CHEMED CORPORATION'S THIRD QUARTER 10-Q FOR 2000
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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 September 30, 2000
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
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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 10,010,141 Shares October 31, 2000
$1 Par Value
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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, 2000
December 31, 1999 3
Consolidated Statement of Income -
Three months and nine months ended
September 30, 2000 and 1999 4
Consolidated Statement of Cash Flows
Nine months ended
September 30, 2000 and 1999 5
Notes to Unaudited Financial Statements 6 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9 - 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,
2000 1999
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ASSETS
Current assets
Cash and cash equivalents $ 8,153 $ 17,282
Accounts receivable, less allowances of $4,532
(1999 - $4,554) 54,029 55,889
Inventories 10,540 9,794
Statutory deposits 14,615 14,254
Other current assets 18,281 14,583
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Total current assets 105,618 111,802
Other investments 36,540 37,849
Properties and equipment, at cost less accumulated
depreciation of $62,662 (1999 - $55,410) 73,141 71,728
Identifiable intangible assets less accumulated
amortization of $7,448 (1999 - $6,558) 11,875 12,597
Goodwill less accumulated amortization of $30,278
(1999 - $26,545) 170,611 163,257
Other assets 25,595 24,070
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Total Assets $ 423,380 $ 421,303
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LIABILITIES
Current liabilities
Accounts payable $ 9,595 $ 11,246
Current portion of long-term debt 14,125 11,719
Income taxes 11,161 8,714
Deferred contract revenue 26,339 25,630
Other current liabilities 38,853 41,119
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Total current liabilities 100,073 98,428
Long-term debt 68,516 78,580
Other liabilities 31,341 32,251
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Total Liabilities 199,930 209,259
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MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
SECURITIES OF THE CHEMED CAPITAL TRUST 15,067 -
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STOCKHOLDERS' EQUITY
Preferred stock-authorized 700,000 shares without par
value; none issued
Capital stock-authorized 15,000,000 shares $1 par;
issued 13,888,921 (1999 - 13,664,892) shares 13,889 13,665
Paid-in capital 170,525 164,549
Retained earnings 156,963 144,322
Treasury stock-4,030,140(1999 - 3,268,783) shares, at cost (120,368) (99,437)
Unearned compensation (18,064) (17,056)
Deferred compensation payable in company stock 5,493 5,340
Accumulated other comprehensive income 2,790 3,392
Notes receivable for shares sold (2,845) (2,731)
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Total Stockholders' Equity 208,383 212,044
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Total Liabilities and Stockholders' Equity $ 423,380 $ 421,303
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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,
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2000 1999 2000 1999
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Service revenues and sales $123,781 $114,428 $370,533 $331,548
-------- -------- -------- --------
Cost of services provided and
cost of goods sold 74,538 70,038 224,539 203,470
Selling and marketing expenses 13,378 10,413 35,930 30,582
General and administrative expenses 24,253 22,710 74,022 68,111
Depreciation 3,775 3,423 11,483 9,550
-------- -------- -------- --------
Total costs and expenses 115,944 106,584 345,974 311,713
-------- -------- -------- --------
Income from operations 7,837 7,844 24,559 19,835
Interest expense (1,664) (1,448) (5,233) (4,549)
Distributions on preferred securities (282) - (856) -
Other income, net 1,916 1,128 7,105 9,472
-------- -------- -------- --------
Income before income taxes 7,807 7,524 25,575 24,758
Income taxes (3,172) (3,112) (9,925) (9,877)
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Net Income $ 4,635 $ 4,412 $ 15,650 $ 14,881
======== ======== ======== ========
Earnings Per Common Share
Net income $ .48 $ .42 $ 1.59 $ 1.42
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Average number of shares
outstanding 9,742 10,480 9,867 10,476
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Diluted Earnings per Common Shares
Net income $. .47 $ .42 $ 1.57 $ 1.41
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Average number of shares
outstanding 10,253 10,527 10,319 10,519
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Cash Dividends Paid Per Share $ .10 $ .53 $ .30 $ 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,
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2000 1999*
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Cash Flows From Operating Activities
Net income $ 15,650 $ 14,881
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 17,673 15,014
Gains on sale of investments (2,662) (4,662)
Provision for deferred income taxes 1,206 445
Provision for uncollectible accounts receivable 1,202 231
Changes in operating assets and liabilities,
excluding amounts acquired in business combinations
(Increase)/decrease in accounts receivable 608 (8,843)
(Increase)/decrease in inventories and other
current assets (4,822) 691
(Increase)/decrease in statutory deposits (361) 2,548
Increase/(decrease) in accounts payable, deferred
contract revenue and other current liabilities (930) 3,070
Increase/(decrease) in income taxes 3,376 (3,927)
Other - net 959 (413)
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Net cash provided by operating activities 31,899 19,035
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Cash Flows From Investing Activities
Capital expenditures (13,285) (18,031)
Business combinations--net of cash acquired (12,495) (15,811)
Proceeds from sale of investments 3,424 7,702
Net outflows from discontinued operations (2,804) (2,009)
Other-net 10 1,802
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Net cash used by investing activities (25,150) (26,347)
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Cash Flows From Financing Activities
Repayment of long-term debt (7,090) (1,700)
Purchase of treasury stock (5,395) (694)
Dividends paid (3,022) (16,853)
Proceeds from long-term debt - 5,000
Other - net (371) 398
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Net cash used by financing activities (15,878) (13,849)
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Decrease In Cash And Cash Equivalents (9,129) (21,161)
Cash and cash equivalents at beginning of period 17,282 41,358
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Cash and cash equivalents at end of period $ 8,153 $ 20,197
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*Reclassified to conform to 2000 presentation.
