Exhibit 99.2
Chemed Corporation Reports 2004 Third-Quarter Results;
Consolidated Diluted EPS of $.84
CINCINNATI--Oct. 25, 2004--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 third
quarter ended September 30, 2004, versus the comparable prior-year
period, as follows:
- -- Consolidated Operating Results (GAAP)
-- Revenue increased 181% to $211.1 million
-- Diluted EPS of $.84
- -- VITAS generated record Revenue and ADC levels
-- Quarterly Net Patient Revenue of $135.1 million, up 19%
-- Average Daily Census (ADC) of 8,949, up 17%
-- Net Income of $9.0 million
- -- Roto-Rooter segment reported increased Revenue and Net Income
-- Revenue increased 5%
-- Net Income, including prior quarters' tax benefits, of $6.1
million, an increase of 118%
"Chemed Corporation continues to generate strong fundamental
performance," stated Kevin McNamara, Chemed president and chief
executive officer. "Our methodical expansion of the VITAS business
model now includes 32 programs in 11 states. ADC for the third quarter
of 2004 was 8,949, an increase of 17.1% over the prior-year quarter
and 4.3% above the second quarter of 2004. This translated into
revenue growth of 19.0% over the prior year and 3.7% over the second
quarter of 2004. We currently have 10 new starts in various stages of
development, including our small acquisition in Atlanta. New starts
generated $1.4 million of operating losses in the quarter, which had a
modest impact on our overall margins.
"In addition, Roto-Rooter continues to show strong earnings
improvements over the prior year. For the third quarter of 2004,
revenue growth aggregated 5.4% and net income, including $847,000 of
favorable tax adjustments, increased 118% over the prior year."
"The third quarter of 2004 does contain a number of items that
positively impacted our GAAP operating results," said David Williams,
Chemed's chief financial officer. "These items included reversing out
certain severance accruals related to the VITAS merger, as well as
adjusting year-to-date amortization and depreciation expense as we
finalize valuations for the VITAS transaction. In addition, we have
recently completed a multi-state and local tax planning analysis that
had a favorable impact on our year-to-date effective tax rate. These
items are explained in the notes to the accompanying statements of
income. These should assist in projecting a more reasonable estimate
of our earnings on a go-forward basis. We continue to caution everyone
to carefully review the accounting issues relating to the refinancing
and merger of VITAS into Chemed when analyzing quarter and
year-to-date operating results."
For a detailed presentation of operating results, adjustments and
special items and related definitions and components, please refer to
the attached schedules.
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 generally accepted
accounting principles, only a portion of VITAS' operating results is
fully consolidated into Chemed's first quarter of 2004 results.
VITAS had net patient revenue of $135.1 million, income from
operations of $14.7 million and net income of $9.0 million in the
third quarter of 2004.
VITAS generated revenue growth of 19.0% over the prior-year period
and 3.7% sequentially. Gross margins remained relatively flat at 21.8%
in the third quarter of 2004 as compared to the prior-year quarter.
The third-quarter 2004 gross margin includes $1.4 million in startup
losses, which is an incremental $0.9 million over the prior-year
period. This negatively impacted margins by 104 basis points. Central
support costs for VITAS, which are included as selling, general and
administrative expenses, declined 9.8% from the prior-year quarter and
increased 3.5% sequentially.
VITAS' average daily census (ADC) in the third quarter of 2004 was
8,949. This compares to an ADC of 7,643 in the comparable prior-year
period, an increase of 17% and a 4% increase over the second quarter
of 2004. Average length of stay (LOS) per patient was 60.8 days for
the quarter and compares to 54.7 days in the third quarter of 2003.
Average LOS for all non-startup programs ranged from a low of 35.2
days to a high of 84.5 days in the third quarter of 2004. The median
LOS was 13.0 days in the quarter, an increase of 1.0 day over the
prior year.
"We continue to see strong organic ADC growth across all levels of
VITAS," said McNamara. "The ADC in our 22 base programs now exceeds an
average of 397 patients per program. In our large programs, those with
an average daily census in excess of 450, ADC growth was 14% over the
prior-year quarter and increased 2.2% sequentially. Our small and
medium programs generated ADC growth of 20.6% over the prior year and
6.5% sequentially."
"We did see significant mix fluctuations in our revenue components
this quarter," Williams stated. "Routine home care aggregated 69.8% of
revenue, an increase of 130 basis points over the prior-year quarter
and a 150-basis-point increase on a sequential basis. Our inpatient
revenue aggregated 13.6% of total revenue and continuous care was
16.6% of revenue in the third quarter of 2004."
