SEC Filing | Chemed Corporation

- ------------------------------------------------------------------- - ------------------------------------------------------------------ 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, 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 10,453,612 Shares April 30, 1999 $1 Par Value - ------------------------------------------------------------------ - ------------------------------------------------------------------ Page 1 of 13

CHEMED CORPORATION AND SUBSIDIARY COMPANIES Index Page No. PART I. FINANCIAL INFORMATION: Item 1. Financial Statements Consolidated Balance Sheet - March 31, 1999 and December 31, 1998 3 Consolidated Statement of Income - Three months ended March 31, 1999 and 1998 4 Consolidated Statement of Cash Flows - Three months ended March 31, 1999 and 1998 5 Notes to Unaudited Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 - 11 PART II. OTHER INFORMATION 12 Page 2 of 13

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 March 31, December 31, 1999 1998 ---------- ---------- ASSETS Current assets Cash and cash equivalents $ 33,580 $ 41,358 Accounts receivable, less allowances of $3,422 (1998 - $3,601) 50,636 45,260 Inventories 9,910 9,828 Statutory deposits 16,821 16,698 Other current assets 12,508 11,487 ---------- ---------- Total current assets 123,455 124,631 Other investments 41,824 55,778 Properties and equipment, at cost less accumulated depreciation of $46,925 (1998 - $44,450) 63,250 61,721 Identifiable intangible assets less accumulated amortization of $5,671 (1998 - $5,369) 12,883 12,960 Goodwill less accumulated amortization of $23,018 (1998 - $21,879) 157,728 155,965 Other assets 23,207 18,649 ---------- ---------- Total Assets $ 422,347 $ 429,704 ========== ========== LIABILITIES Current liabilities Accounts payable $ 9,128 $ 10,318 Current portion of long-term debt 2,863 4,393 Income taxes 15,646 12,563 Deferred contract revenue 27,188 26,571 Other current liabilities 35,805 37,253 ---------- ---------- Total current liabilities 90,630 91,098 Long-term debt 81,063 80,407 Other liabilities 34,247 34,843 ---------- ---------- Total Liabilities 205,940 206,348 ---------- ---------- STOCKHOLDERS' EQUITY Capital stock-authorized 15,000,000 shares $1 par; issued 13,661,997 shares (1998 - 13,605,481 shares) 13,662 13,605 Paid-in capital 164,191 162,252 Retained earnings 146,733 146,961 Treasury stock - 3,207,941 shares (1998 - 3,190,757 shares), at cost (97,770) (97,237) Unearned compensation (21,331) (20,558) Deferred compensation payable in company stock 5,151 5,071 Accumulated other comprehensive income 5,771 13,262 ---------- ---------- Total Stockholders' Equity 216,407 223,356 ---------- ---------- Total Liabilities and Stockholders' Equity $ 422,347 $ 429,704 ========== ========== See accompanying notes to unaudited financial statements. Page 3 of 13

CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF INCOME UNAUDITED (in thousands except per share data) Three Months Ended March 31, ----------------------- 1999 1998 --------- --------- Service revenues and sales $104,079 $ 88,412 --------- --------- Cost of services provided and cost of goods sold 64,008 55,876 Selling and marketing expenses 9,766 7,127 General and administrative expenses 21,483 19,060 Depreciation 3,030 2,604 --------- --------- Total costs and expenses 98,287 84,667 --------- --------- Income from operations 5,792 3,745 Interest expense (1,594) (1,758) Other income - net 4,609 8,333 --------- --------- Income before income taxes 8,807 10,320 Income taxes (3,452) (4,069) --------- --------- Net Income $ 5,355 $ 6,251 ========= ========= Earnings Per Common Share Net income $ .51 $ .63 ========= ========= Average number of shares outstanding 10,471 9,989 ========= ========= Diluted Earnings Per Common Share Net income $ .51 $ .63 ========= ========= Average number of shares outstanding 10,516 10,090 ========= ========= Cash Dividends Paid Per Share $ .53 $ .53 ========= ========= See accompanying notes to unaudited financial statements. Page 4 of 13

CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF CASH FLOWS UNAUDITED (in thousands) Three Months Ended March 31, ----------------------- 1999 1998* --------- --------- Cash Flows From Operating Activities Net income $ 5,355 $ 6,251 Adjustments to reconcile net income to net cash provided by operating activities: Gains on sale of investments (3,068) (6,163) Depreciation and amortization 4,794 4,771 Provision for uncollectible accounts receivable 93 276 Provision for deferred income taxes (24) 547 Changes in operating assets and liabilities, excluding amounts acquired in business combinations Increase in accounts receivable (5,119) (619) Increase in inventories and other current assets (1,020) (398) (Increase)/decrease in statutory deposits (123) (140) Increase/(decrease) in accounts payable, deferred contract revenue and other current liabilities 869 478 Increase in income taxes 3,333 3,368 Other - net (603) (506) --------- --------- Net cash provided by operating activities 4,487 7,865 --------- --------- Cash Flows From Investing Activities Business combinations, net of cash acquired (5,965) (1,811) Proceeds from sale of investments 5,793 6,798 Capital expenditures (5,726) (4,363) Net proceeds from sale of discontinued operations (686) (1,019) Purchase of investments (297) (642) Other - net 1,405 263 --------- --------- Net cash provided/(used) by investing activities (5,476) (774) --------- --------- Cash Flows From Financing Activities Dividends paid (5,616) (5,355) Repayment of long-term debt (1,259) (92) Other - net 86 218 --------- --------- Net cash provided/(used) by financing activities (6,789) (5,229) --------- --------- Increase/(Decrease) In Cash And Cash Equivalents (7,778) 1,862 Cash and cash equivalents at beginning of period 41,358 70,958 --------- --------- Cash and cash equivalents at end of period $ 33,580 $72,820 ========= ========= *Reclassified to conform to 1999 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, 1998. 2. Earnings per common share are computed using the weighted average number of shares of capital stock outstanding. Diluted earnings per common share reflect the dilutive impact of outstanding stock options and nonvested stock awards. 3. The Company had total comprehensive income/(loss) of $(2,136,000) and $6,349,000 for the three months ended March 31, 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. Page 6 of 13

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition - ------------------- During the first quarter of 1999, other investments declined $13,954,000 to $41,824,000, other assets (which includes a net deferred income tax benefit) increased $4,558,000 to $23,207,000, and accumulated other comprehensive income declined $7,491,000 to $5,771,000. 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 quarter 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. 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, 1999 Chemed had approximately $106.2 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 - --------------------- Sales and service revenues and aftertax earnings by business segment follow (in thousands): Three Months Ended March 31, ------------------- 1999 1998 ------- -------- Sales and Service Revenues - ----------------- Roto-Rooter $ 56,206 $ 41,679 Patient Care 30,212 29,800 Service America 17,661 16,933 -------- ------- Total $104,079 $ 88,412 ======== ======== Page 7 of 13

Aftertax Earnings - ---------------- Roto-Rooter $ 3,197 $ 2,092 Patient Care 652 621 Service America 539 522 -------- -------- Total segment earnings 4,388 3,235 Corporate Gains on sales of investments 1,934 3,877 Overhead (1,302) (1,078) Net investing and financing income/(expense) 331 385 Other 4 (168) -------- -------- Net income $ 5,355 $ 6,251 ======== ======== 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) ---------------- ------------------ 1999 vs. 1998 1999 1998 ---------------- ------------------ Roto-Rooter 35 % 5.7% 5.0% Patient Care 1 2.2 2.1 Service America 4 3.1 3.1 Total 18 4.2 3.7 Service revenues and sales for the Roto-Rooter segment for the first quarter of 1999 totalled $56,206,000, an increase of 35% over the $41,679,000 recorded in the first quarter of 1998. Revenues of the plumbing services business and the drain cleaning business increased 43% and 32%, respectively, for the first quarter of 1999, as compared with revenues recorded in the first quarter of 1998. These revenues accounted for 41% and 42%, respectively, of Roto-Rooter's total service revenues and sales during the 1999 period. Excluding businesses acquired in 1998 and 1999, revenues of this segment increased 15% during the first quarter of 1999. The aftertax margin of the Roto-Rooter segment in the first quarter of 1999 was 5.7% as compared with 5.0% during the first quarter of 1998. This increase was attributable to operating leverage as selling and marketing and general and administrative expenses increased at lesser rates than did service revenues and sales. Page 8 of 13

Service revenues of the Patient Care segment increased 1% from $29,800,000 during the first quarter of 1998 to $30,212,000 in the first quarter of 1999. Excluding the revenues of businesses acquired in 1998 and 1999, revenues declined 7% in 1999 as compared with revenues in 1998, primarily due to an expected decline in medicare and medicaid revenues resulting from the passage of the Balanced Budget Act of 1997. The aftertax margin of this segment was 2.2% in 1999 versus 2.1% in 1998. Service revenues and sales of the Service America segment increased 4% from $16,933,000 in the first quarter of 1998 to $17,661,000 in the first quarter of 1999. This revenue increase was driven by a 9% increase in the revenues of Service America's retail business, which accounted for approximately 20% of its overall sales in the 1999 period. The aftertax margin of the Service America segment was 3.1% in both 1998 and 1999. Income from operations increased from $3,745,000 in the first three months of 1998 to $5,792,000 during the first three months of 1999. This increase was primarily attributable to higher operating profit of the Roto-Rooter segment. Other income--net declined from $8,333,000 in the first quarter of 1998 to $4,609,000 in the first quarter of 1999, primarily as a result of lower investment gains recorded in the 1999 period. During the first quarter of 1999 the Company recorded gains on the sales of investments aggregating $3,068,000 as compared with $6,163,000 during the first quarter of 1998. Lower interest income for 1999 as compared with the 1998 first quarter also contributed to the decline in other income. The Company's effective income tax rate during the first quarter of 1999 was 39.2% as compared with 39.4% during the first three months of 1998. Net income during the first quarter of 1999 totalled $5,355,000 ($.51 per share) as compared with $6,251,000 ($.63 per share) in the first quarter of 1998. This decline was primarily attributable to larger gains on the sales of investments in the 1998 period. Excluding gains on the sales of investments in both periods, net income for the first quarter of 1999 totalled $.33 per share as compared with $.24 per share during the first quarter of 1998. 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. Page 9 of 13

