EX-99 2 a50965589ex99.htm EXHIBIT 99

Exhibit 99

Chemed Reports Third-Quarter 2014 Results

CINCINNATI--(BUSINESS WIRE)--October 30, 2014--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, reported financial results for its third quarter ended September 30, 2014, versus the comparable prior-year period, as follows:

Consolidated operating results:

  • Revenue increased 5.1% to $358 million
  • GAAP Diluted EPS increased 47.9% to $1.39
  • Adjusted Diluted EPS increased 8.8% to $1.48

VITAS segment operating results:

  • Net Patient Revenue of $265 million, an increase of 4.5%
  • Average Daily Census (ADC) of 14,639, an increase of 2.8%
  • Admissions of 15,653, an increase of 7.5%
  • Net Income, including litigation costs, of $21.6 million, an increase of 47.8%
  • Adjusted EBITDA of $38.3 million, an increase of 2.7%
  • Adjusted EBITDA margin of 14.4%, a decrease of 24 basis points

Roto-Rooter segment operating results:

  • Revenue of $93.0 million, an increase of 7.0%
  • Net Income of $9.8 million, an increase of 20.4%
  • Adjusted EBITDA of $17.3 million, an increase of 6.8%
  • Adjusted EBITDA margin of 18.6%, a decrease of 4 basis points

VITAS

Net revenue for VITAS was $265 million in the third quarter of 2014, which is an increase of $11.4 million, or 4.5%, when compared to the prior-year period. This revenue increase is comprised of an average Medicare reimbursement rate increase of 1.4% and a 2.8% increase in average daily census.

In the third quarter of 2014, VITAS recorded $2.5 million in estimated Medicare Cap billing limitations. This compares to $3.2 million of Medicare Cap billing limitations recorded in the third quarter of 2013. At September 30, 2014, VITAS had 38 Medicare provider numbers of which two of the provider numbers have an estimated 2014 Medicare Cap billing limitation.

Of the 36 remaining Medicare provider numbers, 33 provider numbers have a Medicare Cap cushion of 10% or greater for the 2014 Medicare Cap period; one provider number has a Medicare Cap cushion of 5% to 10%; and two provider numbers have a cap cushion between 0% and 5%. VITAS generated an aggregate cap cushion of $268 million in the 2014 government fiscal year.

Average revenue per patient per day in the quarter, excluding the impact of Medicare Cap, was $198.90, which is 1.3% above the prior-year period. Routine home care reimbursement and high acuity care averaged $163.08 and $699.19, respectively. During the quarter, high acuity days of care were 6.7% of total days of care, essentially equal to the prior-year quarter.

The third quarter of 2014 gross margin, excluding the impact of Medicare Cap, was 22.7%, which is a 56 basis point decline when compared to the third quarter of 2013.

Selling, general and administrative expense was $20.2 million in the third quarter of 2014, which is an increase of 8.5% when compared to the prior-year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $40.8 million in the quarter, an increase of 0.9% over the prior-year period. Adjusted EBITDA margin, excluding the impact from Medicare Cap, was 15.2% in the quarter which is 50 basis points below the prior-year period.

Roto-Rooter

Roto-Rooter’s plumbing and drain cleaning business generated sales of $93.0 million for the third quarter of 2014, an increase of 7.0% over the prior-year quarter.

Roto-Rooter’s gross margin in the quarter was 46.9%, a 34 basis point decline when compared to the third quarter of 2013. Adjusted EBITDA in the third quarter of 2014 totaled $17.3 million, an increase of 6.8%, and the Adjusted EBITDA margin was 18.6% in the quarter, essentially equal to the prior year.

Chemed Consolidated

As of September 30, 2014, Chemed had total cash and cash equivalents of $19 million and debt of $174 million.

In June 2014 Chemed entered into a five-year Amended and Restated Credit Agreement that consisted of a $100 million amortizable term loan and a $350 million revolving credit facility. The interest rate on this facility has a floating rate that is currently LIBOR plus 113 basis points. At September 30, 2014, the Company had approximately $238 million of undrawn borrowing capacity under this credit agreement.

Capital expenditures through September 30, 2014, aggregated $31.7 million and compares to depreciation and amortization during the same period of $24.3 million.