Roto-Rooter Segment
Roto-Rooter's plumbing and drain cleaning business generated sales
of $66.8 million for the third quarter of 2004, 5.4% higher than the
$63.3 million reported in the comparable prior-year quarter. Net
income for the quarter, including $847,000 of favorable tax benefits
relating to prior quarters, totaled $6.1 million, an increase of 118%
over the prior-year quarter.
"There are several factors contributing to the improvement in the
plumbing and drain cleaning segment," stated McNamara. "Job count
increased 1.9% in the third quarter of 2004 over the prior-year
period. We continue to see strengthening demand in commercial and
residential plumbing. Our expense control at the field level resulted
in a third-quarter-2004 gross profit margin of 45.4%, which is 160
basis points above the third quarter of 2003."
Consolidated Financial Position
"Our cash position is solid," Williams stated. "As of September
30, 2004, we have over $51 million in cash and approximately $72
million of unused lines of credit under our Credit Facility. In
addition, we have tax refunds in excess of $15 million relating to the
deductibility of stock option buyouts at the VITAS level that should
be received by the end of the year."
Guidance for the Remainder of the Year
"Looking ahead into the fourth quarter of 2004," Williams stated,
"we anticipate sequential consolidated revenue to be materially above
the third quarter due to seasonality factors within Roto-Rooter.
Roto-Rooter is estimated to generate a 5% to 7% sequential revenue
growth in the fourth quarter, which is consistent with historical
seasonality.
"VITAS continues to show consistent ADC growth. The past six
quarters have averaged a sequential quarterly increase in ADC of 345.
If this trend line continues, ADC would approximate 9,300 in the
fourth quarter. We are optimistic as to the long-term sustainable
trend-line improvements in ADC, revenue and earnings per share.
However, we should keep in perspective VITAS will experience
fluctuations in growth patterns and revenue mix quarter to quarter. We
anticipate fluctuations in margins quarter to quarter as capacity and
central support resources are grown at a more predictable and
methodical rate than our actual ADC.
"Based upon these factors and a current diluted share count of
12.7 million, our expectation is that earnings per diluted share for
the fourth quarter will be in the range of $.73 to $.77. We anticipate
providing full-year 2005 guidance when we release our final 2004
operating results."
Conference Call
Chemed will hold a conference call to discuss third quarter
results Tuesday, October 26, 2004, at 11 a.m., ET. The dial-in number
for the conference call is 800-945-0061 for U.S. and Canadian
participants and 706-679-7146 for international participants. A live
webcast of the call can be accessed on Chemed's website at
www.chemed.com by clicking on "Investor Relations Home" and then on
"Featured Event: Web Cast - Live! Q3 2004 Chemed Corporation Earnings
Conference Call." An archived webcast will also be available at
www.chemed.com and will remain available for 14 days following the
live call.
A taped replay of the conference call will be available
approximately two hours after the call's conclusion. It can be
accessed by dialing 800-642-1687 for U.S. and Canadian callers and
706-645-9291 for international callers. The conference identification
number is 1034741. The telephone replay will be available for one week
following the live call.
Chemed Corporation operates in the healthcare field through its
VITAS Healthcare Corporation subsidiary. VITAS provides daily hospice
services to approximately 9,000 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
repair-and-maintenance-service industry under the brand names
Roto-Rooter and Service America. 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 China/Hong Kong, Indonesia, Singapore,
Japan, Mexico, the Philippines and the United Kingdom. Operating in
Florida and Arizona, Service America furnishes residential and
commercial appliance and heating and air conditioning repair and
maintenance services.
