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TMCNet:  Chemed Reports Fourth-Quarter 2013 Results

[February 17, 2014]

Chemed Reports Fourth-Quarter 2013 Results

CINCINNATI --(Business Wire)--

Chemed Corporation (Chemed) (NYSE:CHE), which operates VITAS Healthcare Corporation (VITAS), the nation's largest provider of end-of-life care, and Roto-Rooter, the nation's largest commercial and residential plumbing and drain cleaning services provider, reported financial results for its fourth quarter ended December 31, 2013, versus the comparable prior-year period, as follows:

Consolidated operating results:

  • Revenue decreased 5.4% to $349 million
  • GAAP Diluted EPS, including litigation, decreased 8.6% to $1.28
  • Adjusted Diluted EPS decreased 7.6% to $1.45

VITAS segment operating results:

  • Net Patient Revenue of $256 million, a decrease of 6.1%
  • Average Daily Census (ADC) of 14,185, a decrease of 1.9%
  • Admissions of 15,445, a decrease of 3.5%
  • Net Income, including litigation costs, of $20.9 million, a decrease of 14.9%
  • Adjusted EBITDA of $38.6 million, a decrease of 12.2%
  • Adjusted EBITDA margin of 15.1%, a decrease of 105 basis points

Roto-Rooter segment operating results:

  • Revenue of $92.4 million, a decrease of 3.4%
  • Unit-for-unit job count of 153,357, a decrease of 4.8%
  • Net Income, including litigation, of $10.0 million, an increase of 9.1%
  • Adjusted EBITDA of $18.4 million, an increase of 7.8%
  • Adjusted EBITDA margin of 20.0%, an increase of 206 basis points

VITAS

Net revenue for VITAS was $256 million in the fourth quarter of 2013, which is a decline of 6.1% when compared to the prior-year period. This revenue decline is a combination of several factors. Medicare reimbursement rates, including sequestration, decreased approximately 0.6%, ADC declined 1.9%, a mix shift away from high acuity care reduced revenue 2.3% and a $3.0 million increase in Medicare Cap billing adjustment which equated to 1.1% of additional revenue decline.

In the fourth quarter of 2013, VITAS recorded a Medicare Cap billing adjustment of $3.8 million related to two provider numbers.

Of VITAS' 37 unique Medicare provider numbers, 33 provider numbers have a Medicare Cap cushion of 10% or greater during the most recent twelve month period; one provider number has a Medicare Cap cushion between 5% to 10%; and two provider numbers have a cap cushion between 0% and 5%. VITAS generated an aggregate cap cushion of $267 million during the trailing twelve-month period.

Average revenue per patient per day in the quarter, excluding the impact of Medicare Cap, was $199.28, which is 3.2% below the prior-year period. The average revenue includes the 2.0% reduction in Medicare hospice reimbursement effective April 1, 2013. Routine home care reimbursement and high acuity care averaged $163.13 and $691.91, respectively, per patient per day in the fourth quarter of 2013. During the quarter, high acuity days of care were 6.8% of total days of care, 81 basis points below the prior-year quarter.

The fourth quarter of 2013 gross margin, excluding the impact of Medicare Cap, was 24.1%, which is a 60 basis point improvement when compared to the fourth quarter of 2012.

Selling, general and administrative expense was $20.9 million in the fourth quarter of 2013, which is an increase of 4.1% when compared to the prior-year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $42.4 million in the quarter, a decrease of 5.4% over the prior-year period. Adjusted EBITDA margin, excluding the impact from Medicare Cap, was 16.3% in the quarter which is essentially equal to the prior-year quarter.

Roto-Rooter

Roto-Rooter's plumbing and drain cleaning business generated sales of $92.4 million for the fourth quarter of 2013, a decrease of 3.4% over the prior-year quarter.

Total unit-for-unit job count decreased 4.8% in the fourth quarter of 2013 when compared to the prior-year period. This consisted of residential drain cleaning job count decreasing 10.4% and residential plumbing job count declining 0.7%, when compared to the fourth quarter of 2012. Residential jobs represented 68% of total job count in the quarter. Commercial drain cleaning decreased 1.4% and commercial plumbing/excavation job count increased 7.8% when compared to the prior-year quarter.

Roto-Rooter's gross margin in the quarter was 47.3%, a 223 basis point increase when compared to the fourth quarter of 2012. Adjusted EBITDA in the fourth quarter of 2013 totaled $18.4 million, an increase of 7.8%, and the Adjusted EBITDA margin was 20.0% in the quarter, an increase of 206 basis points. The increase in margin is primarily the result of reductions in healthcare claims, supervisory wages and overtime premium.

