- ------------------------------------------------------------------- - ------------------------------------------------------------------- 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, 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 ---- ---- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Amount Date Capital Stock 9,939,358 Shares April 30, 2000 $1 Par Value - ------------------------------------------------------------------ - ------------------------------------------------------------------ Page 1 of 12 CHEMED CORPORATION AND SUBSIDIARY COMPANIES Index <TABLE> <CAPTION> Page No. <C> <C> PART I. FINANCIAL INFORMATION: Item 1. Financial Statements Consolidated Balance Sheet - March 31, 2000 and December 31, 1999 3 Consolidated Statement of Income - Three months ended March 31, 2000 and 1999 4 Consolidated Statement of Cash Flows - Three months ended March 31, 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 - 11 PART II. OTHER INFORMATION 12 </TABLE> Page 2 of 12 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 <TABLE> <CAPTION> March 31, December 31, 2000 1999 ---------- ---------- <S> <C> <C> ASSETS Current assets Cash and cash equivalents $ 13,825 $ 17,282 Accounts receivable, less allowances of $4,824 (1999 - $4,554) 53,239 55,889 Inventories 10,008 9,794 Statutory deposits 14,363 14,254 Other current assets 15,945 14,583 ---------- ---------- Total current assets 107,380 111,802 Other investments 37,138 37,849 Properties and equipment, at cost less accumulated depreciation of $58,618 (1999 - $55,410) 72,275 71,728 Identifiable intangible assets less accumulated amortization of $6,853 (1999 - $6,558) 12,471 12,597 Goodwill less accumulated amortization of $27,780 (1999 - $26,545) 172,217 163,257 Other assets 25,755 24,070 ---------- ---------- Total Assets $ 427,236 $ 421,303 ========== ========== LIABILITIES Current liabilities Accounts payable $ 10,228 $ 11,246 Current portion of long-term debt 11,412 11,719 Income taxes 11,442 8,714 Deferred contract revenue 26,460 25,630 Other current liabilities 36,400 41,119 ---------- ---------- Total current liabilities 95,942 98,428 Long-term debt 83,527 78,580 Other liabilities 32,730 32,251 ---------- ---------- Total Liabilities 212,199 209,259 ---------- ---------- MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES OF THE CHEMED CAPITAL TRUST 15,539 - ---------- ---------- STOCKHOLDERS' EQUITY Capital stock-authorized 15,000,000 shares $1 par; issued 13,885,837 shares (1999 - 13,664,892 shares) 13,886 13,665 Paid-in capital 170,523 164,549 Retained earnings 148,205 144,322 Treasury stock - 3,944,343 shares (1999 - 3,268,783 shares), at cost (117,882) (99,437) Unearned compensation (20,788) (17,056) Deferred compensation payable in company stock 5,446 5,340 Accumulated other comprehensive income 2,879 3,392 Notes receivable for shares sold (2,771) (2,731) ---------- ---------- Total Stockholders' Equity 199,498 212,044 ---------- ---------- Total Liabilities and Stockholders' Equity $ 427,236 $ 421,303 ========== ========== </TABLE> See accompanying notes to unaudited financial statements. Page 3 of 12 CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF INCOME UNAUDITED (in thousands except per share data) <TABLE> <CAPTION> Three Months Ended March 31, ----------------------- 2000 1999* --------- --------- <S> <C> <C> Service revenues and sales $121,534 $105,735 --------- --------- Cost of services provided and cost of goods sold 74,127 65,059 Selling and marketing expenses 11,264 9,979 General and administrative expenses 24,846 21,875 Depreciation 3,758 3,030 --------- --------- Total costs and expenses 113,995 99,943 --------- --------- Income from operations 7,539 5,792 Interest expense (1,782) (1,594) Distributions on preferred securities (288) - Other income - net 2,396 4,609 --------- --------- Income before income taxes 7,865 8,807 Income taxes (2,963) (3,452) --------- --------- Net Income $ 4,902 $ 5,355 ========= ========= Earnings Per Common Share Net income $ .49 $ .51 ========= ========= Average number of shares outstanding 10,064 10,471 ========= ========= Diluted Earnings Per Common Share Net income $ .48 $ .51 ========= ========= Average number of shares outstanding 10,171 10,516 ========= ========= Cash Dividends Paid Per Share $ .10 $ .53 ========= ========= </TABLE> * Reclassified to conform to 2000 presentation. See accompanying notes to unaudited financial statements. Page 4 of 12 CHEMED CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF CASH FLOWS UNAUDITED (in thousands) <TABLE> <CAPTION> Three Months Ended March 31, ----------------------- 2000 1999* --------- ---------- <S> <C> <C> Cash Flows From Operating Activities Net income $ 4,902 $ 5,355 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,811 4,794 Gains on sale of investments (951) (3,068) Provision for uncollectible accounts receivable 112 93 Provision for deferred