EX-99 2 a5193071ex99.txt CHEMED CORPORATION EXHIBIT 99 Exhibit 99 Chemed Reports Second-Quarter 2006 Results; Diluted EPS from Continuing Operations of $.48, up 14% CINCINNATI--(BUSINESS WIRE)--July 25, 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 financial results for its second quarter ended June 30, 2006, versus the comparable prior-year period, as follows: Consolidated operating results from Continuing Operations: -- Revenue increased 10% to $250 million -- Diluted EPS from Continuing Operations of $.48 -- Adjusted diluted EPS from Continuing Operations, excluding certain items, of $.49 VITAS segment operating results: -- Net Patient Revenue of $172 million, up 12%, including $2.3 million of Medicare Cap accrual -- Average Daily Census (ADC) of 10,904, up 10% -- Admissions of 13,069, an increase of 3.3% -- Average Length of Stay in the quarter was 68.0 days -- Net income of $11.4 million, up 7.5% -- Adjusted EBITDA of $20.4 million, an increase of 3.4% -- Adjusted EBITDA margin of 11.8% Roto-Rooter segment operating results: -- Revenue of $78 million, an increase of 7% -- Job count of 198,708, up 0.6% -- Net Income of $7.0 million, up 19.2% -- Adjusted EBITDA of $12.7 million, an increase of 13% -- Adjusted EBITDA margin of 16.4% In the second quarter of 2006, VITAS recorded a Medicare contractual billing adjustment (Medicare Cap). This accrual reduced revenues by $2.3 million and negatively impacted diluted EPS in the quarter by $0.05 per share. Medicare Cap affected two hospice programs in the second quarter of 2006. The Phoenix program, acquired in December 2004, recorded an estimated Medicare Cap billing limitation of $1.7 million. A second program, with an average daily census of approximately 250, recorded $600,000 of Medicare Cap. The Phoenix program is estimated to have a calendar year 2006 aggregate Medicare Cap liability ranging from $2.5 million to $4.0 million. The majority of VITAS' Phoenix patients are referred from assisted living facilities (ALF), which typically have longer lengths of stay. VITAS has been unable to generate a sustainable level of high acuity patients from other referral sources adequate to offset the ALF lengths of stay. The Company anticipates Phoenix will continue to have a Medicare Cap liability in 2007 ranging from $1.5 million to $3.0 million. This will make the Phoenix program breakeven to a modest loss in 2007. The other program with a second-quarter 2006 Medicare Cap accrual of $600,000 is not anticipated to require additional cap accrual in the second half of 2006. This forecast is based upon improving metrics from management's efforts to rebalance patient mix in the second half of the year. Including the Medicare Cap, this program is forecasted to generate $3.0 million in operating profit in 2006. A third hospice program is forecasted to reach a Medicare billing limitation in the third quarter of 2006. This third program, with an ADC of slightly less than 300, is estimated to have a Medicare billing limitation ranging from $1.0 million to $1.5 million for the full-year 2006, with the majority of this liability being incurred in the third quarter. Assuming the Medicare Cap accrual is at the high end of the range, this program is estimated to generate $2.5 million in operating profit in 2006. Historically, VITAS' operating model has been able to avoid any Medicare billing limitations. This had been achieved by admitting a significant number of high acuity patients, those patients in the later stage of their terminal illness. High acuity intakes are reflected in VITAS' overall median length of stay (MLOS), which is typically 13 days or less. MLOS means that half of all patients admitted to VITAS are discharged in 13 days or less of entering the program. This compares to the National Hospice and Palliative Care Organization's (NHPCO) industry MLOS estimate of 22 days. Typically, VITAS hospice programs with the lowest MLOS also have the highest percentage of cap cushion. VITAS defines cap cushion as the difference between the maximum Medicare billing potential based upon total admissions and the actual billings in a program. At the end of the second quarter of 2006, VITAS had 5 programs with an ADC greater than 450 and representing 42% of total ADC. All of these programs had an MLOS of 13 days or less. VITAS has 17 programs with ADC from 200 to 450. These programs represent 49% of total ADC. Three of these programs are forecasted to have Medicare Cap limitations in 2006 and were discussed earlier. Of the remaining 14 programs, 8 have an MLOS of 13 days or less and 5 programs have an MLOS between 13 and 18 days. One program has an MLOS of 26 days, an average length of stay of 75 days and an estimated full-year cap cushion