CHEMED CORP - FORM 8-K - EX-99 - EXHIBIT 99 - October 29, 2012

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Exhibit 99

Chemed Reports Third-Quarter 2012 Results

CINCINNATI--(BUSINESS WIRE)--October 29, 2012--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, 2012, versus the comparable prior-year period, as follows:

Consolidated operating results:

  • Revenue increased 3.8% to $354 million
  • GAAP Diluted EPS increased 2.9% to $1.07
  • Adjusted Diluted EPS increased 6.7% to $1.28

VITAS segment operating results:

  • Net Patient Revenue of $268 million, an increase of 5.9%
  • Average Daily Census (ADC) of 14,277, an increase of 4.5%
  • Admissions of 15,539, an increase of 4.4%
  • Net Income of $21.9 million, an increase of 4.6%
  • Adjusted EBITDA of $39.8 million, an increase of 5.2%
  • Adjusted EBITDA margin of 14.8%, a decrease of 11 basis points

Roto-Rooter segment operating results:

  • Revenue of $86.4 million, a decrease of 2.4%
  • Unit-for-unit job count of 157,815, a decrease of 3.0%
  • Net Income of $6.1 million, a decrease of 23.3%
  • Adjusted EBITDA of $12.7 million, a decrease of 15.3%
  • Adjusted EBITDA margin of 14.7%, a decrease of 223 basis points

VITAS

Net revenue for VITAS was $268 million in the third quarter of 2012, which is an increase of 5.9% over the prior-year period. This revenue growth was the result of increased ADC of 4.5%, driven by an increase in admissions of 4.4%, increased discharges of 4.5% and Medicare price increases of approximately 2.5%. Revenue growth was partially offset by mix shift between routine home care and high acuity care.

Average revenue per patient per day in the quarter, excluding the impact of Medicare Cap, was $204.03, which is 1.5% above the prior-year period. Routine home care reimbursement and high acuity care averaged $162.90 and $706.19, respectively, per patient per day in the third quarter of 2012. During the quarter, high acuity days of care were 7.57% of total days of care, 15 basis points lower than the prior-year quarter.

VITAS did not incur any Medicare Cap billing limitations in the third quarter of 2012. The Medicare Cap 2012 fiscal year is based upon Medicare admissions from September 29, 2011, through September 28, 2012, and is compared to Medicare hospice billings from November 1, 2011, through October 31, 2012. Based upon admissions during this period, VITAS estimates there will not be any billing limitations for the 2012 Medicare Cap fiscal year.

Of VITAS’ 35 unique Medicare provider numbers, 29 provider numbers have a Medicare Cap cushion of 10% or greater during the 2012 Medicare Cap year; two provider numbers have a Medicare Cap cushion between 5% and 10%; and four provider numbers have a cap cushion between 0% and 5%. VITAS generated an aggregate cap cushion of $217 million during in the 2012 Medicare Cap fiscal year.

The third quarter of 2012 gross margin was 22.2%, which is equal to the gross margin in the third quarter of 2011 when you exclude the impact of Medicare Cap in the prior-year quarter.

Selling, general and administrative expense was $20.1 million in the third quarter of 2012, which is an increase of 6.3% when compared to the prior-year quarter. Adjusted EBITDA totaled $39.8 million in the quarter, an increase of 5.2% over the prior-year period. Adjusted EBITDA margin, excluding the impact from Medicare Cap, was 14.8% in the quarter which is equal to the prior year.

Roto-Rooter

Roto-Rooter’s plumbing and drain cleaning business generated sales of $86.4 million for the third quarter of 2012, a decrease of $2.1 million, or 2.4%, over the prior-year quarter. Approximately $1.0 million, or 113 basis points, of this decline is attributed to Roto-Rooter eliminating a small HVAC operation in an East Coast market. This resulted in effectively zero HVAC revenue in the third quarter of 2012.

