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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 June 30, 2002
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 periods 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 9,795,700 Shares July 31, 2002
$1 Par Value
Page 1 of 17
CHEMED CORPORATION AND
SUBSIDIARY COMPANIES
Index
Page No.
--------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheet -
June 30, 2002 and
December 31, 2001 3
Consolidated Statement of Income -
Three months and six months ended
June 30, 2002 and 2001 4
Consolidated Statement of Cash Flows -
Six months ended
June 30, 2002 and 2001 5
Notes to Unaudited Financial Statements 6 - 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11 - 15
PART II. OTHER INFORMATION 16 - 17
Page 2 of 17
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)
June 30, December 31,
2002 2001
--------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 11,456 $ 9,008
Accounts receivable, less allowances of $5,201 (2001 - $4,971) 50,792 49,238
Inventories 10,070 10,424
Statutory deposits 12,282 13,331
Prepaid expenses 16,583 18,052
---------- ----------
Total current assets 101,183 100,053
Other investments 37,692 38,492
Properties and equipment, at cost less accumulated
depreciation of $72,687 (2001 - $69,738) 62,349 67,588
Identifiable intangible assets less accumulated
amortization of $8,426 (2001 - $8,024) 3,685 4,037
Goodwill less accumulated amortization of $35,548
(2001 - $35,541) 161,852 161,075
Other assets 27,174 25,266
---------- ----------
Total Assets $ 393,935 $ 396,511
========== ==========
LIABILITIES
Current liabilities
Accounts payable $ 9,097 $ 11,651
Current portion of long-term debt 366 353
Income taxes 4,433 1,262
Deferred contract revenue 21,202 22,194
Other current liabilities 46,676 49,650
---------- ----------
Total current liabilities 81,774 85,110
Long-term debt 55,810 61,037
Other liabilities 26,545 27,842
---------- ----------
Total Liabilities 164,129 173,989
---------- ----------
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES
OF THE CHEMED CAPITAL TRUST 14,186 14,239
---------- ----------
STOCKHOLDERS' EQUITY
Capital stock-authorized 15,000,000 shares $1 par;
issued 13,460,755 shares (2001 - 13,437,781 shares) 13,461 13,438
Paid-in capital 168,448 167,542
Retained earnings 146,240 139,163
Treasury stock - 3,665,835 shares
(2001 - 3,606,085 shares), at cost (112,568) (110,424)
Unearned compensation (5,480) (7,436)
Deferred compensation payable in company stock 2,253 3,288
Accumulated other comprehensive income 4,205 4,214
Notes receivable for shares sold (939) (1,502)
---------- ----------
Total Stockholders' Equity 215,620 208,283
---------- ----------
Total Liabilities and Stockholders' Equity $ 393,935 $ 396,511
========== ==========
See accompanying notes to unaudited financial statements.
Page 3 of 17
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENT OF INCOME
(in thousands except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2002 2001 2002 2001
-------- -------- --------- --------
Continuing Operations
Service revenues and sales $116,569 $120,789 $233,604 $241,989
-------- -------- -------- --------
Cost of services provided and cost of
goods sold 69,565 73,433 140,643 146,880
Selling and marketing expenses 10,832 11,353 22,869 22,253
General and administrative expenses 24,575 25,648 48,798 50,972
Depreciation 3,996 4,015 7,990 8,027
-------- -------- -------- --------
Total costs and expenses 108,968 114,449 220,300 228,132
-------- -------- -------- --------
Income from operations 7,601 6,340 13,304 13,857
Interest expense (763) (1,466) (1,536) (2,952)
Distributions on preferred securities (271) (278) (541) (555)
Other income - net 720 845 3,049 2,604
-------- -------- -------- --------
Income before income taxes 7,287 5,441 14,276 12,954