Mission-critical systems of the Roto-Rooter and Service America segments are currently are believed to be Year 2000 ("Y2K") ready as are the majority of Patients Care's internal systems. It is anticipated that the remainder of Patient Care's systems will be Y2K- ready by the end of the third quarter. Systems currently not Y2K-ready are being upgraded or replaced by software developed in house and in some instances by installing upgrades of off-the-shelf software. Critical systems at the Company's administrative headquarters are believed to be Y2K- ready. Verification and testing of that readiness will be performed during the next three months. As part of the Project, Patient Care and Service America are contacting major trading partners to ascertain that their systems are Y2K-ready or will be ready within an acceptable time frame. Due to the service-oriented, retail nature of its business, Roto-Rooter is not contacting trading partners, but is responding to its vendors' requests for information regarding Y2K-readiness. Patient Care has begun its evaluation of its trading partners' readiness, and not all significant partners have been contacted or have responded. 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. During 1998, Medicaid intermediaries orally represented to management that their systems will be Y2K-ready prior to January 1, 2000. Medicaid-related revenues accounted for $26.1 million 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 is in the beginning stages of developing a formalized contingency plan to continue operating should it experience the failure of systems due to Y2K issues or should major trading partners experience such a failure. Contingency plans currently include the manual and/or semi-manual processing of transactions. The need for a more detailed, formalized plan will be evaluated later in the year when an updated evaluation of Y2K-readiness is available. 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. Page 10 of 13

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; the ability of the Patient Care operation to successfully implement remaining Y2K changes to its internal systems; and the successful development 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 11 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. ------- -------- ------------------ ---------- 1 (11) Statement re: Computation of Per Share Earnings E-1 2 (27) Financial Data Schedule E-2 (b) Reports on Form 8-K ------------------- On February 4, 1999, the Company filed a report on Form 8-K describing two pooling-of-interests business combinations completed in the fourth quarter of 1998. This filing included the Company's unaudited consolidated statement of income for the three and twelve month periods ended December 31, 1997 and 1998. 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, 1999 By Naomi C. Dallob ---------------------- ------------------------- Naomi C. Dallob, Vice President and Secretary Dated: May 10, 1999 By Arthur V. Tucker, Jr. ---------------------- ------------------------- Arthur V. Tucker, Jr. Vice President and Controller (Principal Accounting Officer) Page 12 of 13

CHEMED CORPORATION AND SUBSIDIARY COMPANIES COMPUTATION OF PER SHARE EARNINGS (in thousands except per share data) EXHIBIT 11 Net Income --------------------- Three Months Ended March 31, --------------------- 1999 1998 ---------- ---------- Computation of Earnings Per Common Share - ---------------------------------------- Reported income $ 5,355 $ 6,251 ======= ======= Average number of shares outstanding 10,471 9,989 ======= ======= Earnings per common share $ .51 $ .63 ======= ======= Computation of Diluted Earnings Per Common Share - ------------------------------------------------ Reported income $ 5,355 $ 6,251 ======= ======= Average number of shares outstanding 10,471 9,989 Effect of nonvested stock awards 43 44 Effect of unexercised stock options 2 57 ------- ------- Average number of shares used to compute diluted earnings per common share 10,516 10,090 ======= ======= Diluted earnings per common share $ .51 $ .62 ======= ======= E - 1 Page 13 of 13

5 THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q OF CHEMED CORPORATION FOR THE QUARTER ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000019584 CHEMED CORPORATION 1,000 U.S. DOLLARS 3-MOS DEC-31-1999 MAR-31-1999 1.0 33,580 0 54,058 (3,422) 9,910 123,455 110,175 (46,925) 416,565 90,630 81,063 0 0 13662 202,745 416,565 0 104,079 0 64,008 0 93 1,594 8,807 3,462 5,355 0 0 0 5,355 0.51 0.51