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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 2001
Commission File Number 1-8351
CHEMED CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 31-0791746
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2600 Chemed Center, 255 E. Fifth Street, Cincinnati, Ohio 45202
(Address of principal executive offices) (Zip code)
(513) 762-6900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Amount Date
Capital Stock 9,827,320 Shares April 30, 2001
$1 Par Value
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Page 1 of 12
CHEMED CORPORATION AND
SUBSIDIARY COMPANIES
Index
Page No.
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheet -
March 31, 2001 and
December 31, 2000 3
Consolidated Statement of Income -
Three months ended
March 31, 2001 and 2000 4
Consolidated Statement of Cash Flows -
Three months ended
March 31, 2001 and 2000 5
Notes to Unaudited Financial Statements 6 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9 - 11
PART II. OTHER INFORMATION 12
Page 2 of 12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED BALANCE SHEET
(in thousands except share and per share data)
March 31, December 31,
2001 2000
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ASSETS
Current assets
Cash and cash equivalents $ 14,864 $ 10,280
Accounts receivable, less allowances of $5,578
(2000 - $5,137) 53,100 54,571
Inventories 10,999 10,503
Statutory deposits 13,877 14,046
Other current assets 17,685 17,070
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Total current assets 110,525 106,470
Other investments 35,398 37,099
Properties and equipment, at cost less accumulated
depreciation of $66,663 (2000 - $64,757) 73,985 75,177
Identifiable intangible assets less accumulated
amortization of $7,872 (2000 - $7,749) 11,447 11,633
Goodwill less accumulated amortization of $32,727
(2000 - $31,524) 167,679 169,083
Other assets 22,117 21,913
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Total Assets $ 421,151 $ 421,375
========== ==========
LIABILITIES
Current liabilities
Accounts payable $ 11,622 $ 11,102
Current portion of long-term debt 14,323 14,376
Income taxes 13,385 11,862
Deferred contract revenue 24,653 24,973
Other current liabilities 39,923 44,629
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Total current liabilities 103,906 106,942
Long-term debt 58,294 58,391
Other liabilities 26,718 27,637
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Total Liabilities 188,918 192,970
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MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES
OF THE CHEMED CAPITAL TRUST 14,642 14,641
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STOCKHOLDERS' EQUITY
Preferred stock-authorized 700,000 shares without par value; none issued
Capital stock-authorized 15,000,000 shares $1 par;
issued 13,379,874 shares (2000 - 13,317,906 shares) 13,380 13,318
Paid-in capital 164,543 162,618
Retained earnings 157,322 153,909
Treasury stock - 3,552,355 shares
(2000 - 3,467,753 shares), at cost (108,384) (105,249)
Unearned compensation (15,282) (16,683)
Deferred compensation payable in company stock 5,522 5,500
Accumulated other comprehensive income 2,261 3,237
Notes receivable for shares sold (1,771) (2,886)
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Total Stockholders' Equity 217,591 213,764
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Total Liabilities and Stockholders' Equity $ 421,151 $ 421,375
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See accompanying notes to unaudited financial statements.
Page 3 of 12
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENT OF INCOME
(in thousands except per share data)
Three Months Ended
March 31,
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2001 2000
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Service revenues and sales $123,281 $121,534
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Cost of services provided and cost of goods sold 75,055 74,127
Selling and marketing expenses 11,161 11,264
General and administrative expenses 25,646 24,846
Depreciation 4,071 3,758
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Total costs and expenses 115,933 113,995
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Income from operations 7,348 7,539
Interest expense (1,486) (1,782)
Distributions on preferred securities (277) (288)
Other income - net 1,762 2,396
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Income before income taxes 7,347 7,865
Income taxes (2,837) (2,963)
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Net income $ 4,510 $ 4,902
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Earnings Per Common Share
Net income $ .46 $ .49
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Average number of shares outstanding 9,746 10,064
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Diluted Earnings Per Common Share
Net income $ .46 $ .48
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Average number of shares outstanding 10,303 10,171
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Cash Dividends Paid Per Share $ .11 $ .10
======== ========
See accompanying notes to unaudited financial statements.
Page 4 of 12
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Three Months Ended March 31,
----------------------------
2001 2000*
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Cash Flows From Operating Activities
Net income $ 4,510 $ 4,902
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,143 5,811
Gains on sale of investments (1,112) (951)
Provision for uncollectible accounts receivable 673 112
Provision for deferred income taxes 242 (92)
Changes in operating assets and liabilities,
excluding amounts acquired in business
combinations
Decrease in accounts receivable 798 2,488
Increase in inventories (496) (462)
Increase in other current assets (685) (1,352)
Decrease/(increase) in statutory deposits 169 (109)
Decrease in accounts payable, deferred
contract revenue and other current
liabilities (3,865) (3,129)
Increase in income taxes 2,121 2,725
Other - net 1,471 (175)
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Net cash provided by operating activities 9,969 9,768
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Cash Flows From Investing Activities
Capital expenditures (3,250) (4,283)
Net outflows from discontinued operations (1,346) (599)
Proceeds from sale of investments 1,310 1,121
Business combinations--net of cash acquired - (10,827)
Purchase of investments - (200)
Other - net (271) 109
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Net cash used by investing activities (3,557) (14,679)
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Cash Flows From Financing Activities
Dividends paid (1,101) (1,024)
Purchase of treasury stock (1,056) (2,508)
Proceeds from issuances of long-term debt - 5,000
Other - net 329 (14)
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Net cash provided/(used) by financing activities (1,828) 1,454
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Increase/(Decrease) In Cash And Cash Equivalents 4,584 (3,457)
Cash and Cash Equivalents at Beginning of Period 10,280 17,282
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Cash and Cash Equivalents at End of Period $ 14,864 $ 13,825
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*Reclassified to conform to 2001 presentation.