Income taxes (2,718) (2,111) (5,035) (5,010)
-------- ------- -------- --------
Income from continuing operations 4,569 3,330 9,241 7,944
Discontinued operations - (1,869) - (1,973)
-------- ------- -------- --------
Net Income $ 4,569 $ 1,461 $ 9,241 $ 5,971
======== ======== ======== ========
Earnings Per Share
Income from continuing operations $ .46 $ .34 $ .94 $ .82
======== -------- -------- --------
Net income $ .46 $ .15 $ .94 $ .61
======== ======== ======== ========
Diluted Earnings Per Share
Income from continuing operations $ .46 $ .34 $ .93 $ .80
======== ======== ======== ========
Net income $ .46 $ .16 $ .93 $ .60
======== ======== ======== ========
Earnings Excluding Goodwill Amortization
Adjusted Income
Income from continuing operations $ 4,569 $ 4,485 $ 9,241 $ 10,258
-------- -------- -------- --------
Net income $ 4,569 $ 2,616 $ 9,241 $ 8,285
-------- -------- -------- --------
Adjusted Earnings Per Share
Income from continuing operations $ .46 $ .46 $ .94 $ 1.05
-------- -------- -------- --------
Net income $ .46 $ .27 $ .94 $ .85
-------- -------- -------- --------
Adjusted Diluted Earnings Per Share
Income from continuing operations $ .46 $ .45 $ .93 $ 1.04
-------- -------- -------- --------
Net income $ .46 $ .27 $ .93 $ .84
-------- -------- -------- --------
Average number of shares outstanding
Earnings Per Share 9,857 9,728 9,850 9,737
-------- -------- -------- --------
Diluted Earnings Per Share 10,282 10,257 10,274 9,885
-------- -------- -------- --------
Cash Dividends Paid Per Share $ .11 $ .11 $ .22 $ .22
======== ======== ======== ========
See accompanying notes to unaudited financial statements.
Page 4 of 17
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Six Months Ended
June 30,
-----------------------
2002 2001
--------- --------
Cash Flows From Operating Activities
Net income $ 9,241 $ 5,971
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,471 12,113
Provision for uncollectible
accounts receivable 1,295 1,266
Gains on sale of investments (1,141) (993)
Provision for deferred income taxes 922 774
Discontinued Operations - 1,973
Changes in operating assets and
liabilities, excluding amounts
acquired in business combinations
(Increase)/decrease in accounts
receivable (2,789) 1,809
(Increase)/decrease in inventories 354 (587)
(Increase)/decrease in other current
assets 1,067 (3,293)
Decrease in statutory deposits 1,049 416
Decrease in accounts payable, deferred
contract revenue and other current
liabilities (5,847) (1,736)
Increase in income taxes 3,882 102
Other - net 1,298 (842)
-------- --------
Net cash provided by continuing operations 17,802 16,973
Net cash provided by discontinued operations - 484
-------- --------
Net cash provided by operating activities 17,802 17,457
-------- --------
Cash Flows From Investing Activities
Capital expenditures (6,072) (7,202)
Proceeds from sale of investments 1,917 1,377
Net outflows from discontinued operations (1,852) (2,536)
Business combinations--net of cash acquired (1,229) -
Other - net 1,613 (809)
-------- --------
Net cash used by investing activities (5,623) (9,170)
-------- --------
Cash Flows From Financing Activities
Retirement of long-term debt (10,214) (3,231)
Proceeds from issuances of long-term debt 5,000 -
Purchase of treasury stock (3,181) (1,197)
Dividends paid (2,168) (2,200)
Other - net 832 685
-------- --------
Net cash provided/(used) by
financing activities (9,731) (5,943)
-------- --------
Increase/(Decrease) In Cash and Cash Equivalents 2,448 2,344
Cash and cash equivalents at beginning of period 9,008 10,280
-------- --------
Cash and cash equivalents at end of period $ 11,456 $ 12,624
======== ========
See accompanying notes to unaudited financial statements.
Page 5 of 17
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, 2001.
