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, 2007, versus the comparable prior-year period, as follows: Consolidated operating results from Continuing Operations: Revenue increased 9.0% to $271 million Diluted EPS from Continuing Operations of $.38 Adjusted diluted EPS from Continuing Operations, which excludes early extinguishments of debt and certain other items, of $.79 VITAS segment operating results from Continuing Operations: Net Patient Revenue of $186 million, up 8.3% Average Daily Census (ADC) of 11,406, up 6.6% Admissions of 13,658, an increase of 5.2% Average Length of Stay in the quarter of 76.6 days Net income of $14.2 million Adjusted EBITDA of $24.9 million Roto-Rooter segment operating results: Revenue of $86 million, an increase of 10.5% Job count of 201,939 up 1.6% Net Income of $10.7 million Adjusted EBITDA of $18.1 million VITAS VITAS generated 13,658 admissions in the quarter, which represents an increase of 5.2% over the prior year. Discharges totaled 13,359, an increase of 6.6%, and ADC in the quarter increased 6.6% to 11,406. VITAS� Average Length of Stay (ALOS) for patients discharged in the quarter was 76.6 days and Median Length of Stay (MLOS) was 13 days. This compares to an ALOS of 76.9 days in the first quarter of 2007 and 68.0 days in the second quarter of 2006. VITAS recorded net revenue of $186 million in the second quarter of 2007, which was an increase of 8.3% over the prior-year period. The revenue growth generated from the increase in ADC combined with the Medicare price increase was partially offset by the continued shift in revenue mix to routine home care. Routine homecare revenue increased 11.6% in the quarter. This revenue growth was partially offset by a modest decline in the higher acuity inpatient and continuous care revenue of 0.9% in the quarter. Net income from continuing operations for the second quarter was $14.2 million, an increase of 16.9%. VITAS did not record any billing restrictions related to Medicare Cap in the second quarter of 2007. As of June 30, 2007, VITAS has not accrued any Medicare billing restrictions for the 2007 cap year. The ability for VITAS to bill Medicare for 100% of the care provided to terminally ill patients is a result of improved admissions metrics, relatively low MLOS and the continued combination of various hospice provider numbers. All of VITAS� hospice programs currently 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 of 5% and 8%, respectively. The same analysis through the first eight 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 two programs. These programs have cap cushion of 7% and 8%, respectively. Gross margin in the quarter was 22.1%, which is a 180 basis point improvement over the prior year quarter. Approximately 90 basis points of this improvement is a result of VITAS managing labor costs to more historical levels. The remaining 90 basis points of this improvement is the result of $1.6 million of 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. 