of over 50% and is in the process of expanding its inpatient capacity. VITAS has 20 programs with an average daily census of less than 200 patients. Nine of these programs are start-ups and make up 1% of average daily census. The remaining 11 programs represent 8% of total average daily census and have median lengths of stay ranging from 7 to 20 days. In most of VITAS' base programs, the MLOS, average daily census, admissions and discharges are relatively stable and predictable quarter to quarter. However, programs experiencing exceptionally strong growth rates are inherently more volatile and will have significant fluctuations in these metrics. This volatility increases the potential for a sudden shift in metrics in any given quarter. A severe decline in admissions and/or discharges could result in the program having a less optimal patient mix and potentially have Medicare billing limitations. To the extent the program has a predictable level of high acuity patient admissions, the program's patient mix can be rebalanced and continue to contractually bill Medicare for 100% of services provided. From a business model perspective, hospice programs that are slightly above or below the Medicare Cap are essentially maximizing revenue, profitability and operating margin for that program. Given the industry trend to longer lengths of stay, it is highly probable that VITAS' hospice programs will continue to expand Medicare billings on a per patient basis. As this trend of revenue growth continues, certain hospice programs have greater potential of being in a Medicare contractual billing limitation situation. The Company believes its relatively low MLOS in its hospice programs provides a competitive advantage to minimize the financial impact of Medicare Cap as well as limit the duration of time the program remains in a Medicare Cap situation. VITAS VITAS generated net revenue growth of 12.0% over the prior-year period. Net income for the quarter was $11.4 million, an increase of 8% over the prior-year period. ADC increased 10% to 10,904 and admissions increased 3.3% to 13,069. Routine home care direct gross margins, before the reduction in revenue from contractual billing limitations, were 49.6%, up 20 basis points over the prior year and increased 210 basis points sequentially. Continuous care direct gross margins were 20.3%, an increase of 80 basis points when compared to the prior year and 200 basis points sequentially. Inpatient direct care margins were 21.0% in the quarter, which is 200 basis points below the prior-year period and 210 basis points below the first quarter of 2006. June 2006 occupancy was abnormally low, resulting in occupancy in the full quarter of 79.5%. VITAS targets occupancy rates to be at 80% or higher. Central support costs for VITAS, which are classified as selling, general and administrative expenses in the Consolidating Statement of Income, totaled $13.7 million, including $0.3 million in OIG investigation legal expenses. Excluding the OIG expense, central support costs increased 1.4% when compared to the prior-year quarter and increased 2.1% sequentially. Adjusted EBITDA was $20.4 million in the quarter, an increase of 3.4% over the prior year. VITAS' Average Length of Stay (ALOS) for patients discharged in the quarter was 68.0 days and our median length of stay was 13 days. This compares to an ALOS of 72.4 days in the first quarter of 2006 and 66.8 days in the second quarter of 2005. Roto-Rooter Segment Roto-Rooter's plumbing and drain cleaning business generated sales of $78 million for the second quarter of 2006, 6.9% higher than the $73 million reported in the comparable prior-year quarter. Net income for the quarter was $7.0 million, an increase of 19% over the prior year. Adjusted EBITDA in the second quarter of 2006 totaled $12.7 million, an increase of 12.5% over the second quarter of 2005 and an adjusted EBITDA margin of 16.4%, an increase of 80 basis points over the prior-year period. Job count in the second quarter of 2006 increased 0.6% over the prior-year period. Commercial plumbing job count increased 4.2% and commercial drain cleaning increased 1.6% over the prior-year quarter. Residential plumbing jobs decreased 1.3% and residential drain cleaning jobs expanded 0.1% when compared to the second quarter of 2005. Overall, commercial jobs increased 2.4% and residential jobs declined 0.3%. This is a favorable shift in job mix since a commercial job will typically average significantly more revenue than a residential job. Accordingly, this continued shift of job mix has a positive impact on aggregate revenue. Guidance for 2006 VITAS is estimated to generate full-year revenue growth of 13.0% to 15.5%, increased admissions of 5.0% to 6.0% and adjusted EBITDA margins of 12.5% to 13.0%. This guidance assumes a Medicare price increase that will blend to 3.5% in the fourth quarter of 2006 and includes an estimated full-year Medicare contractual billing limitation between $4.0 million and $6.1 million. 