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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, 1999
Commission File Number 1-8351
CHEMED CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 31-0791746
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2600 Chemed Center, 255 E. Fifth Street, Cincinnati, Ohio 45202
(Address of principal executive offices) (Zip code)
(513) 762-6900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Amount Date
Capital Stock 10,453,612 Shares April 30, 1999
$1 Par Value
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Page 1 of 13<PAGE>
CHEMED CORPORATION AND
SUBSIDIARY COMPANIES
Index
Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheet -
March 31, 1999 and
December 31, 1998 3
Consolidated Statement of Income -
Three months ended
March 31, 1999 and 1998 4
Consolidated Statement of Cash Flows -
Three months ended
March 31, 1999 and 1998 5
Notes to Unaudited Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7 - 11
PART II. OTHER INFORMATION 12
Page 2 of 13<PAGE>
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,
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 33,580 $ 41,358
Accounts receivable, less allowances of $3,422
(1998 - $3,601) 50,636 45,260
Inventories 9,910 9,828
Statutory deposits 16,821 16,698
Other current assets 12,508 11,487
---------- ----------
Total current assets 123,455 124,631
Other investments 41,824 55,778
Properties and equipment, at cost less accumulated
depreciation of $46,925 (1998 - $44,450) 63,250 61,721
Identifiable intangible assets less accumulated
amortization of $5,671 (1998 - $5,369) 12,883 12,960
Goodwill less accumulated amortization of $23,018
(1998 - $21,879) 157,728 155,965
Other assets 23,207 18,649
---------- ----------
Total Assets $ 422,347 $ 429,704
========== ==========
LIABILITIES
Current liabilities
Accounts payable $ 9,128 $ 10,318
Current portion of long-term debt 2,863 4,393
Income taxes 15,646 12,563
Deferred contract revenue 27,188 26,571
Other current liabilities 35,805 37,253
---------- ----------
Total current liabilities 90,630 91,098
Long-term debt 81,063 80,407
Other liabilities 34,247 34,843
---------- ----------
Total Liabilities 205,940 206,348
---------- ----------
STOCKHOLDERS' EQUITY
Capital stock-authorized 15,000,000 shares $1 par;
issued 13,661,997 shares (1998 - 13,605,481 shares) 13,662 13,605
Paid-in capital 164,191 162,252
Retained earnings 146,733 146,961
Treasury stock - 3,207,941 shares
(1998 - 3,190,757 shares), at cost (97,770) (97,237)
Unearned compensation (21,331) (20,558)
Deferred compensation payable in company stock 5,151 5,071
Accumulated other comprehensive income 5,771 13,262
---------- ----------
Total Stockholders' Equity 216,407 223,356
---------- ----------
Total Liabilities and Stockholders' Equity $ 422,347 $ 429,704
========== ==========
</TABLE>
See accompanying notes to unaudited financial statements.
Page 3 of 13<PAGE>
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
UNAUDITED
(in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1999 1998
--------- ---------
<S> <C> <C>
Service revenues and sales $104,079 $ 88,412
--------- ---------
Cost of services provided and cost of goods sold 64,008 55,876
Selling and marketing expenses 9,766 7,127
General and administrative expenses 21,483 19,060
Depreciation 3,030 2,604
--------- ---------
Total costs and expenses 98,287 84,667
--------- ---------
Income from operations 5,792 3,745
Interest expense (1,594) (1,758)
Other income - net 4,609 8,333
--------- ---------
Income before income taxes 8,807 10,320
Income taxes (3,452) (4,069)
--------- ---------
Net Income $ 5,355 $ 6,251
========= =========
Earnings Per Common Share
Net income $ .51 $ .63
========= =========
Average number of shares outstanding 10,471 9,989
========= =========
Diluted Earnings Per Common Share
Net income $ .51 $ .63
========= =========
Average number of shares outstanding 10,516 10,090
========= =========
Cash Dividends Paid Per Share $ .53 $ .53
========= =========
</TABLE>
See accompanying notes to unaudited financial statements.