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 expense. In the second quarter of 2006, approximately $1.6 million of this type of expense was classified as cost of services. These expenses were charged to central support in the second quarter of 2007. Central support costs for VITAS, which are classified as selling, general and administrative expenses in the Consolidating Statement of Income, totaled $16.3 million, which is an increase of 18.7% over the prior year. Adjusting for the reclassification of expenses noted above, second-quarter 2007 central support costs increased 6.3% over the prior year. Roto-Rooter Roto-Rooter�s plumbing and drain cleaning business generated sales of $86 million for the second quarter of 2007, 10.5% higher than the $78 million reported in the comparable prior-year quarter. Net income for the quarter was $10.7 million, an increase of 53% over the prior year. Adjusted EBITDA in the second quarter of 2007 totaled $18.1 million, an increase of 42% over the second quarter of 2006 and equated to an adjusted EBITDA margin of 21.1%, an increase of 469 basis points over the prior-year period. Job count in the second quarter of 2007 increased 1.6% over the prior-year period. Residential jobs increased 6.0% and commercial jobs decreased 7.4%. Residential plumbing jobs increased 14.7% and residential drain cleaning jobs expanded 2.2% when compared to the second quarter of 2006. Residential jobs represent approximately 70% of total job count. Commercial plumbing job count decreased 3.8% and commercial drain cleaning decreased 8.7% over the prior-year quarter. Guidance for 2007 VITAS is estimated to generate full-year revenue growth from continuing operations, prior to Medicare Cap, of 9% to 11%. This range is a 100 basis point decrease from the previous guidance to reflect the revenue mix shift to routine home care noted earlier. Admissions are estimated to increase 4% to 6%, increased ADC of 8% to 10% and adjusted EBITDA margins, prior to Medicare Cap, of 13.5% to 14.5%. This guidance assumes the hospice industry receives a full Medicare basket price increase of 3.3% in the fourth quarter of 2007. Full-year 2007 Medicare contractual billing limitations are estimated at $2.5 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 19.0% to 20.0%. Based upon these factors, an effective tax rate of 38.5% and an average diluted share count for the second half of 2007 of 24.5 million, our estimate is that full-year 2007 earnings per diluted share from continuing operations, excluding early extinguishment of debt, expense for stock options and other long-term incentive compensation, gain on sale of building, or any other charges or credits not indicative of ongoing operations, will be in the range of $3.10 to $3.20. Conference Call Chemed will host a conference call and webcast at 10 a.m., ET, on Thursday, August 2, 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) 573-4842 for U.S. and Canadian participants and (617) 224-4327 for international participants. The participant passcode is 85108295. 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 41816435. 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 EndedJune 30, Six Months EndedJune 30, 2007 2006 (cc) 2007 2006 (cc) Continuing Operations Service revenues and sales $ 271,387 � $ 249,068 � $ 541,826 � $ 492,989 � Cost of services provided and goods sold 188,716 179,103 376,963 355,138 Selling, general and administrative expenses (aa) 46,090 38,621 94,160 77,075 Depreciation 4,962 4,082 9,677 8,214 Amortization 1,294 1,317 2,609 2,613 Other operating expense/(income)(aa) � - � � - � � (1,138 ) � - � Total costs and expenses � 241,062 � � 223,123 � � 482,271 � � 443,040 � Income from operations 30,325 25,945 59,555 49,949 Interest expense (3,400 ) (4,300 ) (7,142 ) (9,645 ) Loss on extinguishment of debt (aa) (13,715 ) - (13,715 ) (430 ) Other income--net � 2,188 � � 524 � � 3,057 � � 2,019 � Income before income taxes 15,398 22,169 41,755 41,893 Income taxes � (5,965 ) � (8,619 ) � (16,101 ) � (16,305 ) Income from continuing operations 9,433 13,550 25,654 25,588 Discontinued Operations (bb) � - � � (708 ) � - � � (531 ) Net Income $ 9,433 � $ 12,842 � $ 25,654 � $ 25,057 � � � Earnings Per Share (aa) Income from continuing operations $ 0.38 � $ 0.52 � $ 1.02 � $ 0.98 � Net income $ 0.38 � $ 0.49 � $ 1.02 � $ 0.96 � Average number of shares outstanding � 24,506 � � 26,201 � � 25,108 � � 26,123 � � Diluted Earnings Per Share (aa) Income from continuing operations $ 0.38 � $ 0.50 � $ 1.00 � $ 0.95 � Net income $ 0.38 � $ 0.48 � $ 1.00 � $ 0.93 � Average number of shares outstanding � 25,080 � � 26,846 � � 25,684 � � 26,815 � � � � � � � (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 EndedJune 30, Six Months EndedJune 30, 2007 2006 2007 2006 Selling, general and administrative expenses Long-term incentive compensation $ (1,620 ) $ - $ (7,067 ) $ - Stock option expense (897 ) (18 ) (1,482 ) (18 ) Legal costs associated with OIG investigation (74 ) (342 ) (140 ) (474 ) Other - - 467 - Other operating expense/(income) Gain on sale of property - - 1,138 - Loss on extinguishment of debt � (13,715 ) � - � � (13,715 ) � (430 ) Pretax impact on earnings (16,306 ) (360 ) (20,799 ) (922 ) Income tax benefit on the above � 5,951 � � 136 � � 7,638 � � 343 � Aftertax impact on earnings $ (10,355 ) $ (224 ) $ (13,161 ) $ (579 ) � (bb) Discontinued operations represents the results of operations of VITAS' Phoenix operation � (cc) Reclassified to conform to 2007 presentation. CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEET (in thousands, except per share data)(unaudited) � � June 30, 2007 2006 (cc) Assets Current assets Cash and cash equivalents $ 7,469 $ 6,816 Accounts receivable less allowances 99,867 93,003 Inventories 6,752 6,210 Current deferred income taxes 19,828 21,110 Prepaid income taxes 2,604 11,983 Current assets of discontinued operations - 3,555 Prepaid expenses and other current assets � 8,570 � � 9,254 � Total current assets 145,090 151,931 Investments of deferred compensation plans held in trust 29,360 23,731 Other investments - 1,445 Note receivable 14,701 12,500 Properties and equipment, at cost less accumulated depreciation 72,428 65,979 Identifiable intangible assets less accumulated amortization 67,195 70,880 Goodwill 435,209 432,717 Noncurrent assets of discontinued operations - 7,513 Other assets � 15,549 � � 20,693 � Total Assets $ 779,532 � $ 787,389 � � Liabilities Current liabilities Accounts payable $ 46,366 $ 48,330 Current portion of long-term debt 10,162 207 Income taxes 837 4,409 Accrued insurance 37,084 39,310 Accrued compensation 33,046 27,840 Current liabilities of discontinued operations - 5,443 Other current liabilities � 20,638 � � 26,702 � Total current liabilities 148,133 152,241 Deferred income taxes 3,846 26,418 Long-term debt 268,035 169,397 Deferred compensation liabilities 28,912 23,503 Other liabilities � 5,945 � � 3,440 � Total Liabilities � 454,871 � � 374,999 � � Stockholders' Equity Capital stock 29,193 28,812 Paid-in capital 261,951 249,461 Retained earnings 242,905 193,089 Treasury stock, at cost (211,836 ) (61,340 ) Deferred compensation payable in Company stock 2,448 2,422 Notes receivable for shares sold � - � � (54 ) Total Stockholders' Equity � 324,661 � � 412,390 � Total Liabilities and