Chemed Reports Second-Quarter 2006 Results; Diluted EPS from Continuing Operations of $.48, up 14%.CINCINNATI Cincinnati (sĭnsənăt`ē, –năt`ə), city (1990 pop. 364,040), seat of Hamilton co., extreme SW Ohio, on the Ohio River opposite Newport and Covington, Ky.; inc. as a city 1819. -- Chemed Corporation (Chemed) (NYSE NYSE See: New York Stock Exchange :CHE), which operates VITAS VITAS Vietnam Textile and Apparel Association Healthcare Corporation (VITAS), the nation's largest provider of end-of-life end-of-life Cardiac pacing noun The point at which a pacemaker signals need for replacement, as its battery is nearing depletion Medtalk adjective care, and Roto-Rooter Roto-Rooter is a United States company which originally specialized in clearing tree roots and other obstructions from sewer lines. It is the largest plumbing and drain-cleaning company in North America. , the nation's largest commercial and residential plumbing plumbing, piping systems inside buildings for water supply and sewage. The Romans had a highly developed plumbing system; water was brought to Rome by aqueducts and distributed to homes in lead pipes—hence the name plumbing from the Latin word plumbum and drain One side of a field effect transistor. When the gate is pulsed, current flows from the source to the drain, or vice versa depending on the design. See collector. (jargon) drain cleaning services provider, today reported financial results for its second quarter ended June June: see month. 30, 2006, versus the comparable prior-year period, as follows: Consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: operating results from Continuing Operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the : --Revenue increased 10% to $250 million --Diluted EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. from Continuing Operations of $.48 --Adjusted diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. EPS from Continuing Operations, excluding certain items, of $.49 VITAS segment operating results: --Net Patient Revenue of $172 million, up 12%, including $2.3 million of Medicare Medicare, national health insurance program in the United States for persons aged 65 and over and the disabled. It was established in 1965 with passage of the Social Security Amendments and is now run by the Centers for Medicare and Medicaid Services. Cap accrual accrual, n continually recurring short-term liabilities. Examples are accrued wages, taxes, and interest. --Average Daily Census daily census See Census. (ADC (1) See A/D converter. (2) (Apple Display Connector) A peripheral connector from Apple that combines digital video display, USB and power in one cable. ) of 10,904, up 10% --Admissions of 13,069, an increase of 3.3% --Average Length of Stay in the quarter was 68.0 days --Net income of $11.4 million, up 7.5% --Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become of $20.4 million, an increase of 3.4% --Adjusted EBITDA margin of 11.8% Roto-Rooter segment operating results: --Revenue of $78 million, an increase of 7% --Job count of 198,708, up 0.6% --Net Income of $7.0 million, up 19.2% --Adjusted EBITDA of $12.7 million, an increase of 13% --Adjusted EBITDA margin of 16.4% In the second quarter of 2006, VITAS recorded a Medicare contractual billing adjustment (Medicare Cap). This accrual reduced revenues by $2.3 million and negatively impacted diluted EPS in the quarter by $0.05 per share. Medicare Cap affected two hospice hospice, program of humane and supportive care for the terminally ill and their families; the term also applies to a professional facility that provides care to dying patients who can no longer be cared for at home. programs in the second quarter of 2006. The Phoenix program, acquired in December December: see month. 2004, recorded an estimated Medicare Cap billing limitation of $1.7 million. A second program, with an average daily census of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 250, recorded $600,000 of Medicare Cap. The Phoenix program is estimated to have a calendar year 2006 aggregate Medicare Cap liability ranging from $2.5 million to $4.0 million. The majority of VITAS' Phoenix patients are referred from assisted living as·sist·ed living n. A living arrangement in which people with special needs, especially older people with disabilities, reside in a facility that provides help with everyday tasks such as bathing, dressing, and taking medication. facilities (ALF ALF - Algebraic Logic Functional language ), which typically have longer lengths of stay. VITAS has been unable to generate a sustainable level of high acuity acuity /acu·i·ty/ (ah-ku´i-te) clarity or clearness, especially of vision. a·cu·i·ty n. Sharpness, clearness, and distinctness of perception or vision. patients from other referral sources adequate to offset the ALF lengths of stay. The Company anticipates Phoenix will continue to have a Medicare Cap liability in 2007 ranging from $1.5 million to $3.0 million. This will make the Phoenix program breakeven breakeven 1. The level of output or sales necessary to cover fixed expenses. Companies in industries that have high fixed costs and, consequently, high breakevens, such as automobile and steel manufacturing, are likely to exhibit large fluctuations to a modest loss in 2007. The other program with a second-quarter 2006 Medicare Cap accrual of $600,000 is not anticipated to require additional cap accrual in the second half of 2006. This forecast is based upon improving metrics metrics Managed care A popular term for standards by which the quality of a product, service, or outcome of a particular form of Pt management is evaluated. See TQM. from management's efforts to rebalance patient mix in the second half of the year. Including the Medicare Cap, this program is forecasted to generate $3.0 million in operating profit Operating profit (or loss) Revenue from a firm's regular activities less costs and expenses and before income deductions. operating profit See operating income. in 2006. A third hospice program is forecasted to reach a Medicare billing limitation in the third quarter of 2006. This third program, with an ADC of slightly less than 300, is estimated to have a Medicare billing limitation ranging from $1.0 million to $1.5 million for the full-year 2006, with the majority of this liability being incurred in the third quarter. Assuming the Medicare Cap accrual is at the high end of the range, this program is estimated to generate $2.5 million in operating profit in 2006. Historically, VITAS' operating model Operating Model is a term that is used in many contexts. In essence an operating model describes how an organization operates across both business and technology domains. The Operating Model describes what is important for the organization. has been able to avoid any Medicare billing limitations. This had been achieved by admitting a significant number of high acuity patients, those patients in the later stage of their terminal illness. High acuity intakes are reflected in VITAS' overall median length of stay (MLOS), which is typically 13 days or less. MLOS means that half of all patients admitted to VITAS are discharged DISCHARGED. Released, or liberated from custody. It is not equivalent to acquitted in a declaration for a malicious prosecution. 