News Column

Chemed Reports First-Quarter 2014 Results

April 29, 2014

CINCINNATI--(BUSINESS WIRE)-- Chemed Corporation (Chemed) (NYSE:CHE),which operates VITAS Healthcare Corporation (VITAS), the nationís largest provider of end-of-life care, and Roto-Rooter, the nationís largest commercial and residential plumbing and drain cleaning services provider, reported financial results for its first quarter ended March 31, 2014, versus the comparable prior-year period, as follows:

Consolidated operating results:

  • Revenue decreased 2.3% to $358 million
  • GAAP Diluted EPS decreased 4.3% to $1.12
  • Adjusted Diluted EPS decreased 4.3% to $1.32

    VITAS segment operating results:

  • Net Patient Revenue of $260 million, a decrease of 4.0%
  • Average Daily Census (ADC) of 14,317, a decrease of 0.8%
  • Admissions of 16,353, a decrease of 4.6%
  • Net Income, including litigation costs, of $18.2 million, a decrease of 9.8%
  • Adjusted EBITDA of $33.9 million, a decrease of 9.7%
  • Adjusted EBITDA margin of 13.0%, a decrease of 82 basis points

    Roto-Rooter segment operating results:

  • Revenue of $97.9 million, an increase of 2.7%
  • Net Income of $10.0 million, an increase of 4.2%
  • Adjusted EBITDA of $17.7 million, an increase of 1.3%
  • Adjusted EBITDA margin of 18.0%, a decrease of 25 basis points

    VITAS

    Net revenue for VITAS was $260 million in the first quarter of 2014, which is a decline of $10.9 million, or 4.0%, when compared to the prior-year period. This revenue decline is a combination of several factors. Sequestration negatively impacted revenue by approximately $5.0 million. In addition, high acuity care as a percentage of total days of care declined 89 basis points which equated to a $6.4 million reduction in revenue. Other significant factors impacting revenue include a 1.4% increase in Medicare reimbursement rates and a 0.8% decline in average daily census.

    In the first quarter of 2014, VITAS reversed $0.8 million in estimated Medicare Cap billing limitations. At March 31, 2014, VITAS had one program with an estimated 2014 Medicare Cap billing limitation.

    Of VITASí 38 unique Medicare provider numbers, 32 provider numbers have a Medicare Cap cushion of 10% or greater for the 2014 Medicare Cap period; three provider numbers have a Medicare Cap cushion of 5% to 10%; and two provider numbers have a cap cushion between 0% and 5%. VITAS generated an aggregate cap cushion of $261 million during the trailing twelve-month period.

    Average revenue per patient per day in the quarter, excluding the impact of Medicare Cap, was $201.45, which is 3.3% below the prior-year period. Routine home care reimbursement and high acuity care averaged $163.19 and $703.92, respectively. The average revenue includes the 2.0% reduction in Medicare hospice reimbursement that became effective April 1, 2013. During the quarter, high acuity days of care were 7.1% of total days of care, 89 basis points below the prior-year quarter.

    The first quarter of 2014 gross margin, excluding the impact of Medicare Cap, was 20.9%, which is a 31 basis point decline when compared to the first quarter of 2013. Excluding the impact of sequestration, gross margins would have improved approximately 118 basis points.

    Selling, general and administrative expense was $21.7 million in the first quarter of 2014, which is an increase of 0.5% when compared to the prior-year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $33.1†million in the quarter, a decrease of 9.8% over the prior-year period. Adjusted EBITDA margin, excluding the impact from Medicare Cap, was 12.7% in the quarter which is 82 basis points below the prior-year period.

    Roto-Rooter

    Roto-Rooterís plumbing and drain cleaning business generated sales of $97.9 million for the first quarter of 2014, an increase of 2.7% over the prior-year quarter.

    Roto-Rooterís gross margin in the quarter was 46.4%, a 10 basis point increase when compared to the first quarter of 2013. Adjusted EBITDA in the first quarter of 2014 totaled $17.7†million, an increase of 1.3%, and the Adjusted EBITDA margin was 18.0% in the quarter, a decrease of 25 basis points.

    Chemed Consolidated

    As of March 31, 2014, Chemed had total cash and cash equivalents of $39 million and debt of $186 million. 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.

