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8-K - CHEMED CORPORATION 8-K - CHEMED CORPa50732313.htm

Exhibit 99

Chemed Reports Third-Quarter 2013 Results

CINCINNATI--(BUSINESS WIRE)--October 28, 2013--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, 2013, versus the comparable prior-year period, as follows:

Consolidated operating results:

  • Revenue decreased 3.8% to $341 million
  • GAAP Diluted EPS, including litigation, decreased 12.1% to $0.94
  • Adjusted Diluted EPS increased 6.3% to $1.36

VITAS segment operating results:

  • Net Patient Revenue of $254 million, a decrease of 5.2%
  • Average Daily Census (ADC) of 14,241, a decrease of 0.3%
  • Admissions of 14,555, a decrease of 6.3%
  • Net Income, including litigation costs, of $14.6 million, a decrease of 33.4%
  • Adjusted EBITDA of $37.3 million, a decrease of 6.2%
  • Adjusted EBITDA margin of 14.7%, a decrease of 15 basis points

Roto-Rooter segment operating results:

  • Revenue of $86.9 million, an increase of 0.6%
  • Unit-for-unit job count of 150,080, a decrease of 4.9%
  • Net Income, including litigation, of $8.2 million, an increase of 33.1%
  • Adjusted EBITDA of $16.2 million, an increase of 27.6%
  • Adjusted EBITDA margin of 18.6%, an increase of 393 basis points

VITAS

Net revenue for VITAS was $254 million in the third quarter of 2013, which is a decline of 5.2% when compared to the prior-year period. This revenue decline is a combination of Medicare reimbursement rates decreasing approximately 1.1%, ADC that was essentially equal to the prior year, a Medicare billing adjustment of $3.2 million and level of care mix shift. This shift in level of care negatively impacted revenue approximately $6 million in the quarter.


In the third quarter of 2013, VITAS recorded a Medicare Cap billing adjustment of $3.2 million related to one provider number.

Of VITAS’ 37 unique Medicare provider numbers, 32 provider numbers have a Medicare Cap cushion of 10% or greater during the 2013 Medicare Cap year; three provider numbers have a Medicare Cap cushion between 5% to 10%; and one provider number has a cap cushion between 0% and 5%. VITAS generated an aggregate cap cushion of $259 million during the trailing twelve-month period.

Average revenue per patient per day in the quarter, excluding the impact of Medicare Cap, was $196.30, which is 3.8% below the prior-year period. The average revenue includes the 2.0% reduction in Medicare hospice reimbursement effective April 1, 2013. Routine home care reimbursement and high acuity care averaged $160.76 and $689.76, respectively, per patient per day in the third quarter of 2013. During the quarter, high acuity days of care were 6.7% of total days of care, 85 basis points below the prior-year quarter.

The third quarter of 2013 gross margin, excluding the impact of Medicare Cap, was 23.2%, which is a 104 basis point improvement when compared to the third quarter of 2012.

Selling, general and administrative expense was $18.6 million in the third quarter of 2013, which is a decrease of 7.5% when compared to the prior-year quarter. This decline is attributable primarily to insurance reimbursement of legal costs related to litigation in the prior year. Adjusted EBITDA, excluding Medicare Cap, totaled $40.5 million in the quarter, an increase of 1.8% over the prior-year period. Adjusted EBITDA margin, excluding the impact from Medicare Cap, was 15.7% in the quarter which is 90 basis points above the prior-year quarter.

In October 2013, VITAS reached a tentative settlement, subject to court approval, with a class of California employees related to wage and hour litigation. As a result of this tentative settlement, VITAS recorded an after-tax expense in the quarter of $6.5 million.

Roto-Rooter

Roto-Rooter’s plumbing and drain cleaning business generated sales of $86.9 million for the third quarter of 2013, an increase of 0.6%, over the prior-year quarter.

Total unit-for-unit job count decreased 4.9% in the third quarter of 2013 when compared to the prior-year period. This consisted of a residential drain cleaning job count decrease of 6.3% and residential plumbing job count decline of 7.6%, when compared to the third quarter of 2012. Residential jobs represented 67% of total job count in the quarter. Commercial drain cleaning decreased 0.7% and commercial plumbing/excavation job count increased 1.8% when compared to the prior-year quarter.

