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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, 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 10,448,323 Shares July 31, 1999
$1 Par Value
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Page 1 of 16
CHEMED CORPORATION AND
SUBSIDIARY COMPANIES
Index
Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheet -
June 30, 1999 and
December 31, 1998 3
Consolidated Statement of Income -
Three months and six months ended
June 30, 1999 and 1998 4
Consolidated Statement of Cash Flows
Six months ended
June 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 - 16
Page 2 of 16
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
June 30, December 31,
1999 1998
-------- ----------
ASSETS
Current assets
Cash and cash equivalents $ 22,574 $ 41,358
Accounts receivable, less allowances of $3,425
(1998 - $3,601) 49,450 45,260
Inventories 9,652 9,828
Statutory deposits 16,041 16,698
Other current assets 12,322 11,487
---------- ----------
Total current assets 110,039 124,631
Other investments 37,458 55,778
Properties and equipment, at cost less accumulated
depreciation of $49,251 (1998 - $44,450) 69,713 61,721
Identifiable intangible assets less accumulated
amortization of $5,980 (1998 - $5,369) 12,925 12,960
Goodwill less accumulated amortization of $24,178
(1998 - $21,879) 161,966 155,965
Other assets 25,786 18,649
---------- ----------
Total Assets $ 417,887 $ 429,704
========== ==========
LIABILITIES
Current liabilities
Accounts payable $ 10,270 $ 10,318
Current portion of long-term debt 2,475 4,393
Income taxes 12,587 12,563
Deferred contract revenue 26,550 26,571
Other current liabilities 36,131 37,253
---------- ----------
Total current liabilities 88,013 91,098
Long-term debt 79,770 80,407
Other liabilities and deferred income 34,683 34,843
---------- ----------
Total Liabilities 202,466 206,348
---------- ----------
STOCKHOLDERS' EQUITY
Capital stock-authorized 15,000,000 shares $1 par;
issued 13,659,140 (1998 - 13,605,481) shares 13,659 13,605
Paid-in capital 164,407 162,252
Retained earnings 146,261 146,961
Treasury stock - 3,215,956 (1998 - 3,190,757) shares, at cost (98,032) (97,237)
Unearned compensation - ESOPs (19,274) (20,558)
Deferred compensation payable in company stock 5,262 5,071
Accumulated other comprehensive income 3,138 13,262
---------- ----------
Total Stockholders' Equity 215,421 223,356
---------- ----------
Total Liabilities and Stockholders' Equity $ 417,887 $ 429,704
========== ==========
See accompanying notes to unaudited financial statements.
Page 3 of 16
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
UNAUDITED
(in thousands except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- ---------
Service revenues and sales $109,410 $ 94,943 $213,489 $183,355
-------- -------- -------- --------
Cost of services provided and
cost of goods sold 67,129 58,361 131,137 114,237
Selling and marketing expenses 9,842 8,316 19,608 15,443
General and administrative expenses 23,143 20,340 44,626 39,400
Depreciation 3,097 2,680 6,127 5,284
--------- --------- --------- ---------
Total costs and expenses 103,211 89,697 201,498 174,364
--------- --------- --------- ---------
Income from operations 6,199 5,246 11,991 8,991
Interest expense (1,507) (1,841) (3,101) (3,599)
Other income, net 3,735 5,612 8,344 13,945
--------- --------- --------- ---------
Income before income taxes 8,427 9,017 17,234 19,337
Income taxes (3,313) (3,451) (6,765) (7,520)
--------- --------- --------- ---------
Net Income $ 5,114 $ 5,566 $ 10,469 $ 11,817
========= ========= ========= =========
Earnings Per Common Share
Net income $ .49 $ .56 $ 1.00 $ 1.18
========= ========= ========= =========
Average number of shares outstanding 10,473 10,005 10,473 9,997
========= ========= ========= =========
Diluted Earnings per Common Shares
Net income $. .49 $ .55 $ 1.00 $ 1.17
========= ========= ========= =========
Average number of shares outstanding 10,512 10,057 10,515 10,065
========= ========= ========= =========
Cash Dividends Paid Per Share $ .53 $ .53 $ 1.06 $ 1.06
========= ========= ========= =========
See accompanying notes to unaudited financial statements.
