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 first quarter ended March 31, 2007, versus the comparable prior-year period, as follows: Consolidated operating results from Continuing Operations: Revenue increased 10.9% to $270 million Diluted EPS from Continuing Operations of $.62 Adjusted diluted EPS from Continuing Operations of $.73 VITAS segment operating results from Continuing Operations: Net Patient Revenue of $184 million, up 10.8% Average Daily Census (ADC) of 11,309, up 9.9% Admissions of 14,110, an increase of 2.4% Average Length of Stay in the quarter of 76.9 days Net income of $15.0 million Adjusted EBITDA of $26.0 million Roto-Rooter segment operating results: Revenue of $86 million, an increase of 10.9% Job count of 211,022, up 1.9% Net Income of $9.5 million Adjusted EBITDA of $16.3 million VITAS VITAS generated a record 14,110 in admissions in the quarter, which represents an increase of 2.4% over the prior year and a 6.2% increase sequentially. ADC in the quarter increased 9.9% to 11,309. VITAS� Average Length of Stay (ALOS) for patients discharged in the quarter was 76.9 days and median length of stay (MLOS) was 13 days. This compares to an ALOS of 75.7 days in the fourth quarter of 2006 and 72.4 days in the first quarter of 2006. VITAS generated net revenue of $184 million in the first quarter of 2007, which was an increase of 10.8% over the prior-year period. Net income from continuing operations for the first quarter was $15.0 million, an increase of 40%. VITAS did not record any billing restrictions related to Medicare Cap in the first quarter of 2007. In addition, approximately $472,000 of Medicare billing restrictions recorded in the fourth quarter of 2006 was reversed into revenue in the first quarter of 2007. As of March 31, 2007, VITAS has not accrued any Medicare billing restrictions for the 2007 cap year. The ability to eliminate these Medicare billing restrictions is a result of improved admissions metrics, improved MLOS and the continued combination of various hospice programs that qualify to bill Medicare under a single provider number. Starting in 2006, VITAS merged several hospice programs and eliminated the corresponding Medicare provider numbers in three states. VITAS is in the process of eliminating one additional Medicare provider number that is not currently in a cap situation. Once completed, all of VITAS� hospice programs will have a cap cushion greater than 10% on a trailing twelve-month basis, with the exception of two programs. These two programs have a cap cushion between 5% and 10%. The same analysis through the first five months of the 2007 cap year results in all of VITAS� Medicare provider numbers having a cap cushion greater than 10% with the exception of one program. This program has a cap cushion between 5% and 10%. Gross margin in the quarter, excluding the reversal of $472,000 of Medicare Cap, was 22.6%. This compares to 19.5% in the prior-year quarter. The majority of this 310 basis point increase in margin is a result of VITAS managing labor costs to more historical levels. In addition, 80 basis points of this improvement is the result of certain expenses that had been historically charged to cost of services and are now expensed into central support. Effective October 1, 2006, management realigned certain processes and expenses related to hospice program support such as recruiting and information technology. These processes and related expenses were centralized effective the beginning of the fourth quarter of 2006 and are now incurred and controlled at VITAS corporate and classified as selling, general and administrative expenses. In the first quarter of 2006, approximately $1.3 million of this type of expense was classified as cost of services. These expenses were charged to central support in the first quarter of 2007. Central support costs for VITAS, which are classified as selling, general and administrative expenses in the Consolidating Statement of Income, totaled $15.9 million, which is an increase of 20.3% over the prior year and a decline of 3.2% sequentially. Adjusting for the reclassification of expenses noted above, first-quarter 2007 central support costs increased 9.4% over the prior year. Roto-Rooter Roto-Rooter�s plumbing and drain cleaning business generated sales of $86 million for the first quarter of 2007, 11% higher than the $78 million reported in the comparable prior-year quarter. Net income for the quarter was $9.5 million, an increase of 32% over the prior year. Adjusted EBITDA in the first quarter of 2007 totaled $16.3 