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Chemed > Investor Relations > News Releases > News Release
News Releases
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Chemed Reports Second-Quarter 2012 Results

CINCINNATI--(BUSINESS WIRE)--Jul. 25, 2012-- 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 second quarter ended June 30, 2012, versus the comparable prior-year period, as follows:

Consolidated operating results:

  • Revenue increased 6.2% to $354 million
  • GAAP Diluted EPS increased 17.0% to $1.10
  • Adjusted Diluted EPS increased 15.6% to $1.26

VITAS segment operating results:

  • Net Patient Revenue of $265 million, an increase of 9.1%
  • Average Daily Census (ADC) of 14,111, an increase of 6.0%
  • Admissions of 15,912, an increase of 4.0%
  • Net Income of $20.4 million, an increase of 9.9%
  • Adjusted EBITDA of $37.1 million, an increase of 9.4%
  • Adjusted EBITDA margin of 14.0%, an increase of 4 basis points

Roto-Rooter segment operating results:

  • Revenue of $89.0 million, a decrease of 1.4%
  • Unit-for-unit job count of 160,746, a decrease of 3.1%
  • Net Income of $8.1 million, a decrease of 11.2%
  • Adjusted EBITDA of $14.4 million, a decrease of 8.7%
  • Adjusted EBITDA margin of 16.2%, a decrease of 128 basis points

VITAS

Net revenue for VITAS was $265 million in the second quarter of 2012, which is an increase of 9.1% over the prior-year period. This revenue growth was the result of increased ADC of 6.0%, driven by an increase in admissions of 4.0%, increased discharges of 4.4% and Medicare price increases of approximately 2.5%. Revenue growth was further enhanced by geographic mix shift within the patient base and a favorable comparison of Medicare cap.

Average revenue per patient per day in the quarter, excluding the impact of Medicare Cap, was $206.54, which is 2.8% above the prior-year period. Routine home care reimbursement and high acuity care averaged $163.18 and $717.63, respectively, per patient per day in the second quarter of 2012. During the quarter, high acuity days of care were 7.8% of total days of care, 6 basis points lower than the prior-year quarter.

Of VITAS' 35 unique Medicare provider numbers, 30 provider numbers have a Medicare Cap cushion of 10% or greater during the first eight months of the 2012 Medicare Cap year; two provider numbers have a Medicare Cap cushion between 5% and 10%; and three provider numbers have a cap cushion between 0% and 5%. VITAS generated an aggregate cap cushion of $203 million during the most recent twelve-month period.

The second quarter of 2012 gross margin, excluding the impact of Medicare Cap, was 21.6%, which is a decline of 35 basis points from the second quarter of 2011.

Selling, general and administrative expense was $20.5 million in the second quarter of 2012, which is an increase of 3.7% when compared to the prior-year quarter. Adjusted EBITDA totaled $37.1 million in the quarter, an increase of 9.4% over the prior-year period. Adjusted EBITDA margin, excluding the impact from Medicare Cap, was 14.0% in the quarter which was 9 basis points below the prior-year.

Roto-Rooter

Roto-Rooter's plumbing and drain cleaning business generated sales of $89.0 million for the second quarter of 2012, a decrease of 1.4% over the prior-year quarter.

Unit-for-unit job count in the second quarter of 2012 declined 3.1% when compared to the prior-year period. During the second quarter of 2012, total residential jobs decreased 6.0%, as residential plumbing jobs declined 2.1% and residential drain cleaning jobs decreased 7.9%, when compared to the second quarter of 2011. Residential jobs represented 69% of total job count in the quarter. Total commercial jobs increased 4.0%, with commercial plumbing/excavation job count increasing 9.2% and commercial drain cleaning increasing 2.1% when compared to the prior-year quarter. The "All Other" residential and commercial job category, which represents 1.6% of aggregate job count, decreased 9.2%.