The Company repurchased $99.1 million of Chemed stock through September 30, 2014. This equates to 1.1 million shares of Chemed stock repurchased during the year at an average cost of $91.51 Chemed currently has $22.7 million of authorization remaining under this share repurchase plan.

Guidance for 2014

VITAS revenue growth was constrained in the first half of 2014. This was primarily the result of the 2.0% Medicare rate cut implemented in the third quarter of 2013 as well as mix shift from high acuity care to routine home care. These factors negatively impacted revenue comparisons in the first half of 2014.

Full-year 2014 revenue growth for VITAS, prior to Medicare Cap, is estimated to be in the range of 1% to 2%. Admissions in 2014 are estimated to increase 2% and full-year Adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 14.5% to 15.0%. Medicare Cap is estimated to be $3.6 million in 2014.

Roto-Rooter is forecasted to achieve full-year 2014 revenue growth of 4% to 5%. This revenue estimate is based upon increased job pricing of approximately 2.0%. Adjusted EBITDA margin for 2014 is estimated in the range of 19.0% to 19.5%.

Management estimates that full-year 2014 earnings per diluted share, excluding non-cash expense for stock options, the non-cash interest expense related to the accounting for convertible debt, litigation and other discrete items, will be in the range of $6.00 to $6.05. This compares to Chemed’s 2013 reported adjusted earnings per diluted share of $5.62.

Conference Call

Chemed will host a conference call and webcast at 10 a.m., ET, on Friday, October 31, 2014, to discuss the Company's quarterly results and to provide an update on its business. The dial-in number for the conference call is (800) 700-0133 for U.S. and Canadian participants and (617) 213-8831 for international participants. The participant passcode is 10057878. 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 24 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 passcode is 99376839. An archived webcast will also be available at www.chemed.com.

Chemed Corporation operates in the healthcare field through its VITAS Healthcare Corporation subsidiary. VITAS provides daily hospice services to over 14,000 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, and the Philippines.

This press release contains information about Chemed’s EBITDA, Adjusted EBITDA and Adjusted Diluted EPS, which are not measures derived in accordance with GAAP and which exclude components that are important to understanding Chemed’s financial performance. In reporting its operating results, Chemed provides EBITDA, Adjusted EBITDA and Adjusted Diluted EPS measures to help investors and others evaluate the Company’s 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 management similarly uses EBITDA, Adjusted EBITDA and Adjusted Diluted EPS to assist it in evaluating the performance of the Company across fiscal periods and in assessing how its performance compares to its peer companies. These measures also help Chemed’s management to estimate the resources required to meet Chemed’s future financial obligations and expenditures. Chemed’s EBITDA, Adjusted EBITDA and Adjusted Diluted EPS should not be considered in isolation or as a substitute for comparable measures calculated and presented in accordance with GAAP. We calculated Adjusted EBITDA Margin by dividing Adjusted EBITDA by service revenue and sales. A reconciliation of Chemed’s net income to its EBITDA, Adjusted EBITDA and Adjusted Diluted EPS 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 Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
Service revenues and sales $ 358,389   $ 340,886   $ 1,076,871   $ 1,064,725  
Cost of services provided and goods sold 256,445 243,184 771,271 762,850
Selling, general and administrative expenses (aa) 53,566 48,870 162,886 157,537
Depreciation 7,450 6,971 21,871 20,665
Amortization 717 1,190 2,461 3,498
Other operating expenses (bb)   -     11,461     -     26,221  
Total costs and expenses   318,178     311,676     958,489     970,771  
Income from operations 40,211 29,210 118,382 93,954
Interest expense (980 ) (3,500 ) (7,224 ) (11,291 )
Other income/(expense)--net (cc)   705     (90 )   2,277     3,312  
Income before income taxes 39,936 25,620 113,435 85,975
Income taxes   (15,351 )   (8,188 )   (43,913 )   (31,657 )
Net income $ 24,585   $ 17,432   $ 69,522   $ 54,318  
 
 

Earnings Per Share

Net income $ 1.44   $ 0.96   $ 4.03   $ 2.95  
Average number of shares outstanding   17,039     18,184     17,263     18,436  
 
