CHE Chemed Corporation

Chemed Corporation (Chemed) (NYSE:CHE), which operates VITAS Healthcare Corporation (VITAS), the nation's largest provider of end-of-life care, and Roto-Rooter, the nation's largest commercial and residential plumbing and drain cleaning services provider, today reported financial results for its second quarter ended June 30, 2005, versus the comparable prior-year period, as follows: Consolidated Operating Results from Continuing Operations -- Consolidated Revenue increased 14% to $226 million -- Diluted EPS from Continuing Operations of $.42, including $.03 charge for LTIP and other items -- Adjusted EBITDA of $29 million VITAS generated record operating results -- Quarterly Net Patient Revenue of $154 million, up 18% -- Average Daily Census (ADC) of 9,913, up 16% -- Admissions of 12,646, up 10% -- Net income of $10.1 million, up 28% -- Adjusted EBITDA of $19.5 million, an increase of 21% Roto-Rooter segment reported increased Revenue, Net Income and Adjusted EBITDA -- Revenue of $73 million, an increase of 5% -- Net income of $5.7 million, an increase of 10% -- Adjusted EBITDA of $11.3 million, an increase of 10% "VITAS generated excellent census and admissions growth, with second-quarter ADC totaling 9,913, up 16%, and admissions in the quarter of 12,646, an increase of 10% over the prior-year quarter. Net income in the quarter was $10.1 million, an increase of 28% over the prior period," stated Kevin McNamara, Chemed president and chief executive officer. "Roto-Rooter also reported solid financial operating results. For the second quarter of 2005, Roto-Rooter had revenue of $73 million, an increase of 5%. Adjusted EBITDA was $11.3 million at a margin of 15.5%, resulting in net income of $5.7 million, an increase of 10% over the prior year." VITAS The merger of VITAS was completed on February 24, 2004. Prior to that date, the Company accounted for its 37% ownership of VITAS under the equity method of accounting. As a result, under GAAP, only a portion of VITAS' operating results is fully consolidated into Chemed's first-quarter 2004 results. To facilitate review of Chemed's operating results, pro forma supplemental schedules are included in the back of this press release that assume Chemed owned 100% of VITAS as of January 1, 2003. In the second quarter of 2005, VITAS had net patient revenue of $154 million and net income of $10.1 million. Net income includes aftertax costs of $0.4 million for LTIP and $0.2 million for legal expenses related to the OIG civil investigation. Adjusted EBITDA was $19.5 million at a margin of 12.7%. "VITAS generated revenue growth of 18.0% over the prior-year period and 5.3% sequentially," stated David Williams, Chemed chief financial officer. "Gross margins were 21.4% in the second quarter of 2005, a 40 basis point decline when compared to the prior-year quarter. This decline is primarily the result of our new start development efforts. The second-quarter 2005 gross margin includes $1.4 million in start-up losses, which is $0.8 million higher than the $0.6 million in losses from programs classified as new starts in the prior-year period. Central support costs for VITAS, which are classified as selling, general and administrative expenses in the Statement of Operations, totaled $13.6 million, including $0.3 million in OIG legal expenses. Excluding these OIG expenses, central support costs increased 8.3% when compared to the prior-year quarter and increased 1.6% sequentially." VITAS' ADC in the second quarter of 2005 was 9,913. This compares to an ADC of 8,581 in the comparable prior-year period, an increase of 15.5% and 4.1% sequential growth. Admissions totaled 12,646, an increase of 10.2% over the second quarter of 2004. The Average Length of Stay (ALOS) for patients discharged in the quarter was 66.8 days and compares to 66.2 days in the first quarter of 2005 and 60.0 days in the second quarter of 2004. "VITAS continues to generate strong internal growth," said Williams. "This growth, which excludes 2004 and 2005 acquisitions, generated revenue, ADC and admissions increases of 14.3%, 10.9% and 7.2%, respectively, over the prior-year quarter. "Our mix of revenue at VITAS was relatively stable," Williams added. "Routine home care represented 69.4% of revenue, an increase of 110 basis points over the prior-year quarter and a 20 basis point increase on a sequential basis. Our inpatient revenue aggregated 13.7% and continuous care was 16.9% of total revenue in the second quarter of 2005. "All of our base and new start programs are forecasted to have Medicare cap cushion for the 2005 measurement period which ends on October 31, 2005," stated Williams. "As previously discussed, we have been closely monitoring Medicare cap limitations at our Phoenix acquisition. Admissions generated by VITAS for Phoenix in 2005 have exceeded the 2004 level. However, discharges of patients admitted to the Phoenix hospice program prior to VITAS' acquisition have been at a slower rate than anticipated. Based on these factors, Phoenix is forecasted to have a Medicare cap liability ranging from $1.0 million to $1.5 million as of October 31, 2005. The potential of reaching cap in the initial year of acquisition was identified during our due diligence of Phoenix. Since this cap limitation relates to patients admitted into the program prior to acquisition, the estimated cap accrual has been accounted for as a contingent liability assumed at acquisition and is not reflected in the Consolidated Statement of Income. VITAS anticipates creating cap cushion in 2006 by increasing access to shorter stay patients and broadening access to in-patient and continuous care patients. This broad mix of patients is consistent with the