Job count performances in both the first and second quarters of 2012 have noted a strong correlation to geographic location. Roto-Rooter branches located in temperate climates, primarily the South and West, have generated commercial and residential year-to-date job count growth of 7.5% and 0.6%, respectively. Branches located primarily in the East and Midwest experienced year-to-date commercial job count growth of 1.7% and residential job count decline of 11.2%. Branches located in the South and West represent approximately 41% of total job count.

Roto-Rooter's gross margin was 44.3% in the quarter, a 66 basis point decline when compared to the second quarter of 2011. Adjusted EBITDA in the second quarter of 2012 totaled $14.4 million, a decline of 8.7%, and the Adjusted EBITDA margin was 16.2% in the quarter, a decline of 128 basis points, when compared to the prior-year quarter.

Chemed Consolidated

Chemed had total debt of $171 million at June 30, 2012. 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.

In March 2011 Chemed entered into a five-year Credit Agreement that consists of a $350 million revolving credit facility. The interest rate on this Credit Agreement has a floating rate that is currently LIBOR plus 175 basis points. In addition, an expansion feature is included in this Credit Agreement that provides Chemed the opportunity to increase its revolver and/or enter into term loans for an additional $150 million. At June 30, 2012, this facility had approximately $321 million of undrawn borrowing capacity after deducting $29 million for letters of credit issued to secure the Company's workers' compensation insurance.

Capital expenditures through June 2012 aggregated $18.5 million and compares to depreciation and amortization during the same period of $14.9 million.

During the quarter, the company purchased 199,900 shares of Chemed stock at an aggregate cost of $11.1 million. The company has $64.1 million remaining under Chemed's previously announced share repurchase program.

Guidance for 2012

VITAS expects to achieve full-year 2012 revenue growth, prior to Medicare Cap, of 7.5% to 9.0%. Admissions in 2012 are estimated to increase approximately 3.5% to 4.0% and full-year Adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 14.5% to 15.0%. Effective October 1, 2011, Medicare increased the average hospice reimbursement rates by approximately 2.5%. Guidance assumes VITAS will incur $2.5 million of estimated Medicare contractual billing limitations for the remainder of calendar year 2012.

Roto-Rooter expects to achieve full-year 2012 revenue equal to the prior year. The revenue estimate is a result of increased pricing of approximately 2%, a favorable mix shift to higher revenue jobs, with job count estimated to decrease 2% to 4%. Adjusted EBITDA margin for 2012 is estimated in the range of 16.0% to 17.0%.

Based upon the above, management reiterates the prior-quarter guidance for 2012 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 $5.35 to $5.50. This compares to Chemed's 2011 reported adjusted earnings per diluted share of $4.78.

Conference Call

Chemed will host a conference call and webcast at 10 a.m., ET, on Thursday, July 26, 2012, to discuss the Company's quarterly results and to provide an update on its business. The dial-in number for the conference call is (800) 901-5248 for U.S. and Canadian participants and (617) 786-4512 for international participants. The participant passcode is 96013847. 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 84138726. 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 14,000 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)
       
Three Months Ended June 30, Six Months Ended June 30,
2012 2011 2012 2011
Service revenues and sales $ 354,170   $ 333,360   $ 707,113   $ 664,278  
Cost of services provided and goods sold 257,368 239,597 514,813 477,055
Selling, general and administrative expenses (aa) 49,770 50,424 102,937 106,078
Depreciation 6,380 6,358 12,621 12,646
Amortization   1,127     1,139     2,240     2,109  
Total costs and expenses   314,645     297,518     632,611     597,888  
Income from operations 39,525 35,842 74,502 66,390
Interest expense (3,672 ) (3,461 ) (7,289 ) (6,705 )

Other income/(expense)--net (bb)

  (970 )   714     1,125     2,816  
Income before income taxes 34,883 33,095 68,338 62,501
Income taxes   (13,609 )   (12,809 )   (26,619 )   (24,114 )
Net income $ 21,274   $ 20,286   $ 41,719   $ 38,387  
 
