================================================================================
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 JuneSeptember 30, 2001
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) Identification No.)
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 periodsperiod 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 9,832,9429,832,687 Shares JulyOctober 31, 2001
$1 Par Value
================================================================================
Page 1 of 1516
CHEMED CORPORATION AND
SUBSIDIARY COMPANIES
Index
Page No.
--------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheet -
JuneSeptember 30, 2001 and
December 31, 2000 3
Consolidated Statement of Income -
Three months and sixnine months ended
JuneSeptember 30, 2001 and 2000 4
Consolidated Statement of Cash Flows
-
SixNine months ended
JuneSeptember 30, 2001 and 2000 5
Notes to Unaudited Financial Statements 6 - 89
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 910 - 1315
PART II. OTHER INFORMATION 14 - 1516
Page 2 of 1516
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)
JuneSeptember 30, December 31,
2001 2000
----------------------- ------------
ASSETS
Current assets
Cash and cash equivalents $ 12,62420,147 $ 10,280
Accounts receivable less allowances of $5,309$5,151
(2000 - $5,137) 50,90051,292 54,571
Inventories 11,09011,231 10,503
Statutory deposits 13,63013,293 14,046
Other current assets 20,39017,947 17,070
---------- ------------------- ---------
Total current assets 108,634113,910 106,470
Other investments 35,21735,331 37,099
Properties and equipment, at cost less accumulated
depreciation of $69,294$69,101 (2000 - $64,757) 73,57469,459 75,177
Identifiable intangible assets less accumulated
amortization of $8,115$8,335 (2000 - $7,749) 11,22410,954 11,633
Goodwill less accumulated amortization of $33,984$35,181
(2000 - $31,524) 166,466165,684 169,083
Other assets 24,20424,062 21,913
---------- ------------------- ---------
Total Assets $ 419,319419,400 $ 421,375
========== =================== =========
LIABILITIES
Current liabilities
Accounts payable $ 11,56910,904 $ 11,102
Current portion of long-term debt 11,35611,373 14,376
Income taxes 11,00210,571 11,862
Deferred contract revenue 23,94822,816 24,973
Other current liabilities 43,42746,248 44,629
---------- ------------------- ---------
Total current liabilities 101,302101,912 106,942
Long-term debt 58,18058,088 58,391
Other liabilities 27,94726,951 27,637
---------- ------------------- ---------
Total Liabilities 187,429186,951 192,970
---------- ------------------- ---------
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
SECURITIES OF THE CHEMED CAPITAL TRUST 14,56114,520 14,641
---------- ------------------- ---------
STOCKHOLDERS' EQUITY
Preferred stock-authorized 700,000 shares without par
value; none issued
Capital stock-authorized 15,000,000 shares $1 par;
issued 13,436,905 shares13,437,781 (2000 - 13,317,906 shares) 13,43713,317,906) shares 13,438 13,318
Paid-in capital 166,546166,436 162,618
Retained earnings 157,687156,690 153,909
Treasury stockstock-3,605,904(2000 - 3,604,7103,467,753) shares,
(2000 - 3,467,753 shares), at cost (110,382)(110,386) (105,249)
Unearned compensation (13,770)(12,264) (16,683)
Deferred compensation payable in company stock 3,2533,270 5,500
Accumulated other comprehensive income 2,1522,227 3,237
Notes receivable for shares sold (1,594)(1,482) (2,886)
---------- ------------------- ---------
Total Stockholders' Equity 217,329217,929 213,764
---------- ------------------- ---------
Total Liabilities and Stockholders' Equity $ 419,319419,400 $ 421,375
========== =================== =========
See accompanying notes to unaudited financial statements.