million, an increase of 28% over the first quarter of 2006 and equated to an adjusted EBITDA margin of 18.9%, an increase of 251 basis points over the prior-year period. Job count in the first quarter of 2007 increased 1.9% over the prior-year period. Commercial jobs decreased 3.6% and residential jobs increased 4.5%. Commercial plumbing job count increased 0.2% and commercial drain cleaning decreased 4.3% over the prior-year quarter. Residential plumbing jobs increased 14.6% and residential drain cleaning jobs expanded 0.7% when compared to the first quarter of 2006. Roto-Rooter company-owned and operated territories are divided into four regions. In 2006 all four regions struggled in various areas of commercial business. As of the first quarter of 2007, only one region is struggling commercially. This region accounts for over 100% of the commercial job count decline and is the only region to post a decline in residential job count during the quarter. Management is focused on correcting the issues impacting this region and improving both commercial and residential job count growth. Guidance for 2007 VITAS is estimated to generate full-year revenue growth from continuing operations, prior to Medicare Cap, of 10% to 12%, increased admissions of 4% to 6%, increased ADC of 8% to 10% and adjusted EBITDA margins, prior to Medicare Cap, of 13.0% to 14.5%. This guidance assumes the hospice industry receives a full Medicare basket price increase of 3.6% in the fourth quarter of 2007. Full-year 2007 Medicare contractual billing limitations are estimated at $3.8 million. Roto-Rooter is estimated to generate an 8.5% to 9.5% increase in revenue in 2007, job count growth between 0.5% and 1.5% and adjusted EBITDA margin in the range of 18.5% to 19.5%. On April 4, 2007, Chemed announced the conditional redemption of its $150 million senior notes due February 2011. This redemption is conditioned upon the completion of one or more financing transactions prior to May 4, 2007. We anticipate completing a new Bank Credit Facility to fund this redemption by May 3, 2007. Based upon preliminary terms of this Bank Credit Facility, and assuming the redemption noted above is completed, this refinancing is anticipated to be accretive to 2007 earnings by $.08 per diluted share, or on an annualized basis, $.12 per diluted share. This excludes any related charge associated with the early extinguishment of debt. The Company has purchased approximately $54 million of Chemed stock since the announcement of its intention to repurchase stock was made in 2006. At March 31, 2007, the remaining share repurchase authorization totaled $13.6 million. Chemed�s Board of Directors has increased this stock repurchase authorization an additional $150 million, resulting in $163.6 million authorized for future Chemed stock repurchase. Based upon these factors, an effective tax rate of 38.5% and an average full-year diluted share count of 25.9 million, our estimate is that full-year 2007 earnings per diluted share from continuing operations, excluding expense for stock options and other long-term incentive compensation, gain on sale of building, early extinguishment of debt or any other charges or credits not indicative of ongoing operations, will be in the range of $2.85 to $3.05. Conference Call Chemed will host a conference call and webcast at 11 a.m., EST, on Tuesday, May 1, 2007, to discuss the company's quarterly results and provide an update on its business. The dial-in number for the conference call is (800) 543-6405 for U.S. and Canadian participants and (617) 213-8897 for international participants. The participant passcode is 49815399. A live webcast of the call can be accessed on Chemed's website at www.chemed.com by clicking on Investor Relations Home. A taped replay of the conference call will be available beginning approximately two hours after the call's conclusion. It can be accessed by dialing (888) 286-8010 for U.S. and Canadian callers and (617) 801-6888 for international callers and will be available for one week following the live call. The replay passcode is 38128620. An archived webcast will also be available at www.chemed.com and will remain available for 14 days following the live call. Chemed Corporation operates in the healthcare field through its VITAS Healthcare Corporation subsidiary. VITAS provides daily hospice services to over 11,000 patients with severe, life-limiting illnesses. This type of care is focused on making the terminally ill patient's final days as comfortable and pain-free as possible. Chemed operates in the residential