Stockholders' Equity $ 779,532 � $ 787,389 � � Book Value Per Share $ 13.58 � $ 15.71 � � � � � � � � � � � � � ����(cc) Reclassified to conform to 2007 presentation. CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands)(unaudited) � Six Months Ended June 30, 2007 2006 (bb) Cash Flows from Operating Activities Net income $ 25,654 $ 25,057 Adjustments to reconcile net income to net cash provided by operating activities: � Depreciation and amortization 12,286 10,827 Write-off of unamortized debt issuance costs 7,153 430 Noncash long-term incentive compensation 6,154 - Provision for uncollectible accounts receivable 4,009 3,962 Amortization of debt issuance costs 751 882 Provision for deferred income taxes 376 4,679 Discontinued operations - 531 Changes in operating assets and liabilities, excluding amounts acquired in business combinations: � Increase in accounts receivable (11,308 ) (5,924 ) Decrease/(increase) in inventories (174 ) 289 Decrease in prepaid expenses and other current assets 1,377 514 Decrease in accounts payable and other current liabilities (14,838 ) (18,089 ) Increase in income taxes 69 1,932 Increase in other assets (3,932 ) (2,892 ) Increase in other liabilities 4,540 1,973 Excess tax benefit on share-based compensation (2,370 ) (4,941 ) Other uses � 477 � � 551 � Net cash provided by continuing operations 30,224 19,781 Net cash provided by discontinued operations � - � � 3,704 � Net cash provided by operating activities � 30,224 � � 23,485 � Cash Flows from Investing Activities Capital expenditures (13,908 ) (9,222 ) Net uses from the sale of discontinued operations (5,905 ) (2,990 ) Proceeds from sales of property and equipment 3,003 161 Business combinations, net of cash acquired (62 ) (814 ) Other uses � (564 ) � (610 ) Net cash used by investing activities � (17,436 ) � (13,475 ) Cash Flows from Financing Activities Proceeds from issuance of long-term debt 300,000 - Repayment of long-term debt (185,643 ) (84,499 ) Purchases of treasury stock (130,748 ) (3,992 ) Purchase of note hedges (54,939 ) - Proceeds from issuance of warrants 27,614 - Net increase in revolving line of credit 13,300 19,000 Debt issuance costs (6,395 ) (154 ) Dividends paid (2,997 ) (3,156 ) Excess tax benefit on share-based compensation 2,370 4,941 Issuance of capital stock 2,069 3,849 Increase in cash overdrafts payable 166 3,397 Other sources � 610 � � 287 � Net cash used by financing activities � (34,593 ) � (60,327 ) Decrease in Cash and Cash Equivalents (21,805 ) (50,317 ) Cash and cash equivalents at beginning of year � 29,274 � � 57,133 � Cash and cash equivalents at end of period $ 7,469 � $ 6,816 � � (bb) Reclassified for operations discontinued in November 2006. CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATING STATEMENT OF INCOME FOR THE THREE MONTHS ENDED JUNE 30, 2007 AND 2006 (in thousands)(unaudited) � � Chemed VITAS Roto-Rooter Corporate Consolidated �2007 � � � Service revenues and sales $ 185,701 � $ 85,686 � $ - � $ 271,387 � Cost of services provided and goods sold 144,639 44,077 - 188,716 Selling, general and administrative expenses (a) 16,260 24,191 5,639 46,090 Depreciation 2,776 2,109 77 4,962 Amortization � 996 � � 13 � � 285 � � 1,294 � Total costs and expenses � 164,671 � � 70,390 � � 6,001 � � 241,062 � Income/(loss) from operations 21,030 15,296 (6,001 ) 30,325 Interest expense (31 ) (96 ) (3,273 ) (3,400 ) Intercompany interest income/(expense) 1,731 1,183 (2,914 ) - Loss