Page 3 of 1516
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENT OF INCOME
(in thousands except per share data)
Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
------------------ -------------------------------------- --------------------
2001 2000 2001 2000
-------- -------- -------- --------
Continuing Operations
Service revenues and sales $120,789 $122,956 $241,989 $242,343$117,498 $121,652 $359,487 $363,995
-------- -------- -------- --------
Cost of services provided and
cost of goods sold 73,433 74,455 146,880 147,23171,781 72,913 218,661 220,144
Selling and marketing expenses 11,353 11,046 22,253 22,05411,583 13,117 33,836 35,171
General and administrative
expenses 25,648 24,524 50,972 48,98024,504 23,946 75,476 72,926
Depreciation 4,015 3,852 8,027 7,5264,031 3,728 12,058 11,254
Other charges 4,031 - 4,031 -
-------- -------- -------- --------
Total costs and expenses 114,449 113,877 228,132 225,791115,930 113,704 344,062 339,495
-------- -------- -------- --------
Income from operations 6,340 9,079 13,857 16,5521,568 7,948 15,425 24,500
Interest expense (1,466) (1,787) (2,952) (3,569)(1,373) (1,664) (4,325) (5,233)
Distributions on preferred
securities (278) (286) (555) (574)(275) (282) (830) (856)
Other income, - net 845 2,792 2,604 5,188165 1,916 2,769 7,104
-------- -------- -------- --------
Income before income taxes 5,441 9,798 12,954 17,59785 7,918 13,039 25,515
Income taxes (2,111) (3,753) (5,010) (6,692)7 (3,210) (5,003) (9,902)
-------- -------- -------- --------
Income from continuing operations 3,330 6,045 7,944 10,90592 4,708 8,036 15,613
Discontinued operations (1,869) 68- (73) (1,973) 11037
-------- -------- -------- --------
Net Income $ 1,46192 $ 6,1134,635 $ 5,9716,063 $ 11,01515,650
======== ======== ======== ========
Earnings Per Common Share
Income from continuing operations $ .34.01 $ .62.48 $ .82.83 $ 1.101.58
======== ======== ======== ========
Net income $ .15.01 $ .48 $ .62 $ .61 $ 1.111.59
======== ======== ======== ========
Average number of shares
outstanding 9,728 9,797 9,737 9,9319,690 9,742 9,721 9,867
======== ======== ======== ========
Diluted Earnings Perper Common ShareShares
Income from continuing operations $ .34.01 $ .61.48 $ .80.82 $ 1.091.57
======== ======== ======== ========
Net income $ .16.01 $ .61.47 $ .60.62 $ 1.101.57
======== ======== ======== ========
Average number of shares
outstanding 10,257 10,295 9,885 10,3539,798 10,253 9,850 10,319
======== ======== ======== ========
Cash Dividends Paid Per Share $ .11 $ .10 $ .22 $ .20.33 .30
======== ======== ======== ========
See accompanying notes to unaudited financial statements.
Page 4 of 1516
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
SixNine Months Ended
JuneSeptember 30,
----------------------
2001 2000*
--------- --------
Cash Flows From Operating Activities
Net income $ 5,9716,063 $ 11,01515,650
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 12,113 11,61618,162 17,394
Discontinued Operationsoperations 1,973 (110)(37)
Provision for uncollectible accounts receivable 1,921 1,137
Gains on sale of investments (993) (2,662)
Provision for deferred income taxes 774 539
Provision for uncollectible
accounts receivable 1,266 925(11) 1,225
Changes in operating assets and liabilities,
excluding amounts acquired in business combinations
(Increase)/decrease in accounts receivable 1,809 (519)(129) 361
Increase in inventories (587) (721)(728) (994)
(Increase)/decrease in statutory deposits 753 (361)
Increase in other current assets (3,293) (2,748)
(Increase)/decrease in statutory
deposits 416 (229)
Decrease(1,048) (3,794)
Increase/(decrease) in accounts payable, deferred
contract revenue and other current liabilities (1,736) (902)1,020 (327)
Increase in income taxes 102 1,038179 3,537
Other - net (842) 97
---------1,390 914
-------- --------
Net cash provided by continuing operations 16,973 17,33928,552 32,043
Net cash providedused by discontinued operations 484 280
---------(55) (144)
-------- --------
Net cash provided by operating activities 17,457 17,619
---------28,497 31,899
-------- --------
Cash Flows From Investing Activities
Capital expenditures (7,202) (8,696)(11,272) (13,128)
Proceeds from sale of property and equipment 3,520 310
Net outflows from discontinued operations (2,536) (1,857)(3,190) (2,804)
Business combinations--net of cash acquired (2,020) (12,495)
Proceeds from sale of investments 1,377 3,424
Business combinations--net of cash acquired - (10,696)
Other - net (809) (882)Other-net 66 (457)
-------- --------- --------
Net cash used by investing activities (9,170) (18,707)
---------(11,519) (25,150)
-------- --------
Cash Flows From Financing Activities
RetirementRepayment of long-term debt (3,231) (84)(3,306) (7,090)
Dividends paid (2,200) (2,020)(3,292) (3,022)
Purchase of treasury stock (1,197) (4,501)
Proceeds from issuances of long-term debt - 5,000(1,201) (5,395)
Other - net 685 (67)
---------688 (371)
-------- --------
Net cash used by financing activities (5,943) (1,672)
---------(7,111) (15,878)
-------- --------
Increase/(Decrease) In Cash andAnd Cash Equivalents 2,344 (2,760)9,867 (9,129)
Cash and cash equivalents at beginning of period 10,280 17,282
----------------- --------
Cash and cash equivalents at end of period $ 12,62420,147 $ 14,522
=========8,153
======== ========
*Reclassified to conform to 2001 presentation.