and commercial plumbing and drain cleaning industry under the brand name Roto-Rooter. Roto-Rooter provides plumbing and drain service through company-owned branches, independent contractors and franchisees in the United States and Canada. Roto-Rooter also has licensed master franchisees in Indonesia, Singapore, Japan, and the Philippines. This press release contains information about Chemed�s EBITDA and Adjusted EBITDA, which are not measures derived in accordance with generally accepted accounting principles and which exclude components that are important to understanding Chemed�s financial performance. Chemed provides EBITDA and Adjusted EBITDA to help investors and others evaluate its operating results, compare its operating performance with that of similar companies that have different capital structures and evaluate its ability to meet its future debt service, capital expenditures and working capital requirements. Chemed�s EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for comparable measures calculated and presented in accordance with GAAP. A reconciliation of Chemed�s net income to its Adjusted EBITDA is presented in the tables following the text of this press release. Forward-Looking Statements Certain statements contained in this press release and the accompanying tables are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The words "believe," "expect," "hope," "anticipate," "plan" and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. Chemed does not undertake and specifically disclaims any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These statements are based on current expectations and assumptions and involve various risks and uncertainties, which could cause Chemed's actual results to differ from those expressed in such forward-looking statements. These risks and uncertainties arise from, among other things, possible changes in regulations governing the hospice care or plumbing and drain cleaning industries; periodic changes in reimbursement levels and procedures under Medicare and Medicaid programs; difficulties predicting patient length of stay and estimating potential Medicare reimbursement obligations; challenges inherent in Chemed's growth strategy; the current shortage of qualified nurses, other healthcare professionals and licensed plumbing and drain cleaning technicians; Chemed�s dependence on patient referral sources; and other factors detailed under the caption "Description of Business by Segment" or "Risk Factors" in Chemed�s most recent report on form 10-Q or 10-K and its other filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on such forward-looking statements and there are no assurances that the matters contained in such statements will be achieved. CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF INCOME (in thousands, except per share data)(unaudited) � � Three Months Ended March 31, 2007� 2006 (bb) Continuing Operations Service revenues and sales (aa) $ 270,439� $ 243,921� Cost of services provided and goods sold 188,247� 176,035� Selling, general and administrative expenses (aa) 48,070� 38,454� Depreciation 4,715� 4,132� Amortization 1,315� 1,296� Other operating expense/(income) � (1,138) � -� Total costs and expenses � 241,209� � 219,917� Income from operations 29,230� 24,004� Interest expense (3,742) (5,345) Loss on extinguishment of debt (aa) -� (430) Other income--net � 869� � 1,495� Income before income taxes 26,357� 19,724� Income taxes � (10,136) � (7,686) Income from continuing operations 16,221� 12,038� Discontinued Operations, Net of Income Taxes � -� � 177� Net Income $ 16,221� $ 12,215� � Earnings Per Share (aa) Income from continuing operations $ 0.63� $ 0.46� Net income $ 0.63� $ 0.47� Average number of shares outstanding � 25,716� � 26,044� � Diluted Earnings Per Share (aa) Income from continuing operations $ 0.62� $ 0.45� Net income $ 0.62� $ 0.46� Average number of shares outstanding � 26,162� � 26,723� � � � � � (aa) Included in the results of operations are the following significant credits/(charges) which may not be indicative of ongoing operations (in thousands, except per share data): � Three Months Ended March 31, 2007� 2006� Selling, general and administrative expenses Long-term incentive compensation $ (5,447) $ -� Stock option expense (585) -� Expenses associated with OIG investigation (66) (132) Other 467� -� Other operating expenses/(income) Gain on sale of property 1,138� -� Loss on extinguishment of debt � -� � (430) Pretax impact on earnings (4,493) (562) Income tax benefit on the above 1,687� 207� Discontinued operations � -� � 177� Aftertax impact on earnings $ (2,806) $ (178) � (bb) Reclassified for operations discontinued in November 2006. � CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEET (in thousands, except per share data)(unaudited) � � March 31, 2007� 2006(bb) Assets Current assets Cash and cash equivalents $ 30,137� $ 45,668� Accounts receivable less allowances 85,211� 69,418� Inventories 6,752� 6,724� Current deferred income taxes 21,595� 27,775� Prepaid income taxes -� 4,032� Current assets of discontinued operations -� 3,557� Prepaid expenses and other current assets � 9,110� � 8,867� Total current assets 152,805� 166,041� Investments of deferred compensation plans held in trust 27,736� 23,287� Other investments -� 1,445� Note receivable 14,701� 12,500� Properties and equipment, at cost less accumulated depreciation 69,295� 64,781� Identifiable intangible assets less accumulated amortization 68,205� 71,884� Goodwill 435,040� 432,623� Noncurrent assets of discontinued operations -� 7,571� Other assets � 16,194� � 20,408� Total Assets $ 783,976� $ 800,540� � Liabilities Current liabilities Accounts payable $ 55,272� $ 42,132� Current portion of long-term debt 164� 207� Income taxes 9,410� 5,224� Accrued insurance 39,889� 38,639� Accrued compensation 29,110� 25,175� Current liabilities of discontinued operations -� 3,578� Other current liabilities � 26,653� � 39,991� Total current liabilities 160,498� 154,946� Deferred income taxes 24,970� 26,053� Long-term debt 150,235� 194,399� Deferred compensation liabilities 27,157� 22,647� Noncurrent liabilities of discontinued operations -� 3� Other liabilities � 5,382� � 3,986� Total Liabilities � 368,242� � 402,034� Stockholders' Equity Capital stock 29,036� 28,667� Paid-in capital 260,641� 244,101� Retained earnings 234,914� 181,831� Treasury stock, at cost (111,293) (58,440) Deferred compensation payable in Company stock 2,436� 2,401� Notes receivable for shares sold � -� � (54) Total Stockholders' Equity � 415,734� � 398,506� Total Liabilities and Stockholders' Equity $ 783,976� $ 800,540� � Book Value Per Share $ 16.43� $ 15.23� � � � � � � � � � � � � (bb) Reclassified for operations discontinued in November 2006. � CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands)(unaudited) � Three Months Ended March 31, 2007� 2006 (bb) Cash Flows from Operating Activities Net income $ 16,221� $ 12,215� Adjustments to reconcile net income to net cash provided/(used) by operating activities: Depreciation and amortization 6,030� 5,428� Noncash long-term incentive compensation 4,719� -� Provision for uncollectible accounts receivable 2,084� 2,012� Amortization of debt issuance costs 455� 444� Provision for deferred income taxes (345) (1,292) Write-off of unamortized debt issuance costs -� 430� Discontinued operations -� (177) Changes in operating assets and liabilities, excluding amounts acquired in business combinations: � Decrease in accounts receivable 5,275� 19,638� Increase in inventories (174) (225) Decrease in prepaid expenses and other current assets 858� 901� Decrease in accounts payable and other current liabilities (9,091) (13,460) Increase in income taxes 9,538� 8,704� Increase in other assets (2,102) (1,917) Increase in other liabilities 2,218� 1,051� Excess tax benefit on share-based compensation (611) (3,289) Other uses � (375) � (49) Net cash provided by continuing operations 34,700� 30,414� Net cash provided by discontinued operations � -� � 2,326� Net cash provided by operating activities � 34,700� � 32,740� Cash Flows from Investing Activities Capital expenditures (5,764) (3,852) Net uses from the sale of discontinued operations (3,876) (1,684) Proceeds from sales of property and equipment 2,975� 65� Business combinations, net of cash acquired (62) (384) Other uses � (299) � (305) Net cash used by investing activities � (7,026) � (6,160) Cash Flows from Financing Activities Purchases of treasury stock (24,199) (2,318) Increase in cash overdrafts payable (1,608) 786� Dividends paid (1,555) (1,572) Excess tax benefit on share-based compensation 611� 3,289� Repayment of long-term debt (141) (84,497) Issuance of capital stock 130� 2,360� Net increase in revolving line of credit -� 44,000� Debt issuance costs -� (150) Other sources � (49) � 57� Net cash used by financing activities � (26,811) � (38,045) Increase/(Decrease) in Cash and Cash Equivalents 863� (11,465) Cash and cash equivalents at beginning of year � 29,274� � 57,133� Cash and cash equivalents at end of period � 30,137� $ 45,668� � (bb) Reclassified for operations discontinued in November 