Roto-Rooter’s gross margin in the quarter was 47.3%, a 303 basis point increase when compared to the third quarter of 2012. Gross margins were favorably impacted 182 basis points as a result of favorable experience in Roto-Rooter’s health care insurance plans. Adjusted EBITDA in the third quarter of 2013 totaled $16.2 million, an increase of 27.6%, and the Adjusted EBITDA margin was 18.6% in the quarter, an increase of 393 basis points.


Chemed Consolidated

As of September 30, 2013, Chemed had total cash and cash equivalents of $83 million, and debt of $181 million. 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.

In January 2013 Chemed entered into a five-year Amended and Restated Credit Agreement that consists of a $350 million revolving credit facility. The interest rate on this facility has a floating rate that is currently LIBOR plus 125 basis points. At September 30, 2013, the Company had approximately $317 million of undrawn borrowing capacity under this credit agreement after deducting $33 million for letters of credit issued to secure the Company’s workers’ compensation insurance.

Capital expenditures through September 30, 2013, aggregated $18.9 million and compares to depreciation and amortization during the same period of $24.2 million.

During the quarter, the Company repurchased $71.2 million of Chemed stock. This equates to 1,032,754 of Chemed shares repurchased at an average cost of $68.91. Chemed currently has $25.1 million of authorization remaining under the share repurchase plan.

Guidance for 2013

Effective October 1, 2012, Medicare increased the average hospice reimbursement rates by approximately 0.9%. Effective April 1, 2013, Medicare reduced hospice reimbursement rates 2.0%. As a result, effective April 1, 2013, this 0.9% increase was reduced to a 1.1% decline in Medicare rates when compared to the prior year. Effective October 1, 2013, Medicare increased the average hospice rate approximately 1.4%.

VITAS estimates its full-year 2013 revenue will continue to be constrained in the fourth quarter of 2013. This is a result of mix shift from high acuity care to routine home care.

Full-year 2013 revenue, prior to Medicare Cap, is estimated to be approximately 1% below the prior year. Admissions in 2013 are estimated to decline approximately 3% 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 $1.8 million in the fourth quarter of 2013.

Roto-Rooter is forecasted to achieve full-year 2013 revenue growth of 2.5%. This revenue estimate is based upon increased job pricing of approximately 3.2% and job count essentially equal to the prior year. Adjusted EBITDA margin for 2013 is estimated in the range of 19.0% to 19.5%.

Management estimates that full-year 2013 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 $5.60 to $5.65. This compares to Chemed’s 2012 reported adjusted earnings per diluted share of $5.29.


Conference Call

Chemed will host a conference call and webcast at 10 a.m., ET, on Tuesday, October 29, 2013, 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) 638-4817 for U.S. and Canadian participants and (617) 614-3943 for international participants. The participant passcode is 35856533. 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 89471497. 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,
2013 2012 2013 2012
Service revenues and sales $ 340,886   $ 354,353   $ 1,064,725   $ 1,061,466  
Cost of services provided and goods sold 243,184 256,610 762,850 771,423
Selling, general and administrative expenses (aa) 48,870 52,955 157,537 155,892
Depreciation 6,971 6,557 20,665 19,178
Amortization 1,190 1,135 3,498 3,375
Other operating expenses (bb)   11,461     1,126     26,221     1,126  
Total costs and expenses   311,676     318,383     970,771     950,994  
Income from operations 29,210 35,970 93,954 110,472
Interest expense (3,500 ) (3,743 ) (11,291 ) (11,032 )
Other income/(expense)--net (cc)   (90 )   1,840     3,312     2,965  
Income before income taxes 25,620 34,067 85,975 102,405
Income taxes   (8,188 )   (13,222 )   (31,657 )   (39,841 )
Net income $ 17,432   $ 20,845   $ 54,318   $ 62,564  
 
 
Earnings Per Share
Net income $ 0.96   $ 1.10   $ 2.95   $ 3.30  
Average number of shares outstanding   18,184     18,960     18,436     18,977  
 
Diluted Earnings Per Share
Net income $ 0.94   $ 1.07   $ 2.89   $ 3.23  
Average number of shares outstanding   18,522     19,404     18,824     19,382  
 
 

(aa) 

Selling, general and administrative ("SG&A") expenses comprise (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2013 2012 2013 2012

