- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 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 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 9,790,902 Shares April 30, 2002 $1 Par Value - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Page 1 of 13CHEMED CORPORATION AND SUBSIDIARY COMPANIES Index Page No. -------- PART I. FINANCIAL INFORMATION: Item 1. Financial Statements Consolidated Balance Sheet - March 31, 2002 and December 31, 2001 3 Consolidated Statement of Income - Three months ended March 31, 2002 and 2001 4 Consolidated Statement of Cash Flows - Three months ended March 31, 2002 and 2001 5 Notes to Unaudited Financial Statements 6 - 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 12 PART II. OTHER INFORMATION 13 Page 2 of 13 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, 2002 2001 ---------- ----------- ASSETS Current assets Cash and cash equivalents $ 14,585 $ 9,008 Accounts receivable, less allowances of $4,955 (2001 - $4,941) 51,080 49,238 Inventories 10,033 10,424 Statutory deposits 12,558 13,331 Prepaid expenses 16,766 18,052 ---------- ---------- Total current assets 105,022 100,053 Other investments 37,737 38,492 Properties and equipment, at cost less accumulated depreciation of $71,561 (2001 - $69,738) 63,533 67,588 Identifiable intangible assets less accumulated amortization of $8,214 (2001 - $8,024) 3,893 4,037 Goodwill less accumulated amortization of $35,541 (2001 - $35,541) 162,169 161,075 Other assets 27,354 25,266 ---------- ---------- Total Assets $ 399,708 $ 396,511 ========== ========== LIABILITIES Current liabilities Accounts payable $ 7,390 $ 11,651 Current portion of long-term debt 366 353 Income taxes 6,666 1,262 Deferred contract revenue 21,770 22,194 Other current liabilities 44,293 49,650 ---------- ---------- Total current liabilities 80,485 85,110 Long-term debt 65,891 61,037 Other liabilities 28,296 27,842 ---------- ---------- Total Liabilities 174,672 173,989 ---------- ---------- MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES OF THE CHEMED CAPITAL TRUST 14,195 14,239 ---------- ---------- STOCKHOLDERS' EQUITY Capital stock-authorized 15,000,000 shares $1 par; issued 13,460,513 shares (2001 - 13,437,781 shares) 13,461 13,438 Paid-in capital 168,261 167,542 Retained earnings 142,754 139,163 Treasury stock - 3,676,785 shares (2001 - 3,606,085 shares), at cost (112,815) (110,424) Unearned compensation (6,428) (7,436) Deferred compensation payable in company stock 2,239 3,288 Accumulated other comprehensive income 4,302 4,214 Notes receivable for shares sold (933) (1,502) ---------- ---------- Total Stockholders' Equity 210,841 208,283 ---------- ---------- Total Liabilities and Stockholders' Equity $ 399,708 $ 396,511 ========== ========== See accompanying notes to unaudited financial statements. Page 3 of 13 CHEMED CORPORATION AND SUBSIDIARY COMPANIES UNAUDITED CONSOLIDATED STATEMENT OF INCOME (in thousands except per share data) Three Months Ended March 31, ----------------------- 2002 2001 --------- -------- Continuing Operations Service revenues and sales $117,035 $121,200 -------- -------- Cost of services provided and cost of goods sold 71,078 73,447 Selling and marketing expenses 12,037 10,900 General and administrative expenses 24,223 25,324 Depreciation 3,994 4,012 -------- -------- Total costs and expenses 111,332 113,683 -------- -------- Income from operations 5,703 7,517 Interest expense (773) (1,486) Distributions on preferred securities (270) (277) Other income - net 2,329 1,759 -------- -------- Income before income taxes 6,989 7,513 Income taxes (2,317) (2,899) -------- -------- Income from continuing operations 4,672 4,614 Discontinued operations - (104) -------- -------- Net income $ 4,672 $ 4,510 ======== ======== Earnings Per Common Share Income from continuing operations $ .47 $ .47 ======== ======== Net income $ .47 $ .46 ======== ======== Diluted Earnings Per Share Income from continuing operations $ .47 $ .47 ======== ======== Net income $ .47 $ .46 ======== ======== Earnings Excluding Goodwill Amortization Adjusted Income Income from continuing operations $ 4,672 $ 5,773 ======== ======== Net income $ 4,672 $ 5,669 ======== ======== Adjusted Earnings Per Share Income from continuing operations $ .47 $ .59 ======== ======== Net income $ .47 $ .58 ======== ======== Adjusted Diluted Earning Per Share Income from continuing operations $ .47 $ .58 ======== ======== Net income $ .47 $ .57 ======== ======== Average number of shares outstanding Earnings Per Share 9,843 9,746 ======== ======== Diluted Earnings Per Share 10,267 10,303 ======== ======== Cash Dividends Paid Per Share $ .11 $ .11 ======== ======== See accompanying notes to unaudited financial