Diluted Earnings Per Share
Net income $ 1.39   $ 0.94   $ 3.87   $ 2.89  
Average number of shares outstanding   17,627     18,522     17,968     18,824  
 
                               
(aa) Selling, general and administrative ("SG&A") expenses comprise (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2014 2013 2014 2013

SG&A expenses before long-term incentive compensation and the impact of market gains and losses of deferred compensation plans

$ 51,668 $ 49,004 $ 158,190 $ 154,030

Market value gains/(losses) related to assets held in deferred compensation trusts

896 (189 ) 2,708 2,346
Long-term incentive compensation   1,002     55     1,988     1,161  
Total SG&A expenses $ 53,566   $ 48,870   $ 162,886   $ 157,537  
 
(bb) Other operating expenses comprise (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2014 2013 2014 2013
Litigation settlement of VITAS segment $ - $ 10,500 $ - $ 10,500
Litigation settlements of Roto-Rooter segment   -     961     -     15,721  
Total other operating expenses $ -   $ 11,461   $ -   $ 26,221  
 
(cc) Other income/(expense)--net comprises (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2014 2013 2014 2013

 

Market value gains/(losses) related to assets held in deferred compensation trusts

$ 896

$

(189

)

$ 2,708

$

2,346

Loss on disposal of property and equipment (167 )

(101

)

(493 )

(180

)

Interest income (13 )

192

(5 )

1,165

Other   (11 )  

8

    67    

(19

)

Total other income--net $ 705   $

(90

)

$ 2,277   $

3,312

 
 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)(unaudited)
                     
 
September 30,

2014

2013

Assets

Current assets
Cash and cash equivalents $ 18,562 $ 83,204
Accounts receivable less allowances 132,340 80,117
Inventories 6,385 6,729
Current deferred income taxes 14,543 25,101
Prepaid income taxes 3,488 3,538
Prepaid expenses   13,420     17,684  
Total current assets 188,738 216,373
Investments of deferred compensation plans held in trust 47,780 40,683
Properties and equipment, at cost less accumulated depreciation 101,845 89,800
Identifiable intangible assets less accumulated amortization 56,158 56,979
Goodwill 466,844 466,940
Other assets   8,143     10,765  
Total Assets $ 869,508   $ 881,540  
 
Liabilities
Current liabilities
Accounts payable $ 57,067 $ 44,523
Current portion of long-term debt 20,425 181,340
Income taxes 4,608 5,529
Accrued insurance 39,927 41,737
Accrued compensation 50,412 46,689
Accrued legal 685 33,304
Other current liabilities   24,131     23,232  
Total current liabilities 197,255 376,354
Deferred income taxes 27,853 27,454
Long-term debt 153,125 -
Deferred compensation liabilities 47,736 39,406
Other liabilities   11,108     11,499  
Total Liabilities   437,077     454,713  
 
Stockholders' Equity
Capital stock 33,199 32,086
Paid-in capital 528,973 469,934
Retained earnings 745,077 666,894
Treasury stock, at cost (877,067 ) (744,210 )
Deferred compensation payable in Company stock   2,249     2,123  
Total Stockholders' Equity   432,431     426,827  
Total Liabilities and Stockholders' Equity $ 869,508   $ 881,540  
 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)(unaudited)
                       
 
Nine Months Ended September 30,

2014

2013
Cash Flows from Operating Activities
Net income $ 69,522 $ 54,318

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 24,332 24,163
Provision for deferred income taxes 5,630 (11,681 )
Provision for uncollectible accounts receivable 9,573 8,211
Amortization of discount on convertible notes 3,392 6,450
Stock option expense 3,430 4,732
Amortization of debt issuance costs 697 1,421
Noncash long-term incentive compensation 1,988 1,161

Changes in operating assets and liabilities, excluding amounts acquired in business combinations:

Decrease/(increase) in accounts receivable (50,027 ) 5,293
Decrease in inventories 318 329
Decrease/(increase) in prepaid expenses 4,398 (6,183 )