See accompanying notes to unaudited financial statements.
* Reclassified to conform to 2001 presentation.
Page 5 of 1516
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, 2000.
2. Sales and service revenues and aftertax earnings by business
segment follow below (in thousands):
Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
--------------------- -------------------------------------- -----------------
2001 2000 2001 2000
--------- --------- --------- ----------------- -------- -------- --------
Service Revenues ------------and Sales
--------------------------
Roto-Rooter $ 67,09865,406 $ 69,806 $ 135,554 $ 137,53068,678 $200,960 $206,208
Patient Care 35,839 33,689 70,780 66,59834,894 34,498 105,674 101,096
Service America 17,852 19,461 35,655 38,215
--------- --------- --------- ---------17,198 18,476 52,853 56,691
-------- -------- -------- --------
Total $ 120,789 $ 122,956 $ 241,989 $ 242,343
========= ========= ========= =========$117,498 $121,652 $359,487 $363,995
======== ======== ======== ========
Aftertax Earnings
-----------------
Roto-Rooter $ 3,5811,268(a) 5,084 $ 4,920 $ 7,662 $ 9,5898,930(a) 14,673
Patient Care 715 549 1,295 952604 487 1,899 1,439
Service America 483 521 945 841
--------- --------- --------- ---------(310)(b) 186 635(b) 1,027
-------- ------ -------- -------
Total segment earnings 4,779 5,990 9,902 11,3821,562 5,757 11,464 17,139
Corporate
Overhead (1,387) (1,154) (4,018) (3,726)
Net investing and
financing income/(loss) (83) 105 (113) 401
Gains on sales of
investments - 1,122- 703 1,799
Overhead (1,418) (1,209) (2,631) (2,572)
Net investing and
financing income/
(expense) (31) 142 (30) 296
Discontinued operations (1,869) 68- (73) (1,973) 110
--------- --------- --------- ---------37
-------- -------- -------- --------
Net income $ 1,46192 $ 6,1134,635 $ 5,9716,063 $ 11,015
========= ========= ========= =========15,650
======== ======== ======== ========
(a) Amounts include Roto-Rooter's aftertax cost of its overtime wage settlement with
the Department of Labor ($1,800,000).
(b) Amounts include Service America's aftertax impairment loss related to the closing
of its Tucson branch ($620,000).
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 on the following pageas follows
(in thousands except per share data):
Page 6 of 1516
Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
-------------------- -------------------------------------- -----------------
2001 2000 2001 2000
-------- -------- -------- --------------- ------- ------- -------
Income from Continuing Operations
- ---------------------------------
Reported income $ 3,33092 $ 6,0454,708 $ 7,944 $ 10,9058,036 $15,613
Aftertax interest on Trust
Securities 181 190 -(a) 379
-------- -------- -------- --------196 -(a) 575
------- ------- ------- -------
Adjusted income $ 3,51192 $ 6,2354,904 $ 7,944 $ 11,284
======== ======== ======== ========8,036 $16,188
======= ======= ======= =======
Average number of shares outstanding 9,728 9,797 9,737 9,9319,690 9,742 9,721 9,867
Effect of conversion of the
Trust Securities 394 419 -(a) 347413 -(a) 370
Effect of nonvested stock awards 110 78 115 74108 97 112 81
Effect of unexercised stock options 25- 1 3317 1
-------- -------- --------------- ------- ------- -------
Average number of shares used to
compute diluted earnings per
common share 10,257 10,295 9,885 10,353
======== ======== ======== ========9,798 10,253 9,850 10,319
======= ======= ======= =======
Diluted earnings per common share $ .34.01 $ .61.48 $ .80.82 $ 1.09
======== ======== ======== ========1.57
======= ======= ======= =======
Net Income
- ----------
Reported income $ 1,46192 $ 6,1134,635 $ 5,971 $ 11,0156,063 $15,650
Aftertax interest on Trust
Securities 181 190 -(a) 379
-------- -------- -------- --------196 -(a) 575
------- ------- ------- -------
Adjusted income $ 1,64292 $ 6,3034,831 $ 5,971 $ 11,394
======== ======== ======== ========6,063 $16,225
======= ======= ======= =======
Average number of shares outstanding 9,728 9,797 9,737 9,9319,690 9,742 9,721 9,867
Effect of conversion of the
Trust Securities 394 419 -(a) 347413 -(a) 370
Effect of nonvested stock awards 110 78 115 74108 97 112 81
Effect of unexercised stock options 25- 1 3317 1
-------- -------- -------- --------------- ------- ------- -------
Average number of shares used to
compute diluted earnings per
common share 10,257 10,295 9,885 10,353
======== ======== ======== ========9,798 10,253 9,850 10,319
======= ======= ======= =======
Diluted earnings per common share $ .16.01 $ .61.47 $ .60.62 $ 1.10
======== ======== ======== ========
- -------------------1.57
======= ======= ======= =======
(a) The impact of the Trust Securities on earnings per share from continuing
operations is anti-dilutive for the six monthsthree and nine-month periods ended June 30,2001.September 30,
2001. Therefore, the Trust Securities are excluded from diluted earnings per share
computations.
