Symbol: CHE
Position Status: CLOSED
Enter Date: 9/7/05
Enter Price: 42.76
Exit Date: 11/2/05
Exit Price: 48.31
Gain or Loss: GAIN + 12.9%
September 6, 2005
Featured Company:
Chemed Corporation
Symbol: CHE (NYSE)
Price: $42.28 (09/06/05)
Sector/Industry: Services/Consumer Services
Buy at Market Open - 09/07/05
Set Initial Stop at 37.56
Sometimes it pays to try something new. . . Most business leaders prefer slow, steady, reliable growth - the sort of steady earnings improvement that drives stocks higher over the long-run. But every now and then you'll hear about a company taking a huge gamble. The ones that come most immediately to mind are the spectacular failures: New Coke, the AOL/Time Warner merger, and so on. This is the story of a gamble that actually paid off.
A Healthy Acquisition
You wouldn't guess it from its name, but Chemed has its roots in the plumbing business. Anyone who's ever had a clogged plumbing system is probably familiar with Roto-Rooter - the guys who come out in vans with drain-clearing "snakes." Their brand-name recognition lends an advantage over the competition. Chemed also offers air conditioner servicing and maintenance.
In the early-nineties Chemed made a fateful decision to branch out from the plumbing business. The company invested in Vitas Healthcare, a provider of hospice services. The decision to diversify paid off in 2003 when CHE finally exercised its warrants and assumed a 37% stake in Vitas. The remaining stake was purchased in February 2004.
The added revenue source quickly boosted Chemed's bottom-line. In the first quarter of 2004 the company broke a trend of weaker year/year results. Since then earnings have continued to improve. Earlier this month Chemed reported a profit of 45 cents/share, beating analyst estimates by two cents. That marked a 36% improvement from the previous year.
CHE has grabbed investors' attention because Vitas has become the nation's leading hospice provider. Roto-Rooter still makes money, but that's only a small slice of the overall earnings pie; the Vitas division brought in $23.5 million last quarter, while the plumbing business garnered $3.6 million.
Chemed picked a good time to focus on hospice care. According to Medicare data, hospice claims grew 12% in 2004. Similar growth is expected in 2005. 96% of earnings from the Vitas division come from Medicare/Medicaid. Continued government support of those programs translates to a reliable revenue stream.
Vitas is the number one hospice provider, but only controls 7% of the overall market share. In other words, there's plenty of room for growth. Chemed has already entered into an expansion phase with new acquisitions in Arizona and Georgia. The company expects to continue this geographical growth in the months and years to come.
Undeterred by Investigation
On April 8th shares of Chemed came under pressure after the Department of Health and Human Services launched an investigation of the company's finances, alleging a failure to bill Medicare and Medicaid appropriately for hospice services. It's unclear why the government agency suspected wrongdoing. However, Chemed pointed out that a previous investigation conducted from 1995-1998 turned up no problems.
Wall Street seems to think that the current investigation will produce the same outcome. Investors used the equity's news-driven dip as a buying opportunity, and shares have trended higher ever since.
Technical Analysis
With strong earnings growth you'd expect a steadily-rising equity, and that's exactly what CHE is doing. Shares are currently trading at 41.16 - on target to revisit the all-time highs near 45.50.
Special Report Summary
FedEx. Xerox. These are just two examples of companies that have become so successful that their brand names are used as verbs to tell what they do. Such was the case with Chemed's Roto-Rooter. They did one thing and they did it better than anyone else. Clearing out clogged drains.
As time passed and earnings started to level off and even decline, management made the decision to diversify into the unlikely field of hospice care. This brilliant move would change the fate of this company. Instead of being dependant on an industry with increasing competition and declining margins, earnings and revenue have taken off through the Veritas division.
All too often we see a company's executives continue to try and re- invent the wheel in a limited field rather than seek to increase revenue streams by moving into new areas. CHE is beginning to enjoy the benefits that come from being the nation's largest player in an emerging industry.
Bottom Line: Chemed should be looked at as an example of some things management can do to positively address a company's long-term viability. By proactively moving into an emerging industry with tremendous growth potential, CHE has solidified its earnings foundation for years to come.
Sales and earnings growth rates are just two of the elements that have made CHE's fundamentals the best in the business. Also, CHE's growth potential - it's the industry leader with only a 7% market share - is almost unparalleled. This profit growth is the key to Chemed's success.
These excellent fundamentals didn't happen by accident. They are the direct result of an executive action with great vision in a timely manner.
These are just a few of the reasons why we believe Chemed is a buy. We suggest purchasing CHE on a rise above resistance at 42.06.
Chemed's current price is 41.16. Initial stops should be placed at 37.56. As always, use the RightLine Risk Control Calculator to determine the number of shares to purchase.
RightLine Special Reports
Pro RightLine Corp
Round Rock, Texas
PH: 800-737-4518
http://www.rightline.net/
Company Information
- Company Description
Listed on the New York Stock Exchange and headquartered in Cincinnati, Ohio, Chemed Corporation operates two wholly owned subsidiaries: VITAS Healthcare Corporation and Roto-Rooter. VITAS is the nation's largest provider of end-of-life hospice care and Roto-Rooter is the nation's leading provider of plumbing and drain cleaning services.
VITAS Healthcare Corporation
VITAS Healthcare Corporation is the nation's largest provider of end- of-life hospice care services. Based in Miami, Florida, VITAS operates 36 hospice programs in 12 states: Arizona, California, Connecticut, Delaware, Florida, Georgia, Illinois, New Jersey, Ohio, Pennsylvania, Texas, and Wisconsin.
VITAS employs approximately 7,200 professionals, including registered nurses, licensed practical nurses, home health aides, physicians, social workers, and clergy.
These professionals, along with volunteers, care for more than 9,300 terminally ill patients daily, primarily in patients' homes, but also in the company's 24 hospice inpatient units, as well as in hospitals, nursing homes, and assisted living/residential care facilities for the elderly.
Roto-Rooter Plumbing and Drain Service
The largest provider of plumbing and drain cleaning services in North America, Roto-Rooter operates through more than 100 company-owned branches and independent contractors and approximately 500 franchisees. The total Roto-Rooter system offers services to more than 91% of the U.S. population and approximately 47% of the Canadian population.
Roto-Rooter also has licensed master franchisees in China, including Hong Kong; Indonesia; Japan; Mexico; the Philippines; and the United Kingdom.
General corporate, investor, and financial inquiries may be directed to Chemed corporate headquarters:
Corporate Address
Chemed Corporation
2600 Chemed Center
255 East Fifth Street
Cincinnati, Ohio 45202-4726
Telephone: 513-762-6900
Web site: http://www.chemed.com
Questions concerning company operations and financial results should be directed to David P. Williams, Vice President & Chief Financial Officer, by writing to him at the address above or by calling 800- 2CHEMED (800-224-3633).
Annual reports, press releases, corporate governance information, and other printed materials may be obtained from Chemed Investor Relations by writing to the address above or by calling 800-2CHEMED (800-224- 3633) or 513-762-6429. Printed materials may also be viewed on and downloaded from Chemed's Web site at http://www.chemed.com.