    In January 2013Chemed entered into a five-year Amended and Restated Credit Agreement that consists of a $350 million revolving credit facility. The interest rate on this facility has a floating rate that is currently LIBOR plus 125 basis points. At March 31, 2014, the Company had approximately $315 million of undrawn borrowing capacity under this credit agreement after deducting $35 million for letters of credit issued to secure the Companyís workersí compensation insurance.

    Capital expenditures through March 31, 2014, aggregated $8.1 million and compares to depreciation and amortization during the same period of $8.2 million.

    The Company repurchased $33 million of Chemed stock during the quarter. This equates to 382,934 of Chemed shares repurchased at an average cost of $86.13. Chemed currently has $89 million of authorization remaining under this share repurchase plan.

    Guidance for 2014

    On April 1, 2013, Medicare reduced hospice reimbursement rates 2.0%. Effective October 1, 2013, Medicare increased the average hospice rate approximately 1.4%. This effectively reduced Medicare hospice reimbursement 0.6% in the first quarter of 2014 when compared to the prior-year quarter.

    VITAS estimates its revenue growth will be constrained in the first half of 2014. This is primarily the result of the 2.0% Medicare rate cut implemented in the second quarter of 2013 as well as continued mix shift from high acuity care to routine home care. These factors will negatively impact revenue comparisons in the first half of 2014.

    Full-year 2014 revenue growth for VITAS, prior to Medicare Cap, is estimated to be in the range of 1% to 3%. Admissions in 2014 are estimated to increase 3% to 4% and full-year Adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 14.5% to 15.0%. Medicare Cap is estimated to be $5 million in 2014. Revenue, Adjusted EBITDA and admissions growth is anticipated to begin in the second quarter of 2014, with the majority of this growth weighted to the second half of 2014.

    Roto-Rooter is forecasted to achieve full-year 2014 revenue growth of 3% to 4%. This revenue estimate is based upon increased job pricing of approximately 2.0%. Adjusted EBITDA margin for 2014 is estimated in the range of 19.0% to 20.0%.

    Management estimates that full-year 2014 earnings per diluted share, excluding non-cash expense for stock options, the non-cash interest expense related to the accounting for convertible debt, litigation and other discrete items, will be in the range of $5.90 to $6.10. This compares to Chemedís 2013 reported adjusted earnings per diluted share of $5.62.

    Conference Call

    Chemed will host a conference call and webcast at 10 a.m., ET, on Wednesday, April 30, 2014, to discuss the Company's quarterly results and to provide an update on its business. The dial-in number for the conference call is (866) 515-2913 for U.S. and Canadian participants and (617)†399-5127 for international participants. The participant passcode is 81557577. 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 11532021. 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 Indonesia, Singapore, Japan, and the Philippines.

    This press release contains information about Chemedís 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 Chemedís financial performance. In reporting its operating results, Chemed provides EBITDA, Adjusted EBITDA and Adjusted Diluted EPS measures to help investors and others evaluate the Companyís 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. Chemedís 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 Chemedís management to estimate the resources required to meet Chemedís future financial obligations and expenditures. Chemedís 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 Chemedís 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; Chemedís dependence on patient referral sources; and other factors detailed under the caption "Description of Business by Segment" or "Risk Factors" in Chemedís 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,

    2014

    2013
    Service revenues and sales $358,300 $ 366,641
    Cost of services provided and goods sold 257,819 264,307
    Selling, general and administrative expenses (aa) 55,671 55,560
    Depreciation 7,149 6,795
    Amortization 1,009 1,127
    Total costs and expenses 321,648 327,789
    Income from operations 36,652 38,852
    Interest expense (3,815) (4,094 )
    Other income--net (bb) 816 1,706
    Income before income taxes 33,653 36,464
    Income taxes (13,079) (14,186 )
    Net income $20,574 $ 22,278

    Earnings Per Share

    Net income $1.17 $ 1.20
    Average number of shares outstanding 17,510 18,522

    Diluted Earnings Per Share

    Net income $1.12 $ 1.17
    Average number of shares outstanding 18,305 19,000

    (aa) Selling, general and administrative ("SG&A") expenses comprise (in thousands):

    Three Months Ended March 31,
    2014 2013

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

    $54,136 $ 53,476
    Market value gains related to deferred compensation plans 1,162 1,472
    Long-term incentive compensation 373 612
    Total SG&A expenses $55,671 $ 55,560