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, 1999.
2. The Company's Exchange Offer, whereby stockholders were
permitted to exchange up to 2,000,000 shares of capital stock
for Mandatorily Redeemable Convertible Preferred Securities
("Trust Securities") of the wholly-owned Chemed Capital Trust
("Trust") on a one-for-one basis, was completed effective
February 1, 2000. As a result 575,503 shares of capital
stock were exchanged for the same number of Trust Securities
with a redemption value of $15,538,581 ($27 per security).
The Trust Securities pay an annual cash distribution of $2.00
per security (payable at the quarterly rate of $.50 per
security commencing March 2000) and are convertible into
capital stock at a price of $37 per security. The Trust
Securities mature in 30 years and are callable three years
after issuance.
The sole assets of the Trust are Junior Subordinated
Debentures ("Debentures") of the Company in the principal
amount of $16,019,181. The Debentures mature in March 2030
and the interest rate on the Debentures is $2.00 per annum
per $27 principal amount. In February 2000, the Company
executed an Indenture relating to the Debentures, an Amended
and Restated Declaration of Trust relating to the Trust
Securities and a Guarantee Agreement for the benefit of the
holders of the Trust Securities (collectively "Back-up
Undertakings"). Considered together, the Back-up
Undertakings constitute a full and unconditional guarantee by
the Company of the Trust's obligations under the Trust
Securities.
Page 6 of 14
3. Sales and service revenues and aftertax earnings by business
segment follow below (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
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2000 1999 2000 1999
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Revenues
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Roto-Rooter $ 68,678 $ 62,160 $206,208 $176,957
Patient Care 34,498 31,969 101,096 94,338
Service America 18,476 18,695 56,691 55,018
Cadre Computer 2,129 1,604 6,538 5,235
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Total $123,781 $114,428 $370,533 $331,548
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Aftertax Earnings
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Roto-Rooter $ 5,084 $ 3,820 $ 14,673 $ 10,366
Patient Care 487 941 1,439 2,565
Service America 186 669 1,027 1,879
Cadre Computer (73) (108) 37 (82)
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Total segment earnings 5,684 5,322 17,176 14,728
Corporate
Gains on sales of investments - - 1,799 2,960
Overhead (1,154) (1,220) (3,726) (3,771)
Net investing and financing
income 105 310 401 964
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Net income $ 4,635 $ 4,412 $ 15,650 $ 14,881
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4. Earnings per common share are computed using the weighted
average number of shares of capital stock outstanding.
Diluted earnings per common share are computed as follows (in
thousands except per share data):
Three Months Ended Nine Months Ended
September 30, September 30,
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2000 1999 2000 1999
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Reported income $ 4,635 $ 4,412 $15,650 $14,881
Aftertax interest on Trust Securities 196 - 575 -
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Adjusted income $ 4,831 $ 4,412 $16,225 $14,881
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Average number of shares outstanding 9,742 10,480 9,867 10,476
Effect of conversion of the
Trust Securities 413 - 370 -
Effect of nonvested stock awards 97 45 81 42
Effect of unexercised stock options 1 2 1 1
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Average number of shares used to
compute diluted earnings per
common share 10,253 10,527 10,319 10,519
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Diluted earnings per common share $ .47 $ .42 $ 1.57 $ 1.41
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Page 7 of 14
5. During the first nine months of 2000, the Company acquired
three businesses in the Roto-Rooter segment for aggregate
purchase prices of $11.5 million in cash. These operations
provide plumbing repair and sewer and drain cleaning services
primarily to residential customers.
Approximately $11.2 million of the purchase price was
allocated to goodwill and is being amortized over forty
years. The results of operations of the acquired businesses
were not material in relation to the Company's results in
2000.
