EX-99.2 3 a4749040ex992.txt EARNINGS REPORT Exhibit 99.2 Chemed Corporation Reports 2004 Third-Quarter Results; Consolidated Diluted EPS of $.84 CINCINNATI--Oct. 25, 2004--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 financial results for its third quarter ended September 30, 2004, versus the comparable prior-year period, as follows: -- Consolidated Operating Results (GAAP) -- Revenue increased 181% to $211.1 million -- Diluted EPS of $.84 -- VITAS generated record Revenue and ADC levels -- Quarterly Net Patient Revenue of $135.1 million, up 19% -- Average Daily Census (ADC) of 8,949, up 17% -- Net Income of $9.0 million -- Roto-Rooter segment reported increased Revenue and Net Income -- Revenue increased 5% -- Net Income, including prior quarters' tax benefits, of $6.1 million, an increase of 118% "Chemed Corporation continues to generate strong fundamental performance," stated Kevin McNamara, Chemed president and chief executive officer. "Our methodical expansion of the VITAS business model now includes 32 programs in 11 states. ADC for the third quarter of 2004 was 8,949, an increase of 17.1% over the prior-year quarter and 4.3% above the second quarter of 2004. This translated into revenue growth of 19.0% over the prior year and 3.7% over the second quarter of 2004. We currently have 10 new starts in various stages of development, including our small acquisition in Atlanta. New starts generated $1.4 million of operating losses in the quarter, which had a modest impact on our overall margins. "In addition, Roto-Rooter continues to show strong earnings improvements over the prior year. For the third quarter of 2004, revenue growth aggregated 5.4% and net income, including $847,000 of favorable tax adjustments, increased 118% over the prior year." "The third quarter of 2004 does contain a number of items that positively impacted our GAAP operating results," said David Williams, Chemed's chief financial officer. "These items included reversing out certain severance accruals related to the VITAS merger, as well as adjusting year-to-date amortization and depreciation expense as we finalize valuations for the VITAS transaction. In addition, we have recently completed a multi-state and local tax planning analysis that had a favorable impact on our year-to-date effective tax rate. These items are explained in the notes to the accompanying statements of income. These should assist in projecting a more reasonable estimate of our earnings on a go-forward basis. We continue to caution everyone to carefully review the accounting issues relating to the refinancing and merger of VITAS into Chemed when analyzing quarter and year-to-date operating results." For a detailed presentation of operating results, adjustments and special items and related definitions and components, please refer to the attached schedules. VITAS The merger of VITAS was completed on February 24, 2004. Prior to that date, the Company accounted for its 37% ownership of VITAS under the equity method of accounting. As a result, under generally accepted accounting principles, only a portion of VITAS' operating results is fully consolidated into Chemed's first quarter of 2004 results. VITAS had net patient revenue of $135.1 million, income from operations of $14.7 million and net income of $9.0 million in the third quarter of 2004. VITAS generated revenue growth of 19.0% over the prior-year period and 3.7% sequentially. Gross margins remained relatively flat at 21.8% in the third quarter of 2004 as compared to the prior-year quarter. The third-quarter 2004 gross margin includes $1.4 million in startup losses, which is an incremental $0.9 million over the prior-year period. This negatively impacted margins by 104 basis points. Central support costs for VITAS, which are included as selling, general and administrative expenses, declined 9.8% from the prior-year quarter and increased 3.5% sequentially. VITAS' average daily census (ADC) in the third quarter of 2004 was 8,949. This compares to an ADC of 7,643 in the comparable prior-year period, an increase of 17% and a 4% increase over the second quarter of 2004. Average length of stay (LOS) per patient was 60.8 days for the quarter and compares to 54.7 days in the third quarter of 2003. Average LOS for all non-startup programs ranged from a low of 35.2 days to a high of 84.5 days in the third quarter of 2004. The median LOS was 13.0 days in the quarter, an increase of 1.0 day over the prior year. "We continue to see strong organic ADC growth across all levels of VITAS," said McNamara. "The