    (bb) Other income--net comprises (in thousands):

    Three Months Ended March 31,
    2014 2013
    Market value gains related to deferred compensation plans $1,162 $ 1,472
    Loss on disposal of property and equipment (278) (78 )
    Interest income

    (50

    ) 303
    Other (18) 9
    Total other income--net $

    816

    $ 1,706


    CHEMED CORPORATION AND SUBSIDIARY COMPANIES

    CONSOLIDATED BALANCE SHEET

    (in thousands, except per share data)(unaudited)
    March 31,
    2014 2013

    Assets

    Current assets
    Cash and cash equivalents $39,479 $ 72,956
    Accounts receivable less allowances 116,152 127,220
    Inventories 6,676 6,559
    Current deferred income taxes 13,769 14,816
    Prepaid income taxes 3,406 2,159
    Prepaid expenses 18,930 12,539
    Total current assets 198,412 236,249
    Investments of deferred compensation plans held in trust 45,732 39,144
    Properties and equipment, at cost less accumulated depreciation 93,575 90,374

    Identifiable intangible assets less accumulated amortization

    56,276 56,798
    Goodwill 466,961 465,734
    Other assets 7,664 11,110
    Total Assets $868,620 $ 899,409

    Liabilities

    Current liabilities
    Accounts payable $

    38,599

    $ 48,496
    Current portion of long-term debt 185,825 -
    Income taxes 3,967 12,912
    Accrued insurance 39,391 43,041
    Accrued compensation 38,233 38,552
    Accrued legal 7,154 1,293
    Other current liabilities 24,682 16,624
    Total current liabilities 337,851 160,918
    Deferred income taxes 28,232 28,155
    Long-term debt - 177,004
    Deferred compensation liabilities 45,498 38,481
    Other liabilities 11,106 11,762
    Total Liabilities 422,687 416,320

    Stockholders' Equity

    Capital stock 32,621 31,957
    Paid-in capital 504,883 457,790
    Retained earnings 703,385 641,946
    Treasury stock, at cost (797,141) (650,668 )
    Deferred compensation payable in Company stock 2,185 2,064
    Total Stockholders' Equity 445,933 483,089
    Total Liabilities and Stockholders' Equity $868,620 $ 899,409


    CHEMED CORPORATION AND SUBSIDIARY COMPANIES
    CONSOLIDATED STATEMENT OF CASH FLOWS

    (in thousands)(unaudited)

    Three Months Ended
    March 31,

    2014

    2013

    Cash Flows from Operating Activities

    Net income $20,574 $ 22,278

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

    Depreciation and amortization 8,158 7,922
    Provision for deferred income taxes 6,841 (681 )
    Provision for uncollectible accounts receivable 3,304 2,967
    Amortization of discount on convertible notes 2,261 2,114
    Stock option expense 1,309 1,491
    Noncash long-term incentive compensation 373 612
    Amortization of debt issuance costs 337 780

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

    Increase in accounts receivable (27,700) (36,706 )
    Decrease in inventories 27 499
    Increase in prepaid expenses (1,112) (1,092 )
    Decrease in accounts payable and other current liabilities (32,561) (698 )
    Increase in income taxes 5,322 10,139
    Increase in other assets (1,069) (3,071 )
    Increase in other liabilities 3,080 3,282
    Excess tax benefit on share-based compensation (1,399) (1,891 )
    Other sources 409 196

    Net cash provided/(used) by operating activities

    (11,846) 8,141

    Cash Flows from Investing Activities

    Capital expenditures (8,131) (5,406 )
    Business combinations (250) -
    Other sources 29 78
    Net cash used by investing activities (8,352) (5,328 )
    Cash Flows from Financing Activities
    Purchase of treasury stock (32,982) -

    Proceeds from exercise of stock options

    13,193 10,168
    Dividends paid (3,303) (3,367 )
    Capital stock surrendered to pay taxes on stock-based compensation (2,916) (3,389 )
    Excess tax benefit on share-based compensation 1,399 1,891
    Increase/(decrease) in cash overdrafts payable 369 (3,165 )
    Debt issuance costs - (1,107 )
    Other uses (501) (419 )

    Net cash provided/(used) by financing activities

    (24,741) 612
    Increase/(Decrease) in Cash and Cash Equivalents(44,939) 3,425
    Cash and cash equivalents at beginning of year 84,418 69,531
    Cash and cash equivalents at end of period $39,479 $ 72,956


