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 fourth quarter ended December 31, 2007, versus the comparable prior-year period, as follows: Consolidated operating results from Continuing Operations: -- Revenue increased 5.1% to $286 million -- Diluted EPS from Continuing Operations of $.83 -- Diluted EPS from Continuing Operations, excluding special items, of $.92 -- Full-year diluted EPS from Continuing Operations, excluding special items, of $3.16 VITAS segment operating results from Continuing Operations: -- Net Patient Revenue of $197 million, up 5.9% -- Average Daily Census (ADC) of 11,660, up 4.3% -- Admissions of 13,594, an increase of 2.3% -- Average Length of Stay in the quarter of 75.7 days -- Net income of $16.8 million -- Adjusted EBITDA of $28.4 million Roto-Rooter segment operating results: -- Revenue of $89 million, an increase of 3.3% -- Job count of 204,875 -- Net Income of $9.7 million -- Adjusted EBITDA of $19.0 million VITAS VITAS generated 13,594 admissions in the quarter, which represents an increase of 2.3% over the prior year. Discharges totaled 13,700, an increase of 3.8%, and ADC in the quarter increased 4.3%, to 11,660. VITAS' Average Length of Stay (ALOS) for patients discharged in the quarter was 75.7 days. This compares to an ALOS of 76.7 days in the third quarter of 2007 and is equal to the ALOS in the fourth quarter of 2006. Median Length of Stay (MLOS) was 14 days. Net revenue for VITAS was $197 million in the fourth quarter of 2007, which is an increase of 5.9% over the prior-year period. This revenue growth was the result of increased ADC of 4.3%, a Medicare price increase of approximately 3%, partially offset by the continued shift in revenue mix from high acuity care to routine home care. In the fourth quarter of 2006, high acuity days-of-care was 8.68% of total days-of-care. High acuity days-of-care averaged 8.39% in the first quarter of 2007, 8.04% in the second quarter, 8.01% in the third quarter and 7.97% in the fourth quarter of 2007. This mix shift from high acuity care to routine home care negatively impacted revenue growth by $3.8 million in the quarter. Routine home care reimbursement and high acuity care averaged $144.97 and $632.49, respectively, per patient per day in the fourth quarter of 2007. Any shift in revenue mix will have a noticeable impact on overall revenue given the significant disparity in reimbursement. However, given the relatively low profitability margin on high acuity care, this mix shift had minimal impact on gross profit and net income. VITAS did not have any billing restrictions related to Medicare Cap for its fourth-quarter 2007 operating activity. As of December 31, 2007, VITAS has not accrued any Medicare billing restrictions for the 2008 or 2007 Cap years. VITAS measures its Medicare Cap cushion, or Medicare Cap liability, on a program-by-program basis. Of VITAS' 37 unique Medicare provider numbers, 29 provider numbers, or 78%, have a Cap cushion greater than 20% on a trailing twelve-month basis, four provider numbers are between 15% and 20%, one is between 10% and 15%, and three provider numbers have Cap cushion ranging between 4% and 9%. VITAS had aggregate Cap cushion in excess of $219 million on a trailing twelve-month basis. Gross margin in the fourth quarter of 2007 was 23.2%. This is a 70 basis point improvement over the prior-year quarter. Selling, general and administrative expense was $17.3 million in the fourth quarter of 2007, which is an increase of 5.2% over the prior year. Adjusted EBITDA totaled $28.4 million, an increase of 11% over the prior year and equates to an adjusted EBITDA margin of 14.4%, an increase of 63 basis points over the fourth quarter of 2006. Roto-Rooter Roto-Rooter's plumbing and drain cleaning business generated sales of $89 million for the fourth quarter of 2007, 3.3% higher than the $86 million reported in the comparable prior-year quarter. Net income for the quarter was $9.7 million. The fourth quarter net income includes a $1.9 million pretax and $1.2 million aftertax charge for a tentative settlement of a class action lawsuit that alleged wage and hour violations in California. This suit claimed Roto-Rooter failed to provide meal and break time as well as credit for work time beginning from the first call to dispatch rather than arrival at the day's first assignment. Excluding this tentative settlement, net income in the fourth quarter of 2007 increased 12%. Adjusted EBITDA in the fourth quarter of 2007 totaled $19.0 million, an increase of 10.5% over the fourth quarter of 2006 and equated to an adjusted EBITDA margin of 21.5%, an increase of 140 basis points over the prior-year period. Job count in the fourth quarter of 2007 declined 2.8% when compared to the prior-year period, and increased 3.3% sequentially. Total residential jobs declined 0.8% and consisted of residential plumbing jobs increasing 4.5% and residential drain cleaning jobs declining 3.1%, when compared to the fourth quarter of 2006. Residential jobs represent approximately 70% of total job count. Total commercial jobs declined 7.3% with commercial plumbing job count declining 1.6% and commercial drain cleaning decreasing 10.0%, over the prior-year quarter. A significant portion of the commercial job count decline is attributed to the elimination of low revenue, low margin commercial business. This mix shift has favorably impacted the average revenue per commercial job, which increased 8.0% in the fourth quarter of 2007 and has increased 10.6% on a year-to-date basis. Guidance for 2008 VITAS is estimated to generate full-year revenue growth from continuing operations, prior to Medicare Cap, of 7.0% to 8.0%. Admissions are estimated to increase 4.0% to 5.0% and adjusted EBITDA margin, prior to Medicare Cap, of 14.2% to 15.0%. This guidance assumes the hospice industry receives a full Medicare basket price increase of 3.0% in the fourth quarter of 2008. Full calendar year 2008 Medicare contractual billing limitations are estimated at $5.0 million. Roto-Rooter is estimated to generate a 6.0% to 8.0% increase in revenue in 2008, job count growth from flat to 1.0% and adjusted EBITDA margin in the range of 19.5% to 20.5%. Based upon these factors, an effective tax rate of 38.5% and an average diluted share count for 2008 of 24.55 million shares, our estimate is that full-year 2008 earnings per diluted share from continuing operations, excluding noncash expenses for stock options and charges or credits not indicative of ongoing operations, will be in the range of $3.60 to $3.70. Conference Call Chemed will host a conference call and webcast at 10 a.m., ET, on Friday, February 22, 2008, to discuss the company's quarterly results and provide an update on its business. The dial-in number for the conference call is (800) 265-0241 for U.S. and Canadian participants and (617) 847-8704 for international participants. The participant passcode is 41680742. 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 32730528. 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 11,500 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. -0- *T CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF INCOME (in thousands, except per share data)(unaudited) For the Three Months For the Years Ended Ended December 31, December 31, -------------------- ----------------------- 2007 2006 2007 2006 --------- ---------- ----------- ----------- Continuing Operations Service revenues and sales $285,729 $271,903 $1,100,058 $1,018,587 --------- ---------- ----------- ----------- Cost of services provided and goods sold 197,221 189,586 767,066 730,123 Selling, general and administrative expenses (aa) 47,374 44,969 184,060 161,183 Depreciation 5,221 4,390 20,118 16,775 Amortization 1,369 1,287 5,270 5,255 Other operating expenses--net (aa) 1,927 - 789 272 --------- ---------- ----------- ----------- Total costs and expenses 253,112 240,232 977,303 913,608 --------- ---------- ----------- ----------- Income from operations 32,617 31,671 122,755 104,979 Interest expense (1,587) (3,742) (11,244) (17,468) Loss on extinguishment of debt (aa) - - (13,798) (430) Loss from impairment of investment (aa) - - - (1,445) Other income--net 1,057 1,914 4,125 4,648 --------- ---------- ----------- ----------- Income