Unit-for-unit job count in the third quarter of 2012 declined 3.0% when compared to the prior-year period. During the third quarter of 2012, total residential jobs decreased 4.8%, as residential plumbing jobs declined 4.6% and residential drain cleaning jobs decreased 4.9%, when compared to the third quarter of 2011. Residential jobs represented 69% of total job count in the quarter. Total commercial jobs increased 1.1%, with commercial plumbing/excavation job count increasing 5.6% and commercial drain cleaning declining 0.4% when compared to the prior-year quarter. The “All Other” residential and commercial job category, which represents 1.6% of aggregate job count, decreased 8.6%.

Roto-Rooter’s gross margin in the quarter was 44.3%, a 76 basis point decline when compared to the third quarter of 2011. Adjusted EBITDA in the third quarter of 2012 totaled $12.7 million, a decline of 15.3%, and the Adjusted EBITDA margin was 14.7% in the quarter, a decline of 223 basis points.

Chemed Consolidated

Chemed had total debt of $173 million at September 30, 2012. This debt is net of the discount taken as a result of convertible debt accounting requirements. Excluding this discount, aggregate debt is $187 million and is due in May 2014. Chemed’s total debt equates to less than one times trailing twelve-month adjusted EBITDA.

In March 2011 Chemed entered into a five-year Credit Agreement that consists of a $350 million revolving credit facility. The interest rate on this Credit Agreement has a floating rate that is currently LIBOR plus 175 basis points. In addition, an expansion feature is included in this Credit Agreement that provides Chemed the opportunity to increase its revolver and/or enter into term loans for an additional $150 million. At September 30, 2012, this facility had approximately $321 million of undrawn borrowing capacity after deducting $29 million for letters of credit issued to secure the Company’s workers’ compensation insurance.

Capital expenditures through September 2012 aggregated $26.5 million and compares to depreciation and amortization during the same period of $22.6 million.

During the quarter, the Company purchased 9,334 shares of Chemed stock at an aggregate cost of $586,000. The Company has $63.5 million remaining under Chemed’s previously announced share repurchase program.

Guidance for 2012

VITAS expects to achieve full-year 2012 revenue growth, prior to Medicare Cap, of 7.5% to 8.0%. Admissions in 2012 are estimated to increase approximately 4.0% to 4.5% and full-year Adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 14.5% to 15.0%. Effective October 1, 2012, Medicare increased the average hospice reimbursement rates by approximately 0.9%. Guidance assumes VITAS will incur $1.25 million of estimated Medicare contractual billing limitations for the remainder of calendar year 2012.

Roto-Rooter expects to achieve full-year 2012 revenue 2.0% below the prior year. The revenue estimate is a result of increased pricing of approximately 1.5%, a favorable mix shift to higher revenue jobs, with job count estimated to decrease 3% to 4%. Adjusted EBITDA margin for 2012 is estimated in the range of 15.8% to 16.3%.

Based upon the above, management estimates 2012 earnings per diluted share, excluding non-cash expense for stock options, the non-cash interest expense related to the accounting for convertible debt and other items not indicative of ongoing operations, will be in the range of $5.20 to $5.30. This compares to Chemed’s 2011 reported adjusted earnings per diluted share of $4.78.

Conference Call

Chemed will host a conference call and webcast at 10 a.m., ET, on Tuesday, October 30, 2012, to discuss the Company's quarterly results and to provide an update on its business. The dial-in number for the conference call is (866) 700-0133 for U.S. and Canadian participants and (617) 213-8831 for international participants. The participant passcode is 88495350. 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 32895198. 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 approximately 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,
2012 2011 2012 2011
Service revenues and sales $ 354,353   $ 341,439   $ 1,061,466   $ 1,005,717  
Cost of services provided and goods sold 256,610 245,063 771,423 722,118
Selling, general and administrative expenses (aa) 52,955 47,618 155,892 153,696
Depreciation 6,557 6,313 19,178 18,959
Amortization 1,135 1,134 3,375 3,243
Other operating expenses (bb)   1,126     -     1,126     -  
Total costs and expenses   318,383     300,128     950,994     898,016  
Income from operations 35,970 41,311 110,472 107,701
Interest expense (3,743 ) (3,555 ) (11,032 ) (10,260 )
Other income/(expense)--net (cc)   1,840     (1,935 )   2,965     881  
Income before income taxes 34,067 35,821 102,405 98,322
Income taxes   (13,222 )   (13,934 )   (39,841 )   (38,048 )
Net income $ 20,845   $ 21,887   $ 62,564   $ 60,274  
 
