Delaware | 31-0791746 |
(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. Employer
Identification Number)
|
Suite 2600, 255 East Fifth Street, Cincinnati, Ohio | 45202-4726 |
(Address of principal executive offices) | (Zip Code) |
Title of Each Class | Name of each exchange on which registered |
Capital Stock – Par Value $1 Per Share
|
New York Stock Exchange
|
Document
|
Where Incorporated
|
2018 Annual Report to Stockholders (specified portions) |
Parts I, II, and IV |
Proxy Statement for Annual Meeting to be held May 20, 2019
|
Part III
|
PART I
|
|
PART II
|
|
PART III
|
|
PART IV
|
|
Form 10-K Summary |
•
|
Ensuring that Medicare hospice eligibility determinations are made in accordance with the Medicare regulations; and
|
•
|
Revising the annual cap on hospice benefits to better reflect the cost of care provided.
|
•
|
Denial of payment;
|
•
|
Civil monetary penalties of $15,000 per referral or $100,000 for “circumvention schemes;”
|
•
|
Assessments equal to 200% of the dollar value of each such service provided; and
|
•
|
Exclusion from the Medicare and Medicaid programs.
|
•
|
Payment for services;
|
•
|
Conduct of
operations, including fraud and abuse, anti-kickback prohibitions, self-referral prohibitions and false claims;
|
•
|
Privacy and security of medical records;
|
•
|
Employment practices; and
|
•
|
Various state approval requirements, such as facility and professional licensure, certificate
of need, compliance surveys and other certification or recertification requirements.
|
•
|
Identify markets that meet its selection criteria for new hospice locations;
|
•
|
Hire and retain qualified management teams to operate each of its new hospice locations;
|
•
|
Manage a large and geographically diverse group of hospice locations;
|
•
|
Become Medicare and Medicaid certified in new markets;
|
•
|
Generate sufficient hospice admissions to operate profitably in these new markets;
|
•
|
Compete effectively with existing hospices in new markets; or
|
•
|
Obtain state licensure and/or a certificate of need from appropriate state agencies in new markets.
|
•
|
Community-based hospice providers;
|
•
|
National and regional companies;
|
•
|
Hospital-based hospice and palliative care programs;
|
•
|
Physician groups;
|
•
|
Nursing homes;
|
•
|
Home health agencies;
|
•
|
Infusion therapy companies; and
|
•
|
Nursing agencies.
|
Name
|
Age
|
Office
|
First Elected
|
|||
Kevin J. McNamara
|
65
|
President and Chief Executive Officer
|
August 2, 1994 (1)
|
|||
David P. Williams
|
58
|
Executive Vice President and Chief Financial Officer
|
March 5, 2004 (4)
|
|||
Spencer S. Lee
|
63
|
Executive Vice President
|
May 15, 2000 (3)
|
|||
Nicholas M. Westfall
|
40
|
Executive Vice President
|
June 16, 2016 (2)
|
|||
Naomi C. Dallob
|
65
|
Vice President and Chief Legal Officer
|
May 4, 1987 (5)
|
(1)
|
Mr. K.J. McNamara is President and Chief Executive Officer of the Company and has held these positions since August 1994
and May 2001, respectively. Previously, he served as an Executive Vice President, Secretary and General Counsel of the Company, since November 1993, August 1986 and August 1986, respectively. He previously held the position of Vice
President of the Company, from August 1986 to May 1992.
|
(2)
|
Mr. D.P. Williams is an Executive Vice President and the Chief Financial Officer of the company and has held these
positions since August 2007 and March 2004, respectively. Mr. Williams is also Senior Vice President and Chief Financial Officer of Roto-Rooter Group, Inc., and has held these positions since January 1999.
|
(3)
|
Mr. S.S. Lee is an Executive Vice President of the Company and has held this position since May 2000. Mr. Lee is also
Chairman and Chief Executive Officer of Roto-Rooter Services Company, a wholly owned subsidiary of the Company, and has held this position since January 1999. Previously, he served as a Senior Vice President of Roto-Rooter Services
Company from May 1997 to January 1999.
|
(4)
|
Mr. N.M. Westfall is an Executive Vice President of the Company and has held this position since June 2016. He is also
Chief Executive Officer of VITAS, a wholly owned subsidiary of the Company, and has held this position since June 2016. Previously, from May 2015 to June 2016, he also served as Chief Operating Officer of VITAS. Previously, he served as
Senior Vice President of VITAS from April 2012 to April of 2015. Prior to that he served as Director of Information Technology and Operations for Chemed from May 2009 to April 2012.
|
(5)
|
Ms. N.C. Dallob is a Vice President and the Secretary and Chief Legal Officer of the Company. She has held these positions
since May 1987, May 1995, and May 2009, respectively. From May 1986 to May 1995 she held the position of Assistant Secretary of the Company.
|
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, 2018
|
-
|
$
|
-
|
7,815,718
|
$
|
55,533,344
|
||||||||||
February 1 through February 28, 2018
|
96,890
|
258.26
|
7,912,608
|
30,510,279
|
||||||||||||
March 1 through March 31, 2018
|
203,110
|
276.22
|
8,115,718
|
$
|
124,407,848
|
|||||||||||
First Quarter Total
|
300,000
|
$
|
270.42
|
|||||||||||||
April 1 through April 30, 2018
|
-
|
$
|
-
|
8,115,718
|
$
|
124,407,878
|
||||||||||
May 1 through May 31, 2018
|
-
|
-
|
8,115,718
|
124,407,878
|
||||||||||||
June 1 through June 30, 2018
|
10,000
|
317.86
|
8,125,718
|
$
|
121,229,007
|
|||||||||||
Second Quarter Total
|
10,000
|
$
|
317.86
|
|||||||||||||
July 1 through July 31, 2018
|
10,249
|
$
|
314.49
|
8,135,967
|
$
|
118,005,847
|
||||||||||
August 1 through August 31, 2018
|
39,751
|
315.87
|
8,175,718
|
105,449,705
|
||||||||||||
September 1 through September 30, 2018
|
70,622
|
309.99
|
8,246,340
|
$
|
83,557,343
|
|||||||||||
Third Quarter Total
|
120,622
|
$
|
312.31
|
|||||||||||||
October 1 through October 31, 2018
|
2,586
|
$
|
313.03
|
8,248,926
|
$
|
82,747,856
|
||||||||||
November 1 through November 30, 2018
|
-
|
-
|
8,248,926
|
82,747,856
|
||||||||||||
December 1 through December 31, 2018
|
127,938
|
282.16
|
8,376,864
|
$
|
46,649,495
|
|||||||||||
Fourth Quarter Total
|
130,524
|
$
|
282.77
|
Number of securities to be issued upon exercise of outstanding warrants and rights
|
Weighted-average exercise price of outstanding options, warrants and rights
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected
in column)
|
||||||||||
Plan Category
|
||||||||||||
Equity compensation plans approved by stockholders (1)
|
1,443,770
|
$
|
175.68
|
1,607,637
|
(1)
|
Amount includes 48,736 shares allocated to certain employees which vest upon attainment of specified earnings per share
targets and specified total shareholder return targets.
|
December 31
|
2013
|
2014
|
2015
|
2016
|
2017
|
2018
|
Chemed Corporation
|
100.00
|
139.13
|
198.60
|
214.24
|
326.34
|
381.85
|
S&P 500
|
100.00
|
113.69
|
115.26
|
129.05
|
157.22
|
150.33
|
Dow Jones Diversified Industrials
|
100.00
|
101.05
|
114.02
|
126.52
|
118.18
|
88.53
|
Exhibits and Financial Statement Schedule
|
||
Exhibits
|
||
3.1
|
Certificate of Incorporation of Chemed Corporation.*
|
|
3.2
|
Certificate of Amendment to Certificate of Incorporation, dated May 15, 2006.*
|
|
3.3
|
By-Laws of Chemed Corporation, as amended February 17, 2017
|
|
10.1
|
2006 Stock Incentive Plan, as amended August 11, 2006.*,**
|
|
10.2
|
2010 Stock Incentive Plan.*,**
|
|
10.3
|
2015 Stock Incentive Plan*,**
|
|
10.4
|
2018 Stock Incentive Plan**
|
|
10.5
|
Employment Agreement with David P. Williams dated December 1, 2006.*,**
|
|
10.6
|
First Amendment to Employment Agreement with David P. Williams dated July 9, 2009.*,**
|
|
10.7
|
Consulting Agreement with Timothy S. O'Toole dated June 16, 2016.
|
|
10.8
|
Employment Agreement with Kevin J. McNamara dated May 3, 2008.*,**
|
|
10.9
|
First Amendment to Employment Agreement with Kevin J. McNamara dated July 9, 2009.*,**
|
|
10.10
|
Excess Benefits Plan, as restated and amended, effective June 1, 2001.*,**
|
|
10.11
|
Amendment No. 1 to Excess Benefits Plan, effective July 1, 2001.*,**
|
|
10.12
|
Amendment No. 2 to Excess Benefits Plan, effective November 7, 2003.*,**
|
|
10.13
|
Non-Employee Directors’ Deferred Compensation Plan.*,**
|
|
10.14
|
Chemed/Roto-Rooter Savings & Retirement Plan, effective January 1, 1999.*,**
|
|
10.15
|
First Amendment to Chemed/Roto-Rooter Savings & Retirement Plan, effective September 6, 2000.*,**
|
|
10.16
|
Second Amendment to Chemed/Roto-Rooter Savings & Retirement Plan, effective January 1, 2001.*,**
|
|
10.17
|
Third Amendment to Chemed/Roto-Rooter Savings & Retirement Plan, effective December 12, 2001.*,**
|
|
10.18
|
Directors Emeriti Plan.*,**
|
|
10.19
|
Chemed Corporation Change in Control Severance Plan, as amended August 3, 2018.**
|
|
10.20
|
Chemed Corporation Senior Executive Severance Policy, as amended August 3, 2018**
|
|
10.21
|
Roto-Rooter Deferred Compensation Plan No. 1, as amended January 1, 1998.*,**
|
|
10.22
|
Roto-Rooter Deferred Compensation Plan No. 2.*,**
|
|
10.23
|
Form of Performance-Based Restricted Stock Units Award*,**
|
|
10.24
|
Form of Restricted Stock Award.*,**
|
|
10.25
|
Form of Stock Option Grant, pre-2013.*,**
|
|
10.26
|
Form of Stock Option Grant, 2013.*,**
|
|
10.27
|
Form of Stock Option Grant, 2015. *,**
|
10.28
|
Settlement Agreement, effective October 30, 2017 by and among the United States of America, acting through the United States Department
of Justice and on behalf of the Office of the Inspector General of the Department of Health and Human Services, VITAS Hospice Services, L.L.C., VITAS Healthcare Corporation, VITAS Healthcare Corporation of California, VITAS Healthcare
Corporation of Illinois, VITAS Healthcare Corporation of Florida, Vitas Healthcare Corporation of Ohio, VITAS Healthcare Corporation of Atlantic, VITAS Healthcare of Texas, L.P., VITAS Healthcare Corporation Midwest, VITAS Healthcare
Corporation of Georgia, Chemed Corporation, and the various Relators named therein.
|
|
10.29
|
Corporate Integrity Agreement, effective October 30, 2017 between the Office of Inspector General of the Department of Health and Human
Services and VITAS Hospice Services, L.L.C., VITAS Healthcare Corporation, VITAS Healthcare Corporation of California, VITAS Healthcare Corporation of Illinois, VITAS Healthcare Corporation of Florida, VITAS Healthcare Corporation of Ohio,
VITAS Healthcare Corporation of Atlantic, VITAS Healthcare of Texas, L.P., VITAS Healthcare Corporation Midwest and VITAS Healthcare Corporation of Georgia.
|
|
10.30
|
Fourth Amended and Restated Credit Agreement by and among Chemed Corporation, JP Morgan Chase Bank NA, and other lenders as of June 30,
2018, exhibits and schedules thereto.*
|
|
13
|
2018 Annual Report to Stockholders.
|
|
14
|
Policies on Business Ethics of Chemed Corporation
|
|
21
|
Subsidiaries of Chemed Corporation.
|
|
23
|
Consent of Independent Registered Public Accounting Firm.
|
|
24
|
Powers of Attorney.
|
|
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 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 Michael D. Witzeman pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
101.INS
|
XBRL Instance Document*
|
|
101.SCH
|
XBRL 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*
|
|
*
|
This exhibit is being filed by means of incorporation by reference (see Index to Exhibits on page E-1). Each other exhibit is being
filed with this Annual Report on Form 10-K.
|
|
**
|
Management contract or compensatory plan or arrangement.
|
|
Financial Statement Schedule
|
||
See Index to Financial Statements and Financial Statement Schedule on page S-1.
|
February 27, 2019 |
CHEMED CORPORATION | |
|
|
By /s/ Kevin J. McNamara |
|
|
Kevin J. McNamara |
|
|
President and Chief Executive Officer |
Signature
|
Title
|
Date
|
|||
/s/ Kevin J. McNamara
Kevin J. McNamara
|
President and Chief
Executive Officer and
a Director (Principal
Executive Officer)
|
||||
/s/ David P. Williams
David P. Williams
|
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
|
||||
/s/ Michael D. Witzeman
Michael D. Witzeman
|
Vice President and
Controller
(Principal Accounting
Officer)
|
February 27, 2019
|
|||
Joel F. Gemunder*
Patrick P. Grace*
Thomas C. Hutton*
Walter L. Krebs*
Andrea R. Lindell*
|
Thomas P. Rice*
Donald E. Saunders*
George J Walsh III*
Frank E. Wood*
|
--Directors |
February 27, 2019
|
/s/ Naomi C. Dallob
|
|
Date
|
Naomi C. Dallob
(Attorney-in-Fact)
|
Page
(s)
|
|
Chemed Corporation Consolidated Financial
Statements and Financial Statement Schedule
|
|
Report of Independent Registered Public Accounting Firm | 60* |
Consolidated Statements of Income | 63* |
Consolidated Balance Sheets | 64* |
Consolidated Statements of Cash Flows | 65* |
Consolidated Statements of Changes in Stockholders’ Equity | 66* |
Notes to Consolidated Financial Statements | 67-92* |
Report of Independent Registered Public Accounting Firm on
Financial Statement Schedule
|
S-2 |
Schedule II |
S-3 |
SCHEDULE II
|
||||||||||||||||||||
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
|
||||||||||||||||||||
VALUATION AND QUALIFYING ACCOUNTS
|
||||||||||||||||||||
(IN THOUSANDS)
|
||||||||||||||||||||
DR/(CR)
|
||||||||||||||||||||
ADDITIONS
|
||||||||||||||||||||
(CHARGED)
|
||||||||||||||||||||
CREDITED
|
(CHARGED)
|
|||||||||||||||||||
BALANCE AT
|
TO COSTS
|
CREDITED
|
BALANCE
|
|||||||||||||||||
BEGINNING
|
AND
|
TO OTHER
|
DEDUCTIONS
|
AT END
|
||||||||||||||||
DESCRIPTION
|
OF PERIOD
|
EXPENSES
|
ACCOUNTS
|
(a)
|
OF PERIOD
|
|||||||||||||||
Allowances for doubtful
|
||||||||||||||||||||
accounts (b)
|
||||||||||||||||||||
For the year 2018
|
$
|
(15,175
|
)
|
$
|
(247
|
)
|
$
|
(1,436
|
)
|
$
|
16,605
|
$
|
(253
|
)
|
||||||
For the year 2017
|
$
|
(14,236
|
)
|
$
|
(17,376
|
)
|
$
|
(1,360
|
)
|
$
|
17,797
|
$
|
(15,175
|
)
|
||||||
For the year 2016
|
$
|
(13,244
|
)
|
$
|
(16,420
|
)
|
$
|
(1,518
|
)
|
$
|
16,946
|
$
|
(14,236
|
)
|
||||||
|
(a)
|
With respect to allowances for doubtful accounts, deductions include accounts considered uncollectible or written off, payments, companies divested, etc. |
(b) |
Classified in consolidated balance sheets as a reduction of accounts receivable. |
Page Number
|
|||
or
|
|||
Incorporation by Reference | |||
Exhibit
|
File No. and | Previous | |
Number
|
Filing Date |
Exhibit No.
|
|
3.1
|
Certificate of Incorporation of
|
Form S-3
|
4.1
|
Chemed Corporation | Reg. No. 33-44177 | |
|
|
11/26/91 | ||
3.2
|
Form 8-K
|
3.1
|
|
Incorporation, dated May 15, 2006 | 5/16/06 | |
|
3.3
|
Form 8-K
|
||
as amended February 17, 2017 | 2/17/17 | |
|
10.1
|
Form 10-Q
|
10.1
|
|
as amended August 11, 2006 | 8/14/06, ** | |
|
10.2
|
Form 8-K |
99.1 |
|
5/18/10, **
|
|||
10.3
|
2015 Stock Incentive Plan | Form S-8 | 4.5 |
7/15/15, **
|
|||
10.4
|
2018 Stock Incentive Plan | Form S-8 | 4.5 |
5/23/18, **
|
|||
10.5
|
Form 8-K
|
10.01
|
|
|
P. Williams dated December 1, 2006 | 12/1/06, ** | |
10.6
|
Form 10-Q
|
10.2
|
|
Agreement with David P.
Williams |
10/30/09, ** | |
|
|
dated July 9, 2009. | ||
10.7
|
Form 8-K
|
10.02
|
|
|
Timothy S. O’Toole dated | 5/7/07, ** | |
|
May 6, 2007. |
||
10.8
|
Form 10-Q
|
10.3
|
|
Agreement with Timothy S.
|
10/30/09, ** | |
|
O’Toole dated July 9, 2009. | |
||
10.9
|
Form 8-K
|
10.1
|
|
Timothy S. O’Toole dated
|
6/8/16, ** | |
|
June 16, 2016.
|
|
||
10.10
|
Form 8-K
|
10.01
|
|
Kevin J. McNamara dated
|
5/6/08,** | |
|
May 3, 2008. |
|
||
10.11
|
Form 10-Q
|
10.1
|
|
Agreement with Kevin J.
|
10/30/09, ** | |
|
McNamara dated July 9,
2009. |
|
10.12
|
Form 10-K
|
10.24
|
|
|
and amended, effective June 1, 2001 | 3/12/04, ** | |
10.13
|
Form 10-K
|
10.25
|
|
|
Plan, effective July 1, 2002 | 3/12/04, ** |
|
10.14
|
Form 10-K
|
10.26
|
|
|
Plan, effective November 7, 2003 | 3/12/04, ** |
|
10.15
|
Non-Employee Directors' Deferred
|
Form 10-K
|
10.10
|
|
Compensation Plan | 3/24/88, ** |
|
10.16
|
Form 10-K
|
10.25
|
|
|
Retirement Plan, effective | 3/25/99, ** |
|
|
January 1, 1999 |
||
10.17
|
Form 10-K
|
10.22
|
|
|
Roto-Rooter Savings & Retirement | 3/28/02, ** |
|
|
Plan effective September 6, 2000
|
||
10.18
|
Form 10-K
|
10.23
|
|
|
Roto-Rooter Savings & Retirement | 3/28/02, ** |
|
|
Plan effective January 1, 2001
|
||
10.19
|
Form 10-K
|
10.24
|
|
|
Roto-Rooter Savings & Retirement | 3/28/02, ** |
|
|
Plan effective December 12, 2001
|
||
10.20
|
Directors Emeriti Plan
|
Form 10-Q
|
10.11
|
|
5/12/88, ** |
||
10.21
|
Change in Control Severance | ||
|
Plan as amended August 3, 2018. | ** | |
10.22
|
Senior Executive Severance | ** |
|
|
Policy as amended August 3, 2018. | ||
10.23
|
Form 10-K
|
10.37
|
|
|
Plan No. 1, as amended January 1, 1998 | 3/28/01, ** |
|
10.24
|
Form 10-K
|
10.38
|
|
Plan No. 2 |
3/28/01, ** | |
|
10.25
|
Form 10-K
|
10.32
|
|
Stock Unit Award
|
2/27/14, ** | |
|
10.26
|
Form of Restricted Stock Award | Form 10-K | 10.50 |
3/28/05, ** | |
||
10.27
|
Form 10-K
|
10.51
|
|
3/28/05, ** |
|
||
10.28
|
Form 10-K
|
10.35
|
|
2/27/14, ** |
|
||
10.29
|
Form 10-K
|
10.30
|
|
2/26/16,** |
|
101.INS
|
XBRL Instance Document
|
* |
|
101.SCH
|
XBRL Extension Schema
|
* |
|
101.CAL
|
XBRL Taxonomy Extension Calculation
|
* | |
Linkbase |
|
||
101.DEF
|
XBRL Taxonomy Extension Definition
|
* |
|
Linkbase |
|
||
101.LAB
|
XBRL Taxonomy Extension Label
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* |
|
Linkbase |
|
||
101.PRE
|
XBRL Taxonomy Extension Presentation
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* |
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Linkbase |
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Tier 1 |
||
K. J. McNamara
|
President and Chief Executive Officer
|
|
D. P. Williams
|
Executive VP and Chief Financial Officer
|
|
Tier 2 |
|
|
N. C. Dallob
|
VP, Secretary and Chief Legal Officer
|
|
M. D. Witzeman
|
VP and Controller
|
|
T. C. Hutton
|
Vice President
|
|
T. J. Reilly
|
Vice President
|
|
L. A. Reinhard
|
VP and Chief Administrative Officer
|
|
J. W. Painter
|
Assistant VP and Senior Counsel
|
|
G. A. Zarick
|
Assistant VP and Director of Planning
|
|
N. M. Westfall
|
Vitas Chief Executive Officer
|
|
D. A. Wester
|
Vitas President and Chief Financial Officer
|
|
P. Hale
|
Vitas Executive VP and Chief Information Officer
|
|
J. Wherley
|
Vitas Executive VP and Chief Operating Officer
|
|
P. Husted
|
Vitas Executive VP Operations
|
|
R. C. Miller
|
Vitas Senior VP and Chief Compliance Officer
|
|
S. S. Lee
|
Roto-Rooter Chief Executive Officer
|
|
R. L. Arquilla
|
Roto-Rooter President and Chief Operating Officer
|
|
R. P. Goldschmidt
|
Roto-Rooter Executive VP - Development
|
|
M. A. Conners
|
Roto-Rooter Executive VP - Contractors
|
|
K. M. Aielli
|
Roto-Rooter Vice President - Finance
|
Chemed Headquarters | ||
N. C. Dallob
|
VP, Secretary and Chief Legal Officer
|
|
T. C. Hutton
|
Vice President
|
|
T. J. Reilly
|
Vice President
|
|
L. A. Reinhard
|
VP and Chief Administrative Officer
|
|
M. D. Witzeman
|
VP and Controller
|
|
J. W. Painter
|
Assistant VP and Senior Counsel
|
|
G. A. Zarick
|
Assistant VP and Director of Planning
|
|
Vitas Headquarters | ||
N. M. Westfall
|
Chief Executive Officer
|
|
D. A. Wester
|
President and Chief Financial Officer
|
|
P. Hale
|
Executive VP and Chief Information Officer
|
|
J. Wherley
|
Executive VP and Chief Operating Officer
|
|
P. Husted
|
Executive VP Operations
|
|
R. C. Miller
|
Senior VP and Chief Compliance Officer
|
|
Roto-Rooter Headquarters | ||
S. S. Lee
|
Chief Executive Officer
|
|
R. L. Arquilla
|
President and Chief Operating Officer
|
|
R. P. Goldschmidt
|
Executive VP - Development
|
|
M. A. Conners
|
Executive VP - Contractors
|
|
K. M. Aielli
|
Vice President - Finance
|
Contents | ||
Report of Independent Registered Public Accounting Firm
|
61
|
|
Consolidated Statements of Income
|
63
|
|
Consolidated Balance Sheets
|
64
|
|
Consolidated Statements of Cash Flows
|
65
|
|
Consolidated Statements of Changes in Stockholders’ Equity
|
66
|
|
Notes to Consolidated Financial Statements
|
67
|
|
Unaudited Summary of Quarterly Results
|
93
|
|
Selected Financial Data
|
95
|
|
Unaudited Consolidating Statements of Income
|
96
|
|
Management’s Discussion and Analysis of Financial Conditions and Results of Operations | 99 |
CONSOLIDATED STATEMENTS OF INCOME
|
||||||||||||
Chemed Corporation and Subsidiary Companies
|
||||||||||||
(in thousands, except per share data)
|
||||||||||||
For the Years Ended December 31,
|
2018
|
2017
|
2016
|
|||||||||
Service revenues and sales (Note 2)
|
$
|
1,782,648
|
$
|
1,666,724
|
$
|
1,576,881
|
||||||
Cost of services provided and goods sold (excluding depreciation)
|
1,228,644
|
1,150,532
|
1,115,431
|
|||||||||
Selling, general and administrative expenses
|
270,209
|
276,652
|
243,572
|
|||||||||
Depreciation
|
38,464
|
35,488
|
34,279
|
|||||||||
Amortization
|
399
|
137
|
359
|
|||||||||
Other operating expenses (Note 20)
|
1,300
|
90,880
|
4,491
|
|||||||||
Total costs and expenses
|
1,539,016
|
1,553,689
|
1,398,132
|
|||||||||
Income from operations
|
243,632
|
113,035
|
178,749
|
|||||||||
Interest expense
|
(4,990
|
)
|
(4,272
|
)
|
(3,715
|
)
|
||||||
Other income--net (Note 10)
|
958
|
8,154
|
2,020
|
|||||||||
Income before income taxes
|
239,600
|
116,917
|
177,054
|
|||||||||
Income taxes (Note 11)
|
(34,056
|
)
|
(18,740
|
)
|
(68,311
|
)
|
||||||
Net Income
|
$
|
205,544
|
$
|
98,177
|
$
|
108,743
|
||||||
Earnings Per Share (Note 15)
|
||||||||||||
Net Income
|
$
|
12.80
|
$
|
6.11
|
$
|
6.64
|
||||||
Average number of shares outstanding
|
16,059
|
16,057
|
16,383
|
|||||||||
Diluted Earnings Per Share (Note 15)
|
||||||||||||
Net Income
|
$
|
12.23
|
$
|
5.86
|
$
|
6.48
|
||||||
Average number of shares outstanding
|
16,803
|
16,742
|
16,789
|
CONSOLIDATED BALANCE SHEETS
|
||||||||
Chemed Corporation and Subsidiary Companies
|
||||||||
(in thousands, except shares and per share data)
|
||||||||
December 31,
|
2018
|
2017
|
||||||
Assets
|
||||||||
Current assets
|
||||||||
Cash and cash equivalents (Note 9)
|
$
|
4,831
|
$
|
11,121
|
||||
Accounts receivable less allowances of $15,175 for 2017
|
119,504
|
113,651
|
||||||
Inventories
|
5,705
|
5,334
|
||||||
Prepaid income taxes
|
10,646
|
29,848
|
||||||
Prepaid expenses
|
19,154
|
16,092
|
||||||
Total current assets
|
159,840
|
176,046
|
||||||
Investments of deferred compensation plans held in trust (Notes 14 and 16)
|
65,624
|
62,067
|
||||||
Properties and equipment, at cost, less accumulated depreciation (Note 12)
|
162,033
|
143,034
|
||||||
Identifiable intangible assets less accumulated amortization of $33,283 (2017 - $32,887) (Note 6)
|
68,253
|
54,865
|
||||||
Goodwill
|
510,570
|
476,887
|
||||||
Other assets
|
9,209
|
7,127
|
||||||
Total Assets
|
$
|
975,529
|
$
|
920,026
|
||||
Liabilities
|
||||||||
Current liabilities
|
||||||||
Accounts payable
|
$
|
50,150
|
$
|
48,372
|
||||
Current portion of long-term debt (Note 3)
|
-
|
10,000
|
||||||
Accrued insurance
|
46,095
|
46,968
|
||||||
Accrued compensation
|
63,329
|
62,933
|
||||||
Accrued legal
|
1,857
|
1,786
|
||||||
Other current liabilities
|
30,239
|
23,463
|
||||||
Total current liabilities
|
191,670
|
193,522
|
||||||
Deferred income taxes (Note 11)
|
21,598
|
16,640
|
||||||
Long-term debt (Note 3)
|
89,200
|
91,200
|
||||||
Deferred compensation liabilities (Note 14)
|
64,616
|
61,800
|
||||||
Other liabilities
|
17,111
|
16,510
|
||||||
Total Liabilities
|
384,195
|
379,672
|
||||||
Commitments and contingencies (Notes 13 and 17)
|
||||||||
Stockholders' Equity
|
||||||||
Capital stock - authorized 80,000,000 shares $1 par; issued 35,311,418 shares
|
||||||||
(2017 - 34,732,192 shares)
|
35,311
|
34,732
|
||||||
Paid-in capital
|
774,358
|
695,797
|
||||||
Retained earnings
|
1,225,617
|
1,038,955
|
||||||
Treasury stock - 19,438,358 shares (2017 - 18,694,047 shares), at cost
|
(1,446,296
|
)
|
(1,231,332
|
)
|
||||
Deferred compensation payable in Company stock (Note 14)
|
2,344
|
2,202
|
||||||
Total Stockholders' Equity
|
591,334
|
540,354
|
||||||
Total Liabilities and Stockholders' Equity
|
$
|
975,529
|
$
|
920,026
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||||||||
Chemed Corporation and Subsidiary Companies
|
||||||||||||
(in thousands)
|
||||||||||||
For the Years Ended December 31,
|
2018
|
2017
|
2016
|
|||||||||
Cash Flows from Operating Activities
|
||||||||||||
Net income
|
$
|
205,544
|
$
|
98,177
|
$
|
108,743
|
||||||
Adjustments to reconcile net income to net cash provided by operations:
|
||||||||||||
Depreciation and amortization
|
38,863
|
35,625
|
34,638
|
|||||||||
Stock option expense
|
12,611
|
10,485
|
8,330
|
|||||||||
Noncash portion of long-term incentive compensation
|
5,405
|
3,774
|
1,301
|
|||||||||
Provision/(benefit) for deferred income taxes (Note 11)
|
5,187
|
2,407
|
(6,707
|
)
|
||||||||
Noncash directors' compensation
|
766
|
766
|
541
|
|||||||||
Amortization of restricted stock awards
|
446
|
1,231
|
1,855
|
|||||||||
Amortization of debt issuance costs
|
441
|
516
|
519
|
|||||||||
Provision for uncollectible accounts receivable
|
-
|
17,306
|
16,319
|
|||||||||
Loss on sale of transportation equipment (Note 20)
|
-
|
5,266
|
-
|
|||||||||
Noncash early retirement expense (Note 20)
|
-
|
-
|
1,747
|
|||||||||
Changes in operating assets and liabilities, excluding amounts acquired in business combinations:
|
||||||||||||
Decrease/(increase) in accounts receivable
|
(5,570
|
)
|
1,072
|
(42,142
|
)
|
|||||||
Decrease/(increase) in inventories
|
(351
|
)
|
421
|
559
|
||||||||
Increase in prepaid expenses
|
(2,665
|
)
|
(2,987
|
)
|
(253
|
)
|
||||||
Increase in accounts payable and other current liabilities
|
8,935
|
12,890
|
891
|
|||||||||
(Decrease)/increase in income taxes
|
18,898
|
(26,104
|
)
|
13,886
|
||||||||
Increase in other assets
|
(5,544
|
)
|
(8,330
|
)
|
(5,224
|
)
|
||||||
Increase in other liabilities
|
3,451
|
8,561
|
7,105
|
|||||||||
Excess tax benefit on stock-based compensation
|
-
|
-
|
(7,195
|
)
|
||||||||
Other sources
|
721
|
1,419
|
480
|
|||||||||
Net cash provided by operating activities
|
287,138
|
162,495
|
135,393
|
|||||||||
Cash Flows from Investing Activities
|
||||||||||||
Capital expenditures
|
(52,872
|
)
|
(64,300
|
)
|
(39,772
|
)
|
||||||
Business combinations, net of cash acquired (Note 7)
|
(53,177
|
)
|
(4,725
|
)
|
-
|
|||||||
Other sources/(uses)
|
824
|
1,417
|
(90
|
)
|
||||||||
Net cash used by investing activities
|
(105,225
|
)
|
(67,608
|
)
|
(39,862
|
)
|
||||||
Cash Flows from Financing Activities
|
||||||||||||
Proceeds from revolving line of credit
|
469,550
|
212,350
|
127,050
|
|||||||||
Payments on revolving line of credit
|
(406,550
|
)
|
(211,150
|
)
|
(102,050
|
)
|
||||||
Purchases of treasury stock
|
(158,884
|
)
|
(94,640
|
)
|
(102,313
|
)
|
||||||
Payments on other long-term debt
|
(75,000
|
)
|
(8,750
|
)
|
(7,500
|
)
|
||||||
Proceeds from exercise of stock options (Note 4)
|
32,412
|
27,092
|
8,421
|
|||||||||
Capital stock surrendered to pay taxes on stock-based compensation
|
(27,548
|
)
|
(14,223
|
)
|
(8,772
|
)
|
||||||
Dividends paid
|
(18,662
|
)
|
(17,371
|
)
|
(16,439
|
)
|
||||||
Change in cash overdraft payable
|
(1,531
|
)
|
6,700
|
(736
|
)
|
|||||||
Debt issuance costs
|
(1,052
|
)
|
-
|
-
|
||||||||
Excess tax benefit on stock-based compensation
|
-
|
-
|
7,195
|
|||||||||
Other sources/(uses)
|
(938
|
)
|
916
|
196
|
||||||||
Net cash used by financing activities
|
(188,203
|
)
|
(99,076
|
)
|
(94,948
|
)
|
||||||
Increase/(decrease) in cash and cash equivalents
|
(6,290
|
)
|
(4,189
|
)
|
583
|
|||||||
Cash and cash equivalents at beginning of year
|
11,121
|
15,310
|
14,727
|
|||||||||
Cash and cash equivalents at end of year
|
$
|
4,831
|
$
|
11,121
|
$
|
15,310
|
CONSOLIDATED STATEMENTS OF CHANGES
|
||||||||||||||||||||||||
IN STOCKHOLDERS' EQUITY
|
||||||||||||||||||||||||
Chemed Corporation and Subsidiary Companies
|
||||||||||||||||||||||||
(in thousands, except per share data)
|
Deferred
|
|||||||||||||||||||||||
Compensation
|
||||||||||||||||||||||||
Treasury
|
Payable in
|
|||||||||||||||||||||||
Capital
|
Paid-in
|
Retained
|
Stock-
|
Company
|
||||||||||||||||||||
Stock
|
Capital
|
Earnings
|
at Cost
|
Stock
|
Total
|
|||||||||||||||||||
Balance at December 31, 2015
|
$
|
33,985
|
$
|
603,006
|
$
|
865,845
|
$
|
(991,978
|
)
|
$
|
2,395
|
$
|
513,253
|
|||||||||||
Net income
|
-
|
-
|
108,743
|
-
|
-
|
108,743
|
||||||||||||||||||
Dividends paid ($1.00 per share)
|
-
|
-
|
(16,439
|
)
|
-
|
-
|
(16,439
|
)
|
||||||||||||||||
Stock awards and exercise of stock options (Note 4)
|
285
|
36,453
|
-
|
(16,127
|
)
|
-
|
20,611
|
|||||||||||||||||
Purchases of treasury stock (Note 19)
|
-
|
-
|
-
|
(102,313
|
)
|
-
|
(102,313
|
)
|
||||||||||||||||
Other
|
-
|
244
|
-
|
(118
|
)
|
118
|
244
|
|||||||||||||||||
Balance at December 31, 2016
|
34,270
|
639,703
|
958,149
|
(1,110,536
|
)
|
2,513
|
524,099
|
|||||||||||||||||
Net income
|
-
|
-
|
98,177
|
-
|
-
|
98,177
|
||||||||||||||||||
Dividends paid ($1.08 per share)
|
-
|
-
|
(17,371
|
)
|
-
|
-
|
(17,371
|
)
|
||||||||||||||||
Stock awards and exercise of stock options (Note 4)
|
462
|
55,264
|
-
|
(26,467
|
)
|
-
|
29,259
|
|||||||||||||||||
Purchases of treasury stock (Note 19)
|
-
|
-
|
-
|
(94,640
|
)
|
-
|
(94,640
|
)
|
||||||||||||||||
Other
|
-
|
830
|
-
|
311
|
(311
|
)
|
830
|
|||||||||||||||||
Balance at December 31, 2017
|
34,732
|
695,797
|
1,038,955
|
(1,231,332
|
)
|
2,202
|
540,354
|
|||||||||||||||||
Net income
|
-
|
-
|
205,544
|
-
|
-
|
205,544
|
||||||||||||||||||
Dividends paid ($1.16 per share)
|
-
|
-
|
(18,662
|
)
|
-
|
-
|
(18,662
|
)
|
||||||||||||||||
Stock awards and exercise of stock options (Note 4)
|
579
|
79,452
|
-
|
(55,939
|
)
|
-
|
24,092
|
|||||||||||||||||
Purchases of treasury stock (Note 19)
|
-
|
-
|
-
|
(158,884
|
)
|
-
|
(158,884
|
)
|
||||||||||||||||
Other
|
-
|
(891
|
)
|
(220
|
)
|
(141
|
)
|
142
|
(1,110
|
)
|
||||||||||||||
Balance at December 31, 2018
|
$
|
35,311
|
$
|
774,358
|
$
|
1,225,617
|
$
|
(1,446,296
|
)
|
$
|
2,344
|
$
|
591,334
|
Buildings and building improvements
|
32.8
|
yrs.