2. Sales and service revenues and aftertax earnings by business
segment follow (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
-------------- ------- ---------- ----------
2002 2001 2002 2001
--------- --------- --------- --------
Service Revenues
and Sales
----------------
Roto-Rooter $ 63,095 $ 67,098 $ 128,374 $ 135,554
Patient Care 37,487 35,839 73,669 70,780
Service America 15,987 17,852 31,561 35,655
--------- --------- --------- ---------
Total $ 116,569 $ 120,789 $ 233,604 $ 241,989
========= ========= ========= =========
Aftertax Earnings
-----------------
Roto-Rooter $ 4,413 $ 3,581 $ 7,892 $ 7,662
Patient Care 1,124 715 1,991 1,295
Service America 59 483 386 945
--------- --------- --------- ---------
Total segment earnings 5,596 4,779 10,269 9,902
Corporate
Gains on sales of
investments - - 775 703
Overhead (1,206) (1,418) (2,178) (2,631)
Net investing and
financing income/
(expense) 179 (31) 375 (30)
Discontinued operations - (1,869) - (1,973)
--------- --------- --------- ---------
Net income $ 4,569 $ 1,461 $ 9,241 $ 5,971
========= ========= ========= =========
Adjusted Aftertax
Segment Earnings (a)
----------------------
Roto-Rooter $ 4,413 $ 4,350 $ 7,892 $ 9,203
Patient Care 1,124 899 1,991 1,662
Service America 59 685 386 1,351
--------- --------- --------- --------
Adjusted segment
earnings $ 5,596 $ 5,934 $ 10,269 $ 12,216
========= ========= ========= ========
(a) Adjusted to exclude amortization of goodwill in 2001.
Page 6 of 17
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 below (in thousands
except per share data):
Income from Continuing Operations Net Income
----------------------------------------- ---------------------------------------
Income Shares Income Per Income Shares Income Per
(Numerator) (Denominator) Share (Numerator) (Denominator) Share
----------- ------------- ---------- ----------- ------------- --------
For the Three Months
Ended June 30,
- --------------------
2002
Earnings $ 4,569 9,857 $ .46 $ 4,569 9,857 $ .46
======== =======
Conversion of
trust securities 176 384 176 384
Dilutive stock
options - 41 - 41
------- --------- --------- ---------
Diluted Earnings $ 4,745 10,282 $ .46 $ 4,745 10,282 $ .46
======= ========= ======== ========= ========= =======
2001
Earnings $ 3,330 9,728 $ .34 $ 1,461 9,728 $ .15
======== =======
Conversion of
trust securities 181 394 181 394
Nonvested stock
awards - 110 - 110
Dilutive stock
options - 25 - 25
------- --------- --------- ---------
Diluted Earnings $ 3,511 10,257 $ .34 $ 1,642 10,257 $ .16
======= ========= ======== ========= ========= =======
For the Six Months
Ended June 30,
- ------------------
2002
Earnings $ 9,241 9,850 $ .94 $ 9,241 9,850 $ .94
======== =======
Conversion of
trust securities 352 384 352 384
Dilutive stock
options - 40 - 40
------- --------- --------- ---------
Diluted Earnings $ 9,593 10,274 $ .93 $ 9,593 10,274 $ .93
======= ========= ======== ========= ========= =======
2001
Earnings $ 7,944 9,737 $ .82 $ 5,971 9,737 $ .61
======== =======
Conversion of
trust securities(b) - - - -
Nonvested stock
awards - 115 - 115
Dilutive stock
options - 33 - 33
------- --------- --------- ---------
Diluted Earnings $ 7,944 9,885 $ .80 $ 5,971 9,885 $ .60
======= ========= ======== ========= ========= =======
Adjusted Earnings (a)
For the Three Months
Ended June 30, 2001
- ---------------------
Earnings $ 4,485 9,728 $ .46 $ 2,616 9,728 $ .27
======== =======
Conversion of
trust securities 181 394 181 394
Nonvested stock
awards - 110 - 110
Dilutive stock
options - 25 - 25
------- --------- --------- ---------
Diluted Earnings $ 4,666 10,257 $ .45 $ 2,797 10,257 $ .27
======= ========= ======== ========= ========= =======
Adjusted Earnings (a)
For the Six Months
Ended June 30, 2001
- --------------------
Earnings $10,258 9,737 $ 1.05 $ 8,285 9,737 $ .85
======== =======
Conversion of
trust securities(b) - - - -
Nonvested stock
awards - 115 - 115
Dilutive stock
options - 33 - 33
------- --------- --------- ---------
Diluted Earnings $10,258 9,885 $ 1.04 $ 8,285 9,885 $ .84
======= ========= ======== ========= ========= =======
(a) Adjusted to exclude amortization of goodwill in 2001.