 
Earnings Per Share
Net income $ 1.10   $ 1.06   $ 3.30   $ 2.88  
Average number of shares outstanding   18,960     20,674     18,977     20,934  
 
Diluted Earnings Per Share
Net income $ 1.07   $ 1.04   $ 3.23   $ 2.82  
Average number of shares outstanding   19,404     21,055     19,382     21,400  
 
                 
(aa) Selling, general and administrative ("SG&A") expenses comprise (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2012 2011 2012 2011

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

$ 51,379 $ 49,629 $ 153,131 $ 149,888

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

1,576 (2,011 ) 2,761 796
Long-term incentive compensation   -     -     -     3,012  
Total SG&A expenses $ 52,955   $ 47,618   $ 155,892   $ 153,696  
 
(bb) Other operating expenses comprise severance and other costs related to closing Roto-Rooter's HVAC business in the third quarter of 2012.
 
(cc) Other income/(expense)--net comprises (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2012 2011 2012 2011

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

$ 1,576 $ (2,011 ) $ 2,761 $ 796
Interest income 291 74 401 197
Loss on disposal of property and equipment (80 ) (79 ) (228 ) (68 )
Other   53     81     31     (44 )
Total other income--net $ 1,840   $ (1,935 ) $ 2,965   $ 881  
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)(unaudited)
                   
 
September 30,
2012 2011
Assets
Current assets
Cash and cash equivalents $ 69,296 $ 21,342
Accounts receivable less allowances 101,152 112,721
Inventories 7,639 8,888
Current deferred income taxes 14,118 14,850
Prepaid income taxes 3,044 764
Prepaid expenses   9,855     10,031  
Total current assets 205,104 168,596
Investments of deferred compensation plans held in trust 35,053 31,339
Properties and equipment, at cost less accumulated depreciation 90,135 83,484
Identifiable intangible assets less accumulated amortization 57,507 58,644
Goodwill 465,861 460,747
Other assets   11,127     12,246  
Total Assets $ 864,787   $ 815,056  
 
Liabilities
Current liabilities
Accounts payable $ 44,056 $ 59,186
Income taxes 1,496 8,267
Accrued insurance 39,518 35,655
Accrued compensation 44,117 40,376
Other current liabilities   18,494     17,308  
Total current liabilities 147,681 160,792
Deferred income taxes 24,264 23,262
Long-term debt 172,812 164,841
Deferred compensation liabilities 34,626 30,267
Other liabilities   10,779     9,559  
Total Liabilities   390,162     388,721  
 
Stockholders' Equity
Capital stock 31,451 30,913
Paid-in capital 428,232 394,822
Retained earnings 599,680 524,197
Treasury stock, at cost (586,744

)

(525,555 )
Deferred compensation payable in Company stock   2,006     1,958  
Total Stockholders' Equity   474,625     426,335  
Total Liabilities and Stockholders' Equity $ 864,787   $ 815,056  
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)(unaudited)
                       
 
Nine Months Ended September 30,
2012 2011
Cash Flows from Operating Activities
Net income $ 62,564 $ 60,274

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

Depreciation and amortization 22,553 22,202
Provision for uncollectible accounts receivable 7,303 6,640
Provision for deferred income taxes (6,808 ) (1,608 )
Stock option expense 6,709 6,903
Amortization of discount on convertible notes 6,028 5,633
Noncash long-term incentive compensation - 2,595