Page 4 of 16
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
(in thousands)
Six Months Ended
June 30,
---------------------
1999 1998
--------- ---------
Cash Flows From Operating Activities
Net income $ 10,469 $ 11,817
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,820 8,581
Gains on sale of investments (4,662) (10,014)
Provision for uncollectible accounts receivable 155 572
Provision for deferred income taxes (125) 1,403
Changes in operating assets and liabilities,
excluding amounts acquired in business combinations
Increase in accounts receivable (5,780) (1,837)
Increase in inventories and other current assets (402) (1,751)
Decrease/(increase) in statutory deposits 657 (282)
Decrease/(increase) in accounts payable, deferred
contract revenue and other current liabilities 703 (2,995)
Increase in income taxes 570 1,312
Other - net (1,166) (1,566)
--------- ---------
Net cash provided by operating activities 10,239 5,240
--------- ---------
Cash Flows From Investing Activities
Capital expenditures (13,168) (9,789)
Business combinations--net of cash acquired (11,215) (8,418)
Proceeds from sale of investments 7,702 11,259
Net outflows from sale of discontinued operations (1,426) (4,465)
Purchase of investments (297) (642)
Other-net 2,012 1,348
--------- ---------
Net cash used by investing activities (16,392) (10,707)
--------- ---------
Cash Flows From Financing Activities
Dividends paid (11,233) (10,712)
Retirement of long-term debt (1,479) (870)
Other - net 81 118
--------- ---------
Net cash used by financing activities (12,631) (11,464)
--------- ---------
Decrease In Cash And Cash Equivalents (18,784) (16,931)
Cash and cash equivalents at beginning of period 41,358 70,958
--------- ---------
Cash and cash equivalents at end of period $ 22,574 $ 54,027
========= =========
See accompanying notes to unaudited financial statements.
Page 5 of 16
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 $2,481,000,
$2,122,000, $345,000 and $8,471,000 for the three months
ended June 30, 1999 and 1998 and for the six months ended
June 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 June 30:
Earnings $ 5,114 10,473 $ .49
Nonvested stock awards - 38 =====
Dilutive stock options - 1
-------- --------
Diluted earnings $ 5,114 10,512 $ .49
======== ======== =====
For the six
months ended June 30:
Earnings $ 10,469 10,473 $1.00
Nonvested stock awards - 41 =====
Dilutive stock options - 1
-------- --------
Diluted earnings $ 10,469 10,515 $1.00
======== ======== =====
Page 6 of 16
1998
------------------------------------
Income Shares Earnings
(Numerator) (Denominator) Per Share
------------------------------------
For the three
months ended June 30:
Earnings $ 5,566 10,005 $ .56
Nonvested stock awards - 36 =====
Dilutive stock options - 16
-------- --------
Diluted earnings $ 5,566 10,057 $ .55
======== ======== =====
For the six
months ended June 30:
Earnings $ 11,817 9,997 $1.18
Nonvested stock awards - 40 =====
Dilutive stock options - 28
-------- --------
Diluted earnings $ 11,817 10,065 $1.17
======== ======== =====
Page 7 of 16
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 $22.6 million at June 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 six months of 1999, other investments declined
$18.3 million to $37.5 million, other assets (which includes a net
deferred income tax benefit) increased $7.1 million to $25.8
million, and accumulated other comprehensive income declined $10.1
million to $3.1 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 six 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.