statements. Page 4 of 13 CHEMED CORPORATION AND SUBSIDIARY COMPANIES UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) Three Months Ended March 31, ---------------------------- 2002 2001* ---------- ---------- Cash Flows From Operating Activities Net income $ 4,672 $ 4,510 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,242 6,074 Gains on sale of investments (1,141) (1,112) Provision for uncollectible accounts receivable 805 673 Provision for deferred income taxes 49 241 Discontinued operations - 104 Changes in operating assets and liabilities, excluding amounts acquired in business combinations Decrease/(increase) in accounts receivable (2,587) 990 Decrease/(increase) in inventories 391 (496) Decrease/(increase) in prepaid expenses 1,276 (622) Decrease in statutory deposits 773 169 Decrease in accounts payable, deferred contract revenue and other current liabilities (9,424) (4,139) Increase in income taxes 5,711 2,206 Other - net 1,109 1,258 --------- ---------- Net cash provided by continuing operations 5,876 9,856 Net cash provided by discontinued operations - 113 --------- ---------- Net cash provided by operating activities 5,876 9,969 --------- ---------- Cash Flows From Investing Activities Capital expenditures (2,670) (3,225) Proceeds from sale of investments 1,917 1,310 Business combinations--net of cash acquired (1,229) - Net outflows from discontinued operations (816) (1,346) Other - net 1,368 (296) --------- ---------- Net cash used by investing activities (1,430) (3,557) --------- ---------- Cash Flows From Financing Activities Dividends paid (1,083) (1,101) Purchase of treasury stock (3,141) (1,056) Proceeds from issuances of long-term debt 5,000 - Other - net 355 329 --------- ---------- Net cash provided/(used) by financing activities 1,131 (1,828) --------- ---------- Increase in Cash and Cash Equivalents 5,577 4,584 Cash and Cash Equivalents at Beginning of Period 9,008 10,280 --------- ---------- Cash and Cash Equivalents at End of Period $ 14,585 $ 14,864 ========= ========== *Reclassified to conform to 2002 presentation. See accompanying notes to unaudited financial statements. Page 5 of 13 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 March 31, -------------------- 2002 2001 --------- --------- Sales and Service Revenues ----------------- Roto-Rooter $ 65,279 $ 68,456 Patient Care 36,182 34,941 Service America 15,574 17,803 -------- -------- Total $117,035 $121,200 ======== ======== Aftertax Earnings ----------------- Roto-Rooter $ 3,479 $ 4,081 Patient Care 867 580 Service America 327 462 -------- -------- Total segment earnings 4,673 5,123 Corporate Gains on sales of investments 775 703 Overhead (972) (1,213) Net investing and financing income 196 1 Discontinued operations - (104) -------- -------- Net income $ 4,672 $ 4,510 ======== ======== Adjusted Aftertax Segment Earnings(a) --------------------- Roto-Rooter $ 3,479 $ 4,853 Patient Care 867 763 Service America 327 666 -------- -------- Total segment earnings $ 4,673 $ 6,282 ======== ======== (a) Adjusted to exclude amortization of goodwill in 2001. Page 6 of 13 The balances of goodwill, less accumulated amortization at March 31, 2002 for the Roto-Rooter, Patient Care and Service America segments were $101,117,000, $30,673,000 and $30,379,000, respectively. 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): Income Shares Income (Numerator) (Denominator) Per Share ----------- ------------- --------- Income from Continuing Operations - For the Three Months Ended March 31, - --------------------------------------- 2002 Earnings $ 4,672 9,843 $ .47 ======= Conversion of trust securities 176 384 Dilutive stock options - 40 ---------- ----------- Diluted earnings $ 4,848 10,267 $ .47 ========== =========== ======= 2001 Earnings $ 4,614 9,746 $ .47 ======= Conversion of trust securities 180 396 Nonvested Stock Awards - 120 Dilutive stock options - 41 ---------- ----------- Diluted earnings $ 4,794 10,303 $ .47 ========== =========== ======= Net Income - For the Three Months Ended March 31, - --------------------------------------- 2002 Earnings $ 4,672 9,843 $ .47 ======= Conversion of trust securities 176 384 Dilutive stock options - 40 ---------- ----------- Diluted earnings $ 4,848 10,267 $ .47 ========== =========== ======= 2001 Earnings $ 4,510 9,746 $ .46 ======= Conversion of trust securities 180 396 Nonvested sock awards - 120 Dilutive stock options - 41 ---------- ----------- Diluted earnings $ 4,690 10,303 $ .46 ========== =========== ======= Adjusted Earnings (a) - For the Three Months Ended March 31, 2001 - -------------------------------------------- Adjusted Income from Continuing Operations Earnings $ 5,773 9,746 $ .59 ======= Conversion of trust securities 180 396 Nonvested sock awards - 120 Dilutive stock options - 41 ---------- ----------- Diluted earnings $ 5,953 10,303 $ .58 ========== =========== ======= Adjusted Net Income Earnings $ 5,669 9,746 $ .58 ======= Conversion of trust securities 180 396 Nonvested Stock Awards - 120 Dilutive stock options - 41 ---------- ----------- Diluted earnings $ 5,849 10,303 $ .57 ========== =========== ======= (a) Adjusted to exclude amortization of goodwill in 2001. 