clinical model provided by VITAS in its other programs." Roto-Rooter Segment Roto-Rooter's plumbing and drain cleaning business generated sales of $73 million for the second quarter of 2005, 5.3% higher than the $69 million reported in the comparable prior-year quarter. Net income for the quarter was $5.7 million, including $0.2 million of aftertax costs related to the LTIP. Adjusted EBITDA in the second quarter of 2005 totaled $11.3 million, an increase of 10.0% over the second quarter of 2004. Adjusted EBITDA margin in the second quarter of 2005 was 15.5%, a 60 basis point increase over the prior-year period. "Job count in the second quarter of 2005 was essentially flat," stated Williams. "However, commercial plumbing and drain cleaning job count increased 7.9% and 3.3%, respectively, over the prior-year quarter. Residential plumbing jobs increased 1.5% but were offset by a 4.7% decline in residential drain cleaning jobs during the quarter. A commercial job will typically average approximately 34% more revenue than a residential job. Accordingly, this continued shift of job mix has a positive impact on revenue." Consolidated Financial Position "Our balance sheet is in excellent condition," Williams stated. "As of June 30, 2005, we had $18 million in cash and cash equivalents. Net cash provided by continuing operations was $22 million and capital expenditures totaled $5.3 million in the second quarter of 2005." Guidance for 2005 "Looking ahead into the second half of 2005," Williams stated, "we anticipate VITAS to increase revenue in the range of 16% to 18% in 2005, with margins continuing to increase modestly from the 2004 levels. This operating margin expansion will be generated from leveraging central support costs. Roto-Rooter is estimated to generate a 5% to 6% increase in revenue with margins that approximate those generated in 2004. Our consolidated effective tax rate for the first six months of 2005 was 39%. This rate should hold for the remainder of 2005. "Based upon these factors and a current diluted share count of 26.2 million, our expectation is that full-year 2005 earnings per diluted share from continuing operations, excluding the early extinguishment of debt and charges or credits not indicative of ongoing operations, will be in the range of $1.77 to $1.82." Conference Call Chemed will hold a conference call to discuss second quarter results Thursday, August 4, 2005, at 11:00 a.m. ET. The dial-in number for the conference call is 800-510-9834 for U.S. and Canadian participants and 617-614-3669 for international participants. The participant passcode is 58290110. 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 approximately two hours after the call's conclusion. It can be accessed by dialing 888-286-8010 for U.S. and Canadian callers and 617-801-6888 for international callers. The replay passcode is 13221466. The telephone replay will be available for one week following the live call. An archived webcast will also be available at www.chemed.com and will remain available for 30 days following the live call. Chemed Corporation operates in the healthcare field through its VITAS Healthcare Corporation subsidiary. VITAS provides daily hospice services to approximately 10,000 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 China/Hong Kong, Indonesia, Singapore, Japan, Mexico, the Philippines and the United Kingdom. This press release contains information about Chemed's EBITDA and Adjusted EBITDA, which are not measures derived in accordance with generally accepted accounting principles and which exclude components that are important to understanding Chemed's financial performance. Chemed provides EBITDA and Adjusted EBITDA to help investors and others evaluate its operating results, compare its operating performance with that of similar companies that have different capital structures and evaluate its ability to meet its future debt service, capital expenditures and working capital requirements. Chemed's EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for comparable measures calculated and presented in accordance with GAAP. A reconciliation of Chemed's net income to its Adjusted EBITDA is presented in the tables following the text of this press release. Forward-Looking Statements Certain statements contained in this press release and the accompanying tables are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The words "believe," "expect," "hope," "anticipate," "plan" and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. Chemed does not undertake and specifically disclaims any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These statements are based on current expectations and assumptions and involve various risks and uncertainties, which could cause Chemed's actual results to differ from those expressed in such forward-looking statements. These risks and uncertainties arise from, among other things, possible changes in regulations governing the hospice care or plumbing and drain cleaning industries; periodic changes in reimbursement levels and procedures under Medicare and Medicaid programs; difficulties predicting patient length of stay and estimating potential Medicare reimbursement obligations; challenges inherent in Chemed's growth strategy; the current shortage of qualified nurses, other healthcare professionals and licensed plumbing and drain cleaning technicians; Chemed's dependence on patient referral sources; and other factors detailed under the caption "Description of Business by Segment" or "Risk Factors" in Chemed's most recent report on form 10-Q or 10-K and its other filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on such forward-looking statements and there are no assurances that the