Forward-Looking Statements
Certain statements contained in this earnings report 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, plumbing, drain cleaning and
HVAC 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
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share data)(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2004 (a) 2003 (b) 2004 (a) 2003 (b)
-------- ------- -------- --------
Service revenues
and sales $211,134 $75,172 $551,176 $230,088
-------- ------- -------- --------
Cost of services provided
and goods sold 149,409 44,215 382,839 135,978
Selling, general and
administrative expenses 38,908 25,607 107,844 76,754
Depreciation 3,002 2,983 11,161 9,025
Long-term incentive
compensation - - 9,058 -
-------- ------- -------- --------
Total costs and
expenses 191,319 72,805 510,902 221,757
-------- ------- -------- --------
Income from operations 19,815 2,367 40,274 8,331
Interest expense (6,085) (755) (15,196) (2,429)
Loss on extinguishment of
debt - - (3,330) -
Other income--net 398 3,049 2,208 9,766
-------- ------- -------- --------
Income before income
taxes 14,128 4,661 23,956 15,668
Income taxes (3,647) (1,748) (8,983) (5,898)
Equity in income/(loss) of
affiliate (VITAS) 131 - (3,153) -
-------- ------- -------- --------
Net Income $ 10,612 $ 2,913 $ 11,820 $ 9,770
======== ======= ======== ========
Earnings Per Share
Net income $ 0.85 $ 0.29 $ 0.99 $ 0.99
======== ======= ======== ========
Average number of shares
outstanding 12,470 9,941 11,904 9,913
======== ======= ======== ========
Diluted Earnings Per
Share
Net income $ 0.84 $ 0.29 $ 0.97 $ 0.98
======== ======= ======== ========
Average number of shares
outstanding 12,701 9,988 12,136 9,940
======== ======= ======== ========
- ----------------------------------
(a) Results for 2004 include the following adjustments/special items
which increased/(reduced) earnings (in thousands):
Third Nine
Quarter Months
------ --------
Adjustments to revise VITAS purchase price
allocation and related amortization of
assets:
Increase in amortization expense (included
in selling, gen. and administrative exp.) $ (311) $ -
Reduction in depreciation expense 837 -
Payouts under the Company's long-term
incentive program - (9,058)
Loss on extinguishment of debt - (3,330)
------ --------
Total impact on income before income taxes 526 (12,388)
Adjustment of income taxes related to the
above (211) 4,751
Tax adjustments resulting from the
finalization of prior-year tax returns in the
third quarter of 2004 1,020 1,020
Tax adjustments from the cumulative reduction
of estimated state and local tax rates 1,098 -
Equity in the earnings/(loss) of VITAS,
impacted significantly by transaction-
related expenses incurred by VITAS prior to
its merger with Chemed in February 2004 131 (3,153)
------ --------
Total impact on net income $2,564 $ (9,770)
====== ========
These 2004 adjustments/special items increased earnings per share
by $.20 ($.21 on a diluted basis) in the third quarter and reduced
earnings per share by $.82 ($.81 on a diluted basis) in the nine
months.
(b) Results for 2003 include the following adjustments/special items
which increased/(reduced) earnings (in thousands):
Third Nine
Quarter Months
------ --------
Severance charges in March 2003 (included in
selling, gen. and administrative exp.) $ - $ (3,627)
Pretax capital gains from the redemption of
VITAS preferred stock and the sales of
investments (included in other income) 1,846 5,390
Dividend income from VITAS preferred stock
redeemed in 2003 (included in other income) 371 1,794
------ --------
Total impact on income before income taxes 2,217 3,557
Adjustment of income taxes related to the
above (689) (979)
------ --------
Total impact on net income $1,528 $ 2,578
====== ========
These 2003 adjustments/special items increased earnings per share
by $.15 in the third quarter and increased earnings per share by
$.26 in the nine months.