    CHEMED CORPORATION AND SUBSIDIARY COMPANIES

    CONSOLIDATING STATEMENT OF INCOME

    FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

    (in thousands)(unaudited)

    Chemed

    VITASRoto-RooterCorporate

    Consolidated

    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 (a) 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 (a) (56 ) (97 ) (3,662 ) (3,815 )
    Intercompany interest income/(expense) 1,344 649 (1,993 ) -
    Other income/(expense)ónet (293 ) (59 ) 1,168 816
    Income/(loss) before income taxes 29,268 16,229 (11,844 ) 33,653
    Income taxes (a) (11,109 ) (6,196 ) 4,226 (13,079 )
    Net income/(loss) $ 18,159 $ 10,033 $ (7,618 ) $ 20,574
    2013
    Service revenues and sales $ 271,326 $ 95,315 $ - $ 366,641
    Cost of services provided and goods sold 213,160 51,147 - 264,307
    Selling, general and administrative expenses (b) 21,604 26,662 7,294 55,560
    Depreciation 4,514 2,147 134 6,795
    Amortization 491 154 482 1,127
    Total costs and expenses 239,769 80,110 7,910 327,789
    Income/(loss) from operations 31,557 15,205 (7,910 ) 38,852
    Interest expense (b) (46 ) (59 ) (3,989 ) (4,094 )
    Intercompany interest income/(expense) 843 428 (1,271 ) -
    Other income/(expense)ónet 221 (1 ) 1,486 1,706
    Income/(loss) before income taxes 32,575 15,573 (11,684 ) 36,464
    Income taxes (b) (12,433 ) (5,949 ) 4,196 (14,186 )
    Net income/(loss) $ 20,142 $ 9,624 $ (7,488 ) $ 22,278

    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, 2014 AND 2013

    (in thousands)(unaudited)

    Chemed
    VITASRoto-RooterCorporateConsolidated

    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):
    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
    Interest income 64 (8 ) (6 ) 50
    Intercompany interest income/(expense) (1,344 ) (649 ) 1,993 -
    Adjusted EBITDA $ 33,939 $ 17,665 $ (3,932 ) $ 47,672
    2013
    Net income/(loss) $ 20,142 $ 9,624 $ (7,488 ) $ 22,278
    Add/(deduct):
    Interest expense 46 59 3,989 4,094
    Income taxes 12,433 5,949 (4,196 ) 14,186
    Depreciation 4,514 2,147 134 6,795
    Amortization 491 154 482 1,127
    EBITDA 37,626 17,933 (7,079 ) 48,480
    Add/(deduct):
    Expenses related to OIG investigation 1,039 - - 1,039
    Acquisition expenses 1 - - 1
    Expenses of severance arrangements - 302 - 302

    Expenses related to litigation settlements

    -

    141

    -

    141

    Advertising cost adjustment (c) - (469 ) - (469 )
    Stock option expense - - 1,491 1,491
    Long-term incentive compensations - - 612 612
    Expenses related to securities litigation - - 2 2
    Interest income (246 ) (42 ) (15 ) (303 )
    Intercompany interest income/(expense) (843 ) (428 ) 1,271 -
    Adjusted EBITDA $ 37,577 $ 17,437 $ (3,718 ) $ 51,296
    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,

    2014

    2013
    Net income as reported $20,574 $ 22,278
    Add after-tax cost of:

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

    1,429 1,323
    Stock option expense 822 943
    Expenses related to OIG investigation 464 644
    Long-term incentive compensation 236 387
    Expenses related to litigation settlements 187 86
    Acquisition expenses 1 -
    Loss on extinguishment of debt - 294
    Expenses of severance arrangements - 184
    Expenses related to securities litigation - 1
    Adjusted net income $23,713 $ 26,140
    Diluted Earnings Per Share As Reported
    Net income $1.12 $ 1.17
    Average number of shares outstanding 18,305 19,000
    Adjusted Diluted Earnings Per Share
    Adjusted net income

    $

    1.32

    $

    1.38

    Adjusted average number of shares outstanding (d)

    18,019

    19,000

    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

    2014 2013

    Net revenue ($000)†(e)

    Homecare$195,397 $ 196,660
    Inpatient 25,993 28,468
    Continuous care 38,175 45,325
    Total before Medicare cap allowance $259,565 $ 270,453
    Medicare cap allowance