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

Increase in accounts receivable (30,409 ) (5,991 )
Decrease/(increase) in inventories 1,029 (1,160 )
Decrease in prepaid expenses 1,554 254

Increase in accounts payable and other current liabilities

4,454 2,654
Increase in income taxes 1,292 12,253
Increase in other assets (3,944 ) (3,811 )
Increase in other liabilities 6,648 3,567
Excess tax benefit on share-based compensation (2,714 ) (3,368 )
Other sources   1,078     899  
Net cash provided by operating activities   77,337     107,936  
Cash Flows from Investing Activities
Capital expenditures (26,489 ) (23,459 )
Business combinations, net of cash acquired (5,900 ) (3,689 )
Other uses   528     (829 )
Net cash used by investing activities   (31,861 )   (27,977 )
Cash Flows from Financing Activities
Purchases of treasury stock (15,047 ) (110,288 )
Proceeds from issuance of capital stock 10,483 7,979
Dividends paid (9,641 ) (9,393 )
Increase/(decrease) in cash overdrafts payable (3,299 ) 2,297
Excess tax benefit on share-based compensation 2,714 3,368
Debt issuances costs - (2,723 )
Other sources   529     226  
Net cash used by financing activities   (14,261 )   (108,534 )
Increase/(Decrease) in Cash and Cash Equivalents 31,215 (28,575 )
Cash and cash equivalents at beginning of year   38,081     49,917  
Cash and cash equivalents at end of period $ 69,296   $ 21,342  

 

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011
(in thousands)(unaudited)
                 
Chemed
VITAS Roto-Rooter Corporate Consolidated

 2012

Service revenues and sales $ 267,990   $ 86,363   $ -   $ 354,353  
Cost of services provided and goods sold 208,473 48,137 - 256,610
Selling, general and administrative expenses (a) 20,148 25,350 7,457 52,955
Depreciation 4,333 2,093 131 6,557
Amortization 489 160 486 1,135
Other operating expenses (a)   -     1,126     -     1,126  
Total costs and expenses   233,443     76,866     8,074     318,383  
Income/(loss) from operations 34,547 9,497 (8,074 ) 35,970
Interest expense (a) (62 ) (150 ) (3,531 ) (3,743 )
Intercompany interest income/(expense) 795 396 (1,191 ) -
Other income/(expense)—net   176     63     1,601     1,840  
Income/(loss) before income taxes 35,456 9,806 (11,195 ) 34,067
Income taxes (a)   (13,516 )   (3,661 )   3,955     (13,222 )
Net income/(loss) $ 21,940   $ 6,145   $ (7,240 ) $ 20,845  
 

 2011

Service revenues and sales $ 252,944   $ 88,495   $ -   $ 341,439  
Cost of services provided and goods sold 196,407 48,656 - 245,063
Selling, general and administrative expenses (b) 18,945 25,057 3,616 47,618
Depreciation 4,123 2,058 132 6,313
Amortization   510     156     468     1,134  
Total costs and expenses   219,985     75,927     4,216     300,128  
Income/(loss) from operations 32,959 12,568 (4,216 ) 41,311
Interest expense (b) (62 ) (132 ) (3,361 ) (3,555 )
Intercompany interest income/(expense) 834 451 (1,285 ) -
Other income/(expense)—net   62     (7 )   (1,990 )   (1,935 )
Income/(loss) before income taxes 33,793 12,880 (10,852 ) 35,821
Income taxes (b)   (12,823 )   (4,864 )   3,753     (13,934 )
Net income/(loss) $ 20,970   $ 8,016   $ (7,099 ) $ 21,887  

 

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, 2012 AND 2011
(in thousands)(unaudited)
                 