on extinguishment of debt (a) - - (13,715 ) (13,715 ) Other income�net � 57 � � 796 � � 1,335 � � 2,188 � Income/(loss) before income taxes 22,787 17,179 (24,568 ) 15,398 Income taxes � (8,633 ) � (6,484 ) � 9,152 � � (5,965 ) Net income/(loss) $ 14,154 � $ 10,695 � $ (15,416 ) $ 9,433 � � �2006 � � � Service revenues and sales $ 171,527 � $ 77,541 � $ - � $ 249,068 � Cost of services provided and goods sold 136,697 42,406 - 179,103 Selling, general and administrative expenses 13,702 22,232 2,687 38,621 Depreciation 2,087 1,914 81 4,082 Amortization � 984 � � 20 � � 313 � � 1,317 � Total costs and expenses � 153,470 � � 66,572 � � 3,081 � � 223,123 � Income/(loss) from operations 18,057 10,969 (3,081 ) 25,945 Interest expense (38 ) (109 ) (4,153 ) (4,300 ) Intercompany interest income/(expense) 1,395 949 (2,344 ) - Other income�net � 45 � � (89 ) � 568 � � 524 � Income/(loss) before income taxes 19,459 11,720 (9,010 ) 22,169 Income taxes � (7,352 ) � (4,717 ) � 3,450 � � (8,619 ) Income/(loss) from continuing operations 12,107 7,003 (5,560 ) 13,550 Discontinued operations � (708 ) � - � � - � � (708 ) Net income/(loss) $ 11,399 � $ 7,003 � $ (5,560 ) $ 12,842 � � The "Footnotes to Financial Statements" are integral parts of this financial information. CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATING STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006 (in thousands)(unaudited) � � Chemed VITAS Roto-Rooter Corporate Consolidated �2007 � � � Service revenues and sales $ 369,750 � $ 172,076 � $ - � $ 541,826 � Cost of services provided and goods sold 286,734 90,229 - 376,963 Selling, general and administrative expenses (a) 32,164 47,951 14,045 94,160 Depreciation 5,314 4,210 153 9,677 Amortization 1,992 28 589 2,609 Other operating expense/(income) (a) � - � � - � � (1,138 ) � (1,138 ) Total costs and expenses � 326,204 � � 142,418 � � 13,649 � � 482,271 � Income/(loss) from operations 43,546 29,658 (13,649 ) 59,555 Interest expense (67 ) (179 ) (6,896 ) (7,142 ) Intercompany interest income/(expense) 3,443 2,339 (5,782 ) - Loss on extinguishment of debt (a) - - (13,715 ) (13,715 ) Other income�net � (31 ) � 968 � � 2,120 � � 3,057 � Income/(loss) before income taxes 46,891 32,786 (37,922 ) 41,755 Income taxes � (17,750 ) � (12,605 ) � 14,254 � � (16,101 ) Net income/(loss) $ 29,141 � $ 20,181 � $ (23,668 ) $ 25,654 � � �2006 � � � Service revenues and sales $ 337,584 � $ 155,405 � $ - � $ 492,989 � Cost of services provided and goods sold 270,293 84,845 - 355,138 Selling, general and administrative expenses 26,917 44,774 5,384 77,075 Depreciation 4,144 3,883 187 8,214 Amortization � 1,968 � � 40 � � 605 � � 2,613 � Total costs and expenses � 303,322 � � 133,542 � � 6,176 � � 443,040 � Income/(loss) from operations 34,262 21,863 (6,176 ) 49,949 Interest expense (69 ) (282 ) (9,294 ) (9,645 ) Intercompany interest income/(expense) 2,349 1,801 (4,150 ) - Loss on extinguishment of debt (b) - - (430 ) (430 ) Other income�net � 57 � � 273 � � 1,689 � � 2,019 � Income/(loss) before income taxes 36,599 23,655 (18,361 ) 41,893 Income taxes � (13,812 ) � (9,451 ) � 6,958 � � (16,305 ) Income/(loss) from continuing operations 22,787 14,204 (11,403 ) 25,588 Discontinued operations � (531 ) � - � � - � � (531 ) Net income/(loss) $ 22,256 � $ 14,204 � $ (11,403 ) $ 25,057 � � 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, 2007 AND 2006 (in thousands)(unaudited) � � Chemed VITAS Roto-Rooter