At June 30, 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
- ---------------------
Service revenues and sales and aftertax earnings by business
segment follow (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -----------------
1999 1998 1999 1998
------- -------- --------- -------
Service Revenues
and Sales
- -----------------
Roto-Rooter $ 58,591 $ 47,060 $ 114,797 $ 88,739
Patient Care 32,157 29,980 62,369 59,780
Service America 18,662 17,903 36,323 34,836
-------- ------- --------- --------
Total $109,410 $ 94,943 $ 213,489 $ 183,355
======== ======== ========= ========
Page 8 of 16
Aftertax Earnings
- ------------------
Roto-Rooter $ 3,349 $ 2,446 $ 6,546 $ 4,538
Patient Care 972 913 1,624 1,534
Service America 671 586 1,210 1,108
-------- -------- --------- ---------
Total segment earnings 4,992 3,945 9,380 7,180
Corporate
Gains on sales of
investments 1,026 2,429 2,960 6,306
Overhead (1,249) (1,152) (2,551) (2,230)
Net investing and
financing income 323 407 654 792
Other 22 (63) 26 (231)
-------- -------- --------- ---------
Net income $ 5,114 $ 5,566 $ 10,469 $ 11,817
======== ======== ========= =========
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:
Aftertax
Service Revenues Earnings as a
and Sales % % of Revenues
Increase/(Decrease) (Aftertax Margin)
------------------ ------------------
1999 vs. 1998 1999 1998
------------------ ------------------
Three Months Ended June 30,
- ---------------------------
Roto-Rooter 25 % 5.7% 5.2%
Patient Care 7 3.0 3.0
Service America 4 3.6 3.3
Total 15 4.6 4.2
Six Months Ended June 30,
- ---------------------------
Roto-Rooter 29 % 5.7% 5.1%
Patient Care 4 2.6 2.6
Service America 4 3.3 3.2
Total 16 4.4 3.9
Page 9 of 16
Second Quarter 1999 versus Second Quarter 1998
- ----------------------------------------------
Service revenues and sales of the Roto-Rooter segment for
the second quarter of 1999 totalled $58,591,000, an increase of 25%
over the $47,060,000 recorded in the second quarter of 1998.
Revenues of the plumbing services business and the drain cleaning
business increased 28% and 27%, respectively, for the second quarter
of 1999, as compared with the revenues for the second quarter of
1998. These revenues accounted for 43% and 39%, respectively of
Roto-Rooter's total revenues and sales during the 1999 period.
Excluding businesses acquired in 1998 and 1999, revenues for the
second quarter of 1999 increased 13% over revenues recorded in the
1998 period. The aftertax margin of the Roto-Rooter segment during
the second quarter of 1999 was 5.7% as compared with 5.2% during the
second 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.
Service revenues of the Patient Care segment increased 7%
from $29,980,000 in the second quarter of 1998 to $32,157,000 in the
second quarter of 1999. Excluding revenues of businesses acquired
in 1998 and 1999, revenues declined 6% 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 3.0% in both periods.
Service revenues and sales of the Service America segment
increased 4% from $17,903,000 to $18,662,000 in the second quarter
of 1999. This revenue increase was largely attributable to a 12%
increase in revenues of Service America's retail business which
accounts for approximately 23% of its overall sales. The aftertax
margin of the Service America segment increased from 3.3% in the
1998 second quarter to 3.6% in the 1999 period, largely as the
result of an increase in the gross margin.
Income from operations increased from $5,246,000 in the
second quarter of 1998 to $6,199,000 in the second quarter of 1999,
primarily as a result of higher operating profit of the Company's
three segments.
Other income-net declined from $5,612,000 in the second
quarter of 1998 to $3,735,000 in the second quarter of 1999
primarily due to larger gains on the sales of investments in the
1998 period.
Net income during the second quarter of 1999 totalled
$5,114,000 ($.49 per share) as compared with $5,566,000 ($.56 per
share) in the second quarter 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,
Page 10 of 16
income for the second quarter of 1999 totalled $.39 per share, an
increase of 26% versus the $.31 per share for the second quarter of
1998.
Six Months Ended June 30, 1999 Versus June 30, 1998
- ---------------------------------------------------
Service revenues and sales of the Roto-Rooter segment for
the first six months of 1999 totalled $114,797,000, an increase of
29% over the $88,739,000 recorded in the first six months of 1998.
Revenues of the plumbing services business and drain cleaning
business increased 35% and 30%, respectively, for the first six
months of 1999. Excluding businesses acquired in 1999 and 1998,
revenues of the segment increased 14% during the first six months of
1999. The aftertax margin of the Roto-Rooter segment in the first
six months of 1999 was 5.7% as compared with 5.1% during the first
six months of 1998. This increase was attributable to operating
leverage achieved in the 1999 period.
Revenues of the Patient Care segment increased 4% from
$59,780,000 in the first six months of 1998 to $62,369,00 in the
first six months of 1999. Excluding revenues of businesses acquired
in 1998 and 1999, revenues for the 1999 period declined 7% 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 2.6% in 1999 and 1998.