Current Market Information
Recent Price as of September 2, 2005: $41.16
52-Week High: $45.46
52-Week Low: $25.34
YTD Price Percent Change: 22.7%
Beta: 0.56
Market Cap: $1.04 Billion
Short data: Shares Short: 1.08 Million
Short % of float: 4.3%
Short Ratio: 3.8
(short data as of 07-12-05)Shares Outstanding: 25.66 Million
Float: 21.30 Million shares
Average Daily Volume (3m): 224,485
Last Stock Split Factor: 2-for-1 on 05/11/05
Institutional Holdings
Percent of Shares Outstanding Held by Institutions - 83%
Top 10 Institutions Holding Shares by Number Owned:
2.40 M – Perry Corp
2.24 M – Gamco Investors Inc
1.20 M - Barclays Bank Plc
1.15 M – Investment Management, L.P.
1.10 M – Chartwell Investment Partners
798 K – Mellon Financial Corporation
726 K – Turner Investment Partners
601 K – TransAmerica Investment Management
504 K – The Vanguard Group, Inc
474 K – Oppenheimer Funds, Inc
Top 10 Mutual Funds Holding Shares by Number Owned:
380 K – RS Investment Trust-Emerging Growth Fund
310 K – Aegon/TransAmerica Ser-TransAmerica Small/Mid Cap Value
300 K – Dreyfus Growth & Value Funds-Dreyfus Emerging Leaders Fund
293 K – STI Classic Small Cap Value Equity Fund
290 K – RS Investment Trust-Diversified Growth Fund
240 K – TransAmerica Index- TransAmerica small/Mid Cap Value
224 K – Pioneer Small Cap Value Fund
220 K – Enterprise Group Funds-Small Company Value Fun
205 K – Gabelli Small Cap Growth Fund
200 K – Ishares S&P SmallCap 600 Index Fund
Financials
For the 6 months ended 6/30/2005, revenues increased 39% to $444.9M. Net income from continuing operations totaled $19M, up from $1.1M. Results reflect higher service & sales revenues from VITAS & Roto- Rooter segments and improved operating margins.
Company Performance ($mil)
Revenue EPS Dividend
2004 735.2 1.12 0.24
2003 308.8 (0.18) 0.24
2002 314.2 (0.09) 0.23
2001 477.1 (0.35) 0.22
2000 500.7 1.04 0.20
Growth Rate 6.24 NC (5.12)
Industry Growth Rate 30.76 NC 20.28
First Call Consensus Estimates
Period Mean EPS # Brokers Year Ago EPS
This Quarter 0.45 7 0.32
This Year 1.81 6 1.26
SOURCE: Thompson Financial Network
Earnings:
Last Quarter – See press release below
Annual – available below
The most recent available Annual Report can be found at ir.chemed.com/phoenix.zhtml?c=72704&p=IROL-reports.
Chemed Corporation
Consolidated Statements of Income
(Dollars in Thousands, except Per Share Amounts)
(NYSE:CHS - News)
(Unaudited)
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share data)(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- --------------------
2005 2004 (bb) 2005 2004 (bb)
--------- --------- ---------- ---------
Continuing Operations
Service revenues and sales $226,309 $199,135 $444,946 $319,475
-------- -------- -------- --------
Cost of services provided
and goods sold (aa) 161,120 140,070 314,072 218,919
Selling, general and
administrative
expenses (aa) 36,802 34,476 73,397 62,688
Depreciation 3,928 4,097 7,848 7,158
Amortization 1,231 1,097 2,423 1,558
Other expenses (aa) 1,166 (1,368) 2,490 7,415
-------- -------- -------- --------
Total costs and expenses 204,247 178,372 400,230 297,738
-------- -------- -------- --------
Income from operations 22,062 20,763 44,716 21,737
Interest expense (5,039) (6,204) (10,874) (9,104)
Loss on extinguishment of
debt (aa) - - (3,971) (3,330)
Other income--net 600 149 1,327 1,628
-------- -------- -------- --------
Income before income
taxes 17,623 14,708 31,198 10,931
Income taxes (6,512) (6,381) (12,182) (5,755)
Equity in loss of
affiliate (aa) - - - (4,105)
-------- -------- -------- --------
Income from continuing
operations 11,111 8,327 19,016 1,071
Discontinued Operations (bb) (2,226) (9) (2,015) 137
-------- -------- -------- --------
Net Income $ 8,885 $ 8,318 $ 17,001 $ 1,208
======== ======== ======== ========
Earnings Per Share (aa)
Income from continuing
operations $ 0.44 $ 0.34 $ 0.75 $ 0.05
======== ======== ======== ========
Net income $ 0.35 $ 0.34 $ 0.67 $ 0.05
======== ======== ======== ========
Average number of shares
outstanding 25,489 24,650 25,319 23,238
======== ======== ======== ========
Diluted Earnings Per Share (aa)
Income from continuing
operations $ 0.42 $ 0.33 $ 0.73 $ 0.05
======== ======== ======== ========
Net income $ 0.34 $ 0.33 $ 0.65 $ 0.05
======== ======== ======== ========
Average number of shares
outstanding 26,214 25,354 26,059 23,696
======== ======== ======== ========
--------------------------------
(aa) Included in the results of operations are the following
significant credits/(charges) which may not be indicative of
ongoing operations (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ------------------
2005 2004 2005 2004
--------- --------- -------- ---------
Cost of services provided
and goods sold
Favorable adjustment to
casualty insurance
accruals related to
prior years' experience $ - $ - $ 1,663 $ -
Selling, general and
administrative expenses
Legal costs associated
with OIG investigation (254) - (254) -
Other expenses
Long-term incentive
compensation (1,837) - (2,946) (8,783)
Cost of accelerating
vesting of stock
options - - (215) -
Adjustments to
transaction-related
costs of the VITAS
acquisition 671 1,368 671 1,368
Loss on extinguishment of
debt - - (3,971) (3,330)
------- ------ ------- --------
Pretax impact on
earnings (1,420) 1,368 (5,052) (10,745)
Income tax benefit on the
above 779 (547) 2,070 3,679
Equity in loss of affiliate
attributable to
transaction-related
expenses incurred by VITAS
prior to its acquisition by
Chemed - - - (4,105)
------- ------ ------- --------
Aftertax impact on
earnings $ (641) $ 821 $(2,982) $(11,171)
======= ====== ======= ========
(bb) Results of operations for 2004 have been restated for the results
of Service America, discontinued in December 2004. Included in
discontinued operations for 2005 is an aftertax loss of
$2,350,000 resulting from finalizing the disposal of Service
America in May 2005.
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)(unaudited)
June 30,
-------------------
2005 2004 (cc)
--------- ---------
Assets
Current assets
Cash and cash equivalents $ 17,870 $ 52,019
Accounts receivable less allowances 84,973 59,200
Inventories 7,309 6,418
Current deferred income taxes 20,687 22,746
Prepaid income taxes 8,360 10,737
Current assets of discontinued operations 4,656 15,340
Prepaid expenses and other current assets 9,499 9,822
-------- --------
Total current assets 153,354 176,282
Investments of deferred compensation plans
held in trust 19,610 19,163
Other investments 1,445 1,445
Note receivable 12,500 12,500
Properties and equipment, at cost less
accumulated depreciation 59,432 53,909
Identifiable intangible assets less
accumulated amortization 74,896 24,392
Goodwill 437,738 450,988
Noncurrent assets of discontinued operations 681 10,309
Other assets 22,571 26,093
-------- --------
Total Assets $782,227 $775,081
======== ========
Liabilities
Current liabilities
Accounts payable $ 39,899 $ 42,315
Current portion of long-term debt 1,176 5,466
Income taxes 6,922 5,445
Accrued insurance 27,392 19,929
Accrued salaries and wages 24,000 20,107
Current liabilities of discontinued
operations 7,605 22,574
Other current liabilities 36,284 35,403
-------- --------
Total current liabilities 143,278 151,239
Deferred income taxes 17,630 1,791
Other long-term debt 234,541 289,607
Deferred compensation liabilities 19,555 19,161
Noncurrent liabilities of discontinued
operations 779 568
Other liabilities 7,456 8,129
-------- --------
Total Liabilities 423,239 470,495
-------- --------
Stockholders' Equity
Capital stock 27,897 13,406
Paid-in capital 222,160 207,917
Retained earnings 155,484 118,248
Treasury stock, at cost (44,572) (32,702)
Unearned compensation (3,772) (4,081)
Deferred compensation payable in Company
stock 2,333 2,337
Notes receivable for shares sold (542) (539)
-------- --------
Total Stockholders' Equity 358,988 304,586
-------- --------
Total Liabilities and
Stockholders' Equity $782,227 $775,081
======== ========
Book Value Per Share $ 13.99 $ 12.24 (dd)
======== ========
(cc) Reclassified for operations discontinued in 2004.