Corporate Consolidated �2007 Net income/(loss) $ 14,154 $ 10,695 $ (15,416 ) $ 9,433 Add/(deduct): Interest expense 31 96 3,273 3,400 Income taxes 8,633 6,484 (9,152 ) 5,965 Depreciation 2,776 2,109 77 4,962 Amortization � 996 � � 13 � � 285 � � 1,294 � EBITDA 26,590 19,397 (20,933 ) 25,054 Add/(deduct): Long-term incentive compensation - - 1,620 1,620 Stock option expense - - 897 897 Legal expenses of OIG investigation 74 - - 74 Loss on extinguishment of debt - - 13,715 13,715 Advertising cost adjustment (c) - (99 ) - (99 ) Interest income (66 ) (52 ) (826 ) (944 ) Intercompany interest (income)/expense � (1,731 ) � (1,183 ) � 2,914 � � - � Adjusted EBITDA $ 24,867 � $ 18,063 � $ (2,613 ) $ 40,317 � � �2006 Net income/(loss) $ 11,399 $ 7,003 $ (5,560 ) $ 12,842 Add/(deduct): Discontinued operations 708 - - 708 Interest expense 38 109 4,153 4,300 Income taxes 7,352 4,717 (3,450 ) 8,619 Depreciation 2,087 1,914 81 4,082 Amortization � 984 � � 20 � � 313 � � 1,317 � EBITDA 22,568 13,763 (4,463 ) 31,868 Add/(deduct): Stock option expense - - 18 18 Legal expenses of OIG investigation 342 - - 342 Advertising cost adjustment (c) - (87 ) - (87 ) Interest income (35 ) (17 ) (527 ) (579 ) Intercompany interest (income)/expense � (1,395 ) � (949 ) � 2,344 � � - � Adjusted EBITDA $ 21,480 � $ 12,710 � $ (2,628 ) $ 31,562 � � 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, 2007 AND 2006 (in thousands)(unaudited) � � Chemed VITAS Roto-Rooter Corporate Consolidated �2007 Net income/(loss) $ 29,141 $ 20,181 $ (23,668 ) $ 25,654 Add/(deduct): Discontinued operations - - - - Interest expense 67 179 6,896 7,142 Income taxes 17,750 12,605 (14,254 ) 16,101 Depreciation 5,314 4,210 153 9,677 Amortization � 1,992 � � 28 � � 589 � � 2,609 � EBITDA 54,264 37,203 (30,284 ) 61,183 Add/(deduct): Long-term incentive compensation - - 7,067 7,067 Stock option expense - - 1,482 1,482 Legal expenses of OIG investigation 140 - - 140 Gain on sale of property - - (1,138 ) (1,138 ) Other - - (467 ) (467 ) Loss on extinguishment of debt - - 13,715 13,715 Advertising cost adjustment (c) - (396 ) - (396 ) Interest income (79 ) (111 ) (1,521 ) (1,711 ) Intercompany interest (income)/expense � (3,443 ) � (2,339 ) � 5,782 � � - � Adjusted EBITDA $ 50,882 � $ 34,357 � $ (5,364 ) $ 79,875 � � �2006 Net income/(loss) $ 22,256 $ 14,204 $ (11,403 ) $ 25,057 Add/(deduct): Discontinued operations 531 - - 531 Interest expense 69 282 9,294 9,645 Income taxes 13,812 9,451 (6,958 ) 16,305 Depreciation 4,144 3,883 187 8,214 Amortization � 1,968 � � 40 � � 605 � � 2,613 � EBITDA 42,780 27,860 (8,275 ) 62,365 Add/(deduct): Stock option expense - - 18 18 Legal expenses of OIG investigation 474 - - 474 Loss on extinguishment of debt - - 430 430 Advertising cost adjustment (c) - (581 ) - (581 ) Interest income (76 ) (40 ) (1,435 ) (1,551 ) Intercompany interest (income)/expense � (2,349 ) � (1,801 ) � 4,150 � � - � Adjusted EBITDA $ 40,829 � $ 25,438 � $ (5,112 ) $ 61,155 � � 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 AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006 (in thousands, except per share data)(unaudited) � � Three Months Ended Six Months Ended June 30, June 30, 2007 2006 2007 � 2006 Net income/(loss) as reported $ 9,433 $ 12,842 $ 25,654 $ 25,057 � Add/(deduct): Discontinued operations - 708 - 531 Aftertax cost of long-term incentive compensation 1,013 - 4,427 - Aftertax stock option expense 570 12 941 12 Aftertax cost of