Print Page  Close Window
Chemed Reports First-Quarter 2015 Results

CINCINNATI--(BUSINESS WIRE)--Apr. 28, 2015-- 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 first quarter ended March 31, 2015, versus the comparable prior-year period, as follows:

Consolidated operating results:

  • Revenue increased 5.1% to $377 million
  • GAAP Diluted EPS increased 25.0% to $1.40
  • Adjusted Diluted EPS increased 16.7% to $1.54

VITAS segment operating results:

  • Net Patient Revenue of $270 million, an increase of 3.5%
  • Average Daily Census (ADC) of 14,824, an increase of 3.5%
  • Admissions of 17,268, an increase of 5.6%
  • Net Income, including litigation costs, of $19.3 million, an increase of 6.4%
  • Adjusted EBITDA of $36.0 million, an increase of 5.9%
  • Adjusted EBITDA margin of 13.3%, an increase of 30 basis points

Roto-Rooter segment operating results:

  • Revenue of $107 million, an increase of 9.3%
  • Net Income of $12.0 million, an increase of 19.7%
  • Adjusted EBITDA of $21.4 million, an increase of 21.3%
  • Adjusted EBITDA margin of 20.0%, an increase of 197 basis points

VITAS

Net revenue for VITAS was $270 million in the first quarter of 2015, which is an increase of $9.2 million, or 3.5%, when compared to the prior-year period. This revenue increase is comprised of an average Medicare reimbursement rate increase of approximately 1.4%, a 3.5% increase in average daily census, offset by the impact of the estimated Medicare Cap billing limitation in 2015 when compared to the prior year.

In the first quarter of 2015, VITAS reversed $0.2 million in estimated Medicare Cap billing limitations. This compares to $0.8 million of Medicare Cap billing limitations reversed in the first quarter of 2014. At March 31, 2015, VITAS had 35 Medicare provider numbers, none of which has an estimated 2015 Medicare Cap billing limitation.

Of VITAS’ 35 unique Medicare provider numbers, 34 provider numbers have a Medicare Cap cushion of 10% or greater for the 2015 Medicare Cap period, and one provider number has a cap cushion between 0% and 5%. VITAS generated an aggregate cap cushion of $296 million during the trailing twelve-month period.

Average revenue per patient per day in the quarter, excluding the impact of Medicare Cap, was $201.96, which is 0.3% above the prior-year period. Routine home care reimbursement and high acuity care averaged $164.72 and $702.36, respectively. During the quarter, high acuity days of care were 6.9% of total days of care, 15 basis points less than the prior-year quarter.

The first quarter of 2015 gross margin, excluding the impact of Medicare Cap, was 21.1%, which is a 27 basis point increase when compared to the first quarter of 2014.

Selling, general and administrative expense was $22.0 million in the first quarter of 2015, which is an increase of 1.2% when compared to the prior-year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $35.8 million in the quarter, an increase of 8.2% over the prior-year period. Adjusted EBITDA margin, excluding the impact from Medicare Cap, was 13.3% in the quarter which is 53 basis points favorable to the prior-year period.

Roto-Rooter

Roto-Rooter’s plumbing and drain cleaning business generated sales of $107 million for the first quarter of 2015, an increase of $9.2 million, or 9.3%, over the prior-year quarter. Water restoration accounted for the majority of this revenue growth, with water and flood remediation services increasing $8.9 million in the quarter.

Roto-Rooter’s gross margin in the quarter was 47.3%, an 88 basis point improvement when compared to the first quarter of 2014. Adjusted EBITDA in the first quarter of 2015 totaled $21.4 million, an increase of 21.3%, and the Adjusted EBITDA margin was 20.0% in the quarter, 197 basis points higher than the prior year.

Chemed Consolidated

As of March 31, 2015, Chemed had total cash and cash equivalents of $28 million and debt of $161 million.

In June 2014 Chemed entered into a five-year Amended and Restated Credit Agreement that consisted of a $100 million amortizable term loan and a $350 million revolving credit facility. The interest rate on this facility has a floating rate that is currently LIBOR plus 112.5 basis points. At March 31, 2015, the Company had approximately $248 million of undrawn borrowing capacity under this credit agreement.