6. The Company's comprehensive income is presented below (in
thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
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2000 1999 2000 1999
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Net income $ 4,635 $ 4,412 $15,650 $14,881
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Other comprehensive income/(loss) net of
income tax -
Unrealized holding gains/(losses) on
available-for-sale securities 1,413 (791) 1,197 (7,955)
Less reclassification adjustments for
gains included in net income - - (1,799) (2,960)
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Total 1,413 (791) (602) (10,915)
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Comprehensive income $ 6,048 $ 3,621 $15,048 $ 3,966
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Page 8 of 14
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Financial Condition
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The decline in cash and cash equivalents from $17.3 million
at December 31, 1999 to $8.2 million at September 30, 2000 is
primarily due to the completion of purchase business combinations
for cash in the first nine months of 2000. Also, the decline in
stockholders' equity from $212 million at December 31, 1999 to $208
million at September 30, 2000 is attributable primarily to the
completion of the Company's Exchange Offer in February 2000. Under
the Exchange Offer, approximately 576,000 shares of capital stock
were exchanged for the same number of Trust Securities. The
exchanged shares of capital stock were recorded in treasury stock.
The Trust Securities are callable in three years and are redeemable
in 2030.
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. During July 2000, Vitas made a timely
payment of the July 2000 dividend. The Company is currently
negotiating with Vitas concerning terms for repayment of the
preferred stock and/or extension of the redemption date (currently
May 1, 2001). Vitas' operating results and net income continue to
meet its management's expectations. On the basis of current
information, management believes the Company's investment in Vitas
is fully recoverable and that no impairment exists.
At September 30, 2000, Chemed had approximately $104 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
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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 follow:
Page 9 of 14
Service Revenues Aftertax Earnings
and Sales - as a % of Revenues
% Increase (Aftertax Margin)
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2000 vs. 1999 2000 1999
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Three Months Ended
September 30,
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Roto-Rooter 10% 7.4% 6.1%
Patient Care 8 1.4 2.9
Service America (1) 1.0 3.6
Cadre Computer 33 (3.4) (6.7)
Total 8 4.6 4.7
Nine Months Ended
September 30,
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Roto-Rooter 17% 7.1% 5.9%
Patient Care 7 1.4 2.7
Service America 3 1.8 3.4
Cadre Computer 25 0.6 (1.6)
Total 12 4.6 4.4
Third Quarter 2000 versus Third Quarter 1999
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Service revenues and sales of the Roto-Rooter segment for
the third quarter of 2000 totaled $68,678,000, an increase of 10%
over the $62,160,000 recorded in the third quarter of 1999.
Revenues of the drain cleaning business and the plumbing services
business increased 19% and 11%, respectively, for the third quarter
of 2000, as compared with revenues for 1999. These revenues account
for 40% and 43%, respectively, of Roto-Rooter's total revenues and
sales. Excluding businesses acquired in 1999 and 2000, revenues for
the third quarter of 2000 increased 7% over revenues, recorded in
1999. The aftertax margin of this segment during the third quarter
of 2000 was 7.4% as compared with 6.1% during the third quarter of
1999. This increase is attributable to operating leverage as
expenses increased at a slower rate than revenues, and to a lower
effective tax rate in 2000.
Service revenues of the Patient Care segment increased 8%
from $31,969,000 in the third quarter of 1999 to $34,498,000 in the
third quarter of 2000. The aftertax margin of this segment declined
from 2.9% in the third quarter of 1999 to 1.4% in the third quarter
of 2000, as the result of higher interest costs, higher workers'
compensation costs and higher cost of services (as a percent of
revenues) in 2000. The higher interest costs are attributable to
higher working capital requirements and higher interest rates in
Page 10 of 14
2000 and to the expenditure of cash for business combinations in
1999. Higher cost of services are attributable primarily to higher
labor costs in 2000.
Service revenues and sales of the Service America segment
declined 1% from $18,695,000 in the third quarter of 1999 to
$18,476,000 in the third quarter of 2000. This decrease is
attributable to a 5% decline in revenues of Service America's repair
service contract business which accounts for approximately 75% of
its total revenues. The aftertax margin of this segment declined
from 3.6% in the 1999 quarter to 1.0% in the 2000 quarter. This
decline is primarily attributable to higher health insurance costs,
higher workers' compensation costs and higher fuel costs in 2000.
Income from operations declined from $7,844,000 in the
third quarter of 1999 to $7,837,000 in the third quarter of 2000 due
to higher expenses of excess benefit plans in the 2000 quarter, as
the result of higher investment gains recorded on plan assets in
2000. These expenses are offset entirely by investment gains
recorded in other income-net.