legal expenses of OIG investigation 46 212 87 294 Aftertax other - - (296 ) - Gain on sale of property - - (724 ) Aftertax cost of loss on extinguishment of debt � 8,726 � - � 8,726 � � 273 � Adjusted income from continuing operations $ 19,788 $ 13,774 $ 38,815 � $ 26,167 � � Earnings/(Loss) Per Share As Reported Net income/(loss) $ 0.38 $ 0.49 $ 1.02 � $ 0.96 Average number of shares outstanding � 24,506 � 26,201 � 25,108 � � 26,123 Diluted Earnings/(Loss) Per Share As Reported Net income/(loss) $ 0.38 $ 0.48 $ 1.00 � $ 0.93 Average number of shares outstanding � 25,080 � 26,846 � 25,684 � � 26,815 � � Adjusted Earnings Per Share Income from continuing operations $ 0.81 $ 0.53 $ 1.55 � $ 1.00 Average number of shares outstanding � 24,506 � 26,201 � 25,108 � � 26,123 Adjusted Diluted Earnings Per Share Income from continuing operations $ 0.79 $ 0.51 $ 1.51 � $ 0.98 Average number of shares outstanding � 25,080 � 26,846 � 25,684 � � 26,815 � 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 AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006 (unaudited) � � Three Months EndedJune 30, Six Months EndedJune 30, 2007 � 2006 (f) 2007 2006 (f) OPERATING STATISTICS Net revenue ($000) (d) Homecare $ 134,794 $ 120,768 $ 266,341 $ 234,000 Inpatient 22,745 21,720 46,207 44,736 Continuous care � 28,162 � � 29,638 � � 56,730 � � 59,447 � Total before Medicare cap allowance 185,701 � 172,126 369,278 � 338,183 Medicare cap allowance � - � � (599 ) � 472 � � (599 ) Total $ 185,701 � $ 171,527 � $ 369,750 � $ 337,584 � Net revenue as a percent of total before Medicare cap allowance � Homecare 72.6 % 70.2 % 72.0 % 69.2 % Inpatient 12.2 12.6 12.5 13.2 Continuous care � 15.2 � � 17.2 � � 15.4 � � 17.6 � Total before Medicare cap allowance 100.0 100.0 99.9 100.0 Medicare cap allowance � - � � (0.3 ) � 0.1 � � (0.2 ) Total � 100.0 � % � 99.7 � % � 100.0 � % � 99.8 � % Average daily census ("ADC") (days) Homecare 6,915 6,275 6,851 6,104 Nursing home � 3,574 � � 3,488 � � 3,574 � � 3,424 � Routine homecare 10,489 9,763 10,425 9,528 Inpatient 413 404 419 417 Continuous care � 504 � � 537 � � 514 � � 553 � Total � 11,406 � � 10,704 � � 11,358 � � 10,498 � � Total Admissions 13,658 12,987 27,768 26,760 Total Discharges 13,359 12,528 27,416 25,825 Average length of stay (days) 76.6 68.0 76.8 70.3 Median length of stay (days) 13.0 13.0 13.0 13.0 ADC by major diagnosis Neurological 33.0 % 33.1 % 33.2 % 33.1 % Cancer 19.7 20.0 19.7 20.2 Cardio 14.6 15.0 14.6 14.9 Respiratory 6.9 7.2 6.9 7.2 Other � 25.8 � � 24.7 � � 25.6 � � 24.6 � Total � 100.0 � % � 100.0 � % � 100.0 � % � 100.0 � % Admissions by major diagnosis Neurological 18.0 % 19.6 % 18.6 % 20.1 % Cancer 35.9 35.0 35.0 34.4 Cardio 12.9 13.2 13.1 13.6 Respiratory 7.7 7.0 7.8 7.5 Other � 25.5 � � 25.2 � � 25.5 � � 24.4 � Total � 100.0 � % � 100.0 � % � 100.0 � % � 100.0 � % Direct patient care margins (e) Routine homecare 51.1 % 49.5 % 50.9 % 48.6 % Inpatient 18.9 20.9 19.5 22.0 Continuous care 17.7 20.3 18.9 19.3 Homecare margin drivers (dollars per patient day) � Labor costs $ 48.96 $ 48.31 $ 49.04 $ 49.77 Drug costs 7.82 8.39 7.99 7.90 Home medical equipment 5.78 5.51 5.77 5.52 Medical supplies 2.11 2.11 2.14 2.10 Inpatient margin drivers (dollars per patient day) � Labor costs $ 262.37 $ 258.32 $ 257.35 $ 252.87 Continuous care margin drivers (dollars per patient day) � Labor costs $ 484.13 $ 463.62 $ 474.21 $ 458.96 Bad debt expense as a percent of revenues 0.9 % 