Capital expenditures through March 31, 2015, aggregated $8.6 million and compares to depreciation and amortization during the same period of $8.6 million.

In the first quarter of 2015, Chemed’s Board of Directors authorized an additional $100 million for stock repurchase under Chemed’s existing share repurchase program. These share repurchases will be funded through a combination of cash generated from operations as well as utilization of its revolving credit facility. Chemed currently has $111.8 million of authorization under this share repurchase plan. The Company did not repurchase any Chemed stock in the first quarter of 2015.

Guidance for 2015

Full-year 2015 revenue growth for VITAS, prior to Medicare Cap, is estimated to be in the range of 3% to 4%. Admissions in 2015 are estimated to increase 4% and full-year Adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 14% to 15%. Medicare Cap billing limitations for calendar year 2015 are estimated to be $4.3 million.

Roto-Rooter is forecasted to achieve full-year 2015 revenue growth of 3% to 4%. This revenue estimate is based upon continued expansion in water restoration services coupled with increased job pricing of approximately 1%. Adjusted EBITDA margin for 2015 is estimated in the range of 19% to 20%.

Management estimates that full-year 2015 adjusted earnings per diluted share, which excludes non-cash expense for stock options, costs related to litigation, and other discrete items, will be in the range of $6.50 to $6.70. This compares to Chemed’s 2014 reported adjusted earnings per diluted share of $6.07.

Conference Call

Chemed will host a conference call and webcast at 10 a.m., ET, on Wednesday, April 29, 2015, 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) 706-7745 for U.S. and Canadian participants and (617) 614-3472 for international participants. The participant passcode is 44919288. 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 pass code is 67403472. 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 over 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 the republics of Indonesia and Singapore, 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 March 31,

2015

2014
Service revenues and sales $ 376,652   $ 358,300  
Cost of services provided and goods sold 268,885 257,819
Selling, general and administrative expenses (aa) 58,588 55,671
Depreciation 8,032 7,149
Amortization   576     1,009  
Total costs and expenses   336,081     321,648  
Income from operations 40,571 36,652
Interest expense (969 ) (3,815 )
Other income--net (bb)   563     816  
Income before income taxes 40,165 33,653
Income taxes   (15,628 )   (13,079 )
Net income $ 24,537   $ 20,574  
 

Earnings Per Share

Net income $ 1.45   $ 1.17  
Average number of shares outstanding   16,914     17,510  
 

Diluted Earnings Per Share

Net income $ 1.40   $ 1.12  
Average number of shares outstanding   17,466     18,305  
 
       
(aa) Selling, general and administrative ("SG&A") expenses comprise (in thousands):
Three Months Ended March 31,
2015 2014

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

$ 56,704 $ 54,136
Market value gains related to deferred compensation plans 950 1,162
Long-term incentive compensation   934     373  
Total SG&A expenses $ 58,588   $ 55,671  
 
(bb) Other income--net comprises (in thousands):
Three Months Ended March 31,
2015 2014
Market value gains related to deferred compensation plans $ 950 $ 1,162
Gain/(loss) on disposal of property and equipment 48 (278 )
Interest income 44 (50 )
Other   (479 )   (18 )
Total other income--net $ 563   $ 816  
 

     

CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEET

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

       
 
March 31,

2015

2014

Assets

Current assets
Cash and cash equivalents $ 28,335 $ 39,479
Accounts receivable less allowances 145,757 116,152
Inventories 6,166 6,676
Current deferred income taxes 16,926 13,769
Prepaid income taxes 1,279 3,406
Prepaid expenses   10,023     18,930  
Total current assets 208,486 198,412
Investments of deferred compensation plans held in trust 52,075 45,732
Properties and equipment, at cost less accumulated depreciation 104,796 93,575
Identifiable intangible assets less accumulated amortization 55,901 56,276
Goodwill 466,576 466,961
Other assets   7,843     7,664  
Total Assets $ 895,677   $ 868,620  
 
