Print Page  Close Window
Chemed Reports Third-Quarter 2010 Results

CINCINNATI, Oct 25, 2010 (BUSINESS WIRE) -- 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 third quarter ended September 30, 2010, versus the comparable prior-year period, as follows:

Consolidated operating results:

  • Revenue increased 8.0% to $320.5 million
  • Net Income increased 9.3% to $21.0 million
  • Adjusted Net Income increased 8.0% to $23.6 million

VITAS segment operating results:

  • Net Patient Revenue of $234.0 million, an increase of 7.8%
  • Average Daily Census (ADC) of 12,857, an increase of 6.1%
  • Admissions of 14,483, an increase of 5.4%
  • Net Income of $19.8 million, an increase of 9.1%
  • Adjusted EBITDA of $35.6 million, an increase of 8.3%
  • Adjusted EBITDA margin of 15.2%, an increase of 7 basis points

Roto-Rooter segment operating results:

  • Revenue of $86.5 million, an increase of 8.5%
  • Job count of 160,250, a decrease of 0.4%
  • Net Income of $7.7 million, a decrease of 2.4%
  • Adjusted EBITDA of $13.7 million, a decrease of 0.5%
  • Adjusted EBITDA margin of 15.9%, a decrease of 144 basis points

VITAS

Net revenue for VITAS was $234.0 million in the third quarter of 2010, which is an increase of 7.8% over the prior-year period. This revenue growth was the result of increased ADC of 6.1%, driven by an increase in admissions of 5.4%, combined with Medicare price increases of approximately 1.3%. The remaining growth was driven by geographic mix shift of the patient base.

The 5.4% admissions growth in the third quarter of 2010 compares favorably to the 3.1% increase in admissions in the prior-year quarter and a 0.7% decline in admissions for full-year 2009.

Average revenue per patient per day in the quarter, excluding the impact of Medicare Cap, was $197.90, which is 1.6% above the prior-year period. Routine home care reimbursement and high acuity care averaged $155.49 and $689.30, respectively, per patient per day in the third quarter of 2010. During the quarter, high acuity days of care were 7.9% of total days of care. This is essentially equal to the prior-year quarter.

In the third quarter of 2010, VITAS recorded a Medicare Cap billing limitation of $117,000 for one program with an average daily census of 126.

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 $199 million, or 24.1%, during the trailing twelve-month period.

The third quarter of 2010 gross margin, excluding the impact of Medicare Cap, was 23.1%, which is 36 basis points lower than the third quarter of 2009. Increased expenses relating to field-based admissions, expansion of inpatient units and increased documentation requirements in Medicare certification all contributed to this margin decline.

Selling, general and administrative expense was $18.4 million in the third quarter of 2010, which is an increase of 0.8% when compared to the prior-year quarter. Adjusted EBITDA totaled $35.6 million in the quarter, an increase of 8.3% over the prior-year period. Adjusted EBITDA margin, excluding the impact from Medicare Cap, was 15.2% in the quarter which was slightly above the prior-year quarter.

Roto-Rooter

Roto-Rooter's plumbing and drain cleaning business generated sales of $86.5 million for the third quarter of 2010, an increase of 8.5% over the prior-year quarter. Roto-Rooter's gross margin was 44.6% in the quarter, a 184 basis point decline when compared to the third quarter of 2009. Adjusted EBITDA in the third quarter of 2010 totaled $13.7 million, a decline of 0.5%, and the Adjusted EBITDA margin was 15.9% in the quarter, a decline of 144 basis points, when compared to the prior-year quarter.

Job count in the third quarter of 2010 declined a modest 0.4% when compared to the prior-year period. During the third quarter of 2010, total residential jobs declined 1.5%, as residential plumbing jobs increased 2.3% and residential drain cleaning jobs declined 3.6%, when compared to the third quarter of 2009. Residential jobs represented 71% of total job count in the quarter. Total commercial jobs increased 2.3%, with commercial plumbing/excavation job count increasing 5.9% and commercial drain cleaning increasing 0.8% when compared to the prior-year quarter. The "Other" job category increased 0.1%.