Increase/(decrease) in accounts payable and other current liabilities

(29,680 ) 48,967
Increase in income taxes 8,186 1,923
Increase in other assets (3,138 ) (5,002 )
Increase in other liabilities 5,370 3,978
Excess tax benefit on share-based compensation (3,737 ) (2,507 )
Other sources   755     285  
Net cash provided by operating activities   51,009     135,858  
Cash Flows from Investing Activities
Capital expenditures (31,745 ) (18,887 )
Business combinations, net of cash acquired (250 ) (2,210 )
Other sources   189     139  
Net cash used by investing activities   (31,806 )   (20,958 )
Cash Flows from Financing Activities
Proceeds from revolving line of credit 308,600 -
Payments on revolving line of credit (233,800 ) -
Payments on other long-term debt (188,206 ) -
Proceeds from other long-term debt 100,000 -
Purchases of treasury stock (99,103 ) (89,611 )
Increase/(decrease) in cash overdrafts payable 22,233 (10,928 )
Proceeds from exercise of stock options 22,123 13,125
Dividends paid (10,558 ) (10,459 )
Capital stock surrendered to pay taxes on stock-based compensation (6,121 ) (4,280 )
Excess tax benefit on share-based compensation 3,737 2,507
Retirement of warrants (2,645 )

-

Debt issuances costs (939 ) (1,108 )
Other sources/(uses)   (380 )   (473 )
Net cash used by financing activities   (85,059 )   (101,227 )
Increase/(Decrease) in Cash and Cash Equivalents (65,856 ) 13,673

Cash and cash equivalents at beginning of year

 

84,418

   

69,531

 
Cash and cash equivalents at end of period $ 18,562   $ 83,204  
 
   
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(in thousands)(unaudited)
             
Chemed
VITAS Roto-Rooter Corporate

Consolidated

2014        
Service revenues and sales $ 265,384   $ 93,005   $ -   $ 358,389  
Cost of services provided and goods sold 207,105 49,340 - 256,445
Selling, general and administrative expenses (a) 20,224 25,682 7,660 53,566
Depreciation 4,530 2,772 148 7,450
Amortization   205     114     398     717  
Total costs and expenses   232,064     77,908     8,206     318,178  
Income/(loss) from operations 33,320 15,097 (8,206 ) 40,211
Interest expense (a) (55 ) (87 ) (838 ) (980 )
Intercompany interest income/(expense) 1,660 760 (2,420 ) -
Other income/(expense)—net   (189 )   (2 )   896     705  
Income/(loss) before income taxes 34,736 15,768 (10,568 ) 39,936
Income taxes (a)   (13,143 )   (5,920 )   3,712     (15,351 )
Net income/(loss) $ 21,593   $ 9,848   $ (6,856 ) $ 24,585  
 
2013        
Service revenues and sales $ 254,001   $ 86,885   $ -   $ 340,886  
Cost of services provided and goods sold 197,387 45,797 - 243,184
Selling, general and administrative expenses (b) 18,637 25,009 5,224 48,870
Depreciation 4,545 2,292 134 6,971
Amortization 538 151 501 1,190
Other operating expenses (a)   10,500     961     -     11,461  
Total costs and expenses   231,607     74,210     5,859     311,676  
Income/(loss) from operations 22,394 12,675 (5,859 ) 29,210
Interest expense (b) (48 ) (82 ) (3,370 ) (3,500 )
Intercompany interest income/(expense) 1,231 579 (1,810 ) -
Other income/(expense)—net   73     8     (171 )   (90 )
Income/(loss) before income taxes 23,650 13,180 (11,210 ) 25,620
Income taxes (b)   (9,042 )   (4,999 )   5,853     (8,188 )
Net income/(loss) $ 14,608   $ 8,181   $ (5,357 ) $ 17,432  
 
The "Footnotes to Financial Statements" are integral parts of this financial information.
 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(in thousands)(unaudited)
                 
Chemed
VITAS Roto-Rooter Corporate Consolidated
2014        
Service revenues and sales $ 789,822   $ 287,049   $ -   $ 1,076,871  
Cost of services provided and goods sold 618,315 152,956 - 771,271
Selling, general and administrative expenses (a) 62,939 78,569 21,378 162,886
Depreciation 13,709 7,732 430 21,871
Amortization   829     397     1,235     2,461  
Total costs and expenses   695,792     239,654     23,043     958,489  
Income/(loss) from operations 94,030 47,395 (23,043 ) 118,382
Interest expense (a) (167 ) (295 ) (6,762 ) (7,224 )
Intercompany interest income/(expense) 4,520 2,090 (6,610 ) -
Other income/(expense)—net   (577 )   137     2,717     2,277  
Income/(loss) before income taxes 97,806 49,327 (33,698 ) 113,435
Income taxes (a)   (37,161 )   (18,728 )   11,976     (43,913 )
Net income/(loss) $ 60,645   $ 30,599   $ (21,722 ) $ 69,522  
 
