- -----------------------------------------------------------------
- -----------------------------------------------------------------
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 September 30, 1999
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 10,447,918 Shares October 31, 1999
$1 Par Value
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Page 1 of 14
CHEMED CORPORATION AND
SUBSIDIARY COMPANIES
Index
Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheet -
September 30, 1999 and
December 31, 1998 3
Consolidated Statement of Income -
Three months and nine months ended
September 30, 1999 and 1998 4
Consolidated Statement of Cash Flows
Nine months ended
September 30, 1999 and 1998 5
Notes to Unaudited Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8 - 13
PART II. OTHER INFORMATION 14
Page 2 of 14
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(in thousands except share and per share data)
UNAUDITED
September 30, December 31,
1999 1998
------------- ------------
ASSETS
Current assets
Cash and cash equivalents $ 20,197 $ 41,358
Accounts receivable, less allowances of
$3,691 (1998 - $3,601) 52,437 45,260
Inventories 9,267 9,828
Statutory deposits 14,150 16,698
Other current assets 13,613 11,487
---------- ----------
Total current assets 109,664 124,631
Other investments 36,242 55,778
Properties and equipment, at cost less accumulated
depreciation of $52,226 (1998 - $44,450) 71,445 61,721
Identifiable intangible assets less accumulated
amortization of $6,293 (1998 - $5,369) 12,662 12,960
Goodwill less accumulated amortization of $25,341
(1998 - $21,879) 164,087 155,965
Other assets 25,993 18,649
---------- ----------
Total Assets $ 420,093 $ 429,704
========== ==========
LIABILITIES
Current liabilities
Accounts payable $ 8,441 $ 10,318
Current portion of long-term debt 2,035 4,393
Income taxes 9,918 12,563
Deferred contract revenue 26,413 26,571
Other current liabilities 39,759 37,253
---------- ----------
Total current liabilities 86,566 91,098
Long-term debt 84,764 80,407
Other liabilities 33,981 34,843
---------- ----------
Total Liabilities 205,311 206,348
---------- ----------
STOCKHOLDERS' EQUITY
Capital stock-authorized 15,000,000 shares $1 par;
issued 13,664,892 (1998 - 13,605,481) shares 13,665 13,605
Paid-in capital 164,533 162,252
Retained earnings 145,083 146,961
Treasury stock - 3,216,823 (1998 - 2,942,205) shares,
at cost (98,047) (97,237)
Unearned compensation (18,049) (20,558)
Deferred compensation payable in company stock 5,250 5,071
Accumulated other comprehensive income 2,347 13,262
---------- ----------
Total Stockholders' Equity 214,782 223,356
---------- ----------
Total Liabilities and Stockholders' Equity $ 420,093 $ 429,704
========== ==========
See accompanying notes to unaudited financial statements.
Page 3 of 14
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
UNAUDITED
(in thousands except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- ---------
Service revenues and sales $112,824 $ 96,517 $326,313 $279,872
-------- -------- -------- --------
Cost of services provided and
cost of goods sold 68,905 59,822 200,042 174,059
Selling and marketing expenses 10,166 8,785 29,774 24,228
General and administrative expenses 22,486 19,325 67,112 58,725
Depreciation 3,423 2,694 9,550 7,978
--------- --------- --------- ---------
Total costs and expenses 104,980 90,626 306,478 264,990
--------- --------- --------- ---------
Income from operations 7,844 5,891 19,835 14,882
Interest expense (1,448) (1,798) (4,549) (5,397)
Other income, net 1,128 3,691 9,472 17,636
--------- --------- --------- ---------
Income before income taxes 7,524 7,784 24,758 27,121
Income taxes (3,112) (3,092) (9,877) (10,612)
--------- --------- --------- ---------
Net Income $ 4,412 $ 4,692 $ 14,881 $ 16,509
========= ========= ========= =========
Earnings Per Common Share
Net income $ .42 $ .47 $ 1.42 $ 1.65
========= ========= ========= =========
Average number of shares outstanding 10,480 10,003 10,476 9,999
========= ========= ========= =========
Diluted Earnings per Common Shares
Net income $. .42 $ .47 $ 1.41 $ 1.64
========= ========= ========= =========
Average number of shares outstanding 10,527 10,032 10,519 10,041
========= ========= ========= =========
Cash Dividends Paid Per Share $ .53 $ .53 $ 1.59 $ 1.59
========= ========= ========= =========
See accompanying notes to unaudited financial statements.