Page 4 of 13<PAGE>
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1999 1998*
--------- ---------
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 5,355 $ 6,251
Adjustments to reconcile net income to net cash
provided by operating activities:
Gains on sale of investments (3,068) (6,163)
Depreciation and amortization 4,794 4,771
Provision for uncollectible accounts receivable 93 276
Provision for deferred income taxes (24) 547
Changes in operating assets and liabilities,
excluding amounts acquired in business
combinations
Increase in accounts receivable (5,119) (619)
Increase in inventories and other current
assets (1,020) (398)
(Increase)/decrease in statutory deposits (123) (140)
Increase/(decrease) in accounts payable,
deferred contract revenue and other
current liabilities 869 478
Increase in income taxes 3,333 3,368
Other - net (603) (506)
--------- ---------
Net cash provided by operating activities 4,487 7,865
--------- ---------
Cash Flows From Investing Activities
Business combinations, net of cash acquired (5,965) (1,811)
Proceeds from sale of investments 5,793 6,798
Capital expenditures (5,726) (4,363)
Net proceeds from sale of discontinued operations (686) (1,019)
Purchase of investments (297) (642)
Other - net 1,405 263
--------- ---------
Net cash provided/(used) by investing activities (5,476) (774)
--------- ---------
Cash Flows From Financing Activities
Dividends paid (5,616) (5,355)
Repayment of long-term debt (1,259) (92)
Other - net 86 218
--------- ---------
Net cash provided/(used) by financing activities (6,789) (5,229)
--------- ---------
Increase/(Decrease) In Cash And Cash Equivalents (7,778) 1,862
Cash and cash equivalents at beginning of period 41,358 70,958
--------- ---------
Cash and cash equivalents at end of period $ 33,580 $72,820
========= =========
</TABLE>
*Reclassified to conform to 1999 presentation.
See accompanying notes to unaudited financial statements.
Page 5 of 13<PAGE>
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
Notes to Unaudited Financial Statements
1. The accompanying unaudited consolidated financial statements
have been prepared in accordance with Rule 10-01 of SEC
Regulation S-X. Consequently, they do not include all the
disclosures required under generally accepted accounting
principles for complete financial statements. However, in
the opinion of the management of Chemed Corporation (the
"Company"), the financial statements presented herein contain
all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial
position, results of operations and cash flows of the Company
and its consolidated subsidiaries ("Chemed"). For further
information regarding Chemed's accounting policies, refer to
the consolidated financial statements and notes included in
Chemed's Annual Report on Form 10-K for the year ended
December 31, 1998.
2. Earnings per common share are computed using the weighted
average number of shares of capital stock outstanding.
Diluted earnings per common share reflect the dilutive impact
of outstanding stock options and nonvested stock awards.
3. The Company had total comprehensive income/(loss) of
$(2,136,000) and $6,349,000 for the three months ended
March 31, 1999 and 1998, respectively. The difference
between the Company's net income and comprehensive income
relates to the cumulative unrealized
appreciation/depreciation on its available-for-sale
securities.
Page 6 of 13<PAGE>
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Financial Condition
- -------------------
During the first quarter of 1999, other investments
declined $13,954,000 to $41,824,000, other assets (which includes
a net deferred income tax benefit) increased $4,558,000 to
$23,207,000, and accumulated other comprehensive income declined
$7,491,000 to $5,771,000. These changes were attributable to the
sale of various investments during 1999, the decline in the
market value of available-for-sale investments during the first
quarter and the related deferred tax impact of such changes.
Vitas Healthcare Corporation, ("Vitas"), the privately-
held provider of hospice services to the terminally ill in which
the Company carries an investment of $27 million of redeemable
preferred stock, is continuing to explore long-term financing
alternatives to increase its liquidity. On the basis of current
information, management believes the Company's investment in
Vitas is fully recoverable and that no impairment exists.
At March 31, 1999 Chemed had approximately $106.2
million of unused lines of credit with various banks. Management
believes its liquidity and sources of capital are satisfactory
for the Company's needs in the foreseeable future.
Results of Operations
- ---------------------
Sales and service revenues and aftertax earnings by
business segment follow (in thousands):
Three Months Ended
March 31,
-------------------
1999 1998
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Sales and Service
Revenues
- -----------------
Roto-Rooter $ 56,206 $ 41,679
Patient Care 30,212 29,800
Service America 17,661 16,933
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Total $104,079 $ 88,412
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Page 7 of 13<PAGE>
Aftertax Earnings
- ----------------
Roto-Rooter $ 3,197 $ 2,092
Patient Care 652 621
Service America 539 522
-------- --------
Total segment earnings 4,388 3,235
Corporate
Gains on sales of
investments 1,934 3,877
Overhead (1,302) (1,078)
Net investing and financing
income/(expense) 331 385
Other 4 (168)
-------- --------
Net income $ 5,355 $ 6,251
======== ========
Data relating to (a) the increase or decrease in service revenues
and sales and (b) aftertax earnings as a percent of service
revenues and sales for each segment are set forth below:
Service Revenues Aftertax Earnings
and Sales - as a % of Revenues
% Increase (Aftertax Margin)
---------------- ------------------
1999 vs. 1998 1999 1998
---------------- ------------------
Roto-Rooter 35 % 5.7% 5.0%
Patient Care 1 2.2 2.1
Service America 4 3.1 3.1
Total 18 4.2 3.7
Service revenues and sales for the Roto-Rooter segment
for the first quarter of 1999 totalled $56,206,000, an increase
of 35% over the $41,679,000 recorded in the first quarter of
1998. Revenues of the plumbing services business and the drain
cleaning business increased 43% and 32%, respectively, for the
first quarter of 1999, as compared with revenues recorded in the
first quarter of 1998. These revenues accounted for 41% and 42%,
respectively, of Roto-Rooter's total service revenues and sales
during the 1999 period. Excluding businesses acquired in 1998
and 1999, revenues of this segment increased 15% during the first
quarter of 1999. The aftertax margin of the Roto-Rooter segment
in the first quarter of 1999 was 5.7% as compared with 5.0%
during the first quarter of 1998. This increase was attributable
to operating leverage as selling and marketing and general and
administrative expenses increased at lesser rates than did
service revenues and sales.