(b) The impact of the Trust Securities on earnings per share from continuing operations is anti-dilutive
for the six months ended June 30, 2001. Therefore, the Trust Securities are excluded from all
diluted earnings per share computations for the six months ended June 30, 2001.
Page 7 of 17
4. The Company had total comprehensive income of $4,472,000,
$1,352,000, $9,232,000 and $4,731,000 for the three months and six
months ended June 30, 2002 and 2001, respectively. The income
relates to the cumulative unrealized appreciation/depreciation on
its available-for-sale securities.
5. During the first six months of 2002, one purchase business
combination was completed within the Roto-Rooter segment for a
purchase price of $1,229,000 in cash. The purchase price was
allocated as follows: $1,104,000 to goodwill, $50,000 to
identifiable intangible assets and $75,000 to other assets. The
business acquired provides drain cleaning and plumbing services
under the Roto-Rooter name. The results of operations of this
business in 2002 are not material.
6. Accruals relating to restructuring charges recorded in 2001 totaled
approximately $2.2 million at June 30, 2002 compared with $3.5
million at December 31, 2001. The changes relate primarily to
payments made during the current year.
7. On May 8, 2002, Chemed announced it entered into an agreement to
sell its wholly owned Patient Care subsidiary to an investor group
led by Schroder Ventures Life Sciences Group. Chemed expects to
receive gross cash payments of approximately $70 million and to
recognize an aftertax loss of approximately $1 million on the sale.
Completion of the sale is not presently considered probable because
it is contingent upon regulatory approvals and the purchaser's
receipt of financing commitments by September 1, 2002. If these
uncertainties are resolved, the sale is expected to close before
the end of 2002.
Patient Care's net income was as follows (in thousands):
Reported Adjusted (a)
-------- ------------
For the three months ended June 30, 2002 $ 1,124 $1,124
For the three months ended June 30, 2001 715 899
For the six months ended June 30, 2002 1,991 1,991
For the six months ended June 30, 2001 1,295 1,662
For the year ended December 31, 2001 526 3,325
(a) Adjusted to exclude the amortization of goodwill for 2001 and to exclude
restructuring and similar expenses and other nonrecurring charges in the
fourth quarter of 2001.
8. The Company is party to lawsuits in the normal course of business,
none of which is expected to have a material impact on operating
results. This includes a class action lawsuit filed in the Third
Judicial Circuit Court of Madison County, Illinois in June of 2000
by Robert Harris, alleging certain Roto-Rooter plumbing was
performed by unlicensed employees. The Company contests these
allegations and believes them baseless. Due to the complex legal
and other issues involved, it is not presently possible to estimate
the amount of liability, if any, related to this matter.
Page 8 of 17
9. Effective July 1, 2001, Chemed adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, for all business combinations initiated after June
30, 2001. Effective January 1, 2002, Chemed adopted the provisions
of SFAS No. 141 for all purchase business combinations initiated
prior to July 1, 2001. Effective January 1, 2002, Chemed adopted
the provisions of SFAS No. 142, Goodwill and Other Intangible
Assets. The adoption of the provisions of SFAS No. 141 did not
materially impact the Company's financial statements.
The adoption of SFAS No. 142 eliminates the amortization of
goodwill as of the effective date of adoption. Amortization of
goodwill for the second quarter of 2001 is $1,250,000 ($1,155,000
net of income tax benefit), and was included in cost of services
and cost of goods sold in the consolidated statement of income.
For the first six months of 2001 amortization of goodwill is
$2,505,000 ($2,314,000 net of income tax benefit).
In addition, SFAS No. 142 requires that goodwill be evaluated
annually for impairment beginning in 2002 for each component of its
operating segments. The first, or transition, evaluation must be
done as of January 1, 2002 and must be completed by June 30, 2002.
For the purpose of impairment testing, the Company has determined
its reporting components are Service America, Patient Care, Roto-
Rooter Services (plumbing and drain cleaning services), Roto-Rooter
Franchising and Products (manufacturing, sale and franchising of
Roto-Rooter products and services) and Roto-Rooter HVAC/non-Roto-
Rooter brands (heating, ventilating and air-conditioning repair
services and non-Roto-Rooter-branded drain cleaning and plumbing
services). The Company's impairment tests indicate that none of
the goodwill for any of its reporting components is impaired.