|
Transportation equipment
|
10.5
|
|
Machinery and equipment
|
5.1
|
|
Computer software
|
4.6
|
|
Furniture and fixtures
|
4.8
|
Roto-
|
||||||||||||
Vitas
|
Rooter
|
Total
|
||||||||||
Balance at December 31, 2016
|
$
|
328,301
|
$
|
144,065
|
$
|
472,366
|
||||||
Business combinations
|
-
|
4,396
|
4,396
|
|||||||||
Foreign currency adjustments
|
-
|
125
|
125
|
|||||||||
Balance at December 31, 2017
|
$
|
328,301
|
$
|
148,586
|
$
|
476,887
|
||||||
Business combinations
|
5,030
|
28,780
|
33,810
|
|||||||||
Foreign currency adjustments
|
-
|
(127
|
)
|
(127
|
)
|
|||||||
Balance at December 31, 2018
|
$
|
333,331
|
$
|
177,239
|
$
|
510,570
|
Covenants not to compete
|
6.5
|
yrs.
|
Reacquired franchise rights
|
7.9
|
|
Referral networks
|
10.0
|
|
Customer lists
|
12.0
|
Medicare
|
Medicaid
|
Commercial
|
Total
|
|||||||||||||
Routine home care
|
$
|
939,951
|
$
|
47,609
|
$
|
22,958
|
$
|
1,010,518
|
||||||||
Continuous care
|
110,596
|
6,126
|
5,776
|
122,498
|
||||||||||||
Inpatient care
|
69,354
|
8,156
|
5,167
|
82,677
|
||||||||||||
$
|
1,119,901
|
$
|
61,891
|
$
|
33,901
|
$
|
1,215,693
|
|||||||||
All other revenue - self-pay, respite care, etc.
|
7,831
|
|||||||||||||||
Subtotal
|
$
|
1,223,524
|
||||||||||||||
Medicare cap adjustment
|
(4,123
|
)
|
||||||||||||||
Implicit price concessions
|
(11,785
|
)
|
||||||||||||||
Room and board, net
|
(10,054
|
)
|
||||||||||||||
Net revenue
|
$
|
1,197,562
|
Short-term core service jobs
|
$
|
421,790
|
||
Water restoration
|
101,784
|
|||
Contractor revenue
|
50,093
|
|||
Franchise fees
|
6,382
|
|||
All other
|
11,958
|
|||
Subtotal
|
$
|
592,007
|
||
Implicit price concessions and credit memos
|
(6,921
|
)
|
||
Net revenue
|
$
|
585,086
|
|
Impact for the year ended December 31, 2018 | |||||||||||
|
ASC 605 |
|
Adjustment |
ASC 606 |
||||||||
Service revenue and sales
|
$
|
1,811,408
|
$
|
(28,760
|
)
|
$
|
1,782,648
|
|||||
Cost of services provided and goods sold
|
1,238,698
|
(10,054
|
)
|
1,228,644
|
||||||||
Selling, general and administrative expenses
|
288,915
|
(18,706
|
)
|
270,209
|
December 31,
|
||||||||
2018
|
2017
|
|||||||
Revolver
|
$
|
89,200
|
$
|
26,200
|
||||
Term loan
|
-
|
75,000
|
||||||
Total
|
89,200
|
101,200
|
||||||
Current portion of term loan
|
-
|
(10,000
|
)
|
|||||
Long-term debt
|
$
|
89,200
|
$
|
91,200
|
2018
|
$
|
4,178
|
||
2017
|
3,626
|
|||
2016
|
3,047
|
Description
|
Requirement
|
Chemed
|
||
Leverage Ratio (Consolidated Indebtedness/Consolidated Adj. EBITDA)
|
< 3.50 to 1.00
|
0.41 to 1.00
|
||
Fixed Charge Coverage Ratio (Consolidated Free Cash Flow/Consolidated
|
||||
Fixed Charges)
|
> 1.50 to 1.00
|
7.61 to 1.00
|
2018 Awards
|
2017 Awards
|
2016 Awards
|
||||||||||
TSR Awards
|
||||||||||||
Shares of stock granted
|
7,523
|
7,304
|
9,541
|
|||||||||
Per-share fair value
|
$
|
341.20
|
$
|
226.95
|
$
|
150.74
|
||||||
Volatility
|
22.9
|
%
|
21.8
|
%
|
26.7
|
%
|
||||||
Risk-free interest rate
|
2.34
|
%
|
1.44
|
%
|
0.89
|
%
|
||||||
EPS Awards
|
||||||||||||
Shares of stock granted
|
7,523
|
7,304
|
9,541
|
|||||||||
Per-share fair value
|
$
|
256.29
|
$
|
172.60
|
$
|
126.37
|
||||||
Common Assumptions
|
||||||||||||
Service period (years)
|
2.9
|
2.9
|
2.9
|
|||||||||
Three-year measurement period ends December 31,
|
2020
|
2019
|
2018
|
Stock Options
|
Stock Awards
|
Performance Units (PSUs)
|
||||||||||||||||||||||||||||||
Weighted Average
|
Aggregate
|
Weighted
|
Weighted
|
|||||||||||||||||||||||||||||
Remaining
|
Intrinsic
|
Average
|
Number of
|
Average
|
||||||||||||||||||||||||||||
Number of
|
Exercise
|
Contractual
|
Value
|
Number of
|
Grant-Date
|
Target
|
Grant-Date
|
|||||||||||||||||||||||||
Options
|
Price
|
Life (Years)
|
(thousands)
|
Awards
|
Price
|
Units
|
Price
|
|||||||||||||||||||||||||
Outstanding at January 1, 2018
|
1,698,458
|
$
|
141.62
|
9,706
|
$
|
121.75
|
53,732
|
$
|
151.09
|
|||||||||||||||||||||||
Granted
|
246,350
|
306.70
|
2,295
|
333.75
|
32,255
|
209.49
|
||||||||||||||||||||||||||
Exercised/Vested
|
(539,104
|
)
|
112.79
|
(12,001
|
)
|
162.29
|
(37,827
|
)
|
129.48
|
|||||||||||||||||||||||
Canceled/ Forfeited
|
(10,670
|
)
|
153.31
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||
Outstanding at December 31, 2018
|
1,395,034
|
$
|
181.82
|
3.6
|
$
|
144,271
|
-
|
$
|
-
|
48,160
|
$
|
207.17
|
||||||||||||||||||||
Vested and expected to vest
|
||||||||||||||||||||||||||||||||
at December 31, 2018
|
1,395,034
|
$
|
181.82
|
3.6
|
$
|
144,271
|
-
|
$
|
-
|
83,250
|
202.10
|
|||||||||||||||||||||
Exercisable at December 31, 2018
|
770,385
|
137.48
|
3.3
|
110,291
|
n.a.
|
n.a.
|
n.a.
|
n.a.
|
||||||||||||||||||||||||
* Amount includes 32,134 share units which vested and were converted to shares of stock and distributed in the first quarter of 2019.
|
Years Ended December 31,
|
||||||||||||
2018
|
2017
|
2016
|
||||||||||
Total compensation expense of stock-based compensation
|
||||||||||||
plans charged against income
|
$
|
19,229
|
$
|
16,256
|
$
|
13,773
|
||||||
Total income tax benefit recognized in income for stock
|
||||||||||||
based compensation expense charged against income
|
4,788
|
5,690
|
5,062
|
|||||||||
Total intrinsic value of stock options exercised
|
102,144
|
50,192
|
17,635
|
|||||||||
Total intrinsic value of stock awards vested during the period
|
4,003
|
6,983
|
7,429
|
|||||||||
Per-share weighted average grant-date fair value of
|
||||||||||||
stock awards granted
|
333.75
|
203.52
|
126.53
|
2018
|
2017
|
2016
|
||||||||||
Stock price on date of issuance
|
$
|
306.70
|
$
|
231.91
|
$
|
135.85
|
||||||
Grant date fair value per share
|
$
|
67.16
|
$
|
46.27
|
$
|
22.74
|
||||||
Number of options granted
|
246,350
|
330,550
|
505,775
|
|||||||||
Expected term (years)
|
4.0
|
4.0
|
4.0
|
|||||||||
Risk free rate of return
|
2.99
|
%
|
1.86
|
%
|
1.09
|
%
|
||||||
Volatility
|
22.42
|
%
|
22.80
|
%
|
21.10
|
%
|
||||||
Dividend yield
|
0.4
|
%
|
0.5
|
%
|
0.8
|
%
|
||||||
Forfeiture rate
|
-
|
-
|
-
|
Stock
|
Stock
|
|||||||||||
Options
|
Awards
|
PSUs
|
||||||||||
Total unrecognized compensation at the end of the year
|
$
|
27,556
|
$
|
-
|
$
|
5,925
|
||||||
Weighted average period over which unrecognized compensation to be recognized (years)
|
2.3
|
-
|
1.8
|
|||||||||
Actual income tax benefit realized
|
$
|
24,075
|
$
|
944
|
$
|
2,086
|
||||||
Aggregate intrinsic value vested and expected to vest
|
$
|
144,271
|
$
|
-
|
$
|
23,363
|
For the Years Ended December 31,
|
||||||||||||
2018
|
2017
|
2016
|
||||||||||
Revenues by Type of Service
|
||||||||||||
VITAS
|
||||||||||||
Routine homecare
|
$
|
1,010,518
|
$
|
935,913
|
$
|
887,940
|
||||||
Continuous care
|
122,498
|
124,557
|
138,025
|
|||||||||
General inpatient
|
82,677
|
90,472
|
97,580
|
|||||||||
Other
|
7,831
|
-
|
-
|
|||||||||
Subtotal revenue
|
1,223,524
|
1,150,942
|
1,123,545
|
|||||||||
Room and board, net
|
$
|
(10,054
|
)
|
$
|
-
|
$
|
-
|
|||||
Implicit price concessions
|
(11,785
|
)
|
-
|
.
|
||||||||
Medicare cap adjustment
|
(4,123
|
)
|
(2,682
|
)
|
(228
|
)
|
||||||
Total segment
|
1,197,562
|
1,148,260
|
1,123,317
|
|||||||||
Roto-Rooter
|
||||||||||||
Short-term core service jobs
|
421,790
|
373,579
|
345,638
|
|||||||||
Water restoration
|
101,784
|
82,272
|
50,229
|
|||||||||
Contractor revenue
|
50,093
|
43,770
|
40,097
|
|||||||||
Franchise fees
|
6,382
|
6,130
|
5,090
|
|||||||||
Other
|
11,958
|
12,713
|
12,510
|
|||||||||
Implicit price concessions and credit memos
|
(6,921
|
)
|
-
|
-
|
||||||||
Total segment
|
585,086
|
518,464
|
453,564
|
|||||||||
Total service revenues and sales
|
$
|
1,782,648
|
$
|
1,666,724
|
$
|
1,576,881
|
||||||
After-tax Segment Earnings/(Loss)
|
||||||||||||
VITAS
|
$
|
138,846
|
$
|
57,645
|
$
|
84,961
|
||||||
Roto-Rooter
|
98,711
|
73,299
|
52,893
|
|||||||||
Total
|
237,557
|
130,944
|
137,854
|
|||||||||
Corporate
|
(32,013
|
)
|
(32,767
|
)
|
(29,111
|
)
|
||||||
Net income
|
$
|
205,544
|
$
|
98,177
|
$
|
108,743
|
||||||
Interest Income
|
||||||||||||
VITAS
|
$
|
13,412
|
$
|
12,044
|
$
|
8,294
|
||||||
Roto-Rooter
|
7,000
|
5,635
|
3,653
|
|||||||||
Total
|
20,412
|
17,679
|
11,947
|
|||||||||
Intercompany eliminations
|
(19,741
|
)
|
(17,252
|
)
|
(11,564
|
)
|
||||||
Total interest income
|
$
|
671
|
$
|
427
|
$
|
383
|
||||||
Interest Expense
|
||||||||||||
VITAS
|
$
|
175
|
$
|
188
|
$
|
211
|
||||||
Roto-Rooter
|
319
|
323
|
332
|
|||||||||
Total
|
494
|
511
|
543
|
|||||||||
Corporate
|
4,496
|
3,761
|
3,172
|
|||||||||
Total interest expense
|
$
|
4,990
|
$
|
4,272
|
$
|
3,715
|
||||||
Income Tax Provision
|
||||||||||||
VITAS
|
$
|
40,847
|
$
|
16,436
|
$
|
51,910
|
||||||
Roto-Rooter
|
28,850
|
32,782
|
32,719
|
|||||||||
Total
|
69,697
|
49,218
|
84,629
|
|||||||||
Corporate
|
(35,641
|
)
|
(30,478
|
)
|
(16,318
|
)
|
||||||
Total income tax provision
|
$
|
34,056
|
$
|
18,740
|
$
|
68,311
|
||||||
Identifiable Assets
|
||||||||||||
VITAS
|
$
|
553,949
|
$
|
545,304
|
$
|
542,142
|
||||||
Roto-Rooter
|
351,030
|
294,663
|
261,641
|
|||||||||
Total
|
904,979
|
839,967
|
803,783
|
|||||||||
Corporate
|
70,550
|
80,059
|
76,276
|
|||||||||
Total identifiable assets
|
$
|
975,529
|
$
|
920,026
|
$
|
880,059
|
For the Years Ended December 31,
|
||||||||||||
2018
|
2017
|
2016
|
||||||||||
Additions to Long-Lived Assets
|
||||||||||||
VITAS
|
$
|
36,969
|
$
|
23,469
|
$
|
22,000
|
||||||
Roto-Rooter
|
68,786
|
45,386
|
17,709
|
|||||||||
Total
|
105,755
|
68,855
|
39,709
|
|||||||||
Corporate
|
128
|
483
|
63
|
|||||||||
Total additions to long-lived assets
|
$
|
105,883
|
$
|
69,338
|
$
|
39,772
|
||||||
Depreciation and Amortization
|
||||||||||||
VITAS
|
$
|
19,700
|
$
|
18,630
|
$
|
19,090
|
||||||
Roto-Rooter
|
19,016
|
16,790
|
15,002
|
|||||||||
Total
|
38,716
|
35,420
|
34,092
|
|||||||||
Corporate
|
147
|
205
|
546
|
|||||||||
Total depreciation and amortization
|
$
|
38,863
|
$
|
35,625
|
$
|
34,638
|
2019
|
$
|
1,628
|
||
2020
|
1,624
|
|||
2021
|
1,620
|
|||
2022
|
1,611
|
|||
2023
|
1,590
|
|||
Thereafter
|
8,880
|
Gross
|
Accumulated
|
Net Book
|
||||||||||
Asset
|
Amortization
|
Value
|
||||||||||
December 31, 2018
|
||||||||||||
Referral networks
|
$
|
21,850
|
$
|
(21,152
|
)
|
$
|
698
|
|||||
Covenants not to compete
|
9,796
|
(9,367
|
)
|
429
|
||||||||
Customer lists
|
2,025
|
(1,235
|
)
|
790
|
||||||||
Reacquired franchise rights
|
12,447
|
(1,529
|
)
|
10,918
|
||||||||
Subtotal - definite-lived intangibles
|
46,118
|
(33,283
|
)
|
12,835
|
||||||||
VITAS trade name
|
51,300
|
-
|
51,300
|
|||||||||
Roto-Rooter trade name
|
150
|
-
|
150
|
|||||||||
Operating licenses
|
3,968
|
-
|
3,968
|
|||||||||
Total
|
$
|
101,536
|
$
|
(33,283
|
)
|
$
|
68,253
|
|||||
December 31, 2017
|
||||||||||||
Referral networks
|
$
|
21,140
|
$
|
(21,140
|
)
|
$
|
-
|
|||||
Covenants not to compete
|
9,519
|
(9,291
|
)
|
228
|
||||||||
Customer lists
|
1,217
|
(1,217
|
)
|
-
|
||||||||
Reacquired franchise rights
|
1,298
|
(1,239
|
)
|
59
|
||||||||
Subtotal - definite-lived intangibles
|
33,174
|
(32,887
|
)
|
287
|
||||||||
VITAS trade name
|
51,300
|
-
|
51,300
|
|||||||||
Roto-Rooter trade name
|
150
|
-
|
150
|
|||||||||
Operating licenses
|
3,128
|
-
|
3,128
|
|||||||||
Total
|
$
|
87,752
|
$
|
(32,887
|
)
|
$
|
54,865
|
Reacquired franchise rights
|
$
|
11,161
|
||
All other identifiable intangible assets
|
2,500
|
|||
Goodwill
|
33,828
|
|||
Other assets and liabilities - net
|
5,688
|
|||
$
|
53,177
|
Identifiable intangible assets
|
$
|
98
|
||
Goodwill
|
4,396
|
|||
Other assets and liabilities - net
|
231
|
|||
$
|
4,725
|
For the Years Ended
|
||||||||
December 31,
|
||||||||
2018
|
2017
|
|||||||
Service revenues and sales
|
$
|
1,811,532
|
$
|
1,705,747
|
||||
Net income
|
$
|
209,891
|
$
|
103,920
|
||||
Earnings per share
|
$
|
13.07
|
$
|
6.47
|
||||
Diluted earnings per share
|
$
|
12.49
|
$
|
6.21
|
2019
|
$
|
826
|
||
2020
|
300
|
|||
Thereafter
|
601
|
|||
$
|
1,727
|
For the Years Ended December 31,
|
||||||||||||
2018
|
2017
|
2016
|
||||||||||
Interest income
|
$
|
671
|
$
|
427
|
$
|
383
|
||||||
Market value gains related to deferred
|
||||||||||||
compensation trusts
|
287
|
8,430
|
2,061
|
|||||||||
Other--net
|
-
|
(703
|
)
|
(424
|
)
|
|||||||
Total other income
|
$
|
958
|
$
|
8,154
|
$
|
2,020
|
For the Years Ended December 31,
|
||||||||||||
2018
|
2017
|
2016
|
||||||||||
Current
|
||||||||||||
U.S. federal
|
$
|
23,934
|
$
|
11,724
|
$
|
64,698
|
||||||
U.S. state and local
|
4,484
|
4,144
|
9,927
|
|||||||||
Foreign
|
452
|
465
|
393
|
|||||||||
Deferred
|
||||||||||||
U.S. federal, state and local
|
5,185
|
2,402
|
(6,712
|
)
|
||||||||
Foreign
|
1
|
5
|
5
|
|||||||||
Total
|
$
|
34,056
|
$
|
18,740
|
$
|
68,311
|
December 31,
|
||||||||
2018
|
2017
|
|||||||
Accrued liabilities
|
$
|
30,702
|
$
|
30,419
|
||||
Stock compensation expense
|
5,894
|
6,282
|
||||||
State net operating loss carryforwards
|
2,422
|
2,243
|
||||||
Implicit price concessions
|
1,171
|
291
|
||||||
Other
|
626
|
565
|
||||||
Deferred income tax assets
|
40,815
|
39,800
|
||||||
Amortization of intangible assets
|
(38,346
|
)
|
(36,882
|
)
|
||||
Accelerated tax depreciation
|
(19,685
|
)
|
(14,057
|
)
|
||||
Market valuation of investments
|
(1,068
|
)
|
(2,277
|
)
|
||||
State income taxes
|
(1,261
|
)
|
(1,722
|
)
|
||||
Currents assets
|
(1,861
|
)
|
(1,255
|
)
|
||||
Other
|
(192
|
)
|
(247
|
)
|
||||
Deferred income tax liabilities
|
(62,413
|
)
|
(56,440
|
)
|
||||
Net deferred income tax liabilities
|
$
|
(21,598
|
)
|
$
|
(16,640
|
)
|
2018
|
2017
|
2016
|
||||||||||
Balance at January 1,
|
$
|
1,123
|
$
|
1,069
|
$
|
1,052
|
||||||
Unrecognized tax benefits due to positions taken in current year
|
453
|
268
|
218
|
|||||||||
Decrease due to expiration of statute of limitations
|
(228
|
)
|
(214
|
)
|
(201
|
)
|
||||||
Balance at December 31,
|
$
|
1,348
|
$
|
1,123
|
$
|
1,069
|
For the Years Ended December 31,
|
||||||||||||
2018
|
2017
|
2016
|
||||||||||
Income tax provision calculated using the statutory rate of 21%
|
$
|
50,316
|
$
|
40,921
|
$
|
61,969
|
||||||
Stock compensation tax benefits
|
(22,862
|
)
|
(18,932
|
)
|
-
|
|||||||
State and local income taxes, less federal income tax effect
|
7,150
|
4,600
|
6,044
|
|||||||||
Nondeductible expenses
|
2,280
|
1,041
|
881
|
|||||||||
Enactment of the tax reform act
|
-
|
(8,305
|
)
|
-
|
||||||||
Other--net
|
(2,828
|
)
|
(585
|
)
|
(583
|
)
|
||||||
Income tax provision
|
$
|
34,056
|
$
|
18,740
|
$
|
68,311
|
||||||
Effective tax rate
|
14.2
|
%
|
16.0
|
%
|
38.6
|
%
|
2018
|
$
|
9,749
|
||
2017
|
42,311
|
|||
2016
|
60,905
|
December 31,
|
||||||||
2018
|
2017
|
|||||||
Land
|
$
|
7,964
|
$
|
7,108
|
||||
Buildings and building improvements
|
96,361
|
85,570
|
||||||
Transportation equipment
|
51,559
|
47,243
|
||||||
Machinery and equipment
|
111,183
|
99,234
|
||||||
Computer software
|
49,928
|
47,840
|
||||||
Furniture and fixtures
|
72,898
|
74,191
|
||||||
Projects under development
|
20,510
|
11,882
|
||||||
Total properties and equipment
|
410,403
|
373,068
|
||||||
Less accumulated depreciation
|
(248,370
|
)
|
(230,034
|
)
|
||||
Net properties and equipment
|
$
|
162,033
|
$
|
143,034
|
2019
|
$
|
26,791
|
||
2020
|
24,152
|
|||
2021
|
19,669
|
|||
2022
|
13,851
|
|||
2023
|
8,179
|
|||
Thereafter
|
10,974
|
|||
Total minimum rental payments
|
$
|
103,616
|
For the Years Ended December 31,
|
||||||||||||
2018
|
2017
|
2016
|
||||||||||
Total rental expense
|
$
|
41,685
|
$
|
41,210
|
$
|
40,034
|
For the Years Ended December 31, | |||||||||
2018
|
2017
|
2016
|
|||||||
$ 16,502
|
$
|
22,025
|
$
|
14,467
|
Net Income
|
||||||||||||
For the Years Ended December 31,
|
Net Income
|
Shares
|
Earnings per Share
|
|||||||||
2018
|
||||||||||||
Earnings
|
$
|
205,544
|
16,059
|
$
|
12.80
|
|||||||
Dilutive stock options
|
-
|
650
|
||||||||||
Nonvested stock awards
|
-
|
94
|
||||||||||
Diluted earnings
|
$
|
205,544
|
16,803
|
$
|
12.23
|
|||||||
2017
|
||||||||||||
Earnings
|
$
|
98,177
|
16,057
|
$
|
6.11
|
|||||||
Dilutive stock options
|
-
|
596
|
||||||||||
Nonvested stock awards
|
-
|
89
|
||||||||||
Diluted earnings
|
$
|
98,177
|
16,742
|
$
|
5.86
|
|||||||
2016
|
||||||||||||
Earnings
|
$
|
108,743
|
16,383
|
$
|
6.64
|
|||||||
Dilutive stock options
|
-
|
296
|
||||||||||
Nonvested stock awards
|
-
|
110
|
||||||||||
Diluted earnings
|
$
|
108,743
|
16,789
|
$
|
6.48
|
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)
|
|||||||||||||
Investments of deferred compensation plans held in trust
|
$
|
65,624
|
$
|
65,624
|
$
|
-
|
$
|
-
|
||||||||
Long-term debt and current portion of long-term debt
|
89,200
|
-
|
89,200
|
-
|
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)
|
|||||||||||||
Investments of deferred compensation plans held in trust
|
$
|
62,067
|
$
|
62,067
|
$
|
-
|
$
|
-
|
||||||||
Long-term debt and current portion of long-term debt
|
101,200
|
-
|
101,200
|
-
|
For the Years Ended December 31,
|
||||||||||||
2018
|
2017
|
2016
|
||||||||||
Total cost of repurchased shares (in thousands):
|
$
|
158,884
|
$
|
94,640
|
$
|
102,313
|
||||||
Shares repurchased
|
561,146
|
500,000
|
780,134
|
|||||||||
Weighted average price per share
|
$
|
283.14
|
$
|
189.28
|
$
|
131.15
|
||||||
December 31,
|
||||||||||||
2018
|
2017
|
2016
|
||||||||||
Litigation settlement
|
$
|
796
|
$
|
84,476
|
$
|
-
|
||||||
Loss on disposal of property and equipment
|
504
|
5,266
|
-
|
|||||||||
Program closure expenses
|
-
|
1,138
|
-
|
|||||||||
Retirement expenses
|
-
|
-
|
4,491
|
|||||||||
Total other operating expenses
|
$
|
1,300
|
$
|
90,880
|
$
|
4,491
|
•
|
We will utilize the “package” of practical expedients related to the ASU’s adoption. As such, we will not re-assess our
historical conclusions related to capital versus operating lease classification, the existence of embedded leases in service contracts and indirect initial costs for existing leases.