Management continues to have meaningful discussions with existing franchisees to acquire Roto-Rooter franchise territories. This activity is attributed to the current state of the capital markets, the potential increase in tax rates and the recessionary difficulties our franchisees are experiencing. Management will be highly disciplined in terms of valuation, risk assessment and overall return on investment of any potential acquisition. However, the timing or actual completion of any acquisition cannot be predicted.

Chemed Consolidated Debt and Cash Flows

Chemed had total debt of $157.4 million at September 30, 2010. This debt is net of the discount taken as a result of convertible debt accounting requirements. Excluding this discount, aggregate debt is $187.0 million and is due in May 2014. Chemed's total debt equates to less than one times trailing twelve-month adjusted EBITDA.

Chemed's $175.0 million revolving credit facility expires in May 2012. At September 30, 2010, this credit facility had approximately $146.8 million of undrawn borrowing capacity after deducting $28.2 million for letters of credit issued under this facility to secure the Company's workers' compensation insurance.

Capital expenditures for the third quarter of 2010 aggregated $7.2 million and compares favorably to depreciation and amortization during the same period of $7.6 million.

Total cash and cash equivalents as of September 30, 2010, was $137 million, which represents 49.8% of total current assets. Net cash provided from operations in the third quarter of 2010 aggregated $37.7 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 did not purchase any treasury stock in the past quarter and has approximately $45 million of remaining authorization under its previously announced share repurchase program. Management continually evaluates cash utilization alternatives, including share repurchase, debt repurchase, acquisitions and increased dividends to determine the most beneficial use of available capital resources.

Guidance for 2010

VITAS expects to achieve full-year 2010 revenue growth, prior to Medicare Cap and BNAF, of 7.5% to 8.2%. Admissions in 2010 are estimated to increase 4.0% to 5.0% and full-year Adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 15.3% to 15.6%. Effective October 1, 2010, Medicare increased average hospice reimbursement rates by approximately 2.1%. Our 2010 full-year guidance includes $1.25 million of estimated Medicare contractual billing limitations for the fourth quarter of 2010.

Roto-Rooter expects to achieve full-year 2010 revenue growth of 4.5% to 5.5%. The revenue estimate is a result of increased pricing of approximately 3.0%, a favorable mix shift to higher revenue jobs, offset by a job count decline estimated at 2.0% to 3.0%. Adjusted EBITDA margin for 2010 is estimated in the range of 17.5% to 18.5%.

Based upon these factors, an effective tax rate of 39.0% and a full-year average diluted share count of 23.0 million shares, management estimates 2010 earnings per diluted share from continuing operations, excluding non-cash expenses for stock options, the non-cash increase in interest expense related to the accounting change for convertible debt and other items not indicative of ongoing operations will be in the range of $4.10 to $4.20.

Conference Call

Chemed will host a conference call and webcast at 10 a.m., EDT, on Tuesday, October 26, 2010, 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) 510-9834 for U.S. and Canadian participants and (617) 614-3669 for international participants. The participant passcode is 37703938. 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 10769905. 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 12,000 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 Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
Service revenues and sales $ 320,451 $ 296,794 $ 944,259 $ 886,987
Cost of services provided and goods sold 227,915 208,888 670,754 623,238
Selling, general and administrative expenses (aa) 48,200 48,148 146,694 143,521
Depreciation 6,385 5,361 18,048 16,024
Amortization 1,196 1,611 3,707 4,765
Other operating expenses (bb) - - - 3,989
Total costs and expenses 283,696 264,008 839,203 791,537
Income from operations 36,755 32,786 105,056 95,450
Interest expense (2,995 ) (2,853 ) (8,946 ) (8,839 )
Other income--net (cc) 222 1,733 418 4,815
Income before income taxes 33,982 31,666 96,528 91,426
Income taxes (12,994 ) (12,456 ) (37,327 ) (35,627 )
Net income $ 20,988 $ 19,210 $ 59,201 $ 55,799
Earnings Per Share
Net income $ 0.93 $ 0.86 $ 2.62 $ 2.49
Average number of shares outstanding 22,597 22,461 22,604 22,425
Diluted Earnings Per Share
Net income $ 0.91 $ 0.84 $ 2.57 $ 2.46
Average number of shares outstanding 22,996 22,744 23,006 22,679
(aa) Selling, general and administrative ("SG&A") expenses comprise (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2010 2009 2010 2009

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

$ 47,957 $ 46,359 $ 144,547 $ 140,147
Long-term incentive compensation - - 1,799 -

Market value gains on assets held in deferred compensation trust

243 1,789 348 3,374
Total SG&A expenses $ 48,200 $ 48,148 $ 146,694 $ 143,521
(bb)

Amount represents expenses associated with contested proxy solicitation.