matters contained in such statements will be achieved. -0- *T CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF INCOME (in thousands, except per share data)(unaudited) Three Months Ended Six Months Ended June 30, June 30, ------------------- -------------------- 2005 2004 (bb) 2005 2004 (bb) --------- --------- ---------- --------- Continuing Operations Service revenues and sales $226,309 $199,135 $444,946 $319,475 -------- -------- -------- -------- Cost of services provided and goods sold (aa) 161,120 140,070 314,072 218,919 Selling, general and administrative expenses (aa) 36,802 34,476 73,397 62,688 Depreciation 3,928 4,097 7,848 7,158 Amortization 1,231 1,097 2,423 1,558 Other expenses (aa) 1,166 (1,368) 2,490 7,415 -------- -------- -------- -------- Total costs and expenses 204,247 178,372 400,230 297,738 -------- -------- -------- -------- Income from operations 22,062 20,763 44,716 21,737 Interest expense (5,039) (6,204) (10,874) (9,104) Loss on extinguishment of debt (aa) - - (3,971) (3,330) Other income--net 600 149 1,327 1,628 -------- -------- -------- -------- Income before income taxes 17,623 14,708 31,198 10,931 Income taxes (6,512) (6,381) (12,182) (5,755) Equity in loss of affiliate (aa) - - - (4,105) -------- -------- -------- -------- Income from continuing operations 11,111 8,327 19,016 1,071 Discontinued Operations (bb) (2,226) (9) (2,015) 137 -------- -------- -------- -------- Net Income $ 8,885 $ 8,318 $ 17,001 $ 1,208 ======== ======== ======== ======== Earnings Per Share (aa) Income from continuing operations $ 0.44 $ 0.34 $ 0.75 $ 0.05 ======== ======== ======== ======== Net income $ 0.35 $ 0.34 $ 0.67 $ 0.05 ======== ======== ======== ======== Average number of shares outstanding 25,489 24,650 25,319 23,238 ======== ======== ======== ======== Diluted Earnings Per Share (aa) Income from continuing operations $ 0.42 $ 0.33 $ 0.73 $ 0.05 ======== ======== ======== ======== Net income $ 0.34 $ 0.33 $ 0.65 $ 0.05 ======== ======== ======== ======== Average number of shares outstanding 26,214 25,354 26,059 23,696 ======== ======== ======== ======== -------------------------------- (aa) Included in the results of operations are the following significant credits/(charges) which may not be indicative of ongoing operations (in thousands): Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------ 2005 2004 2005 2004 --------- --------- -------- --------- Cost of services provided and goods sold Favorable adjustment to casualty insurance accruals related to prior years' experience $ - $ - $ 1,663 $ - Selling, general and administrative expenses Legal costs associated with OIG investigation (254) - (254) - Other expenses Long-term incentive compensation (1,837) - (2,946) (8,783) Cost of accelerating vesting of stock options - - (215) - Adjustments to transaction-related costs of the VITAS acquisition 671 1,368 671 1,368 Loss on extinguishment of debt - - (3,971) (3,330) ------- ------ ------- -------- Pretax impact on earnings (1,420) 1,368 (5,052) (10,745) Income tax benefit on the above 779 (547) 2,070 3,679 Equity in loss of affiliate attributable to transaction-related expenses incurred by VITAS prior to its acquisition by Chemed - - - (4,105) ------- ------ ------- -------- Aftertax impact on earnings $ (641) $ 821 $(2,982) $(11,171) ======= ====== ======= ======== (bb) Results of operations for 2004 have been restated for the results of Service America, discontinued in December 2004. Included in discontinued operations for 2005 is an aftertax loss of $2,350,000 resulting from finalizing the disposal of Service America in May 2005. CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEET (in thousands, except per share data)(unaudited) June 30, ------------------- 2005 2004 (cc) --------- --------- Assets Current assets Cash and cash equivalents $ 17,870 $ 52,019 Accounts receivable less allowances 84,973 59,200 Inventories 7,309 6,418 Current deferred income taxes 20,687 22,746 Prepaid income taxes 8,360 10,737 Current assets of discontinued operations 4,656 15,340 Prepaid expenses and other current assets 9,499 9,822 -------- -------- Total current assets 153,354 176,282 Investments of deferred compensation plans held in trust 19,610 19,163 Other investments 1,445 1,445 Note receivable 12,500 12,500 Properties and equipment, at cost less accumulated depreciation 59,432 53,909 Identifiable intangible assets less accumulated amortization 74,896 24,392 Goodwill 437,738 450,988 Noncurrent assets of discontinued operations 681 10,309 Other assets 22,571 26,093 -------- -------- Total Assets $782,227 $775,081 ======== ======== Liabilities Current liabilities Accounts payable $ 39,899 $ 42,315 Current portion of long-term debt 1,176 5,466 Income taxes 6,922 5,445 Accrued insurance 27,392 19,929 Accrued salaries and wages 24,000 20,107 Current liabilities of discontinued operations 7,605 22,574 Other current liabilities 36,284 35,403 -------- -------- Total current liabilities 143,278 151,239 Deferred income taxes 17,630 1,791 Other long-term debt 234,541 289,607 Deferred compensation liabilities 19,555 19,161 Noncurrent liabilities of discontinued operations 779 568 Other liabilities 7,456 8,129 -------- -------- Total Liabilities 423,239 470,495 -------- -------- Stockholders' Equity Capital stock 27,897 13,406 Paid-in capital 222,160 207,917 Retained earnings 155,484 118,248 Treasury stock, at cost (44,572) (32,702) Unearned compensation (3,772) (4,081) Deferred compensation payable in Company stock 2,333 2,337 Notes receivable for shares sold (542) (539) -------- -------- Total Stockholders' Equity 358,988 304,586 -------- -------- Total Liabilities and Stockholders' Equity $782,227 $775,081 ======== ======== Book Value