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

$ 49,114 $ 51,379 $ 156,352 $ 153,131

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

(189 ) 1,576 2,346 2,761
Long-term incentive compensation   (55 )   -     (1,161 )   -  
Total SG&A expenses $ 48,870   $ 52,955   $ 157,537   $ 155,892  
 

(bb) 

Other operating expenses comprise (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2013 2012 2013 2012
Litigation settlement of VITAS segment $ 10,500 $ - $ 10,500 $ -
Litigation settlements of Roto-Rooter segment 961 - 15,721 -

Severance and other operating costs related to closing Roto-Rooter's HVAC business

  -     1,126     -     1,126  
Total other operating expenses $ 11,461   $ 1,126   $ 26,221   $ 1,126  
 

(cc) 

Other income/(expense)--net comprises (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2013 2012 2013 2012
 
Interest income $ 192 $ 291 $ 1,165 $ 401

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

(189 ) 1,576 2,346 2,761
Loss on disposal of property and equipment (101 ) (80 ) (180 ) (228 )
Other   8     53     (19 )   31  
Total other income--net $ (90 ) $ 1,840   $ 3,312   $ 2,965  
 

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)(unaudited)
                   
 
September 30,
2013 2012
Assets
Current assets
Cash and cash equivalents $ 83,204 $ 69,296
Accounts receivable less allowances 80,117 101,152
Inventories 6,729 7,639
Current deferred income taxes 25,101 14,118
Prepaid income taxes

3,538

3,044
Prepaid expenses  

17,684

    9,855  
Total current assets

216,373

205,104
Investments of deferred compensation plans held in trust 40,683 35,053
Properties and equipment, at cost less accumulated depreciation 89,800 90,135
Identifiable intangible assets less accumulated amortization 56,979 57,507
Goodwill 466,940 465,861
Other assets   10,765     11,127  
Total Assets $

881,540

  $ 864,787  
 
Liabilities
Current liabilities
Accounts payable $ 44,523 $ 44,056
Current portion of long-term debt 181,340 -
Income taxes 5,529 1,496
Accrued insurance 41,737 39,518
Accrued compensation 46,689 44,117
Other current liabilities  

56,536

    18,494  
Total current liabilities

376,354

147,681
Deferred income taxes 27,454 24,264
Long-term debt - 172,812
Deferred compensation liabilities 39,406 34,626
Other liabilities   11,499     10,779  
Total Liabilities  

454,713

    390,162  
 
Stockholders' Equity
Capital stock 32,086 31,451
Paid-in capital 469,934 428,232
Retained earnings 666,894 599,680
Treasury stock, at cost (744,210 ) (586,744 )
Deferred compensation payable in Company stock   2,123     2,006  
Total Stockholders' Equity   426,827     474,625  
Total Liabilities and Stockholders' Equity $

881,540

  $ 864,787  
 

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)(unaudited)
                       
 
Nine Months Ended September 30,
2013 2012
Cash Flows from Operating Activities
Net income $ 54,318 $ 62,564

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

Depreciation and amortization 24,163 22,553
Provision for deferred income taxes (11,681 ) (6,808 )
Provision for uncollectible accounts receivable 8,211 7,303
Amortization of discount on convertible notes 6,450 6,028

Stock option expense

4,732 6,709
Amortization of debt issuance costs 1,421 940
Noncash long-term incentive compensation 1,161 -

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

Decrease/(increase) in accounts receivable 5,293 (30,409 )
Decrease in inventories 329 1,029
Decrease/(increase) in prepaid expenses

(6,183

) 1,554

Increase in accounts payable and other current liabilities

48,967

4,454
Increase in income taxes 1,923 1,292
Increase in other assets (5,002 ) (3,944 )
Increase in other liabilities 3,978 6,648
Excess tax benefit on share-based compensation (2,507 ) (2,714 )
Other sources   285     138  
Net cash provided by operating activities   135,858     77,337  
Cash Flows from Investing Activities
Capital expenditures (18,887 ) (26,489 )
Business combinations, net of cash acquired (2,210 ) (5,900 )
Other sources   139     528  
Net cash used by investing activities   (20,958 )   (31,861 )
Cash Flows from Financing Activities
Purchases of treasury stock (89,611 ) (11,724 )
Proceeds from exercise of stock options 13,125 10,483
Decrease in cash overdrafts payable (10,928 ) (3,299 )
Dividends paid (10,459 ) (9,641 )
Capital stock surrendered to pay taxes on stock-based compensation (4,280 ) (3,236 )
Excess tax benefit on share-based compensation 2,507 2,714
Debt issuances costs (1,108 ) -
Other sources/(uses)   (473 )   442  
Net cash used by financing activities   (101,227 )   (14,261 )
Increase in Cash and Cash Equivalents 13,673 31,215
Cash and cash equivalents at beginning of year   69,531     38,081  
Cash and cash equivalents at end of period $ 83,204   $ 69,296  
 

