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, reported financial results for its fourth quarter ended December 31, 2010, versus the comparable prior-year period, as follows:

Consolidated operating results:

• Revenue increased 10.9% to $336 million
• Net Income increased 25.8% to $22.6 million
• Adjusted Net Income increased 15.1% to $27.9 million

VITAS segment operating results:

• Net Patient Revenue of $242 million, an increase of 11.4%
• Average Daily Census (ADC) of 13,080, an increase of 7.7%
• Admissions of 14,776, an increase of 8.0%
• Net Income of $23.3 million, an increase of 20.9%
• Adjusted EBITDA of $42.2 million, an increase of 23.1%
• Adjusted EBITDA margin of 17.4%, an increase of 167 basis points

Roto-Rooter segment operating results:

• Revenue of $94.0 million, an increase of 9.7%
• Job count of 169,883, an increase of 1.2%
• Net Income of $7.3 million, a decline of 10.2%
• Adjusted EBITDA of $15.9 million, a decrease of 0.4%
• Adjusted EBITDA margin of 17.0%, a decrease of 172 basis points

VITAS

Net revenue for VITAS was $242 million in the fourth quarter of 2010, which is an increase of 11.4% over the prior-year period. Excluding the impact of Medicare Cap, revenue increased 10.9%. This revenue growth was the result of increased ADC of 7.7%, driven by an increase in admissions of 8.0%, combined with Medicare price increases of approximately 2.1%. The remaining growth was driven by geographic mix shift of the patient base.

Average revenue per patient per day in the quarter, excluding the impact of Medicare Cap, was $202.21, which is 3.0% above the prior-year period. Routine home care reimbursement and high acuity care averaged $159.31 and $701.21, respectively, per patient per day in the fourth quarter of 2010. During the quarter, high acuity days of care were 7.9% of total days of care, essentially equal to the prior-year quarter.

In the fourth quarter of 2010, VITAS recorded a Medicare Cap billing limitation of $1.1 million. This compares with a Medicare Cap liability of $1.8 million in the fourth quarter of 2009. These Medicare Cap liabilities in the fourth quarter of 2010 and 2009 relate predominantly to one program which is VITAS’ largest provider number.

The government’s Medicare Cap fiscal year begins on September 29. The first quarter of a Medicare Cap year has the potential to be volatile if a program experiences unusual or seasonal admission patterns. Based upon actual January 2011 admissions, VITAS anticipates reversing the Medicare Cap liability recorded for this program in the first quarter of 2011. Consistent application of VITAS’ Medicare Cap accounting methodology requires VITAS to recognize this $1.1 million in revenue reduction in the fourth quarter of 2010.

Of VITAS’ 33 unique Medicare provider numbers, 30 provider numbers, or 91%, have a Medicare Cap cushion greater than 10% for the most recent twelve-month period. Three provider numbers have Medicare Cap cushion below 5%. VITAS generated an aggregate Medicare Cap cushion of $210 million, or 24.8%, during the trailing twelve-month period.

The fourth quarter of 2010 gross margin, excluding the impact of Medicare Cap, was 25.3%, which is an increase of 62 basis points from the fourth quarter of 2009. This increase in overall margin was accomplished while continuing to absorb increased expenses relating to field-based admissions, expansion of inpatient units and increased documentation requirements in Medicare recertifications.

Selling, general and administrative expense was $18.8 million in the fourth quarter of 2010, which is an increase of 4.7% when compared to the prior-year quarter. Adjusted EBITDA totaled $42.2 million in the quarter, an increase of 23.1% over the prior-year period. Adjusted EBITDA margin, excluding the impact from Medicare Cap, was 17.8% in the quarter which was 132 basis points above the prior-year quarter.

Roto-Rooter

Roto-Rooter’s plumbing and drain cleaning business generated sales of $94.0 million for the fourth quarter of 2010, an increase of 9.7% over the prior-year quarter. Roto-Rooter’s gross margin was 43.1% in the quarter, a 311 basis point decline when compared to the fourth quarter of 2009. Adjusted EBITDA in the fourth quarter of 2010 totaled $15.9 million, a decline of 0.4%, and the Adjusted EBITDA margin was 17.0% in the quarter, a decline of 172 basis points, when compared to the prior-year quarter.

The decline in the Adjusted EBITDA margin in the fourth quarter is a result of several factors. Unfavorable casualty insurance claims, primarily relating to prior periods, increased $1.8 million, health insurance, primarily large claims, increased $1.0 million and bad debt expense increased from $81,000 to $244,000. Excavation revenue and direct gross margins increased in the quarter; however, these jobs continue to have a margin below plumbing and drain cleaning services. This revenue mix shift to excavation reduced overall margins 73 basis points. The impact these items had on margin were partially offset by total Roto-Rooter selling, general and administrative expenses, excluding litigation costs, expanding 6.4%, well below total revenue growth of 9.7%.