Page 4 of 14
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
(in thousands)
Nine Months Ended
September 30,
---------------------
1999 1998
--------- ---------
Cash Flows From Operating Activities
Net income $ 14,881 $ 16,509
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 15,014 12,728
Gains on sale of investments (4,662) (12,258)
Provision for deferred income taxes 445 1,454
Provision for uncollectible accounts receivable 231 1,019
Changes in operating assets and liabilities,
excluding amounts acquired in business combinations
Increase in accounts receivable (8,843) (3,218)
(Increase)/decrease in inventories and other
current assets 691 (1,149)
(Increase)/decrease in statutory deposits 2,548 (427)
Increase/(decrease) in accounts payable, deferred
contract revenue and other current liabilities 2,744 (3,127)
Increase/(decrease) in income taxes (3,927) 1,873
Other - net (413) 721
--------- ---------
Net cash provided by operating activities 18,709 14,125
--------- ---------
Cash Flows From Investing Activities
Capital expenditures (18,031) (15,023)
Business combinations--net of cash acquired (15,811) (14,373)
Proceeds from sale of investments 7,702 14,315
Net outflows from sale of discontinued operations (2,009) (4,806)
Other-net 1,802 2,607
--------- ---------
Net cash used by investing activities (26,347) (17,280)
--------- ---------
Cash Flows From Financing Activities
Dividends paid (16,853) (16,072)
Repayment of long-term debt (1,700) (1,271)
Proceeds from long-term debt 5,000 -
Other - net 30 (386)
--------- ---------
Net cash used by financing activities (13,523) (17,729)
--------- ---------
Decrease In Cash And Cash Equivalents (21,161) (20,884)
Cash and cash equivalents at beginning of period 41,358 70,958
--------- ---------
Cash and cash equivalents at end of period $ 20,197 $ 50,074
========= =========
See accompanying notes to unaudited financial statements.
Page 5 of 14
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, 1998.
2. The Company had total comprehensive income of $3,621,000,
$1,122,000, $3,966,000 and $9,593,000 for the three months
ended September 30, 1999 and 1998 and for the nine months
ended September 30, 1999 and 1998, 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.
3. Earnings per common shares are computed using weighted
average number of shares of capital stock outstanding.
Diluted earnings per share were calculated as follows (in
thousands, except per share data):
1999
------------------------------------
Income Shares Earnings
(Numerator) (Denominator) Per Share
------------------------------------
For the three months
ended September 30:
Earnings $ 4,412 10,480 $ .42
Nonvested stock awards - 45 =====
Dilutive stock options - 2
-------- --------
Diluted earnings $ 4,412 10,527 $ .42
======== ======== =====
For the nine months
ended September 30:
Earnings $ 14,881 10,476 $1.42
Nonvested stock awards - 42 =====
Dilutive stock options - 1
-------- --------
Diluted earnings $ 14,881 10,519 $1.41
======== ======== =====
Page 6 of 14
1998
------------------------------------
Income Shares Earnings
(Numerator) (Denominator) Per Share
------------------------------------
For the three months
ended September 30:
Earnings $ 4,692 10,003 $ .47
Nonvested stock awards - 28 =====
Dilutive stock options - 1
-------- --------
Diluted earnings $ 4,692 10,032 $ .47
======== ======== =====
For the nine months
ended September 30:
Earnings $ 16,509 9,999 $1.65
Nonvested stock awards - 36 =====
Dilutive stock options - 6
-------- --------
Diluted earnings $ 16,509 10,041 $1.64
======== ======== =====
Page 7 of 14
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Financial Condition
- -------------------
The decline in cash and cash equivalents from $41.4 million at
December 31, 1998 to $20.2 million at September 30, 1999 is
primarily due to the use of cash for business combinations and
increased capital expenditures during 1999, largely in the Roto-
Rooter segment. During the first nine months of 1999, other
investments declined $19.6 million to $36.2 million, other assets
(which includes a net deferred income tax benefit) increased $7.4
million to $26.0 million, and accumulated other comprehensive income
declined $11.0 million to $2.3 million. These changes were
attributable to the sale of various investments during 1999, the
decline in the market value of available-for-sale investments during
the first nine months and the related deferred tax impact of such
changes.