income taxes (92) (24) Changes in operating assets and liabilities, excluding amounts acquired in business combinations (Increase)/Decrease in accounts receivable 2,488 (5,119) Increase in inventories and other current assets (109) (1,020) Increase in statutory deposits (1,814) (123) Increase/(decrease) in accounts payable, deferred contract revenue and other current liabilities (3,129) 869 Increase in income taxes 2,725 3,333 Other - net (175) (603) --------- --------- Net cash provided by operating activities 9,768 4,487 --------- --------- Cash Flows From Investing Activities Business combinations--net of cash acquired (10,827) (5,965) Capital expenditures (4,283) (5,726) Proceeds from sale of investments 1,121 5,793 Net proceeds from discontinued operations (599) (686) Purchase of investments (200) (297) Other - net 109 1,405 --------- --------- Net cash used by investing activities (14,679) (5,476) --------- --------- Cash Flows From Financing Activities Proceeds from issuances of long-term debt 5,000 - Purchase of treasury stock (2,508) (26) Dividends paid (1,024) (5,616) Retirement of long-term debt (79) (1,259) Other - net 65 112 --------- --------- Net cash provided/(used) by financing activities (1,454) (6,789) --------- --------- Decrease In Cash And Cash Equivalents (3,457) (7,778) Cash and cash equivalents at beginning of period 17,282 41,358 --------- --------- Cash and cash equivalents at end of period $ 13,825 $33,580 ========= ========= </TABLE> *Reclassified to conform to current year presentation. See accompanying notes to unaudited financial statements. Page 5 of 12 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 previously announced 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 12 3. Sales and service revenues and aftertax earnings by business segment follow (in thousands): Three Months Ended March 31, ------------------- 2000 1999 ------- -------- Sales and Service Revenues ----------------- Roto-Rooter $ 67,724 $ 56,206 Patient Care 32,909 30,212 Service America 18,754 17,661 Cadre Computer 2,147 1,656 -------- ------- Total $121,534 $105,735 ======== ======== Aftertax Earnings ---------------- Roto-Rooter $ 4,669 $ 3,197 Patient Care 403(a) 652 Service America 320 539 Cadre Computer 42 4 -------- -------- Total segment earnings 5,434 4,392 Corporate Gains on sales of investments 677 1,934 Overhead (1,363) (1,302) Net investing and financing income/(expense) 154 331 -------- -------- Net income $ 4,902 $ 5,355 ======== ======== ------------------ (a) Includes aftertax income from favorable adjustments to prior years' cost reports ($130,000) and net adjustments to the allowance for doubtful accounts ($94,000). 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 on the next page (in thousands except per share data): Page 7 of 12 Three Months Ended March 31, ------------------- 2000 1999 ------- ------- Reported income $ 4,902 $ 5,355 Aftertax interest on Trust Securities (a) - - ------- ------- Adjusted income $ 4,902 $ 5,355 ======= ======= Average number of shares outstanding 10,064 10,471 Effect of conversion of the Trust Securities (a) - - Effect of nonvested stock awards 106 43 Effect of unexercised stock options 1 2 ------- ------- Average number of shares used to compute diluted earnings per common share 10,171 10,516 ======= ======= Diluted earnings per common share $ .48 $ .51 ======= ======= ------------------ (a) The impact of potential conversion of the Trust Securities is currently anti-dilutive. 5. During the first quarter of 2000, the Company acquired two businesses in the Roto-Rooter segment for aggregate purchase prices of $10.5 million in cash. These operations provide plumbing repair and sewer and drain cleaning services primarily to residential customers. Approximately $10.2 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 had total comprehensive income/(loss) of $4,389,000 and $(2,136,000) for the three months ended March 31, 2000 and 1999, 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 8 of 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition - ------------------- The decline in other current liabilities from $41.1 million at December 31, 1999 to $36.4 million at March 31, 2000 is due largely to the payment of liabilities for 1999 supplemental thrift and profit sharing contributions and incentive compensation. Also, the decline in stockholders' equity from $212 million at December 31, 1999 to $199.5 million at March 31, 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 Mandatorily Redeemable Convertible Preferred Securities of the Chemed Capital Trust. 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. As of March 31, 2000, preferred dividends of $715,000 remain in arrears. The Company is currently negotiating with Vitas concerning terms for repayment of the preferred stock and/or extension of the redemption date (currently April 1, 2000). 