Chemed Consolidated

As of December 31, 2013, Chemed had total cash and cash equivalents of $84 million and debt of $184 million. This debt is net of the discount taken as a result of convertible debt accounting requirements. Excluding this discount, aggregate debt is $187 million and is due in May 2014.

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

Capital expenditures through December 31, 2013, aggregated $29.3 million and compares to depreciation and amortization during the same period of $32.4 million.

During the quarter, the Company repurchased $3.3 million of Chemed stock. This equates to 42,889 of Chemed shares repurchased at an average cost of $76.95. Chemed currently has $21.8 million of authorization remaining under this share repurchase plan.

Guidance for 2014

Effective October 1, 2012, Medicare increased the average hospice reimbursement rates by approximately 0.9%. Effective April 1, 2013, Medicare reduced hospice reimbursement rates 2.0%. As a result, effective April 1, 2013, this 0.9% increase was reduced to a 1.1% decline in Medicare rates when compared to the prior year. Effective October 1, 2013, Medicare increased the average hospice rate approximately 1.4%.

VITAS estimates its full-year 2014 revenue growth will continue to be constrained in the first half of 2014. This is a result of the first quarter of 2013 having Medicare rates 2% higher than the subsequent quarters. In addition, VITAS anticipates continued mix shift from high acuity care to routine home care will impact revenue comparisons for the first half of 2014.

Full-year 2014 revenue growth for VITAS, prior to Medicare Cap, is estimated to be in the range of 1% to 3%. Admissions in 2014 are estimated to increase 3% to 4% and full-year Adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 14.5% to 15.0%. Medicare Cap is estimated to be $5.6 million in 2014. Revenue, Adjusted EBITDA and admissions growth is anticipated to begin in the second quarter of 2014, with the majority of this growth weighted to the second half of 2014.

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

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

Conference Call

Chemed will host a conference call and webcast at 10 a.m., ET, on Tuesday, February 18, 2014, to discuss the Company's quarterly results and to provide an update on its business. The dial-in number for the conference call is (866) 318-8617 for U.S. and Canadian participants and (617) 399-5136 for international participants. The participant passcode is 78679009. A live webcast of the call can be accessed on Chemed's website at www.chemed.com by clicking on Investor Relations Home.

A taped replay of the conference call will be available beginning approximately 24 hours after the call's conclusion. It can be accessed by dialing (888) 286-8010 for U.S. and Canadian callers and (617) 801-6888 for international callers and will be available for one week following the live call. The replay passcode is 19056885. An archived webcast will also be available at www.chemed.com.

Chemed Corporation operates in the healthcare field through its VITAS Healthcare Corporation subsidiary. VITAS provides daily hospice services to over 14,000 patients with severe, life-limiting illnesses. This type of care is focused on making the terminally ill patient's final days as comfortable and pain-free as possible.

Chemed operates in the residential and commercial plumbing and drain cleaning industry under the brand name Roto-Rooter. Roto-Rooter provides plumbing and drain service through company-owned branches, independent contractors and franchisees in the United States and Canada. Roto-Rooter also has licensed master franchisees in Indonesia, Singapore, Japan, and the Philippines.

This press release contains information about Chemed's EBITDA, Adjusted EBITDA and Adjusted Diluted EPS, which are not measures derived in accordance with GAAP and which exclude components that are important to understanding Chemed's financial performance. In reporting its operating results, Chemed provides EBITDA, Adjusted EBITDA and Adjusted Diluted EPS measures to help investors and others evaluate the Company's operating results, compare its operating performance with that of similar companies that have different capital structures and evaluate its ability to meet its future debt service, capital expenditures and working capital requirements. Chemed's management similarly uses EBITDA, Adjusted EBITDA and Adjusted Diluted EPS to assist it in evaluating the performance of the Company across fiscal periods and in assessing how its performance compares to its peer companies. These measures also help Chemed's management to estimate the resources required to meet Chemed's future financial obligations and expenditures. Chemed's EBITDA, Adjusted EBITDA and Adjusted Diluted EPS should not be considered in isolation or as a substitute for comparable measures calculated and presented in accordance with GAAP. We calculated Adjusted EBITDA Margin by dividing Adjusted EBITDA by service revenue and sales. A reconciliation of Chemed's net income to its EBITDA, Adjusted EBITDA and Adjusted Diluted EPS is presented in the tables following the text of this press release.