(cc) Other income/(expense)--net comprises (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2010 2009 2010 2009

Market value gains on assets held in deferred compensation trust

$ 243 $ 1,789 $ 348 $ 3,374
Loss on disposal of property and equipment (141 ) (159 ) (293 ) (213 )
Interest income 109 86 334 375

Gain on settlement of company-owned life insurance

- - - 1,211
Other 11 17 29 68
Total other income--net $ 222 $ 1,733 $ 418 $ 4,815
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)(unaudited)
September 30,
2010 2009
Assets
Current assets
Cash and cash equivalents $ 137,457 $ 42,047
Accounts receivable less allowances 105,686 106,667
Inventories 7,951 8,071
Current deferred income taxes 14,650 16,648
Prepaid income taxes 337 52
Prepaid expenses 9,925 8,527
Total current assets 276,006 182,012
Investments of deferred compensation plans held in trust 26,022 22,441
Properties and equipment, at cost less accumulated depreciation 78,982 73,918
Identifiable intangible assets less accumulated amortization 56,097 58,853
Goodwill 450,095 450,130
Other assets 11,190 14,049
Total Assets $ 898,392 $ 801,403
Liabilities
Current liabilities
Accounts payable $ 52,552 $ 47,788
Current portion of long-term debt - 70
Income taxes 4,575 8,022
Accrued insurance 34,320 34,955
Accrued compensation 45,183 41,383
Other current liabilities 15,637 12,992
Total current liabilities 152,267 145,210
Deferred income taxes 23,045 22,389
Long-term debt 157,392 150,431
Deferred compensation liabilities 25,508 21,962
Other liabilities 6,624 4,435
Total Liabilities 364,836 344,427
Stockholders' Equity
Capital stock 30,207 29,763
Paid-in capital 354,473 327,918
Retained earnings 453,886 388,109
Treasury stock, at cost (306,977 ) (290,748 )
Deferred compensation payable in Company stock 1,967 1,934
Total Stockholders' Equity 533,556 456,976
Total Liabilities and Stockholders' Equity $ 898,392 $ 801,403
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)(unaudited)
Nine Months Ended September 30,
2010 2009
Cash Flows from Operating Activities
Net income $ 59,201 $ 55,799

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

Depreciation and amortization 21,755 20,789
Provision for uncollectible accounts receivable 7,248 8,297
Stock option expense 6,365 6,699
Amortization of discount on convertible notes 5,265 4,921
Provision for deferred income taxes (3,886 ) (1,336 )
Noncash long-term incentive compensation 1,580 -

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

Increase in accounts receivable (59,528 ) (16,936 )
Increase in inventories (408 ) (499 )
Decrease in prepaid expenses 463 1,406

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

12,479 (4,584 )
Increase in income taxes 6,729 8,657
Increase in other assets (2,180 ) (103 )
Increase/(decrease) in other liabilities 3,960 (1,632 )
Excess tax benefit on share-based compensation (1,823 ) (1,519 )
Other sources 770 588
Net cash provided by operating activities 57,990 80,547
Cash Flows from Investing Activities
Capital expenditures (19,107 ) (14,471 )
Proceeds from sales of property and equipment 182 1,519
Business combinations, net of cash acquired (30 ) (1,859 )
Other uses (630 ) (950 )
Net cash used by investing activities (19,585 ) (15,761 )
Cash Flows from Financing Activities
Purchases of treasury stock (10,140 ) (1,684 )
Dividends paid (8,682 ) (5,429 )
Proceeds from issuance of capital stock 3,632 486
Excess tax benefit on share-based compensation 1,823 1,519
Increase/(decrease) in cash overdrafts payable (184 ) 943
Repayment of long-term debt - (14,599 )
Net decrease in revolving line of credit - (8,200 )
Other sources 187 597
Net cash used by financing activities (13,364 ) (26,367 )
Increase in Cash and Cash Equivalents 25,041 38,419
Cash and cash equivalents at beginning of year 112,416 3,628
Cash and cash equivalents at end of period $ 137,457 $ 42,047
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

