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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 March 31, 2002
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 9,790,902 Shares April 30, 2002
$1 Par Value
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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, 2002 and
December 31, 2001 3
Consolidated Statement of Income -
Three months ended
March 31, 2002 and 2001 4
Consolidated Statement of Cash Flows -
Three months ended
March 31, 2002 and 2001 5
Notes to Unaudited Financial Statements 6 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10 - 12
PART II. OTHER INFORMATION 13
Page 2 of 13
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED BALANCE SHEET
(in thousands except share and per share data)
March 31, December 31,
2002 2001
---------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 14,585 $ 9,008
Accounts receivable, less allowances of $4,955
(2001 - $4,941) 51,080 49,238
Inventories 10,033 10,424
Statutory deposits 12,558 13,331
Prepaid expenses 16,766 18,052
---------- ----------
Total current assets 105,022 100,053
Other investments 37,737 38,492
Properties and equipment, at cost less accumulated
depreciation of $71,561 (2001 - $69,738) 63,533 67,588
Identifiable intangible assets less accumulated
amortization of $8,214 (2001 - $8,024) 3,893 4,037
Goodwill less accumulated amortization of $35,541
(2001 - $35,541) 162,169 161,075
Other assets 27,354 25,266
---------- ----------
Total Assets $ 399,708 $ 396,511
========== ==========
LIABILITIES
Current liabilities
Accounts payable $ 7,390 $ 11,651
Current portion of long-term debt 366 353
Income taxes 6,666 1,262
Deferred contract revenue 21,770 22,194
Other current liabilities 44,293 49,650
---------- ----------
Total current liabilities 80,485 85,110
Long-term debt 65,891 61,037
Other liabilities 28,296 27,842
---------- ----------
Total Liabilities 174,672 173,989
---------- ----------
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES
OF THE CHEMED CAPITAL TRUST 14,195 14,239
---------- ----------
STOCKHOLDERS' EQUITY
Capital stock-authorized 15,000,000 shares $1 par;
issued 13,460,513 shares (2001 - 13,437,781 shares) 13,461 13,438
Paid-in capital 168,261 167,542
Retained earnings 142,754 139,163
Treasury stock - 3,676,785 shares
(2001 - 3,606,085 shares), at cost (112,815) (110,424)
Unearned compensation (6,428) (7,436)
Deferred compensation payable in company stock 2,239 3,288
Accumulated other comprehensive income 4,302 4,214
Notes receivable for shares sold (933) (1,502)
---------- ----------
Total Stockholders' Equity 210,841 208,283
---------- ----------
Total Liabilities and Stockholders' Equity $ 399,708 $ 396,511
========== ==========
See accompanying notes to unaudited financial statements.
Page 3 of 13
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENT OF INCOME
(in thousands except per share data)
Three Months Ended
March 31,
-----------------------
2002 2001
--------- --------
Continuing Operations
Service revenues and sales $117,035 $121,200
-------- --------
Cost of services provided and cost of goods sold 71,078 73,447
Selling and marketing expenses 12,037 10,900
General and administrative expenses 24,223 25,324
Depreciation 3,994 4,012
-------- --------
Total costs and expenses 111,332 113,683
-------- --------
Income from operations 5,703 7,517
Interest expense (773) (1,486)
Distributions on preferred securities (270) (277)
Other income - net 2,329 1,759
-------- --------
Income before income taxes 6,989 7,513
Income taxes (2,317) (2,899)
-------- --------
Income from continuing operations 4,672 4,614
Discontinued operations - (104)
-------- --------
Net income $ 4,672 $ 4,510
======== ========
Earnings Per Common Share
Income from continuing operations $ .47 $ .47
======== ========
Net income $ .47 $ .46
======== ========
Diluted Earnings Per Share
Income from continuing operations $ .47 $ .47
======== ========
Net income $ .47 $ .46
======== ========
Earnings Excluding Goodwill Amortization
Adjusted Income
Income from continuing operations $ 4,672 $ 5,773
======== ========
Net income $ 4,672 $ 5,669
======== ========
Adjusted Earnings Per Share
Income from continuing operations $ .47 $ .59
======== ========
Net income $ .47 $ .58
======== ========
Adjusted Diluted Earning Per Share
Income from continuing operations $ .47 $ .58
======== ========
Net income $ .47 $ .57
======== ========
Average number of shares outstanding
Earnings Per Share 9,843 9,746
======== ========
Diluted Earnings Per Share 10,267 10,303
======== ========
Cash Dividends Paid Per Share $ .11 $ .11
======== ========
See accompanying notes to unaudited financial statements.