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 March 31, 2000 Chemed had approximately $96.6 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 9 of 12 Results of Operations - --------------------- Data relating to (a) the increase or decrease in service revenues and sales and (b) aftertax earnings as a percent of service revenues and sales for each segment are set forth below: Service Revenues Aftertax Earnings and Sales - as a % of Revenues % Increase (Aftertax Margin) ---------------- - ----------------- 2000 vs. 1999 2000 1999 ---------------- ------------------ Roto-Rooter 20 % 6.9% 5.7% Patient Care 9 1.2 2.2 Service America 6 1.7 3.1 Total 15 4.5 4.2 Service revenues and sales for the Roto-Rooter segment for the first quarter of 2000 totalled $67,724,000, an increase of 20% over the $56,206,000 recorded in the first quarter of 1999. Revenues of the plumbing services business and the drain cleaning business increased 17% and 23%, respectively, for the first quarter of 2000, as compared with revenues recorded in the first quarter of 1999. These revenues accounted for 40% and 43%, respectively, of Roto-Rooter's total service revenues and sales during the 2000 period. Excluding businesses acquired in 1999 and 2000, revenues of this segment increased 15% during the first quarter of 2000. The aftertax margin of the Roto-Rooter segment in the first quarter of 2000 was 6.9% as compared with 5.7% during the first quarter of 1999. This increase was attributable to a higher gross profit margin in 2000 and 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 9% from $30,212,000 during the first quarter of 1999 to $32,909,000 in the first quarter of 2000. Excluding the revenues of businesses acquired in 1999, this revenue increase was 4%. During the first quarter of 2000, the aftertax margin of this segment declined from 2.2% during the first quarter of 1999 to 1.2% during the 2000 quarter, primarily as the result of higher general and administrative costs (as a percentage of service revenues) and higher interest costs. The increase in interest costs was attributable to the use of capital for acquisitions in 1999, increased working capital levels and higher interest rates in 2000. Favorable adjustments to prior years' cost reports and bad debt allowances in the 2000 quarter partially offset the impact of higher general and administrative and interest expenses. Page 10 of 12 Service revenues and sales of the Service America segment increased 6% from $17,661,000 in the first quarter of 1999 to $18,754,000 in the first quarter of 2000. This revenue increase was highlighted by a 32% increase in the revenues of Service America's retail business, which accounted for approximately 25% of its overall sales in the 2000 period. The aftertax margin of this segment declined from 3.1% during the first quarter of 1999 to 1.7% during the first quarter of 2000. This decline was attributable primarily to a decline in the gross profit margin in 2000, largely as a result of higher overtime costs and higher material costs incurred in 2000. Income from operations increased from $5,792,000 in the first three months of 1999 to $7,539,000 during the first three months of 2000. This increase was attributable primarily to higher operating profit of the Roto-Rooter segment. Other income--net declined from $4,609,000 in the first quarter of 1999 to $2,396,000 in the first quarter of 2000, primarily as a result of lower investment gains recorded in the 2000 period. During the first quarter of 2000 the Company recorded gains on the sales of investments aggregating $951,000 as compared with $3,068,000 during the first quarter of 1999. Lower interest income for 2000 as compared with the 1999 first quarter also contributed to the decline in other income. The Company's effective income tax rate during the first quarter of 2000 was 37.7% as compared with 39.2% during the first three months of 1999. This decline is due primarily to lower effective state and local income tax rates in the 2000 first quarter. Net income during the first quarter of 2000 totalled $4,902,000 ($.49 per share) as compared with $5,355,000 ($.51 per share) in the first quarter of 1999. This decline was attributable primarily to larger gains on the sales of investments in the 1999 period. Excluding gains on the sales of investments in both periods, net income for the first quarter of 2000 totalled $.42 per share as compared with $.33 per share during the first quarter of 1999. Page 11 of 12 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 (27) Financial Data Schedule E-1 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, 2000 By Naomi C. Dallob ---------------------- ------------------------- Naomi C. Dallob, Vice President and Secretary Dated: May 10, 2000 By Arthur V. Tucker, Jr. ---------------------- ------------------------- Arthur V. Tucker, Jr. Vice President and Controller (Principal Accounting Officer) Page 12 of 12