|
•
|
We will combine the lease and non-lease components of our building/space leases for purposes of calculating our right of use
asset and related lease liability. We do not have material non-lease components in our existing equipment leases.
|
•
|
We will not capitalize leases with less than a 12-month expiration without a purchase option that is reasonably certain to be
exercised.
|
UNAUDITED SUMMARIES OF QUARTERLY RESULTS
|
||||||||||||||||||||
Chemed Corporation and Subsidiary Companies
|
||||||||||||||||||||
(in thousands, except per share and footnote data)
|
||||||||||||||||||||
First
|
Second
|
Third
|
Fourth
|
Total
|
||||||||||||||||
For the Year Ended December 31, 2018
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Year
|
|||||||||||||||
Total service revenues and sales
|
$
|
439,176
|
$
|
441,813
|
$
|
444,151
|
$
|
457,508
|
$
|
1,782,648
|
||||||||||
Gross profit (excluding depreciation)
|
$
|
134,640
|
$
|
136,072
|
$
|
138,839
|
$
|
144,453
|
$
|
554,004
|
||||||||||
Income/(loss) from operations
|
$
|
56,397
|
$
|
58,141
|
$
|
61,713
|
$
|
67,381
|
$
|
243,632
|
||||||||||
Interest expense
|
(1,207
|
)
|
(1,524
|
)
|
(1,082
|
)
|
(1,177
|
)
|
(4,990
|
)
|
||||||||||
Other income--net
|
1,018
|
1,038
|
2,300
|
(3,398
|
)
|
958
|
||||||||||||||
Income before income taxes
|
56,208
|
57,655
|
62,931
|
62,806
|
239,600
|
|||||||||||||||
Income taxes
|
(11,212
|
)
|
(2,684
|
)
|
(11,682
|
)
|
(8,478
|
)
|
(34,056
|
)
|
||||||||||
Net income/(loss) (a)
|
$
|
44,996
|
$
|
54,971
|
$
|
51,249
|
$
|
54,328
|
$
|
205,544
|
||||||||||
Earnings/(Loss) Per Share (a)
|
||||||||||||||||||||
Net income/(loss)
|
$
|
2.79
|
$
|
3.43
|
$
|
3.19
|
$
|
3.39
|
$
|
12.80
|
||||||||||
Average number of shares outstanding
|
16,100
|
16,035
|
16,074
|
16,026
|
16,059
|
|||||||||||||||
Diluted Earnings/(Loss) Per Share (a)
|
||||||||||||||||||||
Net income/(loss)
|
$
|
2.66
|
$
|
3.27
|
$
|
3.06
|
$
|
3.26
|
$
|
12.23
|
||||||||||
Average number of shares outstanding
|
16,887
|
16,811
|
16,772
|
16,670
|
16,803
|
|||||||||||||||
(a) The following amounts are included in income during the respective quarter (in thousands):
|
||||||||||||||||||||
First
|
Second
|
Third
|
Fourth
|
Total
|
||||||||||||||||
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Year
|
||||||||||||||||
Pretax (cost)/benefit:
|
||||||||||||||||||||
Stock option expense
|
$
|
(3,653
|
)
|
$
|
(3,652
|
)
|
$
|
(2,055
|
)
|
$
|
(3,251
|
)
|
$
|
(12,611
|
)
|
|||||
Long-term incentive compensation
|
(1,920
|
)
|
(1,222
|
)
|
(1,234
|
)
|
(2,242
|
)
|
(6,618
|
)
|
||||||||||
Medicare cap sequestration adjustment
|
(352
|
)
|
(185
|
)
|
(503
|
)
|
(456
|
)
|
(1,496
|
)
|
||||||||||
Expenses related to litigation settlements
|
-
|
204
|
-
|
(1,000
|
)
|
(796
|
)
|
|||||||||||||
Acquisition expenses
|
-
|
-
|
(354
|
)
|
(403
|
)
|
(757
|
)
|
||||||||||||
Total
|
$
|
(5,925
|
)
|
$
|
(4,855
|
)
|
$
|
(4,146
|
)
|
$
|
(7,352
|
)
|
$
|
(22,278
|
)
|
|||||
After-tax (cost)/benefit:
|
||||||||||||||||||||
Stock option expense
|
$
|
(2,891
|
)
|
$
|
(2,900
|
)
|
$
|
(1,674
|
)
|
$
|
(2,653
|
)
|
$
|
(10,118
|
)
|
|||||
Long-term incentive compensation
|
(1,499
|
)
|
(1,003
|
)
|
(1,013
|
)
|
(1,792
|
)
|
(5,307
|
)
|
||||||||||
Medicare cap sequestration adjustment
|
(263
|
)
|
(138
|
)
|
(376
|
)
|
(337
|
)
|
(1,114
|
)
|
||||||||||
Expenses related to litigation settlements
|
-
|
152
|
-
|
(746
|
)
|
(594
|
)
|
|||||||||||||
Acquisition expenses
|
-
|
-
|
(262
|
)
|
(297
|
)
|
(559
|
)
|
||||||||||||
Excess tax benefits on stock compensation
|
3,798
|
11,702
|
3,118
|
4,244
|
22,862
|
|||||||||||||||
Total
|
$
|
(855
|
)
|
$
|
7,813
|
$
|
(207
|
)
|
$
|
(1,581
|
)
|
$
|
5,170
|
UNAUDITED SUMMARIES OF QUARTERLY RESULTS
|
||||||||||||||||||||
Chemed Corporation and Subsidiary Companies
|
||||||||||||||||||||
(in thousands, except per share and footnote data)
|
||||||||||||||||||||
First
|
Second
|
Third
|
Fourth
|
Total
|
||||||||||||||||
For the Year Ended December 31, 2017
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Year
|
|||||||||||||||
Total service revenues and sales
|
$
|
405,864
|
$
|
415,059
|
$
|
417,444
|
$
|
428,357
|
$
|
1,666,724
|
||||||||||
Gross profit (excluding depreciation)
|
$
|
120,724
|
$
|
129,207
|
$
|
129,397
|
$
|
136,864
|
$
|
516,192
|
||||||||||
Income from operations
|
$
|
41,454
|
$
|
(38,948
|
)
|
$
|
53,997
|
$
|
56,532
|
$
|
113,035
|
|||||||||
Interest expense
|
(995
|
)
|
(1,121
|
)
|
(1,048
|
)
|
(1,108
|
)
|
(4,272
|
)
|
||||||||||
Other income/(expense)--net
|
2,463
|
1,653
|
1,323
|
2,715
|
8,154
|
|||||||||||||||
Income before income taxes
|
42,922
|
(38,416
|
)
|
54,272
|
58,139
|
116,917
|
||||||||||||||
Income taxes
|
(13,078
|
)
|
16,760
|
(18,835
|
)
|
(3,587
|
)
|
(18,740
|
)
|
|||||||||||
Net income (a)
|
$
|
29,844
|
$
|
(21,656
|
)
|
$
|
35,437
|
$
|
54,552
|
$
|
98,177
|
|||||||||
Earnings Per Share (a)
|
||||||||||||||||||||
Net income
|
$
|
1.84
|
$
|
(1.35
|
)
|
$
|
2.22
|
$
|
3.40
|
$
|
6.11
|
|||||||||
Average number of shares outstanding
|
16,219
|
16,010
|
15,976
|
16,026
|
16,057
|
|||||||||||||||
Diluted Earnings Per Share (a)
|
||||||||||||||||||||
Net income
|
$
|
1.78
|
$
|
(1.35
|
)
|
$
|
2.13
|
$
|
3.25
|
$
|
5.86
|
|||||||||
Average number of shares outstanding
|
16,801
|
16,010
|
16,676
|
16,776
|
16,742
|
|||||||||||||||
(a) The following amounts are included in income during the respective quarter (in thousands):
|
||||||||||||||||||||
First |
Second | Third |
Fourth |
Total |
||||||||||||||||
Quarter | Quarter | Quarter | Quarter | Year |
||||||||||||||||
Pretax (cost)/benefit:
|
||||||||||||||||||||
Stock option expense
|
$
|
(3,001
|
)
|
$
|
(3,054
|
)
|
$
|
(1,683
|
)
|
$
|
(2,747
|
)
|
$
|
(10,485
|
)
|
|||||
Long-term incentive compensation
|
(961
|
)
|
(956
|
)
|
(1,104
|
)
|
(1,973
|
)
|
(4,994
|
)
|
||||||||||
Loss on sale of transportation equipment
|
-
|
-
|
-
|
(5,266
|
)
|
(5,266
|
)
|
|||||||||||||
Expenses related to litigation settlements
|
-
|
(90,213
|
)
|
-
|
5,524
|
(84,689
|
)
|
|||||||||||||
Program closure expenses
|
(873
|
)
|
(636
|
)
|
371
|
-
|
(1,138
|
)
|
||||||||||||
Medicare cap sequestration adjustment
|
-
|
(105
|
)
|
-
|
(342
|
)
|
(447
|
)
|
||||||||||||
Expenses related to the Office
|
||||||||||||||||||||
of Inspector General investigation
|
(2,150
|
)
|
(2,093
|
)
|
(935
|
)
|
(16
|
)
|
(5,194
|
)
|
||||||||||
Total
|
$
|
(6,985
|
)
|
$
|
(97,057
|
)
|
$
|
(3,351
|
)
|
$
|
(4,820
|
)
|
$
|
(112,213
|
)
|
|||||
After-tax (cost)/benefit:
|
||||||||||||||||||||
Stock option expense
|
$
|
(1,897
|
)
|
$
|
(1,931
|
)
|
$
|
(1,064
|
)
|
$
|
(2,000
|
)
|
$
|
(6,892
|
)
|
|||||
Long-term incentive compensation
|
(608
|
)
|
(604
|
)
|
(699
|
)
|
(1,332
|
)
|
(3,243
|
)
|
||||||||||
Loss on sale of transportation equipment
|
-
|
-
|
-
|
(3,314
|
)
|
(3,314
|
)
|
|||||||||||||
Expenses related to litigation settlements
|
-
|
(55,929
|
)
|
-
|
3,425
|
(52,504
|
)
|
|||||||||||||
Program closure expenses
|
(513
|
)
|
(385
|
)
|
223
|
-
|
(675
|
)
|
||||||||||||
Medicare cap sequestration adjustment
|
-
|
(65
|
)
|
-
|
(211
|
)
|
(276
|
)
|
||||||||||||
Expenses related to the Office
|
||||||||||||||||||||
of Inspector General investigation
|
(1,328
|
)
|
(1,292
|
)
|
(578
|
)
|
(9
|
)
|
(3,207
|
)
|
||||||||||
Impact of tax reform
|
-
|
-
|
-
|
8,302
|
8,302
|
|||||||||||||||
Excess tax benefits on stock compensation
|
3,695
|
2,643
|
1,783
|
10,811
|
18,932
|
|||||||||||||||
Total
|
$
|
(651
|
)
|
$
|
(57,563
|
)
|
$
|
(335
|
)
|
$
|
15,672
|
$
|
(42,877
|
)
|
SELECTED FINANCIAL DATA
|
||||||||||||||||||||
Chemed Corporation and Subsidiary Companies
|
||||||||||||||||||||
(in thousands, except per share and footnote data, ratios, percentages and personnel)
|
||||||||||||||||||||
2018
|
2017
|
2016
|
2015
|
2014
|
||||||||||||||||
Summary of Operations
|
||||||||||||||||||||
Continuing operations (a)
|
||||||||||||||||||||
Service revenues and sales
|
$
|
1,782,648
|
$
|
1,666,724
|
$
|
1,576,881
|
$
|
1,543,388
|
$
|
1,456,282
|
||||||||||
Gross profit (excluding depreciation)
|
554,004
|
516,192
|
461,450
|
455,778
|
421,609
|
|||||||||||||||
Depreciation
|
38,464
|
35,488
|
34,279
|
32,369
|
29,881
|
|||||||||||||||
Amortization
|
399
|
137
|
359
|
1,130
|
720
|
|||||||||||||||
Income from operations
|
243,632
|
113,035
|
178,749
|
184,458
|
168,419
|
|||||||||||||||
Net income
|
205,544
|
98,177
|
108,743
|
110,274
|
99,317
|
|||||||||||||||
Earnings per share
|
||||||||||||||||||||
Net income
|
$
|
12.80
|
$
|
6.11
|
$
|
6.64
|
$
|
6.54
|
$
|
5.79
|
||||||||||
Average number of shares outstanding
|
16,059
|
16,057
|
16,383
|
16,870
|
17,165
|
|||||||||||||||
Diluted earnings per share
|
||||||||||||||||||||
Net income
|
$
|
12.23
|
$
|
5.86
|
$
|
6.48
|
$
|
6.33
|
$
|
5.57
|
||||||||||
Average number of shares outstanding
|
16,803
|
16,742
|
16,789
|
17,422
|
17,840
|
|||||||||||||||
Cash dividends per share
|
$
|
1.16
|
$
|
1.08
|
$
|
1.00
|
$
|
0.92
|
$
|
0.84
|
||||||||||
Financial Position--Year-End
|
||||||||||||||||||||
Cash and cash equivalents
|
$
|
4,831
|
$
|
11,121
|
$
|
15,310
|
$
|
14,727
|
$
|
14,132
|
||||||||||
Working capital/(deficit)
|
(31,830
|
)
|
(17,476
|
)
|
(1,932
|
)
|
(20,528
|
)
|
(990
|
)
|
||||||||||
Current ratio
|
0.83
|
0.91
|
0.99
|
0.88
|
0.99
|
|||||||||||||||
Properties and equipment, at cost less
|
||||||||||||||||||||
accumulated depreciation
|
$
|
162,033
|
$
|
143,034
|
$
|
121,302
|
$
|
117,370
|
$
|
105,336
|
||||||||||
Total assets
|
975,529
|
920,026
|
880,059
|
852,325
|
859,932
|
|||||||||||||||
Long-term debt
|
89,200
|
91,200
|
100,000
|
83,750
|
141,250
|
|||||||||||||||
Stockholders' equity
|
591,334
|
540,354
|
524,099
|
513,253
|
451,356
|
|||||||||||||||
Other Statistics
|
||||||||||||||||||||
Capital expenditures
|
$
|
52,872
|
$
|
64,300
|
$
|
39,772
|
$
|
44,135
|
$
|
43,571
|
||||||||||
Number of employees
|
15,707
|
14,813
|
14,613
|
14,406
|
14,190
|
|||||||||||||||
(a) The following amounts are included in income from continuing operations during the respective year (in thousands):
|
||||||||||||||||||||
2018
|
2017
|
2016
|
2015
|
2014
|
||||||||||||||||
After-tax benefit/(cost):
|
||||||||||||||||||||
Excess tax benefits on stock compensation
|
$
|
22,862
|
$
|
18,932
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||
Stock option expense
|
(10,118
|
)
|
(6,892
|
)
|
(5,266
|
)
|
(3,439
|
)
|
(3,022
|
)
|
||||||||||
Long-term incentive compensation
|
(5,307
|
)
|
(3,243
|
)
|
(1,221
|
)
|
(4,752
|
)
|
(1,625
|
)
|
||||||||||
Medicare cap sequestration adjustment
|
(1,114
|
)
|
(276
|
)
|
(141
|
)
|
-
|
-
|
||||||||||||
Litigation settlements
|
(594
|
)
|
(52,504
|
)
|
(28
|
)
|
(3
|
)
|
(74
|
)
|
||||||||||
Acquisition expense
|
(559
|
)
|
-
|
-
|
(104
|
)
|
(15
|
)
|
||||||||||||
Program closure expenses
|
-
|
(675
|
)
|
-
|
-
|
-
|
||||||||||||||
Impact of tax reform
|
-
|
8,302
|
-
|
-
|
-
|
|||||||||||||||
Loss on sale of transportation equipment
|
-
|
(3,314
|
)
|
-
|
-
|
-
|
||||||||||||||
Expenses incurred in connection with the Office of Inspector
|
||||||||||||||||||||
General investigation
|
-
|
(3,207
|
)
|
(3,248
|
)
|
(3,072
|
)
|
(1,328
|
)
|
|||||||||||
Early retirement expenses
|
-
|
-
|
(2,840
|
)
|
-
|
-
|
||||||||||||||
Noncash impact of change in accounting for convertible debt
|
-
|
-
|
-
|
-
|
(2,143
|
)
|
||||||||||||||
Expenses of securities litigation
|
-
|
-
|
-
|
(23
|
)
|
(207
|
)
|
|||||||||||||
Total
|
$
|
5,170
|
$
|
(42,877
|
)
|
$
|
(12,744
|
)
|
$
|
(11,393
|
)
|
$
|
(8,414
|
)
|
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
|
||||||||||||||||
UNAUDITED CONSOLIDATING STATEMENTS OF INCOME
|
||||||||||||||||
FOR THE YEAR ENDED DECEMBER 31, 2018
|
||||||||||||||||
(in thousands)(unaudited)
|
||||||||||||||||
|
Roto- |
|
Chemed |
|||||||||||||
VITAS
|
|
Rooter |
|
Corporate |
|
Consolidated |
||||||||||
2018
|
||||||||||||||||
Service revenues and sales
|
$
|
1,197,562
|
$
|
585,086
|
$
|
-
|
$
|
1,782,648
|
||||||||
Cost of services provided and goods sold
|
929,306
|
299,338
|
-
|
1,228,644
|
||||||||||||
Selling, general and administrative expenses
|
80,969
|
145,683
|
43,557
|
270,209
|
||||||||||||
Depreciation
|
19,688
|
18,629
|
147
|
38,464
|
||||||||||||
Amortization
|
12
|
387
|
-
|
399
|
||||||||||||
Other operating expenses
|
1,130
|
170
|
-
|
1,300
|
||||||||||||
Total costs and expenses
|
1,031,105
|
464,207
|
43,704
|
1,539,016
|
||||||||||||
Income/(loss) from operations
|
166,457
|
120,879
|
(43,704
|
)
|
243,632
|
|||||||||||
Interest expense
|
(175
|
)
|
(319
|
)
|
(4,496
|
)
|
(4,990
|
)
|
||||||||
Intercompany interest income/(expense)
|
12,832
|
6,908
|
(19,740
|
)
|
-
|
|||||||||||
Other income/(expense)—net
|
579
|
93
|
286
|
958
|
||||||||||||
Income/(loss) before income taxes
|
179,693
|
127,561
|
(67,654
|
)
|
239,600
|
|||||||||||
Income taxes
|
(40,847
|
)
|
(28,850
|
)
|
35,641
|
(34,056
|
)
|
|||||||||
Net income/(loss)
|
$
|
138,846
|
$
|
98,711
|
$
|
(32,013
|
)
|
$
|
205,544
|
|||||||
(a) The following amounts are included in income from continuing operations (in thousands):
|
||||||||||||||||
|
Roto- |
|
Chemed |
|||||||||||||
VITAS
|
|
Rooter |
|
Corporate |
|
Consolidated |
||||||||||
Pretax benefit/(cost):
|
||||||||||||||||
Stock option expense
|
$
|
-
|
$
|
-
|
$
|
(12,611
|
)
|
$
|
(12,611
|
)
|
||||||
Long-term incentive compensation
|
-
|
-
|
(6,618
|
)
|
(6,618
|
)
|
||||||||||
Medicare cap sequestration adjustment
|
(1,496
|
)
|
-
|
-
|
(1,496
|
)
|
||||||||||
Litigation settlements
|
(796
|
)
|
-
|
-
|
(796
|
)
|
||||||||||
Acquisition expenses
|
(209
|
)
|
(548
|
)
|
-
|
(757
|
)
|
|||||||||
Total
|
$
|
(2,501
|
)
|
$
|
(548
|
)
|
$
|
(19,229
|
)
|
$
|
(22,278
|
)
|
||||
|
Roto- |
|
Chemed |
|||||||||||||
VITAS
|
|
Rooter |
|
Corporate |
|
Consolidated |
||||||||||
After-tax benefit/(cost):
|
||||||||||||||||
Excess tax benefits on stock compensation
|
$
|
-
|
$
|
-
|
$
|
22,862
|
$
|
22,862
|
||||||||
Stock option expense
|
-
|
-
|
(10,118
|
)
|
(10,118
|
)
|
||||||||||
Long-term incentive compensation
|
-
|
-
|
(5,307
|
)
|
(5,307
|
)
|
||||||||||
Medicare cap sequestration adjustment
|
(1,114
|
)
|
-
|
-
|
(1,114
|
)
|
||||||||||
Litigation settlements
|
(594
|
)
|
-
|
-
|
(594
|
)
|
||||||||||
Acquisition expenses
|
(156
|
)
|
(403
|
)
|
-
|
(559
|
)
|
|||||||||
Total
|
$
|
(1,864
|
)
|
$
|
(403
|
)
|
$
|
7,437
|
$
|
5,170
|
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
|
||||||||||||||||
UNAUDITED CONSOLIDATING STATEMENTS OF INCOME
|
||||||||||||||||
FOR THE YEAR ENDED DECEMBER 31, 2017
|
||||||||||||||||
(in thousands)(unaudited)
|
||||||||||||||||
|
Roto- |
|
Chemed |
|||||||||||||
VITAS
|
|
Rooter |
|
Corporate |
|
Consolidated |
||||||||||
2017
|
||||||||||||||||
Service revenues and sales
|
$
|
1,148,260
|
$
|
518,464
|
$
|
-
|
$
|
1,666,724
|
||||||||
Cost of services provided and goods sold
|
886,062
|
264,470
|
-
|
1,150,532
|
||||||||||||
Selling, general and administrative expenses
|
95,215
|
136,248
|
45,189
|
276,652
|
||||||||||||
Depreciation
|
18,616
|
16,667
|
205
|
35,488
|
||||||||||||
Amortization
|
14
|
123
|
-
|
137
|
||||||||||||
Other operating expenses
|
85,614
|
-
|
5,266
|
90,880
|
||||||||||||
Total costs and expenses
|
1,085,521
|
417,508
|
50,660
|
1,553,689
|
||||||||||||
Income/(loss) from operations
|
62,739
|
100,956
|
(50,660
|
)
|
113,035
|
|||||||||||
Interest expense
|
(188
|
)
|
(323
|
)
|
(3,761
|
)
|
(4,272
|
)
|
||||||||
Intercompany interest income/(expense)
|
11,656
|
5,596
|
(17,252
|
)
|
-
|
|||||||||||
Other income/(expense)—net
|
(126
|
)
|
(148
|
)
|
8,428
|
8,154
|
||||||||||
Income/(loss) before income taxes
|
74,081
|
106,081
|
(63,245
|
)
|
116,917
|
|||||||||||
Income taxes
|
(16,436
|
)
|
(32,782
|
)
|
30,478
|
(18,740
|
)
|
|||||||||
Net income/(loss)
|
$
|
57,645
|
$
|
73,299
|
$
|
(32,767
|
)
|
$
|
98,177
|
|||||||
(a) The following amounts are included in income from continuing operations (in thousands):
|
||||||||||||||||
|
Roto- |
|
Chemed |
|||||||||||||
VITAS
|
|
Rooter |
|
Corporate |
|
Consolidated |
||||||||||
Pretax benefit/(cost):
|
||||||||||||||||
Stock option expense
|
$
|
-
|
$
|
-
|
$
|
(10,485
|
)
|
$
|
(10,485
|
)
|
||||||
Loss on sale of transportation equipment
|
-
|
-
|
(5,266
|
)
|
(5,266
|
)
|
||||||||||
Long-term incentive compensation
|
-
|
-
|
(4,994
|
)
|
(4,994
|
)
|
||||||||||
Program closure expenses
|
(1,138
|
)
|
-
|
-
|
(1,138
|
)
|
||||||||||
Medicare cap sequestration adjustment
|
(447
|
)
|
-
|
-
|
(447
|
)
|
||||||||||
Expenses related to litigation settlements
|
(84,476
|
)
|
(213
|
)
|
-
|
(84,689
|
)
|
|||||||||
Expenses incurred in connection with the Office of Inspector
|
||||||||||||||||
General investigation
|
(5,194
|
)
|
-
|
-
|
(5,194
|
)
|
||||||||||
Total
|
$
|
(91,255
|
)
|
$
|
(213
|
)
|
$
|
(20,745
|
)
|
$
|
(112,213
|
)
|
||||
|
Roto- |
|
Chemed |
|||||||||||||
VITAS
|
|
Rooter |
|
Corporate |
|
Consolidated |
||||||||||
After-tax benefit/(cost):
|
||||||||||||||||
Stock option expense
|
$
|
-
|
$
|
-
|
$
|
(6,892
|
)
|
$
|
(6,892
|
)
|
||||||
Loss on sale of transportation equipment
|
-
|
-
|
(3,314
|
)
|
(3,314
|
)
|
||||||||||
Excess tax benefits on stock compensation
|
-
|
-
|
18,932
|
18,932
|
||||||||||||
Long-term incentive compensation
|
-
|
-
|
(3,243
|
)
|
(3,243
|
)
|
||||||||||
Impact of tax reform
|
11,057
|
7,761
|
(10,516
|
)
|
8,302
|
|||||||||||
Program closure expenses
|
(675
|
)
|
-
|
-
|
(675
|
)
|
||||||||||
Medicare cap sequestration adjustment
|
(276
|
)
|
-
|
-
|
(276
|
)
|
||||||||||
Expenses related to litigation settlements
|
(52,375
|
)
|
(129
|
)
|
-
|
(52,504
|
)
|
|||||||||
Expenses incurred in connection with the Office of Inspector
|
||||||||||||||||
General investigation
|
(3,207
|
)
|
-
|
-
|
(3,207
|
)
|
||||||||||
Total
|
$
|
(45,476
|
)
|
$
|
7,632
|
$
|
(5,033
|
)
|
$
|
(42,877
|
)
|
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
|
||||||||||||||||
UNAUDITED CONSOLIDATING STATEMENTS OF INCOME
|
||||||||||||||||
FOR THE YEAR ENDED DECEMBER 31, 2016
|
||||||||||||||||
(in thousands)(unaudited)
|
||||||||||||||||
|
Roto- |
|
Chemed |
|||||||||||||
VITAS
|
|
Rooter |
|
Corporate |
|
Consolidated |
||||||||||
2016
|
||||||||||||||||
Service revenues and sales
|
$
|
1,123,317
|
$
|
453,564
|
$
|
-
|
$
|
1,576,881
|
||||||||
Cost of services provided and goods sold
|
878,092
|
237,339
|
-
|
1,115,431
|
||||||||||||
Selling, general and administrative expenses
|
92,550
|
118,812
|
32,210
|
243,572
|
||||||||||||
Depreciation
|
19,035
|
14,698
|
546
|
34,279
|
||||||||||||
Amortization
|
55
|
304
|
-
|
359
|
||||||||||||
Other operating expenses
|
4,491
|
-
|
-
|
4,491
|
||||||||||||
Total costs and expenses
|
994,223
|
371,153
|
32,756
|
1,398,132
|
||||||||||||
Income/(loss) from operations
|
129,094
|
82,411
|
(32,756
|
)
|
178,749
|
|||||||||||
Interest expense
|
(211
|
)
|
(332
|
)
|
(3,172
|
)
|
(3,715
|
)
|
||||||||
Intercompany interest income/(expense)
|
7,969
|
3,595
|
(11,564
|
)
|
-
|
|||||||||||
Other income/(expense)—net
|
19
|
(62
|
)
|
2,063
|
2,020
|
|||||||||||
Income/(loss) before income taxes
|
136,871
|
85,612
|
(45,429
|
)
|
177,054
|
|||||||||||
Income taxes
|
(51,910
|
)
|
(32,719
|
)
|
16,318
|
(68,311
|
)
|
|||||||||
Net income/(loss)
|
$
|
84,961
|
$
|
52,893
|
$
|
(29,111
|
)
|
$
|
108,743
|
|||||||
(a) The following amounts are included in income from continuing operations (in thousands):
|
||||||||||||||||
|
Roto- |
|
Chemed |
|||||||||||||
VITAS
|
|
Rooter |
|
Corporate |
|
Consolidated |
||||||||||
Pretax benefit/(cost):
|
||||||||||||||||
Stock option expense
|
$
|
-
|
$
|
-
|
$
|
(8,330
|
)
|
$
|
(8,330
|
)
|
||||||
Long-term incentive compensation
|
-
|
-
|
(1,930
|
)
|
(1,930
|
)
|
||||||||||
Early retirement expenses
|
(4,491
|
)
|
-
|
-
|
(4,491
|
)
|
||||||||||
Medicare cap sequestration adjustment
|
(228
|
)
|
-
|
-
|
(228
|
)
|
||||||||||
Expenses related to litigation settlements
|
-
|
(45
|
)
|
-
|
(45
|
)
|
||||||||||
Expenses incurred in connection with the Office of Inspector
|
||||||||||||||||
General investigation
|
(5,260
|
)
|
-
|
-
|
(5,260
|
)
|
||||||||||
Total
|
$
|
(9,979
|
)
|
$
|
(45
|
)
|
$
|
(10,260
|
)
|
$
|
(20,284
|
)
|
||||
|
Roto- |
|
Chemed |
|||||||||||||
VITAS
|
|
Rooter |
|
Corporate |
|
Consolidated |
||||||||||
After-tax benefit/(cost):
|
||||||||||||||||
Stock option expense
|
$
|
-
|
$
|
-
|
$
|
(5,266
|
)
|
$
|
(5,266
|
)
|
||||||
Long-term incentive compensation
|
-
|
-
|
(1,221
|
)
|
(1,221
|
)
|
||||||||||
Early retirement expenses
|
(2,840
|
)
|
-
|
-
|
(2,840
|
)
|
||||||||||
Medicare cap sequestration adjustment
|
(141
|
)
|
-
|
-
|
(141
|
)
|
||||||||||
Expenses related to litigation settlements
|
-
|
(28
|
)
|
-
|
(28
|
)
|
||||||||||
Expenses incurred in connection with the Office of Inspector
|
||||||||||||||||
General investigation
|
(3,248
|
)
|
-
|
-
|
(3,248
|
)
|
||||||||||
Total
|
$
|
(6,229
|
)
|
$
|
(28
|
)
|
$
|
(6,487
|
)
|
$
|
(12,744
|
)
|
2018
|
2017
|
2016
|
||||||||||
Consolidated service revenues and sales
|
$
|
1,782,648
|
$
|
1,666,724
|
$
|
1,576,881
|
||||||
Consolidated net income
|
$
|
205,544
|
$
|
98,177
|
$
|
108,743
|
||||||
Diluted EPS
|
$
|
12.23
|
$
|
5.86
|
$
|
6.48
|
||||||
Adjusted net income
|
$
|
200,374
|
$
|
141,054
|
$
|
121,487
|
||||||
Adjusted diluted EPS
|
$
|
11.93
|
$
|
8.43
|
$
|
7.24
|
||||||
Adjusted EBITDA
|
$
|
305,506
|
$
|
268,459
|
$
|
236,979
|
||||||
Adjusted EBITDA as a % of revenue
|
17.1
|
% |
16.1
|
% |
15.0
|
%
|
•
|
Our operations generated cash of $287.1 million.
|
•
|
We repurchased $158.9 million of our stock.
|
•
|
We spent $53.2 million on business combinations.
|
•
|
We spent $52.9 million on capital expenditures.
|
•
|
We paid $18.7 million in dividends.
|
•
|
On a net basis, we repaid $12.0 million of long-term debt.