2013        
Service revenues and sales $ 788,896   $ 275,829   $ -   $ 1,064,725  
Cost of services provided and goods sold 616,334 146,516 - 762,850
Selling, general and administrative expenses (b) 61,304 76,901 19,332 157,537
Depreciation 13,579 6,685 401 20,665
Amortization 1,564 454 1,480 3,498
Other operating expenses (a)   10,500     15,721     -     26,221  
Total costs and expenses   703,281     246,277     21,213     970,771  
Income/(loss) from operations 85,615 29,552 (21,213 ) 93,954
Interest expense (b) (145 ) (239 ) (10,907 ) (11,291 )
Intercompany interest income/(expense) 2,940 1,443 (4,383 ) -
Other income/(expense)—net   878     42     2,392     3,312  
Income/(loss) before income taxes 89,288 30,798 (34,111 ) 85,975
Income taxes (b)   (34,051 )   (11,580 )   13,974     (31,657 )
Net income/(loss) $ 55,237   $ 19,218   $ (20,137 ) $ 54,318  
 
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 SEPTEMBER 30, 2014 AND 2013
(in thousands)(unaudited)
         
 
Chemed
VITAS Roto-Rooter Corporate Consolidated
2014            
Net income/(loss) $ 21,593 $ 9,848 $ (6,856 ) $ 24,585
Add/(deduct):
Interest expense 55 87 838 980
Income taxes 13,143 5,920 (3,712 ) 15,351
Depreciation 4,530 2,772 148 7,450
Amortization 205     114     398     717  
EBITDA 39,526 18,741 (9,184 ) 49,083
Add/(deduct):
Intercompany interest expense/(income) (1,660 ) (760 ) 2,420 -
Interest income 23 (9 ) (1 ) 13
Expenses related to OIG investigation 450 - - 450

Net recoveries related to litigation settlements

- (234 ) - (234 )
Advertising cost adjustment (c) - (483 ) - (483 )
Long-term incentive compensation - - 1,002 1,002
Stock option expense - - 977 977
Expenses of securities litigation   -     -     138     138  
Adjusted EBITDA $ 38,339   $ 17,255   $ (4,648 ) $ 50,946  
 
2013            
Net income/(loss) $ 14,608 $ 8,181 $ (5,357 ) $ 17,432
Add/(deduct):
Interest expense 48 82 3,370 3,500
Income taxes 9,042 4,999 (5,853 ) 8,188
Depreciation 4,545 2,292 134 6,971
Amortization   538     151     501     1,190  
EBITDA 28,781 15,705 (7,205 ) 37,281
Add/(deduct):
Intercompany interest expense/(income) (1,231 ) (579 ) 1,810 -
Interest income (163 ) (10 ) (19 ) (192 )
Litigation settlements 10,500 961 - 11,461
Net expenses/(cost recovery) related to OIG investigation (591 ) - - (591 )
Acquisition expenses 18 3 - 21
Expenses related to litigation settlements - 443 - 443
Advertising cost adjustment (c) - (369 ) - (369 )
Stock option expense - - 1,629 1,629
Long-term incentive compensation - - 55 55
Expenses of securities litigation   -     -     1     1  
Adjusted EBITDA $ 37,314   $ 16,154   $ (3,729 ) $ 49,739  
 
The "Footnotes to Financial Statements" are integral parts of this financial information.
 