Forward-Looking Statements

Certain statements contained in this press release and the accompanying tables are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The words "believe," "expect," "hope," "anticipate," "plan" and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. Chemed does not undertake and specifically disclaims any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These statements are based on current expectations and assumptions and involve various risks and uncertainties, which could cause Chemed's actual results to differ from those expressed in such forward-looking statements. These risks and uncertainties arise from, among other things, possible changes in regulations governing the hospice care or plumbing and drain cleaning industries; periodic changes in reimbursement levels and procedures under Medicare and Medicaid programs; difficulties predicting patient length of stay and estimating potential Medicare reimbursement obligations; challenges inherent in Chemed's growth strategy; the current shortage of qualified nurses, other healthcare professionals and licensed plumbing and drain cleaning technicians; Chemed's dependence on patient referral sources; and other factors detailed under the caption "Description of Business by Segment" or "Risk Factors" in Chemed's most recent report on form 10-Q or 10-K and its other filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on such forward-looking statements and there are no assurances that the matters contained in such statements will be achieved.




CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share data)(unaudited)
                     
 
For the Three Months Ended For the Years Ended
December 31, December 31,
2013 2012 2013 2012
Service revenues and sales $ 348,604   $ 368,577   $ 1,413,329   $ 1,430,043  
Cost of services provided and goods sold 245,958 261,898 1,008,808 1,033,321
Selling, general and administrative expenses (aa) 54,981 52,764 212,518 208,656
Depreciation 7,033 6,831 27,698 26,009
Amortization 1,192 1,137 4,690 4,512
Other operating expenses (bb)   -     -     26,221     1,126  
Total costs and expenses   309,164     322,630     1,279,935     1,273,624  
Income from operations 39,440 45,947 133,394 156,419
Interest expense (3,744 ) (3,691 ) (15,035 ) (14,723 )
Other income--net (cc)   2,158     1,158     5,470     4,123  
Income before income taxes 37,854 43,414 123,829 145,819
Income taxes   (14,945 )   (16,674 )   (46,602 )   (56,515 )
Net income $ 22,909   $ 26,740   $ 77,227   $ 89,304  
 
 
Earnings Per Share
Net income $ 1.31   $ 1.44   $ 4.24   $ 4.72  
Average number of shares outstanding   17,492     18,628     18,199     18,924  
 
Diluted Earnings Per Share
Net income $ 1.28   $ 1.40   $ 4.16   $ 4.62  
Average number of shares outstanding   17,899     19,053     18,585     19,339  
 
       
(aa) Selling, general and administrative ("SG&A") expenses comprise (in thousands):
               
For the Three Months Ended For the Years Ended
December 31, December 31,
2013   2012 2013 2012

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

$ 52,205 $ 51,666 $ 206,235 $ 204,797

Market value gains related to deferred compensation trusts

2,636 738 4,982 3,499
Long-term incentive compensation   140     360     1,301     360  
Total SG&A expenses $ 54,981   $ 52,764   $ 212,518   $ 208,656  
 
(bb) Other operating expenses comprise:
For the Years Ended December 31,
2013 2012
Litigations settlements of Roto-Rooter segment $ 15,721 $ -
Litigation settlement of VITAS segment 10,500 -
Severance and other operating expenses related to closing Roto-Rooter's HVAC business   -     1,126  
Total other operating expenses $ 26,221   $ 1,126  
 
(cc ) Other income--net comprises (in thousands):
For the Three Months Ended For the Years Ended
December 31, December 31,
2013 2012 2013 2012

Market value gains related to deferred compensation trusts

$ 2,636 $ 738 $ 4,982 $ 3,499
Interest income (318 ) 408 847 809
Loss on disposal of property and equipment (140 ) (119 ) (320 ) (347 )
Other   (20 )   131     (39 )   162  
Total other income--net $ 2,158   $ 1,158   $ 5,470   $ 4,123  
 

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)(unaudited)
                   
 
December 31,
2013 2012
Assets
Current assets
Cash and cash equivalents $ 84,418 $ 69,531
Accounts receivable less allowances 91,770 93,333
Inventories 6,703 7,058
Current deferred income taxes 20,257 13,659
Prepaid income taxes 3,690 2,643
Prepaid expenses   17,818     11,447  
Total current assets 224,656 197,671
Investments of deferred compensation plans held in trust 42,465 36,089
Properties and equipment, at cost less accumulated depreciation 92,955 91,934
Identifiable intangible assets less accumulated amortization 56,556 57,177
Goodwill 466,871 465,832
Other assets   10,198     10,923  
Total Assets $ 893,701   $ 859,626  
 