|
Description
|
Requirement
|
Chemed
|
||
Leverage Ratio (Consolidated Indebtedness/Consolidated Adj. EBITDA)
|
< 3.50 to 1.00
|
0.41 to 1.00
|
||
Fixed Charge Coverage Ratio (Consolidated Free Cash Flow/Consolidated
|
||||
Fixed Charges
|
> 1.50 to 1.00
|
7.61 to 1.00
|
For the Years Ended December 31,
|
||||||||||||
2018
|
2017
|
2016
|
||||||||||
Net cash provided by operating activities
|
$
|
287.1
|
$
|
162.5
|
$
|
135.4
|
||||||
Capital expenditures
|
(52.9
|
)
|
(64.3
|
)
|
(39.8
|
)
|
||||||
Operating cash after capital expenditures
|
234.2
|
98.2
|
95.6
|
|||||||||
Purchase of treasury stock in the open market
|
(158.9
|
)
|
(94.6
|
)
|
(102.3
|
)
|
||||||
Business combinations
|
(53.2
|
)
|
(4.7
|
)
|
-
|
|||||||
Proceeds from exercise of stock options
|
32.4
|
27.1
|
8.4
|
|||||||||
Capital stock surrendered to pay taxes on
|
||||||||||||
on stock-based compensation
|
(27.5
|
)
|
(14.2
|
)
|
(8.8
|
)
|
||||||
Dividends paid
|
(18.7
|
)
|
(17.4
|
)
|
(16.4
|
)
|
||||||
Net increase/(decrease) in long-term debt
|
(12.0
|
)
|
(7.6
|
)
|
17.5
|
|||||||
Increase/(decrease) in cash overdraft payable
|
(1.5
|
)
|
6.7
|
(0.7
|
)
|
|||||||
Other--net
|
(1.1
|
)
|
2.3
|
7.3
|
||||||||
Increase/(decrease) in cash and cash equivalents
|
$
|
(6.3
|
)
|
$
|
(4.2
|
)
|
$
|
0.6
|
Less than
|
After
|
|||||||||||||||||||
Total
|
1 year
|
1-3 Years
|
4 -5 Years
|
5 Years
|
||||||||||||||||
Long-term debt obligations (a)
|
$
|
89,200
|
$
|
-
|
$
|
-
|
$
|
89,200
|
$
|
-
|
||||||||||
Interest on long-term debt
|
13,929
|
3,095
|
6,190
|
4,644
|
-
|
|||||||||||||||
Operating lease obligations
|
103,616
|
26,791
|
43,821
|
22,030
|
10,974
|
|||||||||||||||
Purchase obligations (b)
|
50,150
|
50,150
|
-
|
-
|
-
|
|||||||||||||||
Other long-term obligations (c)
|
77,704
|
-
|
9,816
|
3,272
|
64,616
|
|||||||||||||||
Total contractual cash obligations
|
$
|
334,599
|
$
|
80,036
|
$
|
59,827
|
$
|
119,146
|
$
|
75,590
|
||||||||||
(a) Represents the face value of the obligation.
|
||||||||||||||||||||
(b) Purchase obligations consist of accounts payable at December 31, 2018.
|
||||||||||||||||||||
(c) Other long-term obligations comprise largely excess benefit obligations.
|
Favorable/(Unfavorable)
|
||||||||
Amount
|
Percent
|
|||||||
Service revenues and sales
|
||||||||
VITAS
|
$
|
49,302
|
4
|
|||||
Roto-Rooter
|
66,622
|
13
|
||||||
Total
|
115,924
|
7
|
||||||
Cost of services provided and goods sold
|
(78,112
|
)
|
(7
|
)
|
||||
Selling, general and administrative expenses
|
6,443
|
2
|
||||||
Depreciation
|
(2,976
|
)
|
(8
|
)
|
||||
Amortization
|
(262
|
)
|
(191
|
)
|
||||
Other operating expenses
|
89,580
|
99
|
||||||
Income from operations
|
130,597
|
116
|
||||||
Interest expense
|
(718
|
)
|
(17
|
)
|
||||
Other income - net
|
(7,196
|
)
|
(88
|
)
|
||||
Income before income taxes
|
122,683
|
105
|
||||||
Income taxes
|
(15,316
|
)
|
(82
|
)
|
||||
Net income
|
$
|
107,367
|
109
|
2018
|
2017
|
|||||||
Routine homecare
|
$
|
1,010,518
|
$
|
935,913
|
||||
Continuous care
|
122,498
|
124,557
|
||||||
Inpatient care
|
82,677
|
90,472
|
||||||
Other
|
7,831
|
-
|
||||||
Medicare cap adjustment
|
(4,123
|
)
|
(2,682
|
)
|
||||
Implicit price concessions
|
(11,785
|
)
|
-
|
|||||
Room and board, net
|
(10,054
|
)
|
-
|
|||||
Net revenue
|
$
|
1,197,562
|
$
|
1,148,260
|
Days of Care
|
Increase/(Decrease)
|
||||||
2018
|
2017
|
Percent
|
|||||
Routine homecare
|
6,192,858
|
5,743,414
|
8
|
||||
Continuous care
|
169,828
|
171,395
|
(1)
|
||||
General inpatient
|
113,453
|
125,971
|
(10)
|
||||
Total days of care
|
6,476,139
|
6,040,780
|
7
|
2018
|
2017
|
|||||||
Short-term core service jobs
|
$
|
421,790
|
$
|
373,579
|
||||
Water restoration
|
101,784
|
82,272
|
||||||
Contractor revenue
|
50,093
|
43,770
|
||||||
Franchise Fees
|
6,382
|
6,130
|
||||||
All other
|
11,958
|
12,713
|
||||||
Implicit price concessions and credit memos
|
(6,921
|
)
|
-
|
|||||
$
|
585,086
|
$
|
518,464
|
2018
|
2017
|
|||||||
SG&A expenses before long-term incentive
|
||||||||
compensation, OIG expenses and the impact
|
||||||||
of market gains of deferred compensation plans
|
$
|
263,304
|
$
|
258,034
|
||||
Long-term incentive compensation
|
6,618
|
4,994
|
||||||
Impact of market value gains on liabilities
|
||||||||
held in deferred compensation trusts
|
287
|
8,430
|
||||||
Expenses related to OIG investigation
|
-
|
5,194
|
||||||
Total SG&A expenses
|
$
|
270,209
|
$
|
276,652
|
2018
|
2017
|
|||||||
Litigation settlements
|
$
|
796
|
$
|
84,476
|
||||
Loss on disposal of property and equipment
|
504
|
5,266
|
||||||
Program closure expenses
|
-
|
1,138
|
||||||
Total other operating expenses
|
$
|
1,300
|
$
|
90,880
|
2018
|
2017
|
|||||||
Interest income
|
$
|
671
|
$
|
427
|
||||
Market value gains on assets held in deferred
|
||||||||
compensation trusts
|
287
|
8,430
|
||||||
Other
|
-
|
(703
|
)
|
|||||
Total other income
|
$
|
958
|
$
|
8,154
|
2018
|
2017
|
|||||||
Income tax provision calculated using the statutory rate
|
$
|
50,316
|
$
|
40,921
|
||||
Stock compensation tax benefits
|
(22,862
|
)
|
(18,932
|
)
|
||||
State and local income taxes, less federal income tax effect
|
7,150
|
4,600
|
||||||
Nondeductible expenses
|
2,280
|
1,041
|
||||||
Enactment of the tax reform act
|
-
|
(8,305
|
)
|
|||||
Other--net
|
(2,828
|
)
|
(585
|
)
|
||||
Income tax provision
|
$
|
34,056
|
$
|
18,740
|
||||
Effective tax rate
|
14.2
|
%
|
16.0
|
%
|
2018
|
2017
|
|||||||
VITAS
|
||||||||
Medicare cap sequestration adjustment
|
$
|
(1,114
|
)
|
$
|
(276
|
)
|
||
Expenses related to litigation settlements
|
(594
|
)
|
(52,375
|
)
|
||||
Acquisition expenses
|
(156
|
)
|
-
|
|||||
Impact of tax reform
|
-
|
11,057
|
||||||
Costs associated with the OIG investigation
|
-
|
(3,207
|
)
|
|||||
Program closure expenses
|
-
|
(675
|
)
|
|||||
Roto-Rooter
|
||||||||
Acquisition expenses
|
(403
|
)
|
-
|
|||||
Impact of tax reform
|
-
|
7,761
|
||||||
Expenses related to litigation settlements
|
-
|
(129
|
)
|
|||||
Corporate
|
||||||||
Excess tax benefits on stock compensation
|
22,862
|
18,932
|
||||||
Stock option expense
|
(10,118
|
)
|
(6,892
|
)
|
||||
Long-term incentive compensation
|
(5,307
|
)
|
(3,243
|
)
|
||||
Impact of tax reform
|
-
|
(10,516
|
)
|
|||||
Loss on sale of transportation equipment
|
-
|
(3,314
|
)
|
|||||
Total
|
$
|
5,170
|
$
|
(42,877
|
)
|
2018
|
2017
|
|||||||
VITAS
|
$
|
138,846
|
$
|
57,645
|
||||
Roto-Rooter
|
98,711
|
73,299
|
||||||
Corporate
|
(32,013
|
)
|
(32,767
|
)
|
||||
$
|
205,544
|
$
|
98,177
|
Favorable/(Unfavorable)
|
||||||||
Amount
|
Percent
|
|||||||
Service revenues and sales
|
||||||||
VITAS
|
$
|
24,943
|
2
|
|||||
Roto-Rooter
|
64,900
|
14
|
||||||
Total
|
89,843
|
6
|
||||||
Cost of services provided and goods sold
|
(35,101
|
)
|
(3
|
)
|
||||
Selling, general and administrative expenses
|
(33,080
|
)
|
(14
|
)
|
||||
Depreciation
|
(1,209
|
)
|
(4
|
)
|
||||
Amortization
|
222
|
62
|
||||||
Other operating expenses
|
(86,389
|
)
|
(1,924
|
)
|
||||
Income from operations
|
(65,714
|
)
|
(37
|
)
|
||||
Interest expense
|
(557
|
)
|
(15
|
)
|
||||
Other income - net
|
6,134
|
304
|
||||||
Income before income taxes
|
(60,137
|
)
|
(34
|
)
|
||||
Income taxes
|
49,571
|
73
|
||||||
Net income
|
$
|
(10,566
|
)
|
(10
|
)
|
2017
|
2016
|
|||||||
Routine homecare
|
$
|
935,913
|
$
|
887,940
|
||||
Continuous care
|
124,557
|
138,025
|
||||||
Inpatient care
|
90,472
|
97,580
|
||||||
Medicare cap adjustment
|
(2,682
|
)
|
(228
|
)
|
||||
Net revenue
|
$
|
1,148,260
|
$
|
1,123,317
|
Days of Care
|
Increase/(Decrease)
|
||||||
2017
|
2016
|
Percent
|
|||||
Routine homecare
|
5,743,414
|
5,518,002
|
4
|
||||
Continuous care
|
171,395
|
188,657
|
(9)
|
||||
General inpatient
|
125,971
|
146,516
|
(14)
|
||||
Total days of care
|
6,040,780
|
5,853,175
|
3
|
2017
|
2016
|
|||||||
Short-term core service jobs
|
$
|
373,579
|
$
|
345,638
|
||||
Water restoration
|
82,272
|
50,229
|
||||||
Contractor revenue
|
43,770
|
40,097
|
||||||
Franchise Fees
|
6,130
|
5,090
|
||||||
All other
|
12,713
|
12,510
|
||||||
$
|
518,464
|
$
|
453,564
|
2017
|
2016
|
|||||||
SG&A expenses before long-term incentive
|
||||||||
compensation, OIG expenses and the impact
|
||||||||
of market gains of deferred compensation plans
|
$
|
258,034
|
$
|
234,321
|
||||
Long-term incentive compensation
|
4,994
|
1,930
|
||||||
Expenses related to OIG investigation
|
5,194
|
5,260
|
||||||
Impact of market value gains on liabilities
|
||||||||
held in deferred compensation trusts
|
8,430
|
2,061
|
||||||
Total SG&A expenses
|
$
|
276,652
|
$
|
243,572
|
2017
|
2016
|
|||||||
Market value gains on assets held in deferred
|
||||||||
compensation trusts
|
$
|
8,430
|
$
|
2,061
|
||||
Loss on disposal of property and equipment
|
(707
|
)
|
(424
|
)
|
||||
Interest income
|
427
|
383
|
||||||
Other
|
4
|
-
|
||||||
Total other income
|
$
|
8,154
|
$
|
2,020
|
2017
|
2016
|
|||||||
Income tax provision calculated using the statutory rate of 35%
|
$
|
40,921
|
$
|
61,969
|
||||
State and local income taxes, less federal income tax effect
|
4,600
|
6,044
|
||||||
Nondeductible expenses
|
1,041
|
881
|
||||||
Stock compensation tax benefits
|
(18,932
|
)
|
-
|
|||||
Enactment of the tax reform act
|
(8,305
|
)
|
-
|
|||||
Other--net
|
(585
|
)
|
(583
|
)
|
||||
Income tax provision
|
$
|
18,740
|
$
|
68,311
|
||||
Effective tax rate
|
16.0
|
%
|
38.6
|
%
|
2017
|
2016
|
|||||||
VITAS
|
||||||||
Expenses related to litigation settlements
|
$
|
(52,375
|
)
|
$
|
-
|
|||
Impact of tax reform
|
11,057
|
(3,248
|
)
|
|||||
Costs associated with the OIG investigation
|
(3,207
|
)
|
-
|
|||||
Program closure expenses
|
(675
|
)
|
-
|
|||||
Medicare cap sequestration adjustment
|
(276
|
)
|
(141
|
)
|
||||
Early retirement expenses
|
-
|
(2,840
|
)
|
|||||
Roto-Rooter
|
||||||||
Impact of tax reform
|
7,761
|
-
|
||||||
Expenses related to litigation settlements
|
(129
|
)
|
(28
|
)
|
||||
Corporate
|
||||||||
Excess tax benefits on stock compensation
|
18,932
|
-
|
||||||
Impact of tax reform
|
(10,516
|
)
|
-
|
|||||
Stock option expense
|
(6,892
|
)
|
(5,266
|
)
|
||||
Loss on sale of transportation equipment
|
(3,314
|
)
|
-
|
|||||
Long-term incentive compensation
|
(3,243
|
)
|
(1,221
|
)
|
||||
Total
|
$
|
(42,877
|
)
|
$
|
(12,744
|
)
|
2017
|
2016
|
|||||||
VITAS
|
$
|
57,645
|
$
|
84,961
|
||||
Roto-Rooter
|
73,299
|
52,893
|
||||||
Corporate
|
(32,767
|
)
|
(29,111
|
)
|
||||
$
|
98,177
|
$
|
108,743
|
Medicare
|
Medicaid
|
Commercial
|
Total
|
|||||||||||||
Routine home care
|
$
|
939,951
|
$
|
47,609
|
$
|
22,958
|
$
|
1,010,518
|
||||||||
Continuous care
|
110,596
|
6,126
|
5,776
|
122,498
|
||||||||||||
Inpatient care
|
69,354
|
8,156
|
5,167
|
82,677
|
||||||||||||
$
|
1,119,901
|
$
|
61,891
|
$
|
33,901
|
$
|
1,215,693
|
|||||||||
All other revenue - self-pay, respite care, etc.
|
7,831
|
|||||||||||||||
Subtotal
|
$
|
1,223,524
|
||||||||||||||
Medicare cap adjustment
|
(4,123
|
)
|
||||||||||||||
Implicit price concessions
|
(11,785
|
)
|
||||||||||||||
Room and board, net
|
(10,054
|
)
|
||||||||||||||
Net revenue
|
$
|
1,197,562
|
Short-term core service jobs
|
$
|
421,790
|
||
Water restoration
|
101,784
|
|||
Contractor revenue
|
50,093
|
|||
Franchise fees
|
6,382
|
|||
All other
|
11,958
|
|||
Subtotal
|
$
|
592,007
|
||
Implicit price concessions and credit memos
|
(6,921
|
)
|
||
Net revenue
|
$
|
585,086
|
Impact for the year ended December 31, 2018 | ||||||||||||
ASC 605 |
|
Adjustment |
|
ASC 606 |
||||||||
Service revenue and sales
|
$
|
1,811,408
|
$
|
(28,760
|
)
|
$
|
1,782,648
|
|||||
Cost of services provided and goods sold
|
1,238,698
|
(10,054
|
)
|
1,228,644
|
||||||||
Selling, general and administrative expenses
|
288,915
|
(18,706
|
)
|
270,209
|
Unaudited Consolidating
Summaries and Reconciliations of Adjusted EBITDA |
||||||||||||||||
Chemed Corporation and Subsidiary Companies | ||||||||||||||||
(in thousands)
|
Chemed
|
|||||||||||||||
2018
|
|
VITAS |
|
Roto-Rooter |
|
Corporate |
Consolidated |
|||||||||
Net income/(loss)
|
$
|
138,846
|
$
|
98,711
|
$
|
(32,013
|
)
|
$
|
205,544
|
|||||||
Add/(deduct):
|
||||||||||||||||
Interest expense
|
175
|
319
|
4,496
|
4,990
|
||||||||||||
Income taxes
|
40,847
|
28,850
|
(35,641
|
)
|
34,056
|
|||||||||||
Depreciation
|
19,688
|
18,629
|
147
|
38,464
|
||||||||||||
Amortization
|
12
|
387
|
-
|
399
|
||||||||||||
EBITDA
|
199,568
|
146,896
|
(63,011
|
)
|
283,453
|
|||||||||||
Add/(deduct):
|
||||||||||||||||
Intercompany interest/(expense)
|
(12,832
|
)
|
(6,908
|
)
|
19,740
|
-
|
||||||||||
Medicare cap sequestration adjustment
|
1,496
|
-
|
-
|
1,496
|
||||||||||||
Litigation settlements
|
796
|
-
|
-
|
796
|
||||||||||||
Interest income
|
(580
|
)
|
(92
|
)
|
1
|
(671
|
)
|
|||||||||
Acquisition expense
|
209
|
548
|
-
|
757
|
||||||||||||
Stock option expense
|
-
|
-
|
12,611
|
12,611
|
||||||||||||
Stock award expense
|
107
|
100
|
239
|
446
|
||||||||||||
Long-term incentive compensation
|
-
|
-
|
6,618
|
6,618
|
||||||||||||
Adjusted EBITDA
|
$
|
188,764
|
$
|
140,544
|
$
|
(23,802
|
)
|
$
|
305,506
|
|||||||
|
Chemed | |||||||||||||||
2017 |
VITAS
|
Roto-Rooter
|
Corporate
|
Consolidated |
||||||||||||
Net income/(loss)
|
$
|
57,645
|
$
|
73,299
|
$
|
(32,767
|
)
|
$
|
98,177
|
|||||||
Add/(deduct):
|
||||||||||||||||
Interest expense
|
188
|
323
|
3,761
|
4,272
|
||||||||||||
Income taxes
|
16,436
|
32,782
|
(30,478
|
)
|
18,740
|
|||||||||||
Depreciation
|
18,616
|
16,667
|
205
|
35,488
|
||||||||||||
Amortization
|
14
|
123
|
-
|
137
|
||||||||||||
EBITDA
|
92,899
|
123,194
|
(59,279
|
)
|
156,814
|
|||||||||||
Add/(deduct):
|
||||||||||||||||
Intercompany interest/(expense)
|
(11,656
|
)
|
(5,596
|
)
|
17,252
|
-
|
||||||||||
Interest income
|
(388
|
)
|
(39
|
)
|
-
|
(427
|
)
|
|||||||||
Loss on sale of transportation equipment
|
-
|
-
|
5,266
|
5,266
|
||||||||||||
Expenses related to OIG investigation
|
5,194
|
-
|
-
|
5,194
|
||||||||||||
Program closure expenses
|
1,138
|
-
|
-
|
1,138
|
||||||||||||
Medicare cap sequestration adjustment
|
447
|
-
|
-
|
447
|
||||||||||||
Litigation settlements
|
84,476
|
213
|
-
|
84,689
|
||||||||||||
Advertising cost adjustment
|
-
|
(1,371
|
)
|
-
|
(1,371
|
)
|
||||||||||
Stock option expense
|
-
|
-
|
10,485
|
10,485
|
||||||||||||
Stock award expense
|
291
|
269
|
670
|
1,230
|
||||||||||||
Long-term incentive compensation
|
-
|
-
|
4,994
|
4,994
|
||||||||||||
Adjusted EBITDA
|
$
|
172,401
|
$
|
116,670
|
$
|
(20,612
|
)
|
$
|
268,459
|
|||||||
|
Chemed | |||||||||||||||
2016
|
|
VITAS | |
Roto-Rooter | |
Corporate |
|
Consolidated | ||||||||
Net income/(loss)
|
$
|
84,961
|
$
|
52,893
|
$
|
(29,111
|
)
|
$
|
108,743
|
|||||||
Add/(deduct):
|
||||||||||||||||
Interest expense
|
211
|
332
|
3,172
|
3,715
|
||||||||||||
Income taxes
|
51,910
|
32,719
|
(16,318
|
)
|
68,311
|
|||||||||||
Depreciation
|
19,035
|
14,698
|
546
|
34,279
|
||||||||||||
Amortization
|
55
|
304
|
-
|
359
|
||||||||||||
EBITDA
|
156,172
|
100,946
|
(41,711
|
)
|
215,407
|
|||||||||||
Add/(deduct):
|
||||||||||||||||
Intercompany interest/(expense)
|
(7,969
|
)
|
(3,595
|
)
|
11,564
|
-
|
||||||||||
Interest income
|
(325
|
)
|
(58
|
)
|
-
|
(383
|
)
|
|||||||||
Expenses related to OIG investigation
|
5,260
|
-
|
-
|
5,260
|
||||||||||||
Retirement expenses
|
4,491
|
-
|
-
|
4,491
|
||||||||||||
Medicare cap sequestration adjustment
|
228
|
-
|
-
|
228
|
||||||||||||
Expenses related to litigation settlements
|
1,149
|
45
|
-
|
1,194
|
||||||||||||
Advertising cost adjustment
|
-
|
(1,333
|
)
|
-
|
(1,333
|
)
|
||||||||||
Stock option expense
|
-
|
-
|
8,330
|
8,330
|
||||||||||||
Stock award expense
|
387
|
307
|
1,161
|
1,855
|
||||||||||||
Long-term incentive compensation
|
-
|
-
|
1,930
|
1,930
|
||||||||||||
Expenses related to securities litigation
|
-
|
-
|
-
|
-
|
||||||||||||
Adjusted EBITDA
|
$
|
159,393
|
$
|
96,312
|
$
|
(18,726
|
)
|
$
|
236,979
|
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
|
||||||||||||
RECONCILIATION OF ADJUSTED NET INCOME
|
||||||||||||
(in thousands, except per share data)(unaudited)
|
||||||||||||
For the Years Ended December 31,
|
||||||||||||
2018
|
2017
|
2016
|
||||||||||
Net income as reported
|
$
|
205,544
|
$
|
98,177
|
$
|
108,743
|
||||||
Add/(deduct) pre-tax cost of:
|
||||||||||||
Stock option expense
|
12,611
|
10,485
|
8,330
|
|||||||||
Long-term incentive compensation
|
6,618
|
4,994
|
1,930
|
|||||||||
Medicare cap sequestration adjustment
|
1,496
|
447
|
228
|
|||||||||
Litigation settlements
|
796
|
84,476
|
-
|
|||||||||
Acquisition expenses
|
757
|
-
|
-
|
|||||||||
Loss on sale of transportation equipment
|
-
|
5,266
|
-
|
|||||||||
Expenses related to OIG investigation
|
-
|
5,194
|
5,260
|
|||||||||
Program closure expenses
|
-
|
1,138
|
-
|
|||||||||
Early retirement expenses
|
-
|
-
|
4,491
|
|||||||||
Net expenses related to litigation settlements
|
-
|
213
|
45
|
|||||||||
Add/(deduct) tax impacts:
|
||||||||||||
Tax impact of the above pre-tax adjustments (1)
|
(4,586
|
)
|
(42,102
|
)
|
(7,540
|
)
|
||||||
Impact of tax reform
|
-
|
(8,302
|
)
|
-
|
||||||||
Excess tax benefits on stock compensation
|
(22,862
|
)
|
(18,932
|
)
|
-
|
|||||||
Adjusted net income
|
$
|
200,374
|
$
|
141,054
|
$
|
121,487
|
||||||
Diluted Earnings Per Share As Reported
|
||||||||||||
Net income
|
$
|
12.23
|
$
|
5.86
|
$
|
6.48
|
||||||
Average number of shares outstanding
|
16,803
|
16,742
|
16,789
|
|||||||||
Adjusted Diluted Earnings Per Share
|
||||||||||||
Net income
|
$
|
11.93
|
$
|
8.43
|
$
|
7.24
|
||||||
Average number of shares outstanding
|
16,803
|
16,742
|
16,789
|
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
|
||||||||||||||||
OPERATING STATISTICS FOR VITAS SEGMENT
|
||||||||||||||||
(unaudited)
|
||||||||||||||||
Three Months Ended December 31,
|
Year Ended December 31,
|
|||||||||||||||
OPERATING STATISTICS
|
2018
|
2017
|
2018
|
2017
|
||||||||||||
Net revenue ($000)
|
||||||||||||||||
Homecare
|
$
|
261,972
|
$
|
242,554
|
$
|
1,010,518
|
$
|
935,913
|
||||||||
Inpatient
|
20,874
|
22,033
|
82,677
|
90,472
|
||||||||||||
Continuous care
|
30,834
|
30,131
|
122,498
|
124,557
|
||||||||||||
Other
|
1,986
|
-
|
7,831
|
-
|
||||||||||||
Subtotal
|
$
|
315,666
|
$
|
294,718
|
$
|
1,223,524
|
$
|
1,150,942
|
||||||||
Room and board, net
|
(2,191
|
)
|
-
|
(10,054
|
)
|
-
|
||||||||||
Contractual allowances
|
(3,036
|
)
|
-
|
(11,785
|
)
|
-
|
||||||||||
Medicare cap allowance
|
(3,454
|
)
|
(2,435
|
)
|
(4,123
|
)
|
(2,682
|
)
|
||||||||
Total
|
$
|
306,985
|
$
|
292,283
|
$
|
1,197,562
|
$
|
1,148,260
|
||||||||
Net revenue as a percent of total before Medicare cap allowance
|
||||||||||||||||
Homecare
|
83.0
|
%
|
82.3
|
%
|
82.6
|
%
|
81.2
|
%
|
||||||||
Inpatient
|
6.6
|
7.5
|
6.8
|
7.9
|
||||||||||||
Continuous care
|
9.8
|
10.2
|
10.0
|
10.9
|
||||||||||||
Other
|
0.6
|
-
|
0.6
|
-
|
||||||||||||
Subtotal
|
100.0
|
100.0
|
100.0
|
100.0
|
||||||||||||
Room and board, net
|
(0.7
|
)
|
-
|
(0.8
|
)
|
-
|
||||||||||
Contractual allowances
|
(1.0
|
)
|
-
|
(1.1
|
)
|
-
|
||||||||||
Medicare cap allowance
|
(1.1
|
)
|
(0.8
|
)
|
(0.2
|
)
|
(0.2
|
)
|
||||||||
Total
|
97.2
|
%
|
99.2
|
%
|
97.9
|
%
|
99.8
|
%
|
||||||||
Average daily census (days)
|
||||||||||||||||
Homecare
|
14,062
|
12,861
|
13,652
|
12,549
|
||||||||||||
Nursing home
|
3,297
|
3,265
|
3,298
|
3,177
|
||||||||||||
Routine homecare
|
17,359
|
16,126
|
16,950
|
15,726
|
||||||||||||
Inpatient
|
326
|
342
|
327
|
354
|
||||||||||||
Continuous care
|
464
|
452
|
465
|
470
|
||||||||||||
Total
|
18,149
|
16,920
|
17,742
|
16,550
|
||||||||||||
Total Admissions
|
16,579
|
16,575
|
68,119
|
66,449
|
||||||||||||
Total Discharges
|
16,623
|
16,553
|
66,868
|
65,637
|
||||||||||||
Average length of stay (days)
|
92.6
|
91.4
|
89.9
|
88.8
|
||||||||||||
Median length of stay (days)
|
17.0
|
16.0
|
17.0
|
16.0
|
||||||||||||
ADC by major diagnosis
|
||||||||||||||||
Cerebro
|
35.8
|
%
|
36.1
|
%
|
36.3
|
%
|
35.5
|
%
|
||||||||
Neurological
|
18.6
|
18.5
|
19.0
|
19.2
|
||||||||||||
Cardio
|
16.3
|
16.4
|
16.4
|
16.5
|
||||||||||||
Cancer
|
13.7
|
14.1
|
13.7
|
14.6
|
||||||||||||
Respiratory
|
8.0
|
8.0
|
8.2
|
7.9
|
||||||||||||
Other
|
7.6
|
6.9
|
6.4
|
6.3
|
||||||||||||
Total
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
||||||||
Admissions by major diagnosis
|
||||||||||||||||
Cerebro
|
20.9
|
%
|
22.3
|
%
|
21.8
|
%
|
22.0
|
%
|
||||||||
Neurological
|
11.5
|
10.7
|
11.4
|
10.6
|
||||||||||||
Cancer
|
31.1
|
30.0
|
30.2
|
30.6
|
||||||||||||
Cardio
|
14.6
|
14.9
|
15.4
|
15.0
|
||||||||||||
Respiratory
|
10.1
|
10.7
|
10.9
|
10.8
|
||||||||||||
Other
|
11.8
|
11.4
|
10.3
|
11.0
|
||||||||||||
Total
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
||||||||
Direct patient care margins
|
||||||||||||||||
Routine homecare
|
53.9
|
%
|
53.9
|
%
|
53.0
|
%
|
52.6
|
%
|
||||||||
Inpatient
|
3.9
|
8.5
|
4.7
|
5.4
|
||||||||||||
Continuous care
|
18.4
|
16.8
|
17.7
|
16.9
|
||||||||||||
Homecare margin drivers (dollars per patient day)
|
||||||||||||||||
Labor costs
|
$
|
56.82
|
$
|
55.65
|
$
|
57.59
|
$
|
56.80
|
||||||||
Combined drug, home medical equipment and medical supplies cost
|
$
|
13.58
|
$
|
14.30
|
$
|
14.06
|
$
|
14.65
|
||||||||
Inpatient margin drivers (dollars per patient day) - Labor costs
|
$
|
379.17
|
$
|
355.96
|
$
|
376.53
|
$
|
366.41
|
||||||||
Continuous care margin drivers (dollars per patient day) - Labor costs
|
$
|
571.18
|
$
|
583.45
|
$
|
575.36
|
$
|
584.49
|
||||||||
Bad debt expense as a percent of revenues
|
1.0
|
%
|
1.1
|
%
|
1.0
|
%
|
1.1
|
%
|
||||||||
Accounts receivable --
|
||||||||||||||||
Days of revenue outstanding- excluding unapplied Medicare payments
|
35.0
|
33.7
|
N.A.
|
N.A.
|
||||||||||||
Days of revenue outstanding- including unapplied Medicare payments
|
24.6
|
25.0
|
N.A.
|
N.A.
|
|
/s/ Joel F. Gemunder |
|
Joel F. Gemunder |
|
/s/ Patrick P. Grace |
|
Patrick P. Grace |
|
/s/ Thomas C. Hutton
|
|
Thomas C. Hutton |
|
/s/ Thomas P. Rice |
|
Thomas P. Rice
|
|
/s/ Donald E. Saunders
|
|
Donald E. Saunders |
|
/s/ George J. Walsh III
|
|
George J. Walsh III |
|
/s/ Frank E. Wood
|
|
Frank E. Wood
|
|
/s/ Walter L. Krebs
|
|
Walter L. Krebs |
|
/s/ Andrea R. Lindell
|
|
Andrea R. Lindell |
1.
|
I have reviewed this annual report on Form 10-K of Chemed Corporation (“registrant”);
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present
in all material respects the financial condition, results of operations, and cash flow of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls or procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by other within those entities, particularly during the period in which this report is being
prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
|
5.
|
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors or persons performing the equivalent function:
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
|
|
/s/ Kevin J. McNamara |
|
Kevin J. McNamara |
|
(President and Chief Executive Officer) |
1.
|
I have reviewed this annual report on Form 10-K of Chemed Corporation (“registrant”);
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in
all material respects the financial condition, results of operations, and cash flow of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls or procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by other within those entities, particularly during the period in which this report is being
prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
|
5.
|
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors or persons performing the equivalent function:
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
|
|
/s/ David P. Williams |
|
David P. Williams |
|
(Executive Vice President and Chief Financial Officer) |
1.
|
I have reviewed this annual report on Form 10-K of Chemed Corporation (“registrant”);
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in
all material respects the financial condition, results of operations, and cash flow of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls or procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by other within those entities, particularly during the period in which this report is being
prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
|
5.
|
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors or persons performing the equivalent function:
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
|
|
/s/ Michael D. Witzeman |
|
Michael D. Witzeman |
|
(Vice President and Controller) |
1)
|
The Company’s Annual Report on Form 10-K for the year ending December 31, 2018 (“Report”), fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
|
|
/s/ Kevin J. McNamara |
|
Kevin J. McNamara |
|
(President and Chief Executive Officer) |
1)
|
The Company’s Annual Report on Form 10-K for the year ending December 31, 2018 (“Report”), fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
|
|
/s/ David P. Williams |
|
David P. Williams |
|
(Executive Vice President and Chief Financial Officer) |
1)
|
The Company’s Annual Report on Form 10-K for the year ending December 31, 2018 (“Report”), fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
|
|
/s/ Michael D. Witzeman |
|
Michael D. Witzeman |
|
(Vice President and Controller) |
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1.Summary of Significant Accounting Policies
NATURE OF OPERATIONS
We operate through our two wholly-owned subsidiaries: VITAS Healthcare Corporation (“VITAS”) and Roto-Rooter Group, Inc. (“Roto-Rooter”). VITAS focuses on hospice care that helps make terminally ill patients' final days as comfortable as possible. Through its team of doctors, nurses, home health aides, social workers, clergy and volunteers, VITAS provides direct medical services to patients, as well as spiritual and emotional counseling to both patients and their families. Roto-Rooter provides plumbing, drain cleaning and water restoration services to both residential and commercial customers. Through its network of company-owned branches, independent contractors and franchisees, Roto-Rooter offers plumbing, drain cleaning service and water restoration to approximately 90% of the U.S. population.