Service revenues and sales of the Service America segment
increased 4% from $34,836,000 in the first six months of 1998 to
$36,323,000 in the first six months of 1999. This revenue increase
was driven by a 11% increase in the sales of Service America's
retail business, during the 1999 period. The aftertax margin of the
Service America segment was 3.3% during the first six months of 1999
as compared with 3.2% during the first six months of 1998.
Income from operations increased from $8,991,000 during
the first six months of 1998 to $11,991,000 during the comparable
period of 1999. This increase was primarily a result of higher
operating profit recorded by all of the Company's segments during
1999.
Other income-net declined from $13,945,000 during the
first six months of 1998 to $8,344,000 during the first six month of
1999, as a result of lower investment gains recorded in 1999.
Net income during the first six months of 1999 totalled
$10,469,000 ($1.00 per share) as compared with $11,817,000 ($1.18
per share) for the first six months of 1998. This decline was
attributable to larger gains on the sales of investments during the
Page 11 of 16
1998 period. Excluding gains from the sales of investments in both
periods, income for the first six months of 1999 totaled $.72 per
share, an increase of 31% as compared with $.55 per share for 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.
Mission-critical systems of the Roto-Rooter and Service
America segments 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.
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 systems will be Y2K-ready
during September 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 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.
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 12 of 16
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 13 of 16
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 17, 1999.
(b) The names of each director elected at this Annual Meeting
are as follows:
Edward L. Hutton Sandra E. Laney
Rick L. Arquilla Kevin J. McNamara
James H. Devlin Spencer S. Lee
Charles H. Erhart, Jr. John M. Mount
Joel F. Gemunder Timothy S. O'Toole
Patrick P. Grace Donald E. Saunders
Thomas C. Hutton Paul C. Voet
Walter L. Krebs George J. Walsh, III
(c) The stockholders approved and adopted the 1999 Stock
Incentive Plan. 8,228,349 votes were cast in favor of the
proposal, 842,085 votes were cast against it, 136,843
votes abstained, and 0 votes were broker non-votes.
(d) The stockholders ratified the Board of Directors'
selection of PricewaterhouseCoopers LLP as independent
accountants for the Company and its consolidated
subsidiaries for the year 1999. 9,168,882 votes were cast
in favor of the proposal, 45,841 votes were cast against
it, 52,554 votes abstained, and three were broker non-
votes.
(e) The stockholders then voted on stockholder proposal that
the Board of Directors have a majority of outside members.
2,463,327 votes were cast for the proposal, 4,441,105
votes were cast against it, 275,728 votes abstained, and
2,087,117 votes were broker non-votes.
Page 14 of 16
With respect to the election of directors, the number of votes
cast for each nominee was as follows:
Votes For Withheld
--------- --------
E.L. Hutton 8,914,223 353,054
R.L. Arquilla 8,973,937 293,340
J.H. Devlin 8,975,515 291,762
C.H. Erhart, Jr. 8,955,147 312,130
J.F. Gemunder 8,996,329 270,948
P.P. Grace 8,997,579 269,698
T.C. Hutton 8,964,794 302,483
W.L. Krebs 8,974,607 292,670
S.E. Laney 8,994,006 273,271
S.S. Lee 8,982,099 285,178
K.J. McNamara 8,973,360 293,917
J.M. Mount 8,984,770 282,507
T.S. O'Toole 8,980,389 286,888
D.E. Saunders 8,994,434 272,843
P.C. Voet 8,884,916 382,361
G.J. Walsh III 9,014,748 252,529
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
Exhibit SK 601
No. Ref. No. Description
------- -------- ------------------
1 (27) Financial Data
Schedule
Page 15 of 16
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: August 11, 1999 By Naomi C. Dallob
--------------------- --------------------------
Naomi C. Dallob
Vice President and Secretary
Dated: August 11, 1999 By Arthur V. Tucker, Jr.
---------------------- -------------------------
Arthur V. Tucker, Jr.
Vice President and
Controller (Principal
Accounting Officer)
Page 16 of 16
5
0000019584
CHEMED CORPORATION
1,000
6-MOS
DEC-31-1999
JAN-01-1999
JUN-30-1999
22,574
0
52,875
(3,425)
9,652
110,039
118,964
(49,251)
417,887
88,013
79,770
0
0
13,659
201,762
417,887
0
213,489
0
131,137
0
155
3,101
17,234
6,765
10,469
0
0
0
10,469
1.00
1.00