Page 8 of 13<PAGE>
Service revenues of the Patient Care segment increased
1% from $29,800,000 during the first quarter of 1998 to
$30,212,000 in the first quarter of 1999. Excluding the revenues
of businesses acquired in 1998 and 1999, revenues declined 7% in
1999 as compared with revenues in 1998, primarily due to an
expected decline in medicare and medicaid revenues resulting from
the passage of the Balanced Budget Act of 1997. The aftertax
margin of this segment was 2.2% in 1999 versus 2.1% in 1998.
Service revenues and sales of the Service America
segment increased 4% from $16,933,000 in the first quarter of
1998 to $17,661,000 in the first quarter of 1999. This revenue
increase was driven by a 9% increase in the revenues of Service
America's retail business, which accounted for approximately 20%
of its overall sales in the 1999 period. The aftertax margin of
the Service America segment was 3.1% in both 1998 and 1999.
Income from operations increased from $3,745,000 in the
first three months of 1998 to $5,792,000 during the first three
months of 1999. This increase was primarily attributable to
higher operating profit of the Roto-Rooter segment.
Other income--net declined from $8,333,000 in the first
quarter of 1998 to $4,609,000 in the first quarter of 1999,
primarily as a result of lower investment gains recorded in the
1999 period. During the first quarter of 1999 the Company
recorded gains on the sales of investments aggregating $3,068,000
as compared with $6,163,000 during the first quarter of 1998.
Lower interest income for 1999 as compared with the 1998 first
quarter also contributed to the decline in other income.
The Company's effective income tax rate during the
first quarter of 1999 was 39.2% as compared with 39.4% during the
first three months of 1998.
Net income during the first quarter of 1999 totalled
$5,355,000 ($.51 per share) as compared with $6,251,000 ($.63 per
share) in the first quarter of 1998. This decline was primarily
attributable to larger gains on the sales of investments in the
1998 period. Excluding gains on the sales of investments in both
periods, net income for the first quarter of 1999 totalled $.33
per share as compared with $.24 per share during the first
quarter of 1998.
Year 2000 Update
- ----------------
The Company's Year 2000 Project ("Project") addresses
the issue of computer systems and hardware being unable to
distinguish between the year 1900 and the year 2000.
Page 9 of 13<PAGE>
Mission-critical systems of the Roto-Rooter and Service
America segments are currently are believed to be Year 2000
("Y2K") ready as are the majority of Patients Care's internal
systems. It is anticipated that the remainder of Patient Care's
systems will be Y2K- ready by the end of the third quarter.
Systems currently not Y2K-ready are being upgraded or replaced by
software developed in house and in some instances by installing
upgrades of off-the-shelf software. Critical systems at the
Company's administrative headquarters are believed to be Y2K-
ready. Verification and testing of that readiness will be
performed during the next three months.
As part of the Project, Patient Care and Service
America are contacting major trading partners to ascertain that
their systems are Y2K-ready or will be ready within an acceptable
time frame. Due to the service-oriented, retail nature of its
business, Roto-Rooter is not contacting trading partners, but is
responding to its vendors' requests for information regarding
Y2K-readiness.
Patient Care has begun its evaluation of its trading
partners' readiness, and not all significant partners have been
contacted or have responded. Approximately 80% of Patient Care's
revenues are either directly or indirectly dependent upon the
electronic processing of Medicare and Medicaid claims through
fiscal intermediaries of the Health Care Financing Administration
("HCFA"). Patient Care and the Medicare intermediaries have
modified their systems to be Y2K-ready and those systems are now
in use. During 1998, Medicaid intermediaries orally represented
to management that their systems will be Y2K-ready prior to
January 1, 2000. Medicaid-related revenues accounted for $26.1
million of Patient Care's revenues in fiscal 1998.