PRINCIPLES OF ACCOUNTING
The consolidated financial statements have been prepared on a going-concern basis. Management has adopted the evaluation requirements of Accounting Stanadards Update “ASU No. 2014-15 – Presentation of Financial Statements – Going Concern”.
The consolidated financial statements include the accounts of Chemed Corporation and its wholly owned subsidiaries. All intercompany transactions have been eliminated. We have analyzed the provisions of the Financial Accounting Standards Board (“FASB”) authoritative guidance on the consolidation of variable interest entities relative to our contractual relationships with Roto-Rooter’s independent contractors and franchisees. The guidance requires the primary beneficiary of a Variable Interest Entity (“VIE”) to consolidate the accounts of the VIE. We have concluded that neither the independent contractors nor the franchisees are VIEs.
Certain reclassifications have been made to prior year financial statements to conform to current presentation.
CASH EQUIVALENTS
Cash equivalents comprise short-term, highly liquid investments, including money market funds that have original maturities of three months or less.
CONCENTRATION OF RISK
As of December 31, 2018 and 2017, approximately 68% and 59%, respectively, of VITAS’ total accounts receivable balance were due from Medicare and 26% and 32%, respectively, of VITAS’ total accounts receivable balance were due from various state Medicaid or managed Medicaid programs. Combined accounts receivable from Medicare, Medicaid, and managed Medicaid represent approximately 75% of the consolidated net accounts receivable in the accompanying consolidated balance sheets as of December 31, 2018.
As further described in Note 18, we had agreements with a vendor to provide specified pharmacy services for VITAS and its hospice patients. In 2018 and 2017, respectively, purchases made from this vendor represent 99% and 85%, respectively, of all pharmacy services used by VITAS.
INVENTORIES
Substantially all of the inventories are either general merchandise or finished goods. Inventories are stated at the lower of cost or net realizable value. For determining the value of inventories, cost methods that reasonably approximate the first-in, first-out (“FIFO”) method are used.
DEPRECIATION AND PROPERTIES AND EQUIPMENT
Depreciation of properties and equipment is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the remaining lease terms (excluding option terms) or their useful lives. Expenditures for maintenance, repairs, renewals and betterments that do not materially prolong the useful lives of the assets are expensed as incurred. The cost of property retired or sold and the related accumulated depreciation are removed from the accounts, and the resulting gain or loss is reflected currently in other operating expense or other income, net.
Expenditures for major software purchases and software developed for internal use are capitalized and depreciated using the straight-line method over the estimated useful lives of the assets. For software developed for internal use, external direct costs for materials and services and certain internal payroll and related fringe benefit costs are capitalized in accordance with the FASB’s authoritative guidance on accounting for the costs of computer software developed or obtained for internal use.
The weighted average lives of our property and equipment at December 31, 2018, were:
Buildings and building improvements
yrs.
Transportation equipment
Machinery and equipment
Computer software
Furniture and fixtures
GOODWILL AND INTANGIBLE ASSETS
The table below shows a rollforward of Goodwill (in thousands):
Roto-
Vitas
Rooter
Total
Balance at December 31, 2016
$
$
$
Business combinations
-
Foreign currency adjustments
-
Balance at December 31, 2017
$
$
$
Business combinations
Foreign currency adjustments
-
Balance at December 31, 2018
$
$
$
Identifiable, definite-lived intangible assets arise from purchase business combinations and are amortized using either an accelerated method or the straight-line method over the estimated useful lives of the assets. The selection of an amortization method is based on which method best reflects the economic pattern of usage of the asset. Reacquired franchise rights are amortized over the remaining term of the franchise agreement at the time of acquisition. The weighted average lives of our identifiable, definite-lived intangible assets at December 31, 2018, were:
Covenants not to compete
yrs.
Reacquired franchise rights
Referral networks
Customer lists
The date of our annual goodwill and indefinite-lived intangible asset impairment analysis is October 1. The VITAS trade name is considered to have an indefinite life. We also capitalize the direct costs of obtaining licenses to operate either hospice programs or plumbing operations subject to a minimum capitalization threshold. These costs are amortized over the life of the license using the straight-line method. Certificates of Need (“CON”), which are required in certain states for hospice operations, are generally granted without expiration and thus, we believe them to be indefinite-lived assets subject to impairment testing.
We consider that Roto-Rooter Corp. (“RRC”), Roto-Rooter Services Co. (“RRSC”) and VITAS are appropriate reporting units for testing goodwill impairment. We consider RRC and RRSC separate reporting units but one operating segment. This is appropriate as they each have their own set of general ledger accounts that can be analyzed at “one level below an operating segment” per the definition of a reporting unit in FASB guidance.
We completed our qualitative analysis for impairment of goodwill and our indefinite-lived intangible assets as of October 1, 2018. Based on our assessment, we do not believe that it is more likely than not that our reporting units or indefinite-lived assets fair values are less than their carrying values.
LONG-LIVED ASSETS
If we believe a triggering event may have occurred that indicates a possible impairment of our long-lived assets, we perform an estimate and valuation of the future benefits of our long-lived assets (other than goodwill, the VITAS trade name and capitalized CON costs) based on key financial indicators. If the projected undiscounted cash flows of a major business unit indicate that properties and equipment or identifiable, definite-lived intangible assets have been impaired, a write-down to fair value is made.
OTHER ASSETS
Debt issuance costs are included in other assets. Issuance costs related to revolving credit agreements are amortized using the straight-line method, over the life of the agreement. All other issuance costs are amortized using the effective interest method over the life of the debt. There are no amounts included in other assets that individually exceed 5% of total assets.
SALES TAX
The Roto-Rooter segment collects sales tax from customers when required by state and federal laws. We record the amount of sales tax collected net in the accompanying consolidated statements of income.
OPERATING EXPENSES
Cost of services provided and goods sold (excluding depreciation) includes salaries, wages and benefits of service providers and field personnel, material costs, medical supplies and equipment, pharmaceuticals, insurance costs, service vehicle costs and other expenses directly related to providing service revenues or generating sales. Selling, general and administrative expenses include salaries, wages, stock-based compensation expense and benefits of selling, marketing and administrative employees, advertising expenses, communications and branch telephone expenses, office rent and operating costs, legal, banking and professional fees and other administrative costs. The cost associated with VITAS sales personnel is included in cost of services provided and goods sold (excluding depreciation).
ADVERTISING
We expense the production costs of advertising the first time the advertising takes place. We pay for and expense the cost of internet advertising and placement on a “per click” basis. Similarly, the majority of our telephone directory listings are paid for and expensed on a “cost per call” basis. For those directories that are not on this billing basis, the cost of the directory is expensed when the directories are placed in circulation. Advertising expense for the year ended December 31, 2018, was $47.0 million (2017 – $40.9 million; 2016 - $37.2 million).
COMPUTATION OF EARNINGS PER SHARE
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 specific areas of financial reporting. 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 was effective for fiscal years beginning after December 15, 2016. We adopted the applicable provisions of ASU 2016-09 on a prospective basis. The impact of this ASU on our financial statements for the year ended December 31, 2018 was to decrease our income tax expense by $22.9 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 diluted earnings per share of $1.42 and $1.27, respectively. The impact of this ASU on our financial statements for the year ended December 31, 2017 was to decrease our income tax expense by $18.9 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 diluted earnings per share of $1.18 and $1.08, respectively.
OTHER CURRENT LIABILITIES
There are no amounts included in other current liabilities that individually exceed 5% of total current liabilities.
OTHER LIABILITIES (NON-CURRENT)
There are no amounts included in other liabilities that individually exceed 5% of total liabilities.
STOCK-BASED COMPENSATION PLANS
Stock-based compensation cost is measured at the grant date, based on the fair value of the award and recognized as expense over the employee’s requisite service period on a straight-line basis.
INSURANCE ACCRUALS
For our Roto-Rooter segment and Corporate Office, we initially self-insure for all casualty insurance claims (workers’ compensation, auto liability and general liability). As a result, we closely monitor and frequently evaluate our historical claims experience to estimate the appropriate level of accrual for self-insured claims. Our third-party administrator (“TPA”) processes and reviews claims on a monthly basis. Currently, our exposure on any single claim is capped by stop-loss coverage at $750,000. In developing our estimates, we accumulate historical claims data for the previous 10 years to calculate loss development factors (“LDF”) by insurance coverage type. LDFs are applied to known claims to estimate the ultimate potential liability for known and unknown claims for each open policy year. LDFs are updated annually. Because this methodology relies heavily on historical claims data, the key risk is whether the historical claims are an accurate predictor of future claims exposure. The risk also exists that certain claims have been incurred and not reported on a timely basis. To mitigate these risks, in conjunction with our TPA, we closely monitor claims to ensure timely accumulation of data and compare claims trends with the industry experience of our TPA.
For the VITAS segment, we initially self-insure for workers’ compensation claims. Currently, VITAS’ exposure on any single claim is capped by stop-loss coverage at $1,000,000. For VITAS’ self-insurance accruals for workers’ compensation, the valuation methods used are similar to those used internally for our other business units. We are also insured for other risks with respect to professional liability with a deductible of $750,000.
Our casualty insurance liabilities are recorded gross before any estimated recovery for amounts exceeding our stop loss limits. Estimated recoveries from insurance carriers are recorded as accounts receivable. Claims experience adjustments to our casualty and workers’ compensation accrual for the years ended December 31, 2018, 2017 and 2016, were net pretax debits/(credits) of ($3,437,000), ($1,800,000), and $1,147,000 respectively.
TAXES ON INCOME
On December 22, 2017, the President of the United States signed into law H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (previously known as “The Tax Cuts and Jobs Act”) or (the “Act”). The Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. For businesses, U.S. generally accepted accounting principles requires resulting tax effects for the Act, to be recorded in the reporting period of enactment.
The SEC issued SAB 118, which provides guidance on accounting for the Act’s impact. Under SAB 118, an entity would use something similar to the measurement period in a business combination, not to exceed one year. For matters that have not been completed, the Company would recognize provisional amounts to the extent that they are reasonably estimable, adjust them over time as more information becomes available, and disclose this information in its financial statements.
Our accounting for all elements of the Tax Act is complete. The Company did not record any material changes to the provisional amounts previously recorded, net benefit recorded in 2017 of $8.3 million. The Company also determined new rules, such as the Global Intangible Low-Taxed Income (GILTI) and Base Erosion and Anti-Abuse Tax (BEAT), have no material impact to the financial statements.
Historically, the Company has not provided for deferred taxes on undistributed earnings because such earnings are considered to be indefinitely reinvested outside of the U.S. The Company continues this assertion that foreign earnings are permanently reinvested under the Act.
The Act provides for 100 percent bonus depreciation on personal tangible property expenditures starting September 27, 2017 through 2022. The bonus depreciation percentage is phased down from 100 percent beginning in 2023 through 2026. The Company expects to take full benefit of these bonus depreciation rules.
The IRS and other tax authorities are still issuing guidance on the Act, through various regulations some of which are still proposed and not final. The Company will implement any changes related to finalized regulations and other guidance in the period issued.
Deferred taxes are provided on an asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amount of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in our opinion, it is more likely than not that some portion or all of the deferred tax assets will not be realized due to insufficient taxable income within the carryback or carryforward period available under the tax laws. Deferred tax assets and liabilities are adjusted for the effects of changes in law and rates on the date of enactment.
We are subject to income taxes in Canada, U.S. federal and most state jurisdictions. Judgement is required to determine our provision for income taxes. Our financial statements reflect expected future tax consequences of such uncertain positions assuming the taxing authorities’ full knowledge of the position and all relevant facts.
CONTINGENCIES
As discussed in Note 17, we are subject to various lawsuits and claims in the normal course of our business. In addition, we periodically receive communications from governmental and regulatory agencies concerning compliance with Medicare and Medicaid billing requirements at our VITAS subsidiary. We establish reserves for specific, uninsured liabilities in connection with regulatory and legal action that we deem to be probable and reasonably estimable. We record legal fees associated with legal and regulatory actions as the costs are incurred. We disclose material loss contingencies that are probable but not reasonably estimable and those that are at least reasonably possible.
ESTIMATES
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Disclosures of after-tax expenses and adjustments are based on estimates of the effective income tax rates for the applicable segments.
2. Revenue Recognition
In May 2014, the FASB issued Accounting Standards Update “ASU No. 2014-09 – Revenue from Contracts with Customers.” The standard and subsequent amendments are theoretically intended to develop a common revenue standard for removing inconsistencies and weaknesses, improve comparability, provide for more useful information to users through improved disclosure requirements and simplify the preparation of financial statements. The standard is also referred to as Accounting Standards Codification No. 606 (“ASC 606”). We adopted ASC 606 effective January 1, 2018. The required disclosures of ASC 606 and impact of adoption are discussed below for each of our operating subsidiaries.
VITAS
Service revenue for VITAS is reported at the amount that reflects the ultimate consideration we expect to receive in exchange for providing patient care. These amounts are due from third-party payors, primarily commercial health insurers and government programs (Medicare and Medicaid), and includes variable consideration for revenue adjustments due to settlements of audits and reviews, as well as certain hospice-specific revenue capitations. Amounts are generally billed monthly or subsequent to patient discharge. Subsequent changes in the transaction price initially recognized are not significant.
Hospice services are provided on a daily basis and the type of service provided is determined based on a physician’s determination of each patient’s specific needs on that given day. Reimbursement rates for hospice services are on a per diem basis regardless of the type of service provided or the payor. Reimbursement rates from government programs are established by the appropriate governmental agency and are standard across all hospice providers. Reimbursement rates from health insurers are negotiated with each payor and generally structured to closely mirror the Medicare reimbursement model. The types of hospice services provided and associated reimbursement model for each are as follows:
Routine Home Care occurs when a patient receives hospice care in their home, including a nursing home setting. The routine home care rate is paid for each day that a patient is in a hospice program and is not receiving one of the other categories of hospice care. For Medicare patients, the routine home care rate reflects a two-tiered rate, with a higher rate for the first 60 days of a hospice patient’s care and a lower rate for days 61 and after. In addition, there is a Service Intensity Add-on payment which covers direct home care visits conducted by a registered nurse or social worker in the last seven days of a hospice patient’s life, reimbursed up to four hours per day in fifteen minute increments at the continuous home care rate.
General Inpatient Care occurs when a patient requires services in a controlled setting for a short period of time for pain control or symptom management which cannot be managed in other settings. General inpatient care services must be provided in a Medicare or Medicaid certified hospital or long-term care facility or at a freestanding inpatient hospice facility with the required registered nurse staffing.
Continuous Home Care is provided to patients while at home, including a nursing home setting, during periods of crisis when intensive monitoring and care, primarily nursing care, is required in order to achieve palliation or management of acute medical symptoms. Continuous home care requires a minimum of 8 hours of care within a 24-hour day, which begins at midnight. The care must be predominantly nursing care provided by either a registered nurse or licensed nurse practitioner. While the published Medicare continuous home care rates are daily rates, Medicare pays for continuous home care in fifteen minute increments. This fifteen minute rate is calculated by dividing the daily rate by 96.
Respite Care permits a hospice patient to receive services on an inpatient basis for a short period of time in order to provide relief for the patient’s family or other caregivers from the demands of caring for the patient. A hospice can receive payment for respite care for a given patient for up to five consecutive days at a time, after which respite care is reimbursed at the routine home care rate.
Each level of care represents a separate promise under the contract of care and is provided independently for each patient contingent upon the patient’s specific medical needs as determined by a physician. However, the clinical criteria used to determine a patient’s level of care is consistent across all patients, given that, each patient is subject to the same payor rules and regulations. As a result, we have concluded that each level of care is capable of being distinct and is distinct in the context of the contract. Furthermore, we have determined that each level of care represents a stand ready service provided as a series of either days or hours of patient care. We believe that the performance obligations for each level of care meet criteria to be satisfied over time. VITAS recognizes revenue based on the service output. VITAS believes this to be the most faithful depiction of the transfer of control of services as the patient simultaneously receives and consumes the benefits provided by our performance. Revenue is recognized on a daily or hourly basis for each patient in accordance with the reimbursement model for each type of service. VITAS’ performance obligations relate to contracts with an expected duration of less than one year. Therefore, VITAS has elected to apply the optional exception provided in ASC 606 and is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The unsatisfied or partially satisfied performance obligations referred to above relate to bereavement services provided to patients’ families for at least 12 months after discharge.
Care is provided to patients regardless of their ability to pay. Patients who meet our criteria for charity care are provided care without charge. There is no revenue or associated accounts receivable in the accompanying consolidated financial statements related to charity care. The cost of providing charity care during the years ended December 31, 2018, 2017 and 2016, was $8.2 million, $7.7 million and $7.0 million, respectively and is included in cost of services provided and goods sold. 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.
Generally, patients who are covered by third-party payors are responsible for related deductibles and coinsurance which vary in amount. VITAS also provides service to patients without a reimbursement source and may offer those patients discounts from standard charges. VITAS estimates the transaction price for patients with deductibles and coinsurance, along with those uninsured patients, based on historical experience and current conditions. The estimate of any contractual adjustments, discounts or implicit price concessions reduces the amount of revenue initially recognized. Subsequent changes to the estimate of the transaction price are recorded as adjustments to patient service revenue in the period of change. Subsequent changes that are determined to be the result of an adverse change in the patients’ ability to pay (i.e. change in credit risk) are recorded as bad debt expense. VITAS has no material adjustments related to subsequent changes in the estimate of the transaction price or subsequent changes as the result of an adverse change in the patient’s ability to pay for any period reported.
Laws and regulations concerning government programs, including Medicare and Medicaid, are complex and subject to varying interpretation. Compliance with such laws and regulations may be subject to future government review and interpretation. Additionally, the contracts we have with commercial health insurance payors provide for retroactive audit and review of claims. Settlement with third party payors for retroactive adjustments due to audits, reviews or investigations are considered variable consideration and are included in the determination of the estimated transaction price for providing patient care. The variable consideration is estimated based on the terms of the payment agreement, existing correspondence from the payor and our historical settlement activity. These estimates are adjusted in future periods, as new information becomes available.
We are subject to certain limitations on Medicare payments for services which are considered variable consideration, as follows:
Inpatient Cap. If the number of inpatient care days any hospice program provides to Medicare beneficiaries exceeds 20% of the total days of hospice care such program provided to all Medicare patients for an annual period beginning September 28, the days in excess of the 20% figure may be reimbursed only at the routine homecare rate. None of VITAS’ hospice programs exceeded the payment limits on inpatient services during the years ended December 31, 2018, 2017 and 2016.
Medicare Cap. We are also subject to a Medicare annual per-beneficiary cap (“Medicare cap”). Compliance with the Medicare cap is measured in one of two ways based on a provider election. The “streamlined” method compares total Medicare payments received under a Medicare provider number with respect to services provided to all Medicare hospice care beneficiaries in the program or programs covered by that Medicare provider number with the product of the per-beneficiary cap amount and the number of Medicare beneficiaries electing hospice care for the first time from that hospice program or programs from September 28 through September 27 of the following year. At December 31, 2018, all our programs except one are using the “streamlined” method.
The “proportional” method compares the total Medicare payments received under a Medicare provider number with respect to services provided to all Medicare hospice care beneficiaries in the program or programs covered by the Medicare provider number between September 28 and September 27 of the following year with the product of the per beneficiary cap amount and a pro-rated number of Medicare beneficiaries receiving hospice services from that program during the same period. The pro-rated number of Medicare beneficiaries is calculated based on the ratio of days the beneficiary received hospice services during the measurement period to the total number of days the beneficiary received hospice services.
We actively monitor each of our hospice programs, by provider number, as to their specific admission, discharge rate and median length of stay data in an attempt to determine whether revenues are likely to exceed the annual per-beneficiary Medicare cap. Should we determine that revenues for a program are likely to exceed the Medicare cap based on projected trends, we attempt to institute corrective actions, which include changes to the patient mix and increased patient admissions. However, should we project our corrective action will not prevent that program from exceeding its Medicare cap, we estimate revenue recognized during the government fiscal year that will require repayment to the Federal government under the Medicare cap and record an adjustment to revenue of an amount equal to a ratable portion of our best estimate for the year.
In 2013, the U.S. government implemented automatic budget reductions of 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 $3.6 million is owed for Medicare cap in three programs arising during the 2013 through 2018 measurement periods. The amounts are automatically deducted from our semi-monthly periodic interim payments (“PIP”). We do not believe that CMS is authorized under the sequestration authority or the statutory methodology for establishing the Medicare cap to the amounts they have withheld and intend to withhold under their current “as if” methodology. We have appealed CMS’s methodology change.
During the years ended December 31, 2018, we recorded $4.1 million in Medicare cap revenue reduction related to two programs’ 2018 measurement period liability and 2 programs’ projected 2019 measurement period liability.
During the year ended December 31, 2017, we recorded $ 2.4 million in Medicare cap revenue reduction related to two programs’ projected 2018 measurement period liability and $247,000 for two programs’ cap liability for prior periods.
During the year ended December 31, 2016, we recorded $228,000 in Medicare cap revenue reduction related to one programs’ projected 2015 measurement period liability.
For VITAS’ patients in the nursing home setting in which Medicaid pays the nursing home room and board, VITAS serves as a pass-through between Medicaid and the nursing home. We are responsible for paying the nursing home for that patient’s room and board. Medicaid reimburses us for 95% of the amount we have paid. This results in a 5% net expense for VITAS related to nursing home room and board. This transaction creates a performance obligation in that VITAS is facilitating room and board being delivered to our patient. As a result, the 5% net expense is recognized as a contra-revenue account under ASC 606 in the accompanying financial statements.
The composition of patient care service revenue by payor and level of care for the year ended December 31, 2018 is as follows (in thousands):
Medicare
Medicaid
Commercial
Total
Routine home care
$
$
$
$
Continuous care
Inpatient care
$
$
$
$
All other revenue - self-pay, respite care, etc.
Subtotal
$
Medicare cap adjustment
Implicit price concessions
Room and board, net
Net revenue
$
Roto-Rooter
Roto-Rooter provides plumbing, drain cleaning, water restoration and other related services to both residential and commercial customers primarily in the United States. Services are provided through a network of company-owned branches, independent contractors and franchisees. Service revenue for Roto-Rooter is reported at the amount that reflects the ultimate consideration we expect to receive in exchange for providing services.
Roto-Rooter owns and operates branches focusing mainly on large population centers in the United States. Roto-Rooter’s primary lines of business in company-owned branches consist of plumbing, sewer and drain cleaning, excavation and water restoration. For purposes of ASC 606 analysis, plumbing, sewer and drain cleaning, and excavation have been combined into one portfolio and are referred to as “short-term core services”. Water restoration is analyzed as a separate portfolio. The following describes the key characteristics of these portfolios:
Short-term Core Services are plumbing, drain and sewer cleaning and excavation services. These services are provided to both commercial and residential customers. The duration of services provided in this category range from a few hours to a few days. There are no significant warranty costs or on-going obligations to the customer once a service has been completed. For residential customers, payment is received at the time of job completion before the Roto-Rooter technician leaves the residence. Commercial customers may be granted credit subject to internally designated authority limits and credit check guidelines. If credit is granted, payment terms are 30 days or less.
Each job in this category is a distinct service with a distinct performance obligation to the customer. Revenue is recognized at the completion of each job. Variable consideration consists of pre-invoice discounts and post-invoice discounts. Pre-invoice discounts are given in the form of coupons or price concessions. Post-invoice discounts consist of credit memos generally granted to resolve customer service issues. Variable consideration is estimated based on historical activity and recorded at the time service is completed.
Water Restoration Services involve the remediation of water and humidity after a flood. These services are provided to both commercial and residential customers. The duration of services provided in this category generally ranges from 3 to 5 days. There are no significant warranties or on-going obligations to the customer once service has been completed. The majority of these services are paid by the customer’s insurance company. Variable consideration relates primarily to allowances taken by insurance companies upon payment. Variable consideration is estimated based on historical activity and recorded at the time service is completed.
For both short-term core services and water restoration services, Roto-Rooter satisfies its performance obligation at a point in time. The services provided generally involve fixing plumbing, drainage or flood-related issues at the customer’s property. At the time service is complete, the customer acknowledges its obligation to pay for service and its satisfaction with the service performed. This provides evidence that the customer has accepted the service and Roto-Rooter is now entitled to payment. As such, Roto-Rooter recognizes revenue for these services upon completion of the job and receipt of customer acknowledgement. Roto-Rooter’s performance obligations for short-term core services and water restoration services relate to contracts with an expected duration of less than a year. Therefore, Roto-Rooter has elected to apply the optional exception provided in ASC 606 and is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. Roto-Rooter does not have significant unsatisfied or partially unsatisfied performance obligations at the time of initial revenue recognition for short-term core or water restoration services.
Roto-Rooter owns the rights to certain territories and contracts with an independent third-party to operate the territory under Roto-Rooter’s registered trademarks. The contract is for a specified term but cancellable by either party without penalty with 90 days advance notice. Under the terms of these arrangements, Roto-Rooter provides certain back office support and advertising along with a limited license to use Roto-Rooter’s registered trademarks. The independent contractor is responsible for all day-to-day management of the business including staffing decisions and pricing of services provided. All performance obligations of Roto-Rooter cease at the termination of the arrangement.
Independent contractors pay Roto-Rooter a standard fee calculated as a percentage of their weekly labor sales. The primary value for the independent contractors under these arrangements is the right to use Roto-Rooter’s registered trademarks. Roto-Rooter recognizes revenue from independent contractors over-time (weekly) as the independent contractor’s labor sales are completed. Payment from independent contractors is also received on a weekly basis. The use of Roto-Rooter’s registered trademarks and advertising provides immediate value to the independent contractor as a result of Roto-Rooter’s nationally recognized brand. Therefore, over-time recognition provides the most faithful depiction of the transfer of services as the customer simultaneously receives and consumes the benefits provided. There is no significant variable consideration related to these arrangements.
Roto-Rooter has licensed the rights to operate under Roto-Rooter’s registered trademarks in other territories to franchisees. The contract is for a 10 year term but cancellable by Roto-Rooter for cause with 60 day advance notice without penalty. The franchisee may cancel the contract for any reason with 60 days advance notice without penalty. Under the terms of the contract, Roto-Rooter provides national advertising and consultation on various aspects of operating a Roto-Rooter business along with the right to use Roto-Rooter’s registered trademarks. The franchisee is responsible for all day- to-day management of the business including staffing decisions, pricing of services provided and local advertising spend and placement. All performance obligations of Roto-Rooter cease at the termination of the arrangement.
Franchisees pay Roto-Rooter a standard monthly fee based on the population within the franchise territory. The standard fee is revised on a yearly basis based on changes in the Consumer Price Index for All Urban Consumers. The primary value for the franchisees under this arrangement is the right to use Roto-Rooter’s registered trademarks. Roto-Rooter recognizes revenue from franchisees over-time (monthly). Payment from franchisees is also received on a monthly basis. The use of Roto-Rooter’s registered trademarks and advertising provides immediate value to the franchisees as a result of Roto-Rooter’s nationally recognized brand. Therefore, over-time recognition provides the most faithful depiction of the transfer of services as the customer simultaneously receives and consumes the benefits provided. There is no significant variable consideration related to these arrangements.
The composition of disaggregated revenue for the year ended December 31, 2018 is as follows (in thousands):
Short-term core service jobs
$
Water restoration
Contractor revenue
Franchise fees
All other
Subtotal
$
Implicit price concessions and credit memos
Net revenue
$
Initial Adoption of ASC 606
The Company utilized the modified retrospective method of adoption for all contracts. Except for the changes discussed below, the Company has consistently applied the accounting policies to all periods presented in the consolidated financial statements. Sales tax collected from customers at Roto-Rooter is excluded from revenue under ASC 606 and prior revenue standards.
For VITAS, expenses related to payor audits and reviews, as well as variable consideration estimated for patient deductibles and coinsurance, have been historically estimated as revenue was recognized and classified as bad debt expense, included in the consolidated statements of income as selling, general and administrative expense. Upon adoption of ASC 606, these expenses are classified as contra-revenue. There is no change in the timing of recognition related to the variable consideration. The amount of these expenses during the year ended December 31, 2018 was $11.8 million.