(in thousands)(unaudited)

Chemed
VITAS Roto-Rooter Corporate Consolidated

2010

Service revenues and sales $ 233,964 $ 86,487 $ - $ 320,451
Cost of services provided and goods sold 179,997 47,918 - 227,915
Selling, general and administrative expenses (a) 18,370 24,573 5,257 48,200
Depreciation 4,321 1,925 139 6,385
Amortization 694 133 369 1,196
Total costs and expenses 203,382 74,549 5,765 283,696
Income/(loss) from operations 30,582 11,938 (5,765 ) 36,755
Interest expense (a) (48 ) (55 ) (2,892 ) (2,995 )
Intercompany interest income/(expense) 1,139 651 (1,790 ) -
Other income/(expense)--net (92 ) 11 303 222
Income/(loss) before income taxes 31,581 12,545 (10,144 ) 33,982
Income taxes (a) (11,778 ) (4,798 ) 3,582 (12,994 )
Net income/(loss) $ 19,803 $ 7,747 $ (6,562 ) $ 20,988

2009 (f)

Service revenues and sales $ 217,067 $ 79,727 $ - $ 296,794
Cost of services provided and goods sold 166,183 42,705 - 208,888
Selling, general and administrative expenses (b) 18,227 22,740 7,181 48,148
Depreciation 3,292 2,005 64 5,361
Amortization 1,179 117 315 1,611
Total costs and expenses 188,881 67,567 7,560 264,008
Income/(loss) from operations 28,186 12,160 (7,560 ) 32,786
Interest expense (b) (51 ) (43 ) (2,759 ) (2,853 )
Intercompany interest income/(expense) 1,178 684 (1,862 ) -
Other income/(expense)--net (86 ) 15 1,804 1,733
Income/(loss) before income taxes 29,227 12,816 (10,377 ) 31,666
Income taxes (b) (11,079 ) (4,881 ) 3,504 (12,456 )
Net income/(loss) $ 18,148 $ 7,935 $ (6,873 ) $ 19,210

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

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

(in thousands)(unaudited)

Chemed
VITAS Roto-Rooter Corporate Consolidated

2010

Service revenues and sales $ 683,542 $ 260,717 $ - $ 944,259
Cost of services provided and goods sold 527,347 143,407 - 670,754
Selling, general and administrative expenses (a) 54,920 73,523 18,251 146,694
Depreciation 11,909 5,826 313 18,048
Amortization 2,253 388 1,066 3,707
Total costs and expenses 596,429 223,144 19,630 839,203
Income/(loss) from operations 87,113 37,573 (19,630 ) 105,056
Interest expense (a) (127 ) (187 ) (8,632 ) (8,946 )
Intercompany interest income/(expense) 3,778 2,126 (5,904 ) -
Other income/(expense)--net (85 ) 35 468 418
Income/(loss) before income taxes 90,679 39,547 (33,698 ) 96,528
Income taxes (a) (34,156 ) (15,127 ) 11,956 (37,327 )
Net income/(loss) $ 56,523 $ 24,420 $ (21,742 ) $ 59,201

2009 (f)

Service revenues and sales $ 636,787 $ 250,200 $ - $ 886,987
Cost of services provided and goods sold 487,990 135,248 - 623,238
Selling, general and administrative expenses (b) 53,650 69,959 19,912 143,521
Depreciation 9,767 6,094 163 16,024
Amortization 3,537 323 905 4,765
Other operating expenses (b) - - 3,989 3,989
Total costs and expenses 554,944 211,624 24,969 791,537
Income/(loss) from operations 81,843 38,576 (24,969 ) 95,450
Interest expense (b) (415 ) (138 ) (8,286 ) (8,839 )
Intercompany interest income/(expense) 3,091 1,801 (4,892 ) -
Other income/(expense)--net (b) 35 137 4,643 4,815
Income/(loss) before income taxes 84,554 40,376 (33,504 ) 91,426
Income taxes (b) (32,112 ) (15,414 ) 11,899 (35,627 )
Net income/(loss) $ 52,442 $ 24,962 $ (21,605 ) $ 55,799