10. On January 1, 2002, Chemed adopted the provisions of SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets.
The adoption of SFAS No. 144 did not materially impact the
Company's financial statements.
11. In August 2001, the Financial Accounting Standards Board approved
the issuance of SFAS No. 143, Accounting for Asset Retirement
Obligations. This statement becomes effective for fiscal years
beginning after June 15, 2002, and requires recognizing legal
obligations associated with the retirement of tangible long-lived
assets that result from the acquisition, construction, development
or normal operation of a long-lived asset. Since the Company has
no material asset retirement obligations, the adoption of SFAS No.
143 in 2003 will not have a material impact on Chemed's financial
statements.
Page 9 of 17
In April 2002, the FASB approved the issuance of SFAS No. 145,
Recission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13 and Technical Corrections. This statement is
generally effective for transactions occurring after May 15, 2002.
The adoption of SFAS No. 145 is not expected to have a material
impact on Chemed's financial statements.
In July 2002, the FASB approved the issuance of SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities.
Generally, SFAS No. 146 stipulates that defined exit costs
(including restructuring and employee termination costs) are to be
recorded on an incurred basis rather than on a commitment basis as
is presently required. This statement is effective for exit or
disposal activities initiated after December 31, 2002. The Company
currently anticipates that adoption of this statement in 2003 will
not have a material impact on its financial statements.
Page 10 of 17
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Financial Condition
- -------------------
The decline in other current liabilities from $49.7 million at
December 31, 2001 to $46.7 million at June 30, 2002 is due largely to
the payment of liabilities for 2001 supplemental thrift and profit-
sharing contributions and incentive compensation. The decline in
accounts payable from $11.7 million at December 31, 2001 to $9.1
million at June 30, 2002 is primarily due to the timing of cash
payments at the end of the periods. Income taxes increased from $1.3
million at December 31, 2001 to $4.4 million at June 30, 2002 primarily
due to the refund of overpaid estimated federal taxes for 2001 in March
2002 and to the accrual of current income taxes in 2002.
At June 30, 2002, Chemed had approximately $27.7 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. Proceeds from the pending sale of the Company's
Patient Care subsidiary will be used for acquisitions, debt repayment
and other corporate purposes.
Results of Operations
- ---------------------
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 as a % of Revenues
and Sales - % (Aftertax Margin)
-----------------------------------------
Increase/(Decrease) 2001 2001
------------------
2002 vs. 2001 2002 Reported Adjusted(a)
------------------ -------- -------- -----------
Three Months Ended
June 30,
- ------------------
Roto-Rooter (6)% 7.0% 5.3% 6.5%
Patient Care 5 3.0 2.0 2.5
Service America (10) 0.4 2.7 3.8
Total (3) 4.8 4.0 4.9
Six Months Ended
June 30,
- ------------------
Roto-Rooter (5)% 6.1% 5.7% 6.8%
Patient Care 4 2.7 1.8 2.3
Service America (11) 1.2 2.7 3.8
Total (3) 4.4 4.1 5.0
(a) Adjusted to exclude amortization of goodwill in 2001.
Second Quarter 2002 versus Second Quarter 2001
- ----------------------------------------------
Service revenues and sales of the Roto-Rooter segment for the
second quarter of 2002 totaled $63,095,000, a decline of 6% versus the
$67,098,000 recorded in the second quarter of 2001. Revenues of the
drain cleaning business and the plumbing services business declined
Page 11 of 17
1% and 6%, respectively, for the second quarter of 2002, as compared
with revenues for 2001. Each of these businesses' revenues accounts
for 44% and 42%, respectively, of Roto-Rooter's total revenues and
sales. Excluding revenues of businesses acquired or divested in 2001
or 2002, revenues of this segment for the second quarter of 2002
declined 4% versus revenues for the second quarter of 2001. The
aftertax margin of this segment during the second quarter of 2002 was
7.0% as compared with 6.5% on an adjusted basis (excluding amortization
of goodwill) during the second quarter of 2001. Most of this increase
is attributable to a higher gross profit margin in the 2002 quarter.