Job count in the fourth quarter of 2010 increased 1.2% when compared to the prior-year period. During the fourth quarter of 2010, total residential jobs increased 0.4%, as residential plumbing jobs increased 2.3% and residential drain cleaning jobs declined 0.3%, when compared to the fourth quarter of 2009. Residential jobs represented 71% of total job count in the quarter. Total commercial jobs increased 3.3%, with commercial plumbing/excavation job count increasing 8.8% and commercial drain cleaning increasing 1.5% when compared to the prior-year quarter. The “Other” job category declined 7.5%.

Roto-Rooter continues to have periodic discussions with existing franchisees to acquire franchise territories. Management will be highly disciplined in terms of valuation, risk assessment and overall return on investment of any potential acquisition. The timing or actual completion of any acquisition cannot be predicted.

Chemed Consolidated Debt and Cash Flows

Chemed had total debt of $159 million at December 31, 2010. This debt is net of the discount taken as a result of convertible debt accounting requirements. Excluding this discount, aggregate debt is $187 million and is due in May 2014. Chemed’s total debt equates to less than one times trailing twelve-month adjusted EBITDA.

Chemed’s $175 million revolving credit facility expires in May 2012. At December 31, 2010, this credit facility had approximately $147 million of undrawn borrowing capacity after deducting $28 million for letters of credit issued under this facility to secure the Company’s workers’ compensation insurance.

Capital expenditures for the fourth quarter of 2010 aggregated $6.5 million and compared favorably to depreciation and amortization during the same period of $7.3 million.

The Company increased its quarterly dividend per share in the third quarter of 2010, from $0.12 per share to $0.14 per share. The company purchased $96.3 million of treasury stock in the fourth quarter of 2010 and an additional $19.1 million in January 2011 under a 10b5-1 share repurchase plan. Total shares repurchased during this four-month period totaled 1,802,000 and have exhausted the remaining authoritization under previously announced share repurchase programs. Management will continually evaluate cash utilization alternatives, including share repurchase, debt repurchase, acquisitions and increased dividends to determine the most beneficial use of available capital resources.

Guidance for 2011

VITAS expects to achieve full-year 2011 revenue growth, prior to Medicare Cap, of 7% to 9%. Admissions in 2011 are estimated to increase 5% to 7% and full-year Adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 15.3% to 16.3%. Effective October 1, 2010, Medicare increased the average hospice reimbursement rates by approximately 2.1%. Consistent with prior years, our guidance assumes $5.0 million of estimated Medicare contractual billing limitations for calendar year 2011.

Roto-Rooter expects to achieve full-year 2011 revenue growth of 5% to 8%. The revenue estimate is a result of increased pricing of approximately 3.0%, a favorable mix shift to higher revenue jobs, with job count growth estimated at 0% to 3%. Adjusted EBITDA margin for 2011 is estimated in the range of 16.5% to 17.5%.

Based upon the above metrics, an effective tax rate of 39.0% and a full-year average diluted share count of 21.5 million, management estimates 2011 earnings per diluted share, excluding non-cash expense for stock options, the non-cash interest expense related to the accounting for convertible debt and other items not indicative of ongoing operations will be in the range of $4.65 to $4.85. This compares to Chemed’s 2010 adjusted earnings per diluted share of $4.17.

Conference Call

Chemed will host a conference call and webcast at 10 a.m., EST, on Wednesday, February 16, 2011, to discuss the Company's quarterly results and to provide an update on its business. The dial-in number for the conference call is (866) 770-7125 for U.S. and Canadian participants and (617) 213-8066 for international participants. The participant passcode is 71381356. A live webcast of the call can be accessed on Chemed's website at www.chemed.com by clicking on Investor Relations Home.

A taped replay of the conference call will be available beginning approximately 24 hours after the call's conclusion. It can be accessed by dialing (888) 286-8010 for U.S. and Canadian callers and (617) 801-6888 for international callers and will be available for one week following the live call. The replay passcode is 54947506. An archived webcast will also be available at www.chemed.com.

Chemed Corporation operates in the healthcare field through its VITAS Healthcare Corporation subsidiary. VITAS provides daily hospice services to approximately 13,000 patients with severe, life-limiting illnesses. This type of care is focused on making the terminally ill patient's final days as comfortable and pain-free as possible.

Chemed operates in the residential and commercial plumbing and drain cleaning industry under the brand name Roto-Rooter. Roto-Rooter provides plumbing and drain service through company-owned branches, independent contractors and franchisees in the United States and Canada. Roto-Rooter also has licensed master franchisees in Indonesia, Singapore, Japan, and the Philippines.