Per Share $ 13.99 $ 12.24 (dd) ======== ======== (cc) Reclassified for operations discontinued in 2004. (dd) Adjusted for 2-for-1 stock split in May 2005. CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands)(unaudited) Six Months Ended June 30, --------------------- 2005 2004 (cc) ---------- ---------- Cash Flows from Operating Activities Net income/(loss) $ 17,001 $ 1,208 Adjustments to reconcile net income/(loss) to net cash provided/(used) by operating activities: Depreciation and amortization 10,271 8,716 Write-off of unamortized debt issuance costs 2,871 - Provision for deferred income taxes (2,206) 50 Provision for uncollectible accounts receivable 3,343 2,932 Noncash long-term incentive compensation 2,574 4,988 Amortization of debt issuance costs 962 782 Discontinued operations 2,015 (137) Equity in loss of affiliate - 4,105 Changes in operating assets and liabilities, excluding amounts acquired in business combinations: Decrease/(increase) in accounts receivable (23,653) 27 Increase in inventories (290) (407) Decrease in prepaid expenses and other current assets 343 13,435 Decrease in accounts payable and other current liabilities (2,673) (17,345) Increase in income taxes 7,859 4,895 Decrease/(increase) in other assets (1,328) 4,495 Increase in other liabilities 390 631 Noncash expense of internally financed ESOPs 572 947 Other sources/(uses) 676 (512) --------- --------- Net cash provided by continuing operations 18,727 28,810 Net cash provided/(used) by discontinued operations (1,559) 3,651 --------- --------- Net cash provided by operating activities 17,168 32,461 --------- --------- Cash Flows from Investing Activities Capital expenditures (11,455) (7,512) Business combinations, net of cash acquired (5,495) (327,427) Net uses from discontinued operations (5,478) (1,082) Proceeds from sales of property and equipment 96 300 Return of merger deposit - 10,000 Other uses (107) (92) --------- --------- Net cash used by investing activities (22,439) (325,813) --------- --------- Cash Flows from Financing Activities Repayment of long-term debt (140,978) (93,434) Proceeds from issuance of long-term debt 85,000 295,000 Increase in cash overdraft payable 7,347 9,541 Issuance of capital stock, net of costs 8,766 97,054 Debt issuance costs (1,755) (13,837) Dividends paid (3,060) (2,707) Purchases of treasury stock (3,574) (2,228) Net increase in revolving line of credit - - Repayment of stock subscription note receivable - 8,053 Redemption of convertible trust preferred securities - (2,736) Other uses (53) (23) --------- --------- Net cash provided/(used) by financing activities (48,307) 294,683 --------- --------- Increase/(decrease) in Cash and Cash Equivalents (53,578) 1,331 Cash and cash equivalents at beginning of year 71,448 50,688 --------- --------- Cash and cash equivalents at end of period $ 17,870 $ 52,019 ========= ========= (cc) Reclassified for operations discontinued in December 2004. CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2005 AND 2004 (in thousands)(unaudited) Chemed VITAS Roto-Rooter Corporate Consolidated --------- ----------- --------- ------------ 2005 ------------------------- Service revenues and sales $153,748 $ 72,561 $ - $226,309 -------- -------- -------- -------- Cost of services provided and goods sold 120,854 40,266 - 161,120 Selling, general and administrative expenses (a) 13,590 21,043 2,169 36,802 Depreciation 1,770 2,086 72 3,928 Amortization 984 23 224 1,231 Other expenses (b) 588 304 274 1,166 -------- -------- -------- -------- Total costs and expenses 137,786 63,722 2,739 204,247 -------- -------- -------- -------- Income/(loss) from operations 15,962 8,839 (2,739) 22,062 Interest expense (33) (97) (4,909) (5,039) Intercompany interest income/(expense) 681 516 (1,197) - Other income--net 14 146 440 600 -------- -------- -------- -------- Income/(loss) before income taxes 16,624 9,404 (8,405) 17,623 Income taxes (6,475) (3,728) 3,691 (6,512) -------- -------- -------- -------- Income/(loss) from continuing operations 10,149 5,676 (4,714) 11,111 Discontinued operations - - (2,226) (2,226) -------- -------- -------- -------- Net income/(loss) $ 10,149 $ 5,676 $ (6,940) $ 8,885 ======== ======== ======== ======== 2004 ------------------------- Service revenues and sales $130,240 $ 68,895 $ - $199,135 -------- -------- -------- -------- Cost of services provided and goods sold 101,790 38,280 - 140,070 Selling, general and administrative expenses 12,319 19,932 2,225 34,476 Depreciation 1,861 2,174 62 4,097 Amortization 1,010 66 21 1,097 Other expenses (b) - - (1,368) (1,368) -------- -------- -------- -------- Total costs and expenses 116,980 60,452 940 178,372 -------- -------- -------- -------- Income/(loss) from operations 13,260 8,443 (940) 20,763 Interest expense (30) (33) (6,141) (6,204) Intercompany interest income/(expense) 131 189 (320) - Other income--net 45 (132) 236 149 -------- -------- -------- -------- Income/(loss) before income taxes 13,406 8,467 (7,165) 14,708 Income taxes (5,499) (3,317) 2,435 (6,381) -------- -------- -------- -------- Income/(loss) from continuing operations 7,907 5,150 (4,730) 8,327 Discontinued operations - - (9) (9) -------- -------- -------- -------- Net income/(loss) $ 7,907 $ 5,150 $ (4,739) $ 8,318 ======== ======== ======== ======== The "Footnotes to Financial Statements" are integral parts of this financial information. CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATING STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004 (in thousands)(unaudited) Chemed VITAS Roto-Rooter Corporate Consolidated --------- ----------- --------- ------------ 2005 ------------------------- Service revenues and sales $299,738 $145,208 $ - $444,946 -------- -------- -------- -------- Cost of services provided and goods sold (c) 236,074 77,998 - 314,072 Selling, general and administrative expenses (a) 26,714 42,193 4,490 73,397 Depreciation 3,555 4,148 145 7,848 Amortization 1,979 49 395 2,423 Other expenses (b) 881 552 1,057 2,490 -------- -------- -------- -------- Total costs and expenses 269,203 124,940 6,087 400,230 -------- -------- -------- -------- Income/(loss) from operations 30,535 20,268 (6,087) 44,716 Interest expense (71) (279) (10,524) (10,874) Intercompany interest income/(expense) 1,190 940 (2,130) - Loss on extinguishment of debt (d) - - (3,971) (3,971) Other income--net 122 442 763 1,327 -------- -------- -------- -------- Income/(loss) before income taxes 31,776 21,371 (21,949) 31,198 Income taxes (12,258) (8,550) 8,626 (12,182) -------- -------- -------- -------- Income/(loss) from continuing operations 19,518 12,821 (13,323) 19,016 Discontinued operations - - (2,015) (2,015) -------- -------- -------- -------- Net income/(loss) $ 19,518 $ 12,821 $(15,338) $ 17,001 ======== ======== ======== ======== 2004 ------------------------- Service revenues and sales $181,352 $138,123 $ - $319,475 -------- -------- -------- -------- Cost of services provided and goods sold 142,276 76,643 - 218,919 Selling, general and administrative expenses 17,308 40,879 4,501 62,688 Depreciation 2,609 4,420 129 7,158 Amortization 1,412 125 21 1,558 Other expenses (b) - 1,558 5,857 7,415 -------- -------- -------- -------- Total costs and expenses 163,605 123,625 10,508 297,738 -------- -------- -------- -------- Income/(loss) from operations 17,747 14,498 (10,508) 21,737 Interest expense (58) (59) (8,987) (9,104) Intercompany interest income/(expense) 131 373 (504) - Loss on extinguishment of debt (d) - - (3,330) (3,330) Other income--net 76 686 866 1,628 -------- -------- -------- -------- Income/(loss) before income taxes 17,896 15,498 (22,463) 10,931 Income taxes (7,392) (6,111) 7,748 (5,755) Equity in loss of VITAS (e) - - (4,105) (4,105) -------- -------- -------- -------- Income/(loss) from continuing operations 10,504 9,387 (18,820) 1,071 Discontinued operations - - 137 137 -------- -------- -------- -------- Net income/(loss) $ 10,504 $ 9,387 $(18,683) $ 1,208 ======== ======== ======== ======== The "Footnotes to Financial Statements" are integral parts of this financial information. CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATING SUMMARY OF EBITDA FOR THE THREE MONTHS ENDED JUNE 30, 2005 AND 2004 (in thousands)(unaudited) Chemed VITAS Roto-Rooter Corporate Consolidated -------- ----------- --------- ------------ 2005 --------------------------- Net income/(loss) $10,149 $ 5,676 $(6,940) $ 8,885 Add/(deduct): Discontinued operations - - 2,226 2,226 Interest expense 33 97 4,909 5,039 Income taxes 6,475 3,728 (3,691) 6,512 Depreciation 1,770 2,086 72 3,928 Amortization 984 23 224 1,231 ------- ------- ------- ------- EBITDA 19,411 11,610 (3,200) 27,821 Add/(deduct): Long-term incentive compensation 588 304 945 1,837 Legal expenses of OIG investigation 254 - - 254 VITAS transaction expense adjustment (f) - - (671) (671) Advertising cost adjustment (g) - (76) - (76) Interest income (33) (47) (182) (262) Intercompany interest income/(expense) (681) (516) 1,197 - ------- ------- ------- ------- Adjusted EBITDA $19,539 $11,275 $(1,911) $28,903 ======= ======= ======= ======= 2004 --------------------------- Net income/(loss) $ 7,907 $ 5,150 $(4,739) $ 8,318 Add/(deduct): Discontinued operations - - 9 9 Interest expense 30 33 6,141 6,204 Income taxes 5,499 3,317 (2,435) 6,381 Depreciation 1,861 2,174 62 4,097 Amortization 1,010 66 21 1,097 ------- ------- ------- ------- EBITDA 16,307 10,740 (941) 26,106 Add/(deduct): VITAS transaction expense adjustment (f) - - (1,368) (1,368) Advertising cost adjustment (g) - (273) - (273) Interest income (65) (26) (395) (486) Intercompany interest income/(expense) (131) (189) 320 - ------- ------- ------- ------- Adjusted EBITDA $16,111 $10,252 $(2,384) $23,979 ======= ======= ======= ======= The "Footnotes to Financial Statements" are integral parts of this financial information. CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATING SUMMARY OF EBITDA FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004 (in thousands)(unaudited) Chemed VITAS Roto-Rooter Corporate Consolidated -------- ----------- --------- ------------ 2005 --------------------------- Net income/(loss) $19,518 $12,821 $(15,338) $17,001 Add/(deduct): Discontinued operations - - 2,015 2,015 Interest expense 71 279 10,524 10,874 Income taxes 12,258 8,550 (8,626) 12,182 Depreciation 3,555 4,148 145 7,848 Amortization 1,979 49 395 2,423 ------- ------- -------- ------- EBITDA 37,381 25,847 (10,885) 52,343 Add/(deduct): Long-term incentive compensation (h) 881 552 1,728 3,161 Prior-period insurance adjustment - (1,663) - (1,663) Legal expenses of OIG investigation 254 - - 254 VITAS transaction expense adjustment (f) - - (671) (671) Advertising cost adjustment (g) - (629) - (629) Interest income (159) (88) (665) (912) Intercompany interest income/(expense) (1,190) (940) 2,130 - Loss on extinguishment of debt - - 3,971 3,971 ------- ------- -------- ------- Adjusted EBITDA $37,167 $23,079 $ (4,392) $55,854 ======= ======= ======== ======= 2004 --------------------------- Net income/(loss) $10,504 $ 9,387 $(18,683) $ 1,208 Add/(deduct): Discontinued operations - - (137) (137) Interest expense 58 59 8,987 9,104 Income taxes 7,392 6,111 (7,748) 5,755 Depreciation 2,609 4,420 129 7,158 Amortization 1,412 125 21 1,558 ------- ------- -------- ------- EBITDA 21,975 20,102 (17,431) 24,646 Add/(deduct): Long-term incentive compensation - 1,558 7,225 8,783 VITAS transaction expense adjustment (f) - - (1,368) (1,368) Advertising cost adjustment (g) - (466) - (466) Interest income (96) (64) (834) (994) Intercompany interest income/(expense) (131) (373) 504 - Equity in loss of VITAS - - 4,105 4,105 Loss on extinguishment of debt - - 3,330 3,330 ------- ------- -------- ------- Adjusted EBITDA $21,748 $20,757 $ (4,469) $38,036 ======= ======= ======== ======= The "Footnotes to Financial Statements" are integral parts of this financial information. CHEMED CORPORATION AND SUBSIDIARY COMPANIES RECONCILIATION OF NET INCOME TO ADJUSTED PRO FORMA INCOME FROM CONTINUING OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004 (in thousands, except per share data)(unaudited) Three Months Ended Six Months Ended June 30, June 30, ----------------- ----------------- 2005 2004 2005 2004 -------- -------- -------- -------- Net income as reported $ 8,885 $ 8,318 $17,001 $ 1,208 Add/(deduct): Pro forma VITAS net income contribution for the period (i) - 221 - 3,306 Pro forma financing costs related to acquisition of VITAS (j) - - - (2,211) Pro forma elimination of VITAS transaction expense adjustment (f) - (821) - (821) Pro forma elimination of equity in loss of VITAS (k) - - - 4,105 ------- ------- ------- ------- Pro forma net income 8,885 7,718 17,001 5,587 Add/(deduct): Discontinued operations 2,226 9 2,015 (137) Aftertax prior-period insurance adjustment - - (1,014) - Aftertax cost of long-term incentive compensation (h) 1,152 - 1,984 5,723 Aftertax cost of legal expenses of OIG investigation 160 - 160 - Aftertax VITAS transaction expense adjustment (f) (671) - (671) - Aftertax cost of loss on extinguishment of debt - - 2,523 2,164 ------- ------- ------- ------- Adjusted pro forma income from continuing operations $11,752 $ 7,727 $21,998 $13,337 ======= ======= ======= ======= Earnings Per Share As Reported Net income $ 0.35 $ 0.34 $ 0.67 $ 0.05 ======= ======= ======= ======= Average number of shares outstanding 25,489 24,650 25,319 23,238 ======= ======= ======= ======= Diluted Earnings Per Share As Reported Net income $ 0.34 $ 0.33 $ 0.65 $ 0.05 ======= ======= ======= ======= Average number of shares outstanding 26,214 25,354 26,059 23,696 ======= ======= ======= ======= Adjusted Pro Forma Earnings Per Share Income from continuing operations $ 0.46 $ 0.31 $ 0.87 $ 0.55 ======= ======= ======= ======= Average number of shares outstanding 25,489 24,650 25,319 24,424 ======= ======= ======= ======= Adjusted Pro Forma Diluted Earnings Per Share Income from continuing operations $ 0.45 $ 0.30 $ 0.84 $ 0.54 ======= ======= ======= ======= Average number of shares outstanding 26,214 25,354 26,059 24,882 ======= ======= ======= ======= The "Footnotes to Financial Statements" are integral parts of this financial information. CHEMED CORPORATION AND SUBSIDIARY COMPANIES PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2005 AND 2004 (in thousands, except per share data) (unaudited) Chemed VITAS Roto-Rooter Corporate Consolidated --------- ----------- --------- ------------ 2005 -------------------------- Service revenues and sales $153,748 $72,561 $ - $226,309 -------- ------- ------- -------- Cost of services provided and goods sold 120,854 40,266 - 161,120 Selling, general and administrative expenses (a) 13,590 21,043 2,169 36,802 Depreciation 1,770 2,086 72 3,928 Amortization 984 23 224 1,231 Other expenses (b) 588 304 274 1,166 -------- ------- ------- -------- Total costs and expenses 137,786 63,722 2,739 204,247 -------- ------- ------- -------- Income/(loss) from operations 15,962 8,839 (2,739) 22,062 Interest expense (33) (97) (4,909) (5,039) Intercompany interest income/(expense) 681 516 (1,197) - Other income--net 14 146 440 600 -------- ------- ------- -------- Income/(loss) before income taxes 16,624 9,404 (8,405) 17,623 Income taxes (6,475) (3,728) 3,691 (6,512) -------- ------- ------- -------- Income/(loss) from continuing operations 10,149 5,676 (4,714) 11,111 Discontinued operations - - (2,226) (2,226) -------- ------- ------- -------- Net income/(loss) $ 10,149 $ 5,676 $(6,940) $ 8,885 ======== ======= ======= ======== Earnings Per Share Continuing operations $ 0.44 ======== Net income $ 0.35 ======== Average number of shares outstanding 25,489 ======== Diluted Earnings Per Share Continuing operations $ 0.42 ======== Net income $ 0.34 ======== Average number of shares outstanding 26,214 ======== 2004 (l) -------------------------- Service revenues and sales $130,240 $68,895 $ - $199,135 -------- ------- ------- -------- Cost of services provided and goods sold 101,790 38,280 - 140,070 Selling, general and administrative expenses 12,319 19,932 2,225 34,476 Depreciation 1,270 2,174 62 3,506 Amortization 1,232 66 21 1,319 -------- ------- ------- -------- Total costs and expenses 116,611 60,452 2,308 179,371 -------- ------- ------- -------- Income/(loss) from operations 13,629 8,443 (2,308) 19,764 Interest expense (30) (33) (6,141) (6,204) Intercompany interest income/(expense) 131 189 (320) - Other income--net 45 (132) 236 149 -------- ------- ------- -------- Income/(loss) before income taxes 13,775 8,467 (8,533) 13,709 Income taxes (5,647) (3,317) 2,982 (5,982) -------- ------- ------- -------- Income/(loss) from continuing operations 8,128 5,150 (5,551) 7,727 Discontinued operations - - (9) (9) -------- ------- ------- -------- Net income/(loss) $ 8,128 $ 5,150 $(5,560) $ 7,718 ======== ======= ======= ======== Earnings Per Share Continuing operations $ 0.31 ======== Net income $ 0.31 ======== Average number of shares outstanding 24,650 ======== Diluted Earnings Per Share Continuing operations $ 0.30 ======== Net income $ 0.30 ======== Average number of shares outstanding 25,354 ======== The "Footnotes to Financial Statements" are