Service revenues of the Patient Care segment increased 5% from
$35,839,000 in the second quarter of 2001 to $37,487,000 in the second
quarter of 2002. The aftertax margin of this segment increased from
2.5% on an adjusted basis (excluding goodwill amortization) in the
second quarter of 2001 to 3.0% in the second quarter of 2002, largely
as the result of a higher gross profit margin in 2002, partially offset
by higher general and administrative expenses (as a percent of
revenues) in the 2002 quarter.
Service revenues and sales of the Service America segment declined
10% from $17,852,000 in the second quarter of 2001 to $15,987,000 in
the second quarter of 2002. This decline is attributable to lower
contract renewals in 2002, lower retail sales in 2002 and the
divestment of the Tucson branch in the fourth quarter of 2001. The
aftertax margin of this segment was .4% in the second quarter of 2002
as compared with 3.8% on an adjusted basis (excluding goodwill
amortization) in the second quarter of 2001. This decline is
attributable to a lower gross profit margin in the 2002 quarter,
primarily as the result of higher labor costs (as a percent of
revenues) in 2002.
Income from operations increased from $6,340,000 in the second
quarter of 2001 to $7,601,000 in the second quarter of 2002. On an
adjusted basis, excluding goodwill amortization in 2001 ($1,250,000),
income from operations was $7,590,000. Earnings before interest,
taxes, depreciation and amortization before capital gains ("EBITDA")
declined slightly from $12,813,000 in the second quarter of 2001 to
$12,518,000 in the second quarter of 2002.
Interest expense declined from $1,466,000 in the second quarter of
2001 to $763,000, as a result of refinancing long-term debt at lower
interest rates in December 2001. Lower debt levels during the year
2002 also contributed to this decline.
Other income-net declined from $845,000 in the second quarter of
2001 to $720,000 in the second quarter of 2002 primarily as the result
of lower interest rates on invested cash in the second quarter of 2002
as compared with interest rates in 2001.
The effective income tax rate during the second quarter of 2002
was 37.3% as compared with 38.8% during the second quarter of 2001.
Excluding the amortization of goodwill in 2001, the effective tax rate
Page 12 of 17
for the second quarter of 2001 was 33.0%. The higher rate in 2002
(versus the adjusted rate in 2001) is primarily attributable to
favorable tax adjustments in the 2001 quarter and to a slightly higher
effective state and local tax rate in 2002.
Income from continuing operations increased from $3,330,000 ($.34
per share) in the second quarter of 2001 to $4,569,000 ($.46 per share)
in the second quarter of 2002. Excluding amortization of goodwill
($1,155,000 aftertax), adjusted income from continuing operations for
the second quarter of 2001 was $4,485,000 ($.46 per share and $.45 per
diluted share).
Net income increased from $1,461,000 ($.15 per share and $.16 per
diluted share) in the second quarter of 2001 to $4,569,000 ($.46 per
share) in the second quarter of 2002. The results for 2001 include a
loss on discontinued operations of $1,869,000 ($.19 per share and $.18
per diluted share) and goodwill amortization of $1,155,000 aftertax
($.12 per share and $.11 per diluted share). Beginning January 1,
2002, goodwill is not amortized.
Six Months Ended June 30, 2002 Versus June 30, 2001
- ---------------------------------------------------
Service revenues and sales of the Roto-Rooter segment for the
first six months of 2002 totaled $128,374,000, a decline of 5% versus
the $135,554,000 recorded in the first six months of 2001. Revenues
of the drain cleaning business and the plumbing services business
declined 2% and 6%, respectively, for the first six months of 2002, as
compared with revenues for 2001. Excluding revenues of businesses
acquired or divested in 2001 or 2002, revenues of this segment for the
first six months of 2002 declined 4% versus revenues for the first six
months of 2001. The aftertax margin of this segment during the first
six months of 2002 was 6.1% as compared with 6.8% on an adjusted basis
(excluding amortization of goodwill) during the first six months of
2001. Most of this decline is attributable to a lower gross profit
margin as the result of labor costs being a higher percent of revenues
in the 2002 period.