This press release contains information about Chemed’s EBITDA, Adjusted EBITDA and Adjusted Diluted EPS, which are not measures derived in accordance with GAAP and which exclude components that are important to understanding Chemed’s financial performance. In reporting its operating results, Chemed provides EBITDA, Adjusted EBITDA and Adjusted Diluted EPS measures to help investors and others evaluate the Company’s operating results, compare its operating performance with that of similar companies that have different capital structures and evaluate its ability to meet its future debt service, capital expenditures and working capital requirements. Chemed’s management similarly uses EBITDA, Adjusted EBITDA and Adjusted Diluted EPS to assist it in evaluating the performance of the Company across fiscal periods and in assessing how its performance compares to its peer companies. These measures also help Chemed’s management to estimate the resources required to meet Chemed’s future financial obligations and expenditures. Chemed’s EBITDA, Adjusted EBITDA and Adjusted Diluted EPS should not be considered in isolation or as a substitute for comparable measures calculated and presented in accordance with GAAP. We calculated Adjusted EBITDA Margin by dividing Adjusted EBITDA by service revenue and sales. A reconciliation of Chemed’s net income to its EBITDA, Adjusted EBITDA and Adjusted Diluted EPS is presented in the tables following the text of this press release.

Forward-Looking Statements

Certain statements contained in this press release and the accompanying tables are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The words "believe," "expect," "hope," "anticipate," "plan" and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. Chemed does not undertake and specifically disclaims any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These statements are based on current expectations and assumptions and involve various risks and uncertainties, which could cause Chemed's actual results to differ from those expressed in such forward-looking statements. These risks and uncertainties arise from, among other things, possible changes in regulations governing the hospice care or plumbing and drain cleaning industries; periodic changes in reimbursement levels and procedures under Medicare and Medicaid programs; difficulties predicting patient length of stay and estimating potential Medicare reimbursement obligations; challenges inherent in Chemed's growth strategy; the current shortage of qualified nurses, other healthcare professionals and licensed plumbing and drain cleaning technicians; Chemed’s dependence on patient referral sources; and other factors detailed under the caption "Description of Business by Segment" or "Risk Factors" in Chemed’s most recent report on form 10-Q or 10-K and its other filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on such forward-looking statements and there are no assurances that the matters contained in such statements will be achieved.

CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF INCOME (in thousands, except per share data)(unaudited)                 For the Three Months Ended For the Years Ended December 31, December 31, 2010 2009 2010 2009 Continuing Operations Service revenues and sales $ 336,286   $ 303,249   $ 1,280,545   $ 1,190,236   Cost of services provided and goods sold 235,262 211,336 906,016 834,574 Selling, general and administrative expenses (aa) 55,270 53,905 201,964 197,426 Depreciation 6,338 5,511 24,386 21,535 Amortization 950 1,602 4,657 6,367 Other operating expenses (bb)   -     -     -     3,989   Total costs and expenses   297,820     272,354     1,137,023     1,063,891   Income from operations 38,466 30,895 143,522 126,345 Interest expense (3,013 ) (2,760 ) (11,959 ) (11,599 ) Other income--net (cc)   1,850     1,059     2,268     5,874   Income before income taxes 37,303 29,194 133,831 120,620 Income taxes   (14,673 )   (10,956 )   (52,000 )   (46,583 ) Income from continuing operations 22,630 18,238 81,831 74,037 Discontinued Operations   -     (253 )   -     (253 ) Net income $ 22,630   $ 17,985   $ 81,831   $ 73,784     Earnings Per Share Income from continuing operations $ 1.00   $ 0.81   $ 3.62   $ 3.30   Net income $ 1.00   $ 0.80   $ 3.62   $ 3.29   Average number of shares outstanding   22,534     22,551     22,587     22,451     Diluted Earnings Per Share Income from continuing operations $ 0.98   $ 0.80   $ 3.55   $ 3.26   Net income $ 0.98   $ 0.78   $ 3.55   $ 3.24   Average number of shares outstanding   23,070     22,937     23,031     22,742      

 

     

 

  (aa) Selling, general and administrative ("SG&A") expenses comprise (in thousands): For the Three Months Ended For the Years Ended December 31, December 31, 2010 2009 2010 2009 SG&A expenses before long-term incentive compensation and the impact of market gains of deferred compensation plans   $ 50,473 $ 47,681 $ 195,020 $ 187,828 Long-term incentive compensation 2,935 5,007 4,734 5,007

Market value gains on assets held in deferred compensation trusts

  1,862     1,217     2,210     4,591   Total SG&A expenses $ 55,270   $ 53,905   $ 201,964   $ 197,426     (bb) Amount represents expenses associated with contested proxy solicitation.   (cc) Other income/(expense)--net comprises (in thousands): For the Three Months Ended For the Years Ended December 31, December 31, 2010 2009 2010 2009

Market value gains on assets held in deferred compensation trusts

$ 1,862 $ 1,217 $ 2,210 $ 4,591 Loss on disposal of property and equipment (132 ) (156 ) (425 ) (369 ) Interest income 110 48 444 423