integral parts of this financial information. CHEMED CORPORATION AND SUBSIDIARY COMPANIES PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004 (in thousands, except per share data) (unaudited) Chemed VITAS Roto-Rooter Corporate Consolidated --------- ----------- --------- ------------ 2005 -------------------------- Service revenues and sales $299,738 $145,208 $ - $444,946 -------- -------- -------- -------- Cost of services provided and goods sold (c) 236,074 77,998 - 314,072 Selling, general and administrative expenses (a) 26,714 42,193 4,490 73,397 Depreciation 3,555 4,148 145 7,848 Amortization 1,979 49 395 2,423 Other expenses (b) 881 552 1,057 2,490 -------- -------- -------- -------- Total costs and expenses 269,203 124,940 6,087 400,230 -------- -------- -------- -------- Income/(loss) from operations 30,535 20,268 (6,087) 44,716 Interest expense (71) (279) (10,524) (10,874) Intercompany interest income/(expense) 1,190 940 (2,130) - Loss on extinguishment of debt (d) - - (3,971) (3,971) Other income--net 122 442 763 1,327 -------- -------- -------- -------- Income/(loss) before income taxes 31,776 21,371 (21,949) 31,198 Income taxes (12,258) (8,550) 8,626 (12,182) -------- -------- -------- -------- Income/(loss) from continuing operations 19,518 12,821 (13,323) 19,016 Discontinued operations - - (2,015) (2,015) -------- -------- -------- -------- Net income/(loss) $ 19,518 $ 12,821 $(15,338) $ 17,001 ======== ======== ======== ======== Earnings Per Share Continuing operations $ 0.75 ======== Net income $ 0.67 ======== Average number of shares outstanding 25,319 ======== Diluted Earnings Per Share Continuing operations $ 0.73 ======== Net income $ 0.65 ======== Average number of shares outstanding 26,059 ======== 2004 (l) -------------------------- Service revenues and sales $254,222 $138,123 $ - $392,345 -------- -------- -------- -------- Cost of services provided and goods sold 201,124 76,643 - 277,767 Selling, general and administrative expenses 25,633 40,879 4,362 70,874 Depreciation 2,252 4,420 129 6,801 Amortization 2,327 125 21 2,473 Other expenses (b) - 1,558 7,225 8,783 -------- -------- -------- -------- Total costs and expenses 231,336 123,625 11,737 366,698 -------- -------- -------- -------- Income/(loss) from operations 22,886 14,498 (11,737) 25,647 Interest expense (58) (59) (12,389) (12,506) Intercompany interest income/(expense) 131 373 (504) - Loss on extinguishment of debt (d) - - (3,330) (3,330) Other income--net 117 686 866 1,669 -------- -------- -------- -------- Income/(loss) before income taxes 23,076 15,498 (27,094) 11,480 Income taxes (9,348) (6,111) 9,429 (6,030) -------- -------- -------- -------- Income/(loss) from continuing operations 13,728 9,387 (17,665) 5,450 Discontinued operations - - 137 137 -------- -------- -------- -------- Net income/(loss) $ 13,728 $ 9,387 $(17,528) $ 5,587 ======== ======== ======== ======== Earnings Per Share Continuing operations $ 0.22 ======== Net income $ 0.23 ======== Average number of shares outstanding 24,424 ======== Diluted Earnings Per Share Continuing operations $ 0.22 ======== Net income $ 0.22 ======== Average number of shares outstanding 24,882 ======== The "Footnotes to Financial Statements" are integral parts of this financial information. CHEMED CORPORATION AND SUBSIDIARY COMPANIES PRO FORMA CONSOLIDATING SUMMARY OF EBITDA FOR THE THREE MONTHS ENDED JUNE 30, 2005 AND 2004 (in thousands)(unaudited) Roto- Chemed VITAS Rooter Corporate Consolidated -------- ---------- --------- ------------ 2005 ---------------------------- Net income/(loss) $10,149 $ 5,676 $(6,940) $ 8,885 Add/(deduct): Discontinued operations - - 2,226 2,226 Interest expense 33 97 4,909 5,039 Income taxes 6,475 3,728 (3,691) 6,512 Depreciation 1,770 2,086 72 3,928 Amortization 984 23 224 1,231 ------- ------- ------- ------- EBITDA 19,411 11,610 (3,200) 27,821 Add/(deduct): Long-term incentive compensation 588 304 945 1,837 Legal expenses of OIG investigation 254 - - 254 VITAS transaction expense adjustment (f) - - (671) (671) Advertising cost adjustment (g) - (76) - (76) Interest income (33) (47) (182) (262) Intercompany interest income/(expense) (681) (516) 1,197 - ------- ------- ------- ------- Adjusted EBITDA $19,539 $11,275 $(1,911) $28,903 ======= ======= ======= ======= 2004 (l) ---------------------------- Pro forma net income/(loss)$ 8,128 $ 5,150 $ (5,560) $ 7,718 Add/(deduct): Discontinued operations - - 9 9 Interest expense 30 33 6,141 6,204 Income taxes 5,647 3,317 (2,982) 5,982 Depreciation 1,270 2,174 62 3,506 Amortization 1,232 66 21 1,319 ------- ------- ------- ------- Pro forma EBITDA 16,307 10,740 (2,309) 24,738 Add/(deduct): Advertising cost adjustment (g) - (273) - (273) Interest income (65) (26) (395) (486) Intercompany interest income/(expense) (131) (189) 320 - ------- ------- ------- ------- Pro forma adjusted EBITDA $16,111 $10,252 $(2,384) $23,979 ======= ======= ======= ======= The "Footnotes to Financial Statements" are integral parts of this financial information. CHEMED CORPORATION AND SUBSIDIARY COMPANIES PRO FORMA CONSOLIDATING SUMMARY OF EBITDA FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004 (in thousands)(unaudited) Roto- Chemed VITAS Rooter Corporate Consolidated -------- ---------- --------- ------------ 2005 ---------------------------- Net income/(loss) $19,518 $12,821 $(15,338) $17,001 Add/(deduct): Discontinued operations - - 2,015 2,015 Interest expense 71 279 10,524 10,874 Income taxes 12,258 8,550 (8,626) 12,182 Depreciation 3,555 4,148 145 7,848 Amortization 1,979 49 395 2,423 ------- ------- -------- ------- EBITDA 37,381 25,847 (10,885) 52,343 Add/(deduct): Long-term incentive compensation (h) 881 552 1,728 3,161 Prior-period