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(in thousands)(unaudited)
                 
Chemed
VITAS Roto-Rooter Corporate Consolidated

 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 (a) 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 (a) (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 (a)   (9,042 )   (4,999 )   5,853     (8,188 )
Net income/(loss) $ 14,608   $ 8,181   $ (5,357 ) $ 17,432  
 

 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 (b) 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 (b) (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 (b)   (13,516 )   (3,661 )   3,955     (13,222 )
Net income/(loss) $ 21,940   $ 6,145   $ (7,240 ) $ 20,845  
 

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, 2013 AND 2012
(in thousands)(unaudited)
         
Chemed
VITAS Roto-Rooter Corporate Consolidated

 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 (a) 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 (a) (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 (a)   (34,051 )   (11,580 )   13,974     (31,657 )
Net income/(loss) $ 55,237   $ 19,218   $ (20,137 ) $ 54,318  
 

 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 (b) 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 (b) (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 (b)   (38,080 )   (13,341 )   11,580     (39,841 )
Net income/(loss) $ 61,999   $ 21,715   $ (21,150 ) $ 62,564  
 

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, 2013 AND 2012
(in thousands)(unaudited)
                   
 
Chemed
VITAS Roto-Rooter Corporate Consolidated

 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  
 

 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 )
Net expenses/(cost recovery) related to OIG investigation 483 - - 483
Acquisition expenses 2 85 - 87
Expenses related to litigation settlements - 116 - 116
Advertising cost adjustment (c) - (468 ) - (468 )
Cost to shut down HVAC operations - 1,126 - 1,126
Stock option expense - - 2,397 2,397
Expenses of securities litigation   -     -     68     68  
Adjusted EBITDA $ 39,774   $ 12,660   $ (3,414 ) $ 49,020  
 

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, 2013 AND 2012
(in thousands)(unaudited)
           
 
Chemed
VITAS Roto-Rooter Corporate Consolidated

 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/(cost recovery) 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

 
 

 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 )
Net expenses/(cost recovery) related to OIG investigation 749 - - 749
Acquisition expenses 2 120 - 122
Cost to shut down HVAC operations - 1,126 - 1,126
Expenses related to litigation settlements - 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  
 

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,
2013   2012 2013   2012
Net income as reported $ 17,432 $ 20,845 $ 54,318 $ 62,564
 
Add/(deduct) after-tax costs of:
Litigation settlements 7,094 - 16,061 -

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 1,272 4,046 3,744
Stock option expense 1,030 1,516 2,993 4,243
Net expenses/(cost recovery) related to OIG investigation (367 ) 300 895 465
Expenses of litigation settlements 269 70 699 512
Acquisition expenses 12 53 25 74
Long-term incentive compensation 34 - 734 -
Securities litigation 1 44 3 168
Shutting down HVAC operations - 649 - 649
Severance arrangements - - 184 -
Loss on extinguishment of debt -     -   294     -
 
Adjusted net income $ 25,098   $ 24,749 $ 78,470   $ 72,419
 
 
Earnings Per Share As Reported
Net income $ 0.96   $ 1.10 $ 2.95   $ 3.30
Average number of shares outstanding   18,184     18,960   18,436     18,977
Diluted Earnings Per Share As Reported
Net income $ 0.94   $ 1.07 $ 2.89   $ 3.23
Average number of shares outstanding   18,522     19,404   18,824     19,382
 
 
Adjusted Earnings Per Share
Net income $ 1.38   $ 1.31 $ 4.26   $ 3.82
Average number of shares outstanding   18,184     18,960   18,436     18,977
Adjusted Diluted Earnings Per Share
Net income $ 1.36   $ 1.28 $ 4.17   $ 3.74
Average number of shares outstanding   18,522     19,404   18,824     19,382
 