         
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING SUMMARY OF EBITDA
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(in thousands)(unaudited)
         
 
Chemed
VITAS Roto-Rooter Corporate Consolidated
2014            
Net income/(loss) $ 60,645 $ 30,599 $ (21,722 ) $ 69,522
Add/(deduct):
Interest expense 167 295 6,762 7,224
Income taxes 37,161 18,728 (11,976 ) 43,913
Depreciation 13,709 7,732 430 21,871
Amortization   829     397     1,235     2,461  
EBITDA 112,511 57,751 (25,271 ) 144,991
Add/(deduct):
Intercompany interest expense/(income) (4,520 ) (2,090 ) 6,610 -
Interest income 43 (28 ) (10 ) 5

Net expense/(recoveries) related to litigation settlements

113 (9 ) - 104
Expenses related to OIG investigation 1,608 - - 1,608
Acquisition expenses 1 - - 1
Advertising cost adjustment (c) - (1,623 ) - (1,623 )
Stock option expense - - 3,430 3,430
Long-term incentive compensation - - 1,988 1,988
Expenses of securities litigation   -     -     327     327  
Adjusted EBITDA $ 109,756   $ 54,001   $ (12,926 ) $ 150,831  
 
2013            
Net income/(loss) $ 55,237 $ 19,218 $ (20,137 ) $ 54,318
Add/(deduct):
Interest expense 145 239 10,907 11,291
Income taxes 34,051 11,580 (13,974 ) 31,657
Depreciation 13,579 6,685 401 20,665
Amortization   1,564     454     1,480     3,498  
EBITDA 104,576 38,176 (21,323 ) 121,429
Add/(deduct):
Intercompany interest expense/(income) (2,940 ) (1,443 ) 4,383 -
Interest income (1,051 ) (66 ) (48 ) (1,165 )
Litigation settlements 10,500 15,721 - 26,221
Net expenses related to OIG investigation 1,444 - - 1,444
Acquisition expenses 38 4 - 42
Expenses related to litigation settlements - 1,151 - 1,151
Advertising cost adjustment (c) - (1,343 ) - (1,343 )
Cost of severance arrangements - 302 - 302
Stock option expense - - 4,732 4,732
Long-term incentive compensation - - 1,161 1,161
Expenses of securities litigation   -     -     4     4  
Adjusted EBITDA $ 112,567   $ 52,502   $ (11,091 ) $ 153,978  
 
The "Footnotes to Financial Statements" are integral parts of this financial information.
 
         
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
RECONCILIATION OF ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE
(in thousands, except per share data)(unaudited)
           
 
 
Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
Net income as reported $ 24,585 $ 17,432 $ 69,522 $ 54,318
 
Add/(deduct) after-tax costs of:
Long-term incentive compensation 634 34 1,258 734
Stock option expense 615 1,030 2,159 2,993
Net expenses/(cost recovery) related to OIG investigation 279 (367 ) 997 895

Net expenses/(recoveries) related to litigation settlements

(143 )

269

64

699

Securities litigation 88 1 207 3
Uncertain tax position adjustments - (1,782 ) - (1,782 )

Additional interest expense resulting from the change in accounting for the conversion feature of the convertible notes

- 1,375 2,143 4,046

Litigation settlements

 

-

 

7,094

 

-

16,061

Acquisition expenses - 12

1

25
Loss on extinguishment of debt - - - 294
Severance arrangements   -     -     -   184  
 
Adjusted net income $ 26,058   $ 25,098   $ 76,351 $ 78,470  
 
 
Diluted Earnings Per Share As Reported
Net income $ 1.39   $ 0.94   $ 3.87 $ 2.89  
Average number of shares outstanding   17,627     18,522     17,968   18,824  
 
 
Adjusted Diluted Earnings Per Share
Net income $ 1.48   $ 1.36   $ 4.28 $ 4.17  
Adjusted average number of shares outstanding (e)   17,627     18,522     17,833   18,824  
 
The "Footnotes to Financial Statements" are integral parts of this financial information.
 
     
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
OPERATING STATISTICS FOR VITAS SEGMENT
(unaudited)
               