 
Earnings Per Share
Net income $ 1.12   $ 0.96   $ 2.20   $ 1.82  
Average number of shares outstanding   18,998     21,115     18,976     21,067  
 
Diluted Earnings Per Share
Net income $ 1.10   $ 0.94   $ 2.16   $ 1.78  
Average number of shares outstanding   19,369     21,637     19,357     21,586  
 
 
               
(aa) Selling, general and administrative ("SG&A") expenses comprise (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2012 2011 2012 2011

SG&A expenses before long-term incentive compensation and the impact of market gains and losses of deferred compensation plans

$ 50,718 $ 49,681 $ 101,752 $ 100,259

Market value gains/(losses) on assets held in deferred compensation trusts (cc)

(948 ) 743 1,185 2,807
Long-term incentive compensation   -     -     -     3,012  
Total SG&A expenses $ 49,770   $ 50,424   $ 102,937   $ 106,078  
 
(bb)

Other income/(expense)--net comprises (in thousands):

Three Months Ended June 30, Six Months Ended June 30,
2012 2011 2012 2011

Market value gains/(losses) on assets held in deferred compensation trusts

$ (948 ) $ 743 $ 1,185 $ 2,807
Gain/(loss) on disposal of property and equipment (67 ) 32 (148 ) 11
Interest income 59 62 110 123
Other   (14 )   (123 )   (22 )   (125 )
Total other income--net $ (970 ) $ 714   $ 1,125   $ 2,816  
 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)(unaudited)
               
June 30,
2012 2011
Assets
Current assets
Cash and cash equivalents $ 59,966 $ 50,941
Accounts receivable less allowances 81,811 118,281
Inventories 8,146 8,682
Current deferred income taxes 13,226 14,052
Prepaid income taxes 4,187 1,300
Prepaid expenses   10,737     10,344  
Total current assets 178,073 203,600
Investments of deferred compensation plans held in trust 33,215 33,066
Properties and equipment, at cost less accumulated depreciation 88,571 81,471
Identifiable intangible assets less accumulated amortization 57,635 59,015
Goodwill 461,965 460,793
Other assets   11,669     12,668  
Total Assets $ 831,128   $ 850,613  
 
Liabilities
Current liabilities
Accounts payable $ 51,002 $ 39,459
Income taxes 167 2,096
Accrued insurance 36,786 35,143
Accrued compensation 39,729 43,633
Other current liabilities   14,906     14,972  
Total current liabilities 142,590 135,303
Deferred income taxes 25,257 24,053
Long-term debt 170,769 162,932
Deferred compensation liabilities 33,149 32,255
Other liabilities   11,918     6,736  
Total Liabilities   383,683     361,279  
 
Stockholders' Equity
Capital stock 31,142 30,907
Paid-in capital 410,957 391,507
Retained earnings 582,316 505,736
Treasury stock, at cost (579,013 ) (440,809 )
Deferred compensation payable in Company stock   2,043     1,993  
Total Stockholders' Equity   447,445     489,334  
Total Liabilities and Stockholders' Equity $ 831,128   $ 850,613  
 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)(unaudited)
     
Six Months Ended June 30,
2012 2011
Cash Flows from Operating Activities
Net income $ 41,719 $ 38,387

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

Depreciation and amortization 14,861 14,755
Provision for deferred income taxes (4,895 ) (18 )
Provision for uncollectible accounts receivable 4,730 4,365
Stock option expense 4,312 4,495
Amortization of discount on convertible notes 3,985 3,724
Noncash long-term incentive compensation - 2,595

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

Increase in accounts receivable (8,543 ) (9,271 )
Decrease/(increase) in inventories 522 (954 )
Decrease/(increase) in prepaid expenses 672 (59 )