Chemed
VITAS Roto-Rooter Corporate Consolidated

 2012

Service revenues and sales $ 794,050   $ 267,416   $ -   $ 1,061,466  
Cost of services provided and goods sold 621,933 149,490 - 771,423
Selling, general and administrative expenses (a) 60,367 75,875 19,650 155,892
Depreciation 12,521 6,264 393 19,178
Amortization 1,467 471 1,437 3,375
Other operating expenses (a)   -     1,126     -     1,126  
Total costs and expenses   696,288     233,226     21,480     950,994  
Income/(loss) from operations 97,762 34,190 (21,480 ) 110,472
Interest expense (a) (188 ) (364 ) (10,480 ) (11,032 )
Intercompany interest income/(expense) 2,361 1,221 (3,582 ) -
Other income/(expense)—net   144     9     2,812     2,965  
Income/(loss) before income taxes 100,079 35,056 (32,730 ) 102,405
Income taxes (a)   (38,080 )   (13,341 )   11,580     (39,841 )
Net income/(loss) $ 61,999   $ 21,715   $ (21,150 ) $ 62,564  
 

 2011

Service revenues and sales $ 731,712   $ 274,005   $ -   $ 1,005,717  
Cost of services provided and goods sold 570,648 151,470 - 722,118
Selling, general and administrative expenses (b) 57,392 76,181 20,123 153,696
Depreciation 12,489 6,067 403 18,959
Amortization   1,513     443     1,287     3,243  
Total costs and expenses   642,042     234,161     21,813     898,016  
Income/(loss) from operations 89,670 39,844 (21,813 ) 107,701
Interest expense (b) (172 ) (274 ) (9,814 ) (10,260 )
Intercompany interest income/(expense) 3,263 1,742 (5,005 ) -
Other income/(expense)—net   3     (2 )   880     881  
Income/(loss) before income taxes 92,764 41,310 (35,752 ) 98,322
Income taxes (b)   (35,080 )   (15,692 )   12,724     (38,048 )
Net income/(loss) $ 57,684   $ 25,618   $ (23,028 ) $ 60,274  
 

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, 2012 AND 2011
(in thousands)(unaudited)
                   
 
Chemed
VITAS Roto-Rooter Corporate Consolidated

 2012

Net income/(loss) $ 21,940 $ 6,145 $ (7,240 ) $ 20,845
Add/(deduct):
Interest expense 62 150 3,531 3,743
Income taxes 13,516 3,661 (3,955 ) 13,222
Depreciation 4,333 2,093 131 6,557
Amortization 489     160     486     1,135  
EBITDA 40,340 12,209 (7,047 ) 45,502
Add/(deduct):
Intercompany interest expense/(income) (795 ) (396 ) 1,191 -
Interest income (256 ) (12 ) (23 ) (291 )
Legal expenses of OIG investigation 483 - - 483
Acquisition expenses 2 85 - 87

Cost to shut down HVAC operations

- 1,126 - 1,126
Advertising cost adjustment (c) - (468 ) - (468 )
Expenses of class action litigation - 116 - 116
Stock option expense - - 2,397 2,397
Expenses of securities litigation   -     -     68     68  
Adjusted EBITDA $ 39,774   $ 12,660   $ (3,414 ) $ 49,020  
 

 2011

Net income/(loss) $ 20,970 $ 8,016 $ (7,099 ) $ 21,887
Add/(deduct):
Interest expense 62 132 3,361 3,555
Income taxes 12,823 4,864 (3,753 ) 13,934
Depreciation 4,123 2,058 132 6,313
Amortization   510     156     468     1,134  
EBITDA 38,488 15,226 (6,891 ) 46,823
Add/(deduct):
Intercompany interest expense/(income) (834 ) (451 ) 1,285 -
Interest income (43 ) (12 ) (19 ) (74 )
Legal expenses of OIG investigation 212 - - 212
Acquisition expenses 2 - - 2
Advertising cost adjustment (c) - (585 ) - (585 )
Expenses of class action litigation - 770 - 770
Stock option expense   -     -     2,408     2,408  
Adjusted EBITDA $ 37,825   $ 14,948   $ (3,217 ) $ 49,556  
 