Gain on settlement of company-owned life insurance

- - - 1,211 Other   10     (50 )   39     18   Total other income--net $ 1,850   $ 1,059   $ 2,268   $ 5,874     CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEET (in thousands, except per share data)(unaudited)           December 31, 2010 2009 Assets Current assets Cash and cash equivalents $ 49,917 $ 112,416 Accounts receivable less allowances 112,999 53,461 Inventories 7,728 7,543 Current deferred income taxes 15,098 13,701 Prepaid income taxes 770 749 Prepaid expenses   10,285     10,388   Total current assets 196,797 198,258 Investments of deferred compensation plans held in trust 28,304 24,158 Properties and equipment, at cost less accumulated depreciation 79,292 75,358 Identifiable intangible assets less accumulated amortization 56,410 57,920 Goodwill 458,343 450,042 Other assets   11,015     13,734   Total Assets $ 830,161   $ 819,470     Liabilities Current liabilities Accounts payable $ 55,829 $ 52,071 Income taxes 1,161 63 Accrued insurance 36,492 35,161 Accrued compensation 39,719 34,662 Other current liabilities   16,141     14,127   Total current liabilities 149,342 136,084 Deferred income taxes 25,085 25,924 Long-term debt 159,208 152,127 Deferred compensation liabilities 27,851 23,637 Other liabilities   6,626     4,536   Total Liabilities   368,112     342,308     Stockholders' Equity Capital stock 30,382 29,891 Paid-in capital 365,007 335,890 Retained earnings 473,316 403,366 Treasury stock, at cost (408,615 ) (293,941 ) Deferred compensation payable in Company stock   1,959     1,956   Total Stockholders' Equity   462,049     477,162   Total Liabilities and Stockholders' Equity $ 830,161   $ 819,470     CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands)(unaudited)                         For the Years Ended December 31, 2010 2009 Cash Flows from Operating Activities Net income $ 81,831 $ 73,784

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

Depreciation and amortization 29,043 27,902 Provision for uncollectible accounts receivable 9,078 10,833 Stock option expense 7,762 8,639 Amortization of discount on convertible notes 7,081 6,617 Noncash long-term incentive compensation 4,161 4,385 Provision for deferred income taxes (2,409 ) 4,979 Amortization of debt issuance costs 654 632 Discontinued operations - 253

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

Decrease/(increase) in accounts receivable (68,656 ) 33,754 Decrease/(increase) in inventories (151 ) 29 Decrease/(increase) in prepaid expenses 332 (455 )

Increase/(decrease) in accounts payable and other current liabilities

13,810 (8,109 ) Increase in income taxes 4,825 623 Increase in other assets (4,398 ) (1,678 ) Increase in other liabilities 5,999 272 Excess tax benefit on share-based compensation (3,357 ) (1,955 ) Other sources   407     327   Net cash provided by operating activities   86,012     160,832   Cash Flows from Investing Activities Capital expenditures (25,639 ) (21,496 ) Business combinations, net of cash acquired (9,469 ) (1,919 ) Proceeds from sales of property and equipment 290 1,577 Net uses from discontinued operations (156 ) (630 ) Other uses   (726 )   (374 ) Net cash used by investing activities   (35,700 )   (22,842 ) Cash Flows from Financing Activities Purchases of treasury stock (109,330 ) (4,225 ) Dividends paid (11,881 ) (8,157 ) Proceeds from exercise of stock options 5,327 545 Excess tax benefit on share-based compensation 3,357 1,955 Increase/(decrease) in cash overdrafts payable (581 ) 2,891 Repayment of long-term debt - (14,669 ) Net decrease in revolving line of credit - (8,200 ) Other sources   297     658   Net cash used by financing activities   (112,811 )   (29,202 ) Increase/(Decrease) in Cash and Cash Equivalents (62,499 ) 108,788 Cash and cash equivalents at beginning of year   112,416     3,628   Cash and cash equivalents at end of period $ 49,917   $ 112,416     CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATING STATEMENT OF INCOME FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009 (in thousands)(unaudited)                 Chemed VITAS Roto-Rooter Corporate Consolidated 2010 Service revenues and sales $ 242,268   $ 94,018   $ -   $ 336,286   Cost of services provided and goods sold 181,747 53,515 - 235,262 Selling, general and administrative expenses (a) 18,836 27,208 9,226 55,270 Depreciation 4,252 1,949 137 6,338 Amortization   486     126     338     950   Total costs and expenses   205,321     82,798     9,701     297,820   Income/(loss) from operations 36,947 11,220 (9,701 ) 38,466 Interest expense (a) (3 ) (46 ) (2,964 ) (3,013 ) Intercompany interest income/(expense) 854 486 (1,340 ) - Other income/(expense)—net   (80 )   18     1,912     1,850   Income/(loss) before income taxes 37,718 11,678 (12,093 ) 37,303 Income taxes (a)   (14,445 )   (4,421 )   4,193     (14,673 ) Net income/(loss) $ 23,273   $ 7,257   $ (7,900 ) $ 22,630     2009 (f) Continuing Operations Service revenues and sales $ 217,556   $ 85,693   $ -   $ 303,249   Cost of services provided and goods sold 165,223 46,113 - 211,336 Selling, general and administrative expenses (b) 17,993 25,114 10,798 53,905 Depreciation 3,502 1,974 35 5,511 Amortization   1,167     118     317     1,602   Total costs and expenses   187,885     73,319     11,150     272,354   Income/(loss) from operations 29,671 12,374 (11,150 ) 30,895 Interest expense (b) 41 (48 ) (2,753 ) (2,760 ) Intercompany interest income/(expense) 1,224 712 (1,936 ) - Other income/(expense)—net   (156 )   (2 )   1,217     1,059   Income/(loss) before income taxes 30,780 13,036 (14,622 ) 29,194 Income taxes (b)   (11,527 )   (4,958 )   5,529     (10,956 ) Income from continuing operations 19,253 8,078 (9,093 ) 18,238 Discontinued operations   -     -     (253 )   (253 ) Net income/(loss) $ 19,253   $ 8,078   $ (9,346 ) $ 17,985    