(dd) Adjusted for 2-for-1 stock split in May 2005.
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)(unaudited)
Six Months Ended
June 30,
---------------------
2005 2004 (cc)
---------- ----------
Cash Flows from Operating Activities
Net income/(loss) $ 17,001 $ 1,208
Adjustments to reconcile net income/(loss) to
net cash provided/(used) by operating
activities:
Depreciation and amortization 10,271 8,716
Write-off of unamortized debt issuance costs 2,871 -
Provision for deferred income taxes (2,206) 50
Provision for uncollectible accounts
receivable 3,343 2,932
Noncash long-term incentive compensation 2,574 4,988
Amortization of debt issuance costs 962 782
Discontinued operations 2,015 (137)
Equity in loss of affiliate - 4,105
Changes in operating assets and liabilities,
excluding amounts acquired in business
combinations:
Decrease/(increase) in accounts
receivable (23,653) 27
Increase in inventories (290) (407)
Decrease in prepaid expenses and
other current assets 343 13,435
Decrease in accounts payable and other
current liabilities (2,673) (17,345)
Increase in income taxes 7,859 4,895
Decrease/(increase) in other assets (1,328) 4,495
Increase in other liabilities 390 631
Noncash expense of internally financed ESOPs 572 947
Other sources/(uses) 676 (512)
--------- ---------
Net cash provided by continuing operations 18,727 28,810
Net cash provided/(used) by discontinued
operations (1,559) 3,651
--------- ---------
Net cash provided by operating activities 17,168 32,461
--------- ---------
Cash Flows from Investing Activities
Capital expenditures (11,455) (7,512)
Business combinations, net of cash acquired (5,495) (327,427)
Net uses from discontinued operations (5,478) (1,082)
Proceeds from sales of property and equipment 96 300
Return of merger deposit - 10,000
Other uses (107) (92)
--------- ---------
Net cash used by investing activities (22,439) (325,813)
--------- ---------
Cash Flows from Financing Activities
Repayment of long-term debt (140,978) (93,434)
Proceeds from issuance of long-term debt 85,000 295,000
Increase in cash overdraft payable 7,347 9,541
Issuance of capital stock, net of costs 8,766 97,054
Debt issuance costs (1,755) (13,837)
Dividends paid (3,060) (2,707)
Purchases of treasury stock (3,574) (2,228)
Net increase in revolving line of credit - -
Repayment of stock subscription note receivable - 8,053
Redemption of convertible trust preferred
securities - (2,736)
Other uses (53) (23)
--------- ---------
Net cash provided/(used) by financing
activities (48,307) 294,683
--------- ---------
Increase/(decrease) in Cash and Cash Equivalents (53,578) 1,331
Cash and cash equivalents at beginning of year 71,448 50,688
--------- ---------
Cash and cash equivalents at end of period $ 17,870 $ 52,019
========= =========
(cc) Reclassified for operations discontinued in December 2004.
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2005 AND 2004
(in thousands)(unaudited)
Chemed
VITAS Roto-Rooter Corporate Consolidated
--------- ----------- --------- ------------
2005
-------------------------
Service revenues and
sales $153,748 $ 72,561 $ - $226,309
-------- -------- -------- --------
Cost of services provided
and goods sold 120,854 40,266 - 161,120
Selling, general and
administrative
expenses (a) 13,590 21,043 2,169 36,802
Depreciation 1,770 2,086 72 3,928
Amortization 984 23 224 1,231
Other expenses (b) 588 304 274 1,166
-------- -------- -------- --------
Total costs and
expenses 137,786 63,722 2,739 204,247
-------- -------- -------- --------
Income/(loss) from
operations 15,962 8,839 (2,739) 22,062
Interest expense (33) (97) (4,909) (5,039)
Intercompany interest
income/(expense) 681 516 (1,197) -
Other income--net 14 146 440 600
-------- -------- -------- --------
Income/(loss) before
income taxes 16,624 9,404 (8,405) 17,623
Income taxes (6,475) (3,728) 3,691 (6,512)
-------- -------- -------- --------
Income/(loss) from
continuing operations 10,149 5,676 (4,714) 11,111
Discontinued operations - - (2,226) (2,226)
-------- -------- -------- --------
Net income/(loss) $ 10,149 $ 5,676 $ (6,940) $ 8,885
======== ======== ======== ========
2004
-------------------------
Service revenues and
sales $130,240 $ 68,895 $ - $199,135
-------- -------- -------- --------
Cost of services provided
and goods sold 101,790 38,280 - 140,070
Selling, general and
administrative expenses 12,319 19,932 2,225 34,476
Depreciation 1,861 2,174 62 4,097
Amortization 1,010 66 21 1,097
Other expenses (b) - - (1,368) (1,368)
-------- -------- -------- --------
Total costs and
expenses 116,980 60,452 940 178,372
-------- -------- -------- --------
Income/(loss) from
operations 13,260 8,443 (940) 20,763
Interest expense (30) (33) (6,141) (6,204)
Intercompany interest
income/(expense) 131 189 (320) -
Other income--net 45 (132) 236 149
-------- -------- -------- --------
Income/(loss) before
income taxes 13,406 8,467 (7,165) 14,708
Income taxes (5,499) (3,317) 2,435 (6,381)
-------- -------- -------- --------
Income/(loss) from
continuing operations 7,907 5,150 (4,730) 8,327
Discontinued operations - - (9) (9)
-------- -------- -------- --------
Net income/(loss) $ 7,907 $ 5,150 $ (4,739) $ 8,318
======== ======== ======== ========
The "Footnotes to Financial Statements" are integral parts of this
financial information.
