CHE

Chemed Corporation 10-K Summary (Fiscal Year Ended Dec 31, 2009)

Business Context and Reporting Period

This Form 10-K covers the fiscal year ended December 31, 2009, for Chemed Corporation, a Delaware corporation headquartered in Cincinnati, Ohio. The company operates through two primary segments: Vitas Group, the nation's largest provider of hospice services, and the Roto-Rooter Group, a provider of sewer, drain, and plumbing services. As of December 31, 2009, the company employed 12,308 people. The company is a large accelerated filer with stock traded on the New York Stock Exchange under the symbol "CHE."

Key Financial Metrics

Note: Specific revenue, net income, and cash flow figures for 2009 are incorporated by reference from the 2009 Annual Report to Stockholders and are not explicitly detailed in the provided text. The following metrics are available from the filing text:

• Debt Reduction: The company reduced outstanding debt by $16.3 million in 2009.
• Debt Carrying Value: Long-term debt carrying value was approximately $152.1 million as of December 31, 2009.
• Debt Market Value: The market value of long-term debt was approximately $163.6 million as of December 31, 2009.
• Variable Rate Debt: No variable rate debt was outstanding as of December 31, 2009.
• Stock Repurchases: In December 2009, the company repurchased 15,900 shares at a weighted average price of $46.65 per share. Cumulative shares repurchased under the April 2007 program totaled 1,705,597, with approximately $53.2 million remaining under the program.
• Dividends: Dividends paid per share were $0.06 in Q1 and Q2 2009, and increased to $0.12 in Q3 and Q4 2009.
• Environmental Liability: Accrual for potential environmental cleanup costs related to the former DuBois Chemicals Inc. was $1.7 million ($0.9 million long-term, $0.8 million current).
• Medicare Cap Liability: A liability of $1.8 million was recorded in Q4 2009 for two programs regarding the 2010 Medicare CAP year measurement period.

Material Changes and Operational Highlights

• Revenue Mix: Over 90% of Vitas's net patient service revenue is derived from Medicare and Medicaid programs. Medicaid accounted for 5% of Vitas revenues in 2009.
• Reimbursement Rates: Medicare base rates increased by 1.4% on October 1, 2009. Medicaid rates generally track Medicare rates.
• Debt Management: The company successfully reduced debt by $16.3 million during the year, improving its leverage profile.
• Stock Performance: The company's cumulative total stockholder return for the five-year period ending Dec 31, 2009, was 147.27, compared to 102.08 for the S&P 500.

Guidance, Risks, and Contingencies

Regulatory and Legal Risks:

• Government Investigations: The Office of Inspector General (OIG) and the U.S. Department of Justice are investigating Vitas regarding alleged billing practices. Subpoenas were issued in 2005 and 2009. The company believes it is in material compliance but cannot predict the outcome.
• Medicare/Medicaid Dependency: Vitas is highly sensitive to changes in government reimbursement rates, eligibility rules (specifically the six-month life expectancy certification), and payment caps. A reduction in rates or increased scrutiny could materially impact profitability.
• Anti-Kickback and Stark Laws: The company faces risks related to federal and state laws prohibiting financial arrangements that induce patient referrals. Violations could result in severe penalties and exclusion from government programs.
• Class Action Litigation: A class action lawsuit filed in California regarding overtime and meal/rest periods for nurses and sales representatives is pending. The court denied class certification in December 2009, but the case remains in early stages.

Operational Risks:

• Workforce Shortages: A nationwide shortage of qualified nurses impacts Vitas's ability to provide care and increases wage costs.
• Competition: Both segments face intense competition. Roto-Rooter competes in a fragmented market, while Vitas competes with non-profits, hospitals, and other national providers.
• Environmental Liabilities: The company retains contingent liability for environmental cleanup related to the sale of DuBois Chemicals, with a potential maximum exposure of $14.9 million beyond the recorded $1.7 million accrual.

Investor Verification Checklist

• Verify the specific revenue and net income figures for 2009 in the full 2009 Annual Report to Stockholders (incorporated by reference).
• Monitor the status of the OIG and Department of Justice investigations into Vitas billing practices for potential financial impact.
• Review the impact of Medicare reimbursement rate adjustments and the "80-20" inpatient cap on Vitas's future margins.
• Assess the company's ability to manage labor costs amidst the national nursing shortage.
• Confirm the status of the California class action lawsuit regarding employee overtime and meal periods.
• Review the terms of the $150 million share repurchase program and the remaining $53.2 million authorization.