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, is continuing to explore long-term financing alternatives to
increase its liquidity. As a result of current negotiations,
payment of the preferred dividend due July 15, 1999 ($1,215,000) has
been deferred. On the basis of current information, management
believes the Company's investment in Vitas is fully recoverable and
that no impairment exists.
The decline in income taxes payable from $12.6 million at
December 31, 1998 to $9.9 million at September 30, 1999 is primarily
attributable to the payment of prior years' tax liabilities during
the third quarter of 1999.
At September 30, 1999 Chemed had approximately $101.2 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.
Page 8 of 14
Results of Operations
- ---------------------
Service revenues and sales and aftertax earnings by business segment
follow (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -----------------
1999 1998 1999 1998
------- -------- --------- -------
Service Revenues
and Sales
- -----------------
Roto-Rooter $ 62,160 $ 49,274 $ 176,957 $ 138,013
Patient Care 31,969 29,301 94,338 89,081
Service America 18,695 17,942 55,018 52,778
-------- ------- --------- --------
Total $112,824 $ 96,517 $ 326,313 $ 279,872
======== ======== ========= ========
Aftertax Earnings
- ------------------
Roto-Rooter $ 3,820 $ 3,043 $ 10,366 $ 7,581
Patient Care 941 931 2,565 2,465
Service America 669 579 1,879 1,687
-------- -------- --------- ---------
Total segment earnings 5,430 4,553 14,810 11,733
Corporate
Gains on sales of
investments - 1,399 2,960 7,705
Overhead (1,220) (1,468) (3,771) (3,698)
Net investing and
financing income 310 230 964 1,022
Other (108) (22) (82) (253)
-------- -------- --------- ---------
Net income $ 4,412 $ 4,692 $ 14,881 $ 16,509
======== ======== ========= =========
Data relating to (a) the increase in service revenues and sales and
(b) aftertax earnings as a percent of service revenues and sales are
set forth below:
Service Revenues Aftertax Earnings
and Sales % as a % of Revenues
Increase (Aftertax Margin)
------------------ ------------------
1999 vs. 1998 1999 1998
------------------ ------------------
Three Months Ended September 30,
- --------------------------------
Roto-Rooter 26 % 6.1% 6.2%
Patient Care 9 2.9 3.2
Service America 4 3.6 3.2
Total 17 4.8 4.7
Nine Months Ended September 30,
- -------------------------------
Roto-Rooter 28 % 5.9% 5.5%
Patient Care 6 2.7 2.8
Service America 4 3.4 3.2
Total 17 4.5 4.2
Page 9 of 14
Third Quarter 1999 versus Third Quarter 1998
- ----------------------------------------------
Service revenues and sales of the Roto-Rooter segment for
the third quarter of 1999 totalled $62,160,000, an increase of 26%
over the $49,274,000 recorded in the third quarter of 1998.