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(in thousands)(unaudited)
Chemed
VITAS Roto-Rooter Corporate Consolidated
--------- ----------- --------- ------------
2005
-------------------------
Service revenues and
sales $299,738 $145,208 $ - $444,946
-------- -------- -------- --------
Cost of services provided
and goods sold (c) 236,074 77,998 - 314,072
Selling, general and
administrative
expenses (a) 26,714 42,193 4,490 73,397
Depreciation 3,555 4,148 145 7,848
Amortization 1,979 49 395 2,423
Other expenses (b) 881 552 1,057 2,490
-------- -------- -------- --------
Total costs and
expenses 269,203 124,940 6,087 400,230
-------- -------- -------- --------
Income/(loss) from
operations 30,535 20,268 (6,087) 44,716
Interest expense (71) (279) (10,524) (10,874)
Intercompany interest
income/(expense) 1,190 940 (2,130) -
Loss on extinguishment of
debt (d) - - (3,971) (3,971)
Other income--net 122 442 763 1,327
-------- -------- -------- --------
Income/(loss) before
income taxes 31,776 21,371 (21,949) 31,198
Income taxes (12,258) (8,550) 8,626 (12,182)
-------- -------- -------- --------
Income/(loss) from
continuing operations 19,518 12,821 (13,323) 19,016
Discontinued operations - - (2,015) (2,015)
-------- -------- -------- --------
Net income/(loss) $ 19,518 $ 12,821 $(15,338) $ 17,001
======== ======== ======== ========
2004
-------------------------
Service revenues and
sales $181,352 $138,123 $ - $319,475
-------- -------- -------- --------
Cost of services provided
and goods sold 142,276 76,643 - 218,919
Selling, general and
administrative expenses 17,308 40,879 4,501 62,688
Depreciation 2,609 4,420 129 7,158
Amortization 1,412 125 21 1,558
Other expenses (b) - 1,558 5,857 7,415
-------- -------- -------- --------
Total costs and
expenses 163,605 123,625 10,508 297,738
-------- -------- -------- --------
Income/(loss) from
operations 17,747 14,498 (10,508) 21,737
Interest expense (58) (59) (8,987) (9,104)
Intercompany interest
income/(expense) 131 373 (504) -
Loss on extinguishment of
debt (d) - - (3,330) (3,330)
Other income--net 76 686 866 1,628
-------- -------- -------- --------
Income/(loss) before
income taxes 17,896 15,498 (22,463) 10,931
Income taxes (7,392) (6,111) 7,748 (5,755)
Equity in loss of
VITAS (e) - - (4,105) (4,105)
-------- -------- -------- --------
Income/(loss) from
continuing operations 10,504 9,387 (18,820) 1,071
Discontinued operations - - 137 137
-------- -------- -------- --------
Net income/(loss) $ 10,504 $ 9,387 $(18,683) $ 1,208
======== ======== ======== ========
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, 2005 AND 2004
(in thousands)(unaudited)
Chemed
VITAS Roto-Rooter Corporate Consolidated
-------- ----------- --------- ------------
2005
---------------------------
Net income/(loss) $10,149 $ 5,676 $(6,940) $ 8,885
Add/(deduct):
Discontinued operations - - 2,226 2,226
Interest expense 33 97 4,909 5,039
Income taxes 6,475 3,728 (3,691) 6,512
Depreciation 1,770 2,086 72 3,928
Amortization 984 23 224 1,231
------- ------- ------- -------
EBITDA 19,411 11,610 (3,200) 27,821
Add/(deduct):
Long-term incentive
compensation 588 304 945 1,837
Legal expenses of OIG
investigation 254 - - 254
VITAS transaction
expense adjustment (f) - - (671) (671)
Advertising cost
adjustment (g) - (76) - (76)
Interest income (33) (47) (182) (262)
Intercompany interest
income/(expense) (681) (516) 1,197 -
------- ------- ------- -------
Adjusted EBITDA $19,539 $11,275 $(1,911) $28,903
======= ======= ======= =======
2004
---------------------------
Net income/(loss) $ 7,907 $ 5,150 $(4,739) $ 8,318
Add/(deduct):
Discontinued operations - - 9 9
Interest expense 30 33 6,141 6,204
Income taxes 5,499 3,317 (2,435) 6,381
Depreciation 1,861 2,174 62 4,097
Amortization 1,010 66 21 1,097
------- ------- ------- -------
EBITDA 16,307 10,740 (941) 26,106
Add/(deduct):
VITAS transaction
expense adjustment (f) - - (1,368) (1,368)
Advertising cost
adjustment (g) - (273) - (273)
Interest income (65) (26) (395) (486)
Intercompany interest
income/(expense) (131) (189) 320 -
------- ------- ------- -------
Adjusted EBITDA $16,111 $10,252 $(2,384) $23,979
======= ======= ======= =======
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, 2005 AND 2004
(in thousands)(unaudited)
Chemed
VITAS Roto-Rooter Corporate Consolidated
-------- ----------- --------- ------------
2005
---------------------------
Net income/(loss) $19,518 $12,821 $(15,338) $17,001
Add/(deduct):
Discontinued operations - - 2,015 2,015
Interest expense 71 279 10,524 10,874
Income taxes 12,258 8,550 (8,626) 12,182
Depreciation 3,555 4,148 145 7,848
Amortization 1,979 49 395 2,423
------- ------- -------- -------
EBITDA 37,381 25,847 (10,885) 52,343
Add/(deduct):
Long-term incentive
compensation (h) 881 552 1,728 3,161
Prior-period insurance
adjustment - (1,663) - (1,663)
Legal expenses of OIG
investigation 254 - - 254
VITAS transaction
expense adjustment (f) - - (671) (671)
Advertising cost
adjustment (g) - (629) - (629)
Interest income (159) (88) (665) (912)
Intercompany interest
income/(expense) (1,190) (940) 2,130 -
Loss on extinguishment
of debt - - 3,971 3,971
------- ------- -------- -------
Adjusted EBITDA $37,167 $23,079 $ (4,392) $55,854
======= ======= ======== =======
2004
---------------------------
Net income/(loss) $10,504 $ 9,387 $(18,683) $ 1,208
Add/(deduct):
Discontinued operations - - (137) (137)
Interest expense 58 59 8,987 9,104
Income taxes 7,392 6,111 (7,748) 5,755
Depreciation 2,609 4,420 129 7,158
Amortization 1,412 125 21 1,558
------- ------- -------- -------
EBITDA 21,975 20,102 (17,431) 24,646
Add/(deduct):
Long-term incentive
compensation - 1,558 7,225 8,783
VITAS transaction
expense adjustment (f) - - (1,368) (1,368)
Advertising cost
adjustment (g) - (466) - (466)
Interest income (96) (64) (834) (994)
Intercompany interest
income/(expense) (131) (373) 504 -
Equity in loss of VITAS - - 4,105 4,105
Loss on extinguishment
of debt - - 3,330 3,330
------- ------- -------- -------
Adjusted EBITDA $21,748 $20,757 $ (4,469) $38,036
======= ======= ======== =======
The "Footnotes to Financial Statements" are integral parts of this
financial information.
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
RECONCILIATION OF NET INCOME TO ADJUSTED PRO FORMA INCOME FROM
CONTINUING OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(in thousands, except per share data)(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------- -----------------
2005 2004 2005 2004
-------- -------- -------- --------
Net income as reported $ 8,885 $ 8,318 $17,001 $ 1,208
Add/(deduct):
Pro forma VITAS net income
contribution for the period (i) - 221 - 3,306
Pro forma financing costs
related to acquisition of
VITAS (j) - - - (2,211)
Pro forma elimination of VITAS
transaction expense
adjustment (f) - (821) - (821)
Pro forma elimination of equity
in loss of VITAS (k) - - - 4,105
------- ------- ------- -------
Pro forma net income 8,885 7,718 17,001 5,587
Add/(deduct):
Discontinued operations 2,226 9 2,015 (137)
Aftertax prior-period insurance
adjustment - - (1,014) -
Aftertax cost of long-term
incentive compensation (h) 1,152 - 1,984 5,723
Aftertax cost of legal expenses
of OIG investigation 160 - 160 -
Aftertax VITAS transaction
expense adjustment (f) (671) - (671) -
Aftertax cost of loss on
extinguishment of debt - - 2,523 2,164
------- ------- ------- -------
Adjusted pro forma income from
continuing operations $11,752 $ 7,727 $21,998 $13,337
======= ======= ======= =======
Earnings Per Share As Reported
Net income $ 0.35 $ 0.34 $ 0.67 $ 0.05
======= ======= ======= =======
Average number of shares
outstanding 25,489 24,650 25,319 23,238
======= ======= ======= =======
Diluted Earnings Per Share As
Reported
Net income $ 0.34 $ 0.33 $ 0.65 $ 0.05
======= ======= ======= =======
Average number of shares
outstanding 26,214 25,354 26,059 23,696
======= ======= ======= =======
Adjusted Pro Forma Earnings Per Share
Income from continuing
operations $ 0.46 $ 0.31 $ 0.87 $ 0.55
======= ======= ======= =======
Average number of shares
outstanding 25,489 24,650 25,319 24,424
======= ======= ======= =======
Adjusted Pro Forma Diluted
Earnings Per Share
Income from continuing
operations $ 0.45 $ 0.30 $ 0.84 $ 0.54
======= ======= ======= =======
Average number of shares
outstanding 26,214 25,354 26,059 24,882
======= ======= ======= =======
The "Footnotes to Financial Statements" are integral parts of this
financial information.