4. The Company had total comprehensive income of $1,352,000,
$4,611,000, $4,886,000$167,000,
$6,048,000, $5,053,000 and $9,000,000$15,048,000 for the three monthsthree- and
six monthsnine-month periods ended JuneSeptember 30, 2001 and 2000,
respectively. The other comprehensive income relates to the
cumulative unrealized appreciation/depreciation on its
available-for-sale securities.
Page 7 of 15
5. During the first quarter of 2001, the U.S. Department of
Labor ("DOL") initiated ana nationwide investigation into Roto-Rooter Services
Company's ("Roto-Rooter")the
pay practices for commissioned service technicians.technicians employed
within the Roto-Rooter segment. The issue in question was
whether commissioned service technicians are entitled to
overtime pay for time worked in excess of 40 hours. During
the third quarter of 2001, Roto-Rooter reached resolution
with the DOL claimsand agreed to make overtime payments to
specified employees and former employees. The cost of this
Page 7 of 16
settlement, including payroll taxes and estimated legal
costs, is $3,000,000 and is included in "other charges" in
the statement of income in the third quarter.
Roto-Rooter shouldcompleted a conversion of its pay plan for these
commissioned
employees overtime for hours worked over forty hours per week.
Roto-Rooter has long reliedearlier this year. Accordingly, management does
not anticipate that this issue will have any significant
impact on an overtime exemption covering
Retail Service Employees. The DOL now asserts that plumbing
services do not qualify, and Roto-Rooter should lose the
exemption.
Roto-Rooter's compensation program responds to its employees'
desire for flexibility and choices in terms of work schedule and
income. Roto-Rooter intends to vigorously defend this matter,
but cannot predict its outcome. It is not presently possible to
reasonably estimate what liability, if any, may arise from this
matter.operating earnings on a going-forward basis.
6. Effective for the second quarter of 2001, Chemed made a
commitmentdecided to
discontinue its Cadre Computer segment. It is
anticipated thatIn the third
quarter, Chemed completed the sale of the business and assets
of Cadre Computer will
be sold to a company owned by the former Cadre
Computer employees or
will otherwise be divested, during the next twelve months.
Accordingly, the results of operations of Cadre Computer and the
estimated loss on disposal havefor a note receivable which has been classified as discontinued
operations in the accompanying statement of income.fully
reserved.
Data relating to discontinued operations include the
following (in thousands):
Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
-------------------- ------------------------------------- ------------------
2001 2000 2001 2000
------- -------- -------- --------------- --------
Cadre Computer income/(loss) before
income taxes $ (391)(165) $ 105(111) $ (569)(734) $ 17160
Income tax benefit/(expense) 135 (37) 197 (61)58 38 255 (23)
Minority interest 286 - 4046 -
-------- -------- -------- -------------- ------ ------- -------
Cadre Computer net income
income/(loss) (228) 68 (332) 110
Estimated loss(101) (73) (433) 37
Adjustment to loss/(loss) on disposal,
net of income tax benefitexpense/(benefit)
of $ 883 (1,641)$54 and $(829) 101 - (1,641)(1,540) -
------ ------ ------- -------
Income/(loss) from discontinued operations $ (1,869)- $ 68(73) $(1,973) $ (1,973) $ 110
======== ======== ======== ========37
====== ====== ======= =======
Net service revenues and sales of Cadre
Computer $1,557 $2,129 $ 1,4505,088 $ 2,262 $ 3,531 $ 4,409
======== ======== ======== ========6,538
====== ====== ======= =======
7. During the third quarter of 2001, Service America recorded an
impairment loss of $1,031,000 on the valuation of the assets
of its Tucson branch which it closed in October 2001. The
loss related primarily to goodwill and other intangibles
($815,000), property and equipment ($145,000) and various
other assets ($71,000). The impairment loss is included in
"other charges" on the income statement.