Liabilities
Current liabilities
Accounts payable $ 41,758 $ 48,472
Current portion of long-term debt 183,564 -
Income taxes 111 4,938
Accrued insurance 41,859 40,654
Accrued compensation 48,323 45,457
Accrued legal 23,210 1,161
Other current liabilities   25,161     16,140  
Total current liabilities 363,986 156,822
Deferred income taxes 27,301 27,662
Long-term debt - 174,890
Deferred compensation liabilities 42,348 35,599
Other liabilities   11,176     11,362  
Total Liabilities   444,811     406,335  
 
Stockholders' Equity
Capital stock 32,245 31,589
Paid-in capital 481,011 437,364
Retained earnings 686,114 623,035
Treasury stock, at cost (752,634 ) (640,732 )
Deferred compensation payable in Company stock   2,154     2,035  
Total Stockholders' Equity   448,890     453,291  
Total Liabilities and Stockholders' Equity $ 893,701   $ 859,626  
 

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)(unaudited)
                     
 
For the Years Ended December 31,
2013 2012
Cash Flows from Operating Activities
Net income $ 77,227 $ 89,304

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

Depreciation and amortization 32,388 30,521
Provision for uncollectible accounts receivable 10,907 9,111
Amortization of discount on convertible notes 8,674 8,106
Provision for deferred income taxes (6,988 ) (3,151 )
Stock option expense 6,042 8,130
Amortization of debt issuance costs 1,751 1,265
Noncash long-term incentive compensation 1,301 360

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

Increase in accounts receivable (9,009 ) (24,421 )
Decrease in inventories 355 1,610
Increase in prepaid expenses (6,317 ) (38 )
Increase in accounts payable and other current liabilities 40,340 4,954
Increase/(decrease) in income taxes (2,461 ) 6,020
Increase in other assets (6,507 ) (5,203 )
Increase in other liabilities 6,713 8,329
Excess tax benefit on stock-based compensation (3,982 ) (3,435 )
Other sources   413     306  
Net cash provided by operating activities   150,847     131,768  
Cash Flows from Investing Activities
Capital expenditures (29,324 ) (35,252 )
Business combinations, net of cash acquired (2,257 ) (5,900 )
Other uses   235     468  
Net cash used by investing activities   (31,346 )   (40,684 )
Cash Flows from Financing Activities
Purchases of treasury stock (92,911 ) (60,624 )
Proceeds from exercise of stock options 17,122 12,310
Dividends paid (14,148 ) (13,026 )
Increase/(decrease) in cash overdrafts payable (11,415 ) 1,924
Capital stock surrendered to pay taxes on stock-based compensation (5,348 ) (4,098 )
Excess tax benefit on stock-based compensation 3,982 3,435
Debt issuances costs (1,108 ) -
Other sources/(uses)   (788 )   445  
Net cash used by financing activities   (104,614 )   (59,634 )
Increase in Cash and Cash Equivalents 14,887 31,450
Cash and cash equivalents at beginning of year   69,531     38,081  
Cash and cash equivalents at end of period $ 84,418   $ 69,531  
 

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 2013 AND 2012
(in thousands)(unaudited)
               
Chemed
VITAS Roto-Rooter Corporate Consolidated

 2013

Service revenues and sales $ 256,218   $ 92,386   $ -   $ 348,604  
Cost of services provided and goods sold 197,265 48,693 - 245,958
Selling, general and administrative expenses (a) 20,948 25,691 8,342 54,981
Depreciation 4,569 2,329 135 7,033
Amortization   538     153     501     1,192  
Total costs and expenses   223,320     76,866     8,978     309,164  
Income/(loss) from operations 32,898 15,520 (8,978 ) 39,440
Interest expense (a) (37 ) (83 ) (3,624 ) (3,744 )
Intercompany interest income/(expense) 1,347 613 (1,960 ) -
Other income/(expense)-net   (441 )   (45 )   2,644     2,158  
Income/(loss) before income taxes 33,767 16,005 (11,918 ) 37,854
Income taxes (a)   (12,859 )   (5,980 )   3,894     (14,945 )
Net income/(loss) $ 20,908   $ 10,025   $ (8,024 ) $ 22,909  
 