2 Yeates, 475 2 Term Rep. 231; 1 Strange, 114; Doug. 205 3 Leon. 100. in 13 days or less of entering the program. This compares to the National Hospice and Palliative Care palliative care (paˑ·lē·ā·tiv kerˑ), n an approach to health care that is concerned primarily with attending to physical and emotional comfort rather Organization's (NHPCO NHPCO National Hospice and Palliative Care Organization ) industry MLOS estimate of 22 days. Typically, VITAS hospice programs with the lowest MLOS also have the highest percentage of cap cushion Cushion In the context of project financing, the extra amount of net cash flow remaining after expected debt service. cushion See call protection. . VITAS defines cap cushion as the difference between the maximum Medicare billing potential based upon total admissions and the actual billings Billings, city (1990 pop. 81,151), seat of Yellowstone co., S Mont., on the Yellowstone River, in a valley surrounded by seven mountain ranges; inc. as a city 1885. in a program. At the end of the second quarter of 2006, VITAS had 5 programs with an ADC greater than 450 and representing 42% of total ADC. All of these programs had an MLOS of 13 days or less. VITAS has 17 programs with ADC from 200 to 450 days. These programs represent 49% of total ADC. Three of these programs are forecasted to have Medicare Cap limitations in 2006 and were discussed earlier. Of the remaining 14 programs, 8 have an MLOS of 13 days or less and 5 programs have an MLOS between 13 and 18 days. One program has an MLOS of 26 days, an average length of stay of 75 days and an estimated full-year cap cushion of over 50% and is in the process of expanding its inpatient inpatient /in·pa·tient/ (in´pa-shent) a patient who comes to a hospital or other health care facility for diagnosis or treatment that requires an overnight stay. in·pa·tient n. capacity. VITAS has 20 programs with an average daily census of less than 200 patients. Nine of these programs are start-ups and make up 1% of average daily census. The remaining 11 programs represent 8% of total average daily census and have median lengths of stay ranging from 7 to 20 days. In most of VITAS' base programs, the MLOS, average daily census, admissions and discharges are relatively stable and predictable quarter to quarter. However, programs experiencing exceptionally strong growth rates Growth Rates The compounded annualized rate of growth of a company's revenues, earnings, dividends, or other figures. Notes: Remember, historically high growth rates don't always mean a high rate of growth looking into the future. are inherently more volatile With regard to computer memory, it means "temporary" and not "highly changeable," which is the usual meaning of the word. See volatile memory. 1. (programming) volatile - volatile variable. 2. (storage) volatile - See non-volatile storage. and will have significant fluctuations in these metrics. This volatility Volatility 1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time. 2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the increases the potential for a sudden shift in metrics in any given quarter. A severe decline in admissions and/or and/or conj. Used to indicate that either or both of the items connected by it are involved. Usage Note: And/or is widely used in legal and business writing. discharges could result in the program having a less optimal patient mix and potentially have Medicare billing limitations. To the extent the program has a predictable level of high acuity patient admissions, the program's patient mix can be rebalanced and continue to contractually con·trac·tu·al adj. Of, relating to, or having the nature of a contract. con·trac  tu·al·ly adv.Adv. 1. bill Medicare for 100% of services provided. From a business model perspective, hospice programs that are slightly above or below the Medicare Cap are essentially maximizing max·i·mize tr.v. max·i·mized, max·i·miz·ing, max·i·miz·es 1. To increase or make as great as possible: revenue, profitability and operating margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: for that program. Given the industry trend to longer lengths of stay, it is highly probable PROBABLE. That which has the appearance of truth; that which appears to be founded in reason. that VITAS' hospice programs will continue to expand Medicare billings on a per patient basis. As this trend of revenue growth continues, certain hospice programs have greater potential of being in a Medicare contractual billing limitation situation. The Company believes its relatively low MLOS in its hospice programs provides a competitive advantage to minimize In a graphical environment, to hide an application that is currently displayed on screen. For example, in Windows and Mac, the application's window is removed from the screen and represented by an icon on the Windows Taskbar. In the Mac, the icon is placed in the Dock. See Win Minimize windows. the financial impact of Medicare Cap as well as limit the duration of time the program remains in a Medicare Cap situation. VITAS VITAS generated net revenue growth of 12.0% over the prior-year period. Net income for the quarter was $11.4 million, an increase of 8% over the prior-year period. ADC increased 10% to 10,904 and admissions increased 3.3% to 13,069. Routine home care direct gross margins, before the reduction in revenue from contractual billing limitations, were 49.6%, up 20 basis points over the prior year and increased 210 basis points sequentially se·quen·tial adj. 1. Forming or characterized by a sequence, as of units or musical notes. 