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2005 AND 2004
(in thousands, except per share data) (unaudited)
Chemed
VITAS Roto-Rooter Corporate Consolidated
--------- ----------- --------- ------------
2005
--------------------------
Service revenues and
sales $153,748 $72,561 $ - $226,309
-------- ------- ------- --------
Cost of services provided
and goods sold 120,854 40,266 - 161,120
Selling, general and
administrative
expenses (a) 13,590 21,043 2,169 36,802
Depreciation 1,770 2,086 72 3,928
Amortization 984 23 224 1,231
Other expenses (b) 588 304 274 1,166
-------- ------- ------- --------
Total costs and
expenses 137,786 63,722 2,739 204,247
-------- ------- ------- --------
Income/(loss) from
operations 15,962 8,839 (2,739) 22,062
Interest expense (33) (97) (4,909) (5,039)
Intercompany interest
income/(expense) 681 516 (1,197) -
Other income--net 14 146 440 600
-------- ------- ------- --------
Income/(loss) before
income taxes 16,624 9,404 (8,405) 17,623
Income taxes (6,475) (3,728) 3,691 (6,512)
-------- ------- ------- --------
Income/(loss) from
continuing operations 10,149 5,676 (4,714) 11,111
Discontinued operations - - (2,226) (2,226)
-------- ------- ------- --------
Net income/(loss) $ 10,149 $ 5,676 $(6,940) $ 8,885
======== ======= ======= ========
Earnings Per Share
Continuing operations $ 0.44
========
Net income $ 0.35
========
Average number of
shares outstanding 25,489
========
Diluted Earnings Per Share
Continuing operations $ 0.42
========
Net income $ 0.34
========
Average number of
shares outstanding 26,214
========
2004 (l)
--------------------------
Service revenues and
sales $130,240 $68,895 $ - $199,135
-------- ------- ------- --------
Cost of services provided
and goods sold 101,790 38,280 - 140,070
Selling, general and
administrative expenses 12,319 19,932 2,225 34,476
Depreciation 1,270 2,174 62 3,506
Amortization 1,232 66 21 1,319
-------- ------- ------- --------
Total costs and
expenses 116,611 60,452 2,308 179,371
-------- ------- ------- --------
Income/(loss) from
operations 13,629 8,443 (2,308) 19,764
Interest expense (30) (33) (6,141) (6,204)
Intercompany interest
income/(expense) 131 189 (320) -
Other income--net 45 (132) 236 149
-------- ------- ------- --------
Income/(loss) before
income taxes 13,775 8,467 (8,533) 13,709
Income taxes (5,647) (3,317) 2,982 (5,982)
-------- ------- ------- --------
Income/(loss) from
continuing operations 8,128 5,150 (5,551) 7,727
Discontinued operations - - (9) (9)
-------- ------- ------- --------
Net income/(loss) $ 8,128 $ 5,150 $(5,560) $ 7,718
======== ======= ======= ========
Earnings Per Share
Continuing operations $ 0.31
========
Net income $ 0.31
========
Average number of
shares outstanding 24,650
========
Diluted Earnings Per Share
Continuing operations $ 0.30
========
Net income $ 0.30
========
Average number of
shares outstanding 25,354
========
The "Footnotes to Financial Statements" are integral parts of this
financial information.
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(in thousands, except per share data) (unaudited)
Chemed
VITAS Roto-Rooter Corporate Consolidated
--------- ----------- --------- ------------
2005
--------------------------
Service revenues and
sales $299,738 $145,208 $ - $444,946
-------- -------- -------- --------
Cost of services provided
and goods sold (c) 236,074 77,998 - 314,072
Selling, general and
administrative
expenses (a) 26,714 42,193 4,490 73,397
Depreciation 3,555 4,148 145 7,848
Amortization 1,979 49 395 2,423
Other expenses (b) 881 552 1,057 2,490
-------- -------- -------- --------
Total costs and
expenses 269,203 124,940 6,087 400,230
-------- -------- -------- --------
Income/(loss) from
operations 30,535 20,268 (6,087) 44,716
Interest expense (71) (279) (10,524) (10,874)
Intercompany interest
income/(expense) 1,190 940 (2,130) -
Loss on extinguishment of
debt (d) - - (3,971) (3,971)
Other income--net 122 442 763 1,327
-------- -------- -------- --------
Income/(loss) before
income taxes 31,776 21,371 (21,949) 31,198
Income taxes (12,258) (8,550) 8,626 (12,182)
-------- -------- -------- --------
Income/(loss) from
continuing operations 19,518 12,821 (13,323) 19,016
Discontinued operations - - (2,015) (2,015)
-------- -------- -------- --------
Net income/(loss) $ 19,518 $ 12,821 $(15,338) $ 17,001
======== ======== ======== ========
Earnings Per Share
Continuing operations $ 0.75
========
Net income $ 0.67
========
Average number of
shares outstanding 25,319
========
Diluted Earnings Per Share
Continuing operations $ 0.73
========
Net income $ 0.65
========
Average number of
shares outstanding 26,059
========
2004 (l)
--------------------------
Service revenues and
sales $254,222 $138,123 $ - $392,345
-------- -------- -------- --------
Cost of services provided
and goods sold 201,124 76,643 - 277,767
Selling, general and
administrative expenses 25,633 40,879 4,362 70,874
Depreciation 2,252 4,420 129 6,801
Amortization 2,327 125 21 2,473
Other expenses (b) - 1,558 7,225 8,783
-------- -------- -------- --------
Total costs and
expenses 231,336 123,625 11,737 366,698
-------- -------- -------- --------
Income/(loss) from
operations 22,886 14,498 (11,737) 25,647
Interest expense (58) (59) (12,389) (12,506)
Intercompany interest
income/(expense) 131 373 (504) -
Loss on extinguishment of
debt (d) - - (3,330) (3,330)
Other income--net 117 686 866 1,669
-------- -------- -------- --------
Income/(loss) before
income taxes 23,076 15,498 (27,094) 11,480
Income taxes (9,348) (6,111) 9,429 (6,030)
-------- -------- -------- --------
Income/(loss) from
continuing operations 13,728 9,387 (17,665) 5,450
Discontinued operations - - 137 137
-------- -------- -------- --------
Net income/(loss) $ 13,728 $ 9,387 $(17,528) $ 5,587
======== ======== ======== ========
Earnings Per Share
Continuing operations $ 0.22
========
Net income $ 0.23
========
Average number of
shares outstanding 24,424
========
Diluted Earnings Per Share
Continuing operations $ 0.22
========
Net income $ 0.22
========
Average number of
shares outstanding 24,882
========
The "Footnotes to Financial Statements" are integral parts of this
financial information.