See accompanying notes to unaudited financial statements.
Page 5 of 12
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
Notes to Unaudited Financial Statements
1. The accompanying unaudited consolidated financial statements have
been prepared in accordance with Rule 10-01 of SEC Regulation S-X.
Consequently, they do not include all the disclosures required
under generally accepted accounting principles for complete
financial statements. However, in the opinion of the management
of Chemed Corporation (the "Company"), the financial statements
presented herein contain all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the
financial position, results of operations and cash flows of the
Company and its consolidated subsidiaries ("Chemed"). For further
information regarding Chemed's accounting policies, refer to the
consolidated financial statements and notes included in Chemed's
Annual Report on Form 10-K for the year ended December 31, 2000.
2. Sales and service revenues and aftertax earnings by business
segment follow (in thousands):
Three Months Ended
March 31,
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2001 2000
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Sales and Service
Revenues
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Roto-Rooter $ 68,456 $ 67,724
Patient Care 34,941 32,909
Service America 17,803 18,754
Cadre Computer 2,081 2,147
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Total $123,281 $121,534
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Aftertax Earnings
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Roto-Rooter $ 4,081 $ 4,669
Patient Care 580 403(a)
Service America 462 320
Cadre Computer (116) 42
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Total segment earnings 5,007 5,434
Corporate
Gains on sales of investments 703 677
Overhead (1,213) (1,363)
Net investing and financing
income/(expense) 1 154
Other 12 -
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Net income $ 4,510 $ 4,902
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(a) Includes aftertax income from favorable adjustments to prior
years' cost reports ($130,000) and net adjustments to the
allowance for doubtful accounts ($94,000).
Page 6 of 12
3. Earnings per common share are computed using the weighted average
number of shares of capital stock outstanding. Diluted earnings
per common share are computed as follows (in thousands except per
share data):
Three Months Ended
March 31,
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2001 2000
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Reported income $ 4,510 $ 4,902
Aftertax interest on Trust
Securities (a) 180 -
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Adjusted income $ 4,690 $ 4,902
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Average number of shares
outstanding 9,746 10,064
Effect of conversion of the
Trust Securities (a) 396 -
Effect of nonvested stock
awards 120 106
Effect of unexercised stock
options 41 1
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Average number of shares used
to compute diluted earnings
per common share 10,303 10,171
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Diluted earnings per common
share $ .46 $ .48
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(a) The impact of potential conversion of the Trust Securities
was anti-dilutive in the first quarter of 2000.
4. The Company had total comprehensive income of $3,534,000 and
$4,389,000 for the three months ended March 31, 2001 and 2000,
respectively. The difference between the Company's net income and
comprehensive income relates to the cumulative unrealized
appreciation/depreciation on its available-for-sale securities.
5. During the first quarter of 2001, the U.S. Department of Labor
("DOL") initiated an investigation into Roto-Rooter Services
Company's pay practices for service technicians. DOL claims Roto-
Rooter should pay these commissioned employees overtime for hours
worked over forty hours per week. Roto-Rooter has long relied on
an overtime exemption covering Retail Service Employees. The DOL
now asserts that plumbing services do not qualify, and Roto-Rooter
should lose the exemption.
Page 7 of 12
Roto-Rooter's compensation program responds to its employees'
desire for flexibility and choices in terms of work schedule and
income. Roto-Rooter intends to vigorously defend this matter, but
cannot predict its outcome. It is not presently possible to
reasonably estimate what additional liability, if any, may arise
from this matter.
6. Statement of Financial Accounting Standards No. 133 ("SFAS133"),
Accounting for Derivative Instruments and Hedging Activities, is
effective for calendar year 2001. The impact of the adoption of
SFAS133 on the Company's financial statements is insignificant
since the Company does not invest in derivative or hedging
instruments.
Page 8 of 12
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Financial Condition
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The decline in other current liabilities from $44.6 million
at December 31, 2000 to $39.9 million at March 31, 2001 is due largely
to the payment of liabilities for 2000 supplemental thrift and profit-
sharing contributions and incentive compensation.
Vitas Healthcare Corporation ("Vitas"), the privately-held
provider of hospice services to the terminally ill in which the
Company carries an investment of $27 million of redeemable preferred
stock, refinanced its debt obligations in April 2001. In connection
therewith, the Company and Vitas agreed to extend the maturity of
Vitas' redeemable preferred stock to April 1, 2007. In addition,
Vitas issued a warrant to the Company for the purchase of
approximately 1.6 million shares of its common stock.