The Tucson Branch recorded pretax losses of $124,000, nil,
$216,000 and $373,000 for the three- and nine-month periods
ended September 30, 2001 and 2000, respectively. It is
anticipated that the branch will incur approximately $235,000
of additional costs (primarily severance pay) and losses
during the remainder of 2001.
Page 8 of 16
8. Statement of Financial Accounting Standards No. l33133
("SFAS133"), Accounting for Derivative Instruments and Hedging
Activities, is effective for calendar year 2001. Since the
Company does not invest in derivative or hedging instruments,
adoption of SFAS133 has no impact on the Company's financial
statements.
Page 89 of 1516
ITEMItem 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSManagement's Discussion and Analysis
of Financial Condition and Results of Operations
Financial Condition
- -------------------
There were no significant changes in the Company's balance
sheet from December 31, 2000 to JuneSeptember 30, 2001.
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, refinanced its debt obligations in April 2001. In connection
therewith, the Company and Vitas agreed to extend the maturity of
Vitas' redeemable preferred stock to April 1, 2007. In addition,
Vitas issued a warrant to the Company for the purchase of
approximately 1.6 million shares of its common stock.
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.
On June 20, 2001, Chemed's $85 million revolving line of
credit with Bank of America expired. It is anticipated that another
line of credit will be established during the third quarter of 2001.
As a result,next several months.
Chemed had approximately $18.2$18.5 million of unused lines of credit
with various banks at JuneSeptember 30, 2001. 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 from continuing operations and (b) aftertax
earnings as a percent of service revenues and sales for each segment
are set forth below:
Service Revenues Aftertax EarningsEarnings/(Loss)
and Sales - as a % of Revenues
% Increase/(Decrease) (Aftertax Margin)
--------------------- -------------------------------------------
2001 vs. 2000 2001 2000
--------------------- -------- ----------------- ---------
Three Months Ended
JuneSeptember 30,
- ------------------
Roto-Rooter (4)(5)% 5.3% 7.0%1.9% 7.4%
Patient Care 6 2.0 1.61 1.7 1.4
Service America (8) 2.7 2.7(7) (1.8) 1.0
Total (2) 4.0 4.9(3) 1.3 4.7
Page 910 of 1516
SixNine Months Ended
JuneSeptember 30,
- ----------------------------------
Roto-Rooter (1)(3)% 5.7% 7.0%4.4% 7.1%
Patient Care 65 1.8 1.4
Service America (7) 2.7 2.21.2 1.8
Total - 4.1(1) 3.2 4.7
SecondThird Quarter 2001 versus SecondThird Quarter 2000
- ------------------------------------------------------------------------------------------
Service revenues and sales of the Roto-Rooter segment for
the secondthird quarter of 2001 totaled $67,098,000,$65,406,000, a decline of 4%5%
versus the $69,806,000$68,678,000 recorded in the secondthird quarter of 2000.
Revenues of the drain cleaning business increased slightly and
revenues of the plumbing services business declined 2% and 5%, respectively,7% for the secondthird
quarter of 2001, as compared with revenues for 2000. Each of these
businesses' revenues accounts for approximately 42% of Roto-Rooter's
total revenues and sales. TheseThe overall revenue declinesdecline can be
partially ascribed to the economic slowdown as Roto-Rooter is
experiencing lower demand for elective, non-emergency plumbing and
drain cleaning services. The aftertax margin of this segment during the secondthird
quarter of 2001 was 5.3% as
compared with 7.0% during1.9% versus 7.4% in the second2000 quarter. Excluding
the nonrecurring charge for the overtime wage settlement ($1,800,000
aftertax) the margin for the 2001 third quarter of 2000. Most of thiswas 4.7%. The
decline versus 2000 is attributable to a lower gross profit margin,
in the 2001
quarter. Higherlargely due to higher liability insurance costs during 2001 were a
primary factor in the gross margin decline. In addition, higher
selling costs, as a percentage of revenues, also contributed to the
aftertax margin decline.2001.
Service revenues of the Patient Care segment increased 6%1%
from $33,689,000$34,498,000 in the secondthird quarter of 2000 to $35,839,000$34,894,000 in the
secondthird quarter of 2001. The aftertax margin of this segment
increased from 1.6%1.4% in the secondthird quarter of 2000 to 2.0%1.7% in the
second quarter of 2001,
largely as the result of a higher gross profit margin in 2001.
Service revenues and sales of the Service America segment
declined 8%7% from $19,461,000$18,476,000 in the secondthird quarter of 2000 to
$17,852,000$17,198,000 in the secondthird quarter of 2001. This decline wasis the
result of not selling enoughinsufficient new service contracts to offset the loss of
existingexpiring annual service contracts that renew annually.contracts. The aftertax margin of this
segment was 2.7%a negative 1.8% during the third quarter of 2001 versus
1.0% in both 20002000. Excluding the impairment loss on the assets of the
Tucson branch ($620,000 aftertax), the margin for 2001 was 1.8%.