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
PRO FORMA CONSOLIDATING SUMMARY OF EBITDA
FOR THE THREE MONTHS ENDED JUNE 30, 2005 AND 2004
(in thousands)(unaudited)
Roto- Chemed
VITAS Rooter Corporate Consolidated
-------- ---------- --------- ------------
2005
----------------------------
Net income/(loss) $10,149 $ 5,676 $(6,940) $ 8,885
Add/(deduct):
Discontinued operations - - 2,226 2,226
Interest expense 33 97 4,909 5,039
Income taxes 6,475 3,728 (3,691) 6,512
Depreciation 1,770 2,086 72 3,928
Amortization 984 23 224 1,231
------- ------- ------- -------
EBITDA 19,411 11,610 (3,200) 27,821
Add/(deduct):
Long-term incentive
compensation 588 304 945 1,837
Legal expenses of OIG
investigation 254 - - 254
VITAS transaction
expense adjustment (f) - - (671) (671)
Advertising cost
adjustment (g) - (76) - (76)
Interest income (33) (47) (182) (262)
Intercompany interest
income/(expense) (681) (516) 1,197 -
------- ------- ------- -------
Adjusted EBITDA $19,539 $11,275 $(1,911) $28,903
======= ======= ======= =======
2004 (l)
----------------------------
Pro forma net income/(loss)$ 8,128 $ 5,150 $ (5,560) $ 7,718
Add/(deduct):
Discontinued operations - - 9 9
Interest expense 30 33 6,141 6,204
Income taxes 5,647 3,317 (2,982) 5,982
Depreciation 1,270 2,174 62 3,506
Amortization 1,232 66 21 1,319
------- ------- ------- -------
Pro forma EBITDA 16,307 10,740 (2,309) 24,738
Add/(deduct):
Advertising cost
adjustment (g) - (273) - (273)
Interest income (65) (26) (395) (486)
Intercompany interest
income/(expense) (131) (189) 320 -
------- ------- ------- -------
Pro forma adjusted
EBITDA $16,111 $10,252 $(2,384) $23,979
======= ======= ======= =======
The "Footnotes to Financial Statements" are integral parts of this
financial information.
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
PRO FORMA CONSOLIDATING SUMMARY OF EBITDA
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(in thousands)(unaudited)
Roto- Chemed
VITAS Rooter Corporate Consolidated
-------- ---------- --------- ------------
2005
----------------------------
Net income/(loss) $19,518 $12,821 $(15,338) $17,001
Add/(deduct):
Discontinued operations - - 2,015 2,015
Interest expense 71 279 10,524 10,874
Income taxes 12,258 8,550 (8,626) 12,182
Depreciation 3,555 4,148 145 7,848
Amortization 1,979 49 395 2,423
------- ------- -------- -------
EBITDA 37,381 25,847 (10,885) 52,343
Add/(deduct):
Long-term incentive
compensation (h) 881 552 1,728 3,161
Prior-period insurance
adjustment - (1,663) - (1,663)
Legal expenses of OIG
investigation 254 - - 254
VITAS transaction
expense adjustment (f) - - (671) (671)
Advertising cost
adjustment (g) - (629) - (629)
Interest income (159) (88) (665) (912)
Intercompany interest
income/(expense) (1,190) (940) 2,130 -
Loss on extinguishment
of debt - - 3,971 3,971
------- ------- -------- -------
Adjusted EBITDA $37,167 $23,079 $ (4,392) $55,854
======= ======= ======== =======
2004 (l)
----------------------------
Pro forma net income/(loss)$13,728 $ 9,387 $(17,528) $ 5,587
Add/(deduct):
Discontinued operations - - (137) (137)
Interest expense 58 59 12,389 12,506
Income taxes 9,348 6,111 (9,429) 6,030
Depreciation 2,252 4,420 129 6,801
Amortization 2,327 125 21 2,473
------- ------- -------- -------
Pro forma EBITDA 27,713 20,102 (14,555) 33,260
Add/(deduct):
Long-term incentive
compensation - 1,558 7,225 8,783
Advertising cost
adjustment (g) - (466) - (466)
Interest income (137) (64) (834) (1,035)
Intercompany interest
income/(expense) (131) (373) 504 -
Loss on extinguishment
of debt - - 3,330 3,330
------- ------- -------- -------
Pro forma adjusted
EBITDA $27,445 $20,757 $ (4,330) $43,872
======= ======= ======== =======
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, 2005 AND 2004
(unaudited)
(a) For the second quarter and six months ended June 30, 2005,
amounts for VITAS include $254,000 ($160,000 aftertax) for legal
expenses incurred in connection with the Office of Inspector
General ("OIG") investigation.
(b) Other expenses include the following (in thousands):
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ----------------
2005 2004 2005 2004
Pretax cost/(benefit): ------- -------- ------- --------
Long-term incentive plan
payout $1,837 $ - $2,946 $ 8,783
Adjustment of transaction-
related expenses of the
VITAS acquisition (671) (1,368) (671) (1,368)
Cost of accelerating vesting
of stock options - - 215 -
------ ------- ------ -------
Total other expenses $1,166 $(1,368) $2,490 $ 7,415
====== ======= ====== =======
Aftertax cost/(benefit):
Long-term incentive plan
payout $1,152 $ - $1,847 $ 5,723
Adjustment of transaction-
related expenses of the
VITAS acquisition (671) (821) (671) (821)
Cost of accelerating vesting
of stock options - - 137 -
------ ------- ------ -------
Total other expenses,
net of income taxes $ 481 $ (821) $1,313 $ 4,902
====== ======= ====== =======
(c) For the six months ended June 30, 2005, amount for Roto-Rooter
includes a favorable adjustment to casualty insurance related to
prior periods' experience of $1,663,000 ($1,014,000 aftertax).
(d) For the six months ended June 30, 2005, amounts include the
prepayment penalty and write-off of debt issuance costs related
to the early extinguishment and refinancing of certain portions
of the Company's debt ($2,523,000 aftertax). For the six months
ended June 30, 2004, amount represents the prepayment penalty
incurred on the early extinguishment of the Company's debt
($2,164,000 aftertax).
(e) Amount includes the Company's aftertax share of VITAS' charges
related to the Company's acquisition of VITAS in the first
quarter of 2004 prior to the acquisition date. These charges
comprise transaction-related expenses that reduced the Company's
equity in the earnings/(loss) of VITAS by $4,621,000 during the
first quarter of 2004.
(f) Amounts represent favorable adjustments to transaction expenses
related to the acquisition of VITAS.
(g) 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 2005 and 2004,
GAAP advertising expense for Roto-Rooter totaled $3,760,000 and
$3,442,000, respectively. If the expense of the telephone
directories were spread over the periods they are in
circulation, advertising expense for the second quarters of 2005
and 2004 would total $3,836,000 and $3,715,000, respectively.
For the six months ended June 30, 2005 and 2004, GAAP
advertising expense for Roto-Rooter totaled $7,011,000 and
$6,817,000, respectively. If the expense of the telephone
directories were spread over the periods they are in
circulation, advertising expense for the six months ended
June 30, 2005 and 2004, would total $7,640,000 and $7,283,000,
respectively.
(h) For the six months ended June 30, 2005, amounts include costs
related to accelerating the vesting of stock options in addition
to payouts under the Company's LTIP.
(i) Amounts represent the additional net income VITAS would
contribute assuming the acquisition were completed on January 1
of the respective years (excluding Chemed management fees).
(j) Amount represents the additional financing costs, including a
loss on early extinguishment of debt in 2004, that would have
been incurred assuming the financing were completed on
January 1, 2004.
(k) Amount represents the impact of eliminating the Company's prior
investments in VITAS, assuming the acquisition of VITAS were
completed on January 1, 2004.
(l) Pro forma amounts for 2004 for VITAS and Corporate assume the
Company's acquisition of VITAS and its financing (including the
retirement of existing debt) were completed as of January 1,
2004, on the same terms and conditions as completed on
February 24, 2004.