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, 2010 AND 2009 (in thousands)(unaudited)                 Chemed VITAS Roto-Rooter Corporate Consolidated 2010 Service revenues and sales $ 925,810   $ 354,735   $ -   $ 1,280,545   Cost of services provided and goods sold 709,094 196,922 - 906,016 Selling, general and administrative expenses (a) 73,755 100,731 27,478 201,964 Depreciation 16,161 7,775 450 24,386 Amortization   2,739     514     1,404     4,657   Total costs and expenses   801,749     305,942     29,332     1,137,023   Income/(loss) from operations 124,061 48,793 (29,332 ) 143,522 Interest expense (a) (131 ) (233 ) (11,595 ) (11,959 ) Intercompany interest income/(expense) 4,632 2,612 (7,244 ) - Other income/(expense)—net   (165 )   53     2,380     2,268   Income/(loss) before income taxes 128,397 51,225 (45,791 ) 133,831 Income taxes (a)   (48,601 )   (19,547 )   16,148     (52,000 ) Net income/(loss) $ 79,796   $ 31,678   $ (29,643 ) $ 81,831     2009 (f) Continuing Operations Service revenues and sales $ 854,343   $ 335,893   $ -   $ 1,190,236   Cost of services provided and goods sold 653,212 181,362 - 834,574 Selling, general and administrative expenses (b) 71,643 95,073 30,710 197,426 Depreciation 13,269 8,068 198 21,535 Amortization 4,704 441 1,222 6,367 Other operating expenses (b)   -     -     3,989     3,989   Total costs and expenses   742,828     284,944     36,119     1,063,891   Income/(loss) from operations 111,515 50,949 (36,119 ) 126,345 Interest expense (b) (374 ) (186 ) (11,039 ) (11,599 ) Intercompany interest income/(expense) 4,314 2,514 (6,828 ) - Other income/(expense)—net (b)   (122 )   135     5,861     5,874   Income/(loss) before income taxes 115,333 53,412 (48,125 ) 120,620 Income taxes (b)   (43,637 )   (20,372 )   17,426     (46,583 ) Income from continuing operations 71,696 33,040 (30,699 ) 74,037 Discontinued operations   -     -     (253 )   (253 ) Net income/(loss) $ 71,696   $ 33,040   $ (30,952 ) $ 73,784    

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, 2010 AND 2009 (in thousands)(unaudited)                       Chemed VITAS Roto-Rooter Corporate Consolidated 2010 Net income/(loss) $ 23,273 $ 7,257 $ (7,900 ) $ 22,630 Add/(deduct): Interest expense 3 46 2,964 3,013 Income taxes 14,445 4,421 (4,193 ) 14,673 Depreciation 4,252 1,949 137 6,338 Amortization   486     126     338     950   EBITDA 42,459 13,799 (8,654 ) 47,604 Add/(deduct): Intercompany interest expense/(income) (854 ) (486 ) 1,340 - Interest income (48 ) (12 ) (50 ) (110 ) Expenses of OIG investigation 622 - - 622 Acquisition expenses 68 256 - 324 Expenses of class action litigation - 1,426 - 1,426 Advertising cost adjustment (c) - 960 - 960 Long-term incentive compensation - - 2,935 2,935 Stock option expense   -     -     1,397     1,397   Adjusted EBITDA $ 42,247   $ 15,943   $ (3,032 ) $ 55,158     2009 (f) Net income/(loss) $ 19,253 $ 8,078 $ (9,346 ) $ 17,985 Add/(deduct): Discontinued operations - - 253 253 Interest expense (41 ) 48 2,753 2,760 Income taxes 11,527 4,958 (5,529 ) 10,956 Depreciation 3,502 1,974 35 5,511 Amortization   1,167     118     317     1,602   EBITDA 35,408 15,176 (11,517 ) 39,067 Add/(deduct): Intercompany interest expense/(income) (1,224 ) (712 ) 1,936 - Interest income (17 ) (29 ) (2 ) (48 ) Expenses of OIG investigation 144 - - 144 Expenses of class action litigation - 882 - 882 Advertising cost adjustment (c) - 688 - 688 Long-term incentive compensation - - 5,007 5,007 Stock option expense   -     -     1,940     1,940   Adjusted EBITDA $ 34,311   $ 16,005   $ (2,636 ) $ 47,680    