Revenues of the plumbing services business and the drain cleaning
business increased 26% and 27%, respectively, during the third
quarter of 1999. These revenues accounted for 43% and 37%,
respectively of Roto-Rooter's total revenues and sales during the
1999 period. Excluding businesses acquired in 1998 and 1999,
revenues for the third quarter of 1999 increased 15% over revenues
recorded in the 1998 period. The aftertax margin of the Roto-Rooter
segment during the third quarter of 1999 was 6.1% as compared with
6.2% during the third quarter of 1998.
Service revenues of the Patient Care segment increased 9%
from $29,301,000 in the third quarter of 1998 to $31,969,000 in the
third quarter of 1999. Excluding revenues of businesses acquired in
1998 and 1999, revenues declined 5% in 1999 as compared with
revenues in 1998, primarily due to an expected decline in Medicare
revenues resulting from the passage of the Balanced Budget Act of
1997. The aftertax margin of this segment was 2.9% in 1999 and 3.2%
in 1998.
Service revenues and sales of the Service America segment
increased 4% from $17,942,000 to $18,695,000 in the third quarter of
1999. This revenue increase was largely attributable to a 21%
increase in revenues of Service America's retail business which
accounts for approximately 22% of its overall sales. The aftertax
margin of the Service America segment increased from 3.2% in the
1998 third quarter to 3.6% in the 1999 period, largely as the result
of an increase in the gross margin.
Income from operations increased from $5,891,000 in the
third quarter of 1998 to $7,844,000 in the third quarter of 1999,
primarily as a result of higher operating profit of the Company's
three segments.
Other income-net declined from $3,691,000 in the third
quarter of 1998 to $1,128,000 in the third quarter of 1999 primarily
due to gains on the sales of investments in the 1998 period.
Net income during the third quarter of 1999 totalled
$4,412,000 ($.42 per share) as compared with $4,692,000 ($.47 per
share) in the third quarter of 1998. This decline was attributable
to gains on the sales of investments during the 1998 period.
Excluding gains from the sales of investments, income for the third
quarter of 1999 totalled $.42 per share, an increase of 27% versus
the $.33 per share for the third quarter of 1998.
Page 10 of 14
Nine Months Ended September 30, 1999 Versus September 30, 1998
- --------------------------------------------------------------
Service revenues and sales of the Roto-Rooter segment for
the first nine months of 1999 totalled $176,957,000, an increase of
28% over the $138,013,000 recorded in the first nine months of 1998.
Revenues of the plumbing services business and drain cleaning
business increased 31% and 29%, respectively, for the first nine
months of 1999. Excluding businesses acquired in 1999 and 1998,
revenues of the segment increased 14% during the first nine months
of 1999. The aftertax margin of the Roto-Rooter segment in the
first nine months of 1999 was 5.9% as compared with 5.5% during the
first nine months of 1998. This increase was attributable to
operating leverage achieved in the 1999 period.
Revenues of the Patient Care segment increased 6% from
$89,081,000 in the first nine months of 1998 to $94,338,00 in the
first nine months of 1999. Excluding revenues of businesses
acquired in 1998 and 1999, revenues for the 1999 period declined 6%
in 1999 primarily from an expected decline in Medicare revenues
resulting from the passage of the Balanced Budget Act of 1997. The
aftertax margin of this segment was 2.7% in 1999 and 2.8% in 1998.
Service revenues and sales of the Service America segment
increased 4% from $52,778,000 in the first nine months of 1998 to
$55,018,000 in the first nine months of 1999. This revenue increase
was driven by a 14% increase in the sales of Service America's
retail business during the 1999 period. The aftertax margin of the
Service America segment was 3.4% during the first nine months of
1999 as compared with 3.2% during the first nine months of 1998.
Income from operations increased from $14,882,000 during
the first nine months of 1998 to $19,835,000 during the comparable
period of 1999. This increase was a result of higher operating
profit recorded by all of the Company's segments during 1999.
Other income-net declined from $17,636,000 during the
first nine months of 1998 to $9,472,000 during the first nine months
of 1999, as a result of lower investment gains recorded in 1999.