Page 4 of 13
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Three Months Ended March 31,
----------------------------
2002 2001*
---------- ----------
Cash Flows From Operating Activities
Net income $ 4,672 $ 4,510
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,242 6,074
Gains on sale of investments (1,141) (1,112)
Provision for uncollectible accounts receivable 805 673
Provision for deferred income taxes 49 241
Discontinued operations - 104
Changes in operating assets and liabilities,
excluding amounts acquired in business
combinations
Decrease/(increase) in accounts receivable (2,587) 990
Decrease/(increase) in inventories 391 (496)
Decrease/(increase) in prepaid expenses 1,276 (622)
Decrease in statutory deposits 773 169
Decrease in accounts payable, deferred
contract revenue and other current
liabilities (9,424) (4,139)
Increase in income taxes 5,711 2,206
Other - net 1,109 1,258
--------- ----------
Net cash provided by continuing operations 5,876 9,856
Net cash provided by discontinued operations - 113
--------- ----------
Net cash provided by operating activities 5,876 9,969
--------- ----------
Cash Flows From Investing Activities
Capital expenditures (2,670) (3,225)
Proceeds from sale of investments 1,917 1,310
Business combinations--net of cash acquired (1,229) -
Net outflows from discontinued operations (816) (1,346)
Other - net 1,368 (296)
--------- ----------
Net cash used by investing activities (1,430) (3,557)
--------- ----------
Cash Flows From Financing Activities
Dividends paid (1,083) (1,101)
Purchase of treasury stock (3,141) (1,056)
Proceeds from issuances of long-term debt 5,000 -
Other - net 355 329
--------- ----------
Net cash provided/(used) by financing activities 1,131 (1,828)
--------- ----------
Increase in Cash and Cash Equivalents 5,577 4,584
Cash and Cash Equivalents at Beginning of Period 9,008 10,280
--------- ----------
Cash and Cash Equivalents at End of Period $ 14,585 $ 14,864
========= ==========
*Reclassified to conform to 2002 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, 2001.
2. Sales and service revenues and aftertax earnings by business
segment follow (in thousands):
Three Months Ended
March 31,
--------------------
2002 2001
--------- ---------
Sales and Service
Revenues
-----------------
Roto-Rooter $ 65,279 $ 68,456
Patient Care 36,182 34,941
Service America 15,574 17,803
-------- --------
Total $117,035 $121,200
======== ========
Aftertax Earnings
-----------------
Roto-Rooter $ 3,479 $ 4,081
Patient Care 867 580
Service America 327 462
-------- --------
Total segment earnings 4,673 5,123
Corporate
Gains on sales of investments 775 703
Overhead (972) (1,213)
Net investing and financing
income 196 1
Discontinued operations - (104)
-------- --------
Net income $ 4,672 $ 4,510
======== ========
Adjusted Aftertax
Segment Earnings(a)
---------------------
Roto-Rooter $ 3,479 $ 4,853
Patient Care 867 763
Service America 327 666
-------- --------
Total segment earnings $ 4,673 $ 6,282
======== ========
(a) Adjusted to exclude amortization of goodwill in 2001.
Page 6 of 13
The balances of goodwill, less accumulated amortization at March
31, 2002 for the Roto-Rooter, Patient Care and Service America
segments were $101,117,000, $30,673,000 and $30,379,000,
respectively.