 2012

Service revenues and sales $ 272,987   $ 95,590   $ -   $ 368,577  
Cost of services provided and goods sold 209,388 52,510 - 261,898
Selling, general and administrative expenses (a) 20,127 26,491 6,146 52,764
Depreciation 4,567 2,132 132 6,831
Amortization   489     161     487     1,137  
Total costs and expenses   234,571     81,294     6,765     322,630  
Income/(loss) from operations 38,416 14,296 (6,765 ) 45,947
Interest expense (a) (46 ) (69 ) (3,576 ) (3,691 )
Intercompany interest income/(expense) 819 395 (1,214 ) -
Other income/(expense)-net   399     (3 )   762     1,158  
Income/(loss) before income taxes 39,588 14,619 (10,793 ) 43,414
Income taxes (a)   (15,011 )   (5,429 )   3,766     (16,674 )
Net income/(loss) $ 24,577   $ 9,190   $ (7,027 ) $ 26,740  
 

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

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
(in thousands)(unaudited)
               
Chemed
VITAS Roto-Rooter Corporate Consolidated

 2013

Service revenues and sales $ 1,045,113   $ 368,216   $ -   $ 1,413,329  
Cost of services provided and goods sold 813,600 195,208 - 1,008,808
Selling, general and administrative expenses (a) 82,252 102,592 27,674 212,518
Depreciation 18,149 9,014 535 27,698
Amortization 2,102 607 1,981 4,690
Other operating expenses (a)   10,500     15,721     -     26,221  
Total costs and expenses   926,603     323,142     30,190     1,279,935  
Income/(loss) from operations 118,510 45,074 (30,190 ) 133,394
Interest expense (a) (182 ) (322 ) (14,531 ) (15,035 )
Intercompany interest income/(expense) 4,288 2,055 (6,343 ) -
Other income/(expense)-net   438     (4 )   5,036     5,470  
Income/(loss) before income taxes 123,054 46,803 (46,028 ) 123,829
Income taxes (a)   (46,910 )   (17,560 )   17,868     (46,602 )
Net income/(loss) $ 76,144   $ 29,243   $ (28,160 ) $ 77,227  
 

 2012

Service revenues and sales $ 1,067,037   $ 363,006   $ -   $ 1,430,043  
Cost of services provided and goods sold 831,321 202,000 - 1,033,321
Selling, general and administrative expenses (a) 80,494 102,366 25,796 208,656
Depreciation 17,087 8,397 525 26,009
Amortization 1,956 632 1,924 4,512
Other operating expenses (a)   -     1,126     -     1,126  
Total costs and expenses   930,858     314,521     28,245     1,273,624  
Income/(loss) from operations 136,179 48,485 (28,245 ) 156,419
Interest expense (a) (233 ) (433 ) (14,057 ) (14,723 )
Intercompany interest income/(expense) 3,180 1,617 (4,797 ) -
Other income-net   543     6     3,574     4,123  
Income/(loss) before income taxes 139,669 49,675 (43,525 ) 145,819
Income taxes (a)   (53,092 )   (18,770 )   15,347     (56,515 )
Net income/(loss) $ 86,577   $ 30,905   $ (28,178 ) $ 89,304  
 

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 DECEMBER 31, 2013 AND 2012
(in thousands)(unaudited)
                   
 
Chemed
VITAS Roto-Rooter Corporate Consolidated

 2013

Net income/(loss) $ 20,908 $ 10,025 $ (8,024 ) $ 22,909
Add/(deduct):
Interest expense 37 83 3,624 3,744
Income taxes 12,859 5,980 (3,894 ) 14,945
Depreciation 4,569 2,329 135 7,033
Amortization 538     153     501     1,192  
EBITDA 38,911 18,570 (7,658 ) 49,823
Add/(deduct):
Intercompany interest expense/(income) (1,347 ) (613 ) 1,960 -
Interest income 300 26 (8 ) 318
Expenses related to OIG investigation 705 - - 705
Acquisition expenses 20 - - 20
Expenses related to litigation settlements - 274 - 274
Advertising cost adjustment (c) - 177 - 177
Stock option expense - - 1,310 1,310
Long-term incentive compensation - - 140 140
Expenses related to securities litigation   -     -     105     105  
Adjusted EBITDA $ 38,589   $ 18,434   $ (4,151 ) $ 52,872  
 