ADC in our 22 base programs now exceeds an average of 397 patients per program. In our large programs, those with an average daily census in excess of 450, ADC growth was 14% over the prior-year quarter and increased 2.2% sequentially. Our small and medium programs generated ADC growth of 20.6% over the prior year and 6.5% sequentially." "We did see significant mix fluctuations in our revenue components this quarter," Williams stated. "Routine home care aggregated 69.8% of revenue, an increase of 130 basis points over the prior-year quarter and a 150-basis-point increase on a sequential basis. Our inpatient revenue aggregated 13.6% of total revenue and continuous care was 16.6% of revenue in the third quarter of 2004." Roto-Rooter Segment Roto-Rooter's plumbing and drain cleaning business generated sales of $66.8 million for the third quarter of 2004, 5.4% higher than the $63.3 million reported in the comparable prior-year quarter. Net income for the quarter, including $847,000 of favorable tax benefits relating to prior quarters, totaled $6.1 million, an increase of 118% over the prior-year quarter. "There are several factors contributing to the improvement in the plumbing and drain cleaning segment," stated McNamara. "Job count increased 1.9% in the third quarter of 2004 over the prior-year period. We continue to see strengthening demand in commercial and residential plumbing. Our expense control at the field level resulted in a third-quarter-2004 gross profit margin of 45.4%, which is 160 basis points above the third quarter of 2003." Consolidated Financial Position "Our cash position is solid," Williams stated. "As of September 30, 2004, we have over $51 million in cash and approximately $72 million of unused lines of credit under our Credit Facility. In addition, we have tax refunds in excess of $15 million relating to the deductibility of stock option buyouts at the VITAS level that should be received by the end of the year." Guidance for the Remainder of the Year "Looking ahead into the fourth quarter of 2004," Williams stated, "we anticipate sequential consolidated revenue to be materially above the third quarter due to seasonality factors within Roto-Rooter. Roto-Rooter is estimated to generate a 5% to 7% sequential revenue growth in the fourth quarter, which is consistent with historical seasonality. "VITAS continues to show consistent ADC growth. The past six quarters have averaged a sequential quarterly increase in ADC of 345. If this trend line continues, ADC would approximate 9,300 in the fourth quarter. We are optimistic as to the long-term sustainable trend-line improvements in ADC, revenue and earnings per share. However, we should keep in perspective VITAS will experience fluctuations in growth patterns and revenue mix quarter to quarter. We anticipate fluctuations in margins quarter to quarter as capacity and central support resources are grown at a more predictable and methodical rate than our actual ADC. "Based upon these factors and a current diluted share count of 12.7 million, our expectation is that earnings per diluted share for the fourth quarter will be in the range of $.73 to $.77. We anticipate providing full-year 2005 guidance when we release our final 2004 operating results." Conference Call Chemed will hold a conference call to discuss third quarter results Tuesday, October 26, 2004, at 11 a.m., ET. The dial-in number for the conference call is 800-945-0061 for U.S. and Canadian participants and 706-679-7146 for international participants. A live webcast of the call can be accessed on Chemed's website at www.chemed.com by clicking on "Investor Relations Home" and then on "Featured Event: Web Cast - Live! Q3 2004 Chemed Corporation Earnings Conference Call." An archived webcast will also be available at www.chemed.com and will remain available for 14 days following the live call. A taped replay of the conference call will be available approximately two hours after the call's conclusion. It can be accessed by dialing 800-642-1687 for U.S. and Canadian callers and 706-645-9291 for international callers. The conference identification number is 1034741. The telephone replay will be available for one week following the live call. Chemed Corporation operates in the healthcare field through its VITAS Healthcare Corporation subsidiary. VITAS provides daily hospice services to approximately 9,000 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 repair-and-maintenance-service industry under the brand names Roto-Rooter and Service America. 