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, 2010 AND 2009 (in thousands)(unaudited)                       Chemed VITAS Roto-Rooter Corporate Consolidated 2010 Net income/(loss) $ 79,796 $ 31,678 $ (29,643 ) $ 81,831 Add/(deduct): Interest expense 131 233 11,595 11,959 Income taxes 48,601 19,547 (16,148 ) 52,000 Depreciation 16,161 7,775 450 24,386 Amortization   2,739     514     1,404     4,657   EBITDA 147,428 59,747 (32,342 ) 174,833 Add/(deduct): Intercompany interest expense/(income) (4,632 ) (2,612 ) 7,244 - Interest income (220 ) (49 ) (175 ) (444 ) Expenses of OIG investigation 1,012 - - 1,012 Acquisition expenses 68 256 - 324 Expenses of class action litigation - 1,853 - 1,853 Advertising cost adjustment (c) - (679 ) - (679 ) Stock option expense - - 7,762 7,762 Long-term incentive compensation   -     -     4,734     4,734   Adjusted EBITDA $ 143,656   $ 58,516   $ (12,777 ) $ 189,395     2009 (f) Net income/(loss) $ 71,696 $ 33,040 $ (30,952 ) $ 73,784 Add/(deduct): Discontinued operations - - 253 253 Interest expense 374 186 11,039 11,599 Income taxes 43,637 20,372 (17,426 ) 46,583 Depreciation 13,269 8,068 198 21,535 Amortization   4,704     441     1,222     6,367   EBITDA 133,680 62,107 (35,666 ) 160,121 Add/(deduct): Intercompany interest expense/(income) (4,314 ) (2,514 ) 6,828 - Interest income (267 ) (73 ) (83 ) (423 ) Expenses of OIG investigation 586 - - 586 Expenses of class action litigation - 882 - 882 Advertising cost adjustment (c) - (540 ) - (540 ) Stock option expense - - 8,639 8,639 Long-term incentive compensation - - 5,007 5,007 Expenses associated with contested proxy solicitation - - 3,989 3,989 Non-taxable income from certain investments held in deferred compensation trusts   -     -     (1,211 )   (1,211 ) Adjusted EBITDA $ 129,685   $ 59,862   $ (12,497 ) $ 177,050    

The "Footnotes to Financial Statements" are integral parts of this financial information.

CHEMED CORPORATION AND SUBSIDIARY COMPANIES RECONCILIATION OF ADJUSTED NET INCOME (in thousands, except per share data)(unaudited)                   For the Three Months Ended For the Years Ended December 31, December 31, 2010 2009 (f) 2010 2009 (f) Net income as reported $ 22,630 $ 17,985 $ 81,831 $ 73,784   Add/(deduct) after-tax impact of: Long-term incentive compensation 1,833 3,134 2,957 3,134

Additional interest expense resulting from the change in accounting for the conversion feature of the convertible notes

1,110 1,027 4,313 3,988 Stock option expense 883 1,227 4,909 5,464 Expenses of class action litigation 869 534 1,126 534 Expenses of OIG investigation 385 89 627 363 Acquisition expenses 198 - 198 - Discontinued operations - 253 - 253 Expenses associated with contested proxy solicitation - - - 2,525

Non-deductible losses and non-taxable gains on investments held in deferred compensation trusts

  -   -     -   (756 )   Adjusted net income $ 27,908 $ 24,249   $ 95,961 $ 89,289       Earnings Per Share As Reported Net income $ 1.00 $ 0.80   $ 3.62 $ 3.29   Average number of shares outstanding   22,534   22,551     22,587   22,451   Diluted Earnings Per Share As Reported Net income $ 0.98 $ 0.78   $ 3.55 $ 3.24   Average number of shares outstanding   23,070   22,937     23,031   22,742       Adjusted Earnings Per Share Net income $ 1.24 $ 1.08   $ 4.25 $ 3.98   Average number of shares outstanding   22,534   22,551     22,587   22,451   Adjusted Diluted Earnings Per Share Net income $ 1.21 $ 1.06   $ 4.17 $ 3.93   Average number of shares outstanding   23,070   22,937     23,031   22,742    

The "Footnotes to Financial Statements" are integral parts of this financial information.