2006. � � CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATING STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006 (in thousands)(unaudited) � Chemed VITAS Roto-Rooter Corporate Consolidated 2007� � � � Service revenues and sales $ 184,049� $ 86,390� $ -� $ 270,439� Cost of services provided and goods sold 142,095� 46,152� -� 188,247� Selling, general and administrative expenses (a) 15,904� 23,760� 8,406� 48,070� Depreciation 2,538� 2,101� 76� 4,715� Amortization 996� 15� 304� 1,315� Other operating expense/(income) (a) � -� � -� � (1,138) � (1,138) Total costs and expenses � 161,533� � 72,028� � 7,648� � 241,209� Income/(loss) from operations 22,516� 14,362� (7,648) 29,230� Interest expense (36) (83) (3,623) (3,742) Intercompany interest income/(expense) 1,712� 1,156� (2,868) -� Other income�net � (88) � 172� � 785� � 869� Income/(loss) before income taxes 24,104� 15,607� (13,354) 26,357� Income taxes � (9,117) � (6,121) � 5,102� � (10,136) Net income/(loss) $ 14,987� $ 9,486� $ (8,252) $ 16,221� � � 2006 (f) � � Service revenues and sales $ 166,057� $ 77,864� $ -� $ 243,921� Cost of services provided and goods sold 133,596� 42,439� -� 176,035� Selling, general and administrative expenses 13,215� 22,542� 2,697� 38,454� Depreciation 2,057� 1,969� 106� 4,132� Amortization � 984� � 20� � 292� � 1,296� Total costs and expenses � 149,852� � 66,970� � 3,095� � 219,917� Income/(loss) from operations 16,205� 10,894� (3,095) 24,004� Interest expense (31) (173) (5,141) (5,345) Intercompany interest income/(expense) 954� 852� (1,806) -� Loss on extinguishment of debt (b) -� -� (430) (430) Other income�net � 12� � 362� � 1,121� � 1,495� Income/(loss) before income taxes 17,140� 11,935� (9,351) 19,724� Income taxes � (6,460) � (4,734) � 3,508� � (7,686) Income/(loss) from continuing operations 10,680� 7,201� (5,843) 12,038� Discontinued operations, net of income taxes � 177� � -� � -� � 177� Net income/(loss) $ 10,857� $ 7,201� $ (5,843) $ 12,215� � 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 MARCH 31, 2007 AND 2006 (in thousands)(unaudited) � Chemed VITAS Roto-Rooter Corporate Consolidated 2007� Net income/(loss) $ 14,987� $ 9,486� $ (8,252) $ 16,221� Add/(deduct): Interest expense 36� 83� 3,623� 3,742� Income taxes 9,117� 6,121� (5,102) 10,136� Depreciation 2,538� 2,101� 76� 4,715� Amortization � 996� � 15� � 304� � 1,315� EBITDA 27,674� 17,806� (9,351) 36,129� Add/(deduct): Long-term incentive compensation -� -� 5,447� 5,447� Gain on sale of property -� -� (1,138) (1,138) Legal expenses of OIG investigation 66� -� -� 66� Stock option expense -� -� 585� 585� Advertising cost adjustment (c) -� (297) -� (297) Interest income (13) (59) (695) (767) Intercompany interest income/(expense) (1,712) (1,156) 2,868� -� Other � -� � -� � (467) � (467) Adjusted EBITDA $ 26,015� $ 16,294� $ (2,751) $ 39,558� � 2006 (f) Net income/(loss) $ 10,857� $ 7,201� $ (5,843) $ 12,215� Add/(deduct): Discontinued operations, net of income taxes (177) -� -� (177) Interest expense 31� 173� 5,141� 5,345� Income taxes 6,460� 4,734� (3,508) 7,686� Depreciation 2,057� 1,969� 106� 4,132� Amortization � 984� � 20� � 292� � 1,296� EBITDA 20,212� 14,097� (3,812) 30,497� Add/(deduct): Legal expenses of OIG Investigation 132� -� -� 132� Advertising cost adjustment (c) -� (494) -� (494) Interest income (41) (23) (908) (972) Intercompany interest income/(expense) (954) (852) 1,806� -� Loss on extinguishment of debt � -� � -� � 430� � 430� Adjusted EBITDA $ 19,349� $ 12,728� $ (2,484) $ 29,593� � The "Footnotes to Financial Statements" are integral parts of this financial information. � CHEMED CORPORATION AND SUBSIDIARY COMPANIES RECONCILIATION OF ADJUSTED NET INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006 (in thousands, except per share data)(unaudited) � � 2007� 2006 (f) Net income/(loss) as reported $ 16,221� $ 12,215� � Add/(deduct): Discontinued operations, net of income taxes -� (177) Aftertax cost of long-term incentive compensation 3,414� -� Aftertax cost of legal expenses of OIG investigation 41� 82� Aftertax stock option expense 371� -� Aftertax gain on sale of property (724) -� Aftertax other (296) -� Aftertax cost of loss on extinguishment of debt � -� � 273� � Adjusted income from continuing operations $ 19,027� $ 12,393� � � Earnings/(Loss) Per Share As Reported Net income/(loss) $ 0.63� $ 0.47� Average number of shares outstanding � 25,716� � 26,044� Diluted Earnings/(Loss) Per Share As Reported Net income/(loss) $ 0.62� $ 0.46� Average number of shares outstanding � 26,162� � 26,723� � � Adjusted Earnings Per Share