Decrease in accounts payable and other current liabilities

(3,593 ) (6,603 )
Increase/(decrease) in income taxes (1,029 ) 3,738
Increase in other assets (2,283 ) (5,652 )
Increase in other liabilities 4,493 4,514
Excess tax benefit on share-based compensation (1,069 ) (3,339 )
Other sources   773     450  
Net cash provided by operating activities   54,655     51,127  
Cash Flows from Investing Activities
Capital expenditures (18,474 ) (14,960 )
Business combinations, net of cash acquired (1,500 ) (3,689 )
Other sources/(uses)   357     (869 )
Net cash used by investing activities   (19,617 )   (19,518 )
Cash Flows from Financing Activities
Purchases of treasury stock (12,841 ) (25,482 )
Dividends paid (6,160 ) (5,967 )
Proceeds from issuance of capital stock 3,670 7,698
Excess tax benefit on share-based compensation 1,069 3,339
Decrease in cash overdrafts payable 985 (7,814 )
Debt issuances costs - (2,723 )
Other sources   124     364  
Net cash used by financing activities   (13,153 )   (30,585 )
Increase in Cash and Cash Equivalents 21,885 1,024
Cash and cash equivalents at beginning of year   38,081     49,917  
Cash and cash equivalents at end of period $ 59,966   $ 50,941  
 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND 2011
(in thousands)(unaudited)
 
        Chemed
VITAS Roto-Rooter Corporate Consolidated
2012
Service revenues and sales $ 265,213   $ 88,957   $ -   $ 354,170  
Cost of services provided and goods sold 207,839 49,529 - 257,368
Selling, general and administrative expenses (a) 20,471 24,372 4,927 49,770
Depreciation 4,164 2,085 131 6,380
Amortization   488     157     482     1,127  
Total costs and expenses   232,962     76,143     5,540     314,645  
Income/(loss) from operations 32,251 12,814 (5,540 ) 39,525
Interest expense (a) (63 ) (107 ) (3,502 ) (3,672 )
Intercompany interest income/(expense) 812 430 (1,242 ) -
Other income/(expense)-net   (1 )   (33 )   (936 )   (970 )
Income/(loss) before income taxes 32,999 13,104 (11,220 ) 34,883
Income taxes (a)   (12,566 )   (5,030 )   3,987     (13,609 )
Net income/(loss) $ 20,433   $ 8,074   $ (7,233 ) $ 21,274  
 
2011
Service revenues and sales $ 243,095   $ 90,265   $ -   $ 333,360  
Cost of services provided and goods sold 189,940 49,657 - 239,597
Selling, general and administrative expenses (b) 19,735 24,384 6,305 50,424
Depreciation 4,199 2,025 134 6,358
Amortization   520     155     464     1,139  
Total costs and expenses   214,394     76,221     6,903     297,518  
Income/(loss) from operations 28,701 14,044 (6,903 ) 35,842
Interest expense (b) (62 ) (77 ) (3,322 ) (3,461 )
Intercompany interest income/(expense) 1,215 652 (1,867 ) -
Other income/(expense)-net   (90 )   15     789     714  
Income/(loss) before income taxes 29,764 14,634 (11,303 ) 33,095
Income taxes (b)   (11,175 )   (5,542 )   3,908     (12,809 )
Net income/(loss) $ 18,589   $ 9,092   $ (7,395 ) $ 20,286  
 
The "Footnotes to Financial Statements" are integral parts of this financial information.
 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(in thousands)(unaudited)
       
Chemed
VITAS Roto-Rooter Corporate Consolidated
2012
Service revenues and sales $ 526,060   $ 181,053   $ -   $ 707,113  
Cost of services provided and goods sold 413,459 101,354 - 514,813
Selling, general and administrative expenses (a) 40,219 50,525 12,193 102,937
Depreciation 8,188 4,171 262 12,621
Amortization   978     311     951     2,240  
Total costs and expenses   462,844     156,361     13,406     632,611  
Income/(loss) from operations 63,216 24,692 (13,406 ) 74,502
Interest expense (a) (126 ) (214 ) (6,949 ) (7,289 )
Intercompany interest income/(expense) 1,566 825 (2,391 ) -
Other income/(expense)-net   (32 )   (54 )   1,211     1,125  
Income/(loss) before income taxes 64,624 25,249 (21,535 ) 68,338
Income taxes (a)   (24,564 )   (9,680 )   7,625     (26,619 )
Net income/(loss) $ 40,060   $ 15,569   $ (13,910 ) $ 41,719  
 