4. The Company had total comprehensive income of $4,760,000 and $3,534,000 for the three months ended March 31, 2002 and 2001, 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. Page 7 of 13 5. During the first quarter 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 $2.4 million at March 31, 2002 compared with $3.5 million at December 31, 2001. 7. Effective July 1, 2001, Chemed adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets for all business combinations initiated after June 30, 2001. Effective January 1, 2002, Chemed adopted the provisions of SFAS No. 141 and SFAS No. 142 for all purchase business combinations initiated prior to July 1, 2001. 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 first quarter of 2001 is $1,255,000 ($1,159,000 net of income tax benefit), and was included in cost of services and cost of goods sold in the consolidated statement of income. In addition, SFAS No. 142 stipulates that goodwill must 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 preliminary impairment tests indicate that none of the goodwill for any of its reporting components is impaired. The impairment evaluations will be completed during the second quarter of 2002. 8. 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. 9. 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 Page 8 of 13 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. 10. 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 cash payments of approximately $70 million and to recognize an aftertax loss of approximately $1 to $2 million on the sale. Completion of the sale is contingent upon regulatory approvals, approval by the Chemed Board of Directors and the purchaser's receipt of financing commitments by June 30, 2002. The sale is expected to close before the end of 2002. Patient Care's reported net income was as follows (in thousands): For the three months ended March 31, 2002 $ 867 For the three months ended March 31, 2001 580 For the year ended December 31, 2001 526 On an adjusted basis, excluding goodwill amortization for 2001 and excluding restructuring and similar expenses and other nonrecurring charges in the fourth quarter of 2001, Patient Care's net income was as follows (in thousands): For the three months ended March 31, 2002 $ 867 For the three months ended March 31, 2001 763 For the year ended December 31, 2001 3,325 Page 9 of 13 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 $44.3 million at March 31, 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 $7.4 million at March 31, 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 $6.7 million at March 31, 2002 primarily due to the refund of overpaid estimated federal taxes for 2001 in March 2002. At March 31, 2002, Chemed had approximately $18.5 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 as a % of Revenues and Sales - % (Aftertax Margin) ------------------------------------ Three Months Increase/(Decrease) 2001 2001 ------------------ Ended March 31 2002 vs. 2001 2002 Reported Adjusted (a) - -------------- ---------------- ------- --------- ------------- Roto-Rooter (5)% 5.3% 6.0% 7.1% Patient Care 4 2.4 1.7 2.2 Service America (13) 2.1 2.6 3.7 Total (3) 4.0 4.2 5.2 (a) Adjusted to exclude amortization of goodwill in 2001. Service revenues and sales for the Roto-Rooter segment for the first quarter of 2002 totaled $65,279,000, a decline of 5% versus $68,456,000 recorded in the first quarter of 2001. Revenues of the plumbing services business and the drain cleaning business declined 6% and 2%, respectively, for the first quarter of 2002, as compared with revenues for the first quarter of 2001. These revenues accounted for 40% and 45%, respectively, of Roto-Rooter's total service revenues and sales during the 2002 period. Excluding revenues of the HVAC and non- Roto-Rooter branded operations, some of which have been divested, revenues of this segment for the first quarter of 2002 declined 2% versus revenues for the first quarter of 2001. The aftertax margin of the Roto-Rooter segment for the first quarter of 2002 was 5.3% versus 7.1% on an adjusted basis (excluding goodwill amortization) during the first quarter of 2001. This decline is primarily attributable to a decline in the gross profit margin as the result of higher