Business Context and Reporting Period
Company: Chemed Corporation
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Quarter and nine months ended September 30, 2001
Business Overview: Chemed operates through three primary segments: Roto-Rooter (drain cleaning and plumbing), Patient Care (home health and hospice), and Service America (commercial service contracts). The company also holds a significant investment in Vitas Healthcare Corporation.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2001 | Nine Months Ended Sep 30, 2001 | Three Months Ended Sep 30, 2000 | Nine Months Ended Sep 30, 2000 |
|---|---|---|---|---|
| Service Revenues & Sales | $117,498,000 | $359,487,000 | $121,652,000 | $363,995,000 |
| Net Income | $92,000 | $6,063,000 | $4,635,000 | $15,650,000 |
| Income from Continuing Ops | $92,000 | $8,036,000 | $4,708,000 | $15,613,000 |
| Diluted EPS (Net Income) | $0.01 | $0.62 | $0.47 | $1.57 |
| Operating Cash Flow (9mo) | $28,497,000 (2001) vs $31,899,000 (2000) | |||
| Cash & Equivalents (Sep 30, 2001) | $20,147,000 | |||
| Total Debt (Current + Long-term) | $69,461,000 |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 3% in the quarter and 1% for the nine-month period compared to 2000. The Roto-Rooter segment saw a 5% quarterly decline due to lower demand for elective services and a 7% drop in plumbing services. Service America revenues fell 7% due to expiring contracts.
- Profitability Drop: Net income plummeted 98% in the quarter and 61% for the nine-month period. Income from operations dropped from $7.9M to $1.6M in the quarter.
- Segment Performance:
- Roto-Rooter: After-tax margin fell to 1.9% (from 7.4%) due to higher liability insurance costs and a one-time settlement.
- Patient Care: Revenues increased 1% (quarter) and 5% (nine months), with improved margins.
- Service America: Recorded a loss in the quarter due to an impairment charge.
- Discontinued Operations: The company sold its Cadre Computer segment in Q3 2001, recording a $1.54M loss on disposal included in the nine-month results.
Guidance, Outlook, Risks, and Unusual Items
- Unusual Items:
- DOL Settlement: Roto-Rooter settled an overtime wage investigation with the Department of Labor for $3.0M (pre-tax), included in "other charges" for Q3 2001.
- Impairment Loss: Service America recorded a $1.03M impairment loss related to the closure of its Tucson branch.
- Investment Gains: Other income declined significantly due to lower capital gains on investment sales compared to 2000.
- Liquidity and Debt: An $85M revolving credit line with Bank of America expired in June 2001; a replacement is anticipated within months. The company held $18.5M in unused credit lines as of September 30, 2001. Management believes liquidity is satisfactory.
- Accounting Changes: Adoption of SFAS 142 (Goodwill) is expected to increase 2002 diluted EPS by $0.40 to $0.45 by eliminating goodwill amortization, though impairment testing will be required.
- Outlook: Management does not anticipate the DOL settlement will impact future operating earnings. The economic slowdown continues to affect demand for non-emergency services.
Investor Verification Checklist
- Recurring vs. Non-Recurring Costs: Verify the impact of the $3.0M DOL settlement and $1.03M impairment loss on true operating performance.
- Insurance Costs: Confirm the sustainability of the increased liability insurance costs cited as a driver for lower Roto-Rooter margins.
- Credit Facility Renewal: Monitor the status of the replacement for the expired $85M Bank of America credit line.
- Service America Turnaround: Assess the ability of Service America to secure new contracts to offset expiring ones and reverse revenue declines.
- Goodwill Impairment Risk: Evaluate the potential for future goodwill impairment charges under the new SFAS 142 standard, despite the elimination of amortization.