before income taxes 32,087 29,843 101,838 90,284 Income taxes (aa) (11,882) (10,584) (39,063) (32,562) --------- ---------- ----------- ----------- Income from continuing operations 20,205 19,259 62,775 57,722 Discontinued Operations (bb) - (1,626) 1,201 (7,071) --------- ---------- ----------- ----------- Net Income $ 20,205 $ 17,633 $ 63,976 $ 50,651 ========= ========== =========== =========== Earnings Per Share Income from continuing operations $ 0.84 $ 0.74 $ 2.56 $ 2.21 ========= ========== =========== =========== Net Income $ 0.84 $ 0.68 $ 2.61 $ 1.94 ========= ========== =========== =========== Average number of shares outstanding 23,959 26,030 24,520 26,118 ========= ========== =========== =========== Diluted Earnings Per Share Income from continuing operations $ 0.83 $ 0.73 $ 2.50 $ 2.16 ========= ========== =========== =========== Net Income $ 0.83 $ 0.67 $ 2.55 $ 1.90 ========= ========== =========== =========== Average number of shares outstanding 24,460 26,411 25,077 26,669 ========= ========== =========== =========== -------------------------- (aa) Included in the consolidated statement of income are the following significant credits/(charges) which may not be indicative of ongoing operations (in thousands): For the Three Months For the Years Ended Ended December 31, December 31, -------------------- ----------------------- 2007 2006 2007 2006 --------- ---------- ----------- ----------- Continuing Operations Selling, general and administrative expenses Stock option expense $ (1,591) $ (596) $ (4,665) $ (1,211) Costs associated with OIG investigation (39) (250) (227) (1,068) Long-term incentive compensation - - (7,067) - Other - 467 467 467 Other operating expenses -- net Costs related to litigation settlements (1,927) - (1,927) (272) Gain on sale of property - - 1,138 - Loss from impairment of investment - - - (1,445) Loss on extinguishment of debt - - (13,798) (430) --------- ---------- ----------- ----------- Pretax impact on earnings (3,557) (379) (26,079) (3,959) Income tax benefit on the above 1,355 142 9,623 1,464 Income tax benefit from finalizing prior years' returns - 324 - 2,115 --------- ---------- ----------- ----------- Aftertax impact on continuing operations $ (2,202) $ 87 $ (16,456) $ (380) ========= ========== =========== =========== (bb) Discontinued operations include (in thousands): For the Three Months For the Years Ended Ended December 31, December 31, -------------------- ----------------------- 2007 2006 2007 2006 --------- ---------- ----------- ----------- VITAS' Phoenix operation, discontinued in 2006 $ - $ (1,653) $ 1,201 $ (4,872) Patient Care, discontinued in 2002 - 53 - (1,426) Service America, discontinued in 2004 - (25) - (32) Adjustments related to other discontinued operations - (1) - (741) --------- ---------- ----------- ----------- Total discontinued operations $ - $ (1,626) $ 1,201 $ (7,071) ========= ========== =========== =========== *T -0- *T CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEET (in thousands, except per share data)(unaudited) December 31, -------------------- 2007 2006 ---------- --------- Assets Current assets Cash and cash equivalents $ 4,988 $ 29,274 Accounts receivable less allowances 103,113 93,086 Inventories 6,596 6,578 Current deferred income taxes 14,212 17,789 Current assets of discontinued operations - 5,418 Prepaid expenses and other current assets 10,496 9,968 ---------- --------- Total current assets 139,405 162,113 Investments of deferred compensation plans held in trust 29,417 25,713 Notes receivable 9,701 14,701 Properties and equipment, at cost less accumulated depreciation 74,513 70,140 Identifiable intangible assets less accumulated amortization 65,177 69,215 Goodwill 438,689 435,050 Noncurrent assets of discontinued operations - 287 Other assets 15,411 16,068 ---------- --------- Total Assets $ 772,313 $793,287 ========== ========= Liabilities Current liabilities Accounts payable $ 48,111 $ 49,744 Current portion of long-term debt 10,162 209 Income taxes 4,221 6,765 Accrued insurance 36,337 38,457 Accrued compensation 40,072 35,990 Current liabilities of discontinued operations - 12,215 Other current liabilities 13,929 22,684 ---------- --------- Total current liabilities 152,832 166,064 Deferred income taxes 5,802 26,301 Long-term debt 214,669 150,331 Deferred compensation liabilities 29,149 25,514 Other liabilities 5,512 3,716 ---------- --------- Total Liabilities 407,964 371,926 ---------- --------- Stockholders' Equity Capital stock 29,261 28,850 Paid-in capital 267,312 252,639 Retained earnings 278,336 215,517 Treasury stock, at cost (213,041) (78,064) Deferred compensation payable in Company stock 2,481 2,419 ---------- --------- Total Stockholders' Equity 364,349 421,361 ---------- --------- Total Liabilities and Stockholders' Equity $ 772,313 $793,287 ========== ========= Book Value Per Share $ 15.21 $ 16.32 ========== ========= *T -0- *T CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands)(unaudited) For the Years Ended December 31, -------------------- 2007 2006 ---------- --------- Cash Flows from Operating Activities Net income $ 63,976 $ 50,651 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 25,388 22,030 Provision for uncollectible accounts receivable 8,373 8,169 Provision for deferred income taxes 8,113 7,408 Write off unamortized debt issuance costs 7,235 430 Noncash portion of long-term incentive compensation 6,154 - Discontinued operations (1,201) 7,071 Amortization of debt issuance costs 1,186 1,774 Loss on impairment of investment - 1,445 Noncash long-term incentive compensation - - Changes in operating assets and liabilities, excluding amounts acquired in business combinations: Increase in accounts receivable (18,416) (12,527) Decrease/(increase) in inventories (18) (78) Decrease/(increase) in prepaid expenses and other current assets (549) (2,188) Increase/(decrease) in accounts payable and other current liabilities (8,299) (13,017) Increase in income taxes 6,321 18,726 Increase in other assets (3,655) (722) Increase/(decrease) in other liabilities 4,426 3,788 Excess tax benefit on share-based compensation (3,091) (5,600) Noncash expense of internally financed ESOPs - - Other sources/(uses) 3,641 2,109 ---------- --------- Net cash provided by continuing operations 99,584 89,469 Net cash provided/(used) by discontinued operations - 9,120 ---------- --------- Net cash provided by operating activities 99,584 98,589 ---------- --------- Cash Flows from Investing Activities Capital expenditures (26,640) (21,987) Net uses from disposals of discontinued operations (5,402) (922) Proceeds from sales of property and equipment 3,104 347 Business combinations, net of cash acquired (1,079) (4,145) Other uses (1,701) (1,025) --------- -------- Net cash used by investing activities (31,718) (27,732) ---------- --------- Cash Flows from Financing Activities Proceeds from issuance of long-term debt 300,000 - Repayment of long-term debt (225,709) (84,563) Purchases of treasury stock (131,704) (19,885) Purchase of note hedges (55,100) - Proceeds from issuance of warrants 27,614 - Excess tax benefit on share-based compensation 3,091 5,600 Debt issuance costs (6,949) (154) Dividends paid (5,888) (6,322) Proceeds from exercise of stock options 2,467 3,861 Increase in cash overdraft payable (919) 2,571 Other sources 945 176 ---------- --------- Net cash used by financing activities (92,152) (98,716) ---------- --------- Decrease in Cash and Cash Equivalents (24,286) (27,859) Cash and cash equivalents at beginning of year 29,274 57,133 ---------- --------- Cash and cash equivalents at end of year $ 4,988 $ 29,274 ========== ========= *T -0- *T CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATING STATEMENT OF INCOME FOR THE THREE MONTHS ENDED DECEMBER 31, 2007 AND 2006 (in thousands)(unaudited) Chemed VITAS Roto-Rooter Corporate Consolidated --------- ----------- --------- ------------ 2007 ------------------------- Service revenues and sales $197,202 $ 88,527 $ - $ 285,729 --------- ----------- --------- ------------ Cost of services provided and goods sold 151,476 45,745 - 197,221 Selling, general and administrative expenses (a) 17,288 25,484 4,602 47,374 Depreciation 3,069 2,075 77 5,221 Amortization 996 