2011
Service revenues and sales $ 478,768   $ 185,510   $ -   $ 664,278  
Cost of services provided and goods sold 374,241 102,814 - 477,055
Selling, general and administrative expenses (b) 38,446 51,124 16,508 106,078
Depreciation 8,366 4,009 271 12,646
Amortization   1,003     287     819     2,109  
Total costs and expenses   422,056     158,234     17,598     597,888  
Income/(loss) from operations 56,712 27,276 (17,598 ) 66,390
Interest expense (b) (110 ) (142 ) (6,453 ) (6,705 )
Intercompany interest income/(expense) 2,428 1,291 (3,719 ) -
Other income/(expense)-net   (59 )   5     2,870     2,816  
Income/(loss) before income taxes 58,971 28,430 (24,900 ) 62,501
Income taxes (b)   (22,257 )   (10,828 )   8,971     (24,114 )
Net income/(loss) $ 36,714   $ 17,602   $ (15,929 ) $ 38,387  
 
The "Footnotes to Financial Statements" are integral parts of this financial information.
 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING SUMMARY OF EBITDA
FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND 2011
(in thousands)(unaudited)
         
Chemed
VITAS Roto-Rooter Corporate Consolidated
2012    
Net income/(loss) $ 20,433 $ 8,074 $ (7,233 ) $ 21,274
Add/(deduct):
Interest expense 63 107 3,502 3,672
Income taxes 12,566 5,030 (3,987 ) 13,609
Depreciation 4,164 2,085 131 6,380
Amortization 488     157     482     1,127  

EBITDA

37,714 15,453 (7,105 ) 46,062
Add/(deduct):
Intercompany interest expense/(income) (812 ) (430 ) 1,242 -
Interest income (42 ) (2 ) (15 ) (59 )
Legal expenses of OIG investigation 195 - - 195
Acquisition expenses - 20 - 20
Expenses of class action litigation - 80 - 80
Advertising cost adjustment (c) - (696 ) - (696 )

Stock option expense

- - 2,374 2,374
Legal expenses of securities litigation   -     -     197     197  
Adjusted EBITDA $ 37,055   $ 14,425   $ (3,307 ) $ 48,173  
 
2011    
Net income/(loss) $ 18,589 $ 9,092 $ (7,395 ) $ 20,286
Add/(deduct):
Interest expense 62 77 3,322 3,461
Income taxes 11,175 5,542 (3,908 ) 12,809
Depreciation 4,199 2,025 134 6,358
Amortization   520     155     464     1,139  
EBITDA 34,545 16,891 (7,383 ) 44,053
Add/(deduct):
Intercompany interest expense/(income) (1,215 ) (652 ) 1,867 -
Interest income (7 ) (9 ) (46 ) (62 )
Legal expenses of OIG investigation 486 - - 486
Acquisition expenses 51 (12 ) - 39
Expenses of class action litigation - 186 - 186
Advertising cost adjustment (c) - (607 ) - (607 )
Stock option expense   -     -     2,562     2,562  
Adjusted EBITDA $ 33,860   $ 15,797   $ (3,000 ) $ 46,657  
 
The "Footnotes to Financial Statements" are integral parts of this financial information.
 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING SUMMARY OF EBITDA
FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(in thousands)(unaudited)
       
Chemed
VITAS Roto-Rooter Corporate Consolidated
2012
Net income/(loss) $ 40,060 $ 15,569 $ (13,910 ) $ 41,719
Add/(deduct):
Interest expense 126 214 6,949 7,289
Income taxes 24,564 9,680 (7,625 ) 26,619
Depreciation 8,188 4,171 262 12,621
Amortization   978     311     951     2,240  