Also for VITAS, the 5% net expense related to Medicaid room and board has been historically recorded on a net basis in cost of services provided in the consolidated income statements. Upon adoption of ASC 606, due to the change in the residual value method required by ASC 606, the expense will be classified as a contra-revenue. The amount of the change in the classification for these expenses during the year ended December 31, 2018 was $10.1 million. There has been no change in the evaluation of Medicaid room and board related to net versus gross presentation.
Related to Roto-Rooter, expenses related to post-invoice variable consideration in our short-term core portfolio, and adjustments made subsequent to initial estimates related to allowances taken by insurance companies for water restoration, have been classified as a contra-revenue account in the statements of income. These amounts were previously classified as bad debt expense in SG&A. The amount of the change in classification for these expenses during the year ended December 31, 2018 was $6.9 million. The initial estimate related to allowances taken by insurance companies for water restoration services has historically been classified as contra-revenue and did not change as a result of the transition.
There was no material impact on the consolidated balance sheets related to the initial adoption. There is no impact to consolidated net income as a result of the initial adoption. As a result of the change in classification in the statements of income, amounts previously included in the provision for uncollectible accounts in the statements of cash flow have been included in the decrease/(increase) in accounts receivable line item in 2018. The total impact of the change from prior revenue guidance (ASC 605) to guidance adopted on January 1, 2018 related to classification in the statements of income is as follows (in thousands):
Impact for the year ended December 31, 2018
ASC 605
Adjustment
ASC 606
Service revenue and sales
$
$
$
Cost of services provided and goods sold
Selling, general and administrative expenses
3. Long-Term Debt and Lines of Credit
On June 20, 2018, we replaced our existing credit agreement with the Fourth Amended and Restated Credit Agreement (“2018 Credit Agreement”). Terms of the 2018 Credit Agreement consist of a five-year, $450 million revolving credit facility and a $150 million expansion feature, which may consist of term loans or additional revolving commitments. The 2018 Credit Agreement has a floating interest rate that is generally LIBOR plus a tiered additional rate which varies based on our current leverage ratio. For December 31, 2018 and 2017, respectively, the interest rate is LIBOR plus 100 basis points.
The debt outstanding at December 31, 2018 and 2017 consists of the following (in thousands):
December 31,
2018
2017
Revolver
$
$
Term loan
-
Total
Current portion of term loan
-
Long-term debt
$
$
Capitalized interest was not material for any of the periods shown. Summarized below are the total amounts of interest paid during the years ended December 31 (in thousands):
2018
$
4,178
2017
3,626
2016
3,047
The 2018 Credit Agreement contains the following quarterly financial covenants:
Description
Requirement
Chemed
Leverage Ratio (Consolidated Indebtedness/Consolidated Adj. EBITDA)
< 3.50 to 1.00
0.41 to 1.00
Fixed Charge Coverage Ratio (Consolidated Free Cash Flow/Consolidated
Fixed Charges)
> 1.50 to 1.00
7.61 to 1.00
We are in compliance with all debt covenants as of December 31, 2018. We have issued $36.4 million in standby letters of credit as of December 31, 2018 for insurance purposes. Issued letters of credit reduce our available credit under the 2018 Credit Agreement. As of December 31, 2018, we have approximately $324.4 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility.
4. Stock-Based Compensation Plans
We have three stock incentive plans under which a total of 5.1 million shares were able to be issued to key employees and directors through a grant of stock options, stock awards and/or performance stock units (“PSUs”). The Compensation/Incentive Committee (“CIC”) of the Board of Directors administers these plans.
We grant stock options, stock awards and PSUs to our officers, other key employees and directors to better align their long-term interests with those of our shareholders. We grant stock options at an exercise price equal to the market price of our stock on the date of grant. Options vest ratably annually over a three-year period. Those granted in 2018, 2017, 2016 and 2015 have a contractual life of 5 years; those granted prior to 2014 have a contractual life of 10 years. Restricted stock awards granted in 2015 vest ratably annually over a three year period. Unrestricted stock awards generally are granted to our non-employee directors annually at the time of our annual meeting. PSUs are contingent upon achievement of multi-year earnings per share (“EPS”) targets or total shareholder return (“TSR”) targets. Upon achievement of targets, PSUs are converted to unrestricted shares of stock.
We recognize the cost of stock options, stock awards and PSUs on a straight-line basis over the service life of the award, generally the vesting period. We include the cost of all stock-based compensation in selling, general and administrative expense.
In May 2018, the CIC granted 2,295 unrestricted shares of stock to the Company’s outside directors.
PERFORMANCE AWARDS
In February 2016, 2017 and 2018, the CIC granted PSUs contingent upon the achievement of certain TSR targets as compared to the TSR of a group of peer companies for the three-year measurement period, at which date the awards may vest. We utilize a Monte Carlo simulation approach in a risk-neutral framework with inputs including historical volatility and the risk-free rate of interest to value these TSR awards. We amortize the total estimated cost over the service period of the award.
In February 2016, 2017 and 2018, the CIC granted PSUs contingent on the achievement of certain EPS targets over the three-year measurement period. At the end of each reporting period, we estimate the number of shares of stock we believe will ultimately vest and record that expense over the service period of the award.
Comparative data for the PSUs include:
2018 Awards
2017 Awards
2016 Awards
TSR Awards
Shares of stock granted
Per-share fair value
$ 341.20
$ 226.95
$ 150.74
Volatility
Risk-free interest rate
EPS Awards
Shares of stock granted
Per-share fair value
$ 256.29
$ 172.60
$ 126.37
Common Assumptions
Service period (years)
Three-year measurement period ends December 31,
The following table summarizes total stock option, stock award and PSU activity during 2018:
Stock Options
Stock Awards
Performance Units (PSUs)
Weighted Average
Aggregate
Weighted
Weighted
Remaining
Intrinsic
Average
Number of
Average
Number of
Exercise
Contractual
Value
Number of
Grant-Date
Target
Grant-Date
Options
Price
Life (Years)
(thousands)
Awards
Price
Units
Price
Outstanding at January 1, 2018
$
$
$
Granted
Exercised/Vested
Canceled/ Forfeited
-
-
-
-
Outstanding at December 31, 2018
$
$
-
$
-
$
Vested and expected to vest
at December 31, 2018
$
$
-
$
-
*$
Exercisable at December 31, 2018
n.a.
n.a.
n.a.
n.a.
* Amount includes 32,134 share units which vested and were converted to shares of stock and distributed in the first quarter of 2019.
We estimate the fair value of stock options using the Black-Scholes valuation model. We determine expected term, volatility, and dividend yield and forfeiture rate based on our historical experience. We believe that historical experience is the best indicator of these factors.
Comparative data for stock options, stock awards and PSUs include (in thousands, except per-share amounts):
Years Ended December 31,
2018
2017
2016
Total compensation expense of stock-based compensation
plans charged against income
$
$
$
Total income tax benefit recognized in income for stock
based compensation expense charged against income
Total intrinsic value of stock options exercised
Total intrinsic value of stock awards vested during the period
Per-share weighted average grant-date fair value of
stock awards granted
The assumptions we used to value stock option grants are as follows:
2018
2017
2016
Stock price on date of issuance
Grant date fair value per share
Number of options granted
Expected term (years)
Risk free rate of return
Volatility
Dividend yield
Forfeiture rate
-
-
-
Other data for stock options, stock awards and PSUs for 2018 include (dollar amounts in thousands):
Stock
Stock
Options
Awards
PSUs
Total unrecognized compensation at the end of the year
$
$
-
$
Weighted average period over which unrecognized compensation to be recognized (years)
-
Actual income tax benefit realized
$
$
$
Aggregate intrinsic value vested and expected to vest
$
$
-
$
EMPLOYEE STOCK PURCHASE PLAN (“ESPP”)
The ESPP allows eligible participants to purchase shares of stock through payroll deductions at current market value. We pay administrative and broker fees associated with the ESPP. Shares of stock purchased for the ESPP are purchased on the open market and credited directly to participants’ accounts. In accordance with the FASB’s guidance, the ESPP is non-compensatory.
5.Segments and Nature of the Business
Our segments include the VITAS segment and the Roto-Rooter segment. Relative contributions of each segment to service revenues and sales were 67% and 33%, respectively, in 2018 and 69% and 31%, respectively, in 2017 and 2016. The vast majority of our service revenues and sales from continuing operations are generated from business within the United States.
The reportable segments have been defined along service lines, which is consistent with the way the businesses are managed. In determining reportable segments, the RRSC and RRC operating units of the Roto-Rooter segment have been aggregated on the basis of possessing similar operating and economic characteristics. The characteristics of these operating segments and the basis for aggregation are reviewed annually.
We report corporate administrative expenses and unallocated investing and financing income and expense not directly related to either segment as “Corporate”. Corporate administrative expense includes the stewardship, accounting and reporting, legal, tax and other costs of operating a publicly held corporation. Corporate investing and financing income and expenses include the costs and income associated with corporate debt and investment arrangements.
Segment data are set forth below (in thousands):
For the Years Ended December 31,
2018
2017
2016
Revenues by Type of Service
VITAS
Routine homecare
$
$
$
Continuous care
General inpatient
Other
-
-
Subtotal revenue
Room and board, net
$
$
-
$
-
Implicit price concessions
-
.
Medicare cap adjustment
Total segment
Roto-Rooter
Short-term core service jobs
Water restoration
Contractor revenue
Franchise fees
Other
Implicit price concessions and credit memos
-
-
Total segment
Total service revenues and sales
$
$
$
After-tax Segment Earnings/(Loss)
VITAS
$
$
$
Roto-Rooter
Total
Corporate
Net income
$
$
$
Interest Income
VITAS
$
$
$
Roto-Rooter
Total
Intercompany eliminations
Total interest income
$
$
$
Interest Expense
VITAS
$
$
$
Roto-Rooter
Total
Corporate
Total interest expense
$
$
$
Income Tax Provision
VITAS
$
$
$
Roto-Rooter
Total
Corporate
Total income tax provision
$
$
$
Identifiable Assets
VITAS
$
$
$
Roto-Rooter
Total
Corporate
Total identifiable assets
$
$
$
For the Years Ended December 31,
2018
2017
2016
Additions to Long-Lived Assets
VITAS
$
$
$
Roto-Rooter
Total
Corporate
Total additions to long-lived assets
$
$
$
Depreciation and Amortization
VITAS
$
$
$
Roto-Rooter
Total
Corporate
Total depreciation and amortization
$
$
$
6.Intangible Assets
Amortization of definite-lived intangible assets for the years ended December 31, 2018, 2017, 2016, was $399,000, $137,000 and $359,000 respectively. The following is a schedule by year of projected amortization expense for definite-lived intangible assets (in thousands):
2019
$
2020
2021
2022
2023
Thereafter
The balance in identifiable intangible assets comprises the following (in thousands):
Gross
Accumulated
Net Book
Asset
Amortization
Value
December 31, 2018
Referral networks
$
$
$
Covenants not to compete
Customer lists
Reacquired franchise rights
Subtotal - definite-lived intangibles
VITAS trade name
-
Roto-Rooter trade name
-
Operating licenses
-
Total
$
$
$
December 31, 2017
Referral networks
$
$
$
-
Covenants not to compete
Customer lists
-
Reacquired franchise rights
Subtotal - definite-lived intangibles
VITAS trade name
-
Roto-Rooter trade name
-
Operating licenses
-
Total
$
$
$
7.Business Combinations
During 2018, we completed four business combinations of former franchisees within the Roto-Rooter segment for $42.2 million in cash to increase our market penetration. The Vitas segment completed one business combination in Florida for $11.0 million to increase our market penetration. The purchase price of these acquisition was allocated as follows (in thousands):
Reacquired franchise rights
$
All other identifiable intangible assets
Goodwill
Other assets and liabilities - net
$
There was no gain or loss as a result of the settlement of the preexisting relationship with the former franchisees at Roto-Rooter. Goodwill, substantially all of which is deductible for tax purposes, was determined based on the residual difference between the fair value of consideration transferred and the value assigned to all tangible and intangible assets. Among factors that contributed to the recognition of goodwill for both Roto-Rooter and VITAS were expected synergies associated with combining operations of the acquiree into our existing operating platforms.
During 2017, we completed two business combinations of former franchisees within the Roto-Rooter segment for $4.7 million in cash to increase our market penetration. The purchase price of these acquisition was allocated as follows (in thousands):
Identifiable intangible assets
$
Goodwill
Other assets and liabilities - net
$
We did not complete any business combinations during 2016.
The unaudited pro forma results of operations, assuming purchase business combinations completed in 2018 were completed on January 1, 2017 are presented below (in thousands, except per share data):
For the Years Ended
December 31,
2018
2017
Service revenues and sales
$
$
Net income
$
$
Earnings per share
$
$
Diluted earnings per share
$
$
The pro-forma revenue and net income amounts associated with the acquisitions are based on unaudited historical results of the acquiree. No material pro-forma adjustments were made to the acquiree’s historical results.
8.Discontinued Operations
At December 31, 2018 and 2017, the accrual for our estimated liability for potential environmental cleanup and related costs arising from the 1991 sale of DuBois amounted to $1.7 million. Of the 2018 balance, $826,000 is included in other current liabilities and $901,000 is included in other liabilities (long-term). The estimated amounts and timing of payments of these liabilities follows (in thousands):
2019
$
2020
Thereafter
$
We are contingently liable for additional DuBois-related environmental cleanup and related costs up to a maximum of $14.9 million. On the basis of a continuing evaluation of the potential liability, we believe it is not probable this additional liability will be paid. Accordingly, no provision for this contingent liability has been recorded. The potential liability is not insured, and the recorded liability does not assume the recovery of insurance proceeds. Also, the environmental liability has not been discounted because it is not possible to reliably project the timing of payments. We believe that any adjustments to our recorded liability will not materially adversely affect our financial position, results of operations or cash flows.
9. Cash Overdrafts and Cash Equivalents
Included in accounts payable are cash overdrafts of $13.8 million and $15.3 million as of December 31, 2018 and 2017, respectively.
From time to time throughout the year, we invest excess cash in money market funds directly with major commercial banks. We closely monitor the creditworthiness of the institutions with which we invest our overnight funds. The amount invested was less than $100,000 for each balance sheet date presented.
10.Other Income -- Net
Other income -- net from continuing operations comprises the following (in thousands):
For the Years Ended December 31,
2018
2017
2016
Interest income
$
$
$
Market value gains related to deferred
compensation trusts
Other--net
-
Total other income
$
$
$
The market value gain relates to gains on the assets in the deferred compensation trust. There is an offsetting expense in selling, general and administrative expense to reflect the corresponding increase in the liability.
11.Income Taxes
The provision for income taxes comprises the following (in thousands):
For the Years Ended December 31,
2018
2017
2016
Current
U.S. federal
$
$
$
U.S. state and local
Foreign
Deferred
U.S. federal, state and local
Foreign
Total
$
$
$
A summary of the temporary differences that give rise to deferred tax assets/ (liabilities) follows (in thousands):
December 31,
2018
2017
Accrued liabilities
$
$
Stock compensation expense
State net operating loss carryforwards
Implicit price concessions
Other
Deferred income tax assets
Amortization of intangible assets
Accelerated tax depreciation
Market valuation of investments
State income taxes
Currents assets
Other
Deferred income tax liabilities
Net deferred income tax liabilities
$
$
At December 31, 2018 and 2017, state net operating loss carryforwards were $39.3 million and $36.5 million, respectively. These net operating losses will expire, in varying amounts, between 2024 and 2038. Based on our history of operating earnings, we have determined that our operating income will, more likely than not, be sufficient to ensure realization of our deferred income tax assets.
A reconciliation of the beginning and ending of year amount of our unrecognized tax benefit is as follows (in thousands):
2018
2017
2016
Balance at January 1,
$
$
$
Unrecognized tax benefits due to positions taken in current year
Decrease due to expiration of statute of limitations
Balance at December 31,
$
$
$
We file tax returns in the U.S. federal jurisdiction and various states. The years ended December 31, 2015 and forward remain open for review for federal income tax purposes. The earliest open year relating to any of our major state jurisdictions is the fiscal year ended December 31, 2013. During the next twelve months, we do not anticipate a material net change in unrecognized tax benefits.
We classify interest related to our accrual for uncertain tax positions in separate interest accounts. As of December 31, 2018 and 2017, we have approximately $136,000 and $134,000, respectively, accrued in interest payable related to uncertain tax positions. These accruals are included in other current liabilities in the accompanying consolidated balance sheet. Net interest expense related to uncertain tax positions included in interest expense in the accompanying consolidated statement of income is not material.
The difference between the actual income tax provision for continuing operations and the income tax provision calculated at the statutory U.S. federal tax rate is explained as follows (in thousands):
For the Years Ended December 31,
2018
2017
2016
Income tax provision calculated using the statutory rate of 21%
$
$
$
Stock compensation tax benefits
-
State and local income taxes, less federal income tax effect
Nondeductible expenses
Enactment of the tax reform act
-
-
Other--net
Income tax provision
$
$
$
Effective tax rate
%
%
%
Summarized below are the total amounts of income taxes paid during the years ended December 31 (in thousands):
2018
$
2017
2016
Provision has not been made for additional taxes on $35.1 million of undistributed earnings of our domestic subsidiaries. Should we elect to sell our interest in these businesses rather than to affect a tax-free liquidation, additional taxes amounting to approximately $8.4 million would be incurred based on current income tax rates.
12.Properties and Equipment
A summary of properties and equipment follows (in thousands):
December 31,
2018
2017
Land
$
$
Buildings and building improvements
Transportation equipment
Machinery and equipment
Computer software
Furniture and fixtures
Projects under development
Total properties and equipment
Less accumulated depreciation
Net properties and equipment
$
$
The net book value of computer software at December 31, 2018 and 2017, was $6.6 million and $7.3 million, respectively. Depreciation expense for computer software was $5.4 million, $4.4 million and $4.0 million for the years ended December 31, 2018, 2017 and 2016, respectively
13.Lease Arrangements
We have operating leases that cover our corporate office headquarters, various warehouse and office facilities, office equipment and transportation equipment. The remaining terms of these leases range from monthly to nine years, and in most cases we expect that these leases will be renewed or replaced by other leases in the normal course of business. We have no significant capital leases as of December 31, 2018 or 2017.
The following is a summary of future minimum rental payments and sublease rentals to be received under operating leases that have initial or remaining noncancelable terms in excess of one year at December 31, 2018 (in thousands):
2019
$
2020
2021
2022
2023
Thereafter
Total minimum rental payments
$
Total rental expense incurred under operating leases for continuing operations follows (in thousands):
For the Years Ended December 31,
2018
2017
2016
Total rental expense
$
$
$
14. Retirement Plans
Retirement obligations under various plans cover substantially all full-time employees who meet age and/or service eligibility requirements. All plans providing retirement benefits to our employees are defined contribution plans. Expenses for our retirement and profit-sharing plans, excess benefit plans and other similar plans are as follows (in thousands):
For the Years Ended December 31,
2018
2017
2016
$
$
$
These expenses include the impact of market gains and losses on assets held in deferred compensation plans.
We have excess benefit plans for key employees whose participation in the qualified plans is limited by U.S. Employee Retirement Income Security Act requirements. Benefits are determined based on theoretical participation in the qualified plans. Benefits are only invested in mutual funds, and participants are not permitted to diversify accumulated benefits in shares of our capital stock. Trust assets invested in shares of our stock are included in treasury stock, and the corresponding liability is included in a separate component of stockholders’ equity. At December 31, 2018, these trusts held 80,584 shares at historical average cost or $2.3 million of our stock (2017 – 83,125 shares or $2.2 million).
15.Earnings Per Share
The computation of earnings per share follows (in thousands, except per share data):
Net Income
For the Years Ended December 31,
Net Income
Shares
Earnings per Share
2018
Earnings
$
$
Dilutive stock options
-
Nonvested stock awards
-
Diluted earnings
$
$
2017
Earnings
$
$
Dilutive stock options
-
Nonvested stock awards
-
Diluted earnings
$
$
2016
Earnings
$
$
Dilutive stock options
-
Nonvested stock awards
-
Diluted earnings
$
$
During 2018, 246,000 stock options were excluded from the computation of diluted earnings per share as their exercise prices were greater than the average market price during most of the year. During 2017, 328,000 stock options were also excluded. During 2016, 923,000 stock options were also excluded.
16.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.
The following shows the carrying value, fair value and the hierarchy for our financial instruments as of December 31, 2018 (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)
Investments of deferred compensation plans held in trust
$
$
$
-
$
-
Long-term debt and current portion of long-term debt
-
-
The following shows the carrying value, fair value and the hierarchy for our financial instruments as of December 31, 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)
Investments of deferred compensation plans held in trust
$
$
$
-
$
-
Long-term debt and current portion of long-term debt
-
-
For cash and cash equivalents, accounts receivable and accounts payable, the carrying amount is a reasonable estimate of fair value because of the liquidity and short-term nature of these instruments. As further described in Footnote 3, our outstanding long-term debt and 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 we pay also includes an additional amount based on our current leverage ratio. As such, we believe our borrowings reflect significant nonperformance risks, mainly credit risk. Based on these factors, we believe the fair value of our long-term debt and current portion of long-term debt approximate the carrying value.
17.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. 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
The Company and certain current and former directors and officers are defendants in a case captioned In re Chemed Corp. Shareholder Derivative Litigation, No. 13 Civ. 1854 (LPS) (CJB) (D. Del.), which was consolidated on February 2, 2015.
On February 2, 2015, the Court appointed 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 and defendants renewed a previously filed motion to dismiss those claims and allegations. The consolidated Complaint named fourteen individual defendants, together with the Company as nominal defendant. The Complaint alleges a claim for breach of fiduciary duty against the individual defendants for 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. On May 12, 2016, the Court issued a Memorandum Order granting Chemed’s motion to dismiss, and dismissing Lead Plaintiff KBC’s Complaint without prejudice to KBC’s opportunity to file within 30 days of the date of the Court’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.
However, on June 13, 2016, counsel for Chemed shareholder Michael Kvint filed a letter with the Court requesting a two-week extension to file a motion to substitute Mr. Kvint as lead plaintiff, in place of Lead Plaintiff KBC and 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, 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 Court 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. Mr. 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 September 13, 2017, the Court entered an order dismissing with prejudice the claims against defendants Timothy S. O’Toole and Joel F. Gemunder and permitting Defendants to file a Motion to Dismiss the Corrected Amended Complaint. The matter has been fully briefed and argued. On February 26, 2019, Magistrate Judge Burke issued a Report and Recommendations recommending that Defendants’ motion to dismiss the amended complaint be granted. Any objections to that Report are due March 12, 2019, and any responses thereto are due March 26, 2019. 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.
On October 30, 2017, the Company entered into a settlement agreement (the “Settlement Agreement”) to resolve civil litigation under the False Claims Act brought by the United States Department of Justice (“DOJ”) on behalf of the OIG and various relators concerning VITAS, filed in the U.S. District Court of the Western District of Missouri (the “2013 Action”). The Company denied any violation of law and agreed to settlement without admission of wrongdoing.
In connection with the settlement VITAS and certain of its subsidiaries entered into a corporate integrity agreement (“CIA”) on October 30, 2017. The CIA formalizes various aspects of VITAS’ already existing Compliance Program and contains requirements designed to document compliance with federal healthcare program requirements. It has a term of five years during which it imposes monitoring, reporting, certification, oversight, screening and training obligations, certain of which had previously been implemented by VITAS. It also requires VITAS to engage an Independent Review Organization to perform audit and review functions and to prepare reports regarding compliance with federal healthcare programs. In the event of breach of the CIA, VITAS could become liable for payment of stipulated penalties or could be excluded from participation in federal healthcare programs.
Under the Settlement Agreement, the United States agreed to release the Company, VITAS, and its hospice operation subsidiaries from any civil or administrative monetary liability relating to any patients’ disputed terminal medical prognosis of six months or less; a lack of medical necessity for billed Continuous Home Care, General Inpatient Care, or Respite Care levels of hospice care; or that the claims for those levels of hospice care were not eligible for payment for any other reason. The OIG agreed, conditioned on the Company’s full payment and in consideration of VITAS’ obligations under the CIA, to release its permissive exclusion rights and refrain from instituting any administrative action seeking to exclude the Company, VITAS, and its affiliates from participating in Medicare, Medicaid, or other federal healthcare programs in this regard.
Under the Settlement Agreement, the Company paid $75 million plus interest, plus certain attorney fees and expenses of qui tam relators. The Company made these payments during the fourth quarter of 2017. The Company previously recorded a $90 million loss reserve ($55.8 million after-tax) related to the Settlement Agreement, and associated costs in the second quarter of 2017. During the fourth quarter of 2017, approximately $5.5 million ($3.4 million after-tax) recorded as part of the $90 million was reversed as relator attorney' fees were less than originally estimated
The costs incurred related to U.S. v. VITAS and related regulatory matters, exclusive of the settlement were $5.2 million and $5.3 million for 2017, and 2016 respectively.
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 (“Jordan Seper case”).
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.
Jiwann 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 period, 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, Jiwan Chhina v. VITAS Health Services of California, Inc., a California corporation; VITAS Healthcare Corporation of California, a Delaware corporation; VITAS Healthcare Corporation of California, a Delaware corporation dba VITAS Healthcare Inc.; and DOES 1 to 100, inclusive; San Diego Superior Court Case Number 37-2015-00033978-CU-OE-CTL on November 3, 2016 (“Jiwann Chhina case”). On December 1, 2016, VITAS CA filed its Answer and served written discovery on Chhina.
On May 19, 2017, Chere Phillips (a Home Health Aide in Sacramento) and Lady Moore (a former Social Worker in Sacramento) filed a lawsuit against VITAS CA in Sacramento County Superior Court, alleging claims for (1) failure to pay all wages due; (2) failure to authorize and permit rest periods; (3) failure to provide off-duty meal periods; (4) failure to furnish accurate wage statements; (5) unreimbursed business expenses; (6) waiting time penalties; (7) violations of unfair competition law; and (8) violation of the Private Attorneys General Act. The case is captioned: Chere Phillips and Lady Moore v. VITAS Healthcare Corporation of California, Sacramento County Superior Court, Case No. 34-2017-0021-2755. Plaintiffs sought to pursue these claims in the form of a state-wide class action of current and former non-exempt employees employed with VITAS CA in California within the four years preceding the filing of the lawsuit. Plaintiffs served VITAS with the lawsuit on June 5, 2017. VITAS CA timely answered the Complaint generally denying the Plaintiffs’ allegations. The Court has stayed all class discovery in this case pending resolution of mediation in the Jordan Seper and Jiwann Chhina cases.
There are currently three other lawsuits against VITAS pending in the superior courts of other California counties that contain claims and class periods that substantially overlap with Phillips’ and Moore’s claims: the Jordan Seper and Jiwann Chhina cases, and Williams v. VITAS Healthcare Corporation of California, filed on May 22, 2017 in Alameda County Superior Court, RG 17853886.
Jazzina Williams’ (a Home Health Aide in Sacramento) lawsuit alleges claims for (1) failure to pay all wages due; (2) failure to authorize and permit rest periods; (3) failure to provide off-duty meal periods; (4) failure to furnish accurate wage statements; (5) unreimbursed business expenses; (6) waiting time penalties; and (7) violations of the Private Attorneys General Act (“PAGA”). Williams seeks to pursue these claims both individually and as a representative action under the PAGA on behalf of current and former California non-exempt employees. Plaintiff served VITAS with the lawsuit on May 31, 2017. VITAS CA timely answered the Complaint generally denying Plaintiff’s allegations. Williams is pursing discovery of her individual claim and has agreed to a stay of class discovery pending possible resolution through ongoing mediation in the Jordan Seper and Jiwann Chhina cases. Defendant filed and served each of Plaintiffs Williams, Phillips, and Moore with a Notice of Related Cases on July 19, 2017.
The Jordan Seper and Jiwann Chhina cases have been consolidated in Los Angeles County Superior court; Chhina was dismissed as a separate action and joined with Seper through the filing of an amended complaint in Seper in which Chhina is also identified as a named plaintiff, on August 28, 2018.
Alfred Lax (“Lax”), a current employee of Roto-Rooter Services Company (“RRSC”), was hired in the RRSC’s Menlo Park branch in 2007. On November 30, 2018, Lax filed a class action lawsuit in Santa Clara County Superior Court alleging (1) failure to provide or compensate for required rest breaks; (2) failure to properly pay for all hours worked; (3) failure to provide accurate wage statements; (4) failure to reimburse for work-related expenses; and (5) unfair business practices. Lax has stated these claims as a representative of a class defined as all service technicians employed by RRSC in California during the four years preceding the filing of the complaint. He seeks a determination that the action may proceed and be maintained as a class action and for compensatory and statutory damages (premium payments for missed rest periods, uncompensated rest periods, wages for time allegedly not paid such as travel time, repair time, and vehicle maintenance time, and unreimbursed expenses), penalties and restitutions, pre- and post-judgement interest and attorneys’ fees and costs. The lawsuit, Alfred Lax, on behalf of himself and all others similarly situated v. Roto-Rooter Services Company, and Does 1 through 50 inclusive; Santa Clara County Superior Court Case Number 18CV338652, was received by RRSC on December 11, 2018 and RRSC timely filed its answer denying the claims.
The Company is not able to reasonably estimate the probability of loss or range of loss for any of these lawsuits at this time.
The Company intends to defend vigorously against the allegations in each of the above lawsuits. Regardless of the outcome of any of the preceding matters, dealing with the various regulatory agencies and opposing parties can adversely affect us through defense costs, potential payments, 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.
18. Concentration of Risk
During the year VITAS had pharmacy services agreements (“Agreements”) with one service provider to provide specified pharmacy services for VITAS and its hospice patients. VITAS made purchases from this provider of $31.4 million, $32.7 million and $35.2 million for the years ended December 31, 2018, 2017 and 2016, respectively. For the years ended December 31, 2018, 2017 and 2016, respectively, purchases from this vendor represent approximately 99%, 85% and 90%, respectively of all pharmacy services used by VITAS. VITAS’ accounts payable for pharmacy services was $2.6 million at December 31, 2018. At December 31, 2017, VITAS’ accounts payable for pharmacy services was $2.0 million.
19. Capital Stock Transactions
We repurchased the following capital stock:
For the Years Ended December 31,
2018
2017
2016
Total cost of repurchased shares (in thousands):
$
$
$
Shares repurchased
Weighted average price per share
$
$
$
In March 2018, the Board of Directors authorized an additional $150.0 million for stock repurchase under the February 2011 repurchase program. We currently have $46.6 million of authorization remaining under this share purchase plan.
20. Other Operating Expenses
December 31,
2018
2017
2016
Litigation settlement
$
$
$
-
Loss on disposal of property and equipment
-
Program closure expenses
-
-
Retirement expenses
-
-
Total other operating expenses
$
$
$
During 2017, the Company recorded $84.5 million related to the Settlement Agreement and a related qui tam case. See footnote 17 for further discussion. The company recorded $5.3 million related to the loss on the sale of transportation equipment. Also during 2017, the Company recorded $1.1 million related to the closure of three Alabama programs at VITAS.
During 2016, the Company recorded early retirement related costs and accelerated stock-based compensation expense of approximately $4.5 million related to the early retirement of VITAS’ former Chief Executive Officer. The costs were calculated in accordance with the terms of this employment agreement.
21. Recent Accounting Statements
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 plan to elect the new transition method approved by the FASB on July 30, 2018, which allows companies to apply the provisions of the new leasing standard as of January 1, 2019, without adjusting comparative periods presented by recognizing a cumulative-effect adjustment to the opening balance of retained earnings. We do not expect the cumulative-effect adjustment to be material.