labor costs, as a percent of revenues, in the 2002 quarter. Page 10 of 13 Service revenues of the Patient Care segment increased 4% from $34,941,000 in the first quarter of 2001 to $36,182,000 in the first quarter of 2002. The aftertax margin of this segment for the first quarter of 2002 was 2.4% as compared with 2.2% on an adjusted basis (excluding goodwill amortization) in the first quarter of 2002. Service revenues and sales of the Service America segment declined 13% from $17,803,000 in the first quarter of 2001 to $15,574,000 in the first quarter of 2002. This decline is attributable to a decline in contract renewals in 2002, lower retail sales and the divestment of the Tucson branch in the fourth quarter of 2001. The aftertax margin of this segment declined from 3.7% on an adjusted basis (excluding goodwill amortization) in 2001 to 2.1% in the first quarter of 2002. This margin decline is primarily due to the negative impact of operating leverage during a period when revenues declined and operating expenses were essentially level with the prior year. Income from operations for the first quarter of 2002 was $5,703,000 versus the $7,517,000 recorded in the comparable period of 2001. On an adjusted basis, excluding goodwill amortization in 2001 ($1,255,000), income from operations was $8,772,000 in the first quarter of 2001. The $3,069,000 decline in adjusted income from operations from the first quarter of 2001 to the first quarter of 2002 is primarily attributable to the decline in Roto-Rooter's operating profit. Interest expense declined from $1,486,000 during the first quarter of 2001 to $773,000 during the first quarter of 2002, as a result of refinancing long-term debt at lower interest rates in December 2001. Other income-net increased from $1,759,000 during the first quarter of 2001 to $2,329,000 during the first quarter of 2002, primarily as a result of net realized and unrealized gains on assets held in non-qualified benefit plan trusts in the first quarter of 2002 versus net losses recorded in the first quarter of 2001. The Company's effective income tax rate during the first quarter of 2002 was 33.2% versus 38.6% during the first quarter of 2001. Excluding the effect of goodwill amortization in the 2001 quarter, the effective tax rate was 34.2%. Income from continuing operations for the first quarter of 2002 was $4,672,000 ($.47 per share) as compared with $4,614,000 ($.47 per share) for the first quarter of 2001. Net income for the first quarter of 2002 was $4,672,000 ($.47 per share) as compared with $4,510,000 ($.46 per share) for the first quarter of 2001. Net income for the first quarter of 2001 included a loss of $104,000 ($.01 per share) from operations discontinued in the second quarter of 2001. Income from continuing operations and net income for the first quarter of 2001 included aftertax goodwill expense of $1,159,000 ($.12 per share and $.11 per diluted share) versus no goodwill amortization in Page 11 of 13 2002. In addition, income from continuing operations and net income included aftertax capital gains on the sales of investments of $775,000 ($.07 per share) and $703,000 ($.07 per share)in the first quarter of 2002 and 2001, respectively. On an adjusted basis, excluding goodwill amortization in 2001, income from continuing operations for the first quarter of 2002 was $4,672,000 ($.47 per diluted share) as compared with $5,773,000 ($.59 per share and $.58 per diluted share) for the first quarter of 2001. Similarly, adjusted net income for the first quarter of 2002 was $4,672,000 ($.47 per share) as compared with $5,669,000 ($.58 per share and $.57 per diluted share) for the first quarter of 2001. Accounting for Asset Retirement Obligations - ------------------------------------------- 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. Subsequent Event - ---------------- The completion of the pending sale of the Company's Patient Care subsidiary is expected to generate net cash proceeds of approximately $68 million. It is anticipated that such proceeds will be used for acquisitions, debt repayment and other corporate purposes. 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 12 of 13 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, 2002. 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 14, 2002 By Naomi C. Dallob ------------------ ------------------------ Naomi C. Dallob, Vice President and Secretary Dated: May 14, 2002 By Arthur V. Tucker, Jr. ------------------ ------------------------ Arthur V. Tucker, Jr. Vice President and Controller (Principal Accounting Officer) Page 13 of 13
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10-Q Filing
Chemed (CHE) 10-Q2002 Q1 Quarterly report
Filed: 14 May 02, 12:00am