Interest expense increased from $1,448,000 in the third
quarter of 1999 to $1,664,000 in the third quarter of 2000 due to
increased borrowings to fund acquisitions under the Company's
revolving credit agreement.
Other income-net increased from $1,128,000 in the third
quarter of 1999 to $1,916,000 in the third quarter of 2000, due to
higher unrealized gains in 2000 on assets held in excess benefit
plans, partially offset by lower interest income in 2000.
The effective income tax rate during the third quarter of
2000 was 40.6% as compared with 41.4% during the third quarter of
1999. The decline is due primarily to a lower effective state and
local tax rate in 2000.
Net income during the third quarter of 2000 totaled
$4,635,000 ($.47 per diluted share) as compared with $4,412,000
($.42 per diluted share) in the 1999 quarter.
Nine Months Ended September 30, 2000 versus September 30, 1999
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Service revenues and sales of the Roto-Rooter segment for
the first nine months of 2000 totaled $206,208,000, an increase of
17% over the $176,957,000 recorded in the third quarter of 1999.
Revenues of the drain cleaning business and the plumbing services
businesses increased 22% and 15%, respectively, for the first nine
months of 2000, as compared with revenues for 1999. Excluding
Page 11 of 14
businesses acquired in 1999 and 2000, revenues for the first nine
months of 2000 increased 12% over revenues for 1999. The aftertax
margin of the Roto-Rooter segment for the first nine months of 2000
was 7.1% as compared with 5.9% for 1999. This increase is
attributable to operating leverage as expenses increased at a slower
rate than revenues and to a lower effective tax rate in the 2000
period.
Service revenues for the Patient Care segment increased 7%
from $94,338,000 in the first nine months of 1999 to $101,096,000 in
the first nine months of 2000. Excluding revenues of businesses
acquired in 1999, revenues increased 6% in 2000 as compared with
revenues for 1999. The aftertax margin of this segment declined
from 2.7% in 1999 to 1.4% in 2000, largely as the result of higher
interest costs, higher workers' compensation costs and higher labor
(as a percent of revenues) in 2000.
Service revenues and sales of the Service America segment
increased 3% from $55,018,000 in the first nine months of 1999 to
$56,691,000 in the first nine months of 2000. This increase was
attributable to a 24% increase in revenues of Service America's
retail business. The aftertax margin of this segment declined from
3.4% in the 1999 period to 1.8% in the 2000 period. This decline is
primarily attributable to higher health insurance costs, higher
workers' compensation costs and higher fuel costs in 2000.
Income from operations increased from $19,835,000 during
the first nine months of 1999 to $24,559,000 during the comparable
period of 2000, primarily due to higher operating profit of the
Roto-Rooter segment.
Interest expense increased from $4,549,000 during the
first nine months of 1999 to $5,233,000 during the first nine months
of 2000 due to increased borrowings to fund acquisitions under the
Company's revolving credit agreement.
Other income-net declined from $9,472,000 during the first
nine months of 1999 to $7,105,000 during 2000, as the result of
lower gains on the sales of investments in 2000.
The effective income tax rate during the first nine months
of 2000 was 38.8% as compared with 39.9% during the first nine
months of 1999. The decline is primarily attributable to a lower
effective state and local income tax rate in 2000.
Net income during the first nine months of 2000 totaled
$15,650,000 ($1.57 per diluted share) as compared with $14,881,000
($1.41 per diluted share) in the 1999 period. Excluding gains on
the sales of investments in both period, income for the first nine
months of 2000 was $13,851,000 ($1.40 per diluted share) as compared
with $11,921,000 ($1.13 per diluted share) for 1999.
Page 12 of 14
Safe Harbor Statement under the Private Securities Litigation Reform
Act of 1995 Regarding Forward-Looking Information
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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
the control of the Company, may affect the reliability of its
projections and other financial matters.
Page 13 of 14
PART II -- OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
Exhibit SK 601
No. Ref. No. Description
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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, 2000 By Naomi C. Dallob
--------------------- --------------------------
Naomi C. Dallob
Vice President and Secretary
Dated: November 10, 2000 By Arthur V. Tucker, Jr.
---------------------- -------------------------
Arthur V. Tucker, Jr.
Vice President and
Controller (Principal
Accounting Officer)
Page 14 of 14
5
0000019584
CHEMED CORPORATION
1,000
9-MOS
DEC-31-2000
JAN-01-2000
SEP-30-2000
8,153
0
58,561
(4,532)
10,540
105,618
135,803
(62,662)
423,380
100,073
68,516
15,067
0
13,889
194,494
423,380
0
370,533
0
224,539
0
1,202
5,233
25,575
9,925
15,650
0
0
0
15,650
1.59
1.57