CONTACT: Chemed Corporation, Cincinnati
David P. Williams, 513-762-6901
SOURCE: Chemed Corporation
Chemed Corporation Press Release; Wednesday August 3, 2005
Chemed Reports Second-Quarter 2005 Results; EPS Guidance for 2005 Increased; VITAS and Roto-Rooter Report Double-Digit Increase in Earnings
CINCINNATI--(BUSINESS WIRE)--Aug. 3, 2005--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, today reported financial results for its second quarter ended June 30, 2005, versus the comparable prior-year period, as follows:
Consolidated Operating Results from Continuing Operations
-- Consolidated Revenue increased 14% to $226 million
-- Diluted EPS from Continuing Operations of $.42, including $.03 charge for LTIP and other items
-- Adjusted EBITDA of $29 million
VITAS generated record operating results
-- Quarterly Net Patient Revenue of $154 million, up 18%
-- Average Daily Census (ADC) of 9,913, up 16%
-- Admissions of 12,646, up 10%
-- Net income of $10.1 million, up 28%
-- Adjusted EBITDA of $19.5 million, an increase of 21%
Roto-Rooter segment reported increased Revenue, Net Income and Adjusted EBITDA
-- Revenue of $73 million, an increase of 5%
-- Net income of $5.7 million, an increase of 10%
-- Adjusted EBITDA of $11.3 million, an increase of 10%
"VITAS generated excellent census and admissions growth, with second- quarter ADC totaling 9,913, up 16%, and admissions in the quarter of 12,646, an increase of 10% over the prior-year quarter. Net income in the quarter was $10.1 million, an increase of 28% over the prior period," stated Kevin McNamara, Chemed president and chief executive officer.
"Roto-Rooter also reported solid financial operating results. For the second quarter of 2005, Roto-Rooter had revenue of $73 million, an increase of 5%. Adjusted EBITDA was $11.3 million at a margin of 15.5%, resulting in net income of $5.7 million, an increase of 10% over the prior year."
VITAS
The merger of VITAS was completed on February 24, 2004. Prior to that date, the Company accounted for its 37% ownership of VITAS under the equity method of accounting. As a result, under GAAP, only a portion of VITAS' operating results is fully consolidated into Chemed's first- quarter 2004 results. To facilitate review of Chemed's operating results, pro forma supplemental schedules are included in the back of this press release that assume Chemed owned 100% of VITAS as of January 1, 2003.
In the second quarter of 2005, VITAS had net patient revenue of $154 million and net income of $10.1 million. Net income includes aftertax costs of $0.4 million for LTIP and $0.2 million for legal expenses related to the OIG civil investigation. Adjusted EBITDA was $19.5 million at a margin of 12.7%.
"VITAS generated revenue growth of 18.0% over the prior-year period and 5.3% sequentially," stated David Williams, Chemed chief financial officer. "Gross margins were 21.4% in the second quarter of 2005, a 40 basis point decline when compared to the prior-year quarter. This decline is primarily the result of our new start development efforts. The second-quarter 2005 gross margin includes $1.4 million in start-up losses, which is $0.8 million higher than the $0.6 million in losses from programs classified as new starts in the prior-year period. Central support costs for VITAS, which are classified as selling, general and administrative expenses in the Statement of Operations, totaled $13.6 million, including $0.3 million in OIG legal expenses. Excluding these OIG expenses, central support costs increased 8.3% when compared to the prior-year quarter and increased 1.6% sequentially."
VITAS' ADC in the second quarter of 2005 was 9,913. This compares to an ADC of 8,581 in the comparable prior-year period, an increase of 15.5% and 4.1% sequential growth. Admissions totaled 12,646, an increase of 10.2% over the second quarter of 2004. The Average Length of Stay (ALOS) for patients discharged in the quarter was 66.8 days and compares to 66.2 days in the first quarter of 2005 and 60.0 days in the second quarter of 2004.
"VITAS continues to generate strong internal growth," said Williams. "This growth, which excludes 2004 and 2005 acquisitions, generated revenue, ADC and admissions increases of 14.3%, 10.9% and 7.2%, respectively, over the prior-year quarter.
"Our mix of revenue at VITAS was relatively stable," Williams added. "Routine home care represented 69.4% of revenue, an increase of 110 basis points over the prior-year quarter and a 20 basis point increase on a sequential basis. Our inpatient revenue aggregated 13.7% and continuous care was 16.9% of total revenue in the second quarter of 2005.
"All of our base and new start programs are forecasted to have Medicare cap cushion for the 2005 measurement period which ends on October 31, 2005," stated Williams. "As previously discussed, we have been closely monitoring Medicare cap limitations at our Phoenix acquisition. Admissions generated by VITAS for Phoenix in 2005 have exceeded the 2004 level. However, discharges of patients admitted to the Phoenix hospice program prior to VITAS' acquisition have been at a slower rate than anticipated. Based on these factors, Phoenix is forecasted to have a Medicare cap liability ranging from $1.0 million to $1.5 million as of October 31, 2005. The potential of reaching cap in the initial year of acquisition was identified during our due diligence of Phoenix. Since this cap limitation relates to patients admitted into the program prior to acquisition, the estimated cap accrual has been accounted for as a contingent liability assumed at acquisition and is not reflected in the Consolidated Statement of Income. VITAS anticipates creating cap cushion in 2006 by increasing access to shorter stay patients and broadening access to in-patient and continuous care patients. This broad mix of patients is consistent with the clinical model provided by VITAS in its other programs."
Roto-Rooter Segment
Roto-Rooter's plumbing and drain cleaning business generated sales of $73 million for the second quarter of 2005, 5.3% higher than the $69 million reported in the comparable prior-year quarter. Net income for the quarter was $5.7 million, including $0.2 million of aftertax costs related to the LTIP. Adjusted EBITDA in the second quarter of 2005 totaled $11.3 million, an increase of 10.0% over the second quarter of 2004. Adjusted EBITDA margin in the second quarter of 2005 was 15.5%, a 60 basis point increase over the prior-year period.
"Job count in the second quarter of 2005 was essentially flat," stated Williams. "However, commercial plumbing and drain cleaning job count increased 7.9% and 3.3%, respectively, over the prior-year quarter. Residential plumbing jobs increased 1.5% but were offset by a 4.7% decline in residential drain cleaning jobs during the quarter. A commercial job will typically average approximately 34% more revenue than a residential job. Accordingly, this continued shift of job mix has a positive impact on revenue."
Consolidated Financial Position
"Our balance sheet is in excellent condition," Williams stated. "As of June 30, 2005, we had $18 million in cash and cash equivalents. Net cash provided by continuing operations was $22 million and capital expenditures totaled $5.3 million in the second quarter of 2005."
Guidance for 2005
"Looking ahead into the second half of 2005," Williams stated, "we anticipate VITAS to increase revenue in the range of 16% to 18% in 2005, with margins continuing to increase modestly from the 2004 levels. This operating margin expansion will be generated from leveraging central support costs. Roto-Rooter is estimated to generate a 5% to 6% increase in revenue with margins that approximate those generated in 2004. Our consolidated effective tax rate for the first six months of 2005 was 39%. This rate should hold for the remainder of 2005.
"Based upon these factors and a current diluted share count of 26.2 million, our expectation is that full-year 2005 earnings per diluted share from continuing operations, excluding the early extinguishment of debt and charges or credits not indicative of ongoing operations, will be in the range of $1.77 to $1.82."
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.