2. Sequent. se·quen . Continuous care direct gross margins were 20.3%, an increase of 80 basis points when compared to the prior year and 200 basis points sequentially. Inpatient direct care margins were 21.0% in the quarter, which is 200 basis points below the prior-year period and 210 basis points below the first quarter of 2006. June 2006 occupancy Gaining or having physical possession of real property subject to, or in the absence of, legal right or title. In a fire insurance policy, for example, the term occupancy was abnormally ab·nor·mal adj. Not typical, usual, or regular; not normal; deviant. [Alteration (influenced by ab-1) of obsolete anormal, from Medieval Latin low, resulting in occupancy in the full quarter of 79.5%. VITAS targets occupancy rates Noun 1. occupancy rate - the percentage of all rental units (as in hotels) are occupied or rented at a given time pct, per centum, percent, percentage - a proportion in relation to a whole (which is usually the amount per hundred) to be at 80% or higher. Central support costs for VITAS, which are classified as selling, general and administrative expenses in the Consolidating Statement of Income, totaled $13.7 million, including $0.3 million in OIG Noun 1. OIG - the investigative arm of the Federal Trade Commission Office of Inspector General independent agency - an agency of the United States government that is created by an act of Congress and is independent of the executive departments investigation legal expenses. Excluding the OIG expense, central support costs increased 1.4% when compared to the prior-year quarter and increased 2.1% sequentially. Adjusted EBITDA was $20.4 million in the quarter, an increase of 3.4% over the prior year. VITAS' Average Length of Stay (ALOS) for patients discharged in the quarter was 68.0 days and our median length of stay was 13 days. This compares to an ALOS of 72.4 days in the first quarter of 2006 and 66.8 days in the second quarter of 2005. Roto-Rooter Segment Roto-Rooter's plumbing and drain cleaning business generated sales of $78 million for the second quarter of 2006, 6.9% higher than the $73 million reported in the comparable prior-year quarter. Net income for the quarter was $7.0 million, an increase of 19% over the prior year. Adjusted EBITDA in the second quarter of 2006 totaled $12.7 million, an increase of 12.5% over the second quarter of 2005 and an adjusted EBITDA margin of 16.4%, an increase of 80 basis points over the prior-year period. Job count in the second quarter of 2006 increased 0.6% over the prior-year period. Commercial plumbing job count increased 4.2% and commercial drain cleaning increased 1.6% over the prior-year quarter. Residential plumbing jobs decreased 1.3% and residential drain cleaning jobs expanded 0.1% when compared to the second quarter of 2005. Overall, commercial jobs increased 2.4% and residential jobs declined 0.3%. This is a favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. shift in job mix since a commercial job will typically average significantly more revenue than a residential job. Accordingly, this continued shift of job mix has a positive impact on aggregate revenue. Guidance for 2006 VITAS is estimated to generate full-year revenue growth of 13.0% to 15.5%, increased admissions of 5.0% to 6.0% and adjusted EBITDA margins of 12.5% to 13.0%. This guidance assumes a Medicare price increase that will blend “Blending” redirects here. For alpha blending, see Alpha compositing. In linguistics, a blend is a word formed from parts of two other words. These parts are sometimes, but not always, morphemes. to 3.5% in the fourth quarter of 2006 and includes an estimated full-year Medicare contractual billing limitation between $4.0 million and $6.1 million. Roto-Rooter is estimated to generate a 6.0% to 7.0% increase in revenue in 2006, job count growth between 0.5% and 1.0% and adjusted EBITDA margins averaging between 16.5% and 17.0%. Based upon these factors, an effective tax rate of 39% and average diluted share count of 26.7 million in the second half of 2006, our expectation is that full-year 2006 earnings per diluted share from continuing operations, excluding any charges or credits not indicative indicative: see mood. of ongoing operations and excluding $.03 expense for stock options required under SFAS SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System 123R, will be in the range of $2.13 to $2.25. Conference Call Chemed will host a conference call and webcast at 11 a.m., ET, on Wednesday Wednesday: see week. , July July: see month. 26, 2006, to discuss the Company's quarterly results and provide an update on its business. The dial-in number for the conference call is (866) 543-6411 for U.S. and Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. participants and (617) 213-8900 for international participants. The participant Participant A party of a funding. It usually refers to the lowest rank or smallest level of funding. pass code is 58893678. A live webcast of the call can be accessed on Chemed's website at www.chemed.com by clicking on Investor Relations Investor relations The process by which the corporation communicates with its investors. Home. A taped replay of the conference call will be available beginning approximately two hours after the call's conclusion. It can be accessed by dialing (888) 286-8010 for U.S. and Canadian callers and (617) 801-6888 for international callers and will be available for one week following the live call. The replay pass code is 78981828. An archived webcast will also be available at www.chemed.com and will remain available for 14 days following the live call. Chemed Corporation operates in the healthcare field through its VITAS Healthcare Corporation subsidiary. VITAS provides daily hospice services to over 11,000 patients with severe, life-limiting illnesses. This type of care is focused on making the terminally ill Terminally Ill When a person is not expected to live more than 12 months. Notes: Any gifts given out by the afflicted person at this time may be considered as a dispersion of the estate rather than a gift. 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 A person who contracts to do work for another person according to his or her own processes and methods; the contractor is not subject to another's control except for what is specified in a mutually binding agreement for a specific job. and franchisees in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. and Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of . Roto-Rooter also has licensed master franchisees in Indonesia Indonesia (ĭn'dənē`zhə), officially Republic of Indonesia, republic (2005 est. pop. 241,974,000), c.735,000 sq mi (1,903,650 sq km), SE Asia, in the Malay Archipelago. , Singapore Singapore (sĭng`gəpôr, sĭng`ə–, sĭng'gəpôr`), officially Republic of Singapore, republic (2005 est. pop. 4,426,000), 240 sq mi (625 sq km). , Japan, Mexico Mexico, city, Mexico Mexico or Mexico City, Span. Ciudad de México (Méjico), city (1990 pop. 8,236,960; 1991 met. area est. 20,899,000), central Mexico, capital and largest city of Mexico. and the Philippines Philippines officially Republic of the Philippines Island country, western Pacific Ocean, on an archipelago off the southeast coast of Asia. Area: 122,121 sq mi (316,294 sq km). Population (2005 est.): 84,191,000. . This press release contains information about Chemed's EBITDA and Adjusted EBITDA, which are not measures derived de·rive v. de·rived, de·riv·ing, de·rives v.tr. 1. To obtain or receive from a source. 