13 360 1,369 Other operating expense (a) - 1,927 - 1,927 --------- ----------- --------- ------------ Total costs and expenses 172,829 75,244 5,039 253,112 --------- ----------- --------- ------------ Income/(loss) from operations 24,373 13,283 (5,039) 32,617 Interest expense (43) 1 (1,545) (1,587) Intercompany interest income/(expense) 1,902 1,317 (3,219) - Other income--net 23 194 840 1,057 --------- ----------- --------- ------------ Income/(loss) before income taxes 26,255 14,795 (8,963) 32,087 Income taxes (a) (9,484) (5,067) 2,669 (11,882) --------- ----------- --------- ------------ Net income/(loss) $ 16,771 $ 9,728 $ (6,294) $ 20,205 ========= =========== ========= ============ 2006 ------------------------- Service revenues and sales $186,219 $ 85,684 $ - $ 271,903 --------- ----------- --------- ------------ Cost of services provided and goods sold 144,347 45,239 - 189,586 Selling, general and administrative expenses (b) 16,426 25,345 3,198 44,969 Depreciation 2,421 1,882 87 4,390 Amortization 964 16 307 1,287 --------- ----------- --------- ------------ Total costs and expenses 164,158 72,482 3,592 240,232 --------- ----------- --------- ------------ Income/(loss) from operations 22,061 13,202 (3,592) 31,671 Interest expense (35) (87) (3,620) (3,742) Intercompany interest income/(expense) 1,583 1,108 (2,691) - Other income--net (7) 721 1,200 1,914 --------- ----------- --------- ------------ Income/(loss) before income taxes 23,602 14,944 (8,703) 29,843 Income taxes (b) (8,457) (5,203) 3,076 (10,584) --------- ----------- --------- ------------ Income/(loss) from continuing operations 15,145 9,741 (5,627) 19,259 Discontinued operations (1,653) - 27 (1,626) --------- ----------- --------- ------------ Net income/(loss) $ 13,492 $ 9,741 $ (5,600) $ 17,633 ========= =========== ========= ============ The "Footnotes to Financial Statements" are integral parts of this financial information. CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATING STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 (in thousands)(unaudited) Chemed VITAS Roto-Rooter Corporate Consolidated --------- ----------- --------- ------------ 2007 ------------------------- Service revenues and sales $755,426 $ 344,632 $ - $ 1,100,058 --------- ----------- --------- ------------ Cost of services provided and goods sold 586,435 180,631 - 767,066 Selling, general and administrative expenses (a) 65,103 96,266 22,691 184,060 Depreciation 11,446 8,365 307 20,118 Amortization 3,984 54 1,232 5,270 Other operating expense/(income) (a) - 1,927 (1,138) 789 --------- ----------- --------- ------------ Total costs and expenses 666,968 287,243 23,092 977,303 --------- ----------- --------- ------------ Income/(loss) from operations 88,458 57,389 (23,092) 122,755 Interest expense (146) (495) (10,603) (11,244) Intercompany interest income/(expense) 7,254 4,993 (12,247) - Loss on extinguishment of debt (a) - - (13,798) (13,798) Other income--net (11) 820 3,316 4,125 --------- ----------- --------- ------------ Income/(loss) before income taxes 95,555 62,707 (56,424) 101,838 Income taxes (a) (35,722) (23,856) 20,515 (39,063) --------- ----------- --------- ------------ Income/(loss) from continuing operations 59,833 38,851 (35,909) 62,775 Discontinued operations 1,201 - - 1,201 --------- ----------- --------- ------------ Net income/(loss) $ 61,034 $ 38,851 $(35,909) $ 63,976 ========= =========== ========= ============ 2006 ------------------------- Service revenues and sales $699,092 $ 319,495 $ - $ 1,018,587 --------- ----------- --------- ------------ Cost of services provided and goods sold 557,260 172,863 - 730,123 Selling, general and administrative expenses (b) 56,961 92,495 11,727 161,183 Depreciation 8,753 7,665 357 16,775 Amortization 3,916 72 1,267 5,255 Other operating expense (b) 272 - - 272 --------- ----------- --------- ------------ Total costs and expenses 627,162 273,095 13,351 913,608 --------- ----------- --------- ------------ Income/(loss) from operations 71,930 46,400 (13,351) 104,979 Interest expense (191) (368) (16,909) (17,468) Intercompany interest income/(expense) 5,329 3,997 (9,326) - Loss on extinguishment of debt (b) - - (430) (430) Loss from impairment of investment (b) - - (1,445) (1,445) Other income--net 55 1,173 3,420 4,648 --------- ----------- --------- ------------ Income/(loss) before income taxes 77,123 51,202 (38,041) 90,284 Income taxes (b) (28,705) (18,748) 14,891 (32,562) --------- ----------- --------- ------------ Income/(loss) from continuing operations 48,418 32,454 (23,150) 57,722 Discontinued operations (4,872) - (2,199) (7,071) --------- ----------- --------- ------------ Net income/(loss) $ 43,546 $ 32,454 $(25,349) $ 50,651 ========= =========== ========= ============ The "Footnotes to Financial Statements" are integral parts of this financial information. *T -0- *T CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATING SUMMARY OF EBITDA FOR THE THREE MONTHS ENDED DECEMBER 31, 2007 AND 2006 (in thousands)(unaudited) Chemed VITAS Roto-Rooter Corporate Consolidated -------- ----------- --------- ------------ 2007 -------------------------- Net income/(loss) $16,771 $ 9,728 $(6,294) $20,205 Add/(deduct): Interest expense 43 (1) 1,545 1,587 Income taxes 9,484 5,067 (2,669) 11,882 Depreciation 3,069 2,075 77 5,221 Amortization 996 13 360 1,369 -------- ----------- --------- ------------ EBITDA 30,363 16,882 (6,981) 40,264 Add/(deduct): Lawsuit settlement - 1,927 - 1,927 Stock option expense - - 1,591 1,591 Legal expenses of OIG investigation 39 - - 39 Advertising cost adjustment (c) - 1,532 - 1,532 Interest income (61) (19) (616) (696) Intercompany interest (income)/expense (1,902) (1,317) 3,219 - -------- ----------- --------- ------------ Adjusted EBITDA $28,439 $19,005 $(2,787) $44,657 ======== =========== ========= ============ 2006 -------------------------- Net income/(loss) $13,492 $ 9,741 $(5,600) $17,633 Add/(deduct): Discontinued operations 1,653 - (27) 1,626 Interest expense 35 87 3,620 3,742 Income taxes 8,457 5,203 (3,076) 10,584 Depreciation 2,421 1,882 87 4,390 Amortization 964 16 307 1,287 -------- ----------- --------- ------------ EBITDA 27,022 16,929 (4,689) 39,262 Add/(deduct): Stock option expense - - 596 596 Legal expenses of OIG investigation 250 - - 250 Other - - (467) (467) Advertising cost adjustment (c) - 1,395 - 1,395 Interest income (14) (16) (684) (714) Intercompany interest (income)/expense (1,583) (1,108) 2,691 - -------- ----------- --------- ------------ Adjusted EBITDA $25,675 $17,200 $(2,553) $40,322 ======== =========== ========= ============ The "Footnotes to Financial Statements" are integral parts of this financial information. CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATING SUMMARY OF EBITDA FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 (in thousands)(unaudited) Chemed VITAS Roto-Rooter Corporate Consolidated --------- ----------- --------- ------------ 2007 ------------------------- Net income/(loss) $ 61,034 $38,851 $(35,909) $ 63,976 Add/(deduct): Discontinued operations (1,201) - - (1,201) Interest expense 146 495 10,603 11,244 Income taxes 35,722 23,856 (20,515) 39,063 Depreciation 11,446 8,365 307 20,118 Amortization 3,984 54 1,232 5,270 --------- ----------- --------- ------------ EBITDA 111,131 71,621 (44,282) 138,470 Add/(deduct): Long-term incentive compensation - - 7,067 7,067 Lawsuit settlement - 1,927 - 1,927 Stock option expense - - 4,665 4,665 Legal expenses of OIG investigation 227 - - 227 Gain on sale of property - - (1,138) (1,138) Other - - (467) (467) Loss on extinguishment of debt - - 13,798 13,798 Advertising cost adjustment (c) - 601 - 601 Interest income (151) (377) (2,776) (3,304) Intercompany interest (income)/expense (7,254) (4,993) 12,247 - --------- ----------- --------- ------------ Adjusted EBITDA $103,953 $68,779 $(10,886) $161,846 ========= =========== ========= ============ 2006 ------------------------- Net income/(loss) $ 43,546 $32,454 $(25,349) $ 50,651 Add/(deduct): Discontinued operations 4,872 - 2,199 7,071 Interest expense 191 368 16,909 17,468 Income taxes 28,705 18,748 (14,891) 32,562 Depreciation 8,753 7,665 357 16,775 Amortization 3,916 72 1,267 5,255 --------- ----------- --------- ------------ EBITDA 89,983 