Source: Chemed Corporation's web site
Key Executives
Edward L. Hutton - Chairman of the Board - Edward L. Hutton, 85, is a director and Chairman of the Board of Chemed Corporation (NYSE:CHE). Mr. Hutton is also Chairman and a director of Omnicare Inc. (NYSE:OCR), previously an affiliate of Chemed. Mr. Hutton served Chemed as President and Chief Executive Officer from its initial public offering in 1971 through 1993. In 1993, he was named Chairman and Chief Executive Officer of Chemed. In 2001, he relinquished the title of Chief Executive Officer, remaining Chairman of the company. In May 2004, he was elected Chairman of the Board. Prior to his Chemed career, Mr. Hutton held executive positions with W. R. Grace & Co., Ward Industries, and the World Commerce Corporation. Mr. Hutton is a member of the Governing Board of the Academic Freedom Fund-American Association of University Professors and the Board of Advisors of the Jerome Levy Economics Institute of Bard College. He is also a trustee emeritus of Milliken University. From 1982 to 1984, he served as co-chairman of the President's Private Sector Survey on Cost Control, known as "The Grace Commission." Mr. Hutton holds B.S. and M.S. degrees with distinction from Indiana University. He has also received honorary Doctor of Laws degrees from Indiana University and Cumberland College. He is a recipient of Indiana University's Distinguished Alumni Service Award and the Thomas Hart Benton Mural Medallion.
Kevin J. McNamara - President & Chief Executive Officer - Kevin J. McNamara, 51, is President and Chief Executive Officer of Chemed Corporation (NYSE:CHE). He is also Chairman of the company's VITAS Healthcare Corporation subsidiary. Mr. McNamara began his career at Chemed in 1980 as a corporate attorney. In 1981, he moved to Omnicare, Inc. (NYSE:OCR), Chemed's then 24%-owned affiliate, as Secretary. In 1986, Mr. McNamara returned to Chemed and was named Vice President, General Counsel, and Secretary. From 1990 through 1992, he also served as Executive Vice President and Chief Operating Officer of Omnicare. In 1992, Mr. McNamara was elected Vice Chairman of Chemed, while still serving as its General Counsel and Secretary. In 1993, he was named Executive Vice President, Secretary, and General Counsel of Chemed. The Board of Directors elected Mr. McNamara to his present position of President in 1994 and to the additional post of Chief Executive Officer in 2001. In February 2004, he also became Chairman of the company's VITAS subsidiary. Mr. McNamara holds an A.B. degree in economics from Denison University and a J.D. from Cornell Law School.
Timothy S. O'Toole - Executive Vice President - Timothy S. O'Toole, 49, is an Executive Vice President of Chemed Corporation (NYSE:CHE). He is also Chief Executive Officer of the company's VITAS Healthcare Corporation subsidiary. He joined Chemed in 1978 as a tax accountant for Chemed's former DuBois Chemicals subsidiary, moving to Chemed in 1979 in the same position. He was promoted to Tax Specialist in 1980, Senior Tax Specialist in 1983, and Tax Supervisor in 1984. In 1985, he became Corporate Tax Manager, and in 1986, he was promoted to Assistant Controller and Director of Taxes. The Board of Directors elected Mr. O'Toole a Vice President of Chemed in 1988, and he continued as Director of Taxes. In 1989, the Board named him Vice President and Treasurer of Chemed. In 1992, he was named an Executive Vice President of Chemed, while retaining his title of Treasurer. In 1995, Mr. O'Toole gained additional responsibility as Chairman and Chief Executive Officer of Chemed's home healthcare services subsidiary, Patient Care Inc., which Chemed acquired in 1994 and divested in 2002. In February 2004, Mr. O'Toole was named to his present position of Chief Executive Officer of VITAS, while retaining his position as Executive Vice President of Chemed. Mr. O'Toole holds a B.S. degree in accounting from the University of Kentucky and a J.D. degree, cum laude, from the Salmon P. Chase Law School of Northern Kentucky University.
Spencer S. Lee - Executive Vice President - Spencer S. Lee, 49, is an Executive Vice President of Chemed Corporation (NYSE:CHE) and Chairman and Chief Executive Officer of its Roto-Rooter Management Company subsidiary. Mr. Lee began his career at Chemed in 1980 as an Assistant to the President. In 1981, he transferred to Chemed's Roto-Rooter subsidiary as Director of Development. In 1983, Mr. Lee moved into the field and became Assistant General Manager of Roto-Rooter's Boston division. He was promoted in 1984 to Vice President of Roto-Rooter's Mid-Atlantic Region, based in Baltimore. In 1989, he took on additional responsibility for the Northeast Region. In 1992, Mr. Lee moved back to Roto-Rooter headquarters, continuing as Vice President for the Northeast. In 1996, Mr. Lee was promoted to Senior Vice President of Operations for Roto-Rooter Services Company, and in 1999, he was named to his current position of Chairman and Chief Executive Officer of Roto-Rooter Management Company. The Board of Directors elected him to the additional post of Executive Vice President of Chemed in 2000. Mr. Lee holds a B.A. degree from Claremont McKenna College and an M.B.A. from the University of Chicago.
Arthur V. Tucker, Jr. - Vice President & Controller - Arthur V. Tucker, Jr., 55, is Vice President and Controller of Chemed Corporation (NYSE:CHE). Mr. Tucker joined the former DuBois Chemicals subsidiary of Chemed in 1977 as Director of the Internal Audit Department. He transferred to Chemed in 1979 as an Assistant to the Controller and was promoted to Assistant Controller in 1983. The Board of Directors elected Mr. Tucker Vice President and Controller of Chemed in 1989. Previously, from 1973 to 1977, Mr. Tucker served as a Senior Accountant at Price Waterhouse & Company. He holds a B.S. degree from the University of North Carolina and an M.B.A. from Miami University. He is a Certified Public Accountant.
Naomi C. Dallob - Vice President & Secretary - Naomi C. Dallob, 51, is Vice President and Secretary of Chemed Corporation (NYSE:CHE). Ms. Dallob began her career at Chemed in 1984 as an attorney. In 1987, she was elected a Vice President of Chemed, while also serving as Assistant Secretary of the company and its Roto- Rooter subsidiary and as Secretary of Chemed's National Sanitary Supply Company subsidiary. In 1994, the Board of Directors promoted Ms. Dallob to her current position of Vice President and Secretary, as well as Secretary and General Counsel of Chemed's then publicly traded subsidiaries Roto-Rooter and National Sanitary Supply, which companies she served until 1996 and 1997, respectively. Prior to joining Chemed, Ms. Dallob was an attorney with the law firm of Dinsmore & Shohl from 1980 to 1984. Ms. Dallob holds a B.A. degree from the University of Cincinnati and a J.D. degree from the University of Cincinnati College of Law. She is a member of the American Bar Association, the Ohio Bar Association, and the Cincinnati Bar Association.
David P. Williams - Vice President & Chief Financial Officer - David P. Williams, 44, is Vice President and Chief Financial Officer of Chemed Corporation (NYSE:CHE). He is also Senior Vice President and Chief Financial Officer of the company's Roto-Rooter Management Company subsidiary. Mr. Williams joined Chemed in 1990 as Vice President of Finance for The Omnia Group, a former subsidiary engaged in the manufacture and distribution of medical and dental products. He was promoted to Senior Vice President of Finance in 1992 and to Senior Vice President and Chief Financial Officer of Omnia in 1993. He transferred to the Roto-Rooter Management Company subsidiary in 1998 as Chief Financial Officer and was named Senior Vice President and Chief Financial Officer the following year. In March 2004, the Board of Directors also elected Mr. Williams a Vice President and the Chief Financial Officer of Chemed. Prior to joining Chemed, Mr. Williams worked for Price Waterhouse as manager of Comprehensive Professional Services from 1983 to 1990. Mr. Williams holds a B.A. in accounting from Michigan State University. In addition, he earned his M.B.A. with high honors from Michigan State University's Executive Management Program.
A Word On Forward Looking Statements
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