Liabilities
Current liabilities
Accounts payable $ 43,618 $ 38,599
Current portion of long-term debt 6,875 185,825
Income taxes 13,033 3,967
Accrued insurance 42,498 39,391
Accrued compensation 43,578 38,233
Accrued legal 1,115 7,154
Other current liabilities   20,853     24,682  
Total current liabilities 171,570 337,851
Deferred income taxes 28,794 28,232
Long-term debt 154,375 -
Deferred compensation liabilities 51,407 45,498
Other liabilities   12,989     11,106  
Total Liabilities   419,135     422,687  
Stockholders' Equity
Capital stock 33,516 32,621
Paid-in capital 553,565 504,883
Retained earnings 791,970 703,385
Treasury stock, at cost (904,825 ) (797,141 )
Deferred compensation payable in Company stock   2,316     2,185  
Total Stockholders' Equity   476,542     445,933  
Total Liabilities and Stockholders' Equity $ 895,677   $ 868,620  
 

     
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)(unaudited)
         
Three Months Ended
March 31,

2015

2014
Cash Flows from Operating Activities
Net income $ 24,537 $ 20,574

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

Depreciation and amortization 8,608 8,158
Provision for uncollectible accounts receivable 3,804 3,304
Provision for deferred income taxes (2,734 ) 6,841
Stock option expense 1,444 1,309
Noncash long-term incentive compensation 934 373
Amortization of debt issuance costs 131 337
Amortization of discount on convertible notes - 2,261

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

Increase in accounts receivable (24,926 ) (27,700 )
Decrease in inventories 2 27
Decrease/(increase) in prepaid expenses 1,433 (1,112 )
Decrease in accounts payable and other current liabilities (9,538 ) (32,561 )
Increase in income taxes 11,696 5,322
Increase in other assets (2,815 ) (1,069 )
Increase in other liabilities 2,569 3,080
Excess tax benefit on share-based compensation (2,900 ) (1,399 )
Other sources   129     409  
Net cash provided/(used) by operating activities   12,374     (11,846 )
Cash Flows from Investing Activities
Capital expenditures (8,553 ) (8,131 )
Business combinations - (250 )
Other sources   351     29  
Net cash used by investing activities   (8,202 )   (8,352 )
Cash Flows from Financing Activities
Proceeds from long-term debt 37,200 -
Payments on long-term debt (23,450 ) -
Capital stock surrendered to pay taxes on stock-based compensation (5,464 ) (2,916 )
Proceeds from exercise of stock options 4,899 13,193
Dividends paid (3,743 ) (3,303 )
Excess tax benefit on share-based compensation 2,900 1,399
Increase/(decrease) in cash overdrafts payable (1,528 ) 369
Purchase of treasury stock - (32,982 )
Other uses   (783 )   (501 )
Net cash provided/ (used) by financing activities   10,031     (24,741 )
Increase/(Decrease) in Cash and Cash Equivalents 14,203 (44,939 )
Cash and cash equivalents at beginning of year   14,132     84,418  
Cash and cash equivalents at end of period $ 28,335   $ 39,479  
 

   
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014

(in thousands)(unaudited)

             
Chemed
VITAS Roto-Rooter Corporate Consolidated

2015

Service revenues and sales $ 269,613   $ 107,039   $ -   $ 376,652  
Cost of services provided and goods sold 212,495 56,390 - 268,885
Selling, general and administrative expenses (a) 21,971 28,761 7,856 58,588
Depreciation 4,785 3,094 153 8,032
Amortization   167     108     301     576  
Total costs and expenses   239,418     88,353     8,310     336,081  
Income/(loss) from operations 30,195 18,686 (8,310 ) 40,571
Interest expense (a) (57 ) (96 ) (816 ) (969 )
Intercompany interest income/(expense) 1,726 838 (2,564 ) -
Other income/(expense)—net   (433 )   46     950   563  
Income/(loss) before income taxes 31,431 19,474 (10,740 ) 40,165
Income taxes (a)   (12,116 )   (7,466 )   3,954     (15,628 )
Net income/(loss) $ 19,315   $ 12,008   $ (6,786 ) $ 24,537  
 