2. in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting and which exclude components that are important to understanding Chemed's financial performance. Chemed provides EBITDA and Adjusted EBITDA to help investors and others evaluate its 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 Capital requirements Financing required for the operation of a business, composed of long-term and working capital plus fixed assets. . Chemed's EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for comparable measures calculated and presented in accordance with GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). . A reconciliation of Chemed's net income to its Adjusted EBITDA is presented in the tables following the text of this press release. Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. Certain statements contained in this press release and the accompanying ac·com·pa·ny v. ac·com·pa·nied, ac·com·pa·ny·ing, ac·com·pa·nies v.tr. 1. To be or go with as a companion. 2. tables are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and 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 gov·ern v. gov·erned, gov·ern·ing, gov·erns v.tr. 1. To make and administer the public policy and affairs of; exercise sovereign authority in. 2. the hospice care or plumbing and drain cleaning industries; periodic changes in reimbursement Reimbursement Payment made to someone for out-of-pocket expenses has incurred. levels and procedures under Medicare and Medicaid Medicare and Medicaid U.S. government programs in effect since 1966. Medicare covers most people 65 or older and those with long-term disabilities. Part A, a hospital insurance plan, also pays for home health visits and hospice care. 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 Form 10-Q See 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 Six Months Ended
June 30, June 30,
------------------- -------------------
2006 2005 (cc) 2006 2005 (cc)
--------- --------- --------- ---------
Continuing Operations
Service revenues and sales $249,783 $226,309 $496,021 $444,946
--------- --------- --------- ---------
Cost of services provided and
goods sold (aa) 180,925 161,120 358,822 314,072
Selling, general and
administrative expenses (aa) 38,644 37,968 77,119 75,887
Depreciation 4,117 3,928 8,265 7,848
Amortization 1,417 1,231 2,813 2,423
--------- --------- --------- ---------
Total costs and expenses 225,103 204,247 447,019 400,230
--------- --------- --------- ---------
Income from operations 24,680 22,062 49,002 44,716
Interest expense (4,300) (5,039) (9,645) (10,874)
Loss on extinguishment of
debt - - (430) (3,971)
Other income--net 524 600 2,019 1,327
--------- --------- --------- ---------
Income before income taxes 20,904 17,623 40,946 31,198
Income taxes (8,062) (6,512) (15,889) (12,182)
--------- --------- --------- ---------
Income from continuing
operations 12,842 11,111 25,057 19,016
Discontinued Operations (bb) - (2,226) - (2,015)
--------- --------- --------- ---------
Net Income $ 12,842 $ 8,885 $ 25,057 $ 17,001
========= ========= ========= =========
Earnings Per Share (aa)
Income from continuing
operations $ 0.49 $ 0.44 $ 0.96 $ 0.75
========= ========= ========= =========
Net income $ 0.49 $ 0.35 $ 0.96 $ 0.67
========= ========= ========= =========
Average number of shares
outstanding 26,201 25,489 26,123 25,319
========= ========= ========= =========
Diluted Earnings Per Share
(aa)
Income from continuing
operations $ 0.48 $ 0.42 $ 0.93 $ 0.73
========= ========= ========= =========
Net income $ 0.48 $ 0.34 $ 0.93 $ 0.65
========= ========= ========= =========
Average number of shares
outstanding 26,846 26,214 26,815 26,059
========= ========= ========= =========
-------------------------------
(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,
------------------- -------------------
2006 2005 2006 2005
--------- --------- --------- ---------
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 (342) (254) (474) (254)
Long-term incentive
compensation - (1,837) - (2,946)
Stock option expense (18) - (18) (215)
Adjustments to
transaction-related
costs of the VITAS
acquisition - 671 - 671
Loss on extinguishment
of debt - - (430) (3,971)
--------- --------- --------- ---------
Pretax impact on
earnings (360) (1,420) (922) (5,052)
Income tax
benefit/(charge) on the
above 136 779 343 2,070
--------- --------- --------- ---------
Aftertax impact
on earnings $ (224) $ (641) $ (579) $ (2,982)
========= ========= ========= =========
(bb) Discontinued operations represents the results of operations
and loss on disposal of Service America.
(cc) Reclassified to conform to 2006 presentation.
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)(unaudited)
June 30,
-------------------
2006 2005 (cc)
--------- ---------
Assets
Current assets
Cash and cash equivalents $ 6,816 $ 17,870
Accounts receivable less allowances 94,833 84,973
Inventories 6,210 7,309
Current deferred income taxes 21,871 20,687
Prepaid income taxes 12,709 8,360
Current assets of discontinued
operations - 4,656
Prepaid expenses and other current assets 9,255 9,499
--------- ---------
Total current assets 151,694 153,354
Investments of deferred compensation plans
held in trust 23,731 19,610
Other investments 1,445 1,445
Note receivable 12,500 12,500
Properties and equipment, at cost less
accumulated depreciation 66,474 59,432
Identifiable intangible assets less
accumulated amortization 73,150 74,896
Goodwill 433,877 437,738
Noncurrent assets of discontinued
operations - 681
Other assets 20,692 22,571
--------- ---------
Total Assets $783,563 $782,227
========= =========
Liabilities
Current liabilities
Accounts payable $ 48,591 $ 39,899
Current portion of long-term debt 207 1,176
Income taxes 4,172 6,922
Accrued insurance 40,049 27,392
Accrued compensation 28,071 31,100
Current liabilities of discontinued
operations - 7,605
Other current liabilities 30,914 29,184
--------- ---------
Total current liabilities 152,004 143,278
Deferred income taxes 22,829 17,630
Long-term debt 169,397 234,541
Deferred compensation liabilities 23,503 19,555
Noncurrent liabilities of discontinued
operations - 779
Other liabilities 3,441 7,456
--------- ---------
Total Liabilities 371,174 423,239
--------- ---------
Stockholders' Equity
Capital stock 28,812 27,897
Paid-in capital 249,460 218,876
Retained earnings 193,089 155,484
Treasury stock, at cost (61,340) (44,572)
Unearned compensation - (488)
Deferred compensation payable in Company
stock 2,422 2,333
Notes receivable for shares sold (54) (542)
--------- ---------
Total Stockholders' Equity 412,389 358,988
--------- ---------
Total Liabilities and
Stockholders' Equity $783,563 $782,227
========= =========
Book Value Per Share $ 15.71 $ 13.99
========= =========
----------------------------------------------------
(cc) Reclassified to conform to 2006 presentation.