Service revenues of the Patient Care segment increased 4% from
$70,780,000 in the first six months of 2001 to $73,669,000 in the
first six months of 2002. The aftertax margin of this segment
increased from 2.3% on an adjusted basis (excluding goodwill
amortization) in the first six months of 2001 to 2.7% in the first six
months of 2002, largely as the result of a higher gross profit margin
in 2002, partially offset by higher general and administrative
expenses (as a percent of revenues) in the 2002 period.
Service revenues and sales of the Service America segment
declined 11% from $35,655,000 in the first six months of 2001 to
$31,561,000 in the first six months of 2002. This decline is
attributable to lower contract renewals in 2002, lower retail sales in
2002 and the divestment of the Tucson branch in the fourth quarter of
2001. The aftertax margin of this segment was 1.2% in the first six
months of 2002 as compared with 3.8% on an adjusted
Page 13 of 17
basis (excluding goodwill amortization) in the first six months of
2001. This decline is attributable to a lower gross profit margin in
the 2002 quarter, primarily as the result of higher labor costs (as a
percent of revenues) in 2002.
Income from operations declined from $13,857,000 in the first six
months of 2001 to $13,304,000 in the first six months of 2002. On an
adjusted basis, excluding goodwill amortization in 2001 ($2,505,000),
income from operations was $16,362,000. Also, earnings before
interest, taxes, depreciation and amortization before capital gains
("EBITDA") declined 11% from $26,515,000 in the first six months of
2001 to $23,603,000 in the first six months of 2002. These declines
are primarily attributable to the decline in Roto-Rooter's operating
profit during the first six months of 2002.
Interest expense declined from $2,952,000 in the first six months
of 2001 to $1,536,000, as a result of refinancing long-term debt at
lower interest rates in December 2001. Lower debt levels during the
year 2002 also contributed to this decline.
Other income-net increased from $2,604,000 in the first six
months of 2001 to $3,049,000 in the first six months of 2002 as the
result of higher capital gains and higher gains on investments held in
deferred compensation trusts in the 2002 period.
The effective income tax rate during the first six months of 2002
was 35.3% as compared with 38.7% during the first six months of 2001.
Excluding the amortization of goodwill in 2001, the effective tax rate
for the first six months of 2001 was 33.6%. The higher rate in 2002
(versus the adjusted rate in 2001) is primarily attributable to larger
favorable tax adjustments in the 2001 period.
Income from continuing operations increased from $7,944,000 ($.82
per share and $.80 per diluted share) in the first six months of 2001
to $9,241,000 ($.94 per share and $.93 per diluted share) in the first
six months of 2002. Excluding amortization of goodwill ($2,314,000
aftertax) adjusted income from operations was $10,258,000 ($1.05 per
share and $1.04 per diluted share) in the first six months of 2001 as
compared with $9,241,000 ($.94 per share and $.93 per diluted share)
in the first six months of 2002. Income from continuing operations
for the first six months of 2002 and 2001 includes aftertax capital
gains of $775,000 ($.08 per share and $.07 per diluted share) and
$703,000 ($.08 per share and $.06 per diluted share), respectively.
Net income increased from $5,971,000 ($.61 per share and $.60 per
diluted share) in the first six months of 2001 to $9,241,000 ($.94 per
share and $.93 per diluted share) in the first six months of 2002. Net
income for the first six months of 2002 and 2001 includes aftertax
capital gains of $775,000 ($.08 per share and $.07 per diluted share)
and $703,000 ($.08 per share and $.06 per diluted share),
respectively. In addition, the results for 2001 include a loss on
discontinued operations of $1,973,000 ($.21 per share and $.20 per
diluted share) and goodwill amortization of $2,314,000 aftertax ($.24
per share).
Page 14 of 17
Recent Accounting Statements
- ----------------------------
In August 2001, the Financial Accounting Standards Board approved
the issuance of SFAS No. 143, Accounting for Asset Retirement
Obligations. This statement becomes effective for fiscal years
beginning after June 15, 2002, and requires all entities to recognize
legal obligations associated with the retirement of tangible long-
lived assets that result from the acquisition, construction or
development and/or normal operation of a long-lived asset. Since the
Company has no material asset retirement obligations, the adoption of
SFAS No. 143 in 2003 will not have a material impact on Chemed's
financial statements.