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 $.03 expense for stock options required under SFAS 123R, will be in the range of $2.13 to $2.25. Conference Call Chemed will host a conference call and webcast at 11 a.m., ET, on Wednesday, July 26, 2006, to discuss the Company's quarterly results and provide an update on its business. The dial-in number for the conference call is (866) 543-6411 for U.S. and Canadian participants and (617) 213-8900 for international participants. The participant pass code is 58893678. 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 78981828. 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. This press release contains information about Chemed's EBITDA and Adjusted EBITDA, which are not measures derived in accordance with generally accepted accounting principles and which exclude components that are important to understanding Chemed's financial performance. Chemed provides EBITDA and Adjusted EBITDA to help investors and others evaluate its operating results, compare its operating performance with that of similar companies that have different capital structures and evaluate its ability to meet its future debt service, capital expenditures and working capital requirements. Chemed's EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for comparable measures calculated and presented in accordance with GAAP. A reconciliation of Chemed's net income to its Adjusted EBITDA is presented in the tables following the text of this press release. 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. CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF INCOME (in thousands, except per share data)(unaudited) Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------- 2006 2005 (cc) 2006 2005 (cc) --------- --------- --------- --------- Continuing Operations Service revenues and sales $249,783 $226,309 $496,021 $444,946 --------- --------- --------- --------- Cost of services provided and goods sold (aa) 180,925 161,120 358,822 314,072 Selling, general and administrative expenses (aa) 38,644 37,968 77,119 75,887 Depreciation 4,117 3,928 8,265 7,848 Amortization 1,417 1,231 2,813 2,423 --------- --------- --------- --------- Total costs and expenses 225,103 204,247 447,019 400,230 --------- --------- --------- --------- Income from operations 24,680 22,062 49,002 44,716 Interest expense (4,300) (5,039) (9,645) (10,874) Loss on extinguishment of debt - - (430) (3,971) Other income--net 524 600 2,019 1,327 --------- --------- --------- --------- Income before income taxes 20,904 17,623 40,946 31,198 Income taxes (8,062) (6,512) (15,889) (12,182) --------- --------- --------- --------- Income from continuing operations 12,842 11,111 25,057 19,016 Discontinued Operations (bb) - (2,226) - (2,015) --------- --------- --------- --------- Net Income $ 12,842 $ 8,885 $ 25,057 $ 17,001 ========= ========= ========= ========= Earnings Per Share (aa) Income from continuing operations $ 0.49 $ 0.44 $ 0.96 $ 0.75 ========= ========= ========= ========= Net income $ 0.49 $ 0.35 $ 0.96 $ 0.67 ========= ========= ========= ========= Average number of shares outstanding 26,201 25,489 26,123 25,319 ========= ========= ========= ========= Diluted Earnings Per Share (aa) Income from continuing operations $ 0.48 $ 0.42 $ 0.93 $ 0.73 ========= ========= ========= ========= Net income $ 0.48 $ 0.34 $ 0.93 $ 0.65 ========= ========= ========= ========= Average number of shares outstanding 26,846 26,214 26,815 26,059 ========= ========= ========= ========= ------------------------------- (aa) Included in the results of operations are the following significant credits/(charges) which may not be indicative of ongoing operations (in thousands): Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------- 2006 2005 2006 2005 --------- --------- --------- --------- Cost of services provided and goods sold Favorable adjustment to casualty insurance accruals related to prior years' experience $ - $ - $ - $ 1,663 Selling, general and administrative expenses Legal costs associated with OIG investigation (342) (254) (474) (254) Long-term incentive compensation - (1,837) - (2,946) Stock option expense (18) - (18) (215) Adjustments to transaction-related costs of the VITAS acquisition - 671 - 671 Loss on extinguishment of debt - - (430) (3,971) --------- --------- --------- --------- Pretax impact on earnings (360) (1,420) (922) (5,052) Income tax benefit/(charge) on the above 136 779 343 2,070 --------- --------- --------- --------- Aftertax impact on earnings $ (224) $ (641) $ (579) $ (2,982) ========= ========= ========= ========= (bb) Discontinued operations represents the results of operations and loss on disposal of Service America. (cc) Reclassified to conform to 2006 presentation. CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEET (in thousands, except per share data)(unaudited) June 30, ------------------- 2006 2005 (cc) --------- --------- Assets Current assets Cash and cash equivalents $ 6,816 $ 17,870 Accounts receivable less allowances 94,833 84,973 Inventories 6,210 7,309 Current deferred income taxes 21,871 20,687 Prepaid income taxes 12,709 8,360 Current assets of discontinued operations - 4,656 Prepaid expenses and other current assets 9,255 9,499 --------- --------- Total current assets 151,694 153,354 Investments of deferred compensation plans held in trust 23,731 19,610 Other investments 1,445 1,445 Note receivable 12,500 12,500 Properties and equipment, at cost less accumulated depreciation 66,474 59,432 Identifiable intangible assets less accumulated amortization 73,150 74,896 Goodwill 433,877 437,738 Noncurrent assets of discontinued operations - 681 Other assets 20,692 22,571 --------- --------- Total Assets $783,563 $782,227 ========= ========= Liabilities Current liabilities Accounts payable $ 48,591 $ 39,899 Current portion of long-term debt 207 1,176 Income taxes 4,172 6,922 Accrued insurance 40,049 27,392 Accrued compensation 28,071 31,100 Current liabilities of discontinued operations - 7,605 Other current liabilities 30,914 29,184 --------- --------- Total current liabilities 152,004 143,278 Deferred income taxes 22,829 17,630 Long-term debt 169,397 234,541 Deferred compensation liabilities 23,503 19,555 Noncurrent liabilities of discontinued operations - 779 Other liabilities 3,441 7,456 --------- --------- Total Liabilities 371,174 423,239 --------- --------- Stockholders' Equity Capital stock 28,812 27,897 Paid-in capital 249,460 218,876 Retained earnings 193,089 155,484 Treasury stock, at cost (61,340) (44,572) Unearned compensation - (488) Deferred compensation payable in Company stock 2,422 2,333 Notes receivable for shares sold (54) (542) --------- --------- Total Stockholders' Equity 412,389 358,988 --------- --------- Total Liabilities and Stockholders' Equity $783,563 $782,227 ========= ========= Book Value Per Share $ 15.71 $ 13.99 ========= ========= ---------------------------------------------------- (cc) Reclassified to conform to 2006 presentation. CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) (unaudited) Six Months Ended June 30, -------------------- 2006 2005 --------- ---------- Cash Flows from Operating Activities Net income $ 25,057 $ 17,001 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 11,078 10,271 Provision for uncollectible accounts receivable 4,005 3,343 Provision for deferred income taxes 4,001 (2,206) Amortization of debt issuance costs 882 962 Write off unamortized debt issuance costs 430 2,871 Noncash long-term incentive compensation - 2,574 Discontinued operations - 2,015 Changes in operating assets and liabilities, excluding amounts acquired in business combinations Increase in accounts receivable (3,828) (23,653) Decrease/(increase) in inventories 289 (290) Decrease in prepaid expenses and other current assets 513 343 Decrease in accounts payable and other current liabilities (15,949) (2,673) Increase in income taxes 2,189 7,859 Decrease in other assets (2,892) (1,328) Increase in other liabilities 1,972 390 Excess tax benefit on share-based compensation (4,941) - Noncash expense of internally financed ESOPs - 572 Other sources 679 676 --------- ---------- Net cash provided by continuing operations 23,485 18,727 Net cash used by discontinued operations - (1,559) --------- ---------- Net cash provided by operating activities 23,485 17,168 --------- ---------- Cash Flows from Investing Activities Capital expenditures (9,474) (11,455) Net uses from the sale of discontinued operations (2,990) (5,478) Business combinations, net of cash acquired (814) (5,495) Proceeds from sales of property and equipment 161 96 Other uses (358) (107) --------- ---------- Net cash used by investing activities (13,475) (22,439) --------- ---------- Cash Flows from Financing Activities Repayment of long-term debt (84,499) (140,978) Net increase in revolving line of credit 19,000 - Excess tax benefit on share-based compensation 4,941 - Issuance of capital stock, net of costs 3,849 8,766 Purchases of treasury stock (3,992) (3,574) Dividends paid (3,156) (3,060) Increase in cash overdrafts payable 3,397 7,347 Debt issuance costs (154) (1,755) Proceeds from long-term debt - 85,000 Other sources/(uses) 287 (53) --------- ---------- Net