- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Page 1 of 12CHEMED CORPORATION AND SUBSIDIARY COMPANIES Index Page No. -------- 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 ---------- ----------- 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 ---------- ---------- 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 ---------- ---------- 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 ---------- ---------- Total current liabilities 103,906 106,942 Long-term debt 58,294 58,391 Other liabilities 26,718 27,637 ---------- ---------- Total Liabilities 188,918 192,970 ---------- ---------- MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES OF THE CHEMED CAPITAL TRUST 14,642 14,641 ---------- ---------- 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) ---------- ---------- Total Stockholders' Equity 217,591 213,764 ---------- ---------- Total Liabilities and Stockholders' Equity $ 421,151 $ 421,375 ========== ========== 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, ----------------------- 2001 2000 --------- -------- Service revenues and sales $123,281 $121,534 -------- -------- 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 -------- -------- Total costs and expenses 115,933 113,995 -------- -------- 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 -------- -------- Income before income taxes 7,347 7,865 Income taxes (2,837) (2,963) -------- -------- Net income $ 4,510 $ 4,902 ======== ======== Earnings Per Common Share Net income $ .46 $ .49 ======== ======== Average number of shares outstanding 9,746 10,064 ======== ======== Diluted Earnings Per Common Share Net income $ .46 $ .48 ======== ======= Average number of shares outstanding 10,303 10,171 ======== ======== 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* ---------- ----------- 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) --------- ---------- Net cash provided by operating activities 9,969 9,768 --------- ---------- 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 --------- ---------- Net cash used by investing activities (3,557) (14,679) --------- ---------- 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) --------- ---------- Net cash provided/(used) by financing activities (1,828) 1,454 --------- ---------- Increase/(Decrease) In Cash And Cash Equivalents 4,584 (3,457) Cash and Cash Equivalents at Beginning of Period 10,280 17,282 --------- ---------- Cash and Cash Equivalents at End of Period $ 14,864 $ 13,825 ========= ========== *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, --------------------- 2001 2000 --------- --------- Sales and Service Revenues ----------------- Roto-Rooter $ 68,456 $ 67,724 Patient Care 34,941 32,909 Service America 17,803 18,754 Cadre Computer 2,081 2,147 -------- ------- Total $123,281 $121,534 ======== ======== Aftertax Earnings ----------------- Roto-Rooter $ 4,081 $ 4,669 Patient Care 580 403(a) Service America 462 320 Cadre Computer (116) 42 -------- -------- 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 - -------- -------- Net income $ 4,510 $ 4,902 ======== ======== (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, ------------------- 2001 2000 ------- ------- Reported income $ 4,510 $ 4,902 Aftertax interest on Trust Securities (a) 180 - ------- ------- Adjusted income $ 4,690 $ 4,902 ======= ======= 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 ------- ------- Average number of shares used to compute diluted earnings per common share 10,303 10,171 ======= ======= Diluted earnings per common share $ .46 $ .48 ======= ======= (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 - ------------------- 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 - --------------------- 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) ---------------- ------------------ 2001 vs. 2000 2001 2000 ---------------- ------------------ 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 - ------------------------------------------------------------- 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 ---------------------------- Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits -------- Exhibit SK 601 Page No. Ref. No. Description No. ------- -------- ----------- ------ None Required (b) Reports on Form 8-K ------------------- 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 ---------------------------- (Registrant) Dated: May 10, 2001 By Naomi C. Dallob ------------------ ------------------------ Naomi C. Dallob, Vice President and Secretary Dated: May 10, 2001 By Arthur V. Tucker, Jr. ------------------ ------------------------ Arthur V. Tucker, Jr. Vice President and Controller (Principal Accounting Officer) Page 12 of 12
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10-Q Filing
Chemed (CHE) 10-Q2001 Q1 Quarterly report
Filed: 10 May 01, 12:00am