The higher aftertax margin during 2001 is attributable to a higher
gross profit margin in 2001, partially offset by higher selling and
2001.administrative expenses, as a percent of revenues.
Income from operations declined from $9,079,000$7,948,000 in the
secondthird quarter of 2000 to $6,340,000$1,568,000 in the secondthird quarter of 2001.
Excluding Roto-Rooter's overtime wage settlement ($3,000,000) and
Service America's impairment loss ($1,031,000), income from
operations for the third quarter of 2001 was $5,599,000, a decline
Page 11 of 16
of 30% from 2000. Similarly, earnings before interest, taxes,
depreciation and amortization before capital gains and nonrecurring
charges ("EBITDA") declined 18%26% from $15,562,000$15,141,000 in the secondthird
quarter of 2000 to $12,813,000$11,285,000 in the
second quarter of 2001. Both declines are primarily
due to lower operating profit of the Roto-Rooter segment.
Page 10 of 15
Interest expense declined from $1,787,000$1,664,000 in the secondthird
quarter of 2000 to $1,466,000,$1,373,000 in the third quarter of 2001, largely
as thea result of lower debt levels duringin the year 2001.
Other income-net declined from $2,792,000$1,916,000 in the secondthird
quarter of 2000 to $845,000$165,000 in the secondthird quarter of 2001 due
primarily as the result of $1,711,000 of capitalto incurring losses on trust assets used to fund deferred
compensation liabilities in 2001 versus gains realizedon such assets in
the second
quarter of 2000, as compared with a capital loss of $119,0002000. These gains or losses included in the
2001 quarter.
The effectiveother income tax rate during the second quarter of
2001 was 38.8% as compared with 38.3% during the second quarter of
2000.are entirely
offset by increases or reductions in operating expenses.
Income from continuing operations declined from $6,045,000$4,708,000
($.62.48 per share and $.61 per diluted share) in the secondthird quarter of 2000 to $3,330,000$92,000 ($.34.01 per
share) in the secondthird quarter of 2001. Excluding gains on the sales of investments in 2000,overtime wage
settlement and the impairment loss ($2,420,000 aftertax), income
from continuing operations in 2001 was $2,512,000 ($.26 per share).
The decline versus the prior year period is primarily due to lower
aftertax earnings of the Roto-Rooter segment.
Net income for the secondthird quarter of 2000 was $4,923,000
($.50 per share) as compared with $3,330,000 ($.34 per share) for
2001. This decline is attributable to lower aftertax income of the
Roto-Rooter segment in 2001.
Net income during the second quarter of 2000 totaled
$6,113,000 ($.62 per share and $.61 per diluted share) as compared
with $1,461,000 ($.15 per share and $.16 per diluted share) in the
2000 quarter. Net income for 2001 includes a
$73,000 loss of $1,641,000
($.17 per share and $.16 per diluted share) from the discontinuance
ofrecorded by the Cadre Computer segment effective June 30,which was
discontinued in 2001.
SixNine Months Ended JuneSeptember 30, 2001 versus JuneSeptember 30, 2000
- -----------------------------------------------------------------------------------------------------------------
Service revenues and sales of the Roto-Rooter segment for
the first sixnine months of 2001 totaled $135,554,000,$200,960,000, a decline of 1%3%
versus the $137,530,000$206,208,000 recorded in the first sixnine months of 2000.
During the first six months of 2001, revenuesRevenues of the drain cleaning business increased 1% and revenues of
the plumbing services business declined 1% versus revenues3% for the first sixnine months
of 2001, as compared with revenues for 2000. The overall revenue
decline in 2001 is largely attributable to the economic slowdown as
Roto-Rooter is experiencing lower demand for elective, non-emergency
plumbing and drain cleaning services. The aftertax margin of the Roto-Rooter segment forduring
the first sixnine months of 2001 was 5.7% as compared with 7.0%4.4% versus 7.1% in the 2000
period. Excluding the nonrecurring charge for 2000. Thisthe overtime wage
settlement the margin for the 2001 quarter was 5.3%. The decline
versus 2000 is attributable primarily to a lower gross profit margin, in the 2001
period.largely
due to higher liability insurance costs during 2001.