Vitas' operating results and net income continue to meet its
management's expectations. On the basis of current information,
management believes the Company's investment in Vitas is fully
recoverable and that no impairment exists.
At March 31, 2001, Chemed had approximately $100.2 million
of unused lines of credit with various banks. Management believes its
liquidity and sources of capital are satisfactory for the Company's
needs in the foreseeable future.
Results of Operations
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Data relating to (a) the increase or decrease in service
revenues and sales and (b) aftertax earnings as a percent of service
revenues and sales for each segment are set forth below:
Service Revenues Aftertax Earnings
and Sales - as a % of Revenues
% Increase (Aftertax Margin)
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2001 vs. 2000 2001 2000
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Roto-Rooter 1% 6.0% 6.9%
Patient Care 6 1.7 1.2
Service America (5) 2.6 1.7
Cadre Computer (3) (5.6) 2.0
Total 1 4.1 4.5
Page 9 of 12
Service revenues and sales for the Roto-Rooter segment for
the first quarter of 2001 totalled $68,456,000, an increase of 1% over
the $67,724,000 recorded in the first quarter of 2000. Revenues of
the plumbing services business and the drain cleaning business
increased 3%, for the first quarter of 2001, as compared with revenues
recorded in the first quarter of 2000. These revenues accounted for
41% and 44%, respectively, of Roto-Rooter's total service revenues and
sales during the 2001 period. The aftertax margin of the Roto-Rooter
segment in the first quarter of 2001 was 6.0% as compared with 6.9%
during the first quarter of 2000. This decline was attributable to a
lower gross profit margin in 2001, and to an aftertax loss of $189,000
resulting from the divestment of a non performing heating and air-
conditioning branch in the first quarter of 2001.
Service revenues of the Patient Care segment increased 6%
from $32,909,000 during the first quarter of 2000 to $34,941,000 in
the first quarter of 2001. The aftertax margin of this segment
increased from 1.2% during the first quarter of 2000 to 1.7% during
the 2001 quarter, primarily as the result of a higher gross margin in
2001.
Service revenues and sales of the Service America segment
declined 5% from $18,754,000 in the first quarter of 2000 to
$17,803,000 in the first quarter of 2001. This revenue decline was
anticipated as Service America is not renewing its less profitable
service contracts and raising prices on marginally profitable
agreements. The aftertax margin of this segment increased from 1.7%
during the first quarter of 2000 to 2.6% during the first quarter of
2001. This increase was attributable primarily to an increase in the
gross profit margin in 2001, largely as a result of unusually high
overtime costs incurred in 2000 and due to not renewing less
profitable service contracts during the past six months.
Service revenues and sales of the Cadre Computer segment for
the first quarter of 2001 declined 3% versus revenues for the first
quarter of 2000. This revenue decline and the $116,000 loss recorded
in the first quarter of 2001 were largely attributable to
discontinuing the less profitable software development line of
business in January 2001.
Income from operations declined from $7,539,000 in the first
three months of 2000 to $7,348,000 during the first three months of
2001. This decrease was attributable primarily to lower operating
profit of the Roto-Rooter segment.
Other income--net declined from $2,396,000 in the first
quarter of 2000 to $1,762,000 in the first quarter of 2001, primarily
as a result of recording net realized and unrealized losses on assets
of nonqualified benefit plans on the first quarter of 2001 versus net
gains recorded in the first quarter of 2000.
Page 10 of 12
The Company's effective income tax rate during the first
quarter of 2001 was 38.7% as compared with 37.7% during the first
three months of 2000. The lower rate in 2000 was due primarily to a
lower effective state and local income tax rate in the first quarter
of 2000.
Net income during the first quarter of 2001 totalled
$4,510,000 ($.46 per share) as compared with $4,902,000 ($.49 per
share and $.48 per diluted share) in the first quarter of 2000. This
decline was attributable primarily to lower earnings of the Roto-
Rooter segment in 2001. Excluding gains on the sales of investments
in both periods, net income for the first quarter of 2001 totalled
$.39 per share as compared with $.42 per share during the first
quarter of 2000.
Safe Harbor Statement under the Private Securities Litigation
Reform Act of 1995 Regarding Forward-looking Information
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This report contains statements which are subject to certain
known and unknown risks, uncertainties, contingencies and other
factors that could cause actual results to differ materially from
these statements and trends. The Company's ability to deal with the
unknown outcomes of these events, many of which are beyond its
control, may affect the reliability of its projections and other
financial matters.
Page 11 of 12
PART II -- OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits
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Exhibit SK 601 Page
No. Ref. No. Description No.
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None Required
(b) Reports on Form 8-K
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None were filed in the quarter ended March 31, 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto
duly authorized.
Chemed Corporation
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(Registrant)
Dated: May 10, 2001 By Naomi C. Dallob
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Naomi C. Dallob, Vice
President and Secretary
Dated: May 10, 2001 By Arthur V. Tucker, Jr.
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Arthur V. Tucker, Jr.
Vice President and
Controller (Principal
Accounting Officer)
Page 12 of 12