insurance adjustment - (1,663) - (1,663) Legal expenses of OIG investigation 254 - - 254 VITAS transaction expense adjustment (f) - - (671) (671) Advertising cost adjustment (g) - (629) - (629) Interest income (159) (88) (665) (912) Intercompany interest income/(expense) (1,190) (940) 2,130 - Loss on extinguishment of debt - - 3,971 3,971 ------- ------- -------- ------- Adjusted EBITDA $37,167 $23,079 $ (4,392) $55,854 ======= ======= ======== ======= 2004 (l) ---------------------------- Pro forma net income/(loss)$13,728 $ 9,387 $(17,528) $ 5,587 Add/(deduct): Discontinued operations - - (137) (137) Interest expense 58 59 12,389 12,506 Income taxes 9,348 6,111 (9,429) 6,030 Depreciation 2,252 4,420 129 6,801 Amortization 2,327 125 21 2,473 ------- ------- -------- ------- Pro forma EBITDA 27,713 20,102 (14,555) 33,260 Add/(deduct): Long-term incentive compensation - 1,558 7,225 8,783 Advertising cost adjustment (g) - (466) - (466) Interest income (137) (64) (834) (1,035) Intercompany interest income/(expense) (131) (373) 504 - Loss on extinguishment of debt - - 3,330 3,330 ------- ------- -------- ------- Pro forma adjusted EBITDA $27,445 $20,757 $ (4,330) $43,872 ======= ======= ======== ======= The "Footnotes to Financial Statements" are integral parts of this financial information. CHEMED CORPORATION AND SUBSIDIARY COMPANIES FOOTNOTES TO FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004 (unaudited) (a) For the second quarter and six months ended June 30, 2005, amounts for VITAS include $254,000 ($160,000 aftertax) for legal expenses incurred in connection with the Office of Inspector General ("OIG") investigation. (b) Other expenses include the following (in thousands): Three Months Six Months Ended June 30, Ended June 30, ---------------- ---------------- 2005 2004 2005 2004 Pretax cost/(benefit): ------- -------- ------- -------- Long-term incentive plan payout $1,837 $ - $2,946 $ 8,783 Adjustment of transaction- related expenses of the VITAS acquisition (671) (1,368) (671) (1,368) Cost of accelerating vesting of stock options - - 215 - ------ ------- ------ ------- Total other expenses $1,166 $(1,368) $2,490 $ 7,415 ====== ======= ====== ======= Aftertax cost/(benefit): Long-term incentive plan payout $1,152 $ - $1,847 $ 5,723 Adjustment of transaction- related expenses of the VITAS acquisition (671) (821) (671) (821) Cost of accelerating vesting of stock options - - 137 - ------ ------- ------ ------- Total other expenses, net of income taxes $ 481 $ (821) $1,313 $ 4,902 ====== ======= ====== ======= (c) For the six months ended June 30, 2005, amount for Roto-Rooter includes a favorable adjustment to casualty insurance related to prior periods' experience of $1,663,000 ($1,014,000 aftertax). (d) For the six months ended June 30, 2005, amounts include the prepayment penalty and write-off of debt issuance costs related to the early extinguishment and refinancing of certain portions of the Company's debt ($2,523,000 aftertax). For the six months ended June 30, 2004, amount represents the prepayment penalty incurred on the early extinguishment of the Company's debt ($2,164,000 aftertax). (e) Amount includes the Company's aftertax share of VITAS' charges related to the Company's acquisition of VITAS in the first quarter of 2004 prior to the acquisition date. These charges comprise transaction-related expenses that reduced the Company's equity in the earnings/(loss) of VITAS by $4,621,000 during the first quarter of 2004. (f) Amounts represent favorable adjustments to transaction expenses related to the acquisition of VITAS. (g) Under Generally Accepted Accounting Principles ("GAAP"), the Roto-Rooter segment expenses all advertising, including the cost of telephone directories, immediately upon the initial release of the advertising. Telephone directories are generally in circulation 12 months. If a directory is in circulation for a time period greater or less than 12 months, the publisher adjusts the directory billing for the change in billing period. The timing of when a telephone directory is published can and does fluctuate significantly on a quarterly basis. This "direct expensing" results in significant fluctuations in quarterly advertising expense. In the second quarters of 2005 and 2004, GAAP advertising expense for Roto-Rooter totaled $3,760,000 and $3,442,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the second quarters of 2005 and 2004 would total $3,836,000 and $3,715,000, respectively. For the six months ended June 30, 2005 and 2004, GAAP advertising expense for Roto-Rooter totaled $7,011,000 and $6,817,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the six months ended June 30, 2005 and 2004, would total $7,640,000 and $7,283,000, respectively. (h) For the six months ended June 30, 2005, amounts include costs related to accelerating the vesting of stock options in addition to payouts under the Company's LTIP. (i) Amounts represent the additional net income VITAS would contribute assuming the acquisition were completed on January 1 of the respective years (excluding Chemed management fees). (j) Amount represents the additional financing costs, including a loss on early extinguishment of debt in 2004, that would have been incurred assuming the financing were completed on January 1, 2004. (k) Amount represents the impact of eliminating the Company's prior investments in VITAS, assuming the acquisition of VITAS were completed on January 1, 2004. (l) Pro forma amounts for 2004 for VITAS and Corporate assume the Company's acquisition of VITAS and its financing (including the retirement of existing debt) were completed as of January 1, 2004, on the same terms and conditions as completed on February 24, 2004. *T