65,749 | 2,182 | — | 67,931 | |||||||||||||||
General and administrative — support center | — | 32,020 | 626 | — | 32,646 | |||||||||||||||
Provision for uncollectible accounts | — | 4,826 | 43 | — | 4,869 | |||||||||||||||
Depreciation | — | 2,789 | 71 | — | 2,860 | |||||||||||||||
Amortization | — | 141 | — | — | 141 | |||||||||||||||
Income from continuing operations before other income (expense) | — | 30,509 | 972 | — | 31,481 | |||||||||||||||
Interest expense, net | (3,151 | ) | — | (53 | ) | — | (3,204 | ) | ||||||||||||
Equity in earnings of subsidiaries | 19,132 | 335 | — | (19,467 | ) | — | ||||||||||||||
Income from continuing operations before income taxes | 15,981 | 30,844 | 919 | (19,467 | ) | 28,277 | ||||||||||||||
Income tax benefit (provision) | 1,257 | (11,237 | ) | (367 | ) | (10,347 | ) | |||||||||||||
Income from continuing operations | 17,238 | 19,607 | 552 | (19,467 | ) | 17,930 | ||||||||||||||
Loss from discontinued operations, net of income taxes | — | (475 | ) | — | — | (475 | ) | |||||||||||||
Net income | 17,238 | 19,132 | 552 | (19,467 | ) | 17,455 | ||||||||||||||
Less: Net income attributable to noncontrolling interests | — | — | 217 | — | 217 | |||||||||||||||
Net income attributable to Odyssey shareholders | $ | 17,238 | $ | 19,132 | $ | 335 | $ | (19,467 | ) | $ | 17,238 | |||||||||
Condensed Consolidating Statement of Cash Flows For the Six Months Ended June 30, 2010 (In thousands) | ||||||||||||||||||||
Odyssey HealthCare | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated Total | ||||||||||||||||
OPERATING ACTIVITIES: | ||||||||||||||||||||
Net cash provided by operating activities | $ | 2,112 | $ | 20,916 | $ | 2,537 | $ | — | $ | 25,565 | ||||||||||
INVESTING ACTIVITIES: | ||||||||||||||||||||
Cash paid for acquisitions, net of cash acquired | — | (566 | ) | — | — | (566 | ) | |||||||||||||
Sales of auction rate securities | 13,000 | — | — | — | 13,000 | |||||||||||||||
Purchases of property and equipment, net | — | (1,753 | ) | (51 | ) | — | (1,804 | ) | ||||||||||||
Net cash provided by (used in) investing activities | 13,000 | (2,319 | ) | (51 | ) | — | 10,630 | |||||||||||||
FINANCING ACTIVITIES: | ||||||||||||||||||||
Proceeds from exercise of stock options | 2,460 | — | — | — | 2,460 | |||||||||||||||
Payments on credit facility | (4,734 | ) | — | — | — | (4,734 | ) | |||||||||||||
Net payments related to intercompany financing | 19,088 | (18,597 | ) | (491 | ) | — | — | |||||||||||||
Other financing activities | 3,042 | (1,094 | ) | — | 1,948 | |||||||||||||||
Net cash used in financing activities | 19,856 | (18,597 | ) | (1,585 | ) | — | (326 | ) | ||||||||||||
Net change in cash and cash equivalents | 34,968 | — | 901 | — | 35,869 | |||||||||||||||
Cash and cash equivalents at beginning of period | 128,178 | — | 454 | — | 128,632 | |||||||||||||||
Cash and cash equivalents at end of period | $ | 163,146 | $ | — | $ | 1,355 | $ | — | $ | 164,501 | ||||||||||
Condensed Consolidating Statement of Cash Flows For the Six Months Ended June 30, 2009 (In thousands) | ||||||||||||||||||||
Odyssey HealthCare | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated Total | ||||||||||||||||
OPERATING ACTIVITIES: | ||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | 925 | $ | 20,955 | $ | (350 | ) | $ | — | $ | 21,530 | |||||||||
INVESTING ACTIVITIES: | ||||||||||||||||||||
Cash paid for acquisitions, net of cash acquired | — | (205 | ) | — | — | (205 | ) | |||||||||||||
Purchases of property and equipment, net | — | (3,351 | ) | — | — | (3,351 | ) | |||||||||||||
Net cash used in investing activities | — | (3,556 | ) | — | — | (3,556 | ) | |||||||||||||
FINANCING ACTIVITIES: | ||||||||||||||||||||
Proceeds from exercise of stock options | 43 | — | — | — | 43 | |||||||||||||||
Payments on credit facility | (3,197 | ) | — | — | — | (3,197 | ) | |||||||||||||
Net payments related to intercompany financing | 16,977 | (17,399 | ) | 422 | — | — | ||||||||||||||
Other financing activities | (156 | ) | — | — | — | (156 | ) | |||||||||||||
Net cash provided by (used in) financing activities | 13,667 | (17,399 | ) | 422 | — | (3,310 | ) | |||||||||||||
Net change in cash and cash equivalents | 14,592 | — | 72 | — | 14,664 | |||||||||||||||
Cash and cash equivalents at beginning of period | 55,589 | — | 454 | — | 56,043 | |||||||||||||||
Cash and cash equivalents at end of period | $ | 70,181 | $ | — | $ | 526 | $ | — | $ | 70,707 | ||||||||||
23