Service revenues of the Patient Care segment increased 6%5%
from $66,598,000$101,096,000 in the first sixnine months of 2000 to $70,780,000$105,674,000
in the first sixnine months of 2001. The aftertax margin of this
Page 12 of 16
segment increased from 1.4% in the first sixnine months of 2000 to 1.8%
in 2001, largely as the result of a higher gross profit margin in
2001.
Page 11 of 15
Service revenues and sales of the Service America segment
declined 7% from $38,215,000$56,691,000 in the first sixnine months of 2000 to
$35,655,000$52,853,000 in the first sixnine months of 2001. This decline was
anticipated and is
due, in part,largely the result of insufficient new service contracts to not renewing less profitableoffset
the expiration of existing service contracts. The aftertax margin
of this segment increased
from 2.2%was 1.2% during the first nine months of 2001 versus
1.8% in 2000. Excluding the 2000 periodimpairment loss on the assets of the
Tucson branch ($620,000 aftertax), the margin for 2001 was 2.4%.
The higher aftertax margin during 2001 is attributable to 2.7% in the 2001 period, primarily
as the result of a higher
gross profit margin in 2001.2001, partially offset by higher selling and
administrative expenses, as a percent of revenues.
Income from operations declined from $16,552,000$24,500,000 in the
first sixnine months of 2000 to $13,857,000$15,425,000 in the first sixnine months of
2001. Excluding Roto-Rooter's overtime wage settlement ($3,000,000)
and Service America's impairment loss ($1,031,000), income from
operations for the first nine months of 2001 was $19,456,000, a
decline of 21% from 2000. Similarly, EBITDAearnings before interest,
taxes, depreciation and amortization before capital gains and
nonrecurring charges ("EBITDA") declined 11%16% from $29,679,000$44,820,000 in the
first sixnine months of 2000 to $26,515,000$37,800,000 in the first six months of 2001. Both declines are
primarily due to lower operating profit of the Roto-Rooter segment.
Interest expense declined from $3,569,000 during$5,233,000 in the first
sixnine months of 2000 to $2,952,000$4,325,000 in the first sixnine months of 2001,
due
tolargely as a result of lower debt levels in the year 2001.
Other income-net declined from $5,188,000$7,104,000 in the first
sixnine months of 2000 to $2,604,000$2,769,000 in the first sixnine months of 2001
largely
due primarily to smaller gains on sales of investments in 2001. Lower
interest income during the 2001 period also contributed to this
decline.
The effective income tax rate during the first six months
of 2001 was 38.7% as compared with 38.0% during the first six months
of 2000. The increase is primarily attributable to a higher
effective state and local income tax rate in 2001.
Income from continuing operations declined from
$10,905,000 ($1.10 per share and $1.09 per diluted share) in the
first six months of 2000 to $7,944,000 ($.82 per share and $.80 per
diluted share) in the first six months of 2001. Excludinglarger capital gains on the sales of investments in
2000 ($2,662,000) versus 2001 ($993,000) and to incurring losses on
trust assets used to fund deferred compensation liabilities in 2001
versus gains on such assets in 2000. These market gains or losses
on trust assets included in other income are entirely offset by
increases or reductions in operating expenses.
Income from continuing operations for the first six months of 2000 was $9,106,000declined from
$15,613,000 ($.92 per share) as
compared with $7,241,000 ($.741.58 per share and $.73 per diluted share)
for 2001. This decline is attributable to lower aftertax income of
the Roto-Rooter segment in 2001.
Net income during the first six months of 2001 totaled
$5,971,000 ($.61 per share and $.60 per diluted share) as compared
with $11,015,000 ($1.11 per share and $1.10$1.57 per diluted share) in the
first nine months of 2000 period.to $8,036,000 ($.83 per share and $.82 per
diluted share) in the first nine months of 2001. Excluding capital
gains on the sales of investments, and overtime wage settlement and
the impairment loss (which total $2,420,000 aftertax), income from
continuing operations in 2001 was $9,753,000 ($1.00 per share and
$.99 per diluted share) versus $13,814,000 ($1.40 per share and
$1.39 per diluted share). The decline versus the prior year period
is primarily due to lower aftertax earnings of the Roto-Rooter
segment.
Page 13 of 16
Net income for 2001the first nine months includes a loss of $1,641,000
($.17 per share and $.16 per diluted share) from the discontinuanceresults
of the Cadre Computer segment effective June 30,which was discontinued in the second
quarter of 2001. Page 12Included in the 2001 loss from discontinued
operations is a loss on the disposal of 15
Cadre Computer amounting to
$1,540,000.