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands) (unaudited)
Six Months Ended
June 30,
--------------------
2006 2005
--------- ----------
Cash Flows from Operating Activities
Net income $ 25,057 $ 17,001
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 11,078 10,271
Provision for uncollectible accounts
receivable 4,005 3,343
Provision for deferred income taxes 4,001 (2,206)
Amortization of debt issuance costs 882 962
Write off unamortized debt issuance costs 430 2,871
Noncash long-term incentive compensation - 2,574
Discontinued operations - 2,015
Changes in operating assets and
liabilities, excluding amounts acquired
in business combinations
Increase in accounts receivable (3,828) (23,653)
Decrease/(increase) in inventories 289 (290)
Decrease in prepaid expenses and
other current assets 513 343
Decrease in accounts payable and
other current liabilities (15,949) (2,673)
Increase in income taxes 2,189 7,859
Decrease in other assets (2,892) (1,328)
Increase in other liabilities 1,972 390
Excess tax benefit on share-based
compensation (4,941) -
Noncash expense of internally financed
ESOPs - 572
Other sources 679 676
--------- ----------
Net cash provided by continuing
operations 23,485 18,727
Net cash used by discontinued
operations - (1,559)
--------- ----------
Net cash provided by operating
activities 23,485 17,168
--------- ----------
Cash Flows from Investing Activities
Capital expenditures (9,474) (11,455)
Net uses from the sale of discontinued
operations (2,990) (5,478)
Business combinations, net of cash acquired (814) (5,495)
Proceeds from sales of property and equipment 161 96
Other uses (358) (107)
--------- ----------
Net cash used by investing activities (13,475) (22,439)
--------- ----------
Cash Flows from Financing Activities
Repayment of long-term debt (84,499) (140,978)
Net increase in revolving line of credit 19,000 -
Excess tax benefit on share-based compensation 4,941 -
Issuance of capital stock, net of costs 3,849 8,766
Purchases of treasury stock (3,992) (3,574)
Dividends paid (3,156) (3,060)
Increase in cash overdrafts payable 3,397 7,347
Debt issuance costs (154) (1,755)
Proceeds from long-term debt - 85,000
Other sources/(uses) 287 (53)
--------- ----------
Net cash used by financing activities (60,327) (48,307)
--------- ----------
Decrease in Cash and Cash Equivalents (50,317) (53,578)
Cash and cash equivalents at beginning of year 57,133 71,448
--------- ----------
Cash and cash equivalents at end of period $ 6,816 $ 17,870
========= ==========
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2006 AND 2005
(in thousands)(unaudited)
Roto- Chemed
VITAS Rooter Corporate Consolidated
--------- -------- ---------- -------------
2006
---------------------------
Service revenues and sales $ 172,242 $ 77,541 $ - $ 249,783
--------- -------- ---------- -------------
Cost of services provided
and goods sold 138,519 42,406 - 180,925
Selling, general and
administrative expenses (a) 13,725 22,232 2,687 38,644
Depreciation 2,122 1,914 81 4,117
Amortization 1,084 20 313 1,417
--------- -------- ---------- -------------
Total costs and expenses 155,450 66,572 3,081 225,103
--------- -------- ---------- -------------
Income/(loss) from
operations 16,792 10,969 (3,081) 24,680
Interest expense (38) (109) (4,153) (4,300)
Intercompany interest
income/(expense) 1,395 949 (2,344) -
Other income--net 45 (89) 568 524
--------- -------- ---------- -------------
Income/(loss) before
income taxes 18,194 11,720 (9,010) 20,904
Income taxes (a) (6,795) (4,717) 3,450 (8,062)
--------- -------- ---------- -------------
Net income/(loss) $ 11,399 $ 7,003 $ (5,560) $ 12,842
========= ======== ========== =============
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 (b) 13,446 21,024 3,498 37,968
Depreciation 1,770 2,086 72 3,928
Amortization 984 23 224 1,231
--------- -------- ---------- -------------
Total costs and expenses 137,054 63,399 3,794 204,247
--------- -------- ---------- -------------
Income/(loss) from
operations 16,694 9,162 (3,794) 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 17,356 9,727 (9,460) 17,623
Income taxes (b) (6,753) (3,852) 4,093 (6,512)
--------- -------- ---------- -------------
Income/(loss) from
continuing operations 10,603 5,875 (5,367) 11,111
Discontinued operations - - (2,226) (2,226)
--------- -------- ---------- -------------
Net income/(loss) $ 10,603 $ 5,875 $ (7,593) $ 8,885
========= ======== ========== =============
The "Footnotes to Financial Statements" are integral parts of this
financial information.