2014
Service revenues and sales $ 260,412   $ 97,888   $ -   $ 358,300  
Cost of services provided and goods sold 205,392 52,427 - 257,819
Selling, general and administrative expenses (b) 21,714 27,181 6,776 55,671
Depreciation 4,614 2,399 136 7,149
Amortization   419     145     445     1,009  
Total costs and expenses   232,139     82,152     7,357     321,648  
Income/(loss) from operations 28,273 15,736 (7,357 ) 36,652
Interest expense (b) (56 ) (97 ) (3,662 ) (3,815 )
Intercompany interest income/(expense) 1,344 649 (1,993 ) -
Other income/(expense)-net   (293 )   (59 )   1,168   816  
Income/(loss) before income taxes 29,268 16,229 (11,844 ) 33,653
Income taxes (b)   (11,109 )   (6,196 )   4,226     (13,079 )
Net income/(loss) $ 18,159   $ 10,033   $ (7,618 ) $ 20,574  
 
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 MARCH 31, 2015 AND 2014
(in thousands)(unaudited)
             
 
Chemed
VITAS Roto-Rooter Corporate Consolidated

2015

Net income/(loss) $ 19,315 $ 12,008 $ (6,786 ) $ 24,537
Add/(deduct):
Interest expense 57 96 816 969
Income taxes 12,116 7,466 (3,954 ) 15,628
Depreciation 4,785 3,094 153 8,032
Amortization   167     108     301     576  
EBITDA 36,440 22,772 (9,470 ) 49,742
Add/(deduct):
Intercompany interest income/(expense) (1,726 ) (838 ) 2,564 -
Interest income (34 ) (10 ) - (44 )
Expenses related to OIG investigation 1,274 - - 1,274
Expenses related to litigation settlements - 5 - 5
Advertising cost adjustment (c) - (506 ) - (506 )
Stock option expense - - 1,444 1,444
Long-term incentive compensations   -     -     934     934  
Adjusted EBITDA $ 35,954   $ 21,423   $ (4,528 ) $ 52,849  
 
2014
Net income/(loss) $ 18,159 $ 10,033 $ (7,618 ) $ 20,574
Add/(deduct):
Interest expense 56 97 3,662 3,815
Income taxes 11,109 6,196 (4,226 ) 13,079
Depreciation 4,614 2,399 136 7,149
Amortization   419     145     445     1,009  
EBITDA 34,357 18,870 (7,601 ) 45,626
Add/(deduct):
Intercompany interest income/(expense) (1,344 ) (649 ) 1,993 -
Interest income 64 (8 ) (6 ) 50
Expenses related to OIG investigation 748 - - 748
Expenses related to litigation settlements 113 193 - 306
Acquisition expenses 1 - - 1
Advertising cost adjustment (c) - (741 ) - (741 )
Stock option expense - - 1,309 1,309
Long-term incentive compensations   -     -     373     373  
Adjusted EBITDA $ 33,939   $ 17,665   $ (3,932 ) $ 47,672  
 
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 March 31,
2015 2014
Net income as reported $ 24,537 $ 20,574
 
Add after-tax cost of:
Stock option expense 910 822
Expenses related to OIG investigation 790 464
Long-term incentive compensation 591 236
Expenses related to litigation settlements 3 187

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

- 1,429
Acquisition expenses   -   1
Adjusted net income $ 26,831 $ 23,713
 
 
 
Diluted Earnings Per Share As Reported
Net income $ 1.40 $ 1.12
Average number of shares outstanding   17,466   18,305
 
Adjusted Diluted Earnings Per Share
Adjusted net income $

1.54

$

1.32

Adjusted average number of shares outstanding (d)  

17,466

 

18,019

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

 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
OPERATING STATISTICS FOR VITAS SEGMENT
(unaudited)
               
Three Months Ended March 31,
OPERATING STATISTICS

2015

2014
Net revenue ($000) (e)
Homecare $ 204,541 $ 195,397
Inpatient 26,716 25,993
Continuous care   38,191   38,175
Total before Medicare cap allowance $ 269,448 $ 259,565
Medicare cap allowance   165   847
Total $ 269,613 $ 260,412

Net revenue as a percent of total before Medicare cap allowance

Homecare 75.9 % 75.3 %
Inpatient 9.9 10.0
Continuous care   14.2   14.7
Total before Medicare cap allowance 100.0 100.0
Medicare cap allowance   0.1   0.3
Total   100.1 %   100.3 %
Average daily census ("ADC") (days)
Homecare 10,877 10,476
Nursing home   2,920   2,828
Routine homecare 13,797 13,304
Inpatient 440 437
Continuous care   587   576
Total   14,824   14,317
 