59,307 (19,508) 129,782 Add/(deduct): Loss from impairment of investment - - 1,445 1,445 Lawsuit settlement 272 - - 272 Stock option expense - - 1,211 1,211 Legal expenses of OIG investigation 1,068 - - 1,068 Other - - (467) (467) Loss on extinguishment of debt - - 430 430 Advertising cost adjustment (c) - 323 - 323 Interest income (114) (85) (2,492) (2,691) Intercompany interest (income)/expense (5,329) (3,997) 9,326 - --------- ----------- --------- ------------ Adjusted EBITDA $ 85,880 $55,548 $(10,055) $131,373 ========= =========== ========= ============ The "Footnotes to Financial Statements" are integral parts of this financial information. *T -0- *T CHEMED CORPORATION AND SUBSIDIARY COMPANIES RECONCILIATION OF ADJUSTED NET INCOME FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 (in thousands, except per share data)(unaudited) Three Months Ended Year Ended December 31, December 31, ------------------ ----------------- 2007 2006 2007 2006 --------- -------- -------- -------- Net income as reported $ 20,205 $17,633 $63,976 $50,651 Add/(deduct): Discontinued operations - 1,626 (1,201) 7,071 Aftertax loss on impairment of investment - - - 918 Aftertax costs related to litigation settlements 1,168 - 1,168 169 Prior-period tax adjustments - (324) - (2,115) Aftertax cost of long-term incentive compensation - - 4,427 - Aftertax stock option expense 1,010 378 2,962 769 Aftertax cost of legal expenses of OIG investigation 24 155 141 662 Aftertax other - (296) (296) (296) Aftertax gain on sale of property . - - (724) Aftertax cost of loss on extinguishment of debt - - 8,778 273 --------- -------- -------- -------- Adjusted income from continuing operations $ 22,407 $19,172 $79,231 $58,102 ========= ======== ======== ======== Earnings Per Share As Reported Net income $ 0.84 $ 0.68 $ 2.61 $ 1.94 ========= ======== ======== ======== Average number of shares outstanding 23,959 26,030 24,520 26,118 ========= ======== ======== ======== Diluted Earnings Per Share As Reported Net income $ 0.83 $ 0.67 $ 2.55 $ 1.90 ========= ======== ======== ======== Average number of shares outstanding 24,460 26,411 25,077 26,669 ========= ======== ======== ======== Adjusted Earnings Per Share Income from continuing operations $ 0.94 $ 0.74 $ 3.23 $ 2.22 ========= ======== ======== ======== Average number of shares outstanding 23,959 26,030 24,520 26,118 ========= ======== ======== ======== Adjusted Diluted Earnings Per Share Income from continuing operations $ 0.92 $ 0.73 $ 3.16 $ 2.18 ========= ======== ======== ======== Average number of shares outstanding 24,460 26,411 25,077 26,669 ========= ======== ======== ======== The "Footnotes to Financial Statements" are integral parts of this financial information. *T -0- *T CHEMED CORPORATION AND SUBSIDIARY COMPANIES OPERATING STATISTICS FOR VITAS SEGMENT FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 (unaudited) Three Months Ended Years Ended December 31, December 31, ------------------- ------------------- 2007 2006 2007 2006 -------- --------- --------- ---------- OPERATING STATISTICS Net revenue ($000) (d) Homecare $143,125 $132,082 $546,872 $492,012 Inpatient 23,927 23,316 92,995 89,882 Continuous care 30,150 31,509 115,801 121,096 -------- --------- --------- --------- Total before Medicare cap allowance $197,202 $186,907 $755,668 $702,990 Medicare cap allowance - (688) (242) (3,898) -------- --------- --------- --------- Total $197,202 $186,219 $755,426 $699,092 ======== ========= ========= ========= Net revenue as a percent of total before Medicare cap allowance Homecare 72.6 % 70.6 % 72.4 % 70.0 % Inpatient 12.1 12.5 12.3 12.8 Continuous care 15.3 16.9 15.3 17.2 -------- --------- --------- --------- Total before Medicare cap allowance 100.0 100.0 100.0 100.0 Medicare cap allowance - (0.4) - (0.6) -------- --------- --------- --------- Total 100.0 % 99.6 % 100.0 % 99.4 % ======== ========= ========= ========= Average daily census ("ADC") (days) Homecare 7,121 6,636 6,966 6,333 Nursing home 3,610 3,567 3,581 3,501 -------- --------- --------- --------- Routine homecare 10,731 10,203 10,547 9,834 Inpatient 417 411 417 411 Continuous care 512 560 513 555 -------- --------- --------- --------- Total 11,660 11,174 11,477 10,800 ======== ========= ========= ========= Total Admissions 13,594 13,291 54,798 52,736 Total Discharges 13,700 13,199 54,530 51,552 Average length of stay (days) 75.7 75.7 76.5 71.9 Median length of stay (days) 14.0 14.0 13.0 13.0 ADC by major diagnosis Neurological 32.8 % 33.7 % 33.1 % 33.4 % Cancer 20.4 19.7 20.1 20.2 Cardio 13.5 14.7 14.1 14.8 Respiratory 6.8 7.0 6.8 7.1 Other 26.5 24.9 25.9 24.5 -------- --------- --------- --------- Total 100.0 % 100.0 % 100.0 % 100.0 % ======== ========= ========= ========= Admissions by major diagnosis Neurological 18.5 % 19.8 % 18.5 % 19.8 % Cancer 36.6 35.3 36.1 35.5 Cardio 11.9 12.7 12.6 13.1 Respiratory 7.3 7.2 7.5 7.3 Other 25.7 25.0 25.3 24.3 -------- --------- --------- --------- Total 100.0 % 100.0 % 100.0 % 100.0 % ======== ========= ========= ========= Direct patient care margins (e) Routine homecare 51.6 % 49.7 % 51.1 % 49.0 % Inpatient 18.8 19.4 18.4 20.0 Continuous care 17.6 17.0 18.0 18.2 Homecare margin drivers (dollars per patient day) Labor costs $ 49.59 $ 49.72 $ 49.14 $ 49.38 Drug costs 7.73 8.17 7.90 8.12 Home medical equipment 5.91 5.81 5.78 5.63 Medical supplies 2.49 2.28 2.25 2.17 Inpatient margin drivers (dollars per patient day) Labor costs $ 272.46 $ 261.55 $ 265.47 $ 259.25 Continuous care margin drivers (dollars per patient day) Labor costs $ 506.72 $ 486.46 $ 486.90 $ 468.13 Bad debt expense as a percent of revenues 1.0 % 1.0 % 0.9 % 0.9 % Accounts receivable -- days of revenue outstanding 43.4 38.7 N.A. N.A. The "Footnotes to Financial Statements" are integral parts of this financial information. *T -0- *T CHEMED CORPORATION AND SUBSIDIARY COMPANIES FOOTNOTES TO FINANCIAL STATEMENTS FOR THE THREE MONTHS AND YEARS ENDED DECEMBER 31, 2007 AND 2006 (unaudited) (a) Included in the results of operations for the three months and years ended December 31, 2007 are the following significant credits/(charges) which may not be indicative of ongoing operations (in thousands): Three Months Ended December 31, 2007 -------------------------------------------- VITAS Roto-Rooter Corporate Consolidated -------- ----------- ---------- ------------ Selling, general and administrative expenses Costs associated with OIG investigation $ (39) $ - $ - $ (39) Stock option expense - - (1,591) (1,591) Other operating expense - net Costs related to litigation settlement - (1,927) - (1,927) -------- ----------- ---------- ------------ Pretax impact on earnings (39) (1,927) (1,591) (3,557) Income tax benefit/(charge) on the above 15 759 581 1,355 -------- ----------- ---------- ------------ Aftertax impact on earnings $ (24) $ (1,168) $ (1,010) $ (2,202) ======== =========== ========== ============ Year Ended December 31, 2007 -------------------------------------------- VITAS Roto-Rooter Corporate Consolidated -------- ----------- ---------- ------------ Selling, general and administrative expenses Long-term incentive compensation $ - $ - $ (7,067) $ (7,067) Costs associated with OIG investigation (227) - - (227) Stock option expense - - (4,665) (4,665) Other - - 467 467 Other operating expense/(income) Costs related to litigation settlement - (1,927) - (1,927) Gain on sale of property - - 1,138 1,138 Loss on extinguishment of debt - - (13,798) (13,798) -------- ----------- ---------- ------------ Pretax impact on earnings (227) (1,927) (23,925) (26,079) Income tax benefit/(charge) on the above 86 759 8,778 9,623 -------- ----------- ---------- ------------ Aftertax impact on earnings $ (141) $ (1,168) $(15,147) $(16,456) ======== =========== ========== ============ (b) Included in the results of operations for the three months and years ended December 31, 2006 are the following significant credits/(charges) which may not be indicative of ongoing operations (in thousands): Three Months Ended December 31, 2006 -------------------------------------------- VITAS Roto-Rooter Corporate Consolidated -------- ----------- ---------- ------------ Selling, general and administrative expenses Costs associated with OIG investigation $ (250) $ - $ - $ (250) Stock option expense - - (596) (596) Other - - 467 467 -------- ----------- ---------- ------------ Pretax impact on earnings (250) - (129) (379) Income tax benefit on the above 95 - 47 142 Income tax benefit from finalizing prior years' returns - 324 - 324 -------- ----------- ---------- ------------ Aftertax impact on earnings $ (155) $ 324 $ (82) $ 87 ======== =========== ========== ============ Year Ended December 31, 2006 -------------------------------------------- VITAS Roto-Rooter Corporate Consolidated -------- ----------- ---------- ------------ Selling, general and administrative expenses Costs associated with OIG investigation $(1,068) $ - $ - $ (1,068) Stock option expense - - (1,211) (1,211) Other - - 467 467 Other operating expense Costs related to litigation settlement (272) - - (272) Loss from impairment of investment - - (1,445) (1,445) Loss on extinguishment of debt - - (430) (430) -------- ----------- ---------- ------------ Pretax impact on earnings (1,340) - (2,619) (3,959) Income tax benefit on the above 509 - 955 1,464 Income tax benefit from finalizing prior years' returns - 1,251 864 2,115 -------- ----------- ---------- ------------ Aftertax impact on earnings $ (831) $ 1,251 $ (800) $ (380) ======== =========== ========== ============ (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 fourth quarters of 2007 and 2006, GAAP advertising expense for Roto- Rooter totaled $7,330,000 and $6,579,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the fourth quarters of 2007 and 2006 would total $5,798,000 and $5,184,000, respectively. For the years ended December 31, 2007 and 2006, GAAP advertising expense for Roto-Rooter totaled $22,980,000 and $20,563,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the years ended December 31, 2007 and 2006 would total 22,379,000 and $20,240,000, respectively. (d) VITAS has 6 large (greater than 450 ADC), 15 medium (greater than 200 but less than 450 ADC) and 22 small (less than 200 ADC) hospice programs. There are two programs continuing at December 31, 2007 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. *T 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 fourth quarter ended December 31, 2007, versus the comparable prior-year period, as follows: Consolidated operating results from Continuing Operations: Revenue increased 5.1% to $286 million Diluted EPS from Continuing Operations of $.83 Diluted EPS from Continuing Operations, excluding special items, of $.92 Full-year diluted EPS from Continuing Operations, excluding special items, of $3.16 VITAS segment operating results from Continuing Operations: Net Patient Revenue of $197 million, up 5.9% Average Daily Census (ADC) of 11,660, up 4.3% Admissions of 13,594, an increase of 2.3% Average Length of Stay in the quarter of 75.7 days Net income of $16.8 million Adjusted EBITDA of $28.4 million Roto-Rooter segment operating results: Revenue of $89 million, an increase of 3.3% Job count of 204,875 Net Income of $9.7 million Adjusted EBITDA of $19.0 million VITAS VITAS generated 13,594 admissions in the quarter, which represents an increase of 2.3% over the prior year. Discharges totaled 13,700, an increase of 3.8%, and ADC in the quarter increased 4.3%, to 11,660. VITAS� Average Length of Stay (ALOS) for patients discharged in the quarter was 75.7 days. This compares to an ALOS of 76.7 days in the third quarter of 2007 and is equal to the ALOS in the fourth quarter of 2006. Median Length of Stay (MLOS) was 14 days. Net revenue for VITAS was $197 million in the fourth quarter of 2007, which is an increase of 5.9% over the prior-year period. This revenue growth was the result of increased ADC of 4.3%, a Medicare price increase of approximately 3%, partially offset by the continued shift in revenue mix from high acuity care to routine home care. In the fourth quarter of 2006, high acuity days-of-care was 8.68% of total days-of-care. High acuity days-of-care averaged 8.39% in the first quarter of 2007, 8.04% in the second quarter, 8.01% in the third quarter and 7.97% in the fourth quarter of 2007. This mix shift from high acuity care to routine home care negatively impacted revenue growth by $3.8 million in the quarter. Routine home care reimbursement and high acuity care averaged $144.97 and $632.49, respectively, per patient per day in the fourth quarter of 2007. Any shift in revenue mix will have a noticeable impact on overall revenue given the significant disparity in reimbursement. However, given the relatively low profitability margin on high acuity care, this mix shift had minimal impact on gross profit and net income. VITAS did not have any billing restrictions related to Medicare Cap for its fourth-quarter 2007 operating activity. As of December 31, 2007, VITAS has not accrued any Medicare billing restrictions for the 2008 or 2007 Cap years. VITAS measures its Medicare Cap cushion, or Medicare Cap liability, on a program-by-program basis. Of VITAS' 37 unique Medicare provider numbers, 29 provider numbers, or 78%, have a Cap cushion greater than 20% on a trailing twelve-month basis, four provider numbers are between 15% and 20%, one is between 10% and 15%, and three provider numbers have Cap cushion ranging between 4% and 9%. VITAS had aggregate Cap cushion in excess of $219 million on a trailing twelve-month basis. Gross margin in the fourth quarter of 2007 was 23.2%. This is a 70 basis point improvement over the prior-year quarter. Selling, general and administrative expense was $17.3 million in the fourth quarter of 2007, which is an increase of 5.2% over the prior year. Adjusted EBITDA totaled $28.4 million, an increase of 11% over the prior year and equates to an adjusted EBITDA margin of 14.4%, an increase of 63 basis points over the fourth quarter of 2006. Roto-Rooter Roto-Rooter�s plumbing and drain cleaning business generated sales of $89 million for the fourth quarter of 2007, 3.3% higher than the $86 million reported in the comparable prior-year quarter. Net income for the quarter was $9.7 million. The fourth quarter net income includes a $1.9 million pretax and $1.2 million aftertax charge for a tentative settlement of a class action lawsuit that alleged wage and hour violations in California. This suit claimed Roto-Rooter failed to provide meal and break time as well as credit for work time beginning from the first call to dispatch rather than arrival at the day�s first assignment. Excluding this tentative settlement, net income in the fourth quarter of 2007 increased 12%. Adjusted EBITDA in the fourth quarter of 2007 totaled $19.0 million, an increase of 10.5% over the fourth quarter of 2006 and equated to an adjusted EBITDA margin of 21.5%, an increase of 140 basis points over the prior-year period. Job count in the fourth quarter of 2007 declined 2.8% when compared to the prior-year period, and increased 3.3% sequentially. Total residential jobs declined 0.8% and consisted of residential plumbing jobs increasing 4.5% and residential drain cleaning jobs declining 3.1%, when compared to the fourth quarter of 2006. Residential jobs represent approximately 70% of total job count. Total commercial jobs declined 7.3% with commercial plumbing job count declining 1.6% and commercial drain cleaning decreasing 10.0%, over the prior-year quarter. A significant portion of the commercial job count decline is attributed to the elimination of low revenue, low margin commercial business. This mix shift has favorably impacted the average revenue per commercial job, which increased 8.0% in the fourth quarter of 2007 and has increased 10.6% on a year-to-date basis. Guidance for 2008 VITAS is estimated to generate full-year revenue growth from continuing operations, prior to Medicare Cap, of 7.0% to 8.0%. Admissions are estimated to increase 4.0% to 5.0% and adjusted EBITDA margin, prior to Medicare Cap, of 14.2% to 15.0%. This guidance assumes the hospice industry receives a full Medicare basket price increase of 3.0% in the fourth quarter of 2008. Full calendar year 2008 Medicare contractual billing limitations are estimated at $5.0 million. Roto-Rooter is estimated to generate a 6.0% to 8.0% increase in revenue in 2008, job count growth from flat to 1.0% and adjusted EBITDA margin in the range of 19.5% to 20.5%. Based upon these factors, an effective tax rate of 38.5% and an average diluted share count for 2008 of 24.55 million shares, our estimate is that full-year 2008 earnings per diluted share from continuing operations, excluding noncash expenses for stock options and charges or credits not indicative of ongoing operations, will be in the range of $3.60 to $3.70. Conference Call Chemed will host a conference call and webcast at 10 a.m., ET, on Friday, February 22, 2008, to discuss the company's quarterly results and provide an update on its business. The dial-in number for the conference call is (800) 265-0241 for U.S. and Canadian participants and (617) 847-8704 for international participants. The participant passcode is 41680742. 