Accounting for Business Combinations and Intangible Assets
- ----------------------------------------------------------
During June 2001, the Financial Accounting Standards Board
approved the issuance of Statement of Financial Accounting Standards
No. 141 ("SFAS141"), Business Combinations, and Statement of
Financial Accounting Standards No. 142 ("SFAS142"), Goodwill and
Other Intangible Assets. For Chemed these statements will generally
become effective January 1, 2002, although business combinations
initiated after July 1, 2001 are subject to the non-amortization and
purchase accounting provisions.
Specifically, SFAS142 stipulates that goodwill is no
longer subject to amortization, but must be evaluated annually for
impairment beginning January 1, 2002. Chemed estimates that the
non-amortization provision will increase its diluted earnings per
share by approximately $.40 to $.45 per share in the year 2002. The
assessment of goodwill for impairment is a complex issue in which a
company must determine, among other things, the fair value of each
defined component of its operating segments. It is, therefore, not
possible at this time to predict the impact, if any, which the
impairment assessment provisions of SFAS142 will have on Chemed's
financial statements.
Accounting for Asset Retirement Obligations
- -------------------------------------------
During June 2001, the Financial Accounting Standards Board
approved the issuance of Statement of Financial Accounting Standards
No. 143 ("SFAS143"), 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 143 in 2003 will not have a
material impact on its financial statements.
Page 14 of 16
Accounting for the Impairment or Disposal of Long-Lived Assets
- --------------------------------------------------------------
During August 2001, the Financial Accounting Standards
Board approved the issuance of Statement of Financial Accounting
Standards No. 144 ("SFAS144"), Accounting for the Impairment or
Disposal of Long-Lived Assets. This statement becomes effective for
fiscal years beginning after December 15, 2001 and modifies
accounting for impairment of long-lived assets to be held and used,
disposed of by sale or otherwise disposed. It is currently
anticipated that adoption of SFAS144 in 2002 will not materially
impact the Company's financial statements.
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 such statements. 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 1315 of 1516
PART II -- OTHER INFORMATION
- ----------------------------
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
(a) Chemed held its Annual Meeting of Shareholders on May 21,
2001.
(b) The names of directors elected at this Annual Meeting are
as follows:
Edward L. Hutton Sandra E. Laney
Rick L. Arquilla Kevin J. McNamara
James H. Devlin Spencer S. Lee
Charles H. Erhart, Jr. John M. Mount
Joel F. Gemunder Timothy S. O'Toole
Patrick P. Grace Donald E. Saunders
Thomas C. Hutton Paul C. Voet
Walter L. Krebs George J. Walsh, III
(c) The stockholders ratified the Board of Directors' selection
of PricewaterhouseCoopers LLP as independent accountants
for the Company and its consolidated subsidiaries for the
year 2001. 8,800,446 votes were cast in favor of the
proposal, 64,178 votes were cast against it, 29,215 votes
abstained, and three were broker nonvotes.
(d) With respect to the stockholder proposal concerning the
sale of the Company: 1,013,136 votes were cast in favor of
the proposal, 6,180,761 votes were cast against it, 114,920
votes abstained, and there were 1,585,022 broker nonvotes.
With respect to the election of directors, the number of
votes cast for each nominee was as follows:
Votes For Votes Withheld
--------- --------------
Edward L. Hutton 8,452,003 441,836
Rick L. Arquilla 8,472,384 421,455
James H. Devlin 8,465,432 428,407
Charles H. Erhart, Jr. 8,456,200 437,639
Joel F. Gemunder 8,466,519 427,320
Patrick P. Grace 8,462,709 431,130
Thomas C. Hutton 8,467,830 426,009
Walter L. Krebs 8,460,546 433,293
Sandra E. Laney 8,467,843 425,996
Spencer S. Lee 8,458,233 435,606
Kevin J. McNamara 8,470,359 423,480
John M. Mount 8,454,632 439,207
Timothy S. O'Toole 8,457,497 436,342
Page 14 of 15
Donald E. Saunders 8,454,608 439,231
Paul C. Voet 8,454,557 439,282
George J. Walsh, III 8,458,598 435,241
Item 6. Exhibits and Reports on Form 8-K
- ------------------------------------------------ --------------------------------
(a) Exhibits
--------
None required.
(b) Reports on Form 8-K
-------------------
None were filed in the quarter ended JuneSeptember 30, 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
Chemed Corporation
-------------------
(Registrant)
Dated: August 10,November 14, 2001 By Naomi C. Dallob
-------------------------------- -------------------------
Naomi C. Dallob, Vice
President and Secretary
Dated: August 10,November 14, 2001 By Arthur V. Tucker, Jr.
-------------------------------- -------------------------
Arthur V. Tucker, Jr.
Vice President and
Controller (Principal
Accounting Officer)
Page 1516 of 15
16