Net income during the first nine months of 1999 totalled
$14,881,000 ($1.42 per share) as compared with $16,509,000 ($1.65
per share) for the first nine months of 1998. This decline was
attributable to larger gains on the sales of investments during the
1998 period. Excluding gains from the sales of investments in both
periods, income for the first nine months of 1999 totaled $1.14 per
share, an increase of 30% as compared with $.88 per share for 1998.
Page 11 of 14
Year 2000 Update
- ----------------
The Company's Year 2000 Project ("Project") addresses the
issue of computer systems and hardware being unable to distinguish
between the year 1900 and the year 2000.
Mission-critical systems of the Roto-Rooter, Patient Care
and Service America segments currently are believed to be Year 2000
("Y2K") ready. Critical systems of the Company's administrative
headquarters are believed to be Y2K-ready.
Approximately 80% of Patient Care's revenues are either
directly or indirectly dependent upon the electronic processing of
Medicare and Medicaid claims through fiscal intermediaries of the
Health Care Financing Administration ("HCFA"). Patient Care and the
Medicare intermediaries have modified their systems to be Y2K-ready
and those systems are now in use. Medicaid intermediaries
represented to management that their electronic claims systems will
be Y2K-ready during the fourth quarter of 1999. Medicaid-related
revenues accounted for $26.1 million, or 33% of Patient Care's
revenues in fiscal 1998.
Should the Medicaid fiscal intermediaries, HCFA or Patient
Care's major customers fail to become Y2K-ready on a timely basis,
Patient Care could experience a significant slowing of the
processing and payment of a substantial portion of its revenues.
The Company's contingency plans to continue operating
should it experience the failure of systems due to Y2K issues
include the manual and/or semi-manual processing of
transactions.
While the Company currently anticipates its mission-
critical systems will continue to operate after December 31,
1999, there can be no assurance that the failure of systems outside
its control or immediate sphere of influence will not materially
impact its operation.
Subsequent Event
- ----------------
On November 3, 1999, the Company's Board of Directors
("Board") declared a quarterly cash dividend of 53 cents per share
on its capital stock, payable December 10, 1999, to stockholders of
record on November 19, 1999. The Board also adopted a new dividend
policy for the Year 2000 and beyond. The Board expects to declare
quarterly dividends in 2000 in the range of 10 cents per share, down
from the current rate of 53 cents.
Page 12 of 14
The Board also adopted a plan to commence, an exchange
offer for a new class of high-yielding convertible trust preferred.
Under the exchange offer, shareholders may exchange up to a total of
two million common shares for shares in convertible trust preferred.
The convertible trust preferred will have an annual cash payout of
approximately $2.00 per share and will be convertible into Chemed
common stock at a conversion premium.
Safe Harbor Statement under the Private Securities Litigation Reform
Act of 1995 Regarding Forward-Looking Information
- --------------------------------------------------------------------
This report contains forward-looking statements subject to
certain risks and uncertainties that could cause actual results to
differ materially from these statements and trends. Such factors
include, but are not limited to: the state of Y2K-readiness of the
Company and its key trading partners; its investments in Vitas;
future dividend policy; and the successful implementation of a Y2K
contingency plan, if needed. Prospective information is based on
management's current expectation which can become inaccurate. The
Company's ability to deal with the unknown outcomes of these events
may affect the reliability of its projections of Y2K-readiness and
other financial matters.
Page 13 of 14
PART II -- OTHER INFORMATION
----------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
Exhibit SK 601
No. Ref. No. Description
------- -------- ------------------
1 (27) Financial Data
Schedule
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: November 10, 1999 By Naomi C. Dallob
--------------------- --------------------------
Naomi C. Dallob
Vice President and Secretary
Dated: November 10, 1999 By Arthur V. Tucker, Jr.
---------------------- -------------------------
Arthur V. Tucker, Jr.
Vice President and
Controller (Principal
Accounting Officer)
Page 14 of 14