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 32730528. 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 11,500 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) � � � � � � � For the Three MonthsEnded For the YearsEnded December 31, December 31, 2007 2006 2007 2006 Continuing Operations Service revenues and sales $ 285,729 � $ 271,903 � $ 1,100,058 � $ 1,018,587 � Cost of services provided and goods sold 197,221 189,586 767,066 730,123 Selling, general and administrative expenses (aa) 47,374 44,969 184,060 161,183 Depreciation 5,221 4,390 20,118 16,775 Amortization 1,369 1,287 5,270 5,255 Other operating expenses--net (aa) � 1,927 � � - � � 789 � � 272 � Total costs and expenses � 253,112 � � 240,232 � � 977,303 � � 913,608 � Income from operations 32,617 31,671 122,755 104,979 Interest expense (1,587 ) (3,742 ) (11,244 ) (17,468 ) Loss on extinguishment of debt (aa) - - (13,798 ) (430 ) Loss from impairment of investment (aa) - - - (1,445 ) Other income--net � 1,057 � � 1,914 � � 4,125 � � 4,648 � Income before income taxes 32,087 29,843 101,838 90,284 Income taxes (aa) � (11,882 ) � (10,584 ) � (39,063 ) � (32,562 ) Income from continuing operations 20,205 19,259 62,775 57,722 Discontinued Operations (bb) � - � � (1,626 ) � 1,201 � � (7,071 ) Net Income $ 20,205 � $ 17,633 � $ 63,976 � $ 50,651 � � Earnings Per Share Income from continuing operations $ 0.84 � $ 0.74 � $ 2.56 � $ 2.21 � Net Income $ 0.84 � $ 0.68 � $ 2.61 � $ 1.94 � Average number of shares outstanding � 23,959 � � 26,030 � � 24,520 � � 26,118 � Diluted Earnings Per Share Income from continuing operations $ 0.83 � $ 0.73 � $ 2.50 � $ 2.16 � Net Income $ 0.83 � $ 0.67 � $ 2.55 � $ 1.90 � Average number of shares outstanding � 24,460 � � 26,411 � � 25,077 � � 26,669 � � � � � � � � � � � (aa) Included in the consolidated statement of income are the following significant credits/(charges) which may not be indicative of ongoing operations (in thousands): � For the Three MonthsEnded For the YearsEnded December 31, December 31, 2007 2006 2007 2006 Continuing Operations Selling, general and administrative expenses Stock option expense $ (1,591 ) $ (596 ) $ (4,665 ) $ (1,211 ) Costs associated with OIG investigation (39 ) (250 ) (227 ) (1,068 ) Long-term incentive compensation - - (7,067 ) - Other - 467 467 467 Other operating expenses -- net Costs related to litigation settlements (1,927 ) - (1,927 ) (272 ) Gain on sale of property - - 1,138 �������- Loss from impairment of investment - - - (1,445 ) Loss on extinguishment of debt � - � � - � � (13,798 ) � (430 ) Pretax impact on earnings (3,557 ) (379 ) (26,079 ) (3,959 ) Income tax benefit on the above 1,355 142 9,623 1,464 Income tax benefit from finalizing prior years' returns � - � � 324 � � - � � 2,115 � Aftertax impact on continuing operations $ (2,202 ) $ 87 � $ (16,456 ) $ (380 ) � (bb) Discontinued operations include (in thousands): � For the Three MonthsEnded For the YearsEnded December 31, December 31, 2007 � 2006 � 2007 � 2006 VITAS' Phoenix operation, discontinued in 2006 $ - $ (1,653 ) $ 1,201 $ (4,872 ) Patient Care, discontinued in 2002 - 53 - (1,426 ) Service America, discontinued in 2004 - (25 ) - (32 ) Adjustments related to other discontinued operations � - � � (1 ) � - � � (741 ) Total discontinued operations $ - � $ (1,626 ) $ 1,201 � $ (7,071 ) CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEET (in thousands, except per share data)(unaudited) � � � � � � � � � December 31, 2007 2006 Assets Current assets Cash and cash equivalents $ 4,988 $ 29,274 Accounts receivable less allowances 103,113 93,086 Inventories 6,596 6,578 Current deferred income taxes 14,212 17,789 Current assets of discontinued operations - 5,418 Prepaid expenses and other current assets � 10,496 � � 9,968 � Total current assets 139,405 162,113 Investments of deferred compensation plans held in trust 29,417 25,713 Notes receivable 9,701 14,701 Properties and equipment, at cost less accumulated depreciation 74,513 70,140 Identifiable intangible assets less accumulated amortization 65,177 69,215 Goodwill 438,689 435,050 Noncurrent assets of discontinued operations - 287 Other assets � 15,411 � � 16,068 � Total Assets $ 772,313 � $ 793,287 � � � Liabilities Current liabilities Accounts payable $ 48,111 $ 49,744 Current portion of long-term debt 10,162 209 Income taxes 4,221 6,765 Accrued insurance 36,337 38,457 Accrued compensation 40,072 35,990 Current liabilities of discontinued operations - 12,215 Other current liabilities � 13,929 � � 22,684 � Total current liabilities 152,832 166,064 Deferred income taxes 5,802 26,301 Long-term debt 214,669 150,331 Deferred compensation liabilities 29,149 25,514 Other liabilities � 5,512 � � 3,716 � Total Liabilities � 407,964 � � 371,926 � Stockholders' Equity Capital stock 29,261 28,850 Paid-in capital 267,312 252,639 Retained earnings 278,336 215,517 Treasury stock, at cost (213,041 ) (78,064 ) Deferred compensation payable in Company stock � 2,481 � � 2,419 � Total Stockholders' Equity � 364,349 � � 421,361 � Total Liabilities and Stockholders' Equity $ 772,313 � $ 793,287 � � Book Value Per Share $ 15.21 � $ 16.32 � CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands)(unaudited) � � � � � For the Years Ended December 31, 2007 2006 Cash Flows from Operating Activities Net income $ 63,976 $ 50,651 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 25,388 22,030 Provision for uncollectible accounts receivable 8,373 8,169 Provision for deferred income taxes 8,113 7,408 Write off unamortized debt issuance costs 7,235 430 Noncash portion of long-term incentive compensation 6,154 - Discontinued operations (1,201 ) 7,071 Amortization of debt issuance costs 1,186 1,774 Loss on impairment of investment - 1,445 Noncash long-term incentive compensation - - Changes in operating assets and liabilities, excluding amounts acquired in business combinations: Increase in accounts receivable (18,416 ) (12,527 ) Decrease/(increase) in inventories (18 ) (78 ) Decrease/(increase) in prepaid expenses and other current assets (549 ) (2,188 ) Increase/(decrease) in accounts payable and other current liabilities (8,299 ) (13,017 ) Increase in income taxes 6,321 18,726 Increase in other assets (3,655 ) (722 ) Increase/(decrease) in other liabilities 4,426 3,788 Excess tax benefit on share-based compensation (3,091 ) (5,600 ) Noncash expense of internally financed ESOPs - - Other sources/(uses) � 3,641 � � 2,109 � Net cash provided by continuing operations 99,584 89,469 Net cash provided/(used) by discontinued operations � - � � 9,120 � Net cash provided by operating activities � 99,584 � � 98,589 � Cash Flows from Investing Activities Capital expenditures (26,640 ) (21,987 ) Net uses from disposals of discontinued operations (5,402 ) (922 ) Proceeds from sales of property and equipment 3,104 347 Business combinations, net of cash acquired (1,079 ) (4,145 ) Other uses (1,701 ) (1,025 ) Net cash used by investing activities � (31,718 ) � (27,732 ) Cash Flows from Financing Activities Proceeds from issuance of long-term debt 300,000 - Repayment of long-term debt (225,709 ) (84,563 ) Purchases of treasury stock (131,704 ) (19,885 ) Purchase of note hedges (55,100 ) - Proceeds from issuance of warrants 27,614 - Excess tax benefit on share-based compensation 3,091 5,600 Debt issuance costs (6,949 ) (154 ) Dividends paid (5,888 ) (6,322 ) Proceeds from exercise of stock options 2,467 3,861 Increase in cash overdraft payable (919 ) 2,571 Other sources � 945 � � 176 � Net cash used by financing activities � (92,152 ) � (98,716 ) Decrease in Cash and Cash Equivalents (24,286 ) (27,859 ) Cash and cash equivalents at beginning of year � 29,274 � � 57,133 � Cash and cash equivalents at end of year $ 4,988 � $ 29,274 � CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATING STATEMENT OF INCOME FOR THE THREE MONTHS ENDED DECEMBER 31, 2007 AND 2006 (in thousands)(unaudited) � � � � � � � Chemed VITAS Roto-Rooter Corporate Consolidated 2007 � � � Service revenues and sales $ 197,202 � $ 88,527 � $ - � $ 285,729 � Cost of services provided and goods sold 151,476 45,745 - 197,221 Selling, general and administrative expenses (a) 17,288 25,484 4,602 47,374 Depreciation 3,069 2,075 77 5,221 Amortization 996 13 360 1,369 Other operating expense (a) � - � � 1,927 � � - � � 1,927 � Total costs and expenses � 172,829 � � 75,244 � � 5,039 � � 253,112 � Income/(loss) from operations 24,373 13,283 (5,039 ) 32,617 Interest expense (43 ) 1 (1,545 ) (1,587 ) Intercompany interest income/(expense) 1,902 1,317 (3,219 ) - Other income�net � 23 � � 194 � � 840 � � 1,057 � Income/(loss) before income taxes 26,255 14,795 (8,963 ) 32,087 Income taxes (a) � (9,484 ) � (5,067 ) � 2,669 � � (11,882 ) Net income/(loss) $ 16,771 � $ 9,728 � $ (6,294 ) $ 20,205 � � 2006 � � � Service revenues and sales $ 186,219 � $ 85,684 � $ - � $ 271,903 � Cost of services provided and goods sold 144,347 45,239 - 189,586 Selling, general and administrative expenses (b) 16,426 25,345 3,198 44,969 Depreciation 2,421 1,882 87 4,390 Amortization � 964 � � 16 � � 307 � � 1,287 � Total costs and expenses � 164,158 � � 72,482 � � 3,592 � � 240,232 � Income/(loss) from operations 22,061 13,202 (3,592 ) 31,671 Interest expense (35 ) (87 ) (3,620 ) (3,742 ) Intercompany interest income/(expense) 1,583 1,108 (2,691 ) - Other income�net � (7 ) � 721 � � 1,200 � � 1,914 � Income/(loss) before income taxes 23,602 14,944 (8,703 ) 29,843 Income taxes (b) � (8,457 ) � (5,203 ) � 3,076 � � (10,584 ) Income/(loss) from continuing operations 15,145 9,741 (5,627 ) 19,259 Discontinued operations � (1,653 ) � - � � 27 � � (1,626 ) Net income/(loss) $ 13,492 � $ 9,741 � $ (5,600 ) $ 17,633 � � The "Footnotes to Financial Statements" are integral parts of this financial information. � � CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATING STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 (in thousands)(unaudited) � � Chemed VITAS Roto-Rooter Corporate Consolidated 2007 � � � Service revenues and sales $ 755,426 � $ 344,632 � $ - � $ 1,100,058 � Cost of services provided and goods sold 586,435 180,631 - 767,066 Selling, general and administrative expenses (a) 65,103 96,266 22,691 184,060 Depreciation 11,446 8,365 307 20,118 Amortization 3,984 54 1,232 5,270 Other operating expense/(income) (a) � - � � 1,927 � � (1,138 ) � 789 � Total costs and expenses � 666,968 � � 287,243 � � 23,092 � � 977,303 � Income/(loss) from operations 88,458 57,389 (23,092 ) 122,755 Interest expense (146 ) (495 ) (10,603 ) (11,244 ) Intercompany interest income/(expense) 7,254 4,993 (12,247 ) - Loss on extinguishment of debt (a) - - (13,798 ) (13,798 ) Other income�net � (11 ) � 820 � � 3,316 � � 4,125 � Income/(loss) before income taxes 95,555 62,707 (56,424 ) 101,838 Income taxes (a) � (35,722 ) � (23,856 ) � 20,515 � � (39,063 ) Income/(loss) from continuing operations 59,833 38,851 (35,909 ) 62,775 Discontinued operations � 1,201 � � - � � - � � 1,201 � Net income/(loss) $ 61,034 � $ 38,851 � $ (35,909 ) $ 63,976 � � 2006 � � � Service revenues and sales $ 699,092 � $ 319,495 � $ - � $ 1,018,587 � Cost of services provided and goods sold 557,260 172,863 - 730,123 Selling, general and administrative expenses (b) 56,961 92,495 11,727 161,183 Depreciation 8,753 7,665 357 16,775 Amortization 3,916 72 1,267 5,255 Other operating expense (b) � 272 � � - � � - � � 272 � Total costs and expenses � 627,162 � � 273,095 � � 13,351 � � 913,608 � Income/(loss) from operations 71,930 46,400 (13,351 ) 104,979 Interest expense (191 ) (368 ) (16,909 ) (17,468 ) Intercompany interest income/(expense) 5,329 3,997 (9,326 ) - Loss on extinguishment of debt (b) - - (430 ) (430 ) Loss from impairment of investment (b) - - (1,445 ) (1,445 ) Other income�net � 55 � � 1,173 � � 3,420 � � 4,648 � Income/(loss) before income taxes 77,123 51,202 (38,041 ) 90,284 Income taxes (b) � (28,705 ) � (18,748 ) � 14,891 � � (32,562 ) Income/(loss) from continuing operations 48,418 32,454 (23,150 ) 57,722 Discontinued operations � (4,872 ) � - � � (2,199 ) � (7,071 ) Net income/(loss) $ 43,546 � $ 32,454 � $ (25,349 ) $ 50,651 � � 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 DECEMBER 31, 2007 AND 2006 (in thousands)(unaudited) � � � � � � � � � Chemed VITAS Roto-Rooter Corporate Consolidated 2007 � � � � � � Net income/(loss) $ 16,771 $ 9,728 $ (6,294 ) $ 20,205 Add/(deduct): Interest expense 43 (1 ) 1,545 1,587 Income taxes 9,484 5,067 (2,669 ) 11,882 Depreciation 3,069 2,075 77 5,221 Amortization � 996 � � 13 � � 360 � � 1,369 � EBITDA 30,363 16,882 (6,981 ) 40,264 Add/(deduct): Lawsuit settlement - 1,927 - 1,927 Stock option expense - - 1,591 1,591 Legal expenses of OIG investigation 39 - - 39 Advertising cost adjustment (c) - 1,532 - 1,532 Interest income (61 ) (19 ) (616 ) (696 ) Intercompany interest (income)/expense � (1,902 ) � (1,317 ) � 3,219 � � - � Adjusted EBITDA $ 28,439 � $ 19,005 � $ (2,787 ) $ 44,657 � � 2006 � � � � � � Net income/(loss) $ 13,492 $ 9,741 $ (5,600 ) $ 17,633 Add/(deduct): Discontinued operations 1,653 - (27 ) 1,626 Interest expense 35 87 3,620 3,742 Income taxes 8,457 5,203 (3,076 ) 10,584 Depreciation 2,421 1,882 87 4,390 Amortization � 964 � � 16 � � 307 � � 1,287 � EBITDA 27,022 16,929 (4,689 ) 39,262 Add/(deduct): Stock option expense - - 596 596 Legal expenses of OIG investigation 250 - - 250 Other - - (467 ) (467 ) Advertising cost adjustment (c) - 1,395 - 1,395 Interest income (14 ) (16 ) (684 ) (714 ) Intercompany interest (income)/expense � (1,583 ) � (1,108 ) � 2,691 � � - � Adjusted EBITDA $ 25,675 � $ 17,200 � $ (2,553 ) $ 40,322 � � The "Footnotes to Financial Statements" are integral parts of this financial information. � � CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATING SUMMARY OF EBITDA FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 (in thousands)(unaudited) � � Chemed VITAS Roto-Rooter Corporate Consolidated 2007 � � � � � � Net income/(loss) $ 61,034 $ 38,851 $ (35,909 ) $ 63,976 Add/(deduct): Discontinued operations (1,201 ) - - (1,201 ) Interest expense 146 495 10,603 11,244 Income taxes 35,722 23,856 (20,515 ) 39,063 Depreciation 11,446 8,365 307 20,118 Amortization � 3,984 � � 54 � � 1,232 � � 5,270 � EBITDA 111,131 71,621 (44,282 ) 138,470 Add/(deduct): Long-term incentive compensation - - 7,067 7,067 Lawsuit settlement - 1,927 - 1,927 Stock option expense - - 4,665 4,665 Legal expenses of OIG investigation 227 - - 227 Gain on sale of property - - (1,138 ) (1,138 ) Other - - (467 ) (467 ) Loss on extinguishment of debt - - 13,798 13,798 Advertising cost adjustment (c) - 601 - 601 Interest income (151 ) (377 ) (2,776 ) (3,304 ) Intercompany interest (income)/expense � (7,254 ) � (4,993 ) � 12,247 � � - � Adjusted EBITDA $ 103,953 � $ 68,779 � $ (10,886 ) $ 161,846 � � 2006 � � � � � � Net income/(loss) $ 43,546 $ 32,454 $ (25,349 ) $ 50,651 Add/(deduct): Discontinued operations 4,872 - 2,199 7,071 Interest expense 191 368 16,909 17,468 Income taxes 28,705 18,748 (14,891 ) 32,562 Depreciation 8,753 7,665 357 16,775 Amortization � 3,916 � � 72 � � 1,267 � � 5,255 � EBITDA 89,983 59,307 (19,508 ) 129,782 Add/(deduct): Loss from impairment of investment - - 1,445 1,445 Lawsuit settlement 272 - - 272 Stock option expense - - 1,211 1,211 Legal expenses of OIG investigation 1,068 - - 1,068 Other - - (467 ) (467 ) Loss on extinguishment of debt - - 430 430 Advertising cost adjustment (c) - 323 - 323 Interest income (114 ) (85 ) (2,492 ) (2,691 ) Intercompany interest (income)/expense � (5,329 ) � (3,997 ) � 9,326 � � - � Adjusted EBITDA $ 85,880 � $ 55,548 � $ (10,055 ) $ 131,373 � � The "Footnotes to Financial Statements" are integral parts of this financial information. CHEMED CORPORATION AND SUBSIDIARY COMPANIES RECONCILIATION OF ADJUSTED