EBITDA

73,916 29,945 (13,373 ) 90,488
Add/(deduct):
Intercompany interest expense/(income) (1,566 ) (825 ) 2,391 -
Interest income (72 ) (10 ) (28 ) (110 )
Legal expenses of OIG investigation 266 - - 266
Acquisition expenses - 35 - 35
Expenses of class action litigation - 727 - 727
Advertising cost adjustment (c) - (1,402 ) - (1,402 )
Stock option expense - - 4,312 4,312
Legal expenses of securities litigation   -     -     197     197  
Adjusted EBITDA $ 72,544   $ 28,470   $ (6,501 ) $ 94,513  
 
2011
Net income/(loss) $ 36,714 $ 17,602 $ (15,929 ) $ 38,387
Add/(deduct):
Interest expense 110 142 6,453 6,705
Income taxes 22,257 10,828 (8,971 ) 24,114
Depreciation 8,366 4,009 271 12,646
Amortization   1,003     287     819     2,109  
EBITDA 68,450 32,868 (17,357 ) 83,961
Add/(deduct):
Intercompany interest expense/(income) (2,428 ) (1,291 ) 3,719 -
Interest income (44 ) (16 ) (63 ) (123 )
Legal expenses of OIG investigation 997 - - 997
Acquisition expenses 115 (6 ) - 109
Expenses of class action litigation - 681 - 681
Advertising cost adjustment (c) - (857 ) - (857 )
Stock option expense - - 4,495 4,495
Long-term incentive compensation   -     -     3,012     3,012  
Adjusted EBITDA $ 67,090   $ 31,379   $ (6,194 ) $ 92,275  
 
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)
           
Three Months Ended June 30,   Six Months Ended June 30,
2012 2011 2012 2011
Net income as reported $ 21,274 $ 20,286 $ 41,719 $ 38,387
 
Add/(deduct) impact of:
After-tax stock option expense 1,502 1,620 2,727 2,843

After-tax additional interest expense resulting from the change in accounting for the conversion feature of the convertible notes

1,248 1,155 2,472 2,287
After-tax cost of expenses of securities litigation 124 - 124 -
After-tax cost of legal expenses of OIG investigation 121 301 165 618
After-tax cost of expenses of class action litigation 49 113 442 414
After-tax cost of acquisition expenses 12 23 21 67
After-tax long-term incentive compensation -   -   -   1,880
 
Adjusted net income $ 24,330 $ 23,498 $ 47,670 $ 46,496
 
 
Earnings Per Share As Reported
Net income $ 1.12 $ 0.96 $ 2.20 $ 1.82
Average number of shares outstanding   18,998   21,115   18,976   21,067
Diluted Earnings Per Share As Reported
Net income $ 1.10 $ 0.94 $ 2.16 $ 1.78
Average number of shares outstanding   19,369   21,637   19,357   21,586
 
 
Adjusted Earnings Per Share
Net income $ 1.28 $ 1.11 $ 2.51 $ 2.21
Average number of shares outstanding   18,998   21,115   18,976   21,067
Adjusted Diluted Earnings Per Share
Net income $ 1.26 $ 1.09 $ 2.46 $ 2.15
Average number of shares outstanding   19,369   21,637   19,357   21,586
 
The "Footnotes to Financial Statements" are integral parts of this financial information.
 