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 SEPTEMBER 30, 2010 AND 2009

(in thousands)(unaudited)

Chemed
VITAS Roto-Rooter Corporate Consolidated

2010

Net income/(loss) $ 19,803 $ 7,747 $ (6,562 ) $ 20,988
Add/(deduct):
Interest expense 48 55 2,892 2,995
Income taxes 11,778 4,798 (3,582 ) 12,994
Depreciation 4,321 1,925 139 6,385
Amortization 694 133 369 1,196
EBITDA 36,644 14,658 (6,744 ) 44,558
Add/(deduct):
Intercompany interest expense/(income) (1,139 ) (651 ) 1,790 -
Interest income (37 ) (10 ) (62 ) (109 )
Expenses of OIG investigation 112 - - 112
Advertising cost adjustment (c) - (571 ) - (571 )
Expenses of class action litigation - 322 - 322
Stock option expense - - 1,968 1,968
Adjusted EBITDA $ 35,580 $ 13,748 $ (3,048 ) $ 46,280

2009 (f)

Net income/(loss) $ 18,148 $ 7,935 $ (6,873 ) $ 19,210
Add/(deduct):
Interest expense 51 43 2,759 2,853
Income taxes 11,079 4,881 (3,504 ) 12,456
Depreciation 3,292 2,005 64 5,361
Amortization 1,179 117 315 1,611
EBITDA 33,749 14,981 (7,239 ) 41,491
Add/(deduct):
Intercompany interest expense/(income) (1,178 ) (684 ) 1,862 -
Interest income (53 ) (9 ) (24 ) (86 )
Expenses of OIG investigation 343 - - 343
Advertising cost adjustment (c) - (466 ) - (466 )
Stock option expense - - 2,214 2,214
Adjusted EBITDA $ 32,861 $ 13,822 $ (3,187 ) $ 43,496

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

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING SUMMARY OF EBITDA
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

(in thousands)(unaudited)

Chemed
VITAS Roto-Rooter Corporate Consolidated

2010

Net income/(loss) $ 56,523 $ 24,420 $ (21,742 ) $ 59,201
Add/(deduct):
Interest expense 127 187 8,632 8,946
Income taxes 34,156 15,127 (11,956 ) 37,327
Depreciation 11,909 5,826 313 18,048
Amortization 2,253 388 1,066 3,707
EBITDA 104,968 45,948 (23,687 ) 127,229
Add/(deduct):
Intercompany interest expense/(income) (3,778 ) (2,126 ) 5,904 -
Interest income (172 ) (37 ) (125 ) (334 )
Expenses of OIG investigation 390 - - 390
Advertising cost adjustment (c) - (1,639 ) - (1,639 )
Expenses of class action litigation - 427 - 427
Stock option expense - - 6,365 6,365
Long-term incentive compensation - - 1,799 1,799
Adjusted EBITDA $ 101,408 $ 42,573 $ (9,744 ) $ 134,237

2009 (f)

Net income/(loss) $ 52,442 $ 24,962 $ (21,605 ) $ 55,799
Add/(deduct):
Interest expense 415 138 8,286 8,839
Income taxes 32,112 15,414 (11,899 ) 35,627
Depreciation 9,767 6,094 163 16,024
Amortization 3,537 323 905 4,765
EBITDA 98,273 46,931 (24,150 ) 121,054
Add/(deduct):
Intercompany interest expense/(income) (3,091 ) (1,801 ) 4,892 -
Interest income (250 ) (44 ) (81 ) (375 )
Expenses of OIG investigation 442 - - 442
Advertising cost adjustment (c) - (1,228 ) - (1,228 )
Stock option expense - - 6,699 6,699
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 $ 95,374 $ 43,858 $ (9,862 ) $ 129,370