3. 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):
Income Shares Income
(Numerator) (Denominator) Per Share
----------- ------------- ---------
Income from Continuing Operations -
For the Three Months Ended March 31,
- ---------------------------------------
2002
Earnings $ 4,672 9,843 $ .47
=======
Conversion of trust securities 176 384
Dilutive stock options - 40
---------- -----------
Diluted earnings $ 4,848 10,267 $ .47
========== =========== =======
2001
Earnings $ 4,614 9,746 $ .47
=======
Conversion of trust securities 180 396
Nonvested Stock Awards - 120
Dilutive stock options - 41
---------- -----------
Diluted earnings $ 4,794 10,303 $ .47
========== =========== =======
Net Income -
For the Three Months Ended March 31,
- ---------------------------------------
2002
Earnings $ 4,672 9,843 $ .47
=======
Conversion of trust securities 176 384
Dilutive stock options - 40
---------- -----------
Diluted earnings $ 4,848 10,267 $ .47
========== =========== =======
2001
Earnings $ 4,510 9,746 $ .46
=======
Conversion of trust securities 180 396
Nonvested sock awards - 120
Dilutive stock options - 41
---------- -----------
Diluted earnings $ 4,690 10,303 $ .46
========== =========== =======
Adjusted Earnings (a) -
For the Three Months Ended March 31, 2001
- --------------------------------------------
Adjusted Income from Continuing Operations
Earnings $ 5,773 9,746 $ .59
=======
Conversion of trust securities 180 396
Nonvested sock awards - 120
Dilutive stock options - 41
---------- -----------
Diluted earnings $ 5,953 10,303 $ .58
========== =========== =======
Adjusted Net Income
Earnings $ 5,669 9,746 $ .58
=======
Conversion of trust securities 180 396
Nonvested Stock Awards - 120
Dilutive stock options - 41
---------- -----------
Diluted earnings $ 5,849 10,303 $ .57
========== =========== =======
(a) Adjusted to exclude amortization of goodwill in 2001.
4. The Company had total comprehensive income of $4,760,000 and
$3,534,000 for the three months ended March 31, 2002 and 2001,
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 7 of 13
5. During the first quarter of 2002, one purchase business
combination was completed within the Roto-Rooter segment for a
purchase price of $1,229,000 in cash. The purchase price was
allocated as follows: $1,104,000 to goodwill, $50,000 to
identifiable intangible assets and $75,000 to other assets. The
business acquired provides drain cleaning and plumbing services
under the Roto-Rooter name. The results of operations of this
business in 2002 are not material.
6. Accruals relating to restructuring charges recorded in 2001
totaled approximately $2.4 million at March 31, 2002 compared with
$3.5 million at December 31, 2001.
7. Effective July 1, 2001, Chemed adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets for all business combinations initiated after June 30,
2001. Effective January 1, 2002, Chemed adopted the provisions of
SFAS No. 141 and SFAS No. 142 for all purchase business
combinations initiated prior to July 1, 2001. The adoption of the
provisions of SFAS No. 141 did not materially impact the Company's
financial statements.
The adoption of SFAS No. 142 eliminates the amortization of
goodwill as of the effective date of adoption. Amortization of
goodwill for the first quarter of 2001 is $1,255,000 ($1,159,000
net of income tax benefit), and was included in cost of services
and cost of goods sold in the consolidated statement of income.
In addition, SFAS No. 142 stipulates that goodwill must be
evaluated annually for impairment beginning in 2002 for each
component of its operating segments. The first, or transition,
evaluation must be done as of January 1, 2002 and must be
completed by June 30, 2002. For the purpose of impairment
testing, the Company has determined its reporting components are
Service America, Patient Care, Roto-Rooter Services (plumbing and
drain cleaning services), Roto-Rooter Franchising and Products
(manufacturing, sale and franchising of Roto-Rooter products and
services) and Roto-Rooter HVAC/non-Roto-Rooter brands (heating,
ventilating and air-conditioning repair services and non-Roto-
Rooter-branded drain cleaning and plumbing services). The
Company's preliminary impairment tests indicate that none of the
goodwill for any of its reporting components is impaired. The
impairment evaluations will be completed during the second quarter
of 2002.
8. On January 1, 2002, Chemed adopted the provisions of SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets.
The adoption of SFAS No. 144 did not materially impact the
Company's financial statements.
9. In August 2001, the Financial Accounting Standards Board approved
the issuance of SFAS No. 143, Accounting for Asset Retirement
Obligations. This statement becomes effective for fiscal years
beginning after June 15, 2002, and requires recognizing legal
Page 8 of 13
obligations associated with the retirement of tangible long-lived
assets that result from the acquisition, construction, development
or normal operation of a long-lived asset.