 2012

Net income/(loss) $ 24,577 $ 9,190 $ (7,027 ) $ 26,740
Add/(deduct):
Interest expense 46 69 3,576 3,691
Income taxes 15,011 5,429 (3,766 ) 16,674
Depreciation 4,567 2,132 132 6,831
Amortization   489     161     487     1,137  
EBITDA 44,690 16,981 (6,598 ) 55,073
Add/(deduct):
Intercompany interest expense/(income) (819 ) (395 ) 1,214 -
Interest income (375 ) (9 ) (24 ) (408 )
Expenses related to OIG investigation 463 - - 463
Acquisition expenses 13 53 - 66
Expenses related to litigation settlements - 173 - 173
Advertising cost adjustment (c) - 297 - 297
Stock option expense - - 1,421 1,421
Long-term incentive compensation - - 360 360
Expenses related to securities litigation   -     -     477     477  
Adjusted EBITDA $ 43,972   $ 17,100   $ (3,150 ) $ 57,922  
 

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

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING SUMMARY OF EBITDA
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
(in thousands)(unaudited)
                   
 
Chemed
VITAS Roto-Rooter Corporate Consolidated

 2013

Net income/(loss) $ 76,144 $ 29,243 $ (28,160 ) $ 77,227
Add/(deduct):
Interest expense 182 322 14,531 15,035
Income taxes 46,910 17,560 (17,868 ) 46,602
Depreciation 18,149 9,014 535 27,698
Amortization   2,102     607     1,981     4,690  
EBITDA 143,487 56,746 (28,981 ) 171,252
Add/(deduct):
Intercompany interest expense/(income) (4,288 ) (2,055 ) 6,343 -
Interest income (750 ) (41 ) (56 ) (847 )
Expenses related to OIG investigation 2,149 - - 2,149
Litigation settlements 10,500 15,721 - 26,221
Expenses related to litigation settlements - 1,425 - 1,425
Acquisition expenses 58 4 - 62
Advertising cost adjustment (c) - (1,166 ) - (1,166 )
Expenses of severance arrangement - 302 - 302
Stock option expense - - 6,042 6,042
Long-term incentive compensation - - 1,301 1,301
Expenses related to securities litigation   -     -     109     109  
Adjusted EBITDA $ 151,156   $ 70,936   $ (15,242 ) $ 206,850  
 

 2012

Net income/(loss) $ 86,577 $ 30,905 $ (28,178 ) $ 89,304

 Add/(deduct):

Interest expense 233 433 14,057 14,723
Income taxes 53,092 18,770 (15,347 ) 56,515
Depreciation 17,087 8,397 525 26,009
Amortization   1,956     632     1,924     4,512  
EBITDA 158,945 59,137 (27,019 ) 191,063

 Add/(deduct):

Intercompany interest expense/(income) (3,180 ) (1,617 ) 4,797 -
Interest income (703 ) (30 ) (76 ) (809 )
Expenses related to OIG investigation 1,212 - - 1,212
Expenses related to litigation settlements - 1,016 - 1,016
Acquisition expenses 15 173 - 188
Advertising cost adjustment (c) - (1,573 ) - (1,573 )
Expenses to shut down HVAC operations - 1,126 - 1,126
Stock option expense - - 8,130 8,130
Long-term incentive compensation - - 360 360
Expenses related to securities litigation   -     -     742     742  
Adjusted EBITDA $ 156,289   $ 58,232   $ (13,066 ) $ 201,455  
 

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

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
RECONCILIATION OF ADJUSTED NET INCOME
(in thousands, except per share data)(unaudited)
                   
 
 
For the Three Months Ended For the Years Ended
December 31, December 31,
2013 2012 2013 2012
Net income as reported $ 22,909 $ 26,740 $ 77,227 $ 89,304
 
Add/(deduct) the after-tax:
Non-cash expense of change in accounting for convertible debt 1,402 1,297 5,448 5,041
Stock option expense 820 900 3,813 5,143
Expenses related to OIG investigation 438 287 1,333 752
Expenses related to litigation settlements 166 105 865 617
Long-term incentive compensation 88 228 822 228
Expenses related to securities litigation 66 301 69 469
Acquisition expenses 13 40 38 114
Litigation settlements - - 16,061 -
Uncertain tax position adjustments - - (1,782 ) -
Loss on extinguishment of debt - - 294 -
Expenses of severance arrangements - - 184 -
Expenses to shut down HVAC operations -   -   -     649
 
Adjusted net income $ 25,902 $ 29,898 $ 104,372   $ 102,317
 
 
Earnings Per Share As Reported
Net income $ 1.31 $ 1.44 $ 4.24   $ 4.72
Average number of shares outstanding   17,492   18,628   18,199     18,924
Diluted Earnings Per Share As Reported
Net income $ 1.28 $ 1.40 $ 4.16   $ 4.62
Average number of shares outstanding   17,899   19,053   18,585     19,339
 