CHEMED CORPORATION AND SUBSIDIARY COMPANIES OPERATING STATISTICS FOR VITAS SEGMENT (unaudited)                     For the Three Months Ended For the Years Ended December 31, December 31, OPERATING STATISTICS 2010 2009 2010 2009 Net revenue ($000) (d) Homecare $ 176,517 $ 159,248 $ 666,562 $ 615,408 Inpatient 27,344 24,550 105,588 97,356 Continuous care   39,463     35,593     153,050   141,272   Total before Medicare cap allowance and 2008 BNAF* $ 243,324 $ 219,391 $ 925,200 $ 854,036 Medicare cap allowance (1,056 ) (1,835 ) 610 (1,643 ) Estimated BNAF* Accrual Q4 2008   -     -     -   1,950   Total $ 242,268   $ 217,556   $ 925,810 $ 854,343  

Net revenue as a percent of total before Medicare cap allowance and 2008 BNAF*

Homecare 72.6 % 72.6 % 72.0 % 72.1 % Inpatient 11.2 11.2 11.4 11.4 Continuous care   16.2     16.2     16.6   16.5   Total before Medicare cap allowance and 2008 BNAF* 100.0 100.0 100.0 100.0 Medicare cap allowance (0.4 ) (0.8 ) 0.1 (0.2 ) Estimated BNAF* Accrual Q4 2008   -     -     -   0.2   Total   99.6   %   99.2   %   100.1 %   100.0   % Average daily census ("ADC") (days) Homecare 8,851 7,933 8,476 7,730 Nursing home   3,193     3,253     3,207   3,281   Routine homecare 12,044 11,186 11,683 11,011 Inpatient 436 407 434 406 Continuous care   600     556     596   563   Total   13,080     12,149     12,713   11,980     Total Admissions 14,776 13,677 58,526 55,420 Total Discharges 15,038 13,667 57,817 54,814 Average length of stay (days) 80.8 76.4 78.1 76.0 Median length of stay (days) 15.0 14.0 14.0 14.0 ADC by major diagnosis Neurological 33.9 % 33.0 % 33.6 % 33.0 % Cancer 18.3 18.8 18.4 19.1 Cardio 11.7 11.9 11.9 12.1 Respiratory 6.6 6.3 6.6 6.4 Other   29.5     30.0     29.5   29.4   Total   100.0   %   100.0   %   100.0 %   100.0   % Admissions by major diagnosis Neurological 19.5 % 18.8 % 18.8 % 18.1 % Cancer 34.4 35.8 34.5 35.7 Cardio 11.0 10.4 11.3 11.5 Respiratory 7.4 7.5 8.0 7.5 Other   27.7     27.5     27.4   27.2   Total   100.0   %   100.0   %   100.0 %   100.0   % Direct patient care margins (e) Routine homecare 54.4 % 52.5 % 52.8 % 52.0 % Inpatient 14.4 11.6 13.6 14.6 Continuous care 22.6 20.1 21.4 20.2 Homecare margin drivers (dollars per patient day) Labor costs $ 51.97 $ 51.89 $ 52.57 $ 52.27 Drug costs 7.89 7.58 7.81 7.63 Home medical equipment 5.84 6.91 6.48 6.86 Medical supplies 2.67 2.55 2.56 2.42 Inpatient margin drivers (dollars per patient day) Labor costs $ 305.19 $ 300.26 $ 299.54 $ 287.16 Continuous care margin drivers (dollars per patient day) Labor costs $ 533.32 $ 534.60 $ 531.69 $ 527.27 Bad debt expense as a percent of revenues 0.7 % 1.1 % 0.9 % 1.1 % Accounts receivable Days of revenue outstanding--excluding unapplied Medicare payments 38.2 48.3 N.A.

N.A.

Days of revenue outstanding--including unapplied Medicare payments 36.5 18.0 N.A.

N.A.