    847

    873
    Total $260,412 $ 271,326

    Net revenue as a percent of total before Medicare cap allowance

    Homecare75.3% 72.7 %
    Inpatient 10.0 10.5
    Continuous care 14.7 16.8
    Total before Medicare cap allowance 100.0 100.0
    Medicare cap allowance 0.3 0.3
    Total 100.3% 100.3 %

    Average daily census ("ADC") (days)

    Homecare10,476 10,354
    Nursing home 2,828 2,929
    Routine homecare 13,304 13,283
    Inpatient 437 468
    Continuous care 576 681
    Total 14,317 14,432

    Total Admissions

    16,353 17,137

    Total Discharges

    16,002 16,843

    Average length of stay (days)

    81.1 77.4

    Median length of stay (days)

    14.0 13.0

    ADC by major diagnosis

    Neurological 39.2% 33.2 %
    Cancer 17.3 16.9
    Cardio 14.7 11.2
    Respiratory 3.3 6.9
    Other 25.5 31.8
    Total 100.0% 100.0 %

    Admissions by major diagnosis

    Neurological 21.8% 19.2 %
    Cancer 32.4 30.8
    Cardio 13.8 11.6
    Respiratory 9.9 9.6
    Other 22.1 28.8
    Total 100.0% 100.0 %

    Direct patient care margins (f)

    Routine homecare 52.8% 51.9 %
    Inpatient 4.2 10.9
    Continuous care 16.6 17.7

    Homecare margin drivers (dollars per patient day)

    Labor costs $55.44 $ 57.18
    Drug costs 7.24 7.57
    Home medical equipment 6.61 6.85
    Medical supplies 3.22 2.92

    Inpatient margin drivers (dollars per patient day)

    Labor costs $349.71 $ 320.67

    Continuous care margin drivers (dollars per patient day)

    Labor costs $593.77 $ 587.73

    Bad debt expense as a percent of revenues

    1.0% 0.8 %

    Accounts receivable --

    Days of revenue outstanding- excluding unapplied Medicare payments

    42.7 39.0

    Days of revenue outstanding- including unapplied Medicare payments

    33.8

    29.6

    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, 2014 AND 2013

    (unaudited)

    (a)

    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):

    VITASRoto-RooterCorporateTotal
    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 327761,4541,857
    After-tax impact on earnings $(535)$(117)$(2,487)$(3,139)

    (b)

    Included in the results of operations for the three months ended March 31, 2013, are the following significant credits/(charges) which may not be indicative of ongoing operations (in thousands):

    VITASRoto-RooterCorporateTotal
    Selling, general and administrative expenses
    Expenses related to OIG investigation $ (1,039 ) $ - $ - $ (1,039 )
    Acquisition expenses (1 ) - - (1 )
    Expenses of severance arrangements - (302 ) - (302 )
    Expenses related to litigation settlements - (141 ) - (141 )
    Stock option expense - - (1,491 ) (1,491 )
    Long-term incentive compensation - - (612 ) (612 )
    Expenses related to securities litigation - - (2 ) (2 )
    Interest expense

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

    - - (2,091 ) (2,091 )
    Loss on extinguishment of debt --(465)(465)
    Pretax impact on earnings (1,040 ) (443 ) (4,661 ) (6,144 )
    Income tax benefit/(charge) on the above 3961731,7132,282
    After-tax impact on earnings $(644)$(270)$(2,948)$(3,862)

    (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 2014 and 2013, GAAP advertising expense for Roto-Rooter totaled $6,515,000 and $5,704,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the first quarters of 2014 and 2013 would total $7,256,000 and $6,173,000, respectively.

    (d)

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

    (e)

    VITAS has nine large (greater than 450 ADC), 15 medium (greater than 200 but less than 450 ADC) and 27 small (less than 200 ADC) hospice programs. Of VITAS' 38 unique Medicare provider numbers, 32 provider numbers have a Medicare cap cushion of 10% or greater during the first six months of the Medicare cap year; two provider numbers have a Medicare cap cushion between 5% and 10%; three provider numbers have a cap cushion between 0% and 5% and one has a cap liability.

    (f)

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






    Chemed Corporation

    David P. Williams, 513-762-6901

    Source: Chemed Corporation


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    Source: Business Wire


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