cash used by financing activities (60,327) (48,307) --------- ---------- Decrease in Cash and Cash Equivalents (50,317) (53,578) Cash and cash equivalents at beginning of year 57,133 71,448 --------- ---------- Cash and cash equivalents at end of period $ 6,816 $ 17,870 ========= ========== CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATING STATEMENT OF INCOME FOR THE THREE MONTHS ENDED JUNE 30, 2006 AND 2005 (in thousands)(unaudited) Roto- Chemed VITAS Rooter Corporate Consolidated --------- -------- ---------- ------------- 2006 --------------------------- Service revenues and sales $ 172,242 $ 77,541 $ - $ 249,783 --------- -------- ---------- ------------- Cost of services provided and goods sold 138,519 42,406 - 180,925 Selling, general and administrative expenses (a) 13,725 22,232 2,687 38,644 Depreciation 2,122 1,914 81 4,117 Amortization 1,084 20 313 1,417 --------- -------- ---------- ------------- Total costs and expenses 155,450 66,572 3,081 225,103 --------- -------- ---------- ------------- Income/(loss) from operations 16,792 10,969 (3,081) 24,680 Interest expense (38) (109) (4,153) (4,300) Intercompany interest income/(expense) 1,395 949 (2,344) - Other income--net 45 (89) 568 524 --------- -------- ---------- ------------- Income/(loss) before income taxes 18,194 11,720 (9,010) 20,904 Income taxes (a) (6,795) (4,717) 3,450 (8,062) --------- -------- ---------- ------------- Net income/(loss) $ 11,399 $ 7,003 $ (5,560) $ 12,842 ========= ======== ========== ============= 2005 --------------------------- Service revenues and sales $ 153,748 $ 72,561 $ - $ 226,309 --------- -------- ---------- ------------- Cost of services provided and goods sold 120,854 40,266 - 161,120 Selling, general and administrative expenses (b) 13,446 21,024 3,498 37,968 Depreciation 1,770 2,086 72 3,928 Amortization 984 23 224 1,231 --------- -------- ---------- ------------- Total costs and expenses 137,054 63,399 3,794 204,247 --------- -------- ---------- ------------- Income/(loss) from operations 16,694 9,162 (3,794) 22,062 Interest expense (33) (97) (4,909) (5,039) Intercompany interest income/(expense) 681 516 (1,197) - Other income--net 14 146 440 600 --------- -------- ---------- ------------- Income/(loss) before income taxes 17,356 9,727 (9,460) 17,623 Income taxes (b) (6,753) (3,852) 4,093 (6,512) --------- -------- ---------- ------------- Income/(loss) from continuing operations 10,603 5,875 (5,367) 11,111 Discontinued operations - - (2,226) (2,226) --------- -------- ---------- ------------- Net income/(loss) $ 10,603 $ 5,875 $ (7,593) $ 8,885 ========= ======== ========== ============= The "Footnotes to Financial Statements" are integral parts of this financial information. CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATING STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005 (in thousands)(unaudited) Roto- Chemed VITAS Rooter Corporate Consolidated --------- -------- ---------- ------------- 2006 --------------------------- Service revenues and sales $ 340,616 $155,405 $ - $ 496,021 --------- -------- ---------- ------------- Cost of services provided and goods sold 273,977 84,845 - 358,822 Selling, general and administrative expenses (a) 26,961 44,774 5,384 77,119 Depreciation 4,195 3,883 187 8,265 Amortization 2,168 40 605 2,813 --------- -------- ---------- ------------- Total costs and expenses 307,301 133,542 6,176 447,019 --------- -------- ---------- ------------- Income/(loss) from operations 33,315 21,863 (6,176) 49,002 Interest expense (69) (282) (9,294) (9,645) Intercompany interest income/(expense) 2,349 1,801 (4,150) - Loss on extinguishment of debt (a) - - (430) (430) Other income--net 57 273 1,689 2,019 --------- -------- ---------- ------------- Income/(loss) before income taxes 35,652 23,655 (18,361) 40,946 Income taxes (a) (13,396) (9,451) 6,958 (15,889) --------- -------- ---------- ------------- Net income/(loss) $ 22,256 $ 14,204 $ (11,403) $ 25,057 ========= ======== ========== ============= 2005 --------------------------- Service revenues and sales $ 299,738 $145,208 $ - $ 444,946 --------- -------- ---------- ------------- Cost of services provided and goods sold (b) 236,074 77,998 - 314,072 Selling, general and administrative expenses (b) 26,475 42,154 7,258 75,887 Depreciation 3,555 4,148 145 7,848 Amortization 1,979 49 395 2,423 --------- -------- ---------- ------------- Total costs and expenses 268,083 124,349 7,798 400,230 --------- -------- ---------- ------------- Income/(loss) from operations 31,655 20,859 (7,798) 44,716 Interest expense (71) (279) (10,524) (10,874) Intercompany interest income/(expense) 1,190 940 (2,130) - Loss on extinguishment of debt (b) - - (3,971) (3,971) Other income--net 122 