UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported):
September 28, 2006
CHEMED CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 1-8351 31-0791746
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of Identification
incorporation) Number)
2600 Chemed Center, 255 East 5th Street, Cincinnati, OH 45202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(513) 762-6900
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2 below):
[_] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
230.425)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under Exchange
Act (17 CFR 230.425)
[_] Pre-commencement communications pursuant to Rule 13e-4 (c) under Exchange
Act (17 CFR 230.425)
Page 1 of 3
Item 2.02 Results of Operations and Financial Condition
On September 28, 2006 Chemed Corporation issued a press release
announcing its VITAS subsidiary is exiting the Phoenix hospice
market and updating financial guidance for 2006. A copy of the
release is furnished herewith as Exhibit 99.1.
Item 2.05 Costs Associated with Exit or Disposal Activities
On September 28, 2006 Chemed Corporation announced that the
Executive Committee of its Board of Directors authorized the
discontinuance of its VITAS subsidiary's Phoenix hospice program.
VITAS will cease operations in Phoenix either by selling or
closing down its Phoenix program. The estimated costs and cash
flows associated with ceasing hospice operations in Phoenix are
(in millions):
Cash Outflow
Expense /(Inflow)
------------- ---------------
Cost of transferring patients to
other facilities $ 2.8 $ 2.8
Write-off customer referral network 2.2 -
Severance and employee related costs 0.7 0.7
Lease termination costs 0.6 0.6
Other costs 0.9 0.5
Potential increase in the above
cost estimates 1.6 1.6
------------- ---------------
Pretax cost 8.8 6.2
Income tax benefit (3.3) (8.2)
------------- ---------------
Aftertax cost/ (cash inflow) $ 5.5 $ (2.0)
============= ===============
Chemed currently anticipates VITAS will dispose of or cease
operations in Phoenix by year-end 2006.
The Phoenix program's contributions to VITAS' results of
operations during the year ended December 31, 2005 and the six
months ended June 30, 2006 were (in millions):
Year Ended Six Months
December 31, Ended June 30,
2005 2006
-------------- --------------
Net patient revenues $ 10.5 $ 3.0(a)
Income/(loss) from operations 2.6 (0.9)
Net income/(loss) 1.5 (0.5)
(a) Net patient revenues for the first six months of 2006 include a pretax
reduction of $1.7 million ($1.0 million aftertax) for effect of Medicare
billing limitations.
Item 9.01 Financial Statements and Exhibits
c) Exhibit
(99.1) Registrant's press release dated
September 28, 2006
Page 2 of 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
CHEMED CORPORATION
Dated: October 2, 2006 By: /s/ Arthur V. Tucker, Jr.
--------------- -----------------------------
Arthur V. Tucker, Jr.
Vice President and Controller
Page 3 of 3
Exhibit 99.1
Chemed Announces VITAS Exiting Phoenix Hospice Market
CINCINNATI--(BUSINESS WIRE)--Sept. 28, 2006--Chemed Corporation (Chemed)
(NYSE:CHE), which operates VITAS Healthcare Corporation (VITAS), the nation's
largest provider of end-of-life care, and Roto-Rooter, the nation's largest
commercial and residential plumbing and drain cleaning services provider, today
reported on several issues impacting operating results for the third quarter of
2006.
The Company announced VITAS is exiting the hospice market in Phoenix,
Arizona. VITAS has been successful in growing admissions of terminally ill
patients who reside primarily in assisted living settings within the Phoenix
community. Patients residing in these types of facilities tend to exit curative
care and enter into hospice relatively early into their terminal illness
diagnosis. The current Medicare hospice reimbursement program limits payment for
hospice care when a significant portion of the patient census enters into
hospice early into their terminal diagnosis. Although VITAS, on average, has
relatively short average and median lengths-of-stay in the majority of its
programs, each program is measured separately and cannot be considered in
aggregate of its hospice programs under common control and ownership.
The Phoenix program currently provides hospice care to approximately 200
terminally ill patients per day. Revenue and operating losses for Phoenix in the
first six months of 2006 aggregated $3.0 million and $0.9 million, respectively,
including $1.7 million of revenue reduction for Medicare billing limitations, or
Medicare Cap. Full-year revenue and operating loss projections for Phoenix are
estimated at $3.7 million and $4.3 million, including $6.3 million in revenue
reductions for Medicare Cap. The after-tax cost to exit the Phoenix market,
excluding the operating losses noted above, is estimated to range from $4.5 to
$5.5 million.
VITAS announced in the second quarter of 2006 that two programs, excluding
Phoenix, were anticipated to be in contractual billing limitations with Medicare
in calendar year 2006. Based upon current trends, the total Medicare Cap for
these two programs in calendar year 2006 is estimated to range between $4.7 and
$7.6 million, with $0.6 million being recorded in the second quarter of 2006,
$2.0 million to $3.0 million estimated to be recorded in the third quarter of
2006 and $2.1 million to $4.0 million to be recorded in the fourth quarter of
the year. These estimates assume a modest deterioration in admission and
discharge metrics in these two programs through the end of 2006. These two
programs are estimated to generate over $3 million in operating profit in 2006.