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(in thousands)(unaudited)
Roto- Chemed
VITAS Rooter Corporate Consolidated
--------- -------- ---------- -------------
2006
---------------------------
Service revenues and sales $ 340,616 $155,405 $ - $ 496,021
--------- -------- ---------- -------------
Cost of services provided
and goods sold 273,977 84,845 - 358,822
Selling, general and
administrative expenses (a) 26,961 44,774 5,384 77,119
Depreciation 4,195 3,883 187 8,265
Amortization 2,168 40 605 2,813
--------- -------- ---------- -------------
Total costs and expenses 307,301 133,542 6,176 447,019
--------- -------- ---------- -------------
Income/(loss) from
operations 33,315 21,863 (6,176) 49,002
Interest expense (69) (282) (9,294) (9,645)
Intercompany interest
income/(expense) 2,349 1,801 (4,150) -
Loss on extinguishment of
debt (a) - - (430) (430)
Other income--net 57 273 1,689 2,019
--------- -------- ---------- -------------
Income/(loss) before
income taxes 35,652 23,655 (18,361) 40,946
Income taxes (a) (13,396) (9,451) 6,958 (15,889)
--------- -------- ---------- -------------
Net income/(loss) $ 22,256 $ 14,204 $ (11,403) $ 25,057
========= ======== ========== =============
2005
---------------------------
Service revenues and sales $ 299,738 $145,208 $ - $ 444,946
--------- -------- ---------- -------------
Cost of services provided
and goods sold (b) 236,074 77,998 - 314,072
Selling, general and
administrative expenses (b) 26,475 42,154 7,258 75,887
Depreciation 3,555 4,148 145 7,848
Amortization 1,979 49 395 2,423
--------- -------- ---------- -------------
Total costs and expenses 268,083 124,349 7,798 400,230
--------- -------- ---------- -------------
Income/(loss) from
operations 31,655 20,859 (7,798) 44,716
Interest expense (71) (279) (10,524) (10,874)
Intercompany interest
income/(expense) 1,190 940 (2,130) -
Loss on extinguishment of
debt (b) - - (3,971) (3,971)
Other income--net 122 442 763 1,327
--------- -------- ---------- -------------
Income/(loss) before
income taxes 32,896 21,962 (23,660) 31,198
Income taxes (b) (12,683) (8,777) 9,278 (12,182)
--------- -------- ---------- -------------
Income/(loss) from
continuing operations 20,213 13,185 (14,382) 19,016
Discontinued operations - - (2,015) (2,015)
--------- -------- ---------- -------------
Net income/(loss) $ 20,213 $ 13,185 $ (16,397) $ 17,001
========= ======== ========== =============
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, 2006 AND 2005
(in thousands)(unaudited)
Roto- Chemed
VITAS Rooter Corporate Consolidated
--------- -------- ---------- -------------
2006
---------------------------
Net income/(loss) $ 11,399 $ 7,003 $ (5,560) $ 12,842
Add/(deduct):
Interest expense 38 109 4,153 4,300
Income taxes 6,795 4,717 (3,450) 8,062
Depreciation 2,122 1,914 81 4,117
Amortization 1,084 20 313 1,417
--------- -------- ---------- -------------
EBITDA 21,438 13,763 (4,463) 30,738
Add/(deduct):
Legal expenses of
OIG investigation 342 - - 342
Stock option expense - - 18 18
Advertising cost
adjustment (c) - (87) - (87)
Interest income (35) (17) (527) (579)
Intercompany
interest
income/(expense) (1,395) (949) 2,344 -
--------- -------- ---------- -------------
Adjusted EBITDA $ 20,350 $12,710 $ (2,628) $ 30,432
========= ======== ========== =============
2005
---------------------------
Net income/(loss) $ 10,603 $ 5,875 $ (7,593) $ 8,885
Add/(deduct):
Discontinued
operations - - 2,226 2,226
Interest expense 33 97 4,909 5,039
Income taxes 6,753 3,852 (4,093) 6,512
Depreciation 1,770 2,086 72 3,928
Amortization 984 23 224 1,231
--------- -------- ---------- -------------
EBITDA 20,143 11,933 (4,255) 27,821
Add/(deduct):
Long-term incentive
compensation - - 1,837 1,837
Legal expenses of
OIG Investigation 254 - - 254
VITAS transaction
expense adjustment - - (671) (671)
Advertising cost
adjustment (c) - (76) - (76)
Interest income (33) (47) (182) (262)
Intercompany
interest
income/(expense) (681) (516) 1,197 -
--------- -------- ---------- -------------
Adjusted EBITDA $ 19,683 $11,294 $ (2,074) $ 28,903
========= ======== ========== =============
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, 2006 AND 2005
(in thousands)(unaudited)
Roto- Chemed
VITAS Rooter Corporate Consolidated
--------- -------- ---------- -------------
2006
---------------------------
Net income/(loss) $ 22,256 $14,204 $ (11,403) $ 25,057
Add/(deduct):
Interest expense 69 282 9,294 9,645
Income taxes 13,396 9,451 (6,958) 15,889
Depreciation 4,195 3,883 187 8,265
Amortization 2,168 40 605 2,813
--------- -------- ---------- -------------
EBITDA 42,084 27,860 (8,275) 61,669
Add/(deduct):
Legal expenses of
OIG investigation 474 - - 474
Stock option expense - - 18 18
Advertising cost
adjustment (c) - (581) - (581)
Interest income (76) (40) (1,435) (1,551)
Intercompany
interest
income/(expense) (2,349) (1,801) 4,150 -
Loss on
extinguishment of
debt - - 430 430
--------- -------- ---------- -------------
Adjusted EBITDA $ 40,133 $25,438 $ (5,112) $ 60,459
========= ======== ========== =============
2005
---------------------------
Net income/(loss) $ 20,213 $13,185 $ (16,397) $ 17,001
Add/(deduct):
Discontinued
operations - - 2,015 2,015
Interest expense 71 279 10,524 10,874
Income taxes 12,683 8,777 (9,278) 12,182
Depreciation 3,555 4,148 145 7,848
Amortization 1,979 49 395 2,423
--------- -------- ---------- -------------
EBITDA 38,501 26,438 (12,596) 52,343
Add/(deduct):
Long-term incentive
compensation - - 2,946 2,946
Stock option expense - - 215 215
Prior-period
insurance
adjustment - (1,663) - (1,663)
Legal expenses of
OIG Investigation 254 - - 254
VITAS transaction
expense adjustment (671) (671)
Advertising cost
adjustment (c) - (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 $ 37,406 $23,118 $ (4,670) $ 55,854
========= ======== ========== =============
The "Footnotes to Financial Statements" are integral parts of this
financial information.