 
Adjusted Earnings Per Share
Net income $ 1.48 $ 1.61 $ 5.74   $ 5.41
Average number of shares outstanding   17,492   18,628   18,199     18,924
Adjusted Diluted Earnings Per Share
Net income $ 1.45 $ 1.57 $ 5.62   $ 5.29
Average number of shares outstanding   17,899   19,053   18,585     19,339
 

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

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
OPERATING STATISTICS FOR VITAS SEGMENT
(unaudited)
                 
 
For the Three Months Ended For the Years Ended
December 31, December 31,
OPERATING STATISTICS 2013 2012 2013 2012
Net revenue ($000) (d)
Homecare $ 198,325 $ 201,266 $ 791,735 $ 778,776
Inpatient 25,788 28,013 104,968 114,494
Continuous care   35,943     44,581     155,409     172,063
Total before Medicare cap allowance $ 260,056 $ 273,860 $ 1,052,112 $ 1,065,333
Medicare cap allowance   (3,838 )   (873 )   (6,999 )   1,704
Total $ 256,218   $ 272,987   $ 1,045,113   $ 1,067,037
Net revenue as a percent of total before Medicare cap allowance
Homecare 76.3 % 73.5 %

75.2

% 73.1 %
Inpatient 9.9 10.2 10.0 10.7
Continuous care   13.8     16.3    

14.8

    16.2
Total before Medicare cap allowance 100.0 100.0

100.0

100.0
Medicare cap allowance   (1.5 )   (0.3 )   (0.7 )   0.2
Total   98.5   %   99.7   %  

99.3

  % 100.2 %
Average daily census ("ADC") (days)
Homecare 10,353 10,352 10,449 10,016
Nursing home   2,862     3,007     2,911     3,025
Routine homecare 13,215 13,359 13,360 13,041
Inpatient 433 451 438 462
Continuous care   537     655     585     637
Total   14,185     14,465     14,383     14,140
 
Total Admissions 15,445 16,004 62,858 63,777
Total Discharges 15,396 16,120 62,999 63,196
Average length of stay (days) 82.6 80.3 81.6 78.8
Median length of stay (days) 15.0 15.0 15.0 15.0
ADC by major diagnosis
Neurological 38.9 % 33.9 % 37.7 % 34.2 %
Cancer 17.2 17.2 17.1 17.5
Cardio 14.3 11.1 13.2 11.3
Respiratory 7.8 6.5 7.6 6.6
Other   21.8     31.3     24.4     30.4
Total   100.0   %   100.0   %   100.0   % 100.0 %
Admissions by major diagnosis
Neurological 21.3 % 18.5 % 20.7 % 19.1 %
Cancer 33.8 33.3 33.2 33.3
Cardio 13.4 11.3 13.1 11.1
Respiratory 8.7 8.3 9.2 8.2
Other   22.8     28.6     23.8     28.3
Total   100.0   %   100.0   %   100.0   % 100.0 %
Direct patient care margins (e)
Routine homecare 53.8 % 54.4 % 52.6 % 52.5 %
Inpatient 5.0 10.5 5.5 11.6
Continuous care 16.1 18.3 15.9 19.2
Homecare margin drivers (dollars per patient day)
Labor costs $ 53.85 $ 53.28 $ 55.17 $ 55.03
Drug costs 7.54 7.61 7.54 8.09
Home medical equipment 6.38 6.68 6.61 6.83
Medical supplies 2.99 2.78 2.97 2.77
Inpatient margin drivers (dollars per patient day)
Labor costs $ 334.50 $ 330.20 $ 338.51 $ 323.09
Continuous care margin drivers (dollars per patient day)
Labor costs $ 589.51 $ 583.46 $ 591.54 $ 574.64
Bad debt expense as a percent of revenues 0.9 % 0.6 % 0.9 % 0.8 %
Accounts receivable --
Days of revenue outstanding- excluding unapplied Medicare payments 36.5 35.9 n.a. n.a.
Days of revenue outstanding- including unapplied Medicare payments 25.9 25.2 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 MONTHS AND YEARS ENDED DECEMBER 31, 2013 AND 2012
(unaudited)
                       
 
(a)

Included in the results of operations 2013 are the following significant credits/(charges) which may not be indicative of ongoing operations (in thousands):

 