0.9 % 0.9 % 0.9 % Accounts receivable -- days of revenue outstanding 37.5 40.1 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 SIX MONTHS ENDED JUNE 30, 2007 AND 2006 (unaudited) � � (a) Included in the results of operations for the three and six months ended June 30, 2007 are the following significant credits/(charges) which may not be indicative of on going operations (in thousands): � Three Months Ended June 30, 2007 VITAS Corporate Consolidated Selling, general and administrative expenses Long-term incentive compensation $ - $ (1,620 ) $ (1,620 ) Costs associated with OIG investigation (74 ) - (74 ) Stock option expense - (897 ) (897 ) Loss on extinguishment of debt � - � � (13,715 ) � (13,715 ) Pretax impact on earnings (74 ) (16,232 ) (16,306 ) Income tax benefit/(charge) on the above � 28 � � 5,923 � � 5,951 � Aftertax impact on earnings $ (46 ) $ (10,309 ) $ (10,355 ) � Six Months Ended June 30, 2007 VITAS Corporate Consolidated Selling, general and administrative expenses Long-term incentive compensation $ - $ (7,067 ) $ (7,067 ) Costs associated with OIG investigation (140 ) - (140 ) Stock option expense - (1,482 ) (1,482 ) Other - 467 467 Other operating expenses/(income) Gain on sale of property - 1,138 1,138 Loss on extinguishment of debt � - � � (13,715 ) � (13,715 ) Pretax impact on earnings (140 ) (20,659 ) (20,799 ) Income tax benefit/(charge) on the above � 53 � � 7,585 � � 7,638 � Aftertax impact on earnings $ (87 ) $ (13,074 ) $ (13,161 ) � (b) Included in the results of operations for the three and six months ended June 30, 2006 are the following significant credits/(charges) which may not be indicative of on going operations (in thousands): � Three Months Ended June 30, 2006 VITAS Corporate Consolidated Selling, general and administrative expenses Costs associated with OIG investigation $ (342 ) $ - $ (342 ) Stock option expense � - � � (18 ) � (18 ) Pretax impact on earnings (342 ) (18 ) (360 ) Income tax benefit on the above � 130 � � 6 � � 136 � Aftertax impact on earnings $ (212 ) $ (12 ) $ (224 ) � Six Months Ended June 30, 2006 VITAS Corporate Consolidated Selling, general and administrative expenses Costs associated with OIG investigation $ (474 ) $ - $ (474 ) Stock option expense - (18 ) (18 ) Loss on extinguishment of debt � - � � (430 ) � (430 ) Pretax impact on earnings (474 ) (448 ) (922 ) Income tax benefit on the above � 180 � � 163 � � 343 � Aftertax impact on earnings $ (294 ) $ (285 ) $ (579 ) � � (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 second quarters of 2007 and 2006, GAAP advertising expense for Roto-Rooter totaled $5,449,000 and $4,914,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the second quarters of 2007 and 2006 would total $5,548,000 and $5,001,000, respectively. For the six months ended June 30, 2007 and 2006, GAAP advertising expense for Roto-Rooter totaled $10,642,000 and $9,338,000, 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, 2007 and 2006 would total $11,038,000 and $9,919,000, respectively. � (d) VITAS has 6 large (greater than 450 ADC), 15 medium (greater than 200 but less than 450 ADC) and 23 small (less than 200 ADC) hospice programs. There are two programs with Medicare cap cushion of less than 10% for the 2007 measurement period. � (e) Amounts exclude indirect patient care and administrative costs, as well as Medicare Cap billing limitation. � (f) Reclassified for operations discontinued in November 2006.