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
RECONCILIATION OF ADJUSTED NET INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(in thousands, except per share data)(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
2006 2005 2006 2005
--------- -------- -------- --------
Net income/(loss) as reported $ 12,842 $ 8,885 $25,057 $17,001
Add/(deduct):
Discontinued operations - 2,226 - 2,015
Aftertax prior period
insurance adjustment - - - (1,014)
Aftertax cost of long-term
incentive compensation (d) - 1,152 - 1,847
Aftertax cost of legal
expenses of OIG
investigation 212 160 294 160
Aftertax stock option
expense 12 - 12 137
Afertax VITAS transaction
expense adjustment - (671) - (671)
Aftertax cost of loss on
extinguishment of debt - - 273 2,523
--------- -------- -------- --------
Adjusted income from continuing
operations $ 13,066 $11,752 $25,636 $21,998
========= ======== ======== ========
Earnings/(Loss) Per Share As
Reported
Net income/(loss) $ 0.49 $ 0.35 $ 0.96 $ 0.67
========= ======== ======== ========
Average number of shares
outstanding 26,201 25,489 26,123 25,319
========= ======== ======== ========
Diluted Earnings/(Loss) Per Share
As Reported
Net income/(loss) $ 0.48 $ 0.34 $ 0.93 $ 0.65
========= ======== ======== ========
Average number of shares
outstanding 26,846 26,214 26,815 26,059
========= ======== ======== ========
Adjusted Earnings Per Share
Income from continuing
operations $ 0.50 $ 0.46 $ 0.98 $ 0.87
========= ======== ======== ========
Average number of shares
outstanding 26,201 25,489 26,123 25,319
========= ======== ======== ========
Adjusted Diluted Earnings Per
Share
Income from continuing
operations $ 0.49 $ 0.45 $ 0.96 $ 0.84
========= ======== ======== ========
Average number of shares
outstanding 26,846 26,214 26,815 26,059
========= ======== ======== ========
The "Footnotes to Financial Statements" are integral parts of this
financial information.
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
OPERATING STATISTICS FOR VITAS SEGMENT
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- -------------------
2006 2005 2006 2005
--------- --------- --------- ---------
OPERATING STATISTICS
Net revenue ($000)
Homecare $123,162 $106,610 $238,620 $207,482
Inpatient 21,782 21,131 44,889 41,979
Continuous care 29,638 26,007 59,447 50,277
--------- --------- --------- ---------
Total before
Medicare cap
allowance 174,582 153,748 342,956 299,738
Medicare cap
allowance (2,340) - (2,340) -
--------- --------- --------- ---------
Total $172,242 $153,748 $340,616 $299,738
========= ========= ========= =========
Net revenue as a percent
of total
before Medicare cap
allowance
Homecare 70.5 % 69.4 % 69.6 % 69.2 %
Inpatient 12.5 13.7 13.1 14.0
Continuous care 17.0 16.9 17.3 16.8
--------- --------- -------- ---------
Total before
Medicare cap
allowance 100.0 100.0 100.0 100.0
Medicare cap
allowance (1.3) - (0.7) -
--------- --------- --------- ---------
Total 98.7 % 100.0 % 99.3 % 100.0 %
========= ========= ========= =========
Average daily census
("ADC") (days)
Homecare 6,469 5,750 6,292 5,589
Nursing home 3,493 3,260 3,429 3,230
--------- --------- --------- ---------
Routine homecare 9,962 9,010 9,721 8,819
Inpatient 406 406 419 405
Continuous care 536 497 553 495
--------- --------- --------- ---------
Total 10,904 9,913 10,693 9,719
========= ========= ========= =========
Total Admissions 13,069 12,646 26,965 25,594
Total Discharges 12,603 12,153 26,015 24,741
Average length of stay
(days) 68.0 (d) 66.8 70.3 66.4
Median length of stay
(days) 13.0 12.0 13.0 12.0
ADC by major diagnosis
Neurological 33.1 % 32.0 % 33.1 % 31.4 %
Cancer 20.0 21.4 20.2 22.3
Cardio 15.0 15.2 14.9 14.8
Respiratory 7.2 7.2 7.2 7.2
Other 24.7 24.2 24.6 24.3
--------- --------- --------- ---------
Total 100.0 % 100.0 % 100.0 % 100.0 %
========= ========= ========= =========
Admissions by major
diagnosis
Neurological 19.6 % 18.7 % 20.1 % 19.2 %
Cancer 35.0 36.6 34.4 35.5
Cardio 13.2 13.8 13.6 14.0
Respiratory 7.0 6.9 7.5 7.6
Other 25.2 24.0 24.4 23.7
--------- --------- --------- ---------
Total 100.0 % 100.0 % 100.0 % 100.0 %
========= ========= ========= =========
Direct patient care
margins (e)
Routine homecare 49.6 % 49.4 % 48.6 % 49.6 %
Inpatient 21.0 23.0 22.1 22.9
Continuous care 20.3 19.5 19.3 18.5
Homecare margin drivers
(dollars per patient day)
Labor costs $ 48.15 $ 46.01 $ 49.65 $ 45.86
Drug costs 8.42 7.94 7.94 7.72
Home medical
equipment 5.52 5.53 5.54 5.50
Medical supplies 2.11 2.14 2.13 2.15
Inpatient margin drivers
(dollars per patient day)
Labor costs $ 257.69 $ 240.76 $ 252.04 $ 239.55
Continuous care margin
drivers
(dollars per patient day)
Labor costs $ 463.62 $ 443.83 $ 458.96 $ 438.56
Bad debt expense as a
percent of revenues 0.9 % 0.9 % 0.9 % 0.9 %
Accounts receivable --
days of revenue
outstanding 40.1 43.8 N.A. N.A.