We have contracted with a software vendor for the technology to support compliance with the ASU. We currently have all real estate and equipment leases identified and populated into the software. We are in the process of completing testing of the data in the software for completeness and accuracy. We have implemented controls over the implementation and are also in the process of developing and testing controls once the new standard takes effect.
While we continue to evaluate the effect of the standard on our consolidated financial statements, the adoption of the ASU will result in the recognition of a right of use asset and related liability in the range of approximately $100 million to $120 million. This estimate is developed based partially on our anticipated utilization of the allowable practical expedients, as follows:
·
We will utilize the “package” of practical expedients related to the ASU’s adoption. As such, we will not re-assess our historical conclusions related to capital versus operating lease classification, the existence of embedded leases in service contracts and indirect initial costs for existing leases.
·
We will combine the lease and non-lease components of our building/space leases for purposes of calculating our right of use asset and related lease liability. We do not have material non-lease components in our existing equipment leases.
·
We will not capitalize leases with less than a 12-month expiration without a purchase option that is reasonably certain to be exercised.
While we intend to utilize the practical expedients as outlined above, we continue to analyze their impact and the final conclusions may change upon adoption. Any change to the practical expedients could cause a significant change to the estimated right-of-use asset and associated lease liability. The remaining practical expedients are either not applicable or are not anticipated to have a significant impact. We do not anticipate a material impact to overall net income or cash flows as a result of the adoption of the ASU.
In January 2017, the FASB issued Accounting Standards Update “ASU No. 2017-4 – Intangibles – Goodwill and Other”. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. The guidance in the ASU is effective for the Company in fiscal years beginning after December 15, 2019. Early adoption is permitted. We anticipate adoption of this standard will have no impact on our consolidated financial statements.
In June 2018, the FASB issued Accounting Standards Update “ASU No. 2018-07 – Compensation – Stock Compensation”. The ASU expands the scope of current guidance to include all share-based payment arrangements related to the acquisition of goods and services from both non-employees and employees. The guidance in the ASU is effective for the Company in all fiscal years beginning after December 15, 2018. Adoption of this standard will have no material impact on our consolidated financial statements.
In August 2018, the FASB issued Accounting Standards Update “ASU No. 2018-15” to provide guidance on implementation costs incurred in a cloud computing arrangement that is a service contract. This ASU aligns the accounting for such costs with the guidance on capitalizing costs associated with developing or obtaining internal use software. The ASU is effective for fiscal years beginning after December 15, 2019 and interim periods thereafter. Early adoption is permitted. We are currently evaluating the impact of this standard on our consolidated financial statements.
SCHEDULE II
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
DR/(CR)
ADDITIONS
(CHARGED)
CREDITED
(CHARGED)
BALANCE AT
TO COSTS
CREDITED
BALANCE
BEGINNING
AND
TO OTHER
DEDUCTIONS
AT END
DESCRIPTION
OF PERIOD
EXPENSES
ACCOUNTS
(a)
OF PERIOD
Allowances for doubtful
accounts (b)
For the year 2018
$ (15,175)
$ (247)
$ (1,436)
$ 16,605
$ (253)
For the year 2017
$ (14,236)
$ (17,376)
$ (1,360)
$ 17,797
$ (15,175)
For the year 2016
$ (13,244)
$ (16,420)
$ (1,518)
$ 16,946
$ (14,236)
(a) With respect to allowances for doubtful accounts, deductions include accounts considered uncollectible or
written off, payments, companies divested, etc.
(b) Classified in consolidated balance sheets as a reduction of accounts receivable.
S-3
NATURE OF OPERATIONS
We operate through our two wholly-owned subsidiaries: VITAS Healthcare Corporation (“VITAS”) and Roto-Rooter Group, Inc. (“Roto-Rooter”). VITAS focuses on hospice care that helps make terminally ill patients' final days as comfortable as possible. Through its team of doctors, nurses, home health aides, social workers, clergy and volunteers, VITAS provides direct medical services to patients, as well as spiritual and emotional counseling to both patients and their families. Roto-Rooter provides plumbing, drain cleaning and water restoration services to both residential and commercial customers. Through its network of company-owned branches, independent contractors and franchisees, Roto-Rooter offers plumbing, drain cleaning service and water restoration to approximately 90% of the U.S. population.
PRINCIPLES OF ACCOUNTING
The consolidated financial statements have been prepared on a going-concern basis. Management has adopted the evaluation requirements of Accounting Stanadards Update “ASU No. 2014-15 – Presentation of Financial Statements – Going Concern”.
The consolidated financial statements include the accounts of Chemed Corporation and its wholly owned subsidiaries. All intercompany transactions have been eliminated. We have analyzed the provisions of the Financial Accounting Standards Board (“FASB”) authoritative guidance on the consolidation of variable interest entities relative to our contractual relationships with Roto-Rooter’s independent contractors and franchisees. The guidance requires the primary beneficiary of a Variable Interest Entity (“VIE”) to consolidate the accounts of the VIE. We have concluded that neither the independent contractors nor the franchisees are VIEs.
Certain reclassifications have been made to prior year financial statements to conform to current presentation.
CASH EQUIVALENTS
Cash equivalents comprise short-term, highly liquid investments, including money market funds that have original maturities of three months or less.
CONCENTRATION OF RISK
As of December 31, 2018 and 2017, approximately 68% and 59%, respectively, of VITAS’ total accounts receivable balance were due from Medicare and 26% and 32%, respectively, of VITAS’ total accounts receivable balance were due from various state Medicaid or managed Medicaid programs. Combined accounts receivable from Medicare, Medicaid, and managed Medicaid represent approximately 75% of the consolidated net accounts receivable in the accompanying consolidated balance sheets as of December 31, 2018.
As further described in Note 18, we had agreements with a vendor to provide specified pharmacy services for VITAS and its hospice patients. In 2018 and 2017, respectively, purchases made from this vendor represent 99% and 85%, respectively, of all pharmacy services used by VITAS.
INVENTORIES
Substantially all of the inventories are either general merchandise or finished goods. Inventories are stated at the lower of cost or net realizable value. For determining the value of inventories, cost methods that reasonably approximate the first-in, first-out (“FIFO”) method are used.
DEPRECIATION AND PROPERTIES AND EQUIPMENT
Depreciation of properties and equipment is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the remaining lease terms (excluding option terms) or their useful lives. Expenditures for maintenance, repairs, renewals and betterments that do not materially prolong the useful lives of the assets are expensed as incurred. The cost of property retired or sold and the related accumulated depreciation are removed from the accounts, and the resulting gain or loss is reflected currently in other operating expense or other income, net.
Expenditures for major software purchases and software developed for internal use are capitalized and depreciated using the straight-line method over the estimated useful lives of the assets. For software developed for internal use, external direct costs for materials and services and certain internal payroll and related fringe benefit costs are capitalized in accordance with the FASB’s authoritative guidance on accounting for the costs of computer software developed or obtained for internal use.
The weighted average lives of our property and equipment at December 31, 2018, were:
Buildings and building improvements
yrs.
Transportation equipment
Machinery and equipment
Computer software
Furniture and fixtures
GOODWILL AND INTANGIBLE ASSETS
The table below shows a rollforward of Goodwill (in thousands):
Roto-
Vitas
Rooter
Total
Balance at December 31, 2016
$
$
$
Business combinations
-
Foreign currency adjustments
-
Balance at December 31, 2017
$
$
$
Business combinations
Foreign currency adjustments
-
Balance at December 31, 2018
$
$
$
Identifiable, definite-lived intangible assets arise from purchase business combinations and are amortized using either an accelerated method or the straight-line method over the estimated useful lives of the assets. The selection of an amortization method is based on which method best reflects the economic pattern of usage of the asset. Reacquired franchise rights are amortized over the remaining term of the franchise agreement at the time of acquisition. The weighted average lives of our identifiable, definite-lived intangible assets at December 31, 2018, were:
Covenants not to compete
yrs.
Reacquired franchise rights
Referral networks
Customer lists
The date of our annual goodwill and indefinite-lived intangible asset impairment analysis is October 1. The VITAS trade name is considered to have an indefinite life. We also capitalize the direct costs of obtaining licenses to operate either hospice programs or plumbing operations subject to a minimum capitalization threshold. These costs are amortized over the life of the license using the straight-line method. Certificates of Need (“CON”), which are required in certain states for hospice operations, are generally granted without expiration and thus, we believe them to be indefinite-lived assets subject to impairment testing.
We consider that Roto-Rooter Corp. (“RRC”), Roto-Rooter Services Co. (“RRSC”) and VITAS are appropriate reporting units for testing goodwill impairment. We consider RRC and RRSC separate reporting units but one operating segment. This is appropriate as they each have their own set of general ledger accounts that can be analyzed at “one level below an operating segment” per the definition of a reporting unit in FASB guidance.
We completed our qualitative analysis for impairment of goodwill and our indefinite-lived intangible assets as of October 1, 2018. Based on our assessment, we do not believe that it is more likely than not that our reporting units or indefinite-lived assets fair values are less than their carrying values.
LONG-LIVED ASSETS
If we believe a triggering event may have occurred that indicates a possible impairment of our long-lived assets, we perform an estimate and valuation of the future benefits of our long-lived assets (other than goodwill, the VITAS trade name and capitalized CON costs) based on key financial indicators. If the projected undiscounted cash flows of a major business unit indicate that properties and equipment or identifiable, definite-lived intangible assets have been impaired, a write-down to fair value is made.
OTHER ASSETS
Debt issuance costs are included in other assets. Issuance costs related to revolving credit agreements are amortized using the straight-line method, over the life of the agreement. All other issuance costs are amortized using the effective interest method over the life of the debt. There are no amounts included in other assets that individually exceed 5% of total assets.
SALES TAX
The Roto-Rooter segment collects sales tax from customers when required by state and federal laws. We record the amount of sales tax collected net in the accompanying consolidated statements of income.
OPERATING EXPENSES
Cost of services provided and goods sold (excluding depreciation) includes salaries, wages and benefits of service providers and field personnel, material costs, medical supplies and equipment, pharmaceuticals, insurance costs, service vehicle costs and other expenses directly related to providing service revenues or generating sales. Selling, general and administrative expenses include salaries, wages, stock-based compensation expense and benefits of selling, marketing and administrative employees, advertising expenses, communications and branch telephone expenses, office rent and operating costs, legal, banking and professional fees and other administrative costs. The cost associated with VITAS sales personnel is included in cost of services provided and goods sold (excluding depreciation).
ADVERTISING
We expense the production costs of advertising the first time the advertising takes place. We pay for and expense the cost of internet advertising and placement on a “per click” basis. Similarly, the majority of our telephone directory listings are paid for and expensed on a “cost per call” basis. For those directories that are not on this billing basis, the cost of the directory is expensed when the directories are placed in circulation. Advertising expense for the year ended December 31, 2018, was $47.0 million (2017 – $40.9 million; 2016 - $37.2 million).
COMPUTATION OF EARNINGS PER SHARE
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 specific areas of financial reporting. 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 was effective for fiscal years beginning after December 15, 2016. We adopted the applicable provisions of ASU 2016-09 on a prospective basis. The impact of this ASU on our financial statements for the year ended December 31, 2018 was to decrease our income tax expense by $22.9 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 diluted earnings per share of $1.42 and $1.27, respectively. The impact of this ASU on our financial statements for the year ended December 31, 2017 was to decrease our income tax expense by $18.9 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 diluted earnings per share of $1.18 and $1.08, respectively.
OTHER CURRENT LIABILITIES
There are no amounts included in other current liabilities that individually exceed 5% of total current liabilities.
OTHER LIABILITIES (NON-CURRENT)
There are no amounts included in other liabilities that individually exceed 5% of total liabilities.
STOCK-BASED COMPENSATION PLANS
Stock-based compensation cost is measured at the grant date, based on the fair value of the award and recognized as expense over the employee’s requisite service period on a straight-line basis.
INSURANCE ACCRUALS
For our Roto-Rooter segment and Corporate Office, we initially self-insure for all casualty insurance claims (workers’ compensation, auto liability and general liability). As a result, we closely monitor and frequently evaluate our historical claims experience to estimate the appropriate level of accrual for self-insured claims. Our third-party administrator (“TPA”) processes and reviews claims on a monthly basis. Currently, our exposure on any single claim is capped by stop-loss coverage at $750,000. In developing our estimates, we accumulate historical claims data for the previous 10 years to calculate loss development factors (“LDF”) by insurance coverage type. LDFs are applied to known claims to estimate the ultimate potential liability for known and unknown claims for each open policy year. LDFs are updated annually. Because this methodology relies heavily on historical claims data, the key risk is whether the historical claims are an accurate predictor of future claims exposure. The risk also exists that certain claims have been incurred and not reported on a timely basis. To mitigate these risks, in conjunction with our TPA, we closely monitor claims to ensure timely accumulation of data and compare claims trends with the industry experience of our TPA.
For the VITAS segment, we initially self-insure for workers’ compensation claims. Currently, VITAS’ exposure on any single claim is capped by stop-loss coverage at $1,000,000. For VITAS’ self-insurance accruals for workers’ compensation, the valuation methods used are similar to those used internally for our other business units. We are also insured for other risks with respect to professional liability with a deductible of $750,000.
Our casualty insurance liabilities are recorded gross before any estimated recovery for amounts exceeding our stop loss limits. Estimated recoveries from insurance carriers are recorded as accounts receivable. Claims experience adjustments to our casualty and workers’ compensation accrual for the years ended December 31, 2018, 2017 and 2016, were net pretax debits/(credits) of ($3,437,000), ($1,800,000), and $1,147,000 respectively.
TAXES ON INCOME
On December 22, 2017, the President of the United States signed into law H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (previously known as “The Tax Cuts and Jobs Act”) or (the “Act”). The Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. For businesses, U.S. generally accepted accounting principles requires resulting tax effects for the Act, to be recorded in the reporting period of enactment.
The SEC issued SAB 118, which provides guidance on accounting for the Act’s impact. Under SAB 118, an entity would use something similar to the measurement period in a business combination, not to exceed one year. For matters that have not been completed, the Company would recognize provisional amounts to the extent that they are reasonably estimable, adjust them over time as more information becomes available, and disclose this information in its financial statements.
Our accounting for all elements of the Tax Act is complete. The Company did not record any material changes to the provisional amounts previously recorded, net benefit recorded in 2017 of $8.3 million. The Company also determined new rules, such as the Global Intangible Low-Taxed Income (GILTI) and Base Erosion and Anti-Abuse Tax (BEAT), have no material impact to the financial statements.
Historically, the Company has not provided for deferred taxes on undistributed earnings because such earnings are considered to be indefinitely reinvested outside of the U.S. The Company continues this assertion that foreign earnings are permanently reinvested under the Act.
The Act provides for 100 percent bonus depreciation on personal tangible property expenditures starting September 27, 2017 through 2022. The bonus depreciation percentage is phased down from 100 percent beginning in 2023 through 2026. The Company expects to take full benefit of these bonus depreciation rules.
The IRS and other tax authorities are still issuing guidance on the Act, through various regulations some of which are still proposed and not final. The Company will implement any changes related to finalized regulations and other guidance in the period issued.
Deferred taxes are provided on an asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amount of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in our opinion, it is more likely than not that some portion or all of the deferred tax assets will not be realized due to insufficient taxable income within the carryback or carryforward period available under the tax laws. Deferred tax assets and liabilities are adjusted for the effects of changes in law and rates on the date of enactment.
We are subject to income taxes in Canada, U.S. federal and most state jurisdictions. Judgement is required to determine our provision for income taxes. Our financial statements reflect expected future tax consequences of such uncertain positions assuming the taxing authorities’ full knowledge of the position and all relevant facts.
CONTINGENCIES
As discussed in Note 17, we are subject to various lawsuits and claims in the normal course of our business. In addition, we periodically receive communications from governmental and regulatory agencies concerning compliance with Medicare and Medicaid billing requirements at our VITAS subsidiary. We establish reserves for specific, uninsured liabilities in connection with regulatory and legal action that we deem to be probable and reasonably estimable. We record legal fees associated with legal and regulatory actions as the costs are incurred. We disclose material loss contingencies that are probable but not reasonably estimable and those that are at least reasonably possible.
ESTIMATES
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Disclosures of after-tax expenses and adjustments are based on estimates of the effective income tax rates for the applicable segments.
Buildings and building improvements
yrs.
Transportation equipment
Machinery and equipment
Computer software
Furniture and fixtures
Roto-
Vitas
Rooter
Total
Balance at December 31, 2016
$
$
$
Business combinations
-
Foreign currency adjustments
-
Balance at December 31, 2017
$
$
$
Business combinations
Foreign currency adjustments
-
Balance at December 31, 2018
$
$
$
Covenants not to compete
yrs.
Reacquired franchise rights
Referral networks
Customer lists
Medicare
Medicaid
Commercial
Total
Routine home care
$
$
$
$
Continuous care
Inpatient care
$
$
$
$
All other revenue - self-pay, respite care, etc.
Subtotal
$
Medicare cap adjustment
Implicit price concessions
Room and board, net
Net revenue
$
Short-term core service jobs
$
Water restoration
Contractor revenue
Franchise fees
All other
Subtotal
$
Implicit price concessions and credit memos
Net revenue
$
Impact for the year ended December 31, 2018
ASC 605
Adjustment
ASC 606
Service revenue and sales
$
$
$
Cost of services provided and goods sold
Selling, general and administrative expenses
December 31,
2018
2017
Revolver
$
$
Term loan
-
Total
Current portion of term loan
-
Long-term debt
$
$
2018
$
4,178
2017
3,626
2016
3,047
Description
Requirement
Chemed
Leverage Ratio (Consolidated Indebtedness/Consolidated Adj. EBITDA)
< 3.50 to 1.00
0.41 to 1.00
Fixed Charge Coverage Ratio (Consolidated Free Cash Flow/Consolidated
Fixed Charges)
> 1.50 to 1.00
7.61 to 1.00
2018 Awards
2017 Awards
2016 Awards
TSR Awards
Shares of stock granted
Per-share fair value
$ 341.20
$ 226.95
$ 150.74
Volatility
Risk-free interest rate
EPS Awards
Shares of stock granted
Per-share fair value
$ 256.29
$ 172.60
$ 126.37
Common Assumptions
Service period (years)
Three-year measurement period ends December 31,
Stock Options
Stock Awards
Performance Units (PSUs)
Weighted Average
Aggregate
Weighted
Weighted
Remaining
Intrinsic
Average
Number of
Average
Number of
Exercise
Contractual
Value
Number of
Grant-Date
Target
Grant-Date
Options
Price
Life (Years)
(thousands)
Awards
Price
Units
Price
Outstanding at January 1, 2018
$
$
$
Granted
Exercised/Vested
Canceled/ Forfeited
-
-
-
-
Outstanding at December 31, 2018
$
$
-
$
-
$
Vested and expected to vest
at December 31, 2018
$
$
-
$
-
*$
Exercisable at December 31, 2018
n.a.
n.a.
n.a.
n.a.
* Amount includes 32,134 share units which vested and were converted to shares of stock and distributed in the first quarter of 2019.
Years Ended December 31,
2018
2017
2016
Total compensation expense of stock-based compensation
plans charged against income
$
$
$
Total income tax benefit recognized in income for stock
based compensation expense charged against income
Total intrinsic value of stock options exercised
Total intrinsic value of stock awards vested during the period
Per-share weighted average grant-date fair value of
stock awards granted
2018
2017
2016
Stock price on date of issuance
Grant date fair value per share
Number of options granted
Expected term (years)
Risk free rate of return
Volatility
Dividend yield
Forfeiture rate
-
-
-
Stock
Stock
Options
Awards
PSUs
Total unrecognized compensation at the end of the year
$
$
-
$
Weighted average period over which unrecognized compensation to be recognized (years)
-
Actual income tax benefit realized
$
$
$
Aggregate intrinsic value vested and expected to vest
$
$
-
$
For the Years Ended December 31,
2018
2017
2016
Revenues by Type of Service
VITAS
Routine homecare
$
$
$
Continuous care
General inpatient
Other
-
-
Subtotal revenue
Room and board, net
$
$
-
$
-
Implicit price concessions
-
.
Medicare cap adjustment
Total segment
Roto-Rooter
Short-term core service jobs
Water restoration
Contractor revenue
Franchise fees
Other
Implicit price concessions and credit memos
-
-
Total segment
Total service revenues and sales
$
$
$
After-tax Segment Earnings/(Loss)
VITAS
$
$
$
Roto-Rooter
Total
Corporate
Net income
$
$
$
Interest Income
VITAS
$
$
$
Roto-Rooter
Total
Intercompany eliminations
Total interest income
$
$
$
Interest Expense
VITAS
$
$
$
Roto-Rooter
Total
Corporate
Total interest expense
$
$
$
Income Tax Provision
VITAS
$
$
$
Roto-Rooter
Total
Corporate
Total income tax provision
$
$
$
Identifiable Assets
VITAS
$
$
$
Roto-Rooter
Total
Corporate
Total identifiable assets
$
$
$
For the Years Ended December 31,
2018
2017
2016
Additions to Long-Lived Assets
VITAS
$
$
$
Roto-Rooter
Total
Corporate
Total additions to long-lived assets
$
$
$
Depreciation and Amortization
VITAS
$
$
$
Roto-Rooter
Total
Corporate
Total depreciation and amortization
$
$
$
2019
$
2020
2021
2022
2023
Thereafter
Gross
Accumulated
Net Book
Asset
Amortization
Value
December 31, 2018
Referral networks
$
$
$
Covenants not to compete
Customer lists
Reacquired franchise rights
Subtotal - definite-lived intangibles
VITAS trade name
-
Roto-Rooter trade name
-
Operating licenses
-
Total
$
$
$
December 31, 2017
Referral networks
$
$
$
-
Covenants not to compete
Customer lists
-
Reacquired franchise rights
Subtotal - definite-lived intangibles
VITAS trade name
-
Roto-Rooter trade name
-
Operating licenses
-
Total
$
$
$
For the Years Ended
December 31,
2018
2017
Service revenues and sales
$
$
Net income
$
$
Earnings per share
$
$
Diluted earnings per share
$
$
Reacquired franchise rights
$
All other identifiable intangible assets
Goodwill
Other assets and liabilities - net
$
Identifiable intangible assets
$
Goodwill
Other assets and liabilities - net
$
2019
$
2020
Thereafter
$
For the Years Ended December 31,
2018
2017
2016
Interest income
$
$
$
Market value gains related to deferred
compensation trusts
Other--net
-
Total other income
$
$
$
For the Years Ended December 31,
2018
2017
2016
Current
U.S. federal
$
$
$
U.S. state and local
Foreign
Deferred
U.S. federal, state and local
Foreign
Total
$
$
$
December 31,
2018
2017
Accrued liabilities
$
$
Stock compensation expense
State net operating loss carryforwards
Implicit price concessions
Other
Deferred income tax assets
Amortization of intangible assets
Accelerated tax depreciation
Market valuation of investments
State income taxes
Currents assets
Other
Deferred income tax liabilities
Net deferred income tax liabilities
$
$
2018
2017
2016
Balance at January 1,
$
$
$
Unrecognized tax benefits due to positions taken in current year
Decrease due to expiration of statute of limitations
Balance at December 31,
$
$
$
For the Years Ended December 31,
2018
2017
2016
Income tax provision calculated using the statutory rate of 21%
$
$
$
Stock compensation tax benefits
-
State and local income taxes, less federal income tax effect
Nondeductible expenses
Enactment of the tax reform act
-
-
Other--net
Income tax provision
$
$
$
Effective tax rate
%
%
%
2018
$
2017
2016
December 31,
2018
2017
Land
$
$
Buildings and building improvements
Transportation equipment
Machinery and equipment
Computer software
Furniture and fixtures
Projects under development
Total properties and equipment
Less accumulated depreciation
Net properties and equipment
$
$
2019
$
2020
2021
2022
2023
Thereafter
Total minimum rental payments
$
For the Years Ended December 31,
2018
2017
2016
Total rental expense
$
$
$
For the Years Ended December 31,
2018
2017
2016
$
$
$
Net Income
For the Years Ended December 31,
Net Income
Shares
Earnings per Share
2018
Earnings
$
$
Dilutive stock options
-
Nonvested stock awards
-
Diluted earnings
$
$
2017
Earnings
$
$
Dilutive stock options
-
Nonvested stock awards
-
Diluted earnings
$
$
2016
Earnings
$
$
Dilutive stock options
-
Nonvested stock awards
-
Diluted earnings
$
$
The following shows the carrying value, fair value and the hierarchy for our financial instruments as of December 31, 2018 (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)
Investments of deferred compensation plans held in trust
$
$
$
-
$
-
Long-term debt and current portion of long-term debt
-
-
The following shows the carrying value, fair value and the hierarchy for our financial instruments as of December 31, 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)
Investments of deferred compensation plans held in trust
$
$
$
-
$
-
Long-term debt and current portion of long-term debt
-
-
For the Years Ended December 31,
2018
2017
2016
Total cost of repurchased shares (in thousands):
$
$
$
Shares repurchased
Weighted average price per share
$
$
$
December 31,
2018
2017
2016
Litigation settlement
$
$
$
-
Loss on disposal of property and equipment
-
Program closure expenses
-
-
Retirement expenses
-
-
Total other operating expenses
$
$
$
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M,7X_X!_\$Y/@O^RU\??$/Q%^'7P\\'^"-;\1^'[+PW/!H.@V.FVMO;V]S=7#
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M<#N .@SDBOD[]E_1]0^!/_!.K]FKXXZ9XR^)^M>./&UI\.;/Q,OBCQ[K?B/3
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MN:1FI*\3]#Z*^;_'W[>&J^#OC+K]C;^"M/O?A]X*\:Z#\._$>M2:^\.LPZSK
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M(=CPKJNK^-_WMQJ'_"%:QIW]I>?I'[FV_P!-Q_PCOBS_ $F#]W_Q(. WVVT\
MSK*/K^BN?^$_B+7?%_PL\-:MXI\._P#"'^)M4TJUN]7T'[?'J']B7DD*//:?
M:8P(Y_*D+1^:@"OLW 8(KY@^"O[5/BGP3^S_ *5;6=C_ ,)YX]^('QJ\?^#?