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

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
RECONCILIATION OF ADJUSTED NET INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

(in thousands, except per share data)(unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,
2010 2009 (f) 2010 2009 (f)
Net income as reported $ 20,988 $ 19,210 $ 59,201 $ 55,799
Add/(deduct) after-tax impact of:
Stock option expense 1,244 1,401 4,026 4,237

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

1,088 1,006 3,203 2,961
Expenses of class action litigation 194 - 257 -
Expenses of OIG investigation 69 213 242 274
Long-term incentive compensation - - 1,124 -
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 $ 23,583 $ 21,830 $ 68,053 $ 65,040
Earnings Per Share As Reported
Net income $ 0.93 $ 0.86 $ 2.62 $ 2.49
Average number of shares outstanding 22,597 22,461 22,604 22,425
Diluted Earnings Per Share As Reported
Net income $ 0.91 $ 0.84 $ 2.57 $ 2.46
Average number of shares outstanding 22,996 22,744 23,006 22,679
Adjusted Earnings Per Share
Net income $ 1.04 $ 0.97 $ 3.01 $ 2.90
Average number of shares outstanding 22,597 22,461 22,604 22,425
Adjusted Diluted Earnings Per Share
Net income $ 1.03 $ 0.96 $ 2.96 $ 2.87
Average number of shares outstanding 22,996 22,744 23,006 22,679

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 NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,
OPERATING STATISTICS 2010 2009 2010 2009
Net revenue ($000) (d)
Homecare $ 169,306 $ 157,079 $ 490,044 $ 456,160
Inpatient 25,963 24,057 78,244 72,806
Continuous care 38,812 35,974 113,588 105,679
Total before Medicare cap allowance and 2008 BNAF* $ 234,081 $ 217,110 $ 681,876 $ 634,645
Estimated BNAF* Accrual Q4 2008 - - - 1,950
Medicare cap allowance (117 ) (43 ) 1,666 192
Total $ 233,964 $ 217,067 $ 683,542 $ 636,787
Net revenue as a percent of total
before Medicare cap allowance and 2008 BNAF*
Homecare 72.3 % 72.3 % 71.8

%

71.8

%

Inpatient 11.1 11.1 11.5 11.5
Continuous care 16.6 16.6 16.7 16.7
Total before Medicare cap allowance and 2008 BNAF* 100.0 100.0 100.0 100.0
Estimated BNAF* Accrual Q4 2008 - - - 0.3
Medicare cap allowance (0.1 ) - 0.2 -
Total 99.9 % 100.0 % 100.2

%

100.3

%

Average daily census ("ADC") (days)
Homecare 8,586 7,835 8,350 7,661
Nursing home 3,250 3,316 3,212 3,291
Routine homecare 11,836 11,151 11,562 10,952
Inpatient 425 404 433 406
Continuous care 596 562 595 565
Total 12,857 12,117 12,590 11,923
Total Admissions 14,483 13,735 43,750 41,743
Total Discharges 14,076 13,441 42,767 41,064
Average length of stay (days) 78.2 78.0 77.1 75.0
Median length of stay (days) 15.0 14.0 14.0 14.0
ADC by major diagnosis
Neurological 33.4 % 33.1 % 33.2

%

33.0

%

Cancer 18.5 19.1 18.4 19.2
Cardio 11.9 12.2 11.9 12.2
Respiratory 6.5 6.2 6.6 6.5
Other 29.7 29.4 29.9 29.1
Total 100.0 % 100.0 % 100.0

%

100.0

%

Admissions by major diagnosis
Neurological 18.4 % 17.9 % 18.6

%

17.9

%

Cancer 35.8 36.8 34.6 35.6
Cardio 11.1 11.1 11.3 11.8
Respiratory 7.5 6.8 8.1 7.5
Other 27.2 27.4 27.4 27.2
Total 100.0 % 100.0 % 100.0