The "Footnotes to Financial Statements" are integral parts of this
financial information.
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
FOOTNOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(unaudited)
(a) Included in the results of operations for the three and six months
ended June 30, 2006 are the following significant
credits/(charges) which may not be indicative of on going
operations (in thousands):
Three Months Ended June 30, 2006
----------------------------------------
Roto-
VITAS Rooter Corporate Consolidated
------ -------- ---------- -------------
Selling, general and
administrative expenses
Costs associated with
OIG investigation $(342) $ - $ - $ (342)
Stock option expense - - (18) (18)
------ -------- ---------- -------------
Pretax impact on
earnings (342) - (18) (360)
Income tax benefit on the
above 130 - 6 136
------ -------- ---------- -------------
Aftertax impact on
earnings $(212) $ - $ (12) $ (224)
====== ======== ========== =============
Six Months Ended June 30, 2006
----------------------------------------
Roto-
VITAS Rooter Corporate Consolidated
------ -------- ---------- -------------
Selling, general and
administrative expenses
Costs associated with
OIG investigation $(474) $ - $ - $ (474)
Stock option expense - - (18) (18)
Loss on extinguishment of
debt - - (430) (430)
------ -------- ---------- -------------
Pretax impact on
earnings (474) - (448) (922)
Income tax benefit on the
above 180 - 163 343
------ -------- ---------- -------------
Aftertax impact on
earnings $(294) $ - $ (285) $ (579)
====== ======== ========== =============
(b) Included in the results of operations for the three and six months
ended June 30, 2005 are the following significant
credits/(charges) which may not be indicative of on going
operations (in thousands):
Three Months Ended June 30, 2005
----------------------------------------
Roto-
VITAS Rooter Corporate Consolidated
------ -------- ---------- -------------
Selling, general and
administrative expenses
Long-term incentive
compensation $ - $ - $ (1,837) $ (1,837)
Costs associated with
OIG investigation (254) - - (254)
Adjustments to
transaction-related
costs of the VITAS
acquisition - - 671 671
------ -------- ---------- -------------
Pretax impact on
earnings (254) - (1,166) (1,420)
Income tax benefit on the
above 94 - 685 779
------ -------- ---------- -------------
Aftertax impact on
earnings $(160) $ - $ (481) $ (641)
====== ======== ========== =============
Six Months Ended June 30, 2005
----------------------------------------
Roto-
VITAS Rooter Corporate Consolidated
------ -------- ---------- -------------
Cost of services
provided and goods sold
Favorable adjustment
to casualty insurance
accruals related
to prior years'
experience $ - $ 1,663 $ - $ 1,663
Selling, general and
administrative expenses
Long-term incentive
compensation - - (2,946) (2,946)
Costs associated with
OIG investigation (254) - - (254)
Stock option expense - - (215) (215)
Adjustments to
transaction-related
costs
of the VITAS
acquisition - - 671 671
Loss on extinguishment of
debt - - (3,971) (3,971)
------ -------- ---------- -------------
Pretax impact on
earnings (254) 1,663 (6,461) (5,052)
Income tax benefit on the
above 94 (649) 2,625 2,070
------ -------- ---------- -------------
Aftertax impact on
earnings $(160) $ 1,014 $ (3,836) $ (2,982)
====== ======== ========== =============
(c) Under Generally Accepted Accounting Principles ("GAAP"), the
Roto-Rooter segment expenses all advertising, including the cost
of telephone directories, immediately upon the initial release of
the advertising. Telephone directories are generally in
circulation 12 months. If a directory is in circulation for a
time period greater or less than 12 months, the publisher adjusts
the directory billing for the change in billing period. The
timing of when a telephone directory is published can and does
fluctuate significantly on a quarterly basis. This "direct
expensing" results in significant fluctuations in quarterly
advertising expense. In the second quarters of 2006 and 2005,
GAAP advertising expense for Roto-Rooter totaled $4,914,000 and
$4,491,000, respectively. If the expense of the telephone
directories were spread over the periods they are in circulation,
advertising expense for the second quarters of 2006 and 2005
would total $5,001,000 and $4,567,000, respectively. For the six
months ended June 30, 2006 and 2005, GAAP advertising expense for
Roto-Rooter totaled $9,338,000 and $8,323,000, respectively. If
the expense of the telephone directories were spread over the
periods they are in circulation, advertising expense for the
first six months of 2006 and 2005 would total $9,919,000 and
$8,952,000, respectively.
(d) VITAS has 5 large (greater than 450 ADC), 17 medium (greater than
200 but less than 450 ADC) and 20 small (less than 200 ADC)
hospice programs.
(e) Amounts exclude medicare cap allowance and indirect patient care
and administrative costs.
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