442 763 1,327 --------- -------- ---------- ------------- Income/(loss) before income taxes 32,896 21,962 (23,660) 31,198 Income taxes (b) (12,683) (8,777) 9,278 (12,182) --------- -------- ---------- ------------- Income/(loss) from continuing operations 20,213 13,185 (14,382) 19,016 Discontinued operations - - (2,015) (2,015) --------- -------- ---------- ------------- Net income/(loss) $ 20,213 $ 13,185 $ (16,397) $ 17,001 ========= ======== ========== ============= The "Footnotes to Financial Statements" are integral parts of this financial information. CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATING SUMMARY OF EBITDA FOR THE THREE MONTHS ENDED JUNE 30, 2006 AND 2005 (in thousands)(unaudited) Roto- Chemed VITAS Rooter Corporate Consolidated --------- -------- ---------- ------------- 2006 --------------------------- Net income/(loss) $ 11,399 $ 7,003 $ (5,560) $ 12,842 Add/(deduct): Interest expense 38 109 4,153 4,300 Income taxes 6,795 4,717 (3,450) 8,062 Depreciation 2,122 1,914 81 4,117 Amortization 1,084 20 313 1,417 --------- -------- ---------- ------------- EBITDA 21,438 13,763 (4,463) 30,738 Add/(deduct): Legal expenses of OIG investigation 342 - - 342 Stock option expense - - 18 18 Advertising cost adjustment (c) - (87) - (87) Interest income (35) (17) (527) (579) Intercompany interest income/(expense) (1,395) (949) 2,344 - --------- -------- ---------- ------------- Adjusted EBITDA $ 20,350 $12,710 $ (2,628) $ 30,432 ========= ======== ========== ============= 2005 --------------------------- Net income/(loss) $ 10,603 $ 5,875 $ (7,593) $ 8,885 Add/(deduct): Discontinued operations - - 2,226 2,226 Interest expense 33 97 4,909 5,039 Income taxes 6,753 3,852 (4,093) 6,512 Depreciation 1,770 2,086 72 3,928 Amortization 984 23 224 1,231 --------- -------- ---------- ------------- EBITDA 20,143 11,933 (4,255) 27,821 Add/(deduct): Long-term incentive compensation - - 1,837 1,837 Legal expenses of OIG Investigation 254 - - 254 VITAS transaction expense adjustment - - (671) (671) Advertising cost adjustment (c) - (76) - (76) Interest income (33) (47) (182) (262) Intercompany interest income/(expense) (681) (516) 1,197 - --------- -------- ---------- ------------- Adjusted EBITDA $ 19,683 $11,294 $ (2,074) $ 28,903 ========= ======== ========== ============= The "Footnotes to Financial Statements" are integral parts of this financial information. CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATING SUMMARY OF EBITDA FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005 (in thousands)(unaudited) Roto- Chemed VITAS Rooter Corporate Consolidated --------- -------- ---------- ------------- 2006 --------------------------- Net income/(loss) $ 22,256 $14,204 $ (11,403) $ 25,057 Add/(deduct): Interest expense 69 282 9,294 9,645 Income taxes 13,396 9,451 (6,958) 15,889 Depreciation 4,195 3,883 187 8,265 Amortization 2,168 40 605 2,813 --------- -------- ---------- ------------- EBITDA 42,084 27,860 (8,275) 61,669 Add/(deduct): Legal expenses of OIG investigation 474 - - 474 Stock option expense - - 18 18 Advertising cost adjustment (c) - (581) - (581) Interest income (76) (40) (1,435) (1,551) Intercompany interest income/(expense) (2,349) (1,801) 4,150 - Loss on extinguishment of debt - - 430 430 --------- -------- ---------- ------------- Adjusted EBITDA $ 40,133 $25,438 $ (5,112) $ 60,459 ========= ======== ========== ============= 2005 --------------------------- Net income/(loss) $ 20,213 $13,185 $ (16,397) $ 17,001 Add/(deduct): Discontinued operations - - 2,015 2,015 Interest expense 71 279 10,524 10,874 Income taxes 12,683 8,777 (9,278) 12,182 Depreciation 3,555 4,148 145 7,848 Amortization 1,979 49 395 2,423 --------- -------- ---------- ------------- EBITDA 38,501 26,438 (12,596) 52,343 Add/(deduct): Long-term incentive compensation - - 2,946 2,946 Stock option expense - - 215 215 Prior-period insurance adjustment - (1,663) - (1,663) Legal expenses of OIG Investigation 254 - - 254 VITAS transaction expense adjustment (671) (671) Advertising cost adjustment (c) - (629) - (629) Interest income (159) (88) (665) (912) Intercompany interest income/(expense) (1,190) (940) 2,130 - Loss on extinguishment of debt - - 3,971 3,971 --------- -------- ---------- ------------- Adjusted EBITDA $ 37,406 $23,118 $ (4,670) $ 55,854 ========= ======== ========== ============= The "Footnotes to Financial Statements" are integral parts of this financial information. CHEMED CORPORATION AND SUBSIDIARY COMPANIES RECONCILIATION OF ADJUSTED NET INCOME FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 (in thousands, except per share data)(unaudited) Three Months Ended Six Months Ended June 30, June 30, ------------------ ----------------- 2006 2005 2006 2005 --------- -------- -------- -------- Net income/(loss) as reported $ 12,842 $ 8,885 $25,057 $17,001 Add/(deduct): Discontinued operations - 2,226 - 2,015 Aftertax prior period insurance adjustment - - - (1,014) Aftertax cost of long-term incentive compensation (d) - 1,152 - 1,847 Aftertax cost of legal expenses of OIG investigation 212 160 294 160 Aftertax stock option expense 12 - 12 137 Afertax VITAS transaction expense adjustment - (671) - (671) Aftertax cost of loss on extinguishment of debt - - 273 2,523 --------- -------- -------- -------- Adjusted income from continuing operations $ 13,066 $11,752 $25,636 $21,998 ========= ======== ======== ======== Earnings/(Loss) Per Share As Reported Net income/(loss) $ 0.49 $ 0.35 $ 0.96 $ 0.67 ========= ======== ======== ======== Average number of shares outstanding 26,201 25,489 26,123 25,319 ========= ======== ======== ======== Diluted Earnings/(Loss) Per Share As Reported Net income/(loss) $ 0.48 $ 0.34 $ 0.93 $ 0.65 ========= ======== ======== ======== Average number of shares outstanding 26,846 26,214 26,815 26,059 ========= ======== ======== ======== Adjusted Earnings Per Share Income from continuing operations $ 0.50 $ 0.46 $ 0.98 $ 0.87 ========= ======== ======== ======== Average number of shares outstanding 26,201 25,489 26,123 25,319 ========= ======== ======== ======== Adjusted Diluted Earnings Per Share Income from continuing operations $ 0.49 $ 0.45 $ 0.96 $ 0.84 ========= ======== ======== ======== Average number of shares outstanding 26,846 26,214 26,815 26,059 ========= ======== ======== ======== The "Footnotes to Financial Statements" are integral parts of this financial information. CHEMED CORPORATION AND SUBSIDIARY COMPANIES OPERATING STATISTICS FOR VITAS SEGMENT FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 (unaudited) Three Months Ended Six Months Ended June 30, June 30, --------------------- ------------------- 2006 2005 2006 2005 --------- --------- --------- --------- OPERATING STATISTICS Net revenue ($000) Homecare $123,162 $106,610 $238,620 $207,482 Inpatient 21,782 21,131 44,889 41,979 Continuous care 29,638 26,007 59,447 50,277 --------- --------- --------- --------- Total before Medicare cap allowance 174,582 153,748 342,956 299,738 Medicare cap allowance (2,340) - (2,340) - --------- --------- --------- --------- Total $172,242 $153,748 $340,616 $299,738 ========= ========= ========= ========= Net revenue as a percent of total before Medicare cap allowance Homecare 70.5 % 69.4 % 69.6 % 69.2 % Inpatient 12.5 13.7 13.1 14.0 Continuous care 17.0 16.9 17.3 16.8 --------- --------- -------- --------- Total before Medicare cap allowance 100.0 100.0 100.0 100.0 Medicare cap allowance (1.3) - (0.7) - --------- --------- --------- --------- Total 98.7 % 100.0 % 99.3 % 100.0 % ========= ========= ========= ========= Average daily census ("ADC") (days) Homecare 6,469 5,750 6,292 5,589 Nursing home 3,493 3,260 3,429 3,230 --------- --------- --------- --------- Routine homecare 9,962 9,010 9,721 8,819 Inpatient 406 406 419 405 Continuous care 536 497 553 495 --------- --------- --------- --------- Total 10,904 9,913 10,693 9,719 ========= ========= ========= ========= Total Admissions 13,069 12,646 26,965 25,594 Total Discharges 12,603 12,153 26,015 24,741 Average length of stay (days) 68.0 (d) 66.8 70.3 66.4 Median length of stay (days) 13.0 12.0 13.0 12.0 ADC by major diagnosis Neurological 33.1 % 32.0 % 33.1 % 31.4 % Cancer 20.0 21.4 20.2 22.3 Cardio 15.0 15.2 14.9 14.8 Respiratory 7.2 7.2 7.2 7.2 Other 24.7 24.2 24.6 24.3 --------- --------- --------- --------- Total 100.0 % 100.0 % 100.0 % 100.0 % ========= ========= ========= ========= Admissions by major diagnosis Neurological 19.6 % 18.7 % 20.1 % 19.2 % Cancer 35.0 36.6 34.4 35.5 Cardio 13.2 13.8 13.6 14.0 Respiratory 7.0 6.9 7.5 7.6 Other 25.2 24.0 24.4 23.7 --------- --------- --------- --------- Total 100.0 % 100.0 % 100.0 % 100.0 % ========= ========= ========= ========= Direct patient care margins (e) Routine homecare 49.6 % 49.4 % 48.6 % 49.6 % Inpatient 21.0 23.0 22.1 22.9 Continuous care 20.3 19.5 19.3 18.5 Homecare margin drivers (dollars per patient day) Labor costs $ 48.15 $ 46.01 $ 49.65 $ 45.86 Drug costs 8.42 7.94 7.94 7.72 Home medical equipment 5.52 5.53 5.54 5.50 Medical supplies 2.11 2.14 2.13 2.15 Inpatient margin drivers (dollars per patient day) Labor costs $ 257.69 $ 240.76 $ 252.04 $ 239.55 Continuous care margin drivers (dollars per patient day) Labor costs $ 463.62 $ 443.83 $ 458.96 $ 438.56 Bad debt expense as a percent of revenues 0.9 % 0.9 % 0.9 % 0.9 % Accounts receivable -- days of revenue outstanding 40.1 43.8 N.A. N.A. The "Footnotes to Financial Statements" are integral parts of this financial information. CHEMED