  * Budget Neutrality Adjustment Factor. The "Footnotes to Financial Statements" are integral parts of this financial information.   CHEMED CORPORATION AND SUBSIDIARY COMPANIES FOOTNOTES TO FINANCIAL STATEMENTS FOR THE THREE MONTHS AND YEARS ENDED DECEMBER 31, 2010 AND 2009 (unaudited)                     (a)

Included in the results of operations 2010 are the following significant credits/(charges) which may not be indicative of ongoing operations (in thousands):

  For the Three Months Ended December 31, 2010 VITAS Roto-Rooter Corporate Consolidated Selling, general and administrative expenses: Expenses of OIG investigation $ (622 ) $ - $ - $ (622 ) Acquisition expenses (68 ) (256 ) - (324 ) Expenses of class action litigation - (1,426 ) - (1,426 ) Long-term incentive compensation - - (2,935 ) (2,935 ) Stock option expense - - (1,397 ) (1,397 ) Interest expense:

Additional interest expense resulting from the change in accounting for the conversion feature of the convertible notes

  -     -     (1,756 )   (1,756 ) Pretax impact on earnings (690 ) (1,682 ) (6,088 ) (8,460 ) Income tax benefit on the above   263     657     2,262     3,182   After-tax impact on earnings $ (427 ) $ (1,025 ) $ (3,826 ) $ (5,278 )   For the Year Ended December 31, 2010 VITAS Roto-Rooter Corporate Consolidated Selling, general and administrative expenses: Expenses of OIG investigation $ (1,012 ) $ - $ - $ (1,012 ) Acquisition expenses (68 ) (256 ) - (324 ) Expenses of class action litigation - (1,853 ) - (1,853 ) Long-term incentive compensation - - (4,734 ) (4,734 ) Stock option expense - - (7,762 ) (7,762 ) Interest expense:

Additional interest expense resulting from the change in accounting for the conversion feature of the convertible notes

  -     -     (6,820 )   (6,820 ) Pretax impact on earnings (1,080 ) (2,109 ) (19,316 ) (22,505 ) Income tax benefit on the above   411     827     7,137     8,375   After-tax impact on earnings $ (669 ) $ (1,282 ) $ (12,179 ) $ (14,130 )   (b)

Included in the results of operations 2009 are the following significant credits/(charges) which may not be indicative of ongoing operations (in thousands):

  For the Three Months Ended December 31, 2009 VITAS Roto-Rooter Corporate Consolidated Selling, general and administrative expenses: Expenses of OIG investigation $ (144 ) $ - $ - $ (144 ) Expenses of class action litigation - (882 ) - (882 ) Long-term incentive compensation - - (5,007 ) (5,007 ) Stock option expense - - (1,940 ) (1,940 ) Interest expense: Additional interest expense resulting from the change in accounting for the conversion feature of the convertible notes   -     -     (1,623 )   (1,623 ) Pretax impact on earnings (144 ) (882 ) (8,570 ) (9,596 ) Income tax benefit on the above   55     348     3,182     3,585   After-tax impact on earnings $ (89 ) $ (534 ) $ (5,388 ) $ (6,011 )                     For the Year Ended December 31, 2009 VITAS   Roto-Rooter   Corporate   Consolidated Selling, general and administrative expenses: Expenses of OIG investigation $ (586 ) $ - $ - $ (586 ) Expenses of class action litigation - (882 ) - (882 ) Long-term incentive compensation - - (5,007 ) (5,007 ) Stock option expense - - (8,639 ) (8,639 )

Expenses of contested proxy solicitation

- - (3,989 ) (3,989 ) Interest expense:

Additional interest expense resulting from the change in accounting for the conversion feature of the convertible notes

- - (6,305 ) (6,305 ) Other income/(expense)--net Non-taxable income from certain investments held in deferred compensation trusts   -     -     1,211     1,211   Pretax impact on earnings (586 ) (882 ) (22,729 ) (24,197 ) Income tax benefit on the above 223 348 8,829 9,400

Income tax impact of non-deductible net market losses on investments held in deferred compensation trusts

  -     -     (455 )   (455 ) After-tax impact on earnings $ (363 ) $ (534 ) $ (14,355 ) $ (15,252 )   (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 2010 and 2009, GAAP advertising expense for Roto-Rooter totaled $7,034,000 and $6,766,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation advertising expense for the fourth quarters of 2010 and 2009 would total $6,074,000 and $6,078,000, respectively.

 

Similarly, for the years ended December 31, 2010 and 2009, GAAP advertising expense for Roto-Rooter totaled $23,849,000 and $23,968,000, 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, 2010 and 2009 would total $24,528,000 and $24,508,000, respectively.

  (d)

VITAS has 6 large (greater than 450 ADC), 18 medium (greater than 200 but less than 450 ADC) and 21 small (less than 200 ADC) hospice programs. There are two programs as of December 31, 2010, with Medicare cap cushion of less than 10% for the most recent 12-month period. Additionally, one small program has a projected Medicare cap liability of $62,000 for the 2010 measurement period.

  (e) Amounts exclude indirect patient care and administrative costs, as well as Medicare Cap billing limitation.   (f)

Reclassified to agree with 2010 presentation. Prior to 2010, we recorded stock award amortization as a corporate expense. In the first quarter of 2010, we decided that since this expense was an ongoing expense it should be reported within the appropriate segment. Accordingly, stock award amortization has been allocated to the corresponding business segments for all periods presented.