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M36'S-MQ>I-YL9L-46*UN);1(K@ ^H**^,/V,OV\/BAX^^#7[(^
MC^(O!6G^*_''QN^&K>--?UVWU^*ULM+M[0Z()KZ:/[+&3)<0:L)!;VT1$=T8
M[<'[.SWT'/\ BW_@KCI7[,_[%_P8^(NIZ)X/T#P=XF^&NG>-)8/&7Q62'7[^
MW^PQ7$VG:*MS%-=:]JD$14.;I[,3275G^_=YYC;@'W?17R?\9OVH-5_9X_:N
M^.FK2C4-;T3PO\-? =Y::7/J+VVDZ7<7VN>*+2?4;J0JZ65G&D=O-?7@B
12 Months Ended
Document And Entity Information [Abstract]
Document Type
10-K
Amendment Flag
false
Document Period End Date
Dec. 31, 2018
Document Fiscal Period Focus
FY
Document Fiscal Year Focus
2018
Entity Registrant Name
CHEMED CORP
Trading Symbol
CHE
Entity Central Index Key
0000019584
Current Fiscal Year End Date
--12-31
Entity Well-known Seasoned Issuer
Yes
Entity Voluntary Filers
No
Entity Current Reporting Status
Yes
Entity Filer Category
Large Accelerated Filer
Entity Small Business
false
Entity Emerging Growth Company
false
Entity Shell Company
false
Entity Public Float
$ 5,077,902,421
Entity Common Stock, Shares Outstanding
15,967,469
shares in Thousands, $ in Thousands12 Months Ended
Consolidated Statements Of Income [Abstract]
Service revenues and sales (Note 2)
$ 1,782,648
$ 1,666,724
$ 1,576,881
Cost of services provided and goods sold (excluding depreciation)
1,228,644
1,150,532
1,115,431
Selling, general and administrative expenses
270,209
276,652
243,572
Depreciation
38,464
35,488
34,279
Amortization
399
137
359
Other operating expenses (Note 20)
1,300
90,880
4,491
Total costs and expenses
1,539,016
1,553,689
1,398,132
Income from operations
243,632
113,035
178,749
Interest expense
(4,990)
(4,272)
(3,715)
Other income--net (Note 10)
958
8,154
2,020
Income before income taxes
239,600
116,917
177,054
Income taxes (Note 11)
(34,056)
(18,740)
(68,311)
Net income
$ 205,544
$ 98,177
$ 108,743
Earnings Per Share (Note 15)
Net income
$ 12.80
$ 6.11
$ 6.64
Average number of shares outstanding
16,059
16,057
16,383
Diluted Earnings Per Share (Note 15)
Net income
$ 12.23
$ 5.86
$ 6.48
Average number of shares outstanding
16,803
16,742
16,789
$ in Thousands
Consolidated Balance Sheets [Abstract]
Accounts receivable, allowances
$ 15,175
Identifiable intangible assets, accumulated amortization
$ 33,283
$ 32,887
Capital stock - authorized
80,000,000
80,000,000
Capital stock - par value
$ 1
$ 1
Capital stock - issued
35,311,418
34,732,192
Treasury stock
19,438,358
18,694,047
$ in Thousands
Balance at Dec. 31, 2015
$ 33,985
$ 603,006
$ 865,845
$ (991,978)
$ 2,395
$ 513,253
Net income
108,743
108,743
Dividends paid
(16,439)
(16,439)
Stock awards and exercise of stock options (Note 4)
285
36,453
(16,127)
20,611
Purchases of treasury stock (Note 19)
(102,313)
(102,313)
Other
244
(118)
118
244
Balance at Dec. 31, 2016
34,270
639,703
958,149
(1,110,536)
2,513
524,099
Net income
98,177
98,177
Dividends paid
(17,371)
(17,371)
Stock awards and exercise of stock options (Note 4)
462
55,264
(26,467)
29,259
Purchases of treasury stock (Note 19)
(94,640)
(94,640)
Other
830
311
(311)
830
Balance at Dec. 31, 2017
34,732
695,797
1,038,955
(1,231,332)
2,202
540,354
Net income
205,544
205,544
Dividends paid
(18,662)
(18,662)
Stock awards and exercise of stock options (Note 4)
579
79,452
(55,939)
24,092
Purchases of treasury stock (Note 19)
(158,884)
(158,884)
Other
(891)
(220)
(141)
142
(1,110)
Balance at Dec. 31, 2018
$ 35,311
$ 774,358
$ 1,225,617
$ (1,446,296)
$ 2,344
$ 591,334
12 Months Ended
Consolidated Statements Of Changes In Stockholders' Equity [Abstract]
Dividends paid per share
$ 1.16
$ 1.08
$ 1.00
12 Months Ended
Summary Of Significant Accounting Policies [Abstract]
Summary Of Significant Accounting Policies
32.8
10.5
5.1
4.6
4.8
328,301
144,065
472,366
4,396
4,396
125
125
328,301
148,586
476,887
5,030
28,780
33,810
(127)
(127)
333,331
177,239
510,570
6.5
7.9
10.0
12.0
12 Months Ended
Revenue Recognition [Abstract]
Revenue Recognition
939,951
47,609
22,958
1,010,518
110,596
6,126
5,776
122,498
69,354
8,156
5,167
82,677
1,119,901
61,891
33,901
1,215,693
7,831
1,223,524
(4,123)
(11,785)
(10,054)
1,197,562
421,790
101,784
50,093
6,382
11,958
592,007
(6,921)
585,086
1,811,408
(28,760)
1,782,648
1,238,698
(10,054)
1,228,644
288,915
(18,706)
270,209
12 Months Ended
Long-Term Debt And Lines Of Credit [Abstract]
Long-Term Debt And Lines Of Credit
89,200
26,200
75,000
89,200
101,200
(10,000)
89,200
91,200
12 Months Ended
Stock-Based Compensation Plans [Abstract]
Stock-Based Compensation Plans
7,523
7,304
9,541
22.9%
21.8%
26.7%
2.34%
1.44%
0.89%
7,523
7,304
9,541
2.9
2.9
2.9
2020
2019
2018
1,698,458
141.62
9,706
121.75
53,732
151.09
246,350
306.70
2,295
333.75
32,255
209.49
(539,104)
112.79
(12,001)
162.29
(37,827)
129.48
(10,670)
153.31
1,395,034
181.82
3.6
144,271
48,160
207.17
1,395,034
181.82
3.6
144,271
83,250
202.10
770,385
137.48
3.3
110,291
19,229
16,256
13,773
4,788
5,690
5,062
102,144
50,192
17,635
4,003
6,983
7,429
333.75
203.52
126.53
$306.70
$231.91
$135.85
$67.16
$46.27
$22.74
246,350
330,550
505,775
4.0
4.0
4.0
2.99%
1.86%
1.09%
22.42%
22.80%
21.10%
0.4%
0.5%
0.8%
27,556
5,925
2.3
1.8
24,075
944
2,086
144,271
23,363
12 Months Ended
Segments And Nature Of The Business [Abstract]
Segments And Nature Of The Business
1,010,518
935,913
887,940
122,498
124,557
138,025
82,677
90,472
97,580
7,831
1,223,524
1,150,942
1,123,545
(10,054)
(11,785)
(4,123)
(2,682)
(228)
1,197,562
1,148,260
1,123,317
421,790
373,579
345,638
101,784
82,272
50,229
50,093
43,770
40,097
6,382
6,130
5,090
11,958
12,713
12,510
(6,921)
585,086
518,464
453,564
1,782,648
1,666,724
1,576,881
138,846
57,645
84,961
98,711
73,299
52,893
237,557
130,944
137,854
(32,013)
(32,767)
(29,111)
205,544
98,177
108,743
13,412
12,044
8,294
7,000
5,635
3,653
20,412
17,679
11,947
(19,741)
(17,252)
(11,564)
671
427
383
175
188
211
319
323
332
494
511
543
4,496
3,761
3,172
4,990
4,272
3,715
40,847
16,436
51,910
28,850
32,782
32,719
69,697
49,218
84,629
(35,641)
(30,478)
(16,318)
34,056
18,740
68,311
553,949
545,304
542,142
351,030
294,663
261,641
904,979
839,967
803,783
70,550
80,059
76,276
975,529
920,026
880,059
36,969
23,469
22,000
68,786
45,386
17,709
105,755
68,855
39,709
128
483
63
105,883
69,338
39,772
19,700
18,630
19,090
19,016
16,790
15,002
38,716
35,420
34,092
147
205
546
38,863
35,625
34,638
12 Months Ended
Intangible Assets [Abstract]
Intangible Assets
1,628
1,624
1,620
1,611
1,590
8,880
21,850
(21,152)
698
9,796
(9,367)
429
2,025
(1,235)
790
12,447
(1,529)
10,918
46,118
(33,283)
12,835
51,300
51,300
150
150
3,968
3,968
101,536
(33,283)
68,253
21,140
(21,140)
9,519
(9,291)
228
1,217
(1,217)
1,298
(1,239)
59
33,174
(32,887)
287
51,300
51,300
150
150
3,128
3,128
87,752
(32,887)
54,865
12 Months Ended
Business Combinations [Abstract]
Business Combinations
11,161
2,500
33,828
5,688
53,177
98
4,396
231
4,725
1,811,532
1,705,747
209,891
103,920
13.07
6.47
12.49
6.21
12 Months Ended
Discontinued Operations [Abstract]
Discontinued Operations
826
300
601
1,727
12 Months Ended
Cash Overdrafts And Cash Equivalents [Abstract]
Cash Overdrafts And Cash Equivalents
12 Months Ended
Other Income-Net [Abstract]
Other Income-Net
671
427
383
287
8,430
2,061
(703)
(424)
958
8,154
2,020
12 Months Ended
Income Taxes [Abstract]
Income Taxes
23,934
11,724
64,698
4,484
4,144
9,927
452
465
393
5,185
2,402
(6,712)
1
5
5
34,056
18,740
68,311
30,702
30,419
5,894
6,282
2,422
2,243
1,171
291
626
565
40,815
39,800
(38,346)
(36,882)
(19,685)
(14,057)
(1,068)
(2,277)
(1,261)
(1,722)
(1,861)
(1,255)
(192)
(247)
(62,413)
(56,440)
(21,598)
(16,640)
1,123
1,069
1,052
453
268
218
(228)
(214)
(201)
1,348
1,123
1,069
50,316
40,921
61,969
(22,862)
(18,932)
7,150
4,600
6,044
2,280
1,041
881
(8,305)
(2,828)
(585)
(583)
34,056
18,740
68,311
14.2
16.0
38.6
9,749
42,311
60,905
12 Months Ended
Properties And Equipment [Abstract]
Properties And Equipment
7,964
7,108
96,361
85,570
51,559
47,243
111,183
99,234
49,928
47,840
72,898
74,191
20,510
11,882
410,403
373,068
(248,370)
(230,034)
162,033
143,034
12 Months Ended
Lease Arrangements [Abstract]
Lease Arrangements
26,791
24,152
19,669
13,851
8,179
10,974
103,616
41,685
41,210
40,034
12 Months Ended
Retirement Plans [Abstract]
Retirement Plans
16,502
22,025
14,467
12 Months Ended
Earnings Per Share[Abstract]
Earnings Per Share
205,544
16,059
12.80
650
94
205,544
16,803
12.23
98,177
16,057
6.11
596
89
98,177
16,742
5.86
108,743
16,383
6.64
296
110
108,743
16,789
6.48
12 Months Ended
Financial Instruments [Abstract]
Financial Instruments
65,624
65,624
89,200
89,200
62,067
62,067
101,200
101,200
12 Months Ended
Legal And Regulatory Matters [Abstract]
Legal And Regulatory Matters
12 Months Ended
Concentration Of Risk [Abstract]
Concentration Of Risk
12 Months Ended
Capital Stock Transactions [Abstract]
Capital Stock Transactions
158,884
94,640
102,313
561,146
500,000
780,134
283.14
189.28
131.15
12 Months Ended
Other Operating Expenses [Abstract]
Other Operating Expenses
796
84,476
504
5,266
1,138
4,491
1,300
90,880
4,491
12 Months Ended
Recent Accounting Statements [Abstract]
Recent Accounting Statements
12 Months Ended
Schedule II - Valuation and Qualifying Accounts [Abstract]
Schedule II - Valuation And Qualifying Accounts
12 Months Ended
Summary Of Significant Accounting Policies [Abstract]
Nature Of Operations
Principles Of Accounting
Cash Equivalents
Concentration Of Risk
Inventories
Depreciation And Properties And Equipment
32.8
10.5
5.1
4.6
4.8
Goodwill And Intangible Assets
328,301
144,065
472,366
4,396
4,396
125
125
328,301
148,586
476,887
5,030
28,780
33,810
(127)
(127)
333,331
177,239
510,570
6.5
7.9
10.0
12.0
Long-Lived Assets
Other Assets
Sales Tax
Operating Expenses
Advertising
Computation Of Earnings Per Share
Other Current Liabilities
Other Liabilities (Non-Current)
Stock-Based Compensation Plans
Insurance Accruals
Taxes On Income
Contingencies
Estimates
12 Months Ended
Summary Of Significant Accounting Policies [Abstract]
Schedule Of Weighted Average Lives Of Property And Equipment
32.8
10.5
5.1
4.6
4.8
Schedule of movement in Goodwill
328,301
144,065
472,366
4,396
4,396
125
125
328,301
148,586
476,887
5,030
28,780
33,810
(127)
(127)
333,331
177,239
510,570
Weighted Average Lives Of Identifiable, Definite-Lived Intangible Assets
6.5
7.9
10.0
12.0
12 Months Ended
Revenue Recognition [Abstract]
Schedule Of Patient Care Service Revenue
939,951
47,609
22,958
1,010,518
110,596
6,126
5,776
122,498
69,354
8,156
5,167
82,677
1,119,901
61,891
33,901
1,215,693
7,831
1,223,524
(4,123)
(11,785)
(10,054)
1,197,562
Schedule of Disaggregated Revenue
421,790
101,784
50,093
6,382
11,958
592,007
(6,921)
585,086
Change to Prior Revenue Guidance Related to Classification in The Statements of Income
1,811,408
(28,760)
1,782,648
1,238,698
(10,054)
1,228,644
288,915
(18,706)
270,209
12 Months Ended
Long-Term Debt And Lines Of Credit [Abstract]
Debt Outstanding
89,200
26,200
75,000
89,200
101,200
(10,000)
89,200
91,200
Interest Paid During Period
Financial Debt Covenants
12 Months Ended
Stock-Based Compensation Plans [Abstract]
Schedule Of Comparative Date For Performance Stock Units
7,523
7,304
9,541
22.9%
21.8%
26.7%
2.34%
1.44%
0.89%
7,523
7,304
9,541
2.9
2.9
2.9
2020
2019
2018
Schedule Of Total Stock Option And PSU Award Activity
1,698,458
141.62
9,706
121.75
53,732
151.09
246,350
306.70
2,295
333.75
32,255
209.49
(539,104)
112.79
(12,001)
162.29
(37,827)
129.48
(10,670)
153.31
1,395,034
181.82
3.6
144,271
48,160
207.17
1,395,034
181.82
3.6
144,271
83,250
202.10
770,385
137.48
3.3
110,291
Schedule Of Comparative Data For Stocks Option, Stock Awards And PSUs
19,229
16,256
13,773
4,788
5,690
5,062
102,144
50,192
17,635
4,003
6,983
7,429
333.75
203.52
126.53
Schedule Of Valuation Assumptions
$306.70
$231.91
$135.85
$67.16
$46.27
$22.74
246,350
330,550
505,775
4.0
4.0
4.0
2.99%
1.86%
1.09%
22.42%
22.80%
21.10%
0.4%
0.5%
0.8%
Schedule Of Other Data For Stock Options, Stock Awards And PSUs
27,556
5,925
2.3
1.8
24,075
944
2,086
144,271
23,363
12 Months Ended
Segments And Nature Of The Business [Abstract]
Service Revenues And Sales And After-Tax Earnings By Business Segment
1,010,518
935,913
887,940
122,498
124,557
138,025
82,677
90,472
97,580
7,831
1,223,524
1,150,942
1,123,545
(10,054)
(11,785)
(4,123)
(2,682)
(228)
1,197,562
1,148,260
1,123,317
421,790
373,579
345,638
101,784
82,272
50,229
50,093
43,770
40,097
6,382
6,130
5,090
11,958
12,713
12,510
(6,921)
585,086
518,464
453,564
1,782,648
1,666,724
1,576,881
138,846
57,645
84,961
98,711
73,299
52,893
237,557
130,944
137,854
(32,013)
(32,767)
(29,111)
205,544
98,177
108,743
13,412
12,044
8,294
7,000
5,635
3,653
20,412
17,679
11,947
(19,741)
(17,252)
(11,564)
671
427
383
175
188
211
319
323
332
494
511
543
4,496
3,761
3,172
4,990
4,272
3,715
40,847
16,436
51,910
28,850
32,782
32,719
69,697
49,218
84,629
(35,641)
(30,478)
(16,318)
34,056
18,740
68,311
553,949
545,304
542,142
351,030
294,663
261,641
904,979
839,967
803,783
70,550
80,059
76,276
975,529
920,026
880,059
36,969
23,469
22,000
68,786
45,386
17,709
105,755
68,855
39,709
128
483
63
105,883
69,338
39,772
19,700
18,630
19,090
19,016
16,790
15,002
38,716
35,420
34,092
147
205
546
38,863
35,625
34,638
12 Months Ended
Intangible Assets [Abstract]
Schedule By Year Of Projected Amortization Expense For Definite-Lived Intangible Assets
1,628
1,624
1,620
1,611
1,590
8,880
Schedule Of Intangible Assets
21,850
(21,152)
698
9,796
(9,367)
429
2,025
(1,235)
790
12,447
(1,529)
10,918
46,118
(33,283)
12,835
51,300
51,300
150
150
3,968
3,968
101,536
(33,283)
68,253
21,140
(21,140)
9,519
(9,291)
228
1,217
(1,217)
1,298
(1,239)
59
33,174
(32,887)
287
51,300
51,300
150
150
3,128
3,128
87,752
(32,887)
54,865
12 Months Ended
Business Acquisition [Line Items]
Schedule Of Business Acquisitions Pro Forma Of Operations
1,811,532
1,705,747
209,891
103,920
13.07
6.47
12.49
6.21
Roto-Rooter And Vitas [Member]
Business Acquisition [Line Items]
Schedule Of Business Acquisitions
11,161
2,500
33,828
5,688
53,177
Roto-Rooter [Member]
Business Acquisition [Line Items]
Schedule Of Business Acquisitions
98
4,396
231
4,725
12 Months Ended
Discontinued Operations [Abstract]
Schedule Of Estimated Timing Of Payments Of Liabilities
826
300
601
1,727
12 Months Ended
Other Income-Net [Abstract]
Schedule Of Other Income -Net
671
427
383
287
8,430
2,061
(703)
(424)
958
8,154
2,020
12 Months Ended
Income Taxes [Abstract]
Schedule Of Provision For Income Taxes
23,934
11,724
64,698
4,484
4,144
9,927
452
465
393
5,185
2,402
(6,712)
1
5
5
34,056
18,740
68,311
Schedule Of Temporary Differences That Give Rise To Deferred Tax Assets (Liabilities)
30,702
30,419
5,894
6,282
2,422
2,243
1,171
291
626
565
40,815
39,800
(38,346)
(36,882)
(19,685)
(14,057)
(1,068)
(2,277)
(1,261)
(1,722)
(1,861)
(1,255)
(192)
(247)
(62,413)
(56,440)
(21,598)
(16,640)
Schedule Of Significant Changes To Unrecognized Tax Benefits
1,123
1,069
1,052
453
268
218
(228)
(214)
(201)
1,348
1,123
1,069
Schedule Of Difference Between Actual Income Tax Provision For Continuing Operations And Income Tax Provision Calculated At Statutory U.S. Federal Tax Rate
50,316
40,921
61,969
(22,862)
(18,932)
7,150
4,600
6,044
2,280
1,041
881
(8,305)
(2,828)
(585)
(583)
34,056
18,740
68,311
14.2
16.0
38.6
Schedule Of Income Taxes Paid
9,749
42,311
60,905
12 Months Ended
Properties And Equipment [Abstract]
Schedule of Properties and Equipment
7,964
7,108
96,361
85,570
51,559
47,243
111,183
99,234
49,928
47,840
72,898
74,191
20,510
11,882
410,403
373,068
(248,370)
(230,034)
162,033
143,034
12 Months Ended
Lease Arrangements [Abstract]
Summary Of Future Minimum Rental Payments And Sublease Rentals To Be Received Under Operating Leases
26,791
24,152
19,669
13,851
8,179
10,974
103,616
Schedule Of Total Rental Expense Incurred Under Operating Leases For Continuing Operations
41,685
41,210
40,034
12 Months Ended
Retirement Plans [Abstract]
Schedule Of Expenses For Retirement, Profit-Sharing Plans, Excess Benefit Plans And Other Similar Plans
16,502
22,025
14,467
12 Months Ended
Earnings Per Share[Abstract]
Schedule Of Computation Of Earnings Per Share
205,544
16,059
12.80
650
94
205,544
16,803
12.23
98,177
16,057
6.11
596
89
98,177
16,742
5.86
108,743
16,383
6.64
296
110
108,743
16,789
6.48
12 Months Ended
Financial Instruments [Abstract]
Carrying Value, Fair Value And Hierarchy Of Financial Instruments
65,624
65,624
89,200
89,200
62,067
62,067
101,200
101,200
12 Months Ended
Capital Stock Transactions [Abstract]
Schedule Of Capital Stock Repurchases
158,884
94,640
102,313
561,146
500,000
780,134
283.14
189.28
131.15
12 Months Ended
Other Operating Expenses [Abstract]
Schedule Of Other Operating Expenses
796
84,476
504
5,266
1,138
4,491
1,300
90,880
4,491
12 Months Ended
Building And Building Improvements [Member]
Property, Plant and Equipment [Line Items]
Weighted average lives of property and equipment
32 years 9 months 18 days
Transportation Equipment [Member]
Property, Plant and Equipment [Line Items]
Weighted average lives of property and equipment
10 years 6 months
Machinery And Equipment [Member]
Property, Plant and Equipment [Line Items]
Weighted average lives of property and equipment
5 years 1 month 6 days
Computer Software [Member]
Property, Plant and Equipment [Line Items]
Weighted average lives of property and equipment
4 years 7 months 6 days
Furniture And Fixtures [Member]
Property, Plant and Equipment [Line Items]
Weighted average lives of property and equipment
4 years 9 months 18 days
$ in Thousands12 Months Ended
Business Combination Segment Allocation [Line Items]
Beginning balance
$ 476,887
$ 472,366
Business combinations
33,810
4,396
Foreign currency adjustments
(127)
125
Ending balance
510,570
476,887
VITAS [Member]
Business Combination Segment Allocation [Line Items]
Beginning balance
328,301
328,301
Business combinations
5,030
Foreign currency adjustments
Ending balance
333,331
328,301
Roto-Rooter [Member]
Business Combination Segment Allocation [Line Items]
Beginning balance
148,586
144,065
Business combinations
28,780
4,396
Foreign currency adjustments
(127)
125
Ending balance
$ 177,239
$ 148,586
12 Months Ended
Covenants Not To Compete [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Weighted average lives of identifiable, definite-lived intangible assets
6 years 6 months
Reacquired Franchise Rights [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Weighted average lives of identifiable, definite-lived intangible assets
7 years 10 months 24 days
Referral Networks [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Weighted average lives of identifiable, definite-lived intangible assets
10 years
Customer Lists [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Weighted average lives of identifiable, definite-lived intangible assets
12 years
$ in Thousands12 Months Ended
Disaggregated revenue
$ 1,223,524
Net revenue
1,197,562
Roto-Rooter [Member]
Disaggregated revenue
592,007
Net revenue
585,086
Roto-Rooter [Member] | Short-Term Core Service Jobs [Member]
Disaggregated revenue
421,790
Roto-Rooter [Member] | Water Restoration [Member]
Disaggregated revenue
101,784
Roto-Rooter [Member] | Contractor Revenue [Member]
Disaggregated revenue
50,093
Roto-Rooter [Member] | Franchise Fees [Member]
Disaggregated revenue
6,382
Roto-Rooter [Member] | Other [Member]
Disaggregated revenue
11,958
Roto-Rooter [Member] | Implicit Price Concessions And Credit Memos [Member]
Disaggregated revenue
$ (6,921)
12 Months Ended
Debt Instrument [Line Items]
Revolving credit facility period, years
5 years
Standby letters of credit issued
$ 36,400,000
LIBOR [Member]
Debt Instrument [Line Items]
Basis spread on variable interest rate
1.00%
1.00%
Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Face amount of debt
$ 450,000,000
Unused lines of credit
$ 324,400,000
Term Loan [Member]
Debt Instrument [Line Items]
Face amount of debt
$ 150,000,000
$ in Thousands
Debt Instrument [Line Items]
Total
$ 89,200
$ 101,200
Current portion of term loan
(10,000)
Long-term debt
89,200
91,200
Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Total
$ 89,200
26,200
Term Loan [Member]
Debt Instrument [Line Items]
Total
$ 75,000
$ in Thousands12 Months Ended
Long-Term Debt And Lines Of Credit [Abstract]
Interest paid
$ 4,178
$ 3,626
$ 3,047
$ / shares in Units, $ in Thousands12 Months Ended
Stock-Based Compensation Plans [Abstract]
Total compensation expense of stock-based compensation plans charged against income
$ 19,229
$ 16,256
$ 13,773
Total income tax benefit recognized in income for stock based compensation expense charged against income
4,788
5,690
5,062
Total intrinsic value of stock options exercised
102,144
50,192
17,635
Total intrinsic value of stock awards vested during the period
$ 4,003
$ 6,983
$ 7,429
Per-share weighted average grant-date fair value of stock awards granted
$ 333.75
$ 203.52
$ 126.53
12 Months Ended
Stock-Based Compensation Plans [Abstract]
Stock price on date of issuance
$ 306.70
$ 231.91
$ 135.85
Grant date fair value per share
$ 67.16
$ 46.27
$ 22.74
Number of options granted
246,350
330,550
505,775
Expected term (years)
4 years
4 years
4 years
Risk free rate of return
2.99%
1.86%
1.09%
Volatility
22.42%
22.80%
21.10%
Dividend yield
0.40%
0.50%
0.80%
Forfeiture rate
$ in Thousands12 Months Ended
Business Combinations [Abstract]
2019
$ 1,628
2020
1,624
2021
1,620
2022
1,611
2023
1,590
Thereafter
8,880
Amortization of definite-lived intangible assets
$ 399
$ 137
$ 359
$ in Thousands12 Months Ended
Business Acquisition [Line Items]
Business combinations
$ 53,177
$ 4,725
Roto-Rooter [Member]
Business Acquisition [Line Items]
Number of businesses acquired | item
4
2
Business combinations
$ 42,200
$ 4,700
VITAS [Member]
Business Acquisition [Line Items]
Number of businesses acquired | item
1
Business combinations
$ 11,000
$ in Thousands
Business Acquisition [Line Items]
Goodwill
$ 510,570
$ 476,887
$ 472,366
Roto-Rooter And Vitas [Member]
Business Acquisition [Line Items]
Reacquired franchise rights
11,161
All other identifiable intangible assets
2,500
Goodwill
33,828
Other assets and liabilities - net
5,688
Assets total
53,177
Roto-Rooter [Member]
Business Acquisition [Line Items]
All other identifiable intangible assets
98
Goodwill
4,396
Other assets and liabilities - net
231
Assets total
$ 4,725
$ in Thousands
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Estimated liability for potential environmental cleanup and related costs from the sale
$ 1,700
$ 1,700
Discontinued operations, amount included in other current liabilities
826
Discontinued operations, amount included in other liabilities (long-term)
901
Maximum [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Contingent liability for incurring additional environmental cleanup and related costs
$ 14,900
$ in Thousands
Discontinued Operations [Abstract]
2019
$ 826
2020
300
Thereafter
601
Total estimated timing of payments of liabilities related to discontinued operations
$ 1,727
$ in Thousands
Cash Overdrafts And Cash Equivalents [Abstract]
Cash overdrafts included in accounts payable
$ 13,800
$ 15,300
Amount invested
$ 100
$ 100
$ in Thousands12 Months Ended
Other Income-Net [Abstract]
Interest income
$ 671
$ 427
$ 383
Market value gains related to deferred compensation trusts
287
8,430
2,061
Other--net
(703)
(424)
Total other income
$ 958
$ 8,154
$ 2,020
$ in Thousands12 Months Ended
Income Taxes [Line Items]
Net operating loss carryforwards
$ 39,300
$ 36,500
Accrued interest payable related to uncertain tax positions
136
$ 134
Undistributed earnings of domestic subsidiaries
35,100
Additional taxes if interest in all businesses is sold rather than to effect a tax-free liquidation
$ 8,400
Maximum [Member]
Income Taxes [Line Items]
Net operating losses expiration date
Jan. 01, 2038
Minimum [Member]
Income Taxes [Line Items]
Net operating losses expiration date
Jan. 01, 2024
$ in Thousands12 Months Ended
Income Taxes [Abstract]
Current, U.S. federal
$ 23,934
$ 11,724
$ 64,698
Current, U.S. state and local
4,484
4,144
9,927
Current, Foreign
452
465
393
Deferred, U.S. federal, state and local
5,185
2,402
(6,712)
Deferred, Foreign
1
5
5
Total income tax provision
$ 34,056
$ 18,740
$ 68,311
$ in Thousands
Income Taxes [Abstract]
Accrued liabilities
$ 30,702
$ 30,419
Stock compensation expense
5,894
6,282
State net operating loss carryforwards
2,422
2,243
Implicit price concessions
1,171
291
Other
626
565
Deferred income tax assets
40,815
39,800
Amortization of intangible assets
(38,346)
(36,882)
Accelerated tax depreciation
(19,685)
(14,057)
Market valuation of investments
(1,068)
(2,277)
State income taxes
(1,261)
(1,722)
Current assets
(1,861)
(1,255)
Other
(192)
(247)
Deferred income tax liabilities
(62,413)
(56,440)
Net deferred income tax liabilities
$ (21,598)
$ (16,640)
$ in Thousands12 Months Ended
Income Taxes [Abstract]
Balance at January 1,
$ 1,123
$ 1,069
$ 1,052
Unrecognized tax benefits due to positions taken in current year
453
268
218
Decrease due to expiration of statute of limitations
(228)
(214)
(201)
Balance at December 31,
$ 1,348
$ 1,123
$ 1,069
$ in Thousands12 Months Ended
Income Taxes [Abstract]
Income tax provision calculated using the statutory rate of 21%
$ 50,316
$ 40,921
$ 61,969
Stock compensation tax benefits
(22,862)
(18,932)
State and local income taxes, less federal income tax effect
7,150
4,600
6,044
Nondeductible expenses
2,280
1,041
881
Enactment of the tax reform act
(8,305)
Other --net
(2,828)
(585)
(583)
Total income tax provision
$ 34,056
$ 18,740
$ 68,311
Effective tax rate
14.20%
16.00%
38.60%
$ in Thousands12 Months Ended
Income Taxes [Abstract]
Income taxes paid
$ 9,749
$ 42,311
$ 60,905
$ in Millions12 Months Ended
Properties And Equipment [Abstract]
Net book value of computer software
$ 6.6
$ 7.3
Depreciation expense for computer software
$ 5.4
$ 4.4
$ 4.0
$ in Millions
Lease Arrangements [Abstract]
Capital Lease Obligations
$ 0
$ 0
$ in Thousands
Lease Arrangements [Abstract]
2019
$ 26,791
2020
24,152
2021
19,669
2022
13,851
2023
8,179
Thereafter
10,974
Total minimum rental payments
$ 103,616
$ in Thousands12 Months Ended
Lease Arrangements [Abstract]
Total rental expense
$ 41,685
$ 41,210
$ 40,034
$ in Millions
Retirement Plans [Abstract]
Number of treasury stock shares held
80,584
83,125
Treasury stock held value
$ 2.3
$ 2.2
$ in Thousands12 Months Ended
Retirement Plans [Abstract]
Defined contribution plans expense
$ 16,502
$ 22,025
$ 14,467
12 Months Ended
Earnings Per Share[Abstract]
Excluded stock options
246,000
328,000
923,000
$ / shares in Units, shares in Thousands, $ in Thousands12 Months Ended
Earnings Per Share[Abstract]
Earnings
$ 205,544
$ 98,177
$ 108,743
Dilutive stock options, Income
Nonvested stock awards, Income
Diluted Earnings
$ 205,544
$ 98,177
$ 108,743
Earnings, Shares
16,059
16,057
16,383
Dilutive stock options, Shares
650
596
296
Nonvested stock awards, Shares
94
89
110
Diluted Earnings, Shares
16,803
16,742
16,789
Earnings per Share, Earnings
$ 12.80
$ 6.11
$ 6.64
Earnings per Share, Diluted earnings
$ 12.23
$ 5.86
$ 6.48
12 Months Ended
Minimum [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Period in which the interest rate will reset
30 days
Maximum [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Period in which the interest rate will reset
60 days
$ in Thousands
Carrying Value [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments of deferred compensation plans held in trust
$ 65,624
$ 62,067
Long-term debt and current portion of long-term debt
89,200
101,200
Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments of deferred compensation plans held in trust
65,624
62,067
Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Long-term debt and current portion of long-term debt
$ 89,200
$ 101,200
$ in Thousands12 Months Ended
Concentration Risk [Line Items]
Number of service providers | item
1
Accounts payable
$ 50,150
$ 48,372
VITAS [Member]
Concentration Risk [Line Items]
VITAS made purchases from provider
$ 31,400
$ 32,700
$ 35,200
Puchases From Vendor [Member]
Concentration Risk [Line Items]
Percentage of concentration risk services represent from vendor
99.00%
85.00%
90.00%
Accounts Payable [Member] | Supplier Concentration Risk [Member] | VITAS [Member]
Concentration Risk [Line Items]
Accounts payable
$ 2,600
$ 2,000
$ in Millions
Capital Stock Transactions [Abstract]
Stock repurchase program, amount authorized
$ 150.0
Stock Repurchase Program, Remaining Authorized Repurchase Amount
$ 46.6
$ / shares in Units, $ in Thousands12 Months Ended
Capital Stock Transactions [Abstract]
Total cost of repurchased shares
$ 158,884
$ 94,640
$ 102,313
Shares repurchased
561,146
500,000
780,134
Weighted average price per share
$ 283.14
$ 189.28
$ 131.15
$ in Thousands12 Months Ended
Other Operating Expenses [Line Items]
Other operating expenses (Note 20)
$ 1,300
$ 90,880
$ 4,491
VITAS [Member] | Chief Executive Officer [Member]
Other Operating Expenses [Line Items]
Other operating expenses (Note 20)
$ 4,500
Litigation Settlement [Member]
Other Operating Expenses [Line Items]
Other operating expenses (Note 20)
$ 796
84,476
Loss On Sale Of Transportation Equipment [Member]
Other Operating Expenses [Line Items]
Other operating expenses (Note 20)
5,300
Program Closure Expenses [Member]
Other Operating Expenses [Line Items]
Other operating expenses (Note 20)
$ 1,138
Program Closure Expenses [Member] | VITAS [Member]
Other Operating Expenses [Line Items]
Number of programs closed | item
3
$ in Thousands12 Months Ended
Total other operating expenses
$ 1,300
$ 90,880
$ 4,491
Litigation Settlement [Member]
Total other operating expenses
796
84,476
Loss On Disposal Of Property And Equipment [Member]
Total other operating expenses
$ 504
5,266
Program Closure Expenses [Member]
Total other operating expenses
$ 1,138
Retirement Expense [Member]
Total other operating expenses
$ 4,491
$ in Millions
Minimum [Member]
Lease, right of use asset
$ 100
Lease, related liability
100
Maximum [Member]
Lease, right of use asset
120
Lease, related liability
$ 120
$ in Thousands12 Months Ended
Valuation and Qualifying Accounts Disclosure [Line Items]
BALANCE AT BEGINNING OF PERIOD
$ (15,175)
$ (14,236)
$ (13,244)
(CHARGED) CREDITED TO COSTS AND EXPENSES
(247)
(17,376)
(16,420)
(CHARGED) CREDITED TO OTHER ACCOUNTS
(1,436)
(1,360)
(1,518)
DEDUCTIONS
16,605
17,797
16,946
BALANCE AT END OF PERIOD
$ (253)
$ (15,175)
$ (14,236)
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