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 China/Hong Kong, Indonesia, Singapore, Japan, Mexico, the Philippines and the United Kingdom. Operating in Florida and Arizona, Service America furnishes residential and commercial appliance and heating and air conditioning repair and maintenance services. Forward-Looking Statements Certain statements contained in this earnings report 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, plumbing, drain cleaning and HVAC 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. CHEMED CORPORATION CONSOLIDATED STATEMENT OF INCOME (in thousands, except per share data)(unaudited) Three Months Ended Nine Months Ended September 30, September 30, ------------------- ------------------- 2004 (a) 2003 (b) 2004 (a) 2003 (b) -------- ------- -------- -------- Service revenues and sales $211,134 $75,172 $551,176 $230,088 -------- ------- -------- -------- Cost of services provided and goods sold 149,409 44,215 382,839 135,978 Selling, general and administrative expenses 38,908 25,607 107,844 76,754 Depreciation 3,002 2,983 11,161 9,025 Long-term incentive compensation - - 9,058 - -------- ------- -------- -------- Total costs and expenses 191,319 72,805 510,902 221,757 -------- ------- -------- -------- Income from operations 19,815 2,367 40,274 8,331 Interest expense (6,085) (755) (15,196) (2,429) Loss on extinguishment of debt - - (3,330) - Other income--net 398 3,049 2,208 9,766 -------- ------- -------- -------- Income before income taxes 14,128 4,661 23,956 15,668 Income taxes (3,647) (1,748) (8,983) (5,898) Equity in income/(loss) of affiliate (VITAS) 131 - (3,153) - -------- ------- -------- -------- Net Income $ 10,612 $ 2,913 $ 11,820 $ 9,770 ======== ======= ======== ======== Earnings Per Share Net income $ 0.85 $ 0.29 $ 0.99 $ 0.99 ======== ======= ======== ======== Average number of shares outstanding 12,470 9,941 11,904 9,913 ======== ======= ======== ======== Diluted Earnings Per Share Net income $ 0.84 $ 0.29 $ 0.97 $ 0.98 ======== ======= ======== ======== Average number of shares outstanding 12,701 9,988 12,136 9,940 ======== ======= ======== ======== ---------------------------------- (a) Results for 2004 include the following adjustments/special items which increased/(reduced) earnings (in thousands): Third Nine Quarter Months ------ -------- Adjustments to revise VITAS purchase price allocation and related amortization of assets: Increase in amortization expense (included in selling, gen. and administrative exp.) $ (311) $ - Reduction in depreciation expense 837 - Payouts under the Company's long-term incentive program - (9,058) Loss on extinguishment of debt - (3,330) ------ -------- Total impact on income before income taxes 526 (12,388) Adjustment of income taxes related to the above (211) 4,751 Tax adjustments resulting from the finalization of prior-year tax returns in the third quarter of 2004 1,020 1,020 Tax adjustments from the cumulative reduction of estimated state and local tax rates 1,098 - Equity in the earnings/(loss) of VITAS, impacted significantly by transaction- related expenses incurred by VITAS prior to its merger with Chemed in February 2004 131 (3,153) ------ -------- Total impact on net income $2,564 $ (9,770) ====== ======== These 2004 adjustments/special items increased earnings per share by $.20 ($.21 on a diluted basis) in the third quarter and reduced earnings per share by $.82 ($.81 on a diluted basis) in the nine months. (b) Results for 2003 include the following adjustments/special items which increased/(reduced) earnings (in thousands): Third Nine Quarter Months ------ -------- Severance charges in March 2003 (included in selling, gen. and administrative exp.) $ - $ (3,627) Pretax capital gains from the redemption of VITAS preferred stock and the sales of investments (included in other income) 1,846 5,390 Dividend income from VITAS preferred stock redeemed in 2003 (included in other income) 371 1,794 ------ -------- Total impact on income before income taxes 2,217 3,557 Adjustment of income taxes related to the above (689) (979) ------ -------- Total impact on net income $1,528 $ 2,578 ====== ======== These 2003 adjustments/special items increased earnings per share by $.15 in the third quarter and increased earnings per share by $.26 in the nine months. CHEMED CORPORATION CONSOLIDATED BALANCE SHEET (in thousands, except per share data)(unaudited) September 30, ------------------- 2004 2003(a) -------- --------- Assets Current assets Cash and cash equivalents $ 51,261 $ 72,607 Accounts receivable less allowances 71,476 13,310 Inventories 8,391 