Since the Company has no material asset retirement obligations,
the adoption of SFAS No. 143 in 2003 will not have a material
impact on Chemed's financial statements.
10. On May 8, 2002, Chemed announced it entered into an agreement to
sell its wholly owned Patient Care subsidiary to an investor group
led by Schroder Ventures Life Sciences Group. Chemed expects to
receive cash payments of approximately $70 million and to
recognize an aftertax loss of approximately $1 to $2 million on
the sale.
Completion of the sale is contingent upon regulatory approvals,
approval by the Chemed Board of Directors and the purchaser's
receipt of financing commitments by June 30, 2002. The sale is
expected to close before the end of 2002.
Patient Care's reported net income was as follows (in thousands):
For the three months ended March 31, 2002 $ 867
For the three months ended March 31, 2001 580
For the year ended December 31, 2001 526
On an adjusted basis, excluding goodwill amortization for 2001 and
excluding restructuring and similar expenses and other
nonrecurring charges in the fourth quarter of 2001, Patient Care's
net income was as follows (in thousands):
For the three months ended March 31, 2002 $ 867
For the three months ended March 31, 2001 763
For the year ended December 31, 2001 3,325
Page 9 of 13
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Financial Condition
- -------------------
The decline in other current liabilities from $49.7 million at
December 31, 2001 to $44.3 million at March 31, 2002 is due largely to
the payment of liabilities for 2001 supplemental thrift and profit-
sharing contributions and incentive compensation. The decline in
accounts payable from $11.7 million at December 31, 2001 to $7.4
million at March 31, 2002 is primarily due to the timing of cash
payments at the end of the periods. Income taxes increased from $1.3
million at December 31, 2001 to $6.7 million at March 31, 2002
primarily due to the refund of overpaid estimated federal taxes for
2001 in March 2002.
At March 31, 2002, Chemed had approximately $18.5 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
- ---------------------
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 as a % of Revenues
and Sales - % (Aftertax Margin)
------------------------------------
Three Months Increase/(Decrease) 2001 2001
------------------
Ended March 31 2002 vs. 2001 2002 Reported Adjusted (a)
- -------------- ---------------- ------- --------- -------------
Roto-Rooter (5)% 5.3% 6.0% 7.1%
Patient Care 4 2.4 1.7 2.2
Service America (13) 2.1 2.6 3.7
Total (3) 4.0 4.2 5.2
(a) Adjusted to exclude amortization of goodwill in 2001.
Service revenues and sales for the Roto-Rooter segment for the
first quarter of 2002 totaled $65,279,000, a decline of 5% versus
$68,456,000 recorded in the first quarter of 2001. Revenues of the
plumbing services business and the drain cleaning business declined 6%
and 2%, respectively, for the first quarter of 2002, as compared with
revenues for the first quarter of 2001. These revenues accounted for
40% and 45%, respectively, of Roto-Rooter's total service revenues and
sales during the 2002 period. Excluding revenues of the HVAC and non-
Roto-Rooter branded operations, some of which have been divested,
revenues of this segment for the first quarter of 2002 declined 2%
versus revenues for the first quarter of 2001. The aftertax margin of
the Roto-Rooter segment for the first quarter of 2002 was 5.3% versus
7.1% on an adjusted basis (excluding goodwill amortization) during the
first quarter of 2001. This decline is primarily attributable to a
decline in the gross profit margin as the result of higher labor
costs, as a percent of revenues, in the 2002 quarter.
Page 10 of 13
Service revenues of the Patient Care segment increased 4% from
$34,941,000 in the first quarter of 2001 to $36,182,000 in the first
quarter of 2002. The aftertax margin of this segment for the first
quarter of 2002 was 2.4% as compared with 2.2% on an adjusted basis
(excluding goodwill amortization) in the first quarter of 2002.
Service revenues and sales of the Service America segment
declined 13% from $17,803,000 in the first quarter of 2001 to
$15,574,000 in the first quarter of 2002. This decline is
attributable to a decline in contract renewals in 2002, lower retail
sales and the divestment of the Tucson branch in the fourth quarter of
2001. The aftertax margin of this segment declined from 3.7% on an
adjusted basis (excluding goodwill amortization) in 2001 to 2.1% in
the first quarter of 2002. This margin decline is primarily due to
the negative impact of operating leverage during a period when
revenues declined and operating expenses were essentially level with
the prior year.