Total Admissions 17,268 16,353
Total Discharges 16,990 16,002
Average length of stay (days) 79.0 81.1
Median length of stay (days) 13.0 14.0
ADC by major diagnosis
Neurological 23.7 % 39.2 %
Cerebro 28.0 5.5
Cancer 16.9 17.3
Cardio 17.8 14.7
Respiratory 7.8 3.3

 

Other   5.8   20.0
Total   100.0 %   100.0 %
Admissions by major diagnosis
Neurological 12.9 % 21.8 %
Cerebro 18.6 6.7
Cancer 30.6 32.4
Cardio 15.8 13.8
Respiratory 10.8 9.9
Other   11.3   15.4
Total   100.0 %   100.0 %
Direct patient care margins (f)
Routine homecare 52.7 % 52.8 %
Inpatient 8.4 4.2
Continuous care 15.9 16.6
Homecare margin drivers (dollars per patient day)
Labor costs $ 57.21 $ 55.44
Drug costs 6.50 7.24
Home medical equipment 6.41 6.61
Medical supplies 2.92 3.22
Inpatient margin drivers (dollars per patient day)
Labor costs $ 339.37 $ 349.71
Continuous care margin drivers (dollars per patient day)
Labor costs $ 587.63 $ 593.77
Bad debt expense as a percent of revenues 1.0 % 1.0 %
Accounts receivable --
Days of revenue outstanding- excluding unapplied Medicare payments 41.3 42.7
Days of revenue outstanding- including unapplied Medicare payments 38.1 33.8
 
 
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 ENDED MARCH 31, 2015 AND 2014
(unaudited)
     
 
 
(a)

Included in the results of operations for the three months ended March 31, 2015, are the following significant credits/(charges) which may not be indicative of ongoing operations (in thousands):

 
VITAS Roto-Rooter Corporate Total
Selling, general and administrative expenses
Expenses related to OIG investigation $ (1,274 ) $ - $ - $ (1,274 )
Expenses related to litigation settlements - (5 ) - (5 )
Stock option expense - - (1,444 ) (1,444 )
Long-term incentive compensation   -     -     (934 )   (934 )
Pretax impact on earnings (1,274 ) (5 ) (2,378 ) (3,657 )
Income tax benefit/(charge) on the above   484     2     877     1,363  
After-tax impact on earnings $ (790 ) $ (3 ) $ (1,501 ) $ (2,294 )
 
(b)

Included in the results of operations for the three months ended March 31, 2014, are the following significant credits/(charges) which may not be indicative of ongoing operations (in thousands):

 
VITAS Roto-Rooter Corporate Total
Selling, general and administrative expenses
Expenses related to OIG investigation $ (748 ) $ - $ - $ (748 )
Expenses related to litigation settlements (113 ) (193 ) - (306 )
Acquisition expenses (1 ) - - (1 )
Stock option expense - - (1,309 ) (1,309 )
Long-term incentive compensation - - (373 ) (373 )
Interest expense

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

  -     -     (2,259 )   (2,259 )
Pretax impact on earnings (862 ) (193 ) (3,941 ) (4,996 )
Income tax benefit/(charge) on the above   327     76     1,454     1,857  
After-tax impact on earnings $ (535 ) $ (117 ) $ (2,487 ) $ (3,139 )
 
(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 first quarters of 2015 and 2014, GAAP advertising expense for Roto-Rooter totaled $6,067,000 and $6,515,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the first quarters of 2015 and 2014 would total $6,573,000 and $7,256,000, respectively.

 
(d)

Adjusted diluted average shares outstanding for 2014 excludes the estimated dilutive impact of the Convertible Notes (285,000 shares for the first quarter of 2014) as this impact was offset entirely by the Convertible Note Hedges when such conversion occurred in the second quarter of 2014.

 
(e)

VITAS has nine large (greater than 450 ADC), 17 medium (greater than 200 but less than 450 ADC) and 23 small (less than 200 ADC) hospice programs. Of VITAS' 35 unique Medicare provider numbers, 34 provider numbers have a Medicare cap cushion of 10% or greater during the current Medicare cap year and one provider number has a Medicare cap cushion between 0% and 5%.

 
(f) 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