Should the Medicaid fiscal intermediaries, HCFA or
Patient Care's major customers fail to become Y2K-ready on a
timely basis, Patient Care could experience a significant slowing
of the processing and payment of a substantial portion of its
revenues.
The Company is in the beginning stages of developing a
formalized contingency plan to continue operating should it
experience the failure of systems due to Y2K issues or should
major trading partners experience such a failure. Contingency
plans currently include the manual and/or semi-manual processing
of transactions. The need for a more detailed, formalized plan
will be evaluated later in the year when an updated evaluation of
Y2K-readiness is available.
While the Company currently anticipates its mission-
critical systems will continue to operate after December 31,
1999, there can be no assurance that the failure of systems
outside its control or immediate sphere of influence will not
materially impact its operation.
Page 10 of 13<PAGE>
Safe Harbor Statement under the Private Securities Litigation
Reform Act of 1995 Regarding Forward-Looking Information
- -----------------------------------------------------------------
This report contains forward-looking statements subject
to certain risks and uncertainties that could cause actual
results to differ materially from these statements and trends.
Such factors include, but are not limited to: the state of Y2K-
readiness of the Company and its key trading partners; the
ability of the Patient Care operation to successfully implement
remaining Y2K changes to its internal systems; and the successful
development of a Y2K contingency plan, if needed. Prospective
information is based on management's current expectation which
can become inaccurate. The Company's ability to deal with the
unknown outcomes of these events may affect the reliability of
its projections of Y2K-readiness and other financial matters.
Page 11 of 13<PAGE>
PART II -- OTHER INFORMATION
----------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
<TABLE>
<CAPTION>
<S> <C> <S>
Exhibit SK 601 Page
No. Ref. No. Description No.
------- -------- ------------------ ----------
1 (11) Statement re:
Computation of Per
Share Earnings E-1
2 (27) Financial Data
Schedule E-2
</TABLE>
(b) Reports on Form 8-K
-------------------
On February 4, 1999, the Company filed a report on Form
8-K describing two pooling-of-interests business
combinations completed in the fourth quarter of 1998.
This filing included the Company's unaudited consolidated
statement of income for the three and twelve month periods
ended December 31, 1997 and 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
Chemed Corporation
-------------------------
(Registrant)
Dated: May 10, 1999 By Naomi C. Dallob
---------------------- -------------------------
Naomi C. Dallob, Vice
President and Secretary
Dated: May 10, 1999 By Arthur V. Tucker, Jr.
---------------------- -------------------------
Arthur V. Tucker, Jr.
Vice President and
Controller (Principal
Accounting Officer)
Page 12 of 13<PAGE>
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF PER SHARE EARNINGS
(in thousands except per share data)
EXHIBIT 11
<TABLE>
<CAPTION>
Net Income
---------------------
Three Months Ended
March 31,
---------------------
1999 1998
---------- ----------
Computation of Earnings Per Common Share
- ----------------------------------------
<S> <C> <C>
Reported income $ 5,355 $ 6,251
======= =======
Average number of shares outstanding 10,471 9,989
======= =======
Earnings per common share $ .51 $ .63
======= =======
Computation of Diluted Earnings Per Common Share
- ------------------------------------------------
Reported income $ 5,355 $ 6,251
======= =======
Average number of shares outstanding 10,471 9,989
Effect of nonvested stock awards 43 44
Effect of unexercised stock options 2 57
------- -------
Average number of shares used to compute
diluted earnings per common share 10,516 10,090
======= =======
Diluted earnings per common share $ .51 $ .62
======= =======
</TABLE>
E - 1
Page 13 of 13<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q OF CHEMED
CORPORATION FOR THE QUARTER ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000019584
<NAME> CHEMED CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1.0
<CASH> 33,580
<SECURITIES> 0
<RECEIVABLES> 54,058
<ALLOWANCES> (3,422)
<INVENTORY> 9,910
<CURRENT-ASSETS> 123,455
<PP&E> 110,175
<DEPRECIATION> (46,925)
<TOTAL-ASSETS> 416,565
<CURRENT-LIABILITIES> 90,630
<BONDS> 81,063
0
0
<COMMON> 13662
<OTHER-SE> 202,745
<TOTAL-LIABILITY-AND-EQUITY> 416,565
<SALES> 0
<TOTAL-REVENUES> 104,079
<CGS> 0
<TOTAL-COSTS> 64,008
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 93
<INTEREST-EXPENSE> 1,594
<INCOME-PRETAX> 8,807
<INCOME-TAX> 3,462
<INCOME-CONTINUING> 5,355
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,355
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.51
</TABLE>