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 2013 2012 2013 2012
Net revenue ($000) (d)
Homecare $ 196,476 $ 197,764 $ 593,410 $ 577,511
Inpatient 24,824 28,082 79,181 86,481
Continuous care   35,880     42,144   119,466     127,481
Total before Medicare cap allowance $ 257,180 $ 267,990 $ 792,057 $ 791,473
Medicare cap allowance   (3,179 )   -   (3,161 )   2,577
Total $ 254,001   $ 267,990 $ 788,896   $ 794,050
Net revenue as a percent of total before Medicare cap allowance
Homecare 76.4 % 73.8 % 74.9 % 73.0 %
Inpatient 9.7 10.5 10.0 10.9
Continuous care   14.0     15.7   15.2     16.1
Total before Medicare cap allowance 100.1 100.0 100.1 100.0
Medicare cap allowance   (1.3 )   -   (0.4 )   0.3
Total   98.8   %   100.0 %   99.7   % 100.3 %
Average daily census ("ADC") (days)
Homecare 10,373 10,123 10,482 9,904
Nursing home   2,911     3,073   2,928     3,031
Routine homecare 13,284 13,196 13,410 12,935
Inpatient 417 460 440 466
Continuous care   540     621   600     630
Total   14,241     14,277   14,450     14,031
 
Total Admissions 14,555 15,539 47,413 47,773
Total Discharges 14,971 15,340 47,603 47,064
Average length of stay (days) 82.2 78.5 81.3 78.3
Median length of stay (days) 16.0 15.0 15.0 15.0
ADC by major diagnosis
Neurological 37.8 % 33.9 % 36.8 % 34.1 %
Cancer 17.1 17.3 17.0 17.6
Cardio 13.9 11.2 12.8 11.4
Respiratory 7.8 6.7 7.5 6.7
Other   23.4     30.9   25.9     30.2
Total   100.0   %   100.0 %   100.0   % 100.0 %
Admissions by major diagnosis
Neurological 21.0 % 19.3 % 20.3 % 19.3 %
Cancer 34.4 34.0 33.0 33.3
Cardio 13.8 10.5 13.0 11.1
Respiratory 9.0 7.4 9.3 8.1
Other   21.8     28.8   24.4     28.2
Total   100.0   %   100.0 %   100.0   % 100.0 %
Direct patient care margins (e)
Routine homecare 52.5 % 52.5 % 52.2 % 51.8 %
Inpatient 1.7 9.2 5.6 12.0
Continuous care 14.8 19.0 15.8 19.6
Homecare margin drivers (dollars per patient day)
Labor costs $ 54.64 $ 54.69 $ 55.61 $ 55.64
Drug costs 7.52 8.11 7.55 8.25
Home medical equipment 6.67 7.03 6.69 6.88
Medical supplies 2.83 2.77 2.96 2.77
Inpatient margin drivers (dollars per patient day)
Labor costs $ 354.09 $ 326.95 $ 339.84 $ 320.79
Continuous care margin drivers (dollars per patient day)
Labor costs $ 594.25 $ 575.21 $ 592.15 $ 571.56
Bad debt expense as a percent of revenues 0.9 % 0.8 % 0.9 % 0.8 %
Accounts receivable --
Days of revenue outstanding- excluding unapplied Medicare payments 34.6 35.4 n.a. n.a.
Days of revenue outstanding- including unapplied Medicare payments 21.9 27.9 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, 2013 AND 2012
(unaudited)
 

(a) 

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 )

(b) 

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:
Net cost recovery/(expenses) related to OIG investigation $ (483 ) $ - $ - $ (483 )
Acquisition expenses (2 ) (85 ) - (87 )
Expenses related to litigation settlements - (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:
Net cost recovery/(expenses) related to OIG investigation $ (749 ) $ - $ - $ (749 )
Acquisition expenses (2 ) (120 ) - (122 )
Expenses related to litigation settlements - (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 )

(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 2013 and 2012, GAAP advertising expense for Roto-Rooter totaled $5,776,000 and $5,784,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the third quarters of 2013 and 2012 would total $6,145,000 and $6,252,000, respectively.

 

Similarly, for the first nine months of 2013 and 2012, GAAP advertising expense for Roto-Rooter totaled $17,574,000 and $16,678,00, 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 2013 and 2012 would total $18,917,000 and $18,548,000, respectively.

 

(d) 

VITAS has 10 large (greater than 450 ADC), 14 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 is one program with a cap liability and four 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