Income from operations for the first quarter of 2002 was
$5,703,000 versus the $7,517,000 recorded in the comparable period of
2001. On an adjusted basis, excluding goodwill amortization in 2001
($1,255,000), income from operations was $8,772,000 in the first
quarter of 2001. The $3,069,000 decline in adjusted income from
operations from the first quarter of 2001 to the first quarter of 2002
is primarily attributable to the decline in Roto-Rooter's operating
profit.
Interest expense declined from $1,486,000 during the first
quarter of 2001 to $773,000 during the first quarter of 2002, as a
result of refinancing long-term debt at lower interest rates in
December 2001.
Other income-net increased from $1,759,000 during the first
quarter of 2001 to $2,329,000 during the first quarter of 2002,
primarily as a result of net realized and unrealized gains on assets
held in non-qualified benefit plan trusts in the first quarter of 2002
versus net losses recorded in the first quarter of 2001.
The Company's effective income tax rate during the first quarter
of 2002 was 33.2% versus 38.6% during the first quarter of 2001.
Excluding the effect of goodwill amortization in the 2001 quarter, the
effective tax rate was 34.2%.
Income from continuing operations for the first quarter of 2002
was $4,672,000 ($.47 per share) as compared with $4,614,000 ($.47 per
share) for the first quarter of 2001. Net income for the first
quarter of 2002 was $4,672,000 ($.47 per share) as compared with
$4,510,000 ($.46 per share) for the first quarter of 2001. Net income
for the first quarter of 2001 included a loss of $104,000 ($.01 per
share) from operations discontinued in the second quarter of 2001.
Income from continuing operations and net income for the first quarter
of 2001 included aftertax goodwill expense of $1,159,000 ($.12 per
share and $.11 per diluted share) versus no goodwill amortization in
Page 11 of 13
2002. In addition, income from continuing operations and net income
included aftertax capital gains on the sales of investments of
$775,000 ($.07 per share) and $703,000 ($.07 per share)in the first
quarter of 2002 and 2001, respectively.
On an adjusted basis, excluding goodwill amortization in 2001,
income from continuing operations for the first quarter of 2002 was
$4,672,000 ($.47 per diluted share) as compared with $5,773,000 ($.59
per share and $.58 per diluted share) for the first quarter of 2001.
Similarly, adjusted net income for the first quarter of 2002 was
$4,672,000 ($.47 per share) as compared with $5,669,000 ($.58 per
share and $.57 per diluted share) for the first quarter of 2001.
Accounting for Asset Retirement Obligations
- -------------------------------------------
In August 2001, the Financial Accounting Standards Board approved
the issuance of SFAS No. 143, Accounting for Asset Retirement
Obligations. This statement becomes effective for fiscal years
beginning after June 15, 2002, and requires all entities to recognize
legal obligations associated with the retirement of tangible long-
lived assets that result from the acquisition, construction or
development and/or normal operation of a long-lived asset.
Since the Company has no material asset retirement obligations,
the adoption of SFAS No. 143 in 2003 will not have a material impact
on Chemed's financial statements.
Subsequent Event
- ----------------
The completion of the pending sale of the Company's Patient Care
subsidiary is expected to generate net cash proceeds of approximately
$68 million. It is anticipated that such proceeds will be used for
acquisitions, debt repayment and other corporate purposes.
Safe Harbor Statement under the Private Securities Litigation
Reform Act of 1995 Regarding Forward-looking Information
- -------------------------------------------------------------
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 its
control, may affect the reliability of its projections and other
financial matters.
Page 12 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.
------- -------- ----------- ------
None Required
(b) Reports on Form 8-K
-------------------
None were filed in the quarter ended March 31, 2002.
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 14, 2002 By Naomi C. Dallob
------------------ ------------------------
Naomi C. Dallob, Vice
President and Secretary
Dated: May 14, 2002 By Arthur V. Tucker, Jr.
------------------ ------------------------
Arthur V. Tucker, Jr.
Vice President and
Controller (Principal
Accounting Officer)
Page 13 of 13