 
Three Months Ended Nine Months Ended
September 30, September 30,
OPERATING STATISTICS 2014 2013 2014 2013
Net revenue ($000) (d)
Homecare $ 204,965 $ 196,476 $ 600,780 $ 593,410
Inpatient 25,012 24,824 77,037 79,181
Continuous care   37,907     35,880     113,801     119,466  
Total before Medicare cap allowance 267,884 257,180 791,618 792,057
Medicare cap allowance   (2,500 )   (3,179 )   (1,796 )   (3,161 )
Total $ 265,384   $ 254,001   $ 789,822   $ 788,896  
Net revenue as a percent of total before Medicare cap allowance
Homecare 76.5 % 76.4 % 75.9 % 74.9 %
Inpatient 9.3 9.7 9.7 10.0
Continuous care   14.2     14.0     14.5     15.2  
Total before Medicare cap allowance 100.0 100.1 100.1 100.1
Medicare cap allowance   (0.9 )   (1.3 )   (0.2 )   (0.4 )
Total   99.1   %   98.8   %   99.9   % 99.7   %
Average daily census ("ADC") (days)
Homecare 10,662 10,373 10,562 10,482
Nursing home   2,999     2,911     2,940     2,928  
Routine homecare 13,661 13,284 13,502 13,410
Inpatient 417 417 429 440
Continuous care   561     540     568     600  
Total   14,639     14,241     14,499     14,450  
 
Total Admissions 15,653 14,555 47,777 47,413
Total Discharges 15,460 14,971 47,139 47,603
Average length of stay (days) 83.7 82.2 82.4 81.3
Median length of stay (days) 15.0 16.0 15.0 15.0
ADC by major diagnosis
Neurological 32.7 % 37.8 % 35.0 % 36.8 %
Cancer 17.3 17.1 17.4 17.0
Cardio 17.6 13.9 16.6 12.8
Respiratory 8.0 7.8 7.9 7.5
Other   24.4     23.4     23.1     25.9  
Total   100.0   %   100.0   %   100.0   % 100.0   %
Admissions by major diagnosis
Neurological 18.2 % 21.0 % 20.6 % 20.3 %
Cancer 34.0 34.4 33.3 33.0
Cardio 15.2 13.8 14.8 13.0
Respiratory 9.1 9.0 9.5 9.3
Other   23.5     21.8     21.8     24.4  
Total   100.0   %   100.0   %   100.0   % 100.0   %
Direct patient care margins (f)
Routine homecare 53.8 % 52.5 % 53.4 % 52.2 %
Inpatient 4.9 1.7 5.4 5.6
Continuous care 17.4 14.8 17.2 15.8
Homecare margin drivers (dollars per patient day)
Labor costs $ 53.65 $ 54.64 $ 54.31 $ 55.61
Drug costs 6.64 7.52 7.04 7.55
Home medical equipment

6.68

6.67

6.69

6.69
Medical supplies 3.22 2.83 3.20 2.96
Inpatient margin drivers (dollars per patient day)
Labor costs $ 345.18 $ 354.09 $ 344.05 $ 339.84
Continuous care margin drivers (dollars per patient day)
Labor costs $ 584.99 $ 594.25 $ 586.60 $ 592.15
Bad debt expense as a percent of revenues 1.0 % 0.9 % 1.0 % 0.9 %
Accounts receivable --
Days of revenue outstanding- excluding unapplied Medicare payments 38.1 34.6 n.a. n.a.
Days of revenue outstanding- including unapplied Medicare payments 36.3 21.9 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 NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(unaudited)
           
(a)

Included in the results of operations 2014 are the following significant credits/(charges) which may not be indicative of ongoing operations (in thousands):

 

Three Months Ended September 30, 2014
VITAS Roto-Rooter Corporate Consolidated
Selling, general and administrative expenses:
Expenses related to OIG investigation $ (450 ) $ - $ - $ (450 )

Net recoveries related to litigation settlements

- 234 - 234
Long-term incentive compensation - - (1,002 ) (1,002 )
Stock option expense - - (977 ) (977 )
Expenses of securities litigation   -     -     (138 )   (138 )
Pretax impact on earnings (450 ) 234 (2,117 ) (2,333 )
Income tax benefit/(cost) on the above   171     (91 )   780     860  
After-tax impact on earnings $ (279 ) $ 143   $ (1,337 ) $ (1,473 )
 
Nine Months Ended September 30, 2014
VITAS Roto-Rooter Corporate Consolidated
Selling, general and administrative expenses:
Expenses related to OIG investigation $ (1,608 ) $ - $ - $ (1,608 )

Net recoveries/(expenses) related to litigation settlements

(113 ) 9 - (104 )
Acquisition expenses (1 ) - - (1 )
Stock option expense - - (3,430 ) (3,430 )
Long-term incentive compensation - - (1,988 ) (1,988 )
Expenses of securities litigation - - (327 ) (327 )
Interest expense:

Additional interest expense resulting from the change in accounting for the conversion feature of the convertible notes

  -     -     (3,389 )   (3,389 )
Pretax impact on earnings (1,722 ) 9 (9,134 ) (10,847 )
Income tax benefit/(cost) on the above   654     (3 )   3,367     4,018  
After-tax impact on earnings $ (1,068 ) $ 6   $ (5,767 ) $ (6,829 )
 
(b)

Included in the results of operations 2013 are the following significant credits/(charges) which may not be indicative of ongoing operations (in thousands):

 
Three Months Ended September 30, 2013
VITAS Roto-Rooter Corporate Consolidated
Selling, general and administrative expenses:
Net cost recovery/(expenses) related to OIG investigation $ 591 $ - $ - $ 591
Acquisition expenses (18 ) (3 ) - (21 )
Expenses related to litigation settlements - (443 ) - (443 )
Stock option expense - - (1,629 ) (1,629 )
Long-term incentive compensation - - (55 ) (55 )
Expenses of securities litigation - - (1 ) (1 )
Other operating expenses (10,500 ) (961 ) - (11,461 )
Interest expense:

Additional interest expense resulting from the change in accounting for the conversion feature of the convertible notes

  -     -     (2,174 )   (2,174 )
Pretax impact on earnings (9,927 ) (1,407 ) (3,859 ) (15,193 )
Income tax benefit on the above 3,773 553 1,419 5,745
Uncertain tax position adjustments   -     -     1,782     1,782  
After-tax impact on earnings $ (6,154 ) $ (854 ) $ (658 ) $ (7,666 )
 
Nine Months Ended September 30, 2013
VITAS Roto-Rooter Corporate Consolidated
Selling, general and administrative expenses:
Net cost recovery/(expenses) related to OIG investigation $ (1,444 ) $ - $ - $ (1,444 )
Acquisition expenses (38 ) (4 ) - (42 )
Expenses related to litigation settlements - (1,151 ) - (1,151 )
Cost of severance arrangements - (302 ) - (302 )
Stock option expense - - (4,732 ) (4,732 )
Long-term incentive compensation - - (1,161 ) (1,161 )
Expenses of securities litigation - - (4 ) (4 )
Other operating expenses (10,500 ) (15,721 ) - (26,221 )
Interest expense:

Additional interest expense resulting from the change in accounting for the conversion feature of the convertible notes

- - (6,397 ) (6,397 )
Loss on extinguishment of debt   -     -     (465 )   (465 )
Pretax impact on earnings (11,982 ) (17,178 ) (12,759 ) (41,919 )
Income tax benefit on the above 4,554 6,742 4,689 15,985
Uncertain tax position adjustments   -     -     1,782     1,782  
After-tax impact on earnings $ (7,428 ) $ (10,436 ) $ (6,288 ) $ (24,152 )
 
 
(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 third quarters of 2014 and 2013, GAAP advertising expense for Roto-Rooter totaled $5,606,000 and $5,776,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the third quarters of 2014 and 2013 would total $6,089,000 and $6,145,000, respectively.
 
Similarly, for the first nine months of 2014 and 2013, GAAP advertising expense for Roto-Rooter totaled $18,208,000 and $17,574,00, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the first nine months of 2014 and 2013 would total $19,831,000 and $18,917,000, respectively.
 
(d) VITAS has nine large (greater than 450 ADC), 16 medium (greater than 200 but less than 450 ADC) and 24 small (less than 200 ADC) hospice programs. For the current Medicare cap year there are two programs with a cap liability and three programs with a Medicare cap cushion of less than 10%.
 
(e) Adjusted diluted average shares outstanding excludes the estimated dilutive impact of the convertible notes prior to conversion of these notes on May 15, 2014 (impact of 135,000 shares for the nine months ended September 30, 2014) as this impact was entirely offset upon the exercise of the note hedges on May 15, 2014.
 
(f) Amounts exclude indirect patient care and administrative costs, as well as Medicare Cap billing limitation.

CONTACT:
Chemed Corporation
David P. Williams, 513-762-6901