CHEMED CORPORATION
CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)(unaudited)
September 30,
-------------------
2004 2003(a)
-------- ---------
Assets
Current assets
Cash and cash equivalents $ 51,261 $ 72,607
Accounts receivable less allowances 71,476 13,310
Inventories 8,391 8,548
Statutory deposits 7,924 9,852
Prepaid income taxes 10,493 4,612
Current deferred income taxes 24,247 9,167
Prepaid expenses and other current assets 8,354 6,941
-------- ---------
Total current assets 182,146 125,037
Investments of deferred compensation plans held
in trust 19,302 16,832
Other investments 1,445 5,546
Note receivable 12,500 12,500
Properties and equipment, at cost less
accumulated depreciation 58,422 47,456
Identifiable intangible assets less accumulated
amortization 75,828 2,450
Goodwill less accumulated amortization 407,407 113,437
Other assets 24,754 16,908
-------- ---------
Total Assets $781,804 $ 340,166
======== =========
Liabilities
Current liabilities
Accounts payable $ 39,406 $ 5,033
Current portion of long-term debt 5,401 463
Income taxes 401 21
Deferred contract revenue 15,987 16,053
Accrued insurance 23,729 16,844
Other current liabilities 56,368 20,348
-------- ---------
Total current liabilities 141,292 58,762
Long-term debt 288,311 25,635
Mandatorily redeemable convertible preferred
securities of the Chemed Capital Trust - 14,146
Deferred compensation liabilities 19,306 16,824
Other liabilities 18,000 20,315
-------- ---------
Total Liabilities 466,909 135,682
-------- ---------
Stockholders' Equity
Capital stock 13,437 13,452
Paid-in capital 209,564 169,406
Retained earnings 127,357 134,143
Treasury stock, at cost (32,984) (110,492)
Unearned compensation (4,289) (3,389)
Deferred compensation payable in Company
stock 2,351 2,294
Notes receivable for shares sold (541) (930)
-------- ---------
Total Stockholders' Equity 314,895 204,484
-------- ---------
Total Liabilities and Stockholders'
Equity $781,804 $ 340,166
======== =========
Book Value Per Share $ 25.25 $ 20.70
======== =========
(a) Reclassified to conform to 2004 presentation
CHEMED CORPORATION
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(in thousands)(unaudited)
Chemed
Roto- Service Corp- Consoli-
VITAS Rooter America orate dated
-------- ------- ------- ------- --------
2004
- -----------------
Service revenues
and sales $135,101 $66,785 $ 9,248 $ - $211,134
-------- ------- ------- ------- --------
Cost of services
provided and
goods sold 105,695 36,433 7,281 - 149,409
Selling, general
and
administrative
expenses 14,215 20,021 1,831 2,841 38,908
Depreciation 469 2,081 392 60 3,002
Long-term
incentive costs - - - - -
-------- ------- ------- ------- --------
Total costs and
expenses 120,379 58,535 9,504 2,901 191,319
-------- ------- ------- ------- --------
Income/(loss)
from
operations 14,722 8,250 (256) (2,901) 19,815
Interest expense (32) (43) (2) (6,008) (6,085)
Intercompany
interest income/
(expense) 289 327 39 (655) -
Loss on
extinguishment
of debt - - - - -
Other income--net 93 (92) 24 373 398
-------- ------- ------- ------- --------
Income/(loss)
before income
taxes 15,072 8,442 (195) (9,191) 14,128
Income taxes (6,097) (2,375)(a) 70 4,755(a) (3,647)
Equity in loss of
VITAS - - - 131(b) 131
-------- ------- ------- ------- --------
Net
income/(loss) $ 8,975 $ 6,067 $ (125) $(4,305) $ 10,612
======== ======= ======= ======= ========
2003
- -----------------
Service revenues
and sales $ - $63,342 $11,830 $ - $ 75,172
-------- ------- ------- ------- --------
Cost of services
provided and
goods sold - 35,583 8,632 - 44,215
Selling, general
and
administrative
expenses - 21,424 2,458 1,725 25,607
Depreciation - 2,276 619 88 2,983
-------- ------- ------- ------- --------
Total costs and
expenses - 59,283 11,709 1,813 72,805
-------- ------- ------- ------- --------
Income/(loss)
from
operations - 4,059 121 (1,813) 2,367
Interest expense - (33) (8) (714) (755)
Intercompany
interest income/
(expense) - 157 1 (158) -
Other income--net - 312 64 2,673(c) 3,049
-------- ------- ------- ------- --------
Income/(loss)
before income
taxes - 4,495 178 (12) 4,661
Income taxes - (1,707) (114) 73 (1,748)
-------- ------- ------- ------- --------
Net
income/(loss) $ - $ 2,788 $ 64 $ 61 $ 2,913
======== ======= ======= ======= ========
- -----------------
(a) Amounts include favorable adjustments related to finalization of
prior-year tax returns during the third quarter of 2004. The
aftertax benefit received from these adjustments was $390,000 for
Corporate and $630,000 for Roto-Rooter. In addition, amounts
included tax benefits related to prior quarters due to the
Company's adjusting its effective tax rate for state and local
taxes during the third quarter. The aftertax benefit recorded for
these prior-quarter adjustments was $881,000 for Corporate and
$217,000 for Roto-Rooter.
(b) Amount includes the Company's aftertax share of VITAS' charges
related to the Company's acquisition of VITAS prior to the
acquisition date. The accruals for transaction costs were adjusted
in the third quarter of 2004 based on changed facts and
circumstances. Of the total adjustment, 37% (less deferred income
taxes) was credited to the Company's equity in the earnings of
VITAS and 63% was credited to goodwill. These charges comprise
transaction-related expenses that increased the Company's equity
in the earnings/(loss) of VITAS by $131,000 during the third
quarter of 2004.