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
OPERATING STATISTICS FOR VITAS SEGMENT
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(unaudited)
           
Three Months Ended June 30, Six Months Ended June 30,
OPERATING STATISTICS 2012 2011 2012 2011
Net revenue ($000) (d)
Homecare $ 193,150 $ 177,067 $ 379,747 $ 345,719
Inpatient 29,247 27,183 58,399 54,569
Continuous care   42,816   39,213     85,337   77,838
Total before Medicare cap allowance $ 265,213 $ 243,463 $ 523,483 $ 478,126
Medicare cap allowance   -   (368 )   2,577   642
Total $ 265,213 $ 243,095   $ 526,060 $ 478,768
Net revenue as a percent of total before Medicare cap allowance
Homecare 72.9 % 72.7 % 72.5 % 72.2 %
Inpatient 11.0 11.2 11.2 11.4
Continuous care   16.1   16.1     16.3   16.4
Total before Medicare cap allowance 100.0 100.0 100.0 100.0
Medicare cap allowance   -   (0.2 )   0.5   0.1
Total   100.0 %   99.8   %   100.5 % 100.1 %
Average daily census ("ADC") (days)
Homecare 9,971 9,229 9,792 9,031
Nursing home   3,036   3,034     3,011   3,034
Routine homecare 13,007 12,263 12,803 12,065
Inpatient 466 447 469 449
Continuous care   638   601     635   602
Total   14,111   13,311     13,907   13,116
 
Total Admissions 15,912 15,294 32,234 31,092
Total Discharges 15,508 14,855 31,707 30,419
Average length of stay (days) 74.0 77.1 78.3 78.0
Median length of stay (days) 14.0 14.0 14.0 14.0
ADC by major diagnosis
Neurological 33.6 % 34.2 % 34.0 % 34.2 %
Cancer 17.7 17.7 17.8 17.8
Cardio 11.6 11.5 11.5 11.7
Respiratory 6.7 6.9 6.7 6.8
Other   30.4   29.7     30.0   29.5
Total   100.0 %   100.0   %   100.0 % 100.0 %
Admissions by major diagnosis
Neurological 18.9 % 19.4 % 19.2 % 19.5 %
Cancer 33.5 32.8 32.9 32.2
Cardio 10.8 10.8 11.3 11.0
Respiratory 8.1 8.5 8.5 8.8
Other   28.7   28.5     28.1   28.5

Total

  100.0 %   100.0   %   100.0 % 100.0 %
Direct patient care margins (e)
Routine homecare 52.4 % 52.4 % 51.4 % 51.7 %
Inpatient 12.7 13.3 13.4 13.1
Continuous care 19.7 20.2 19.8 20.4
Homecare margin drivers (dollars per patient day)
Labor costs $ 54.56 $ 53.23 $ 56.13 $ 54.28
Drug costs 8.31 8.21 8.32 8.08
Home medical equipment 6.79 6.66 6.80 6.66
Medical supplies 2.79 2.83 2.77 2.79
Inpatient margin drivers (dollars per patient day)
Labor costs $ 321.16 $ 311.26 $ 317.73 $ 308.97
Continuous care margin drivers (dollars per patient day)
Labor costs $ 569.98 $ 550.40 $ 569.76 $ 547.29
Bad debt expense as a percent of revenues 0.8 % 0.8 % 0.8 % 0.7 %
Accounts receivable --
Days of revenue outstanding- excluding unapplied Medicare payments 35.0 37.2 n.a. n.a.
Days of revenue outstanding- including unapplied Medicare payments 30.6 36.8 n.a. n.a.
 
The "Footnotes to Financial Statements" are integral parts of this financial information.
 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
FOOTNOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(unaudited)
                   
(a) Included in the results of operations 2012 are the following significant credits/(charges) which may not be indicative of ongoing operations
(in thousands):
Three Months Ended June 30, 2012
VITAS Roto-Rooter Corporate Consolidated
Selling, general and administrative expenses:
Legal expenses of OIG investigation $ (195 ) $ - $ - $ (195 )
Acquisition expenses - (20 ) - (20 )
Expenses of class action litigation - (80 ) - (80 )
Stock option expense - - (2,374 ) (2,374 )
Expenses of securities litigation - - (197 ) (197 )
Interest expense:

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

  -     -     (1,973 )   (1,973 )
Pretax impact on earnings (195 ) (100 ) (4,544 ) (4,839 )
Income tax benefit on the above   74     39     1,670     1,783  
After-tax impact on earnings $ (121 ) $ (61 ) $ (2,874 ) $ (3,056 )
 
Six Months Ended June 30, 2012
VITAS Roto-Rooter Corporate Consolidated
Selling, general and administrative expenses:
Legal expenses of OIG investigation $ (266 ) $ - $ - $ (266 )
Acquisition expenses - (35 ) - (35 )
Expenses of class action litigation - (727 ) - (727 )
Stock option expense - - (4,312 ) (4,312 )
Expenses of securities litigation - - (197 ) (197 )
Interest expense:

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

  -     -     (3,908 )   (3,908 )
Pretax impact on earnings (266 ) (762 ) (8,417 ) (9,445 )
Income tax benefit on the above   101     299     3,094     3,494  
After-tax impact on earnings $ (165 ) $ (463 ) $ (5,323 ) $ (5,951 )
 
(b) Included in the results of operations 2011 are the following significant credits/(charges) which may not be indicative of ongoing operations
(in thousands):
Three Months Ended June 30, 2011
VITAS Roto-Rooter Corporate Consolidated
Selling, general and administrative expenses:
Legal expenses of OIG investigation $ (486 ) $ - $ - $ (486 )
Acquisition expenses (51 ) 12 - (39 )
Expenses of class action litigation - (186 ) - (186 )
Stock option expense - - (2,562 ) (2,562 )
Interest expense:

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

  -     -     (1,825 )   (1,825 )
Pretax impact on earnings (537 ) (174 ) (4,387 ) (5,098 )
Income tax benefit on the above   205     69     1,612     1,886  
After-tax impact on earnings $ (332 ) $ (105 ) $ (2,775 ) $ (3,212 )
 
Six Months Ended June 30, 2011
VITAS Roto-Rooter Corporate Consolidated
Selling, general and administrative expenses:
Legal expenses of OIG investigation $ (997 ) $ - $ - $ (997 )
Acquisition expenses (115 ) 6 - (109 )
Expenses of class action litigation - (681 ) - (681 )
Stock option expense - - (4,495 ) (4,495 )
Long-term incentive compensation - - (3,012 ) (3,012 )
Interest expense:

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

  -     -     (3,615 )   (3,615 )
Pretax impact on earnings (1,112 ) (675 ) (11,122 ) (12,909 )
Income tax benefit on the above   423     265     4,112     4,800  
After-tax impact on earnings $ (689 ) $ (410 ) $ (7,010 ) $ (8,109 )
 

 

(c)

Under Generally Accepted Accounting Principles ("GAAP"), the Roto-Rooter segment expenses all advertising, including the cost of telephone directories, immediately upon the initial release of the advertising. Telephone directories are generally in circulation 12 months. If a directory is in circulation for a time period greater or less than 12 months, the publisher adjusts the directory billing for the change in billing period. The timing of when a telephone directory is published can and does fluctuate significantly on a quarterly basis. This "direct expensing" results in significant fluctuations in quarterly advertising expense. In the second quarters of 2012 and 2011, GAAP advertising expense for Roto-Rooter totaled $5,270,000 and $5,304,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the second quarters of 2012 and 2011 would total $5,966,000 and $5,911,000, respectively.

 

Similarly, for the first six months of 2012 and 2011, GAAP advertising expense for Roto-Rooter totaled $10,894,000 and $11,222,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the first six months of 2012 and 2011 would total $12,296,000 and $12,079,000, respectively.

 
(d)

VITAS has 28 large (greater than 450 ADC), 16 medium (greater than 200 but less than 450 ADC) and 8 small (less than 200 ADC) hospice programs. There are 6 programs as of June 30, 2012, with Medicare cap cushion of less than 10% for the most recent 12-month period.

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

Source: Chemed Corporation

Chemed Corporation
David P. Williams, 513-762-6901

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