8,548 Statutory deposits 7,924 9,852 Prepaid income taxes 10,493 4,612 Current deferred income taxes 24,247 9,167 Prepaid expenses and other current assets 8,354 6,941 -------- --------- Total current assets 182,146 125,037 Investments of deferred compensation plans held in trust 19,302 16,832 Other investments 1,445 5,546 Note receivable 12,500 12,500 Properties and equipment, at cost less accumulated depreciation 58,422 47,456 Identifiable intangible assets less accumulated amortization 75,828 2,450 Goodwill less accumulated amortization 407,407 113,437 Other assets 24,754 16,908 -------- --------- Total Assets $781,804 $ 340,166 ======== ========= Liabilities Current liabilities Accounts payable $ 39,406 $ 5,033 Current portion of long-term debt 5,401 463 Income taxes 401 21 Deferred contract revenue 15,987 16,053 Accrued insurance 23,729 16,844 Other current liabilities 56,368 20,348 -------- --------- Total current liabilities 141,292 58,762 Long-term debt 288,311 25,635 Mandatorily redeemable convertible preferred securities of the Chemed Capital Trust - 14,146 Deferred compensation liabilities 19,306 16,824 Other liabilities 18,000 20,315 -------- --------- Total Liabilities 466,909 135,682 -------- --------- Stockholders' Equity Capital stock 13,437 13,452 Paid-in capital 209,564 169,406 Retained earnings 127,357 134,143 Treasury stock, at cost (32,984) (110,492) Unearned compensation (4,289) (3,389) Deferred compensation payable in Company stock 2,351 2,294 Notes receivable for shares sold (541) (930) -------- --------- Total Stockholders' Equity 314,895 204,484 -------- --------- Total Liabilities and Stockholders' Equity $781,804 $ 340,166 ======== ========= Book Value Per Share $ 25.25 $ 20.70 ======== ========= (a) Reclassified to conform to 2004 presentation CHEMED CORPORATION CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 (in thousands)(unaudited) Chemed Roto- Service Corp- Consoli- VITAS Rooter America orate dated -------- ------- ------- ------- -------- 2004 ----------------- Service revenues and sales $135,101 $66,785 $ 9,248 $ - $211,134 -------- ------- ------- ------- -------- Cost of services provided and goods sold 105,695 36,433 7,281 - 149,409 Selling, general and administrative expenses 14,215 20,021 1,831 2,841 38,908 Depreciation 469 2,081 392 60 3,002 Long-term incentive costs - - - - - -------- ------- ------- ------- -------- Total costs and expenses 120,379 58,535 9,504 2,901 191,319 -------- ------- ------- ------- -------- Income/(loss) from operations 14,722 8,250 (256) (2,901) 19,815 Interest expense (32) (43) (2) (6,008) (6,085) Intercompany interest income/ (expense) 289 327 39 (655) - Loss on extinguishment of debt - - - - - Other income--net 93 (92) 24 373 398 -------- ------- ------- ------- -------- Income/(loss) before income taxes 15,072 8,442 (195) (9,191) 14,128 Income taxes (6,097) (2,375)(a) 70 4,755(a) (3,647) Equity in loss of VITAS - - - 131(b) 131 -------- ------- ------- ------- -------- Net income/(loss) $ 8,975 $ 6,067 $ (125) $(4,305) $ 10,612 ======== ======= ======= ======= ======== 2003 ----------------- Service revenues and sales $ - $63,342 $11,830 $ - $ 75,172 -------- ------- ------- ------- -------- Cost of services provided and goods sold - 35,583 8,632 - 44,215 Selling, general and administrative expenses - 21,424 2,458 1,725 25,607 Depreciation - 2,276 619 88 2,983 -------- ------- ------- ------- -------- Total costs and expenses - 59,283 11,709 1,813 72,805 -------- ------- ------- ------- -------- Income/(loss) from operations - 4,059 121 (1,813) 2,367 Interest expense - (33) (8) (714) (755) Intercompany interest income/ (expense) - 157 1 (158) - Other income--net - 312 64 2,673(c) 3,049 -------- ------- ------- ------- -------- Income/(loss) before income taxes - 4,495 178 (12) 4,661 Income taxes - (1,707) (114) 73 (1,748) -------- ------- ------- ------- -------- Net income/(loss) $ - $ 2,788 $ 64 $ 61 $ 2,913 ======== ======= ======= ======= ======== ----------------- (a) Amounts include favorable adjustments related to finalization of prior-year tax returns during the third quarter of 2004. The aftertax benefit received from these adjustments was $390,000 for Corporate and $630,000 for Roto-Rooter. In addition, amounts included tax benefits related to prior quarters due to the Company's adjusting its effective tax rate for state and local taxes during the third quarter. The aftertax benefit recorded for these prior-quarter adjustments was $881,000 for Corporate and $217,000 for Roto-Rooter. (b) Amount includes the Company's