NET INCOME FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 (in thousands, except per share data)(unaudited) � � � � � � � � � Three Months Ended Year Ended December 31, December 31, 2007 2006 2007 2006 Net income as reported $ 20,205 $ 17,633 $ 63,976 $ 50,651 Add/(deduct): Discontinued operations - 1,626 (1,201 ) 7,071 Aftertax loss on impairment of investment - - - 918 Aftertax costs related to litigation settlements 1,168 - 1,168 169 Prior-period tax adjustments - (324 ) - (2,115 ) Aftertax cost of long-term incentive compensation - - 4,427 - Aftertax stock option expense 1,010 378 2,962 769 Aftertax cost of legal expenses of OIG investigation 24 155 141 662 Aftertax other - (296 ) (296 ) (296 ) Aftertax gain on sale of property . - - (724 ) Aftertax cost of loss on extinguishment of debt � - � - � � 8,778 � � 273 � Adjusted income from continuing operations $ 22,407 $ 19,172 � $ 79,231 � $ 58,102 � Earnings Per Share As Reported Net income $ 0.84 $ 0.68 � $ 2.61 � $ 1.94 � Average number of shares outstanding � 23,959 � 26,030 � � 24,520 � � 26,118 � Diluted Earnings Per Share As Reported Net income $ 0.83 $ 0.67 � $ 2.55 � $ 1.90 � Average number of shares outstanding � 24,460 � 26,411 � � 25,077 � � 26,669 � Adjusted Earnings Per Share Income from continuing operations $ 0.94 $ 0.74 � $ 3.23 � $ 2.22 � Average number of shares outstanding � 23,959 � 26,030 � � 24,520 � � 26,118 � Adjusted Diluted Earnings Per Share Income from continuing operations $ 0.92 $ 0.73 � $ 3.16 � $ 2.18 � Average number of shares outstanding � 24,460 � 26,411 � � 25,077 � � 26,669 � � The "Footnotes to Financial Statements" are integral parts of this financial information. CHEMED CORPORATION AND SUBSIDIARY COMPANIES OPERATING STATISTICS FOR VITAS SEGMENT FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 (unaudited) � � � � � � � Three Months EndedDecember 31, Years EndedDecember 31, 2007 2006 2007 2006 OPERATING STATISTICS Net revenue ($000) (d) Homecare $ 143,125 $ 132,082 $ 546,872 $ 492,012 Inpatient 23,927 23,316 92,995 89,882 Continuous care � 30,150 � 31,509 � � 115,801 � � 121,096 � Total before Medicare cap allowance $ 197,202 $ 186,907 $ 755,668 $ 702,990 Medicare cap allowance � - � (688 ) � (242 ) � (3,898 ) Total $ 197,202 $ 186,219 � $ 755,426 � $ 699,092 � Net revenue as a percent of total before Medicare cap allowance � Homecare 72.6 % 70.6 % 72.4 % 70.0 % Inpatient 12.1 12.5 12.3 12.8 Continuous care � 15.3 � 16.9 � � 15.3 � � 17.2 � Total before Medicare cap allowance 100.0 100.0 100.0 100.0 Medicare cap allowance � - � (0.4 ) � - � � (0.6 ) Total � 100.0 % � 99.6 � % � 100.0 � % � 99.4 � % Average daily census ("ADC") (days) Homecare 7,121 6,636 6,966 6,333 Nursing home � 3,610 � 3,567 � � 3,581 � � 3,501 � Routine homecare 10,731 10,203 10,547 9,834 Inpatient 417 411 417 411 Continuous care � 512 � 560 � � 513 � � 555 � Total � 11,660 � 11,174 � � 11,477 � � 10,800 � � Total Admissions 13,594 13,291 54,798 52,736 Total Discharges 13,700 13,199 54,530 51,552 Average length of stay (days) 75.7 75.7 76.5 71.9 Median length of stay (days) 14.0 14.0 13.0 13.0 ADC by major diagnosis Neurological 32.8 % 33.7 % 33.1 % 33.4 % Cancer 20.4 19.7 20.1 20.2 Cardio 13.5 14.7 14.1 14.8 Respiratory 6.8 7.0 6.8 7.1 Other � 26.5 � 24.9 � � 25.9 � � 24.5 � Total � 100.0 % � 100.0 � % � 100.0 � % � 100.0 � % Admissions by major diagnosis Neurological 18.5 % 19.8 % 18.5 % 19.8 % Cancer 36.6 35.3 36.1 35.5 Cardio 11.9 12.7 12.6 13.1 Respiratory 7.3 7.2 7.5 7.3 Other � 25.7 � 25.0 � � 25.3 � � 24.3 � Total � 100.0 % � 100.0 � % � 100.0 � % � 100.0 � % Direct patient care margins (e) Routine homecare 51.6 % 49.7 % 51.1 % 49.0 % Inpatient 18.8 19.4 18.4 20.0 Continuous care 17.6 17.0 18.0 18.2 Homecare margin drivers (dollars per patient day) Labor costs $ 49.59 $ 49.72 $ 49.14 $ 49.38 Drug costs 7.73 8.17 7.90 8.12 Home medical equipment 5.91 5.81 5.78 5.63 Medical supplies 2.49 2.28 2.25 2.17 Inpatient margin drivers (dollars per patient day) Labor costs $ 272.46 $ 261.55 $ 265.47 $ 259.25 Continuous care margin drivers (dollars per patient day) Labor costs $ 506.72 $ 486.46 $ 486.90 $ 468.13 Bad debt expense as a percent of revenues 1.0 % 1.0 % 0.9 % 0.9 % Accounts receivable -- days of revenue outstanding 43.4 38.7 N.A. N.A. � The "Footnotes to Financial Statements" are integral parts of this financial information. CHEMED CORPORATION AND SUBSIDIARY COMPANIESFOOTNOTES TO FINANCIAL STATEMENTSFOR THE THREE MONTHS AND YEARS ENDED DECEMBER 31, 2007 AND 2006 (unaudited) � � � � � � � � � � � (a) Included in the results of operations for the three months and years ended December 31, 2007 are the following significant credits/(charges) which may not be indicative of ongoing operations (in thousands): � Three Months Ended December 31, 2007 VITAS Roto-Rooter Corporate Consolidated Selling, general and administrative expenses Costs associated with OIG investigation $ (39 ) $ - $ - $ (39 ) Stock option expense - - (1,591 ) (1,591 ) Other operating expense - net Costs related to litigation settlement � - � � (1,927 ) � - � � (1,927 ) Pretax impact on earnings (39 ) (1,927 ) (1,591 ) (3,557 ) Income tax benefit/(charge) on the above � 15 � � 759 � � 581 � � 1,355 � Aftertax impact on earnings $ (24 ) $ (1,168 ) $ (1,010 ) $ (2,202 ) � Year Ended December 31, 2007 VITAS Roto-Rooter Corporate Consolidated Selling, general and administrative expenses Long-term incentive compensation $ - $ - $ (7,067 ) $ (7,067 ) Costs associated with OIG investigation (227 ) - - (227 ) Stock option expense - - (4,665 ) (4,665 ) Other - - 467 467 Other operating expense/(income) Costs related to litigation settlement - (1,927 ) �����- (1,927 ) Gain on sale of property - - 1,138 1,138 Loss on extinguishment of debt � - � � - � � (13,798 ) � (13,798 ) Pretax impact on earnings (227 ) (1,927 ) (23,925 ) (26,079 ) Income tax benefit/(charge) on the above � 86 � � 759 � � 8,778 � � 9,623 � Aftertax impact on earnings $ (141 ) $ (1,168 ) $ (15,147 ) $ (16,456 ) � (b) Included in the results of operations for the three months and years ended December 31, 2006 are the following significant credits/(charges) which may not be indicative of ongoing operations (in thousands): � Three Months Ended December 31, 2006 � VITAS Roto-Rooter Corporate Consolidated Selling, general and administrative expenses Costs associated with OIG investigation $ (250 ) $ - $ - $ (250 ) Stock option expense - - (596 ) (596 ) Other � - � � - � � 467 � � 467 � Pretax impact on earnings (250 ) - (129 ) (379 ) Income tax benefit on the above 95 ��������- 47 142 Income tax benefit from finalizing prior years' returns � - � � 324 � � - � � 324 � Aftertax impact on earnings $ (155 ) $ 324 � $ (82 ) $ 87 � � Year Ended December 31, 2006 VITAS Roto-Rooter Corporate Consolidated Selling, general and administrative expenses Costs associated with OIG investigation $ (1,068 ) $ - $ - $ (1,068 ) Stock option expense - - (1,211 ) (1,211 ) Other - - 467 467 Other operating expense Costs related to litigation settlement (272 ) - - (272 ) Loss from impairment of investment - - (1,445 ) (1,445 ) Loss on extinguishment of debt � - � � - � � (430 ) � (430 ) Pretax impact on earnings (1,340 ) - (2,619 ) (3,959 ) Income tax benefit on the above 509 - 955 1,464 Income tax benefit from finalizing prior years' returns � - � � 1,251 � � 864 � � 2,115 � Aftertax impact on earnings $ (831 ) $ 1,251 � $ (800 ) $ (380 ) � � � � (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 fourth quarters of 2007 and 2006, GAAP advertising expense for Roto-Rooter totaled $7,330,000 and $6,579,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the fourth quarters of 2007 and 2006 would total $5,798,000 and $5,184,000, respectively. For the years ended December 31, 2007 and 2006, GAAP advertising expense for Roto-Rooter totaled $22,980,000 and $20,563,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the years ended December 31, 2007 and 2006 would total 22,379,000 and $20,240,000, respectively. � (d) VITAS has 6 large (greater than 450 ADC), 15 medium (greater than 200 but less than 450 ADC) and 22 small (less than 200 ADC) hospice programs. There are two programs continuing at December 31, 2007 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.