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, 2012 AND 2011
(in thousands)(unaudited)
                 
 
Chemed
VITAS Roto-Rooter Corporate Consolidated

 2012

Net income/(loss) $ 61,999 $ 21,715 $ (21,150 ) $ 62,564
Add/(deduct):
Interest expense 188 364 10,480 11,032
Income taxes 38,080 13,341 (11,580 ) 39,841
Depreciation 12,521 6,264 393 19,178
Amortization   1,467     471     1,437     3,375  
EBITDA 114,255 42,155 (20,420 ) 135,990
Add/(deduct):
Intercompany interest expense/(income) (2,361 ) (1,221 ) 3,582 -
Interest income (328 ) (22 ) (51 ) (401 )
Legal expenses of OIG investigation 749 - - 749
Acquisition expenses 2 120 - 122

Cost to shut down HVAC operations

- 1,126 - 1,126
Expenses of class action litigation - 843 - 843
Advertising cost adjustment (c) - (1,870 ) - (1,870 )
Stock option expense - - 6,709 6,709
Expenses of securities litigation   -     -     265     265  
Adjusted EBITDA $ 112,317   $ 41,131   $ (9,915 ) $ 143,533  
 

 2011

Net income/(loss) $ 57,684 $ 25,618 $ (23,028 ) $ 60,274
Add/(deduct):
Interest expense 172 274 9,814 10,260
Income taxes 35,080 15,692 (12,724 ) 38,048
Depreciation 12,489 6,067 403 18,959
Amortization   1,513     443     1,287     3,243  
EBITDA 106,938 48,094 (24,248 ) 130,784
Add/(deduct):
Intercompany interest expense/(income) (3,263 ) (1,742 ) 5,005 -
Interest income (86 ) (28 ) (83 ) (197 )
Legal expenses of OIG investigation 1,209 - - 1,209
Acquisition expenses 117 (6 ) - 111
Expenses of class action litigation - 1,451 - 1,451
Advertising cost adjustment (c) - (1,442 ) - (1,442 )
Stock option expense - - 6,903 6,903
Long-term incentive compensation   -     -     3,012     3,012  
Adjusted EBITDA $ 104,915   $ 46,327   $ (9,411 ) $ 141,831  
 

The "Footnotes to Financial Statements" are integral parts of this financial information.

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
RECONCILIATION OF ADJUSTED NET INCOME
(in thousands, except per share data)(unaudited)
                   
 
 
Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
Net income as reported $ 20,845 $ 21,887 $ 62,564 $ 60,274
 
Add/(deduct) impact of:
After-tax stock option expense 1,516 1,523 4,243 4,366

After-tax additional interest expense resulting from the change in accounting for the conversion feature of the convertible notes

1,272 1,177 3,744 3,464

After-tax cost to shut down HVAC operations

649 - 649 -
After-tax cost of legal expenses of OIG investigation 300 131 465 749
After-tax cost of expenses of class action litigation 70 467 512 881
After-tax cost of acquisition expenses 53 2 74 69
After-tax cost of securities litigation 44 - 168 -
After-tax long-term incentive compensation -   -   -   1,880
 
Adjusted net income $ 24,749 $ 25,187 $ 72,419 $ 71,683
 
 
Earnings Per Share As Reported
Net income $ 1.10 $ 1.06 $ 3.30 $ 2.88
Average number of shares outstanding   18,960   20,674   18,977   20,934
Diluted Earnings Per Share As Reported
Net income $ 1.07 $ 1.04 $ 3.23 $ 2.82
Average number of shares outstanding   19,404   21,055   19,382   21,400
 
 
Adjusted Earnings Per Share
Net income $ 1.31 $ 1.22 $ 3.82 $ 3.42
Average number of shares outstanding   18,960   20,674   18,977   20,934
Adjusted Diluted Earnings Per Share
Net income $ 1.28 $ 1.20 $ 3.74 $ 3.35
Average number of shares outstanding   19,404   21,055   19,382   21,400
 