The third-quarter 2006 Medicare Cap accrual will also include an additional
$1.0 million for estimated prior-year billing limitations resulting from the
Fiscal Intermediary reallocating admissions for deceased Medicare patients who
received hospice care from multiple providers. Of this prior-year billing, $0.5
million is for one of the programs noted above and $0.5 million is estimated for
a program not anticipated to have a billing restriction in calendar year 2006.
VITAS also released interim third quarter operating metrics. Through July
and August 2006, VITAS had an Average Daily Census of 11,194, an increase of
9.7%, and admissions growth of 4.2%, when compared to the equivalent prior year
period. August 2006 year-to-date ADC and admissions, excluding Phoenix, have
increased 10.6% and 5.3%, respectively.
Chemed announced that it has reached a preliminary agreement in regard to
litigation related to the divestiture of its Patient Care business segment. As
part of this agreement, the company will convert $2.6 million of the current
receivable due from Patient Care into a promissory note due October 2007. This
note will bear interest quarterly at a 9.5% annual interest rate. The company
will take an after-tax charge of $1.7 million representing a write-off of the
remaining receivable balance as well as costs associated with certain contingent
insurance claims and other items related to the Patient Care business. Chemed
received Patient Care warrants with a value of $1.4 million at the time of the
divestiture. The company has determined the valuation of these warrants is
impaired. This impairment will result in a third quarter 2006 after-tax charge
of $0.9 million.
Guidance for 2006
VITAS is estimated to generate full-year revenue growth from continuing
operations, prior to Medicare Cap, of 14.0% to 14.5%, increased admissions of
5.0% to 5.5%, increased ADC of 10.0% to 11.0% and adjusted EBITDA margins, prior
to Medicare Cap, of 12.9% to 13.2%. This guidance assumes a Medicare price
increase that will average 3.8% in the fourth quarter of 2006.
Full-year Medicare contractual billing limitations, excluding Phoenix,
which is anticipated to be classified as a discontinued operation in 2006, are
estimated to range from $5.7 million to $8.6 million, which equates to revenue
reduction of 80 to 120 basis points.
Roto-Rooter is estimated to generate a 6.0% to 7.0% increase in revenue in
2006, job count growth between 0.5% and 1.0% and adjusted EBITDA margins
averaging between 16.5% and 17.0%.
Based upon these factors, an effective tax rate of 39% and average diluted
share count of 26.7 million in the second half of 2006, our expectation is that
full-year 2006 earnings per diluted share from continuing operations, excluding
any charges or credits not indicative of ongoing operations, and excluding
expense for stock options, will be in the range of $2.00 to $2.10. This earnings
per share guidance includes $.13 to $.20 for the after-tax impact of Medicare
Cap related to continuing operations.
Conference Call
Chemed will host a conference call and webcast at 9:00 a.m., ET, on Friday,
September 29, 2006, to discuss this press release and provide an update on its
business. The dial-in number for the conference call is (800) 561-2601 for U.S.
and Canadian participants and (617) 614-3518 for international participants. The
participant pass code is 50409048. A live webcast of the call can be accessed on
Chemed's website at www.chemed.com by clicking on Investor Relations Home.
A taped replay of the conference call will be available beginning
approximately two hours after the call's conclusion. It can be accessed by
dialing (888) 286-8010 for U.S. and Canadian callers and (617) 801-6888 for
international callers and will be available for one week following the live
call. The replay pass code is 79291237. An archived webcast will also be
available at www.chemed.com and will remain available for 14 days following the
live call.
Chemed Corporation operates in the healthcare field through its VITAS
Healthcare Corporation subsidiary. VITAS provides daily hospice services to over
11,000 patients with severe, life-limiting illnesses. This type of care is
focused on making the terminally ill patient's final days as comfortable and
pain-free as possible.
Chemed operates in the residential and commercial plumbing and drain
cleaning industry under the brand name Roto-Rooter. Roto-Rooter provides
plumbing and drain service through company-owned branches, independent
contractors and franchisees in the United States and Canada. Roto-Rooter also
has licensed master franchisees in Indonesia, Singapore, Japan, Mexico, and the
Philippines.
Forward-Looking Statements
Certain statements contained in this press release and the accompanying
tables are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. The words "believe," "expect," "hope,"
"anticipate," "plan" and similar expressions identify forward-looking
statements, which speak only as of the date the statement was made. Chemed does
not undertake and specifically disclaims any obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. These statements are based on current expectations
and assumptions and involve various risks and uncertainties, which could cause
Chemed's actual results to differ from those expressed in such forward-looking
statements. These risks and uncertainties arise from, among other things,
possible changes in regulations governing the hospice care or plumbing and drain
cleaning industries; periodic changes in reimbursement levels and procedures
under Medicare and Medicaid programs; difficulties predicting patient length of
stay and estimating potential Medicare reimbursement obligations; challenges
inherent in Chemed's growth strategy; the current shortage of qualified nurses,
other healthcare professionals and licensed plumbing and drain cleaning
technicians; Chemed's dependence on patient referral sources; and other factors
detailed under the caption "Description of Business by Segment" or "Risk
Factors" in Chemed's most recent report on form 10-Q or 10-K and its other
filings with the Securities and Exchange Commission. You are cautioned not to
place undue reliance on such forward-looking statements and there are no
assurances that the matters contained in such statements will be achieved.
CONTACT: Chemed Corporation
David P. Williams, 513-762-6901