CORPORATION AND SUBSIDIARY COMPANIES FOOTNOTES TO FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 (unaudited) (a) Included in the results of operations for the three and six months ended June 30, 2006 are the following significant credits/(charges) which may not be indicative of on going operations (in thousands): Three Months Ended June 30, 2006 ---------------------------------------- Roto- VITAS Rooter Corporate Consolidated ------ -------- ---------- ------------- Selling, general and administrative expenses Costs associated with OIG investigation $(342) $ - $ - $ (342) Stock option expense - - (18) (18) ------ -------- ---------- ------------- Pretax impact on earnings (342) - (18) (360) Income tax benefit on the above 130 - 6 136 ------ -------- ---------- ------------- Aftertax impact on earnings $(212) $ - $ (12) $ (224) ====== ======== ========== ============= Six Months Ended June 30, 2006 ---------------------------------------- Roto- VITAS Rooter Corporate Consolidated ------ -------- ---------- ------------- Selling, general and administrative expenses Costs associated with OIG investigation $(474) $ - $ - $ (474) Stock option expense - - (18) (18) Loss on extinguishment of debt - - (430) (430) ------ -------- ---------- ------------- Pretax impact on earnings (474) - (448) (922) Income tax benefit on the above 180 - 163 343 ------ -------- ---------- ------------- Aftertax impact on earnings $(294) $ - $ (285) $ (579) ====== ======== ========== ============= (b) Included in the results of operations for the three and six months ended June 30, 2005 are the following significant credits/(charges) which may not be indicative of on going operations (in thousands): Three Months Ended June 30, 2005 ---------------------------------------- Roto- VITAS Rooter Corporate Consolidated ------ -------- ---------- ------------- Selling, general and administrative expenses Long-term incentive compensation $ - $ - $ (1,837) $ (1,837) Costs associated with OIG investigation (254) - - (254) Adjustments to transaction-related costs of the VITAS acquisition - - 671 671 ------ -------- ---------- ------------- Pretax impact on earnings (254) - (1,166) (1,420) Income tax benefit on the above 94 - 685 779 ------ -------- ---------- ------------- Aftertax impact on earnings $(160) $ - $ (481) $ (641) ====== ======== ========== ============= Six Months Ended June 30, 2005 ---------------------------------------- Roto- VITAS Rooter Corporate Consolidated ------ -------- ---------- ------------- Cost of services provided and goods sold Favorable adjustment to casualty insurance accruals related to prior years' experience $ - $ 1,663 $ - $ 1,663 Selling, general and administrative expenses Long-term incentive compensation - - (2,946) (2,946) Costs associated with OIG investigation (254) - - (254) Stock option expense - - (215) (215) Adjustments to transaction-related costs of the VITAS acquisition - - 671 671 Loss on extinguishment of debt - - (3,971) (3,971) ------ -------- ---------- ------------- Pretax impact on earnings (254) 1,663 (6,461) (5,052) Income tax benefit on the above 94 (649) 2,625 2,070 ------ -------- ---------- ------------- Aftertax impact on earnings $(160) $ 1,014 $ (3,836) $ (2,982) ====== ======== ========== ============= (c) Under Generally Accepted Accounting Principles ("GAAP"), the Roto-Rooter segment expenses all advertising, including the cost of telephone directories, immediately upon the initial release of the advertising. Telephone directories are generally in circulation 12 months. If a directory is in circulation for a time period greater or less than 12 months, the publisher adjusts the directory billing for the change in billing period. The timing of when a telephone directory is published can and does fluctuate significantly on a quarterly basis. This "direct expensing" results in significant fluctuations in quarterly advertising expense. In the second quarters of 2006 and 2005, GAAP advertising expense for Roto-Rooter totaled $4,914,000 and $4,491,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the second quarters of 2006 and 2005 would total $5,001,000 and $4,567,000, respectively. For the six months ended June 30, 2006 and 2005, GAAP advertising expense for Roto-Rooter totaled $9,338,000 and $8,323,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the first six months of 2006 and 2005 would total $9,919,000 and $8,952,000, respectively. (d) VITAS has 5 large (greater than 450 ADC), 17 medium (greater than 200 but less than 450 ADC) and 20 small (less than 200 ADC) hospice programs. (e) Amounts exclude medicare cap allowance and indirect patient care and administrative costs. CONTACT: Chemed Corporation David P. Williams, 513-762-6901