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 2012 2011 2012 2011
Net revenue ($000) (d)
Homecare $ 197,764 $ 184,155 $ 577,511 $ 529,874
Inpatient 28,082 28,292 86,481 82,861
Continuous care   42,144   40,113   127,481   117,950
Total before Medicare cap allowance $ 267,990 $ 252,560 $ 791,473 $ 730,685
Medicare cap allowance   -   384   2,577   1,027
Total $ 267,990 $ 252,944 $ 794,050 $ 731,712
Net revenue as a percent of total before Medicare cap allowance
Homecare 73.8 % 72.9 % 73.0 % 72.5 %
Inpatient 10.5 11.2 10.9 11.3
Continuous care   15.7   15.9   16.1   16.2
Total before Medicare cap allowance 100.0 100.0 100.0 100.0
Medicare cap allowance   -   0.2   0.3   0.1
Total   100.0 %   100.2 %   100.3 % 100.1 %
Average daily census ("ADC") (days)
Homecare 10,123 9,485 9,904 9,185
Nursing home   3,073   3,118   3,031   3,062
Routine homecare 13,196 12,603 12,935 12,247
Inpatient 460 456 466 451
Continuous care   621   599   630   601
Total   14,277   13,658   14,031   13,299
 
Total Admissions 15,539 14,879 47,773 45,971
Total Discharges 15,340 14,682 47,064 45,104
Average length of stay (days) 78.5 80.1 78.3 78.7
Median length of stay (days) 15.0 15.0 15.0 14.0
ADC by major diagnosis
Neurological 33.9 % 34.3 % 34.1 % 34.4 %
Cancer 17.3 17.5 17.6 17.7
Cardio 11.2 11.3 11.4 11.6
Respiratory 6.7 6.6 6.7 6.8
Other   30.9   30.3   30.2   29.5
Total   100.0 %   100.0 %   100.0 % 100.0 %
Admissions by major diagnosis
Neurological 19.3 % 19.0 % 19.3 % 19.3 %
Cancer 34.0 34.7 33.3 33.1
Cardio 10.5 10.4 11.1 10.9
Respiratory 7.4 7.8 8.1 8.5
Other   28.8   28.1   28.2   28.2
Total   100.0 %   100.0 %   100.0 % 100.0 %
Direct patient care margins (e)
Routine homecare 52.5 % 52.4 % 51.8 % 52.0 %
Inpatient 9.2 12.4 12.0 12.9
Continuous care 19.0 20.7 19.6 20.5
Homecare margin drivers (dollars per patient day)
Labor costs $ 54.69 $ 53.13 $ 55.64 $ 53.88
Drug costs 8.11 8.26 8.25 8.14
Home medical equipment 7.03 6.64 6.88 6.65
Medical supplies 2.77 2.81 2.77 2.80
Inpatient margin drivers (dollars per patient day)
Labor costs $ 326.95 $ 312.72 $ 320.79 $ 310.25
Continuous care margin drivers (dollars per patient day)
Labor costs $ 575.21 $ 555.63 $ 571.56 $ 550.09
Bad debt expense as a percent of revenues 0.8 % 0.8 % 0.8 % 0.7 %
Accounts receivable --
Days of revenue outstanding- excluding unapplied Medicare payments 35.4 38.9 n.a. n.a.
Days of revenue outstanding- including unapplied Medicare payments 27.9 34.6 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, 2012 AND 2011
(unaudited)
                   
 
(a) Included in the results of operations 2012 are the following significant credits/(charges) which may not be indicative of ongoing operations
(in thousands):
Three Months Ended September 30, 2012
VITAS Roto-Rooter Corporate Consolidated
Selling, general and administrative expenses:
Legal expenses of OIG investigation $ (483 ) $ - $ - $ (483 )
Acquisition expenses (2 ) (85 ) - (87 )
Expenses of class action litigation - (116 ) - (116 )
Stock option expense - - (2,397 ) (2,397 )
Expenses of securities litigation - - (68 ) (68 )
Other operating expenses - (1,126 ) - (1,126 )
Interest expense:

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

  -     -     (2,011 )   (2,011 )
Pretax impact on earnings (485 ) (1,327 ) (4,476 ) (6,288 )
Income tax benefit on the above   184     556     1,644     2,384  
After-tax impact on earnings $ (301 ) $ (771 ) $ (2,832 ) $ (3,904 )
 
Nine Months Ended September 30, 2012
VITAS Roto-Rooter Corporate Consolidated
Selling, general and administrative expenses:
Legal expenses of OIG investigation $ (749 ) $ - $ - $ (749 )
Acquisition expenses (2 ) (120 ) - (122 )
Expenses of class action litigation - (843 ) - (843 )
Stock option expense - - (6,709 ) (6,709 )
Expenses of securities litigation - - (265 ) (265 )
Other operating expenses - (1,126 ) - (1,126 )
Interest expense:

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

  -     -     (5,919 )   (5,919 )
Pretax impact on earnings (751 ) (2,089 ) (12,893 ) (15,733 )
Income tax benefit on the above   285     855     4,738     5,878  
After-tax impact on earnings $ (466 ) $ (1,234 ) $ (8,155 ) $ (9,855 )
 
(b) Included in the results of operations 2011 are the following significant credits/(charges) which may not be indicative of ongoing operations
(in thousands):
              Three Months Ended September 30, 2011
VITAS   Roto-Rooter   Corporate   Consolidated
Selling, general and administrative expenses:
Legal expenses of OIG investigation $ (212 ) $ - $ - $ (212 )
Acquisition expenses (2 ) - - (2 )
Expenses of class action litigation - (770 ) - (770 )
Stock option expense - - (2,408 ) (2,408 )
Interest expense:

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

  -     -     (1,861 )   (1,861 )
Pretax impact on earnings (214 ) (770 ) (4,269 ) (5,253 )
Income tax benefit on the above   81     303     1,569     1,953  
After-tax impact on earnings $ (133 ) $ (467 ) $ (2,700 ) $ (3,300 )
 
Nine Months Ended September 30, 2011
VITAS Roto-Rooter Corporate Consolidated
Selling, general and administrative expenses:
Legal expenses of OIG investigation $ (1,209 ) $ - $ - $ (1,209 )
Acquisition expenses (117 ) 6 - (111 )
Expenses of class action litigation - (1,451 ) - (1,451 )
Stock option expense - - (6,903 ) (6,903 )
Long-term incentive compensation - - (3,012 ) (3,012 )
Interest expense:

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

  -     -     (5,476 )   (5,476 )
Pretax impact on earnings (1,326 ) (1,445 ) (15,391 ) (18,162 )
Income tax benefit on the above   504     568     5,681     6,753  
After-tax impact on earnings $ (822 ) $ (877 ) $ (9,710 ) $ (11,409 )
 
(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 2012 and 2011, GAAP advertising expense for Roto-Rooter totaled $5,784,000 and $5,239,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the third quarters of 2012 and 2011 would total $6,252,000 and $5,824,000, respectively.

 

Similarly, for the first nine months of 2012 and 2011, GAAP advertising expense for Roto-Rooter totaled $16,678,000 and $16,461,00, 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 2012 and 2011 would total $18,548,000 and $17,903,000, respectively.

 
(d)

VITAS has 8 large (greater than 450 ADC), 16 medium (greater than 200 but less than 450 ADC) and 27 small (less than 200 ADC) hospice programs. For the current Medicare cap year there are no programs with a cap liability and six programs with Medicare cap cushion of less than 10%.

 
(e) Amounts exclude indirect patient care and administrative costs, as well as Medicare Cap billing limitation.

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

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