In April 2002, the FASB approved the issuance of SFAS No. 145,
Recission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13 and Technical Corrections. This statement is
generally effective for transactions occurring after May 15, 2002.
The adoption of SFAS No. 145 is not expected to have a material impact
on Chemed's financial statements.
In July 2002, the FASB approved the issuance of SFAS No. 146,
Accounting for Costs Associated with Exit of Disposal Activities.
Generally, SFAS No. 146 stipulates that defined exit costs (including
restructuring and employee termination costs) are to be recorded on an
incurred basis rather than on a commitment basis as is presently
required. This statement is effective for exit or disposal activities
initiated after December 31, 2002. The Company currently anticipates
that adoption of this statement in 2003 will not have a material
impact on its financial statements.
Safe harbor Statement under the Private Securities Litigation
Reform Act of 1995 Regarding Forward-Looking Information
- -------------------------------------------------------------
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 15 of 17
PART II -- OTHER INFORMATION
- ----------------------------
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
(a) Chemed held its Annual Meeting of Shareholders on May 20,
2002.
(b) The names of directors elected at this Annual Meeting are as
follows:
Edward L. Hutton Sandra E. Laney
Kevin J. McNamara Spencer S. Lee
Rick L. Arquilla John M. Mount
Charles H. Erhart, Jr. Timothy S. O'Toole
Joel F. Gemunder Donald E. Saunders
Patrick P. Grace George J. Walsh, III
Thomas C. Hutton Frank E. Wood
Walter L. Krebs
(c) The stockholders ratified the Board of Directors' selection
of PricewaterhouseCoopers LLP as independent accountants for
the Company and its consolidated subsidiaries for the year
2002. 8,809,683 votes were cast in favor of the proposal,
89,472 votes were cast against it, 20,266 votes abstained,
and there were no broker non-votes.
(d) The stockholders then voted on the approval and adoption of
the 2002 Executive Long-Term Incentive Plan: 7,837,040 votes
were cast in favor of the proposal, 897,422 were cast against
it, 184,959 votes abstained, and there were no broker non-
votes.
5. The stockholders then voted on the approval and adoption of
the 2002 Stock Incentive Plan: 7,172,729 votes were cast in
favor of the proposal, 1,602,340 votes were cast against it,
144,352 votes abstained, and there were no broker non-votes.
With respect to the election of directors, the number of
votes cast for each nominee was as follows:
Votes For Votes Withheld
---------- --------------
Edward L. Hutton 7,690,268 1,229,152
Kevin J. McNamara 7,708,560 1,210,861
Rick L. Arquilla 7,715,379 1,204,041
Charles H. Erhart, Jr. 7,669,143 1,220,278
Joel F. Gemunder 7,712,533 1 206,887
Patrick P. Grace 7,704,008 1 215,413
Thomas C. Hutton 7,708,832 1,210,588
Walter L. Krebs 7,712,627 1 206,794
Sandra E. Laney 7,708,837 1 210,583
Spencer S. Lee 7,714,560 1,204,860
John M. Mount 7,713,155 1,206,265
Timothy S. O'Toole 7,716,535 1,202,885
Donald E. Saunders 7,705,574 1,213,847
Page 16 of 17
George J. Walsh, III 7,713,305 1,206,116
Frank E. Wood 7,710,762 1,208,658
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
--------
None required.
(b) Reports on Form 8-K
-------------------
None were filed in the quarter ended June 30, 2002.
CERTIFICATION AND SIGNATURES
The undersigned hereby certify that this report fully complies
with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934, 15 U.S.C. section 78m or
78(o)(d) and that information contained herin fairly presents,
in all material respects, the financial condition and results
of operations of Registrant.
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
-------------------
(Registrant)
Dated: August 12, 2002 By Kevin J. McNamara
--------------- -------------------------
Kevin J. McNamara
(President and Chief
Executive Officer)
Dated: August 12, 2002 By Timothy S. O'Toole
--------------- -------------------------
Timothy S. O'Toole
(Executive Vice President
And Treasurer - Principal
Financial Officer)
Dated: August 12, 2002 By Arthur V. Tucker, Jr.
--------------- -------------------------
Arthur V. Tucker, Jr.
(Vice President and
Controller - Principal
Accounting Officer)
Page 17 of 17