Income from continuing operations $ 0.74� $ 0.48� Average number of shares outstanding � 25,716� � 26,044� Adjusted Diluted Earnings Per Share Income from continuing operations $ 0.73� $ 0.46� Average number of shares outstanding � 26,162� � 26,723� � The "Footnotes to Financial Statements" are integral parts of this financial information. � CHEMED CORPORATION AND SUBSIDIARY COMPANIES OPERATING STATISTICS FOR VITAS SEGMENT FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006 (unaudited) � 2007� 2006 (f) OPERATING STATISTICS Net revenue ($000) (d) Homecare $ 131,548� $ 113,232� Inpatient 23,462� 23,016� Continuous care � 28,567� � 29,809� Total before Medicare cap allowance 183,577� $ 166,057� Medicare cap allowance � 472� � -� Total $ 184,049� $ 166,057� Net revenue as a percent of total before Medicare cap allowance � Homecare 71.6� % � 68.1� % Inpatient 12.8� 13.9� Continuous care � 15.6� � 18.0� Total before Medicare cap allowance 100.0� 100.0� Medicare cap allowance � 0.3� � -� Total � 100.3� % � 100.0� % Average daily census ("ADC") (days) Homecare 6,786� 5,931� Nursing home � 3,574� � 3,359� Routine homecare 10,360� 9,290� Inpatient 426� 430� Continuous care � 523� � 571� Total � 11,309� � 10,291� � Total Admissions 14,110� 13,773� Total Discharges 14,051� 13,298� Average length of stay (days) 76.9� 72.4� Median length of stay (days) 13.0� 12.0� ADC by major diagnosis Neurological 33.3� % � 33.1� % Cancer 19.7� 20.5� Cardio 14.6� 14.8� Respiratory 7.0� 7.1� Other � 25.4� � 24.5� Total � 100.0� % � 100.0� % Admissions by major diagnosis Neurological 18.9� % � 20.5� % Cancer 33.6� 33.7� Cardio 13.3� 13.8� Respiratory 7.8� 7.9� Other � 26.4� � 24.1� Total � 100.0� % � 100.0� % Direct patient care margins (e) Routine homecare 50.8� % � 47.6� % � Inpatient 20.1� 23.1� Continuous care 20.0� 18.3� Homecare margin drivers (dollars per patient day) � Labor costs $ 49.12� $ 51.32� Drug costs 8.18� 7.38� Home medical equipment 5.75� 5.54� Medical supplies 2.17� 2.09� Inpatient margin drivers (dollars per patient day) � Labor costs $ 252.42� $ 247.69� Continuous care margin drivers (dollars per patient day) � Labor costs $ 464.54� $ 454.53� Bad debt expense as a percent of revenues 0.9� 0.9� % Accounts receivable -- days of revenue outstanding 38.1� 39.4� � The "Footnotes to Financial Statements" are integral parts of this financial information. � CHEMED CORPORATION AND SUBSIDIARY COMPANIES FOOTNOTES TO FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006 (unaudited) � � (a) Included in the results of operations for the three months ended March 31, 2007 are the following significant credits/(charges) which may not be indicative of ongoing operations (in thousands): � VITAS Corporate Consolidated Selling, general and administrative expenses Long-term incentive compensation $ $ (5,447) $ (5,447) Costs associated with OIG investigation (66) -� (66) Stock option expense -� (585) (585) Other -� 467� 467� Other operating expenses/(income) Gain on sale of property � -� � 1,138� � 1,138� Pretax impact on earnings (66) (4,427) (4,493) Income tax benefit/(charge) on the above � 25� � 1,662� � 1,687� Aftertax impact on earnings $ (41) $ (2,765) $ (2,806) � (b) Included in the results of operations for the three months ended March 31, 2006 are the following significant credits/(charges) which may not be indicative of ongoing operations (in thousands): � VITAS Corporate Consolidated Selling, general and administrative expenses Costs associated with OIG investigation $ (132) $ -� $ (132) Loss on extinguishment of debt � -� � (430) � (430) Pretax impact on earnings (132) (430) (562) Income tax benefit on the above � 50� � 157� � 207� Aftertax impact on earnings $ (82) $ (273) $ (355) � (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 first quarters of 2007 and 2006, GAAP advertising expense for Roto-Rooter totaled $5,193,000 and $4,424,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the first quarters of 2007 and 2006 would total $5,490,000 and $4,918,000, respectively. � (d) VITAS has 6 large (greater than 450 ADC), 15 medium (greater than 200 but less than 450 ADC) and 21 small (less than 200 ADC) hospice programs. As of March 31, 2007, there were no programs with a Medicare Cap liability for the 2007 measurement period. There were two programs with less than 10% cap cushion measured for the twelve month period ending March 31, 2007. � (e) Amounts exclude indirect patient care and administrative costs, as well as Medicare Cap billing limitation. � (f) Reclassified for operations discontinued in November 2006. �