%

100.0

%

Direct patient care margins (e)
Routine homecare 52.7 % 51.7 % 52.2

%

51.8

%

Inpatient 12.3 12.8 13.3 15.7
Continuous care 21.1 20.6 21.0 20.3
Homecare margin drivers (dollars per patient day)
Labor costs $ 51.97 $ 52.56 $ 52.79 $ 52.40
Drug costs 7.89 7.59 7.78 7.65
Home medical equipment 6.54 7.03 6.71 6.85
Medical supplies 2.66 2.48 2.53 2.37
Inpatient margin drivers (dollars per patient day)
Labor costs $ 304.42 $ 294.24 $ 297.63 $ 282.74
Continuous care margin drivers (dollars per patient day)
Labor costs $ 536.83 $ 530.88 $ 531.14 $ 524.84
Bad debt expense as a percent of revenues 0.9 % 1.1 % 0.9

%

1.1

%

Accounts receivable --
Days of revenue outstanding- excluding unapplied Medicare payments 39.7 52.8 n.a. n.a.
Days of revenue outstanding- including unapplied Medicare payments 34.9 37.0 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 AND NINE MONTHS ENDED SEPTEMBER 30, 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):

Three Months Ended September 30, 2010
VITAS Roto-Rooter Corporate Consolidated
Selling, general and administrative expenses:
Expenses of OIG investigation $ (112 ) $ - $ - $ (112 )
Expenses of class action litigation - (322 ) - (322 )
Stock option expense - - (1,968 ) (1,968 )
Interest expense:

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

- - (1,721 ) (1,721 )
Pretax impact on earnings (112 ) (322 ) (3,689 ) (4,123 )
Income tax benefit on the above 43 128 1,357 1,528
After-tax impact on earnings $ (69 ) $ (194 ) $ (2,332 ) $ (2,595 )
Nine Months Ended September 30, 2010
VITAS Roto-Rooter Corporate Consolidated
Selling, general and administrative expenses:
Expenses of OIG investigation $ (390 ) $ - $ - $ (390 )
Expenses of class action litigation - (427 ) - (427 )
Stock option expense - - (6,365 ) (6,365 )
Long-term incentive compensation - - (1,799 ) (1,799 )
Interest expense:

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

- - (5,064 ) (5,064 )
Pretax impact on earnings (390 ) (427 ) (13,228 ) (14,045 )
Income tax benefit on the above 148 170 4,875 5,193
After-tax impact on earnings $ (242 ) $ (257 ) $ (8,353 ) $ (8,852 )
(b)

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

Three Months Ended September 30, 2009
VITAS Corporate Consolidated
Selling, general and administrative expenses:
Expenses of OIG investigation $ (343 ) $ - $ (343 )
Stock option expense - (2,214 ) (2,214 )
Interest expense:

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

- (1,591 ) (1,591 )
Pretax impact on earnings (343 ) (3,805 ) (4,148 )
Income tax benefit on the above 130 1,398 1,528
After-tax impact on earnings $ (213 ) $ (2,407 ) $ (2,620 )
Nine Months Ended September 30, 2009
VITAS Corporate Consolidated
Selling, general and administrative expenses:
Expenses of OIG investigation $ (442 ) $ - $ (442 )
Stock option expense - (6,699 ) (6,699 )
Other operating expenses:
Expenses associated with 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

- (4,682 ) (4,682 )
Other income/(expense) -- net:
Non-taxable income from certain investments held in deferred compensation trusts - 1,211 1,211
Pretax impact on earnings (442 ) (14,159 ) (14,601 )
Income tax benefit on the above 168 5,647 5,815

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

- (455 ) (455 )
After-tax impact on earnings $ (274 ) $ (8,967 ) $ (9,241 )
(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 third quarters of 2010 and 2009, GAAP advertising expense for Roto-Rooter totaled $5,579,000 and $5,674,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the third quarters of 2010 and 2009 would total $6,150,000 and $6,140,000, respectively. Similarly, for the first nine months of 2010 and 2009, GAAP advertising expense for Roto-Rooter totaled $16,815,000 and $17,202,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the first nine months of 2010 and 2009 would total $18,454,000 and $18,430,000, 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 September 30, 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 $117,000 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.

SOURCE: Chemed Corporation

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