For the Three Months Ended December 31, 2013
VITAS Roto-Rooter Corporate Consolidated
Selling, general and administrative expenses:
Expenses related to OIG investigation $ (705 ) $ - $ - $ (705 )
Acquisition expenses (20 ) - - (20 )
Expenses related to litigation settlements - (274 ) - (274 )
Stock option expense - - (1,310 ) (1,310 )
Long-term incentive compensation - - (140 ) (140 )
Expenses related to securities litigation - - (105 ) (105 )
Interest expense:
Non-cash expense of change in accounting for convertible debt   -     -     (2,216 )   (2,216 )
Pretax impact on earnings (725 ) (274 ) (3,771 ) (4,770 )
Income tax benefit on the above   274     108     1,395     1,777  
After-tax impact on earnings $ (451 ) $ (166 ) $ (2,376 ) $ (2,993 )
 
For the Year Ended December 31, 2013
VITAS Roto-Rooter Corporate Consolidated
Selling, general and administrative expenses:
Expenses related to OIG investigation $ (2,149 ) $ - $ - $ (2,149 )
Acquisition expenses (58 ) (4 ) - (62 )
Expenses related to litigation settlements - (1,425 ) - (1,425 )
Expense of severance arrangement - (302 ) - (302 )
Stock option expense - - (6,042 ) (6,042 )
Long-term incentive compensation - - (1,301 ) (1,301 )
Expenses related to securities litigation - - (109 ) (109 )
Other operating expenses (10,500 ) (15,721 ) - (26,221 )
Interest expense:
Non-cash expense of change in accounting for convertible debt - - (8,613 ) (8,613 )
Loss on extinguishment of debt   -     -     (465 )   (465 )
Pretax impact on earnings (12,707 ) (17,452 ) (16,530 ) (46,689 )
Income tax benefit on the above   4,828     6,850     7,866     19,544  
After-tax impact on earnings $ (7,879 ) $ (10,602 ) $ (8,664 ) $ (27,145 )
 
(b)  

Included in the results of operations 2012 are the following significant credits/(charges) which may not be indicative of ongoing operations (in thousands):

 

             
      For the Three Months Ended December 31, 2012
VITAS Roto-Rooter Corporate Consolidated
Selling, general and administrative expenses:
Expenses related to OIG investigation $ (463 ) $ - $ - $ (463 )
Acquisition expenses (13 ) (53 ) - (66 )
Expenses related to litigation settlements - (173 ) - (173 )
Stock option expense - - (1,421 ) (1,421 )
Expenses related to securities litigation - - (477 ) (477 )
Long-term incentive compensation - - (360 ) (360 )
Interest expense:
Non-cash expense of change in accounting for convertible debt   -     -     (2,052 )   (2,052 )
Pretax impact on earnings (476 ) (226 ) (4,310 ) (5,012 )
Income tax benefit on the above   181     89     1,584     1,854  
After-tax impact on earnings $ (295 ) $ (137 ) $ (2,726 ) $ (3,158 )
 
For the Year Ended December 31, 2012
VITAS Roto-Rooter Corporate Consolidated
Selling, general and administrative expenses:
Expenses related to OIG investigation $ (1,212 ) $ - $ - $ (1,212 )
Acquisition expenses (15 ) (173 ) - (188 )
Expenses related to litigation settlements - (1,016 ) - (1,016 )
Stock option expense - - (8,130 ) (8,130 )
Expenses related to securities litigation - - (742 ) (742 )
Long-term incentive compensation - - (360 ) (360 )
Other operating expenses - (1,126 ) - (1,126 )
Interest expense:
Non-cash expense of change in accounting for convertible debt   -     -     (7,971 )   (7,971 )
Pretax impact on earnings (1,227 ) (2,315 ) (17,203 ) (20,745 )
Income tax benefit on the above   466     944     6,322     7,732  
After-tax impact on earnings $ (761 ) $ (1,371 ) $ (10,881 ) $ (13,013 )
 

(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 fourth quarters of 2013 and 2012, GAAP advertising expense for Roto-Rooter totaled $6,518,000 and $6,857,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the fourth quarters of 2013 and 2012 would total $6,341,000 and $6,560,000, respectively.

 

Similarly, for the years ended December 31, 2013 and 2012, GAAP advertising expense for Roto-Rooter totaled $24,092,000 and $23,535,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the years ended December 31, 2013 and 2012 would total $25,258,000 and $25,108,000, respectively.

 
(d)

VITAS has 9 large (greater than 450 ADC), 15 medium (greater than 200 but less than 450 ADC) and 27 small (less than 200 ADC) hospice programs. For the current Medicare cap year there are two programs with a cap liability and two programs with Medicare cap cushion of less than 10%.

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


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