aftertax share of VITAS' charges related to the Company's acquisition of VITAS prior to the acquisition date. The accruals for transaction costs were adjusted in the third quarter of 2004 based on changed facts and circumstances. Of the total adjustment, 37% (less deferred income taxes) was credited to the Company's equity in the earnings of VITAS and 63% was credited to goodwill. These charges comprise transaction-related expenses that increased the Company's equity in the earnings/(loss) of VITAS by $131,000 during the third quarter of 2004. (c) Amount includes a pretax gain of $1,846,000 ($1,200,000 aftertax) from the redemption of VITAS preferred stock in the third quarter of 2003. CHEMED CORPORATION CONSOLIDATING STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 (in thousands)(unaudited) Chemed Roto- Service Corp- Consoli- VITAS Rooter America orate dated -------- -------- ------- -------- -------- 2004 ----------------- Service revenues and sales $316,453 $204,907 $29,816 $ - $551,176 -------- -------- ------- -------- -------- Cost of services provided and goods sold 247,971 113,077 21,791 - 382,839 Selling, general and admin- istrative expenses 32,935 61,023 6,550 7,336 107,844 Depreciation 3,078 6,501 1,393 189 11,161 Long-term incentive costs - 1,558 (a) 275(a) 7,225 (a) 9,058 -------- -------- ------- -------- -------- Total costs and expenses 283,984 182,159 30,009 14,750 510,902 -------- -------- ------- -------- -------- Income/ (loss) from operations 32,469 22,748 (193) (14,750) 40,274 Interest expense (90) (102) (9) (14,995) (15,196) Intercompany interest income/ (expense) 420 700 66 (1,186) - Loss on extin- guishment of debt - - - (3,330)(b) (3,330) Other income -- net 169 594 178 1,267 2,208 -------- --------- ------- -------- -------- Income/ (loss) before income taxes 32,968 23,940 42 (32,994) 23,956 Income taxes (13,489) (8,486)(f) (48) 13,040 (f) (8,983) Equity in earnings of VITAS - - - (3,153)(c) (3,153) -------- -------- ------- -------- -------- Net income/ (loss) $ 19,479 $ 15,454 $ (6) $(23,107) $ 11,820 ======== ======== ======= ======== ======== 2003 ----------------- Service revenues and sales $ - $192,659 $37,429 $ - $230,088 -------- -------- ------- -------- -------- Cost of services provided and goods sold - 108,180 27,798 - 135,978 Selling, general and administrative expenses - 60,721 7,545 8,488 (d) 76,754 Depreciation - 6,900 1,859 266 9,025 -------- -------- ------- -------- -------- Total costs and expenses - 175,801 37,202 8,754 221,757 -------- -------- ------- -------- -------- Income/ (loss) from operations - 16,858 227 (8,754) 8,331 Interest expense - (148) (28) (2,253) (2,429) Intercompany interest income/ (expense) - 414 (17) (397) - Other income--net - 707 288 8,771 (e) 9,766 -------- -------- ------- -------- -------- Income/ (loss) before income taxes - 17,831 470 (2,633) 15,668 Income taxes - (6,730) (303) 1,135 (5,898) -------- -------- ------- -------- -------- Net income/ (loss) $ - $ 11,101 $ 167 $ (1,498) $ 9,770 ======== ======== ======= ======== ======== ----------------- (a) Amounts represent payouts under the Company's 2002 Executive Long-term Incentive Plan in the first quarter of 2004. The aftertax cost of these charges was $4,455,000 for Corporate, $982,000 for Roto-Rooter and $170,000 for Service America. (b) Amount represents the prepayment penalty incurred on the early extinguishment of the Company's debt ($2,030,000 aftertax) in the first quarter of 2004. (c) Amount includes the Company's aftertax share of VITAS' charges related to the Company's acquisition of VITAS in the first quarter of 2004 prior to the acquisition date. The accruals for transaction costs were adjusted in the second and third quarters of 2004 based on changed facts and circumstances. These charges comprise transaction-related expenses that increased the Company's equity in the earnings/(loss) of VITAS by $3,669,000 during the first nine months of 2004. (d) Amount includes pretax charges of $3,627,000 ($2,358,000 aftertax) for severance charges in the first quarter of 2003. (e) Amount includes a pretax gain of $3,544,000 ($2,151,000 aftertax) from the sales of investments in the first quarter of 2003 and a pretax gain of $1,846,000 ($1,200,000 aftertax) from the redemption of VITAS preferred stock in the third quarter of 2003. (f) Amounts include favorable adjustments related to finalization of prior-year tax returns during the third quarter of 2004. The aftertax benefit received from these adjustments was $390,000 for Corporate and $630,000 for Roto-Rooter.