(c) Amount includes a pretax gain of $1,846,000 ($1,200,000 aftertax)
from the redemption of VITAS preferred stock in the third quarter
of 2003.
CHEMED CORPORATION
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(in thousands)(unaudited)
Chemed
Roto- Service Corp- Consoli-
VITAS Rooter America orate dated
-------- -------- ------- -------- --------
2004
- -----------------
Service revenues
and sales $316,453 $204,907 $29,816 $ - $551,176
-------- -------- ------- -------- --------
Cost of services
provided and
goods sold 247,971 113,077 21,791 - 382,839
Selling, general
and admin-
istrative
expenses 32,935 61,023 6,550 7,336 107,844
Depreciation 3,078 6,501 1,393 189 11,161
Long-term
incentive costs - 1,558 (a) 275(a) 7,225 (a) 9,058
-------- -------- ------- -------- --------
Total costs
and expenses 283,984 182,159 30,009 14,750 510,902
-------- -------- ------- -------- --------
Income/
(loss) from
operations 32,469 22,748 (193) (14,750) 40,274
Interest expense (90) (102) (9) (14,995) (15,196)
Intercompany
interest income/
(expense) 420 700 66 (1,186) -
Loss on extin-
guishment of
debt - - - (3,330)(b) (3,330)
Other income --
net 169 594 178 1,267 2,208
-------- --------- ------- -------- --------
Income/
(loss) before
income taxes 32,968 23,940 42 (32,994) 23,956
Income taxes (13,489) (8,486)(f) (48) 13,040 (f) (8,983)
Equity in
earnings of
VITAS - - - (3,153)(c) (3,153)
-------- -------- ------- -------- --------
Net income/
(loss) $ 19,479 $ 15,454 $ (6) $(23,107) $ 11,820
======== ======== ======= ======== ========
2003
- -----------------
Service revenues
and sales $ - $192,659 $37,429 $ - $230,088
-------- -------- ------- -------- --------
Cost of services
provided and
goods sold - 108,180 27,798 - 135,978
Selling, general
and
administrative
expenses - 60,721 7,545 8,488 (d) 76,754
Depreciation - 6,900 1,859 266 9,025
-------- -------- ------- -------- --------
Total costs
and expenses - 175,801 37,202 8,754 221,757
-------- -------- ------- -------- --------
Income/
(loss) from
operations - 16,858 227 (8,754) 8,331
Interest expense - (148) (28) (2,253) (2,429)
Intercompany
interest income/
(expense) - 414 (17) (397) -
Other income--net - 707 288 8,771 (e) 9,766
-------- -------- ------- -------- --------
Income/
(loss) before
income taxes - 17,831 470 (2,633) 15,668
Income taxes - (6,730) (303) 1,135 (5,898)
-------- -------- ------- -------- --------
Net income/
(loss) $ - $ 11,101 $ 167 $ (1,498) $ 9,770
======== ======== ======= ======== ========
- -----------------
(a) Amounts represent payouts under the Company's 2002 Executive
Long-term Incentive Plan in the first quarter of 2004. The
aftertax cost of these charges was $4,455,000 for Corporate,
$982,000 for Roto-Rooter and $170,000 for Service America.
(b) Amount represents the prepayment penalty incurred on the early
extinguishment of the Company's debt ($2,030,000 aftertax) in the
first quarter of 2004.
(c) 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. The accruals for
transaction costs were adjusted in the second and third quarters
of 2004 based on changed facts and circumstances. These charges
comprise transaction-related expenses that increased the Company's
equity in the earnings/(loss) of VITAS by $3,669,000 during the
first nine months of 2004.
(d) Amount includes pretax charges of $3,627,000 ($2,358,000 aftertax)
for severance charges in the first quarter of 2003.
(e) Amount includes a pretax gain of $3,544,000 ($2,151,000 aftertax)
from the sales of investments in the first quarter of 2003 and a
pretax gain of $1,846,000 ($1,200,000 aftertax) from the
redemption of VITAS preferred stock in the third quarter of 2003.
(f) Amounts include favorable adjustments related to finalization of
prior-year tax returns during the third quarter of 2004. The
aftertax benefit received from these adjustments was $390,000 for
Corporate and $630,000 for Roto-Rooter.